1 | T a x a t i o n I | 2017 public purpose.
But if by public purpose the petitioner means benefit
1. Gomez v. Palomar
GR No. L-23645, October 29, 1968
Facts: This petition assails the constitutionality of RA 1635 as
amended which provides that to help raise funds for the Philippine
Tuberculosis Society, no mail matter shall be accepted in the mails
unless it bears the semi-postal stamps which bears the regular postage
stamps plus the additional amount of five centavos for the said
purpose. The additional charge of five centavos will constitute a special
fund to be expended by the PTS.
In September 1963, petitioner Benjamin Gomez mailed a letter at the
post office of San Fernando, Pampanga but since it did not include the
special anti-TB stamp, it was returned to Gomez. Petitioner then
brought a declaratory suit in the CFI of Pampanga to test the
constitutionality of the statute 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.
Issue: W/N RA 1635 is unconstitutional for being violative of the
equal protection clause and for not being levied for a public purpose.
Ruling: The Court ruled that the five centavo charge levied is in the
nature of an excise tax, laid upon the exercise of a privilege, namely the
privilege of using the mails. 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. It is also not
violative of the equal protection clause that only tuberculous is singled
out for the fund to the exclusion of other diseases. It is never the
requirement of equal protection that all evils of the same genus be
eradicated or none at all.
It is for a public purpose as the eradication of a dreaded disease is a
to a taxpayer as a return for what he pays, then it is sufficient to
answer 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.
2. PAL v. Edu, Carbonell
GR No. L-41383, August 15, 1988
Facts: The Philippine Airlines (PAL) is a corporation organized and
existing under Philippine laws and is granted a franchise to operate its
air transportation business. Under its franchise, PAL is granted tax
exemption, and on the strength of the opinion of the Secretary of
Justice (Op. No. 307, series of 1956), PAL has since 1956, not been
paying motor vehicle registration fees. In 1971, Commissioner Elevate
issued a regulation requiring all tax exempt entities, to pay motor
vehicle registration fees. PAL paid Php 19,529.75 under protest.
Subsequently, PALs counsel wrote to Commissioner Edu demanding
refund of the amount saying that motor vehicle registration fees are in
reality tax payment to which PAL is exempted to pay under its
franchise.
Issue: W/N motor vehicle registration fees are considered as taxes.
Ruling: Yes. It is possible for an exaction to be either a tax or a
regulation. License fees are charges looked to as a source of revenue as
well as means of regulation as consequence of the exercise of the
States police power. If the purpose is primarily revenue, or if revenue
is at least one of the real and substantial purposes, then the exaction is
properly called a tax.
 2 | T a x a t i o n I | 2017
Originally, vehicle registration fees were intended only for rigidly
purposes in the exercise of the States police powers. Over the years,
however, as vehicular traffic exploded in number and motor vehicles
became absolute necessities, Congress found the registration of
vehicles a very convenient way of raising much needed revenues.
Hence, presently motor vehicle registration fees are considered as
taxes.
3. CIR v. Pineda
GR No. L-22734, September 15, 1967
Facts: Anastasio Pineda died and was survived by his wife and
children. The estate was divided and distributed to his heirs, with Atty.
Manuel Pineda receiving a share of P2,500.00. After the estate
proceedings were closed, the BIR investigated the estate tax liabilities
and discovered that tax returns were not filed and hence, issued an
assessment covering the years 1945 1947. The SC ruled that the right
to assess and collect tax for the years 1945-1946 had already
prescribed but affirmed the assessment and collection for 1947. The
case was then remanded back to the CTA where it ruled that Pineda is
liable only to the tax in proportion to his share. CIR appealed
contending that Pineda must be liable to the whole tax due from the
estate, and not merely his portion thereof.
Issue: W/N Manuel Pineda can be held liable of the whole amount of
the unpaid income tax.
Ruling: Yes. 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. His liability, however,
cannot exceed the amount of his share. As a holder of property
belonging to the estate, Pineda is liable for the tax up to the amount of
the property in his possession. Sec. 315 of the Tax Code creates a lien
on the property inherited for any unpaid income taxes. 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, to achieve an adjustment
of the proper share of each heir in the distributable estate.
4. Francia v. IAC
GR No. L-67649, June 28, 1988
Facts: Engracio Francia is the registered owner of a residential lot with
a two-story house in Pasay City. In 1977, 125 out of the 328 square
meters of the lot was expropriated by the Republic for more than 4,000
equivalent to its assessed value. Since 1963 up to 1977, Francia failed
to pay real estate taes and hence, his property was sold at public
auction to satisfy a tax delinquency of P2,400. Private respondent Ho
Fernandez is the highest bidder. When Ho filed a petition for a new
Certificate of Title, Francia filed a complaint to annul the auction sale
but the CTA and IAC both ruled in favor of Ho.
Issue: W/N the tax delinquency may be set off from the amount which
the government owed to Francia
Ruling: No. The court has 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.
Furthermore, the tax was due to the city government while the
expropriation was effected by the national government. Also, the
amount for the expropriation has long been deposited to the account of
Francia long before the public auction of his property. He could have
easily withdrawn the amount needed so that he could pay the tax
obligation thus aborting the sale at public auction.
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5. Domingo v. Garlitos
GR No. L-18994, June 29, 1963
Facts: On January 30, 1960, the Supreme Court declared as final and
executory the order for the payment by the estate of Walter Scott Price
of the estate and inheritance taxes, charges and penalties amounting to
P40k in the case of Domingo v. Moscoso. In order to enforce the claims
against the estate, the fiscal presented a petition for the execution of
the judgment. The CFI of Leyte however denied the petition as
execution is not justifiable as the Government is indebted to the estate
in the amount of P262,200. The CFI of Leyte however ordered that the
amount of taxes be taken from the P262k that the Government still
owes from the estate.
Issue: W/N set off may take place.
Ruling: Yes. The Court which has jurisdiction over the estate has 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 correspondent law. 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 due and demandable as well as fully liquidated. Compensation,
therefore, takes place by operation of law.
6. Philex Mining Corp v. CIR
GR No. 125704, August 28, 1988
Facts: BIR sent a letter to Philex asking it to settle its excise tax
liabilities in the amount of P 123, 821, 982.52. In its written reply,
Philex protested and stated that it has pending claims for VAT input
credit/refund for the taxes it paid in the amount of P 119, 977 plus
interest, thus claiming set-off between its tax liabilities and tax claims.
BIR denied the request of Philex stating that the pending claim of the
latter is yet to be determined and established with certainty. Due to
this, Philex raised the issue with CTA which reduced the obligation but
still ordered Philex to pay. While the case was pending before the SC,
its VAT input/refund was credited such that it now contends before
the SC that the BIR should, ipso jure, off-set its excise tax liabilities
since both had already become due and demandable, as well as fully
liquidated.
Issue: W/N the excise tax liabilities and the VAT input credit/refund
may be set-off on compensation.
Ruling: No. It is already settled 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. There is a
material distinction between a tax and a debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the
Government in its sovereign capacity.
7. Caltex Phil v. COA
GR No. 925585, May 8, 1992
Facts: In 1989, COA sent a letter to Caltex directing it to remit to OPSF
its collection of the additional tax on petroleum authorized under PD
1956 and pending such remittance, all of its claims from the OPSF shall
be held in abeyance. Petitioner requested COA for the early release of
its reimbursement certificates from the OPSF covering claims with the
Office of Energy Affairs. COA denied the same.
Issue: W/N petitioner can avail of the right to offset any amount that it
may be required under the law to remit to the OPSF against any
amount that it may receive by way of reimbursement.
Ruling: It is a settled rule 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
 4 | T a x a t i o n I | 2017
taxpayer are not mutually debtors and creditors of each other and a
claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off. The oil companies merely acted as agents for the
government in the latters collection since taxes are passed unto the
end-users, the consuming public.
8. Vera v. Fernandez
GR No. L-31364, March 30, 1979
Facts: The BIR sought to claim the payment of taxes representing the
estate's tax deficiencies intestate proceedings of Luis Tongoy. The
administrator opposed arguing that the claim was already barred by
the statute of limitation for under the RoC, 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 rule bar recovery by the Government of unpaid taxes?
Ruling: 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. 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.
9. PAL v. Edu, Carbonell
GR No. L-41383, August 15, 1988
See no. 2, page 1.
10. Lutz v. Araneta
95 Phil 148
Facts: In 1940, Commonwealth Act No. 567, otherwise known as the
Sugar Adjustment Act was promulgated. The law wanted to obtain a
readjustment of benefits derived from the sugar industry and to
stabilize the sugar industry.
Walter Lutz, 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. He alleged that such tax is unconstitutional and void, being
levied for the aid and support of the sugar industry exclusively, which
in plaintiff's opinion is not a public purpose for which a tax may be
constitutionally levied. His action was dismissed by the CFI and was
appealed directly to the SC.
Issue: W/N the taxes imposed by Commonwealth Act No. 567,
otherwise known as the Sugar Adjustment Act are legal.
Ruling: Yes. The Supreme Court held that the analysis of the Act, and
particularly of section 6 will show that the tax is levied with a
regulatory purpose, to provide means for the rehabilitation and
stabilization of the threatened sugar industry. In other words, the act is
primarily an exercise of the police power.
Sugar production is one of the great industries of our nation and that
it is a great source of the state's wealth. 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. The
 5 | T a x a t i o n I | 2017
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. Taxation may
be made the implement of the state's police power.
Even from the standpoint that the Act is a pure tax measure, it cannot
be said that it constitutes expenditure of tax money for private
purposes.
11. Pascual v. Sec of Public Works
GR No. No. L-10405, December 29,
1960
Facts: Republic Act No. 920 was approved on June 20, 1953. It was act
that would appropriate funds for the construction of Pasig feeder road
terminals. Pascual instituted this action upon the ground that said
appropriation 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". Pascual alleges
that when the appropriation was approved the roads in question were
private property owned by Senator Zulueta and that on Dec 12, 1953
Senator Zulueta donated parcels of land to the government in order to
give a semblance of legality to the appropriation.
Issue: W/N the appropriation was valid and was for public purpose
Ruling: NO. 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. The legality of the appropriation depended upon whether said
roads were public or private property when the bill, which, later on,
became Republic Act 920, was passed by Congress, or, when said bill
was approved by the President. 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.
12. Pepsi-Cola v. Butuan City
24 SCRA 789
Facts: Ordinance 110 was enacted by the City of Butuan imposing a tax
of P0.10 per case of 24 bottles of softdrinks or carbonated drinks. The
tax was imposed upon dealers engeged in selling softdrinks or
carbonated drinks. When Ordinance 110, the tax was imposed upon an
agent or consignee of any person, association, partnership, company or
corporation engaged in selling softdrinks or carbonated drinks, with
agent or consignee being particularly defined on the inserted
provision Section 3-A. In effect, merchants engaged in the sale of
softdrinks, etc. are not subject to the tax unless they are agents or
consignees of another dealer who must be one engaged in business
outside the City. Pepsi-Cola Bottling Co. filed suit to recover sums paid
by it to the city pursuant to the Ordinance, which it claims to be null
and void.
Issue: Whether the Ordinance is discriminatory.
Ruling: The Ordinance, as amended, is discriminatory 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, would be exempt from the
tax. The classification made in the exercise of the authority to tax, to be
valid must be reasonable, which would be satisfied if the classification
is based upon substantial distinctions which makes real differences;
these are germane to the purpose of legislation or ordinance; the
classification applies not only to present conditions but also to future
conditions substantially identical to those of the present; and the
classification applies equally to all those who belong to the same class.
 6 | T a x a t i o n I | 2017
13. Pepsi-Cola v. Municipality of Tanauan
GR No. L-31156, February 27, 1976
Facts: Plaintiff-appellant Pepsi-Cola commenced a complaint with
preliminary injunction to declare Section 2 of Republic Act No. 2264,
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 denominated as "municipal production tax" of the
Municipality of Tanauan, Leyte, null and void. Ordinance 23 levies and
collects from soft drinks producers and manufacturers a tax of one-
sixteenth (1/16) of a centavo for every bottle of soft drink corked, and
Ordinance 27 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. Aside from the undue delegation of authority,
appellant contends that it allows double taxation, and that the subject
ordinances are void for they impose percentage or specific tax.
Issue: W/N the contentions of the appellant tenable?
Ruling: No. On the issue of undue delegation of taxing power, it is
settled that 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. 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. 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.
Also, 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. 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, so that 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.
On the last issue raised, the ordinances do 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.
14. Abakada Guro v. Ermita
G.R. No. 168056, September 1, 2005
Facts: Before R.A. No. 9337 took effect, petitioners ABAKADA GURO
Party List, et al., filed a petition for prohibition on May 27, 2005
questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the National
Internal Revenue Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties, Section
5 imposes a 10% VAT on importation of goods, and Section 6 imposes
a 10% VAT on sale of services and use or lease of properties. These
questioned provisions contain a uniformp ro v is o authorizing the
President, upon recommendation of the Secretary of Finance, to raise
 7 | T a x a t i o n I | 2017
the VAT rate to 12%, effective January 1, 2006, after specified
conditions have been satisfied. Petitioners argue that the law is
unconstitutional.
Issues: 1. Whether or not there is a violation of Article VI, Section 24 of
the Constitution.
2. Whether or not there is undue delegation of legislative power in
violation of Article VI Sec 28(2) of the Constitution. 3. Whether or not
there is a violation of the due process and equal protection under
Article III Sec. 1 of the Constitution.
Ruling: 1. Since there is no question that the revenue bill exclusively
originated in the House of Representatives, the Senate was acting
within its constitutional power to introduce amendments to the House
bill when it included provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, and excise and franchise taxes.
2. There is no undue delegation of legislative power but only of the
discretion as to the execution of a law. This is constitutionally
permissible. Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who must do
it, and what is the scope of his authority; in our complex economy that
is frequently the only way in which the legislative process can go
forward.
3. The power of the State to make reasonable and natural
classifications for the purposes of taxation has long been established.
Whether it relates to the subject of taxation, the kind of property, the
rates to be levied, or the amounts to be raised, the methods of
assessment, valuation and collection, the States power is entitled to
presumption of validity. As a rule, the judiciary will not interfere with
such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.
15. Bagatsing v. Ramirez
74 S 306
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 non-compliance to the
publication requirement under the Revised Charter of the City of
Manila.
Issue: WN the publication requirement was complied with.
Ruling: 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 id a
general law because it applies universally to all local governments.
Section 17 of the Charter speaks of ordinance in general. Whereas,
Section 43 of the Local Tax Code relates to ordinances levying or
imposing taxes, fees or other charges in particular. While the Charter
requires publication, before the enactment of the ordinance and after
approval thereof, in two daily newspapers of the general circulation in
the city, the Local Tax Code only prescribes for 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. Being a general law with a special provision applicable in
the case, the Local Tax Code prevails.
 8 | T a x a t i o n I | 2017
16. National Development Co. (NDC) v.
Commissioner
GR No. L-53961, June 1987
Facts: The National Development Co. (NDC) entered into contracts in
Tokyo with several Japanese shipbuilding companies for the
construction of 12 ocean-going vessels. Initial payments were made in
cash and through irrevocable letters of credit. When the vessels were
completed and delivered to the NDC in Tokyo, the latter remitted to
the shipbuilders the amount of US$ 4,066,580.70 as interest on the
balance of the purchase price. No tax was withheld. The Commissioner
then held NDC liable on such tax in the total amount of P5,115,234.74.
The Bureau of Internal Revenue served upon the NDC a warrant of
distraint and levy after negotiations failed.
Issue: W/N the NDC is liable for deficiency tax.
Ruling: The Japanese shipbuilders were liable on the interest remitted
to them under Section 37 of the Tax Code. The NDC is not the one
taxed. The imposition of the deficiency taxes on the NDS is a penalty
for its failure to withhold the same from the Japanese shipbuilders.
Such liability is imposed by Section 53(c) of the Tax Code. NDC was
remiss in the discharge of its obligation of its obligation as the
withholding agent of the government and so should be liable for its
omission.
