Taxation Law 1 - Cases

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 134062
April 17, 2007
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 of the Court of
Appeals (CA) dated May 29, 1998 in CA-G.R. SP No. 41025 which reversed
and set aside the decision3 and resolution4 of the Court of Tax Appeals (CTA)
dated November 16, 1995 and May 27, 1996, respectively, in CTA Case No.
4715.
In two notices dated October 28, 1988, petitioner Commissioner of Internal
Revenue (CIR) assessed respondent Bank of the Philippine Islands (BPIs)
deficiency percentage and documentary stamp taxes for the year 1986 in
the total amount of P129,488,656.63:
1986 Deficiency Percentage Tax
Deficiency percentage tax
P 7,
270,892.88
Add: 25% surcharge
1,817,723.22
20% interest from 1-21-87

to 10-28-88
3,215,825.03
Compromise penalty
TOTAL AMOUNT DUE AND
COLLECTIBLE
15,000.00
P12,319,441.
13
1986 Deficiency Documentary Stamp Tax

Deficiency percentage
P93,723,372.40
Elsa M. Canete|1 | P a g e
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tax
Add: 25% surcharge
Compromise penalty
TOTAL AMOUNT DUE
AND COLLECTIBLE
23,430,843.10
15,000.00
P117,169,215.5
0.5
Both notices of assessment contained the following note:

Please be informed that your [percentage and documentary stamp taxes
have] been assessed as shown above. Said assessment has been based on
return (filed by you) (as verified) (made by this Office) (pending
investigation) (after investigation). You are requested to pay the above
amount to this Office or to our Collection Agent in the Office of the City or
Deputy Provincial Treasurer of xxx6
In a letter dated December 10, 1988, BPI, through counsel, replied as follows:
1. Your "deficiency assessments" are no assessments at all. The
taxpayer is not informed, even in the vaguest terms, why it is being
assessed a deficiency. The very purpose of a deficiency assessment is
to inform taxpayer why he has incurred a deficiency so that he can
make an intelligent decision on whether to pay or to protest the
assessment. This is all the more so when the assessment involves
astronomical amounts, as in this case.
We therefore request that the examiner concerned be required to
state, even in the briefest form, why he believes the taxpayer has a
deficiency documentary and percentage taxes, and as to the
percentage tax, it is important that the taxpayer be informed also as to
what particular percentage tax the assessment refers to.
2. As to the alleged deficiency documentary stamp tax, you are aware
of the compromise forged between your office and the Bankers
Association of the Philippines [BAP] on this issue and of BPIs
submission of its computations under this compromise. There is
therefore no basis whatsoever for this assessment, assuming it is on
the subject of the BAP compromise. On the other hand, if it relates to
documentary stamp tax on some other issue, we should like to be
informed about what those issues are.
3. As to the alleged deficiency percentage tax, we are completely at a
loss on how such assessment may be protested since your letter does
not even tell the taxpayer what particular percentage tax is involved
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and how your examiner arrived at the deficiency. As soon as this is

explained and clarified in a proper letter of assessment, we shall inform
you of the taxpayers decision on whether to pay or protest the
assessment.7
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating
that:
although in all respects, your letter failed to qualify as a protest under
Revenue Regulations No. 12-85 and therefore not deserving of any rejoinder
by this office as no valid issue was raised against the validity of our
assessment still we obliged to explain the basis of the assessments.
xxx xxx xxx
this constitutes the final decision of this office on the matter.8
On July 6, 1991, BPI requested a reconsideration of the assessments stated
in the CIRs May 8, 1991 letter.9 This was denied in a letter dated December
12, 1991, received by BPI on January 21, 1992.10
On February 18, 1992, BPI filed a petition for review in the CTA.11 In a
decision dated November 16, 1995, the CTA dismissed the case for lack of
jurisdiction since the subject assessments had become final and
unappealable. The CTA ruled that BPI failed to protest on time under Section
270 of the National Internal Revenue Code (NIRC) of 1986 and Section 7 in
relation to Section 11 of RA 1125.12 It denied reconsideration in a resolution
dated May 27, 1996.13
On appeal, the CA reversed the tax courts decision and resolution and
remanded the case to the CTA14 for a decision on the merits.15 It ruled that
the October 28, 1988 notices were not valid assessments because they did
not inform the taxpayer of the legal and factual bases therefor. It declared
that the proper assessments were those contained in the May 8, 1991 letter
which provided the reasons for the claimed deficiencies.16 Thus, it held that
BPI filed the petition for review in the CTA on time.17 The CIR elevated the
case to this Court.
This petition raises the following issues:
1) whether or not the assessments issued to BPI for deficiency
percentage and documentary stamp taxes for 1986 had already
become final and unappealable and
2) whether or not BPI was liable for the said taxes.
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The former Section 27018 (now renumbered as Section 228) of the NIRC
stated:
Sec. 270. Protesting of assessment. When the [CIR] 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
[CIR] shall issue an assessment based on his findings.
xxx xxx xxx (emphasis supplied)
Were the October 28, 1988 Notices Valid Assessments?
The first issue for our resolution is whether or not the October 28, 1988
notices19 were valid assessments. If they were not, as held by the CA, then
the correct assessments were in the May 8, 1991 letter, received by BPI on
June 27, 1991. BPI, in its July 6, 1991 letter, seasonably asked for a
reconsideration of the findings which the CIR denied in his December 12,
1991 letter, received by BPI on January 21, 1992. Consequently, the petition
for review filed by BPI in the CTA on February 18, 1992 would be well within
the 30-day period provided by law.20
The CIR argues that the CA erred in holding that the October 28, 1988
notices were invalid assessments. He asserts that he used BIR Form No.
17.08 (as revised in November 1964) which was designed for the precise
purpose of notifying taxpayers of the assessed amounts due and demanding
payment thereof.21 He contends that there was no law or jurisprudence then
that required notices to state the reasons for assessing deficiency tax
liabilities.22
BPI counters that due process demanded that the facts, data and law upon
which the assessments were based be provided to the taxpayer. It insists
that the NIRC, as worded now (referring to Section 228), specifically provides
that:
"[t]he taxpayer shall be informed in writing of the law and the facts on which
the assessment is made; otherwise, the assessment shall be void."
According to BPI, this is declaratory of what sound tax procedure is and a
confirmation of what due process requires even under the former Section
270.
BPIs contention has no merit. The present Section 228 of the NIRC provides:
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Sec. 228. Protesting of Assessment. When the [CIR] or his duly

authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings: Provided,
however, That a preassessment notice shall not be required in the following
cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the facts on
which the assessment is made; otherwise, the assessment shall be
void.
xxx xxx xxx (emphasis supplied)
Admittedly, the CIR did not inform BPI in writing of the law and facts on
which the assessments of the deficiency taxes were made. He merely
notified BPI of his findings, consisting only of the computation of the tax
liabilities and a demand for payment thereof within 30 days after receipt.
In merely notifying BPI of his findings, the CIR relied on the provisions of the
former Section 270 prior to its amendment by RA 8424 (also known as the
Tax Reform Act of 1997).23 In CIR v. Reyes,24 we held that:
In the present case, Reyes was not informed in writing of the law and the
facts on which the assessment of estate taxes had been made. She was
merely notified of the findings by the CIR, who had simply relied upon the
provisions of former Section 229 prior to its amendment by [RA] 8424,
otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on
protesting an assessment. The old requirement of merely notifying the
taxpayer of the CIR's findings was changed in 1998 to informing the
taxpayer of not only the law, but also of the facts on which an assessment
would be made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was
issued against the estate. On April 22, 1998, the final estate tax assessment
notice, as well as demand letter, was also issued. During those dates, RA
8424 was already in effect. The notice required under the old law was
no longer sufficient under the new law.25 (emphasis supplied; italics in
the original)
Accordingly, when the assessments were made pursuant to the former
Section 270, the only requirement was for the CIR to "notify" or inform the
taxpayer of his "findings." Nothing in the old law required a written
statement to the taxpayer of the law and facts on which the assessments
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were based. The Court cannot read into the law what obviously was not
intended by Congress. That would be judicial legislation, nothing less.
Jurisprudence, on the other hand, simply required that the assessments
contain a computation of tax liabilities, the amount the taxpayer was to pay
and a demand for payment within a prescribed period.26 Everything
considered, there was no doubt the October 28, 1988 notices sufficiently met
the requirements of a valid assessment under the old law and jurisprudence.
The sentence
[t]he taxpayers shall be informed in writing of the law and the facts on which
the assessment is made; otherwise, the assessment shall be void
was not in the old Section 270 but was only later on inserted in the
renumbered Section 228 in 1997. Evidently, the legislature saw the need to
modify the former Section 270 by inserting the aforequoted sentence.27 The
fact that the amendment was necessary showed that, prior to the
introduction of the amendment, the statute had an entirely different
meaning.28
Contrary to the submission of BPI, the inserted sentence in the renumbered
Section 228 was not an affirmation of what the law required under the former
Section 270. The amendment introduced by RA 8424 was an innovation and
could not be reasonably inferred from the old law.29 Clearly, the legislature
intended to insert a new provision regarding the form and substance of
assessments issued by the CIR.30
In ruling that the October 28, 1988 notices were not valid assessments, the
CA explained:
xxx. Elementary concerns of due process of law should have prompted the
[CIR] to inform [BPI] of the legal and factual basis of the formers decision to
charge the latter for deficiency documentary stamp and gross receipts
taxes.31
In other words, the CAs theory was that BPI was deprived of due process
when the CIR failed to inform it in writing of the factual and legal bases of
the assessments even if these were not called for under the old law.
We disagree.
Indeed, the underlying reason for the law was the basic constitutional
requirement that "no person shall be deprived of his property without due
process of law."32 We note, however, what the CTA had to say:
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xxx xxx xxx

From the foregoing testimony, it can be safely adduced that not only was
[BPI] given the opportunity to discuss with the [CIR] when the latter issued
the former a Pre-Assessment Notice (which [BPI] ignored) but that the
examiners themselves went to [BPI] and "we talk to them and we try to
[thresh] out the issues, present evidences as to what they need." Now, how
can [BPI] and/or its counsel honestly tell this Court that they did not know
anything about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew beforehand
the assessments[,] contrary to the allegations of its counsel[,] was the
testimony of Mr. Jerry Lazaro, Assistant Manager of the Accounting
Department of [BPI]. He testified to the fact that he prepared worksheets
which contain his analysis regarding the findings of the [CIRs] examiner, Mr.
San Pedro and that the same worksheets were presented to Mr. Carlos Tan,
Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that [BPI] was
indeed aware of the nature and basis of the assessments, and was given all
the opportunity to contest the same but ignored it despite the notice
conspicuously written on the assessments which states that "this
ASSESSMENT becomes final and unappealable if not protested within 30 days
after receipt." Counsel resorted to dilatory tactics and dangerously played
with time. Unfortunately, such strategy proved fatal to the cause of his
client.33
The CA never disputed these findings of fact by the CTA:
[T]his Court recognizes that the [CTA], which by the very nature of its
function is dedicated exclusively to the consideration of tax problems, has
necessarily developed an expertise on the subject, and its conclusions will
not be overturned unless there has been an abuse or improvident exercise of
authority. Such findings can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of gross error or
abuse on the part of the [CTA].34
Under the former Section 270, there were two instances when an
assessment became final and unappealable: (1) when it was not protested
within 30 days from receipt and (2) when the adverse decision on the protest
was not appealed to the CTA within 30 days from receipt of the final
decision:35
Sec. 270. Protesting of assessment.1a\^/phi1.net
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xxx xxx xxx

Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be
prescribed by the implementing regulations within thirty (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 [CTA] within thirty (30) days from receipt of the said decision; otherwise,
the decision shall become final, executory and demandable.
Implications Of A Valid Assessment
Considering that the October 28, 1988 notices were valid assessments, BPI
should have protested the same within 30 days from receipt thereof. The
December 10, 1988 reply it sent to the CIR did not qualify as a protest since
the letter itself stated that "[a]s soon as this is explained and clarified in a
proper letter of assessment, we shall inform you of the taxpayers
decision on whether to pay or protest the assessment."36 Hence, by its
own declaration, BPI did not regard this letter as a protest against the
assessments. As a matter of fact, BPI never deemed this a protest since it did
not even consider the October 28, 1988 notices as valid or proper
assessments.
The inevitable conclusion is that BPIs failure to protest the assessments
within the 30-day period provided in the former Section 270 meant that they
became final and unappealable. Thus, the CTA correctly dismissed BPIs
appeal for lack of jurisdiction. BPI was, from then on, barred from disputing
the correctness of the assessments or invoking any defense that would
reopen the question of its liability on the merits.37 Not only that. There arose
a presumption of correctness when BPI failed to protest the assessments:
Tax assessments by tax examiners are presumed correct and made in good
faith. The taxpayer has the duty to prove otherwise. In the absence of proof
of any irregularities in the performance of duties, an assessment duly made
by a Bureau of Internal Revenue examiner and approved by his superior
officers will not be disturbed. All presumptions are in favor of the correctness
of tax assessments.38
Even if we considered the December 10, 1988 letter as a protest, BPI must
nevertheless be deemed to have failed to appeal the CIRs final decision
regarding the disputed assessments within the 30-day period provided by
law. The CIR, in his May 8, 1991 response, stated that it was his "final
decision on the matter." BPI therefore had 30 days from the time it
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received the decision on June 27, 1991 to appeal but it did not. Instead it
filed a request for reconsideration and lodged its appeal in the CTA only on
February 18, 1992, way beyond the reglementary period. BPI must now
suffer the repercussions of its omission. We have already declared that:
the [CIR] should always indicate to the taxpayer in clear and unequivocal
language whenever his action on an assessment questioned by a taxpayer
constitutes his final determination on the disputed assessment, as
contemplated by Sections 7 and 11 of [RA 1125], as amended. On the basis
of his statement indubitably showing that the Commissioner's
communicated action is his final decision on the contested
assessment, the aggrieved taxpayer would then be able to take
recourse to the tax court at the opportune time. Without needless
difficulty, the taxpayer would be able to determine when his right to
appeal to the tax court accrues.
The rule of conduct would also obviate all desire and opportunity on
the part of the taxpayer to continually delay the finality of the
assessment and, consequently, the collection of the amount
demanded as taxes by repeated requests for recomputation and
reconsideration. On the part of the [CIR], this would encourage his office to
conduct a careful and thorough study of every questioned assessment and
render a correct and definite decision thereon in the first instance. This
would also deter the [CIR] from unfairly making the taxpayer grope in the
dark and speculate as to which action constitutes the decision appealable to
the tax court. Of greater import, this rule of conduct would meet a pressing
need for fair play, regularity, and orderliness in administrative
action.39 (emphasis supplied)
Either way (whether or not a protest was made), we cannot absolve BPI of its
liability under the subject tax assessments.
We realize that these assessments (which have been pending for almost 20
years) involve a considerable amount of money. Be that as it may, we cannot
legally presume the existence of something which was never there. The state
will be deprived of the taxes validly due it and the public will suffer if
taxpayers will not be held liable for the proper taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the government
can neither exist nor endure. A principal attribute of sovereignty, the
exercise of taxing power derives its source from the very existence of the
state whose social contract with its citizens obliges it to promote public
interest and common good. The theory behind the exercise of the power to
tax emanates from necessity; without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people.40
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WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision
of the Court of Appeals in CA-G.R. SP No. 41025 is REVERSED and SET
ASIDE.
SO ORDERED.
DIGEST
FACTS:
Sometime in 1988 the CIR sent two notices of assessment to the respondent
of their deficiency percentage and documentary stamp taxes for the year
1986 in the total amount of P129,488,656.63.In response, respondent
alleged that they were not properly informed of the deficiency in tax
assessment made against them by the CIR which violated the rule set forth
in NIRC. Whereas in the said law the taxpayershall be informed in writing of
the law and the facts on which the assessment is made otherwise, the
assessment shall be void.
ISSUE:
Whether or not respondent was properly informed of the assessment made
by the CIR?
HELD:
Accordingly, when the assessments were made pursuant to the former
Section 270, the only requirement wasfor the CIR to "notify" or inform the
taxpayer of his "findings." Nothing in the old law required a writtenstatement
to the taxpayer of the law and facts on which the assessments were based.
The Court cannot readinto the law what obviously was not intended by
Congress. That would be judicial legislation, nothing less.Jurisprudence, on
the other hand, simply required that the assessments contain a computation
of taxliabilities, the amount the taxpayer was to pay and a demand
for payment within a prescribed period.From all the foregoing discussions,
We can now conclude that [BPI] was indeed aware of the nature and basisof
the assessments, and was given all the opportunity to contest the same but
ignored it despite the noticeconspicuously written on the assessments which
states that "this ASSESSMENT becomes final andunappealable if not
protested within 30 days after receipt." Counsel resorted to dilatory tactics
anddangerously played with time.
Taxes are the lifeblood of the government, for without taxes, the government
can neither exist nor endure. Aprincipal attribute of sovereignty, the exercise
of taxing power derives its source from the very existence of thestate whose
social contract with its citizens obliges it to promote public interest and
TAXATION LAW 1
common good. The theorybehind the exercise of the power to tax emanates
from necessity; without taxes, government cannot fulfill itsmandate of
promoting the general welfare and well-being of the people.The petition is
hereby GRANTED

SUPREME COURT
Manila
EN BANC
G.R. No. L-22734
September 15, 1967
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO
PINEDA, respondent.
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Office of the Solicitor General for petitioner.

Manuel B. Pineda for and in his own behalf as respondent.
BENGZON, J.P., J.:

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima
Bagtas, and 15 children, the eldest of whom is Manuel B. Pineda, a lawyer.
Estate proceedings were had in the Court of First Instance of Manila (Case
No. 71129) wherein the surviving widow was appointed administratrix. The
estate was divided among and awarded to the heirs and the proceedings
terminated on June 8, 1948. Manuel B. Pineda's share amounted to about
P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue
investigated the income tax liability of the estate for the years 1945, 1946,
1947 and 1948 and it found that the corresponding income tax returns were
not filed. Thereupon, the representative of the Collector of Internal Revenue
filed said returns for the estate on the basis of information and data obtained
from the aforesaid estate proceedings and issued an assessment for the
following:
1 Deficiency income tax
. 194
P135.83
5
194
436.95
6
194
1,206.91
P1,779.69
7
Add: 5%
surcharge
88.98
1%
monthly
interest
from
Novemb
er 30,
1953 to
April 15,
1957
720.77
Compro
mise for
late filing
80.00
Compro
40.00
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mise for
late
payment
2
.
3
.
P2,707.44
Total amount
========
due
===
Additional
P14.50
residence tax ========
for 1945
===
Real Estate
dealer's tax
for the fourth
quarter of
1946 and the
P207.50
whole year of ========
1947
===
Manuel B. Pineda, who received the assessment, contested the same.

Subsequently, he appealed to the Court of Tax Appeals alleging that he was
appealing "only that proportionate part or portion pertaining to him as one of
the heirs."
After hearing the parties, the Court of Tax Appeals rendered judgment
reversing the decision of the Commissioner on the ground that his right to
assess and collect the tax has prescribed. The Commissioner appealed and
this Court affirmed the findings of the Tax Court in respect to the assessment
for income tax for the year 1947 but held that the right to assess and collect
the taxes for 1945 and 1946 has not prescribed. For 1945 and 1946 the
returns were filed on August 24, 1953; assessments for both taxable years
were made within five years therefrom or on October 19, 1953; and the
action to collect the tax was filed within five years from the latter date, on
August 7, 1957. For taxable year 1947, however, the return was filed on
March 1, 1948; the assessment was made on October 19, 1953, more than
five years from the date the return was filed; hence, the right to assess
income tax for 1947 had prescribed. Accordingly, We remanded the case to
the Tax Court for further appropriate proceedings.1
In the Tax Court, the parties submitted the case for decision without
additional evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding
Manuel B. Pineda liable for the payment corresponding to his share of the
following taxes:
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Deficiency income tax

1945
P135.8
3
436.95
1946
Real estate
dealer's
fixed tax
4th quarter
of 1946
and whole
year of
P187.5
1947
0
The Commissioner of Internal Revenue has appealed to Us and has proposed

to hold Manuel B. Pineda liable for the payment of all the taxes found by the
Tax Court to be due from the estate in the total amount of P760.28 instead of
only for the amount of taxes corresponding to his share in the
estate.1awphl.nt
Manuel B. Pineda opposes the proposition on the ground that as an heir he is
liable for unpaid income tax due the estate only up to the extent of and in
proportion to any share he received. He relies on Government of the
Philippine Islands v. Pamintuan2 where We held that "after the partition of an
estate, heirs and distributees are liable individually for the payment of all
lawful outstanding claims against the estate in proportion to the amount or
value of the property they have respectively received from the estate."
We hold that the Government can require Manuel B. Pineda to pay the full
amount of the taxes assessed.
Pineda is liable for the assessment as an heir and as a holder-transferee of
property belonging to the estate/taxpayer. As an heir he is individually
answerable for the part of the tax proportionate to the share he received
from the inheritance.3 His liability, however, cannot exceed the amount of his
share.4
As a holder of property belonging to the estate, Pineda is liable for he tax up
to the amount of the property in his possession. The reason is that the
Government has a lien on the P2,500.00 received by him from the estate as
his share in the inheritance, for unpaid income taxes4a for which said estate
is liable, pursuant to the last paragraph of Section 315 of the Tax Code,
which we quote hereunder:
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If any person, corporation, partnership, joint-account (cuenta en

participacion), association, or insurance company liable to pay the
income tax, neglects or refuses to pay the same after demand, the
amount shall be a lien in favor of the Government of the Philippines
from the time when the assessment was made by the Commissioner of
Internal Revenue until paid with interest, penalties, and costs that may
accrue in addition thereto upon all property and rights to property
belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the property
in Pineda's possession, i.e., the P2,500.00, to satisfy the income tax
assessment in the sum of P760.28. After such payment, Pineda will have a
right of contribution from his co-heirs,5 to achieve an adjustment of the
proper share of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax 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. This remedy was
adopted in Government of the Philippine Islands v. Pamintuan, supra. In said
case, the Government filed an action against all the heirs for the collection of
the tax. This action rests on the concept that hereditary property consists
only of that part which remains after the settlement of all lawful claims
against the estate, for the settlement of which the entire estate is first
liable.6 The reason why in case suit is filed against all the heirs the tax due
from the estate is levied proportionately against them is to achieve thereby
two results: first, payment of the tax; and second, adjustment of the shares
of each heir in the distributed estate as lessened by the tax.
Another remedy, pursuant to the lien created by Section 315 of the Tax Code
upon all property and rights to property belonging 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. This
second remedy is the very avenue the Government took in this case to
collect the tax. The Bureau of Internal Revenue should be given, in instances
like the case at bar, the necessary discretion to avail itself of the most
expeditious way to collect the tax as may be envisioned in the particular
provision of the Tax Code above quoted, because taxes are the lifeblood of
government and their prompt and certain availability is an imperious
need.7 And as afore-stated in this case the suit seeks to achieve only one
objective: payment of the tax. The adjustment of the respective shares due
to the heirs from the inheritance, as lessened by the tax, is left to await the
suit for contribution by the heir from whom the Government recovered said
tax.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is
hereby ordered to pay to the Commissioner of Internal Revenue the sum of
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P760.28 as deficiency income tax for 1945 and 1946, and real estate dealer's
fixed tax for the fourth quarter of 1946 and for the whole year 1947, without
prejudice to his right of contribution for his co-heirs. No costs. So ordered.
DIGEST
FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15
children, the eldest of whom is Atty. Manuel Pineda. Estate proceedings were
had in Court so that the estate was divided among and awarded to the heirs.
Atty Pineda's share amounted to about P2,500.00. After the estate
proceedings were closed, the BIR investigated the income tax liability of the
estate for the years 1945, 1946, 1947 and 1948 and it found that the
corresponding income tax returns were not filed. Thereupon, the
representative of the Collector of Internal Revenue filed said returns for the
estate issued an assessment and charged the full amount to the inheritance
due to Atty. Pineda who argued that he is liable only to extent of his
proportional share in the inheritance.
ISSUE: Can BIR collect the full amount of estate taxes from an heir's
inheritance.
HELD: Yes. The Government can require Atty. Pineda to pay the full amount of
the
taxes
assessed.
The reason is that the Government has a lien on the P2,500.00 received by
him from the estate as his share in the inheritance, for unpaid income taxes
for which said estate is liable. By virtue of such lien, the Government has the
right to subject the property in Pineda's possession to satisfy the income tax
assessment. After such payment, Pineda will have a right of contribution
from his co-heirs, to achieve an adjustment of the proper share of each heir
in
the
distributable
estate.
All told, the Government has two ways of collecting the tax 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; and second, 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. This second remedy is the very
avenue the Government took in this case to collect the tax. The Bureau of
Internal Revenue should be given, in instances like the case at bar, the
necessary discretion to avail itself of the most expeditious way to collect the
tax as may be envisioned in the particular provision of the Tax Code above
quoted, because taxes are the lifeblood of government and their prompt and
certain availability is an imperious need.
TAXATION LAW 1

SUPREME COURT
Manila
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.
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. 1920, 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. 11-50-29-1-11061-21-63 and 11-50-291-1 10875Elsa M. Canete|17 | P a g e
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64, to which motion was attached Proof of Claim (Annex B, Petition, pp. 2122, Rollo). The Administrator opposed the motion solely on the ground 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 following 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 hid
Oppositions 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
they notice; otherwise they are barred forever, except that they
may be set forth as counter claims in any action that the
executor or administrator may bring against the claimants.
Where the executor or administrator commence an action, or
prosecutes an action already commenced by the deceased in his
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lifetime, the debtor may set forth may answer the claims he has
against the decedents, instead of presenting them independently
to the court has herein provided, and mutual claims may be set
off against each other in such action; and in final judgment is
rendered in favored of the decedent, the amount to determined
shall be considered the true balance against the estate, as
though the claim has 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 obligation 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 claim 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 well 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 ... 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
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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 exception, as a general rule, from the
operation of the principle of estoppel. (Republic vs. Caballero, L-27437,
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, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553;
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 his 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. L-16661,
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
TAXATION LAW 1
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 tax 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 above cited, 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 flied within a time not exceeding one (1)
month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for Allowance of
Claim and for an 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 that the claim was filed out of the previously
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limited period, sustaining thereby private respondents' contention,

erroneously as has been demonstrated.
WHEREFORE, the order appealed from is reverse. 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.
DIGEST
FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and for
payment of taxes representing the estate's tax deficiencies in 1963 to 1964
in the intestate proceedings of Luis Tongoy. The administrator opposed
arguing that the claim was already barred by the statute of limitation,
Section 2 and Section 5 of Rule 86 of the Rules of Court which provides that
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.
ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of
the government for unpaid taxes?
HELD: No. 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.
(CIR vs. Pineda, 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 exception, as a
general rule, from the operation of the principle of estoppel.
TAXATION LAW 1

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 106611 July 21, 1994

vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT
OF TAX APPEALS, respondents.
The Solicitor General for petitioner.
Palaez, Adriano & Gregorio for private respondent.
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. 1 That judgment of the tax
court was affirmed by respondent Court of Appeals in its judgment in CA-G.R.
SP
No. 26839. 2 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.
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)
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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
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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 P 4,715,533.00
Less: 1984 Quarterly payments P 16,214,599.00*
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*
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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. 12 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. 13
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Oppositions to both the basic and supplemental motions for reconsideration

were filed by private respondent Citytrust. 14 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 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. 17 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
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constrained to submit the case for decision on February 20, 1991 without
presenting any evidence.
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 impass 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.19 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.
Nowhere is the aforestated rule more true than in the field of taxation. 20 It is
axiomatic that the Government cannot and 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. 21The errors
of certain administrative officers should never be allowed to jeopardize the
Government's financial position, 22especially 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.
Further, it is also worth nothing that the Court of Tax Appeals erred in
denying petitioner's supplemental motion for reconsideration alleging
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
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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. 23 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.
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
TAXATION LAW 1
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, 24 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 whether or not petitioner is
entitled to the refund of the amount paid, it would 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.
DIGEST
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FACTS: Respondent corporation Citytrust filed a refund of overpaid taxes

with the BIR by which the latter denied on the ground of prescription.
Citytrust filed a petition for review before the CTA. The case was submitted
for decision based solely on the pleadings and evidence submitted by the
respondent because the CIR could not present any evidence by reason of the
repeated failure of the Tax Credit/Refud Division of the BIR to transmit the
records of the case, as well as the investigation report thereon, to the
Solicitor General. CTA rendered the decision ordering BIR to grant the
respondent's request for tax refund amounting to P 13.3 million.
ISSUE: Failure of the CIR to present evidence to support the case of the
government, should the respondent's claim be granted?
HELD: Not yet. 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.
Nowhere is the aforestated rule more true than in the field of taxation. It is
axiomatic that the Government cannot and 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. Thus, it is proper that
the case be remanded back to the CTA for further proceedings and reception
of evidence.
TAXATION LAW 1

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28896 February 17, 1988
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
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.
TAXATION LAW 1
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 flied 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," 9being "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 of the
TAXATION LAW 1
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
TAXATION LAW 1
commission of P126,000.00, 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 involving 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. 21After
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
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(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; ... 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 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. . . .
(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
TAXATION LAW 1
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 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. 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.
DIGEST
FACTS: Private respondent corporation Algue Inc. filed its income tax returns
for 1958 and 1959showing deductions, for promotional fees paid, from their
gross income, thus lowering their taxable income. The BIR assessed Algue
TAXATION LAW 1
based on such deductions contending that the claimed deduction is

disallowed because it was not an ordinary, reasonable and necessary
expense.
ISSUE: Should an uncommon business expense be disallowed as a proper
deduction in computation of income taxes, corollary to the doctrine that
taxes are the lifeblood of the government?
HELD: No. 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 xperimental
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 well-settled that 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.
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.
TAXATION LAW 1

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 124043 October 14, 1998

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S
CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC., respondents.
PANGANIBAN, J.:
Is the income derived from rentals of real property owned by the Young
Men's Christian Association of the Philippines, Inc. (YMCA) established as
"a welfare, educational and charitable non-profit corporation" subject to
income tax under the National Internal Revenue Code (NIRC) and the
Constitution?
The Case
TAXATION LAW 1
This is the main question raised before us in this petition for review
on certiorari challenging two Resolutions issued by the Court of Appeals 1 on
September 28, 1995 2 and February 29, 1996 3 in CA-GR SP No. 32007. Both
Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing
the YMCA to claim tax exemption on the latter's income from the lease of its
real property.
The Facts
The facts are undisputed. 4 Private Respondent YMCA is a non-stock, nonprofit 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:
. . . [T]he leasing of [private respondent's] facilities to small shop
owners, to restaurant and canteen operators and the operation
of the parking lot are reasonably incidental to and reasonably
necessary for the accomplishment of the objectives of the
[private respondents]. It appears from the testimonies of the
witnesses for the [private respondent] particularly Mr. James C.
Delote, former accountant of YMCA, that these facilities were
leased to members and that they have to service the needs of its
members and their guests. The rentals were minimal as for
example, the barbershop was only charged P300 per month. He
also testified that there was actually no lot devoted for parking
TAXATION LAW 1
space but the parking was done at the sides of the building. The
parking was primarily for members with stickers on the
windshields of their cars and they charged P.50 for nonmembers. The rentals and parking fees were just enough to
cover the costs of operation and maintenance only. The
earning[s] from these rentals and parking charges including
those from lodging and other charges for the use of the
recreational facilities constitute [the] bulk of its income which [is]
channeled to support its many activities and attainment of its
objectives. As pointed out earlier, the membership dues are very
insufficient to support its program. We find it reasonably
necessary therefore for [private respondent] to make [the] most
out [of] its existing facilities to earn some income. It would have
been different if under the circumstances, [private respondent]
will purchase a lot and convert it to a parking lot to cater to the
needs of the general public for a fee, or construct a building and
lease it out to the highest bidder or at the market rate for
commercial purposes, or should it invest its funds in the buy and
sell of properties, real or personal. Under these circumstances,
we could conclude that the activities are already profit oriented,
not incidental and reasonably necessary to the pursuit of the
objectives of the association and therefore, will fall under the last
paragraph of Section 27 of the Tax Code and any income derived
therefrom shall be taxable.
Considering our findings that [private respondent] was not
engaged in the business of operating or contracting [a] parking
lot, we find no legal basis also for the imposition of [a] deficiency
fixed tax and [a] contractor's tax in the amount[s] of P353.15
and P3,129.73, respectively.
xxx xxx xxx
WHEREFORE, in view of all the foregoing, the following
assessments are hereby dismissed for lack of merit:
1980 Deficiency Fixed Tax P353,15;
1980 Deficiency Contractor's Tax P3,129.23;
1980 Deficiency Income Tax P372,578.20.
TAXATION LAW 1
While the following assessments are hereby sustained:

1980 Deficiency Expanded Withholding Tax P1,798.93;
1980 Deficiency Withholding Tax on Wages P33,058.82
plus 10% surcharge and 20% interest per annum from July 2,
1984 until fully paid but not to exceed three (3) years pursuant
to Section 51(e)(2) & (3) of the National Internal Revenue Code
effective as of 1984. 5
Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of
Appeals (CA). In its Decision of February 16, 1994, the CA 6 initially decided in
favor of the CIR and disposed of the appeal in the following manner:
Following the ruling in the afore-cited cases of Province of Abra
vs. Hernando and Abra Valley College Inc. vs. Aquino, the ruling
of the respondent Court of Tax Appeals that "the leasing of
petitioner's (herein respondent's) facilities to small shop owners,
to restaurant and canteen operators and the operation of the
parking lot are reasonably incidental to and reasonably
necessary for the accomplishment of the objectives of the
petitioners, and the income derived therefrom are tax exempt,
must be reversed.
WHEREFORE, the appealed decision is hereby REVERSED in so
far as it dismissed the assessment for:
1980 Deficiency Income Tax P 353.15
1980 Deficiency Contractor's Tax P 3,129.23, &
1980 Deficiency Income Tax P 372,578.20
but the same is AFFIRMED in all other respect.
Aggrieved, the YMCA asked for reconsideration based on the following

grounds:
I
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The findings of facts of the Public Respondent Court of Tax

Appeals being supported by substantial evidence [are] final and
conclusive.
II
The conclusions of law of [p]ublic [r]espondent exempting
[p]rivate [r]espondent from the income on rentals of small shops
and parking fees [are] in accord with the applicable law and
jurisprudence. 8
Finding merit in the Motion for Reconsideration filed by the YMCA, the CA
reversed itself and promulgated on September 28, 1995 its first assailed
Resolution which, in part, reads:
The Court cannot depart from the CTA's findings of fact, as they
are supported by evidence beyond what is considered as
substantial.
xxx xxx xxx
The second ground raised is that the respondent CTA did not err
in saying that the rental from small shops and parking fees do
not result in the loss of the exemption. Not even the petitioner
would hazard the suggestion that YMCA is designed for profit.
Consequently, the little income from small shops and parking
fees help[s] to keep its head above the water, so to speak, and
allow it to continue with its laudable work.
The Court, therefore, finds the second ground of the motion to be
meritorious and in accord with law and jurisprudence.
WHEREFORE, the motion for reconsideration is GRANTED; the
respondent CTA's decision is AFFIRMED in toto. 9
The internal revenue commissioner's own Motion for Reconsideration was
denied by Respondent Court in its second assailed Resolution of February 29,
1996. Hence, this petition for review under Rule 45 of the Rules of Court. 10
The Issues
TAXATION LAW 1
Before us, petitioner imputes to the Court of Appeals the following errors:
I
In holding that it had departed from the findings of fact of
Respondent Court of Tax Appeals when it rendered its Decision
dated February 16, 1994; and
II
In affirming the conclusion of Respondent Court of Tax Appeals
that the income of private respondent from rentals of small
shops and parking fees [is] exempt from taxation. 11
This Court's Ruling
The petition is meritorious.
First Issue:
Factual Findings of the CTA
Private respondent contends that the February 16, 1994 CA Decision
reversed the factual findings of the CTA. On the other hand, petitioner argues
that the CA merely reversed the "ruling of the CTA that the leasing of private
respondent's facilities to small shop owners, to restaurant and canteen
operators and the operation of parking lots are reasonably incidental to and
reasonably necessary for the accomplishment of the objectives of the private
respondent and that the income derived therefrom are tax
exempt." 12 Petitioner insists that what the appellate court reversed was the
legal conclusion, not the factual finding, of the CTA. 13 The commissioner has
a point.
Indeed, it is a basic rule in taxation that the factual findings of the CTA, when
supported by substantial evidence, will be disturbed on appeal unless it is
shown that the said court committed gross error in the appreciation of
facts. 14 In the present case, this Court finds that the February 16, 1994
Decision of the CA did not deviate from this rule. The latter merely applied
the law to the facts as found by the CTA and ruled on the issue raised by the
CIR: "Whether or not the collection or earnings of rental income from the
lease of certain premises and income earned from parking fees shall fall
TAXATION LAW 1
under the last paragraph of Section 27 of the National Internal Revenue Code
of 1977, as amended." 15
Clearly, the CA did not alter any fact or evidence. It merely resolved the
aforementioned issue, as indeed it was expected to. That it did so in a
manner different from that of the CTA did not necessarily imply a reversal of
factual findings.
The distinction between a question of law and a question of fact is clear-cut.
It has been held that "[t]here is a question of law in a given case when the
doubt or difference arises as to what the law is on a certain state of facts;
there is a question of fact when the doubt or difference arises as to the truth
or falsehood of alleged facts."16 In the present case, the CA did not doubt,
much less change, the facts narrated by the CTA. It merely applied the law to
the facts. That its interpretation or conclusion is different from that of the
CTA is not irregular or abnormal.
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental income of the YMCA from its
real estate subject to tax? At the outset, we set forth the relevant provision
of the NIRC:
Sec. 27. Exemptions from tax on corporations. The following
organizations shall not be taxed under this Title in respect to
income received by them as such
xxx xxx xxx
(g) Civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare;
(h) Club organized and operated exclusively for pleasure,
recreation, and other non-profitable purposes, no part of the net
income of which inures to the benefit of any private stockholder
or member;
xxx xxx xxx
TAXATION LAW 1
Notwithstanding the provisions in the preceding paragraphs, the

income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or
from any of their activities conducted for profit, regardless of the
disposition made of such income, shall be subject to the tax
imposed under this Code. (as amended by Pres. Decree No.
1457)
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 ". . . 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 . . . ."
Petitioner adds that "rental income derived by a tax-exempt organization
from the lease of its properties, real or personal, [is] not, therefore, exempt
from income taxation, even if such income [is] exclusively used for the
accomplishment of its objectives." 17 We agree with the commissioner.
Because taxes are the lifeblood of the nation, the Court has always applied
the doctrine of strict in interpretation in construing tax
exemptions. 18 Furthermore, a claim of statutory exemption from taxation
should be manifest. and unmistakable from the language of the law on which
it is based. Thus, the claimed exemption "must expressly be granted in a
statute stated in a language too clear to be mistaken." 19
In the instant case, the exemption claimed by the YMCA is expressly
disallowed by the very wording of the last paragraph of then Section 27 of
the NIRC which mandates that the income of exempt organizations (such as
the YMCA) from any of their properties, real or personal, be subject to the tax
imposed by the same Code. Because the last paragraph of said section
unequivocally subjects to tax the rent income of the YMCA from its real
property, 20 the Court is duty-bound to abide strictly by its literal meaning
and to refrain from resorting to any convoluted attempt at construction.
It is axiomatic that where the language of the law is clear and unambiguous,
its express terms must be applied. 21Parenthetically, a consideration of the
question of construction must not even begin, particularly when such
question is on whether to apply a strict construction or a liberal one on
TAXATION LAW 1
statutes that grant tax exemptions to "religious, charitable and educational

propert[ies] or institutions." 22
The last paragraph of Section 27, the YMCA argues, should be "subject to the
qualification that the income from the properties must arise from activities
'conducted for profit' before it may be considered taxable." 23 This argument
is erroneous. As previously stated, a reading of said paragraph ineludibly
shows that the income from any property of exempt organizations, as well as
that arising from any activity it conducts for profit, is taxable. The phrase
"any of their activities conducted for profit" does not qualify the word
"properties." This makes from the property of the organization taxable,
regardless of how that income is used whether for profit or for lofty nonprofit purposes.
Verba legis non est recedendum. Hence, Respondent Court of Appeals
committed reversible error when it allowed, on reconsideration, the tax
exemption claimed by YMCA on income it derived from renting out its real
property, on the solitary but unconvincing ground that the said income is not
collected for profit but is merely incidental to its operation. The law does not
make a distinction. The rental income is taxable regardless of whence such
income is derived and how it is used or disposed of. Where the law does not
distinguish, neither should we.
Constitutional Provisions
On Taxation
Invoking not only the NIRC but also the fundamental law, private respondent
submits that Article VI, Section 28 of par. 3 of the 1987
Constitution, 24 exempts "charitable institutions" from the payment not only
of property taxes but also of income tax from any source. 25 In support of its
novel theory, it compares the use of the words "charitable institutions,"
"actually" and "directly" in the 1973 and the 1987 Constitutions, on the one
hand; and in Article VI, Section 22, par. 3 of the 1935 Constitution, on the
other hand. 26
Private respondent enunciates three points. First, the present provision is
divisible into two categories: (1) "[c]haritable institutions, churches and
parsonages or convents appurtenant thereto, mosques and non-profit
cemeteries," the incomes of which are, from whatever source, all taxexempt; 27 and (2) "[a]ll lands, buildings and improvements actually and
TAXATION LAW 1
directly used for religious, charitable or educational purposes," which are

exempt only from property taxes. 28 Second, Lladoc v. Commissioner of
Internal Revenue, 29 which limited the exemption only to the payment of
property taxes, referred to the provision of the 1935 Constitution and not to
its counterparts in the 1973 and the 1987 Constitutions. 30 Third, the phrase
"actually, directly and exclusively used for religious, charitable or educational
purposes" refers not only to "all lands, buildings and improvements," but also
to the above-quoted first category which includes charitable institutions like
the private respondent. 31
The Court is not persuaded. The debates, interpellations and expressions of
opinion of the framers of the Constitution reveal their intent which, in turn,
may have guided the people in ratifying the Charter. 32 Such intent must be
effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional
commissioner, who is now a member of this Court, stressed during the
Concom debates that ". . . what is exempted is not the institution itself . . .;
those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious, charitable
or educational
purposes." 33 Father Joaquin G. Bernas, an eminent authority on the
Constitution and also a member of the Concom, adhered to the same view
that the exemption created by said provision pertained only to property
taxes. 34
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that
"[t]he tax exemption covers propertytaxes only." 35 Indeed, the income tax
exemption claimed by private respondent finds no basis in Article VI, Section
26, par. 3 of the Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3 of the
Character, 36 claiming that the YMCA "is a non-stock, non-profit educational
institution whose revenues and assets are used actually, directly and
exclusively for educational purposes so it is exempt from taxes on its
properties and income." 37 We reiterate that private respondent is exempt
from the payment of property tax, but not income tax on the rentals from its
property. The bare allegation alone that it is a non-stock, non-profit
educational institution is insufficient to justify its exemption from the
payment of income tax.
TAXATION LAW 1
As previously discussed, laws allowing tax exemption are

construed strictissimi juris. Hence, for the YMCA to be granted the exemption
it claims under the aforecited provision, it must prove with substantial
evidence that (1) it falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be exempted from
taxation is used actually, directly, and exclusively for educational purposes.
However, the Court notes that not a scintilla of evidence was submitted by
private respondent to prove that it met the said requisites.
Is the YMCA an educational institution within the purview of Article XIV,
Section 4, par. 3 of the Constitution? We rule that it is not. The term
"educational institution" or "institution of learning" has acquired a wellknown technical meaning, of which the members of the Constitutional
Commission are deemed cognizant. 38 Under the Education Act of 1982, such
term refers to schools. 39 The school system is synonymous with formal
education, 40 which "refers to the hierarchically structured and
chronologically graded learnings organized and provided by the formal
school system and for which certification is required in order for the learner
to progress through the grades or move to the higher levels." 41 The Court
has examined the "Amended Articles of Incorporation" and "By-Laws" 43 of
the YMCA, but found nothing in them that even hints that it is a school or an
educational institution. 44
Furthermore, under the Education Act of 1982, even non-formal education is
understood to be school-based and "private auspices such as foundations
and civic-spirited organizations" are ruled out. 45 It is settled that the term
"educational institution," when used in laws granting tax exemptions, refers
to a ". . . school seminary, college or educational
establishment . . . ." 46 Therefore, the private respondent cannot be deemed
one of the educational institutions covered by the constitutional provision
under consideration.
. . . Words used in the Constitution are to be taken in their
ordinary acceptation. While in its broadest and best sense
education embraces all forms and phases of instruction,
improvement and development of mind and body, and as well of
religious and moral sentiments, yet in the common
understanding and application it means a place where
systematic instruction in any or all of the useful branches of
learning is given by methods common to schools and institutions
TAXATION LAW 1
of learning. That we conceive to be the true intent and scope of

the term [educational institutions,] as used in the
Constitution. 47
Moreover, without conceding that Private Respondent YMCA is an
educational institution, the Court also notes that the former did not submit
proof of the proportionate amount of the subject income that was actually,
directly and exclusively used for educational purposes. Article XIII, Section 5
of the YMCA by-laws, which formed part of the evidence submitted, is
patently insufficient, since the same merely signified that "[t]he net income
derived from the rentals of the commercial buildings shall be apportioned to
the Federation and Member Associations as the National Board may
decide." 48 In sum, we find no basis for granting the YMCA exemption from
income tax under the constitutional provision invoked.
Cases Cited by Private
Respondent Inapplicable
The cases 49 relied on by private respondent do not support its cause. YMCA
of Manila v. Collector of Internal Revenue 50and Abra Valley College, Inc. v.
Aquino 51 are not applicable, because the controversy in both cases involved
exemption from the payment of property tax, not income tax. Hospital de
San Juan de Dios, Inc. v. Pasay City 52 is not in point either, because it
involves a claim for exemption from the payment of regulatory fees,
specifically electrical inspection fees, imposed by an ordinance of Pasay City
an issue not at all related to that involved in a claimed exemption from the
payment of income taxes imposed on property leases. In Jesus Sacred Heart
College v. Com. of Internal Revenue, 53 the party therein, which claimed an
exemption from the payment of income tax, was an educational institution
which submitted substantial evidence that the income subject of the
controversy had been devoted or used solely for educational purposes. On
the other hand, the private respondent in the present case has not given any
proof that it is an educational institution, or that part of its rent income is
actually, directly and exclusively used for educational purposes.
Epilogue
In deliberating on this petition, the Court expresses its sympathy with private
respondent. It appreciates the nobility of its cause. However, the Court's
power and function are limited merely to applying the law fairly and
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objectively. It cannot change the law or bend it to suit its sympathies and
appreciations. Otherwise, it would be overspilling its role and invading the
realm of legislation.
We concede that private respondent deserves the help and the
encouragement of the government. It needs laws that can facilitate, and not
frustrate, its humanitarian tasks. But the Court regrets that, given its limited
constitutional authority, it cannot rule on the wisdom or propriety of
legislation. That prerogative belongs to the political departments of
government. Indeed, some of the members of the Court may even believe in
the wisdom and prudence of granting more tax exemptions to private
respondent. But such belief, however well-meaning and sincere, cannot
bestow upon the Court the power to change or amend the law.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of
Appeals dated September 28, 1995 and February 29, 1996 are hereby
REVERSED and SET ASIDE. The Decision of the Court of Appeals dated
February 16, 1995 is REINSTATED, insofar as it ruled that the income derived
by petitioner from rentals of its real property is subject to income tax. No
pronouncement as to costs.
SO ORDERED.
DIGEST
FACTS: Private Respondent YMCA--a non-stock, non-profit institution, which
conducts various programs beneficial to the public pursuant to its religious,
educational and charitable objectives--leases out a portion of its premises to
small shop owners, like restaurants and canteen operators, deriving
substantial income for such. Seeing this, the Commissioner of Internal
Revenue (CIR) issued an assessment to private respondent for deficiency
income tax, deficiency expanded withholding taxes on rentals and
professional fees and deficiency withholding tax on wages. YMCA opposed
arguing that its rental income is not subject to tax, mainly because of the
provisions of Section 27 of NIRC which provides that civic league or
organizations not organized for profit but operate exclusively for promotion
of social welfare and those organized exclusively for pleasure, recreation and
other non-profitble businesses shall not be taxed.
ISSUE: Is the contention of YMCA tenable?
HELD: No. Because taxes are the lifeblood of the nation, the Court has
always applied the doctrine of strict in interpretation in construing tax
TAXATION LAW 1
exemptions. Furthermore, a claim of statutory exemption from taxation

should be manifest and unmistakable from the language of the law on which
it is based. Thus, the claimed exemption "must expressly be granted in a
statute stated in a language too clear to be mistaken."

SUPREME COURT
Manila
EN BANC
G.R. No. 117359 July 23, 1998

DAVAO GULF LUMBER CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.
TAXATION LAW 1
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
TAXATION LAW 1
concessionaire. The claim was based on Insular Lumber Co. vs. Court of Tax
Appeals 8 and Section 5 of RA 1435 which reads:
Sec. 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
TAXATION LAW 1
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 actualhy 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 Respondent's 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 Court's 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
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Internal Revenue v. Rio Tuba Nickel Mining Corporation 11 and 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 Court's 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
TAXATION LAW 1
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. 14Since 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 Constrtued
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 inInsular
Lumber vs. Court of Tax Appeals: 17
. . . Sec. 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 . . . [otherwise,] Section 5 should very well have been included in
Section 1 . . . ." 18
TAXATION LAW 1
The Court is nor persuaded. The relevant statutory provisions do not clearly
support petitioner's claim for refund. RA 1435 provides:
Sec. 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
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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
Sec. 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.
TAXATION LAW 1
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:
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;
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
TAXATION LAW 1
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:
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;
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
TAXATION LAW 1
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, petitioner's 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.
TAXATION LAW 1
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 petitioner's 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 Coure 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 respondent's 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
TAXATION LAW 1
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 respondent's 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 Atlas's 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. (Emphasis 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
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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 nor 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 petitioner's
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.
DIGEST
FACTS: Republic Act No. 1435 entitles miners and forest concessioners to the
refund of 25% of the specific taxes paid by the oil companies, which were
eventually passed on to the user--the petitioner in this case--in the purchase
price of the oil products. Petitioner filed before respondent Commissioner of
Internal Revenue (CIR) a claim for refund in the amount representing 25% of
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the specific taxes actually paid on the above-mentioned fuels and oils that
were used by petitioner in its operations. However petitioner asserts that
equity and justice demands 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.
ISSUE: Should the petitioner be 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, and not on the
taxes deemed paid and passed on to them, as end-users, by the oil
companies?
HELD: No. According to an eminent authority on taxation, "there is no tax
exemption solely on the ground of equity." Thus, the tax refund should be
based on the taxes deemed paid. 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.
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SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 120880 June 5, 1997

FERDINAND R. MARCOS II, petitioner,
vs.
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents.
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 forcertiorari with prayer for Restraining
Order and Injunction.
No pronouncements as to costs.
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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 forCertiorari with prayer for Restraining
Order and Injunction.
No pronouncements as to cost.
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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.
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[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).
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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-1-85-91-002463 (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.
TAXATION LAW 1
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 twenty-two
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 certiorariand 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
TAXATION LAW 1
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
TAXATION LAW 1
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. Wellsettled 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; 8the legality of disinheritance
of an heir by the testator; 9 and to pass upon the validity of a waiver of
hereditary rights. 10
TAXATION LAW 1
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
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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.)
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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
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(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. 3868, 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 O 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. 38-68 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
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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 xxx 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.
xxx xxx xxx
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
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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
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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
TAXATION LAW 1
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:
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xxx xxx 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 xxx 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.
DIGEST
FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court of
Appeals to grant CIR's petition to levy the properties of the late Pres. Marcos
to cover the payment of his tax delinquencies during the period of his exile in
the US. The Marcos family was assessed by the BIR after it failed to file
estate tax returns. However the assessment were not protested
administratively by Mrs. Marcos and the heirs of the late president so that
they became final and unappealable after the period for filing of opposition
has prescribed. Marcos contends that the properties could not be levied to
cover the tax dues because they are still pending probate with the court, and
settlement of tax deficiencies could not be had, unless there is an order by
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the probate court or until the probate proceedings are terminated.

Petitioner also pointed out that applying Memorandum Circular No. 38-68,
the BIR's Notices of Levy on the Marcos properties were issued beyond the
allowed
period,
and
are
therefore
null
and
void.
ISSUE:
Are
the
contentions
of
Bongbong
Marcos
correct?
HELD: No. The deficiency income tax assessments and estate tax
assessment are already final and unappealable -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.
The approval of the court, sitting in probate, or as a settlement tribunal
over the deceased's estate is not a mandatory requirement in the collection
of estate taxes. 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.
On the issue of prescription, 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 Sec.223 of the NIRC, in case of
failure to file a return, the tax may be assessed at anytime within 10 years
after the omission, and any tax so assessed may be collected by levy upon
real property within 3 years (now 5 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 no reason why the BIR cannot continue with the
collection of the said tax.

SUPREME COURT
Manila
EN BANC
G.R. Nos. L-49839-46
April 26, 1991
TAXATION LAW 1
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their
capacities as appointed and Acting Members of the CENTRAL BOARD
OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS, ROMULO M. DEL
ROSARIO, RAUL C. FLORES, in their capacities as appointed and
Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila;
and NICOLAS CATIIL in his capacity as City Assessor of
Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977
decision of the Central Board of Assessment Appeals1 in CBAA Cases Nos. 7279 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board of Assessment
Appeals of Manila and City Assessor of Manila" which affirmed the March 29,
1976 decision of the Board of Tax Assessment Appeals2 in BTAA Cases Nos.
614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila"
and "Edmundo Reyes and Milagros Reyes v. City Assessor of Manila"
upholding the classification and assessments made by the City Assessor of
Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels
of land situated in Tondo and Sta. Cruz Districts, City of Manila, which are
leased and entirely occupied as dwelling sites by tenants. Said tenants were
paying monthly rentals not exceeding three hundred pesos (P300.00) in July,
1971. On July 14, 1971, the National Legislature enacted Republic Act No.
6359 prohibiting for one year from its effectivity, an increase in monthly
rentals of dwelling units or of lands on which another's dwelling is located,
where such rentals do not exceed three hundred pesos (P300.00) a month
but allowing an increase in rent by not more than 10% thereafter. The said
Act also suspended paragraph (1) of Article 1673 of the Civil Code for two
years from its effectivity thereby disallowing the ejectment of lessees upon
the expiration of the usual legal period of lease. On October 12, 1972,
Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by indefinitely
suspending the aforementioned provision of the Civil Code, excepting leases
with a definite period. Consequently, the Reyeses, petitioners herein, were
precluded from raising the rentals and from ejecting the tenants. In 1973,
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respondent City Assessor of Manila re-classified and reassessed the value of

the subject properties based on the schedule of market values duly reviewed
by the Secretary of Finance. The revision, as expected, entailed an increase
in the corresponding tax rates prompting petitioners to file a Memorandum of
Disagreement with the Board of Tax Assessment Appeals. They averred that
the reassessments made were "excessive, unwarranted, inequitable,
confiscatory and unconstitutional" considering that the taxes imposed upon
them greatly exceeded the annual income derived from their properties.
They argued that the income approach should have been used in
determining the land values instead of the comparable sales approach which
the City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment
Appeals, however, considered the assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to submit
concrete evidence which could overcome the presumptive regularity of
the classification and assessments appear to be in accordance with the
base schedule of market values and of the base schedule of building
unit values, as approved by the Secretary of Finance, the cases should
be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo,
p. 22).
The Reyeses appealed to the Central Board of Assessment
Appeals.1wphi1 They submitted, among others, the summary of the yearly
rentals to show the income derived from the properties. Respondent City
Assessor, on the other hand, submitted three (3) deeds of sale showing the
different market values of the real property situated in the same vicinity
where the subject properties of petitioners are located. To better appreciate
the locational and physical features of the land, the Board of Hearing
Commissioners conducted an ocular inspection with the presence of two
representatives of the City Assessor prior to the healing of the case. Neither
the owners nor their authorized representatives were present during the said
ocular inspection despite proper notices served them. It was found that
certain parcels of land were below street level and were affected by the tides
(Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its
decision, the dispositive portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and
assessment of the lots covered by Tax Declaration Nos. (5835) PD5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509,
146 and (1) PD-266, the appealed Decision is modified by allowing a
TAXATION LAW 1
20% reduction in their respective market values and applying therein

the assessment level of 30% to arrive at the corresponding assessed
value.
SO ORDERED. (Decision of the Central Board of Assessment
Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this
petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE
SALES APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF
APPELLANTS' PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the
properties in question. Petitioners maintain that the "Income Approach"
method would have been more realistic for in disregarding the effect of the
restrictions imposed by P.D. 20 on the market value of the properties
affected, respondent Assessor of the City of Manila unlawfully and
unjustifiably set increased new assessed values at levels so high and
successive that the resulting annual real estate taxes would admittedly
exceed the sum total of the yearly rentals paid or payable by the dweller
tenants under P.D. 20. Hence, petitioners protested against the levels of the
values assigned to their properties as revised and increased on the ground
that they were arbitrarily excessive, unwarranted, inequitable, confiscatory
and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals
admits in its decision that the income approach is used in determining land
values in some vicinities, it maintains that when income is affected by some
sort of price control, the same is rejected in the consideration and study of
land values as in the case of properties affected by the Rent Control Law for
they do not project the true market value in the open market (Rollo, p. 21).
Thus, respondents opted instead for the "Comparable Sales Approach" on the
ground that the value estimate of the properties predicated upon prices paid
in actual, market transactions would be a uniform and a more credible
standards to use especially in case of mass appraisal of properties (Ibid.).
Otherwise stated, public respondents would have this Court completely
ignore the effects of the restrictions of P.D. No. 20 on the market value of
properties within its coverage. In any event, it is unquestionable that both
the "Comparable Sales Approach" and the "Income Approach" are generally
acceptable methods of appraisal for taxation purposes (The Law on Transfer
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and Business Taxation by Hector S. De Leon, 1988 Edition). However, it is

conceded that the propriety of one as against the other would of course
depend on several factors. Hence, as early as 1923 in the case of Army &
Navy Club, Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has
been stressed that the assessors, in finding the value of the property, have
to consider all the circumstances and elements of value and must exercise a
prudent discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule
of taxation must not only be uniform, but must also be equitable and
progressive.
Uniformity has been defined as that principle by which all taxable articles or
kinds of property of the same class shall be taxed at the same rate (Churchill
v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or
progressive aspects of taxation required in the 1973 Charter (Fernando "The
Constitution of the Philippines", p. 221, Second Edition). Thus, the need to
examine closely and determine the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those better able to
pay. Taxation is progressive when its rate goes up depending on the
resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of
all the powers of government. But for all its plenitude the power to tax is not
unconfined as there are restrictions. Adversely effecting as it does property
rights, both the due process and equal protection clauses of the Constitution
may properly be invoked to invalidate in appropriate cases a revenue
measure. If it were otherwise, there would be truth to the 1903 dictum of
Chief Justice Marshall that "the power to tax involves the power to destroy."
The web or unreality spun from Marshall's famous dictum was brushed away
by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the
power to destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v.
Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal
Revenue, 139 SCRA 439 [1985]).
In the same vein, 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 confiscation of property. That
would be a clear abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural
classification for purposes of taxation but the government's act must not be
prompted by a spirit of hostility, or at the very least discrimination that finds
TAXATION LAW 1
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 liabilities imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared
that the first Fundamental Principle to guide the appraisal and assessment of
real property for taxation purposes is that the property must be "appraised
at its current and fair market value."
By no strength of the imagination can the market value of properties covered
by P.D. No. 20 be equated with the market value of properties not so
covered. The former has naturally a much lesser market value in view of the
rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the
assessed value of subject properties under the "comparable sales approach"
were presented by the public respondents, namely: (1) that the sale must
represent a bonafide arm's length transaction between a willing seller and a
willing buyer and (2) the property must be comparable property (Rollo, p.
27). Nothing can justify or support their view as it is of judicial notice that for
properties covered by P.D. 20 especially during the time in question, there
were hardly any willing buyers. As a general rule, there were no takers so
that there can be no reasonable basis for the conclusion that these
properties were comparable with other residential properties not burdened
by P.D. 20. Neither can the given circumstances be nonchalantly dismissed
by public respondents as imposed under distressed conditions clearly
implying that the same were merely temporary in character. At this point in
time, the falsity of such premises cannot be more convincingly demonstrated
by the fact that the law has existed for around twenty (20) years with no end
to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. However, such collection should be made in
government itself It is therefore necessary to reconcile the apparently
purpose of taxations, which is the promotion of the common good, may be
achieved (Commissioner of Internal Revenue v. Algue Inc., et al., 158 SCRA 9
[1988]). Consequently, it stands to reason that petitioners who are burdened
by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D.
20) under the principle of social justice should not now be penalized by the
same government by the imposition of excessive taxes petitioners can ill
afford and eventually result in the forfeiture of their properties.
TAXATION LAW 1
By the public respondents' own computation the assessment by income

approach would amount to only P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed
decisions of public respondents are REVERSED and SET ASIDE; and (e) the
respondent Board of Assessment Appeals of Manila and the City Assessor of
Manila are ordered to make a new assessment by the income approach
method to guarantee a fairer and more realistic basis of computation (Rollo,
p. 71).
SO ORDERED.
DIGEST
FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are
leased and occupied as dwelling
units by tenants who were paying monthly rentals of not exceeding P300.
Sometimes in 1971 the Rental
Freezing Law was passed prohibiting for one year from its effectivity, an
increase in monthly rentals of dwelling
units where rentals do not exceed three hundred pesos (P300.00), so that the
Reyeses were precluded from
raising the rents and from ejecting the tenants. In 1973, respondent City
Assessor of Manila re-classified and
reassessed the value of the subject properties based on the schedule of
market values, which entailed an
increase in the corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement averring
that the reassessments made were "excessive, unwarranted, inequitable,
confiscatory and unconstitutional"
considering that the taxes imposed upon them greatly exceeded the annual
income derived from their
properties. They argued that the income approach should have been used in
determining the land values instead
of the comparable sales approach which the City Assessor adopted.
ISSUE: Is the approach on tax assessment used by the City Assessor
reasonable?
HELD: No. The taxing power has the authority to make a reasonable and
natural classification for purposes of
taxation but the government's act must not be prompted by a 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
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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 liabilities imposed.
Consequently, it stands to reason that petitioners who are burdened by the
government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice
should not now be penalized by the
afford and eventually result in the
forfeiture of their properties.
TAXATION LAW 1

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 112024 January 28, 1999

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS
and COURT OF APPEALS,respondent.
QUISUMBING, J.:
This petition for review assails the Resolution 1 of the Court of Appeals dated
September 22, 1993 affirming the Decision 2 and a Resolution 3 of the Court
Of Tax Appeals which denied the claims of the petitioner for tax refund and
tax credits, and disposing as follows:
IN VIEW OF ALL, THE FOREGOING, the instant petition for review,
is DENIED due course. The Decision of the Court of Tax Appeals
dated May 20, 1993 and its resolution dated July 20, 1993, are
hereby AFFIRMED in toto.
SO ORDERED. 4
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, Petitioner's claim for refund/tax credits of overpaid
income tax for 1985 in the amount of P5,299,749.95 is hereby
denied for having been filed beyond the reglementary period.
The 1986 claim for refund amounting to P234,077.69 is likewise
denied since petitioner has opted and in all likelihood
TAXATION LAW 1
automatically credited the same to the succeeding year. The

petition for review is dismissed for lack of merit.
SO ORDERED. 5
The facts on record show the antecedent circumstances pertinent to this
case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial
banking corporation duly organized under Philippine laws, filed its quarterly
income tax returns for the first and second quarters of 1985, reported profits,
and paid the total income tax of P5,016,954.00. The taxes due were settled
by applying PBCom's tax credit memos and accordingly, the Bureau of
Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for
P3,401,701.00 and P1,615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its
Annual Income Tax Returns for the year-ended December 31, 1986, the
petitioner likewise reported a net loss of P14,129,602.00, and thus declared
no tax payable for the year.
But during these two years, PBCom earned rental income from leased
properties. The lessees withheld and remitted to the BIR withholding
creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal
Revenue, among others, for a tax credit of P5,016,954.00 representing the
overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable
taxes withheld by their lessees from property rentals in 1985 for P282,795.50
and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal
Revenue, petitioner instituted a Petition for Review on November 18, 1988
before the Court of Tax Appeals (CTA). The petition was docketed as CTA
Case No. 4309 entitled: "Philippine Bank of Communications vs.
Commissioner of Internal Revenue."
TAXATION LAW 1
The losses petitioner incurred as per the summary of petitioner's claims for
refund and tax credit for 1985 and 1986, filed before the Court of Tax
Appeals, are as follows:
1985 1986

Net Income (Loss) (P25,317,288.00) (P14,129,602.00)
Tax Due NIL NIL
Quarterly tax.
Payments Made 5,016,954.00
Tax Withheld at Source 282,795.50 234,077.69

Excess Tax Payments P5,299,749.50* P234,077.69
=============== =============
* CTA's decision reflects PBCom's 1985 tax claim as
P5,299,749.95. A forty five centavo difference was
noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the
outset, denied the request of petitioner for a tax refund or credit in the sum
amount of P5,299,749.95, on the ground that it was filed beyond the twoyear reglementary period provided for by law. The petitioner's claim for
refund in 1986 amounting to P234,077.69 was likewise denied on the
assumption that it was automatically credited by PBCom against its tax
payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's
decision but the same was denied due course for lack of merit. 6
Thereafter, PBCom filed a petition for review of said decision and resolution
of the CTA with the Court of Appeals. However on September 22, 1993, the
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Court of Appeals affirmed in toto the CTA's resolution dated July 20, 1993.
Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom which relied in good
faith on the formal assurances of BIR in RMC No. 7-85
and did not immediately file with the CTA a petition
for review asking for the refund/tax credit of its 198586 excess quarterly income tax payments can be
prejudiced by the subsequent BIR rejection, applied
retroactivity, of its assurances in RMC No. 7-85 that
the prescriptive period for the refund/tax credit of
excess quarterly income tax payments is not two
years but ten (10). 7
II. Whether the Court of Appeals seriously erred in
affirming the CTA decision which denied PBCom's
claim for the refund of P234,077.69 income tax
overpaid in 1986 on the mere speculation, without
proof, that there were taxes due in 1987 and that
PBCom availed of tax-crediting that year. 8
Simply stated, the main question is: Whether or not the Court of Appeals
erred in denying the plea for tax refund or tax credits on the ground of
prescription, despite petitioner's reliance on RMC No. 7-85, changing the
prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred
by prescription relying on the applicability of Revenue Memorandum Circular
No. 7-85 issued on April 1, 1985. The circular states that overpaid income
taxes are not covered by the two-year prescriptive period under the tax Code
and that taxpayers may claim refund or tax credits for the excess quarterly
income tax with the BIR within ten (10) years under Article 1144 of the Civil
Code. The pertinent portions of the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR
TAX CREDIT OF EXCESS CORPORATE
INCOME TAX RESULTING FROM THE
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FILING OF THE FINAL ADJUSTMENT

RETURN.
TO: All Internal Revenue Officers and Others Concerned.
Sec. 85 And 86 Of the National Internal Revenue Code provide:
xxx xxx xxx
The foregoing provisions are implemented by Section 7 of
Revenue Regulations Nos. 10-77 which provide;
xxx xxx xxx
It has been observed, however, that because of the excess tax
payments, corporations file claims for recovery of overpaid
income tax with the Court of Tax Appeals within the two-year
period from the date of payment, in accordance with sections
292 and 295 of the National Internal Revenue Code. It is obvious
that the filing of the case in court is to preserve the judicial right
of the corporation to claim the refund or tax credit.
It should he noted, however, that this is not a case of erroneously
or illegally paid tax under the provisions of Sections 292 and 295
of the Tax Code.
In the above provision of the Regulations the corporation may
request for the refund of the overpaid income tax or claim for
automatic tax credit. To insure prompt action on corporate
annual income tax returns showing refundable amounts arising
from overpaid quarterly income taxes, this Office has
promulgated Revenue Memorandum Order No. 32-76 dated June
11, 1976, containing the procedure in processing said returns.
Under these procedures, the returns are merely pre-audited
which consist mainly of checking mathematical accuracy of the
figures of the return. After which, the refund or tax credit is
granted, and, this procedure was adopted to facilitate immediate
action on cases like this.
In this regard, therefore, there is no need to file petitions for
review in the Court of Tax Appeals in order to preserve the right
TAXATION LAW 1
to claim refund or tax credit the two year period. As already

stated, actions hereon by the Bureau are immediate after only a
cursory pre-audit of the income tax returns. Moreover, a
taxpayer may recover from the Bureau of Internal Revenue
excess income tax paid under the provisions of Section 86 of the
Tax Code within 10 years from the date of payment considering
that it is an obligation created by law (Article 1144 of the Civil
Code). 9 (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position
contrary to its declared circular if it would result to injustice to taxpayers.
Citing ABS CBN Broadcasting Corporation vs. Court of Tax
Appeals 10petitioner claims that rulings or circulars promulgated by the
Commissioner of Internal Revenue have no retroactive effect if it would be
prejudicial to taxpayers, In ABS-CBN case, the Court held that the
government is precluded from adopting a position inconsistent with one
previously taken where injustice would result therefrom or where there has
been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code
explicitly provides for this rules as follows:
Sec. 246 Non-retroactivity of rulings Any revocation,
modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding section or any of
the rulings or circulars promulgated by the Commissioner shall
not be given retroactive application if the revocation,
modification or reversal will be prejudicial to the taxpayers
except in the following cases:
a). where the taxpayer deliberately
misstates or omits material facts from his
return or in any document required of
him by the Bureau of Internal Revenue;
b). where the facts subsequently
gathered by the Bureau of Internal
Revenue are materially different from the
facts on which the ruling is based;
c). where the taxpayer acted in bad faith.
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Respondent Commissioner of Internal Revenue, through Solicitor General,

argues that the two-year prescriptive period for filing tax cases in court
concerning income tax payments of Corporations is reckoned from the date
of filing the Final Adjusted Income Tax Return, which is generally done on
April 15 following the close of the calendar year. As precedents, respondent
Commissioner cited cases which adhered to this principle, to wit ACCRA
Investments Corp. vs. Court of Appeals, et al., 11 and Commissioner of
Internal Revenue vs. TMX Sales, Inc., et al.. 12Respondent Commissioner also
states that since the Final Adjusted Income Tax Return of the petitioner for
the taxable year 1985 was supposed to be filed on April 15, 1986, the latter
had only until April 15, 1988 to seek relief from the court. Further,
respondent Commissioner stresses that when the petitioner filed the case
before the CTA on November 18, 1988, the same was filed beyond the time
fixed by law, and such failure is fatal to petitioner's cause of action.
After a careful study of the records and applicable jurisprudence on the
matter, we find that, contrary to the petitioner's contention, the relaxation of
revenue regulations by RMC 7-85 is not warranted as it disregards the twoyear prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The primary
purpose is to generate funds for the State to finance the needs of the
citizenry and to advance the common weal. 13 Due process of law under the
Constitution does not require judicial proceedings in tax cases. This must
necessarily be so because it is upon taxation that the government chiefly
relies to obtain the means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the collection of taxes levied
should be summary and interfered with as little as possible. 14
From the same perspective, claims for refund or tax credit should be
exercised within the time fixed by law because the BIR being an
administrative body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec.
229, NIRC of 1997) provides for the prescriptive period for filing a court
proceeding for the recovery of tax erroneously or illegally collected, viz.:
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
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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 proceedings shall 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 therefor, 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.
(Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit with
the Commissioner of Internal Revenue, within two (2) years after payment of
tax, before any suit in CTA is commenced. The two-year prescriptive period
provided, should be computed from the time of filing the Adjustment Return
and final payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance
Co., 15 this Court explained the application of Sec. 230 of 1977 NIRC, as
follows:
Clearly, the prescriptive period of two years should commence to
run only from the time that the refund is ascertained, which can
only be determined after a final adjustment return is
accomplished. In the present case, this date is April 16, 1984,
and two years from this date would be April 16, 1986. . . . As we
have earlier said in the TMX Sales case, Sections 68. 16 69, 17 and
70 18 on Quarterly Corporate Income Tax Payment and Section
321 should be considered in conjunction with it 19
When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of
excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the
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BIR did not simply interpret the law; rather it legislated guidelines contrary to
the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general
interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty is
to enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be
erroneous. 20 Thus, courts will not countenance administrative issuances that
override, instead of remaining consistent and in harmony with the law they
seek to apply and implement. 21
In the case of People vs. Lim, 22 it was held that rules and regulations issued
by administrative officials to implement a law cannot go beyond the terms
and provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void
because it is not only inconsistent with but is contrary to the
provisions and spirit of Act. No 4003 as amended, because
whereas the prohibition prescribed in said Fisheries Act was for
any single period of time not exceeding five years duration, FAO
No 37-1 fixed no period, that is to say, it establishes an absolute
ban for all time. This discrepancy between Act No. 4003 and FAO
No. 37-1 was probably due to an oversight on the part of
Secretary of Agriculture and Natural Resources. Of course, in
case of discrepancy, the basic Act prevails, for the reason that
the regulation or rule issued to implement a law cannot go
beyond the terms and provisions of the
latter. . . . In this connection, the attention of the technical men
in the offices of Department Heads who draft rules and
regulation is called to the importance and necessity of closely
following the terms and provisions of the law which they
intended to implement, this to avoid any possible
misunderstanding or confusion as in the present case. 23
Further, fundamental is the rule that the State cannot be put in estoppel by
the mistakes or errors of its officials or agents. 24 As pointed out by the
respondent courts, the nullification of RMC No. 7-85 issued by the Acting
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Commissioner of Internal Revenue is an administrative interpretation which

is not in harmony with Sec. 230 of 1977 NIRC. for being contrary to the
express provision of a statute. Hence, his interpretation could not be given
weight for to do so would, in effect, amend the statute.
It is likewise argued that the Commissioner of Internal Revenue,
after promulgating RMC No. 7-85, is estopped by the principle of
non-retroactively of BIR rulings. Again We do not agree. The
Memorandum Circular, stating that a taxpayer may recover the
excess income tax paid within 10 years from date of payment
because this is an obligation created by law, was issued by the
Acting Commissioner of Internal Revenue. On the other hand, the
decision, stating that the taxpayer should still file a claim for a
refund or tax credit and corresponding petition fro review within
the
two-year prescription period, and that the lengthening of the
period of limitation on refund from two to ten years would be
adverse to public policy and run counter to the positive mandate
of Sec. 230, NIRC, - was the ruling and judicial interpretation of
the Court of Tax Appeals. Estoppel has no application in the case
at bar because it was not the Commissioner of Internal Revenue
who denied petitioner's claim of refund or tax credit. Rather, it
was the Court of Tax Appeals who denied (albeit correctly) the
claim and in effect, ruled that the RMC No. 7-85 issued by the
Commissioner of Internal Revenue is an administrative
interpretation which is out of harmony with or contrary to the
express provision of a statute (specifically Sec. 230, NIRC),
hence, cannot be given weight for to do so would in effect amend
the statute. 25
Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or
interpreting statutes as part of the legal system of the country. But
administrative decisions do not enjoy that level of recognition. A
memorandum-circular of a bureau head could not operate to vest a taxpayer
with shield against judicial action. For there are no vested rights to speak of
respecting a wrong construction of the law by the administrative officials and
such wrong interpretation could not place the Government in estoppel to
correct or overrule the same. 27 Moreover, the non-retroactivity of rulings by
the Commissioner of Internal Revenue is not applicable in this case because
the nullity of RMC No. 7-85 was declared by respondent courts and not by
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the Commissioner of Internal Revenue. Lastly, it must be noted that, as

repeatedly held by this Court, a claim for refund is in the nature of a claim for
exemption and should be construed in strictissimi juris against the
taxpayer. 28
On the second issue, the petitioner alleges that the Court of Appeals
seriously erred in affirming CTA's decision denying its claim for refund of
P234,077.69 (tax overpaid in 1986), based on mere speculation, without
proof, that PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any
excess of the total quarterly payments over the actual income tax computed
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 (by
marking the option box provided in the BIR form) its intention, whether to
request for a refund or claim for an automatic tax credit for the succeeding
taxable year. To ease the administration of tax collection, these remedies are
in the alternative, and the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986
the Court of Tax Appeals, after examining the adjusted final
corporate annual income tax return for taxable year 1986, found
out that petitioner opted to apply for automatic tax credit. This
was the basis used (vis-avis the fact that the 1987 annual
corporate tax return was not offered by the petitioner as
evidence) by the CTA in concluding that petitioner had indeed
availed of and applied the automatic tax credit to the succeeding
year, hence it can no longer ask for refund, as to [sic] the two
remedies of refund and tax credit are alternative. 30
That the petitioner opted for an automatic tax credit in accordance with Sec.
69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax
Return, is a finding of fact which we must respect. Moreover, the 1987
annual corporate tax return of the petitioner was not offered as evidence to
contovert said fact. Thus, we are bound by the findings of fact by respondent
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courts, there being no showing of gross error or abuse on their part to disturb
our reliance thereon. 31
WHEREFORE, the, petition is hereby DENIED, The decision of the Court of
Appeals appealed from is AFFIRMED, with COSTS against the
petitioner.1wphi1.nt
SO ORDERED.
DIGEST
FACTS: Petitioner PBCom filed its first and second quarter income tax returns,
reported profits, and paid income
taxes amounting to P5.2M in 1985. However, at the end of the year PBCom
suffered losses so that when it filed
its Annual Income Tax Returns for the year-ended December 31, 1986, the
petitioner likewise reported a net
loss of P14.1 M, and thus declared no tax payable for the year. In 1988, the
bank requested from CIR for a tax
credit and tax refunds representing overpayment of taxes. Pending
investigation of the respondent CIR,
petitioner instituted a Petition for Review before the Court of Tax Appeals
(CTA). CTA denied its petition for tax
credit and refund for failing to file within the prescriptive period to which the
petitioner belies arguing the
Revenue Circular No.7-85 issued by the CIR itself states that claim for
overpaid taxes are not covered by the
two-year prescriptive period mandated under the Tax Code.
ISSUE: Is the contention of the petitioner correct? Is the revenue circular a
valid exemption to the NIRC?
HELD: No. The relaxation of revenue regulations by RMC 7-85 is not
warranted as it disregards the two-year
prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The
primary purpose is to generate funds for
the State to finance the needs of the citizenry and to advance the common
weal. Due process of law under the
Constitution does not require judicial proceedings in tax cases. This must
necessarily be so because it is upon
TAXATION LAW 1
taxation that the government chiefly relies to obtain the means to carry on
its operations and it is of utmost
importance that the modes adopted to enforce the collection of taxes levied
should be summary and interfered
with as little as possible.
From the same perspective, claims for refund or tax credit should be
exercised within the time fixed by law
because the BIR being an administrative body enforced to collect taxes, its
functions should not be unduly
delayed or hampered by incidental matters.

