1. Commissioner of lnternal Revenue vs. Algue, Inc. issued.
issued. During the intervening period, the warrant was premature and could
Facts:
 January 14, 1965, the private respondent received a letter from the
petitioner assessing it in the total amount of P83,183.85 as
delinquency income taxes for the years 1958 and 1959.
 January 18, 1965, Algue filed a letter of protest or request for
reconsideration
 March 12, 1965, a warrant of distraint and levy was presented to the
private respondent, through its counsel, Atty. Alberto Guevara, Jr.,
who refused to receive it on the ground of the pending protest.
 A search of the protest in the dockets of the case proved fruitless.
 Atty. Guevara produced his file copy and gave a photostat to BIR
agent Ramon Reyes, who deferred service of the warrant.
 April 7, 1965, Atty. Guevara was finally informed that the BIR was not
taking any action on the protest and it was only then that he accepted
the warrant of distraint and levy earlier sought to be served.
 Sixteen days later, on April 23, 1965, Algue filed a petition for review
of the decision of the Commissioner of Internal Revenue with the Court
of Tax Appeals.
Issues:
1. whether or not the appeal of the private respondent from the decision
of the Collector of Internal Revenue was made on time and in
accordance with law.
2. whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as
legitimate business expenses in its income tax returns.
Ruling:
1. YES. The above chronology shows that the petition was filed seasonably.
According to Rep. Act No. 1125, the appeal may be made within thirty
days after receipt of the decision or ruling challenged. It is true that as a rule
the warrant of distraint and levy is "proof of the finality of the assessment" and
"renders hopeless a request for reconsideration, "being "tantamount to an
outright denial thereof and makes the said request deemed rejected."
But there is a special circumstance in the case at bar that prevents application
of this accepted doctrine.
The proven fact is that four days after the private respondent received
the petitioner's notice of assessment, it filed its letter of protest. This was
apparently not taken into account before the warrant of distraint and levy was
therefore not be served.
It thus had the effect of suspending on January 18, 1965, when it was
filed, the reglementary period which started on the date the assessment was
received, viz., Jaauary 14, 1965. The period started running again only on Ap
7, 1965, when the private respondent was definitely informed of the implied
rejection of the said protest and the warrant was finally served on it. Hence,
when the appeal was filed on April 23, 1965, only 20 days of the reglementary
period had been consumed.
2. No.
The said amount had been legitimately paid by the private respondent
for actual services rendered. The payment was in the form of promotional fees.
These were collected by the payees for their work in the creation of the
Vegetable Oil Investment Corporation of the Philippines and its subsequent
purchase of the properties of the Philippine Sugar Estate Development
Company.
We agree with the respondent court that the amount of the promotional
fees was not excessive. The total commission paid by the Philippine Sugar
Estate Development Co. to the private respondent was P125,000.00. After
deducting the said fees, Algue still had a balance of P50,000.00 as clear profit
from the transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it was the
payees who did practically everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of the Sugar Estate
properties.
The Solicitor General is correct when he says that the burden is on the
taxpayer to prove the validity of the claimed deduction. In the present case,
however, we find that the onus has been discharged satisfactorily. The private
respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors
and prominent businessmen to venture in an experimental enterprise and
involve themselves in a new business requiring millions of pesos. This was no
mean feat and should be, as it was, sufficiently recompensed.
2. Tio vs. Videogram Regulatory Board
Facts:
The petitioner assails the validity of PD 1987 entitled an "Act creating the
Videogram Regulatory Board," citing especially Section 10 thereof, which
imposes a tax of 30% on the gross receipts payable to the local government.
Issues and Ruling:
1. Whether or not Section is a RIDER and the same is not germane to the
subject matter of thereof
NO. The foregoing provision is allied and germane to, and is reasonably
necessary for the accomplishment of, the general object of the DECREE,
which is the regulation of the video industry through the Videogram Regulatory
Board as expressed in its title. The tax provision is not inconsistent with, nor
foreign to that general subject and title. As a tool for regulation it is simply one
of the regulatory and control mechanisms scattered throughout the Decree.
2. Whether or not the thirty percent (30%) tax imposed is harsh and
oppressive, confiscatory
NO. The tax imposed by the DECREE is not only a regulatory but also a
revenue measure prompted by the realization that earnings of videogram
establishments of around P600 million per annum have not been subjected to
tax, thereby depriving the Government of an additional source of revenue. It is
an end-user tax, imposed on retailers for every videogram they make available
for public viewing.
The levy of the 30% tax is for a public purpose. It was imposed
primarily to answer the need for regulating the video industry, particularly
because of the rampant film piracy, the flagrant violation of intellectual property
rights, and the proliferation of pornographic video tapes. And while it was also
an objective of the DECREE to protect the movie industry, the tax remains a
valid imposition.
“The public purpose of a tax may legally exist even if the motive
which impelled the legislature to impose the tax was to favor one
industry over another”
It is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that “inequities
which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation.” Taxation has been made
the implement of the state’s police power.
3. Maceda vs Macaraig
Facts:
1. This involves a case whereby the imposition of tax exemption of
NAPOCOR from the payment of indirect taxes was questioned by
herein petitioner. The case looked back to the development of the
NAPOCOR statute from its creation in 1936 down to the legislative
developments initiated and the more controversial amendments
introduced by former President Ferdinand Marcos.
2. In November 3, 1936, National Power Corporation (NAPOCOR), a
public corporation, was created by virtue of CA 120 to mainly develop
hydraulic power from all waters in the country. It was funded by
floatation funds and was intended to be exempted from all taxes.