17. MIAA vs CITY OF PASAY
(G.R. No. 163072)
FACTS:Petitioner Manila International Airport Authority (MIAA)
operates and administers the Ninoy Aquino International Airport
(NAIA) Complex under Executive Order No. 903 (EO 903), otherwise
known as the Revised Charter of the Manila International Airport
Authority. EO 903 was issued on 21 July 1983 by then President
Ferdinand E. Marcos. Under Sections 3 and 22 of EO 903,
approximately 600 hectares of land, including the runways, the airport
tower, and other airport buildings, were transferred to MIAA. The
NAIA Complex is located along the border between Pasay City and
Paraaque City.
On 28 August 2001, MIAA received Final Notices of Real Property Tax
Delinquency from the City of Pasay for the taxable years 1992 to 2001.
The City of Pasay, through its City Treasurer, issued notices of levy and
warrants of levy for the NAIA Pasay properties. MIAA received the
notices and warrants of levy on 28 August 2001.
ISSUE: Whether the NAIA Pasay properties of MIAA are exempt from
real property tax.
HELD: In Manila International Airport Authority v. Court of Appeals
(2006 MIAA case), this Court already resolved the issue of whether the
airport lands and buildings of MIAA are exempt from tax under
existing laws. The 2006 MIAA case originated from a petition for
prohibition and injunction which MIAA filed with the Court of Appeals,
seeking to restrain the City of Paraaque from imposing real property
tax on, levying against, and auctioning for public sale the airport lands
and buildings located in Paraaque City. The only difference between
the 2006 MIAA case and this case is that the 2006 MIAA case involved
airport lands and buildings located in Paraaque City while this case
involved airport lands and buildings located in Pasay City. The 2006
MIAA case and this case raised the same threshold issue: whether the
local government can impose real property tax on the airport lands,
consisting mostly of the runways, as well as the airport buildings, of
MIAA.
As held in the 2006 MIAA case, MIAA is not a government-owned or
controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a
stock or non-stock corporation. Neither is MIAA a government-owned
or controlled corporation under Section 16, Article XII of the 1987
Constitution because MIAA is not required to meet the test of
 9 | T a x a t i o n I | 2017
economic viability. MIAA is a government instrumentality vested with
corporate powers and performing essential public services pursuant to
Section 2(10) of the Introductory Provisions of the Administrative
Code. As a government instrumentality, MIAA is not subject to any kind
of tax by local governments under Section 133(o) of the Local
Government Code. The exception to the exemption in Section 234(a)
does not apply to MIAA because MIAA is not a taxable entity under the
Local Government Code. Such exception applies only if the beneficial
use of real property owned by the Republic is given to a taxable entity.
18. NDC vs CEBU
(G.R. No. 51593)
FACTS: Petitioner National Development Company (NDC) is a
government-owned or controlled corporation (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, in furtherance of its
objectives, subsidiary corporations one of which is the now defunct
National Warehousing Corporation (NWC).
On 10 August 1939, the President issued Proclamation No.
430[5] reserving Block No. 4, Reclamation Area No. 4, of Cebu City for
warehousing purposes under the administration of NWC.
Subsequently, in 1940, a warehouse was constructed thereon.
On 4 October 1947, E.O. 93 dissolved NWC with NDC taking over its
assets and functions. Commencing 1948, Cebu City (CEBU) assessed
and collected from NDC real estate taxes on the land and the
warehouse thereon.
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. CEBU did not acquiesce in the demand, hence,
the present suit filed 25 October 1972 in the Court of First Instance of
Manila. CFI Manila decided in favor of NDC.
The defendants appealed to the Court of Appeals which however certified
the case to the SC as one involving pure questions of law, pursuant to Sec.
17, R.A. 296.
ISSUE:
1. Whether NDC is exempt from payment of real estate taxes on
the land reserved by the President for warehousing purposes
as well as the warehouse constructed thereon.
2. Whether NDC may recover in refund unprotested real estate
taxes it paid from 1948 to 1970.
HELD:
1. Section 3, par. (a), of the Assessment Law provides
"SEC. 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 or municipal district x x x
x"
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 by 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), 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 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." The land remains "absolute
property of the government." 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". Absolute disposition of land is not
implied from reservation; 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". As its title remains with the
Republic, the reserved land is clearly covered by the tax exemption
provision.
 and controlled corporations, section 193 of the LGC prescribes the
10 | T a x a t i o n I | 2017
general rule, viz, they are withdrawn upon the effectivity of the LGC,
except those granted to local water districts, cooperatives, duly
However, as regards the warehouse constructed on a public registered under RA 6938, non stock and nonprofit hospitals and
reservation, a different rule should apply because "[t]he exemption of educational institutions and unless otherwise provided in the LGC.
public property from taxation does not extend to improvements on the
public lands made by pre-emptioners, homesteaders and other
claimants, or occupants, at their own expense, and these are taxable by
the state x x x x" 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.
20. Republic vs. Paranaque
2. Since the reservation is exempt from realty tax, the erroneous (GR No. 191109)
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 FACTS: This is a petition for review on certiorari assailing the Order of
property owned by the Republic of the Philippines or any of its the Regional Trial Court, Branch 195,Paranaque City (RTC), which ruled
political subdivisions, as well as any GOCC so exempt by its that petitioner Philippine Reclamation Authority (PRA) is
charter. a government-owned and controlled corporation (GOCC), a taxable
entity, and, therefore, not exempt from payment of real property taxes.

The Public Estates Authority (PEA) is a government corporation created

19. Mactan Cebu International Airport by virtue of P.D. No. 1084 to provide a coordinated, economical and
Authority v Marcos (1996) efficient reclamation of lands, and the administration and operation of
lands belonging to, managed and/or operated by, the government with
the object of maximizing their utilization and hastening their
FACTS: Petitioner was created by virtue of RA 6958. Section 1 thereof
development consistent with public interest.
states that the authority shall be exempt from realty taxes imposed by
the National Government or any of its political subdivisions, agencies
By virtue of its mandate, PRA reclaimed several portions of the
and instrumentalities. However, the Treasurer of Cebu City demanded
foreshore and offshore areas of Manila Bay, including those located in
payment for realty taxes from petitioner. Petitioner filed a declaratory
Paraaque City. Paraaque City Treasurer issued Warrants of Levy on
relief before the Regional Trial Court. The trial court dismissed the
PRAs reclaimed properties based on the assessment for delinquent real
petitioner ruling that the Local Government Code withdrew the tax
property for tax years 2001 and 2002. PRA asserted that:
exemption granted to Government owned and controlled corporation.
- It is not a GOCC under the Administrative Code, nor is it a GOCC
ISSUE:
under Section 16, Article XII of the 1987Constitution because it
Whether the city of Cebu has the power to impose taxes on petitioner
is not required to meet the test of economic viability.
RULING:Yes. Taxation is the rule and exemption is the exception, the
- It is a government instrumentality vested with corporate
exemption may thus be withdrawn at the pleasure of the taxing
powers and performing an essential publicservice. Although it
authority. As to tax exemptions or incentives granted to or presently
has a capital stock divided into shares, it may not be classified as
enjoyed by natural or juridical persons, including government- owned
a stock corporationbecause it lacks the second requisite of a
 11 | T a x a t i o n I | 2017
HELD: Yes it is a Government Instrumentality. However, it is not a
GOCC. When the law vests in a government instrumentality corporate
stock corporation: to distribute dividends and allotment
powers, the instrumentality does not necessarily become a
ofsurplus and profits to its stockholders.
corporation. Unless the government instrumentality is organized as a
stock or non-stock corporation, it remains a government
- It may not be classified as a non-stock corporation because it
instrumentality vested with corporate powers and performing an
has no members and it is not organized forcharitable, religious,
essential public service pursuant to Section 2(10) of the Introductory
educational, professional, cultural, recreational, fraternal,
Provisions of the Administrative Code. Being an incorporated
literary, scientific, social,civil service, or similar purposes, like
government instrumentality, it is exempt from payment of real
trade, industry, agriculture and like chambers as provided in
property tax.
Section88 of the Corporation Code.
Furthermore, the Court agrees with PRA that the subject reclaimed
lands are still part of the public domain, owned by the State and,
- It was not created to compete in the market place as there was
therefore, exempt from payment of real estate taxes.
no competing reclamation company operated by the private
sector. Also, while PRA is vested with corporate powers under
P.D. No. 1084, such circumstance does not make it a
corporation but merely an incorporated instrumentality and
that themere fact that an incorporated instrumentality of the
National Government holds title to real propertydoes not make 21. REPUBLIC (DOTC) vs MANDALUYONG
said instrumentality a GOCC.

City of Paraaque (respondent) argued that: Facts:

- PRA since its creation consistently represented itself to be
a GOCC. PRAs very own charter (P.D. No. 1084) declared it to
be a GOCC and that it has entered into several thousands of
contracts where itrepresented itself to be a GOCC. In fact, PRA
admitted in its original and amended petitions and pre-
trialbrief filed with the RTC of Paraaque City that it was a
GOCC.
- It argues that PRA is a stock corporation with an authorized
capital stock divided into 3 million no parvalue shares, out of
which 2 million shares have been subscribed and fully paid up.
Section 193 of the LGCof 1991 has withdrawn tax exemption
privileges granted to or presently enjoyed by all persons,
whethernatural or juridical, including GOCCs.
ISSUE: Whether or not petitioner is an incorporated instrumentality of
the national government and is, therefore, exempt from payment of
real property tax under sections 234(a) and 133(o) of Republic Act
7160 or the Local Government Code vis--vis Manila International
Airport Authority v. Court of Appeals.
The subject of this petition for review on certiorari is the writ of
possession issued in favor of respondent City of real properties
forming part of the EDSA Metro Rail Transit (MRT) III. Petitioner
Republic of the Philippines (Republic) is represented in this suit by the
Department of Transportation and Communications (DOTC
On 8 August 1997, the DOTC entered into a Revised and Restated
Agreement to Build, Lease and Transfer a Light Rail System for EDSA
(BLT) with Metro Rail Transit Corporation Limited (Metro Rail), a
foreign corporation. Under the BLT Agreement, Metro Rail shall be
responsible for the design, construction, equipping, completion,
testing, and commissioning of the Light Rail Transit System-LRTS
Phase I (EDSA MRT III). The DOTC shall operate the same but
ownership of the EDSA MRT III shall remain with Metro Rail during the
Revenue and Construction periods. Metro Rail assigned all its rights
and obligations under the BLT Agreement to Metro Rail Transit
Corporation (MRTC), a domestic corporation.
 12 | T a x a t i o n I | 2017
On July 15,2000, Metro Rail turned over the EDSA MRT III System to
the DOTC for its operation. The City Assessors of Mandaluyong City,
Quezon City, Makati City and Pasay City fixed the current and market
value of EDSA MRT III at P32.75 Billion.On 4 June 2001, the Office of
the City Assessor of Mandaluyong issued Tax Declaration No. D-013-
06267 in the name of MRTC. Subsequently on 18 June 2001, the said
Office of the City Assessor of Mandaluyong City demanded payment of
real property taxes due under the aforesaid tax declaration.
Another demand was made on MRTC placing the deficiency real estate
tax due to the City of Mandaluyong at P769,784,981.52. Several Notice
of Delinquency was issued to MRTC. The City Treasurer issued and
served a Warrant of Levy upon MRTC with the corresponding Notices
of Levy. On 5 December 2005, petitioner Republic filed a case for
Declaration of Nullity of Real Property Tax Assessment and Warrant of
Levy with a prayer for a TRO and Writ of Preliminary Injunction before
the RTC (branch 208) of Mandaluyong City.
On 22 March 2006, the RTC denied both petitioner Republics and
MRTCs applications for TRO. The issue on the validity of tax
assessment however is pending before that court. Petitioner Republic
filed a petition for certiorari before the Court of Appeals challenging
the denial of both the TRO and injunction by RTC Branch 208.
A public auction was conducted. For lack of bidders, the real properties
were forfeited in favor of the City of Mandaluyong. Petitioner Republic
filed a petition for certiorari before the Court of Appeals challenging
the denial of both the TRO and injunction by RTC Branch 208.
On 11 April 2008, respondent filed an ex parte petition praying for the
issuance of a writ of possession before RTC Branch 213 of
Mandaluyong.
On 30 July 2008, the RTC Branch 213 granted the petition for the
issuance of a writ of possession. A subsequent motion for
reconsideration filed by petitioner was denied for lack of merit. While
MRTC appealed said order to the Court of Appeals, petitioner Republic
filed the instant case raising a question of law, i.e. the propriety of the
issuance of a writ of possession. To support its main thesis that the
RTC Branch 213 erred in issuing a writ of possession, petitioner claims
that since EDSA MRT properties are beneficially owned by DOTC, it
should not have been assessed for payment of real property taxes.
Being a governmental entity, it is exempt from payment of real
property tax under Section 234 of the Local Government Code.
Therefore, no tax delinquency exist authorizing respondent to sell the
subject properties through public auction. It then follows that
respondent has no legal right to a writ of possession.
Respondent does not contest petitioners immunity from local taxes. In
fact, it has assessed MRTC, and not petitioner, for real property tax.
This case is, ultimately, between a local governments power to tax and
the national governments privilege of tax exemption. That issue needs
full hearing and deliberation, as indeed, the issue pends before the
RTC, at first instance. Such trial of facts and issues must proceed. It
should not be pre-empted by the present petition that deals with
precisely the herein respondents intended end result.
ISSUE: Whether or not the writ issued by the RTC in favor of the
respondent is premature and without force and effect.
RULING:
Yes. A writ of possession is a mere incident in the transfer of title. In
the instant case, it stemmed from the exercise of alleged ownership by
respondent over EDSA MRT III properties by virtue of a tax
delinquency sale. The issue of whether the auction sale should be
enjoined is still pending before the Court of Appeals. Pending
determination, it is premature for respondent to have conducted the
auction sale and caused the transfer of title over the real properties to
its name. The denial by the RTC to issue an injunction or TRO does not
automatically give respondent the liberty to proceed with the actions
sought to be enjoined, especially so in this case where a certiorari
petition assailing the denial is still being deliberated in the Court of
Appeals. All the more it is premature for the RTC to issue a writ of
 13 | T a x a t i o n I | 2017
petition assailing the denial is still being deliberated in the Court of
Appeals. All the more it is premature for the RTC to issue a writ of
possession where the ownership of the subject properties is derived
from an auction sale, the validity of which is still being threshed out in
the Court of Appeals. The RTC should have held in abeyance the
issuance of a writ of possession. At this juncture, the writ issued is
premature and has no force and effect.
The petition is GRANTED. The decision of RTC branch 213 of
Mandaluyong City issuing the writ of possession is vacated and set
aside.
22. GSIS vs Group Mgt. Corp. Et. Al.
(JUNE 8, 2011)
FACTS: This case revolves around the petitions of the Lapu-Lapu
Development & Housing Corporation (LLDHC), Group Management
Corporation (GMC) and the Government Service Insurance System
(GSIS). The three entities consistently filed cases for the same subject
lots from April 30, 1980, until this case. The cases were filed before
both the RTC of Lapu-Lapu City, where the subject lots are situated in,
and the RTC of Manila.