SUPREME COURT
Manila
EN BANC
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G.R. No. L-22074
September 6, 1965
THE PHILIPPINE GUARANTY CO., INC., petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, ET AL., respondents.
R E S O L U T I O N*
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, willfully or negligently, subsection (c) of Section 53 and
Section 54 of the National Internal Revenue Code." Hence, it cannot
subsequently be held liable for the assessment of P375,345.00 based on said
sections.
The premise of movants' reasoning cannot be accepted. The Court of Tax
Appeals and this Court did not find that it did not violate Sections 53 (c) and
54 of the Tax Code. On the contrary, movant was found to
have violatedSection 53(c) by failing to file the necessary withholding tax
return and to pay tax due. Still, finding that movant'sviolation was due to a
reasonable cause namely, reliance on the advice of its auditors and
opinion of the Commissioner of Internal Revenue no surcharge to the
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
TAXATION LAW 1
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 of 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.
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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
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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 53 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
exempting provision should be construed strictis simi 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 provided for no exemption from the duty to withhold except
in the cases of tax-free covenant bonds dividends.1awphl.nt
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 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
TAXATION LAW 1
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 the 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 Bureau of Internal
Revenue officials, can unduly delay, if not totally evade, the payment of such
tax.
Of course, 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.
DIGEST
FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance
company, entered into reinsurance contracts with foreign insurance
companies not doing business in the country, thereby ceding to foreign
reinsurers a portion of the premiums on insurance it has originally
underwritten in the Philippines. The premiums paid by such companies were
excluded by the petitioner from its gross income when it file its income tax
returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on
them. Consequently, the CIR assessed against the petitioner withholding
taxes on the ceded reinsurance premiums to which the latter protested the
assessment on the ground that the premiums are not subject to tax for the
premiums did not constitute income from sources within the Philippines
because the foreign reinsurers did not engage in business in the Philippines,
and CIR's previous rulings did not require insurance companies to withhold
income tax due from foreign companies.
TAXATION LAW 1
ISSUE: Are insurance companies not required to withhold tax on reinsurance

premiums ceded to foreign insurance companies, which deprives the
government from collecting the tax due from them?
HELD: No. The power to tax is an attribute of sovereignty. It is a power
emanating from necessity. It is a necessary burden to preserve the State's
sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of civil
servants to serve, public improvement designed for the enjoyment of the
citizenry and those which come within the State's territory, and facilities and
protection which a government is supposed to provide. Considering that the
reinsurance premiums in question were afforded protection by the
government and the recipient foreign reinsurers exercised rights and
privileges guaranteed by our laws, such reinsurance premiums and
reinsurers should share the burden of maintaining the state.
The petitioner's defense of reliance of good faith on rulings of the CIR
requiring no withholding of tax due on reinsurance premiums may free the
taxpayer from the payment of surcharges or penalties imposed for failure to
pay the corresponding 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.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 125704 August 28, 1998

PHILEX MINING CORPORATION, petitioner,
vs.
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COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and

THE COURT OF TAX APPEALS,respondents.
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 Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16
19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09
21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72
26,889,937.88

47,312,353.94 11,828,088.48 8,988,362.97
68,128,805.39

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1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82

30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

43,013,541.70 10,753,385.43 1,926,250.00
55,693,177.13

90,325,895.64 22,581,473.91 10,914,612.97
123,821,982.52 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 inCommissioner
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
Philex's position. Since these pending claims have not yet been established
or determined with certainty, it follows that no legal compensation can take
place. Hence, the BIR reiterated its demand that Philex settle the amount
plus interest within 30 days from the receipt of the letter.
In view of the BIR's denial of the offsetting of Philex's claim for VAT input
credit/refund against its excise 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 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 latter's tax obligation to
P110,677,688.52.
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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-GR. CV No. 36975. 11 Nonetheless, on April 8, 1996,
the Court of Appeals a 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
TAXATION LAW 1
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 Tax Credit Date
By Claims For Certificate of
VAT refund/creditNumberIssueAmount
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
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
TAXATION LAW 1
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.
The ruling in Francia has been applied to the subsequent case of Caltex
Philippines, Inc. v. Commission on Audit,20 which reiterated 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 set-off.
Further, Philex's 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 Philex's 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 tax 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 Philex's 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 Philex's whimsical reason would render ineffective our tax
collection system. Too simplistic, it finds no support in law or in
jurisprudence.
TAXATION LAW 1
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 taxpayer 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 nonpayment 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 honestly 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
TAXATION LAW 1
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 inRoxas 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 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.
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 a
valid reason for the non-payment of its tax liabilities.
To be sure, this is not to 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 claim 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.
Art. 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
TAXATION LAW 1
(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 enjoyed 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.
DIGEST
FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of
Appeals affirming the Court of Tax
Appeals decision ordering it to pay the amount of P110.7 M as excise tax
liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from
1994 until fully paid pursuant to
Sections 248 and 249 of the Tax Code of 1977. 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 P120 M plus interest. Therefore these claims for tax
credit/refund should be applied against the
tax liabilities.
TAXATION LAW 1
ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims
of tax refund of the petitioner?
HELD: No. Philex's claim 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.
Evidently, to countenance Philex's
whimsical reason would render ineffective our tax collection system. Too
simplistic, it finds no support in law or in
jurisprudence.
To be sure, Philex cannot be allowed 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.Taxes cannot be
subject to compensation for the simple reason that the government and the
taxpayer are not creditors and
debtors of each other. 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. xxx 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.
TAXATION LAW 1
EN BANC
G.R. No. L-12353
September 30, 1960
NORTH CAMARINES LUMBER CO., INC., Petitioner, vs. COLLECTOR OF

INTERNAL REVENUE, Respondent.
Miguel San Jose and A.B. Christi for petitioner.
Assistant Solicitor General Jose P. Alejandro and Atty. S. D. Paredes for
respondent.
PARAS, C.J.:chanrobles virtual law library
This is an appeal from the resolution of the Court of Tax Appeals
dismissing the petition for review filed by the petitioner for lack of jurisdiction
to try it on the merits, the same having been filed beyond the 30-day period
fixed in Section 11 of Republic Act No.
1125.chanroblesvirtualawlibrarychanrobles virtual law library
The petitioner, North Camarines Lumber Co., Inc., is a domestic
corporation engaged in the lumber business. On June 19, 1951 and July 31,
1951, it sold a total of 2,164,863 board feet of logs to the General Lumber
Co., Inc., with the agreement that the latter would assume responsibility for
the payment of the sales tax thereon in the amount of P7,768.51. After being
consulted on the matter, the respondent Collector of Internal Revenue, in his
letters dated June 18, 1951 and August 6, 1951, advised the petitioner that
he was interposing no objection to the arrangement, provided the General
Lumber Co., Inc., would file the corresponding bonds to cover the sales tax
liabilities.chanroblesvirtualawlibrarychanrobles virtual law library
The General Lumber Co., Inc., complied with the condition. In view,
however, of its failure and that of the surety to pay the tax liabilities, the
respondent Collector, in his letter dated August 30, 1955, required the
TAXATION LAW 1
petitioner to pay the total amount of P9,598.72 as sales tax and incidental
penalties in the sale of logs to the General Lumber Co., Inc. Although the
date of receipt by petitioner of this letter does not appeal in the records, it
may be presumed to be September 9, 1955, when the petitioner addressed a
letter to the respondent Collector, which was received on September 12,
1955, wherein the petitioner acknowledged receipt of the letter of demand
and at the same time requested for the reconsideration of the assessment.
This was denied by the respondent Collector in his letter of December 8,
1955, received by the petitioner on January 5, 1956. The respondent
Collector having denied the second request for reconsideration in his letter
dated January 30, 1956, which the petitioner received on February 16, 1956,
the latter, on March 13, 1956, filed a petition for review with the Court of Tax
Appeals. The Court, after a preliminary hearing on respondent Collector's
motion to dismiss, ruled that, as the petition was filed beyond the 30-day
period prescribed by Section 11 of Republic Act No. 1125, it has no
jurisdiction to try the same. Accordingly, the case was
dismissed.chanroblesvirtualawlibrarychanrobles virtual law library
In contending that the Court of Tax Appeals erred, the petitioner points
out that Section 7, and not Section 11, of Republic Act No. 1125 confers and
determines the jurisdiction of the respondent court, and that Section 11
refers merely to the prescriptive period for filing
appeals.chanroblesvirtualawlibrarychanrobles virtual law library
While the petitioner is correct as to the attribute of Section 7, it should
be remembered that, for the respondent court to have jurisdiction over any
case, the party seeking redress must first invoke its exercise in the manner
and within the time prescribed by the law. Thus Section 7, which enumerates
the specific cases falling within the jurisdiction of the Court of Tax Appeals
must be read together with Section 11, which fixes the time for invoking said
jurisdiction.chanroblesvirtualawlibrarychanrobles virtual law library
There is no question that petitioner's case is covered by Section 7 and,
therefore, comes within the jurisdiction of the respondent court. But we said
jurisdiction invoked by the petitioner within the period prescribed by Section
11?chanrobles virtual law library
The respondent court ruled that the time consumed by the petitioner
in perfecting its appeal after deducting the time during which the period for
appeal was suspended by a pending request for reconsideration is as follows:
From September 9, 1955,
presumed date of receipt of
decision, to September 12, 1955,
the filing of request for
3
day
s
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reconsideration ..............................
..................................
From January 5, 1956,
presumed date of receipt of denial
of reconsideration, to January 9,
1956, the filing of the second
request for
reconsideration ..............................
4
..................................
day
s
From February 16, 1956,
receipt of denial of second request
for reconsideration, to March 13,
1956, the filing of petition for
review ............................................ 26
....................
day
s
Total ............................................... 33
................. day
s
As the petitioner had consumed thirty-three days, its appeal was
clearly filed out of time. It is argued, however, that in computing the 30-day
period fixed in Section 11 of Republic Act No. 1125, the letter of the
respondent Collector dated January 30, 1956, denying the second request for
reconsideration, should be considered as the final decision contemplated in
Section 7, and not the letter of demand dated August 30,
1955.chanroblesvirtualawlibrarychanrobles virtual law library
This contention is untenable. We cannot countenance that theory that
would make the commencement of the statutory 30-day period solely
dependent on the will of the taxpayer and place the latter in a position to put
off indefinitely and at his convenience the finality of a tax assessment. Such
an absurd procedure would be detrimental to the interest of the Government,
for "taxes are the lifeblood of the government, and their prompt and certain
availability an imperious need." (Bull vs. U.S. 295, U.S.
247).chanroblesvirtualawlibrarychanrobles virtual law library
WHEREFORE, the resolution appealed from is affirmed, with costs. 3m
3 so ordered.
TAXATION LAW 1
DIGEST
FACTS: The petitioner sold more than 2M boardfeet of logs to General Lumber
Co. with the agreement that the latter would pay the sales taxes. The CIR,
upon consultation officially advised the parties that the bureau interposes no
objection so long as the tax due shall be covered by a surety. General
Lumber complied, but later failed, with the surety, to pay the tax liabilities,
and so the respondent collector required the petitioner to pay thru a letter
dated August 30, 1955. Twice did the petitioner filed a request for
reconsideration before finally submitting the denied request for appeal
before the Court of Tax Appeals. The CTA dismissed the appeal as it was
clearly filed out of time. The petitioner had consumed thirty-three days from
the receipt of the demand, before filing the appeal. Petitioner argued that in
computing the 30-day period in perfecting the appeal the letter of the
respondent Collector dated January 30, 1956, denying the second request for
reconsideration, should be considered as the final decision contemplated in
Section 7, and not the letter of demand dated August 30, 1955.
ISSUE: Is the contention of the petitioner tenable?
HELD: No. This contention is untenable. We cannot countenance that theory
that would make the commencement of the statutory 30-day period solely
dependent on the will of the taxpayer and place the latter in a position to put
off indefinitely and at his convenience the finality of a tax assessment. Such
an absurd procedure would be detrimental to the interest of the Government,
for "taxes are the lifeblood of the government, and their prompt and certain
availability is an imperious need."
TAXATION LAW 1

SUPREME COURT
Manila
EN BANC
G.R. No. L-7859
December 22, 1955
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of

the deceased Antonio Jayme Ledesma, plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal
Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor
General Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.
TAXATION LAW 1
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-McDuffe 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, 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.
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;
TAXATION LAW 1
Second, to readjust the benefits derived from the sugar industry by all
of the component elements thereof the mill, the landowner, the
planter of the sugar cane, and the laborers in the factory and in the
field so that all might continue profitably to engage
therein;lawphi1.net
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 adjourment 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 more 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 utilizing 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
TAXATION LAW 1
public purpose for which a tax may be constitutioally levied. The action
having been dismissed by the Court of First Instance, the plaintifs appealed
the case 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 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 lawmaking
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 Sp. 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 fully play, subject only to the test of reasonableness; and it is not
TAXATION LAW 1
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; that the legislature is not required by the Constitution to
adhere to a policy of "all or none." As 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 improvements 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).
TAXATION LAW 1
The decision appealed from is affirmed, with costs against appellant. So

ordered.
DIGEST
FACTS: Plaintiff Walter Lutz, in his capacity as judicial administrator of the
intestate estate of Antionio Ledesma,
sought to recover from the CIR the sum of P14,666.40 paid by the estate as
taxes, under section 3 of the CA
567 or the Sugar Adjustment Act thereby assailing its constitutionality, for it
provided for an increase of the
existing tax on the manufacture of sugar, alleging that such enactment is not
being levied for a public purpose
but solely and exclusively for the aid and support of the sugar industry thus
making it void and unconstitutional.
The sugar industry situation at the time of the enactment was in an
imminent threat of loss and needed to be
stabilized by imposition of emergency measures.
ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the
equal protection clause, the purpose of
which is not for the benefit of the general public but for the rehabilitation
only of the sugar industry?
HELD: Yes. 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 to fully play,
subject only to the test of
reasonableness; and it is not contended that the means provided in the law
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.
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SUPREME COURT
Manila
EN BANC
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, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General
Frine C. Zaballero and Solicitor Dominador L. Quiroz for respondentsappellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635,1 as
amended by Republic Act 2631,2 which provides as follows:
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
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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.
xxx
xxx
xxx
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 semi-postal 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
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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 semipostal stamp in the manner hereinafter indicated:
1. Second-class mail. 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
second-class 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 subparagraph 1.
3. Metered mail. 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.
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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, instead of affixing the semi-postal stamps to their mails,
provided that such mails are presented at the post-office window,
where the five-centavo 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.
Mail 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 l5, 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 brough 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
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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 firing 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 same 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.
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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.4 This power has
aptly been described as "of wide range and flexibility."5 Indeed, it is said that
in the field of taxation, more than in other areas, the legislature possesses
the greatest freedom in classification.6 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.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 based upon ability to produce
revenue or some other legitimate distinction, equal protection of the
law has been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra,
358 U.S. at 527, 79 S. Ct. at 441; Brown Forman Co. v. Commonwealth
of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (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
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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 convinience. In the allocation of the tax
burden, Congress must have concluded that the contribution to the anti-TB
fund can be assured by those whose 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 "consideration of
practical administrative convenience and cost in the administration of tax
laws afford adequate ground for imposing a tax on a well recognized and
defined class."9 In the case of the anti-TB stamps, 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 convenienceof
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 self-enforcing, with
as little cost and as little inconvenience as possible.
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 statue 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 courts 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.11 This is the case of newspapers which, under the amendment
introduced by Republic Act 2631, are exempt from the payment of the
additional stamp.
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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 of its sovereignty, is to be
strictly construed.12 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.
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.13 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."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 graduated 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 within the class regardless of
the amount involved.16 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:
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
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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 them pay much
more because the cards likewise bear the amount of the regular postage.
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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.
Zaldivar, J., is on leave.
Separate Opinions
FERNANDO, J., concurring:
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 state 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.
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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,3 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."
2. It would appear likewise that an expression of one's personal view 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 a
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 discharge 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, theduty 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 be 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
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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 of 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
ofPeople v. Vera,9 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."10 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.
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 than the dead
words of the written text."11 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."12
Now, as to non-delegation. It is to be admitted that the problem of nondelegation of legislative power at times occasions difficulties. Its strict view
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has been announced by Justice Laurel in the aforecited case of People v.

Verain this language. Thus: "In testing whether a statute constitutes an
undue delegation of legislative power or 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. .... InUnited 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,14 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 from overflowing."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,16 admitted that within certain limits, there being a
need for coping with the more intricate problems 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.17 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."
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.
DIGEST
FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San
Fernando, Pampanga. It did not bear
the special anti-TB stamp required by the RA 1635. It was returned to the
petitioner. Petitioner now assails the
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constitutionality of the statute claiming that RA 1635 otherwise known as the

Anti-TB Stamp law is violative of
the equal protection clause because 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
exemptions. The law in question requires an additional 5 centavo stamp for
every mail being posted, and no mail
shall be delivered unless bearing the said stamp.
ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly
violative of the equal protection clause?
HELD: No. It is settled that the legislature has the inherent power to select
the subjects of taxation and to grant
exemptions. This power has aptly been described as "of wide 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.
The classification of mail users is based on the ability to pay, the enjoyment
of a privilege and on administrative
convenience. Tax exemptions have never been thought of as raising
revenues under the equal protection clause.
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SUPREME COURT
Manila
EN BANC
G.R. No. L-4817
May 26, 1954
SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,

vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendantsappellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for
defendants-appellants.
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 practising 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 there in provided for non-payment of the tax was not legally
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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
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naturally any 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.
Separate Opinions
PARAS, C.J., dissenting:
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-appellants two
lawyers, a physician, an accountant, a dentist and a pharmacist had
already paid the occupation tax under section 201 of the National Internal
Revenue Code and are thereby 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 contradiction the license
granted by the National Government is in effect withdrawn by the City in
case of non-payment of the tax under the ordinance. I fit 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
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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.
DIGEST
FACTS: The plaintiffs--two lawyers, medical practitioner, a dental surgeon, a
CPA, and a pharmacist--sought the
annulment of Ordinance No.3398 of the City of Manila which imposes a
municipal occupation tax on persons
exercising various professions in the city and penalizes non-payment of the
tax, contending in substance that this
ordinance and the law authorizing it constitute class legislation, are unjust
and oppressive, and authorize what
amounts to double taxation. 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, but that while the
that authority from other chartered
cities, not to mention municipalities.
ISSUE: Does the law constitute a class legislation? Is it for the Court to
determine which political unit should
impose taxes and which should not?
HELD: No. It is not 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
TAXATION LAW 1
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 theprovinces.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.
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.
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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. 1593P "In re: Petition for Entry of New 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.
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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 PETITIONER'S OBLIGATION TO PAY
P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT
OF P4,116.00 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 RESPONTDENT 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,
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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 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., 7374). "The general rule based on grounds of public
policy is well-settled 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
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making and enforcing of which, the personal consent of

individual taxpayers is not required. ..."
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 Corders v. Gonda (18 SCRA 331) where
we stated that: "... 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 P4,116.00 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. ... Since defendant
Ho Fernandez has the affirmative of this issue, the burden of proof therefore
rests upon him to show that plaintiff was duly and properly notified ... .
(Petition for Review, Rollo p. 18; emphasis 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.
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The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be
established by proof and thegeneral 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. (emphasis 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 ... .
We quote the following testimony of the petitioner on cross-examination, 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?
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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:
... [R]espondent 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
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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."
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." 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.
TAXATION LAW 1
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.
Digest:
Engracio Francia was the owner of a 328 square meter land in Pasay City. In
October 1977, a portion of his land (125 square meter) was expropriated by
the government for P4,116.00. The expropriation was made to give way to
the expansion of a nearby road.
It also appears that Francia failed to pay his real estate taxes since 1963
amounting to P2,400.00. So in December 1977, the remaining 203 square
meters of his land was sold at a public auction (after due notice was given
him). The highest bidder was a certain Ho Fernandez who paid the purchase
price of P2,400.00 (which was lesser than the price of the portion of his land
that was expropriated).
Later, Francia filed a complaint to annul the auction sale on the ground that
the selling price was grossly inadequate. He further argued that his land
should have never been auctioned because the P2,400.00 he owed the
government in taxes should have been set-off by the debt the government
TAXATION LAW 1
owed him (legal compensation). He alleged that he was not paid by the
government for the expropriated portion of his land because though he knew
that the payment therefor was deposited in the Philippine National Bank, he
never withdrew it.
ISSUE: Whether or not the tax owed by Francia should be set-off by the
debt owed him by the government.
HELD: No. As a rule, set-off of taxes is not allowed. 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). This is not applicable in taxes. 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.

SUPREME COURT
Manila
EN BANC
G.R. No. L-18994
June 29, 1963
MELECIO R. DOMINGO, as Commissioner of Internal

Revenue, petitioner,
vs.
TAXATION LAW 1
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.
Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.
Benedicto and Martinez for respondents.
LABRADOR, J.:
This is a petition for certiorari and mandamus against the Judge of the Court
of First Instance of Leyte, Ron. 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, G.R. No.
L-14674, January 30, 1960, 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
Intestate 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 ofP368,140.00,
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
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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 G.R. No. L-14674, 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 its accounts to its citizens-creditors before it can insist in the
prompt payment of the latter's account to it, specially taking into
consideration that the amount due to the Government draws interests
while the credit due to the present state 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 claim of the Government against the estate must be denied
for lack of merit. The ordinary procedure by which to settle claims of
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, G.R. No. L-2360, 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 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.1wph1.t
Execution may issue only where the devisees, legatees or heirs have
entered into possession of their respective portions in the estate prior
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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 mayissue execution if circumstances
require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis
supplied.) 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 the 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 is 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. 1200. When all the requisites mentioned in article 1279 are
present, compensation takes effect by operation of law, and
extinguished both debts to the concurrent amount, eventhough 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.
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Digest:
FACTS:
In Domingo vs. Moscoso, the Supreme Court declared as final and executor
the order of the lower court for the payment of estate and inheritance taxes,
charges and penalties amounting to Php 40,058.55 by the estate of the of
the late Walter Price. The petitioner for execution filed by the fiscal was
denied by the lower court. The court held that the execution is unjustified as
the Government is indebted to the estate for Php262,200 and ordered the
amount of inheritance taxes can be deducted from the Governments
indebtedness to the estate.
ISSUE:
Whether of not a tax and a debt may be compensated.
RULING:
The court having jurisdiction of the Estate had found that the claim of the
Estate against the government has been recognized and the amount has
already been appropriated by a corresponding law. Both the claim of the
Government for inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable is well as fully
liquidated. Compensation takes place by operation of law and both debts are
extinguished to the concurrent amount. Therefore the petitioner has no clear
right to execute the judgment for taxes against the estate of the deceased
Walter Price.
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SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 148187
April 16, 2008
PHILEX MINING CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision1 of the
Court of Appeals in CA-G.R. SP No. 49385, which affirmed the Decision2 of the
Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is the April 3,
2001 Resolution3 denying the motion for reconsideration.
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining),
entered into an agreement4 with Baguio Gold Mining Company ("Baguio
Gold") for the former to manage and operate the latters mining claim,
known as the Sto. Nino mine, located in Atok and Tublay, Benguet Province.
The parties agreement was denominated as "Power of Attorney" and
provided for the following terms:
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4. Within three (3) years from date thereof, the PRINCIPAL (Baguio
Gold) shall make available to the MANAGERS (Philex Mining) up to
ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from
time to time may be required by the MANAGERS within the said 3-year
period, for use in the MANAGEMENT of the STO. NINO MINE. The said
ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for internal
audit purposes, as the owners account in the Sto. Nino PROJECT. Any
part of any income of the PRINCIPAL from the STO. NINO MINE, which is
left with the Sto. Nino PROJECT, shall be added to such owners
account.
5. Whenever the MANAGERS shall deem it necessary and convenient in
connection with the MANAGEMENT of the STO. NINO MINE, they may
transfer their own funds or property to the Sto. Nino PROJECT, in
accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash,
shall be carried by the Sto. Nino PROJECT as a special fund to be
known as the MANAGERS account.
(b) The total of the MANAGERS account shall not exceed
P11,000,000.00, except with prior approval of the PRINCIPAL;
provided, however, that if the compensation of the MANAGERS as
herein provided cannot be paid in cash from the Sto. Nino
PROJECT, the amount not so paid in cash shall be added to the
MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from
the Sto. Nino PROJECT until termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is
the desire of the PRINCIPAL to extend to the MANAGERS the
benefit of subsequent appreciation of property, upon a projected
termination of this Agency, the ratio which the MANAGERS
account has to the owners account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO
MINE, excluding the claims, shall be transferred to the
MANAGERS, except that such transferred assets shall not include
mine development, roads, buildings, and similar property which
will be valueless, or of slight value, to the MANAGERS. The
MANAGERS can, on the other hand, require at their option that
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property originally transferred by them to the Sto. Nino PROJECT

be re-transferred to them. Until such assets are transferred to the
MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of
the net profit of the Sto. Nino PROJECT before income tax. It is
understood that the MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income tax on the net
profit of the Sto. Nino PROJECT after deduction therefrom of the
MANAGERS compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the
MANAGERS and, in the future, may incur other obligations in favor of
the MANAGERS. This Power of Attorney has been executed as security
for the payment and satisfaction of all such obligations of the
PRINCIPAL in favor of the MANAGERS and as a means to fulfill the
same. Therefore, this Agency shall be irrevocable while any obligation
of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of
the MANAGERS account. After all obligations of the PRINCIPAL in favor
of the MANAGERS have been paid and satisfied in full, this Agency shall
be revocable by the PRINCIPAL upon 36-month notice to the
MANAGERS.
17. Notwithstanding any agreement or understanding between the
PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may
withdraw from this Agency by giving 6-month notice to the PRINCIPAL.
The MANAGERS shall not in any manner be held liable to the PRINCIPAL
by reason alone of such withdrawal. Paragraph 5(d) hereof shall be
operative in case of the MANAGERS withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made
advances of cash and property in accordance with paragraph 5 of the
agreement. However, the mine suffered continuing losses over the years
which resulted to petitioners withdrawal as manager of the mine on January
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28, 1982 and in the eventual cessation of mine operations on February 20,
1982.6
Thereafter, on September 27, 1982, the parties executed a "Compromise
with Dation in Payment"7 wherein Baguio Gold admitted an indebtedness to
petitioner in the amount of P179,394,000.00 and agreed to pay the same in
three segments by first assigning Baguio Golds tangible assets to petitioner,
transferring to the latter Baguio Golds equitable title in its Philodrill assets
and finally settling the remaining liability through properties that Baguio Gold
may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to
Compromise with Dation in Payment"8 where the parties determined that
Baguio Golds indebtedness to petitioner actually amounted to
P259,137,245.00, which sum included liabilities of Baguio Gold to other
creditors that petitioner had assumed as guarantor. These liabilities
pertained to long-term loans amounting to US$11,000,000.00 contracted by
Baguio Gold from the Bank of America NT & SA and Citibank N.A. This time,
Baguio Gold undertook to pay petitioner in two segments by first assigning
its tangible assets for P127,838,051.00 and then transferring its equitable
title in its Philodrill assets for P16,302,426.00. The parties then ascertained
that Baguio Gold had a remaining outstanding indebtedness to petitioner in
the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining
outstanding indebtedness of Baguio Gold by charging P112,136,000.00 to
allowances and reserves that were set up in 1981 and P2,860,768.00 to the
1982 operations.
In its 1982 annual income tax return, petitioner deducted from its gross
income the amount of P112,136,000.00 as "loss on settlement of receivables
from Baguio Gold against reserves and allowances."9 However, the Bureau of
Internal Revenue (BIR) disallowed the amount as deduction for bad debt and
assessed petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be
allowed since all requisites for a bad debt deduction were satisfied, to wit: (a)
there was a valid and existing debt; (b) the debt was ascertained to be
worthless; and (c) it was charged off within the taxable year when it was
determined to be worthless.
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Petitioner emphasized that the debt arose out of a valid management

contract it entered into with Baguio Gold. The bad debt deduction
represented advances made by petitioner which, pursuant to the
management contract, formed part of Baguio Golds "pecuniary obligations"
to petitioner. It also included payments made by petitioner as guarantor of
Baguio Golds long-term loans which legally entitled petitioner to be
subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds irreversible losses, it
became evident that it would not be able to recover the advances and
payments it had made in behalf of Baguio Gold. For a debt to be considered
worthless, petitioner claimed that it was neither required to institute a
judicial action for collection against the debtor nor to sell or dispose of
collateral assets in satisfaction of the debt. It is enough that a taxpayer
exerted diligent efforts to enforce collection and exhausted all reasonable
means to collect.
On October 28, 1994, the BIR denied petitioners protest for lack of legal and
factual basis. It held that the alleged debt was not ascertained to be
worthless since Baguio Gold remained existing and had not filed a petition
for bankruptcy; and that the deduction did not consist of a valid and
subsisting debt considering that, under the management contract, petitioner
was to be paid fifty percent (50%) of the projects net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered
judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is
hereby DENIED for lack of merit. The assessment in question, viz: FAS1-82-88-003067 for deficiency income tax in the amount of
P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby
ORDERED to PAY respondent Commissioner of Internal Revenue the
amount of P62,811,161.39, plus, 20% delinquency interest due
computed from February 10, 1995, which is the date after the 20-day
grace period given by the respondent within which petitioner has to
pay the deficiency amount x x x up to actual date of payment.
SO ORDERED.11
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The CTA rejected petitioners assertion that the advances it made for the Sto.
Nino mine were in the nature of a loan. It instead characterized the advances
as petitioners investment in a partnership with Baguio Gold for the
development and exploitation of the Sto. Nino mine. The CTA held that the
"Power of Attorney" executed by petitioner and Baguio Gold was actually a
partnership agreement. Since the advanced amount partook of the nature of
an investment, it could not be deducted as a bad debt from petitioners gross
income.
The CTA likewise held that the amount paid by petitioner for the long-term
loan obligations of Baguio Gold could not be allowed as a bad debt
deduction. At the time the payments were made, Baguio Gold was not in
default since its loans were not yet due and demandable. What petitioner did
was to pre-pay the loans as evidenced by the notice sent by Bank of America
showing that it was merely demanding payment of the installment and
interests due. Moreover, Citibank imposed and collected a "pre-termination
penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial
of its motion for reconsideration,13petitioner took this recourse under Rule 45
of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by
Philex in the management of the Sto. Nino Mine pursuant to the Power
of Attorney partook of the nature of an investment rather than a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the
net profits of the Sto. Nino Mine indicates that Philex is a partner of
Baguio Gold in the development of the Sto. Nino Mine notwithstanding
the clear absence of any intent on the part of Philex and Baguio Gold
to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney and
in completely disregarding the Compromise Agreement and the
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Amended Compromise Agreement when it construed the nature of the

advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the
propriety of the bad debts write-off.14
Petitioner insists that in determining the nature of its business relationship
with Baguio Gold, we should not only rely on the "Power of Attorney", but
also on the subsequent "Compromise with Dation in Payment" and "Amended
Compromise with Dation in Payment" that the parties executed in 1982.
These documents, allegedly evinced the parties intent to treat the advances
and payments as a loan and establish a creditor-debtor relationship between
them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the instrument
that is material in determining the true nature of the business relationship
between petitioner and Baguio Gold. Before resort may be had to the two
compromise agreements, the parties contractual intent must first be
discovered from the expressed language of the primary contract under which
the parties business relations were founded. It should be noted that the
compromise agreements were mere collateral documents executed by the
parties pursuant to the termination of their business relationship created
under the "Power of Attorney". On the other hand, it is the latter which
established the juridical relation of the parties and defined the parameters of
their dealings with one another.
The execution of the two compromise agreements can hardly be considered
as a subsequent or contemporaneous act that is reflective of the parties true
intent. The compromise agreements were executed eleven years after the
"Power of Attorney" and merely laid out a plan or procedure by which
petitioner could recover the advances and payments it made under the
"Power of Attorney". The parties entered into the compromise agreements as
a consequence of the dissolution of their business relationship. It did not
define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint
venture was indeed intended by the parties. Under a contract of partnership,
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two or more persons bind themselves to contribute money, property, or

industry to a common fund, with the intention of dividing the profits among
themselves.15 While a corporation, like petitioner, cannot generally enter into
a contract of partnership unless authorized by law or its charter, it has been
held that it may enter into a joint venture which is akin to a particular
partnership:
The legal concept of a joint venture is of common law origin. It has no
precise legal definition, but it has been generally understood to mean
an organization formed for some temporary purpose. x x x It is in fact
hardly distinguishable from the partnership, since their elements are
similar community of interest in the business, sharing of profits and
losses, and a mutual right of control. x x x The main distinction cited by
most opinions in common law jurisdictions is that the partnership
contemplates a general business with some degree of continuity, while
the joint venture is formed for the execution of a single transaction,
and is thus of a temporary nature. x x x This observation is not entirely
accurate in this jurisdiction, since under the Civil Code, a partnership
may be particular or universal, and a particular partnership may have
for its object a specific undertaking. x x x It would seem therefore that
under Philippine law, a joint venture is a form of partnership and should
be governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business forms,
and has held that although a corporation cannot enter into a
partnership contract, it may however engage in a joint venture with
others. x x x (Citations omitted) 16
Perusal of the agreement denominated as the "Power of Attorney" indicates
that the parties had intended to create a partnership and establish a
common fund for the purpose. They also had a joint interest in the profits of
the business as shown by a 50-50 sharing in the income of the mine.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to
contribute money, property and industry to the common fund known as the
Sto. Nio mine.17 In this regard, we note that there is a substantive
equivalence in the respective contributions of the parties to the development
and operation of the mine. Pursuant to paragraphs 4 and 5 of the agreement,
petitioner and Baguio Gold were to contribute equally to the joint venture
assets under their respective accounts. Baguio Gold would
contribute P11M under its owners account plus any of its income that is left
TAXATION LAW 1
in the project, in addition to its actual mining claim. Meanwhile,

petitioners contribution would consist of its expertise in the management
and operation of mines, as well as the managers account which is comprised
of P11M in funds and property and petitioners "compensation" as
manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a partnership
agreement with Baguio Gold because it did not "bind" itself to contribute
money or property to the project; that under paragraph 5 of the agreement,
it was only optional for petitioner to transfer funds or property to the Sto.
Nio project "(w)henever the MANAGERS shall deem it necessary and
convenient in connection with the MANAGEMENT of the STO. NIO MINE." 18
The wording of the parties agreement as to petitioners contribution to the
common fund does not detract from the fact that petitioner transferred its
funds and property to the project as specified in paragraph 5, thus rendering
effective the other stipulations of the contract, particularly paragraph 5(c)
which prohibits petitioner from withdrawing the advances until termination of
the parties business relations. As can be seen, petitioner became bound by
its contributions once the transfers were made. The contributions acquired
an obligatory nature as soon as petitioner had chosen to exercise its option
under paragraph 5.
There is no merit to petitioners claim that the prohibition in paragraph 5(c)
against withdrawal of advances should not be taken as an indication that it
had entered into a partnership with Baguio Gold; that the stipulation only
showed that what the parties entered into was actually a contract of agency
coupled with an interest which is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be revoked
or withdrawn by the principal due to an interest of a third party that
depends upon it, or the mutual interest of both principal and agent.19 In this
case, the non-revocation or non-withdrawal under paragraph 5(c) applies to
the advances made by petitioner who is supposedly the agent and not the
principal under the contract. Thus, it cannot be inferred from the stipulation
that the parties relation under the agreement is one of agency coupled with
an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication that
the relationship of the parties was one of agency and not a partnership.
Although the said provision states that "this Agency shall be irrevocable
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while any obligation of the PRINCIPAL in favor of the MANAGERS is

outstanding, inclusive of the MANAGERS account," it does not necessarily
follow that the parties entered into an agency contract coupled with an
interest that cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power of Attorney" was not
to confer a power in favor of petitioner to contract with third persons on
behalf of Baguio Gold but to create a business relationship between
petitioner and Baguio Gold, in which the former was to manage and operate
the latters mine through the parties mutual contribution of material
resources and industry. The essence of an agency, even one that is coupled
with interest, is the agents ability to represent his principal and bring about
business relations between the latter and third persons.20 Where
representation for and in behalf of the principal is merely incidental or
necessary for the proper discharge of ones paramount undertaking under a
contract, the latter may not necessarily be a contract of agency, but some
other agreement depending on the ultimate undertaking of the parties.21
In this case, the totality of the circumstances and the stipulations in the
parties agreement indubitably lead to the conclusion that a partnership was
formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to
return the advances made by petitioner under the agreement. Paragraph 5
(d) thereof provides that upon termination of the parties business relations,
"the ratio which the MANAGERS account has to the owners account will be
determined, and the corresponding proportion of the entire assets of the
STO. NINO MINE, excluding the claims" shall be transferred to petitioner.22As
pointed out by the Court of Tax Appeals, petitioner was merely entitled to a
proportionate return of the mines assets upon dissolution of the parties
business relations. There was nothing in the agreement that would require
Baguio Gold to make payments of the advances to petitioner as would be
recognized as an item of obligation or "accounts payable" for Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a
distribution of assets of the Sto. Nio mine upon termination, a provision that
is more consistent with a partnership than a creditor-debtor relationship. It
should be pointed out that in a contract of loan, a person who receives a loan
or money or any fungible thing acquires ownership thereof and is bound to
pay the creditor an equal amount of the same kind and quality.23 In this case,
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however, there was no stipulation for Baguio Gold to actually repay

petitioner the cash and property that it had advanced, but only the return of
an amount pegged at a ratio which the managers account had to the
owners account.
In this connection, we find no contractual basis for the execution of the two
compromise agreements in which Baguio Gold recognized a debt in favor of
petitioner, which supposedly arose from the termination of their business
relations over the Sto. Nino mine. The "Power of Attorney" clearly provides
that petitioner would only be entitled to the return of a proportionate share
of the mine assets to be computed at a ratio that the managers account had
to the owners account. Except to provide a basis for claiming the advances
as a bad debt deduction, there is no reason for Baguio Gold to hold itself
liable to petitioner under the compromise agreements, for any amount over
and above the proportion agreed upon in the "Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a business
corporation to lend hundreds of millions of pesos to another corporation with
neither security, or collateral, nor a specific deed evidencing the terms and
conditions of such loans. The parties also did not provide a specific maturity
date for the advances to become due and demandable, and the manner of
payment was unclear. All these point to the inevitable conclusion that the
advances were not loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is
the fact that it would receive 50% of the net profits as "compensation" under
paragraph 12 of the agreement. The entirety of the parties contractual
stipulations simply leads to no other conclusion than that petitioners
"compensation" is actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a
person of a share in the profits of a business is prima facie evidence that he
is a partner in the business." Petitioner asserts, however, that no such
inference can be drawn against it since its share in the profits of the Sto Nio
project was in the nature of compensation or "wages of an employee", under
the exception provided in Article 1769 (4) (b).24
On this score, the tax court correctly noted that petitioner was not an
employee of Baguio Gold who will be paid "wages" pursuant to an employeremployee relationship. To begin with, petitioner was the manager of the
project and had put substantial sums into the venture in order to ensure its
TAXATION LAW 1
viability and profitability. By pegging its compensation to profits, petitioner

also stood not to be remunerated in case the mine had no income. It is hard
to believe that petitioner would take the risk of not being paid at all for its
services, if it were truly just an ordinary employee.
Consequently, we find that petitioners "compensation" under paragraph 12
of the agreement actually constitutes its share in the net profits of the
partnership. Indeed, petitioner would not be entitled to an equal share in the
income of the mine if it were just an employee of Baguio Gold. 25 It is not
surprising that petitioner was to receive a 50% share in the net profits,
considering that the "Power of Attorney" also provided for an almost equal
contribution of the parties to the St. Nino mine. The "compensation" agreed
upon only serves to reinforce the notion that the parties relations were
indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioners advances as
investments in a partnership known as the Sto. Nino mine. The advances
were not "debts" of Baguio Gold to petitioner inasmuch as the latter was
under no unconditional obligation to return the same to the former under the
"Power of Attorney". As for the amounts that petitioner paid as guarantor to
Baguio Golds creditors, we find no reason to depart from the tax courts
factual finding that Baguio Golds debts were not yet due and demandable at
the time that petitioner paid the same. Verily, petitioner pre-paid Baguio
Golds outstanding loans to its bank creditors and this conclusion is
supported by the evidence on record.26
In sum, petitioner cannot claim the advances as a bad debt deduction from
its gross income. Deductions for income tax purposes partake of the nature
of tax exemptions and are strictly construed against the taxpayer, who must
prove by convincing evidence that he is entitled to the deduction
claimed.27 In this case, petitioner failed to substantiate its assertion that the
advances were subsisting debts of Baguio Gold that could be deducted from
its gross income. Consequently, it could not claim the advances as a valid
bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals
in CA-G.R. SP No. 49385 dated June 30, 2000, which affirmed the decision of
the Court of Tax Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner
Philex Mining Corporation is ORDERED to PAY the deficiency tax on its 1982
income in the amount of P62,811,161.31, with 20% delinquency interest
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computed from February 10, 1995, which is the due date given for the
payment of the deficiency income tax, up to the actual date of payment.
SO ORDERED.
Digest:
Facts: Petitioner Philex entered into an agreement with Baguio Gold Mining
Corporation for the former to manage the latters mining claim know as the
Sto. Mine. The parties agreement was denominated as Power of Attorney.
The mine suffered continuing losses over the years, which resulted in
petitioners withdrawal as manager of the mine. The parties executed a
Compromise Dation in Payment, wherein the debt of Baguio amounted to
Php. 112,136,000.00. Petitioner deducted said amount from its gross
income in its annual tax income return as loss on the settlement of
receivables from Baguio Gold against reserves and allowances. BIR
disallowed the amount as deduction for bad debt. Petitioner claims that it
entered a contract of agency evidenced by the power of attorney executed
by them and the advances made by petitioners is in the nature of a loan and
thus can be deducted from its gross income. Court of Tax Appeals (CTA)
rejected the claim and held that it is a partnership rather than an agency. CA
affirmed CTA
Issue: Whether or not it is an agency.
Held: No. The lower courts correctly held that the Power of Attorney (PA) is
the instrument material that is material in determining the true nature of
the business relationship between petitioner and Baguio. An examination of
the said PA reveals that a partnership or joint venture was indeed intended
by the parties. While a corporation like the petitioner cannot generally enter
into a contract of partnership unless authorized by law or its charter, it has
been held that it may enter into a joint venture, which is akin to a particular
partnership. The PA indicates that the parties had intended to create a PAT
and establish a common fund for the purpose. They also had a joint interest
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in the profits of the businessas shown by the 50-50 sharing of income of the
mine.
Moreover, in an agency coupled with interest, it is the agency that cannot be
revoked or withdrawn by the principal due to an interest of a third party that
depends upon it or the mutual interest of both principal and agent. In this
case the non-revocation or non-withdrawal under the PA applies to the
advances made by the petitioner who is the agent and not the principal
under the contract. Thus, it cannot be inferred from the stipulation that it is
an agency.

SUPREME COURT
Manila
EN BANC
G.R. No. L-23645
October 29, 1968

vs.
CASTRO, J.:
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the year 1958.
xxx
xxx
xxx

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proper disposition.
follows:
of Collections.
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subparagraph 1.
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reversed.
I.
ordinary action.
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postal officials.
II.
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burden.7
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logic."10
additional stamp.
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the common good.15
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from taxation.
Digest:
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Fernando, Pampanga. It did not bear
the special anti-TB stamp required by the RA 1635. It was returned to the
petitioner. Petitioner now assails the
Anti-TB Stamp law is violative of
the equal protection clause because it constitutes mail users into a class for
the purpose of the tax while leaving
statute discriminatorily grants
exemptions. The law in question requires an additional 5 centavo stamp for
every mail being posted, and no mail
shall be delivered unless bearing the said stamp.
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
of a privilege and on administrative
convenience. Tax exemptions have never been thought of as raising
revenues under the equal protection clause.
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SUPREME COURT
Manila
EN BANC
G.R. No. L-7859
December 22, 1955

the deceased Antonio Jayme Ledesma, plaintiff-appellant,
vs.
Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor
General Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.
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-McDuffe 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, on lease or otherwise
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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.
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 thereof the mill, the landowner, the
planter of the sugar cane, and the laborers in the factory and in the
field so that all might continue profitably to engage
therein;lawphi1.net
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 adjourment 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 more 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 utilizing the other by-products of the
industry, (f) to determine what crop or crops are suitable for rotation
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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.
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 constitutioally levied. The action
having been dismissed by the Court of First Instance, the plaintifs appealed
the case 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 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 lawmaking
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
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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 Sp. 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 fully 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
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similar protection; that the legislature is not required by the Constitution to

adhere to a policy of "all or none." As 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 improvements 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 costs against appellant. So
ordered.
Digest:
Facts: Commonwealth
Act
No.
567,
otherwise
known
as
SugarAdjustment Act was promulgated in 1940 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 impositionof export taxes.
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
Sec.3 of the Act, alleging that such tax is unconstitutional and void, being
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levied for the aid and support of the sugar industry exclusively, which in
plaintiffs opinion is not a public purpose for which a tax may be
constitutionally levied. The action has been dismissed by the Court of First
Instance.
Issue: Whether or not the tax imposed is constitutional.
Held: Yes. The act is primarily an exercise of the police power. It is shown in
the Act that the tax is levied with a regulatory purpose, to provide means for
the rehabilitation and stabilization of the threatened sugar industry.
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 classfor taxation or exemption infringe no
constitutional limitation.
The funds raised under the Act 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.

SUPREME COURT
Manila
EN BANC
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G.R. No. L-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.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.
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
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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 create 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
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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; ... (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 of 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
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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 title of a bill should not be so narrowly
construed as to cripple or impede the power of legislation. 4 It should be
given 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 or 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 acrrue 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.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably
necessary for the accomplishment of, the general object of the DECREE,
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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 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 title 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 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
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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.
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 ... , 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
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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, cassettes 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 of any 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 Vallarta
vs. Court of Appeals, et al. 15
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... 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, 639-641). 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 overregulated and being eased out of existence as if it were a nuisance. Being a
relatively new industry, the need 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 Mayor's 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
TAXATION LAW 1
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. 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.
Digest:
In 1985, Presidential Dedree No. 1987 entitled An Act Creating the
Videogram Regulatory Board was enacted which gave broad powers to the
VRB to regulate and supervise the videogram industry. The said law sought
to minimize the economic effects of piracy. There was a need to regulate the
TAXATION LAW 1
sale of videograms as it has adverse effects to the movie industry. The

proliferation of videograms has significantly lessened the revenue being
acquired from the movie industry, and that such loss may be recovered if
videograms are to be taxed. Section 10 of the PD imposes a 30% tax on the
gross receipts payable to the LGUs.
In 1986, Valentin Tio assailed the said PD as he averred that it is
unconstitutional on the following grounds:
1. Section 10 thereof, which imposed the 30% tax on gross receipts, is a rider
and is not germane to the subject matter of the law.
2. There is also undue delegation of legislative power to the VRB, an
administrative body, because the law allowed the VRB to deputize, upon its
discretion, other government agencies to assist the VRB in enforcing the
said PD.
ISSUE: Whether or not the Valentin Tios arguments are correct.
HELD: No.
1. The Constitutional requirement that every bill shall embrace only one
subject which shall be expressed in the title thereof is sufficiently complied
with if the title be comprehensive enough to include the general purpose
which a statute seeks to achieve. In the case at bar, the questioned provision
is allied and germane to, and is reasonably necessary for the
accomplishment of, the general object of the PD, which is the regulation of
the video industry through the VRB 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 it is simply one of the regulatory and control mechanisms
scattered throughout the PD.
2. There is no undue delegation of legislative powers to the VRB. VRB is not
being tasked to legislate. What was conferred to the VRB was the authority
or discretion to seek assistance in the execution, enforcement, and
implementation of the law. 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 [VRB].
TAXATION LAW 1

SUPREME COURT
Manila
EN BANC
G.R. No. L-24756
October 31, 1968
CITY OF BAGUIO, plaintiff-appellee,

vs.
FORTUNATO DE LEON, defendant-appellant.
The City Attorney for plaintiff-appellee.
Fortunato de Leon for and in his own behalf as defendant-appellant.
TAXATION LAW 1
FERNANDO, J.:
In this appeal, a lower court decision upholding the validity of an
ordinance1 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.
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 therefrom 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 Baguio2 empowering it to fix the
license fee and regulate "businesses, trades and occupations as may be
established or practiced in the City."
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.
TAXATION LAW 1
Nor is the question raised by him as to the validity thereof novel in character.
In Medina v. City of Baguio,3 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 the purpose of rating 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 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, defendantappellant 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
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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.4 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.
Moreover, in City of Manila v. Bugsuk Lumber Co.,5 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.
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,6 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 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
TAXATION LAW 1
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."7 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.
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 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."8With 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 state. In a 1947 decision, however,9 we quoted with
approval this excerpt from a leading American decision:10 "Where, as here,
Congress has clearly expressed its intention, the statute must be sustained
even though double taxation results."
At any rate, it has been expressly affirmed by us that such an "argument
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
TAXATION LAW 1
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,12 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.13 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 Fuente14 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, 15 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 case16 that "inequalities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional
limitation."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
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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,18 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.
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 defendant-appellant 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.
TAXATION LAW 1
Digest:
FACTS: The City of Baguio passed an ordinance imposing a license fee on any
person, entity or corporation doing business in the City. The ordinance
sourced its authority from RA No. 329, thereby amending the city charter
empowering it to fix the license fee and regulate businesses, trades and
occupations as may be established or practiced in the City. De Leon was
assessed for P50 annual fee it being shown that he was engaged in property
rental and deriving income therefrom. The latter assailed the validity of the
ordinance arguing that it is ultra vires for there is no statury authority which
expressly grants the City of Baguio to levy such tax, and that there it
imposed double taxation, and violates the requirement of uniformity.
ISSUE: Are the contentions of the defendant-appellant tenable?
HELD: No. First, RA 329 was enacted amending Section 2553 of the Revised
Administrative Code empowering the City Council not only to impose a
license fee but to levy a tax for purposes of revenue, thus the ordinance
cannot be considered ultra vires for there is more than ample statury
authority
for
the
enactment
thereof.
Second, 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, so that
where, as here, Congress has clearly expressed its intention, the statute
must
be
sustained
even
though
double
taxation
results.
And third, violation of uniformity is out of place 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.

SUPREME COURT
Manila
EN BANC
G.R. No. L-41631 December 17, 1976
TAXATION LAW 1
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.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.
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 AntiGraft 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.
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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 ordinance * * *
shall be published in two daily newspapers of general circulation
TAXATION LAW 1
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 barrioordinances 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 of 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,
TAXATION LAW 1
which the general statute treats in particular. The 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 lawmaking 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 the reproach of uncertainty and
unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. 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 provisions 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 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 particularprescription for
liability due to defective streets in particular. In the same manner, the
TAXATION LAW 1
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 "ordinance 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
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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." 16Clearly, 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
committee 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 maneding 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
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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.
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Digest:
SUPREME COURT
Manila
EN BANC
G.R. No. L-10405
December 29, 1960
WENCESLAO PASCUAL, in his official capacity as Provincial Governor

of Rizal, petitioner-appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET
AL., respondents-appellees.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres
for appellee.
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. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo
Gen. Delgado Gen. 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,
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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 construed) 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, 1953, 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, when there is absolutely none, to the aforementioned
appropriation", respondents Zulueta executed on December 12, 1953, while
he was a member of the Senate of the Philippines, an alleged deed of
donation copy 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, 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
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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, therefor, illegal"; that a
writ of injunction be issued enjoining the Secretary of Public Works and
Communications, the Director of the Bureau of Public Works and Highways
and Jose C. Zulueta from ordering or allowing the continuance of the abovementioned 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 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 improvements 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."
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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 appropriate
public revenues for anything but a public purpose", that the instructions and
improvement of the feeder roads in question, if such roads where 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 hereby donated for street purposes only and for no other
purposes whatsoever; it being expressly understood that should the
Government of the Republic 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.
(Emphasis 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 in
existence and void from the very beginning contracts "whose cause, objector
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 "interest 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 much, 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
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further alleges that the construction of said 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, 1and 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 selfevident. 2However, 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 movant is not aware of any law which makes illegal the
appropriation 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 Republic 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 public
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 interest 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 to the public or to the state, which
results from the promotion of private interest and the prosperity of
private enterprises or business, does not justify their aid by the use
public money. (25 R.L.C. pp. 398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
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In accordance with the rule that the taxing power must be exercised
for public purposes only, discussedsupra 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; emphasis
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 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 for a public purpose.
xxx
xxx
xxx
The test of the constitutionality of a statute requiring the use of public

funds is whether the statute is designed to promote the public interest,
as opposed to the furtherance of the advantage of individuals,
although each advantage to individuals might incidentally serve the
public. (81 C.J.S. pp. 1147; emphasis 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.lawphil.net
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.
TAXATION LAW 1
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 consists 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,
latter on, became Republic Act 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-stated that the validity of a statute 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, 5upon 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. 6Although there
are some decisions to the contrary, 7the 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
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general rule is that not only persons individually affected, but

alsotaxpayers, have sufficient interest in preventing the illegal
expenditure of moneys raised by taxation and may therefore question
the constitutionality of statutes requiring expenditure of public
moneys. (11 Am. Jur. 761; emphasis 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 ofeach 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).lawphi1.net
The relation between the people of the Philippines and its taxpayers, on the
other 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 unitarytype 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 Union. For this reason, the rule
recognizing the right of taxpayers to assail the constitutionality of a
legislation appropriating local or state public funds which has been upheld
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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 exorbitant. 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) cases
the importance of the issues therein raised is 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, 8and, 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 petitioners 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.
Digest:
FACTS: Governor Wenceslao Pascual of Rizal instituted this action for
declaratory relief, with injunction, upon the ground that RA No. 920, which
apropriates funds for public works particularly for the construction and
improvement of Pasig feeder road terminals. Some of the feeder roads,
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however, as alleged and as contained in the tracings attached to the

petition, were nothing but projected and planned subdivision roads, not yet
constructed within the Antonio Subdivision, belonging to private respondent
Zulueta, situated at Pasig, Rizal; and which projected feeder roads do not
connect any government property or any important premises to the main
highway. The respondents' contention is that there is public purpose because
people living in the subdivision will directly be benefitted from the
construction of the roads, and the government also gains from the donation
of the land supposed to be occupied by the streets, made by its owner to the
government.
ISSUE: Should incidental gains by the public be considered "public purpose"
for the purpose of justifying an expenditure of the government?
HELD: No. 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
interest 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 to the public or to the state, which results from the
promotion of private interest and the prosperity of private enterprises or
business, does not justify their aid by the use public money.
The test of the constitutionality of a statute requiring the use of public
funds is whether the statute is designed to promote the public interest, as
opposed to the furtherance of the advantage of individuals, although each
advantage to individuals might incidentally serve the public.
SUPREME COURT
Manila
EN BANC
G.R. No. L-65773-74 April 30, 1987
vs.
BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX
Quasha, Asperilla, Ancheta, Pea, Valmonte & Marcos for respondent British
Airways.
TAXATION LAW 1
MELENCIO-HERRERA, J.:
Petitioner Commissioner of Internal Revenue (CIR) seeks a review on
certiorari of the joint Decision of the Court of Tax Appeals (CTA) in CTA Cases
Nos. 2373 and 2561, dated 26 January 1983, which set aside petitioner's
assessment of deficiency income taxes against respondent British Overseas
Airways Corporation (BOAC) for the fiscal years 1959 to 1967, 1968-69 to
1970-71, respectively, as well as its Resolution of 18 November, 1983
denying reconsideration.
BOAC is a 100% British Government-owned corporation organized and
existing under the laws of the United Kingdom It is engaged in the
international airline business and is a member-signatory of the Interline Air
Transport Association (IATA). As such it operates air transportation service
and sells transportation tickets over the routes of the other airline members.
During the periods covered by the disputed assessments, it is admitted that
BOAC had no landing rights for traffic purposes in the Philippines, and was
not granted a Certificate of public convenience and necessity to operate in
the Philippines by the Civil Aeronautics Board (CAB), except for a nine-month
period, partly in 1961 and partly in 1962, when it was granted a temporary
landing permit by the CAB. Consequently, it did not carry passengers and/or
cargo to or from the Philippines, although during the period covered by the
assessments, it maintained a general sales agent in the Philippines Wamer
Barnes and Company, Ltd., and later Qantas Airways which was
responsible for selling BOAC tickets covering passengers and cargoes. 1
G.R. No. 65773 (CTA Case No. 2373, the First Case)
On 7 May 1968, petitioner Commissioner of Internal Revenue (CIR, for
brevity) assessed BOAC the aggregate amount of P2,498,358.56 for
deficiency income taxes covering the years 1959 to 1963. This was protested
by BOAC. Subsequent investigation resulted in the issuance of a new
assessment, dated 16 January 1970 for the years 1959 to 1967 in the
amount of P858,307.79. BOAC paid this new assessment under protest.
On 7 October 1970, BOAC filed a claim for refund of the amount of
P858,307.79, which claim was denied by the CIR on 16 February 1972. But
before said denial, BOAC had already filed a petition for review with the Tax
Court on 27 January 1972, assailing the assessment and praying for the
refund of the amount paid.
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G.R. No. 65774 (CTA Case No. 2561, the Second Case)
On 17 November 1971, BOAC was assessed deficiency income taxes,
interests, and penalty for the fiscal years 1968-1969 to 1970-1971 in the
aggregate amount of P549,327.43, and the additional amounts of P1,000.00
and P1,800.00 as compromise penalties for violation of Section 46 (requiring
the filing of corporation returns) penalized under Section 74 of the National
Internal Revenue Code (NIRC).
On 25 November 1971, BOAC requested that the assessment be
countermanded and set aside. In a letter, dated 16 February 1972, however,
the CIR not only denied the BOAC request for refund in the First Case but also
re-issued in the Second Case the deficiency income tax assessment for
P534,132.08 for the years 1969 to 1970-71 plus P1,000.00 as compromise
penalty under Section 74 of the Tax Code. BOAC's request for reconsideration
was denied by the CIR on 24 August 1973. This prompted BOAC to file the
Second Case before the Tax Court praying that it be absolved of liability for
deficiency income tax for the years 1969 to 1971.
This case was subsequently tried jointly with the First Case.
On 26 January 1983, the Tax Court rendered the assailed joint Decision
reversing the CIR. The Tax Court held that the proceeds of sales of BOAC
passage tickets in the Philippines by Warner Barnes and Company, Ltd., and
later by Qantas Airways, during the period in question, do not constitute
BOAC income from Philippine sources "since no service of carriage of
passengers or freight was performed by BOAC within the Philippines" and,
therefore, said income is not subject to Philippine income tax. The CTA
position was that income from transportation is income from services so that
the place where services are rendered determines the source. Thus, in the
dispositive portion of its Decision, the Tax Court ordered petitioner to credit
BOAC with the sum of P858,307.79, and to cancel the deficiency income tax
assessments against BOAC in the amount of P534,132.08 for the fiscal years
1968-69 to 1970-71.
Hence, this Petition for Review on certiorari of the Decision of the Tax Court.
The Solicitor General, in representation of the CIR, has aptly defined the
issues, thus:
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1. Whether or not the revenue derived by private respondent

British Overseas Airways Corporation (BOAC) from sales of tickets
in the Philippines for air transportation, while having no landing
rights here, constitute income of BOAC from Philippine sources,
and, accordingly, taxable.
2. Whether or not during the fiscal years in question BOAC s a
resident foreign corporation doing business in the Philippines or
has an office or place of business in the Philippines.
3. In the alternative that private respondent may not be
considered a resident foreign corporation but a non-resident
foreign corporation, then it is liable to Philippine income tax at
the rate of thirty-five per cent (35%) of its gross income received
from all sources within the Philippines.
Under Section 20 of the 1977 Tax Code:
(h) the term resident foreign corporation engaged in trade or
business within the Philippines or having an office or place of
business therein.
(i) The term "non-resident foreign corporation" applies to a
foreign corporation not engaged in trade or business within the
Philippines and not having any office or place of business therein
It is our considered opinion that BOAC is a resident foreign corporation. There
is no specific criterion as to what constitutes "doing" or "engaging in" or
"transacting" business. Each case must be judged in the light of its peculiar
environmental circumstances. The term implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the functions
normally incident to, and in progressive prosecution of commercial gain or
for the purpose and object of the business organization. 2 "In order that a
foreign corporation may be regarded as doing business within a State, there
must be continuity of conduct and intention to establish a continuous
business, such as the appointment of a local agent, and not one of a
temporary character. 3
BOAC, during the periods covered by the subject - assessments, maintained
a general sales agent in the Philippines, That general sales agent, from 1959
TAXATION LAW 1
to 1971, "was engaged in (1) selling and issuing tickets; (2) breaking down
the whole trip into series of trips each trip in the series corresponding to a
different airline company; (3) receiving the fare from the whole trip; and (4)
consequently allocating to the various airline companies on the basis of their
participation in the services rendered through the mode of interline
settlement as prescribed by Article VI of the Resolution No. 850 of the IATA
Agreement." 4 Those activities were in exercise of the functions which are
normally incident to, and are in progressive pursuit of, the purpose and
object of its organization as an international air carrier. In fact, the regular
sale of tickets, its main activity, is the very lifeblood of the airline business,
the generation of sales being the paramount objective. There should be no
doubt then that BOAC was "engaged in" business in the Philippines through a
local agent during the period covered by the assessments. Accordingly, it is a
resident foreign corporation subject to tax upon its total net income received
in the preceding taxable year from all sources within the Philippines. 5
Sec. 24. Rates of tax on corporations. ...
(b) Tax on foreign corporations. ...
(2) Resident corporations. A corporation organized, authorized,
or existing under the laws of any foreign country, except a
foreign fife insurance company, engaged in trade or business
within the Philippines, shall be taxable as provided in subsection
(a) of this section upon the total net income received in the
preceding taxable year from all sources within the
Philippines. (Emphasis supplied)
Next, we address ourselves to the issue of whether or not the revenue from
sales of tickets by BOAC in the Philippines constitutes income from Philippine
sources and, accordingly, taxable under our income tax laws.
The Tax Code defines "gross income" thus:
"Gross income" includes gains, profits, and income derived from
salaries, wages or compensation for personal service of whatever
kind and in whatever form paid, or from profession, vocations,
trades,business, commerce, sales, or dealings in property,
whether real or personal, growing out of the ownership or use of
or interest in such property; also from interests, rents, dividends,
securities, or the transactions of any business carried on for gain
TAXATION LAW 1
or profile, or gains, profits, and income derived from any source

whatever (Sec. 29[3]; Emphasis supplied)
The definition is broad and comprehensive to include proceeds from sales of
transport documents. "The words 'income from any source whatever'
disclose a legislative policy to include all income not expressly exempted
within the class of taxable income under our laws." Income means "cash
received or its equivalent"; it is the amount of money coming to a person
within a specific time ...; it means something distinct from principal or
capital. For, while capital is a fund, income is a flow. As used in our income
tax law, "income" refers to the flow of wealth. 6
The records show that the Philippine gross income of BOAC for the fiscal
years 1968-69 to 1970-71 amounted to P10,428,368 .00. 7
Did such "flow of wealth" come from "sources within the Philippines",
The source of an income is the property, activity or service that produced the
income. 8 For the source of income to be considered as coming from the
Philippines, it is sufficient that the income is derived from activity within the
Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity
that produces the income. The tickets exchanged hands here and payments
for fares were also made here in Philippine currency. The site of the source of
payments is the Philippines. The flow of wealth proceeded from, and
occurred within, Philippine territory, enjoying the protection accorded by the
Philippine government. In consideration of such protection, the flow of wealth
should share the burden of supporting the government.
A transportation ticket is not a mere piece of paper. When issued by a
common carrier, it constitutes the contract between the ticket-holder and the
carrier. It gives rise to the obligation of the purchaser of the ticket to pay the
fare and the corresponding obligation of the carrier to transport the
passenger upon the terms and conditions set forth thereon. The ordinary
ticket issued to members of the traveling public in general embraces within
its terms all the elements to constitute it a valid contract, binding upon the
parties entering into the relationship. 9
True, Section 37(a) of the Tax Code, which enumerates items of gross income
from sources within the Philippines, namely: (1) interest, (21) dividends, (3)
service, (4) rentals and royalties, (5) sale of real property, and (6) sale of
personal property, does not mention income from the sale of tickets for
TAXATION LAW 1
international transportation. However, that does not render it less an income

from sources within the Philippines. Section 37, by its language, does not
intend the enumeration to be exclusive. It merely directs that the types of
income listed therein be treated as income from sources within the
Philippines. A cursory reading of the section will show that it does not state
that it is an all-inclusive enumeration, and that no other kind of income may
be so considered. " 10
BOAC, however, would impress upon this Court that income derived from
transportation is income for services, with the result that the place where the
services are rendered determines the source; and since BOAC's service of
transportation is performed outside the Philippines, the income derived is
from sources without the Philippines and, therefore, not taxable under our
income tax laws. The Tax Court upholds that stand in the joint Decision under
review.
The absence of flight operations to and from the Philippines is not
determinative of the source of income or the site of income taxation.
Admittedly, BOAC was an off-line international airline at the time pertinent to
this case. The test of taxability is the "source"; and the source of an income
is that activity ... which produced the income. 11Unquestionably, the
passage documentations in these cases were sold in the Philippines and the
revenue therefrom was derived from a activity regularly pursued within the
Philippines. business a And even if the BOAC tickets sold covered the
"transport of passengers and cargo to and from foreign cities", 12it cannot
alter the fact that income from the sale of tickets was derived from the
Philippines. The word "source" conveys one essential idea, that of origin, and
the origin of the income herein is the Philippines. 13
It should be pointed out, however, that the assessments upheld herein apply
only to the fiscal years covered by the questioned deficiency income tax
assessments in these cases, or, from 1959 to 1967, 1968-69 to 1970-71. For,
pursuant to Presidential Decree No. 69, promulgated on 24 November, 1972,
international carriers are now taxed as follows:
... Provided, however, That international carriers shall pay a tax
of 2- per cent on their cross Philippine billings. (Sec. 24[b] [21,
Tax Code).
Presidential Decree No. 1355, promulgated on 21 April, 1978, provided a
statutory definition of the term "gross Philippine billings," thus:
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... "Gross Philippine billings" includes 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 foregoing provision ensures that international airlines are taxed on their
income from Philippine sources. The 2- % tax on gross Philippine billings is
an income tax. If it had been intended as an excise or percentage tax it
would have been place under Title V of the Tax Code covering Taxes on
Business.
Lastly, we find as untenable the BOAC argument that the dismissal for lack of
merit by this Court of the appeal inJAL vs. Commissioner of Internal
Revenue (G.R. No. L-30041) on February 3, 1969, is res judicata to the
present case. The ruling by the Tax Court in that case was to the effect that
the mere sale of tickets, unaccompanied by the physical act of carriage of
transportation, does not render the taxpayer therein subject to the common
carrier's tax. As elucidated by the Tax Court, however, the common carrier's
tax is an excise tax, being a tax on the activity of transporting, conveying or
removing passengers and cargo from one place to another. It purports to tax
the business of transportation. 14 Being an excise tax, the same can be
levied by the State only when the acts, privileges or businesses are done or
performed within the jurisdiction of the Philippines. The subject matter of the
case under consideration is income tax, a direct tax on the income of
persons and other entities "of whatever kind and in whatever form derived
from any source." Since the two cases treat of a different subject matter, the
decision in one cannot be res judicata to the other.
WHEREFORE, the appealed joint Decision of the Court of Tax Appeals is
hereby SET ASIDE. Private respondent, the British Overseas Airways
Corporation (BOAC), is hereby ordered to pay the amount of P534,132.08 as
deficiency income tax for the fiscal years 1968-69 to 1970-71 plus 5%
surcharge, and 1% monthly interest from April 16, 1972 for a period not to
exceed three (3) years in accordance with the Tax Code. The BOAC claim for
refund in the amount of P858,307.79 is hereby denied. Without costs.
SO ORDERED.
TAXATION LAW 1
Digest:
FACTS: Petitioner CIR seeks a review of the CTA's decision setting aside
petitioner's assessment of deficiency income taxes against respondent
British Overseas Airways Corporation (BOAC) for the fiscal years 1959 to
1971. BOAC is a 100% British Government-owned corporation organized and
existing under the laws of the United Kingdom, and is engaged in the
international airline business. During the periods covered by the disputed
assessments, it is admitted that BOAC had no landing rights for traffic
purposes in the Philippines. Consequently, it did not carry passengers and/or
cargo to or from the Philippines, although during the period covered by the
assessments, it maintained a general sales agent in the Philippines Wamer
Barnes and Company, Ltd., and later Qantas Airways which was
responsible for selling BOAC tickets covering passengers and cargoes. The
CTA sided with BOAC citing that the proceeds of sales of BOAC tickets do not
constitute BOAC income from Philippine sources since no service of carriage
of passengers or freight was performed by BOAC within the Philippines and,
therefore, said income is not subject to Philippine income tax. The CTA
position was that income from transportation is income from services so that
the place where services are rendered determines the source.
ISSUE: Are the revenues derived by BOAC from sales of ticket for air
transportation, while having no landing rights here, constitute income of
BOAC from Philippine sources, and accordingly, taxable?
HELD: Yes. The source of an income is the property, activity or service that
produced the income. For the source of income to be considered as coming
from the Philippines, it is sufficient that the income is derived from activity
within the Philippines. In BOAC's case, the sale of tickets in the Philippines is
the activity that produces the income. The tickets exchanged hands here and
payments for fares were also made here in Philippine currency. The site of
the source of payments is the Philippines. The flow of wealth proceeded
from, and occurred within, Philippine territory, enjoying the protection
accorded by the Philippine government. In consideration of such protection,
the flow of wealth should share the burden of supporting the government.