LLDHC entered into a Project and Loan Agreement with GSIS on
February 4, 1974, involving seventy-eight lots situated in Barrio,
Marigondon, Lapu-Lapu City. GSIS agreed to a 25 million peso loan
with LLDHC, the owner of the lots. LLDHC failed to fulfill all of its
obligations regarding the lots, which included the real estate mortgage
in favor of GSIS, and so, GSIS closed the mortgage. Being the only
bidder in the public auction sale, GSIS won over the subject lots, and in
time secured its ownership over the lots with the transfer certificate of
titles issued to its name. GMC offered to purchase on installment the
subject lots with a collective area specified as 423,177 square meters
from GSIS, with the amount of 1,100,000 pesos. GSIS accepted the offer
through a Deed of Conditional Sale on February 26, 1980. GMC then
learned that the subject lots was only 298,504 square meters and
requested GSIS to reduce the price according to the actual proportion
of the land. This proposal was approved with an Amendment to the
Deed of Conditional Sale, which reflected the agreement of GSIS and
GMC. LLDHC filed a complaint against GSIS before the RTC of Manila on
April 23, 1980 for Foreclosure with Writ of Mandatory Injunction,
known as Civil Case No. R-82-3429. GMC filed a complaint also against
GSIS on November 3, 1989, known as Civil Case No. 2203-L, for Specific
Performance with Damages before the RTC of Lapu-Lapu City. GSIS, in
its defense, submitted a COA Memorandum dated April 3, 1989
disallowing in audit the sale of the subject to the court, stating that
there were apparent inherent irregularities, and that GMC bought the
property at a value much lower than GSIS purchasing price.
On February 24, 1992, with regard to Civil Case No. 2203-L, the RTC of
Lapu-Lapu City decided in favor of GMC, and that GSIS was to execute
order of the court pertaining to damages, and actions needed to
finalize the deed of absolute sale with GMC. On May 10, 1994, the RTC
of Manila also rendered its judgment that, aside from court orders, all
claims and counterclaims by the parties against each other are
dismissed in Civil Case No. R-82-3429. LLDHC now used the Manila
RTC decision as a means to file a Petition for Annulment of Judgment of
the Lapu-Lapu RTC Decision in Civil Case No. 2203-L, named CA-GR SP
No. 34696, which was dismissed by the Court of Appeals. After this
was a series of filing petitions to appeal the judgment. Throughout the
years, eventually, the three parties approached the Supreme Court,
where, in G.R. No. 167000, GSIS seeks to reverse and set aside the
decision made on November 25, 2004 and January 20, 2005, and to
annul and set aside the March 1, 2004 and May 7 2004 orders from the
Lapu-Lapu RTC in Civil Case No. 2203-L. And in G.R. No. 169971, GMC
seeks to reverse and set aside the Decision made in September 23,
2005 and to annul and set aside the March 11, 2004 Lapu-Lapu RTC
decision.
Issues: Whether or not the decisions of the Manila RTC in Civil Case No.
R-82-3429 shall be executory, despite the decision of Lapu-Lapu RTC
 14 | T a x a t i o n I | 2017
in Civil Case No. 2203-L. Whether or not the decision in CA GR SP
No. 84382 and GSIS Petition in 167000 are barred by Res Judicata.
Whether or not due process was given to the parties/entities
involved in the case. Whether or not GSIS can be immune to acting
out the orders of the court.
Ruling: The petition in G.R. No. 167000 was denied by the court,
and the petition in G.R. No. 169971 is granted.
Ratio Decidendi: The decision of the Lapu-Lapu RTC in Civil Case
No. 2203-L does not in any way affect the orders from the Manila
RTC in Civil Case No. R-82-3429, since the former has been finalized
on January 28, 1995, while the latter became final on May 30, 1997.
Procedural due process was extended to all parties, that there was
no immediate dismissal of their cases before they were heard by the
respective courts, even if they have already had a rendered
decision. However, the Supreme Court also recognized the doctrine
of Finality of Judgment, where the decisions, once final and
executed cannot be appealed, unless of circumstances that happen
after the finalization, void judgments, correction of clerical errors
and nunc pro tunc entries. The decision in CA GR SP No. 84382 and
GSIS Petition in 167000 are barred by Res Judicata, which is one of
the reasons why G.R. No. 167000 was denied. GSIS acted jure
gestonis, entering into a contract, and being solely liable for their
irresponsibility. They are not immune from acting out the orders of
the court.
23. REYES v. ALMANZOR
GR Nos. L-49839-46, April 26, 1991
196 SCRA 322
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

15 | T a x a t i o n I | 2017
penalized by the same government by the imposition of excessive
taxes petitioners can ill afford and eventually result in the forfeiture of
their properties.
24. CREBA v. The Hon. Executive
Secretary Alberto Romulo, et al
G.R. No. 160756. March 9, 2010
Facts: Petitioner Chamber of Real Estate and Builders Associations,
Inc. (CREBA), an association of real estate developers and builders in
the Philippines, questioned the validity of Section 27(E) of the Tax
Code which imposes the minimum corporate income tax (MCIT) on
corporations.
Under the Tax Code, a corporation can become subject to the MCIT at
the rate of 2% of gross income, beginning on the 4th taxable year
immediately following the year in which it commenced its business
operations, when such MCIT is greater than the normal corporate
income tax. If the regular income tax is higher than the MCIT, the
corporation does not pay the MCIT.
CREBA argued, among others, that the use of gross income as MCIT
base amounts to a confiscation of capital because gross income, unlike
net income, is not realized gain.
CREBA also sought to invalidate the provisions of RR No. 2-98, as
amended, otherwise known as the Consolidated Withholding Tax
Regulations, which prescribe the rules and procedures for the
collection of CWT on sales of real properties classified as ordinary
assets, on the grounds that these regulations:
-Use gross selling price (GSP) or fair market value (FMV) as
basis for determining
the income tax on the sale of real estate classified as ordinary assets,
instead of the entitys net taxable income as provided for under the Tax
Code;
- Mandate the collection of income tax on a per transaction
basis, contrary to the Tax Code provision which imposes income tax on
net income at the end of the taxable period;
- Go against the due process clause because the government
collects income tax even when the net income has not yet been
determined; gain is never assured by mere receipt of the selling price;
and
- Contravene the equal protection clause because the CWT is
being charged upon real estate enterprises, but not on other business
enterprises, more particularly, those in the manufacturing sector,
which do business similar to that of a real estate enterprise.
Issues: (1) Is the imposition of MCIT constitutional? (2) Is the
imposition of CWT on income from sales of real properties classified as
ordinary assets constitutional?
Held: (1) Yes. The imposition of the MCIT is constitutional. An income
tax is arbitrary and confiscatory if it taxes capital, because it is income,
and not capital, which is subject to income tax. However, MCIT is
imposed on gross income which is computed by deducting from gross
sales the capital spent by a corporation in the sale of its goods, i.e., the
cost of goods and other direct expenses from gross sales. Clearly, the
capital is not being taxed.
Various safeguards were incorporated into the law imposing MCIT.
Firstly, recognizing the birth pangs of businesses and the reality of the
need to recoup initial major capital expenditures, the MCIT is imposed
only on the 4th taxable year immediately following the year in which
the corporation commenced its operations.
Secondly, the law allows the carry-forward of any excess of the MCIT
 16 | T a x a t i o n I | 2017
paid over the normal income tax which shall be credited against the
normal income tax for the three immediately succeeding years.
Thirdly, since certain businesses may be incurring genuine repeated
losses, the law authorizes the Secretary of Finance to suspend the
imposition of MCIT if a corporation suffers losses due to prolonged
labor dispute, force majeure and legitimate business reverses.
(2) Yes. Despite the imposition of CWT on GSP or FMV, the income tax
base for sales of real property classified as ordinary assets remains as
the entitys net taxable income as provided in the Tax Code, i.e., gross
income less allowable costs and deductions. The seller shall file its
income tax return and credit the taxes withheld by the withholding
agent-buyer against its tax due. If the tax due is greater than the tax
withheld, then the taxpayer shall pay the difference. If, on the other
hand, the tax due is less than the tax withheld, the taxpayer will be
entitled to a refund or tax credit.
The use of the GSP or FMV as basis to determine the CWT is for
purposes of practicality and convenience. The knowledge of the
withholding agent-buyer is limited to the particular transaction in
which he is a party. Hence, his basis can only be the GSP or FMV which
figures are reasonably known to him.
Also, the collection of income tax via the CWT on a per transaction
basis, i.e., upon consummation of the sale, is not contrary to the Tax
Code which calls for the payment of the net income at the end of the
taxable period. The taxes withheld are in the nature of advance tax
payments by a taxpayer in order to cancel its possible future tax
obligation. They are installments on the annual tax which may be due
at the end of the taxable year. The withholding agent-buyers act of
collecting the tax at the time of the transaction, by withholding the tax
due from the income payable, is the very essence of the withholding
tax method of tax collection.
On the alleged violation of the equal protection clause, the taxing
power has the authority to make reasonable classifications for
purposes of taxation. Inequalities which result from singling out a
particular class for taxation, or exemption, infringe no constitutional
limitation. The real estate industry is, by itself, a class and can be
validly treated differently from other business enterprises.
What distinguishes the real estate business from other manufacturing
enterprises, for purposes of the imposition of the CWT, is not their
production processes but the prices of their goods sold and the
number of transactions involved. The income from the sale of a real
property is bigger and its frequency of transaction limited, making it
less cumbersome for the parties to comply with the withholding tax
scheme. On the other hand, each manufacturing enterprise may have
tens of thousands of transactions with several thousand customers
every month involving both minimal and substantial amounts.
25. GOMEZ V PALOMAR
See number 1
26. Manila Race Horses Trainers Association
Inc v. Manuel de la Fuente
Gr. No L-2947 January 11, 1951
Facts: The Manila Race Horses Association is a non-stock corporation
duly organized and existing under and by virtue of the law of the
Philippines. The association alleges 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. The association avers that
the ordinance in question is discriminatory and savors of class
legislation, since the ordinance ought to tax only boarding stables for
race horses and that the other owners of other kinds of horses are
taxed less or not at all.
 17 | T a x a t i o n I | 2017
Issue: Whether or not the said ordinance in taxing only boarding
stables for race horses makes the ordinance invalid on the ground that
it makes arbitrary classification
Held: No. The ordinance makes no arbitrary classification hence it is a
valid ordinance.
Ratio: In one case the Supreme Court stated that there is equality and
uniformity in taxation if all articles or kinds of property of the same
class are taxed at the same rate. 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 purpose is
not indefensible. 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
association complains conforms to the practical dictates of justice and
equity and is not discriminatory within the meaning of the
Constitution.
27. Casanovas v Hord
FACTS: In January 1897, the Spanish Government, in accordance with
the provisions of the royal decree of May14,1867, granted J. Casanovas
certain mines in the Province of Ambos Camarines. 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 which imposes
an annual tax and an ad valorem tax on all valid perfected mining
concessions granted prior to April 11th, 1899. The Commissioner, JNO
S. Hord, imposed upon these properties the tax mentioned in Section
134, which Casanovas paid under protest.
ISSUE: Is Section 134 valid?
RULING: No, 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.
The deed constituted a contract between the Spanish Government and
Casanovas. Furthermore, the section conflicts with Section 60 of the
Act of Congress of July 1, 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 nor claimed in the case.
28. Cagayan Electric Power & Light Co. Inc. v
CIR (1985)
GR No. L-60126, September 25, 1985
FACTS: Cagayan Electric is a holder of a legislative franchise under RA
3247 where payment of 3% tax on gross earning is in lieu of all taxes
and assessments upon privileges. In 1968, RA 5431 amended the
franchise by making all corporate taxpayers liable for income tax. In
1969, through RA 6020, its franchise was extended to two other towns
and the tax exemption was reenacted. The commissioner required the
company to pay deficiency income taxes for the intervening period
(1968-1969).
ISSUE: Is CEPALCO liable for the tax?
RULING: Yes. 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. However, it cannot be
denied that the said 1969 assessment appears to be highly
controversial. It had reason not to pay income tax because of the tax
exemption its franchise. For this reason, it should be liable only for tax
proper and should not be held liable for surcharge and interest.
 18 | T a x a t i o n I | 2017
29. American Bible Society v. City of Manila
Gr. No L-9637 April 30, 1957
Facts: American Bible Society (Society for short) is a foreign, non-
stock, non-profit, religious, missionary corporation duly registered and
doing business in the PH through its PH agency. In the course of its
ministry, the Society has been distributing and selling bibles and
gospel portions throughout PH and translating the same into several
PH dialects.
On May of 1953, the acting City Treasurer of the City of Manila
informed the Society that it was conducting business of general
merchandise since November of 1945 without providing itself with the
necessary Mayors permit and municipal license in violation of the
Ordinance No. 3000 (as amended). It also informed the Society that it
is required to secure the permits and licenses covering the period of
the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of
Php 5,821.45 as provided for in Ordinance No. 2529,3028 and 3364.
The Society objected but the City Treasurer demanded that the
Society should deposit and pay under protest. To avoid the closing of
its business as well as further fines and penalties, the Society paid such
said amount. On the same day, the Society filed a complaint that gave
rise to this action.
In its complaint the Society prays that judgment be rendered
declaring the said ordinances as illegal and unconstitutional. The
Society tried to establish that it never made any profit from the sales of
its bibles, which are disposed of for as low as one third of its costs. The
Society anchored their opposition that the ordinance is in contrast of
the constitutional guaranty of the free exercise and enjoyment of
religious profession and worship as provided for in the Constitution.
The society further prayed that the amount unduly collected from
them be returned.
Issue: Whether or not the above ordinances are illegal and
unconstitutional.
Held : No, the said ordinances are constitutional but they are just
inapplicable to the Society. The City of Manila is ordered to return to
the Society the amount it unduly collected.
Ratio: The Supreme Court held that such ordinances cannot be
declared unconstitutional but it is only not applicable to the Society.
The SC held that the City of Manila is powerless to license or tax the
business of the Society for it would impair the Societys right to the
free exercise and enjoyment of its religious profession and worship. It
is to be noted that such right includes the right of dissemination of
religious beliefs.
As quoted by the SC: When we balance the constitutional rights
of owners of property against those of the people to enjoy freedom of
press and religion, as we must here, we remain mindful of the fact that
the latter occupy a preferred position.
Lastly, the SC said that it cannot be said the Society were engaged
in the commercial rather than a religious venture, even on the fact it
disposed the bibles with price ( for as low as one third of its costs).
Their activities could not be described as embraced in the occupation
of selling books and pamphlets.
30. Abra Valley College v. Aquino
June 15,1988
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 non-payment of real estate taxes and
penalties amounting to 5,140.31. Said Notice of Seizure by
respondents Municipal Treasurer and Provincial Treasurer,
defendants, was issued for the satisfaction of the said taxes thereon.
 19 | T a x a t i o n I | 2017
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
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).
31. Lung Center of the Philippines vs. Quezon
City and Constantino Rosas
G.R. No. 144104, June 29, 2004
Facts: The Petitioner is a non-stock, non-profit entity which owns a
parcel of land in Quezon City. Erected in the middle of the aforesaid lot
is a hospital known as the Lung Center of the Philippines. The ground
floor is being leased to a canteen, medical professionals whom use the
same as their private clinics, as well as to other private parties. The
right portion of the lot is being leased for commercial purposes to the
Elliptical Orchids and Garden Center. The petitioner accepts paying
and nonpaying patients. It also renders medical services to out-
patients, both paying and non-paying. Aside from its income from
paying patients, the petitioner receives annual subsidies from the
government.
Petitioner filed a Claim for Exemption from realty taxes amounting to
about Php4.5 million, predicating its claim as a charitable institution.
The city assessor denied the Claim. When appealed to the QC-Local
Board of Assessment, the same was dismissed. The decision of the QC-
LBAA was affirmed by the Central Board of Assessment Appeals,
despite the Petitioners claim that 60% of its hospital beds are used
exclusively for charity.
Issue: Whether or not the Petitioner is entitled to exemption from
realty taxes notwithstanding the fact that it admits paying clients and
leases out a portion of its property for commercial purposes.
Ruling: The Court held that the petitioner is indeed a charitable
institution based on its charter and articles of incorporation. As a
general principle, a charitable institution does not lose its character as
such and its exemption from taxes simply because it derives income
from paying patients, whether out-patient or confined in the hospital,
or receives subsidies from the government, so long as the money
received is devoted or used altogether to the charitable object which it
is intended to achieve; and no money inures to the private benefit of
 20 | T a x a t i o n I | 2017
the persons managing or operating the institution. Despite this, the
Court held that the portions of real property that are leased to private
entities are not exempt from real property taxes as these are not
actually, directly and exclusively used for charitable purposes.
(strictissimi juris)
Moreover, P.D. No. 1823 only speaks of tax exemptions as regards to:
income and gift taxes for all donations, contributions, endowments
and equipment and supplies to be imported by authorized entities or
persons and by the Board of Trustees of the Lung Center of the
Philippines for the actual use and benefit of the Lung Center; and,
taxes, charges and fees imposed by the Government or any political
subdivision or instrumentality thereof with respect to equipment
purchases (expression unius est exclusion alterius/expressium facit
cessare tacitum).
32. Commissioner of Internal Revenue vs. St
Luke's Medical Center
G.R. Nos. 195909 & 195960, September 26, 2012
Facts: St. Lukes Medical Center, Inc. (St. Lukes) is a hospital organized
as a non-stock and non-profit corporation. St. Lukes accepts both
paying and non-paying patients. The BIR assessed St. Lukes deficiency
taxes for 1998 comprised of deficiency income tax, value-added tax,
and withholding tax. The BIR claimed that St. Lukes should be liable
for income tax at a preferential rate of 10% as provided for by Section
27(B). Further, the BIR claimed that St. Lukes was actually operating
for profit in 1998 because only 13% of its revenues came from
charitable purposes. Moreover, the hospitals board of trustees,
officers and employees directly benefit from its profits and assets.
On the other hand, St. Lukes maintained that it is a non-stock and non-
profit institution for charitable and social welfare purposes exempt
from income tax under Section 30(E) and (G) of the NIRC. It argued
that the making of profit per se does not destroy its income tax
exemption.
Issue: The sole issue is whether St. Lukes is liable for deficiency
income tax in 1998 under Section 27(B) of the NIRC, which imposes a
preferential tax rate of 10^ on the income of proprietary non-profit
hospitals.
Ruling: Section 27(B) of the NIRC does not remove the income tax
exemption of proprietary non-profit hospitals under Section 30(E) and
(G). Section 27(B) on one hand, and Section 30(E) and (G) on the other
hand, can be construed together without the removal of such tax
exemption.
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the
income of (1) proprietary non-profit educational institutions and (2)
proprietary non-profit hospitals. The only qualifications for hospitals
are that they must be proprietary and non-profit. Proprietary means
private, following the definition of a proprietary educational
institution as any private school maintained and administered by
private individuals or groups with a government permit.
Non-profit means no net income or asset accrues to or benefits any
member or specific person, with all the net income or asset devoted to
the institutions purposes and all its activities conducted not for profit.
Non-profit does not necessarily mean charitable. In Collector of
Internal Revenue v. Club Filipino Inc. de Cebu, this Court considered as
non-profit a sports club organized for recreation and entertainment of
its stockholders and members. The club was primarily funded by
membership fees and dues. If it had profits, they were used for
overhead expenses and improving its golf course. The club was non-
profit because of its purpose and there was no evidence that it was
engaged in a profitmaking enterprise.
The sports club in Club Filipino Inc. de Cebu may be non-profit, but it
was not charitable. The Court defined charity in Lung Center of the
Philippines v. Quezon City as a gift, to be applied consistently with
 21 | T a x a t i o n I | 2017
existing laws, for the benefit of an indefinite number of persons, either
by bringing their minds and hearts under the influence of education or
religion, by assisting them to establish themselves in life or [by]
otherwise lessening the burden of government. However, despite its
being a tax exempt institution, any income such institution earns from
activities conducted for profit is taxable, as expressly provided in the
last paragraph of Sec. 30.
To be a charitable institution, however, an organization must meet the
substantive test of charity in Lung Center. The issue in Lung Center
concerns exemption from real property tax and not income tax.
However, it provides for the test of charity in our jurisdiction. Charity
is essentially a gift to an indefinite number of persons which lessens
the burden of government. In other words, charitable institutions
provide for free goods and services to the public which would
otherwise fall on the shoulders of government. Thus, as a matter of
efficiency, the government forgoes taxes which should have been spent
to address public needs, because certain private entities already
assume a part of the burden. This is the rationale for the tax exemption
of charitable institutions. The loss of taxes by the government is
compensated by its relief from doing public works which would have
been funded by appropriations from the Treasury.
The Constitution exempts charitable institutions only from real
property taxes. In the NIRC, Congress decided to extend the exemption
to income taxes. However, the way Congress crafted Section 30(E) of
the NIRC is materially different from Section 28(3), Article VI of the
Constitution. Section 30(E) of the NIRC defines the corporation or
association that is exempt from income tax. On the other hand, Section
28(3), Article VI of the Constitution does not define a charitable
institution, but requires that the institution actually, directly and
exclusively use the property for a charitable purpose.
To be exempt from real property taxes, Section 28(3), Article VI of the
Constitution requires that a charitable institution use the property
actually, directly and exclusively for charitable purposes. To be
exempt from income taxes, Section 30(E) of the NIRC requires that a
charitable institution must be organized and operated exclusively for
charitable purposes. Likewise, to be exempt from income taxes, Section
30(G) of the NIRC requires that the institution be operated
exclusively for social welfare.
However, the last paragraph of Section 30 of the NIRC qualifies the
words organized and operated exclusively by providing that:
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 tax imposed under this Code. In short,
the last paragraph of Section 30 provides that if a tax exempt
charitable institution conducts any activity for profit, such activity is
not tax exempt even as its not-for-profit activities remain tax exempt.
Thus, even if the charitable institution must be organized and
operated exclusively for charitable purposes, it is nevertheless
allowed to engage in activities conducted for profit without losing its
tax exempt status for its not-for-profit activities. The only consequence
is that the income of whatever kind and character of a charitable
institution from any of its activities conducted for profit, regardless of
the disposition made of such income, shall be subject to tax. Prior to
the introduction of Section 27(B), the tax rate on such income from for-
profit activities was the ordinary corporate rate under Section 27(A).
With the introduction of Section 27(B), the tax rate is now 10%. The
Court finds that St. Lukes is a corporation that is not operated
exclusively for charitable or social welfare purposes insofar as its
revenues from paying patients are concerned.
This ruling is based not only on a strict interpretation of a provision
granting tax exemption, but also on the clear and plain text of Section
30(E) and (G). Section 30(E) and (G) of the NIRC requires that an
institution be operated exclusively for charitable or social welfare
purposes to be completely exempt from income tax. An institution
 22 | T a x a t i o n I | 2017
under Section 30(E) or (G) does not lose its tax exemption if it earns
income from its for-profit activities. Such income from for-profit
activities, under the last paragraph of Section 30, is merely subject to
income tax, previously at the ordinary corporate rate but now at the
preferential 10% rate pursuant to Section 27(B).
St. Lukes fails to meet the requirements under Section 30(E) and (G)
of the NIRC to be completely tax exempt from all its income. However,
it remains a proprietary non-profit hospital under Section 27(B) of the
NIRC as long as it does not distribute any of its profits to its members
and such profits are reinvested pursuant to its corporate purposes. St.
Lukes, as a proprietary non-profit hospital, is entitled to the
preferential tax rate of 10% on its net income from its for-profit
activities. St. Lukes is therefore liable for deficiency income tax in
1998 under Section 27(B) of the NIRC. However, St. Lukes has good
reasons to rely on the letter dated 6 June 1990 by the BIR, which
opined that St. Lukes is a corporation for purely charitable and social
welfare purposes and thus exempt from income tax. In Michael J.
Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said that
good faith and honest belief that one is not subject to tax on the basis
of previous interpretation of government agencies tasked to
implement the tax law, are sufficient justification to delete the
imposition of surcharges and interest.
WHEREFORE, St. Lukes Medical Center, Inc. is ORDERED TO PAY the
deficiency income tax in 1998 based on the 10% preferential income
tax rate under Section 27(8) of the National Internal Revenue Code.
However, it is not liable for surcharges and interest on such deficiency
income tax under Sections 248 and 249 of the National Internal
Revenue Code. All other parts of the Decision and Resolution of the
Court of Tax Appeals are AFFIRMED.
33. De La Salle University v. Commission
on Internal Revenue
CTA Case EB No. 671/ G.R. No. 198841, November 9, 2016
Facts: The BIR through a Formal Letter of Demand assessed DLSU the
following deficiency taxes: (1) income tax on rental earnings from
restaurants/canteens and bookstores operating within the campus; (2)
value-added tax (VAT) on business income; and (3) documentary
stamp tax (DST) on loans and lease contracts. The BIR demanded the
payment of P17,303,001.12, inclusive of surcharge, interest and
penalty for taxable years 2001, 2002 and 2003.
The CTA Division, in view of the supplemental evidence submitted,
reduced the amount of DLSU's tax deficiencies. Dissatisfied with the
partial reduction of its tax liabilities, DLSU filed a separate petition for
review with the CTA En Banc (CTA En Banc Case No. 671) on the
ground that the CTA Division should still have cancelled the entire
assessment because DLSU submitted evidence similar to those
submitted by Ateneo De Manila University (Ateneo) in a separate case
where the CT A cancelled Ateneo 's tax assessment, among others.
Issue: Whether or not DLSU' s income and revenues proved to have
been used actually, directly and exclusively for educational purposes
are exempt from duties and taxes.
Ruling: The revenues and assets of non-stock, non-profit educational
institutions proved to have been used actually, directly, and exclusively
for educational purposes are exempt from duties and taxes.
Section 30 (H) of the Tax Code provides that a non-stock and non-
profit educational institution shall be exempt from Tax on Income. It
further provides:
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
 23 | T a x a t i o n I | 2017
the disposition made of such income shall be subject to tax
imposed under this Code.
However, the 1997 Tax Code does not qualify the tax exemption
constitutionally-granted to non-stock, non-profit educational
institutions. The requisites for availing the tax exemption under Article
XIV, Section 4 (3), namely: (1) the taxpayer 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. The last paragraph of Section
30 of the Tax Code is without force and effect with respect to non-
stock, non-profit educational institutions, provided, that the non-stock,
non-profit educational institutions prove that its assets and revenues
are used actually, directly and exclusively for educational purposes.
The tax-exemption constitutionally-granted to non-stock, non-profit
educational institutions, is not subject to limitations imposed by law.
The tax exemption granted by the Constitution to non-stock, non-
profit educational institutions is conditioned only on the actual, direct
and exclusive use of their assets, revenues and income for educational
purposes.
Unlike Article VI, Section 28 (3) of the Constitution (pertaining to
charitable institutions, churches, parsonages or convents, mosques,
and non-profit cemeteries), which exempts from tax only the assets,
i.e., "all lands, buildings, and improvements, actually, directly, and
exclusively used for religious, charitable, or educational purposes ... ,"
Article XIV, Section 4 (3) categorically states that "[a]ll revenues and
assets ... used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties."
Thus, when a non-stock, non-profit educational institution proves that
it uses its revenues actually, directly, and exclusively for educational
purposes, it shall be exempted from income tax, VAT, and LBT. On the
other hand, when it also shows that it uses its assets in the form of real
property for educational purposes, it shall be exempted from RPT. The
crucial point of inquiry then is on the use of the assets or on the use of
the revenues. These are two things that must be viewed and treated
separately. But so long as the assets or revenues are used actually,
directly and exclusively for educational purposes, they are exempt
from duties and taxes.
Thus, we declare the last paragraph of Section 30 of the Tax Code
without force and effect for being contrary to the Constitution insofar
as it subjects to tax the income and revenues of non-stock, non-profit
educational institutions used actually, directly and exclusively tor
educational purpose. We make this declaration in the exercise of and
consistent with our duty to uphold the primacy of the Constitution.
For all these reasons, we hold that the income and revenues of DLSU
proven to have been used actually, directly and exclusively for
educational purposes are exempt from duties and taxes.
34. Ateneo de Manila University v.
Commission on Internal Revenue
CTA Case Nos. 7246 & 7293, June 30, 2011
Facts: Respondent is a non-stock, non-profit educational institution
duly organized and existing under and by virtue of the laws of the
Republic of the Philippines with principal office located at Loyola
Heights, Quezon City. On July 15, 2004, respondent received
petitioner's FAN dated July 13, 2004 for alleged deficiency income tax
for fiscal year ending March 31 , 2001 in the amount of P2,334,211 ,.22.
On September 30, 2004, respondent received petitioner's FAN dated
September 7, 2004 for alleged deficiency income tax and VAT for fiscal
years ending March 31, 2002 and 2003 and for alleged deficiency VAT
for fiscal year ending March 31, 2001 in the aggregate amount of
P6,529 ,831.13. After trial, the Special First Division granted
respondent's petition for review.
 24 | T a x a t i o n I | 2017
Issue: Whether or not the honorable court erred in cancelling the
assessment notices and in declaring respondent exempt from VAT on
concession fees.
Ruling: No. The Supreme Court gave only two requirements that the
educational institution must prove, that: (I) 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. As regards the first requisite,
the parties already stipulated that petitioner is a non-stock, non-profit
educational institution. Hence, no evidence is necessary to prove the
same. As regards the second requisite, the income from cafeteria
concession fees is commingled with the other funds that make up
'other educational income,' and such income is made available for
school operations such as salaries, employee benefits, faculty
development, supplies and expenses, new books, scholarships,
research, new equipment, and major improvements.
The Abra Valley College case is not applicable in the instant case as it
involves property tax and the interpretation of Article VI, Section 22,
paragraph 3 of the 1935 Philippine Constitution (now Article VI,
Section 28, paragraph 3 of the 1987 Philippine Constitution). The
present case involves income tax, the VAT and the construction of
Article XIV, Section 4, paragraph 3 of the 1987 Constitution.
Any doubt on whether a person, article or activity is taxable is
generally resolved against taxation. It is basic that ' in case of doubt,
such statutes are to be construed most strongly against the
government and in favor of the subjects or citizens because burdens
are not to be imposed or presumed to be imposed beyond what
statutes expressly and clearly import.'
35. Angeles University Vs. City Of Angeles.
Juliet G. Quinsaat
G.R. No. 189999, June 27, 2012
Facts: Angeles University was converted into a non-stock, non-profit
education foundation under the provisions of republic Act (R.A.)
No. 6055. Petitioner filed with the Office of the City Building Official an
application for a building permit for the construction of an 11-story
building of the Angeles University Foundation Medical Center in its
main campus the said office issue a Building permit fee and Locational
Clearance Fee. Petitioner make a letter to respondent City Treasurer
Juliet G. Quinssat and City Building Official Donato Z. Dizon alleging
that it is exempt from payment of the building permit and locational
clearance fee. Petitioner also reminded the respondent that they have
previously issued building permit acknowledging such exemption from
payment of building permit fees. The DOJ and trial court render
decision in favor to petitioner for exempting in payment. But the CA
reverse the decision of court in favor to respondent. Petitioner file a
MR but it was denied by CA.
Issue: WON the Angeles University is exempted in Building permit fee
and Locational Clearance Fee.
Ruling: No.Under R.A. No. 6055, petitioner was granted exemption
only from income tax derived from its educational activities and real
property used exclusively for educational purposes. Regardless of the
repealing clause in the National Building Code, the CA held that
petitioner is still not exempt because a building permit cannot be
considered as the other charges mentioned in Sec. 8 of R.A. No. 6055
which refers to impositions in the nature of tax, import duties,
assessments and other collections for revenue purposes, following the
ejusdem generis rule.
The CA further stated that petitioner has not shown that the fees
collected were excessive and more than the cost of surveillance,
inspection and regulation. And while petitioner may be exempt from

25 | T a x a t i o n I | 2017
the payment of real property tax, petitioner in this case merely alleged
that the subject property is to be used actually, directly and
exclusively for educational purposes, declaring merely that such
premises is intended to house the sports and other facilities of the
university but by reason of the occupancy of informal settlers on the
area, it cannot yet utilize the same for its intended use.