SUPREME COURT
Manila
THIRD DIVISION
G.R. Nos. 141104 & 148763
June 8, 2007
TAXATION LAW 1
ATLAS CONSOLIDATED MINING AND DEVELOPMENT

CORPORATION, petitioner,
vs.
DECISION
CHICO-NAZARIO, J.:
Before this Court are the consolidated cases involving the unsuccessful
claims of herein petitioner Atlas Consolidated Mining and Development
Corporation (petitioner corporation) for the refund/credit of the input Value
Added Tax (VAT) on its purchases of capital goods and on its zero-rated sales
in the taxable quarters of the years 1990 and 1992, the denial of which by
the Court of Tax Appeals (CTA), was affirmed by the Court of Appeals.
Petitioner corporation is engaged in the business of mining, production, and
sale of various mineral products, such as gold, pyrite, and copper
concentrates. It is a VAT-registered taxpayer. It was initially issued VAT
Registration No. 32-A-6-002224, dated 1 January 1988, but it had to register
anew with the appropriate revenue district office (RDO) of the Bureau of
Internal Revenue (BIR) when it moved its principal place of business, and it
was re-issued VAT Registration No. 32-0-004622, dated 15 August 1990.1
G.R. No. 141104
Petitioner corporation filed with the BIR its VAT Return for the first quarter of
1992.2 It alleged that it likewise filed with the BIR the corresponding
application for the refund/credit of its input VAT on its purchases of capital
goods and on its zero-rated sales in the amount of P26,030,460.00.3 When its
application for refund/credit remained unresolved by the BIR, petitioner
corporation filed on 20 April 1994 its Petition for Review with the CTA,
docketed as CTA Case No. 5102. Asserting that it was a "zero-rated VAT
person," it prayed that the CTA order herein respondent Commissioner of
Internal Revenue (respondent Commissioner) to refund/credit petitioner
corporation with the amount of P26,030,460.00, representing the input VAT it
had paid for the first quarter of 1992. The respondent Commissioner opposed
and sought the dismissal of the petition for review of petitioner corporation
for failure to state a cause of action. After due trial, the CTA promulgated its
Decision4 on 24 November 1997 with the following disposition
WHEREFORE, in view of the foregoing, the instant claim for refund is
hereby DENIED on the ground of prescription, insufficiency of evidence
and failure to comply with Section 230 of the Tax Code, as amended.
Accordingly, the petition at bar is hereby DISMISSED for lack of merit.
TAXATION LAW 1
The CTA denied the motion for reconsideration of petitioner corporation in a

Resolution5 dated 15 April 1998.
When the case was elevated to the Court of Appeals as CA-G.R. SP No.
47607, the appellate court, in its Decision,6 dated 6 July 1999, dismissed the
appeal of petitioner corporation, finding no reversible error in the CTA
Decision, dated 24 November 1997. The subsequent motion for
reconsideration of petitioner corporation was also denied by the Court of
Appeals in its Resolution,7 dated 14 December 1999.
Thus, petitioner corporation comes before this Court, via a Petition for
Review on Certiorari under Rule 45 of the Revised Rules of Court, assigning
the following errors committed by the Court of Appeals
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF
REVENUE REGULATIONS NO. 2-88 THAT AT LEAST 70% OF THE SALES
OF THE [BOARD OF INVESTMENTS (BOI)]-REGISTERED FIRM MUST
CONSIST OF EXPORTS FOR ZERO-RATING TO APPLY.
II
THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED
TO SUBMIT SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT
PHOTOCOPIES OF VAT INVOICES AND RECEIPTS IS NOT A FATAL
DEFECT.
III
THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM
WAS FILED BEYOND THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL
CLAIM WAS FILED WITHIN TWO (2) YEARS FROM THE FILING OF THE
VAT RETURN.
IV
THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE
RE-OPENING OF THE CASE FOR PETITIONER TO PRESENT ADDITIONAL
EVIDENCE.8
G.R. No. 148763
G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104
presented above, except that it relates to the claims of petitioner corporation
TAXATION LAW 1
for refund/credit of input VAT on its purchases of capital goods and on its
zero-rated sales made in the last three taxable quarters of 1990.
Petitioner corporation filed with the BIR its VAT Returns for the second, third,
and fourth quarters of 1990, on 20 July 1990, 18 October 1990, and 20
January 1991, respectively. It submitted separate applications to the BIR for
the refund/credit of the input VAT paid on its purchases of capital goods and
on its zero-rated sales, the details of which are presented as follows
Date of Application
21 August 1990
Period
Covered
Amount Applied
For
2nd Quarter, P 54,014,722.04

1990
21 November 1990
3rd Quarter,
1990
75,304,774.77
19 February 1991
4th Quarter,
1990
43,829,766.10
When the BIR failed to act on its applications for refund/credit, petitioner
corporation filed with the CTA the following petitions for review
Date Filed
Period
Covered
CTA Case No.
20 July 1992
2nd Quarter,
1990
4831
9 October 1992
3rd Quarter,
1990
4859
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14 January 1993
4th Quarter,
1990
4944
which were eventually consolidated. The respondent Commissioner

contested the foregoing Petitions and prayed for the dismissal thereof. The
CTA ruled in favor of respondent Commissioner and in its Decision,9 dated 30
October 1997, dismissed the Petitions mainly on the ground that the
prescriptive periods for filing the same had expired. In a Resolution,10 dated
15 January 1998, the CTA denied the motion for reconsideration of petitioner
corporation since the latter presented no new matter not already discussed
in the court's prior Decision. In the same Resolution, the CTA also denied the
alternative prayer of petitioner corporation for a new trial since it did not fall
under any of the grounds cited under Section 1, Rule 37 of the Revised Rules
of Court, and it was not supported by affidavits of merits required by Section
2 of the same Rule.
Petitioner corporation appealed its case to the Court of Appeals, where it was
docketed as CA-G.R. SP No. 46718. On 15 September 2000, the Court of
Appeals rendered its Decision,11 finding that although petitioner corporation
timely filed its Petitions for Review with the CTA, it still failed to substantiate
its claims for the refund/credit of its input VAT for the last three quarters of
1990. In its Resolution,12 dated 27 June 2001, the appellate court denied the
motion for reconsideration of petitioner corporation, finding no cogent reason
to reverse its previous Decision.
Aggrieved, petitioner corporation filed with this Court another Petition for
Review on Certiorari under Rule 45 of the Revised Rules of Court, docketed
as G.R. No. 148763, raising the following issues
A.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER'S CLAIM IS BARRED UNDER REVENUE REGULATIONS NOS.
2-88 AND 3-88 I.E., FOR FAILURE TO PTOVE [sic] THE 70% THRESHOLD
FOR ZERO-RATING TO APPLY AND FOR FAILURE TO ESTABLISH THE
FACTUAL BASIS FOR THE INSTANT CLAIM.
B.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT
THERE IS NO BASIS TO GRANT PETITIONER'S MOTION FOR NEW TRIAL.
TAXATION LAW 1
There being similarity of parties, subject matter, and issues, G.R. Nos.
141104 and 148763 were consolidated pursuant to a Resolution, dated 4
September 2006, issued by this Court. The ruling of this Court in these cases
hinges on how it will resolve the following key issues: (1) prescription of the
claims of petitioner corporation for input VAT refund/credit; (2) validity and
applicability of Revenue Regulations No. 2-88 imposing upon petitioner
corporation, as a requirement for the VAT zero-rating of its sales, the burden
of proving that the buyer companies were not just BOI-registered but also
exporting 70% of their total annual production; (3) sufficiency of evidence
presented by petitioner corporation to establish that it is indeed entitled to
input VAT refund/credit; and (4) legal ground for granting the motion of
petitioner corporation for re-opening of its cases or holding of new trial
before the CTA so it could be given the opportunity to present the required
evidence.
Prescription
The prescriptive period for filing an application for tax refund/credit of input
VAT on zero-rated sales made in 1990 and 1992 was governed by Section
106(b) and (c) of the Tax Code of 1977, as amended, which provided that
SEC. 106. Refunds or tax credits of input tax. x x x.
(b) Zero-rated or effectively zero-rated sales. Any person, except
those covered by paragraph (a) above, whose sales are zero-rated
may, within two years after the close of the quarter when such sales
were made, apply for the issuance of a tax credit certificate or refund
of the input taxes attributable to such sales to the extent that such
input tax has not been applied against output tax.
xxxx
(e) Period within which refund of input taxes may be made by the
Commissioner. The Commissioner 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.
By a plain reading of the foregoing provision, the two-year prescriptive
period for filing the application for refund/credit of input VAT on zero-rated
sales shall be determined from the close of the quarter when such sales were
made.
TAXATION LAW 1
Petitioner contends, however, that the said two-year prescriptive period

should be counted, not from the close of the quarter when the zero-rated
sales were made, but from the date of filing of the quarterly VAT return and
payment of the tax due 20 days thereafter, in accordance with Section
110(b) of the Tax Code of 1977, as amended, quoted as follows
SEC. 110. Return and payment of value-added tax. x x x.
(b) Time for filing of return and payment of tax. The return shall be
filed and the tax paid within 20 days following the end of each quarter
specifically prescribed for a VAT-registered person under regulations to
be promulgated by the Secretary of Finance: Provided, however, That
any person whose registration is cancelled in accordance with
paragraph (e) of Section 107 shall file a return within 20 days from the
cancellation of such registration.
It is already well-settled that the two-year prescriptive period for instituting a
suit or proceeding for recovery of corporate income tax erroneously or
illegally paid under Section 23013 of the Tax Code of 1977, as amended, was
to be counted from the filing of the final adjustment return. This Court
already set out in ACCRA Investments Corporation v. Court of Appeals,14 the
rationale for such a rule, thus
Clearly, there is the need to file a return first before a claim for refund
can prosper inasmuch as the respondent Commissioner by his own
rules and regulations mandates that the corporate taxpayer opting to
ask for a refund must show in its final adjustment return the income it
received from all sources and the amount of withholding taxes remitted
by its withholding agents to the Bureau of Internal Revenue. The
petitioner corporation filed its final adjustment return for its 1981
taxable year on April 15, 1982. In our Resolution dated April 10, 1989
in the case of Commissioner of Internal Revenue v. Asia Australia
Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive
period within which to claim a refund commences to run, at the
earliest, on the date of the filing of the adjusted final tax return. Hence,
the petitioner corporation had until April 15, 1984 within which to file
its claim for refund.
Considering that ACCRAIN filed its claim for refund as early as
December 29, 1983 with the respondent Commissioner who failed to
take any action thereon and considering further that the non-resolution
of its claim for refund with the said Commissioner prompted ACCRAIN
to reiterate its claim before the Court of Tax Appeals through a petition
for review on April 13, 1984, the respondent appellate court manifestly
committed a reversible error in affirming the holding of the tax court
that ACCRAIN's claim for refund was barred by prescription.
TAXATION LAW 1
It bears emphasis at this point that the rationale in computing the twoyear prescriptive period with respect to the petitioner corporation's
claim for refund from the time it filed its final adjustment return is the
fact that it was only then that ACCRAIN could ascertain whether it
made profits or incurred losses in its business operations. The "date of
payment", therefore, in ACCRAIN's case was when its tax liability, if
any, fell due upon its filing of its final adjustment return on April 15,
1982.
In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this
Court further expounded on the same matter
A re-examination of the aforesaid minute resolution of the Court in
the Pacific Procon case is warranted under the circumstances to lay
down a categorical pronouncement on the question as to when the
two-year prescriptive period in cases of quarterly corporate income tax
commences to run. A full-blown decision in this regard is rendered
more imperative in the light of the reversal by the Court of Tax Appeals
in the instant case of its previous ruling in the Pacific Procon case.
Section 292 (now Section 230) of the National Internal Revenue Code
should be interpreted in relation to the other provisions of the Tax Code
in order to give effect the legislative intent and to avoid an application
of the law which may lead to inconvenience and absurdity. In the case
of People vs. Rivera (59 Phil. 236 [1933]), this Court stated that
statutes should receive a sensible construction, such as will give effect
to the legislative intention and so as to avoid an unjust or an absurd
conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST,
UT EVITATUR INCONVENIENS ET ABSURDUM. Where there is ambiguity,
such interpretation as will avoid inconvenience and absurdity is to be
adopted. Furthermore, courts must give effect to the general legislative
intent that can be discovered from or is unraveled by the four corners
of the statute, and in order to discover said intent, the whole statute,
and not only a particular provision thereof, should be considered.
(Manila Lodge No. 761, et al. vs. Court of Appeals, et al. 73 SCRA 162
[1976) Every section, provision or clause of the statute must be
expounded by reference to each other in order to arrive at the effect
contemplated by the legislature. The intention of the legislator must be
ascertained from the whole text of the law and every part of the act is
to be taken into view. (Chartered Bank vs. Imperial, 48 Phil. 931
[1921]; Lopez vs. El Hoger Filipino, 47 Phil. 249, cited in Aboitiz
Shipping Corporation vs. City of Cebu, 13 SCRA 449 [1965]).
Thus, in resolving the instant case, it is necessary that we consider not
only Section 292 (now Section 230) of the National Internal Revenue
Code but also the other provisions of the Tax Code, particularly
TAXATION LAW 1
Sections 84, 85 (now both incorporated as Section 68), Section 86 (now

Section 70) and Section 87 (now Section 69) on Quarterly Corporate
Income Tax Payment and Section 321 (now Section 232) on keeping of
books of accounts. All these provisions of the Tax Code should be
harmonized with each other.
xxxx
Therefore, the filing of a quarterly income tax returns required in
Section 85 (now Section 68) and implemented per BIR Form 1702-Q
and payment of quarterly income tax should only be considered mere
installments of the annual tax due. These quarterly tax payments
which are computed based on the cumulative figures of gross receipts
and deductions in order to arrive at a net taxable income, should be
treated as advances or portions of the annual income tax due, to be
adjusted at the end of the calendar or fiscal year. This is reinforced by
Section 87 (now Section 69) which provides for the filing of adjustment
returns and final payment of income tax. Consequently, the two-year
prescriptive period provided in Section 292 (now Section 230) of the
Tax Code should be computed from the time of filing the Adjustment
Return or Annual Income Tax Return and final payment of income tax.
In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA
1007 [1961]), this Court held that when a tax is paid in installments,
the prescriptive period of two years provided in Section 306 (Section
292) of the National Internal Revenue Code should be counted from the
date of the final payment. This ruling is reiterated in Commissioner of
Internal Revenue vs. Carlos Palanca (18 SCRA 496 [1966]), wherein this
Court stated that where the tax account was paid on installment, the
computation of the two-year prescriptive period under Section 306
(Section 292) of the Tax Code, should be from the date of the last
installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March
14, 1984. Since the two-year prescriptive period should be counted
from the filing of the Adjustment Return on April 15,1982, TMX Sales,
Inc. is not yet barred by prescription.
The very same reasons set forth in the afore-cited cases concerning the twoyear prescriptive period for claims for refund of illegally or erroneously
collected income tax may also apply to the Petitions at bar involving the
same prescriptive period for claims for refund/credit of input VAT on zerorated sales.
It is true that unlike corporate income tax, which is reported and paid on
installment every quarter, but is eventually subjected to a final adjustment
TAXATION LAW 1
at the end of the taxable year, VAT is computed and paid on a purely
quarterly basis without need for a final adjustment at the end of the taxable
year. However, it is also equally true that until and unless the VAT-registered
taxpayer prepares and submits to the BIR its quarterly VAT return, there is no
way of knowing with certainty just how much input VAT16 the taxpayer may
apply against its output VAT;17how much output VAT it is due to pay for the
quarter or how much excess input VAT it may carry-over to the following
quarter; or how much of its input VAT it may claim as refund/credit. It should
be recalled that not only may a VAT-registered taxpayer directly apply
against his output VAT due the input VAT it had paid on its importation or
local purchases of goods and services during the quarter; the taxpayer is
also given the option to either (1) carry over any excess input VAT to the
succeeding quarters for application against its future output VAT liabilities, or
(2) file an application for refund or issuance of a tax credit certificate
covering the amount of such input VAT.18 Hence, even in the absence of a
final adjustment return, the determination of any output VAT payable
necessarily requires that the VAT-registered taxpayer make adjustments in its
VAT return every quarter, taking into consideration the input VAT which are
creditable for the present quarter or had been carried over from the previous
quarters.
Moreover, when claiming refund/credit, the VAT-registered taxpayer must be
able to establish that it does have refundable or creditable input VAT, and the
same has not been applied against its output VAT liabilities information
which are supposed to be reflected in the taxpayer's VAT returns. Thus, an
application for refund/credit must be accompanied by copies of the
taxpayer's VAT return/s for the taxable quarter/s concerned.
Lastly, although the taxpayer's refundable or creditable input VAT may not be
considered as illegally or erroneously collected, its refund/credit is a privilege
extended to qualified and registered taxpayers by the very VAT system
adopted by the Legislature. Such input VAT, the same as any illegally or
erroneously collected national internal revenue tax, consists of monetary
amounts which are currently in the hands of the government but must
rightfully be returned to the taxpayer. Therefore, whether claiming
refund/credit of illegally or erroneously collected national internal revenue
tax, or input VAT, the taxpayer must be given equal opportunity for filing and
pursuing its claim.
For the foregoing reasons, it is more practical and reasonable to count the
two-year prescriptive period for filing a claim for refund/credit of input VAT on
zero-rated sales from the date of filing of the return and payment of the tax
due which, according to the law then existing, should be made within 20
days from the end of each quarter. Having established thus, the relevant
dates in the instant cases are summarized and reproduced below
TAXATION LAW 1
Period
Covered
Date of
Filing(Return
w/ BIR)
Date of
Filing(Application
w/ BIR)
Date of
Filing(Case w/
CTA)
2nd Quarter,
1990
20 July 1990
21 August 1990
20 July 1992
3rd Quarter,
1990
18 October
1990
21 November
1990
9 October
1992
4th Quarter,
1990
20 January
1991
19 February 1991
14 January
1993
1st Quarter,
1992
20 April 1992
--
20 April 1994
The above table readily shows that the administrative and judicial claims of
petitioner corporation for refund of its input VAT on its zero-rated sales for
the last three quarters of 1990 were all filed within the prescriptive period.
However, the same cannot be said for the claim of petitioner corporation for
refund of its input VAT on its zero-rated sales for the first quarter of 1992.
Even though it may seem that petitioner corporation filed in time its judicial
claim with the CTA, there is no showing that it had previously filed an
administrative claim with the BIR. Section 106(e) of the Tax Code of 1977, as
amended, explicitly provided that no refund of input VAT shall be allowed
unless the VAT-registered taxpayer filed an application for refund with
respondent Commissioner within the two-year prescriptive period. The
application of petitioner corporation for refund/credit of its input VAT for the
first quarter of 1992 was not only unsigned by its supposed authorized
representative, Ma. Paz R. Semilla, Manager-Finance and Treasury, but it was
not dated, stamped, and initialed by the BIR official who purportedly received
the same. The CTA, in its Decision,19 dated 24 November 1997, in CTA Case
No. 5102, made the following observations
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This Court, likewise, rejects any probative value of the Application for
Tax Credit/Refund of VAT Paid (BIR Form No. 2552) [Exhibit "B'] formally
offered in evidence by the petitioner on account of the fact that it does
not bear the BIR stamp showing the date when such application was
filed together with the signature or initial of the receiving officer of
respondent's Bureau. Worse still, it does not show the date of
application and the signature of a certain Ma. Paz R. Semilla indicated
in the form who appears to be petitioner's authorized filer.
A review of the records reveal that the original of the aforecited
application was lost during the time petitioner transferred its office
(TSN, p. 6, Hearing of December 9, 1994). Attempt was made to prove
that petitioner exerted efforts to recover the original copy, but to no
avail. Despite this, however, We observe that petitioner completely
failed to establish the missing dates and signatures abovementioned.
On this score, said application has no probative value in demonstrating
the fact of its filing within two years after the [filing of the VAT return
for the quarter] when petitioner's sales of goods were made as
prescribed under Section 106(b) of the Tax Code. We believe thus that
petitioner failed to file an application for refund in due form and within
the legal period set by law at the administrative level. Hence, the case
at bar has failed to satisfy the requirement on the prior filing of an
application for refund with the respondent before the commencement
of a judicial claim for refund, as prescribed under Section 230 of the
Tax Code. This fact constitutes another one of the many reasons for not
granting petitioner's judicial claim.
As pointed out by the CTA, in serious doubt is not only the fact of whether
petitioner corporation timely filed its administrative claim for refund of its
input VAT for the first quarter of 1992, but also whether petitioner
corporation actually filed such administrative claim in the first place. For
failing to prove that it had earlier filed with the BIR an application for
refund/credit of its input VAT for the first quarter of 1992, within the period
prescribed by law, then the case instituted by petitioner corporation with the
CTA for the refund/credit of the very same tax cannot prosper.
Revenue Regulations No. 2-88 and the 70% export requirement
Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was
imposed on the gross selling price or gross value in money of goods sold,
bartered or exchanged. Yet, the same provision subjected the following sales
made by VAT-registered persons to 0% VAT
(1) Export sales; and
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(2) Sales to persons or entities whose exemption under special laws or

international agreements to which the Philippines is a signatory
effectively subjects such sales to zero-rate.
"Export Sales" means the sale and shipment or exportation of goods
from the Philippines to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported, or
foreign currency denominated sales. "Foreign currency denominated
sales", means sales to nonresidents of goods assembled or
manufactured in the Philippines, for delivery to residents in the
Philippines and paid for in convertible foreign currency remitted
through the banking system in the Philippines.
These are termed zero-rated sales. A zero-rated sale is still considered a
taxable transaction for VAT purposes, although the VAT rate applied is 0%. A
sale by a VAT-registered taxpayer of goods and/or services taxed at 0% shall
not result in any output VAT, while the input VAT on its purchases of goods or
services related to such zero-rated sale shall be available as tax credit or
refund.20
Petitioner corporation questions the validity of Revenue Regulations No. 2-88
averring that the said regulations imposed additional requirements, not
found in the law itself, for the zero-rating of its sales to Philippine Smelting
and Refining Corporation (PASAR) and Philippine Phosphate, Inc. (PHILPHOS),
both of which are registered not only with the BOI, but also with the then
Export Processing Zone Authority (EPZA).21
The contentious provisions of Revenue Regulations No. 2-88 read
SEC. 2. Zero-rating. (a) Sales of raw materials to BOI-registered
exporters. Sales of raw materials to export-oriented BOI-registered
enterprises whose export sales, under rules and regulations of the
Board of Investments, exceed seventy percent (70%) of total annual
production, shall be subject to zero-rate under the following conditions:
"(1) The seller shall file an application with the BIR, ATTN.:
Division, applying for zero-rating for each and every separate
buyer, in accordance with Section 8(d) of Revenue Regulations
No. 5-87. The application should be accompanied with a
favorable recommendation from the Board of Investments."
"(2) The raw materials sold are to be used exclusively by the
buyer in the manufacture, processing or repacking of his own
registered export product;
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"(3) The words "Zero-Rated Sales" shall be prominently indicated

in the sales invoice. The exporter (buyer) can no longer claim
from the Bureau of Internal Revenue or any other government
office tax credits on their zero-rated purchases;
(b) Sales of raw materials to foreign buyer. Sales of raw materials to a
nonresident foreign buyer for delivery to a resident local exportoriented BOI-registered enterprise to be used in manufacturing,
processing or repacking of the said buyer's goods and paid for in
foreign currency, inwardly remitted in accordance with Central Bank
rules and regulations shall be subject to zero-rate.
It is the position of the respondent Commissioner, affirmed by the CTA and
the Court of Appeals, that Section 2 of Revenue Regulations No. 2-88 should
be applied in the cases at bar; and to be entitled to the zero-rating of its
sales to PASAR and PHILPHOS, petitioner corporation, as a VAT-registered
seller, must be able to prove not only that PASAR and PHILPHOS are BOIregistered corporations, but also that more than 70% of the total annual
production of these corporations are actually exported. Revenue Regulations
No. 2-88 merely echoed the requirement imposed by the BOI on exportoriented corporations registered with it.
While this Court is not prepared to strike down the validity of Revenue
Regulations No. 2-88, it finds that its application must be limited and placed
in the proper context. Note that Section 2 of Revenue Regulations No. 2-88
referred only to the zero-rated sales of raw materials to export-oriented BOIregistered enterprises whose export sales, under BOI rules and regulations,
should exceed seventy percent (70%) of their total annual production.
Section 2 of Revenue Regulations No. 2-88, should not have been applied to
the zero-rating of the sales made by petitioner corporation to PASAR and
PHILPHOS. At the onset, it must be emphasized that PASAR and PHILPHOS, in
addition to being registered with the BOI, were also registered with the EPZA
and located within an export-processing zone. Petitioner corporation does not
claim that its sales to PASAR and PHILPHOS are zero-rated on the basis that
said sales were made to export-oriented BOI-registered corporations, but
rather, on the basis that the sales were made to EPZA-registered enterprises
operating within export processing zones. Although sales to export-oriented
BOI-registered enterprises and sales to EPZA-registered enterprises located
within export processing zones were both deemed export sales, which, under
Section 100(a) of the Tax Code of 1977, as amended, shall be subject to 0%
VAT distinction must be made between these two types of sales because
each may have different substantiation requirements.
The Tax Code of 1977, as amended, gave a limited definition of export sales,
to wit: "The sale and shipment or exportation of goods from the Philippines
TAXATION LAW 1
to a foreign country, irrespective of any shipping arrangement that may be

agreed upon which may influence or determine the transfer of ownership of
the goods so exported, or foreign currency denominated sales." Executive
Order No. 226, otherwise known as the Omnibus Investments Code of 1987 which, in the years concerned (i.e., 1990 and 1992), governed enterprises
registered with both the BOI and EPZA, provided a more comprehensive
definition of export sales, as quoted below:
"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value,
determined from invoices, bills of lading, inward letters of credit,
landing certificates, and other commercial documents, of export
products exported directly by a registered export producer or the net
selling price of export product sold by a registered export producer or
to an export trader that subsequently exports the same: Provided, That
sales of export products to another producer or to an export trader
shall only be deemed export sales whenactually exported by the latter,
as evidenced by landing certificates of similar commercial documents:
Provided, further, That without actual exportation the following shall be
considered constructively exportedfor purposes of this provision: (1)
sales to bonded manufacturing warehouses of export-oriented
manufacturers; (2) sales to export processing zones; (3) sales to
registered export traders operating bonded trading warehouses
supplying raw materials used in the manufacture of export products
under guidelines to be set by the Board in consultation with the Bureau
of Internal Revenue and the Bureau of Customs; (4) sales to foreign
military bases, diplomatic missions and other agencies and/or
instrumentalities granted tax immunities, of locally manufactured,
assembled or repacked products whether paid for in foreign currency
or not: Provided, further, That export sales of registered export trader
may include commission income; and Provided, finally, That
exportation of goods on consignment shall not be deemed export sales
until the export products consigned are in fact sold by the consignee.
Sales of locally manufactured or assembled goods for household and
personal use to Filipinos abroad and other non-residents of the
Philippines as well as returning Overseas Filipinos under the Internal
Export Program of the government and paid for in convertible foreign
currency inwardly remitted through the Philippine banking systems
shall also be considered export sales. (Underscoring ours.)
The afore-cited provision of the Omnibus Investments Code of 1987
recognizes as export sales the sales of export products to another producer
or to an export trader, provided that the export products are actually
exported. For purposes of VAT zero-rating, such producer or export trader
must be registered with the BOI and is required to actually export more than
70% of its annual production.
TAXATION LAW 1
Without actual exportation, Article 23 of the Omnibus Investments Code of

1987 also considers constructive exportation as export sales. Among other
types of constructive exportation specifically identified by the said provision
are sales to export processing zones. Sales to export processing zones are
subjected to special tax treatment. Article 77 of the same Code establishes
the tax treatment of goods or merchandise brought into the export
processing zones. Of particular relevance herein is paragraph 2, which
provides that "Merchandise purchased by a registered zone enterprise from
the customs territory and subsequently brought into the zone, shall be
considered as export sales and the exporter thereof shall be entitled to the
benefits allowed by law for such transaction."
Such tax treatment of goods brought into the export processing zones are
only consistent with the Destination Principle and Cross Border Doctrine to
which the Philippine VAT system adheres. According to the Destination
Principle,22 goods and services are taxed only in the country where these are
consumed. In connection with the said principle, the Cross Border
Doctrine23 mandates that no VAT shall be imposed to form part of the cost of
the goods destined for consumption outside the territorial border of the
taxing authority. Hence, actual export of goods and services from the
Philippines to a foreign country must be free of VAT, while those destined for
use or consumption within the Philippines shall be imposed with 10%
VAT.24 Export processing zones25 are to be managed as a separate customs
territory from the rest of the Philippines and, thus, for tax purposes, are
effectively considered as foreign territory. For this reason, sales by persons
from the Philippine customs territory to those inside the export processing
zones are already taxed as exports.
Plainly, sales to enterprises operating within the export processing zones are
export sales, which, under the Tax Code of 1977, as amended, were subject
to 0% VAT. It is on this ground that petitioner corporation is claiming
refund/credit of the input VAT on its zero-rated sales to PASAR and PHILPHOS.
The distinction made by this Court in the preceding paragraphs between the
zero-rated sales to export-oriented BOI-registered enterprises and zero-rated
sales to EPZA-registered enterprises operating within export processing
zones is actually supported by subsequent development in tax laws and
regulations. In Revenue Regulations No. 7-95, the Consolidated VAT
Regulations, as amended,26 the BIR defined with more precision what are
zero-rated export sales
(1) The sale and actual shipment of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may be
agreed upon which may influence or determine the transfer of
ownership of the goods so exported paid for in acceptable foreign
currency or its equivalent in goods or services, and accounted for in
TAXATION LAW 1
accordance with the rules and regulations of the Bangko Sentral ng

Pilipinas(BSP);
(2) The sale of raw materials or packaging materials to a non-resident
buyer for delivery to a resident local export-oriented enterprise to be
used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods and paid for in acceptable foreign
currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) The sale of raw materials or packaging materials to an exportoriented enterprise whose export sales exceed seventy percent (70%)
of total annual production;
Any enterprise whose export sales exceed 70% of the total annual
production of the preceding taxable year shall be considered an
export-oriented enterprise upon accreditation as such under the
provisions of the Export Development Act (R.A. 7844) and its
implementing rules and regulations;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Articles 23 and 77 of
Executive Order No. 226, otherwise known as the Omnibus
Investments Code of 1987, and other special laws, e.g. Republic Act
No. 7227, otherwise known as the Bases Conversion and Development
Act of 1992.
The Tax Code of 1997, as amended,27 later adopted the foregoing definition
of export sales, which are subject to 0% VAT.
This Court then reiterates its conclusion that Section 2 of Revenue
Regulations No. 2-88, which applied to zero-rated export sales to exportoriented BOI-registered enterprises, should not be applied to the applications
for refund/credit of input VAT filed by petitioner corporation since it based its
applications on the zero-rating of export sales to enterprises registered with
the EPZA and located within export processing zones.
Sufficiency of evidence
There can be no dispute that the taxpayer-claimant has the burden of
proving the legal and factual bases of its claim for tax credit or refund, but
once it has submitted all the required documents, it is the function of the BIR
to assess these documents with purposeful dispatch.28 It therefore falls upon
herein petitioner corporation to first establish that its sales qualify for VAT
zero-rating under the existing laws (legal basis), and then to present
TAXATION LAW 1
sufficient evidence that said sales were actually made and resulted in
refundable or creditable input VAT in the amount being claimed (factual
basis).
It would initially appear that the applications for refund/credit filed by
petitioner corporation cover only input VAT on its purportedly zero-rated
sales to PASAR and PHILPHOS; however, a more thorough perusal of its
applications, VAT returns, pleadings, and other records of these cases would
reveal that it is also claiming refund/credit of its input VAT on purchases of
capital goods and sales of gold to the Central Bank of the Philippines (CBP).
This Court finds that the claims for refund/credit of input VAT of petitioner
corporation have sufficient legal bases.
As has been extensively discussed herein, Section 106(b)(2), in relation to
Section 100(a)(2) of the Tax Code of 1977, as amended, allowed the
refund/credit of input VAT on export sales to enterprises operating within
export processing zones and registered with the EPZA, since such export
sales were deemed to be effectively zero-rated sales.29 The fact that PASAR
and PHILPHOS, to whom petitioner corporation sold its products, were
operating inside an export processing zone and duly registered with EPZA,
was never raised as an issue herein. Moreover, the same fact was already
judicially recognized in the case Atlas Consolidated Mining & Development
Corporation v. Commissioner of Internal Revenue.30 Section 106(c) of the
same Code likewise permitted a VAT-registered taxpayer to apply for
refund/credit of the input VAT paid on capital goods imported or locally
purchased to the extent that such input VAT has not been applied against its
output VAT. Meanwhile, the effective zero-rating of sales of gold to the CBP
from 1989 to 199131 was already affirmed by this Court in Commissioner of
Internal Revenue v. Benguet Corporation,32 wherein it ruled that
At the time when the subject transactions were consummated, the
prevailing BIR regulations relied upon by respondent ordained that gold
sales to the Central Bank were zero-rated. The BIR interpreted Sec. 100
of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which
prescribed that gold sold to the Central Bank shall be considered
export and therefore shall be subject to the export and premium
duties. In coming out with this interpretation, the BIR also considered
Sec. 169 of Central Bank Circular No. 960 which states that all sales of
gold to the Central Bank are considered constructive exports. x x x.
This Court now comes to the question of whether petitioner corporation has
sufficiently established the factual bases for its applications for refund/credit
of input VAT. It is in this regard that petitioner corporation has failed, both in
the administrative and judicial level.
TAXATION LAW 1
Applications for refund/credit of input VAT with the BIR must comply with the
appropriate revenue regulations. As this Court has already ruled, Revenue
Regulations No. 2-88 is not relevant to the applications for refund/credit of
input VAT filed by petitioner corporation; nonetheless, the said applications
must have been in accordance with Revenue Regulations No. 3-88, amending
Section 16 of Revenue Regulations No. 5-87, which provided as follows
SECTION 16. Refunds or tax credits of input tax.
xxxx
(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of
Value-Added Tax Paid (BIR Form No. 2552) shall be filed with the
Revenue District Office of the city or municipality where the principal
place of business of the applicant is located or directly with the
Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value
added tax paid shall be submitted together with the application. The
original copy of the said invoice/receipt, however, shall be presented
for cancellation prior to the issuance of the Tax Credit Certificate or
refund. In addition, the following documents shall be attached
whenever applicable:
xxxx
"3. Effectively zero-rated sale of goods and services.
"i) photo copy of approved application for zero-rate if filing
for the first time.
"ii) sales invoice or receipt showing name of the person or
entity to whom the sale of goods or services were
delivered, date of delivery, amount of consideration, and
description of goods or services delivered.
"iii) evidence of actual receipt of goods or services.
"4. Purchase of capital goods.
"i) original copy of invoice or receipt showing the date of
purchase, purchase price, amount of value-added tax paid
and description of the capital equipment locally purchased.
"ii) with respect to capital equipment imported, the photo
copy of import entry document for internal revenue tax
TAXATION LAW 1
purposes and the confirmation receipt issued by the

Bureau of Customs for the payment of the value-added tax.
"5. In applicable cases,
where the applicant's zero-rated transactions are regulated by certain
government agencies, a statement therefrom showing the amount and
description of sale of goods and services, name of persons or entities
(except in case of exports) to whom the goods or services were sold,
and date of transaction shall also be submitted.
In all cases, the amount of refund or tax credit that may be granted
shall be limited to the amount of the value-added tax (VAT) paid
directly and entirely attributable to the zero-rated transaction during
the period covered by the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and
exempt sales of goods and services, and the VAT paid (inputs) on
purchases of goods and services cannot be directly attributed to any of
the aforementioned transactions, the following formula shall be used to
determine the creditable or refundable input tax for zero-rated sale:
Amount of Zero-rated Sale
Total Sales
X
Total Amount of Input Taxes
=
Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained
unacted upon by the BIR, and before the lapse of the two-year prescriptive
period, the taxpayer-applicant may already file a Petition for Review before
the CTA. If the taxpayer's claim is supported by voluminous documents, such
as receipts, invoices, vouchers or long accounts, their presentation before
the CTA shall be governed by CTA Circular No. 1-95, as amended, reproduced
in full below
In the interest of speedy administration of justice, the Court hereby
promulgates the following rules governing the presentation of
voluminous documents and/or long accounts, such as receipts, invoices
and vouchers, as evidence to establish certain facts pursuant to
Section 3(c), Rule 130 of the Rules of Court and the doctrine
enunciated in Compania Maritima vs. Allied Free Workers Union (77
SCRA 24), as well as Section 8 of Republic Act No. 1125:
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1. The party who desires to introduce as evidence such voluminous

documents must, after motion and approval by the Court, present:
(a) a Summary containing, among others, a chronological listing
of the numbers, dates and amounts covered by the invoices or
receipts and the amount/s of tax paid; and (b) a Certification of
an independent Certified Public Accountant attesting to the
correctness of the contents of the summary after making an
examination, evaluation and audit of the voluminous receipts
and invoices. The name of the accountant or partner of the firm
in charge must be stated in the motion so that he/she can be
commissioned by the Court to conduct the audit and, thereafter,
testify in Court relative to such summary and certification
pursuant to Rule 32 of the Rules of Court.
2. The method of individual presentation of each and every receipt,
invoice or account for marking, identification and comparison with the
originals thereof need not be done before the Court or Clerk of Court
anymore after the introduction of the summary and CPA certification. It
is enough that the receipts, invoices, vouchers or other documents
covering the said accounts or payments to be introduced in evidence
must be pre-marked by the party concerned and submitted to the
Court in order to be made accessible to the adverse party who desires
to check and verify the correctness of the summary and CPA
certification. Likewise, the originals of the voluminous receipts,
invoices or accounts must be ready for verification and comparison in
case doubt on the authenticity thereof is raised during the hearing or
resolution of the formal offer of evidence.
Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending
before the CTA when the said Circular was issued, then petitioner corporation
must have complied therewith during the course of the trial of the said
cases.
In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this
Court denied the claim of therein respondent, Manila Mining Corporation, for
refund of the input VAT on its supposed zero-rated sales of gold to the CBP
because it was unable to substantiate its claim. In the same case, this Court
emphasized the importance of complying with the substantiation
requirements for claiming refund/credit of input VAT on zero-rated sales, to
wit
For a judicial claim for refund to prosper, however, respondent must
not only prove that it is a VAT registered entity and that it filed its
claims within the prescriptive period. It must substantiate the input
VAT paid by purchase invoices or official receipts.
TAXATION LAW 1
This respondent failed to do.

Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87
provides the requirements in claiming tax credits/refunds.
xxxx
Under Section 8 of RA1125, the CTA is described as a court of record.
As cases filed before it are litigatedde novo, party litigants should
prove every minute aspect of their cases. No evidentiary value can be
given the purchase invoices or receipts submitted to the BIR as the
rules on documentary evidence require that these documents must be
formally offered before the CTA.
This Court thus notes with approval the following findings of the CTA:
x x x [S]ale of gold to the Central Bank should not be subject to
the 10% VAT-output tax but this does not ipso fact mean that
[the seller] is entitled to the amount of refund sought as it is
required by law to present evidence showing the input taxes it
paid during the year in question. What is being claimed in the
instant petition is the refund of the input taxes paid by the herein
petitioner on its purchase of goods and services. Hence, it is
necessary for the Petitioner to show proof that it had indeed paid
the input taxes during the year 1991. In the case at bar,
Petitioner failed to discharge this duty. It did not adduce in
evidence the sales invoice, receipts or other documents showing
the input value added tax on the purchase of goods and
services.
xxx
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax
Appeals) provides categorically that the Court of Tax Appeals shall
be a court of record and as such it is required to conduct a
formal trial (trial de novo) where the parties must present
their evidence accordingly if they desire the Court to take such
evidence into consideration. (Emphasis and italics supplied)
A "sales or commercial invoice" is a written account of goods sold or
services rendered indicating the prices charged therefor or a list by
whatever name it is known which is used in the ordinary course of
business evidencing sale and transfer or agreement to sell or transfer
goods and services.
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A "receipt" on the other hand is a written acknowledgment of the fact

of payment in money or other settlement between seller and buyer of
goods, debtor or creditor, or person rendering services and client or
customer.
These sales invoices or receipts issued by the supplier are necessary to
substantiate the actual amount or quantity of goods sold and their
selling price, and taken collectively are the best means to prove the
input VAT payments.36
Although the foregoing decision focused only on the proof required for the
applicant for refund/credit to establish the input VAT payments it had made
on its purchases from suppliers, Revenue Regulations No. 3-88 also required
it to present evidence proving actual zero-rated VAT sales to qualified buyers,
such as (1) photocopy of the approved application for zero-rate if filing for
the first time; (2) sales invoice or receipt showing the name of the person or
entity to whom the goods or services were delivered, date of delivery,
amount of consideration, and description of goods or services delivered; and
(3) the evidence of actual receipt of goods or services.
Also worth noting in the same decision is the weight given by this Court to
the certification by the independent certified public accountant (CPA), thus
Respondent contends, however, that the certification of the
independent CPA attesting to the correctness of the contents of the
summary of suppliers' invoices or receipts which were examined,
evaluated and audited by said CPA in accordance with CTA Circular No.
1-95 as amended by CTA Circular No. 10-97 should substantiate its
claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by
CTA Circular No. 10-97, which either expressly or impliedly suggests
that summaries and schedules of input VAT payments, even if certified
by an independent CPA, suffice as evidence of input VAT payments.
xxxx
The circular, in the interest of speedy administration of justice, was
promulgated to avoid the time-consuming procedure of presenting,
identifying and marking of documents before the Court. It does not
relieve respondent of its imperative task of pre-marking photocopies of
sales receipts and invoices andsubmitting the same to the court after
the independent CPA shall have examined and compared them with
the originals. Without presenting these pre-marked documents as
evidence from which the summary and schedules were based, the
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court cannot verify the authenticity and veracity of the independent

auditor's conclusions.
There is, moreover, a need to subject these invoices or receipts to
examination by the CTA in order to confirm whether they are VAT
invoices. Under Section 21 of Revenue Regulation, No. 5-87, all
purchases covered by invoices other than a VAT invoice shall not be
entitled to a refund of input VAT.
xxxx
While the CTA is not governed strictly by technical rules of evidence, as
rules of procedure are not ends in themselves but are primarily
intended as tools in the administration of justice, the presentation of
the purchase receipts and/or invoices is not mere procedural
technicality which may be disregarded considering that it is the only
means by which the CTA may ascertain and verify the truth of the
respondent's claims.
The records further show that respondent miserably failed to
substantiate its claims for input VAT refund for the first semester of
1991. Except for the summary and schedules of input VAT payments
prepared by respondent itself, no other evidence was adduced in
support of its claim.
As for respondent's claim for input VAT refund for the second semester
of 1991, it employed the services of Joaquin Cunanan & Co. on account
of which it (Joaquin Cunanan & Co.) executed a certification that:
We have examined the information shown below concerning the
input tax payments made by the Makati Office of Manila Mining
Corporation for the period from July 1 to December 31, 1991. Our
examination included inspection of the pertinent suppliers'
invoices and official receipts and such other auditing procedures
as we considered necessary in the circumstances. x x x
As the certification merely stated that it used "auditing procedures
considered necessary" and not auditing procedures which are in
accordance with generally accepted auditing principles and standards,
and that the examination was made on "input tax payments by the
Manila Mining Corporation," without specifying that the said input tax
payments are attributable to the sales of gold to the Central Bank, this
Court cannot rely thereon and regard it as sufficient proof of the
respondent's input VAT payments for the second semester.37
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As for the Petition in G.R. No. 141104, involving the input VAT of petitioner
corporation on its zero-rated sales in the first quarter of 1992, this Court
already found that the petitioner corporation failed to comply with Section
106(b) of the Tax Code of 1977, as amended, imposing the two-year
prescriptive period for the filing of the application for refund/credit thereof.
This bars the grant of the application for refund/credit, whether
administratively or judicially, by express mandate of Section 106(e) of the
same Code.
Granting arguendo that the application of petitioner corporation for the
refund/credit of the input VAT on its zero-rated sales in the first quarter of
1992 was actually and timely filed, petitioner corporation still failed to
present together with its application the required supporting documents,
whether before the BIR or the CTA. As the Court of Appeals ruled
In actions involving claims for refund of taxes assessed and collected,
the burden of proof rests on the taxpayer. As clearly discussed in the
CTA's decision, petitioner failed to substantiate its claim for tax
refunds. Thus:
"We note, however, that in the cases at bar, petitioner has relied
totally on Revenue Regulations No. 2-88 in determining
compliance with the documentary requirements for a successful
refund or issuance of tax credit. Unmentioned is the applicable
and specific amendment later introduced by Revenue
Regulations No. 3-88 dated April 7, 1988 (issued barely after two
months from the promulgation of Revenue Regulations No. 2-88
on February 15, 1988), which amended Section 16 of Revenue
Regulations No. 5-87 on refunds or tax credits of input tax. x x x.
xxxx
"A thorough examination of the evidence submitted by the
petitioner before this court reveals outright the failure to satisfy
documentary requirements laid down under the above-cited
regulations. Specifically, petitioner was not able to present the
following documents, to wit:
"a) sales invoices or receipts;
"b) purchase invoices or receipts;
"c) evidence of actual receipt of goods;
"d) BOI statement showing the amount and description of
sale of goods, etc.
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"e) original or attested copies of invoice or receipt on

capital equipment locally purchased; and
"f) photocopy of import entry document and confirmation
receipt on imported capital equipment.
"There is the need to examine the sales invoices or receipts in
order to ascertain the actual amount or quantity of goods sold
and their selling price. Without them, this Court cannot verify the
correctness of petitioner's claim inasmuch as the regulations
require that the input taxes being sought for refund should be
limited to the portion that is directly and entirely attributable to
the particular zero-rated transaction. In this instance, the best
evidence of such transaction are the said sales invoices or
receipts.
"Also, even if sales invoices are produced, there is the further
need to submit evidence that such goods were actually received
by the buyer, in this case, by CBP, Philp[h]os and PASAR.
xxxx
"Lastly, this Court cannot determine whether there were actual
local and imported purchase of capital goods as well as domestic
purchase of non-capital goods without the required purchase
invoice or receipt, as the case may be, and confirmation receipts.
"There is, thus, the imperative need to submit before this Court
the original or attested photocopies of petitioner's invoices or
receipts, confirmation receipts and import entry documents in
order that a full ascertainment of the claimed amount may be
achieved.
"Petitioner should have taken the foresight to introduce in
evidence all of the missing documentsabovementioned. Cases
filed before this Court are litigated de novo. This means that
party litigants should endeavor to prove at the first instance
every minute aspect of their cases strictly in accordance with the
Rules of Court, most especially on documentary evidence." (pp.
37-42, Rollo)
Tax refunds are in the nature of tax exemptions. It is regarded as in
derogation of the sovereign authority, and should be construed
in strictissimi juris against the person or entity claiming the exemption.
The taxpayer who claims for exemption must justify his claim by the
clearest grant of organic or statute law and should not be permitted to
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stand on vague implications (Asiatic Petroleum Co. v. Llanes, 49 Phil.

466; Northern Phil. Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA
304; Reagan v. Commissioner, 30 SCRA 968; Asturias Sugar Central,
Inc. v. Commissioner of Customs, 29 SCRA 617; Davao Light and Power
Co., Inc. v. Commissioner of Customs, 44 SCRA 122).
There is no cogent reason to fault the CTA's conclusion that the SGV's
certificate is "self-destructive", as it finds comfort in the very SGV's
stand, as follows:
"It is our understanding that the above procedure are sufficient
for the purpose of the Company. We make no presentation
regarding the sufficiency of these procedures for such purpose.
We did not compare the total of the input tax claimed each
quarter against the pertinent VAT returns and books of accounts.
The above procedures do not constitute an audit made in
accordance with generally accepted auditing standards.
Accordingly, we do not express an opinion on the company's
claim for input VAT refund or credit. Had we performed additional
procedures, or had we made an audit in accordance with
generally accepted auditing standards, other matters might have
come to our attention that we would have accordingly reported
on."
The SGV's "disclaimer of opinion" carries much weight as it is
petitioner's independent auditor. Indeed, SGV expressed that it "did not
compare the total of the input tax claimed each quarter against the
VAT returns and books of accounts."38
Moving on to the Petition in G.R. No. 148763, concerning the input VAT of
petitioner corporation on its zero-rated sales in the second, third, and fourth
quarters of 1990, the appellate court likewise found that petitioner
corporation failed to sufficiently establish its claims. Already disregarding the
declarations made by the Court of Appeals on its erroneous application of
Revenue Regulations No. 2-88, quoted hereunder is the rest of the findings of
the appellate court after evaluating the evidence submitted in accordance
with the requirements under Revenue Regulations No. 3-88
The Secretary of Finance validly adopted Revenue Regulations [No.] x x
x 3-98 pursuant to Sec. 245 of the National Internal Revenue Code,
which recognized his power to "promulgate all needful rules and
regulations for the effective enforcement of the provisions of this
Code." Thus, it is incumbent upon a taxpayer intending to file a claim
for refund of input VATs or the issuance of a tax credit certificate with
the BIR x x x to prove sales to such buyers as required by Revenue
Regulations No. 3-98. Logically, the same evidence should be
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presented in support of an action to recover taxes which have been

paid.
x x x Neither has [herein petitioner corporation] presented sales
invoices or receipts showing sales of gold, copper concentrates, and
pyrite to the CBP, [PASAR], and [PHILPHOS], respectively, and the
dates and amounts of the same, nor any evidence of actual receipt by
the said buyers of the mineral products. It merely presented receipts of
purchases from suppliers on which input VATs were allegedly paid.
Thus, the Court of Tax Appeals correctly denied the claims for refund of
input VATs or the issuance of tax credit certificates of petitioner
[corporation]. Significantly, in the resolution, dated 7 June 2000, this
Court directed the parties to file memoranda discussing, among others,
the submission of proof for "its [petitioner's] sales of gold, copper
concentrates, and pyrite to buyers." Nevertheless, the parties,
including the petitioner, failed to address this issue, thereby
necessitating the affirmance of the ruling of the Court of Tax Appeals
on this point.39
This Court is, therefore, bound by the foregoing facts, as found by the
appellate court, for well-settled is the general rule that the jurisdiction of this
Court in cases brought before it from the Court of Appeals, by way of a
Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court,
is limited to reviewing or revising errors of law; findings of fact of the latter
are conclusive.40 This Court is not a trier of facts. It is not its function to
review, examine and evaluate or weigh the probative value of the evidence
presented.41
The distinction between a question of law and a question of fact is clear-cut.
It has been held that "[t]here is a question of law in a given case when the
doubt or difference arises as to what the law is on a certain state of facts;
there is a question of fact when the doubt or difference arises as to the truth
or falsehood of alleged facts."42
Whether petitioner corporation actually made zero-rated sales; whether it
paid input VAT on these sales in the amount it had declared in its returns;
whether all the input VAT subject of its applications for refund/credit can be
attributed to its zero-rated sales; and whether it had not previously applied
the input VAT against its output VAT liabilities, are all questions of fact which
could only be answered after reviewing, examining, evaluating, or weighing
the probative value of the evidence it presented, and which this Court does
not have the jurisdiction to do in the present Petitions for Review
on Certiorari under Rule 45 of the revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court
looked into questions of fact under particular circumstances,43 none of these
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exist in the instant cases. The Court of Appeals, in both cases, found a dearth
of evidence to support the claims for refund/credit of the input VAT of
petitioner corporation, and the records bear out this finding. Petitioner
corporation itself cannot dispute its non-compliance with the requirements
set forth in Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as
amended. It concentrated its arguments on its assertion that the
substantiation requirements under Revenue Regulations No. 2-88 should not
have applied to it, while being conspicuously silent on the evidentiary
requirements mandated by other relevant regulations.
Re-opening of cases/holding of new trial before the CTA
This Court now faces the final issue of whether the prayer of petitioner
corporation for the re-opening of its cases or holding of new trial before the
CTA for the reception of additional evidence, may be granted. Petitioner
corporation prays that the Court exercise its discretion on the matter in its
favor, consistent with the policy that rules of procedure be liberally
construed in pursuance of substantive justice.
This Court, however, cannot grant the prayer of petitioner corporation.
An aggrieved party may file a motion for new trial or reconsideration of a
judgment already rendered in accordance with Section 1, Rule 37 of the
revised Rules of Court, which provides
SECTION 1. Grounds of and period for filing motion for new trial or
reconsideration. Within the period for taking an appeal, the aggrieved
party may move the trial court to set aside the judgment or final order
and grant a new trial for one or more of the following causes materially
affecting the substantial rights of said party:
(a) Fraud, accident, mistake or excusable negligence which ordinary
prudence could not have guarded against and by reason of which such
aggrieved party has probably been impaired in his rights; or
(b) Newly discovered evidence, which he could not, with reasonable
diligence, have discovered and produced at the trial, and which if
presented would probably alter the result.
Within the same period, the aggrieved party may also move fore
reconsideration upon the grounds that the damages awarded are
excessive, that the evidence is insufficient to justify the decision or
final order, or that the decision or final order is contrary to law.
In G.R. No. 148763, petitioner corporation attempts to justify its motion for
the re-opening of its cases and/or holding of new trial before the CTA by
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contending that the "[f]ailure of its counsel to adduce the necessary

evidence should be construed as excusable negligence or mistake which
should constitute basis for such re-opening of trial as for a new trial, as
counsel was of the belief that such evidence was rendered unnecessary by
the presentation of unrebutted evidence indicating that respondent
[Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS] to
be zero-rated." 44 The CTA denied such motion on the ground that it was not
accompanied by an affidavit of merit as required by Section 2, Rule 37 of the
revised Rules of Court. The Court of Appeals affirmed the denial of the
motion, but apart from this technical defect, it also found that there was no
justification to grant the same.
On the matter of the denial of the motion of the petitioner corporation for the
re-opening of its cases and/or holding of new trial based on the technicality
that said motion was unaccompanied by an affidavit of merit, this Court rules
in favor of the petitioner corporation. The facts which should otherwise be
set forth in a separate affidavit of merit may, with equal effect, be alleged
and incorporated in the motion itself; and this will be deemed a substantial
compliance with the formal requirements of the law, provided, of course, that
the movant, or other individual with personal knowledge of the facts, take
oath as to the truth thereof, in effect converting the entire motion for new
trial into an affidavit.45 The motion of petitioner corporation was prepared
and verified by its counsel, and since the ground for the motion was
premised on said counsel's excusable negligence or mistake, then the
obvious conclusion is that he had personal knowledge of the facts relating to
such negligence or mistake. Hence, it can be said that the motion of
petitioner corporation for the re-opening of its cases and/or holding of new
trial was in substantial compliance with the formal requirements of the
revised Rules of Court.
Even so, this Court finds no sufficient ground for granting the motion of
petitioner corporation for the re-opening of its cases and/or holding of new
trial.
In G.R. No. 141104, petitioner corporation invokes the Resolution,46 dated 20
July 1998, by the CTA in another case, CTA Case No. 5296, involving the
claim of petitioner corporation for refund/credit of input VAT for the third
quarter of 1993. The said Resolution allowed the re-opening of CTA Case No.
5296, earlier dismissed by the CTA, to give the petitioner corporation the
opportunity to present the missing export documents.
The rule that the grant or denial of motions for new trial rests on the
discretion of the trial court,47 may likewise be extended to the CTA. When the
denial of the motion rests upon the discretion of a lower court, this Court will
not interfere with its exercise, unless there is proof of grave abuse thereof. 48
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That the CTA granted the motion for re-opening of one case for the
presentation of additional evidence and, yet, deny a similar motion in
another case filed by the same party, does not necessarily demonstrate
grave abuse of discretion or arbitrariness on the part of the CTA. Although
the cases involve identical parties, the causes of action and the evidence to
support the same can very well be different. As can be gleaned from the
Resolution, dated 20 July 1998, in CTA Case No. 5296, petitioner corporation
was claiming refund/credit of the input VAT on its zero-rated sales, consisting
of actual export sales, to Mitsubishi Metal Corporation in Tokyo, Japan. The
CTA took into account the presentation by petitioner corporation of inward
remittances of its export sales for the quarter involved, its Supply Contract
with Mitsubishi Metal Corporation, its 1993 Annual Report showing its sales
to the said foreign corporation, and its application for refund. In contrast, the
present Petitions involve the claims of petitioner corporation for refund/credit
of the input VAT on its purchases of capital goods and on its effectively zerorated sales to CBP and EPZA-registered enterprises PASAR and PHILPHOS for
the second, third, and fourth quarters of 1990 and first quarter of 1992.
There being a difference as to the bases of the claims of petitioner
corporation for refund/credit of input VAT in CTA Case No. 5926 and in the
Petitions at bar, then, there are resulting variances as to the evidence
required to support them.
Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No.
5296, invoked by petitioner corporation, emphasizes that the decision of the
CTA to allow petitioner corporation to present evidence "is applicable pro hac
vice or in this occasion only as it is the finding of [the CTA] that petitioner
[corporation] has established a few of the aforementioned material
points regarding the possible existence of the export documents together
with the prior and succeeding returns for the quarters involved, x x x"
[Emphasis supplied.] Therefore, the CTA, in the present cases, cannot be
bound by its ruling in CTA Case No. 5296, when these cases do not involve
the exact same circumstances that compelled it to grant the motion of
petitioner corporation for re-opening of CTA Case No. 5296.
Finally, assuming for the sake of argument that the non-presentation of the
required documents was due to the fault of the counsel of petitioner
corporation, this Court finds that it does not constitute excusable negligence
or mistake which would warrant the re-opening of the cases and/or holding of
new trial.
Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence"
must be excusable and generally imputable to the party because if it is
imputable to the counsel, it is binding on the client. To follow a contrary rule
and allow a party to disown his counsel's conduct would render proceedings
indefinite, tentative, and subject to re-opening by the mere subterfuge of
replacing the counsel. What the aggrieved litigant should do is seek
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administrative sanctions against the erring counsel and not ask for the
reversal of the court's ruling.49
As elucidated by this Court in another case,50 the general rule is that the
client is bound by the action of his counsel in the conduct of his case and he
cannot therefore complain that the result of the litigation might have been
otherwise had his counsel proceeded differently. It has been held time and
again that blunders and mistakes made in the conduct of the proceedings in
the trial court as a result of the ignorance, inexperience or incompetence of
counsel do not qualify as a ground for new trial. If such were to be admitted
as valid reasons for re-opening cases, there would never be an end to
litigation so long as a new counsel could be employed to allege and show
that the prior counsel had not been sufficiently diligent, experienced or
learned.
Moreover, negligence, to be "excusable," must be one which ordinary
diligence and prudence could not have guarded against.51 Revenue
Regulations No. 3-88, which was issued on 15 February 1988, had been in
effect more than two years prior to the filing by petitioner corporation of its
earliest application for refund/credit of input VAT involved herein on 21
August 1990. CTA Circular No. 1-95 was issued only on 25 January 1995, after
petitioner corporation had filed its Petitions before the CTA, but still during
the pendency of the cases of petitioner corporation before the tax court. The
counsel of petitioner corporation does not allege ignorance of the foregoing
administrative regulation and tax court circular, only that he no longer
deemed it necessary to present the documents required therein because of
the presentation of alleged unrebutted evidence of the zero-rated sales of
petitioner corporation. It was a judgment call made by the counsel as to
which evidence to present in support of his client's cause, later proved to be
unwise, but not necessarily negligent.
Neither is there any merit in the contention of petitioner corporation that the
non-presentation of the required documentary evidence was due to the
excusable mistake of its counsel, a ground under Section 1, Rule 37 of the
revised Rules of Court for the grant of a new trial. "Mistake," as it is referred
to in the said rule, must be a mistake of fact, not of law, which relates to the
case.52 In the present case, the supposed mistake made by the counsel of
petitioner corporation is one of law, for it was grounded on his interpretation
and evaluation that Revenue Regulations No. 3-88 and CTA Circular No. 1-95,
as amended, did not apply to his client's cases and that there was no need to
comply with the documentary requirements set forth therein. And although
the counsel of petitioner corporation advocated an erroneous legal position,
the effects thereof, which did not amount to a deprivation of his client's right
to be heard, must bind petitioner corporation. The question is not whether
petitioner corporation succeeded in establishing its interests, but whether it
had the opportunity to present its side.53
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Besides, litigation is a not a "trial and error" proceeding. A party who moves
for a new trial on the ground of mistake must show that ordinary prudence
could not have guarded against it. A new trial is not a refuge for the
obstinate.54 Ordinary prudence in these cases would have dictated the
presentation of all available evidence that would have supported the claims
for refund/credit of input VAT of petitioner corporation. Without sound legal
basis, counsel for petitioner corporation concluded that Revenue Regulations
No. 3-88, and later on, CTA Circular No. 1-95, as amended, did not apply to
its client's claims. The obstinacy of petitioner corporation and its counsel is
demonstrated in their failure, nay, refusal, to comply with the appropriate
administrative regulations and tax court circular in pursuing the claims for
refund/credit, now subject of G.R. Nos. 141104 and 148763, even though
these were separately instituted in a span of more than two years. It is also
evident in the failure of petitioner corporation to address the issue and to
present additional evidence despite being given the opportunity to do so by
the Court of Appeals. As pointed out by the appellate court, in its Decision,
dated 15 September 2000, in CA-G.R. SP No. 46718
x x x Significantly, in the resolution, dated 7 June 2000, this Court
directed the parties to file memoranda discussing, among others, the
submission of proof for "its [petitioner's] sales of gold, copper
concentrates, and pyrite to buyers." Nevertheless, the parties,
including the petitioner, failed to address this issue, thereby
necessitating the affirmance of the ruling of the Court of Tax Appeals
on this point.55
Summary
Hence, although this Court agreed with the petitioner corporation that the
two-year prescriptive period for the filing of claims for refund/credit of input
VAT must be counted from the date of filing of the quarterly VAT return, and
that sales to EPZA-registered enterprises operating within economic
processing zones were effectively zero-rated and were not covered by
Revenue Regulations No. 2-88, it still denies the claims of petitioner
corporation for refund of its input VAT on its purchases of capital goods and
effectively zero-rated sales during the second, third, and fourth quarters of
1990 and the first quarter of 1992, for not being established and
substantiated by appropriate and sufficient evidence. Petitioner corporation
is also not entitled to the re-opening of its cases and/or holding of new trial
since the non-presentation of the required documentary evidence before the
BIR and the CTA by its counsel does not constitute excusable negligence or
mistake as contemplated in Section 1, Rule 37 of the revised Rules of Court.
WHEREFORE, premises considered, the instant Petitions for Review are
hereby DENIED, and the Decisions, dated 6 July 1999 and 15 September
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2000, of the Court of Appeals in CA-G.R. SP Nos. 47607 and 46718,

respectively, are hereby AFFIRMED. Costs against petitioner.
Digest:
FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining,
production, and sale of various mineral products, filed claims with the BIR for
refund/credit of input VAT on its purchases of capital goods and on its zerorated sales in the taxable quarters of the years 1990 and 1992. BIR did not
immediately act on the matter prompting the petitioner to file a petition for
review before the CTA. The latter denied the claims on the grounds that for
zero-rating to apply, 70% of the company's sales must consists of exports,
that the same were not filed within the 2-year prescriptive period (the claim
for 1992 quarterly returns were judicially filed only on April 20, 1994), and
that petitioner failed to submit substantial evidence to support its claim for
refund/credit.
The petitioner, on the other hand, contends that CTA failed to consider the
following: sales to PASAR and PHILPOS within the EPZA as zero-rated export
sales; the 2-year prescriptive period should be counted from the date of filing
of the last adjustment return which was April 15, 1993, and not on every end
of the applicable quarters; and that the certification of the independent CPA
attesting to the correctness of the contents of the summary of suppliers
invoices or receipts examined, evaluated and audited by said CPA should
substantiate its claims.
ISSUE: Did the petitioner corporation sufficiently establish the factual bases
for its applications for refund/credit of input VAT?
HELD: No. Although the Court agreed with the petitioner corporation that the
two-year prescriptive period for the filing of claims for refund/credit of input
VAT must be counted from the date of filing of the quarterly VAT return, and
that sales to PASAR and PHILPOS inside the EPZA are taxed as exports
because these export processing zones are to be managed as a separate
customs territory from the rest of the Philippines, and thus, for tax purposes,
are effectively considered as foreign territory, it still denies the claims of
petitioner corporation for refund of its input VAT on its purchases of capital
goods and effectively zero-rated sales during the period claimed for not
being established and substantiated by appropriate and sufficient evidence.
Tax refunds are in the nature of tax exemptions. It is regarded as in
derogation of the sovereign authority, and should be construed in strictissimi
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juris against the person or entity claiming the exemption. The taxpayer who
claims for exemption must justify his claim by the clearest grant of organic or
statute law and should not be permitted to stand on vague implications.

SUPREME COURT
Manila
EN BANC
G.R. No. L-18125
May 31, 1963
BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA, petitioner,

vs.
COURT OF TAX APPEALS and THE NATIONAL WATERWORKS AND
SEWERAGE AUTHORITY (NAWASA),respondents.
Gabriel V. Valero and Rodolfo F. de Gorostiza for petitioner.
Manuel B. Roo for respondent National Waterworks and Sewerage
Authority.
CONCEPCION, J.:
This is a petition for review of a decision of the Court of Tax Appeals
reversing a resolution or decision of the Board of Assessment Appeals for the
Province of Laguna.
The question involved in this case is whether the water pipes, reservoir,
intake and buildings used by herein respondent, National Waterworks and
Sewerage Authority hereinafter referred to as NAWASA in the operation
of its waterworks system in the municipalities of Cabuyao, Sta. Rosa and
Bian, province of Laguna, are subject to real estate tax.
Wherefore, the parties respectfully pray that the foregoing stipulation of
facts be admitted and approved by this Honorable Court, without prejudice to
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the parties adducing other evidence to prove their case not covered by this
stipulation of facts. 1wph1.t
The parties have submitted in the Court of Tax Appeals a stipulation of facts.
The pertinent parts thereof are to the effect:
1. That the petitioner National Waterworks and Sewerage Authority
(NWSA) is a public corporation created by virtue of Republic Act No.
1383, and that it is owned by the Government of the Philippines as well
as all property comprising waterworks and sewerage systems placed
under it:.
2. That, pursuant to the provisions of Republic Act No. 1383, petitioner
NWSA took over all the property of the former Metropolitan Water
District and all the existing local government-owned waterworks and
sewerage systems all over the Philippines, including the Cabuyao-Sta.
Rosa-Bian Waterworks System owned by the Province of Laguna
(Section 8, Republic Act No. 1283);
3. That the functions and activities of petitioner NWSA, as enumerated
in Republic Act No. 1383, more particularly Section 2 thereof, are the
same and identical with the functions of the defunct Metropolitan
Water District, particularly Section 2, Act 2832, is amended;
4. That petitioner National Waterworks and Sewerage Authority (NWSA)
has no capital stock divided into shares of stocks, no stockholders, and
is not authorized by its Charter to distribute dividends; and, on the
other hand, whatever surplus funds it has realized, may and will after
meeting its yearly obligations, have been, are and may be, used for the
construction, expansion and improvement of its waterworks and sewer
services;
5. That at the time that the Cabuyao-Sta. Rosa-Bian Waterworks
System was taken over by petitioner NWSA in 1956, the former was
self-supporting and revenue-producing, but that all its surplus income
are not declared as profits as this surplus are or may be invested for
the expansion thereof;
6. That in the year 1956 the Provincial Assessor of Laguna assessed,
for purposes of real estate taxes, the property comprising the
Cabuyao-Sta. Rosa-Bian Waterworks System and described in Tax
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Declaration No. 5987 (Exh. "A-l") which, as stated in Paragraph 2

hereof, herein petitioner NWSA had taken over;
7. That against the above-mentioned assessment made by the
Provincial Assessor of Laguna, petitioner NWSA protested, claiming
that the property described under Tax Declaration No. 5987 (Exh. "A-l")
are exempted from the payment of real estate taxes in view of the
nature and kind of said property and functions and activities of
petitioner, as provided in Republic Act No. 1383;.
8. That the said protest of petitioner NWSA was overruled on appeal
before the herein respondent Board of Assessment Appeals, hence the
present petition for review filed by petitioner;
xxx
xxx
xxx"
After appropriate proceedings, the Court of Tax Appeals rendered the

aforementioned decision reversing the action taken by petitioner Board,
which, accordingly, has brought the case to us for review, under the
provisions of Republic Act No. 1125, contending that the properties in
question are subject to real estate tax because: (1) although said properties
belong to the Republic of the Philippines, the same holds it, not in its
governmental, political or sovereign capacity, but in a private, proprietary or
patrimonial character, which, allegedly, is not covered by the exemption
contained in section 3(a) of Republic Act No. 470; and 2) this exemption,
even if applicable to patrimonial property, must yield to the provisions of
section 1 of Republic Act No. 104, under which all corporations, agencies or
instrumentalities owned or controlled by the Government are subject to
taxation, according to petitioner appellant.
Sections 2 and 3(a) of Commonwealth Act No. 470 provide:
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 specifically exempted.
SEC. 3. Property exempt from tax. The exemptions shall be as
follows:
TAXATION LAW 1
(a) Property owned by . . . the Republic of the Philippines, any province,

city, municipality or municipal district. . . .
It is conceded, in the stipulation of facts, that the property involved in this
case "is owned by the Government of the Philippines". Hence, it belongs to
the Republic of the Philippines and falls squarely within the letter of the
above provision. This notwithstanding, petitioner Board maintains that
respondent NAWASA is not entitled to the benefits of the exemption
established in said section 3(a), inasmuch as, in the case of the City of Cebu
vs. NAWASA, G. R. No. L-12892, decided on April 30, 1960, we ruled that the
assets of the water system of the City of Cebu, which the NAWASA had
sought to take over, pursuant to the provisions of Republic Act No. 1383 as
it did in the case at bar, with respect to the Cabuyao-Sta. Rosa-Bian
Waterworks System are patrimonial property of said city, which held it in a
proprietary character, not in its governmental capacity.
We did not declare, however, in the Cebu case that said assets were subject
to taxation. In that case we merely reiterated the doctrine, laid down in the
case of City of Baguio vs. NAWASA, G. R. No. L-12032, decided on August 31,
1959, that municipal corporations hold in their proprietary character, the
assets of their respective waterworks, which, accordingly, cannot be taken or
appropriated by the National Government and placed under the
NAWASA without payment of just compensation. Neither the Cebu case nor
that of Baguio sustains the theory that said assets are taxable.
Upon the other hand, in exempting from taxation "property owned by the
Republic of the Philippines, any province, city, municipality or municipal
district . . .," said section 3(a) of Republic Act No. 470 makes no distinction
between property held in a sovereign, governmental or political capacity and
those possessed in a private, proprietary or patrimonial character. And where
the law does not distinguish neither may we, unless there are facts and
circumstances clearly showing that the lawmaker intended the contrary, but
no such facts and circumstances have been brought to our attention. Indeed,
the noun "property" and the verb "owned" used in said section 3(a) strongly
suggest that the object of exemption is considered more from the view point
of dominion, than from that of domain. Moreover, taxes are financial burdens
imposed for the purpose of raising revenues with which to defray the cost of
the operation of the Government, and a tax on property of the Government,
whether national or local, would merely have the effect of taking money from
one pocket to put it in another pocket (Cooley on Taxation, Sec. 621, 4th
TAXATION LAW 1
Edition.) Hence, it would not serve, in the final analysis, the main purpose of
taxation. What is more, it would tend to defeat it, on account of the paper
work, time and consequently, expenses it would entail. (The Law on Local
Taxation, by Justiniano Y. Castillo, p. 13.)
Section 1 of the Republic Act No. 101, upon which petitioner relies, reads:
. . . All corporations, agencies, or instrumentalities owned or controlled
by the government shall pay such duties, taxes, fees and other charges
upon their transaction, business, industries, sale, or income as are
imposed by law upon individuals, associations or corporations engaged
in any taxable business, industry, or activity except on goods or
commodities imported or purchased and sold or distributed for relief
purposes as may be determined by the President of the Philippines.
This provision is inapplicable to the case at bar for it refers only to duties,
taxes, fees and other charges upon "transaction, business, industry, sale or
income" and does not include taxes on property like real estate tax.
WHEREFORE, the decision appealed from is hereby affirmed, without special
pronouncement as to costs. It is so ordered.
Digest:
FACTS: National Waterworks and Sewerage Authority (NWSA), a public
corporation owned by the Government of the Philippines as well as all
property comprising waterworks and sewerage systems placed under it, took
over the Cabuyao-Sta. Rosa-Bian Waterworks System in 1956. It was
assessed by the Provincial Assessor of Laguna, for purposes of real estate
taxes, on the real properties owned by Cabuyao Waterworks. The respondent
protested claiming it is exempted from the payment of real estate taxes in
view of the nature and kind of said property and functions and activities of
petitioner. The petitioner denied the protest arguing that such real properties
are subject to real estate tax because although said properties belong to the
Republic of the Philippines, the same holds it, not in its governmental,
political or sovereign capacity, but in a private, proprietary or patrimonial
character, which, allegedly, is not covered by the exemption contained in
section 3(a) of Republic Act No. 470.
ISSUE: Are the real properties owned by the respondent public corporation
subject to real estate tax?
TAXATION LAW 1
HELD: No. Republic Act No. 470 makes no distinction between property held
in a sovereign, governmental or political capacity and those possessed in a
private, proprietary or patrimonial character. And where the law does not
distinguish neither may we, unless there are facts and circumstances clearly
showing that the lawmaker intended the contrary, but no such facts and
circumstances have been brought to our attention. Indeed, the noun
"property" and the verb "owned" used in said section 3(a) strongly suggest
that the object of exemption is considered more from the view point of
dominion,
than
from
that
of
domain.
Moreover, taxes are financial burdens imposed for the purpose of raising
revenues with which to defray the cost of the operation of the Government,
and a tax on property of the Government, whether national or local, would
merely have the effect of taking money from one pocket to put it in another
pocket. Hence, it would not serve, in the final analysis, the main purpose of
work, time and consequently, expenses it would entail.
TAXATION LAW 1

SUPREME COURT
Manila
EN BANC
G.R. No. L-22814
August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiffappellant,

vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF
BUTUAN, defendants-appellees.
Sabido, Sabido and Associates for plaintiff-appellant.
The City Attorney of Butuan City for defendants-appellees.
CONCEPCION, C.J.:
Direct appeal to this Court, from a decision of the Court of First Instance of
Agusan, dismissing plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic
corporation with offices and principal place of business in Quezon City. The
defendants are the City of Butuan, its City Mayor, the members of its
municipal board and its City Treasurer. Plaintiff seeks to recover the sums
paid by it to the City of Butuan hereinafter referred to as the City and
collected by the latter, pursuant to its Municipal Ordinance No. 110, as
amended by Municipal Ordinance No. 122, both series of 1960, which
plaintiff assails as null and void, and to prevent the enforcement thereof.
Both parties submitted the case for decision in the lower court upon a
stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage
for its products the "Pepsi-Cola" soft drinks for sale to customers in the
City of Butuan and all the municipalities in the Province of Agusan.
These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and
shipped to the Butuan City warehouse of plaintiff for distribution and
sale in the City of Butuan and all municipalities of Agusan. .
TAXATION LAW 1
2. That on August 16, 1960, the City of Butuan enacted Ordinance No.
110 which was subsequently amended by Ordinance No. 122 and
effective November 28, 1960. A copy of Ordinance No. 110, Series of
1960 and Ordinance No. 122 are incorporated herein as Exhibits "A"
and "B", respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person,
association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the
plaintiff paid under protest the amount of P4,926.63 from August 16 to
December 31, 1960 and the amount of P9,250.40 from January 1 to
July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the
total amount of P14,177.03 paid under protest and those that if may
later on pay until the termination of this case on the ground that
Ordinance No. 110 as amended of the City of Butuan is illegal, that the
tax imposed is excessive and that it is unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer
of Butuan City, has prepared a form to be accomplished by the plaintiff
for the computation of the tax. A copy of the form is enclosed herewith
as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from
January 1, 1961 to July 30, 1961 of its warehouse in Butuan City is
incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and
Loss Statement, the defendants claim that the plaintiff is not entitled
to a depreciation of P3,052.63 but only P1,202.55 in which case the
profit of plaintiff will be increased from P1,254.44 to P3,104.52. The
plaintiff differs only on the claim of depreciation which the company
claims to be P3,052.62. This is in accordance with the findings of the
representative of the undersigned City Attorney who verified the
records of the plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case
of 24 bottles was increased to P1.92 which price is uniform throughout
the Philippines. Said increase was made due to the increase in the
production cost of its manufacture.
TAXATION LAW 1
8. That the parties reserve the right to submit arguments on the

constitutionality and illegality of Ordinance No. 110, as amended of the
City of Butuan in their respective memoranda.
xxx
xxx
x x x1wph1.t
Section 1 of said Ordinance No. 110, as amended, states what products are
"liquors", within the purview thereof. Section 2 provides for the payment by
"any agent and/or consignee" of any dealer "engaged in selling liquors,
imported or local, in the City," of taxes at specified rates. Section 3
prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and
carbonated beverages therein named, and "all other soft drinks or
carbonated drinks." Section 3-A, defines the meaning of the term "consignee
or agent" for purposes of the ordinance. Section 4 provides that said taxes
"shall be paid at the end of every calendar month." Pursuant to Section 5,
the taxes "shall be based and computed from the cargo manifest or bill of
lading or any other record showing the number of cases of soft drinks, liquors
or all other soft drinks or carbonated drinks received within the month."
Sections 6, 7 and 8 specify the surcharge to be added for failure to pay the
taxes within the period prescribed and the penalties imposable for
"deliberate and willful refusal to pay the tax mentioned in Sections 2 and 3"
or for failure "to furnish the office of the City Treasurer a copy of the bill of
lading or cargo manifest or record of soft drinks, liquors or carbonated drinks
for sale in the City." Section 9 makes the ordinance applicable to soft drinks,
liquors or carbonated drinks "received outside" but "sold within" the City.
Section 10 of the ordinance provides that the revenue derived therefrom
"shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the
General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it
partakes of the nature of an import tax; (2) it amounts to double taxation; (3)
it is excessive, oppressive and confiscatory; (4) it is highly unjust and
discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority
of which it was enacted, is an unconstitutional delegation of legislative
powers.
The second and last objections are manifestly devoid of merit. Indeed
independently of whether or not the tax in question, when considered in
relation to the sales tax prescribed by Acts of Congress, amounts to double
taxation, on which we need not and do not express any opinion - double
TAXATION LAW 1
taxation, in general, is not forbidden by our fundamental law. We have not

adopted, as part thereof, the injunction against double taxation found in the
Constitution of the United States and of some States of the Union.1 Then,
again, the general principle against delegation of legislative powers, in
consequence of the theory of separation of powers2 is subject to one wellestablished exception, namely: legislative powers may be delegated to local
governments to which said theory does not apply3 in respect of matters
of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24
bottles," of soft drinks or carbonated drinks in the production and sale of
which plaintiff is engaged or less than P0.0042 per bottle, is manifestly too
small to be excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In
this connection, it is noteworthy that the tax prescribed in section 3 of
Ordinance No. 110, as originally approved, was imposed upon dealers
"engaged in selling" soft drinks or carbonated drinks. Thus, it would seem
that the intent was then to levy a tax upon the sale of said merchandise. As
amended by Ordinance No. 122, the tax is, however, imposed only upon "any
agent and/or consignee of any person, association, partnership, company or
corporation engaged in selling ... soft drinks or carbonated drinks." And,
pursuant to section 3-A, which was inserted by said Ordinance No. 122:
... Definition of the Term Consignee or Agent. For purposes of this
Ordinance, a consignee of agent shall mean any person, association,
partnership, company or corporation who acts in the place of another
by authority from him or one entrusted with the business of another or
to whom is consigned or shipped no less than 1,000 cases of hard
liquors or soft drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated
drinks, are not subject to the tax,unless they are agents and/or consignees
of another dealer, who, in the very nature of things, must be one engaged in
business outside the City. Besides, the tax would not be applicable to such
agent and/or consignee, if less than 1,000 cases of soft drinks are consigned
or shipped to him every month. When we consider, also, that the tax "shall
be based and computed from the cargo manifest or bill of lading ... showing
the number of cases" not sold but "received" by the taxpayer, the
intention to limit the application of the ordinance to soft drinks and
TAXATION LAW 1
carbonated drinks brought into the City from outside thereof becomes
apparent. Viewed from this angle, the tax partakes of the nature of an import
duty, which is beyond defendant's authority to impose by express provision
of law.4
Even however, if the burden in question were regarded as a tax on the sale
of said beverages, it would still be invalid, as discriminatory, and hence,
violative of the uniformity required by the Constitution and the law therefor,
since only sales by "agents or consignees" of outside dealers would be
subject to the tax. Sales by local dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales, and even if the same
exceeded those made by said agents or consignees of producers or
merchants established outside the City of Butuan, would be exempt from the
disputed tax.
It is true that the uniformity essential to the valid exercise of the power of
taxation does not require identity or equality under all circumstances, or
negate the authority to classify the objects of taxation.5 The classification
made in the exercise of this authority, to be valid, must, however, be
reasonable6 and this requirement is not deemed satisfied unless: (1) it is
based upon substantial distinctions which make real differences; (2) these
are germane to the purpose of the legislation or ordinance; (3) the
classification applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4) the
classification applies equally all those who belong to the same class.7
These conditions are not fully met by the ordinance in question.8 Indeed, if its
purpose were merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no reason why sales thereof by sealers other
than agents or consignees of producers or merchants established outside the
City of Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another
one shall be entered annulling Ordinance No. 110, as amended by Ordinance
No. 122, and sentencing the City of Butuan to refund to plaintiff herein the
amounts collected from and paid under protest by the latter, with interest
thereon at the legal rate from the date of the promulgation of this decision,
in addition to the costs, and defendants herein are, accordingly, restrained
and prohibited permanently from enforcing said Ordinance, as amended. It is
so ordered.
TAXATION LAW 1
Digest:
FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it
under protest, to the City of Butuan, and collected by the latter, pursuant to
its Municipal Ordinance No. 110 which plaintiff assails as null and void
because it partakes of the nature of an import tax, amounts to double
taxation, highly unjust and discriminatory, excessive, oppressive and
confiscatory, and constitutes an invlaid delegation of the power to tax. The
ordinance imposes taxes for every case of softdrinks, liquors and other
carbonated beverages, regardless of the volume of sales, shipped to the
agents and/or consignees by outside dealers or any person or company
having its actual business outside the City.
ISSUE: Does the tax ordinance violate the uniformity requirement of
taxation?
HELD: Yes. The tax levied is discriminatory. Even if the burden in question
were regarded as a tax on the sale of said beverages, it would still be invalid,
as discriminatory, and hence, violative of the uniformity required by the
Constitution and the law therefor, since only sales by "agents or consignees"
of outside dealers would be subject to the tax. Sales by local dealers, not
acting for or on behalf of other merchants, regardless of the volume of their
sales, and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the City of
Butuan,
would
be
exempt
from
the
disputed
tax.
negate the authority to classify the objects of taxation. The classification
reasonable and this requirement is not deemed satisfied unless: (1) it is
classification applies equally to all those who belong to the same class.
TAXATION LAW 1