Thus, the CA concluded that petitioner is not entitled to the refund of
building permit and related fees, as well as real property tax it paid
under protest.R.A. No. 6055 granted tax exemptions to educational
institutions like petitioner which converted to non-stock, non-profit
educational foundations. Section 8 of said law provides:
SECTION 8. The Foundation shall be exempt from the payment of all
taxes, import duties, assessments, and other charges imposed by the
Government on all income derived from or property, real or personal,
used exclusively for the educational activities of the
Foundation.(Emphasis supplied.)
A charge is broadly defined as the price of, or rate for, something,
while the word fee pertains to a charge fixed by law for services of
public officers or for use of a privilege under control of government.
As used in theLocal Government Code of 1991 (R.A. No. 7160), charges
refers to pecuniary liability, as rents or fees against persons or
property, while fee means a charge fixed by law or ordinance for the
regulation or inspection of a business or activity.
36. CHEVRON vs. BCDA
(G.R. No. 173863)
FACTS:
On June 28, 2002, the Board of Directors of respondent Clark
Development Corporation (CDC) issued and approved Policy
Guidelines on the Movement of Petroleum Fuel to and from the Clark
Special Economic Zone. In one of its provisions, it levied royalty fees to
suppliers delivering Coastal fuel from outside sources for Php0.50 per
liter for those delivering fuel to CSEZ locators not sanctioned by CDC
and Php1.00 per litter for those bringing-in petroleum fuel from
outside sources. The policy guidelines were implemented effective July
27, 2002.
The petitioner Chevron Philippines Inc (formerly Caltex Philippines
Inc) who is a fuel supplier to Nanox Philippines, a locator inside the
CSEZ, received a Statement of Account from CDC billing them to pay
the royalty fees amounting to Php115,000 for its fuel sales from
Coastal depot to Nanox Philippines from August 1 to September 21,
2002.
Petitioner, contending that nothing in the law authorizes CDC to
impose royalty fees based on a per unit measurement of any
commodity sold within the special economic zone, protested against
the CDC and Bases Conversion Development Authority (BCDA). They
alleged that the royalty fees imposed had no reasonable relation to the
probably expenses of regulation and that the imposition on a per unit
measurement of fuel sales was for a revenue generating purpose, thus,
akin to a tax.
BCDA denied the protest. The Office of the President dismissed the
appeal as well for lack of merit.
Upon appeal, CA dismissed the case. CA held that in imposing the
royalty fees, CDC was exercising its right to regulate the flow of fuel
into CSEZ under the vested exclusive right to distribute fuel within
CSEZ pursuant to its Joint Venture Agreement (JVA) with Subic Bay
Metropolitan Authority (SBMA) and Coastal Subic Bay Terminal, Inc.
(CSBTI) dated April 11, 1996. The appellate court also found that
royalty fees were assessed on fuel delivered, not on the sale, by
petitioner and that the basis of such imposition was petitioners
delivery receipts to Nanox Philippines. The fact that revenue is
incidentally also obtained does not make the imposition a tax as long
as the primary purpose of such imposition is regulation.
When elevated in SC, petitioner argued that: 1) CDC has no power to
impose fees on sale of fuel inside CSEZ on the basis of income
generating functions and its right to market and distribute goods
inside the CSEZ as this would amount to tax which they have no power
to impose, and that the imposed fee is not regulatory in nature but
 26 | T a x a t i o n I | 2017
rather a revenue generating measure; 2) even if the fees are regulatory
in nature, it is unreasonable and are grossly in excess of regulation
costs.
Respondents contended that the purpose of royalty fees is to regulate
the flow of fuel to and from the CSEZ and revenue (if any) is just an
incidental product. They viewed it as a valid exercise of police power
since it is aimed at promoting the general welfare of public; that being
the CSEZ administrator, they are responsible for the safe distribution
of fuel products inside the CSEZ.
ISSUE: Whether the act of CDC in imposing royalty fees can be
considered as valid exercise of the police power.
HELD: Yes. SC held that CDC was within the limits of the police power
of the State when it imposed royalty fees.
In distinguishing tax and regulation as a form of police power, the
determining factor is the purpose of the implemented measure. If the
purpose is primarily to raise revenue, then it will be deemed a tax even
though the measure results in some form of regulation. On the other
hand, if the purpose is primarily to regulate, then it is deemed a
regulation and an exercise of the police power of the state, even though
incidentally, revenue is generated.
In this case, SC held that the subject royalty fee was imposed for
regulatory purposes and not for generation of income or profits. The
Policy Guidelines was issued to ensure the safety, security, and good
condition of the petroleum fuel industry within the CSEZ. The
questioned royalty fees form part of the regulatory framework to
ensure free flow or movement of petroleum fuel to and from the
CSEZ. The fact that respondents have the exclusive right to distribute
and market petroleum products within CSEZ pursuant to its JVA with
SBMA and CSBTI does not diminish the regulatory purpose of the
royalty fee for fuel products supplied by petitioner to its client at the
CSEZ.
However, it was erroneous for petitioner to argue that such exclusive
right of respondent CDC to market and distribute fuel inside CSEZ is
the sole basis of the royalty fees imposed under the Policy Guidelines.
Being the administrator of CSEZ, the responsibility of ensuring the
safe, efficient and orderly distribution of fuel products within the Zone
falls on CDC. Addressing specific concerns demanded by the nature of
goods or products involved is encompassed in the range of services
which respondent CDC is expected to provide under Sec. 2 of E.O. No.
80, in pursuance of its general power of supervision and control over
the movement of all supplies and equipment into the CSEZ.
There can be no doubt that the oil industry is greatly imbued with
public interest as it vitally affects the general welfare. Fuel is a highly
combustible product which, if left unchecked, poses a serious threat to
life and property. Also, the reasonable relation between the royalty
fees imposed on a per liter basis and the regulation sought to be
attained is that the higher the volume of fuel entering CSEZ, the greater
the extent and frequency of supervision and inspection required to
ensure safety, security, and order within the Zone.
Respondents submit that the increased administrative costs were
triggered by security risks that have recently emerged, such as
terrorist strikes. The need for regulation is more evident in the light of
9/11 tragedy considering that what is being moved from one location
to another are highly combustible fuel products that could cause loss
of lives and damage to properties.
As to the issue of reasonableness of the amount of the fees, SC held that
no evidence was adduced by the petitioner to show that the fees
imposed are unreasonable. Administrative issuances have the force
and effect of law. They benefit from the same presumption of validity
and constitutionality enjoyed by statutes. These two precepts place a
heavy burden upon any party assailing governmental regulations.
Petitioners plain allegations are simply not enough to overcome the
presumption of validity and reasonableness of the subject imposition.
WHEREFORE, the petition is DENIED for lack of merit and the Decision
of the Court of Appeals dated November 30, 2005 in CA-G.R. SP No. 87117
is hereby AFFIRMED.
 27 | T a x a t i o n I | 2017
37. TOLENTINO vs. THE SEC OF FINANCE
(G.R. No. 115455)
FACTS: The valued-added tax 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.
ISSUES: Whether or not the law violates the provision of the
constitution regarding the freedom of religion and its exercise thereof?
Whether or not the law violates the provisions of the constitution
regarding the Uniformity, Equitability and Progressivity of Taxation?
RULING: Claims of Freedom of Thought and Religious Freedom The
case of American Bible Society v. City of Manila 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 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."
But, in this case, the fee in 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, sec. 17) to be
untenable.
Claims of Progressivity, 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 the equal protection of the
laws. The reason for this different treatment has been cogently stated
by an eminent authority on constitutional law thus: "When freedom of
the mind is imperiled by law, it is freedom that commands a moments
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
 28 | T a x a t i o n I | 2017
clause."
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 or for the promotion of the right to "quality
education". These provisions are put in the Constitution as moral
incentives to legislation, not as judicially enforceable rights.
To sum it all up, we hold that the procedural requirements of the
Constitution have been complied with by Congress in the enactment of
the statute; 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; 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
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.
38. GARCIA V EXECUTIVE SECRETARY
211 SCRA 219
Facts: In November 1990, President Corazon Aquino issued Executive
Order No. 438 which imposed, in addition to any other duties, taxes
and charges imposed by law on all articles imported into the
Philippines, an additional duty of 5% ad valorem tax. This additional
duty was imposed across the board on all imported articles, including
crude oil and other oil products imported into the Philippines. In 1991,
EO 443 increased the additional duty to 9%. In the same year, EO 475
was passed reinstating the previous 5% duty except that crude oil and
other oil products continued to be taxed at 9%. Enrique Garcia, a
representative from Bataan, avers that EO 475 and 478 are
unconstitutional for they violate Section 24 of Article VI of the
Constitution which provides:
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.
He contends that since the Constitution vests the authority to enact
revenue bills in Congress, the President may not assume such power
by issuing Executive Orders Nos. 475 and 478 which are in the nature
of revenue-generating measures.
ISSUE: Whether or not EO 475 and 478 are constitutional.
HELD: Under Section 24, Article VI of the Constitution, the enactment
of appropriation, revenue and tariff bills, like all other bills is, of
course, within the province of the Legislative rather than the Executive
Department. It does not follow, however, that therefore Executive
Orders Nos. 475 and 478, assuming they may be characterized as
revenue measures, are prohibited to be exercised by the President,
that they must be enacted instead by the Congress of the Philippines.
Section 28(2) of Article VI of the Constitution provides as follows:
(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.
There is thus explicit constitutional permission to Congress to
authorize the President subject to such limitations and restrictions as
[Congress] may impose to fix within specific limits tariff rates . . .
and other duties or imposts . . . . In this case, it is the Tariff and
Customs Code which authorized the President ot issue the said EOs.
 29 | T a x a t i o n I | 2017
39.OSMENA vs. ORBOS
(GR No. 99886)
" To avoid the taint of unlawful delegation of the power to tax, there
must be a standard which implies that the legislature determines
matter of principle and lays down fundamental policy."
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 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 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." 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.
40. REPUBLIC vs CTA
(G.R. No. 62554-55)
FACTS:"On 14 September 1971, respondent Commissioner assessed
petitioner the amount of P1,060,615.06, plus 25% surcharge in the
amount of P265,153.76, or a total of P1,325,768.82, as 1% monthly
bank reserve deficiency tax for taxable year 1969.
"In a letter dated 6 October 1971, petitioner requested reconsideration
of the assessment which respondent Commissioner denied in a letter
dated 26 February 1973.
"On 5 April 1973, respondent Commissioner assessed petitioner the
amount of P1,562,506.14, plus 25% surcharge in the amount of
P390,626.53, or a total of P1,953,132.67, as 1% monthly bank reserve
deficiency tax for taxable year 1970.
"In a letter dated 16 May 1973, petitioner requested reconsideration of
the assessment which respondent Commissioner denied in a letter
dated 6 May 1974.
"Petitioner contends that Section 249 of the Tax Code is no longer
enforceable, because Section 126 of Act 1459, which was allegedly the
basis for the imposition of the 1% reserve deficiency tax, was repealed
by Section 90 of Republic Act 337, the General Banking Act, and by
Sections 100 and 101 of Republic Act 265.
"On 28 March 1973, petitioner filed a petition for review with the Tax
Court, docketed as C.T.A. Case No. 2506, contesting the assessment for
the taxable year 1969. On 3 July 1974, a similar petition, docketed as
C.T.A. Case No. 2618, was filed contesting the assessment for the
taxable year 1970.
"The cases, involving similar issues, were consolidated. After hearing,
the Tax Court rendered a decision dated 30 September 1982
 30 | T a x a t i o n I | 2017
dismissing the petitions for review and upholding the validity of the
assessments.
"Still not satisfied, petitioner filed this petition for review."[
ISSUE: Whether there shall be collected upon the amount of reserve
deficiencies incurred by the bank.
HELD:
TITLE VIII - MISCELLANEOUS TAXES
"Sec. 249. Tax on Banks. xxx xxx xxx.
"There shall be collected upon the amount of reserve deficiencies
incurred by the bank, and for the period of their duration, as provided
in section one hundred twenty six of Act numbered one thousand four
hundred and fifty-nine, as amended by Act Numbered Three thousand
six hundred and ten, one per centum per month. xxx xxx xxx. (As
amended by Rep. Act No. 6110)"[10]
Clearly, the law states a tax is to be collected.
As the law stood during the years the petitioner was assessed for taxes
on reserve deficiencies (1969 & 1970), petitioner had to pay twice --
the first, a penalty, to the Central Bank by virtue of Section 106 for
violation of Secs. 100 and 101, all of the Central Bank Act and the
second, a tax to the Bureau of Internal Revenue for incurring a reserve
deficiency.
As correctly analyzed by the petitioner and public respondents, the
new legislations on bank reserves merely provided the basis for
computation of the reserve deficiency of petitioner bank.
Petitioner submits that it was not the legislative intention that banks
with reserve deficiencies would pay twice as the Tax Code (CA 466, as
amended by P.D. 69) enacted on January 1, 1973 did not contain said
questioned provision.
While petitioner might have a point, the wisdom of this legislation is
not the province of the Court.[11] It is clear from the statutes then in
force that there was no double taxation involved -- one was a penalty
and the other was a tax. At any rate, We have upheld the validity of
double taxation.[12] The payment of 1/10 of 1% for incurring reserve
deficiencies (Section 106, Central Bank Act) is a penalty as the primary
purpose involved is regulation,[13] while the payment of 1% for the
same violation (Second Paragraph, Section 249, NIRC) is a tax for the
generation of revenue which is the primary purpose in this
instance.[14] Petitioner should not complain that it is being asked to pay
twice for incurring reserve deficiencies. It can always avoid this
predicament by not having reserve deficiencies. Petitioner's case is
covered by two special laws -- one a banking law and the other, a tax
law. These two laws should receive such construction as to make them
harmonize with each other and with the other body of pre-existing
laws.[15]
Dura lex sed lex!
41. CIR vs Estate of Benigno Toda Jr.
G.R. No. 147188. September 14, 2004
FACTS: On March 2, 1989: Cibeles Insurance Corp. (CIC) authorized
Benigno P. Toda Jr., President and Owner of 99.991% of outstanding
capital stock, to sell the Cibeles Building and 2 parcels of land which he
sold to Rafael A. Altonaga on August 30, 1987 for P 100M who then
sold it on the same day to Royal Match Inc. for P 200M. The CIC
included gains from sale of real property of P 75,728.021 in its annual
income tax return while Altonaga paid a 5% capital gains tax of P 10M.
On July 12, 1990: Toda sold his shares to Le Hun T. Choa for P 12.5M
evidenced by a deed of ale of shares of stock which provides that the
buyer is free from all income tax liabilities for 1987, 1988 and 1989.
Toda Jr. died 3 years later. On March 29, 1994: BIR sent an assessment
notice and demand letter to CIC for deficiency of income tax of P
79,099, 999.22. On January 27, 1995, the BIR sent the same to the
estate of Toda Jr. The Estate filed a protest which was dismissed -
fraudulent sale to evade the 35% corporate income tax for the
additional gain of P 100M and that there is in fact only 1 sale. Since it
is falsity or fraud, the prescription period is 10 years from the
discovery of the falsity or fraud as prescribed under Sec. 223 (a) of the
NIRC.
 31 | T a x a t i o n I | 2017
The CTA ruled that there was no proof of the fraudulent
transaction so the applicable period is 3 years after the last day
prescribed by law for filing the return. The CA affirmed the decision of
the CTA. CIR appealed.
ISSUE: Whether or not there is falsity or fraud resulting to tax evasion
rather than tax avoidance so that the period for assessment has not
prescribed.
HELD: YES. The falsity or fraud resulted to tax evasion. The estate shall
be liable since the prescriptive period has NOT yet lapsed. Tax
avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving
device within the means it is sanctioned by law. This method should be
used by the taxpayer in good faith and at arms length. Tax evasion, on
the other hand, is a scheme used outside of those lawful means and
when availed of, it usually subjects the taxpayer to further or
additional civil or criminal liabilities.
Tax evasion connotes the integration of three factors:
(1) the end to be achieved, i.e., the payment of less than that known by
the taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due
(2) an accompanying state of mind which is described as being evil, in
bad faith, willfull,or deliberate and not accidental; and
(3) a course of action or failure of action which is unlawful.