SUPREME COURT
Manila
EN BANC
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiffappellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET
AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R
Matol and Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique
M. Reyes for appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in
its Civil Case No. 3294, which was certified to Us by the Court of Appeals on
October 6, 1969, as involving only pure questions of law, challenging the
power of taxation delegated to municipalities under the Local Autonomy Act
(Republic Act No. 2264, as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of
the Philippines, Inc., commenced a complaint with preliminary injunction
before the Court of First Instance of Leyte for that court to declare Section 2
of Republic Act No. 2264. 1 otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well as to
declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of
Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material
portions of which state that, first, both Ordinances Nos. 23 and 27 embrace
or cover the same subject matter and the production tax rates imposed
TAXATION LAW 1
therein are practically the same, and second, that on January 17, 1963, the
acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to
the Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to
enforce compliance by the latter of the provisions of said Ordinance No. 27,
series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on
September 25, 1962, levies and collects "from soft drinks producers and
manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of
soft drink corked." 2 For the purpose of computing the taxes due, the person,
firm, company or corporation producing soft drinks shall submit to the
Municipal Treasurer a monthly report, of the total number of bottles produced
and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on
October 28, 1962, levies and collects "on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a tax of
ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity." 4 For the purpose of computing the taxes due, the person, fun
company, partnership, corporation or plant producing soft drinks shall submit
to the Municipal Treasurer a monthly report of the total number of gallons
produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as
"municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment
"dismissing the complaint and upholding the constitutionality of [Section 2,
Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the taxes due under the oft the
said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to
the Court of Appeals, which, in turn, elevated the case to Us pursuant to
Section 31 of the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue delegation of
power, confiscatory and oppressive?
TAXATION LAW 1
2. Do Ordinances Nos. 23 and 27 constitute double taxation

and impose percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without
being expressly conferred by the people. 6 It is a power that is purely
legislative and which the central legislative body cannot delegate either to
the executive or judicial department of the government without infringing
upon the theory of separation of powers. The exception, however, lies in the
case of municipal corporations, to which, said theory does not apply.
Legislative powers may be delegated to local governments in respect of
matters of local concern. 7 This is sanctioned by immemorial practice. 8 By
necessary implication, the legislative power to create political corporations
for purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax. 9 Under the New
Constitution, local governments are granted the autonomous authority to
create their own sources of revenue and to levy taxes. Section 5, Article XI
provides: "Each local government unit shall have the power to create its
sources of revenue and to levy taxes, subject to such limitations as may be
provided by law." Withal, it cannot be said that Section 2 of Republic Act No.
2264 emanated from beyond the sphere of the legislative power to enact
and vest in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiffappellant's pretense, would not suffice to invalidate the said law as
confiscatory and oppressive. In delegating the authority, the State is not
limited 6 the exact measure of that which is exercised by itself. When it is
said that the taxing power may be delegated to municipalities and the like, it
is meant that there may be delegated such measure of power to impose and
collect taxes as the legislature may deem expedient. Thus, municipalities
may be permitted to tax subjects which for reasons of public policy the State
has not deemed wise to tax for more general purposes. 10 This is not to say
though that the constitutional injunction against deprivation of property
without due process of law may be passed over under the guise of the taxing
power, except when the taking of the property is in the lawful exercise of the
taxing power, as when (1) the tax is for a public purpose; (2) the rule on
uniformity of taxation is observed; (3) either the person or property taxed is
within the jurisdiction of the government levying the tax; and (4) in the
TAXATION LAW 1
assessment and collection of certain kinds of taxes notice and opportunity

for hearing are provided. 11 Due process is usually violated where the tax
imposed is for a private as distinguished from a public purpose; a tax is
imposed on property outside the State, i.e., extraterritorial taxation; and
arbitrary or oppressive methods are used in assessing and collecting taxes.
But, a tax does not violate the due process clause, as applied to a particular
taxpayer, although the purpose of the tax will result in an injury rather than a
benefit to such taxpayer. Due process does not require that the property
subject to the tax or the amount of tax to be raised should be determined by
judicial inquiry, and a notice and hearing as to the amount of the tax and the
manner in which it shall be apportioned are generally not necessary to due
process of law. 12
There is no validity to the assertion that the delegated authority can be
declared unconstitutional on the theory of double taxation. It must be
observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. 13 The
reason is that the State has exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction
against double taxation found in the Constitution of the United States and
some states of the Union. 14 Double taxation becomes obnoxious only where
the taxpayer is taxed twice for the benefit of the same governmental
entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case
where one tax is imposed by the State and the other by the city or
municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute
double taxation, because these two ordinances cover the same subject
matter and impose practically the same tax rate. The thesis proceeds from
its assumption that both ordinances are valid and legally enforceable. This is
not so. As earlier quoted, Ordinance No. 23, which was approved on
September 25, 1962, levies or collects from soft drinks producers or
manufacturers a tax of one-sixteen (1/16) of a centavo for .every bottle
corked, irrespective of the volume contents of the bottle used. When it was
discovered that the producer or manufacturer could increase the volume
contents of the bottle and still pay the same tax rate, the Municipality of
Tanauan enacted Ordinance No. 27, approved on October 28, 1962, imposing
a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity. The difference between the two ordinances clearly lies in
TAXATION LAW 1
the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a
centavo for every bottle corked; in Ordinance No. 27, it is one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The
intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is
thus clear: it was intended as a plain substitute for the prior Ordinance No.
23, and operates as a repeal of the latter, even without words to that
effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees
are only seeking to enforce Ordinance No. 27, series of 1962. Even the
stipulation of facts confirms the fact that the Acting Municipal Treasurer of
Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the
provisions of said Ordinance No. 27, series of 1962. The aforementioned
admission shows that only Ordinance No. 27, series of 1962 is being enforced
by defendants-appellees. Even the Provincial Fiscal, counsel for defendantsappellees admits in his brief "that Section 7 of Ordinance No. 27, series of
1962 clearly repeals Ordinance No. 23 as the provisions of the latter are
inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27
imposes a percentage or a specific tax. Undoubtedly, the taxing authority
conferred on local governments under Section 2, Republic Act No. 2264, is
broad enough as to extend to almost "everything, accepting those which are
mentioned therein." As long as the text levied under the authority of a city or
municipal ordinance is not within the exceptions and limitations in the law,
the same comes within the ambit of the general rule, pursuant to the rules
of exclucion attehus and exceptio firmat regulum in cabisus non
excepti 19 The limitation applies, particularly, to the prohibition against
municipalities and municipal districts to impose "any percentage tax or other
taxes in any form based thereon nor impose taxes on articles subject
to specific tax except gasoline, under the provisions of the National Internal
Revenue Code." For purposes of this particular limitation, a municipal
ordinance which prescribes a set ratio between the amount of the tax and
the volume of sale of the taxpayer imposes a sales tax and is null and void
for being outside the power of the municipality to enact. 20But, the imposition
of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity" on all soft drinks produced or manufactured under
Ordinance No. 27 does not partake of the nature of a percentage tax on
sales, or other taxes in any form based thereon. The tax is levied on the
produce (whether sold or not) and not on the sales. The volume capacity of
the taxpayer's production of soft drinks is considered solely for purposes of
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determining the tax rate on the products, but there is not set ratio between
the volume of sales and the amount of the tax. 21
Nor can the tax levied be treated as a specific tax. Specific taxes are those
imposed on specified articles, such as distilled spirits, wines, fermented
liquors, products of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel
fuel oil, cinematographic films, playing cards, saccharine, opium and other
habit-forming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity on all softdrinks, produced or manufactured, or an equivalent of 1-
centavos per case, 23 cannot be considered unjust and unfair. 24 an increase
in the tax alone would not support the claim that the tax is oppressive,
unjust and confiscatory. Municipal corporations are allowed much discretion
in determining the reates of imposable taxes. 25 This is in line with the
constutional policy of according the widest possible autonomy to local
governments in matters of local taxation, an aspect that is given expression
in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so
excessive as to be prohibitive, courts will go slow in writing off an ordinance
as unreasonable. 27 Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of the law to further
strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five
but not more than ten crowners or P2,000.00 with ten but not more than
twenty crowners imposed on manufacturers, producers, importers and
dealers of soft drinks and/or mineral waters under Ordinance No. 54, series
of 1964, as amended by Ordinance No. 41, series of 1968, of defendant
Municipality, 29 appears not to affect the resolution of the validity of
Ordinance No. 27. Municipalities are empowered to impose, not only
municipal license taxes upon persons engaged in any business or occupation
but also to levy for public purposes, just and uniform taxes. The ordinance in
question (Ordinance No. 27) comes within the second power of a
municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264,
otherwise known as the Local Autonomy Act, as amended, is hereby upheld
and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series
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of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby

declared of valid and legal effect. Costs against petitioner-appellant.
SO ORDERED.
Digest:
Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In
September 1962, the Municipality approved Ordinance No. 23 which levies
and collects from soft drinks producers and manufacturers a tai of onesixteenth (1/16) of a centavo for every bottle of soft drink corked.
In December 1962, the Municipality also approved Ordinance No. 27 which
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 of volume capacity.
Pepsi Cola assailed the validity of the ordinances as it alleged that they
constitute double taxation in two instances: a) double taxation because
Ordinance No. 27 covers the same subject matter and impose practically the
same tax rate as with Ordinance No. 23, b) double taxation because the two
ordinances impose percentage or specific taxes.
Pepsi Cola also questions the constitutionality of Republic Act 2264 which
allows for the delegation of taxing powers to local government units; that
allowing local governments to tax companies like Pepsi Cola is confiscatory
and oppressive.
The Municipality assailed the arguments presented by Pepsi Cola. It argued,
among others, that only Ordinance No. 27 is being enforced and that the
latter law is an amendment of Ordinance No. 23, hence there is no double
taxation.
ISSUE: Whether or not there is undue delegation of taxing powers. Whether
or not there is double taxation.
HELD: No. There is no undue delegation. The Constitution even allows such
delegation. Legislative powers may be delegated to local governments in
respect of matters of local concern. By necessary implication, the legislative
power to create political corporations for purposes of local self-government
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carries with it the power to confer on such local governmental agencies the
power to tax. 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.
There is no double taxation. The argument of the Municipality is well taken.
Further, Pepsi Colas assertion that the delegation of taxing power in itself
constitutes double taxation cannot be merited. It must be observed that the
delegating authority specifies the limitations and enumerates the taxes over
which local taxation may not be exercised. 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 unlike in other
jurisdictions. Double taxation becomes obnoxious only where the taxpayer is
taxed twice for the benefit of the same governmental entity or by the same
jurisdiction for the same purpose, but not in a case where one tax is imposed
by the State and the other by the city or municipality.
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SUPREME COURT
Manila
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.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.
NARVASA, C.J.:
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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
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.
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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 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;
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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
valoremtaxes and the increases thereon.
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 inValmonte 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
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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 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.
xxx xxx xxx
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 pesovis-a-vis 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
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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 time. 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
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).
xxx xxx xxx
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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) Constitution, Article VI, Sec. 29
(3), lifted from the 1935 Constitution, Article VI, Sec. 23(1).
(Emphasis 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
TAXATION LAW 1
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 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
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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
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.
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,
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
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items are reimbursements for which the OPSF should not have responded,
the amount of the P12.877 billion deficit "should be reduced by P5,277.2
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 ofejusdem 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.:
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.
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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
inCaltex 29 and which have been pointed to by the Solicitor General. At any
rate, 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.
Digest:
FACTS: Senator John Osmea assails the constitutionality of paragraph 1c of
PD 1956, as amended by EO 137, empowering the Energy Regulatory Board
(ERB) to approve the increase of fuel prices or impose additional amounts on
petroleum products which proceeds shall accrue to the Oil Price Stabilization
Fund (OPSF) established for the reimbursement to ailing oil companies in the
event of sudden price increases. The petitioner avers that the collection on
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oil products establishments is an undue and invalid delegation of legislative

power to tax. Further, the petitioner points out that since a 'special fund'
consists of monies collected 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. 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.
ISSUE: Is there an undue delegation of the legislative power of taxation?
HELD: None. 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 as a special fund is plain from the special treatment
description of a "special fund." 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, P.D. 1956 expressly
authorizes the ERB to impose additional amounts to augment the resources
of the Fund.
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SUPREME COURT
Manila
EN BANC
G.R. No. L-29646 November 10, 1978
MAYOR ANTONIO J. VILLEGAS, petitioner,
vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.
Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for
petitioner.
Sotero H. Laurel for respondents.
FERNANDEZ, J.:
This is a petition for certiorari to review tile decision dated September 17,
1968 of respondent Judge Francisco Arca of the Court of First Instance of
Manila, Branch I, in Civil Case No. 72797, the dispositive portion of winch
reads.
Wherefore, judgment is hereby rendered in favor of the petitioner
and against the respondents, declaring Ordinance No. 6 37 of the
City of Manila null and void. The preliminary injunction is made
permanent. No pronouncement as to cost.
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SO ORDERED.
Manila, Philippines, September 17, 1968.
(SGD.
)
FRAN
CISC
O
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
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On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was
employed in Manila, filed a petition with the Court of First Instance of Manila,
Branch I, denominated as Civil Case No. 72797, praying for the issuance of
the writ of preliminary injunction and restraining order to stop the
enforcement of Ordinance No. 6537 as well as for a judgment declaring said
Ordinance No. 6537 null and void. 6
In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds
for wanting the ordinance declared null and void:
1) As a revenue measure imposed on aliens employed in the City
of Manila, Ordinance No. 6537 is discriminatory and violative of
the rule of the uniformity in taxation;
2) As a police power measure, it makes no distinction between
useful and non-useful occupations, imposing a fixed P50.00
employment permit, which is out of proportion to the cost of
registration and that it fails to prescribe any standard to guide
and/or limit the action of the Mayor, thus, violating the
fundamental principle on illegal delegation of legislative powers:
3) It is arbitrary, oppressive and unreasonable, being applied
only to aliens who are thus, deprived of their rights to life, liberty
and property and therefore, violates the due process and equal
protection clauses of the Constitution. 7
On May 24, 1968, respondent Judge issued the writ of preliminary injunction
and on September 17, 1968 rendered judgment declaring Ordinance No.
6537 null and void and making permanent the writ of preliminary
injunction. 8
Contesting the aforecited decision of respondent Judge, then Mayor Antonio
J. Villegas filed the present petition on March 27, 1969. Petitioner assigned
the following as errors allegedly committed by respondent Judge in the
latter's decision of September 17,1968: 9
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.
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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
VIOLATED THE DUE PROCESS AND EQUAL PROTECTION CLAUSES
OF THE CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared
null and void on the ground that it violated the rule on uniformity of taxation
because the rule on uniformity of taxation applies only to purely tax or
revenue measures and that Ordinance No. 6537 is not a tax or revenue
measure but is an exercise of the police power of the state, it being
principally a regulatory measure in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue
measure because its principal purpose is regulatory in nature has no merit.
While it is true that the first part which requires that the alien shall secure an
employment permit from the Mayor involves the exercise of discretion and
judgment in the processing and approval or disapproval of applications for
employment permits and therefore is regulatory in character the second part
which requires the payment of P50.00 as employee's fee is not regulatory
but a revenue measure. There is no logic or justification in exacting P50.00
from aliens who have been cleared for employment. It is obvious that the
purpose of the ordinance is to raise money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because
it fails to consider valid substantial differences in situation among individual
aliens who are required to pay it. Although the equal protection clause of the
Constitution does not forbid classification, it is imperative that the
classification should be based on real and substantial differences having a
reasonable relation to the subject of the particular legislation. The same
amount of P50.00 is being collected from every employed alien whether he is
casual or permanent, part time or full time or whether he is a lowly employee
or a highly paid executive
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Ordinance No. 6537 does not lay down any criterion or standard to guide the
Mayor in the exercise of his discretion. It has been held that where an
ordinance of a municipality fails to state any policy or to set up any standard
to guide or limit the mayor's action, expresses no purpose to be attained by
requiring a permit, enumerates no conditions for its grant or refusal, and
entirely lacks standard, thus conferring upon the Mayor arbitrary and
unrestricted power to grant or deny the issuance of building permits, such
ordinance is invalid, being an undefined and unlimited delegation of power to
allow or prevent an activity per se lawful. 10
In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where
a law granted a government agency power to determine the allocation of
wheat flour among importers, the Supreme Court ruled against the
interpretation of uncontrolled power as it vested in the administrative officer
an arbitrary discretion to be exercised without a policy, rule, or standard
from which it can be measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the authority and discretion to
grant and refuse permits of all classes conferred upon the Mayor of Manila by
the Revised Charter of Manila is not uncontrolled discretion but legal
discretion to be exercised within the limits of the law.
Ordinance No. 6537 is void because it does not contain or suggest any
standard or criterion to guide the mayor in the exercise of the power which
has been granted to him by the ordinance.
The ordinance in question violates the due process of law and equal
protection rule of the Constitution.
Requiring a person before he can be employed to get a permit from the City
Mayor of Manila who may withhold or refuse it at will is tantamount to
denying him the basic right of the people in the Philippines to engage in a
means of livelihood. While it is true that the Philippines as a State is not
obliged to admit aliens within its territory, once an alien is admitted, he
cannot be deprived of life without due process of law. This guarantee
includes the means of livelihood. The shelter of protection under the due
process and equal protection clause is given to all persons, both aliens and
citizens. 13
The trial court did not commit the errors assigned.
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WHEREFORE, the decision appealed from is hereby affirmed, without

SO ORDERED.
Digest:
Facts: The Municipal Board of Manila enacted Ordinance 6537 requiring
aliens (except those employed in the diplomatic and consular missions of
foreign countries, in technical assistance programs of the government and
another country, and members of religious orders or congregations) to
procure the requisite mayors permit so as to be employed or engage in
trade in the City of Manila. The permit fee is P50, and the penalty for the
violation of the ordinance is 3 to 6 months imprisonment or a fine of P100 to
P200, or both.
Issue: Whether the ordinance imposes a regulatory fee or a tax.
Held: The ordinances purpose is clearly to raise money under the guise of
regulation by exacting P50 from aliens who have been cleared for
employment. The amount is unreasonable and excessive because it fails to
consider difference in situation among aliens required to pay it, i.e. being
casual, permanent, part-time, rank-and-file or executive.
[ The Ordinance was declared invalid as 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. Further, the ordinance does not
lay down any criterion or standard to guide the Mayor in the exercise of his
discretion, thus conferring upon the mayor arbitrary and unrestricted powers.
]
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SUPREME COURT
Manila
EN BANC
G.R. No. L-41631 December 17, 1976
ADMINISTRATOR; and THE MUNICIPAL BOARD OF MANILA, petitioners,
vs.
OF MANILA MARKET VENDORS, INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.
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
TAXATION LAW 1
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 AntiGraft 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.
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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 ordinance * * *
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 barrioordinances 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
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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
considered as remaining an exception of 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. The 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 lawmaking 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 the reproach of uncertainty and
unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. 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 provisions of the charter or of any
other law or ordinance. Upon the other hand, Article 2189 of the Civil Code
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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 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 particularprescription for
liability due to defective streets in particular. In the same manner, the
"ordinance" in general, while the Local Tax Code establishes a rule for the
publication of "ordinance 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
TAXATION LAW 1
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." 16Clearly, 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
committee shall formulate, recommend and adopt, subject to the ratification
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of the municipal board, and approval of the mayor, policies and rules or
regulation repealing or maneding 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
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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.
Digest:
FACTS:
In 1974, the Municipal Board of Manila enacted Ordinance 7522, regulating
the operation of public markets and prescribing fees for the rentals of stalls
and providing penalties for violation thereof. The Federation of Manila Market
Vendors Inc. assailed the validity of the ordinance, alleging among others the
noncompliance to the publication requirement under the Revised Charter of
the City of Manila. CFI-Manila declared the ordinance void. Thus, the present
petition.
ISSUE:
1. What law should govern the publication of a tax ordinance, the Revised
City Charter, which requires publication of the
ordinance before its enactment and after its approval, or the Local Tax
Code, which only demands publication after
approval?
2. Is the ordinance valid?
RULING:
1. The Local Tax Code prevails. 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. The fact that one is special
considered as remaining an exception of the general, one as a general
law of the land, the other as the law of a particular case. However, the
TAXATION LAW 1
rule readily yields to a situation where the special statute refers to a

subject in general, which the general statute treats in particular. The
ordinance in general, while the Local Tax Code establishes a rule for
the publication of ordinance levying or imposing taxes fees or other
charges in particular.

SUPREME COURT
Manila
EN BANC
G.R. No. L-34029
February 26, 1931
THE STANDARD OIL COMPANY OF NEW YORK, plaintiff-appellant,

vs.
JUAN POSADAS, Jr., Collector of Internal Revenue of the Philippine
Islands, defendant-appellee.
Ross, Lawrence and Selph for appellant.
Attorney-General Jaranilla for appellee.
DeWitt, Perkins and Brady as amici curiae.
MALCOLM, J.:
This test case presents for decision the question of whether sales of
merchandise made in the Philippines to the United States Army and the
United States Navy are subject to the sales tax. In the lower court, the
demurrer to the complaint was sustained, and the plaintiff having elected not
to amend its complaint, judgement was rendered upon the subject matter
involved in the pleadings, adjudging that the plaintiff take nothing by the
action and defendant recover costs.
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The Standard Oil Company of New York is a foreign corporation duly

authorized to do business in the Philippines. During the period from October
1, 1929, to December 31, 1929, the Standard Oil Company sold and
delivered in the Philippines to the Quartermaster Department of the United
States Army, for the use of the Army, fuel oil and asphalt of the value of
P6,832.84. The Collector of Internal Revenue of the Philippine Government,
acting under authority of section 1459 of the Administrative Code and Act
No. 3243 of the Philippine Legislature as ratified by the Congress of the
United States, demanded a tax of one and one-half per cent upon the value
of the merchandise, amounting to P102.49. During the identical period of
time above-mentioned, the Standard Oil Company likewise made delivery in
the Philippines to the United States Navy, under a contract executed in New
York, United States, for the use of the Navy, of fuel oil of the value of
P172,059.36, which was paid in New York, and which contract provided that
all internal revenue taxes and charges under the laws of the Philippine
Islands were to be assumed and paid by the United States Navy. The
Collector of Internal Revenue required payment of the sales tax upon the
value of the fuel oil, in the amount of P2,580.89. the Standard Oil Company
paid the taxes assessed under protest and is now suing to recover the
corresponding refunds.
This court has recently decided the case entitled, Thirty First Infantry Post
Exchange and First Lieutenant David L. Hardee, Thirty-First Infantry, United
States Army, plaintiffs, vs. Juan Posadas, Jr., Collector of Internal Revenue,
Philippine Islands, defendant ([1930], 54 Phil., 866). There it was held that a
tax may be levied by the Government of the Philippine Islands on sales made
by merchants to Post Exchanges of the United States Army in the Philippines.
It was ruled that the Acts of the Philippine Legislature imposing the sales tax,
which have been confirmed by Acts of Congress, form a part of the Philippine
Organic Law. That same principle would again apply to the facts before us.
However, it was indicated that the waiver must be clear and that every wellgrounded doubt should be resolved in favor of the exemption, citing
Austin vs. Aldermen of Boston ([1869], 7 Wall., 694). That principle would
likewise govern here.
In the course of the decision in the Post Exchange case, the United States
Army was mentioned, and properly so, as an instrumentality of the United
States Government. Regarding the correctness of this proposition, there
could, of course, be no real dispute. The United States Army and the United
States Navy derive their powers from the Constitution of the United States.
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The Congress of the United States has created two agencies, or more
correctly stated, three agencies to serve the United States in the Philippine
Islands. Two of these agencies are the United States Army and the United
States Navy, and the third is the Government of the Philippine Islands. The
military establishment and the civil government stand side by side but
independent of each other in the Philippines. The tax collected from the
plaintiff by one of these agencies, the Philippine Government, is in reality a
tax on the United States Army and the United States Navy in other words,
on the United States Government for the consumer pays the tax as part of
the purchase price. (Tan Te vs. Bell [1914], 27 Phil., 354; U. S. vs. Smith
[1919], 39 Phil., 533.).
It would further appear perfectly clear that the principle which prohibits a
State from taxing the instrumentalities of the Federal Government applies
with equal force to the Philippine Islands. At least, that was our holding in the
Post Exchange case. Nevertheless the Attorney-General persists in assuming
a difference in tax powers between the relations of the Philippine
Government to the National Government and of a State Government to the
National Government. We are frank to say that we are unable to see eye to
eye with the Attorney-General. It would be absurd to think that a derivative
sovereignty like the Government of the Philippine Islands, could tax the
instrumentalities of the very Government which brought it into existence. If a
sovereign State of the American Union cannot abridge or restrict the
activities of the United States Government, much less can a creature of that
Government, as the Philippine Government is, do so. (Note the wellconsidered opinion of Attorney-General Wickersham of June 8, 1912,
appearing in 29 Opinions, Attorneys-General, United States, 442.)
The case before us is readily distinguishable on the facts from the Post
Exchange case. The theory of the Post Exchange case was that a tax on
sales, which ultimately passed on to the consumers, individuals in the Army,
was not a tax on the United States Government or with the operations of the
United States Army to such an extent or in such a manner as to render the
tax illegal. There is no such condition in this case. The goods which were
claimed to be subject to tax are for the use of the United States itself in its
own operations in the Philippines.
The case at bar is more nearly analogous to the case of Panhandle Oil
Co. vs. Knox ([1928], 277 U. S., 218), than was the Post Exchange case. The
Panhandle Oil case and the case at bar differ in that in the Panhandle Oil
TAXATION LAW 1
case, the United States Supreme Court dealt with a State law that had never
been ratified by Congress, whereas there is now to be applied an Act of the
Philippine Legislature which had been ratified by Congress. On the other
hand, the Panhandle Oil case at bar are similar in that both concern privilege
taxes the amount of which is measured by the amount of the sale; in that in
both cases the sales were made to instrumentalities of the Federal
Government; and in that in both cases, the party to suit was the merchant
and not the United States Government or an agency within the United States
Army like a Post Exchange. Inasmuch, however, as the distinction between a
State law and an Act of a territorial legislature is no distinction at all, and
inasmuch as the ratification by Congress failed to grant any express waiver
of the exemption in favor of the United States Government, it would require
more than ordinary ingenuity to avoid the consequences of the decision of
the United States Supreme Court in the Panhandle Oil Case.
Not long since, the District of Columbia endeavored to recover taxes on
gasoline imported into the District of Columbia by the American Oil
Company, under a contract with the Secretary of the Treasury, for use by the
executive departments and governmental agencies. In both the Supreme
Court of the District of Columbia and the Court of Appeals, the seller was
held not liable for the tax. In the opinion of the appellate court, it was said:
"While for convenience, the tax is levied upon the importer, it is apparent
that the tax is really to be paid by the consumer. . . . To sustain the
contention of appellant, it must clearly appear that the United States
intended to tax itself. See Dollar Savings Bank vs. United States, 19 Wall.,
227; 22 L. ed., 80." (District of Columbia vs. American Oil Co. [1930], 39 Fed.
2nd., 510.).
The Asiatic Petroleum Company began suit in the Court of Claims against the
United States for the recovery of more than $100,000 due on the purchase
price of fuel oil sold by the company for the use of the Navy. The defendant
admitted the claim but interposed a counterclaim for the same amount,
alleged to be due and owing to the Philippine Government as customs duties
on oil under this contract. In the Philippines the Tariff Act in force was the Act
of Congress of August 5, 1909, which was silent on the question. It was the
holding of the Court of Claims that this Act of Congress did not require the
United States to pay duty on oil owned by it and imported into the Philippine
Islands for use in the Military or Naval Establishments. The court said: "The
purpose of the statute providing for customs duties on importations into the
Philippine Islands was to provide revenue for the use of the Philippine
TAXATION LAW 1
Government, for the protection, and partial support of which the United
States held itself responsible. It is inconceivable that Congress in the
enactment of the said statute should have intended that the United States
would be required to pay duty on its own oil imported into the Philippine
Islands, for its own use, in supplying its Navy vessels used in the protection
of the Philippine Government, as well as for the maintenance of its own
Military and Naval Establishments in the national defense." (Asiatic
Petroleum Co. vs. U. S. [1928],65 Ct. of Cl. Rep., 100.).
We sustain the first, second, third, and fifth errors assigned, going to the
proposition that the lower court erred in not deciding that sales made in the
Philippines to the United States Army and the United States Navy are made
to instrumentalities of the United States Government, and, therefore, are not
subject to tax by the Philippine Government. This holding makes
unnecessary any reference to the fourth error assigned, relating to the
additional question having to do with the contract with the United States
Navy, and to the point that this question was not mentioned in the protest
filed with the Bureau of Internal Revenue and so may not be raised on
appeal. It is sufficient to state that, in our opinion, the assessment and
collection by the Philippine Government of the tax on sales of merchandise
made in the Philippines to the United States Army and the United States
Navy is illegal.
Judgment reversed, and the record ordered returned to the court of origin for
further proceedings, without express finding as to costs in either instance.
DIGEST:
FACTS: Standard is a foreign corporation duly authorized to do business in
the Philippines. They delivered in the Philippines for the use of US Army, fuel
oil and asphalt. Collector of Internal Revenue demanded a tax of one and
one-half per cent upon the value of the merchandise by virtue of section
1459 of the Administrative Code and Act No. 3243 of the Philippine
Legislature. During the same period Standard delivered fuel to US Navy to be
paid in New York, and which contract provided that all internal revenue taxes
and charges under the laws of the Philippine Islands were to be assumed and
paid by the United States Navy. Collector collected sales tax which was paid
by Standard under protest. Standard sue for refund.
ISSUE: Whether sales of merchandise made in the Philippines to the United
States Army and the United States Navy are subject to the sales tax?
TAXATION LAW 1
HELD: No. It would be absurd to think that a derivative sovereignty like the
Government of the Philippine Islands, could tax the instrumentalities of the
very Government which brought it into existence. If a sovereign State of the
American Union cannot abridge or restrict the activities of the United States
Government, much less can creature of that Government, as the Philippine
Government is, do so. (Note the well-considered opinion of Attorney-General
Wickersham of June 8, 1912, appearing in 29 Opinions, Attorneys-General,
United States,442.)Judgment reversed, and the record ordered returned to
the court of origin for further proceedings, without express finding as to costs
in either instance.
TAXATION LAW 1

SUPREME COURT
Manila
EN BANC
G.R. No. L-18125
May 31, 1963
BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA, petitioner,

vs.
SEWERAGE AUTHORITY (NAWASA),respondents.
Gabriel V. Valero and Rodolfo F. de Gorostiza for petitioner.
Manuel B. Roo for respondent National Waterworks and Sewerage
Authority.
CONCEPCION, J.:
This is a petition for review of a decision of the Court of Tax Appeals
reversing a resolution or decision of the Board of Assessment Appeals for the
Province of Laguna.
The question involved in this case is whether the water pipes, reservoir,
intake and buildings used by herein respondent, National Waterworks and
Sewerage Authority hereinafter referred to as NAWASA in the operation
of its waterworks system in the municipalities of Cabuyao, Sta. Rosa and
Bian, province of Laguna, are subject to real estate tax.
Wherefore, the parties respectfully pray that the foregoing stipulation of
facts be admitted and approved by this Honorable Court, without prejudice to
the parties adducing other evidence to prove their case not covered by this
stipulation of facts. 1wph1.t
The parties have submitted in the Court of Tax Appeals a stipulation of facts.
The pertinent parts thereof are to the effect:
1. That the petitioner National Waterworks and Sewerage Authority
(NWSA) is a public corporation created by virtue of Republic Act No.
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1383, and that it is owned by the Government of the Philippines as well

as all property comprising waterworks and sewerage systems placed
under it:.
2. That, pursuant to the provisions of Republic Act No. 1383, petitioner
NWSA took over all the property of the former Metropolitan Water
District and all the existing local government-owned waterworks and
sewerage systems all over the Philippines, including the Cabuyao-Sta.
Rosa-Bian Waterworks System owned by the Province of Laguna
(Section 8, Republic Act No. 1283);
3. That the functions and activities of petitioner NWSA, as enumerated
in Republic Act No. 1383, more particularly Section 2 thereof, are the
same and identical with the functions of the defunct Metropolitan
Water District, particularly Section 2, Act 2832, is amended;
4. That petitioner National Waterworks and Sewerage Authority (NWSA)
has no capital stock divided into shares of stocks, no stockholders, and
is not authorized by its Charter to distribute dividends; and, on the
other hand, whatever surplus funds it has realized, may and will after
meeting its yearly obligations, have been, are and may be, used for the
construction, expansion and improvement of its waterworks and sewer
services;
5. That at the time that the Cabuyao-Sta. Rosa-Bian Waterworks
System was taken over by petitioner NWSA in 1956, the former was
self-supporting and revenue-producing, but that all its surplus income
are not declared as profits as this surplus are or may be invested for
the expansion thereof;
6. That in the year 1956 the Provincial Assessor of Laguna assessed,
for purposes of real estate taxes, the property comprising the
Cabuyao-Sta. Rosa-Bian Waterworks System and described in Tax
Declaration No. 5987 (Exh. "A-l") which, as stated in Paragraph 2
hereof, herein petitioner NWSA had taken over;
7. That against the above-mentioned assessment made by the
Provincial Assessor of Laguna, petitioner NWSA protested, claiming
that the property described under Tax Declaration No. 5987 (Exh. "A-l")
are exempted from the payment of real estate taxes in view of the
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nature and kind of said property and functions and activities of

petitioner, as provided in Republic Act No. 1383;.
8. That the said protest of petitioner NWSA was overruled on appeal
before the herein respondent Board of Assessment Appeals, hence the
present petition for review filed by petitioner;
xxx
xxx
xxx"
After appropriate proceedings, the Court of Tax Appeals rendered the

aforementioned decision reversing the action taken by petitioner Board,
which, accordingly, has brought the case to us for review, under the
provisions of Republic Act No. 1125, contending that the properties in
question are subject to real estate tax because: (1) although said properties
belong to the Republic of the Philippines, the same holds it, not in its
governmental, political or sovereign capacity, but in a private, proprietary or
patrimonial character, which, allegedly, is not covered by the exemption
contained in section 3(a) of Republic Act No. 470; and 2) this exemption,
even if applicable to patrimonial property, must yield to the provisions of
section 1 of Republic Act No. 104, under which all corporations, agencies or
instrumentalities owned or controlled by the Government are subject to
taxation, according to petitioner appellant.
Sections 2 and 3(a) of Commonwealth Act No. 470 provide:
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 specifically exempted.
SEC. 3. Property exempt from tax. The exemptions shall be as
follows:
(a) Property owned by . . . the Republic of the Philippines, any province,
city, municipality or municipal district. . . .
It is conceded, in the stipulation of facts, that the property involved in this
case "is owned by the Government of the Philippines". Hence, it belongs to
the Republic of the Philippines and falls squarely within the letter of the
above provision. This notwithstanding, petitioner Board maintains that
respondent NAWASA is not entitled to the benefits of the exemption
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established in said section 3(a), inasmuch as, in the case of the City of Cebu
vs. NAWASA, G. R. No. L-12892, decided on April 30, 1960, we ruled that the
assets of the water system of the City of Cebu, which the NAWASA had
sought to take over, pursuant to the provisions of Republic Act No. 1383 as
it did in the case at bar, with respect to the Cabuyao-Sta. Rosa-Bian
Waterworks System are patrimonial property of said city, which held it in a
proprietary character, not in its governmental capacity.
We did not declare, however, in the Cebu case that said assets were subject
to taxation. In that case we merely reiterated the doctrine, laid down in the
case of City of Baguio vs. NAWASA, G. R. No. L-12032, decided on August 31,
1959, that municipal corporations hold in their proprietary character, the
assets of their respective waterworks, which, accordingly, cannot be taken or
appropriated by the National Government and placed under the
NAWASA without payment of just compensation. Neither the Cebu case nor
that of Baguio sustains the theory that said assets are taxable.
Upon the other hand, in exempting from taxation "property owned by the
Republic of the Philippines, any province, city, municipality or municipal
district . . .," said section 3(a) of Republic Act No. 470 makes no distinction
between property held in a sovereign, governmental or political capacity and
those possessed in a private, proprietary or patrimonial character. And where
the law does not distinguish neither may we, unless there are facts and
circumstances clearly showing that the lawmaker intended the contrary, but
no such facts and circumstances have been brought to our attention. Indeed,
the noun "property" and the verb "owned" used in said section 3(a) strongly
suggest that the object of exemption is considered more from the view point
of dominion, than from that of domain. Moreover, taxes are financial burdens
one pocket to put it in another pocket (Cooley on Taxation, Sec. 621, 4th
Edition.) Hence, it would not serve, in the final analysis, the main purpose of
work, time and consequently, expenses it would entail. (The Law on Local
Taxation, by Justiniano Y. Castillo, p. 13.)
Section 1 of the Republic Act No. 101, upon which petitioner relies, reads:
TAXATION LAW 1
. . . All corporations, agencies, or instrumentalities owned or controlled

by the government shall pay such duties, taxes, fees and other charges
upon their transaction, business, industries, sale, or income as are
imposed by law upon individuals, associations or corporations engaged
in any taxable business, industry, or activity except on goods or
commodities imported or purchased and sold or distributed for relief
purposes as may be determined by the President of the Philippines.
This provision is inapplicable to the case at bar for it refers only to duties,
taxes, fees and other charges upon "transaction, business, industry, sale or
income" and does not include taxes on property like real estate tax.
WHEREFORE, the decision appealed from is hereby affirmed, without special
DIGEST
FACTS:
National Waterworks and Sewerage Authority (NWSA), a public corporation
owned by the Government of the Philippines as well as all property
comprising waterworks and sewerage systems placed under it, took over the
Cabuyao-Sta. Rosa-Bian Waterworks System in 1956. It was assessed by the
Provincial Assessor of Laguna, for purposes of real estate taxes, on the real
properties owned by Cabuyao Waterworks. The respondent protested
claiming it is exempted from the payment of real estate taxes in view of the
nature and kind of said property and functions and activities of petitioner.
The petitioner denied the protest arguing that such real properties are
subject to real estate tax because although said properties belong to the
Republic of the Philippines, the same holds it, not in its governmental,
political or sovereign capacity, but in a private, proprietary or patrimonial
character, which, allegedly, is not covered by the exemption contained
in section3 (a) of Republic Act No. 470.
ISSUE:
Are the real properties owned by the respondent public corporation subject
to real estate tax?
HELD:
No. Republic Act No. 470 makes no distinction between property held in a
sovereign, governmental or political capacity and those possessed in a
private, proprietary or patrimonial character. And where the law does not
distinguish neither may we, unless there are facts and circumstances clearly
showing that the lawmaker intended the contrary, but no such facts and
circumstances have been brought to our attention. Indeed, the noun
TAXATION LAW 1
"property" and the verb "owned" used in said section 3(a) strongly suggest
that the object of exemptions considered more from the view point of
dominion, than from that of domain. Moreover, taxes are financial burdens
one pocket to put it in another pocket. Hence, it would not serve, in the final
analysis, the main purpose of taxation. What is more, it would tend to defeat
it, on account of the paper work, time and consequently, expenses it would
entail.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 51593 November 5, 1992

TAXATION LAW 1
NATIONAL DEVELOPMENT COMPANY, plaintiff-appellee,

vs.
CEBU CITY and AUGUSTO PACIS as Treasurer of Cebu City, defendantappellants.
BELLOSILLO, J.:
Is a public land reserved by the President for warehousing purposes in favor
of a government-owned or controlled corporation, 1 as well as the warehouse
subsequently erected thereon, exempt from real property tax?
Petitioner National Development Company (NDC), a government-owned or
controlled corporation (GOCC) existing by virtue of C.A. 182 2 and E.O.
399, 3 is authorized to engage in commercial, industrial, mining, agricultural
and other enterprises necessary or contributory to economic development or
important to public interest. It also operates, in furtherance of its objectives,
subsidiary corporations one of which is the now defucnt National
Warehousing Corporation (NWC). 4
On August 10, 1939, the President issued Proclamation No. 430 5 reserving
Block no. 4, Reclamation Area No. 4, of Cebu City, consisting of 4,599 square
meters, for warehousing purposes under the administration of
NWC. 6 Subsequently, in 1940, a warehouse with a floor area of 1,940 square
meters more or less, was constructed thereon. 7
On October 4, 1947, E.O. 93 dissolved NWC 8 with NDC taking over its assets
and functions. 9
Commencing 1948, Cebu City (CEBU) assessed and collected from NDC real
estate taxes on the land and the warehouse thereon. 10 By the first quarter of
1970, a total of P100,316.31 was paid by NDC 11 of which only P3,895.06 was
under protest. 12
On 20 March 1970, NDC wrote the City Assessor demanding full refund of the
real estate taxes paid to CEBU claiming that the land and the warehouse
standing thereon belonged to the Republic and therefore exempt from
taxation. 13 CEBU did not acquiesce in the demand, hence, the present suit
filed 25 October 1972 in the Court of First Instance of Manila.
TAXATION LAW 1
On 29 May 1973, the Court of First Instance of Manila, Branch XXII,

promulgated a decision 14 the dispositive portion of which reads
WHEREFORE, judgment is hereby rendered sentencing the City of
Cebu, thru the Treasurer of said City, to refund to the plaintiff,
National Development Company, the real estate taxes paid by it
for the parcel of land covered by Presidential Proclamation No.
430 of August 10, 1939, and the warehouse erected thereon
from and after October 25, 1966, with interests thereon at the
legal rate from the date of the filing of the complaint and the
costs of the suit.
The defendants appealed to the Court of Appeals which however certified the
case to Us as one involving pure questions of law, pursuant to Sec. 17, R.A.
296.
In this appeal, CEBU assigns five (5) errors 15 imputed to the trial court which
may be synopsized into whether NDC is exempted from payment of the real
estate taxes on the land reserved by the President for warehousing purposes
as well as the warehouse constructed thereon, and in the affirmative,
whether NDC may recover in refund unprotested real estate taxes it paid
from 1948 to 1970.
On the first question, CEBU insists on taxability of the subject properties,
claiming that no law grants NDC exemption from real estate taxes, and that
NDC, as recipient of the land reserved by the President pursuant to Sec. 83
of the Public Land Act, 16 is liable for payment or ordinary (real estate) taxes
under Sec. 115 therefore. CEBU contends that the properties have ceased to
be tax exempt under the Assessment Law. 17 when the government disposed
of them in favor of NDC, and even assuming that title to the land remains
with the government (ownership being the basis for real estate taxability
under the Assessment Law), the Supreme Court rulings establish increasing
rather than "ownership" as basis for real estate tax liability.
On the other hand, NDC maintains the Sec. 3 of the Assessment Law, which
exempts properties owned by the Republic from real estate tax, includes
subject properties in the exemption. It invokes the ruling in Board of
Assessment Appeals vs. CTA & NWSA 18 which held that properties of NWSA,
a GOCC, were exempt from real estate tax because Sec. 3 of the Assessment
Law applied to all government properties whether held in governmental or
proprietary capacity. NDC rejects the applicability of Sec. 115 of the Public
TAXATION LAW 1
Land Act to the subject land, claiming that provision contemplates

dispositions of public land with eventual transfer of title. In addition, NDC
believes that it is neither a grantee of a public land nor an applicant within
the purview of the same provision.
As already adverted to, one of the principal issues before Us is the
interpretation of a provision of the Assessment Law, the precursor of the
then Real Property Tax Code and the Local Government Code, where
"ownership" of the property and not "use" is the test of tax liability. 19
Section, 3 par. (a), of the Assessment Law, on which NDC claims real estate
tax exemption, provides
Section 3. Property exempt from tax. The exemptions shall be
as follows: (a) Property owned by the United States of America,
the Commonwealth of the Philippines, any province, city,
municipality at municipal district . . .
The same opinion of NDC was passed upon in National Development
Co. v. Province of Nueva Ecija 20 where We held that its properties were not
comprehended in Sec. 3, par (a), of the Assessment Law. In part, We stated:
1. Commonwealth Act No. 182 which created NDC contains no
provision exempting it from the payment of real estate tax on
properties it may acquire . . . There is justification in the
contention of plaintiff-appellee that . . . [I]t is undeniable that to
any municipality the principal source of revenue with which it
would defray its operation will came from real property taxes. If
the National Development Company would be exempt from
paying real property taxes over these properties, the town of
Gabaldon will bee deprived of much needed revenues with which
it will maintain itself and finance the compelling needs of its
inhabitants (p. 6, Brief of Plaintiff-Appellee).
2. Defendant-appellant NDC does not come under classification
of municipal or public corporation in the sense that it may sue
and be sued in the same manner as any other private
corporations, and in this sense, it is an entity different from the
government, defendant corporation may be sued without its
consent, and is subject to taxation. In the case NDC vs. Jose Yulo
Tobias, 7 SCRA 692, it was held that . . . plaintiff is neither the
TAXATION LAW 1
Government of the Republic nor a branch or subdivision thereof,

but a government owned and controlled corporation which
cannot be said to exercise a sovereign function (Association
Cooperativa de Credito Agricola de Miagao vs. Monteclaro, 74
Phil. 281). it is a business corporation, and as such, its causes of
action are subject to the statute of limitations. . . . That plaintiff
herein does not exercise sovereign powers and, hence, cannot
invoke the exemptions thereof but is an agency for the
performance of purely corporate, proprietary or business
functions, is apparent from its Organic Act (Commonwealth Act
182, as amended by Commonwealth Act 311) pursuant to
Section 3 of which it "shall be subject to the provisions of the
Corporation Law insofar as they are not inconsistent" with the
provisions of said Commonwealth Act, "and shall have the
general powers mentioned in said" Corporation Law, and, hence,
"may engage in commercial, industrial, mining, agricultural, and
other enterprises which may be necessary or contributory to the
economic development of the country, or important in the public
interest," as well as "acquire, hold, mortgage and alienate
personal and real property in the Philippines or elsewhere; . . .
make contracts of any kind and description", and "perform any
and all acts which a corporation or natural persons is authorized
to perform under the laws now existing or which may be enacted
hereafter."
We find no compelling reason why the foregoing ruling, although referring to
lands which would eventually be transferred to private individuals, should not
apply equally to this case.
NDC cites Board of Assessment Appeals, Province of Laguna v. Court of Tax
Appeal and National Waterworks and Sewerage Authority (NWSA). In that
case, We held that properties of NWSA, a GOCC, were exempt from real
estate tax because Sec. 3, par (c), of R.A. 470 did not distinguish between
those possessed by the government in sovereign/governmental/political
capacity and those in private/proprietary/patrimonial character.
The conflict between NDC v. Nueva Ecija, supra, and BAA v. CTA and NWSA,
supra, is more superficial than real. The NDC decision speaks of properties
owned by NDC, while the BAA ruling concerns properties belonging to the
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Republic. The latter case appears to be exceptional because the parties

therein stipulated
1. That the petitioner National Waterworks and Sewerage
Authority (NAWASA) is a public corporation created by virtue of
Republic Act. No. 1383, and that it is owned by the Government
of the Philippines as well as all property comprising waterworks
and sewerage systems placed under it (Emphasis supplied).
There, the Court observed: "It is conceded, in the stipulation of facts, that the
property involved in this case "is owned by the Government of the
Philippines." Hence, it belongs to the Republic of the Philippines and falls
squarely within letter of the above provision."
In the case at bar, no similar statement appears in the stipulation of facts,
hence, ownership of subject properties should first be established. For, while
it may be stated that the Republic owns NDC, it does not necessary follow
that properties owned by NDC, are also owned by Republic in the same
way that stockholders are not ipso factoowners of the properties of their
corporation.
The Republic, like any individual, may form a corporation with personality
and existence distinct from its own. The separate personality allows a GOCC
to hold and possess properties in its own name and, thus, permit greater
independence and flexibility in its operations. It may, therefore, be stated
that tax exemption of property owned by the Republic of the Philippines
"refers to properties owned by the Government and by its agencies which do
not have separate and distinct personalities (unincorporated entities). We
find the separate opinion of Justice Bautista-Angelo in Gonzales
v. Hechanova, et al., 21 appropriate and enlightening
. . . The Government of the Republic of the Philippines under the
Revised Administrative Code refers to that entity through which
the functions of government are exercised, including the various
arms through which political authority is made effective whether
they be provincial, municipal or other form of local government,
whereas a government instrumentality refers to corporations
owned or controlled by the government to promote certain
aspects of the economic life of our people. A government agency
therefore, must necessarily after refer to the government itself to
the Republic, as distinguished from any government
TAXATION LAW 1
instrumentality which has a personality distinct and separate

from it (Section 2).
The foregoing discussion does not mean that because NDC, like most GOCC's
engages in commercial enterprises all properties of the government and its
unincorporated agencies possessed in propriety character are taxable.
Similarly, in the case at bar, NDC proceeded on the premise that
the BAA ruling declared all properties owed by GOCC's as properties in the
name of the Republic, hence, exempt under Sec. 3 of the Assessment Law. 22
To come within the ambit of the exemption provided in Art. 3, par. (a), of the
Assessment Law, it is important to establish that the property is owned by
the government or its unincorporated agency, and once government
ownership is determined, the nature of the use of the property, whether for
proprietary or sovereign purposes, becomes immaterial. What appears to
have been ceded to NWC (later transferred to NDC), in the case before Us, is
merely the administration of the property while the government retains
ownership of what has been declared reserved for warehousing purposes
under Proclamation No. 430.
Incidentally, the parties never raised the issued the issue of ownership from
the court a quo to this Court.
A reserved land is defined as a "[p]ublic land that has been withheld or kept
back from sale or disposition." 23 The land remains "absolute property of the
government." 24 The government "does not part with its title by reserving
them (lands), but simply gives notice to all the world that it desires them for
a certain purpose." 25 Absolute disposition of land is not implied from
reservation; 26 it merely means "a withdrawal of a specified portion of the
public domain from disposal under the land laws and the appropriation
thereof, for the time being, to some particular use or purpose of the general
government." 27As its title remains with the Republic, the reserved land is
clearly recovered by the tax exemption provision.
CEBU nevertheless contends that the reservation of the property in favor of
NWC or NDC is a form of disposition of public land which, subjects the
recipient (NDC ) to real estate taxation under Sec. 115 of the Public Land Act.
as amended by R.A. 436, 28 which estate:
Sec 115. All lands granted by virtue of this Act, including
homesteads upon which final proof has not been made or
TAXATION LAW 1
approved shall, even though and while the title remains in the
State, be subject to the ordinary taxes, which shall be paid by
the grantee or the applicant, beginning with the year next
following the one in which the homestead application has been
filed, or the concession has been approved, or the contract has
been signed, as the case may be, on the basis of the value fixed
in such filing, approval or signing of the application, concession
or contract.
The essential question then is whether lands reserved pursuant to Sec. 83
are comprehended in Sec. 115 and, therefore, taxable.
Section 115 of the Public Land Act should be treated as an exception to Art.
3, par. (a), of the Assessment Law. While ordinary public lands are tax
exempt because title thereto belongs to the Republic, Sec. 115 subjects
them to real estate tax even before ownership thereto is transferred in the
name of the beneficiaries. Sec. 115 comprehends three (3) modes of
disposition of Lands under the Public Land Act, to wit: homestead,
concession, and contract.
Liability to real property taxes under Sec. 115 is predicated on (a) filing of
homestead application, (b) approval of concession and, (c) signing of
contract. Significantly, without these words, the date of the accrual of the
real estate tax would be indeterminate. Since NDC is not a homesteader and
no "contract" (bilateral agreement) was signed, it would appear, then, that
reservation under Sec. 83, being a unilateral act of the President, falls under
"concession".
"Concession" as a technical term under the Public Land Act is synonymous
with "alienation" and "disposition", and is defined in Sec. 10 as "any of the
methods authorized by this Act for the acquisition, lease, use, or benefit of
the lands of the public domain other than timber or mineral lands." Logically,
where Sec. 115 contemplates authorized methods for acquisition, lease, use,
or benefit under the Act, the taxability of the land would depend on whether
reservation under Sec. 83 is one such method of acquisition, etc. Tersely put,
is reservation synonymous with alienation? Or, are the two terms antithetical
and mutually exclusive? Indeed, reservation connotes retention, while
concession (alienation) signifies cession.
Section 8 and 88 of the Public Land Act provide that reserved lands are
excluded from that may be subject of disposition, to wit
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Sec. 8. Only those lands shall be declared open to disposition or

concession which have been officially delimited and classified
and, when practicable, surveyed, and which have not been
reservedfor public or quasi-public uses, nor appropriated by the
Government, nor in any manner become private property , nor
those on which a private right authorized and recognized by this
Act or any valid law may be claimed, or which, having been
reserved or appropriated, have ceased to be so.
Sec. 88. The tract or tracts of land reserved under the provisions
of section eighty-three shall be non-alienable and shall not be
subject to occupation, entry, sale, lease, or other disposition until
again declared alienable under the provisions of this Act or by
proclamation of the President (Emphasis supplied)
As We view it, the effect of reservation under Sec. 83 is to segregate a piece
of public land and transform it into non-alienable or non-disposable under the
Public Land Act. Section 115, on the other hand, applies to disposable public
lands. Clearly, therefore, Sec. 115 does not apply to lands reserved under
Sec. 83. Consequently, the subject reserved public land remains tax exempt.
However, as regards the warehouse constructed on a public reservation, a
different rule should apply because "[t]he exemption of public property from
taxation does not extend to improvements on the public lands made by preemptioners, homesteaders and other claimants, or occupants, at their own
expense, and these are taxable by the state . . ." 29 Consequently, the
warehouse constructed on the reserved land by NWC (now under
administration by NDC), indeed, should properly be assessed real estate tax
as such improvement does not appear to belong to the Republic.
Since the reservation is exempt from realty tax, the erroneous tax payments
collected by CEBU should be refunded to NDC. This is in consonance with
Sec. 40, par. (a) of the former Real Property Tax Code which exempted from
taxation real property owned by the Republic of the Philippines or any of its
political subdivisions, as well as any GOCC so exempt by its charter. 30
As regards the requirement of paying under protest before judicial recourse,
CEBU argues that in any case NDC is not entitled to refund because Sec. 75
of R.A. 3857, the Revised Charter of the City of Cebu, 31 requires
paymentunder protest before resorting to judicial action for tax refund; that
it could not have acted on the first demand letter of NDC of 20 May 1970
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because it was sent to the City Assessor and not to the City Treasurer; that,
consequently, there having been no appropriate prior demand, resort to
judicial remedy is premature; and, that even on the premise that there was
proper demand, NDC has yet to exhaust administrative remedies by way of
appeal to the Department of Finance and/or Auditor General before taking
judicial action.
NDC does not agree. It disputes the applicability of the payment-underprotest requirement is Sec. 75 of the Revised Cebu City Charter because the
issue is not the validity of tax assessment but recovery of erroneous
payments under Arts. 2154 and 2155 of the Civil Code. 32 It cites the case
of East Asiatic Co., Ltd. v. City of Davao 33which held that where the tax is
unauthorized, "it is not a tax assessed under the charter of the appellant City
of Davao and for that reason no protest is necessary for a claim or demand
for its refund." In Ramie Textiles, Inc. vs. Mathay, Sr., 34 We held
. . . Protest is not a requirement in order that a taxpayer who
paid under a mistaken belief that it is required by law, may claim
for a refund. Section 54 35 of Commonwealth Act No. 470 does
not apply to petitioner which could conceivably not have been
expected to protest a payment it honestly believed to be due.
The same refers only to the case where the taxpayer, despite his
knowledge of the erroneous or illegal assessment, still pays and
fails to make the proper protest, for in such case, he should
manifest an unwillingness to pay, and failing so, the taxpayer is
deemed to have waved his right to claim a refund.
In the case at bar, petitioner, therefore, cannot be said to have
waived his right. He had no knowledge of the fact that it was
exempted from payment of the realty tax under Commonwealth
Act No. 470. Payment was made through error or mistake, in the
honest belief that petitioner was liable, and therefore could not
have been made under protest, but with complete voluntariness.
In any case, a taxpayer should not be held to suffer loss by his
good intention to comply with what he believes is his legal
obligation, where such obligation does not really exist . . . The
fact that petitioner paid thru error or mistake, and the
government accepted the payment, gave rise to the application
of the principle ofsolutio indebiti under Article 2154 of the New
Civil Code, which provides that "if something is received when
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there is no right to demand it, and it was unduly delivered

through mistake, the obligation to return it arises." There is,
therefore, created a tie or juridical relation in the nature
of solutio indebiti,expressly classified as quasi-contract under
Section 2, Chapter I of Title XVII of the New Civil code.
The quasi-contract of solutio indebiti is one of the concrete
manifestations of the ancient principle that no one shall enrich
himself unjustly at the expense of another . . . Hence, it would
seem unedifying for the government, that knowing it has no right
at all to collect or to receive money for alleged taxes paid by
mistake, it would be reluctant to return the same . . . Petitioner is
not unsatisfied in the assessment of its property. Assessment
having been made, it paid the real estate taxes without knowing
that it is exempt.
As regards the claim for refund of tax payments spanning more than twenty
(20) years, We also said in Ramie Textiles that
Solutio indebiti is a quasi-contract, and the instant case being in
the nature of solutio indebiti, the claim for refund must be
commenced within six (6) years from date of payment pursuant
to Article 1145 (2) of the New Civil Code 36 . . .
We sustain the appellate court to the extent that its decision covers
improperly collected taxes on the reserved land under Proclamation No. 430,
thus
The defense of prescription invoked by the defendant which
counsel for the plaintiff, however, did not answer in its
memorandum, is partly well-taken. Actions for refund of taxes
illegally collected must be commenced within six (6) years from
the date of collection. . . . .
The stipulation of facts and the pleadings filed by the parties do
not contain data specifying when and how much were paid by
the year, of the taxes sought to be refunded. Accordingly, the
Court has no other alternative but to order the refund of an
undetermined amount based, however, on the date of payment
counted six (6) years backward from October 25, 1972, when the
complaint in this case was filed. 37
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As regards exhaustion of administrative remedies, We agree with the trial

court that the case constitutes an exception to the rule, as it involves purely
question of law. 38 Specifically, on the requirement of appeal to the Secretary
of Finance, We further held in the same Ramie Textiles that "[E]qually not
applicable is Section 17 of Commonwealth Act No. 470 39 cited by respondent
in relation to the right of a, property owner to contest the validity of
assessment . . ."
Respondent CEBU likewise invites Our attention to the availability of appeal
to the Government Auditing Office although no authority is cited to Us. We do
not find any either to sustain the procedure.
WHEREFORE, finding that National Development Company (NDC) is exempt
from real estate tax on the reserved land but liable for the warehouse
erected thereon, the decision appealed from is accordingly MODIFIED.
Consequently, let this case be remanded to the court of origin, now the
Regional Trial Court of Manila, to determine the proper liability of NDC,
particularly on its warehouse, and effect the corresponding refund, payment
or set-off, as the case may be, conformably with this decision. No costs.
SO ORDERED.
DIGEST:
FACTS: National Development Company (NDC) is a GOCC authorized to
engage in commercial, industrial, mining, agricultural and other enterprises
necessary or contributory to economic development or important to public
interest. It also operates subsidiary corporations one of which is National
Warehousing Corporation (NWC). On August 10, 1939, the President issued
Proclamation No. 430 reserving Block no. 4, Reclamation Area No. 4, of Cebu
City for warehousing purposes under the administration of NWC.
Subsequently, in 1940, a warehouse with a floor area of 1,940 square meters
more or less, was constructed thereon. In 1947, EO 93 dissolved NWC with
NDC taking over its assets and functions. In 1948, Cebu City assessed and
collected from NDC real estate taxes on the land and the warehouse thereon.
By the first quarter of 1970, a total of P100, 316.31 was paid by NDC 11 of
which only P3,895.06 was under protest. NDC asked for a full refund
contending that the land and the warehouse belonged to the Republic and
therefore exempt from taxation. The CFI ordered Cebu City to refund to NDC
the real estate taxes paid by it.
ISSUE: WON the NDC is exempt from real estate taxes
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HELD: No.
Ratio: As already adverted to, one of the principal issues before us is the
interpretation of a provision of the Assessment Law, the precursor of the
then Real Property Tax Code and the Local Government Code, where
"ownership" of the property and not "use" is the test of tax liability. Section,
3 par. (a), of the Assessment Law, on which NDC claims real estate tax
exemption, provides Section 3. Property exempt from tax. The exemptions
shall be as follows: (a) Property owned by the United States of America, the
Commonwealth of the Philippines, any province, city, municipality at
municipal district. The same opinion of NDC was passed upon in National
Development Co. v. Province of Nueva Ecija where we held that its properties
were not comprehended in Sec. 3, par (a), of the Assessment Law.
Commonwealth Act No. 182 which created NDC contains no provision
exempting it from the payment of real state tax on properties it may acquire.
NDC does not come under classification of municipal or public corporation in
the sense that it may sue and be sued in the same manner as any other
private corporations, and in this sense, it is an entity different from the
government, NPC may be sued without its consent, and is subject to
taxation. That plaintiff herein does not exercise sovereign powers and,
hence, cannot invoke the exemptions thereof but is an agency for the
performance of purely corporate, proprietary or business functions, is
apparent from its Organic Act. We find no compelling reason why the
foregoing ruling, although referring to lands which would eventually be
transferred to private individuals, should not apply equally to this case. NDC
cites Board of Assessment Appeals, Province of Laguna v. CTA and National
Waterworks and Sewerage Authority (NWSA). In that case, the properties of
NWSA, a GOCC, were exempt from real estate tax because Sec. 3, par (c), of
R.A. 470 did not distinguish between those possessed by the government in
sovereign/governmental/political capacity and those in private proprietary
patrimonial character. The conflict between NDC v. Nueva Ecija, supra, and
BAA v. CTA and NWSA, is more superficial than real. The NDC decision speaks
of properties owned by NDC, while the BAA ruling concerns properties
belonging to the Republic In the case at bar, no similar statement appears in
the stipulation of facts, hence, ownership of subject properties should first be
established. For, while it may be stated that the Republic owns NDC, it does
not necessary follow that properties owned by NDC, are also owned by
Republic in the same way that stockholders are notes facto owners of the
properties of their corporation. The Republic may form a corporation with
personality and existence distinct from its own. The separate personality
allows a GOCC to hold and possess properties in its own name and, thus,
permit greater independence and flexibility in its operations. It may,
therefore, be stated that tax exemption of property owned by the Republic of
the Philippines "refers to properties owned by the Government and by its
agencies which do not have separate and distinct personalities
(unincorporated entities).
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The foregoing discussion does not mean that because NDC, like most GOCC's
engages in commercial enterprises all properties of the government and its
unincorporated agencies possessed in propriety character are taxable.
Similarly, in the case at bar, NDC proceeded on the premise that the BAA
ruling declared all properties owned by GOCC's as properties in the name of
the Republic, hence, exempt under Sec. 3 of the Assessment Law.

SUPREME COURT
Manila
EN BANC
G.R. No. L-21841
October 28, 1966
ESSO STANDARD EASTERN, INC., petitioner-appellant,

vs.
ACTING COMMISSIONER OF CUSTOMS, respondent-appellee.
Ross, Selph and Carrascoso for petitioners.
Office of the Solicitor General for respondents.
SANCHEZ, J.:
Claim for the refund of P722.84 paid in 1956 as special import tax on pump
parts imported by petitioner. Petitioner's ground: The imported articles
"consist of equipment and spare parts for its own exclusive use and therefore
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were exempt from special import tax", by the terms of Section 6, Republic
Act 1394.1 The Collector of Customs of Manila rejected the claim. Respondent
Acting Commissioner of Customs, on appeal, affirmed the rejection.
Petitioner's case suffered the same fate in the Court of Tax Appeals.2 We are
asked to review the Court on Tax Appeals' judgment.
The interrelated errors assigned in petitioner's brief funnel down to one
controlling legal issue: Are the imported pump parts exempt from the
payment of special import tax?
By Section 1 of Republic Act 1394, a special import tax is imposed "on all
goods, articles or products imported or brought into the Philippines" during
the period from 1956 up to and including 1965 in accordance with the
schedule of rates therein provided. Exempt from this tax, by express
mandate of Section 6 of the same law, inter alia, are "machinery, equipment,
accessories, and spare parts, for the use of industries, miners, mining
enterprises, planters and farmers".
Petitioner is engaged in the industry of processing gasoline, and
manufacturing lubricating oil, grease and tin containers. Petitioner owns
gasoline stations with pumps, which are leased to and operated by gasoline
dealers. It sells gasoline to these dealers. The pump parts imported by
petitioner in 1956 were intended, installed and actually used by gasoline
dealers in pumping gasoline from under around tanks into customers' motor
vehicles. These pump parts, in other words, are used in the sale at retail of
gasoline not by petitioner but by lessees of gasoline stations. In this
factual environment, it is quite evident that the pump parts are not used in
petitioner'sindustry of processing gasoline, or manufacturing lubricating oil,
grease and tin containers.
The drive of petitioner's argument is that marketing of its gasoline product
"is corollary to or incidental to its industrial operations."3 But this contention
runs smack against the familiar rules that exemption from taxation is not
favored,4 and that exemptions in tax statutes are never presumed.5 Which
are but statements in adherence to the ancient rule that exemptions from
taxation are construed in strictissimi juris against the taxpayer and liberally
in favor of the taxing authority.6 Tested by this precept, we cannot indulge in
expansive construction and write into the law an exemption not therein set
forth. Rather, we go by the reasonable assumption that where the State has
granted in express terms certain exemptions, those are the exemptions to be
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considered, and no more. Since the law states that, to be tax exempt,
equipment and spare parts should be "for the use of industries", the
coverage herein should not be enlarged to include equipment and spare
parts for use in dispensing gasoline at retail. In comparable factual backdrop,
this Court has held that tax exemption in connection with the manufacture of
asbestos roof does not extend to the installation thereof.7
Upon the facts and the law, we vote to affirm the decision of the Court of Tax
Appeals under review. Costs against petitioner. So ordered.
DIGEST:
FACTS: Petitioner, engaged in the industry of processing gasoline, oils etc.,
claims for the refund of special import taxes paid pursuant to the provision of
RA 1394 which imposed a special import tax "on all goods, articles or
products imported or brought into the Philippines." Exempt from this tax, by
express mandate of Section 6 of the same law are "machinery, equipment,
enterprises, planters and farmers". Petitioner argued that the importation it
made of gas pumps used by their gasoline station operators should fall under
such exemptions, being directly used in its industry. The Collector of Customs
of Manila rejected the claim, and so as the Court on Tax Appeals. The CTA
noted that the pumps imported were not used in the processing of gasoline
and other oil products but by the gasoline stations, owned by the petitioner,
for pumping out, from underground barrels, gasoline sold on retail to
customers.
ISSUE: Is the contention of the petitioner tenable? Do the subject imports
fall into the exemptions?
HELD:
No. The contention runs smack against the familiar rules that exemption
from taxation is not favored, and that exemptions in tax statutes are never
presumed. Which are but statements in adherence to the ancient rule that
exemptions from taxation are construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority? Tested by this precept,
we cannot indulge in expansive construction and write into the law an
exemption not therein set forth. Rather, we go by the reasonable assumption
that where the State has granted in express terms certain exemptions, those
are the exemptions to be considered, and no more. Since the law states that,
to be tax-exempt, equipment and spare parts should be "for the use
of industries", the
Coverage herein should not be enlarged to include equipment and spare
parts for use in dispensing gasoline at retail.
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SUPREME COURT
Manila
EN BANC
G.R. No. 166494
June 29, 2007
CARLOS SUPERDRUG CORP., doing business under the name and

style "Carlos Superdrug," ELSIE M. CANO, doing business under the
name and style "Advance Drug," Dr. SIMPLICIO L. YAP, JR., doing
business under the name and style "City Pharmacy," MELVIN S. DELA
SERNA, doing business under the name and style "Botica dela
Serna," and LEYTE SERV-WELL CORP., doing business under the
name and style "Leyte Serv-Well Drugstore," petitioners,
vs.
DEPARTMENT OF SOCIAL WELFARE and DEVELOPMENT (DSWD),
DEPARTMENT OF HEALTH (DOH), DEPARTMENT OF FINANCE (DOF),
DEPARTMENT OF JUSTICE (DOJ), and DEPARTMENT OF INTERIOR and
LOCAL GOVERNMENT (DILG), respondents.
DECISION
AZCUNA, J.:
This is a petition1 for Prohibition with Prayer for Preliminary Injunction
assailing the constitutionality of Section 4(a) of Republic Act (R.A.) No.
9257,2 otherwise known as the "Expanded Senior Citizens Act of 2003."
Petitioners are domestic corporations and proprietors operating drugstores in
the Philippines.
Public respondents, on the other hand, include the Department of Social
Welfare and Development (DSWD), the Department of Health (DOH), the
Department of Finance (DOF), the Department of Justice (DOJ), and the
Department of Interior and Local Government (DILG) which have been
specifically tasked to monitor the drugstores compliance with the law;
promulgate the implementing rules and regulations for the effective
implementation of the law; and prosecute and revoke the licenses of erring
drugstore establishments.
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The antecedents are as follows:

On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432,3 was signed
into law by President Gloria Macapagal-Arroyo and it became effective on
March 21, 2004. Section 4(a) of the Act states:
SEC. 4. Privileges for the Senior Citizens. The senior citizens shall be
entitled to the following:
(a) the grant of twenty percent (20%) discount from all establishments
relative to the utilization of services in hotels and similar lodging
establishments, restaurants and recreation centers, and purchase of
medicines in all establishments for the exclusive use or enjoyment of senior
citizens, including funeral and burial services for the death of senior citizens;
...
The establishment may claim the discounts granted under (a), (f), (g) and (h)
as tax deduction based on the net cost of the goods sold or services
rendered: Provided, That the cost of the discount shall be allowed as
deduction from gross income for the same taxable year that the discount is
granted. Provided, further, That the total amount of the claimed tax
deduction net of value added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code,
as amended.4
On May 28, 2004, the DSWD approved and adopted the Implementing Rules
and Regulations of R.A. No. 9257, Rule VI, Article 8 of which states:
Article 8. Tax Deduction of Establishments. The establishment may claim
the discounts granted under Rule V, Section 4 Discounts for
Establishments;5 Section 9, Medical and Dental Services in Private
Facilities[,]6 and Sections 107 and 118 Air, Sea and Land Transportation as
tax deduction based on the net cost of the goods sold or services
rendered. Provided, That the cost of the discount shall be allowed as
deduction from gross income for the same taxable year that the discount is
granted; Provided, further, That the total amount of the claimed tax
deduction net of value added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code,
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as amended; Provided, finally, that the implementation of the tax deduction

shall be subject to the Revenue Regulations to be issued by the Bureau of
Internal Revenue (BIR) and approved by the Department of Finance (DOF).9
On July 10, 2004, in reference to the query of the Drug Stores Association of
the Philippines (DSAP) concerning the meaning of a tax deduction under the
Expanded Senior Citizens Act, the DOF, through Director IV Ma. Lourdes B.
Recente, clarified as follows:
1) The difference between the Tax Credit (under the Old Senior Citizens Act)
and Tax Deduction (under the Expanded Senior Citizens Act).
1.1. The provision of Section 4 of R.A. No. 7432 (the old Senior Citizens Act)
grants twenty percent (20%) discount from all establishments relative to the
utilization of transportation services, hotels and similar lodging
establishment, restaurants and recreation centers and purchase of medicines
anywhere in the country, the costs of which may be claimed by the private
establishments concerned as tax credit.
Effectively, a tax credit is a peso-for-peso deduction from a taxpayers tax
liability due to the government of the amount of discounts such
establishment has granted to a senior citizen. The establishment recovers
the full amount of discount given to a senior citizen and hence, the
government shoulders 100% of the discounts granted.
It must be noted, however, that conceptually, a tax credit scheme under the
Philippine tax system, necessitates that prior payments of taxes have been
made and the taxpayer is attempting to recover this tax payment from
his/her income tax due. The tax credit scheme under R.A. No. 7432 is,
therefore, inapplicable since no tax payments have previously occurred.
1.2. The provision under R.A. No. 9257, on the other hand, provides that the
establishment concerned may claim the discounts under Section 4(a), (f), (g)
and (h) as tax deduction from gross income, based on the net cost of goods
sold or services rendered.
Under this scheme, the establishment concerned is allowed to deduct from
gross income, in computing for its tax liability, the amount of discounts
granted to senior citizens. Effectively, the government loses in terms of
foregone revenues an amount equivalent to the marginal tax rate the said
establishment is liable to pay the government. This will be an amount
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equivalent to 32% of the twenty percent (20%) discounts so granted. The

establishment shoulders the remaining portion of the granted discounts.
It may be necessary to note that while the burden on [the] government is
slightly diminished in terms of its percentage share on the discounts granted
to senior citizens, the number of potential establishments that may claim tax
deductions, have however, been broadened. Aside from the establishments
that may claim tax credits under the old law, more establishments were
added under the new law such as: establishments providing medical and
dental services, diagnostic and laboratory services, including professional
fees of attending doctors in all private hospitals and medical facilities,
operators of domestic air and sea transport services, public railways and
skyways and bus transport services.
A simple illustration might help amplify the points discussed above, as
follows:
Tax Deduction Tax Credit
Gross Sales x x x x x x x x x x x x
Less : Cost of goods sold x x x x x x x x x x
Net Sales x x x x x x x x x x x x
Less: Operating Expenses:
Tax Deduction on Discounts x x x x -Other deductions: x x x x x x x x
Net Taxable Income x x x x x x x x x x
Tax Due x x x x x x
Less: Tax Credit -- ______x x
Net Tax Due -- x x
As shown above, under a tax deduction scheme, the tax deduction on
discounts was subtracted from Net Sales together with other deductions
which are considered as operating expenses before the Tax Due was
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computed based on the Net Taxable Income. On the other hand, under a tax
credit scheme, the amount of discounts which is the tax credit item, was
deducted directly from the tax due amount.10
Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or
the Policies and Guidelines to Implement the Relevant Provisions of Republic
Act 9257, otherwise known as the "Expanded Senior Citizens Act of
2003"11was issued by the DOH, providing the grant of twenty percent (20%)
discount in the purchase of unbranded generic medicines from all
establishments dispensing medicines for the exclusive use of the senior
citizens.
On November 12, 2004, the DOH issued Administrative Order No
17712 amending A.O. No. 171. Under A.O. No. 177, the twenty percent
discount shall not be limited to the purchase of unbranded generic medicines
only, but shall extend to both prescription and non-prescription medicines
whether branded or generic. Thus, it stated that "[t]he grant of twenty
percent (20%) discount shall be provided in the purchase of medicines from
all establishments dispensing medicines for the exclusive use of the senior
citizens."
Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior
Citizens Act based on the following grounds:13
1) The law is confiscatory because it infringes Art. III, Sec. 9 of the
Constitution which provides that private property shall not be taken for
public use without just compensation;
2) It violates the equal protection clause (Art. III, Sec. 1) enshrined in our
Constitution which states that "no person shall be deprived of life, liberty or
property without due process of law, nor shall any person be denied of the
equal protection of the laws;" and
3) The 20% discount on medicines violates the constitutional guarantee in
Article XIII, Section 11 that makes "essential goods, health and other social
services available to all people at affordable cost."14
Petitioners assert that Section 4(a) of the law is unconstitutional because it
constitutes deprivation of private property. Compelling drugstore owners and
establishments to grant the discount will result in a loss of profit
TAXATION LAW 1
and capital because 1) drugstores impose a mark-up of only 5% to 10% on

branded medicines; and 2) the law failed to provide a scheme whereby
drugstores will be justly compensated for the discount.
Examining petitioners arguments, it is apparent that what petitioners are
ultimately questioning is the validity of the tax deduction scheme as a
reimbursement mechanism for the twenty percent (20%) discount that they
extend to senior citizens.
Based on the afore-stated DOF Opinion, the tax deduction scheme does not
fully reimburse petitioners for the discount privilege accorded to senior
citizens. This is because the discount is treated as a deduction, a taxdeductible expense that is subtracted from the gross income and results in a
lower taxable income. Stated otherwise, it is an amount that is allowed by
law15 to reduce the income prior to the application of the tax rate to compute
the amount of tax which is due.16 Being a tax deduction, the discount does
not reduce taxes owed on a peso for peso basis but merely offers a fractional
reduction in taxes owed.
Theoretically, the treatment of the discount as a deduction reduces the net
income of the private establishments concerned. The discounts given would
have entered the coffers and formed part of the gross sales of the private
establishments, were it not for R.A. No. 9257.
The permanent reduction in their total revenues is a forced subsidy
corresponding to the taking of private property for public use or
benefit.17 This constitutes compensable taking for which petitioners would
ordinarily become entitled to a just compensation.
Just compensation is defined as the full and fair equivalent of the property
taken from its owner by the expropriator. The measure is not the takers gain
but the owners loss. The word just is used to intensify the meaning of the
word compensation, and to convey the idea that the equivalent to be
rendered for the property to be taken shall be real, substantial, full and
ample.18
A tax deduction does not offer full reimbursement of the senior citizen
discount. As such, it would not meet the definition of just compensation.19
Having said that, this raises the question of whether the State, in promoting
the health and welfare of a special group of citizens, can impose upon
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private establishments the burden of partly subsidizing a government

program.
The Court believes so.
The Senior Citizens Act was enacted primarily to maximize the contribution
of senior citizens to nation-building, and to grant benefits and privileges to
them for their improvement and well-being as the State considers them an
integral part of our society.20
The priority given to senior citizens finds its basis in the Constitution as set
forth in the law itself. Thus, the Act provides:
SEC. 2. Republic Act No. 7432 is hereby amended to read as follows:
SECTION 1. Declaration of Policies and Objectives. Pursuant to Article XV,
Section 4 of the Constitution, it is the duty of the family to take care of its
elderly members while the State may design programs of social security for
them. In addition to this, Section 10 in the Declaration of Principles and State
Policies provides: "The State shall provide social justice in all phases of
national development." Further, Article XIII, Section 11, provides: "The State
shall adopt an integrated and comprehensive approach to health
development which shall endeavor to make essential goods, health and
other social services available to all the people at affordable cost. There shall
be priority for the needs of the underprivileged sick, elderly, disabled,
women and children." Consonant with these constitutional principles the
following are the declared policies of this Act:
...
(f) To recognize the important role of the private sector in the
improvement of the welfare of senior citizens and to actively seek
their partnership.21
To implement the above policy, the law grants a twenty percent discount to
senior citizens for medical and dental services, and diagnostic and laboratory
fees; admission fees charged by theaters, concert halls, circuses, carnivals,
and other similar places of culture, leisure and amusement; fares for
domestic land, air and sea travel; utilization of services in hotels and similar
lodging establishments, restaurants and recreation centers; and purchases of
medicines for the exclusive use or enjoyment of senior citizens. As a form of
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reimbursement, the law provides that business establishments extending the

twenty percent discount to senior citizens may claim the discount as a tax
deduction.
The law is a legitimate exercise of police power which, similar to the power of
eminent domain, has general welfare for its object. Police power is not
capable of an exact definition, but has been purposely veiled in general
terms to underscore its comprehensiveness to meet all exigencies and
provide enough room for an efficient and flexible response to conditions and
circumstances, thus assuring the greatest benefits. 22 Accordingly, it has
been described as "the most essential, insistent and the least limitable of
powers, extending as it does to all the great public needs."23 It is "[t]he
power vested in the legislature by the constitution to make, ordain, and
establish all manner of wholesome and reasonable laws, statutes, and
ordinances, either with penalties or without, not repugnant to the
constitution, as they shall judge to be for the good and welfare of the
commonwealth, and of the subjects of the same."24
For this reason, when the conditions so demand as determined by the
legislature, property rights must bow to the primacy of police power because
property rights, though sheltered by due process, must yield to general
welfare.25
Police power as an attribute to promote the common good would be diluted
considerably if on the mere plea of petitioners that they will suffer loss of
earnings and capital, the questioned provision is invalidated. Moreover, in
the absence of evidence demonstrating the alleged confiscatory effect of the
provision in question, there is no basis for its nullification in view of the
presumption of validity which every law has in its favor.26
Given these, it is incorrect for petitioners to insist that the grant of the senior
citizen discount is unduly oppressive to their business, because petitioners
have not taken time to calculate correctly and come up with a financial
report, so that they have not been able to show properly whether or not the
tax deduction scheme really works greatly to their disadvantage.27
In treating the discount as a tax deduction, petitioners insist that they will
incur losses because, referring to the DOF Opinion, for every P1.00 senior
citizen discount that petitioners would give, P0.68 will be shouldered by them
as only P0.32 will be refunded by the government by way of a tax deduction.
TAXATION LAW 1
To illustrate this point, petitioner Carlos Super Drug cited the antihypertensive maintenance drug Norvasc as an example. According to the
latter, it acquires Norvasc from the distributors at P37.57 per tablet, and
retails it atP39.60 (or at a margin of 5%). If it grants a 20% discount to senior
citizens or an amount equivalent to P7.92, then it would have to
sell Norvasc at P31.68 which translates to a loss from capital of P5.89 per
tablet. Even if the government will allow a tax deduction, only P2.53 per
tablet will be refunded and not the full amount of the discount which
is P7.92. In short, only 32% of the 20% discount will be reimbursed to the
drugstores.28
Petitioners computation is flawed. For purposes of reimbursement, the law
states that the cost of the discount shall be deducted from gross
income,29 the amount of income derived from all sources before deducting
allowable expenses, which will result in net income. Here, petitioners tried to
show a loss on a per transaction basis, which should not be the case. An
income statement, showing an accounting of petitioners sales, expenses,
and net profit (or loss) for a given period could have accurately reflected the
effect of the discount on their income. Absent any financial statement,
petitioners cannot substantiate their claim that they will be operating at a
loss should they give the discount. In addition, the computation was
erroneously based on the assumption that their customers consisted wholly
of senior citizens. Lastly, the 32% tax rate is to be imposed on income, not
on the amount of the discount.
Furthermore, it is unfair for petitioners to criticize the law because they
cannot raise the prices of their medicines given the cutthroat nature of the
players in the industry. It is a business decision on the part of petitioners to
peg the mark-up at 5%. Selling the medicines below acquisition cost, as
alleged by petitioners, is merely a result of this decision. Inasmuch as pricing
is a property right, petitioners cannot reproach the law for being oppressive,
simply because they cannot afford to raise their prices for fear of losing their
customers to competition.
The Court is not oblivious of the retail side of the pharmaceutical industry
and the competitive pricing component of the business. While the
Constitution protects property rights, petitioners must accept the realities of
business and the State, in the exercise of police power, can intervene in the
operations of a business which may result in an impairment of property
rights in the process.
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Moreover, the right to property has a social dimension. While Article XIII of
the Constitution provides the precept for the protection of property, various
laws and jurisprudence, particularly on agrarian reform and the regulation of
contracts and public utilities, continuously serve as a reminder that the right
to property can be relinquished upon the command of the State for the
promotion of public good.30
Undeniably, the success of the senior citizens program rests largely on the
support imparted by petitioners and the other private establishments
concerned. This being the case, the means employed in invoking the active
participation of the private sector, in order to achieve the purpose or
objective of the law, is reasonably and directly related. Without sufficient
proof that Section 4(a) of R.A. No. 9257 is arbitrary, and that the continued
implementation of the same would be unconscionably detrimental to
petitioners, the Court will refrain from quashing a legislative act.31
WHEREFORE, the petition is DISMISSED for lack of merit.
No costs.
SO ORDERED.
Facts: Petitioners
are
domestic
corporations
and
proprietors
operating drugstores in
the
Philippines.
Petitioners
assail
the
constitutionality of Section 4(a) of RA 9257, otherwise known as the
Expanded Senior Citizens Act of 2003. Section 4(a) of RA 9257 grants
twenty percent (20%) discount as privileges for the Senior Citizens. Petitioner
contends
that
said
law
is
unconstitutional
because
it
constitutes deprivation of
private
property.
Issue: Whether or not RA 9257 is unconstitutional
Held: Petition is dismissed. The law is a legitimate exercise of police power
which, similar to the power of eminent domain, has general welfare for its
object.
Accordingly, it has been described as the most essential, insistent and the
least limitable of powers, extending as it does to all the great public needs.
It is the power vested in the legislature by the constitution to make, ordain,
and establish all manner of wholesome and reasonable laws, statutes, and
ordinances, either with penalties or without, not repugnant to the
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constitution, as they shall judge to be for the good and welfare of the
commonwealth,
and
of
the
subjects
of
the
same.
For this reason, when the conditions so demand as determined by the
legislature, property rights must bow to the primacy of police power because
property rights, though sheltered by due process, must yield to general
welfare.