All are present in this case. The trial balance showed that RMI debited
P 40M as "other-inv. Cibeles Building" that indicates RMI Paid CIC
(NOT Altonaga).
Fraud in its general sense, is deemed to comprise anything
calculated to deceive, including all acts, omissions, and concealment
involving a breach of legal or equitable duty, trust or confidence justly
reposed, resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another. Here, it is obvious that
the objective of the sale to Altonaga was to reduce the amount of tax to
be paid especially that the transfer from him to RMI would then
subject the income to only 5% individual capital gains tax, and not the
35% corporate income tax. Generally, a sale of or exchange of assets
will have an income tax incidence only when it is consummated but
such tax incidence depends upon the substance of the transaction
rather them mere formalities.
42. CIR V PASCOR REALTY & DEVT CORP et. al.
GR No. 128315, June 29, 1999
Facts: Pascor Realty and Development Corporation (PRDC) was found
out to be liable for a total of P10.5 million tax deficiency for the years
1986 and 1987. In March 1995, the Commissioner of Internal Revenue
(CIR) filed a criminal complaint against PRDC with the Department of
Justice. Attached to the criminal complaint was a joint affidavit
executed by the tax examiners.
PRDC then filed a protest with the Court of Tax Appeals (CTA). PRDC
averred that the affidavit attached to the criminal complaint is
tantamount to a formal assessment notice (FAN) hence can be
subjected to protest; that there is a simultaneous assessment and filing
of criminal case; that the same is contrary to due process because it is
its theory that an assessment should come first before a criminal case
of tax evasion should be filed. The CIR then filed a motion to dismiss on
the ground that the CTA has no jurisdiction over the case because the
CIR has not yet issued a FAN against PRDC; that the affidavit attached
to the complaint is not a FAN; that since there is no FAN, there cannot
be a valid subject of a protest.
The CTA however denied the motion to dismiss. It ruled that the joint
affidavit attached to the complaint submitted to the DOJ constitutes an
assessment; that an assessment is defined as simply the statement of
the details and the amount of tax due from a taxpayer; that therefore,
the joint affidavit which contains a computation of the tax liability of
PRDC is in effect an assessment which can be the subject of a protest.
This ruling was affirmed by the Court of Appeals.
 32 | T a x a t i o n I | 2017
ISSUE: Whether or not the Court of Tax Appeal is correct.
HELD: No. An assessment contains not only a computation of tax
liabilities, but also a demand for payment within a prescribed period. It
also signals the time when penalties and protests begin to accrue
against the taxpayer. To enable the taxpayer to determine his remedies
thereon, due process requires that it must be served on and received
by the taxpayer. Accordingly, an affidavit, which was executed by
revenue officers stating the tax liabilities of a taxpayer and attached to
a criminal complaint for tax evasion, cannot be deemed an assessment
that can be questioned before the CTA. Further, such affidavit was not
issued to the taxpayer, it was submitted as an attachment to the DOJ. It
must also be noted that not every document coming from the Bureau
of Internal Revenue which provides a computation of the tax liability of
a taxpayer can be considered as an assessment. An assessment is
deemed made only when the CIR releases, mails or sends such notice
to the taxpayer.
Anent the issue of the filing of the criminal complaint, Section 222 of
the National Internal Revenue Code specifically states that in cases
where a false or fraudulent return is submitted or in cases of failure to
file a return such as this case, proceedings in court may be commenced
without an assessment. Furthermore, Section 205 of the NIRC clearly
mandates that the civil and criminal aspects of the case may be
pursued simultaneously.
43. CIR vs RAUL GONZALEZ
G.R. No. 177279, October 13, 2010
FACTS: The BIR National Office conducted a fraud investigation for all
internal revenue taxes to determine the tax liabilities of L. M. Camus
Engineering Corporation (LMCEC) for the taxable years 1997, 1998
and 1999 due to the information provided by an informer that it had
substantial underdeclared income for the said period.
LMCEC failed to comply with the subpoena duces tecum issued in
connection with the tax fraud investigation, hence, a criminal
complaint was instituted by the BIR for violation of Section 266 of the
NIRC against LMCEC, Luis M. Camus and Lino D. Mendoza, the latter
two were sued in their capacities as President and Comptroller,
respectively. Camus and Mendoza assail the validity of the complaint
and further aver that the company had already undergone a series of
routine examinations for the years 1997, 1998 and 1999 for under the
NIRC, only one examination of the books of accounts is allowed per
taxable year.
The Chief State Prosecutor, the Secretary of Justice and the
Court of Appeals dismissed the complaint instituted by the BIR. Hence,
this petition was filed before the Supreme
Court.
ISSUE: Whether LMCEC and its corporate officers may be prosecuted
for violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255
(Willful Failure to Supply Correct and Accurate Information and Pay
Tax) of the Tax
Code.
RULING:
The Supreme Court ruled in favor of the BIR. LMCEC cannot claim as
excuse from the reopening of its books of accounts the previous
investigations and examinations.
Under Section 235 (a), an exception was provided in the rule on once a
year audit examination in case of fraud, irregularity or mistakes, as
determined by the Commissioner. The distinction between a Regular
Audit Examination and Tax Fraud Audit Examination lies in the fact
that the former is conducted by the district offices of the Bureaus
Regional Offices, the authority emanating from the Regional Director,
while the latter is conducted by the TFD of the National Office only
when instances of fraud had been determined by the BIR.
In this case, the non-declaration by LMCEC for the taxable years 1997,
 33 | T a x a t i o n I | 2017
1998 and 1999 of an amount exceeding 30% income declared in its
return is considered a substantial underdeclaration of income, which
constituted prima facie evidence of false or fraudulent return under
Section 248(B) of the NIRC, as amended.
Further, RR No. 2-99 was issued providing for last priority in audit
and investigation of tax returns to accomplish the said objective
without, however, compromising the revenue collection that would
have been generated from audit and enforcement activities. The
program Economic Recovery Assistance Payment (ERAP) Program
granted immunity from audit and investigation of income tax, VAT and
percentage tax returns for 1998. Since such immunity from audit and
investigation does not preclude the collection of revenues generated
from audit and enforcement activities, it follows that the BIR is
likewise not barred from collecting any tax deficiency discovered as a
result of tax fraud investigations.
Additional note- re: Assessment; validity of assessment notice; lack of
control number. The formality of a control number in the assessment
notice is not a requirement for its validity; rather the contents thereof
should inform the taxpayer of the declaration of deficiency tax against
the taxpayer. Both the formal letter of demand and the notice of
assessment shall be void if the former failed to state the fact, the law,
rules and regulations or jurisprudence on which the assessment is
based, which is a mandatory requirement under section 228 of the
National Internal Revenue Code.
44. UNGAB vs. CUSI
GR No. L-41919-24 May 30, 1980
"An assessment of a deficiency is not necessary to a criminal
prosecution for wilful attempt to defeat and evade the income tax."
FACTS: The BIR filed six criminal charges against Quirico Ungab, a
banana saplings producer, for allegedly evading payment of taxes and
other violations of the NIRC. Ungab, subsequently filed a motion to
quash on the ground that (1) the information are null and void for
want of authority on the part of the State Prosecutor to initiate and
prosecute the said cases; and (2)that the trial court has no
jurisdiction to take cognizance of the case in view of his pending
protest against the assessment made by the BIR examiner. The trial
court denied the motion prompting the petitioner to file a petition for
certiorari and prohibition with preliminary injunction and
restraining order to annul and set aside the information filed.
ISSUE: Is the contention that the criminal prosecution is premature
since the CIR has not yet resolved the protest against the tax
assessment tenable?
HELD: No. The contention is without merit. What is involved here is
not the collection of taxes where the assessment of the Commissioner
of Internal Revenue may be reviewed by the Court of Tax Appeals,
but a criminal prosecution for violations of the National Internal
Revenue Code which is within the cognizance of courts of first
instance. While there can be no civil action to enforce collection
before the assessment procedures provided in the Code have been
followed, there is no requirement for the precise computation and
assessment of the tax before there can be a criminal prosecution
under the Code.
An assessment of a deficiency is not necessary to a criminal
prosecution for wilful attempt to defeat and evade the income tax. A
crime is complete when the violator has knowingly and wilfully filed
a fraudulent return with intent to evade and defeat the tax.
 34 | T a x a t i o n I | 2017
The perpetration of the crime is grounded upon knowledge on the part
of the taxpayer that he has made an inaccurate return, and the
government's failure to discover the error and promptly to assess has
no connections with the commission of the crime.
45. Yutivo Sons Hardware v. CTA
FACTS: Yutivo Sons Hardware Co is a domestic corporation engaged
(prior to the last world war) in the importation and sale of hardware
supplies and equipment. After the liberation , it resumed its business
and until June of 1946 bought a number of cars and trucks from
General Motors Overseas Corporation (GM), an American corporation
licensed to do business in the PH. As an importer GM paid sales tax
prescribed by the Tax Code on the basis of its selling price to Yutivo.
Said tax being collected only once on original sales, Yutivo paid no
further sales tax on its sales to the public.
On June 13,1946, the Southern Motors (SM) was organize to engage in
the business of selling cars, trucks and spare parts. At the time of its
incorporation 2,500 shares worth of Php 250,000 appear to have been
subscribed by the sons of Yu Tiong Yee, one of Yutivos founders.
After the incorporation of SM and until the withdrawal of GM for the
PH in the middle of 1947, the cars and trucks purchased by Yutivo
from GM were sold by Yutivo to SM, in turn, sold them to the public.
When GM decided to withdraw from the PH, the US manufacturer of
GM cars and trucks appointed Yutivo as importer and the latter
continued its previous arrangement of selling exclusively to SM.
In the same way that GM used to pay sales taxes based on its
sales to Yutivo, the latter, as importer, paid sales tax prescribed on the
basis of its selling price to SM, and since such sales tax, as already
stated, is collected only once on original sales, SM paid no sales tax on
its sales to the public.
On November 1950, after months of investigation, the collector of
internal revenue made an assessment and demanded deficiency sales
tax plus surcharges claiming that the taxable sales were the retail sales
by SM to the oublic and not the sales at wholesale made by, Yutivo to
the latter inasmuch as SM and Yutivo were one and the same
corporation, the former being subsidiary of the latter.
The CTA in its decision ordered Yutivo to pay the CIR the sales tax
deficiency, plus 75% of surcharges. The CTA ruled that SM was
organized for no other purpose than to defraud the government of its
lawful revenues.
ISSUE 1:
Whether or not the CTA was justified in finding that SM was organized
for no other purposed than to defraud the government of its lawful
revenues?
HELD 1:
No, CTAs ruling was not justified.
RATIO:
It is not disputed that until June 1946 it is GM as the importer of the
cars and trucks, was the one solely liable for the sales taxes. The sales
tax liability of Yutivo did not arise until July 1947 when it became the
importer and simply continued its practice of selling to SM.
 35 | T a x a t i o n I | 2017
The SC held that to prove the intention to minimize taxes and the use
of such in the context of fraud, must be proved to exist by clear and
convincing evidence amounting to more than mere preponderance,
and cannot be justified by a mere speculation. This is because fraud is
never lightly to be presumed.
Fraud cannot be further proved because of the fact that the
transactions between Yutivo and SM have always been open, embodied
in private and public documents, constantly subject to inspection by
the tax authorities.
ISSUE 2: Whether or not CTA is justified in imposing 75% surcharge
penalty to Yutivo?
HELD 2: No.
When GM as the importer and Yutivo, the wholesaler, of the cars and
trucks, the sales tax was paid only once and on the original sales by the
former and neither the latter nor SM paid taxes on their subsequent
sales.
Yutico might have, therefore, honestly believed that the payment by it,
as importer, of the sales tax was enough as in the case of GM.
Consequently, in filing its return on the basis of its sales to SM and not
on those by the latter to the public, it cannot be said that Yutivo
deliberately made a false return for the purpose of defrauding the
government of its revenues which will justify the imposition of the
surcharge penalty.
46. People of the Philippines v. Lucio Tan
G.R. No. 144707, July 13, 2004
FACTS:On September 7, 1993, the Commissioner of Internal Revenue
filed a Complaint with the Department of Justice (DOJ), charging
Fortune Tobacco Corporation (hereafter Fortune), its corporate
officers, nine (9) other corporations and their respective corporate
officers, with
fraudulent tax evasion for supposed non-payment of the correct ad
valorem, income and value-added taxes for the years 1990, 1991, &
1992. However, the preliminary investigations for the said complaints
were enjoined. The said decision by the lower courts was affirmed by
the Supreme Court in G.R. No. 119322 (CIR filed a Petition for Review)
where it states the following:
The trial court and the Court of Appeals maintained that
at that stage of the preliminary investigation, where the
complaint and the accompanying affidavits and supporting
documents did not show any violation of the Tax Code providing
penal sanctions, the prosecutors should have dismissed the complaint
outright because of total lack of evidence, instead of requiring private
respondents to submit their counter affidavits under Section 3(b) of
Rule 112. We believe that the trial court in issuing its questioned
orders, which are interlocutory in nature, committed no grave abuse
of discretion amounting to lack of jurisdiction.
In the said decision, the Supreme Court further resolved to (1)
DIRECT the Secretary of Justice to designate as early as
possible, a new panel of prosecutors to investigate the complaints
against private respondents; (2) ORDER the new panel
of prosecutors designated by the Secretary of Justice to grant
private respondents motion for the submission by petitioner
Commissioner of Internal Revenue to private respondents,
thru their counsel of record, of the documents supporting
the complaints, and to give private respondents reasonable time to
examine the documents and to submit their counter-
affidavits; and, (3) ORDER the preliminary investigation to proceed
with all reasonable dispatch. Proceedings before the MTC:
On December 1, 1998, Informations for nine (9) counts of tax evasion
(Taxable Years 1990, 1991 and 1992) were filed by the New DOJ
Panel with the Metropolitan Trial Court (MeTC), Marikina City, Branch
75, docketed as Criminal Cases Nos. 98-38181 to 98-38189 for
violation of
 36 | T a x a t i o n I | 2017
Section 127[b] (now Section 130[b]), Cases Nos. 98-38181 to 98-
38189 for violation of Section 127[b] (now Section 130[b]), in
relation to Section 253 (now Section 254) and Section 252[b] (now
Section 253[b]) and Section 255 (now Section 256), of the National
Internal Revenue Code (NIRC), as amended.
Respondents filed an Urgent Opposition to Issuance of Warrants
of Arrest. Furthermore, a Manifestation and Motion was filed before
the MeTC by the officers of the Litigation and Prosecution
Division of the BIR, verified by then incumbent BIR Commissioner,
praying for the withdrawal of the Informations. It states that the
Bureau of Internal Revenue in fact conducted several hearings
on the tax liability of the accused relative to the protest filed
by Fortune Tobacco Corporation regarding its tax liabilities connected
with the filing of the instant cases against Lucio C. Tan et al.,
and that thereafter the Bureau of Internal Revenue found no fraud
committed by the Fortune Tobacco Corporation and, that, therefore,
there is no legal justification to further pursue the three tax evasion
cases against Lucio C. Tan, et al. Consequently, the complaints were
dismissed.
Proceedings before the RTC:
The Petition for Certiorari was dismissed for being filed out of time.
The Court finds that the petition was filed eleven (11) days late, in
violation of Section 4, Rule 65 of the 1997 Rules of Criminal
Procedure, as amended by the resolution of the Supreme Court En
Banc dated July 21, 1998, Bar Matter No. 803. The Panel of
Prosecutors of the Department of Justice (DOJ Panel) admittedly
received a copy of the assailed Order dated March 22, 1999 on March
24, 1999 and filed a Motion for Reconsideration on April 7, 1999.
Thus, a period of fourteen (14) days had elapsed. According to Section
4 of Rule 65, as amended, this period of fourteen (14) days should be
deducted from the total period of sixty (60) days prescribed therein.