SUPREME COURT
Manila
EN BANC
G.R. Nos. L-49839-46
April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

vs.
Manila,respondents.
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Barcelona, Perlas, Joven & Academia Law Offices for petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977
decision of the Central Board of Assessment Appeals1 in CBAA Cases Nos. 7279 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board of Assessment
Appeals of Manila and City Assessor of Manila" which affirmed the March 29,
1976 decision of the Board of Tax Assessment Appeals2 in BTAA Cases Nos.
614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila"
and "Edmundo Reyes and Milagros Reyes v. City Assessor of Manila"
upholding the classification and assessments made by the City Assessor of
Manila.
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels
of land situated in Tondo and Sta. Cruz Districts, City of Manila, which are
leased and entirely occupied as dwelling sites by tenants. Said tenants were
paying monthly rentals not exceeding three hundred pesos (P300.00) in July,
1971. On July 14, 1971, the National Legislature enacted Republic Act No.
6359 prohibiting for one year from its effectivity, an increase in monthly
rentals of dwelling units or of lands on which another's dwelling is located,
where such rentals do not exceed three hundred pesos (P300.00) a month
but allowing an increase in rent by not more than 10% thereafter. The said
Act also suspended paragraph (1) of Article 1673 of the Civil Code for two
years from its effectivity thereby disallowing the ejectment of lessees upon
the expiration of the usual legal period of lease. On October 12, 1972,
Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by indefinitely
suspending the aforementioned provision of the Civil Code, excepting leases
with a definite period. Consequently, the Reyeses, petitioners herein, were
precluded from raising the rentals and from ejecting the tenants. In 1973,
respondent City Assessor of Manila re-classified and reassessed the value of
the subject properties based on the schedule of market values duly reviewed
by the Secretary of Finance. The revision, as expected, entailed an increase
in the corresponding tax rates prompting petitioners to file a Memorandum of
Disagreement with the Board of Tax Assessment Appeals. They averred that
the reassessments made were "excessive, unwarranted, inequitable,
confiscatory and unconstitutional" considering that the taxes imposed upon
them greatly exceeded the annual income derived from their properties.
They argued that the income approach should have been used in
determining the land values instead of the comparable sales approach which
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the City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment
Appeals, however, considered the assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to submit
concrete evidence which could overcome the presumptive regularity of
the classification and assessments appear to be in accordance with the
base schedule of market values and of the base schedule of building
unit values, as approved by the Secretary of Finance, the cases should
be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo,
p. 22).
The Reyeses appealed to the Central Board of Assessment
Appeals.1wphi1 They submitted, among others, the summary of the yearly
rentals to show the income derived from the properties. Respondent City
Assessor, on the other hand, submitted three (3) deeds of sale showing the
different market values of the real property situated in the same vicinity
where the subject properties of petitioners are located. To better appreciate
the locational and physical features of the land, the Board of Hearing
Commissioners conducted an ocular inspection with the presence of two
representatives of the City Assessor prior to the healing of the case. Neither
the owners nor their authorized representatives were present during the said
ocular inspection despite proper notices served them. It was found that
certain parcels of land were below street level and were affected by the tides
(Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its
decision, the dispositive portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and
assessment of the lots covered by Tax Declaration Nos. (5835) PD5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509,
146 and (1) PD-266, the appealed Decision is modified by allowing a
20% reduction in their respective market values and applying therein
the assessment level of 30% to arrive at the corresponding assessed
value.
SO ORDERED. (Decision of the Central Board of Assessment
Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this
petition.
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The Reyeses assigned the following error:

THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE
SALES APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF
APPELLANTS' PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the
properties in question. Petitioners maintain that the "Income Approach"
method would have been more realistic for in disregarding the effect of the
restrictions imposed by P.D. 20 on the market value of the properties
affected, respondent Assessor of the City of Manila unlawfully and
unjustifiably set increased new assessed values at levels so high and
successive that the resulting annual real estate taxes would admittedly
exceed the sum total of the yearly rentals paid or payable by the dweller
tenants under P.D. 20. Hence, petitioners protested against the levels of the
values assigned to their properties as revised and increased on the ground
that they were arbitrarily excessive, unwarranted, inequitable, confiscatory
and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals
admits in its decision that the income approach is used in determining land
values in some vicinities, it maintains that when income is affected by some
sort of price control, the same is rejected in the consideration and study of
land values as in the case of properties affected by the Rent Control Law for
they do not project the true market value in the open market (Rollo, p. 21).
Thus, respondents opted instead for the "Comparable Sales Approach" on the
ground that the value estimate of the properties predicated upon prices paid
in actual, market transactions would be a uniform and a more credible
standards to use especially in case of mass appraisal of properties (Ibid.).
Otherwise stated, public respondents would have this Court completely
ignore the effects of the restrictions of P.D. No. 20 on the market value of
properties within its coverage. In any event, it is unquestionable that both
the "Comparable Sales Approach" and the "Income Approach" are generally
acceptable methods of appraisal for taxation purposes (The Law on Transfer
and Business Taxation by Hector S. De Leon, 1988 Edition). However, it is
conceded that the propriety of one as against the other would of course
depend on several factors. Hence, as early as 1923 in the case of Army &
Navy Club, Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has
been stressed that the assessors, in finding the value of the property, have
to consider all the circumstances and elements of value and must exercise a
prudent discretion in reaching conclusions.
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Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule
of taxation must not only be uniform, but must also be equitable and
progressive.
Uniformity has been defined as that principle by which all taxable articles or
kinds of property of the same class shall be taxed at the same rate (Churchill
v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or
progressive aspects of taxation required in the 1973 Charter (Fernando "The
Constitution of the Philippines", p. 221, Second Edition). Thus, the need to
examine closely and determine the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those better able to
pay. Taxation is progressive when its rate goes up depending on the
resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of
all the powers of government. But for all its plenitude the power to tax is not
unconfined as there are restrictions. Adversely effecting as it does property
rights, both the due process and equal protection clauses of the Constitution
may properly be invoked to invalidate in appropriate cases a revenue
measure. If it were otherwise, there would be truth to the 1903 dictum of
Chief Justice Marshall that "the power to tax involves the power to destroy."
The web or unreality spun from Marshall's famous dictum was brushed away
by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the
power to destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v.
Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal
Revenue, 139 SCRA 439 [1985]).
In the same vein, 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 confiscation of property. That
would be a clear abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural
classification for purposes of taxation but the government's act must not be
prompted by a 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 liabilities imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared
that the first Fundamental Principle to guide the appraisal and assessment of
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real property for taxation purposes is that the property must be "appraised
at its current and fair market value."
By no strength of the imagination can the market value of properties covered
by P.D. No. 20 be equated with the market value of properties not so
covered. The former has naturally a much lesser market value in view of the
rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the
assessed value of subject properties under the "comparable sales approach"
were presented by the public respondents, namely: (1) that the sale must
represent a bonafide arm's length transaction between a willing seller and a
willing buyer and (2) the property must be comparable property (Rollo, p.
27). Nothing can justify or support their view as it is of judicial notice that for
properties covered by P.D. 20 especially during the time in question, there
were hardly any willing buyers. As a general rule, there were no takers so
that there can be no reasonable basis for the conclusion that these
properties were comparable with other residential properties not burdened
by P.D. 20. Neither can the given circumstances be nonchalantly dismissed
by public respondents as imposed under distressed conditions clearly
implying that the same were merely temporary in character. At this point in
time, the falsity of such premises cannot be more convincingly demonstrated
by the fact that the law has existed for around twenty (20) years with no end
to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. However, such collection should be made in
government itself It is therefore necessary to reconcile the apparently
purpose of taxations, which is the promotion of the common good, may be
achieved (Commissioner of Internal Revenue v. Algue Inc., et al., 158 SCRA 9
[1988]). Consequently, it stands to reason that petitioners who are burdened
by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D.
20) under the principle of social justice should not now be penalized by the
afford and eventually result in the forfeiture of their properties.
By the public respondents' own computation the assessment by income
approach would amount to only P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed
decisions of public respondents are REVERSED and SET ASIDE; and (e) the
respondent Board of Assessment Appeals of Manila and the City Assessor of
Manila are ordered to make a new assessment by the income approach
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method to guarantee a fairer and more realistic basis of computation (Rollo,

p. 71).
SO ORDERED.
DIGEST:
FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are
leased and occupied as dwelling units by tenants who were paying monthly
rentals of not exceeding P300. Sometimes in 1971 the Rental
Freezing Law was passed prohibiting for one year from its effectivity, an
increase in monthly rentals of dwelling units where rentals do not exceed
three hundred pesos (P300.00), so that the Reyeses were precluded from
raising the rents and from ejecting the tenants. In 1973, respondent City
Assessor of Manila re-classified and reassessed the value of the subject
properties based on the schedule of market values, which entailed an
increase in the corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement averring that the reassessments made were
"excessive, unwarranted, inequitable, confiscatory and unconstitutional"
considering that the taxes imposed upon them greatly exceeded the annual
income derived from their properties. They argued that the income approach
should have been used in determining the land values instead of the
comparable sales approach which the City Assessor adopted.
ISSUE: Is the approach on tax assessment used by the City Assessor
reasonable?
HELD: No. The taxing power has the authority to make a reasonable and
natural classification for purposes of taxation but the government's act must
not be prompted by a 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
liabilities
imposed.
Consequently, it stands to reason that petitioners who are burdened by the
government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice
should not now be penalized by the same government by the imposition of
excessive taxes petitioners can ill afford and eventually result in the
forfeiture of their properties.
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SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 119761 August 29, 1996

vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and
FORTUNE TOBACCO CORPORATION,respondents.
VITUG, J.:p
The Commissioner of Internal Revenue ("CIR") disputes the decision, dated
31 March 1995, of respondent Court of Appeals 1 affirming the 10th August
1994 decision and the 11th October 1994 resolution of the Court of Tax
Appeals 2("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco
Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of
Internal Revenue."
The facts, by and large, are not in dispute.
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the
manufacture of different brands of cigarettes.
On various dates, the Philippine Patent Office issued to the corporation
separate certificates of trademark registration over "Champion," "Hope," and
"More" cigarettes. In a letter, dated 06 January 1987, of then Commissioner
of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of
the Presidential Commission on Good Government, "the initial position of the
Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands
since they were listed in the World Tobacco Directory as belonging to foreign
TAXATION LAW 1
companies. However, Fortune Tobacco changed the names of 'Hope' to

'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said
brands from the foreign brand category. Proof was also submitted to the
Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune
Tobacco Corporation register and therefore a local brand." 3 Ad Valorem taxes
were imposed on these brands, 4 at the following rates:
BRAND AD VALOREM TAX RATE
E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90
Hope Luxury M. 100's
Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20%
A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted,
on 10 June 1993, by the legislature and signed into law, on 14 June
1993, by the President of the Philippines. The new law became
effective on 03 July 1993. It amended Section 142(c)(1) of the National
Internal Revenue Code ("NIRC") to read; as follows:
Sec. 142. Cigars and Cigarettes.
xxx xxx xxx
(c) Cigarettes packed by machine. There shall be levied,
assessed and collected on cigarettes packed by machine a tax at
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the rates prescribed below based on the constructive

manufacturer's wholesale price or the actual manufacturer's
wholesale price, whichever is higher:
(1) On locally manufactured cigarettes which are currently
classified and taxed at fifty-five percent (55%) or the exportation
of which is not authorized by contract or otherwise, fifty-five
(55%) provided that the minimum tax shall not be less than Five
Pesos (P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five percent
(45%) provided that the minimum tax shall not be less than
Three Pesos (P3.00) per pack.
xxx xxx xxx
When the registered manufacturer's wholesale price or the actual
manufacturer's wholesale price whichever is higher of existing
brands of cigarettes, including the amounts intended to cover
the taxes, of cigarettes packed in twenties does not exceed Four
Pesos and eighty centavos (P4.80) per pack, the rate shall be
twenty percent (20%). 7 (Emphasis supplied)
About a month after the enactment and two (2) days before the
effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC
37-93"), was issued by the BIR the full text of which expressed:
REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
July 1,
1993
REVENUE MEMORANDUM CIRCULAR NO. 37-93
SUBJECT: Reclassification of Cigarettes Subject to Excise Tax
TO: All Internal Revenue Officers and Others Concerned.
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In view of the issues raised on whether "HOPE," "MORE" and

"CHAMPION" cigarettes which are locally manufactured are
appropriately considered as locally manufactured cigarettes
bearing a foreign brand, this Office is compelled to review the
previous rulings on the matter.
Section 142 (c)(1) National Internal Revenue Code, as amended
by R.A. No. 6956, provides:
On locally manufactured cigarettes bearing a foreign
brand, fifty-five percent (55%) Provided, That this
rate shall apply regardless of whether or not the right
to use or title to the foreign brand was sold or
transferred by its owner to the local manufacturer.
Whenever it has to be determined whether or not a
cigarette bears a foreign brand, the listing of brands
manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.
Under the foregoing, the test for imposition of the 55% ad
valorem tax on cigarettes is that the locally manufactured
cigarettes bear a foreign brand regardless of whether or not the
right to use or title to the foreign brand was sold or transferred
by its owner to the local manufacturer. The brand must be
originally owned by a foreign manufacturer or producer. If
ownership of the cigarette brand is, however, not definitely
determinable, ". . . the listing of brands manufactured in foreign
countries appearing in the current World Tobacco Directory shall
govern. . . ."
"HOPE" is listed in the World Tobacco Directory as being
manufactured by (a) Japan Tobacco, Japan and (b) Fortune
Tobacco, Philippines. "MORE" is listed in the said directory as
being manufactured by: (a) Fills de Julia Reig, Andorra; (b)
Rothmans, Australia; (c) RJR-Macdonald Canada; (d) RettigStrenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds,
Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco,
Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain;
(k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J.
Reynolds, USA. "Champion" is registered in the said directory as
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being manufactured by (a) Commonwealth Bangladesh; (b)

Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco,
Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies,
Switzerland.
Since there is no showing who among the above-listed
manufacturers of the cigarettes bearing the said brands are the
real owner/s thereof, then it follows that the same shall be
considered foreign brand for purposes of determining the ad
valorem tax pursuant to Section 142 of the National Internal
Revenue Code. As held in BIR Ruling No. 410-88, dated August
24, 1988, "in cases where it cannot be established or there is
dearth of evidence as to whether a brand is foreign or not, resort
to the World Tobacco Directory should be made."
In view of the foregoing, the aforesaid brands of cigarettes, viz:
"HOPE," "MORE" and "CHAMPION" being manufactured by
Fortune Tobacco Corporation are hereby considered locally
manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified
accordingly.
(SGD)
LIWAYWAY
VINZONSCHATO
Commissio
ner
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner
Victor A. Deoferio, Jr., sent via telefax a copy of RMC 37-93 to Fortune
Tobacco but it was addressed to no one in particular. On 15 July 1993,
Fortune Tobacco received, by ordinary mail, a certified xerox copy of
RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of
the BIR, Fortune Tobacco requested for a review, reconsideration and
recall of RMC 37-93. The request was denied on 29 July 1993. The
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following day, or on 30 July 1993, the CIR assessed Fortune Tobacco

for ad valorem tax deficiency amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the
CTA. 8
On 10 August 1994, the CTA upheld the position of Fortune Tobacco
and adjudged:
WHEREFORE, Revenue Memorandum Circular No. 37-93
reclassifying the brands of cigarettes, viz: "HOPE," "MORE" and
"CHAMPION" being manufactured by Fortune Tobacco
Corporation as locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes is found
to be defective, invalid and unenforceable, such that when R.A.
No. 7654 took effect on July 3, 1993, the brands in question were
not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to
Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654
and were therefore still classified as other locally manufactured
cigarettes and taxed at 45% or 20% as the case may be.
Accordingly, the deficiency ad valorem tax assessment issued on
petitioner Fortune Tobacco Corporation in the amount of
P9,598,334.00, exclusive of surcharge and interest, is hereby
canceled for lack of legal basis.
Respondent Commissioner of Internal Revenue is hereby
enjoined from collecting the deficiency tax assessment made and
issued on petitioner in relation to the implementation of RMC No.
37-93.
SO ORDERED.
In its resolution, dated 11 October 1994, the CTA dismissed for lack of
merit the motion for reconsideration.
The CIR forthwith filed a petition for review with the Court of Appeals,
questioning the CTA's 10th August 1994 decision and 11th October
1994 resolution. On 31 March 1993, the appellate court's Special
Thirteenth Division affirmed in all respects the assailed decision and
resolution.
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In the instant petition, the Solicitor General argues: That

I. RMC 37-93 IS A RULING OR OPINION OF THE
COMMISSIONER OF INTERNAL REVENUE
INTERPRETING THE PROVISIONS OF THE TAX CODE.
II. BEING AN INTERPRETATIVE RULING OR OPINION,
THE PUBLICATION OF RMC 37-93, FILING OF COPIES
THEREOF WITH THE UP LAW CENTER AND PRIOR
HEARING ARE NOT NECESSARY TO ITS VALIDITY,
EFFECTIVITY AND ENFORCEABILITY.
III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN
NOTIFIED OR RMC 37-93 ON JULY 2, 1993.
IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT
APPLIES TO ALL LOCALLY MANUFACTURED
CIGARETTES SIMILARLY SITUATED AS "HOPE,"
"MORE" AND "CHAMPION" CIGARETTES.
V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM
RECLASSIFYING "HOPE," "MORE" AND "CHAMPION"
CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO.
7654.
VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE,
THE INQUIRY IS NOT INTO ITS VALIDITY, EFFECTIVITY
OR ENFORCEABILITY BUT INTO ITS CORRECTNESS OR
PROPRIETY; RMC 37-93 IS CORRECT. 10
In fine, petitioner opines that RMC 37-93 is merely an interpretative
ruling of the BIR which can thus become effective without any prior
need for notice and hearing, nor publication, and that its issuance is
not discriminatory since it would apply under similar circumstances to
all locally manufactured cigarettes.
The Court must sustain both the appellate court and the tax court.
Petitioner stresses on the wide and ample authority of the BIR in the
issuance of rulings for the effective implementation of the provisions of
the National Internal Revenue Code. Let it be made clear that such
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authority of the Commissioner is not here doubted. Like any other

government agency, however, the CIR may not disregard legal
requirements or applicable principles in the exercise of its quasilegislative powers.
Let us first distinguish between two kinds of administrative issuances
a legislative rule and aninterpretative rule.
In Misamis Oriental Association of Coco Traders, Inc., vs. Department
of Finance Secretary, 11 the Court expressed:
. . . a legislative rule is in the nature of subordinate legislation,
designed to implement a primary legislation by providing the
details thereof . In the same way that laws must have the benefit
of public hearing, it is generally required that before a legislative
rule is adopted there must be hearing. In this connection, the
Administrative Code of 1987 provides:
Public Participation. If not otherwise required by law, an
agency shall, as far as practicable, publish or circulate notices of
proposed rules and afford interested parties the opportunity to
submit their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid
unless the proposed rates shall have been published in a
newspaper of general circulation at least two (2) weeks before
the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be
observed.
In addition such rule must be published. On the other
hand, interpretative rules are designed to provide guidelines to
the law which the administrative agency is in charge of
enforcing. 12
It should be understandable that when an administrative rule is merely
interpretative in nature, its applicability needs nothing further than its
bare issuance for it gives no real consequence more than what the law
itself has already prescribed. When, upon the other hand, the
administrative rule goes beyond merely providing for the means that
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can facilitate or render least cumbersome the implementation of the

law but substantially adds to or increases the burden of those
governed, it behooves the agency to accord at least to those directly
affected a chance to be heard, and thereafter to be duly informed,
before that new issuance is given the force and effect of law.
A reading of RMC 37-93, particularly considering the circumstances
under which it has been issued, convinces us that the circular cannot
be viewed simply as a corrective measure (revoking in the process the
previous holdings of past Commissioners) or merely as construing
Section 142(c)(1) of the NIRC, as amended, but has, in fact and most
importantly, been made in order to place "Hope Luxury," "Premium
More" and "Champion" within the classification of locally manufactured
cigarettes bearing foreign brands and to thereby have them covered
by RA 7654. Specifically, the new law would have its amendatory
provisions applied to locally manufactured cigarettes which at the time
of its effectivity were not so classified as bearing foreign brands. Prior
to the issuance of the questioned circular, "Hope Luxury," "Premium
More," and "Champion" cigarettes were in the category of locally
manufactured cigarettes not bearing foreign brand subject to 45% ad
valorem tax. Hence, without RMC 37-93, the enactment of RA 7654,
would have had no new tax rate consequence on private respondent's
products. Evidently, in order to place "Hope Luxury," "Premium More,"
and "Champion" cigarettes within the scope of the amendatory law and
subject them to an increased tax rate, the now disputed RMC 37-93
had to be issued. In so doing, the BIR not simply intrepreted the law;
verily, it legislated under its quasi-legislative authority. The due
observance of the requirements of notice, of hearing, and of
publication should not have been then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:
RMC NO. 10-86
Effectivity of Internal Revenue Rules and Regulations
It has been observed that one of the problem areas bearing on
compliance with Internal Revenue Tax rules and regulations is
lack or insufficiency of due notice to the tax paying public. Unless
there is due notice, due compliance therewith may not be
reasonably expected. And most importantly, their strict
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enforcement could possibly suffer from legal infirmity in the light

of the constitutional provision on "due process of law" and the
essence of the Civil Code provision concerning effectivity of laws,
whereby due notice is a basic requirement (Sec. 1, Art. IV,
Constitution; Art. 2, New Civil Code).
In order that there shall be a just enforcement of rules and
regulations, in conformity with the basic element of due process,
the following procedures are hereby prescribed for the drafting,
issuance and implementation of the said Revenue Tax Issuances:
(1) This Circular shall apply only to (a) Revenue
Regulations; (b) Revenue Audit Memorandum Orders;
and (c) Revenue Memorandum Circulars and
Revenue Memorandum Orders bearing on internal
revenue tax rules and regulations.
(2) Except when the law otherwise expressly
provides, the aforesaid internal revenue tax
issuances shall not begin to be operative until after
due notice thereof may be fairly presumed.
Due notice of the said issuances may be fairly
presumed only after the following procedures have
been taken;
xxx xxx xxx
(5) Strict compliance with the foregoing procedures is
enjoined. 13
Nothing on record could tell us that it was either impossible or
impracticable for the BIR to observe and comply with the above
requirements before giving effect to its questioned circular.
Not insignificantly, RMC 37-93 might have likewise infringed on
uniformity of taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates
taxation to be uniform and equitable. Uniformity requires that all
subjects or objects of taxation, similarly situated, are to be treated
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alike or put on equal footing both in privileges and liabilities. 14 Thus,

all taxable articles or kinds of property of the same class must be
taxed at the same rate 15 and the tax must operate with the same
force and effect in every place where the subject may be found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium
More" and "Champion" cigarettes and, unless petitioner would be
willing to concede to the submission of private respondent that the
circular should, as in fact my esteemed colleague Mr. Justice Bellosillo
so expresses in his separate opinion, be considered adjudicatory in
nature and thus violative of due process following the Ang
Tibay 16 doctrine, the measure suffers from lack of uniformity of
taxation. In its decision, the CTA has keenly noted that other cigarettes
bearing foreign brands have not been similarly included within the
scope of the circular, such as
1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.
(a) "PALM TREE" is listed as manufactured by office
of Monopoly, Korea (Exhibit "R")
2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE
COMPANY
(a) "GOLDEN KEY" is listed being manufactured by
United Tobacco, Pakistan (Exhibit "S")
(b) "CANNON" is listed as being manufactured by
Alpha Tobacco, Bangladesh (Exhibit "T")
3. Locally manufactured by LA PERLA INDUSTRIES, INC.
(a) "WHITE HORSE" is listed as being manufactured
by Rothman's, Malaysia (Exhibit "U")
(b) "RIGHT" is listed as being manufactured by
SVENSKA, Tobaks, Sweden (Exhibit "V-1")
4. Locally manufactured by MIGHTY CORPORATION
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(a) "WHITE HORSE" is listed as being manufactured

by Rothman's, Malaysia (Exhibit "U-1")
5. Locally manufactured by STERLING TOBACCO CORPORATION
(a) "UNION" is listed as being manufactured by
Sumatra Tobacco, Indonesia and Brown and
Williamson, USA (Exhibit "U-3")
(b) "WINNER" is listed as being manufactured by
Alpha Tobacco, Bangladesh; Nangyang, Hongkong;
Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan;
Premier Tobacco, Pakistan and Haggar, Sudan
(Exhibit "U-4"). 17
The court quoted at length from the transcript of the hearing
conducted on 10 August 1993 by the Committee on Ways and Means
of the House of Representatives; viz:
THE CHAIRMAN. So you have specific information on Fortune
Tobacco alone. You don't have specific information on other
tobacco manufacturers. Now, there are other brands which are
similarly situated. They are locally manufactured bearing foreign
brands. And may I enumerate to you all these brands, which are
also listed in the World Tobacco Directory . . . Why were these
brand not reclassified at 55 if your want to give a level playing
filed to foreign manufacturers?
MS. CHATO. Mr. Chairman, in fact, we have already prepared a
Revenue Memorandum Circular that was supposed to come after
RMC No. 37-93 which have really named specifically the list of
locally manufactured cigarettes bearing a foreign brand for
excise tax purposes and includes all these brands that you
mentioned at 55 percent except that at that time, when we had
to come up with this, we were forced to study the brands of
Hope, More and Champion because we were given documents
that would indicate the that these brands were actually being
claimed or patented in other countries because we went by
Revenue Memorandum Circular 1488 and we wanted to give
some rationality to how it came about but we couldn't find the
rationale there. And we really found based on our own
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interpretation that the only test that is given by that existing law
would be registration in the World Tobacco Directory. So we came
out with this proposed revenue memorandum circular which we
forwarded to the Secretary of Finance except that at that point in
time, we went by the Republic Act 7654 in Section 1 which
amended Section 142, C-1, it said, that on locally manufactured
cigarettes which are currently classified and taxed at 55
percent. So we were saying that when this law took effect in July
3 and if we are going to come up with this revenue circular
thereafter, then I think our action would really be subject to
question but we feel that . . . Memorandum Circular Number 3793 would really cover even similarly situated brands. And in fact,
it was really because of the study, the short time that we were
given to study the matter that we could not include all the rest of
the other brands that would have been really classified as
foreign brand if we went by the law itself. I am sure that by the
reading of the law, you would without that ruling by
Commissioner Tan they would really have been included in the
definition or in the classification of foregoing brands. These
brands that you referred to or just read to us and in fact just for
your information, we really came out with a proposed revenue
memorandum circular for those brands. (Emphasis supplied)
(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).
xxx xxx xxx
MS. CHATO. . . . But I do agree with you now that it cannot and in
fact that is why I felt that we . . . I wanted to come up with a
more extensive coverage and precisely why I asked that revenue
memorandum circular that would cover all those similarly
situated would be prepared but because of the lack of time and I
came out with a study of RA 7654, it would not have been
possible to really come up with the reclassification or the proper
classification of all brands that are listed there. . .(emphasis
supplied) (Exhibit "FF-2d," page IX-1)
xxx xxx xxx
HON. DIAZ. But did you not consider that there are similarly
situated?
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MS. CHATO. That is precisely why, Sir, after we have come up

with this Revenue Memorandum Circular No. 37-93, the other
brands came about the would have also clarified RMC 37-93 by I
was saying really because of the fact that I was just recently
appointed and the lack of time, the period that was allotted to us
to come up with the right actions on the matter, we were really
caught by the July 3 deadline. But in fact, We have already
prepared a revenue memorandum circular clarifying with the
other . . . does not yet, would have been a list of locally
manufactured cigarettes bearing a foreign brand for excise tax
purposes which would include all the other brands that were
mentioned by the Honorable Chairman. (Emphasis supplied)
(Exhibit "FF-2-d," par. IX-4). 18
All taken, the Court is convinced that the hastily promulgated RMC 37-93 has
fallen short of a valid and effective administrative issuance.
WHEREFORE, the decision of the Court of Appeals, sustaining that of the
Court of Tax Appeals, is AFFIRMED. No costs.
SO ORDERED.
Digest:
FACTS: The CIR issued a memorandum circular which set an ad valorem tax
of 55% to cigarette products of Fortune Tobacco for being foreign branded
cigarette without public notification. Thus, private respondent assails said
circular on the basis that it violates their own rule that there should be prior
notice and hearing before the circulars implementation considering that said
circular is a quasi-legislative function of CIR. The CTA held that petitioner
Commissioner of Internal Revenue failed to observe due process of law in
issuing RMC 37-93 as there was no prior notice and hearing, and that RMC
37-93 was in it discriminatory.
ISSUE: Whether or not CIR has violated the due process law of taxation?
HELD: A legislative rule is in the nature of subordinate legislation, designed
to implement a primary legislation by providing the details thereof. In the
same way that laws must have the benefit of public hearing, it is generally
required that before a legislative rule is adopted there must be hearing.
It should be understandable that when an administrative rule is merely
interpretative in nature, its applicability needs nothing further than its bare
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issuance for it gives no real consequence more than what the law itself has
already prescribed. When, upon the other hand, the administrative rule goes
beyond merely providing for the means that can facilitate or render least
cumbersome the implementation of the law but substantially adds to or
increases the burden of those governed, it behooves the agency to accord at
least to those directly affected a chance to be heard, and thereafter to
be duly informed, before that new issuance is given the force and effect of
law. The Court held that the due process of law of taxation has been violated.
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SUPREME COURT
Manila
EN BANC
G.R. No. L-23645
October 29, 1968

vs.
CASTRO, J.:
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the year 1958.
xxx
xxx
xxx

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proper disposition.
follows:
of Collections.
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subparagraph 1.
reversed.
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I.
ordinary action.
postal officials.
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II.
burden.7
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logic."10
additional stamp.
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the common good.15
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from taxation.
DIGEST:
Fernando, Pampanga. It did not bear the special anti-TB stamp required by
the RA 1635. It was returned to the petitioner. Petitioner now assails the
Anti-TB Stamp law is violate of the equal protection clause because it
constitutes mail users into a class for the purpose of the tax while leaving
statute discriminatorily grants exemptions. The law in question requires an
additional 5 centavo stamp for every mail being posted, and no mail shall be
delivered unless bearing the said stamp.
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
of a privilege and on administrative convenience. Tax exemptions have never
been thought of as raising revenues under the equal protection clause.
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SUPREME COURT
Manila
EN BANC
G.R. No. L-1104
May 31, 1949
EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-appellants,

vs.
VICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL
BOARD OF THE CITY OF MANILA, and JUAN NOLASCO, as Mayor of
the City of Manila, defendants-appellees.
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Francisco Zulueta and Poblador Jr. for appellants.

City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio Villamor for
appellees.
Assistant Solicitor General Carmelino G. Alvendia, Solicitor Guillermo E.Torres
and Manuel D. Baldeo as amicus curiae.
PERFECTO, J.:
Twelve corporation engaged in motion picture business have initiated these
proceeding through a complaint dated May 5, 1946, to impugn the validity of
Ordinance No. 2958 of the City of Manila which was enacted by the
municipalBoard of said city on April 25 1946 approved by the Mayor on April
27, 1946 and took effect on May 1, 1946 said ordinance reading as follows:
AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY
ADMISSION TICKET SOLD BY CINEMATOGRAPHS, THEATERS
VAUDEVILLE COMPANIES THEATRICAL SHOWS AND BOXING
EXHIBITION AND PROVIDING FOR OTHER PURPOSES.
SEC. 1. In addition to the fees paid by cinematographers, theaters,
vaudeville companies, theatrical shows and boxing exhibitions, as
provided for in sections 633 and 778 of Ordinance No. 1600, known as
the Revised Ordinance of the City of Manila, as amended, there shall
be collected from the place of amusement which are specifically
mentioned above the following fees on the price of every admission
ticket sold by such enterprises:
a. For every ticket sold the price of which

is from P0.25 to P0.99
P0.0
5
b. For every ticket sold the price of which

is from P1 to P1.99
0.10
c. For every ticket sold the price of which is 0.15

from P2 to P2.99
d. for every ticket sold the price of which is 0.20

from P3 to P4.99
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e. or every ticket sold the price of which is

from P5 to P5.99
0.25
f. For every ticket sold the price of which is 0.35

from P0 to P14.99
g. For ticket sold thee price of which is

from P15 or more
0.50
SEC. 2 It shall be the duty of every proprietor lessee, promoter, or

operatorof such cinematographs, theater, vaudeville companies,
theatrical show and boxing exhibition to provide himself with tickets
which shall be serially numbered, indication therein the name of
amusement place and the fee charge for admission. Before such ticket
are sold he same shall be presented to the office of the city Treasurer
for registration. Tickets once issued and presented at the gate of
entrance shall be cut by the gatekeeper into halves, the first half to be
returned to the customer and the other half to be retained by the gate
keeper.
It shall also be the duty of said proprietor lessee promoter or operator
to deliver to the Office of the City Treasurer the fees corresponding to
the number of ticket old by him within two days after the performances
or exhibition has taken place.
SEC. 3. The fees herein prescribed shall not be paid where the
admission fees or charge are collection for and in behalf of any
charitable education or religion institution or association.
All place of amusement which are operate by U.S. Army and Navy with
fund belonging to the U.S. Government are hereby exempted from fees
herein imposed.
SEC. 4. Any person violation any of the provision of this ordinance shall
upon conviction thereof be punished by a fine of not more than P200 or
by imprisonment for not more than six months or by both such fine and
imprisonment in the discretion of the court. If the violation is
committed by the club firm or corporation the manager the managing
director or person charged with the management of the business of
such club firm or corporation shall be criminally responsible therefor.
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SEC. 5. This Ordinance shall take effect on the May 1, 1946.

Plaintiffs, operator of theaters in Manila And distributor of local or imported
films allege that they are interested in the provision of section 1,2 and 4 of
said ordinance which they impugn as null and void upon the following
grounds: (a) For violation the Constitution more particular the provision
regarding the uniformity and equality of taxation and thee equal protection
of the laws; (b) because the Municipal Board of Manila exceeded and overstepped the power granted it the Charter of the City of Manila; (c) because it
contravenes violates and is inconsistent with, existing nationallegislation
more particularly revenue and tax laws and (d) 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.
Defendants allege as affirmative defenses the following: (a) That the
ordinance was passed by the Municipal Board of Manila by virtue of its
express legislative power to tax fix the license fee and regulate the business
of theaters, cinematographs and further to fix the location of and to tax, fix
the license fee for and regulate the business of theatrical performances
public exhibition circus and other performances and places of amusement;
(b) that the graduated tax required by said ordinance being applied to all
cinematographs, theaters, vaudeville companies theatricalshow and boxing
exhibitions similarly situated and as a class without distinction or exception
the same does not violate the prohibition against uniformity and equality of
taxation; (c) that the graduated tax onadmission tickets to theaters and
other places of amusement imposed by the National Internal Revenue Code
(Commonwealth Act No. 466) is collected by and for the purposes of the
National Government, whereas, Ordinance No.2958 imposes and requires the
collection of a similar tax by and for the purposes of the Government of the
City of Manila, and there is no case of double taxation, (d) that said
ordinance having been enacted under the express power of the Municipal
Board to tax for revenue as distinguishedfrom its power to license for purely
police purposes, the fact that the amount collected thereunder are higher
than what are needed for police regulation and supervision does not render
said ordinance unfair unjust capricious unreasonable and oppressive; (e) that
consideration the nature of the business of the plaintiffs and the enormous
volume of business they handle the graduated tax fixed by the ordinance is
not unreasonable.
Defendants allege also that since May 1, 1946, when the ordinance in
question took effect plaintiffs have been charging the theater-going public
increased prices for admission to the cinematographs owned and operated to
the graduated tax imposed by said ordinance and as a result while refusing
to pay said tax but at the same time collecting an amount equal to said tax
plaintiffs have taken undue advantage of said ordinance to realized more
profits.
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On September 5, 1946, Judge Emilio Pena of the court of first Instance of

Manila rendered a decision upholding the validity of Ordinance No. 2958.
Plaintiffs appellants assign in the their brief three errors committed by the
trial court. We will consider them separately.
Appellants contend that the lower court erred in holding that under section
2444 (m) of the Revised administrative Code the Municipal Board of the City
ofManila had the power to enact Ordinance No. 2958.
Section 2444 (m) of the Revised Administrative code reads as follows:
To tax fix the license fee and regulate the business of hotels
restaurants refreshment places, cafes, lodging houses, boarding
houses livery garages warehouses, pawnshops theaters,
cinematographs; and further to fix the location of and to tax fix the
license fee for and regulate the businessof lively stables, the license
fee for and regulate the business of livery stable, boarding stables,
embalmers, public billiard table public pool tables, bowling alleys,
dance halls, public dancing halls, cabarets, circusand other similar
parades, public vehicles, race tracks, horse races,Junk dealers,
theatrical performances, public exhibitions, circus andother
performances and places of amusements, match factories, blacksmith
shops, foundries, steam boilers, lumber yards, shipyards, thestorage
and sale of gunpowder, tar, pitch, resin, coal, oil, gasoline,benzene,
turpentine, 'hemp, cotton, nitroglycerin, petroleum or any Ofthe
products thereof and of all other highly combustible or
explosivematerials and other establishment likely to endanger the
public safety or give rise to conflagration or explosion and subject to
the provision of ordinance issue by the (Philippines Health Service)
Bureau of Health in accordance with law tanneries, renders tallow
chandlers bone factories and soap factories.
Appellants line of argument runs as follows:
By virtue of the specific power granted in the above quoted provision of the
Revised Administration Code Ordinance No. 2958 was enacted.
On August 7, 1940 the National Assembly enacted Commonwealth Act No.
466, known as the National Internal Revenue Code section 18, 260 and 261
of which read as follows:
SEC. 18. Sources of revenue. The following taxes fees and charges
are deemed to be national internal revenue taxes:
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(a) Income tax;

(b) Estate inheritance and gift taxes;
(c) Specific taxes on certain articles;
(d) Privilege taxes on business or occupation;
(e) Documentary stamp taxes;
(f) Mining taxes;
(g) Miscellaneous taxes fees and charges, namely, taxes on
banks and insurance companies franchise taxes on amusements
charges on forest product fees for sealing weights and measures
firearms license fees radio registration fees and water rentals.
SEC. 260. Amusement taxes. There shall be collected from the
proprietor, lessee, or operation of theater cinematographs, concert
halls, circuses, boxing exhibition and other places of amusement the
following taxes:
(a) When the amount paid for admission exceeds twenty-nine
centavos, two centavos on each admission;
(b) When the amount paid for admission exceeds twenty-nine but does
not exceed thirty-nine centavos, three centavos on each admission;
(c) When the amount paid for admission exceeds thirty-nine centavos
but does not exceed forty-nine centavos four centavos on each
admission.
(d) When the amount paid for admission exceeds forty-nine centavos
but does not exceed fifty-nine centavos five admission.
(e) When the amount paid for admission exceeds fifty-nine centavos
but does not exceed sixty-nine centavos six centavos on each
admission.
(f) When the amount paid for admission exceeds sixty-nine centavos
but does not exceed seventy nine centavos seven centavos on each
admission.
(g) When the amount paid for admission exceeds seventy nine
centavos but does not exceed eighty-nine centavos eight centavos on
each admission;
(h) When the amount paid for admission exceeds eighty-nine centavos
but does not exceed ninty-nine centavos, nine centavos on each
admission;
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(i) When the amount paid for admission exceeds ninety-nine centavos,
ten centavos on each admission.
In the case of theaters or cinematographs, the taxes herein prescribed
shall first be decuted and withheld by the proprietros, lessees, or
operators of such theaters or cinematogrphs and paid to the Collector
of Internal Revenue before the gross receipts are divided between the
proprietros, lessees, or operators of the theaters of cinematographs
and the distributors of the cinematographic films.
In the case of cockpits, race tracks, and cabarets, there shall be
collected from the proprietor, lessee, or operator a tax equivalent to
ten per centum of the gross receipts, irrespective of whether or not any
amount is charged or paid for admission: Provided, however, That in
the case of race tracks, this tax is in addition to the privilege tax
prescribed in seciton 193. for the purpose of the amusement tax, the
term "gross receipts" embraces all the receipts of the proprietor,
lessee, or operator of the amusement place, excluding the receipts
derived by him from the sale of liquors, beverages, or other articles
subject to specific tax, or from any business subject to tax under this
Code. (This section was amended by section 8, Republic Act No. 39,
effective October 1, 1946. We are quoting the original provision to
show the status of the law when the Ordinance was passed.)
SEC. 261. Exemption. The tax herein imposed shall not be paid
where the admission fee or charges are collected by or for and in
behalf of any religious, charitable, scientific, or educational institution
or association, and where no part of the net proceeds of such
admission fees or charges inures to the benefit of any private
stockholder or individual.
Ordinance No. 2958 does not specify the kind of the tax sought to be
imposed but the seven schedules and other details of said ordinance are, in
every respect, identical with the amusement tax provided by section 260 of
Commonwealth Act No. 466.
But, plaintiffs argue, that section 2444(m) of the Revised Administrative
Code confers upon the City of Manila the power to impose a tax on business
but not on amusement and, consequently, Ordinance No. 2958 was enacted
beyond the charter powers of the City of Manila.
The whole argument of plaintiffs hinges, therefore, on the assumption that
the power granted to the City of Manila by section 2444(m) of the Revised
Administrative Code is limited to the authority to impose a tax on business,
with exclusion of the power to impose a tax amusement; but, the assumption
is based on an arbitrary labeling of the kind of tax authorized by said section
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2444(m). The distinction made by plaintiffs as to the power to tax on

business and the power to tax on amusement has no ground under the
provisions of section 2444(m) of the Revised Administrative Code. The tax
therein authorized cannot be defined as tax on business and cannot be
restricted within a smaller scope than what is authorized by the words used,
to the extent of excluding what plaintiffs describe as tax on amusement.
The very fact that section 2444 (m) of the Revised Administrative Code
includes theaters, cinematographs, public billiard tables, public pool tables,
bowling alleys, dance halls, public dancing halls, cabarets, circuses and other
similar places, race tracks, horse races, theatrical performances, public
exhibition, circus and other performances and places of amusements, will
show conclusively that the power to tax amusement is expressly included
within the power granted by section 2444(m) of the Revised Administrative
Code.
Plaintiffs-appellants contend that the lower court erred in not holding that
section 2444 (m) of the Revised Administrative Code was repealed or the
power therein contained was withdrawn by the National Assembly by the
enactment of Commonwealth Act No. 466 known as the National Internal
Revenue Code.
In support of this contention, plaintiffs aver that the Charter of the City of
Manila, containing section 2444(m) of the Revised Administrative Code, was
enacted on December 8, 1929. On April 25, 1940, the National Assembly
enacted Commonwealth Act No. 466, including provisions on amusement
tax, covering the whole field on taxation and provided for more than what
the ordinance in question has provided. As a result, there are two taxing
powers seeking to occupy exactly the same field of legislation, and so the
apparent conflict must be resolved with the conclusion that, with the
enactment of Commonwealth Act No. 466, as later amended by Republic Act
No. 39, section 2444(m) of the Revised Administrative Code has been
impliedly repealed and the power therein delegated to the City of Manila
withdrawn.
We see absolutely no force in plaintiffs' contention. The conflict pointed out
by them is imaginary. Both provisions of law may stand together and be
enforced at the same time without any incompatibility among themselves.
Finally, plaintiffs contend that the trial court erred in not holding that
Ordinance No. 2958 violated the principle of equality and uniformity of
taxation enjoined by the Constitution (sec. 22, sub-sec. 1, Art. VI,
Constitution of the philippines).
To support this contenttion, appellantts point out to the fact that the
ordinance in question does not tax "many more kinds of amusements" than
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those therein specified, such as "race tracks, cockpits, cabarets, concert

halls, circuses, and other places of amusement." the argument has
absolutely no merit. 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.
The judgment of the trial court is affirmed with costs against appellants.
DIGEST:
Facts: The municipal board of Manila enacted Ordinance 2958 (series of
1946) imposing a fee on the price of every admission ticket sold by
cinematograph theaters, vaudeville companies, theatrical shows and boxing
exhibitions, in addition to fees imposed under Sections 633 and 778 of
Ordinance 1600. Eastern Theatrical Co., among others, question the validity
of ordinance, on the ground that it is unconstitutional for being
contrary to the provisions on uniformity and equality of taxation and the
equal protection of the laws inasmuch as the ordinance does not tax other
kinds of amusement, such as race tracks, cockpits, cabarets, concert halls,
circuses, and other places of amusement.
Issue: Whether the ordinance violates the rule on uniformity and equality
of taxation?
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; and the theater companies 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. The fact that some places of amusement are not
taxed while others, like the ones herein, are taxed is no argument at all
against the equality and uniformity of the tax imposition.(39)
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SUPREME COURT
Manila
EN BANC
G.R. No. L-2947
January 11, 1951
MANILA RACE HORSE TRAINERS ASSOCIATION, INC., and JUAN T.

SORDAN, plaintiffs-appellants,
vs.
MANUEL DE LA FUENTE, defendant-appellee.
Soriano, Garde and Cervania for appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio Naawa for
appellee.
TUASON, J.:
This action was instituted for a declaratory relief by the Manila Race Horses
Trainers Association, Inc., a non-stock corporation duly organized and
existing under and by virtue of the laws of the Philippines, who allege that
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they are owners of boarding stables for race horses and that their rights as
such are affected by Ordinance No. 3065 of the City of Manila approved on
July 1, 1947.1 They made the Mayor of Manila defendant and prayed that said
ordinance be declared invalid as violative of the Philippine Constitution.
The case was submitted on the pleadings, and the decision was that the
ordinance in question "is constitutional and valid and has been enacted in
accordance with the powers of the Municipal Board granted by the Charter of
the City of Manila."
On appeal, the plaintiffs as appellants make three assignments of error, the
first two of which are discussed jointly in their brief under two separate
topics.
First, it is maintained that the ordinance under consideration is a tax on race
horses as distinct from boarding stables. It is argued that by section 2 the
basis of the license fees "is the number of race horses kept or maintained in
the boarding stables to be paid by the maintainers at the rate of P10.00 a
year for each race horse;" that "the fee is increased correspondingly P10 for
each additional race horse maintained or fed in the stable;" and that "by the
same token, an empty stable for race horse pays no license fee at all."
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. (62 C. J. S., 845.) From the context of Ordinance No. 3065, the
intent to tax or license stables and not horses is clearly manifest. The tax is
assessed not on the owners of the horses but on the owners of the stables,
as counsel admit in their brief, although there is nothing, of course, to stop
stable owners from shifting the tax to the horse owners in the form of
increased rents or fees, which is generally the case.
It is also plain from the text of the whole ordinance that the number of
horses is used in the assessment purely as a method of fixing an equitable
and practical distribution of the burden imposed by the measure. Far from
being obnoxious, the method is fair and just. It is but fair and just that for a
boarding stable where only one horse is maintained proportionately less
amount should be exacted than for a stable where more horses are kept and
from which greater income is derived.
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We do not share plaintiff's opinion, apropos the second proposition, that the
ordinance in question is discriminatory and savors of class legislation. In
taxing only boarding stables for race horses, we do not believe that the
ordinance, makes arbitrary classification. In the case of Eastern Theatrical
Co. Inc., vs. Alfonso, 46 Off. Gaz. Supp. to No. 11, p. 303,* it was said 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 not argument at all against the equality and uniformity of 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 taxed or were made to pay less or more than
others.
From the viewpoint of economics and public policy the taxing of boarding
stables for race horses to the exclusion of boarding stables for horses
dedicated to other purposes is not indefensible. The owners of boarding
stables for race horses and, for that matter, the race horse owners
themselves, who in the scheme of shifting may carry the taxation burden,
are a class by themselves and appropriately taxed where owners of other
kinds of horses are taxed less or not at all, considering that equity in taxation
is generally conceived in terms of ability to pay in relation to the benefits
received by the taxpayer and by the public from the business or property
taxed. Race horses are devoted to gambling if legalized, their owners derive
fat income and the public hardly any profit from horse racing, and this
business demands relatively heavy police supervision. Taking everything into
account, the differentiation against which the plaintiffs complain conforms to
the practical dictates of justice and equity and is not discrimatory within the
meaning of the Constitution.
One ground of attack in the court below on the constitutionality of the
ordinance variance between the title and the subject matter apparently
has been abandoned. In its place a new question is brought up on the appeal
in the third and last assignment of error. It is now contended, for the first
time, that "the Municipal Board of Manila (is) without power to enact
ordinance taxing private stables for race horses," and that the lower court
erred in not so declaring. This assignment of error has reference to Class B or
the second sub-paragraph of section 1 of the ordinance.
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Not having been raised in the pleading, this question was properly ignored,
not to say that even it had been raised it would not have been available as
basis for a declaration of nullity of the ordinance. The clause of the ordinance
taxing or licensing boarding stables for race horses does not prejudice the
plaintiffs in any material way, and it is well settled that a person who is not
adversely affected by a licensing ordinance may not attack its validity. Stated
differently, he may not complain that a licensing ordinance is invalid as
against a class other than that to which he belongs. (62 C. J. S.830, 831.) By
analogy, where a municipal ordinance is valid in some of its parts and invalid
as to others and the valid parts are separable from the invalid ones in
which latter case the valid provisions stand as operative the plaintiff may
contest the validity of the provisions that injure his interest but not those
that do not.
We are of the opinion that the trial court committed no error and the
judgment is affirmed with costs against the plaintiff-appellants.
DIGEST:
FACTS: This action was instituted for a declaratory relief by the Manila Race
Horses Trainers Association, Inc., allege that they are owners of boarding
stables for race horses and that their rights as such are affected by
Ordinance No. 3065 of the City of Manila enacted and approved on July 1,
1947 by the Municipal Board. They prayed that said ordinance be declared
invalid as violate of the Philippine Constitution on the equal protection
clause. Thus, it is discriminatory and savors of class legislation. The said
ordinance imposes tax on stable owners based on how many race horses
they maintain in their stables at the rate of P10.00 per year. In a sense they
alleged that the tax imposed should be uniform whether there are horses or
no horses are being maintained in the stables.
ISSUE: Whether or not E.O. 3065 is a valid tax imposition?
HELD: The Court held, in taxing only boarding stables for race horses, we do
not believe that the ordinance, makes arbitrary classification. it was
said there is equality and uniformity in taxation if all articles or kinds of
property of the same class are taxed at the same rate. 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 taxed or
were made to pay less or more than others.
The judgment is affirmed.
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SUPREME COURT
Manila
EN BANC
G.R. No. L-4817
May 26, 1954
SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,

vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendantsappellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for
defendants-appellants.
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 practising 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
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
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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 there in 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
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
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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
naturally any 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
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.
DIGEST:
Facts: Petitioners, who are professionals in the city, assail Ordinance No.
3398 together with the law authorizing it (Section 18 of the Revised Charter
of the City of Manila). The ordinance imposes a municipal occupation tax on
of the same. The law authorizing said ordinance empowers the Municipal
Board of the city to impose a municipal occupation tax on persons engaged
in various professions. Petitioners, having already paid their occupation tax
under section 201 of the National Internal Revenue Code, paid the tax under
protest as imposed by Ordinance No. 3398. The lower court declared the
ordinance invalid and affirmed the validity of the law authorizing it.
Issue:
Whether or Not the ordinance and law authorizing it constitute class
legislation, and authorize what amounts to double taxation.
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Held:
The Legislature may, in its discretion, select what occupations shall be taxed,
and in its discretion may tax all, or select classes of occupation for taxation,
and leave others untaxed. It is not for the courts to judge which cities or
municipalities should be empowered to impose occupation taxes aside from
that imposed by the National Government. That matter is within the domain
of political departments. The argument against double taxation may not be
invoked if one tax is imposed by the state and the other is imposed by the
city. It is widely recognized that there is nothing inherently terrible in the
requirement that taxes be exacted with respect to the same occupation by
both the state and the political subdivisions thereof. Judgment of the lower
court is reversed with regards to the ordinance and affirmed as to the law
authorizing it.

SUPREME COURT
Manila
EN BANC
G.R. No. L-24756
October 31, 1968
CITY OF BAGUIO, plaintiff-appellee,

vs.
FORTUNATO DE LEON, defendant-appellant.
The City Attorney for plaintiff-appellee.
Fortunato de Leon for and in his own behalf as defendant-appellant.
FERNANDO, J.:
In this appeal, a lower court decision upholding the validity of an
ordinance1 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
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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.
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 therefrom 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 Baguio2 empowering it to fix the
license fee and regulate "businesses, trades and occupations as may be
established or practiced in the City."
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,3 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 the purpose of rating the business that
may be established in the city. The power as thus conferred is indeed limited,
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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 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, defendantappellant 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.4 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
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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.
Moreover, in City of Manila v. Bugsuk Lumber Co.,5 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.
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,6 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 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
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decline the responsibility."7 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.
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 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."8With 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 state. In a 1947 decision, however,9 we quoted with
approval this excerpt from a leading American decision:10 "Where, as here,
Congress has clearly expressed its intention, the statute must be sustained
even though double taxation results."
At any rate, it has been expressly affirmed by us that such an "argument
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
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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,12 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.13 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 Fuente14 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, 15 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 case16 that "inequalities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional
limitation."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
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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,18 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.
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 defendant-appellant 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.
DIGEST:
FACTS: The City of Baguio passed an ordinance imposing a license fee
on any person, entity or corporation doing business in the City. The ordinance
sourced its authority from RA No. 329, thereby amending the city charter
empowering it to fix the license fee and regulate businesses, trades and
occupations as may be established or practiced in the City. De Leon was
assessed for P50 annual fee it being shown that he was engaged in property
rental and deriving income therefrom. The latter assailed the validity of the
ordinance arguing that it is ultra vires for there is no statutory authority
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which expressly grants the City of Baguio to levy such tax, and that there it
imposed double taxation, and violates the requirement of uniformity.
ISSUE: Are the contentions of the defendant-appellant tenable?
HELD: No. First, RA 329 was enacted amending Section 2553 of the Revised
Administrative Code empowering the City Council not only to impose a
license fee but to levy a tax for purposes of revenue, thus the ordinance
cannot be considered ultra vires for there is more than ample statutory
authority for the enactment thereof. Second, 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, so that where, as here, Congress has clearly
expressed its intention, the statute must be sustained even though double
taxation results. And third, violation of uniformity is out of place 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.

SUPREME COURT
Manila
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,
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Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister

of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or
prohibition proceeding 1 on the validity of Section I 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 Petitioner3 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 sction
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." 9The answer then affirmed: "Batas Pambansa Big. 135
is a valid exercise of the State's power to tax. The authorities and cases cited
while correctly quoted or paraghraph do not support petitioner's
stand." 10 The prayer is for the dismissal of the petition for lack of merit.
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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 praphrase 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 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 properly rights, both the due
process and equal protection clauses inay properly be invoked, all 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 1, unfortunate remark characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times following] a free use of
absolutes." 16 This is merely to emphasize that it is riot 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 Holmess 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 injury thus is centered on
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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 or its face, he has not made
out a case. This is merely to adhere to the authoritative doctrine that were
the due process and equal protection clauses are invoked, considering that
they arc not fixed rules but rather broad standards, there is a need for 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 lice power or the power of eminent domain is to
demonstrated 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
liabilities imposed. Favoritism and undue preference cannot be allowed. For
the principle is that equal protection and security shall be given to every
person under circumtances 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
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well to taxation measures. The equal protection clause is, of course, inspired
by the noble concept of approximating the Ideal of the laws 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 Frankfurter:
"The equality at which the 'equal protection' clause 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, address 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 shag 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.
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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 e 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 businessman certainly not a suspect
classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
DIGEST:
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its
provision (Section 1) unduly discriminated against him by the imposition of
higher rates upon his income as a professional, that it amounts to class
legislation, and that it transgresses against the equal protection and due
process clauses of the Constitution as well as the rule requiring uniformity in
taxation.
Issue:
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Whether BP 135 violates the due process and equal protection clauses, and
the rule on uniformity in taxation?
Held:
There is a need for proof of such persuasive character as would lead to a
conclusion that there was a violation of the due process and equal protection
clauses. Absent such showing, the presumption of validity must prevail.
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.Where the differentiation conforms to the practical dictates of
justice and equity, similar to the standards of equal protection, it is not
discriminatory within the meaning of the clause and is therefore
uniform.Taxpayers may be classified into different categories, such as
recipients of compensation income as againstprofessionals. Recipients of
compensation income are not entitled to make deductions for income
taxpurposes as there is no practically no overhead expense, while
professionals and businessmen have nouniform costs or expenses necessary
to produce their income. There is ample justification to adopt the
grosssystem of income taxation to compensation income, while continuing
the system of net income taxation asregards professional and business
income.

SUPREME COURT
Manila
EN BANC
G.R. No. L-3538
May 28, 1952
JUAN LUNA SUBDIVISION, INC., plaintiff-appellee,

vs.
M. SARMIENTO, ET AL., defendants-appellants.
Gibbs, Gibbs, Chuidian and Quasha for appellee.
City Fiscal Eugenio Angeles and Assistant Fiscal Cornelio S. Ruperto for
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appellant.
La O and Feria for defendant Philippine Trust Co.
TUASON, J.:
This is an appeal by the City Treasure of the City of Manila from the following
judgment handed down in the above-entitled cause:
POR TODAS CONSIDERACIONES, el Jugado dicta sentencia ordenado:
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 Companypague 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 checks 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 undetermine and so it was entered in the ledger,
Exhibit "F", as 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 Treasure'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 appellees 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
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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 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 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 why 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 checks;" that "the courts finding
that sum 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 surprises without
any support of pertinent and competent proof;" that "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 checks;" that "the burden of proving that
the check in question was in fact paid rest 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 the 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 checks 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
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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 same check was collected by the
City Manila from the Philippine National Bank; by that I am not trying to
say that the check was not actually collected by the City.
xxx
xxx
xxx
Q. This particular check in question pertains to the revenue account of

the City of Manila, is that right?
A. Yes, sir.
Q. Ordinarily it would be deposited with the Philippine 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 statement, but as we
have lost our records pertaining to the occupation and the pre-war
years, I could not make a categorial 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.
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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
checks. 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 plaintiff does not alter the situation as far as his
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 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 forty-three 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 forty-one shall also be remitted the if the
remaining fifty per cent corresponding to the year nineteen hundred
and forty-five shall 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 taxes owned or owing. (See
Webster's New International Dictionary) Note that the provision speaks of
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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 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 remission 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
deliquent 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 was 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 deposit, held 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
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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
P2,210.52, without costs. It is so ordered.
DIGEST:
FACTS:
Juan Luna Subdivision is a local corporation which issued a check to the City
Treasurer of Manila for amount tobe applied to its land tax for the second
semester of 1941. The records of the City Treasurer do not show whatwas
done with the check (It appears that it was deposited with the Philippine
National Bank [PNB]). Afterliberation (WWII), the City Treasurer refused to
refund the corporations deposit or apply it to such futuretaxes as might be
found due, while the Philippine Trust Co (to which the check was
presented)was unwilling toreverse its debit entry against Juan Luna Subd.
Said amount is also subject of another.
ISSUE:
Whether the provision allowing the remission covers taxes paid before the
enactment of Commonwealth Act703, or taxes which were still unpaid?
HELD:
The law is clear that it applies to taxes and penalties due and payable, i.e.
taxes owed or owing. Their mission 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.
Herein, they are not. The taxpayers who paid their taxes before liberation
and those who had not were not on the same footing on the need of material
relief. Taxpayers who had been in arrears I their obligation should have to
satisfy their liability with genuine currency, while the taxes paid during the
occupation had been satisfied in Japanese War Notes, many of the mat a
time when those notes were well-nigh worthless. To refund those taxes with
restored currency would be unduly enrich many of the payers at a greater
expense to the people at large.
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SUPREME COURT
Manila
EN BANC
G.R. No. L-4376
May 22, 1953
ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT,

INC., petitioners-appellants,
vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY
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ASSESSOR and THE CITY MAYOR, all of the City of

Manila, respondents-appellees.
Teotimo A. Roja for appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for
appellees.
BAUTISTA ANGELO, J.:
This is a petition for declaratory relief to test the validity of Ordinance No.
3379 passed by the Municipal Board of the City of Manila on March 24, 1950.
The Association of Customs Brokers, Inc., which is composed of all brokers
and public service operators of motor vehicles in the City of Manila, and G.
Manlapit, Inc., a member of said association, also a public service operator of
the trucks in said City, challenge the validity of said ordinance on the ground
that (1) while it levies a so-called property tax it is in reality a license tax
which is beyond the power of the Municipal Board of the City of Manila; (2)
said ordinance offends against the rule of uniformity of taxation; and (3) it
constitutes double taxation.
The respondents, represented by the city fiscal, contend on their part that
the challenged ordinance imposes a property tax which is within the power of
the City of Manila to impose under its Revised Charter [Section 18 (p) of
Republic Act No. 409], and that the tax in question does not violate the rule
of uniformity of taxation, nor does it constitute double taxation.
The issues having been joined, the Court of First Instance of Manila sustained
the validity of the ordinance and dismissed the petition. Hence this appeal.
The disputed ordinance was passed by the Municipal Board of the City of
Manila under the authority conferred by section 18 (p) of Republic Act No.
409. Said section confers upon the municipal board the power "to tax motor
and other vehicles operating within the City of Manila the provisions of any
existing law to the contrary notwithstanding." It is contended that this power
is broad enough to confer upon the City of Manila the power to enact an
ordinance imposing the property tax on motor vehicles operating within the
city limits.
In the deciding the issue before us it is necessary to bear in mind the
pertinent provisions of the Motor Vehicles Law, as amended, (Act No. 3992)
TAXATION LAW 1
which has a bearing on the power of the municipal corporation to impose tax
on motor vehicles operating in any highway in the Philippines. The pertinent
provisions are contained in section 70 (b) which provide in part:
No further fees than those fixed in this Act shall be exacted or
demanded by any public highway, bridge or ferry, or for the exercise of
the profession of chauffeur, or for the operation of any motor vehicle
by the owner thereof: Provided, however, That nothing in this Act shall
be construed to exempt any motor vehicle from the payment of any
lawful and equitable insular, local or municipal property tax imposed
thereupon. . . .
Note that under the above section no fees may be exacted or demanded for
the operation of any motor vehicle other than those therein provided, the
only exception being that which refers to the property tax which may be
imposed by a municipal corporation. This provision is all-inclusive in that
sense that it applies to all motor vehicles. In this sense, this provision should
be construed as limiting the broad grant of power conferred upon the City of
Manila by its Charter to impose taxes. When section 18 of said Charter
provides that the City of Manila can impose a tax on motor vehicles
operating within its limit, it can only refers to property tax as a different
interpretation would make it repugnant to the Motor Vehicle Law.
Coming now to the ordinance in question, we find that its title refers to it as
"An Ordinance Levying a Property Tax on All Motor Vehicles Operating Within
the City of Manila", and that in its section 1 it provides that the tax should be
1 per cent ad valorem per annum. It also provides that the proceeds of the
tax "shall accrue to the Streets and Bridges Funds of the City and shall be
expended exclusively for the repair, maintenance and improvement of its
streets and bridges." Considering the wording used in the ordinance in the
light in the purpose for which the tax is created, can we consider the tax thus
imposed as property tax, as claimed by respondents?
While as a rule an ad valorem tax is a property tax, and this rule is supported
by some authorities, the rule should not be taken in its absolute sense if the
nature and purpose of the tax as gathered from the context show that it is in
effect an excise or a license tax. Thus, it has been held that "If a tax is in its
nature an excise, it does not become a property tax because it is
proportioned in amount to the value of the property used in connection with
the occupation, privilege or act which is taxed. Every excise necessarily must
TAXATION LAW 1
finally fall upon and be paid by property and so may be indirectly a tax upon
property; but if it is really imposed upon the performance of an act,
enjoyment of a privilege, or the engaging in an occupation, it will be
considered an excise." (26 R. C. L., 35-36.) It has also been held that
The character of the tax as a property tax or a license or occupation
tax must be determined by its incidents, and from the natural and legal
effect of the language employed in the act or ordinance, and not by
the name by which it is described, or by the mode adopted in fixing its
amount. If it is clearly a property tax, it will be so regarded, even
though nominally and in form it is a license or occupation tax; and, on
the other hand, if the tax is levied upon persons on account of their
business, it will be construed as a license or occupation tax, even
though it is graduated according to the property used in such business,
or on the gross receipts of the business. (37 C.J., 172)
The ordinance in question falls under the foregoing rules. While it refers to
property tax and it is fixed ad valoremyet we cannot reject the idea that it is
merely levied on motor vehicles operating within the City of Manila with the
main purpose of raising funds to be expended exclusively for the repair,
maintenance and improvement of the streets and bridges in said city. This is
precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for
the reason that, under said Act, municipal corporation already participate in
the distribution of the proceeds that are raised for the same purpose of
repairing, maintaining and improving bridges and public highway (section 73
of the Motor Vehicle Law). This prohibition is intended to prevent duplication
in the imposition of fees for the same purpose. It is for this reason that we
believe that the ordinance in question merely imposes a license fee although
under the cloak of an ad valorem tax to circumvent the prohibition above
adverted to.
It is also our opinion that the ordinance infringes the rule of the uniformity of
taxation ordained by our Constitution. Note that the ordinance exacts the tax
upon all motor vehicles operating within the City of Manila. It does not
distinguish between a motor vehicle for hire and one which is purely for
private use. Neither does it distinguish between a motor vehicle registered in
the City of Manila and one registered in another place but occasionally
comes to Manila and uses its streets and public highways. The distinction is
important if we note that the ordinance intends to burden with the tax only
those registered in the City of Manila as may be inferred from the word
TAXATION LAW 1
"operating" used therein. The word "operating" denotes a connotation which

is akin to a registration, for under the Motor Vehicle Law no motor vehicle
can be operated without previous payment of the registration fees. There is
no pretense that the ordinance equally applies to motor vehicles who come
to Manila for a temporary stay or for short errands, and it cannot be denied
that they contribute in no small degree to the deterioration of the streets and
public highway. The fact that they are benefited by their use they should also
be made to share the corresponding burden. And yet such is not the case.
This is an inequality which we find in the ordinance, and which renders it
offensive to the Constitution.
Wherefore, reversing the decision appealed from, we hereby declare the
ordinance null and void.
DIGEST:
Facts:
The Association of Customs Brokers, which is composed of all brokers and
public service operators of motor vehicles in the City of Manila, challenges
the validity of Ordinance 3379 on the grounds (1) that while it levies asocalled property tax, it is in reality a license tax which is beyond the power of
the Manila Municipal Board; (2)that said ordinance offends against the rule
on uniformity of taxes; and (3) that it constitutes double taxation.
Issue:
Whether the ordinance infringes on the rule on uniformity of taxes
as ordained by the Constitution?
Held:
While the tax in the Ordinance refers to property tax and it is fixed ad
valorem, it is merely levied on all motor vehicles operating within Manila with
the main purpose of raising funds to be expended exclusively for the repair,
maintenance and improvement of the streets and bridges in said city. The
ordinance imposes a license fee although under the cloak of an ad valorem
tax to circumvent the prohibition in the Motor Vehicle Law. Further, it does
not distinguish between a motor vehicle for hire and one which is purely for
private use. Both does it distinguish between a motor vehicle registered in
Manila and one registered in another place but occasionally comes to Manila
and uses its streets and public highways. The distinction is necessary if the
ordinance intends to burden with tax only those registered in Manila as may
be inferred from the word operating used therein. There is an inequality in
the ordinance which renders it offensive to the Constitution.
TAXATION LAW 1

SUPREME COURT
Manila
EN BANC
G.R. No. L-23794
February 17, 1968
ORMOC SUGAR COMPANY, INC., 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, defendants-appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo and Teehankee, Carreon &
Taada for plaintiff-appellant.
Ramon O. de Veyra for defendants-appellees.
BENGZON, J.P., J.:
On January 29, 1964, the Municipal Board of Ormoc City
passed 1 Ordinance No. 4, Series of 1964, imposing "on any and all
productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in
Ormoc City a municipal tax equivalent to one per centum (1%) per export
sale to the United States of America and other foreign countries." 2
Payments for said tax were made, under protest, by Ormoc Sugar
Company, Inc. on March 20, 1964 for P7,087.50 and on April 20, 1964 for
P5,000, or a total of P12,087.50.
TAXATION LAW 1
On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of
First Instance of Leyte, with service of a copy upon the Solicitor General, a
complaint 3 against the City of Ormoc as well as its Treasurer, Municipal
Board and Mayor, alleging that the afore-stated ordinance is unconstitutional
for being violative of the equal protection clause (Sec. 1[1], Art. III,
Constitution) and the rule of uniformity of taxation (Sec. 22[1]), Art. VI,
Constitution), aside from being an export tax forbidden under Section 2287
of the Revised Administrative Code. It further alleged that the tax is neither a
production nor a license tax which Ormoc City under Section 15-kk of its
charter and under Section 2 of Republic Act 2264, otherwise known as the
Local Autonomy Act, is authorized to impose; and that the tax amounts to a
customs duty, fee or charge in violation of paragraph 1 of Section 2 of
Republic Act 2264 because the tax is on both the sale and export of sugar.
Answering, the defendants asserted that the tax ordinance was within
defendant city's power to enact under the Local Autonomy Act and that the
same did not violate the afore-cited constitutional limitations. After pre-trial
and submission of the case on memoranda, the Court of First Instance, on
August 6, 1964, rendered a decision that upheld the constitutionality of the
ordinance and declared the taxing power of defendant chartered city
broadened by the Local Autonomy Act to include all other forms of taxes,
licenses or fees not excluded in its charter.
Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar
Company, Inc. Appellant alleges the same statutory and constitutional
violations in the aforesaid taxing ordinance mentioned earlier.
Section 1 of the ordinance states: "There shall be paid to the City
Treasurer on any and all productions of centrifugal sugar milled at the Ormoc
Sugar Company, Incorporated, in Ormoc City, a municipal tax equivalent to
one per centum (1%) per export sale to the United States of America and
other foreign countries." Though referred to as a tax on the export of
centrifugal sugar produced at Ormoc Sugar Company, Inc. For production of
sugar alone is not taxable; the only time the tax applies is when the sugar
produced is exported.
Appellant questions the authority of the defendant Municipal Board to
levy such an export tax, in view of Section 2287 of the Revised
Administrative Code which denies from municipal councils the power to
impose an export tax. Section 2287 in part states: "It shall not be in the
TAXATION LAW 1
power of the municipal council to impose a tax in any form whatever, upon
goods and merchandise carried into the municipality, or out of the same, and
any attempt to impose an import or export tax upon such goods in the guise
of an unreasonable charge for wharfage use of bridges or otherwise, shall be
void."
Subsequently, however, Section 2 of Republic Act 2264 effective June
19, 1959, gave chartered cities, municipalities and municipal districts
authority to levy for public purposes just and uniform taxes, licenses or fees.
Anent the inconsistency between Section 2287 of the Revised Administrative
Code and Section 2 of Republic Act 2264, this Court, in Nin Bay Mining Co. v.
Municipality of Roxas 4 held the former to have been repealed by the latter.
And expressing Our awareness of the transcendental effects that municipal
export or import taxes or licenses will have on the national economy, due to
Section 2 of Republic Act 2264, We stated that there was no other alternative
until Congress acts to provide remedial measures to forestall any
unfavorable results.
The point remains to be determined, however, whether constitutional
limits on the power of taxation, specifically the equal protection clause and
rule of uniformity of taxation, were infringed.
The Constitution in the bill of rights provides: ". . . nor shall any person
be denied the equal protection of the laws." (Sec. 1 [1], Art. III) In Felwa vs.
Salas, 5 We ruled that the equal protection clause applies only to persons or
things identically situated and does not bar a reasonable classification of the
subject of legislation, and a classification is reasonable where (1) it is based
on substantial distinctions which make real differences; (2) these are
germane to the purpose of the law; (3) the classification applies not only to
present conditions but also to future conditions which are substantially
identical to those of the present; (4) the classification applies only to those
who belong to the same class.
A perusal of the requisites instantly shows that the questioned
ordinance does not meet them, for it taxes only centrifugal sugar produced
and exported by the Ormoc Sugar Company, Inc. and none other. At the time
of the taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is true,
was the only sugar central in the city of Ormoc. Still, the classification, to be
reasonable, should be in terms applicable to future conditions as well. The
taxing ordinance should not be singular and exclusive as to exclude any
TAXATION LAW 1
subsequently established sugar central, of the same class as plaintiff, for the
coverage of the tax. As it is now, even if later a similar company is set up, it
cannot be subject to the tax because the ordinance expressly points only to
Ormoc City Sugar Company, Inc. as the entity to be levied upon.
Appellant, however, is not entitled to interest; on the refund because
the taxes were not arbitrarily collected (Collector of Internal Revenue v.
Binalbagan). 6 At the time of collection, the ordinance provided a sufficient
basis to preclude arbitrariness, the same being then presumed constitutional
until declared otherwise.
WHEREFORE, the decision appealed from is hereby reversed, the
challenged ordinance is declared unconstitutional and the defendantsappellees are hereby ordered to refund the P12,087.50 plaintiff-appellant
paid under protest. No costs. So ordered.
DIGEST:
Facts:
In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on
any and all productions of centrifuge sugar milled at the Ormoc Sugar Co.
Inc. in Ormoc City a municipal tax equivalent to 1% per export sale to the
United States and other foreign countries. The company paid the said tax
under protest. It subsequently filed a case seeking to invalidate the
ordinance for being unconstitutional.
Issue:
Whether the ordinance violates the equal protection clause?
Held:
The Ordinance taxes only centrifugal sugar produced and exported by the
Ormoc Sugar Co. Inc. and none other. At the time of the taxing ordinances
enacted, the company was the only sugar central in Ormoc City. The
classification, to be reasonable, should be in terms applicable to future
conditions as well. The taxing ordinance should not be singular and exclusive
as to exclude any subsequently established sugar central, of the same class
as the present company, from the coverage of the tax. As it is now, even if
later a similar companies set up, it cannot be subject to the tax because the
ordinance expressly points only to the company as the entity to be levied
upon.
TAXATION LAW 1

SUPREME COURT
Manila
TAXATION LAW 1
EN BANC
G.R. No. L-29646 November 10, 1978
MAYOR ANTONIO J. VILLEGAS, petitioner,
vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.
Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for
petitioner.
Sotero H. Laurel for respondents.
FERNANDEZ, J.:
This is a petition for certiorari to review tile decision dated September 17,
1968 of respondent Judge Francisco Arca of the Court of First Instance of
Manila, Branch I, in Civil Case No. 72797, the dispositive portion of winch
reads.
Wherefore, judgment is hereby rendered in favor of the petitioner
and against the respondents, declaring Ordinance No. 6 37 of the
City of Manila null and void. The preliminary injunction is made
permanent. No pronouncement as to cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.
(SGD.
)
FRAN
CISC
O
ARCA
Judge
1
TAXATION LAW 1
The controverted Ordinance No. 6537 was passed by the Municipal Board of
Manila on February 22, 1968 and signed by the herein petitioner Mayor
Antonio J. Villegas of Manila on March 27, 1968. 2
City Ordinance No. 6537 is entitled:
AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A
CITIZEN OF THE PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF
EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF TRADE,
BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA
WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT FROM THE
MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3
Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed
or to engage or participate in any position or occupation or business
enumerated therein, whether permanent, temporary or casual, without first
securing an employment permit from the Mayor of Manila and paying the
permit fee of P50.00 except persons employed in the diplomatic or consular
missions of foreign countries, or in the technical assistance programs of both
the Philippine Government and any foreign government, and those working
in their respective households, and members of religious orders or
congregations, sect or denomination, who are not paid monetarily or in kind.
Violations of this ordinance is punishable by an imprisonment of not less than
three (3) months to six (6) months or fine of not less than P100.00 but not
more than P200.00 or both such fine and imprisonment, upon conviction. 5
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was
employed in Manila, filed a petition with the Court of First Instance of Manila,
Branch I, denominated as Civil Case No. 72797, praying for the issuance of
the writ of preliminary injunction and restraining order to stop the
enforcement of Ordinance No. 6537 as well as for a judgment declaring said
Ordinance No. 6537 null and void. 6
In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds
for wanting the ordinance declared null and void:
1) As a revenue measure imposed on aliens employed in the City
of Manila, Ordinance No. 6537 is discriminatory and violative of
the rule of the uniformity in taxation;
TAXATION LAW 1
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
VIOLATED THE PRINCIPLE AGAINST UNDUE DESIGNATION OF
LEGISLATIVE POWER.
III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND
VIOLATED THE DUE PROCESS AND EQUAL PROTECTION CLAUSES
OF THE CONSTITUTION.
TAXATION LAW 1
Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared
null and void on the ground that it violated the rule on uniformity of taxation
because the rule on uniformity of taxation applies only to purely tax or
revenue measures and that Ordinance No. 6537 is not a tax or revenue
measure but is an exercise of the police power of the state, it being
principally a regulatory measure in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue
measure because its principal purpose is regulatory in nature has no merit.
While it is true that the first part which requires that the alien shall secure an
employment permit from the Mayor involves the exercise of discretion and
judgment in the processing and approval or disapproval of applications for
employment permits and therefore is regulatory in character the second part
which requires the payment of P50.00 as employee's fee is not regulatory
but a revenue measure. There is no logic or justification in exacting P50.00
from aliens who have been cleared for employment. It is obvious that the
purpose of the ordinance is to raise money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because
it fails to consider valid substantial differences in situation among individual
aliens who are required to pay it. Although the equal protection clause of the
Constitution does not forbid classification, it is imperative that the
classification should be based on real and substantial differences having a
reasonable relation to the subject of the particular legislation. The same
amount of P50.00 is being collected from every employed alien whether he is
casual or permanent, part time or full time or whether he is a lowly employee
or a highly paid executive
Ordinance No. 6537 does not lay down any criterion or standard to guide the
Mayor in the exercise of his discretion. It has been held that where an
ordinance of a municipality fails to state any policy or to set up any standard
to guide or limit the mayor's action, expresses no purpose to be attained by
requiring a permit, enumerates no conditions for its grant or refusal, and
entirely lacks standard, thus conferring upon the Mayor arbitrary and
unrestricted power to grant or deny the issuance of building permits, such
ordinance is invalid, being an undefined and unlimited delegation of power to
allow or prevent an activity per se lawful. 10
In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where
a law granted a government agency power to determine the allocation of
TAXATION LAW 1
wheat flour among importers, the Supreme Court ruled against the
interpretation of uncontrolled power as it vested in the administrative officer
an arbitrary discretion to be exercised without a policy, rule, or standard
from which it can be measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the authority and discretion to
grant and refuse permits of all classes conferred upon the Mayor of Manila by
the Revised Charter of Manila is not uncontrolled discretion but legal
discretion to be exercised within the limits of the law.
Ordinance No. 6537 is void because it does not contain or suggest any
standard or criterion to guide the mayor in the exercise of the power which
has been granted to him by the ordinance.
The ordinance in question violates the due process of law and equal
protection rule of the Constitution.
Requiring a person before he can be employed to get a permit from the City
Mayor of Manila who may withhold or refuse it at will is tantamount to
denying him the basic right of the people in the Philippines to engage in a
means of livelihood. While it is true that the Philippines as a State is not
obliged to admit aliens within its territory, once an alien is admitted, he
cannot be deprived of life without due process of law. This guarantee
includes the means of livelihood. The shelter of protection under the due
process and equal protection clause is given to all persons, both aliens and
citizens. 13
The trial court did not commit the errors assigned.
WHEREFORE, the decision appealed from is hereby affirmed, without
SO ORDERED.
DIGEST:
FACTS:
The Municipal Board of Manila enacted Ordinance 6537 requiring aliens
(except those employed in the diplomatic and consular missions of foreign
countries, in technical assistance programs of the government and another
country, and members of religious orders or congregations) to procure the
requisite mayors permit so as to be employed or engage in trade in the City
TAXATION LAW 1
of Manila. The permit fee is P50, and the penalty for the violation of the
ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or both.
Issue: Whether the ordinance imposes a regulatory fee or a tax.
Held: The ordinances purpose is clearly to raise money under the guise of
regulation by exacting P50 from aliens who have been cleared for
employment. The amount is unreasonable and excessive because it fails to
consider difference in situation among aliens required to pay it, i.e. being
casual, permanent, part-time, rank and-file or executive. The Ordinance was
declared invalid as 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. Further, the ordinance does not lay down any criterion or
standard to guide the Mayor in the exercise of his discretion, thus conferring
upon the mayor arbitrary and unrestricted powers.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 108524 November 10, 1994

MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner,
vs.
DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE
BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE DISTRICT
OFFICER, BIR MISAMIS ORIENTAL, respondents.
Damasing Law Office for petitioner.
TAXATION LAW 1
MENDOZA, J.:
This is a petition for prohibition and injunction seeking to nullify Revenue
Memorandum Circular No. 47-91 and enjoin the collection by respondent
revenue officials of the Value Added Tax (VAT) on the sale of copra by
members of petitioner organization. 1
Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic
corporation whose members, individually or collectively, are engaged in the
buying and selling of copra in Misamis Oriental. The petitioner alleges that
prior to the issuance of Revenue Memorandum Circular 47-91 on June 11,
1991, which implemented VAT Ruling 190-90, copra was classified as
agricultural food product under $ 103(b) of the National Internal Revenue
Code and, therefore, exempt from VAT at all stages of production or
distribution.
Respondents represent departments of the executive branch of government
charged with the generation of funds and the assessment, levy and
collection of taxes and other imposts.
The pertinent provision of the NIRC states:
Sec. 103. Exempt Transactions. The following shall be exempt
from the value-added tax:
(a) Sale of nonfood agricultural, marine and forest products in
their original state by the primary producer or the owner of the
land where the same are produced;
(b) Sale or importation in their original state of agricultural and
marine food products, livestock and poultry of a kind generally
used as, or yielding or producing foods for human consumption,
and breeding stock and genetic material therefor;
Under 103(a), as above quoted, the sale of agricultural non-food products in
their original state is exempt from VAT only if the sale is made by the primary
producer or owner of the land from which the same are produced. The sale
made by any other person or entity, like a trader or dealer, is not exempt
from the tax. On the other hand, under 103(b) the sale of agricultural food
TAXATION LAW 1
products in their original state is exempt from VAT at all stages of production
or distribution regardless of who the seller is.
The question is whether copra is an agricultural food or non-food product for
purposes of this provision of the NIRC. On June 11, 1991, respondent
Commissioner of Internal Revenue issued the circular in question, classifying
copra as an agricultural non-food product and declaring it "exempt from VAT
only if the sale is made by the primary producer pursuant to Section 103(a)
of the Tax Code, as amended." 2
The reclassification had the effect of denying to the petitioner the exemption
it previously enjoyed when copra was classified as an agricultural food
product under 103(b) of the NIRC. Petitioner challenges RMC No. 47-91 on
various grounds, which will be presently discussed although not in the order
raised in the petition for prohibition.
First. Petitioner contends that the Bureau of Food and Drug of the
Department of Health and not the BIR is the competent government agency
to determine the proper classification of food products. Petitioner cites the
opinion of Dr. Quintin Kintanar of the Bureau of Food and Drug to the effect
that copra should be considered "food" because it is produced from coconut
which is food and 80% of coconut products are edible.
On the other hand, the respondents argue that the opinion of the BIR, as the
government agency charged with the implementation and interpretation of
the tax laws, is entitled to great respect.
We agree with respondents. In interpreting 103(a) and (b) of the NIRC, the
Commissioner of Internal Revenue gave it a strict construction consistent
with the rule that tax exemptions must be strictly construed against the
taxpayer and liberally in favor of the state. Indeed, even Dr. Kintanar said
that his classification of copra as food was based on "the broader definition
of food which includes agricultural commodities and other components used
in the manufacture/processing of food." The full text of his letter reads:
10 April 1991
Mr. VICTOR A. DEOFERIO, JR.
Chairman VAT Review Committee
Bureau of Internal Revenue
Diliman, Quezon City
TAXATION LAW 1
Dear Mr. Deoferio:

This is to clarify a previous communication made by this Office
about copra in a letter dated 05 December 1990 stating that
copra is not classified as food. The statement was made in the
context of BFAD's regulatory responsibilities which focus mainly
on foods that are processed and packaged, and thereby copra is
not covered.
However, in the broader definition of food which include
agricultural commodities and other components used in the
manufacture/ processing of food, it is our opinion that copra
should be classified as an agricultural food product since copra is
produced from coconut meat which is food and based on
available information, more than 80% of products derived from
copra are edible products.
Very
truly
yours
,
QUIN
TIN L.
KINTA
NAR,
M.D.,
Ph.D.
Direct
or
Assist
ant
Secre
tary
of
Healt
h for
Stand
ards
and
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Regul
ation
s
Moreover, as the government agency charged with the enforcement of the
law, the opinion of the Commissioner of Internal Revenue, in the absence of
any showing that it is plainly wrong, is entitled to great weight. Indeed, the
ruling was made by the Commissioner of Internal Revenue in the exercise of
his power under 245 of the NIRC to "make rulings or opinions in connection
with the implementation of the provisions of internal revenue laws,including
rulings on the classification of articles for sales tax and similar purposes."
Second. Petitioner complains that it was denied due process because it was
not heard before the ruling was made. There is a distinction in administrative
law between legislative rules and interpretative rules. 3 There would be force
in petitioner's argument if the circular in question were in the nature of a
legislative rule. But it is not. It is a mere interpretative rule.
The reason for this distinction is that a legislative rule is in the nature of
subordinate legislation, designed to implement a primary legislation by
providing the details thereof. In the same way that laws must have the
benefit of public hearing, it is generally required that before a legislative rule
is adopted there must be hearing. In this connection, the Administrative
Code of 1987 provides:
observed. 4
In addition such rule must be published. 5 On the other hand, interpretative
rules are designed to provide guidelines to the law which the administrative
agency is in charge of enforcing.
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Accordingly, in considering a legislative rule a court is free to make three

inquiries: (i) whether the rule is within the delegated authority of the
administrative agency; (ii) whether it is reasonable; and (iii) whether it was
issued pursuant to proper procedure. But the court is not free to substitute
its judgment as to the desirability or wisdom of the rule for the legislative
body, by its delegation of administrative judgment, has committed those
questions to administrative judgments and not to judicial judgments. In the
case of an interpretative rule, the inquiry is not into the validity but into the
correctness or propriety of the rule. As a matter of power a court, when
confronted with an interpretative rule, is free to (i) give the force of law to
the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii)
give some intermediate degree of authoritative weight to the interpretative
rule. 6
In the case at bar, we find no reason for holding that respondent
Commissioner erred in not considering copra as an "agricultural food
product" within the meaning of 103(b) of the NIRC. As the Solicitor General
contends, "copra per se is not food, that is, it is not intended for human
consumption. Simply stated, nobody eats copra for food." That previous
Commissioners considered it so, is not reason for holding that the present
interpretation is wrong. The Commissioner of Internal Revenue is not bound
by the ruling of his predecessors. 7 To the contrary, the overruling of
decisions is inherent in the interpretation of laws.
Third. Petitioner likewise claims that RMC No. 47-91 is discriminatory and
violative of the equal protection clause of the Constitution because while
coconut farmers and copra producers are exempt, traders and dealers are
not, although both sell copra in its original state. Petitioners add that oil
millers do not enjoy tax credit out of the VAT payment of traders and dealers.
The argument has no merit. There is a material or substantial difference
between coconut farmers and copra producers, on the one hand, and copra
traders and dealers, on the other. The former produce and sell copra, the
latter merely sell copra. The Constitution does not forbid the differential
treatment of persons so long as there is a reasonable basis for classifying
them differently. 8
It is not true that oil millers are exempt from VAT. Pursuant to 102 of the
NIRC, they are subject to 10% VAT on the sale of services. Under 104 of the
Tax Code, they are allowed to credit the input tax on the sale of copra by
TAXATION LAW 1
traders and dealers, but there is no tax credit if the sale is made directly by
the copra producer as the sale is VAT exempt. In the same manner, copra
traders and dealers are allowed to credit the input tax on the sale of copra
by other traders and dealers, but there is no tax credit if the sale is made by
the producer.
Fourth. It is finally argued that RMC No. 47-91 is counterproductive because
traders and dealers would be forced to buy copra from coconut farmers who
are exempt from the VAT and that to the extent that prices are reduced the
government would lose revenues as the 10% tax base is correspondingly
diminished.
This is not so. The sale of agricultural non-food products is exempt from VAT
only when made by the primary producer or owner of the land from which
the same is produced, but in the case of agricultural food products their sale
in their original state is exempt at all stages of production or distribution. At
any rate, the argument that the classification of copra as agricultural nonfood product is counterproductive is a question of wisdom or policy which
should be addressed to respondent officials and to Congress.
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
DIGEST:
Facts: Petitioner Misamis Oriental Association of Coco Traders, Inc. is a
domestic corporation whose members, individually or collectively, are
engaged in the buying and selling of copra in Misamis Oriental. The
petitioner alleges that prior to the issuance of Revenue Memorandum
Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90,
copra was classified as agricultural food product under $ 103(b) of the
National Internal Revenue Code and, therefore, exempt from VAT at all stages
of production or distribution. Under Sec. 103(b) of the NIRC, the sale
of agricultural food products in their original state is exempt from VAT at all
stages of production or distribution. The reclassification had the effect of
denying to the petitioner the exemption it previously enjoyed when copra
was classified as an agricultural food product under 103(b) of the NIRC.
Petitioner challenges RMC No. 47-91 on various grounds.
Issues:(1) Whether the BIR is the proper the competent government agency
to determine the proper classification of food products.(2) Whether RMC No.
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47-91 is discriminatory and violate of the equal protection clause of the

Constitution.
Held: The court, as to the first issue, ruled in the affirmative. The BIR, as the
the tax laws, is entitled to great respect. In interpreting Section 103 of the
NIRC, the Commissioner of Internal Revenue correctly gave it a strict
construction consistent with the rule that tax exemptions must be strictly
construed against the taxpayer and liberally in favor of the state. The ruling
was made by the Commissioner of Internal Revenue in the exercise of his
power under 245 of the NIRCto "make rulings or opinions in connection with
the implementation of the provisions of internal revenue laws, including
rulings on the classification of articles for sales tax and similar purposes.
With regard to the second issue, the court ruled in the negative. Petitioner
likewise claims that RMC No. 47-91is violate of the equal protection clause
because while coconut farmers and copra producers are exempt, traders and
dealers are not, although both sell copra in its original state. Petitioners add
that oil millers do not enjoy tax credit out of the VAT payment of traders and
dealers. The argument has no merit. There is a material or substantial
difference between coconut farmers and copra producers, on the one hand,
and copra traders and dealers, on the other. The former produce and sell
copra, the latter merely sell copra. The Constitution does not forbid the
differential treatment of persons so long as there is a reasonable basis for
classifying them differently. It is not true that oil millers are exempt from VAT.
Pursuant to 102 of the NIRC, they are subject to 10% VAT on the sale of
services.
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SUPREME COURT
Manila
EN BANC
G.R. No. 115455 August 25, 1994

ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115525 August 25, 1994
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE
TAXATION LAW 1
OCAMPO, as Secretary of Finance; LIWAYWAY VINZONS-CHATO, as

Commissioner of Internal Revenue; and their AUTHORIZED AGENTS
OR REPRESENTATIVES, respondents.
G.R. No. 115543 August 25, 1994
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 August 25, 1994
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.;
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 August 25, 1994
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC.,
(CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 August 25, 1994
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., PHILIPPINE BIBLE SOCIETY,
INC., and WIGBERTO TAADA,petitioners,
TAXATION LAW 1
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE and THE COMMISSIONER OF
CUSTOMS, respondents.
G.R. No. 115852 August 25, 1994
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE, and COMMISSIONER OF INTERNAL
G.R. No. 115873 August 25, 1994
COOPERATIVE UNION OF THE PHILIPPINES, petitioners,
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
G.R. No. 115931 August 25, 1994
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC., and
ASSOCIATION OF PHILIPPINE BOOK-SELLERS, 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.
Arturo M. Tolentino for and in his behalf.
Donna Celeste D. Feliciano and Juan T. David for petitioners in G.R. No.
115525.
Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner R.S. Roco.
Villaranza and Cruz for petitioners in G.R. No. 115544.
Carlos A. Raneses and Manuel M. Serrano for petitioner in G.R. No. 115754.
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Salonga, Hernandez & Allado for Freedon From Debts Coalition, Inc. & Phil.
Bible Society.
Estelito P. Mendoza for petitioner in G.R. No. 115852.
Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices for petitioners in
G.R. No. 115873.
R.B. Rodriguez & Associates for petitioners in G.R. No. 115931.
Reve A.V. Saguisag for MABINI.
MENDOZA, J.:
The value-added tax (VAT) is levied on the sale, barter or exchange of goods
and properties as well as on the sale or exchange of services. It is equivalent
to 10% of the gross selling price or gross value in money of goods or
properties sold, bartered or exchanged or of the gross receipts from the sale
or exchange of services. Republic Act No. 7716 seeks to widen the tax base
of the existing VAT system and enhance its administration by amending the
National Internal Revenue Code.
These are various suits for certiorari and prohibition, challenging the
constitutionality of Republic Act No. 7716 on various grounds summarized in
the resolution of July 6, 1994 of this Court, as follows:
I. Procedural Issues:
A. Does Republic Act No. 7716 violate Art. VI, 24 of the
Constitution?
B. Does it violate Art. VI, 26(2) of the Constitution?
C. What is the extent of the power of the Bicameral Conference
Committee?
II. Substantive Issues:
A. Does the law violate the following provisions in the Bill of
Rights (Art. III)?
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1. 1
2. 4
3. 5
4. 10
B. Does the law violate the following other provisions of the
Constitution?
1. Art. VI, 28(1)
2. Art. VI, 28(3)
These questions will be dealt in the order they are stated above. As will
presently be explained not all of these questions are judicially cognizable,
because not all provisions of the Constitution are self executing and,
therefore, judicially enforceable. The other departments of the government
are equally charged with the enforcement of the Constitution, especially the
provisions relating to them.
I. PROCEDURAL ISSUES
The contention of petitioners is that in enacting Republic Act No. 7716, or the
Expanded Value-Added Tax Law, Congress violated the Constitution because,
although H. No. 11197 had originated in the House of Representatives, it was
not passed by the Senate but was simply consolidated with the Senate
version (S. No. 1630) in the Conference Committee to produce the bill which
the President signed into law. The following provisions of the Constitution are
cited in support of the proposition that because Republic Act No. 7716 was
passed in this manner, it did not originate in the House of Representatives
and it has not thereby become a law:
Art. VI, 24: 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.
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Id., 26(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 yeasand nays entered in the Journal.
It appears that on various dates between July 22, 1992 and August 31, 1993,
several bills 1 were introduced in the House of Representatives seeking to
amend certain provisions of the National Internal Revenue Code relative to
the value-added tax or VAT. These bills were referred to the House Ways and
Means Committee which recommended for approval a substitute measure, H.
No. 11197, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM
TO WIDEN ITS TAX BASE AND ENHANCE ITS ADMINISTRATION,
AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103,
104, 105, 106, 107, 108 AND 110 OF TITLE IV, 112, 115 AND 116
OF TITLE V, AND 236, 237 AND 238 OF TITLE IX, AND REPEALING
SECTIONS 113 AND 114 OF TITLE V, ALL OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED
The bill (H. No. 11197) was considered on second reading starting November
6, 1993 and, on November 17, 1993, it was approved by the House of
Representatives after third and final reading.
It was sent to the Senate on November 23, 1993 and later referred by that
body to its Committee on Ways and Means.
On February 7, 1994, the Senate Committee submitted its report
recommending approval of S. No. 1630, entitled
104, 105, 107, 108, AND 110 OF TITLE IV, 112 OF TITLE V, AND
236, 237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 113,
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114 and 116 OF TITLE V, ALL OF THE NATIONAL INTERNAL

REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES
It was stated that the bill was being submitted "in substitution of Senate Bill
No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197."
On February 8, 1994, the Senate began consideration of the bill (S. No.
1630). It finished debates on the bill and approved it on second reading on
March 24, 1994. On the same day, it approved the bill on third reading by the
affirmative votes of 13 of its members, with one abstention.
H. No. 11197 and its Senate version (S. No. 1630) were then referred to a
conference committee which, after meeting four times (April 13, 19, 21 and
25, 1994), recommended that "House Bill No. 11197, in consolidation with
Senate Bill No. 1630, be approved in accordance with the attached copy of
the bill as reconciled and approved by the conferees."
The Conference Committee bill, entitled "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," was thereafter approved by the
House of Representatives on April 27, 1994 and by the Senate on May 2,
1994. The enrolled bill was then presented to the President of the Philippines
who, on May 5, 1994, signed it. It became Republic Act No. 7716. On May 12,
1994, Republic Act No. 7716 was published in two newspapers of general
circulation and, on May 28, 1994, it took effect, although its implementation
was suspended until June 30, 1994 to allow time for the registration of
business entities. It would have been enforced on July 1, 1994 but its
enforcement was stopped because the Court, by the vote of 11 to 4 of its
members, granted a temporary restraining order on June 30, 1994.
First. Petitioners' contention is that Republic Act No. 7716 did not "originate
exclusively" in the House of Representatives as required by Art. VI, 24 of the
Constitution, because it is in fact the result of the consolidation of two
distinct bills, H. No. 11197 and S. No. 1630. In this connection, petitioners
point out that although Art. VI, SS 24 was adopted from the American Federal
Constitution, 2 it is notable in two respects: the verb "shall originate" is
qualified in the Philippine Constitution by the word "exclusively" and the
phrase "as on other bills" in the American version is omitted. This means,
TAXATION LAW 1
according to them, that to be considered as having originated in the House,

Republic Act No. 7716 must retain the essence of H. No. 11197.
This argument will not bear analysis. To begin with, it is not the law but
the revenue bill which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important to emphasize
this, because a bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the whole. The
possibility of a third version by the conference committee will be discussed
later. At this point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue statute and
not only the bill which initiated the legislative process culminating in the
enactment of the law must substantially be the same as the House bill
would be to deny the Senate's power not only to "concur with amendments"
but also to "propose amendments." It would be to violate the coequality of
legislative power of the two houses of Congress and in fact make the House
superior to the Senate.
The contention that the constitutional design is to limit the Senate's power in
respect of revenue bills in order to compensate for the grant to the Senate of
the treaty-ratifying power 3 and thereby equalize its powers and those of the
House overlooks the fact that the powers being compared are different. We
are dealing here with the legislative power which under the Constitution is
vested not in any particular chamber but in the Congress of the Philippines,
consisting of "a Senate and a House of Representatives." 4 The exercise of
the treaty-ratifying power is not the exercise of legislative power. It is the
exercise of a check on the executive power. There is, therefore, no
justification for comparing the legislative powers of the House and of the
Senate on the basis of the possession of such nonlegislative power by the
Senate. The possession of a similar power by the U.S. Senate 5 has never
been thought of as giving it more legislative powers than the House of
Representatives.
In the United States, the validity of a provision ( 37) imposing an ad
valorem tax based on the weight of vessels, which the U.S. Senate had
inserted in the Tariff Act of 1909, was upheld against the claim that the
provision was a revenue bill which originated in the Senate in contravention
of Art. I, 7 of the U.S. Constitution. 6 Nor is the power to amend limited to
adding a provision or two in a revenue bill emanating from the House. The
U.S. Senate has gone so far as changing the whole of bills following the
TAXATION LAW 1
enacting clause and substituting its own versions. In 1883, for example, it
struck out everything after the enacting clause of a tariff bill and wrote in its
place its own measure, and the House subsequently accepted the
amendment. The U.S. Senate likewise added 847 amendments to what later
became the Payne-Aldrich Tariff Act of 1909; it dictated the schedules of the
Tariff Act of 1921; it rewrote an extensive tax revision bill in the same year
and recast most of the tariff bill of 1922. 7 Given, then, the power of the
Senate to propose amendments, the Senate can propose its own version
even with respect to bills which are required by the Constitution to originate
in the House.
It is insisted, however, that S. No. 1630 was passed not in substitution of H.
No. 11197 but of another Senate bill (S. No. 1129) earlier filed and that what
the Senate did was merely to "take [H. No. 11197] into consideration" in
enacting S. No. 1630. There is really no difference between the Senate
preserving H. No. 11197 up to the enacting clause and then writing its own
version following the enacting clause (which, it would seem, petitioners
admit is an amendment by substitution), and, on the other hand, separately
presenting a bill of its own on the same subject matter. In either case the
result are two bills on the same subject.
Indeed, what the Constitution simply means is that the initiative for filing
revenue, tariff, or tax bills, bills authorizing an increase of the public debt,
private bills and bills of local application must come from the House of
Representatives on the theory that, elected as they are from the districts, the
members of the House can be expected to be more sensitive to the local
needs and problems. On the other hand, the senators, who are elected at
large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment of such
laws.
Nor does the Constitution prohibit the filing in the Senate of a substitute bill
in anticipation of its receipt of the bill from the House, so long as action by
the Senate as a body is withheld pending receipt of the House bill. The Court
cannot, therefore, understand the alarm expressed over the fact that on
March 1, 1993, eight months before the House passed H. No. 11197, S. No.
1129 had been filed in the Senate. After all it does not appear that the
Senate ever considered it. It was only after the Senate had received H. No.
11197 on November 23, 1993 that the process of legislation in respect of it
began with the referral to the Senate Committee on Ways and Means of H.
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No. 11197 and the submission by the Committee on February 7, 1994 of S.

No. 1630. For that matter, if the question were simply the priority in the time
of filing of bills, the fact is that it was in the House that a bill (H. No. 253) to
amend the VAT law was first filed on July 22, 1992. Several other bills had
been filed in the House before S. No. 1129 was filed in the Senate, and H. No.
11197 was only a substitute of those earlier bills.
Second. Enough has been said to show that it was within the power of the
Senate to propose S. No. 1630. We now pass to the next argument of
petitioners that S. No. 1630 did not pass three readings on separate days as
required by the Constitution 8 because the second and third readings were
done on the same day, March 24, 1994. But this was because on February
24, 1994 9 and again on March 22, 1994, 10 the President had certified S. No.
1630 as urgent. The presidential certification dispensed with the requirement
not only of printing but also that of reading the bill on separate days. The
phrase "except when the President certifies to the necessity of its immediate
enactment, etc." in Art. VI, 26(2) qualifies the two stated conditions before
a bill can become a law: (i) the bill has passed three readings on separate
days and (ii) it has been printed in its final form and distributed three days
before it is finally approved.
In other words, the "unless" clause must be read in relation to the "except"
clause, because the two are really coordinate clauses of the same sentence.
To construe the "except" clause as simply dispensing with the second
requirement in the "unless" clause (i.e., printing and distribution three days
before final approval) would not only violate the rules of grammar. It would
also negate the very premise of the "except" clause: the necessity of
securing the immediate enactment of a bill which is certified in order to meet
a public calamity or emergency. For if it is only the printing that is dispensed
with by presidential certification, the time saved would be so negligible as to
be of any use in insuring immediate enactment. It may well be doubted
whether doing away with the necessity of printing and distributing copies of
the bill three days before the third reading would insure speedy enactment of
a law in the face of an emergency requiring the calling of a special election
for President and Vice-President. Under the Constitution such a law is
required to be made within seven days of the convening of Congress in
emergency session. 11
That upon the certification of a bill by the President the requirement of three
readings on separate days and of printing and distribution can be dispensed
TAXATION LAW 1
with is supported by the weight of legislative practice. For example, the bill
defining the certiorari jurisdiction of this Court which, in consolidation with
the Senate version, became Republic Act No. 5440, was passed on second
and third readings in the House of Representatives on the same day (May 14,
1968) after the bill had been certified by the President as urgent. 12
There is, therefore, no merit in the contention that presidential certification
dispenses only with the requirement for the printing of the bill and its
distribution three days before its passage but not with the requirement of
three readings on separate days, also.
It is nonetheless urged that the certification of the bill in this case was invalid
because there was no emergency, the condition stated in the certification of
a "growing budget deficit" not being an unusual condition in this country.
It is noteworthy that no member of the Senate saw fit to controvert the
reality of the factual basis of the certification. To the contrary, by passing S.
No. 1630 on second and third readings on March 24, 1994, the Senate
accepted the President's certification. Should such certification be now
reviewed by this Court, especially when no evidence has been shown that,
because S. No. 1630 was taken up on second and third readings on the same
day, the members of the Senate were deprived of the time needed for the
study of a vital piece of legislation?
The sufficiency of the factual basis of the suspension of the writ of habeas
corpus or declaration of martial law under Art. VII, 18, or the existence of a
national emergency justifying the delegation of extraordinary powers to the
President under Art. VI, 23(2), is subject to judicial review because basic
rights of individuals may be at hazard. But the factual basis of presidential
certification of bills, which involves doing away with procedural requirements
designed to insure that bills are duly considered by members of Congress,
certainly should elicit a different standard of review.
Petitioners also invite attention to the fact that the President certified S. No.
1630 and not H. No. 11197. That is because S. No. 1630 was what the Senate
was considering. When the matter was before the House, the President
likewise certified H. No. 9210 the pending in the House.
Third. Finally it is contended that the bill which became Republic Act No.
7716 is the bill which the Conference Committee prepared by consolidating
H. No. 11197 and S. No. 1630. It is claimed that the Conference Committee
TAXATION LAW 1
report included provisions not found in either the House bill or the Senate bill
and that these provisions were "surreptitiously" inserted by the Conference
Committee. Much is made of the fact that in the last two days of its session
on April 21 and 25, 1994 the Committee met behind closed doors. We are not
told, however, whether the provisions were not the result of the give and
take that often mark the proceedings of conference committees.
Nor is there anything unusual or extraordinary about the fact that the
Conference Committee met in executive sessions. Often the only way to
reach agreement on conflicting provisions is to meet behind closed doors,
with only the conferees present. Otherwise, no compromise is likely to be
made. The Court is not about to take the suggestion of a cabal or sinister
motive attributed to the conferees on the basis solely of their "secret
meetings" on April 21 and 25, 1994, nor read anything into the incomplete
remarks of the members, marked in the transcript of stenographic notes by
ellipses. The incomplete sentences are probably due to the stenographer's
own limitations or to the incoherence that sometimes characterize
conversations. William Safire noted some such lapses in recorded talks even
by recent past Presidents of the United States.
In any event, in the United States conference committees had been
customarily held in executive sessions with only the conferees and their
staffs in attendance. 13 Only in November 1975 was a new rule adopted
requiring open sessions. Even then a majority of either chamber's conferees
may vote in public to close the meetings. 14
As to the possibility of an entirely new bill emerging out of a Conference
Committee, it has been explained:
Under congressional rules of procedure, conference committees
are not expected to make any material change in the measure at
issue, either by deleting provisions to which both houses have
already agreed or by inserting new provisions. But this is a
difficult provision to enforce. Note the problem when one house
amends a proposal originating in either house by striking out
everything following the enacting clause and substituting
provisions which make it an entirely new bill. The versions are
now altogether different, permitting a conference committee to
draft essentially a new bill. . . . 15
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The result is a third version, which is considered an "amendment in the

nature of a substitute," the only requirement for which being that the third
version be germane to the subject of the House and Senate bills. 16
Indeed, this Court recently held that it is within the power of a conference
committee to include in its report an entirely new provision that is not found
either in the House bill or in the Senate bill. 17 If the committee can propose
an amendment consisting of one or two provisions, there is no reason why it
cannot propose several provisions, collectively considered as an
"amendment in the nature of a substitute," so long as such amendment is
germane to the subject of the bills before the committee. After all, its report
was not final but needed the approval of both houses of Congress to become
valid as an act of the legislative department. The charge that in this case the
Conference Committee acted as a third legislative chamber is thus without
any basis. 18
Nonetheless, it is argued that under the respective Rules of the Senate and
the House of Representatives a conference committee can only act on the
differing provisions of a Senate bill and a House bill, and that contrary to
these Rules the Conference Committee inserted provisions not found in the
bills submitted to it. The following provisions are cited in support of this
contention:
Rules of the Senate
Rule XII:
26. In the event that the Senate does not agree with the House
of Representatives on the provision of any bill or joint
resolution, the differences shall be settled by a conference
committee of both Houses which shall meet within ten days after
their composition.
The President shall designate the members of the conference
committee in accordance with subparagraph (c), Section 3 of
Rule III.
Each Conference Committee Report shall contain a detailed and
sufficiently explicit statement of the changes in or amendments
to the subject measure, and shall be signed by the conferees.
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The consideration of such report shall not be in order unless the

report has been filed with the Secretary of the Senate and copies
thereof have been distributed to the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:
85. Conference Committee Reports. In the event that the
House does not agree with the Senate on the amendments to
any bill or joint resolution, the differences may be settled by
conference committees of both Chambers.
The consideration of conference committee reports shall always
be in order, except when the journal is being read, while the roll
is being called or the House is dividing on any question. Each of
the pages of such reports shall be signed by the
conferees. Each report shall contain a detailed, sufficiently
explicit statement of the changes in or amendments to the
subject measure.
The consideration of such report shall not be in order unless
copies thereof are distributed to the Members: Provided, That in
the last fifteen days of each session period it shall be deemed
sufficient that three copies of the report, signed as above
provided, are deposited in the office of the Secretary General.
(Emphasis added)
To be sure, nothing in the Rules limits a conference committee to a
consideration of conflicting provisions. But Rule XLIV, 112 of the Rules of
the Senate is cited to the effect that "If there is no Rule applicable to a
specific case the precedents of the Legislative Department of the Philippines
shall be resorted to, and as a supplement of these, the Rules contained in
Jefferson's Manual." The following is then quoted from the Jefferson's Manual:
The managers of a conference must confine themselves to the
differences committed to them. . . and may not include subjects
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not within disagreements, even though germane to a question in

issue.
Note that, according to Rule XLIX, 112, in case there is no specific rule
applicable, resort must be to the legislative practice. The Jefferson's Manual
is resorted to only as supplement. It is common place in Congress that
conference committee reports include new matters which, though germane,
have not been committed to the committee. This practice was admitted by
Senator Raul S. Roco, petitioner in G.R. No. 115543, during the oral argument
in these cases. Whatever, then, may be provided in the Jefferson's Manual
must be considered to have been modified by the legislative practice. If a
change is desired in the practice it must be sought in Congress since this
question is not covered by any constitutional provision but is only an internal
rule of each house. Thus, Art. VI, 16(3) of the Constitution provides that
"Each House may determine the rules of its proceedings. . . ."
This observation applies to the other contention that the Rules of the two
chambers were likewise disregarded in the preparation of the Conference
Committee Report because the Report did not contain a "detailed and
sufficiently explicit statement of changes in, or amendments to, the subject
measure." The Report used brackets and capital letters to indicate the
changes. This is a standard practice in bill-drafting. We cannot say that in
using these marks and symbols the Committee violated the Rules of the
Senate and the House. Moreover, this Court is not the proper forum for the
enforcement of these internal Rules. To the contrary, as we have already
ruled, "parliamentary rules are merely procedural and with their observance
the courts have no concern." 19 Our concern is with the procedural
requirements of the Constitution for the enactment of laws. As far as these
requirements are concerned, we are satisfied that they have been faithfully
observed in these cases.
Nor is there any reason for requiring that the Committee's Report in these
cases must have undergone three readings in each of the two houses. If that
be the case, there would be no end to negotiation since each house may
seek modifications of the compromise bill. The nature of the bill, therefore,
requires that it be acted upon by each house on a "take it or leave it" basis,
with the only alternative that if it is not approved by both houses, another
conference committee must be appointed. But then again the result would
still be a compromise measure that may not be wholly satisfying to both
houses.
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Art. VI, 26(2) must, therefore, be construed as referring only to bills

introduced for the first time in either house of Congress, not to the
conference committee report. For if the purpose of requiring three readings is
to give members of Congress time to study bills, it cannot be gainsaid that H.
No. 11197 was passed in the House after three readings; that in the Senate it
was considered on first reading and then referred to a committee of that
body; that although the Senate committee did not report out the House bill,
it submitted a version (S. No. 1630) which it had prepared by "taking into
consideration" the House bill; that for its part the Conference Committee
consolidated the two bills and prepared a compromise version; that the
Conference Committee Report was thereafter approved by the House and the
Senate, presumably after appropriate study by their members. We cannot
say that, as a matter of fact, the members of Congress were not fully
informed of the provisions of the bill. The allegation that the Conference
Committee usurped the legislative power of Congress is, in our view, without
warrant in fact and in law.
Fourth. Whatever doubts there may be as to the formal validity of Republic
Act No. 7716 must be resolved in its favor. Our cases 20 manifest firm
adherence to the rule that an enrolled copy of a bill is conclusive not only of
its provisions but also of its due enactment. Not even claims that a proposed
constitutional amendment was invalid because the requisite votes for its
approval had not been obtained 21 or that certain provisions of a statute had
been "smuggled" in the printing of the bill 22 have moved or persuaded us to
look behind the proceedings of a coequal branch of the government. There is
no reason now to depart from this rule.
No claim is here made that the "enrolled bill" rule is absolute. In fact in one
case 23 we "went behind" an enrolled bill and consulted the Journal to
determine whether certain provisions of a statute had been approved by the
Senate in view of the fact that the President of the Senate himself, who had
signed the enrolled bill, admitted a mistake and withdrew his signature, so
that in effect there was no longer an enrolled bill to consider.
But where allegations that the constitutional procedures for the passage of
bills have not been observed have no more basis than another allegation
that the Conference Committee "surreptitiously" inserted provisions into a
bill which it had prepared, we should decline the invitation to go behind the
enrolled copy of the bill. To disregard the "enrolled bill" rule in such cases
TAXATION LAW 1
would be to disregard the respect due the other two departments of our
government.
Fifth. An additional attack on the formal validity of Republic Act No. 7716 is
made by the Philippine Airlines, Inc., petitioner in G.R. No. 11582, namely,
that it violates Art. VI, 26(1) which provides that "Every bill passed by
Congress shall embrace only one subject which shall be expressed in the title
thereof." It is contended that neither H. No. 11197 nor S. No. 1630 provided
for removal of exemption of PAL transactions from the payment of the VAT
and that this was made only in the Conference Committee bill which became
Republic Act No. 7716 without reflecting this fact in its title.
The title of Republic Act No. 7716 is:
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.
Among the provisions of the NIRC amended is 103, which originally read:
103. Exempt transactions. The following shall be exempt
....
(q) Transactions which are exempt under special laws or
international agreements to which the Philippines is a signatory.
Among the transactions exempted from the VAT were those of
PAL because it was exempted under its franchise (P.D. No. 1590)
from the payment of all "other taxes . . . now or in the near
future," in consideration of the payment by it either of the
corporate income tax or a franchise tax of 2%.
As a result of its amendment by Republic Act No. 7716, 103 of the NIRC
now provides:
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....
(q) Transactions which are exempt under special laws, except
those granted under Presidential Decree Nos. 66, 529, 972, 1491,
1590. . . .
The effect of the amendment is to remove the exemption granted to PAL, as
far as the VAT is concerned.
The question is whether this amendment of 103 of the NIRC is fairly
embraced in the title of Republic Act No. 7716, although no mention is made
therein of P.D. No. 1590 as among those which the statute amends. We think
it is, since the title states that the purpose of the statute is to expand the
VAT system, and one way of doing this is to widen its base by withdrawing
some of the exemptions granted before. To insist that P.D. No. 1590 be
mentioned in the title of the law, in addition to 103 of the NIRC, in which it
is specifically referred to, would be to insist that the title of a bill should be a
complete index of its content.
The constitutional requirement that every bill passed by Congress shall
embrace only one subject which shall be expressed in its title is intended to
prevent surprise upon the members of Congress and to inform the people of
pending legislation so that, if they wish to, they can be heard regarding it. If,
in the case at bar, petitioner did not know before that its exemption had
been withdrawn, it is not because of any defect in the title but perhaps for
the same reason other statutes, although published, pass unnoticed until
some event somehow calls attention to their existence. Indeed, the title of
Republic Act No. 7716 is not any more general than the title of PAL's own
franchise under P.D. No. 1590, and yet no mention is made of its tax
exemption. The title of P.D. No. 1590 is:
AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE AIRLINES,
INC. TO ESTABLISH, OPERATE, AND MAINTAIN AIR-TRANSPORT
SERVICES IN THE PHILIPPINES AND BETWEEN THE PHILIPPINES
AND OTHER COUNTRIES.
The trend in our cases is to construe the constitutional requirement in such a
manner that courts do not unduly interfere with the enactment of necessary
legislation and to consider it sufficient if the title expresses the general
subject of the statute and all its provisions are germane to the general
subject thus expressed. 24
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It is further contended that amendment of petitioner's franchise may only be

made by special law, in view of 24 of P.D. No. 1590 which provides:
This franchise, as amended, or any section or provision hereof
may only be modified, amended, or repealed expressly by a
special law or decree that shall specifically modify, amend, or
repeal this franchise or any section or provision thereof.
This provision is evidently intended to prevent the amendment of the
franchise by mere implication resulting from the enactment of a later
inconsistent statute, in consideration of the fact that a franchise is a contract
which can be altered only by consent of the parties. Thus in Manila Railroad
Co. v.
Rafferty, 25 it was held that an Act of the U.S. Congress, which provided for
the payment of tax on certain goods and articles imported into the
Philippines, did not amend the franchise of plaintiff, which exempted it from
all taxes except those mentioned in its franchise. It was held that a special
law cannot be amended by a general law.
In contrast, in the case at bar, Republic Act No. 7716 expressly amends PAL's
franchise (P.D. No. 1590) by specifically excepting from the grant of
exemptions from the VAT PAL's exemption under P.D. No. 1590. This is within
the power of Congress to do under Art. XII, 11 of the Constitution, which
provides that the grant of a franchise for the operation of a public utility is
subject to amendment, alteration or repeal by Congress when the common
good so requires.
II. SUBSTANTIVE ISSUES
A. Claims of Press Freedom, Freedom of
Thought and Religious Freedom
The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a
nonprofit organization of newspaper publishers established for the
improvement of journalism in the Philippines. On the other hand, petitioner in
G.R. No. 115781, the Philippine Bible Society (PBS), is a nonprofit
organization engaged in the printing and distribution of bibles and other
religious articles. Both petitioners claim violations of their rights under 4
and 5 of the Bill of Rights as a result of the enactment of the VAT Law.
TAXATION LAW 1
The PPI questions the law insofar as it has withdrawn the exemption
previously granted to the press under 103 (f) of the NIRC. Although the
exemption was subsequently restored by administrative regulation with
respect to the circulation income of newspapers, the PPI presses its claim
because of the possibility that the exemption may still be removed by mere
revocation of the regulation of the Secretary of Finance. On the other hand,
the PBS goes so far as to question the Secretary's power to grant exemption
for two reasons: (1) The Secretary of Finance has no power to grant tax
exemption because this is vested in Congress and requires for its exercise
the vote of a majority of all its members 26 and (2) the Secretary's duty is to
execute the law.
103 of the NIRC contains a list of transactions exempted from VAT. Among
the transactions previously granted exemption were:
(f) Printing, publication, importation or sale of books and any
newspaper, magazine, review, or bulletin which appears at
regular intervals with fixed prices for subscription and sale and
which is devoted principally to the publication of advertisements.
Republic Act No. 7716 amended 103 by deleting (f) with the result that
print media became subject to the VAT with respect to all aspects of their
operations. Later, however, based on a memorandum of the Secretary of
Justice, respondent Secretary of Finance issued Revenue Regulations No. 1194, dated June 27, 1994, exempting the "circulation income of print media
pursuant to 4 Article III of the 1987 Philippine Constitution guaranteeing
against abridgment of freedom of the press, among others." The exemption
of "circulation income" has left income from advertisements still subject to
the VAT.
It is unnecessary to pass upon the contention that the exemption granted is
beyond the authority of the Secretary of Finance to give, in view of PPI's
contention that even with the exemption of the circulation revenue of print
media there is still an unconstitutional abridgment of press freedom because
of the imposition of the VAT on the gross receipts of newspapers from
advertisements and on their acquisition of paper, ink and services for
publication. Even on the assumption that no exemption has effectively been
granted to print media transactions, we find no violation of press freedom in
these cases.
TAXATION LAW 1
To be sure, we are not dealing here with a statute that on its face operates in
the area of press freedom. The PPI's claim is simply that, as applied to
newspapers, the law abridges press freedom. Even with due recognition of its
high estate and its importance in a democratic society, however, the press is
not immune from general regulation by the State. It has been held:
The publisher of a newspaper has no immunity from the
application of general laws. He has no special privilege to invade
the rights and liberties of others. He must answer for libel. He
may be punished for contempt of court. . . . Like others, he must
pay equitable and nondiscriminatory taxes on his business. . . . 27
The PPI does not dispute this point, either.
What it contends is that by withdrawing the exemption previously granted to
print media transactions involving printing, publication, importation or sale of
newspapers, Republic Act No. 7716 has singled out the press for
discriminatory treatment and that within the class of mass media the law
discriminates against print media by giving broadcast media favored
treatment. We have carefully examined this argument, but we are unable to
find a differential treatment of the press by the law, much less any censorial
motivation for its enactment. If the press is now required to pay a valueadded tax on its transactions, it is not because it is being singled out, much
less targeted, for special treatment but only because of the removal of the
exemption previously granted to it by law. The withdrawal of exemption is all
that is involved in these cases. Other transactions, likewise previously
granted exemption, have been delisted as part of the scheme to expand the
base and the scope of the VAT system. The law would perhaps be open to the
charge of discriminatory treatment if the only privilege withdrawn had been
that granted to the press. But that is not the case.
The situation in the case at bar is indeed a far cry from those cited by the PPI
in support of its claim that Republic Act No. 7716 subjects the press to
discriminatory taxation. In the cases cited, the discriminatory purpose was
clear either from the background of the law or from its operation. For
example, in Grosjean v. American Press Co., 28 the law imposed a license tax
equivalent to 2% of the gross receipts derived from advertisements only on
newspapers which had a circulation of more than 20,000 copies per week.
Because the tax was not based on the volume of advertisement alone but
was measured by the extent of its circulation as well, the law applied only to
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the thirteen large newspapers in Louisiana, leaving untaxed four papers with
circulation of only slightly less than 20,000 copies a week and 120 weekly
newspapers which were in serious competition with the thirteen newspapers
in question. It was well known that the thirteen newspapers had been critical
of Senator Huey Long, and the Long-dominated legislature of Louisiana
respondent by taxing what Long described as the "lying newspapers" by
imposing on them "a tax on lying." The effect of the tax was to curtail both
their revenue and their circulation. As the U.S. Supreme Court noted, the tax
was "a deliberate and calculated device in the guise of a tax to limit the
circulation of information to which the public is entitled in virtue of the
constitutional guaranties." 29 The case is a classic illustration of the warning
that the power to tax is the power to destroy.
In the other case 30 invoked by the PPI, the press was also found to have
been singled out because everything was exempt from the "use tax" on ink
and paper, except the press. Minnesota imposed a tax on the sales of goods
in that state. To protect the sales tax, it enacted a complementary tax on the
privilege of "using, storing or consuming in that state tangible personal
property" by eliminating the residents' incentive to get goods from outside
states where the sales tax might be lower. The Minnesota Star Tribune was
exempted from both taxes from 1967 to 1971. In 1971, however, the state
legislature amended the tax scheme by imposing the "use tax" on the cost of
paper and ink used for publication. The law was held to have singled out the
press because (1) there was no reason for imposing the "use tax" since the
press was exempt from the sales tax and (2) the "use tax" was laid on an
"intermediate transaction rather than the ultimate retail sale." Minnesota had
a heavy burden of justifying the differential treatment and it failed to do so.
In addition, the U.S. Supreme Court found the law to be discriminatory
because the legislature, by again amending the law so as to exempt the first
$100,000 of paper and ink used, further narrowed the coverage of the tax so
that "only a handful of publishers pay any tax at all and even fewer pay any
significant amount of tax." 31 The discriminatory purpose was thus very clear.
More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it was held that
a law which taxed general interest magazines but not newspapers and
religious, professional, trade and sports journals was discriminatory because
while the tax did not single out the press as a whole, it targeted a small
group within the press. What is more, by differentiating on the basis of
contents (i.e., between general interest and special interests such as religion
TAXATION LAW 1
or sports) the law became "entirely incompatible with the First Amendment's
guarantee of freedom of the press."
These cases come down to this: that unless justified, the differential
treatment of the press creates risks of suppression of expression. In contrast,
in the cases at bar, the statute applies to a wide range of goods and
services. The argument that, by imposing the VAT only on print media whose
gross sales exceeds P480,000 but not more than P750,000, the law
discriminates 33 is without merit since it has not been shown that as a result
the class subject to tax has been unreasonably narrowed. The fact is that this
limitation does not apply to the press along but to all sales. Nor is
impermissible motive shown by the fact that print media and broadcast
media are treated differently. The press is taxed on its transactions involving
printing and publication, which are different from the transactions of
broadcast media. There is thus a reasonable basis for the classification.
The cases canvassed, it must be stressed, eschew any suggestion that
"owners of newspapers are immune from any forms of ordinary taxation."
The license tax in the Grosjean case was declared invalid because it was
"one single in kind, with a long history of hostile misuse against the freedom
of the
press." 34 On the other hand, Minneapolis Star acknowledged that "The First
Amendment does not prohibit all regulation of the press [and that] the States
and the Federal Government can subject newspapers to generally applicable
economic regulations without creating constitutional problems." 35
What has been said above also disposes of the allegations of the PBS that
the removal of the exemption of printing, publication or importation of books
and religious articles, as well as their printing and publication, likewise
violates freedom of thought and of conscience. For as the U.S. Supreme
Court unanimously held in Jimmy Swaggart Ministries v. Board of
Equalization, 36 the Free Exercise of Religion Clause does not prohibit
imposing a generally applicable sales and use tax on the sale of religious
materials by a religious organization.
This brings us to the question whether the registration provision of the
law, 37 although of general applicability, nonetheless is invalid when applied
to the press because it lays a prior restraint on its essential freedom. The
case ofAmerican Bible Society v. City of Manila 38 is cited by both the PBS
and the PPI in support of their contention that the law imposes censorship.
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There, this Court held that an ordinance of the City of Manila, which imposed
a license fee on those engaged in the business of general merchandise,
could not be applied to the appellant's sale of bibles and other religious
literature. This Court relied on Murdock v. Pennsylvania, 39 in which it was
held that, as a license fee is fixed in amount and unrelated to the receipts of
the taxpayer, the license fee, when applied to a religious sect, was actually
being imposed as a condition for the exercise of the sect's right under the
Constitution. For that reason, it was held, the license fee "restrains in
advance those constitutional liberties of press and religion and inevitably
tends to suppress their exercise." 40
But, in this case, the fee in 107, although a fixed amount (P1,000), is not
imposed for the exercise of a privilege but only for the purpose of defraying
part of the cost of registration. The registration requirement is a central
feature of the VAT system. It is designed to provide a record of tax credits
because any person who is subject to the payment of the VAT pays an input
tax, even as he collects an output tax on sales made or services rendered.
The registration fee is thus a mere administrative fee, one not imposed on
the exercise of a privilege, much less a constitutional right.
For the foregoing reasons, we find the attack on Republic Act No. 7716 on the
ground that it offends the free speech, press and freedom of religion
guarantees of the Constitution to be without merit. For the same reasons, we
find the claim of the Philippine Educational Publishers Association (PEPA) in
G.R. No. 115931 that the increase in the price of books and other educational
materials as a result of the VAT would violate the constitutional mandate to
the government to give priority to education, science and technology (Art. II,
17) to be untenable.
B. Claims of Regressivity, Denial of Due

Process, Equal Protection, and
Impairment
of Contracts
There is basis for passing upon claims that on its face the statute violates the
guarantees of freedom of speech, press and religion. The possible "chilling
effect" which it may have on the essential freedom of the mind and
conscience and the need to assure that the channels of communication are
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open and operating importunately demand the exercise of this Court's power
of review.
There is, however, no justification for passing upon the claims that the law
also violates the rule that taxation must be progressive and that it denies
petitioners' right to due process and that equal protection of the laws. The
reason for this different treatment has been cogently stated by an eminent
authority on constitutional law thus: "[W]hen freedom of the mind is
imperiled by law, it is freedom that commands a momentum of respect;
when property is imperiled it is the lawmakers' judgment that commands
respect. This dual standard may not precisely reverse the presumption of
constitutionality in civil liberties cases, but obviously it does set up a
hierarchy of values within the due process clause." 41
Indeed, the absence of threat of immediate harm makes the need for judicial
intervention less evident and underscores the essential nature of petitioners'
attack on the law on the grounds of regressivity, denial of due process and
equal protection and impairment of contracts as a mere academic discussion
of the merits of the law. For the fact is that there have even been no notices
of assessments issued to petitioners and no determinations at the
administrative levels of their claims so as to illuminate the actual operation
of the law and enable us to reach sound judgment regarding so fundamental
questions as those raised in these suits.
Thus, the broad argument against the VAT is that it is regressive and that it
violates the requirement that "The rule of taxation shall be uniform and
equitable [and] Congress shall evolve a progressive system of
taxation." 42Petitioners in G.R. No. 115781 quote from a paper, entitled "VAT
Policy Issues: Structure, Regressivity, Inflation and Exports" by Alan A. Tait of
the International Monetary Fund, that "VAT payment by low-income
households will be a higher proportion of their incomes (and expenditures)
than payments by higher-income households. That is, the VAT will be
regressive." Petitioners contend that as a result of the uniform 10% VAT, the
tax on consumption goods of those who are in the higher-income bracket,
which before were taxed at a rate higher than 10%, has been reduced, while
basic commodities, which before were taxed at rates ranging from 3% to 5%,
are now taxed at a higher rate.
Just as vigorously as it is asserted that the law is regressive, the opposite
claim is pressed by respondents that in fact it distributes the tax burden to
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as many goods and services as possible particularly to those which are

within the reach of higher-income groups, even as the law exempts basic
goods and services. It is thus equitable. The goods and properties subject to
the VAT are those used or consumed by higher-income groups. These include
real properties held primarily for sale to customers or held for lease in the
ordinary course of business, the right or privilege to use industrial,
commercial or scientific equipment, hotels, restaurants and similar places,
tourist buses, and the like. On the other hand, small business
establishments, with annual gross sales of less than P500,000, are
exempted. This, according to respondents, removes from the coverage of the
law some 30,000 business establishments. On the other hand, an occasional
paper 43 of the Center for Research and Communication cities a NEDA study
that the VAT has minimal impact on inflation and income distribution and
that while additional expenditure for the lowest income class is only P301 or
1.49% a year, that for a family earning P500,000 a year or more is P8,340 or
2.2%.
Lacking empirical data on which to base any conclusion regarding these
arguments, any discussion whether the VAT is regressive in the sense that it
will hit the "poor" and middle-income group in society harder than it will the
"rich," as the Cooperative Union of the Philippines (CUP) claims in G.R. No.
115873, is largely an academic exercise. On the other hand, the CUP's
contention that Congress' withdrawal of exemption of producers
cooperatives, marketing cooperatives, and service cooperatives, while
maintaining that granted to electric cooperatives, not only goes against the
constitutional policy to promote cooperatives as instruments of social justice
(Art. XII, 15) but also denies such cooperatives the equal protection of the
law is actually a policy argument. The legislature is not required to adhere to
a policy of "all or none" in choosing the subject of taxation.44
Nor is the contention of the Chamber of Real Estate and Builders Association
(CREBA), petitioner in G.R. 115754, that the VAT will reduce the mark up of
its members by as much as 85% to 90% any more concrete. It is a mere
allegation. On the other hand, the claim of the Philippine Press Institute,
petitioner in G.R. No. 115544, that the VAT will drive some of its members
out of circulation because their profits from advertisements will not be
enough to pay for their tax liability, while purporting to be based on the
financial statements of the newspapers in question, still falls short of the
establishment of facts by evidence so necessary for adjudicating the
question whether the tax is oppressive and confiscatory.
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Indeed, regressivity is not a negative standard for courts to enforce. What

Congress is required by the Constitution to do is to "evolve a progressive
system of taxation." This is a directive to Congress, just like the directive to it
to give priority to the enactment of laws for the enhancement of human
dignity and the reduction of social, economic and political inequalities (Art.
XIII, 1), or for the promotion of the right to "quality education" (Art. XIV,
1). These provisions are put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights.
At all events, our 1988 decision in Kapatiran 45 should have laid to rest the
questions now raised against the VAT. There similar arguments made against
the original VAT Law (Executive Order No. 273) were held to be hypothetical,
with no more basis than newspaper articles which this Court found to be
"hearsay and [without] evidentiary value." As Republic Act No. 7716 merely
expands the base of the VAT system and its coverage as provided in the
original VAT Law, further debate on the desirability and wisdom of the law
should have shifted to Congress.
Only slightly less abstract but nonetheless hypothetical is the contention of
CREBA that the imposition of the VAT on the sales and leases of real estate
by virtue of contracts entered into prior to the effectivity of the law would
violate the constitutional provision that "No law impairing the obligation of
contracts shall be passed." It is enough to say that the parties to a contract
cannot, through the exercise of prophetic discernment, fetter the exercise of
the taxing power of the State. For not only are existing laws read into
contracts in order to fix obligations as between parties, but the reservation of
essential attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts against
impairment presupposes the maintenance of a government which retains
adequate authority to secure the peace and good order of society. 46
In truth, the Contract Clause has never been thought as a limitation on the
exercise of the State's power of taxation save only where a tax exemption
has been granted for a valid consideration. 47 Such is not the case of PAL in
G.R. No. 115852, and we do not understand it to make this claim. Rather, its
position, as discussed above, is that the removal of its tax exemption cannot
be made by a general, but only by a specific, law.
The substantive issues raised in some of the cases are presented in abstract,
hypothetical form because of the lack of a concrete record. We accept that
TAXATION LAW 1
this Court does not only adjudicate private cases; that public actions by
"non-Hohfeldian" 48 or ideological plaintiffs are now cognizable provided they
meet the standing requirement of the Constitution; that under Art. VIII, 1,
2 the Court has a "special function" of vindicating constitutional rights.
Nonetheless the feeling cannot be escaped that we do not have before us in
these cases a fully developed factual record that alone can impart to our
adjudication the impact of actuality 49 to insure that decision-making is
informed and well grounded. Needless to say, we do not have power to
render advisory opinions or even jurisdiction over petitions for declaratory
judgment. In effect we are being asked to do what the Conference
Committee is precisely accused of having done in these cases to sit as a
third legislative chamber to review legislation.
We are told, however, that the power of judicial review is not so much power
as it is duty imposed on this Court by the Constitution and that we would be
remiss in the performance of that duty if we decline to look behind the
barriers set by the principle of separation of powers. Art. VIII, 1, 2 is cited
in support of this view:
Judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not
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.
To view the judicial power of review as a duty is nothing new. Chief Justice
Marshall said so in 1803, to justify the assertion of this power in Marbury v.
Madison:
It is emphatically the province and duty of the judicial
department to say what the law is. Those who apply the rule to
particular cases must of necessity expound and interpret that
rule. If two laws conflict with each other, the courts must decide
on the operation of each. 50
Justice Laurel echoed this justification in 1936 in Angara v. Electoral
Commission:
And when the judiciary mediates to allocate constitutional
boundaries, it does not assert any superiority over the other
TAXATION LAW 1
departments; it does not in reality nullify or invalidate an act of

the legislature, but only asserts the solemn and sacred obligation
assigned to it by the Constitution to determine conflicting claims
of authority under the Constitution and to establish for the
parties in an actual controversy the rights which that instrument
secures and guarantees to them. 51
This conception of the judicial power has been affirmed in several
cases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty" to justify this
Court's intervention in what is essentially a case that at best is not ripe for
adjudication. That duty must still be performed in the context of a concrete
case or controversy, as Art. VIII, 5(2) clearly defines our jurisdiction in
terms of "cases," and nothing but "cases." That the other departments of the
government may have committed a grave abuse of discretion is not an
independent ground for exercising our power. Disregard of the essential
limits imposed by the case and controversy requirement can in the long run
only result in undermining our authority as a court of law. For, as judges,
what we are called upon to render is judgment according to law, not
according to what may appear to be the opinion of the day.
_______________________________
In the preceeding pages we have endeavored to discuss, within limits, the
validity of Republic Act No. 7716 in its formal and substantive aspects as this
has been raised in the various cases before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution have been complied
with by Congress in the enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the enactment
of statutes beyond those prescribed by the Constitution have been
observed is precluded by the principle of separation of powers;
(3) That the law does not abridge freedom of speech, expression or the
press, nor interfere with the free exercise of religion, nor deny to any of the
parties the right to an education; and
(4) That, in view of the absence of a factual foundation of record, claims that
the law is regressive, oppressive and confiscatory and that it violates vested
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rights protected under the Contract Clause are prematurely raised and do
not justify the grant of prospective relief by writ of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED.
DIGEST:
FACTS:
The valued-added tax (VAT) is levied on the sale, barter or exchange
of goods and properties as well as on the sale or exchange of services. It is
equivalent to 10% of the gross selling price or gross value in money of goods
or properties sold, bartered or exchanged or of the gross receipts from
the sale or exchange of services. Republic Act No. 7716 seeks to widen the
tax base of the existing VAT system and enhance its administration by
amending the National Internal Revenue Code. The Chamber of Real Estate
and Builders Association (CREBA) contends that the imposition of VAT on
sales and leases by virtue of contracts entered into prior to the effectivity of
the law would violate the constitutional provision of non-impairment of
contracts.
ISSUE:
Whether R.A. No. 7716 is unconstitutional on ground that it violates the
constitutional provision of non-impairment of contracts.?
RULING:
No. The Supreme Court the contention of CREBA, that the imposition of
the VAT on the sales and leases of real-estate by virtue of contracts entered
into prior to the effectivity of the law would violate the constitutional
provision of non-impairment of contracts, is only slightly less abstract but
nonetheless hypothetical. It is enough to say that the parties to a contract
contracts in order to fix obligations as between parties, but the reservation
of essential attributes of sovereign power is also read into contracts as a
basic postulate of the legal order. The policy of protecting contracts against
adequate authority to secure the peace and good order of society. In truth,
the Contract Clause has never been thought as a limitation on the exercise
of the State's power of taxation save only where a tax exemption has been
granted for a valid consideration. Such is not the case of PAL in G.R. No.
115852, and the Court does not understand it to make this claim. Rather, its
be made by a general, but only by a specific, law. Further, the Supreme Court
held the validity of Republic Act No. 7716 in its formal and substantive
aspects as this has been raised in the various cases before it. To sum up, the
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Court holds:(1) That the procedural requirements of the Constitution have

been complied with by Congress in the enactment of the statute;(2) That
judicial inquiry whether the formal requirements for the enactment of
statutes - beyond those prescribed by the Constitution - have been observed
is precluded by the principle of separation of powers;(3) That the law does
not abridge freedom of speech, expression or the press, nor interfere with
the free exercise of religion, nor deny to any of the parties the right to an
education; and(4) That, in view of the absence of a factual foundation of
record, claims that the law is regressive, oppressive and confiscatory and
that it violates vested rights protected under the Contract Clause are
prematurely raised and do not justify the grant of prospective relief by writ
of prohibition. The petitions are DISMISSED.
SUPREME COURT
Manila
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.
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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, respondent.
Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.
Jaime C. Opinion for individual petitioners in G.R. No. 81311.
Banzuela, Flores, Miralles, Raeses, Sy, Taquio and Associates for petitioners
in G.R. No 81820.
Union of Lawyers and Advocates for Peoples Right collaborating counsel for
petitioners in G.R. No 81820.
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.
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
alledgedly 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)
TAXATION LAW 1
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 taxpayers' 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 wether 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 P200,00.00, 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 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.
TAXATION LAW 1
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."
TAXATION LAW 1
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 Constitutional 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 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 the 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 privilage 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 not power to rewrite 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:
TAXATION LAW 1
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 had been
extensively discussed by this framers and other government agencies
involved in its implementation, even under the past administration. As the
Solicitor General correctly sated. "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
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:
TAXATION LAW 1
... 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; . . ." 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 engage 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, 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
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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
xxx xxx xxx
(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 call for the exercise or
use of the physical or mental faculties: ...
With the insertion of the clarificatory phrase "except customs brokers" in Sec.
103(r), a potential conflict between the two sections, (Secs. 102 and 103),
insofar as customs brokers are concerned, is averted.
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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.
DIGEST:
Facts:
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EO 273 was issued by the President of the Philippines which amended the
Revenue Code, adopting the value-added tax (VAT) effective 1 January 1988.
Four petitions assailed the validity of the VAT Law from being beyond the
President to enact; for being oppressive, discriminatory, regressive, and
violate of the due process and equal protection clauses, among others, of the
Constitution. The Integrated Customs Brokers Association particularly
contend that it unduly discriminate against customs brokers (Section 103 [r])
as the amended provision of the Tax Code provides that service performed
in the exercise of profession or calling (except custom brokers) subject to
occupational tax under the Local Tax Code, and professional services
performed by registered general professional partnerships are exempt from
VAT.
Issue:
Whether the E-VAT law is violative of the Constitution provision on equal
protection clause?
Held:
The phrase except custom brokers is not meant to discriminate against
custom brokers but to avert potential conflict between Sections 102 and 103
of the Tax Code, as amended. 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 partake more of a business, rather than profession and were thus
subjected to the percentage tax under Section 174 of the Tax Code prior to
its amendment by EO 273. EO 273 abolished the percentage tax and
replaced it with the VAT. If the Association did not protest the classification of
customs brokers then, there is no reason why it should protest now.

SUPREME COURT
Manila
EN BANC
G.R. No. 3473
March 22, 1907
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J. CASANOVAS, plaintiff-appellant,
vs.
JNO. S. HORD, defendant-appellee.
F.G. Waite for appellant.
Attorney-General Araneta for appellee.
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 there 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 the after January first, nineteen hundred and five, the
following taxes:
2. (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.
3. On the gross output of each an ad valorem tax equal to three per
centum of the actual market value of such output.
TAXATION LAW 1
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, 19021 (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 pertenencia 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. Pertenencia 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:
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Don Camilo Garcia de Polavieja, Marquez 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, Bennemerito de la Patria en grado
eminente, condecorado con varias cruses 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 in 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 GovernorGeneral, 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.
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6. That he shall keep the mine in active operation by employing at the

rate of at least four laborers for eachpertenencia 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 issued given under my hand and the proper seal
and countersigned by the undersigned Director-General of Civil
Administration.
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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 appeal, 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 on act to incorporate the Home of the Friendless in the city of St.
Louis. Section 1 of the act provided that
All property of said corporation shall be exempt from taxation.
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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 be 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, pain in, which tax shall be in lieu of all other taxation.
The court said at page 556:
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It has often been decided by this court, so often that a citation on

authorities in 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 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 or 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 of 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
Grands 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
Welchvs. Cook (97 U.S., 541). In these cases the exemption was a mere
bounty and did not form a part of any contract.
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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 effect 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.2
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.
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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 the 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.
Facts:
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 Commissioner, JNO S. Hord, imposed
upon these properties the tax mentioned in Section 134,
which Casanovas paid under protest.
Issue:
Whether Section 134 of Act 1189 is violate of the Constitutional prohibition
against impairment of obligations and contracts?
Held:
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 La, thereby infringing the
provisions of Section 5 of the Act of Congress of 1 July 1902. Furthermore,
the section conflicts with Section 60of the Act of Congress of 1 July 1902,
which indicate that concessions can be 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. The grounds were not shown or claimed in the
case. 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.
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SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-60126 September 25, 1985
CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner,
vs.
Quasha, De Guzman Makalintal & Barot for petitioner.
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
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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),
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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, L-28383, 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.
Facts:
Cagayan Electric is a holder of a legislative franchise under Republic Act
3247 where payment of 3% tax on gross earnings is in lieu of all taxes and
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assessments upon privileges, etc. In 1968, RA 5431 amended the franchise

by making all corporate taxpayers liable for income tax except those
indicated in paragraph (c) (1) of Section 24 of the Tax Code. In 1969, through
RA 6020, its franchise was extended to two other towns and the tax
exemption was reenacted. In 1973, the Commissioner required the company
to pay deficiency income taxes for 1968 to 1971.
Issue:
Whether the withdrawal of the franchises tax exemption violates the nonimpairment clause of the Constitution?
Held:
Congress could impair the companys legislative franchise by making it liable
for income tax. The Constitution provides that a franchise is subject to
amendment, alteration or repeal by the Congress when the public interest so
requires. RA 3247 itself provides that the franchise is subject to amendment,
etc. by Congress. The enactment of RA 5431 had the effect of withdrawing
the companys exemption from income tax. The exemption was restored by
the enactment of RA 6020. The company is liable only for the income tax for
the period of 1 January to 3 August 1969.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-25501 July 29, 1977
vs.
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PHILIPPINE POWER AND DEVELOPMENT CO., INC, and THE COURT OF

TAX APPEALS, respondents.
G.R. No. L-25507 July 29, 1977
PHILIPPINE POWER AND DEVELOPMENT CO., INC., and petitioner,
vs .
TEEHANKEE, J:
On July 14, 1977 the parties and their respective counsels filed the following:
JOINT MANIFESTATION AND MOTION
COME NOW Commissioner of Internal Revenue, and the
Philippine Power and Development Co., Inc., by their respective
counsel, and to this Honorable Court respectfully manifest:
1. That on October 31, 1965, the Court of Tax Appeals rendered a
decision in CTA Case No. 1152, the dispositive portion of which is
quoted as follows:
WHEREFORE, the assessment appealed from is
hereby modified. -Petitioner is hereby ordered to pay
respondent Commissioner, within 30 days from the
date this decision becomes final, deficiency franchise
tax for the period from October 1, 1955 to June 30,
1960 in the amount of ?138,175.52. If the said
amount is not paid within 30 days from the date this
decision becomes final, the same shall be subject to
the surcharge of 25% for delinquency pursuant to
Section 259 of the Revenue Code.
2. That the said decision was appealed by the Commissioner of
Internal Revenue and the Philippine Power and Development Co.,
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Inc., to this Honorable Court, which appeals, docketed as G.R. No.

L-25501 and G.R. No. L-25507, are pending resolution;
3. That the Philippine Power and Development Co., Inc. had
availed of the privileges of Letter of Instructions No. 308 and in
the letter dated December 17, 1976, the Commissioner of
Internal Revenue informed the taxpayer herein that its offer to
pay 15% of its deficiency franchise tax from October 1, 1955 to
June 30, 1960 was increased to 30% of P133,175.52 (the amount
adjudged by the Court of Tax Appeals and on appeal to the
Supreme Court) or P33,952.66, in full and complete settlement of
the tax liabilities in question, a xerox copy of which letter is
hereto attached as Annex 'A' and made an integral part hereof;
4. That the Philippine Power and Development Co., Inc. applied
its tax credit of P79,229.06 against the said amount of
P33,952.66 and accordingly, the Commissioner of Internal
Revenue issued Tax Debit memo dated January 17, 1977, a xerox
copy of which is hereto attached as Annex 'B' and made an
integral part hereof;
5. That in view of the aforesaid application of the taxpayer's tax
credit liability of P33,952.66, the appeals of the Commissioner of
Internal Revenue and the Philippine Power and Development Co.,
Inc. have become moot and academic.
WHEREFORE, it is respectfully prayed that the aforesaid appeals
be dismiss without costs.
Manila, June 14, 1977.
(Sgd.) EFREN I. PLANA ESTELITO P. MENDOZA
Acting Commissioner of Solicitor General
Internal Revenue
(Sgd.) REYNATO S. PUNO
Assistant Solicitor General
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PHILIPPINE POWER & (Sgd.) LOLITA O. GAL-LANG

DEVELOPMENT CO., Solicitor
INC.
By:
(Sgd.) RAMON A. AGULLANA
Special Attorney
(Sgd.) PELAGIO M. ACHACOSO
Vice-Pres. & Gen. Mgr.
POBLADOR, NAZARENO, AZADA,
TOMACRUZ & PAREDES
COUNSEL FOR PHILIPPINE POWER
& DEVELOPMENT CO., INC.
575 ATLANTA, PORT AREA, MANILA
By: (Sgd.) RUSTICO V. NAZARENO
ACCORDINGLY, as the herein appeals have become moot and as prayed for
by the parties, the cases at bar are dismissed without costs.
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SUPREME COURT
Manila
EN BANC
G.R. No. 115455 August 25, 1994

ARTURO M. TOLENTINO, petitioner,
vs.
G.R. No. 115525 August 25, 1994
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 August 25, 1994
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 August 25, 1994
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.;
PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L.
PAVIA; and OFELIA L. DIMALANTA, petitioners,
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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
G.R. No. 115754 August 25, 1994
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC.,
(CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 August 25, 1994
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., 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 August 25, 1994
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE, and COMMISSIONER OF INTERNAL
G.R. No. 115873 August 25, 1994
COOPERATIVE UNION OF THE PHILIPPINES, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of
Internal Revenue, HON. TEOFISTO T. GUINGONA, JR., in his capacity
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as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his

G.R. No. 115931 August 25, 1994
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC., and
ASSOCIATION OF PHILIPPINE BOOK-SELLERS, 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.
Arturo M. Tolentino for and in his behalf.
Donna Celeste D. Feliciano and Juan T. David for petitioners in G.R. No.
115525.
Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner R.S. Roco.
Villaranza and Cruz for petitioners in G.R. No. 115544.
Carlos A. Raneses and Manuel M. Serrano for petitioner in G.R. No. 115754.
Salonga, Hernandez & Allado for Freedon From Debts Coalition, Inc. & Phil.
Bible Society.
Estelito P. Mendoza for petitioner in G.R. No. 115852.
Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices for petitioners in
G.R. No. 115873.
R.B. Rodriguez & Associates for petitioners in G.R. No. 115931.
Reve A.V. Saguisag for MABINI.
MENDOZA, J.:
The value-added tax (VAT) is levied on the sale, barter or exchange of goods
and properties as well as on the sale or exchange of services. It is equivalent
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to 10% of the gross selling price or gross value in money of goods or

properties sold, bartered or exchanged or of the gross receipts from the sale
or exchange of services. Republic Act No. 7716 seeks to widen the tax base
of the existing VAT system and enhance its administration by amending the
National Internal Revenue Code.
These are various suits for certiorari and prohibition, challenging the
constitutionality of Republic Act No. 7716 on various grounds summarized in
the resolution of July 6, 1994 of this Court, as follows:
I. Procedural Issues:
A. Does Republic Act No. 7716 violate Art. VI, 24 of the
Constitution?
B. Does it violate Art. VI, 26(2) of the Constitution?
C. What is the extent of the power of the Bicameral Conference
Committee?
II. Substantive Issues:
A. Does the law violate the following provisions in the Bill of
Rights (Art. III)?
1. 1
2. 4
3. 5
4. 10
B. Does the law violate the following other provisions of the
Constitution?
1. Art. VI, 28(1)
2. Art. VI, 28(3)
These questions will be dealt in the order they are stated above. As will
presently be explained not all of these questions are judicially cognizable,
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because not all provisions of the Constitution are self executing and,
therefore, judicially enforceable. The other departments of the government
are equally charged with the enforcement of the Constitution, especially the
provisions relating to them.
I. PROCEDURAL ISSUES
The contention of petitioners is that in enacting Republic Act No. 7716, or the
Expanded Value-Added Tax Law, Congress violated the Constitution because,
although H. No. 11197 had originated in the House of Representatives, it was
not passed by the Senate but was simply consolidated with the Senate
version (S. No. 1630) in the Conference Committee to produce the bill which
the President signed into law. The following provisions of the Constitution are
cited in support of the proposition that because Republic Act No. 7716 was
passed in this manner, it did not originate in the House of Representatives
and it has not thereby become a law:
Art. VI, 24: 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.
Id., 26(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 yeasand nays entered in the Journal.
It appears that on various dates between July 22, 1992 and August 31, 1993,
several bills 1 were introduced in the House of Representatives seeking to
amend certain provisions of the National Internal Revenue Code relative to
the value-added tax or VAT. These bills were referred to the House Ways and
Means Committee which recommended for approval a substitute measure, H.
No. 11197, entitled
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104, 105, 106, 107, 108 AND 110 OF TITLE IV, 112, 115 AND 116
OF TITLE V, AND 236, 237 AND 238 OF TITLE IX, AND REPEALING
SECTIONS 113 AND 114 OF TITLE V, ALL OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED
The bill (H. No. 11197) was considered on second reading starting November
6, 1993 and, on November 17, 1993, it was approved by the House of
Representatives after third and final reading.
It was sent to the Senate on November 23, 1993 and later referred by that
body to its Committee on Ways and Means.
On February 7, 1994, the Senate Committee submitted its report
recommending approval of S. No. 1630, entitled
104, 105, 107, 108, AND 110 OF TITLE IV, 112 OF TITLE V, AND
236, 237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 113,
114 and 116 OF TITLE V, ALL OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES
It was stated that the bill was being submitted "in substitution of Senate Bill
No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197."
On February 8, 1994, the Senate began consideration of the bill (S. No.
1630). It finished debates on the bill and approved it on second reading on
March 24, 1994. On the same day, it approved the bill on third reading by the
affirmative votes of 13 of its members, with one abstention.
H. No. 11197 and its Senate version (S. No. 1630) were then referred to a
conference committee which, after meeting four times (April 13, 19, 21 and
25, 1994), recommended that "House Bill No. 11197, in consolidation with
Senate Bill No. 1630, be approved in accordance with the attached copy of
the bill as reconciled and approved by the conferees."
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The Conference Committee bill, entitled "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," was thereafter approved by the
House of Representatives on April 27, 1994 and by the Senate on May 2,
1994. The enrolled bill was then presented to the President of the Philippines
who, on May 5, 1994, signed it. It became Republic Act No. 7716. On May 12,
1994, Republic Act No. 7716 was published in two newspapers of general
circulation and, on May 28, 1994, it took effect, although its implementation
was suspended until June 30, 1994 to allow time for the registration of
business entities. It would have been enforced on July 1, 1994 but its
enforcement was stopped because the Court, by the vote of 11 to 4 of its
members, granted a temporary restraining order on June 30, 1994.
First. Petitioners' contention is that Republic Act No. 7716 did not "originate
exclusively" in the House of Representatives as required by Art. VI, 24 of the
Constitution, because it is in fact the result of the consolidation of two
distinct bills, H. No. 11197 and S. No. 1630. In this connection, petitioners
point out that although Art. VI, SS 24 was adopted from the American Federal
Constitution, 2 it is notable in two respects: the verb "shall originate" is
qualified in the Philippine Constitution by the word "exclusively" and the
phrase "as on other bills" in the American version is omitted. This means,
according to them, that to be considered as having originated in the House,
Republic Act No. 7716 must retain the essence of H. No. 11197.
This argument will not bear analysis. To begin with, it is not the law but
the revenue bill which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important to emphasize
this, because a bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the whole. The
possibility of a third version by the conference committee will be discussed
later. At this point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue statute and
not only the bill which initiated the legislative process culminating in the
enactment of the law must substantially be the same as the House bill
would be to deny the Senate's power not only to "concur with amendments"
but also to "propose amendments." It would be to violate the coequality of
legislative power of the two houses of Congress and in fact make the House
superior to the Senate.
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The contention that the constitutional design is to limit the Senate's power in
respect of revenue bills in order to compensate for the grant to the Senate of
the treaty-ratifying power 3 and thereby equalize its powers and those of the
House overlooks the fact that the powers being compared are different. We
are dealing here with the legislative power which under the Constitution is
vested not in any particular chamber but in the Congress of the Philippines,
consisting of "a Senate and a House of Representatives." 4 The exercise of
the treaty-ratifying power is not the exercise of legislative power. It is the
exercise of a check on the executive power. There is, therefore, no
justification for comparing the legislative powers of the House and of the
Senate on the basis of the possession of such nonlegislative power by the
Senate. The possession of a similar power by the U.S. Senate 5 has never
been thought of as giving it more legislative powers than the House of
Representatives.
In the United States, the validity of a provision ( 37) imposing an ad
valorem tax based on the weight of vessels, which the U.S. Senate had
inserted in the Tariff Act of 1909, was upheld against the claim that the
provision was a revenue bill which originated in the Senate in contravention
of Art. I, 7 of the U.S. Constitution. 6 Nor is the power to amend limited to
adding a provision or two in a revenue bill emanating from the House. The
U.S. Senate has gone so far as changing the whole of bills following the
enacting clause and substituting its own versions. In 1883, for example, it
struck out everything after the enacting clause of a tariff bill and wrote in its
place its own measure, and the House subsequently accepted the
amendment. The U.S. Senate likewise added 847 amendments to what later
became the Payne-Aldrich Tariff Act of 1909; it dictated the schedules of the
Tariff Act of 1921; it rewrote an extensive tax revision bill in the same year
and recast most of the tariff bill of 1922. 7 Given, then, the power of the
Senate to propose amendments, the Senate can propose its own version
even with respect to bills which are required by the Constitution to originate
in the House.
It is insisted, however, that S. No. 1630 was passed not in substitution of H.
No. 11197 but of another Senate bill (S. No. 1129) earlier filed and that what
the Senate did was merely to "take [H. No. 11197] into consideration" in
enacting S. No. 1630. There is really no difference between the Senate
preserving H. No. 11197 up to the enacting clause and then writing its own
version following the enacting clause (which, it would seem, petitioners
admit is an amendment by substitution), and, on the other hand, separately
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presenting a bill of its own on the same subject matter. In either case the
result are two bills on the same subject.
Indeed, what the Constitution simply means is that the initiative for filing
revenue, tariff, or tax bills, bills authorizing an increase of the public debt,
private bills and bills of local application must come from the House of
Representatives on the theory that, elected as they are from the districts, the
members of the House can be expected to be more sensitive to the local
needs and problems. On the other hand, the senators, who are elected at
large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment of such
laws.
Nor does the Constitution prohibit the filing in the Senate of a substitute bill
in anticipation of its receipt of the bill from the House, so long as action by
the Senate as a body is withheld pending receipt of the House bill. The Court
cannot, therefore, understand the alarm expressed over the fact that on
March 1, 1993, eight months before the House passed H. No. 11197, S. No.
1129 had been filed in the Senate. After all it does not appear that the
Senate ever considered it. It was only after the Senate had received H. No.
11197 on November 23, 1993 that the process of legislation in respect of it
began with the referral to the Senate Committee on Ways and Means of H.
No. 11197 and the submission by the Committee on February 7, 1994 of S.
No. 1630. For that matter, if the question were simply the priority in the time
of filing of bills, the fact is that it was in the House that a bill (H. No. 253) to
amend the VAT law was first filed on July 22, 1992. Several other bills had
been filed in the House before S. No. 1129 was filed in the Senate, and H. No.
11197 was only a substitute of those earlier bills.
Second. Enough has been said to show that it was within the power of the
Senate to propose S. No. 1630. We now pass to the next argument of
petitioners that S. No. 1630 did not pass three readings on separate days as
required by the Constitution 8 because the second and third readings were
done on the same day, March 24, 1994. But this was because on February
24, 1994 9 and again on March 22, 1994, 10 the President had certified S. No.
1630 as urgent. The presidential certification dispensed with the requirement
not only of printing but also that of reading the bill on separate days. The
phrase "except when the President certifies to the necessity of its immediate
enactment, etc." in Art. VI, 26(2) qualifies the two stated conditions before
a bill can become a law: (i) the bill has passed three readings on separate
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days and (ii) it has been printed in its final form and distributed three days
before it is finally approved.
In other words, the "unless" clause must be read in relation to the "except"
clause, because the two are really coordinate clauses of the same sentence.
To construe the "except" clause as simply dispensing with the second
requirement in the "unless" clause (i.e., printing and distribution three days
before final approval) would not only violate the rules of grammar. It would
also negate the very premise of the "except" clause: the necessity of
securing the immediate enactment of a bill which is certified in order to meet
a public calamity or emergency. For if it is only the printing that is dispensed
with by presidential certification, the time saved would be so negligible as to
be of any use in insuring immediate enactment. It may well be doubted
whether doing away with the necessity of printing and distributing copies of
the bill three days before the third reading would insure speedy enactment of
a law in the face of an emergency requiring the calling of a special election
for President and Vice-President. Under the Constitution such a law is
required to be made within seven days of the convening of Congress in
emergency session. 11
That upon the certification of a bill by the President the requirement of three
readings on separate days and of printing and distribution can be dispensed
with is supported by the weight of legislative practice. For example, the bill
defining the certiorari jurisdiction of this Court which, in consolidation with
the Senate version, became Republic Act No. 5440, was passed on second
and third readings in the House of Representatives on the same day (May 14,
1968) after the bill had been certified by the President as urgent. 12
There is, therefore, no merit in the contention that presidential certification
dispenses only with the requirement for the printing of the bill and its
distribution three days before its passage but not with the requirement of
three readings on separate days, also.
It is nonetheless urged that the certification of the bill in this case was invalid
because there was no emergency, the condition stated in the certification of
a "growing budget deficit" not being an unusual condition in this country.
It is noteworthy that no member of the Senate saw fit to controvert the
reality of the factual basis of the certification. To the contrary, by passing S.
No. 1630 on second and third readings on March 24, 1994, the Senate
accepted the President's certification. Should such certification be now
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reviewed by this Court, especially when no evidence has been shown that,
because S. No. 1630 was taken up on second and third readings on the same
day, the members of the Senate were deprived of the time needed for the
study of a vital piece of legislation?
The sufficiency of the factual basis of the suspension of the writ of habeas
corpus or declaration of martial law under Art. VII, 18, or the existence of a
national emergency justifying the delegation of extraordinary powers to the
President under Art. VI, 23(2), is subject to judicial review because basic
rights of individuals may be at hazard. But the factual basis of presidential
certification of bills, which involves doing away with procedural requirements
designed to insure that bills are duly considered by members of Congress,
certainly should elicit a different standard of review.
Petitioners also invite attention to the fact that the President certified S. No.
1630 and not H. No. 11197. That is because S. No. 1630 was what the Senate
was considering. When the matter was before the House, the President
likewise certified H. No. 9210 the pending in the House.
Third. Finally it is contended that the bill which became Republic Act No.
7716 is the bill which the Conference Committee prepared by consolidating
H. No. 11197 and S. No. 1630. It is claimed that the Conference Committee
report included provisions not found in either the House bill or the Senate bill
and that these provisions were "surreptitiously" inserted by the Conference
Committee. Much is made of the fact that in the last two days of its session
on April 21 and 25, 1994 the Committee met behind closed doors. We are not
told, however, whether the provisions were not the result of the give and
take that often mark the proceedings of conference committees.
Nor is there anything unusual or extraordinary about the fact that the
Conference Committee met in executive sessions. Often the only way to
reach agreement on conflicting provisions is to meet behind closed doors,
with only the conferees present. Otherwise, no compromise is likely to be
made. The Court is not about to take the suggestion of a cabal or sinister
motive attributed to the conferees on the basis solely of their "secret
meetings" on April 21 and 25, 1994, nor read anything into the incomplete
remarks of the members, marked in the transcript of stenographic notes by
ellipses. The incomplete sentences are probably due to the stenographer's
own limitations or to the incoherence that sometimes characterize
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conversations. William Safire noted some such lapses in recorded talks even
by recent past Presidents of the United States.
In any event, in the United States conference committees had been
customarily held in executive sessions with only the conferees and their
staffs in attendance. 13 Only in November 1975 was a new rule adopted
requiring open sessions. Even then a majority of either chamber's conferees
may vote in public to close the meetings. 14
As to the possibility of an entirely new bill emerging out of a Conference
Committee, it has been explained:
Under congressional rules of procedure, conference committees
are not expected to make any material change in the measure at
issue, either by deleting provisions to which both houses have
already agreed or by inserting new provisions. But this is a
difficult provision to enforce. Note the problem when one house
amends a proposal originating in either house by striking out
everything following the enacting clause and substituting
provisions which make it an entirely new bill. The versions are
now altogether different, permitting a conference committee to
draft essentially a new bill. . . . 15
The result is a third version, which is considered an "amendment in the
nature of a substitute," the only requirement for which being that the third
version be germane to the subject of the House and Senate bills. 16
Indeed, this Court recently held that it is within the power of a conference
committee to include in its report an entirely new provision that is not found
either in the House bill or in the Senate bill. 17 If the committee can propose
an amendment consisting of one or two provisions, there is no reason why it
cannot propose several provisions, collectively considered as an
"amendment in the nature of a substitute," so long as such amendment is
germane to the subject of the bills before the committee. After all, its report
was not final but needed the approval of both houses of Congress to become
valid as an act of the legislative department. The charge that in this case the
Conference Committee acted as a third legislative chamber is thus without
any basis. 18
Nonetheless, it is argued that under the respective Rules of the Senate and
the House of Representatives a conference committee can only act on the
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differing provisions of a Senate bill and a House bill, and that contrary to
these Rules the Conference Committee inserted provisions not found in the
bills submitted to it. The following provisions are cited in support of this
contention:
Rules of the Senate
Rule XII:
26. In the event that the Senate does not agree with the House
of Representatives on the provision of any bill or joint
resolution, the differences shall be settled by a conference
committee of both Houses which shall meet within ten days after
their composition.
The President shall designate the members of the conference
committee in accordance with subparagraph (c), Section 3 of
Rule III.
Each Conference Committee Report shall contain a detailed and
sufficiently explicit statement of the changes in or amendments
to the subject measure, and shall be signed by the conferees.
The consideration of such report shall not be in order unless the
report has been filed with the Secretary of the Senate and copies
thereof have been distributed to the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:
85. Conference Committee Reports. In the event that the
House does not agree with the Senate on the amendments to
any bill or joint resolution, the differences may be settled by
conference committees of both Chambers.
The consideration of conference committee reports shall always
be in order, except when the journal is being read, while the roll
is being called or the House is dividing on any question. Each of
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the pages of such reports shall be signed by the

conferees. Each report shall contain a detailed, sufficiently
explicit statement of the changes in or amendments to the
subject measure.
The consideration of such report shall not be in order unless
copies thereof are distributed to the Members: Provided, That in
the last fifteen days of each session period it shall be deemed
sufficient that three copies of the report, signed as above
provided, are deposited in the office of the Secretary General.
(Emphasis added)
To be sure, nothing in the Rules limits a conference committee to a
consideration of conflicting provisions. But Rule XLIV, 112 of the Rules of
the Senate is cited to the effect that "If there is no Rule applicable to a
specific case the precedents of the Legislative Department of the Philippines
shall be resorted to, and as a supplement of these, the Rules contained in
Jefferson's Manual." The following is then quoted from the Jefferson's Manual:
The managers of a conference must confine themselves to the
differences committed to them. . . and may not include subjects
not within disagreements, even though germane to a question in
issue.
Note that, according to Rule XLIX, 112, in case there is no specific rule
applicable, resort must be to the legislative practice. The Jefferson's Manual
is resorted to only as supplement. It is common place in Congress that
conference committee reports include new matters which, though germane,
have not been committed to the committee. This practice was admitted by
Senator Raul S. Roco, petitioner in G.R. No. 115543, during the oral argument
in these cases. Whatever, then, may be provided in the Jefferson's Manual
must be considered to have been modified by the legislative practice. If a
change is desired in the practice it must be sought in Congress since this
question is not covered by any constitutional provision but is only an internal
rule of each house. Thus, Art. VI, 16(3) of the Constitution provides that
"Each House may determine the rules of its proceedings. . . ."
This observation applies to the other contention that the Rules of the two
chambers were likewise disregarded in the preparation of the Conference
Committee Report because the Report did not contain a "detailed and
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sufficiently explicit statement of changes in, or amendments to, the subject

measure." The Report used brackets and capital letters to indicate the
changes. This is a standard practice in bill-drafting. We cannot say that in
using these marks and symbols the Committee violated the Rules of the
Senate and the House. Moreover, this Court is not the proper forum for the
enforcement of these internal Rules. To the contrary, as we have already
ruled, "parliamentary rules are merely procedural and with their observance
the courts have no concern." 19 Our concern is with the procedural
requirements of the Constitution for the enactment of laws. As far as these
requirements are concerned, we are satisfied that they have been faithfully
observed in these cases.
Nor is there any reason for requiring that the Committee's Report in these
cases must have undergone three readings in each of the two houses. If that
be the case, there would be no end to negotiation since each house may
seek modifications of the compromise bill. The nature of the bill, therefore,
requires that it be acted upon by each house on a "take it or leave it" basis,
with the only alternative that if it is not approved by both houses, another
conference committee must be appointed. But then again the result would
still be a compromise measure that may not be wholly satisfying to both
houses.
Art. VI, 26(2) must, therefore, be construed as referring only to bills
introduced for the first time in either house of Congress, not to the
conference committee report. For if the purpose of requiring three readings is
to give members of Congress time to study bills, it cannot be gainsaid that H.
No. 11197 was passed in the House after three readings; that in the Senate it
was considered on first reading and then referred to a committee of that
body; that although the Senate committee did not report out the House bill,
it submitted a version (S. No. 1630) which it had prepared by "taking into
consideration" the House bill; that for its part the Conference Committee
consolidated the two bills and prepared a compromise version; that the
Conference Committee Report was thereafter approved by the House and the
Senate, presumably after appropriate study by their members. We cannot
say that, as a matter of fact, the members of Congress were not fully
informed of the provisions of the bill. The allegation that the Conference
Committee usurped the legislative power of Congress is, in our view, without
warrant in fact and in law.
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Fourth. Whatever doubts there may be as to the formal validity of Republic

Act No. 7716 must be resolved in its favor. Our cases 20 manifest firm
adherence to the rule that an enrolled copy of a bill is conclusive not only of
its provisions but also of its due enactment. Not even claims that a proposed
constitutional amendment was invalid because the requisite votes for its
approval had not been obtained 21 or that certain provisions of a statute had
been "smuggled" in the printing of the bill 22 have moved or persuaded us to
look behind the proceedings of a coequal branch of the government. There is
no reason now to depart from this rule.
No claim is here made that the "enrolled bill" rule is absolute. In fact in one
case 23 we "went behind" an enrolled bill and consulted the Journal to
determine whether certain provisions of a statute had been approved by the
Senate in view of the fact that the President of the Senate himself, who had
signed the enrolled bill, admitted a mistake and withdrew his signature, so
that in effect there was no longer an enrolled bill to consider.
But where allegations that the constitutional procedures for the passage of
bills have not been observed have no more basis than another allegation
that the Conference Committee "surreptitiously" inserted provisions into a
bill which it had prepared, we should decline the invitation to go behind the
enrolled copy of the bill. To disregard the "enrolled bill" rule in such cases
would be to disregard the respect due the other two departments of our
government.
Fifth. An additional attack on the formal validity of Republic Act No. 7716 is
made by the Philippine Airlines, Inc., petitioner in G.R. No. 11582, namely,
that it violates Art. VI, 26(1) which provides that "Every bill passed by
Congress shall embrace only one subject which shall be expressed in the title
thereof." It is contended that neither H. No. 11197 nor S. No. 1630 provided
for removal of exemption of PAL transactions from the payment of the VAT
and that this was made only in the Conference Committee bill which became
Republic Act No. 7716 without reflecting this fact in its title.
The title of Republic Act No. 7716 is:
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.
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Among the provisions of the NIRC amended is 103, which originally read:
....
(q) Transactions which are exempt under special laws or
international agreements to which the Philippines is a signatory.
Among the transactions exempted from the VAT were those of
PAL because it was exempted under its franchise (P.D. No. 1590)
from the payment of all "other taxes . . . now or in the near
future," in consideration of the payment by it either of the
corporate income tax or a franchise tax of 2%.
As a result of its amendment by Republic Act No. 7716, 103 of the NIRC
now provides:
....
(q) Transactions which are exempt under special laws, except
those granted under Presidential Decree Nos. 66, 529, 972, 1491,
1590. . . .
The effect of the amendment is to remove the exemption granted to PAL, as
far as the VAT is concerned.
The question is whether this amendment of 103 of the NIRC is fairly
embraced in the title of Republic Act No. 7716, although no mention is made
therein of P.D. No. 1590 as among those which the statute amends. We think
it is, since the title states that the purpose of the statute is to expand the
VAT system, and one way of doing this is to widen its base by withdrawing
some of the exemptions granted before. To insist that P.D. No. 1590 be
mentioned in the title of the law, in addition to 103 of the NIRC, in which it
is specifically referred to, would be to insist that the title of a bill should be a
complete index of its content.
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The constitutional requirement that every bill passed by Congress shall

embrace only one subject which shall be expressed in its title is intended to
prevent surprise upon the members of Congress and to inform the people of
pending legislation so that, if they wish to, they can be heard regarding it. If,
in the case at bar, petitioner did not know before that its exemption had
been withdrawn, it is not because of any defect in the title but perhaps for
the same reason other statutes, although published, pass unnoticed until
some event somehow calls attention to their existence. Indeed, the title of
Republic Act No. 7716 is not any more general than the title of PAL's own
franchise under P.D. No. 1590, and yet no mention is made of its tax
exemption. The title of P.D. No. 1590 is:
AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE AIRLINES,
INC. TO ESTABLISH, OPERATE, AND MAINTAIN AIR-TRANSPORT
SERVICES IN THE PHILIPPINES AND BETWEEN THE PHILIPPINES
AND OTHER COUNTRIES.
The trend in our cases is to construe the constitutional requirement in such a
manner that courts do not unduly interfere with the enactment of necessary
legislation and to consider it sufficient if the title expresses the general
subject of the statute and all its provisions are germane to the general
subject thus expressed. 24
It is further contended that amendment of petitioner's franchise may only be
made by special law, in view of 24 of P.D. No. 1590 which provides:
This franchise, as amended, or any section or provision hereof
may only be modified, amended, or repealed expressly by a
special law or decree that shall specifically modify, amend, or
repeal this franchise or any section or provision thereof.
This provision is evidently intended to prevent the amendment of the
franchise by mere implication resulting from the enactment of a later
inconsistent statute, in consideration of the fact that a franchise is a contract
which can be altered only by consent of the parties. Thus in Manila Railroad
Co. v.
Rafferty, 25 it was held that an Act of the U.S. Congress, which provided for
the payment of tax on certain goods and articles imported into the
Philippines, did not amend the franchise of plaintiff, which exempted it from
all taxes except those mentioned in its franchise. It was held that a special
law cannot be amended by a general law.
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In contrast, in the case at bar, Republic Act No. 7716 expressly amends PAL's
franchise (P.D. No. 1590) by specifically excepting from the grant of
exemptions from the VAT PAL's exemption under P.D. No. 1590. This is within
the power of Congress to do under Art. XII, 11 of the Constitution, which
provides that the grant of a franchise for the operation of a public utility is
subject to amendment, alteration or repeal by Congress when the common
good so requires.
II. SUBSTANTIVE ISSUES
A. Claims of Press Freedom, Freedom of
Thought and Religious Freedom
The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a
nonprofit organization of newspaper publishers established for the
improvement of journalism in the Philippines. On the other hand, petitioner in
G.R. No. 115781, the Philippine Bible Society (PBS), is a nonprofit
organization engaged in the printing and distribution of bibles and other
religious articles. Both petitioners claim violations of their rights under 4
and 5 of the Bill of Rights as a result of the enactment of the VAT Law.
The PPI questions the law insofar as it has withdrawn the exemption
previously granted to the press under 103 (f) of the NIRC. Although the
exemption was subsequently restored by administrative regulation with
respect to the circulation income of newspapers, the PPI presses its claim
because of the possibility that the exemption may still be removed by mere
revocation of the regulation of the Secretary of Finance. On the other hand,
the PBS goes so far as to question the Secretary's power to grant exemption
for two reasons: (1) The Secretary of Finance has no power to grant tax
exemption because this is vested in Congress and requires for its exercise
the vote of a majority of all its members 26 and (2) the Secretary's duty is to
execute the law.
103 of the NIRC contains a list of transactions exempted from VAT. Among
the transactions previously granted exemption were:
(f) Printing, publication, importation or sale of books and any
newspaper, magazine, review, or bulletin which appears at
regular intervals with fixed prices for subscription and sale and
which is devoted principally to the publication of advertisements.
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Republic Act No. 7716 amended 103 by deleting (f) with the result that
print media became subject to the VAT with respect to all aspects of their
operations. Later, however, based on a memorandum of the Secretary of
Justice, respondent Secretary of Finance issued Revenue Regulations No. 1194, dated June 27, 1994, exempting the "circulation income of print media
pursuant to 4 Article III of the 1987 Philippine Constitution guaranteeing
against abridgment of freedom of the press, among others." The exemption
of "circulation income" has left income from advertisements still subject to
the VAT.
It is unnecessary to pass upon the contention that the exemption granted is
beyond the authority of the Secretary of Finance to give, in view of PPI's
contention that even with the exemption of the circulation revenue of print
media there is still an unconstitutional abridgment of press freedom because
of the imposition of the VAT on the gross receipts of newspapers from
advertisements and on their acquisition of paper, ink and services for
publication. Even on the assumption that no exemption has effectively been
granted to print media transactions, we find no violation of press freedom in
these cases.
To be sure, we are not dealing here with a statute that on its face operates in
the area of press freedom. The PPI's claim is simply that, as applied to
newspapers, the law abridges press freedom. Even with due recognition of its
high estate and its importance in a democratic society, however, the press is
not immune from general regulation by the State. It has been held:
The publisher of a newspaper has no immunity from the
application of general laws. He has no special privilege to invade
the rights and liberties of others. He must answer for libel. He
may be punished for contempt of court. . . . Like others, he must
pay equitable and nondiscriminatory taxes on his business. . . . 27
The PPI does not dispute this point, either.
What it contends is that by withdrawing the exemption previously granted to
print media transactions involving printing, publication, importation or sale of
newspapers, Republic Act No. 7716 has singled out the press for
discriminatory treatment and that within the class of mass media the law
discriminates against print media by giving broadcast media favored
treatment. We have carefully examined this argument, but we are unable to
find a differential treatment of the press by the law, much less any censorial
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motivation for its enactment. If the press is now required to pay a valueadded tax on its transactions, it is not because it is being singled out, much
less targeted, for special treatment but only because of the removal of the
exemption previously granted to it by law. The withdrawal of exemption is all
that is involved in these cases. Other transactions, likewise previously
granted exemption, have been delisted as part of the scheme to expand the
base and the scope of the VAT system. The law would perhaps be open to the
charge of discriminatory treatment if the only privilege withdrawn had been
that granted to the press. But that is not the case.
The situation in the case at bar is indeed a far cry from those cited by the PPI
in support of its claim that Republic Act No. 7716 subjects the press to
discriminatory taxation. In the cases cited, the discriminatory purpose was
clear either from the background of the law or from its operation. For
example, in Grosjean v. American Press Co., 28 the law imposed a license tax
equivalent to 2% of the gross receipts derived from advertisements only on
newspapers which had a circulation of more than 20,000 copies per week.
Because the tax was not based on the volume of advertisement alone but
was measured by the extent of its circulation as well, the law applied only to
the thirteen large newspapers in Louisiana, leaving untaxed four papers with
circulation of only slightly less than 20,000 copies a week and 120 weekly
newspapers which were in serious competition with the thirteen newspapers
in question. It was well known that the thirteen newspapers had been critical
of Senator Huey Long, and the Long-dominated legislature of Louisiana
respondent by taxing what Long described as the "lying newspapers" by
imposing on them "a tax on lying." The effect of the tax was to curtail both
their revenue and their circulation. As the U.S. Supreme Court noted, the tax
was "a deliberate and calculated device in the guise of a tax to limit the
circulation of information to which the public is entitled in virtue of the
constitutional guaranties." 29 The case is a classic illustration of the warning
that the power to tax is the power to destroy.
In the other case 30 invoked by the PPI, the press was also found to have
been singled out because everything was exempt from the "use tax" on ink
and paper, except the press. Minnesota imposed a tax on the sales of goods
in that state. To protect the sales tax, it enacted a complementary tax on the
privilege of "using, storing or consuming in that state tangible personal
property" by eliminating the residents' incentive to get goods from outside
states where the sales tax might be lower. The Minnesota Star Tribune was
exempted from both taxes from 1967 to 1971. In 1971, however, the state
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legislature amended the tax scheme by imposing the "use tax" on the cost of
paper and ink used for publication. The law was held to have singled out the
press because (1) there was no reason for imposing the "use tax" since the
press was exempt from the sales tax and (2) the "use tax" was laid on an
"intermediate transaction rather than the ultimate retail sale." Minnesota had
a heavy burden of justifying the differential treatment and it failed to do so.
In addition, the U.S. Supreme Court found the law to be discriminatory
because the legislature, by again amending the law so as to exempt the first
$100,000 of paper and ink used, further narrowed the coverage of the tax so
that "only a handful of publishers pay any tax at all and even fewer pay any
significant amount of tax." 31 The discriminatory purpose was thus very clear.
More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it was held that
a law which taxed general interest magazines but not newspapers and
religious, professional, trade and sports journals was discriminatory because
while the tax did not single out the press as a whole, it targeted a small
group within the press. What is more, by differentiating on the basis of
contents (i.e., between general interest and special interests such as religion
or sports) the law became "entirely incompatible with the First Amendment's
guarantee of freedom of the press."
These cases come down to this: that unless justified, the differential
treatment of the press creates risks of suppression of expression. In contrast,
in the cases at bar, the statute applies to a wide range of goods and
services. The argument that, by imposing the VAT only on print media whose
gross sales exceeds P480,000 but not more than P750,000, the law
discriminates 33 is without merit since it has not been shown that as a result
the class subject to tax has been unreasonably narrowed. The fact is that this
limitation does not apply to the press along but to all sales. Nor is
impermissible motive shown by the fact that print media and broadcast
media are treated differently. The press is taxed on its transactions involving
printing and publication, which are different from the transactions of
broadcast media. There is thus a reasonable basis for the classification.
The cases canvassed, it must be stressed, eschew any suggestion that
"owners of newspapers are immune from any forms of ordinary taxation."
The license tax in the Grosjean case was declared invalid because it was
"one single in kind, with a long history of hostile misuse against the freedom
of the
press." 34 On the other hand, Minneapolis Star acknowledged that "The First
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Amendment does not prohibit all regulation of the press [and that] the States
and the Federal Government can subject newspapers to generally applicable
economic regulations without creating constitutional problems." 35
What has been said above also disposes of the allegations of the PBS that
the removal of the exemption of printing, publication or importation of books
and religious articles, as well as their printing and publication, likewise
violates freedom of thought and of conscience. For as the U.S. Supreme
Court unanimously held in Jimmy Swaggart Ministries v. Board of
Equalization, 36 the Free Exercise of Religion Clause does not prohibit
imposing a generally applicable sales and use tax on the sale of religious
materials by a religious organization.
This brings us to the question whether the registration provision of the
law, 37 although of general applicability, nonetheless is invalid when applied
to the press because it lays a prior restraint on its essential freedom. The
case ofAmerican Bible Society v. City of Manila 38 is cited by both the PBS
and the PPI in support of their contention that the law imposes censorship.
There, this Court held that an ordinance of the City of Manila, which imposed
a license fee on those engaged in the business of general merchandise,
could not be applied to the appellant's sale of bibles and other religious
literature. This Court relied on Murdock v. Pennsylvania, 39 in which it was
held that, as a license fee is fixed in amount and unrelated to the receipts of
the taxpayer, the license fee, when applied to a religious sect, was actually
being imposed as a condition for the exercise of the sect's right under the
Constitution. For that reason, it was held, the license fee "restrains in
advance those constitutional liberties of press and religion and inevitably
tends to suppress their exercise." 40
But, in this case, the fee in 107, although a fixed amount (P1,000), is not
imposed for the exercise of a privilege but only for the purpose of defraying
part of the cost of registration. The registration requirement is a central
feature of the VAT system. It is designed to provide a record of tax credits
because any person who is subject to the payment of the VAT pays an input
tax, even as he collects an output tax on sales made or services rendered.
The registration fee is thus a mere administrative fee, one not imposed on
the exercise of a privilege, much less a constitutional right.
For the foregoing reasons, we find the attack on Republic Act No. 7716 on the
ground that it offends the free speech, press and freedom of religion
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guarantees of the Constitution to be without merit. For the same reasons, we

find the claim of the Philippine Educational Publishers Association (PEPA) in
G.R. No. 115931 that the increase in the price of books and other educational
materials as a result of the VAT would violate the constitutional mandate to
the government to give priority to education, science and technology (Art. II,
17) to be untenable.
B. Claims of Regressivity, Denial of Due

Process, Equal Protection, and
Impairment
of Contracts
There is basis for passing upon claims that on its face the statute violates the
guarantees of freedom of speech, press and religion. The possible "chilling
effect" which it may have on the essential freedom of the mind and
conscience and the need to assure that the channels of communication are
open and operating importunately demand the exercise of this Court's power
of review.
There is, however, no justification for passing upon the claims that the law
also violates the rule that taxation must be progressive and that it denies
petitioners' right to due process and that equal protection of the laws. The
reason for this different treatment has been cogently stated by an eminent
authority on constitutional law thus: "[W]hen freedom of the mind is
imperiled by law, it is freedom that commands a momentum of respect;
when property is imperiled it is the lawmakers' judgment that commands
respect. This dual standard may not precisely reverse the presumption of
constitutionality in civil liberties cases, but obviously it does set up a
hierarchy of values within the due process clause." 41
Indeed, the absence of threat of immediate harm makes the need for judicial
intervention less evident and underscores the essential nature of petitioners'
attack on the law on the grounds of regressivity, denial of due process and
equal protection and impairment of contracts as a mere academic discussion
of the merits of the law. For the fact is that there have even been no notices
of assessments issued to petitioners and no determinations at the
administrative levels of their claims so as to illuminate the actual operation
of the law and enable us to reach sound judgment regarding so fundamental
questions as those raised in these suits.
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Thus, the broad argument against the VAT is that it is regressive and that it
violates the requirement that "The rule of taxation shall be uniform and
equitable [and] Congress shall evolve a progressive system of
taxation." 42Petitioners in G.R. No. 115781 quote from a paper, entitled "VAT
Policy Issues: Structure, Regressivity, Inflation and Exports" by Alan A. Tait of
the International Monetary Fund, that "VAT payment by low-income
households will be a higher proportion of their incomes (and expenditures)
than payments by higher-income households. That is, the VAT will be
regressive." Petitioners contend that as a result of the uniform 10% VAT, the
tax on consumption goods of those who are in the higher-income bracket,
which before were taxed at a rate higher than 10%, has been reduced, while
basic commodities, which before were taxed at rates ranging from 3% to 5%,
are now taxed at a higher rate.
Just as vigorously as it is asserted that the law is regressive, the opposite
claim is pressed by respondents that in fact it distributes the tax burden to
as many goods and services as possible particularly to those which are
within the reach of higher-income groups, even as the law exempts basic
goods and services. It is thus equitable. The goods and properties subject to
the VAT are those used or consumed by higher-income groups. These include
real properties held primarily for sale to customers or held for lease in the
ordinary course of business, the right or privilege to use industrial,
commercial or scientific equipment, hotels, restaurants and similar places,
tourist buses, and the like. On the other hand, small business
establishments, with annual gross sales of less than P500,000, are
exempted. This, according to respondents, removes from the coverage of the
law some 30,000 business establishments. On the other hand, an occasional
paper 43 of the Center for Research and Communication cities a NEDA study
that the VAT has minimal impact on inflation and income distribution and
that while additional expenditure for the lowest income class is only P301 or
1.49% a year, that for a family earning P500,000 a year or more is P8,340 or
2.2%.
Lacking empirical data on which to base any conclusion regarding these
arguments, any discussion whether the VAT is regressive in the sense that it
will hit the "poor" and middle-income group in society harder than it will the
"rich," as the Cooperative Union of the Philippines (CUP) claims in G.R. No.
115873, is largely an academic exercise. On the other hand, the CUP's
contention that Congress' withdrawal of exemption of producers
cooperatives, marketing cooperatives, and service cooperatives, while
TAXATION LAW 1
maintaining that granted to electric cooperatives, not only goes against the
constitutional policy to promote cooperatives as instruments of social justice
(Art. XII, 15) but also denies such cooperatives the equal protection of the
law is actually a policy argument. The legislature is not required to adhere to
a policy of "all or none" in choosing the subject of taxation.44
Nor is the contention of the Chamber of Real Estate and Builders Association
(CREBA), petitioner in G.R. 115754, that the VAT will reduce the mark up of
its members by as much as 85% to 90% any more concrete. It is a mere
allegation. On the other hand, the claim of the Philippine Press Institute,
petitioner in G.R. No. 115544, that the VAT will drive some of its members
out of circulation because their profits from advertisements will not be
enough to pay for their tax liability, while purporting to be based on the
financial statements of the newspapers in question, still falls short of the
establishment of facts by evidence so necessary for adjudicating the
question whether the tax is oppressive and confiscatory.
Indeed, regressivity is not a negative standard for courts to enforce. What
Congress is required by the Constitution to do is to "evolve a progressive
system of taxation." This is a directive to Congress, just like the directive to it
to give priority to the enactment of laws for the enhancement of human
dignity and the reduction of social, economic and political inequalities (Art.
XIII, 1), or for the promotion of the right to "quality education" (Art. XIV,
1). These provisions are put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights.
At all events, our 1988 decision in Kapatiran 45 should have laid to rest the
questions now raised against the VAT. There similar arguments made against
the original VAT Law (Executive Order No. 273) were held to be hypothetical,
with no more basis than newspaper articles which this Court found to be
"hearsay and [without] evidentiary value." As Republic Act No. 7716 merely
expands the base of the VAT system and its coverage as provided in the
original VAT Law, further debate on the desirability and wisdom of the law
should have shifted to Congress.
Only slightly less abstract but nonetheless hypothetical is the contention of
CREBA that the imposition of the VAT on the sales and leases of real estate
by virtue of contracts entered into prior to the effectivity of the law would
violate the constitutional provision that "No law impairing the obligation of
contracts shall be passed." It is enough to say that the parties to a contract
TAXATION LAW 1

contracts in order to fix obligations as between parties, but the reservation of
essential attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts against
adequate authority to secure the peace and good order of society. 46
In truth, the Contract Clause has never been thought as a limitation on the
exercise of the State's power of taxation save only where a tax exemption
has been granted for a valid consideration. 47 Such is not the case of PAL in
G.R. No. 115852, and we do not understand it to make this claim. Rather, its
be made by a general, but only by a specific, law.
The substantive issues raised in some of the cases are presented in abstract,
hypothetical form because of the lack of a concrete record. We accept that
this Court does not only adjudicate private cases; that public actions by
"non-Hohfeldian" 48 or ideological plaintiffs are now cognizable provided they
meet the standing requirement of the Constitution; that under Art. VIII, 1,
2 the Court has a "special function" of vindicating constitutional rights.
Nonetheless the feeling cannot be escaped that we do not have before us in
these cases a fully developed factual record that alone can impart to our
adjudication the impact of actuality 49 to insure that decision-making is
informed and well grounded. Needless to say, we do not have power to
render advisory opinions or even jurisdiction over petitions for declaratory
judgment. In effect we are being asked to do what the Conference
Committee is precisely accused of having done in these cases to sit as a
third legislative chamber to review legislation.
We are told, however, that the power of judicial review is not so much power
as it is duty imposed on this Court by the Constitution and that we would be
remiss in the performance of that duty if we decline to look behind the
barriers set by the principle of separation of powers. Art. VIII, 1, 2 is cited
in support of this view:
Judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack or
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excess of jurisdiction on the part of any branch or instrumentality

of the Government.
To view the judicial power of review as a duty is nothing new. Chief Justice
Marshall said so in 1803, to justify the assertion of this power in Marbury v.
Madison:
It is emphatically the province and duty of the judicial
department to say what the law is. Those who apply the rule to
particular cases must of necessity expound and interpret that
rule. If two laws conflict with each other, the courts must decide
on the operation of each. 50
Justice Laurel echoed this justification in 1936 in Angara v. Electoral
Commission:
And when the judiciary mediates to allocate constitutional
boundaries, it does not assert any superiority over the other
departments; it does not in reality nullify or invalidate an act of
the legislature, but only asserts the solemn and sacred obligation
assigned to it by the Constitution to determine conflicting claims
of authority under the Constitution and to establish for the
parties in an actual controversy the rights which that instrument
secures and guarantees to them. 51
This conception of the judicial power has been affirmed in several
cases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty" to justify this
Court's intervention in what is essentially a case that at best is not ripe for
adjudication. That duty must still be performed in the context of a concrete
case or controversy, as Art. VIII, 5(2) clearly defines our jurisdiction in
terms of "cases," and nothing but "cases." That the other departments of the
government may have committed a grave abuse of discretion is not an
independent ground for exercising our power. Disregard of the essential
limits imposed by the case and controversy requirement can in the long run
only result in undermining our authority as a court of law. For, as judges,
what we are called upon to render is judgment according to law, not
according to what may appear to be the opinion of the day.
_______________________________
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In the preceeding pages we have endeavored to discuss, within limits, the

validity of Republic Act No. 7716 in its formal and substantive aspects as this
has been raised in the various cases before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution have been complied
with by Congress in the enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the enactment
of statutes beyond those prescribed by the Constitution have been
observed is precluded by the principle of separation of powers;
(3) That the law does not abridge freedom of speech, expression or the
press, nor interfere with the free exercise of religion, nor deny to any of the
parties the right to an education; and
(4) That, in view of the absence of a factual foundation of record, claims that
the law is regressive, oppressive and confiscatory and that it violates vested
rights protected under the Contract Clause are prematurely raised and do
not justify the grant of prospective relief by writ of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED.
DIGEST
FACTS
RA 7716, otherwise known as the Expanded Value-Added Tax Law, is an
act that seeks to widen the tax base of the existing VAT system and
enhance its administration by amending the National Internal Revenue
Code. There are various suits questioning and challenging the
constitutionality of RA 7716 on various grounds.
Tolentino contends that RA 7716 did not originate exclusively from the
House of Representatives but is a mere consolidation of HB. No. 11197
and SB. No. 1630 and it did not pass three readings on separate days on
the Senate thus violating Article VI, Sections 24 and 26(2) of the
Constitution, respectively.
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Art. VI, Section 24: 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.
Art. VI, Section 26(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.
ISSUE
Whether or not RA 7716 violated Art. VI, Section 24 and Art. VI, Section
26(2) of the Constitution.
HELD
No. The phrase originate exclusively refers to the revenue bill and not
to the revenue law. It is sufficient that the House of Representatives
initiated the passage of the bill which may undergo extensive changes in
the Senate.
SB. No. 1630, having been certified as urgent by the President need not
meet the requirement not only of printing but also of reading the bill on
separate days.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-39086 June 15, 1988
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ABRA VALLEY COLLEGE, INC., represented by PEDRO V.

BORGONIA, petitioner,
vs.
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN
M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE,
Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO
MILLARE,respondents.
PARAS, J.:
This is a petition for review on certiorari of the decision * of the defunct Court
of First Instance of Abra, Branch I, dated June 14, 1974, rendered in Civil
Case No. 656, entitled "Abra Valley Junior College, Inc., represented by Pedro
V. Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra,
Gaspar V. Bosque as Municipal Treasurer of Bangued, Abra and Paterno
Millare, defendants," the decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, the Court hereby declares:
That the distraint seizure and sale by the Municipal Treasurer of
Bangued, Abra, the Provincial Treasurer of said province against
the lot and building of the Abra Valley Junior College, Inc.,
represented by Director Pedro Borgonia located at Bangued,
Abra, is valid;
That since the school is not exempt from paying taxes, it should
therefore pay all back taxes in the amount of P5,140.31 and back
taxes and penalties from the promulgation of this decision;
That the amount deposited by the plaintaff him the sum of
P60,000.00 before the trial, be confiscated to apply for the
payment of the back taxes and for the redemption of the
property in question, if the amount is less than P6,000.00, the
remainder must be returned to the Director of Pedro Borgonia,
who represents the plaintiff herein;
That the deposit of the Municipal Treasurer in the amount of
P6,000.00 also before the trial must be returned to said Municipal
Treasurer of Bangued, Abra;
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And finally the case is hereby ordered dismissed with costs

against the plaintiff.
SO ORDERED. (Rollo, pp. 22-23)
Petitioner, an educational corporation and institution of higher learning duly
incorporated with the Securities and Exchange Commission in 1948, filed a
complaint (Annex "1" of Answer by the respondents Heirs of Paterno Millare;
Rollo, pp. 95-97) on July 10, 1972 in the court a quo to annul and declare
void the "Notice of Seizure' and the "Notice of Sale" of its lot and building
located at Bangued, Abra, for non-payment of real estate taxes and penalties
amounting to P5,140.31. Said "Notice of Seizure" of the college lot and
building covered by Original Certificate of Title No. Q-83 duly registered in
the name of petitioner, plaintiff below, on July 6, 1972, by respondents
Municipal Treasurer and Provincial Treasurer, defendants below, was issued
for the satisfaction of the said taxes thereon. The "Notice of Sale" was
caused to be served upon the petitioner by the respondent treasurers on July
8, 1972 for the sale at public auction of said college lot and building, which
sale was held on the same date. Dr. Paterno Millare, then Municipal Mayor of
Bangued, Abra, offered the highest bid of P6,000.00 which was duly
accepted. The certificate of sale was correspondingly issued to him.
On August 10, 1972, the respondent Paterno Millare (now deceased) filed
through counstel a motion to dismiss the complaint.
On August 23, 1972, the respondent Provincial Treasurer and Municipal
Treasurer, through then Provincial Fiscal Loreto C. Roldan, filed their answer
(Annex "2" of Answer by the respondents Heirs of Patemo Millare; Rollo, pp.
98-100) to the complaint. This was followed by an amended answer (Annex
"3," ibid, Rollo, pp. 101-103) on August 31, 1972.
On September 1, 1972 the respondent Paterno Millare filed his answer
(Annex "5," ibid; Rollo, pp. 106-108).
On October 12, 1972, with the aforesaid sale of the school premises at public
auction, the respondent Judge, Hon. Juan P. Aquino of the Court of First
Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the
respondents provincial and municipal treasurers to deliver to the Clerk of
Court the proceeds of the auction sale. Hence, on December 14, 1972,
petitioner, through Director Borgonia, deposited with the trial court the sum
of P6,000.00 evidenced by PNB Check No. 904369.
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On April 12, 1973, the parties entered into a stipulation of facts adopted and
embodied by the trial court in its questioned decision. Said Stipulations
reads:
STIPULATION OF FACTS
COME NOW the parties, assisted by counsels, and to this
Honorable Court respectfully enter into the following agreed
stipulation of facts:
1. That the personal circumstances of the parties as stated in
paragraph 1 of the complaint is admitted; but the particular
person of Mr. Armin M. Cariaga is to be substituted, however, by
anyone who is actually holding the position of Provincial
Treasurer of the Province of Abra;
2. That the plaintiff Abra Valley Junior College, Inc. is the owner of
the lot and buildings thereon located in Bangued, Abra under
Original Certificate of Title No. 0-83;
3. That the defendant Gaspar V. Bosque, as Municipal treasurer
of Bangued, Abra caused to be served upon the Abra Valley
Junior College, Inc. a Notice of Seizure on the property of said
school under Original Certificate of Title No. 0-83 for the
satisfaction of real property taxes thereon, amounting to
P5,140.31; the Notice of Seizure being the one attached to the
complaint as Exhibit A;
4. That on June 8, 1972 the above properties of the Abra Valley
Junior College, Inc. was sold at public auction for the satisfaction
of the unpaid real property taxes thereon and the same was sold
to defendant Paterno Millare who offered the highest bid of
P6,000.00 and a Certificate of Sale in his favor was issued by the
defendant Municipal Treasurer.
5. That all other matters not particularly and specially covered by
this stipulation of facts will be the subject of evidence by the
parties.
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WHEREFORE, it is respectfully prayed of the Honorable Court to

consider and admit this stipulation of facts on the point agreed
upon by the parties.
Bangued, Abra, April 12, 1973.
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sel
for
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Defen
dants
Provi
ncial
Treas
urer
of
Abra
and
the
Munic
ipal
Treas
urer
of
Bang
ued,
Abra
Sgd.
Deme
trio V.
Pre
Typ.
DEME
TRIO
V.
PRE
Attor
ney
for
Defen
dant
Pater
no
Millar
e
(Rollo
, pp.
TAXATION LAW 1
1718)
Aside from the Stipulation of Facts, the trial court among others, found the
following: (a) that the school is recognized by the government and is offering
Primary, High School and College Courses, and has a school population of
more than one thousand students all in all; (b) that it is located right in the
heart of the town of Bangued, a few meters from the plaza and about 120
meters from the Court of First Instance building; (c) that the elementary
pupils are housed in a two-storey building across the street; (d) that the high
school and college students are housed in the main building; (e) that the
Director with his family is in the second floor of the main building; and (f)
that the annual gross income of the school reaches more than one hundred
thousand pesos.
From all the foregoing, the only issue left for the Court to determine and as
agreed by the parties, is whether or not the lot and building in question
are used exclusively for educational purposes. (Rollo, p. 20)
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant,
Hon. Eustaquio Z. Montero, filed a Memorandum for the Government on
March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein
they opined "that based on the evidence, the laws applicable, court decisions
and jurisprudence, the school building and school lot used for educational
purposes of the Abra Valley College, Inc., are exempted from the payment of
taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).
Nonetheless, the trial court disagreed because of the use of the second floor
by the Director of petitioner school for residential purposes. He thus ruled for
the government and rendered the assailed decision.
After having been granted by the trial court ten (10) days from August 6,
1974 within which to perfect its appeal (Per Order dated August 6, 1974;
Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant
petition for review on certiorari with prayer for preliminary injunction before
this Court, which petition was filed on August 17, 1974 (Rollo, p.2).
In the resolution dated August 16, 1974, this Court resolved to give DUE
COURSE to the petition (Rollo, p. 58). Respondents were required to answer
said petition (Rollo, p. 74).
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Petitioner raised the following assignments of error:

I
THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE
OF THE COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF
THE PETITIONER.
II
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND
BUILDING OF THE PETITIONER ARE NOT USED EXCLUSIVELY FOR
EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT
RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.
III
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND
BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND
IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES.
IV
THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE
P6,000.00 DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE
P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)
The main issue in this case is the proper interpretation of the phrase "used
exclusively for educational purposes."
Petitioner contends that the primary use of the lot and building for
educational purposes, and not the incidental use thereof, determines and
exemption from property taxes under Section 22 (3), Article VI of the 1935
Constitution. Hence, the seizure and sale of subject college lot and building,
which are contrary thereto as well as to the provision of Commonwealth Act
No. 470, otherwise known as the Assessment Law, are without legal basis
and therefore void.
On the other hand, private respondents maintain that the college lot and
building in question which were subjected to seizure and sale to answer for
the unpaid tax are used: (1) for the educational purposes of the college; (2)
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as the permanent residence of the President and Director thereof, Mr. Pedro
V. Borgonia, and his family including the in-laws and grandchildren; and (3)
for commercial purposes because the ground floor of the college building is
being used and rented by a commercial establishment, the Northern
Marketing Corporation (See photograph attached as Annex "8" (Comment;
Rollo, p. 90]).
Due to its time frame, the constitutional provision which finds application in
the case at bar is Section 22, paragraph 3, Article VI, of the then 1935
Philippine Constitution, which expressly grants exemption from realty taxes
for "Cemeteries, churches and parsonages or convents appurtenant thereto,
and all lands, buildings, and improvements used exclusively for religious,
charitable or educational purposes ...
Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as
amended by Republic Act No. 409, otherwise known as the Assessment Law,
provides:
The following are exempted from real property tax under the
Assessment Law:
xxx xxx xxx
(c) churches and parsonages or convents appurtenant thereto,
and all lands, buildings, and improvements used exclusively for
religious, charitable, scientific or educational purposes.
xxx xxx xxx
In this regard petitioner argues that the primary use of the school lot and
building is the basic and controlling guide, norm and standard to determine
tax exemption, and not the mere incidental use thereof.
As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil.
217 [1916], this Court ruled that while it may be true that the YMCA keeps a
lodging and a boarding house and maintains a restaurant for its members,
still these do not constitute business in the ordinary acceptance of the word,
but an institution used exclusively for religious, charitable and educational
purposes, and as such, it is entitled to be exempted from taxation.
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In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51

Phil. 352 [1972], this Court included in the exemption a vegetable garden in
an adjacent lot and another lot formerly used as a cemetery. It was clarified
that the term "used exclusively" considers incidental use also. Thus, the
exemption from payment of land tax in favor of the convent includes, not
only the land actually occupied by the building but also the adjacent garden
devoted to the incidental use of the parish priest. The lot which is not used
for commercial purposes but serves solely as a sort of lodging place, also
qualifies for exemption because this constitutes incidental use in religious
functions.
The phrase "exclusively used for educational purposes" was further clarified
by this Court in the cases of Herrera vs. Quezon City Board of assessment
Appeals, 3 SCRA 186 [1961] and Commissioner of Internal Revenue vs.
Bishop of the Missionary District, 14 SCRA 991 [1965], thus
Moreover, the exemption in favor of property used exclusively for
charitable or educational purposes is 'not limited to property
actually indispensable' therefor (Cooley on Taxation, Vol. 2, p.
1430), but extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said purposes,
such as in the case of hospitals, "a school for training nurses, a
nurses' home, property use to provide housing facilities for
interns, resident doctors, superintendents, and other members of
the hospital staff, and recreational facilities for student nurses,
interns, and residents' (84 CJS 6621), such as "Athletic fields"
including "a firm used for the inmates of the institution. (Cooley
on Taxation, Vol. 2, p. 1430).
The test of exemption from taxation is the use of the property for purposes
mentioned in the Constitution (Apostolic Prefect v. City Treasurer of Baguio,
71 Phil, 547 [1941]).
It must be stressed however, that while this Court allows a more liberal and
non-restrictive interpretation of the phrase "exclusively used for educational
purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935
Philippine Constitution, reasonable emphasis has always been made that
exemption extends to facilities which are incidental to and reasonably
necessary for the accomplishment of the main purposes. Otherwise stated,
the use of the school building or lot for commercial purposes is neither
TAXATION LAW 1
contemplated by law, nor by jurisprudence. Thus, while the use of the second
floor of the main building in the case at bar for residential purposes of the
Director and his family, may find justification under the concept of incidental
use, which is complimentary to the main or primary purposeeducational,
the lease of the first floor thereof to the Northern Marketing Corporation
cannot by any stretch of the imagination be considered incidental to the
purpose of education.
It will be noted however that the aforementioned lease appears to have been
raised for the first time in this Court. That the matter was not taken up in the
to court is really apparent in the decision of respondent Judge. No mention
thereof was made in the stipulation of facts, not even in the description of
the school building by the trial judge, both embodied in the decision nor as
one of the issues to resolve in order to determine whether or not said
properly may be exempted from payment of real estate taxes (Rollo, pp. 1723). On the other hand, it is noteworthy that such fact was not disputed even
after it was raised in this Court.
Indeed, it is axiomatic that facts not raised in the lower court cannot be
taken up for the first time on appeal. Nonetheless, as an exception to the
rule, this Court has held that although a factual issue is not squarely raised
below, still in the interest of substantial justice, this Court is not prevented
from considering a pivotal factual matter. "The Supreme Court is clothed with
ample authority to review palpable errors not assigned as such if it finds that
their consideration is necessary in arriving at a just decision." (Perez vs.
Court of Appeals, 127 SCRA 645 [1984]).
Under the 1935 Constitution, the trial court correctly arrived at the
conclusion that the school building as well as the lot where it is built, should
be taxed, not because the second floor of the same is being used by the
Director and his family for residential purposes, but because the first floor
thereof is being used for commercial purposes. However, since only a portion
is used for purposes of commerce, it is only fair that half of the assessed tax
be returned to the school involved.
PREMISES CONSIDERED, the decision of the Court of First Instance of Abra,
Branch I, is hereby AFFIRMED subject to the modification that half of the
assessed tax be returned to the petitioner.
SO ORDERED.
TAXATION LAW 1
DIGEST
FACTS: Petitioner, an educational corporation and institution of higher
learning duly incorporated with the Securities and Exchange Commission in
1948, filed a complaint to annul and declare void the Notice of Seizure and
the Notice of Sale of its lot and building located at Bangued, Abra, for nonpayment of real estate taxes and penalties amounting to P5,140.31. Said
Notice of Seizure by respondents Municipal Treasurer and Provincial
Treasurer, defendants below, was issued for the satisfaction of the said taxes
thereon.
The parties entered into a stipulation of facts adopted and embodied by the
trial court in its questioned decision. The trial court ruled for the government,
holding that the second floor of the building is being used by the director for
residential purposes and that the ground floor used and rented by Northern
Marketing Corporation, a commercial establishment, and thus the property is
not being used exclusively for educational purposes. Instead of perfecting an
appeal, petitioner availed of the instant petition for review on certiorari with
prayer for preliminary injunction before the Supreme Court, by filing said
petition on 17 August 1974.
ISSUE: Whether or not the lot and building are used exclusively for
educational purposes.
HELD: Section 22, paragraph 3, Article VI, of the then 1935 Philippine
Constitution, expressly grants exemption from realty taxes for cemeteries,
churches and parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious, charitable or
educational purposes. Reasonable emphasis has always been made that the
exemption extends to facilities which are incidental to and reasonably
necessary for the accomplishment of the main purposes. The use of the
school building or lot for commercial purposes is neither contemplated by
law, nor by jurisprudence. In the case at bar, the lease of the first floor of the
building to the Northern Marketing Corporation cannot by any stretch of the
imagination be considered incidental to the purpose of education. The test of
TAXATION LAW 1
exemption from taxation is the use of the property for purposes mentioned in
the Constitution.
The decision of the CFI Abra (Branch I) is affirmed subject to the modification
that half of the assessed tax be returned to the petitioner. The modification is
derived from the fact that the ground floor is being used for commercial
purposes (leased) and the second floor being used as incidental to education
(residence of the director).

SUPREME COURT
Manila
EN BANC
G.R. No. L-19201
June 16, 1965
REV. FR. CASIMIRO LLADOC, petitioner,

vs.
The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX
Hilado and Hilado for petitioner.
TAXATION LAW 1
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 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. Fr. Casimiro 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 laws 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.
xxx
xxx
xxx
The petitioner impugns the, fairness of the assessment with the

argument that he should not be held liable for gift taxes on donation
TAXATION LAW 1
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 should 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 where ever 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.
xxx
xxx
xxx
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, G.R. No. L-8755, March 23,
1956; 53 O.G. 3762.)
The phrase "exempt from taxation" as employed in Section 22(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.
Hastrings 5 Phil. 701.)
xxx
xxx
xxx
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 v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and the
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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 (5%) 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
25% 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 contra
distinguished 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. Rec. 91 F 2d 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 giftinter vivos, the imposition of which on property used
exclusively for religious purposes, does 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 no
clear, positive or express grant of such privilege by law, in favor of 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
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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 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. Casimiro Lladoc
as its own and for all purposes.
In view here of 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 Victorias Pertains, is liable for the payment thereof.
The decision appealed from should be, as it is hereby affirmed insofar as 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.
DIGEST
FACTS:
M.B. Estate, Inc. donated P10,000.00 in cash to the parish priest of Victorias,
Negros Occidental, for the construction of a new Catholic Church in the
locality. The total amount was actually spent for the purpose intended.
A year later, M.B. Estate, Inc., filed the donor's gift tax return. CIR issued an
assessment for donee's gift tax against the parish, of which petitioner was
the priest.
TAXATION LAW 1
Petitioner filed a protest which was denied by the CIR. He then filed an
appeal with the CTA citing that he was not the parish priest at the time of
donation, 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 and that assessment of the gift tax is unconstitutional.
The CTA denied the appeal thus this case.
ISSUE: Whether petitioner and the parish are liable for the donee's gift tax.
RULING:
Yes for the parish. The Constitution only made mention of property tax and
not of excise tax as stated in Section 22, par 3. The assessment of the CIR
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.
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, does not constitute an impairment of the
Constitution.
No for the petitioner. The Court ordered petitioner to be substituted by the

Head of Diocese to pay the said gift tax after the CIR and Solicitor General
did not object to such substitution.
TAXATION LAW 1

SUPREME COURT
Manila
EN BANC
G.R. No. L-7988
January 19, 1916
THE YOUNG MEN'S CHRISTIAN ASSOCIATION OF MANILA, plaintiffappellant,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
Haussermann, Cohn and Fisher for appellant.
City Attorney Escaler for appellee.
MORELAND, J.:
The question at issue in this case is whether or not the building and grounds
of the Young Men's Christian Association of Manila are subject to taxation,
under section 48 of the charter of the city of Manila quoted in the footnote
[syllabus].
The city of Manila, contending that the property is taxable, assessed it and
levied a tax thereon. It was paid under protest and this action begun to
recover it on the ground that the property was exempt from taxation under
the charter of the city of Manila. The decision was for the city and the
association appealed.
TAXATION LAW 1
The Young Men's Christian Association came to the Philippine with the army
of occupation in 1898. When the large body of troops in Manila was removed
to permanent quarters at Fort William McKinley in February, 1905, an
independent association for Manila was organized under the direction of the
Army and navy departments. Shortly after the organization of the association
the directors made a formal request to the international committee of the
Young Men's Christian Association in New York City for the assistance and
cooperation of its foreign department. I response to this request Mr. John R.
Mott, general secretary of the foreign department, visited Manila in January
1907. After a conference with the directors and interested friends it was
decided to conduct a campaign to secure funds for an adequate and
permanent association. In the name of the international committee and
friends in America Mr. Mott guaranteed P170,000 for the construction of a
building on condition that friend in the Philippines secure the site and
adequately furnish the building. The campaign for funds was begun here on
February 15, 1907, and, by the 15th of March following, P83,000 was
subscribed, nearly one thousand different persons contributing. Thereupon
the Young Men's Christian Association of Manila was incorporated under the
law of the Philippine Islands and received its character in June, 1907.
A site for the new building was selected on Calle Concepcion, Ermita, and the
building contract was let on the 8th of January following. The cornerstone
was laid with appropriate ceremonies on July 10, 1908, and the building was
formally dedicated on October 20, 1909.
The building is composed of three parts. The main structure, located in the
center, is three stories high and includes a reception hall, social hall and
game rooms, lecture room, library, reading room and rooming apartments.
The small building lying to the left of the principal structure, as one faces the
front from Called Concepcion, is the kitchen and servant's quarters. The large
wing to the right is known as the athletic building, where the bowling alleys,
swimming pool, locker rooms and gymnasium-auditorium are located. The
construction is of reinforced concrete with steel trussed roof covered with
interlocking red tiles.
The main or central portion of the building is 150 by 45 feet and stands 20
meters back from the sidewalk. An iron canopy, suspended by brackets,
projects over the driveway which lies in front and shelters the main entrance.
A wide arched doorway opens into a large reception room, on the left of
which is the public office and the secretary's private office, while on the right
TAXATION LAW 1
is the reading and writing rooms, and beyond that the library, each about 30
feet square. From the reception room, on the left, a broad concrete stairway
leads to the second floor.
Passing out of the rear of the reception hall one enters upon a veranda some
15 feet in width running the full length of the main structure which looks out
on the tennis courts and affords an excellent place for lounging, games and
general social purposes. To the left of the entrance hall and also opening
upon the veranda are two large rooms of about the same size as those on
the right of the reception hall, the first being the billiard room and the other
the restaurant. The athletic building is entered from the rear veranda. It is a
two story wing 68 by 85 feet. Passing from the veranda into the athletic hall
one finds first, on the left, the toilet room, and beyond this, to the rear, the
shower baths and locker rooms. The swimming pool is in the center of the
athletic wing and is 60 by 19 feet in size, lined with cement. To the right of
the swimming pool are the bowling alleys. A wide stairways leads to the
second floor. Above the swimming-pool and bowling alley is a large room 50
by 85 feet which is the gymnasium and also the auditorium when occasion
requires. About one-third of the roof converting the athletic wing is used as a
roof garden.
The second and third floors of the main building are given over almost wholly
to rooming apartments and baths. On the second floor over the entrance hall
is a members' parlor, from which a small balcony projects over the main
entrance. The remainder of the second floor and all to the third are
composed of the living rooms. These apartments, of which there are 14 on
the second and 20 on the third floor are approximately 18 by 14 feet each.
They provide accommodations for 64 men.
The purposes of the association, as set forth in its charter and constitution,
are:
To develop the Christian character and usefulness of its members, to
improve the spiritual, intellectual, social and physical condition of
young men, and to acquire, hold, mortgage, and dispose of the
necessary lands, buildings and personal property for the use of said
corporation exclusively for religious, charitable and educational
purposes, and not for investment or profit.
The purposes of this association shall be exclusively religious,
charitable and educational, in developing the Christian character and
TAXATION LAW 1
usefulness of its members and in improving the spiritual, mental, social

and physical condition of young men.
Speaking generally, the association claims exemption from taxation on the
ground that it is a religious, charitable and educational institution combined.
That it has an educational department is not denied. It is undisputed that the
aim of this department is to furnish, at much less than cost, instruction in
subjects that will greatly increase the mental efficiency and wage-earning
capacity of young men, prepare them in special lines of business and offer
them special lines of study. Attention is given to subjects included in civil
service and consular examinations both here and in the United States. The
courses offer commercial subjects, as well as many others, and include
stenography and typewriting, bookkeeping, arithmetic, English composition,
foreign languages, including elementary and advanced Spanish and Tagalog,
special courses in Philippine history, public speaking, surveying, horticulture,
tropical dependencies, and the group of subjects required for entrance into
the consular services, such as political economy, American and modern
history. Courses are also offered in law, social, ethics, political economy and
other subjects.
The institution has also its religious department. In that department there
are, generally speaking, three main lines of work Bible study, religious
meetings and special classes. Course are offered in the Life of Christ and the
Old Testament and in the larger social significance of the teachings of Jesus.
Meetings are held on Sunday afternoons and several times during the week
and courses are offered in the study of missions, in the method of teaching
the Bible and kindred subjects.
The atmosphere of the Young Men's Christian Association is distinctly
religious and there is constant effort on the part of the officials to create a
religious spirit; and to that end there is continuous pressure to induce
members to attend not only the religious services of the association but also
those of one or another of the churches of Manila. While the association is
nonsectarian, it is preeminently religious; and the fundamental basis and
groundwork is the Christian religion. All of the officials of the association are
devoted Christians, members of a church, and have dedicated their lives to
the spread of the Christian principles and building of Christian character.
The institution also has charitable features. It makes no profit on any of its
activities. The professors and instructors in all departments serve without
TAXATION LAW 1
pay and freely give of their time and ability to further the purposes of the
institution. The chief secretary and his assistant receive no salary from the
institution. Whatever they are paid comes from the United States. In
estimating the cost of instruction in the various departments, or of the other
things for which pay is received, no account is taken of the interest on the
money invested in the grounds and building, of deterioration in value
resulting from the lapse of time, or of the fact that the professors and
instructors and certain officials receive no pay. We have, then, a building and
grounds, professors and instructors, and certain institution officials, furnished
free of charge, and which makes no profit even on that basis. This, it would
seem, would lend some color to the claim that the association takes on some
of the aspect of a charitable institution. While it appears that the association
is not exclusively religious or charitable or educational, it is demonstrated
that it is a happy combination of all three, giving to its membership the
religious opportunities of the church, the educational opportunities of the
school and the blessings of charity where needed without the recipient
feeling or even knowing that he is the object of charity.
It is claimed, however, that the institution is run as a business in that it keeps
a lodging and boarding house. It may be admitted that there are 64 persons
occupying rooms in the main building as lodgers or roomers and that they
take their meals at the restaurant below. These facts, however, are far from
constituting a business in ordinary acceptation of the word. In the first place,
no profit is realized by the association in any sense. In the second place, it is
undoubted, as it is undisputed, that the purpose of the association is not,
primarily, to obtain the money which comes from the lodgers and boarders.
The real purpose is to keep the membership continually within the sphere of
influence of the institution; and thereby to prevent, as far as possible, the
opportunities which vice president to young men in foreign countries who
lack home or other similar influences. We regard this feature of the
institution not as a business or means of making money, but, rather, as a
very efficient means of maintaining the influence of the institution over its
membership. As we held in the case of the Columbia Club, religious and
moral teachings do not always stop with the spoken word; but to be effective
in the highest degree they must follow the young man through as many
moments of his life as possible. To this end the feature of the Young Men's
Christian Association to which objection is made lends itself with great effect;
and we are, accordingly, forced to regards this activity of the institution not
as a business but as a method by which the institution maintains its
TAXATION LAW 1
influence and conserves the benefits which its organization was designed to
confer.
As we have seen in the description already given of the association building
and grounds, no part is occupied for any but institutional purposes. From end
to end the building and grounds are devoted exclusively to the purposes
stated in the constitution of the association. The library and reading rooms,
the game and lounging halls, the lecture rooms, the auditorium, the baths,
pools, devices for physical development, and the grounds, are all dedicated
exclusively to the objects and purpose of the association the building of
Christian character and the creation of moral sentiment and fiber in men. It
is the belief of the Young Men's Christian Association that a Christian man, a
man of moral sentiment and firm moral fiber, is yet a better man for being
also all-round man one who is sound not only according to Christian
principles and the highest moral conceptions, but physically and mentally;
whose body and mind act in harmony and within the limits which the rights
of others set; who are gentleman in physical and mental struggles, as well as
in religious service; who have self-respect and self-restraint; who can hit hard
and still kindly; who can lose without envy; who can congratulate his
conqueror with sincerity; who can vie without temper, contend without
malice, concede without regret; who can win and still be generous, in
short, one who fights hard but square. To the production of such men the
association lends all its efforts, husbands all its resources.
We are aware that there are many decisions holding that institutions of this
character are not exempt from taxation; but, on investigation, we find that
the majority of them are based on statutes much narrower than the one
under consider and that in all probability the decisions would have been
otherwise if the court had been passing on a statute similar to ours. On the
other hand, there are many decisions of the courts in the United States
founded on statutes like the Philippine statute which hold that associations of
this class are exempt from taxation. We have examined all of the decisions,
both for and against, with care and deliberation, and we are convinced that
the weight of authority sustains the positions we take in this case.
There is no doubt about the correctness of the contention that an institution
must devote itself exclusively to one or the other of the purpose mentioned
in the statute before it can be exempt from taxation; but the statute does not
say that it must be devoted exclusively to any one of the purposes therein
mentioned. It may be a combination of two or three or more of those
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purposes and still be entitled to exempt. The Young Men's Christian

Association of Manila cannot be said to be an institution used exclusively for
religious purposes, or an institution used exclusively for charitable purposes,
or an institution devoted exclusively to educational purposes; but we believe
it can be truthfully said that it is an institution used exclusively for all three
purposes, and that, as such, it is entitled to be exempted from taxation.
The judgment appealed from is reversed and the cause remanded with
instructions to enter a judgment against the city of Manila and in favor of the
Young Men's Christian Association of Manila in the sum of P6,221.35. Without
costs in this instance. So ordered.
DIGEST
FACTS:
The Young Mens Christian Association came to the Philippine with the
army of occupation in 1898. Thereupon the YMCA of Manila was incorporated
under the law of the Philippine islands and received its character in june,
1907. A site for the new building was selected on Calle Concepcion, Ermita.
The city of Manila, contending that the property is taxable, assessed it and
levied a tax thereon. It was paid under protest and this action begun to
recover it on the ground that the property was exempt from taxation under
the charter of the city of manila. The decision was for the city and the
association appealed.
The association claims exemption from taxation on the ground that it is a
religious, charitable and education institution combined.
It is claimed, however, that the institution is run as a business in that it keeps
a lodging and boarding house.
ISSUE:
WON the building and grounds of the YMCA of manila are subject to taxation
under section 48 of the charter of the city of Manila.
HELD:
No, the statute does not say that it must be devoted exclusively to any one
of the purposes therein mentioned. It may be a combination of two or three
or more of those purposes and still be entitled to exempt.
TAXATION LAW 1
The YMCA of manila cannot be said to be an institution used exclusively for

religious purposes, or an institution used exclusively for charitable purposes,
or an institution devoted exclusively to educational purposes; but it can be
truthfully said that it is an institution used exclusively for all three purposes,
and that, as such, it is entitled to be exempted from taxation.
It may be admitted that there are 64 persons occupying rooms in the main
building as lodgers or roomers and that they take their meals at the
restaurant below. These facts, however, are far from constituting a business
in ordinary acceptation of the word.

SUPREME COURT
Manila
EN BANC
G.R. No. L-15270
September 30, 1961
JOSE V. HERRERA and ESTER OCHANGCO HERRERA, petitioners,

vs.
THE QUEZON CITY BOARD OF ASSESSMENT APPEALS, respondent.
Angel A. Sison for petitioners.
Jaime Agloro for respondent.
CONCEPCION, J.:
Appeal, by petitioners Jose V. Herrera and Ester Ochangco Herrera, from a
decision of the Court of Tax Appeals affirming that of the Board of
Assessment Appeals of Quezon City, which held that certain properties of
said petitioners are subject to assessment for purposes of real estate tax.
TAXATION LAW 1
The facts and the issue are set forth in the aforementioned decision of the
Court of Tax Appeals, from which we quote:
On July 24, 1952, the Director of the Bureau of Hospitals authorized the
petitioners to establish and operate the "St. Catherine's Hospital",
located at 58 D. Tuazon, Sta. Mesa Heights, Quezon City (Exhibit "F-1",
p. 7, BIR rec.). On or about January 3, 1953, the petitioners sent a
letter to the Quezon City Assessor requesting exemption from payment
of real estate tax on the lot, building and other improvements
comprising the hospital stating that the same was established for
charitable and humanitarian purposes and not for commercial gain
(Exhibit "F-2", pp. 8-9, BIR rec.). After an inspection of the premises in
question and after a careful study of the case, the exemption from real
property taxes was granted effective the years 1953, 1954 and 1955.
Subsequently, however, in a letter dated August 10, 1955 (Exhibit "E",
p. 65, CTA rec.) the Quezon City Assessor notified the petitioners that
the aforesaid properties were re-classified from exempt to "taxable"
and thus assessed for real property taxes effective 1956, enclosing
therewith copies of Tax Declarations Nos. 19321 to 19322 covering the
said properties. The petitioners appealed the assessment to the
Quezon City Board of Assessment Appeals, which, in a decision dated
March 31, 1956 and received by the former on May 17, 1956, affirmed
the decision of the City Assessor. A motion for reconsideration thereof
was denied on March 8, 1957. From this decision, the petitioners
instituted the instant appeal.1awphl.nt
The building involved in this case is principally used as a hospital. It is
mainly a surgical and orthopedic hospital with emphasis on obstetrical
cases, the latter constituting 90% of the total number of cases
registered therein. The hospital has thirty-two (32) beds, of which
twenty (20) are for charity-patients and twelve (12) for pay-patients.
From the evidence presented by petitioners, it is made to appear that
there are two kinds of charity patients (a) those who come for
consultation only ("out-charity patients"); and (b) those who remain in
the hospital for treatment ("lying-in-patients"). The out-charity patients
are given free consultation and prescription, although sometimes they
are furnished with free medicines which are not costly like aspirin,
sulfatiazole, etc. The charity lying-in-patients are given free medical
service and medicine although the food served to the pay-patients is
very much better than that given to the former. Although no condition
is imposed by the hospital on the admission of charity lying-in-patients,
they however, usually give donations to the hospital. On the other
hand, the pay-patients are required to pay for hospital services ranging
from the minimum charge of P5.00 to the maximum of P40.00 for each
day of stay in the hospital. The income realized from pay-patients is
TAXATION LAW 1
spent for the improvement of the charity wards. The hospital personnel
is composed of three nurses, two graduate midwives, a resident
physician receiving a salary of P170.00 a month and the petitioner, Dr.
Ester Ochangco Herrera, as directress. As such directress, the latter
does not receive any salary.
Petitioners also operate within the premises of the hospital the "St.
Catherine's School of Midwifery" which was granted government
recognition by the Secretary of Education on February 1, 1955 (Exhibit
"F-3", p. 10, BIR rec.) This school has an enrollment of about two
hundred students. The students are charged a matriculation fee of
P300.00 for 1- years, plus P50.00 a month for board and lodging,
which includes transportation to the St. Mary's Hospital. The students
practice in the St. Catherine's Hospital, as well as in the St. Mary's
Hospital, which is also owned by the petitioners. A separate set of
accounting books is maintained by the school for midwifery distinct
from that kept by the hospital. The petitioners alleged that the
accounts of the school are not included in Exhibits "A", "A-1", "A-2",
"B", "B-1", "B-2", "C", "C-1" and "C-2" which relate to the hospital only.
However, the petitioners have refused to submit a separate statement
of accounts of the school. A brief tabulation indicating the amount of
income of the hospital for the years 1954, 1955 and 1956, and its
operational expenses, is as follows:
1954
Income
Charity
Ward
Pay Ward
Expenses
P 5,280.04
P10,803.2
P14,779.5
6
0
P16,083.3
0
Deficit
P1,303.8
0
(Exhibits "A", "A-1" and "A-2")

1955
Income
Charity
Ward
Pay Ward
P17,433.3
0
Expenses
P 6,859.32
14,038.92
P20,898.2
4
Deficit
P3,464.9
4
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(Exhibits "B", "B-1" and "B-2")

1956
Income
Charity
Ward
Pay Ward
P21,467.4
0
Expenses
Deficit
P 5,559.89
16,249.04
P 341.53
P21,809.9
3
(Exhibits "C", "C-1" and "C-2")

Aside from the St. Catherine and St. Mary hospitals, the petitioners declared
that they also own lands and coconut plantations in Quezon Province, and
other real estate in the City of Manila consisting of apartments for rent. The
petitioner, Jose V. Herrera, is an architect, actively engaged in the practice of
his profession, with office at Tuason Building, Escolta, Manila. He was
formerly Chairman, Board of Examiners for Architects and Chairman, Board
of Architects connected with the United Nations. He was also connected with
the Allied Technologists which constructed the Veterans Hospital in Quezon
City.
The only issue raised, is whether or not the lot, building and other
improvements occupied by the St. Catherine Hospital are exempt from the
real property tax. The resolution of this question boils down to the corollary
issue as to whether or not the said properties are used exclusively for
charitable or educational purposes. (Petitioners' brief, pp. 24-29).
The Court of Tax Appeals decided the issue in the negative, upon the ground
that the St. Catherine's Hospital "has a pay ward for ... pay-patients, who are
charged for the use of the private rooms, operating room, laboratory room,
delivery room, etc., like other hospitals operated for profit" and that
"petitioners and their family occupy a portion of the building for their
residence." With respect to petitioners' claim for exemption based upon the
operation of the school of midwifery, the Court conceded that "the
proposition might be proper if the property used for the school of midwifery
were separate and distinct from the hospital." It added, however, that, "in
the instant case, the portions of the building used for classrooms of the
school of midwifery have not been shown to be exclusively for school
purposes"; that said portions "rather ... have a dual use, i.e., for classroom
and for hospital use, the latter not being a purpose that renders the property
tax exempt;" that part of the building and lot in question "is used as a
hospital, part as residence of the petitioners, part as garage, part as
dormitory and part as school"; and that "the portion dedicated to educational
TAXATION LAW 1
and charitable purposes can not be identified from those destined to other
uses; and the building is itself an indivisible unit of property."
It should be noted, however, that, according to the very statement of facts
made in the decision appealed from, of the thirty-two (32) beds in the
hospital, twenty (20) are for charity-patients; that "the income realized from
pay-patients is spent for improvement of the charity wards;" and that
"petitioners, Dr. Ester Ochangco Herrera, as directress" of said hospital,
"does not receive any salary," although its resident physician gets a monthly
salary of P170.00. It is well settled, in this connection, that the admission of
pay-patients does not detract from the charitable character of a hospital, if
all its funds are devoted "exclusively to the maintenance of the institution"
as a "public charity" (84 C.J.S., 617; see, also, 51 Am. Jur. 607; Cooley on
Taxation, Vol. 2, p. 1562; 144 A.L.R., 1489-1492). "In other words, where
rendering charity is its primary object, and the funds derived from payments
made by patients able to pay are devoted to the benevolent purposes of the
institution, the mere fact that a profit has been made will not deprive the
hospital of its benevolent character" (Prairie Du Chien Sanitarium Co. vs. City
of Prairie Du Chien, 242 Wis. 262, 7 NW [2d] 832, 144 A.L.R. 1480).
Thus, we have held that the U.S.T. Hospital was not established for profitmaking purposes, although it had 140 paying beds maintained only to partly
finance the expenses of the free wards, containing 203 beds for charity
patients (U.S.T. Hospital Employees Association vs. Sto. Tomas University
Hospital, L-6988, May 24, 1954), that St. Paul's Hospital of Iloilo, a
corporation organized for "charitable educational and religious purposes" can
not be considered as engaged in business merely because its pharmacy
department charges paying patients the cost of their medicine, plus 10%
thereof, to partly offset the cost of medicines supplied free of charge to
charity patients (Collector of Internal Revenue vs. St. Paul's Hospital of Iloilo,
L-12127, May 25, 1959), and that the amendment of the original articles of
incorporation of the University of Visayas to convert it from a non-stock to a
stock corporation and the increase of its assets from P9,000 to P50,000,
distributed among the members of the original non-stock corporation in
terms of shares of stock, as well as the subsequent move of its board of
trustees to double the stock dividends of the corporation, in view of a gain of
P200,000.00 in property, besides good-will, which was not carried out, does
not justify the inference that the corporation has become one for business
and profit, none of its profits having inured to the benefit of any stockholder
or individual (Collector of Internal Revenue vs. University of Visayas, L13554, February 28, 1961).
Moreover, the exemption in favor of property used exclusively for charitable
or educational purposes is "not limited to property actually indispensable"
therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which
are "incidental to and reasonably necessary for" the accomplishment of said
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purposes, such as, in the case of hospitals, "a school for training nurses, a
nurses' home, property use to provide housing facilities for interns, resident
doctors, superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns and residents" (84 C.J.S.,
621), such as "athletic fields," including "a farm used for the inmates of the
institution" (Cooley on Taxation, Vol. 2, p. 1430).
Within the purview of the Constitutional exemption from taxation, the St.
Catherine's Hospital is, therefore, a charitable institution, and the fact that it
admits pay-patients does not bar it from claiming that it is devoted
exclusively to benevolent purposes, it being admitted that the income
derived from pay-patients is devoted to the improvement of the charity
wards, which represent almost two-thirds (2/3) of the bed capacity of the
hospital, aside from "out-charity patients" who come only for consultation.
Again, the existence of "St. Catherine's School of Midwifery", with an
enrollment of about 200 students, who practice partly in St. Catherine's
Hospital and partly in St. Mary's Hospital, which, likewise, belongs to
petitioners herein, does not, and cannot, affect the exemption to which St.
Catherine's Hospital is entitled under our fundamental law. On the contrary,
it furnishes another ground for exemption. Seemingly, the Court of Tax
Appeals was impressed by the fact that the size of said enrollment and the
matriculation fee charged from the students of midwifery, aside from the
amount they paid for board and lodging, including transportation to St.
Mary's Hospital, warrants the belief that petitioners derive a substantial
profit from the operation of the school aforementioned. Such factor is,
however, immaterial to the issue in the case at bar, for "all lands, building
and improvements used exclusively for religious, charitable or educational
purposes shall be exempt from taxation," pursuant to the Constitution,
regardless of whether or not material profits are derived from the operation
of the institutions in question. In other words, Congress may, if it deems fit to
do so, impose taxes upon such "profits", but said "lands, buildings and
improvements" are beyond its taxing power.
Similarly, the garage in the building above referred to which was obviously
essential to the operation of the school of midwifery, for the students therein
enrolled practiced, not only in St. Catherine's Hospital, but, also, in St. Mary's
Hospital, and were entitled to transportation thereto for Mrs. Herrera
received no compensation as directress of St. Catherine's Hospital were
incidental to the operation of the latter and of said school, and, accordingly,
did not affect the charitable character of said hospital and the educational
nature of said school.
WHEREFORE, the decision of the Court of Tax Appeals, as well as that of the
Assessment Board of Appeals of Quezon City, are hereby reversed and set
aside, and another one entered declaring that the lot, building and
TAXATION LAW 1
improvements constituting the St. Catherine's Hospital are exempt from

taxation under the provisions of the Constitution, without special
FACTS:
In 1952, the Director of the Bureau of Hospitals authorized Jose V. Herrera
and Ester Ochangco Herrera to establish and operate the St. Catherines
Hospital. In 1953, the Herreras sent a letter to the Quezon City Assessor
requesting exemption from payment of real estate tax on the hospital,
stating that the same was established for charitable and humanitarian
purposes and not for commercial gain. The exemption was granted effective
years 1953 to 1955. In 1955, however, the Assessor reclassified the
properties from exempt to taxable effective 1956, as it was ascertained
that out of the 32 beds in the hospital, 12 of which are for pay-patients. A
school of midwifery is also operated within premises of the hospital.
ISSUE:
Whether St. Catherines is exempt from realty tax
RULING:
Yes. The admission of pay-patients does not detract from the charitable
character of a hospital, if all its funds are devoted exclusively to the
maintenance of the institution as a public charity.
The exemption extends to facilities which are incidental to and reasonably
necessary for the accomplishment of said
purpose a school for training nurses, a nurses home, etc.