Hence, the DOJ Panel had the remaining period of forty-six (46) days
within which to file the petition for certiorari.
Proceedings before the CA:
The Court of Appeals dismissed the petition for lack of merit.
ISSUE: Whether or not the Metropolitan Trial Court (MeTC) erred in
dismissing the criminal cases before it, on the basis of the
Manifestation and Motion of the BIR to withdraw the said cases.
RULING: Yes.
Timelines
Instead of filing an appeal, petitioner filed before RTC-Marikina a
Petition for Certiorari, on July 14, 1999. Respondents argue that: (1)
This was the wrong remedy; and (2) even assuming this was the
correct mode, the 60-day period to file the petition had also already
lapsed.
This Court has allowed resort to the extraordinary remedy of
certiorari although the remedy appeal was available. In Metropolitan
Manila Development Authority v. JANCOM Environmental
Corporation ,citing Ruiz, Jr. v. Court of Appeals, one of the exceptions
is when public welfare and the advancement of public policy dictate;
or when the broader interests of justice so require, or when the
writs issued are null or when the questioned order amounts to
an oppressive exercise of judicial authority. There can be no
question as to the public interest involved in this case. For the
case of the prosecution, if proved, would mean that a
fraudulent scheme to evade taxes has been resorted to by
respondents, and the amount involved, at the time of the
investigation, is nearly P 20 billion pesos. The principle is well
established that taxes are the lifeblood of government and every
citizen is duty bound to pay taxes and to pay taxes in the right
amount. Technicalities, therefore, will have to yield to the paramount
interest of the nation to enforce its laws against tax evasion, especially
where the amounts involved are huge. As aptly put by petitioner in its
Consolidated Reply, procedural rules should not be applied with
rigidity especially when to do so would result in manifest failure or
miscarriage of justice.
 37 | T a x a t i o n I | 2017
Furthermore, the petition for certiorari filed by the prosecution
is not late. For the provision under which it can be considered
late was subsequently amended and under the amended rules
the petition is on time (the sixty (60) day period shall be counted
from notice of the denial of said motion. (SC. A.M. 00-2-03)). Said
amendment should be retroactively applied since it is a procedural
rule and it is also remedial in character, i.e., it is intended precisely to
correct the unjust effect of the amended rule.
Grave abuse of discretion in the dismissal of the criminal case
Jurisprudence mandates that the grant of a motion to dismiss
must be based upon the judges own personal conviction that
there was no case against the accused. The trial judge must
himself be convinced that there was indeed no sufficient
evidence against the accused, and this conclusion can be arrived at
only after an assessment of the evidence in the possession of the
prosecution. What was imperatively required was the trial judge's
own assessment of such evidence, it not being sufficient for the
valid and proper exercise of judicial discretion merely to accept the
prosecution's word for its supposed insufficiency. In the present
case, the record clearly shows that the MeTC failed to discharge its
duty to judiciously and independently rule upon the motion to
withdraw.
In it's decision, the trial court stated:
The Court agrees with the Bureau of Internal Revenue that in view of
the aforecited Section of the Tax Reform Act of 1997, a substantive
law, and the fact that it is evident that the Commissioner of Internal
Revenue has not approved the filing of the instant cases, this Court,
thus, has no other recourse but to obey the law and dismiss the cases
at bar.
A reading of the MeTC order thus shows that the same was basically
anchored only on the Manifestation and Motion of the BIR, praying
for the withdrawal of the complaints. For this reason, this Court is
constrained to annul and set aside the Orders of the MeTC.
47. CIR vs. Pineda
G.R. No. L-22734, September 15, 1967
FACTS: Anastasio died and was survived by his wife and 15 children,
the eldest being Manuel. After estate proceedings were closed, the BIR
investigated the tax liability of the estate and made an assessment.
Manuel contested the amount to be paid, especially those that pertain
to him as a heir. The CTA reversed the assessment of the
Commissioner on the ground that his right to assess has already
prescribed. This was appealed and the SC decided that the right to
assess only prescribed with respect to the later years.
ISSUE: Whether or not the Government can require Manuel Pineda to
pay the full amount of the tax assessed.
HELD: 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. His liability, however, cannot
exceed the amount of his share.
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 hereunderIf any person,
corporation,
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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, 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. The
reason for this method 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.
48. Commissioner of Internal Revenue vs. W.E.
Lednicky and Maria Lednicky
GR Nos. L-18262 and L-21434, July 31, 1964
FACTS: Spouses are both American citizens residing in the Philippines
and have derived all their income from Philippine sources for taxable
years in question. On March, 1957, filed their ITR for 1956, reporting
gross income of P1,017,287.65 and a net income of P 733,809.44. On
March 1959, file an amended claimed deduction of P 205,939.24 paid
in 1956 to the United States government as federal income tax of 1956.
ISSUE: Whether a citizen of the United States residing in the
Philippines, who derives wholly from sources within the Philippines,
may deduct his gross income from the income taxes he has paid to the
United States government for the said taxable year?
HELD: An alien resident who derives income wholly from sources
within the Philippines may not deduct from gross income the income
taxes he paid to his home country for the taxable year. The right to
deduct foreign income taxes paid given only where alternative right to
tax credit exists.
Section 30 of the NIRC, Gross Income Par. C (3): Credits against tax
per taxes of foreign countries. If the taxpayer signifies in his return his
desire to have the benefits of this paragraph, the tax imposed by this
shall be credited with: Paragraph (B), Alien resident of the Philippines;
and, Paragraph C (4), Limitation on credit.
An alien resident not entitled to tax credit for foreign income taxes
paid when his income is derived wholly from sources within the
Philippines. Double taxation becomes obnoxious only where the
taxpayer is taxed
 39 | T a x a t i o n I | 2017
twice for the benefit of the same governmental entity. In the present
case, although the taxpayer would have to pay two taxes on the same
income but the Philippine government only receives the proceeds of
one tax, there is no obnoxious double taxation.
49. CIR vs. Isabela Cultural Corporation (ICC)
G.R. No. 172231
FACTS: ICC, a domestic corporation, received from BIR two (2) notices
for deficiency of (1) income tax amounting to P333, 196.86 and (2)
expanded withholding tax amounting to P4, 897.79, both for
1986.Income tax deficiency arose from the BIR disallowance of ICCs
claimed expense deductions for professional and security services
billed to and paid by ICC in 1986 and alleged understatement of ICCs
interest income on the 3 promissory notes due to Realty Investment,
Inc. Expanded withholding tax (EWT)deficiency (with interest and
surcharge) was allegedly due to failure of ICC to withhold 1% EWT on
itsclaimed P244,890.00 deduction for security services.ICC sought
reconsideration of the assessments on March 1990 but received final
notice beforeseizure (demanding payment of amounts) on February
1995. Thus, brought to CTA which held that petitionis premature
because final notice cannot be considered final decision appealable to
tax court. CA reversedholding that demand letter of BIR amounts to
final decision on the protested assessments and may be questioned
before CTA. SC sustained CA and remanded case to CTA on July
2001.On 2003, CTA decided to cancel and set aside the assessment
notices against ICC claimed deductions were properly claimed in
1986 because it was only that year that the bills were sent to ICC.
Hence, even if some of the services were rendered to ICC in 1984 or
1985, it could not declare the same because amounts cannot be
determined at that time. The CTA also held that ICC did not understate
its interest income on the subject promissory notes. It found that it
was the BIR which made an
overstatement of said income when it compounded the interest
income receivable by ICC from the promissory notes of Realty
Investment, Inc., despite the absence of a stipulation in the contract
providing for a compounded interest; nor of a circumstance, like delay
in payment or breach of contract, that would justify the application of
compounded interest. Petition for review was filed with the CA, which
sustained CTA decision. Hence, the petition before the SC.
ISSUE/S:
(1)WON the expenses for professional and security services should be
deducted from ICCs gross income.
(2)WON held that ICC did not understate its interest income from the
promissory notes of Realty Investment, Inc. and that ICC withheld the
required 1% withholding tax from the deductions for security
services.
HELD: The requisites for the deductibility of ordinary and necessary
trade, business, or professional expenses, like expenses paid for legal
and auditing services, are:
(a) The expense must be ordinary and necessary;
(b) It must have been paid or incurred during the taxable year
; (c) It must have been paid or incurred in carrying on the trade or
business of the taxpayer; and (d) it must be supported by receipts,
records or other pertinent papers. The requisite that it must have
been paid or incurred during the taxable year is further qualified by
Section 45 of the NIRC which states that: [t]he deduction provided
for in this Title shall be taken for the taxable year in which paid or
accrued or paid or incurred, dependent upon the method of
accounting upon the basis of which the net income is computed x.
 40 | T a x a t i o n I | 2017
In the instant case, the accounting method used by ICC is the accrual
method. Revenue Audit Memorandum Order No. 1-2000, provides that
under the accrual method of accounting, expenses not being claimed as
deductions by a taxpayer in the current year when they are incurred
cannot be claimed as deduction from income for the succeeding year.
For a taxpayer using the accrual method, the determinative question is,
when do the facts present themselves in such a manner that the
taxpayer must recognize income or expense? The accrual of income
and expense is permitted when the all-events test has been met. This
test requires: (1) fixing of a right to income or liability to pay; and (2)
the availability of the reasonable accurate determination of such
income or liability. The all-events test requires the right to income or
liability be fixed, and the amount of such income or liability is
determined with reasonable accuracy. However, the amount of liability
does not have to be determined exactly; it must be determined with
reasonable accuracy. Accordingly, the term reasonable accuracy
implies something less than an exact or completely accurate amount.
The propriety of an accrual must be judged by the facts that a taxpayer
knew, or could reasonably be expected to have known, at the closing of
its books for the taxable year. Accrual method of accounting presents
largely a question of fact; such that the taxpayer bears the burden of
proof of establishing the accrual of an item of income or deduction.
Corollary, it is a governing principle in taxation that tax exemptions
must be construed in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority; and one who claims an
exemption must be able to justify the same by the clearest grant of
organic or statute law. In the instant case, the expenses for
professional fees consist of expenses for legal and auditing services.
The expenses for legal services pertain to the 1984 and 1985 legal and
retainer fees of the law firm Benzoin Baraga Narcissi Caudal Person
Alcona & Benson, and for reimbursement of the expenses of said firm
in connection with ICCs tax problems for the year 1984.
As testified by the Treasurer of ICC, the firm has been its counsel
since the 1960s. ICC can be expected to have reasonably known the
retainer fees charged by the firm as well as the compensation for its
legal services. As previously stated, the accrual method presents
largely a question of fact and that the taxpayer bears the burden of
establishing the accrual of an expense or income. However, ICC failed
to discharge this burden. It simply relied on the defense of delayed
billing by the firm and the company, which under the circumstances,
is not sufficient to exempt it from being charged with knowledge of
the reasonable amount of the expenses for legal and auditing
services. As to the expenses for security services, the records show
that these expenses were incurred Bick in 1986 and could therefore
be properly claimed as deductions for the said year. Anent the
purported understatement of interest income from the promissory
notes of Realty Investment, Inc., we sustain the findings of the CTA
and the Court of Appeals that no such understatement exists and that
only simple interest computation and not a compounded one should
have been applied byte BIR. Likewise, the findings of the CTA and the
Court of Appeals that ICC truly withheld the required withholding tax
from its claimed deductions for security services and remitted the
same to the BIR is supported by payment order and confirmation
receipts. Hence, the Assessment Notice for deficiency expanded
withholding tax was properly cancelled and set aside. In sum,
Assessment Notice for deficiency income tax should be cancelled and
set aside but only insofar as the claimed deductions of ICC for
security services. - said Assessment is valid as to the BIRs
disallowance of ICCs expenses for professional services.
The Court of Appeals cancellation of Assessment
Notice in the amount of P4, 897.79 for deficiency expanded
withholding tax, is sustained.
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50. Fernandez vs. CIR
29 SCRA 553
FACTS:
Four cases involve two decisions of the Court of Tax Appeal s
determining the taxpayer ' s income tax liability for the years 1950 to
1954 and for the year 1957. Both the taxpayer and the Commissioner
of Internal Revenue, as petitioner and respondent in the cases a quo
respectively, appealed from the Tax Court's decisions, insofar as their
respective contentions on particular tax items were therein resolved
against them. Since the issues raised are inter related, the Court
resolves the four appeals in this joint decision.
The taxpayer, Fernandez Hermans, Inc., is a domestic corporation
organized for the principal purpose of engaging in business as an
investment company us the main office at Manila. Upon verification
of the taxpayer's income tax returns for the period in quest ion, the
Commissioner of Internal Revenue assessed against the taxpayer the
sums of P13, 414.00, P119, 613.00, P11,698.00, P6,887.00 and
P14,451.00 as alleged deficiency income taxes for the years 1950,
1951, 1952, 1953 and 1954, respectively. Said assessments were the
result of alleged discrepancies found upon the examination and
verification of the taxpayer's income tax returns for the said years,
summarized by the Tax Court in its decision of June 10, 1963 in CTA
Case No. 787, as follows:
ISSUE: The correctness of the Tax Court's rulings with respect to the
disputed items of disallowances enumerated in the Tax Court's
summary reproduced
HELD: That the circumstances are such that the method does not
reflect the taxpayers income with reasonable accuracy and certainty
and proper and just additions of personal expenses and other non-
deductible expenditures were made and correct , fair and equitable
credit
adjustments were given by way of eliminating non-taxable items.
Proper adjustments to conform to the income tax laws. Proper
adjustments for non-deductible items must be made. The following
non-deductibles , as the case may be, must be added to the increase
of decrease in the net worth:
1. Personal living or family expenses
2. Premiums paid on any life insurance policy
3. Losses from sales or exchanges of property between members of
the family
4. Income taxes paid
5. Other non-deductible taxes
6. Election expenses and other expense against public policy
7. Non-deductible contributions
8. Gifts to others
9. Estate inheritance and gift taxes
10. Net Capital Loss
On the other hand, non- taxable items should be deducted therefrom.
These items are necessary adjustments to avoid the inclusion of what
otherwise are non-taxable receipts. They are:
1. inheritance gifts and bequests received
2. non- taxable gains
3. compensation for injuries or sickness
4. proceeds of life insurance policies
5. sweepstakes
6. winnings
7. interest on government securities and increase in net worth are
not taxable if they are shown not to be the result of unreported
income but to be the result of the correction of errors in the
taxpayers entries in the books relating to indebtedness
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51. Limpan Investment vs. CIR
17 S 703
FACTS:
BIR assessed deficiency taxes on Limpan Corp, a company that leases
real property, for under-declaring its rental income for years 1956-57
by around P20K and P81K respectively.
Petitioner appeals on the ground that portions of these
underdeclared rents are yet to be collected by the previous owners
and turned over or received by the corporation.
Petitioner cited that some rents were deposited with the court, such
that the corporation does not have actual nor constructive control over
them.
The sole witness for the petitioner, Solis (Corporate Secretary-
Treasurer) admitted to some undeclared rents in 1956 and1957, and
that some balances were not collected by the corporation in 1956
because the lessees refused to recognize and pay rent to the new
owners and that the corps president Isabelo Lim collected some rent
and reported it in his personal income statement, but did not turn over
the rent to the corporation.
He also cites lack of actual or constructive control over rents
deposited with the court.
ISSUE:
Whether or not the BIR was correct in assessing deficiency taxes
against Limpan Corp. for undeclared rental income
HELD:
Yes. Petitioner admitted that it indeed had undeclared income
(although only a part and not the full amount assessed by BIR). Thus, it
has become incumbent upon them to prove their excuses by clear and
convincing evidence, which it has failed to do. When is there
constructive receipt of
rent? With regard to 1957 rents deposited with the court, and
withdrawn only in 1958, the court viewed the corporation as having
constructively received said rents. The non-collection was the
petitioners fault since it refused to refused to accept the rent, and
not due to nonpayment of lessees. Hence, although the corporation
did not actually receive the rent, it is deemed to have constructively
received them.