SUPREME COURT
Manila
EN BANC
G.R. No. L-19445
August 31, 1965

TAXATION LAW 1

vs.
BISHOP OF THE MISSIONARY DISTRICT OF THE PHILIPPINE ISLANDS
OF THE PROTESTANT EPISCOPAL CHURCH IN THE U.S.A. and THE
COURT OF TAX APPEALS, respondents.
Office of the Solicitor General for petitioner.
Ross, Selph and Carrascoso for respondents.
REGALA, J.:
This is an appeal taken from the Commissioner of Internal Revenue from a
decision of the Court of Tax Appeals ordering him to refund to the Bishop of
the Missionary District of the Philippines Islands of the Protestant Episcopal in
the U.S.A. the sum of P118,847 which the latter had paid by way of
compensating tax.
Respondent Bishop of the Missionary District of the Philippines Islands of the
Protestant, Episcopal Church in the U.S.A. is a corporation sole duly
registered with the Securities and Exchange Commission. He is in charge of
the administration of the temporalities and the management of the estates
and properties in the Philippines of the Domestic and Foreign Missionary
Society of the Protestant Episcopal Church in the United States (hereinafter
referred to as Missionary Society). On the other hand, the Missionary District
of the Philippine Islands of the Protestant Episcopal Church the U.S.A.
(hereinafter referred to as Missionary District) is a duly incorporated and
established religious society. It owns and operates the St. Luke's Hospital in
Quezon City, the Brent Hospital in Zamboanga City and the St. Stephen's
High School in Manila.
On different dates in 1957, 1958 and 1959, the Missionary District in the
Philippines received from the Missionary Society in the United States various
shipments of materials, supplies, equipment and other articles intended for
use in the construction and operation of the new St. Luke's Hospital in
Quezon City and the Brent Hospital and St. Stephen's High School. The
Missionary District also received from a certain William Minnis of Canada a
stove for the use of the Brent Hospital.
On these shipments, the Commissioner of Internal Revenue levied and
collected the total amount of P118,847 as compensating tax.
TAXATION LAW 1
The Bishop of the Missionary District filed claims for refund of the amount he
had paid on the ground that under Republic Act No. 1916, the materials and
articles received by him were exempt from the payment of compensating
tax. As the two-year period for recovery of tax was about to expire, the
Bishop of the Missionary District filed a petition for review in the Court of Tax
Appeals, without awaiting action on his claim for refund. Subsequently, he
also filed two supplemental petitions for review covering other shipments
received by him and on which he had paid compensating taxes.
On August 21, 1959, the petitioner, the Commissioner of Internal Revenue
denied respondent's claim for refund on the ground that St. Luke's Hospital
was not a charitable institution and, therefore, was not exempt under the
law. This is also the position he maintained in his answer to the first
supplemental petition for review in the Tax Court.
After trial, the Tax Court rendered a decision holding the shipments exempt
from taxation ordering the petitioner to refund to the respondent the amount
of P118,847. It denied a motion for reconsideration of its decision, prompting
petitioner to interpose this appeal.
Petitioner makes the following assignment of errors:
1. The shipments cannot be considered donations because the Missionary
District is merely a branch of the Missionary Society. The two hold identical
interests.
2. The Tax Court's holding that the real donors are the people who
contributed money to the Missionary Society in America is based on the
uncorroborated testimony of Robert Meyer, Treasurer of the Missionary
District in the Philippines, who did not have personal knowledge of the
alleged contribution. The alleged contributors were not even identified.
3. The St. Luke's Hospital is not a charitable institution and, therefore, is not
exempt from taxation because its admits pay patients. The Secretary of
Finance states in his Dept. Order No. 18 that hospitals admitting pay patients
and charity patients are not charitable institutions.
This order was issued pursuant to the power given him by the last proviso of
Republic Act No. 1916 which provides:
TAXATION LAW 1
SECTION 1. The provisions of existing laws to the contrary

notwithstanding, all donations in any form and all articles imported into
the Philippines, consigned to a duly incorporated or established
international civic organization, religious or charitable society or
institution for civic, religious or charitable purposes shall be exempt
from the payment of all taxes and duties upon proof satisfactory to the
Commissioner of Customs and/or Collector of Internal Revenue that
such donations in any form and articles so imported are donations for
its use or for free distribution and not for barter, sale or hire: Provided,
however, That in case such are subsequently conveyed or transferred
to other parties for a consideration, taxes and duties shall be collected
thereon at double the rate provided under existing laws payable by the
transferor: Provided, further, That rules and regulation, shall be
promulgated by the Department of Finance for the implementation of
this Act.
This Court has already held that the following requisites must concur in order
that a taxpayer may claim exemption under the law (1) the imported articles
must have been donated; (2) the donee must be a duly incorporated or
established international civic organization, religious or charitable society, or
institution for civic religious or charitable purposes; and (3) the articles so
imported must have been donated for the use of the organization, society or
institution or for free distribution and not for barter, sale or hire.
(Commissioner v. Church of Jesus Christ "New Jerusalem," G.R. No. L-15772,
Oct. 31, 1961)
In this appeal, the petitioner contends that the importations in question
cannot be considered "donations" because the Missionary Society, which
made the shipments, and the Missionary District in the Philippines are not
different persons but rather are one and the same, the latter being a mere
branch of the former.
It should be enough to point out that by stipulation of the parties, the
respondent Bishop is admitted to be a corporation sole duly registered with
the Securities and Exchange Commission and that the Missionary District is a
"duly incorporated and established religious society." They are, therefore,
entities separate and distinct from the Missionary Society whose address is
at 281 Fourth South, New York 10, N.Y., U.S.A. The fact that the Missionary
District, of which respondent is the Bishop, is a branch of the Missionary
Society is of no moment. For that matter, so is the Roman Catholic Church in
TAXATION LAW 1
the Philippines a branch of the Universal Roman Catholic Apostolic Church,

but it is a branch only in religious matters, in matters of faith and dogma. In
other respects, it is independent. (Roman Catholic Apostolic Administrator v.
Land Registration Commissioner, G.R. No. L-8451, December 20, 1957)
The Tax Court's finding that the materials and supplies were purchased by
the Missionary Society with money obtained from contributions from other
people who should be considered the real donors is also assailed as being
based on the uncorroborated testimony of Robert Meyer, Treasurer of the
Missionary District, who it is said, did not have personal knowledge of the
matter testified to by him. This is not so. As respondent points out, the
various deeds of donation state in paragraph 3 that the "Missionary Society
is a non-profit organization and derives its support from voluntary
contributions."
Petitioner's other point is that St. Luke's Hospital is not a charitable
institution considering that it admits paying patients. Indeed, it was on this
ground that petitioner denied respondent's claim for refund. It is argued that
pursuant to the last proviso of Republic Act No. 1916, the Secretary of
Finance issued Department Order No. 18 on October 20, 1958, stating that
Hospitals that admit pay patients and charity patients ... are not
charitable institutions for purposes of Republic Act No 1916.
Again, it should be enough to point out that the admission of pay patients
does not detract from the charitable character of a hospital, if, as in the case
of St. Luke's Hospital, its funds are devoted exclusively to the Maintenance of
the institution (Cf., e.g., Herrera v. Quezon City Board of Assessment Appeals,
G.R. No. 15270, September 30, 1961). The Secretary of Finance cannot limit
or otherwise qualify the enjoyment of this exemption granted under Republic
Act No. 1916 in implementing the law.
WHEREFORE, the decision appealed from is hereby affirmed with costs.
TAXATION LAW 1

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-49336 August 31, 1981
THE PROVINCE OF ABRA, represented by LADISLAO ANCHETA,
Provincial Assessor, petitioner,
vs.
HONORABLE HAROLD M. HERNANDO, in his capacity as Presiding
Judge of Branch I, Court of First Instance Abra; THE ROMAN
CATHOLIC BISHOP OF BANGUED, INC., represented by Bishop Odilo
etspueler and Reverend Felipe Flores, respondents.
FERNANDO, C.J.:
TAXATION LAW 1
On the face of this certiorari and mandamus petition filed by the Province of
Abra, 1 it clearly appears that the actuation of respondent Judge Harold M.
Hernando of the Court of First Instance of Abra left much to be desired. First,
there was a denial of a motion to dismiss 2 an action for declaratory relief by
private respondent Roman Catholic Bishop of Bangued desirous of being
exempted from a real estate tax followed by a summary judgment 3 granting
such exemption, without even hearing the side of petitioner. In the rather
vigorous language of the Acting Provincial Fiscal, as counsel for petitioner,
respondent Judge "virtually ignored the pertinent provisions of the Rules of
Court; ... wantonly violated the rights of petitioner to due process, by giving
due course to the petition of private respondent for declaratory relief, and
thereafter without allowing petitioner to answer and without any hearing,
adjudged the case; all in total disregard of basic laws of procedure and basic
provisions of due process in the constitution, thereby indicating a failure to
grasp and understand the law, which goes into the competence of the
Honorable Presiding Judge." 4
It was the submission of counsel that an action for declaratory relief would
be proper only before a breach or violation of any statute, executive order or
regulation. 5 Moreover, there being a tax assessment made by the Provincial
Assessor on the properties of respondent Roman Catholic Bishop, petitioner
failed to exhaust the administrative remedies available under Presidential
Decree No. 464 before filing such court action. Further, it was pointed out to
respondent Judge that he failed to abide by the pertinent provision of such
Presidential Decree which provides as follows: "No court shall entertain any
suit assailing the validity of a tax assessed under this Code until the
taxpayer, shall have paid, under protest, the tax assessed against him nor
shall any court declare any tax invalid by reason of irregularities or
informalities in the proceedings of the officers charged with the assessment
or collection of taxes, or of failure to perform their duties within this time
herein specified for their performance unless such irregularities, informalities
or failure shall have impaired the substantial rights of the taxpayer; nor shall
any court declare any portion of the tax assessed under the provisions of this
Code invalid except upon condition that the taxpayer shall pay the just
amount of the tax, as determined by the court in the pending proceeding." 6
When asked to comment, respondent Judge began with the allegation that
there "is no question that the real properties sought to be taxed by the
Province of Abra are properties of the respondent Roman Catholic Bishop of
Bangued, Inc." 7 The very next sentence assumed the very point it asked
TAXATION LAW 1
when he categorically stated: "Likewise, there is no dispute that the

properties including their procedure are actually, directly and exclusively
used by the Roman Catholic Bishop of Bangued, Inc. for religious or
charitable purposes." 8 For him then: "The proper remedy of the petitioner is
appeal and not this special civil action." 9 A more exhaustive comment was
submitted by private respondent Roman Catholic Bishop of Bangued, Inc. It
was, however, unable to lessen the force of the objection raised by petitioner
Province of Abra, especially the due process aspect. it is to be admitted that
his opposition to the petition, pressed with vigor, ostensibly finds a
semblance of support from the authorities cited. It is thus impressed with a
scholarly aspect. It suffers, however, from the grave infirmity of stating that
only a pure question of law is presented when a claim for exemption is made.
The petition must be granted.
1. Respondent Judge would not have erred so grievously had he merely
compared the provisions of the present Constitution with that appearing in
the 1935 Charter on the tax exemption of "lands, buildings, and
improvements." There is a marked difference. Under the 1935 Constitution:
"Cemeteries, churches, and parsonages or convents appurtenant thereto,
and all lands, buildings, and improvements used exclusively for religious,
charitable, or educational purposes shall be exempt from taxation." 10 The
present Constitution added "charitable institutions, mosques, and non-profit
cemeteries" and required that for the exemption of ":lands, buildings, and
improvements," they should not only be "exclusively" but also "actually and
"directly" used for religious or charitable purposes. 11 The Constitution is
worded differently. The change should not be ignored. It must be duly taken
into consideration. Reliance on past decisions would have sufficed were the
words "actually" as well as "directly" not added. There must be proof
therefore of the actual and direct use of the lands, buildings, and
improvements for religious or charitable purposes to be exempt from
taxation. According to Commissioner of Internal Revenue v.
Guerrero: 12 "From 1906, in Catholic Church v. Hastings to 1966, in Esso
Standard Eastern, Inc. v. Acting Commissioner of Customs, it has been the
constant and uniform holding that exemption from taxation is not favored
and is never presumed, so that if granted it must be strictly construed
against the taxpayer. Affirmatively put, the law frowns on exemption from
taxation, hence, an exempting provision should be construedstrictissimi
juris." 13 In Manila Electric Company v. Vera, 14 a 1975 decision, such principle
was reiterated, reference being made to Republic Flour Mills, Inc. v.
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Commissioner of Internal Revenue; 15 Commissioner of Customs v. Philippine

Acetylene Co. & CTA; 16 and Davao Light and Power Co., Inc. v. Commissioner
of Customs. 17
2. Petitioner Province of Abra is therefore fully justified in invoking the
protection of procedural due process. If there is any case where proof is
necessary to demonstrate that there is compliance with the constitutional
provision that allows an exemption, this is it. Instead, respondent Judge
accepted at its face the allegation of private respondent. All that was alleged
in the petition for declaratory relief filed by private respondents, after
mentioning certain parcels of land owned by it, are that they are used
"actually, directly and exclusively" as sources of support of the parish priest
and his helpers and also of private respondent Bishop. 18 In the motion to
dismiss filed on behalf of petitioner Province of Abra, the objection was based
primarily on the lack of jurisdiction, as the validity of a tax assessment may
be questioned before the Local Board of Assessment Appeals and not with a
court. There was also mention of a lack of a cause of action, but only
because, in its view, declaratory relief is not proper, as there had been
breach or violation of the right of government to assess and collect taxes on
such property. It clearly appears, therefore, that in failing to accord a hearing
to petitioner Province of Abra and deciding the case immediately in favor of
private respondent, respondent Judge failed to abide by the constitutional
command of procedural due process.
WHEREFORE, the petition is granted and the resolution of June 19, 1978 is
set aside. Respondent Judge, or who ever is acting on his behalf, is ordered
to hear the case on the merit. No costs.
Digest
Facts: The provincial assessor made a tax assessment on the properties of
the Roman Catholic Bishop of Bangued. The bishop claims tax exemption
from real estate tax, through an action for declaratory relief. A summary
judgment was made granting the exemption without hearing the side of the
Province of Abra.
Issue: Whether the properties of the Bishop of Bangued are tax-exempt.
TAXATION LAW 1
Held: The 1935 and the 1973 Constitutions differ in language as to the
exemption of religious property from taxes as tehy should not only be
exclusively but also actually and directly used for religious purposes.
Herein, the judge accepted at its face the allegation of the Bishop instead of
demonstrating that there is compliance with the constitutional provision that
allows an exemption. There was an allegation of lack of jurisdiction and of
lack of cause of action, which should have compelled the judge to accord a
hearing to the province rather than deciding the case immediately in favor of
the Bishop. Exemption from taxation is not favored and is never presumed,
so that if granted, it must be strictly construed against the taxpayer. There
must be proof of the actual and direct use of the lands, buildings, and
improvements for religious (or charitable) purposes to be exempted from
taxation.
The case was remanded to the lower court for a trial on merits.
TAXATION LAW 1

SUPREME COURT
Manila
EN BANC
G.R. No. L-21841
October 28, 1966
ESSO STANDARD EASTERN, INC., petitioner-appellant,

vs.
ACTING COMMISSIONER OF CUSTOMS, respondent-appellee.
Ross, Selph and Carrascoso for petitioners.
SANCHEZ, J.:
Claim for the refund of P722.84 paid in 1956 as special import tax on pump
parts imported by petitioner. Petitioner's ground: The imported articles
"consist of equipment and spare parts for its own exclusive use and therefore
were exempt from special import tax", by the terms of Section 6, Republic
Act 1394.1 The Collector of Customs of Manila rejected the claim. Respondent
Acting Commissioner of Customs, on appeal, affirmed the rejection.
Petitioner's case suffered the same fate in the Court of Tax Appeals.2 We are
asked to review the Court on Tax Appeals' judgment.
The interrelated errors assigned in petitioner's brief funnel down to one
controlling legal issue: Are the imported pump parts exempt from the
payment of special import tax?
By Section 1 of Republic Act 1394, a special import tax is imposed "on all
goods, articles or products imported or brought into the Philippines" during
the period from 1956 up to and including 1965 in accordance with the
schedule of rates therein provided. Exempt from this tax, by express
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mandate of Section 6 of the same law, inter alia, are "machinery, equipment,
enterprises, planters and farmers".
Petitioner is engaged in the industry of processing gasoline, and
manufacturing lubricating oil, grease and tin containers. Petitioner owns
gasoline stations with pumps, which are leased to and operated by gasoline
dealers. It sells gasoline to these dealers. The pump parts imported by
petitioner in 1956 were intended, installed and actually used by gasoline
dealers in pumping gasoline from under around tanks into customers' motor
vehicles. These pump parts, in other words, are used in the sale at retail of
gasoline not by petitioner but by lessees of gasoline stations. In this
factual environment, it is quite evident that the pump parts are not used in
petitioner'sindustry of processing gasoline, or manufacturing lubricating oil,
grease and tin containers.
The drive of petitioner's argument is that marketing of its gasoline product
"is corollary to or incidental to its industrial operations."3 But this contention
runs smack against the familiar rules that exemption from taxation is not
favored,4 and that exemptions in tax statutes are never presumed.5 Which
are but statements in adherence to the ancient rule that exemptions from
taxation are construed in strictissimi juris against the taxpayer and liberally
in favor of the taxing authority.6 Tested by this precept, we cannot indulge in
expansive construction and write into the law an exemption not therein set
forth. Rather, we go by the reasonable assumption that where the State has
granted in express terms certain exemptions, those are the exemptions to be
considered, and no more. Since the law states that, to be tax exempt,
equipment and spare parts should be "for the use of industries", the
coverage herein should not be enlarged to include equipment and spare
parts for use in dispensing gasoline at retail. In comparable factual backdrop,
this Court has held that tax exemption in connection with the manufacture of
asbestos roof does not extend to the installation thereof.7
Upon the facts and the law, we vote to affirm the decision of the Court of Tax
Appeals under review. Costs against petitioner. So ordered.
Digest
"Exemptions from taxation are construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority."
TAXATION LAW 1
FACTS: Petitioner, engaged in the industry of processing gasoline, oils etc.,

claims for the refund of special import taxes paid pursuant to the provision of
RA 1394 which imposed a special import tax "on all goods, articles or
products imported or brought into the Philippines." Exempt from this tax, by
express mandate of Section 6 of the same law are "machinery, equipment,
enterprises, planters and farmers". Petitioner argued that the importation it
made of gas pumps used by their gasoline station operators should fall under
such exemptions, being directly used in its industry. The Collector of Customs
of Manila rejected the claim, and so as the Court on Tax Appeals. The CTA
noted that the pumps imported were not used in the processing of gasoline
and other oil products but by the gasoline stations, owned by the petitioner,
for pumping out, from underground barrels, gasoline sold on retail to
customers.
ISSUE: Is the contention of the petitioner tenable? Does the subject imports
fall into the exemptions?
HELD: No. The contention runs smack against the familiar rules that
exemption from taxation is not favored, and that exemptions in tax statutes
are never presumed. Which are but statements in adherence to the ancient
rule that exemptions from taxation are construed in strictissimi juris against
the taxpayer and liberally in favor of the taxing authority. Tested by this
precept, we cannot indulge in expansive construction and write into the law
an exemption not therein set forth. Rather, we go by the reasonable
assumption that where the State has granted in express terms certain
exemptions, those are the exemptions to be considered, and no more. Since
the law states that, to be tax-exempt, equipment and spare parts should be
"for the use of industries", the coverage herein should not be enlarged to
include equipment and spare parts for use in dispensing gasoline at retail.
TAXATION LAW 1

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 108524 November 10, 1994

MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner,
vs.
OFFICER, BIR MISAMIS ORIENTAL, respondents.
Damasing Law Office for petitioner.
TAXATION LAW 1
MENDOZA, J.:
This is a petition for prohibition and injunction seeking to nullify Revenue
Memorandum Circular No. 47-91 and enjoin the collection by respondent
revenue officials of the Value Added Tax (VAT) on the sale of copra by
members of petitioner organization. 1
Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic
corporation whose members, individually or collectively, are engaged in the
buying and selling of copra in Misamis Oriental. The petitioner alleges that
prior to the issuance of Revenue Memorandum Circular 47-91 on June 11,
1991, which implemented VAT Ruling 190-90, copra was classified as
agricultural food product under $ 103(b) of the National Internal Revenue
Code and, therefore, exempt from VAT at all stages of production or
distribution.
Respondents represent departments of the executive branch of government
charged with the generation of funds and the assessment, levy and
collection of taxes and other imposts.
The pertinent provision of the NIRC states:
Sec. 103. Exempt Transactions. The following shall be exempt
(a) Sale of nonfood agricultural, marine and forest products in
their original state by the primary producer or the owner of the
land where the same are produced;
(b) Sale or importation in their original state of agricultural and
marine food products, livestock and poultry of a kind generally
used as, or yielding or producing foods for human consumption,
and breeding stock and genetic material therefor;
Under 103(a), as above quoted, the sale of agricultural non-food products in
their original state is exempt from VAT only if the sale is made by the primary
producer or owner of the land from which the same are produced. The sale
made by any other person or entity, like a trader or dealer, is not exempt
from the tax. On the other hand, under 103(b) the sale of agricultural food
TAXATION LAW 1
products in their original state is exempt from VAT at all stages of production
or distribution regardless of who the seller is.
The question is whether copra is an agricultural food or non-food product for
purposes of this provision of the NIRC. On June 11, 1991, respondent
Commissioner of Internal Revenue issued the circular in question, classifying
copra as an agricultural non-food product and declaring it "exempt from VAT
only if the sale is made by the primary producer pursuant to Section 103(a)
of the Tax Code, as amended." 2
The reclassification had the effect of denying to the petitioner the exemption
it previously enjoyed when copra was classified as an agricultural food
product under 103(b) of the NIRC. Petitioner challenges RMC No. 47-91 on
various grounds, which will be presently discussed although not in the order
raised in the petition for prohibition.
First. Petitioner contends that the Bureau of Food and Drug of the
Department of Health and not the BIR is the competent government agency
to determine the proper classification of food products. Petitioner cites the
opinion of Dr. Quintin Kintanar of the Bureau of Food and Drug to the effect
that copra should be considered "food" because it is produced from coconut
which is food and 80% of coconut products are edible.
On the other hand, the respondents argue that the opinion of the BIR, as the
the tax laws, is entitled to great respect.
We agree with respondents. In interpreting 103(a) and (b) of the NIRC, the
Commissioner of Internal Revenue gave it a strict construction consistent
with the rule that tax exemptions must be strictly construed against the
taxpayer and liberally in favor of the state. Indeed, even Dr. Kintanar said
that his classification of copra as food was based on "the broader definition
of food which includes agricultural commodities and other components used
in the manufacture/processing of food." The full text of his letter reads:
10 April 1991
Mr. VICTOR A. DEOFERIO, JR.
Chairman VAT Review Committee
Bureau of Internal Revenue
Diliman, Quezon City
TAXATION LAW 1
Dear Mr. Deoferio:

This is to clarify a previous communication made by this Office
about copra in a letter dated 05 December 1990 stating that
copra is not classified as food. The statement was made in the
context of BFAD's regulatory responsibilities which focus mainly
on foods that are processed and packaged, and thereby copra is
not covered.
However, in the broader definition of food which include
agricultural commodities and other components used in the
manufacture/ processing of food, it is our opinion that copra
should be classified as an agricultural food product since copra is
produced from coconut meat which is food and based on
available information, more than 80% of products derived from
copra are edible products.
Very
truly
yours
,
QUIN
TIN L.
KINTA
NAR,
M.D.,
Ph.D.
Direct
or
Assist
ant
Secre
tary
of
Healt
h for
Stand
ards
and
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Regul
ation
s
Moreover, as the government agency charged with the enforcement of the
law, the opinion of the Commissioner of Internal Revenue, in the absence of
any showing that it is plainly wrong, is entitled to great weight. Indeed, the
ruling was made by the Commissioner of Internal Revenue in the exercise of
his power under 245 of the NIRC to "make rulings or opinions in connection
with the implementation of the provisions of internal revenue laws,including
rulings on the classification of articles for sales tax and similar purposes."
Second. Petitioner complains that it was denied due process because it was
not heard before the ruling was made. There is a distinction in administrative
law between legislative rules and interpretative rules. 3 There would be force
in petitioner's argument if the circular in question were in the nature of a
legislative rule. But it is not. It is a mere interpretative rule.
The reason for this distinction is that a legislative rule is in the nature of
subordinate legislation, designed to implement a primary legislation by
providing the details thereof. In the same way that laws must have the
benefit of public hearing, it is generally required that before a legislative rule
is adopted there must be hearing. In this connection, the Administrative
Code of 1987 provides:
observed. 4
In addition such rule must be published. 5 On the other hand, interpretative
rules are designed to provide guidelines to the law which the administrative
agency is in charge of enforcing.
TAXATION LAW 1
Accordingly, in considering a legislative rule a court is free to make three

inquiries: (i) whether the rule is within the delegated authority of the
administrative agency; (ii) whether it is reasonable; and (iii) whether it was
issued pursuant to proper procedure. But the court is not free to substitute
its judgment as to the desirability or wisdom of the rule for the legislative
body, by its delegation of administrative judgment, has committed those
questions to administrative judgments and not to judicial judgments. In the
case of an interpretative rule, the inquiry is not into the validity but into the
correctness or propriety of the rule. As a matter of power a court, when
confronted with an interpretative rule, is free to (i) give the force of law to
the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii)
give some intermediate degree of authoritative weight to the interpretative
rule. 6
In the case at bar, we find no reason for holding that respondent
Commissioner erred in not considering copra as an "agricultural food
product" within the meaning of 103(b) of the NIRC. As the Solicitor General
contends, "copra per se is not food, that is, it is not intended for human
consumption. Simply stated, nobody eats copra for food." That previous
Commissioners considered it so, is not reason for holding that the present
interpretation is wrong. The Commissioner of Internal Revenue is not bound
by the ruling of his predecessors. 7 To the contrary, the overruling of
decisions is inherent in the interpretation of laws.
Third. Petitioner likewise claims that RMC No. 47-91 is discriminatory and
violative of the equal protection clause of the Constitution because while
coconut farmers and copra producers are exempt, traders and dealers are
not, although both sell copra in its original state. Petitioners add that oil
millers do not enjoy tax credit out of the VAT payment of traders and dealers.
The argument has no merit. There is a material or substantial difference
between coconut farmers and copra producers, on the one hand, and copra
traders and dealers, on the other. The former produce and sell copra, the
latter merely sell copra. The Constitution does not forbid the differential
treatment of persons so long as there is a reasonable basis for classifying
them differently. 8
It is not true that oil millers are exempt from VAT. Pursuant to 102 of the
NIRC, they are subject to 10% VAT on the sale of services. Under 104 of the
Tax Code, they are allowed to credit the input tax on the sale of copra by
TAXATION LAW 1
traders and dealers, but there is no tax credit if the sale is made directly by
the copra producer as the sale is VAT exempt. In the same manner, copra
traders and dealers are allowed to credit the input tax on the sale of copra
by other traders and dealers, but there is no tax credit if the sale is made by
the producer.
Fourth. It is finally argued that RMC No. 47-91 is counterproductive because
traders and dealers would be forced to buy copra from coconut farmers who
are exempt from the VAT and that to the extent that prices are reduced the
government would lose revenues as the 10% tax base is correspondingly
diminished.
This is not so. The sale of agricultural non-food products is exempt from VAT
only when made by the primary producer or owner of the land from which
the same is produced, but in the case of agricultural food products their sale
in their original state is exempt at all stages of production or distribution. At
any rate, the argument that the classification of copra as agricultural nonfood product is counterproductive is a question of wisdom or policy which
should be addressed to respondent officials and to Congress.
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
Digest
FACTS:
Petitioner is engaged in the buying and selling of copra in Misamis Oriental.
The petitioner questions Revenue Memorandum Circular 47-91 issued by the
respondent, in which copra was classified as agricultural non-food product
effectively removing copra as one of the exemptions under Section 103 of
the NIRC.
Section 103a of the NIRC states that the sale of agricultural non-food
products in their original state is exempt from VAT only if the sale is made by
the primary producer or owner of the land from which the same are produced
and not by any other person or entity. Section 103b states the sale of
agricultural food products in their original state is exempt from VAT at all
stages of production or distribution regardless of who the seller is - which the
petitioner enjoys. The reclassification had the effect of denying to the
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petitioner this exemption when copra was classified as an agricultural food

product.
Petitioner filed a motion for prohibition.
ISSUE: Whether the Circular is valid.
RULING:
Yes. The Court first stated that the CIR gave the circular a strict construction
consistent with the rule that tax exemptions must be strictly construed
against the taxpayer and liberally in favor of the state.
The Court also stated that the Circular is not discriminatory and in violation
of the equal protection clause. Petitioner likened copra farmers / producers,
who are exempted from VAT and copra traders, which the Court disagreed.
Lastly, petitioners argued that the Circular was counterproductive which the
Court answers that it is a question of wisdom or policy which should be
addressed to respondent officials and to Congress.
TAXATION LAW 1

SUPREME COURT
Manila
EN BANC
G.R. No. L-26521
December 28, 1968
EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,

vs.
CITY OF ILOILO, defendants-appellants.
Pelaez, Jalandoni and Jamir for plaintiff-appellees.
Assistant City Fiscal Vicente P. Gengos for defendant-appellant.
CASTRO, J.:
Appeal by the defendant City of Iloilo from the decision of the Court of First
Instance of Iloilo declaring illegal Ordinance 11, series of 1960, entitled, "An
Ordinance Imposing Municipal License Tax On Persons Engaged In The
Business Of Operating Tenement Houses," and ordering the City to refund to
the plaintiffs-appellees the sums of collected from them under the said
ordinance.
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance
86, imposing license tax fees as follows: (1) tenement house (casa de
vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in
TAXATION LAW 1
or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer,

P24.00 per apartment; (3) tenement house, partly or wholly engaged in
business in any other streets, P12.00 per apartment. The validity and
constitutionality of this ordinance were challenged by the spouses Eusebio
Villanueva and Remedies Sian Villanueva, owners of four tenement houses
containing 34 apartments. This Court, in City of Iloilo vs. Remedios Sian
Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the
ordinance ultra vires, "it not appearing that the power to tax owners of
tenement houses is one among those clearly and expressly granted to the
City of Iloilo by its Charter."
On January 15, 1960 the municipal board of Iloilo City, believing, obviously,
that with the passage of Republic Act 2264, otherwise known as the Local
Autonomy Act, it had acquired the authority or power to enact an ordinance
similar to that previously declared by this Court as ultra vires, enacted
Ordinance 11, series of 1960, hereunder quoted in full:
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS
ENGAGED IN THE BUSINESS OF OPERATING TENEMENT HOUSES
Be it ordained by the Municipal Board of the City of Iloilo, pursuant to
the provisions of Republic Act No. 2264, otherwise known as the
Autonomy Law of Local Government, that:
Section 1. A municipal license tax is hereby imposed on tenement
houses in accordance with the schedule of payment herein provided.
Section 2. Tenement house as contemplated in this ordinance shall
mean any building or dwelling for renting space divided into separate
apartments or accessorias.
Section 3. The municipal license tax provided in Section 1 hereof
shall be as follows:
I. Tenement houses:
(a) Apartment house made of strong materials
P20.00 per door

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

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

p.a.
III. Tenement house partly or wholly engaged in or

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

p.a.
IV. Tenement house partly or wholly engaged in or

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

p.a.
V. Tenement houses at the streets surrounding the

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

p.a.
Section 4. All ordinances or parts thereof inconsistent herewith are

hereby amended.
Section 5. Any person found violating this ordinance shall be
punished with a fine note exceeding Two Hundred Pesos (P200.00) or
an imprisonment of not more than six (6) months or both at the
discretion of the Court.
Section 6 This ordinance shall take effect upon approval.
ENACTED, January 15, 1960.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva
are owners of five tenement houses, aggregately containing 43 apartments,
while the other appellees and the same Remedios S. Villanueva are owners
TAXATION LAW 1
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 19601964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita
S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of
P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on
his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint,
and an amended complaint, respectively, against the City of Iloilo, in the
aforementioned court, praying that Ordinance 11, series of 1960, be declared
"invalid for being beyond the powers of the Municipal Council of the City of
Iloilo to enact, and unconstitutional for being violative of the rule as to
uniformity of taxation and for depriving said plaintiffs of the equal protection
clause of the Constitution," and that the City be ordered to refund the
amounts collected from them under the said ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring the
ordinance illegal on the grounds that (a) "Republic Act 2264 does not
empower cities to impose apartment taxes," (b) the same is "oppressive and
unreasonable," for the reason that it penalizes owners of tenement houses
who fail to pay the tax, (c) it constitutes not only double taxation, but treble
at that and (d) it violates the rule of uniformity of taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it
imposes double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose
tenement taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable
because it carries a penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of
taxation?
1. The pertinent provisions of the Local Autonomy Act are hereunder
quoted:
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SEC. 2. Any provision of law to the contrary notwithstanding, all

chartered cities, municipalities and municipal districts shall have
authority to impose municipal license taxes or fees upon persons
engaged in any occupation or business, or exercising privileges in
chartered cities, municipalities or municipal districts by requiring them
to secure licences at rates fixed by the municipal board or city council
of the city, the municipal council of the municipality, or the municipal
district council of the municipal district; to collect fees and charges for
services rendered by the city, municipality or municipal district; to
regulate and impose reasonable fees for services rendered in
connection with any business, profession or occupation being
conducted within the city, municipality or municipal district and
otherwise to levy for public purposes, just and uniform taxes, licenses
or fees; Provided, That municipalities and municipal districts shall, in
no case, impose any percentage tax on sales or other taxes in any
form based thereon nor impose taxes on articles subject to specific tax,
except gasoline, under the provisions of the National Internal Revenue
Code;Provided, however, That no city, municipality or municipal district
may levy or impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and
publication of any newspaper, magazine, review or bulletin appearing
at regular intervals and having fixed prices for for subscription and
sale, and which is not published primarily for the purpose of publishing
advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public
utilities except electric light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies, and other
acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned by
the national government, tonnage, and all other kinds of customs fees,
charges and duties;
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(j) Taxes of any kind on banks, insurance companies, and persons

paying franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain
insurance directly with foreign insurance companies.
A tax ordinance shall go into effect on the fifteenth day after its
passage, unless the ordinance shall provide otherwise: Provided,
however, That the Secretary of Finance shall have authority to suspend
the effectivity of any ordinance within one hundred and twenty days
after its passage, if, in his opinion, the tax or fee therein levied or
imposed is unjust, excessive, oppressive, or confiscatory, and when the
said Secretary exercises this authority the effectivity of such ordinance
shall be suspended.
In such event, the municipal board or city council in the case of cities
and the municipal council or municipal district council in the case of
municipalities or municipal districts may appeal the decision of the
Secretary of Finance to the court during the pendency of which case
the tax levied shall be considered as paid under protest.
It is now settled that the aforequoted provisions of Republic Act 2264 confer
on local governments broad taxing authority which extends to almost
"everything, excepting those which are mentioned therein," provided that
the tax so levied is "for public purposes, just and uniform," and does not
transgress any constitutional provision or is not repugnant to a controlling
statute.2 Thus, when a tax, levied under the authority of a city or municipal
ordinance, is not within the exceptions and limitations aforementioned, the
same comes within the ambit of the general rule, pursuant to the rules
of expressio unius est exclusio alterius, and exceptio firmat regulum in
casibus non excepti.
Does the tax imposed by the ordinance in question fall within any of the
exceptions provided for in section 2 of the Local Autonomy Act? For this
purpose, it is necessary to determine the true nature of the tax. The
appellees strongly maintain that it is a "property tax" or "real estate
tax,"3 and not a "tax on persons engaged in any occupation or business or
exercising privileges," or a license tax, or a privilege tax, or an excise
tax.4 Indeed, the title of the ordinance designates it as a "municipal license
tax on persons engaged in the business of operating tenement houses,"
while section 1 thereof states that a "municipal license tax is
hereby imposed on tenement houses." It is the phraseology of section 1 on
which the appellees base their contention that the tax involved is a real
estate tax which, according to them, makes the ordinance ultra vires as it
imposes a levy "in excess of the one per centum real estate tax allowable
under Sec. 38 of the Iloilo City Charter, Com. Act 158."5.
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It is our view, contrary to the appellees' contention, that the tax in question
is not a real estate tax. Obviously, the appellees confuse the tax with the real
estate tax within the meaning of the Assessment Law,6 which, although not
applicable to the City of Iloilo, has counterpart provisions in the Iloilo City
Charter.7 A real estate tax is a direct tax on the ownership of lands and
buildings or other improvements thereon, not specially exempted, 8 and is
payable regardless of whether the property is used or not, although the
value may vary in accordance with such factor.9The tax is usually single or
indivisible, although the land and building or improvements erected thereon
are assessed separately, except when the land and building or improvements
belong to separate owners.10 It is a fixed proportion11 of the assessed value of
the property taxed, and requires, therefore, the intervention of assessors.12 It
is collected or payable at appointed times,13 and it constitutes a superior lien
on and is enforceable against the property14 subject to such taxation, and not
by imprisonment of the owner.
The tax imposed by the ordinance in question does not possess the
aforestated attributes. It is not a tax on the land on which the tenement
houses are erected, although both land and tenement houses may belong to
the same owner. The tax is not a fixed proportion of the assessed value of
the tenement houses, and does not require the intervention of assessors or
appraisers. It is not payable at a designated time or date, and is not
enforceable against the tenement houses either by sale or distraint. Clearly,
therefore, the tax in question is not a real estate tax.
"The spirit, rather than the letter, or an ordinance determines the
construction thereof, and the court looks less to its words and more to the
context, subject-matter, consequence and effect. Accordingly, what is within
the spirit is within the ordinance although it is not within the letter thereof,
while that which is in the letter, although not within the spirit, is not within
the ordinance."15 It is within neither the letter nor the spirit of the ordinance
that an additional real estate tax is being imposed, otherwise the subjectmatter would have been not merely tenement houses. On the contrary, it is
plain from the context of the ordinance that the intention is to impose a
license tax on the operation of tenement houses, which is a form of business
or calling. The ordinance, in both its title and body, particularly sections 1
and 3 thereof, designates the tax imposed as a "municipal license tax"
which, by itself, means an "imposition or exaction on the right to use or
dispose of property, to pursue a business, occupation, or calling, or to
exercise a privilege."16.
"The character of a tax is not to be fixed by any isolated words that
may beemployed in the statute creating it, but such words must be
taken in the connection in which they are used and the true character
is to be deduced from the nature and essence of the subject."17 The
subject-matter of the ordinance is tenement houses whose nature and
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essence are expressly set forth in section 2 which defines a tenement

house as "any building or dwelling for renting space divided into
separate apartments or accessorias." The Supreme Court, in City of
Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959,
adopted the definition of a tenement house18 as "any house or building,
or portion thereof, which is rented, leased, or hired out to be occupied,
or is occupied, as the home or residence of three families or more
living independently of each other and doing their cooking in the
premises or by more than two families upon any floor, so living and
cooking, but having a common right in the halls, stairways, yards,
water-closets, or privies, or some of them." Tenement houses, being
necessarily offered for rent or lease by their very nature and essence,
therefore constitute a distinct form of business or calling, similar to the
hotel or motel business, or the operation of lodging houses or boarding
houses. This is precisely one of the reasons why this Court, in the said
case of City of Iloilo vs. Remedios Sian Villanueva, et al., supra,
declared Ordinance 86 ultra vires, because, although the municipal
board of Iloilo City is empowered, under sec. 21, par. j of its Charter,
"to tax, fix the license fee for, and regulate hotels, restaurants,
refreshment parlors, cafes, lodging houses, boarding houses, livery
garages, public warehouses, pawnshops, theaters, cinematographs,"
tenement houses, which constitute a different business
enterprise,19 are not mentioned in the aforestated section of the City
Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:.
"And it not appearing that the power to tax owners of tenement
houses is one among those clearly and expressly granted to the City of
Iloilo by its Charter, the exercise of such power cannot be assumed and
hence the ordinance in question is ultra vires insofar as it taxes a
tenement house such as those belonging to defendants." .
The lower court has interchangeably denominated the tax in question as a
tenement tax or an apartment tax. Called by either name, it is not among
the exceptions listed in section 2 of the Local Autonomy Act. On the other
hand, the imposition by the ordinance of a license tax on persons engaged in
the business of operating tenement houses finds authority in section 2 of the
Local Autonomy Act which provides that chartered cities have the authority
to impose municipal license taxes or fees upon persons engaged in any
occupation or business, or exercising privileges within their respective
territories, and "otherwise to levy for public purposes, just and uniform taxes,
licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not only double
taxation but treble at that," because "buildings pay real estate taxes and also
income taxes as provided for in Sec. 182 (A) (3) (s) of the National Internal
Revenue Code, besides the tenement tax under the said ordinance."
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Obviously, what the trial court refers to as "income taxes" are the fixed taxes
on business and occupation provided for in section 182, Title V, of the
National Internal Revenue Code, by virtue of which persons engaged in
"leasing or renting property, whether on their account as principals or as
owners of rental property or properties," are considered "real estate dealers"
and are taxed according to the amount of their annual income.20.
While it is true that the plaintiffs-appellees are taxable under the aforesaid
provisions of the National Internal Revenue Code as real estate dealers, and
still taxable under the ordinance in question, the argument against double
taxation may not be invoked. The same tax may be imposed by the national
government as well as by the local government. There is nothing inherently
obnoxious in the exaction of license fees or taxes with respect to the same
occupation, calling or activity by both the State and a political subdivision
thereof.21.
The contention that the plaintiffs-appellees are doubly taxed because they
are paying the real estate taxes and the tenement tax imposed by the
ordinance in question, is also devoid of merit. It is a well-settled rule that a
license tax may be levied upon a business or occupation although the land or
property used in connection therewith is subject to property tax. The State
may collect an ad valorem tax on property used in a calling, and at the same
time impose a license tax on that calling, the imposition of the latter kind of
tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or
prohibited sense the same property must be taxed twice when it
should be taxed but once; both taxes must be imposed on the same
property or subject-matter, for the same purpose, by the same State,
Government, or taxing authority, within the same jurisdiction or taxing
district, during the same taxing period, and they must be the same
kind or character of tax."23 It has been shown that a real estate tax and
the tenement tax imposed by the ordinance, although imposed by the
sametaxing authority, are not of the same kind or character.
At all events, there is no constitutional prohibition against double taxation in
the Philippines.24 It is something not favored, but is permissible, provided
some other constitutional requirement is not thereby violated, such as the
requirement that taxes must be uniform."25.
3. The appellant City takes exception to the conclusion of the lower court
that the ordinance is not only oppressive because it "carries a penal clause of
a fine of P200.00 or imprisonment of 6 months or both, if the owner or
owners of the tenement buildings divided into apartments do not pay the
tenement or apartment tax fixed in said ordinance," but also unconstitutional
as it subjects the owners of tenement houses to criminal prosecution for nonElsa M. Canete|590 | P a g e
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payment of an obligation which is purely sum of money." The lower court

apparently had in mind, when it made the above ruling, the provision of the
Constitution that "no person shall be imprisoned for a debt or non-payment
of a poll tax."26 It is elementary, however, that "a tax is not a debt in the
sense of an obligation incurred by contract, express or implied, and therefore
is not within the meaning of constitutional or statutory provisions abolishing
or prohibiting imprisonment for debt, and a statute or ordinance which
punishes the non-payment thereof by fine or imprisonment is not, in conflict
with that prohibition."27 Nor is the tax in question a poll tax, for the latter is a
tax of a fixed amount upon all persons, or upon all persons of a certain class,
resident within a specified territory, without regard to their property or the
occupations in which they may be engaged.28 Therefore, the tax in question
is not oppressive in the manner the lower court puts it. On the other hand,
the charter of Iloilo City29 empowers its municipal board to "fix penalties for
violations of ordinances, which shall not exceed a fine of two hundred pesos
or six months' imprisonment, or both such fine and imprisonment for each
offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court
overruled the pronouncement of the lower court declaring illegal and void an
ordinance imposing an occupation tax on persons exercising various
professions in the City of Manilabecause it imposed a penalty of fine and
imprisonment for its violation.30.
4. The trial court brands the ordinance as violative of the rule of uniformity of
taxation.
"... because while the owners of the other buildings only pay real
estate tax and income taxes the ordinance imposes aside from these
two taxes an apartment or tenement tax. It should be noted that in the
assessment of real estate tax all parts of the building or buildings are
included so that the corresponding real estate tax could be properly
imposed. If aside from the real estate tax the owner or owners of the
tenement buildings should pay apartment taxes as required in the
ordinance then it will violate the rule of uniformity of taxation.".
Complementing the above ruling of the lower court, the appellees argue that
there is "lack of uniformity" and "relative inequality," because "only the
taxpayers of the City of Iloilo are singled out to pay taxes on their tenement
houses, while citizens of other cities, where their councils do not enact a
similar tax ordinance, are permitted to escape such imposition." .
It is our view that both assertions are undeserving of extended attention.
This Court has already ruled that tenement houses constitute a distinct class
of property. It has likewise ruled that "taxes are uniform and equal when
imposed upon all property of the same class or character within the taxing
authority."31 The fact, therefore, that the owners of other classes of buildings
in the City of Iloilo do not pay the taxes imposed by the ordinance in question
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is no argument at all against uniformity and equality of the tax imposition.

Neither is the rule of equality and uniformity violated by the fact that
tenement taxesare not imposed in other cities, for the same rule does not
require that taxes for the same purpose should be imposed in different
territorial subdivisions at the same time.32So long as the burden of the tax
falls equally and impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity of taxation is
accomplished.33 The plaintiffs-appellees, as owners of tenement houses in
the City of Iloilo, have not shown that the tax burden is not equally or
uniformly distributed among them, to overthrow the presumption that tax
statutes are intended to operate uniformly and equally.34.
5. The last important issue posed by the appellees is that since the ordinance
in the case at bar is a mere reproduction of Ordinance 86 of the City of Iloilo
which was declared by this Court in L-12695, supra, as ultra vires, the
decision in that case should be accorded the effect of res judicata in the
present case or should constitute estoppel by judgment. To dispose of this
contention, it suffices to say that there is no identity of subject-matter in that
case andthis case because the subject-matter in L-12695 was an ordinance
which dealt not only with tenement houses but also warehouses, and the
said ordinance was enacted pursuant to the provisions of the City charter,
while the ordinance in the case at bar was enacted pursuant to the
provisions of the Local Autonomy Act. There is likewise no identity of cause of
action in the two cases because the main issue in L-12695 was whether the
City of Iloilo had the power under its charter to impose the tax levied by
Ordinance 11, series of 1960, under the Local Autonomy Act which took
effect on June 19, 1959, and therefore was not available for consideration in
the decision in L-12695 which was promulgated on March 23, 1959.
Moreover, under the provisions of section 2 of the Local Autonomy Act, local
governments may now tax any taxable subject-matter or object not included
in the enumeration of matters removed from the taxing power of local
governments.Prior to the enactment of the Local Autonomy Act the taxes
that could be legally levied by local governments were only those specifically
authorized by law, and their power to tax was construed in strictissimi juris.
35.
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in
questionbeing valid, the complaint is hereby dismissed. No pronouncement
as to costs..
Digest
FACTS:
On September 30, 1946, the Municipal Board of Iloilo City enacted Ordinance
86 imposing license tax fees upon
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tenement houses. The validity of such ordinance was challenged by Eusebio

and Remedios Villanueva, owners of four tenement houses containing 34
apartments. The Supreme Court held the ordinance to be ultra views. On
January 15, 1960, however, the municipal board, believing that it acquired
authority to enact an ordinance of the same nature pursuant to the Local
Autonomy Act, enacted Ordinance 11, Eusebio and Remedios Villanueva
assailed the ordinance anew.
ISSUE:
Does Ordinance 11 violate the rule of uniformity of taxation?
RULING:
No. The Court has ruled the tenement houses constitute a distinct class of
property and that taxes are uniform and equal when imposed upon all
property of the same class or character within the taxing authority.
The fact that the owners of the other classes of buildings in Iloilo are not
imposed upon by the ordinance, or that tenement taxes are imposed in other
cities do not violate the rule of equality and uniformity. The 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 tax falls
equally and impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity is accomplished. The
presumption that tax statutes are intended to operate uniformly and equally
was not overthrown therein.
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SUPREME COURT
Manila
EN BANC
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiffappellant,
vs.
AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R
Matol and Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique
M. Reyes for appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in
its Civil Case No. 3294, which was certified to Us by the Court of Appeals on
October 6, 1969, as involving only pure questions of law, challenging the
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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,
declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of
Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material
portions of which state that, first, both Ordinances Nos. 23 and 27 embrace
or cover the same subject matter and the production tax rates imposed
therein are practically the same, and second, that on January 17, 1963, the
acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to
the Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to
enforce compliance by the latter of the provisions of said Ordinance No. 27,
series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on
September 25, 1962, levies and collects "from soft drinks producers and
manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of
soft drink corked." 2 For the purpose of computing the taxes due, the person,
firm, company or corporation producing soft drinks shall submit to the
Municipal Treasurer a monthly report, of the total number of bottles produced
and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on
October 28, 1962, levies and collects "on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a tax of
ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity." 4 For the purpose of computing the taxes due, the person, fun
company, partnership, corporation or plant producing soft drinks shall submit
to the Municipal Treasurer a monthly report of the total number of gallons
produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as
"municipal production tax.'
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On October 7, 1963, the Court of First Instance of Leyte rendered judgment

"dismissing the complaint and upholding the constitutionality of [Section 2,
Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the taxes due under the oft the
said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to
the Court of Appeals, which, in turn, elevated the case to Us pursuant to
Section 31 of the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue delegation of
power, confiscatory and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation
and impose percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without
being expressly conferred by the people. 6 It is a power that is purely
legislative and which the central legislative body cannot delegate either to
the executive or judicial department of the government without infringing
upon the theory of separation of powers. The exception, however, lies in the
case of municipal corporations, to which, said theory does not apply.
Legislative powers may be delegated to local governments in respect of
matters of local concern. 7 This is sanctioned by immemorial practice. 8 By
necessary implication, the legislative power to create political corporations
for purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax. 9 Under the New
Constitution, local governments are granted the autonomous authority to
create their own sources of revenue and to levy taxes. Section 5, Article XI
provides: "Each local government unit shall have the power to create its
sources of revenue and to levy taxes, subject to such limitations as may be
provided by law." Withal, it cannot be said that Section 2 of Republic Act No.
2264 emanated from beyond the sphere of the legislative power to enact
and vest in local governments the power of local taxation.
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The plenary nature of the taxing power thus delegated, contrary to plaintiffappellant's pretense, would not suffice to invalidate the said law as
confiscatory and oppressive. In delegating the authority, the State is not
limited 6 the exact measure of that which is exercised by itself. When it is
said that the taxing power may be delegated to municipalities and the like, it
is meant that there may be delegated such measure of power to impose and
collect taxes as the legislature may deem expedient. Thus, municipalities
may be permitted to tax subjects which for reasons of public policy the State
has not deemed wise to tax for more general purposes. 10 This is not to say
though that the constitutional injunction against deprivation of property
without due process of law may be passed over under the guise of the taxing
power, except when the taking of the property is in the lawful exercise of the
taxing power, as when (1) the tax is for a public purpose; (2) the rule on
uniformity of taxation is observed; (3) either the person or property taxed is
within the jurisdiction of the government levying the tax; and (4) in the
assessment and collection of certain kinds of taxes notice and opportunity
for hearing are provided. 11 Due process is usually violated where the tax
imposed is for a private as distinguished from a public purpose; a tax is
imposed on property outside the State, i.e., extraterritorial taxation; and
arbitrary or oppressive methods are used in assessing and collecting taxes.
But, a tax does not violate the due process clause, as applied to a particular
taxpayer, although the purpose of the tax will result in an injury rather than a
benefit to such taxpayer. Due process does not require that the property
subject to the tax or the amount of tax to be raised should be determined by
judicial inquiry, and a notice and hearing as to the amount of the tax and the
manner in which it shall be apportioned are generally not necessary to due
process of law. 12
There is no validity to the assertion that the delegated authority can be
declared unconstitutional on the theory of double taxation. It must be
observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. 13 The
reason is that the State has exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction
against double taxation found in the Constitution of the United States and
some states of the Union. 14 Double taxation becomes obnoxious only where
the taxpayer is taxed twice for the benefit of the same governmental
entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case
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where one tax is imposed by the State and the other by the city or
municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute
double taxation, because these two ordinances cover the same subject
matter and impose practically the same tax rate. The thesis proceeds from
its assumption that both ordinances are valid and legally enforceable. This is
not so. As earlier quoted, Ordinance No. 23, which was approved on
September 25, 1962, levies or collects from soft drinks producers or
manufacturers a tax of one-sixteen (1/16) of a centavo for .every bottle
corked, irrespective of the volume contents of the bottle used. When it was
discovered that the producer or manufacturer could increase the volume
contents of the bottle and still pay the same tax rate, the Municipality of
Tanauan enacted Ordinance No. 27, approved on October 28, 1962, imposing
a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity. The difference between the two ordinances clearly lies in
the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a
centavo for every bottle corked; in Ordinance No. 27, it is one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The
intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is
thus clear: it was intended as a plain substitute for the prior Ordinance No.
23, and operates as a repeal of the latter, even without words to that
effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees
are only seeking to enforce Ordinance No. 27, series of 1962. Even the
stipulation of facts confirms the fact that the Acting Municipal Treasurer of
Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the
provisions of said Ordinance No. 27, series of 1962. The aforementioned
admission shows that only Ordinance No. 27, series of 1962 is being enforced
by defendants-appellees. Even the Provincial Fiscal, counsel for defendantsappellees admits in his brief "that Section 7 of Ordinance No. 27, series of
1962 clearly repeals Ordinance No. 23 as the provisions of the latter are
inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27
imposes a percentage or a specific tax. Undoubtedly, the taxing authority
conferred on local governments under Section 2, Republic Act No. 2264, is
broad enough as to extend to almost "everything, accepting those which are
mentioned therein." As long as the text levied under the authority of a city or
municipal ordinance is not within the exceptions and limitations in the law,
the same comes within the ambit of the general rule, pursuant to the rules
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of exclucion attehus and exceptio firmat regulum in cabisus non

excepti 19 The limitation applies, particularly, to the prohibition against
municipalities and municipal districts to impose "any percentage tax or other
taxes in any form based thereon nor impose taxes on articles subject
to specific tax except gasoline, under the provisions of the National Internal
Revenue Code." For purposes of this particular limitation, a municipal
ordinance which prescribes a set ratio between the amount of the tax and
the volume of sale of the taxpayer imposes a sales tax and is null and void
for being outside the power of the municipality to enact. 20 But, the
imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity" on all soft drinks produced or manufactured under
Ordinance No. 27 does not partake of the nature of a percentage tax on
sales, or other taxes in any form based thereon. The tax is levied on the
produce (whether sold or not) and not on the sales. The volume capacity of
the taxpayer's production of soft drinks is considered solely for purposes of
determining the tax rate on the products, but there is not set ratio between
the volume of sales and the amount of the tax. 21
Nor can the tax levied be treated as a specific tax. Specific taxes are those
imposed on specified articles, such as distilled spirits, wines, fermented
liquors, products of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel
fuel oil, cinematographic films, playing cards, saccharine, opium and other
habit-forming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity on all softdrinks, produced or manufactured, or an equivalent of 1-
centavos per case, 23 cannot be considered unjust and unfair. 24 an increase
in the tax alone would not support the claim that the tax is oppressive,
unjust and confiscatory. Municipal corporations are allowed much discretion
in determining the reates of imposable taxes. 25 This is in line with the
constutional policy of according the widest possible autonomy to local
governments in matters of local taxation, an aspect that is given expression
in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so
excessive as to be prohibitive, courts will go slow in writing off an ordinance
as unreasonable. 27 Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of the law to further
strengthen local autonomy were to be realized. 28
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Finally, the municipal license tax of P1,000.00 per corking machine with five
but not more than ten crowners or P2,000.00 with ten but not more than
twenty crowners imposed on manufacturers, producers, importers and
dealers of soft drinks and/or mineral waters under Ordinance No. 54, series
of 1964, as amended by Ordinance No. 41, series of 1968, of defendant
Municipality, 29 appears not to affect the resolution of the validity of
Ordinance No. 27. Municipalities are empowered to impose, not only
municipal license taxes upon persons engaged in any business or occupation
but also to levy for public purposes, just and uniform taxes. The ordinance in
question (Ordinance No. 27) comes within the second power of a
municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264,
otherwise known as the Local Autonomy Act, as amended, is hereby upheld
and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series
of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby
declared of valid and legal effect. Costs against petitioner-appellant.
SO ORDERED.
Digest
FACTS:
Pepsi Cola Bottling Company commenced a complaint with preliminary
injunction before the Court of First Instance of
Leyte for the court to declare Section 2 of RA 2264 (Local Autonomy Act)
declare Ordinances Nos 23 and 27 of municipality of Tanauan, Leyte.
Municipal Ordinance No. 23 (9/25/1962) levies and collects from softdrinks
producers and manufacturers a tax of 1/16 of a centavo for every bottle of
softdrink corked. Municipal ordinance no. 27 (10/28/1962) levies and collects
on softdrinks produced or manufactured within the territorial jurisdiction of
this municipality a tax of 1 centavo on each gallon of volume capacity. The
taxes imposed are denominated as municipal production tax. CFI-Leyte
dismissed the complaint. Hence, this petition.
ISSUES:
1. Is Section 2 of RA 2264 an undue delegation of power, confiscatory and
oppressive?
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2. Do ordinances nos. 23 and 27 constitute double taxation and impose

percentage or specific taxes?
3. Are ordinance nos. 23 and 27 unjust and unfair?
RULING:
1. No. 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. Thus, legislative powers may be delegated to local governments
in respect of matters of local concern.
2. No. 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. The tax is not a percentage tax as the
volume capacity of the taxpayers production of softdrinks is
considered solely for purposes of determining the tax rate on the
products but there is no set ratio between volume of sales and amount
of the tax. Nor can the tax levied be treated as a specific tax. Softdrink
is not one of those specified articles.
3. No. Municipal corporations are allowed much discretion in determining
the rates of imposable taxes. 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.
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SUPREME COURT
Manila
EN BANC
G.R. No. L-22814
August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiffappellant,

vs.
BUTUAN, defendants-appellees.
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Sabido, Sabido and Associates for plaintiff-appellant.

The City Attorney of Butuan City for defendants-appellees.
CONCEPCION, C.J.:
Direct appeal to this Court, from a decision of the Court of First Instance of
Agusan, dismissing plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic
corporation with offices and principal place of business in Quezon City. The
defendants are the City of Butuan, its City Mayor, the members of its
municipal board and its City Treasurer. Plaintiff seeks to recover the sums
paid by it to the City of Butuan hereinafter referred to as the City and
collected by the latter, pursuant to its Municipal Ordinance No. 110, as
amended by Municipal Ordinance No. 122, both series of 1960, which
plaintiff assails as null and void, and to prevent the enforcement thereof.
Both parties submitted the case for decision in the lower court upon a
stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage
for its products the "Pepsi-Cola" soft drinks for sale to customers in the
City of Butuan and all the municipalities in the Province of Agusan.
These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and
shipped to the Butuan City warehouse of plaintiff for distribution and
sale in the City of Butuan and all municipalities of Agusan. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance No.
110 which was subsequently amended by Ordinance No. 122 and
effective November 28, 1960. A copy of Ordinance No. 110, Series of
1960 and Ordinance No. 122 are incorporated herein as Exhibits "A"
and "B", respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person,
association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the
plaintiff paid under protest the amount of P4,926.63 from August 16 to
December 31, 1960 and the amount of P9,250.40 from January 1 to
July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the
total amount of P14,177.03 paid under protest and those that if may
later on pay until the termination of this case on the ground that
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Ordinance No. 110 as amended of the City of Butuan is illegal, that the
tax imposed is excessive and that it is unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer
of Butuan City, has prepared a form to be accomplished by the plaintiff
for the computation of the tax. A copy of the form is enclosed herewith
as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from
January 1, 1961 to July 30, 1961 of its warehouse in Butuan City is
incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and
Loss Statement, the defendants claim that the plaintiff is not entitled
to a depreciation of P3,052.63 but only P1,202.55 in which case the
profit of plaintiff will be increased from P1,254.44 to P3,104.52. The
plaintiff differs only on the claim of depreciation which the company
claims to be P3,052.62. This is in accordance with the findings of the
representative of the undersigned City Attorney who verified the
records of the plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case
of 24 bottles was increased to P1.92 which price is uniform throughout
the Philippines. Said increase was made due to the increase in the
production cost of its manufacture.
8. That the parties reserve the right to submit arguments on the
constitutionality and illegality of Ordinance No. 110, as amended of the
City of Butuan in their respective memoranda.
xxx
xxx
x x x1wph1.t
Section 1 of said Ordinance No. 110, as amended, states what products are
"liquors", within the purview thereof. Section 2 provides for the payment by
"any agent and/or consignee" of any dealer "engaged in selling liquors,
imported or local, in the City," of taxes at specified rates. Section 3
prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and
carbonated beverages therein named, and "all other soft drinks or
carbonated drinks." Section 3-A, defines the meaning of the term "consignee
or agent" for purposes of the ordinance. Section 4 provides that said taxes
"shall be paid at the end of every calendar month." Pursuant to Section 5,
the taxes "shall be based and computed from the cargo manifest or bill of
lading or any other record showing the number of cases of soft drinks, liquors
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or all other soft drinks or carbonated drinks received within the month."
Sections 6, 7 and 8 specify the surcharge to be added for failure to pay the
taxes within the period prescribed and the penalties imposable for
"deliberate and willful refusal to pay the tax mentioned in Sections 2 and 3"
or for failure "to furnish the office of the City Treasurer a copy of the bill of
lading or cargo manifest or record of soft drinks, liquors or carbonated drinks
for sale in the City." Section 9 makes the ordinance applicable to soft drinks,
liquors or carbonated drinks "received outside" but "sold within" the City.
Section 10 of the ordinance provides that the revenue derived therefrom
"shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the
General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it
partakes of the nature of an import tax; (2) it amounts to double taxation; (3)
it is excessive, oppressive and confiscatory; (4) it is highly unjust and
discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority
of which it was enacted, is an unconstitutional delegation of legislative
powers.
The second and last objections are manifestly devoid of merit. Indeed
independently of whether or not the tax in question, when considered in
relation to the sales tax prescribed by Acts of Congress, amounts to double
taxation, on which we need not and do not express any opinion - double
taxation, in general, is not forbidden by our fundamental law. We have not
adopted, as part thereof, the injunction against double taxation found in the
Constitution of the United States and of some States of the Union.1 Then,
again, the general principle against delegation of legislative powers, in
consequence of the theory of separation of powers2 is subject to one wellestablished exception, namely: legislative powers may be delegated to local
governments to which said theory does not apply3 in respect of matters
of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24
bottles," of soft drinks or carbonated drinks in the production and sale of
which plaintiff is engaged or less than P0.0042 per bottle, is manifestly too
small to be excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In
this connection, it is noteworthy that the tax prescribed in section 3 of
Ordinance No. 110, as originally approved, was imposed upon dealers
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"engaged in selling" soft drinks or carbonated drinks. Thus, it would seem

that the intent was then to levy a tax upon the sale of said merchandise. As
amended by Ordinance No. 122, the tax is, however, imposed only upon "any
agent and/or consignee of any person, association, partnership, company or
corporation engaged in selling ... soft drinks or carbonated drinks." And,
pursuant to section 3-A, which was inserted by said Ordinance No. 122:
... Definition of the Term Consignee or Agent. For purposes of this
Ordinance, a consignee of agent shall mean any person, association,
partnership, company or corporation who acts in the place of another
by authority from him or one entrusted with the business of another or
to whom is consigned or shipped no less than 1,000 cases of hard
liquors or soft drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated
drinks, are not subject to the tax,unless they are agents and/or consignees
of another dealer, who, in the very nature of things, must be one engaged in
business outside the City. Besides, the tax would not be applicable to such
agent and/or consignee, if less than 1,000 cases of soft drinks are consigned
or shipped to him every month. When we consider, also, that the tax "shall
be based and computed from the cargo manifest or bill of lading ... showing
the number of cases" not sold but "received" by the taxpayer, the
intention to limit the application of the ordinance to soft drinks and
carbonated drinks brought into the City from outside thereof becomes
apparent. Viewed from this angle, the tax partakes of the nature of an import
duty, which is beyond defendant's authority to impose by express provision
of law.4
Even however, if the burden in question were regarded as a tax on the sale
of said beverages, it would still be invalid, as discriminatory, and hence,
violative of the uniformity required by the Constitution and the law therefor,
since only sales by "agents or consignees" of outside dealers would be
subject to the tax. Sales by local dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales, and even if the same
exceeded those made by said agents or consignees of producers or
merchants established outside the City of Butuan, would be exempt from the
disputed tax.
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negate the authority to classify the objects of taxation.5 The classification

reasonable6 and this requirement is not deemed satisfied unless: (1) it is
classification applies equally all those who belong to the same class.7
These conditions are not fully met by the ordinance in question.8 Indeed, if its
purpose were merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no reason why sales thereof by sealers other
than agents or consignees of producers or merchants established outside the
City of Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another
one shall be entered annulling Ordinance No. 110, as amended by Ordinance
No. 122, and sentencing the City of Butuan to refund to plaintiff herein the
amounts collected from and paid under protest by the latter, with interest
thereon at the legal rate from the date of the promulgation of this decision,
in addition to the costs, and defendants herein are, accordingly, restrained
and prohibited permanently from enforcing said Ordinance, as amended. It is
so ordered.
Digest
"The classification made in the exercise of power to tax, to be valid, must be
reasonable ."
FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it
under protest, to the City of Butuan, and collected by the latter, pursuant to
its Municipal Ordinance No. 110 which plaintiff assails as null and void
because it partakes of the nature of an import tax, amounts to double
taxation, highly unjust and discriminatory, excessive, oppressive and
confiscatory, and constitutes an invlaid delegation of the power to tax. The
ordinance imposes taxes for every case of softdrinks, liquors and other
carbonated beverages, regardless of the volume of sales, shipped to the
agents and/or consignees by outside dealers or any person or company
having its actual business outside the City.
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ISSUE: Does the tax ordinance violate the uniformity requirement of

taxation?
HELD: Yes. The tax levied is discriminatory. Even if the burden in question
were regarded as a tax on the sale of said beverages, it would still be invalid,
as discriminatory, and hence, violative of the uniformity required by the
Constitution and the law therefor, since only sales by "agents or consignees"
of outside dealers would be subject to the tax. Sales by local dealers, not
acting for or on behalf of other merchants, regardless of the volume of their
sales, and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the City of
Butuan,
would
be
exempt
from
the
disputed
tax.
negate the authority to classify the objects of taxation. The classification
reasonable and this requirement is not deemed satisfied unless: (1) it is
classification applies equally to all those who belong to the same class.
SUPREME COURT
Manila
EN BANC
G.R. No. 99886 March 31, 1993

JOHN H. OSMEA, petitioner,
vs.
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BOARD, respondents.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.
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
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
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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.
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 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
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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.
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 inValmonte 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
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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;
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.
xxx xxx xxx
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-a-vis the U.S. dollar
and other convertible foreign currencies also changes from day
to day. These fluctuations in world market prices and in tanker
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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 time.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
stabilization fees and explained their nature and character, viz.:
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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).
xxx xxx xxx
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) Constitution, Article VI, Sec. 29
(3), lifted from the 1935 Constitution, Article VI, Sec. 23(1).
(Emphasis 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
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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 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
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. . . 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
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.
TAXATION LAW 1
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,
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 P12.877 billion deficit "should be reduced by P5,277.2
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 ofejusdem 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.:
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
TAXATION LAW 1
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
inCaltex 29 and which have been pointed to by the Solicitor General. At any
rate, 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.
TAXATION LAW 1
SO ORDERED.
Digest
FACTS:
President Marcos created a special account in the General Fund designated
as the Oil Price Stabilization Fund (OPSF). The OPSF was designated to
reimburse oil companies for cost increases in crude oil. Subsequently, EO
137 expanded the grounds for reimbursement to oil companies for cost
underrecovery. Now, the petition avers that the creation of the trust fund
violates the Constitution that if a special tax is collected for a specific
purpose, the revenue generated as a special fund to be used only for the
purpose indicated.
ISSUE:
Is the OPSF constitutional?
RULING:
Yes. The tax collected is not in pure exercise of the taxing power. It is levied
with a regulatory purpose, to provide a means for the stabilization of the
petroleum products industry. The levy is primarily in the exercise of the
police power of the State.
TAXATION LAW 1
TABLE OF CONTENTS
G.R. No. 134062
April 17, 2007
COMMISSIONER OF INTERNAL REVENUE,

vs.
BANK OF THE PHILIPPINE
ISLANDS, ------------------------------------------------------1
G.R. No. L-22734
September 15, 1967
COMMISSIONER OF INTERNAL REVENUE

vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO
PINEDA,---- 2
TAXATION LAW 1
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,
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 ---------------------------------------------------------------- 16
G.R. No. 106611 July 21, 1994

vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT
OF TAX
APPEALS, ----------------------------------------------------------------------------------- 21
G.R. No. L-28896 February 17, 1988

vs.
ALGUE, INC., and THE COURT OF TAX
APPEALS, ------------------------------------- 29
G.R. No. 124043 October 14, 1998

TAXATION LAW 1
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S
CHRISTIAN ASSOCIATION OF THE PHILIPPINES,
INC., ------------------------------------------- 35
G.R. No. 117359 July 23, 1998

DAVAO GULF LUMBER CORPORATION,
vs.
APPEALS,----------- 46
G.R. No. 120880 June 5, 1997

FERDINAND R. MARCOS II,
vs.
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE and HERMINIA D. DE
GUZMAN, --------------------------------------------- 58
G.R. Nos. L-49839-46
April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES,

vs.
TAXATION LAW 1

Manila,---------------------------------------------------------------------- 73
G.R. No. 112024 January 28, 1999

PHILIPPINE BANK OF COMMUNICATIONS,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS
and COURT OF
APPEALS,--------------------------------------------------------------------------- 80
G.R. No. L-22074
September 6, 1965
THE PHILIPPINE GUARANTY CO., INC.,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, ET AL., ------------------------------------------------------------------------------91
G.R. No. 125704 August 28, 1998

PHILEX MINING CORPORATION,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and
THE COURT OF TAX
APPEALS,-------------------------------------------------------------------- 96
TAXATION LAW 1
G.R. No. L-12353
September 30, 1960
NORTH CAMARINES LUMBER CO., INC.,

vs.
COLLECTOR OF INTERNAL REVENUE, ------------------------------------------------104
G.R. No. L-7859
December 22, 1955

the deceased Antonio Jayme Ledesma,
vs.
Revenue, ------------------ 108
G.R. No. L-23645
October 29, 1968
BENJAMIN P. GOMEZ,
vs.
Acting Postmaster of San Fernando,
Pampanga, ------------------------------------------------------------------------------------113
G.R. No. L-4817
May 26, 1954
SILVESTER M. PUNSALAN, ET AL.,

vs.
TAXATION LAW 1
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL.,

-------------------- 126
G.R. No. L-67649 June 28, 1988

ENGRACIO FRANCIA,
vs.
INTERMEDIATE APPELLATE COURT and HO
FERNANDEZ, ----------------------- 130
G.R. No. L-18994
June 29, 1963
MELECIO R. DOMINGO, as Commissioner of Internal Revenue,

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,---------------------------------------------------------------------------- 138
G.R. No. 148187
April 16, 2008
PHILEX MINING CORPORATION

vs.
COMMISSIONER OF INTERNAL REVENUE, ------------------------------------------142
TAXATION LAW 1
G.R. No. L-23645
October 29, 1968
BENJAMIN P. GOMEZ,
vs.
Pampanga, -------------------------------------------------------------------------------------153
G.R. No. L-7859
December 22, 1955

the deceased Antonio Jayme Ledesma,
vs.
Revenue,------------------- 163
G.R. No. L-75697 June 18, 1987

VALENTIN TIO doing business under the name and style of OMI
ENTERPRISES,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO
MANILA COMMISSION, CITY MAYOR and CITY TREASURER OF
MANILA, -------------- 168
G.R. No. L-24756
October 31, 1968

TAXATION LAW 1
CITY OF BAGUIO,
vs.
FORTUNATO DE LEON, ---------------------------------------------------------------------177
G.R. No. L-41631 December 17, 1976

ADMINISTRATOR; and THE MUNICIPAL BOARD OF MANILA,
vs.
OF MANILA MARKET VENDORS,
INC., ------------------------------------------------------------------ 183
G.R. No. L-10405
December 29, 1960
WENCESLAO PASCUAL, in his official capacity as Provincial Governor

of Rizal,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET
AL., ----- 189
G.R. No. L-65773-74 April 30, 1987

vs.
BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX
TAXATION LAW 1
APPEALS,------------------------------------------------------------------------------------- 197
G.R. Nos. 141104 & 148763
June 8, 2007
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION,

vs.
COMMISSIONER OF INTERNAL REVENUE, ------------------------------------------204
G.R. No. L-18125
May 31, 1963
BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA,

vs.
SEWERAGE AUTHORITY
(NAWASA),-------------------------------------------------------------------- 235
G.R. No. L-22814
August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC.,

vs.
BUTUAN,- 240
G.R. No. L-31156 February 27, 1976

TAXATION LAW 1
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC.,

vs.
AL., ---- 245
G.R. No. 99886 March 31, 1993

JOHN H. OSMEA,
vs.
BOARD, ---------------------------------------------------------- 252
G.R. No. L-29646 November 10, 1978

MAYOR ANTONIO J. VILLEGAS,
vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO
ARCA, --------------------- 262
G.R. No. L-41631 December 17, 1976

ADMINISTRATOR; and THE MUNICIPAL BOARD OF MANILA,
vs.
TAXATION LAW 1

OF MANILA MARKET VENDORS,
INC.,------------------------------------------------------------------- 276
G.R. No. L-34029
February 26, 1931
THE STANDARD OIL COMPANY OF NEW YORK,

vs.
JUAN POSADAS, Jr., Collector of Internal Revenue of the Philippine
Islands, ------------------------------------------------------------------------------------------------------ 274
G.R. No. L-18125
May 31, 1963
BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA,

vs.
SEWERAGE AUTHORITY
(NAWASA),-------------------------------------------------------------------- 279
G.R. No. 51593 November 5, 1992

NATIONAL DEVELOPMENT COMPANY,
vs.
CEBU CITY and AUGUSTO PACIS as Treasurer of Cebu
City, -------------------- 284
TAXATION LAW 1
G.R. No. L-21841
October 28, 1966
ESSO STANDARD EASTERN, INC.,

vs.
ACTING COMMISSIONER OF CUSTOMS, ---------------------------------------------295
G.R. No. 166494
June 29, 2007
CARLOS SUPERDRUG CORP., doing business under the name and

style "Carlos Superdrug," ELSIE M. CANO, doing business under the
name and style "Advance Drug," Dr. SIMPLICIO L. YAP, JR., doing
business under the name and style "City Pharmacy," MELVIN S. DELA
SERNA, doing business under the name and style "Botica dela
Serna," and LEYTE SERV-WELL CORP., doing business under the
name and style "Leyte Serv-Well Drugstore,"
vs.
DEPARTMENT OF SOCIAL WELFARE and DEVELOPMENT (DSWD),
DEPARTMENT OF HEALTH (DOH), DEPARTMENT OF FINANCE (DOF),
DEPARTMENT OF JUSTICE (DOJ), and DEPARTMENT OF INTERIOR and
LOCAL GOVERNMENT
(DILG), ---------------------------------------------------------------------- 298
G.R. Nos. L-49839-46
April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES,

vs.
Manila,--------------------------------------------------------------------- 307
TAXATION LAW 1
G.R. No. 119761 August 29, 1996

vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and
FORTUNE TOBACCO
CORPORATION,----------------------------------------------------------------- 313
G.R. No. L-23645
October 29, 1968
BENJAMIN P. GOMEZ,
vs.
Pampanga, ------------------------------------------------------------------------------------326
G.R. No. L-1104
May 31, 1949
EASTERN THEATRICAL CO., INC., ET AL.,

vs.
VICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL
BOARD OF THE CITY OF MANILA, and JUAN NOLASCO, as Mayor of
the City of
Manila,-------------------------------------------------------------------------------------------------------- 336
TAXATION LAW 1
G.R. No. L-2947
January 11, 1951
MANILA RACE HORSE TRAINERS ASSOCIATION, INC., and JUAN T.

SORDAN,
vs.
MANUEL DE LA FUENTE, -------------------------------------------------------------------344
G.R. No. L-4817
May 26, 1954
SILVESTER M. PUNSALAN, ET AL.,

vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET
AL.,---------------------- 347
G.R. No. L-24756
October 31, 1968
CITY OF BAGUIO,
vs.
FORTUNATO DE LEON, ---------------------------------------------------------------------350
G.R. No. L-59431 July 25, 1984

ANTERO M. SISON, JR.,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal
Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of Internal
TAXATION LAW 1
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,------------------------------ 356
G.R. No. L-3538
May 28, 1952
JUAN LUNA SUBDIVISION, INC.,

vs.
M. SARMIENTO, ET AL., -------------------------------------------------------------------361
G.R. No. L-4376
May 22, 1953
ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC.,

vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY
ASSESSOR and THE CITY MAYOR, all of the City of
Manila, ------------------------------------------ 367
G.R. No. L-23794
February 17, 1968
ORMOC SUGAR COMPANY, INC.,

vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC
CITY, HON. ESTEBAN C. CONEJOS as Mayor of Ormoc City and ORMOC
CITY, ---- 371
TAXATION LAW 1
G.R. No. L-29646 November 10, 1978

MAYOR ANTONIO J. VILLEGAS,
vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO
ARCA, --------------------- 375
G.R. No. 108524 November 10, 1994

MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC.,
vs.
OFFICER, BIR MISAMIS
ORIENTAL, ------------------------------------------------------------------------------------380
G.R. No. 115455 August 25, 1994

ARTURO M. TOLENTINO,
vs.
REVENUE, --------------------------------------------------------------------------------------387
TAXATION LAW 1
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,
vs.
HON. BIENVENIDO TAN, as Commissioner of Internal
Revenue, ------------- 412
G.R. No. 3473
March 22, 1907
J. CASANOVAS,
vs.
JNO. S. HORD, --------------------------------------------------------------------------------420
G.R. No. L-60126 September 25, 1985

CAGAYAN ELECTRIC POWER & LIGHT CO., INC.,
vs.
APPEALS, --------- 428
G.R. No. L-25501 July 29, 1977

vs.
PHILIPPINE POWER AND DEVELOPMENT CO., INC, and THE COURT OF
TAXATION LAW 1
TAX
APPEALS, --------------------------------------------------------------------------------------430
G.R. No. 115455 August 25, 1994

ARTURO M. TOLENTINO,
vs.
REVENUE, .
--------------------------------------------------------------------------------------434
G.R. No. L-39086 June 15, 1988

ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA,
vs.
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN
M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE,
Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE,.
----------------------459
G.R. No. L-19201
June 16, 1965
REV. FR. CASIMIRO LLADOC,

vs.
The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX
APPEALS, ---------------------------------------------------------------------------------------469
TAXATION LAW 1
G.R. No. L-7988
January 19, 1916
THE YOUNG MEN'S CHRISTIAN ASSOCIATION OF MANILA,

vs.
THE COLLECTOR OF INTERNAL
REVENUE, --------------------------------------------474
G.R. No. L-15270
September 30, 1961
JOSE V. HERRERA and ESTER OCHANGCO HERRERA,

vs.
THE QUEZON CITY BOARD OF ASSESSMENT
APPEALS, ---------------------------480
G.R. No. L-19445
August 31, 1965

vs.
BISHOP OF THE MISSIONARY DISTRICT OF THE PHILIPPINE ISLANDS
OF THE PROTESTANT EPISCOPAL CHURCH IN THE U.S.A. and THE
COURT OF TAX
APPEALS, ---------------------------------------------------------------------------------------486
G.R. No. L-49336 August 31, 1981
TAXATION LAW 1
THE PROVINCE OF ABRA, represented by LADISLAO ANCHETA,

Provincial Assessor,
vs.
HONORABLE HAROLD M. HERNANDO, in his capacity as Presiding
Judge of Branch I, Court of First Instance Abra; THE ROMAN
CATHOLIC BISHOP OF BANGUED, INC., represented by Bishop Odilo
etspueler and Reverend Felipe
Flores, ------------------------------------------------------------------------------------------490
G.R. No. L-21841
October 28, 1966
ESSO STANDARD EASTERN, INC.,

vs.
ACTING COMMISSIONER OF CUSTOMS, ---------------------------------------------494
G.R. No. 108524 November 10, 1994

MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC.,
vs.
OFFICER, BIR MISAMIS
ORIENTAL, ------------------------------------------------------------------------------------497
G.R. No. L-26521
December 28, 1968
TAXATION LAW 1
EUSEBIO VILLANUEVA, ET AL.,

vs.
CITY OF ILOILO, -----------------------------------------------------------------------------504
G.R. No. L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC.,
vs.
AL.,------------ 515
G.R. No. L-22814
August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC.,

vs.
BUTUAN, --------------------------------------------------------------------------------------------------------- 522
G.R. No. 99886 March 31, 1993

JOHN H. OSMEA,
vs.
BOARD, ---------------------------------------------------------- 527
TAXATION LAW 1
TAXATION LAW 1

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Republic of the Philippines

April 17, 2007

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

Add: 25% surcharge

20% interest from 1-21-87

1986 Deficiency Documentary Stamp Tax

Both notices of assessment contained the following note:

and how your examiner arrived at the deficiency. As soon as this is

Sec. 228. Protesting of Assessment. When the [CIR] or his duly

xxx xxx xxx

xxx xxx xxx

Republic of the Philippines

September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,

Office of the Solicitor General for petitioner.

BENGZON, J.P., J.:

Manuel B. Pineda, who received the assessment, contested the same.

Deficiency income tax

The Commissioner of Internal Revenue has appealed to Us and has proposed

If any person, corporation, partnership, joint-account (cuenta en

Republic of the Philippines

limited period, sustaining thereby private respondents' contention,

Republic of the Philippines

G.R. No. 106611 July 21, 1994

in the amount of P19,971,745.00 representing the alleged aggregate of the

Amount refundable for 1984 P (13,296,663.67)

Amount Refundable for 1985 P (17,842.47)

Oppositions to both the basic and supplemental motions for reconsideration

FACTS: Respondent corporation Citytrust filed a refund of overpaid taxes

Republic of the Philippines

commission of P126,000.00, and it was from this commission that the

based on such deductions contending that the claimed deduction is

Republic of the Philippines

G.R. No. 124043 October 14, 1998

While the following assessments are hereby sustained:

Aggrieved, the YMCA asked for reconsideration based on the following

The findings of facts of the Public Respondent Court of Tax

Notwithstanding the provisions in the preceding paragraphs, the

statutes that grant tax exemptions to "religious, charitable and educational

directly used for religious, charitable or educational purposes," which are

As previously discussed, laws allowing tax exemption are

of learning. That we conceive to be the true intent and scope of

exemptions. Furthermore, a claim of statutory exemption from taxation

Republic of the Philippines

G.R. No. 117359 July 23, 1998

Internal Revenue v. Rio Tuba Nickel Mining Corporation 11 and subsequent

Commission, the affidavit of the president of the association or

power shall be taxed at the equivalent rate as the specific tax on

prescribed. For the purpose of this subsection, the removal of

We have carefully scrutinized RA 1435 and the subsequent pertinent statutes

exemption and therefore cannot be allowed unless granted in the

under Sections 1 and 2 of RA 1435, regardless of what was actually paid

Republic of the Philippines

G.R. No. 120880 June 5, 1997

TORRES, JR., J.:

[b] Petitioner, as one of the late President's

The Commissioner of Internal Revenue thereby caused the

The deficiency tax assessments were not protested

in a given case by the government to effectuate the collection of

effect to and administer the supervisory and police power

(30) days from receipt of said decision; otherwise, the decision

paved in Section 229 of the NIRC on protests on assessments of internal

affirmance of said assessment. 18 In this instance, petitioner has not pointed

surely be called to petitioner's attention, and received by