53. MIAA vs. CA
GR No. 155650, July, 20, 2006
FACTS: The Manila International Airport Authority (MIAA) operates
the Ninoy Aquino International Airport (NAIA) Complex in
Paranaque City under Executive Order No. 903 (MIAA Charter). as
amended. As such operator, it administers the land, improvements
and equipment Within the NAIA Complex. In March 1997, the Office
of the Government Corporate Counsel (OGCC) Issued Opinion No.
061 to the effect that the Local Government Code of 1991 (LGC)
withdrew the exemption from real estate tax granted to MIAA under
Section 21 of Its Charter.
Thus, MIAA paid some of the real estate tax already due. In June
2001, it received Final Notices of Real Estate Tax Delinquency from
the City of Paranaque for the taxable years 1992 to 2001. The City
Treasurer subsequently issued notices of levy and warrants of levy
on the airport lands and buildings.
At the instance of MIAA, the OGCC issued Opinion No. 147 clarifying
Opinion No. 061, pointing out that Sec. 206 of the LGC requires
persons exempt from real estate tax to show proof of exemption.
According to the OGCC, Sec. 21 of the MIAA Charter is the proof that
MIAA is exempt from real estate tax, MIAA, thus, filed a petition with
the Court of Appeals seeking to restrain the City of Paranaque from
imposing real
 43 | T a x a t i o n I | 2017
estate tax on, levying against, and auctioning for public sale the airport
lands and buildings. But this was dismissed for having been film out of
time.
Hence, MIAA filed this petition for review, pointing out that it is
exempt from real estate tax under Sec. 21 of its charter and Sec. 234 of
the LGC. It invokes the principle that the government cannot tax itself
as a justification for exemption, since the airport lands and buildings,
being devoted to public use and public service, are owned by the
Republic of the Philippines. On the other hand, the City of Paranaque
invokes Sec. 193 of the LGC, which expressly withdrew the tax
exemption privileges of government owned and controlled
corporations (GOCC) upon the effectivity of the LGC.
It asserts that an international airport is not among the exceptions
mentioned in the sad law. Meanwhile, the City of Paranaque posted
and published notices announcing the public auction sale of the
airport lands and buildings in the afternoon before the scheduled
public auction, MIAA applied with the Court for the issuance of a TRO
to restrain the auction sale The Court Issued a TRO on the day of the
auction sale, however, the same was received only by the City of
Paranaque three hours after the sale.
ISSUE: Whether or not the airport lands and buildings of MIAA are
exempt from real estate tax?
HELD: The airport lands and buildings of MIAA are exempt from real
estate tax imposed by local governments. Sec. 243(a) of the LGC
exempts from real estate tax any real property owned by the Republic
of the Philippines. This exemption should be read In relation with Sec.
133(0) of the LGC, which provides that the exercise of the taxing
powers of local governments shall not extend to the levy of taxes, fees
or charges of any kind on the National Government, Its agencies and
instrumentalities.
These provisions recognize the basic principle that local
governments cannot tax the national government, which historically
merely delegated to local governments the power to tax.
The rule is that a tax is never presumed and there must be clear
language in the law imposing the tax. This rule applies with greater
force when local governments seek to tax national government
instrumentalities. Moreover, a tax exemption is construed liberally
in favor of national government instrumentalities.
MIAA is not a GOCC, but an instrumentality of the government
The Republic remains the beneficial owner of the properties. MIAA
itself is owned solely by the Republic. At any time, the Pre5ident can
transfer back to the Republic title to the airport lands and buildings
without the Republic paying MIAA any consideration. As long as the
airport lands and buildings are reserved for public use, their
ownership remains With the State. Unless the President issues a
proclamation withdrawing these properties from public use, they
remain properties of public dominion. As such, they are inalienable,
hence, they are not subject to levy on execution or foreclosure sale,
and they are exempt from real estate tax.
However, portions of the airport lands and buildings that MIAA
leases to private entities are not exempt from real estate tax. In such
a case, MIAA has granted the beneficial use of such portions for a
consideration to a taxable person.
 44 | T a x a t i o n I | 2017
54. CIR vs. DE LA SALLE
GR No196596, November 09, 2016
G.R. No. 198841/ CTA Case No. 671
Before the Court are consolidated petitions for review on certiorari:
1. G.R. No. 196596 see digest 32
2. G.R. No. 198841 filed by De La Salle University, Inc. (DLSU) to
assail the June 8, 2011 decision and October 4, 2011
resolution in CTA En Banc Case No. 671; and
3. G.R. No. 198941
FACTS:
CTA En Banc Case No. 671
The CTA En Banc partially granted DLSU's petition for review and
further reduced its tax liabilities to P2,554,825.47 inclusive of
surcharge. The issue of the LOA's validity was raised during trial.
Citing jurisprudence, the CTA En Banc held that a LOA should cover only
one taxable period and that the practice of issuing a LOA covering audit
of unverified prior years is prohibited. The prohibition is consistent with
Revenue Memorandum Order (RMO) No. 43-90, which provides that if
the audit includes more than one taxable period, the other periods or
years shall be specifically indicated in the LOA.
In the present case, the LOA issued to DLSU is for Fiscal Year Ending
2003 and Unverified Prior Years. Hence, the assessments for deficiency
income tax, VAT and DST for taxable years 2001 and 2002 are void, but
the assessment for taxable year 2003 is valid.
DLSU argues as that:
RMO No. 43-90 prohibits the practice of issuing a LOA with any
indication of unverified prior years. A LOA issued contrary to RMO No.
43-90 is void, thus, an assessment issued based on such defective LOA
must also be void.
DLSU points out that the LOA issued to it covered the Fiscal Year Ending
2003 and Unverified Prior Years. On the basis of this defective LOA, the
Commissioner assessed DLSU for deficiency income tax, VAT and DST for
taxable years 2001, 2002 and 2003. DLSU objects to the CTA En Banc's
conclusion that the LOA is valid for taxable year 2003.
Issue: Whether the entire assessment should be voided because of the
defective LOA
Ruling
The LOA issued to DLSU is not entirely void. The assessment for taxable
year 2003 is valid.
Ratio
A LOA is the authority given to the appropriate revenue officer to examine
the books of account and other accounting records of the taxpayer in
order to determine the taxpayer's correct internal revenue liabilities and
for the purpose of collecting the correct amount of tax, in accordance with
Section 5 of the Tax Code, which gives the CIR the power to obtain
information, to summon/examine, and take testimony of persons. The
LOA commences the audit process and informs the taxpayer that it is
under audit for possible deficiency tax assessment.
Given the purposes of a LOA, is there basis to completely nullify the LOA
issued to DLSU, and consequently, disregard the BIR and the CTA's
findings of tax deficiency for taxable year 2003? No.
The relevant provision is Section C of RMO No. 43-90, the pertinent
portion of which reads:
A Letter of Authority [LOA] should cover a taxable period not
exceeding one taxable year. The practice of issuing [LOAs]
covering audit of unverified prior years is hereby prohibited. If the
audit of a taxpayer shall include more than one taxable period, the
other periods or years shall be specifically indicated in the [LOA].
What this provision clearly prohibits is the practice of issuing LOAs
covering audit of unverified prior years. RMO 43-90 does not say that a
LOA which contains unverified prior years is void. It merely prescribes
that if the audit includes more than one taxable period, the other periods
or years must be specified, the BIR must specify each taxable year or
taxable period on separate LOAs.
 45 | T a x a t i o n I | 2017
In the present case, the LOA issued to DLSU is for Fiscal Year Ending
2003 and Unverified Prior Years. The LOA does not strictly comply with
RMO 43-90 because it includes unverified prior years. This does not
mean, however, that the entire LOA is void.
55. CIR vs. ST. LUKES
GR No195909, September 26, 2012
Note:
This case illustrates the position in the Philippines that income
from commercial (for-profit) activity (in this case, paying patients) is
taxable, but the organization remains tax-exempt on income from its
actual charitable activities. The only question is whether an activity is
for profit (commercial) or not.
FACTS:
St Lukes Medical Center Inc. (St Lukes) is a nonprofit hospital in
Manila. On 16 December 2002, the Bureau of Internal Revenue (BIR)
assessed St Lukes deficiency taxes amounting to 76,063,116.06 for
1998, comprising deficiency income tax, value-added tax, withholding
tax on compensation and expanded withholding tax. The BIR reduced
the amount to 63,935,351.57 during trial in the First Division of the
Court of Tax Appeals (CTA).
This was a review on certiorari under Rule 45 of the Rules of
Court of the Decision of 19 November 2010 of the CTA and its
Resolution of 1 March 2011 in CTA Case No. 6746. The Supreme Court
resolved this case on a pure question of law, which involved the
interpretation of sub-section 27(B) and its interaction with sub-
sections 30(E) and (G) of the National Internal Revenue Code of the
Philippines (NIRC), on the income tax treatment of proprietary
nonprofit hospitals.
The BIR had argued before the CTA that section 27(B) of the NIRC,
which imposes a 10%preferential tax rate on the income of
proprietary nonprofit hospitals, should be applicable to St. Lukes.
According to the BIR, section 27(B), introduced in 1997, is a new
provisionintended to amend the exemption on non-profit hospitals
that were previously categorized asnon-stock, non-profit corporations
under Section 26 of the 1997 Tax Code.... It is a specificprovision
which prevails over the general exemption on income tax granted
under subsections30(E) and (G) for non-stock, non-profit charitable
institutions and civic organisationspromoting social welfare. The BIR
contended that St Lukes was not really operating forcharitable
purposes, but was for profit, on the basis that only 13% of its revenues
came from its charitable purposes.
St Lukes took the position that the BIR should not consider its
total revenues, because itsfree services to patients amounted to
218,187,498 or 65.20% of its 1998 operating income(i.e. total
revenues less operating expenses) of 334,642,615. St Lukes also
claimed thatits income did not inure to the benefit of any individual,
and that its making a profit did not affect its status as exempt from
taxation under sub-sections 30(E) and (G) of the NIRC.
The CTA had held that section 27(B) did not apply to St Lukes. It was
exempt from taxation on income derived from all services to patients,
whether paying or non-paying.
ISSSUE: whether section 27(B) did or did not apply.
(If it did, then St Lukes would have to pay the 10%reduced tax rate on
the income of proprietary nonprofit hospitals.)
HELD: Section 27(B) of the NIRC does not remove the income tax
exemption of proprietary non-profit hospitals under Section 30(E) and
(G). Section 27(B) on one hand, and Se on the other hand, can be
construed together without the removal of such tax exemption. The
 46 | T a x a t i o n I | 2017
effect of the introduction of Section 27(B) is to subject the taxable
income of two specific institutions, namely, proprietary non-profit
educational institutions and proprietary non-profit hospitals, among
the institutions covered by Section 30, to the 10% preferential rate
under Section 27(B) instead of the ordinary 30% corporate rate
under the last paragraph of Section 30 in relation to Section 27(A)(1).
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the
income of (1) proprietary non-profit educational institutions and (2)
proprietary non-profit hospitals. The only qualifications for hospitals
are that they must be proprietary and non-profit. Proprietary means
private... Non-profit means no net income or asset accrues to or
benefits any member or specific person, with all the net income or
asset devoted to the institutions purposes and all its activities
conducted not for profit. Non-profit does not necessarily mean
charitable.
The Court said that charitable institutions were not automatically
granted tax exemptions. Tax exemptions are given by the Congress
under specific laws (except for exemption from real property taxation
which was given by the Constitution of the Philippines). Section 30(E)
of the NIRC defines a charitable institution as:
Notwithstanding the provisions in the preceding paragraphs, the
income of whateverkind 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 tax imposed under this Code.
Therefore, the Court said that if a tax exempt charitable institution
conducts any activity forprofit, such activity is not tax exempt even
if its not-for profit activities remain tax exempt.
The Court added that:
The Court cannot expand the meaning of the words operated
exclusively withoutviolating the NIRC. Services to paying patients
are activities conducted forprofit. They cannot be considered any
other way. There is a purpose to makeprofit over and above the cost
of services. The 1.73 billion total revenues frompaying patients is
not even incidental to St. Lukes charity expenditure of 218,187,498
for non-paying patients.
The Court therefore held that St Lukes was not operated
exclusively for charitable or socialwelfare purposes. It received
income from paying patients. This income was subject to 10%
taxation under section 27(B) of the NIRC.

(1) a non-stock corporation or association;
(2) organised exclusively for charitable purposes;
(3) operated exclusively for charitable purposes; and
(4) with no part of its net income or assets belonging to or inuring to
the benefit of any member, organiser, officer or any specific person.
There was no doubt that St Lukes was organised as a non-stock,
non-profit charitableinstitution. However, this did not automatically
exempt it from paying taxes. The last paragraph of section 30 of the
NIRC stated that:
ction 30(E) and (G)
As the Court held: St. Lukes fails to meet the requirements under
Section 30(E) and (G) of the NIRC to be completely tax exempt from
all its income. However, it remains a proprietary nonprofithospital
under Section 27(B) of the NIRC as long as it does not distribute any
of its profits to its members and such profits are reinvested pursuant
to its corporate purposes. St. Lukes, as a proprietary non-profit
hospital, is entitled to the preferential tax rate of 10% on its net
income from its for-profit activities.
Thus, St Lukes was liable for tax at the rate of 10% in the 1998
year under section 27(B) of the NIRC. It was held not liable for
surcharges or interest on the amount of tax owing.
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56. DIAZ vs. SEC. OF FINANCE
GR No. 193007, June, 19, 2011
FACTS: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol
(petitioners) filed this petition for declaratory relief assailing the
validity of the impending imposition of value added tax (VAT) by the
Bureau of Internal Revenue (BIR) on the collections of tollway
operators. Court treated the case as one of prohibition.
Petitioners hold the view that Congress did not, when it enacted the
NIRC, intend to include toll fees within the meaning of "sale of
services" that are subject to VAT; that a toll fee is a "user's tax," not a
sale of services; that to impose VAT on toll fees would amount to a tax
on public service: and that, since VAT was never factored into the
formula for computing toll fees its imposition would violate the non-
impairment clause of the constitution.
The government avers that the NRC imposes VAT on all kinds of
services of franchise grantees, including tollway operations; that the
Court should seek the meaning and intent of the law from the words
used in the statute; and that the imposition of VAT on tollway
operations has been the subject as early as 2003 of several BIR rulings
and circulars.
The government also argues that petitioners have no right to invoke
the non-impairment of contracts clause since they clearly have no
personal interest in existing toll operating agreements (TOAs)
between the government and toll way operators. At any rate, the non-
impairment clause cannot limit the State's sovereign taxing power
which is generally read into contracts.
ISSUE: May toll fees collected by tollway operators be subjected to
VAT (Are tollway operations a franchise and/or a service that is
subject to VAT)?
HELD: When a tollway operator takes a toll fee from a motorist, the
fee is in effect for the latter's use of the tollway facilities over which
the operator enjoys private proprietary rights that its contract and
the law recognize. In this sense, the tollway operator is no different
from the service providers under Section 108 who allow others to
use their properties or facilities for a fee.
Tollway operators are franchise grantees and they do not belong to
exceptions that Section 119 spares from the payment of VAT. The
word "franchise" broadly covers government grants of a special right
to do an act or series of acts of public concern. Tollway operators are,
owing to the nature and object of their business, "franchise grantees."
The construction, operation, and maintenance of toll facilities on
public improvements are activities of public consequence that
necessarily require a special grant of authority from the state.
A tax is imposed under the taxing power of the government
principally for the purpose of raising revenues to fund public
expenditures. Toll fees, on the other hand, are collected by private
tollway operators as reimbursement for the costs and expenses
incurred in the construction, maintenance and operation of the
tollways, as well as to assure them a reasonable margin of income.
Although toll fees are charged for the use of public facilities,
therefore, they are not government exactions that can be properly
treated as a tax. Taxes may be imposed only by the government
under its sovereign authority, toll fees may be demanded by either
the government or private individuals or entities, as an attribute of
ownership.