3. Subsequent amendments were initiated regarding the PH President’s
authority to negotiate on behalf of it and its ceiling of indebtedness was
increased for the next two decades.
4. In 1954, its tax exemption for real estate taxes was withdrawn.
5. From 1958 to 1967, its authorized capital stock was consistently
increased by various laws as its foreign loan ceiling also new heights
but during these times, no tax exemption was incorporated in the said
laws.
6. In 1971, RA 6395 revised the NAPOCOR charter indicating that:
a. The issuance of bonds is exempted from all tazes;
b. The foreign loans it incurred are exempted from all taxes;
c. And it also provided for a new section: that it is now a non-
profit corporation and all its returns must be allocated for its
capital investment and its excess revenues for its expansion.
Thus, it shall be exempted from all taxes.
7. A year after, PD 40 put the responsibility of setting up transmission
line grids all over the country on the shoulders of NAPOCOR as the
authorized agency of the State for such a task.
8. Its authorized capital stock now at 2B pesos and indebtedness (both
domestic and foreign) ceiling- 3B at any one time and 1B US dollars,
respectively--- continued to rise by virtue of the PD 380.
9. In 1975, PD 758 was enacted to appropriate Php200 M annually to
cover unpaid subscriptions of the government in the NAPOCOR.
10. However, after a year, it was declared that the NAPOCOR capital was
insufficient and thus, reiterated that it should be exempted from paying
taxes by virtue of PD 938.
 11. In 1977, PD 1177 was enacted directing all GOCC’s to pay income
taxes provided organizations otherwise exempted by law may ask for
a subsidy from the General Fund in the amount of tax due.
12. E.O. 93 then came into play and provided for the creation of Fiscal
Incentives Review Board which was created to restore, revise, impose
conditions tax exemption given to various entities.
The petitioner now assails the indirect tax exemption of NAPOCOR based on
these developments and on the following issues raised:
Issues:
1. What is the difference between direct and indirect taxation?
2. W/N PD 938 repealed the indirect tax exemption because RA
6395 and PD 380 do not expressly include “indirect taxes.”
3. W/N both PD’s 380 and 938 are valid considering that these were
issued by one man- President Ferdinand Marcos and it was very
easy for him to retain the similar language if his intention was to
preserve indirect tax exemption.
4. What is the effect of PD 1177 abolishing the tax exemption
privileges in this case?
5. Who pays the tax in this case?
Held:
1. Direct Tax-person really pays it without transferring the burden.
Indirect tax- imposed on goods before reaching the consumer who ultimately
pays for it, not as a tax but as a part of the purchase price.
2. This contention is unmeritorious. A chronological review of the legislative
intention concerning the public corporation will show that it was indeed
exempted from all taxes-both direct and indirect. Besides, under PD 380, it
stated that NAPOCOR shall be exempted :
d) From all taxes, duties, fees, imposts, and all other charges imposed
directly or indirectly by the Republic of the Philippines, its provinces,
cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation
in the generation, transmission, utilization and sale of electric power.
3. This, according to the SC, displayed Pres. Marcos’ ingenousness. PD 938
lumped it up by stating: “ALL forms of taxes, etc.” The court said that he
considered all NAPOCOR-related statutes from its conception and came up
with PD 938.
One common theme was recurring for all statutes: that NAPOCOR must be
able to pay its indebtedness. That NAPOCOR must be and has to be exempt
from all taxes if this goal was to be achieved.
He did not do the same for tax exemption provision for foreign loans precisely
because there was no other subject matter to lump it with. Thus, its crystal
clear that tax exemption for direct and indirect taxes was indeed sought in
favour of NAPOCOR.
4. The subsidy provided by PD 1177 repealed PD 1931 as the Fiscal
Incentives Revenue Board (FIRB) was tasked with recommending partial or
total restoration of tax exemptions withdrawn by PD 1931. It was proved that
NPC availed of such subsidy. FIRB did not create a new tax exemption statute
but merely restored it.
Pres. Marcos’s power to enact laws was also questioned in this case but the
SC ruled that his measure was just timely considering that it was considered
as a grave emergency at that time---considering there was a moratorium on
foreign debt payments due to the economic crisis brought about by the loss of
confidence on the PH market due to the Aquino Assasination.
5. The oil companies. The tax exemption is broad enough to include all taxes
which NAPOCOR may be required to pay such as the specific tax on petroleum
products.
Even if indirect taxation means that the economic burden of paying it is passed
on through the channels of commerce to the user, the oil companies supplying
bunker fuel to the corporation must pay for it since NAPOCOR is exempted
from paying all taxes.
However this issue is already moot and academic because of EO 195 of 1987
which reduced the ad valorem tax rate on bunker fuel to 0%.
5. Lutz vs. Araneta
Facts:
 This case was initiated to test the legality of the taxes imposed by
Commonwealth Act No. 567, otherwise known as the Sugar
Adjustment Act.
 Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the
 Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the
Collector of Internal Revenue the sum of P14,666.40 paid by the
estate as taxes, under section 3 of the Act, for the crop years 1948–
1949 and 1949–1950
 He was alleging that such tax is unconstitutional and void, being levied
for the aid and support of the sugar industry exclusively, which in
plaintiff’s opinion is not a public purpose for which a tax may be
constitutionally levied.
Issue:
Whether or not the tax imposed by Commonwealth Act No. 567 is legal
Ruling:
Yes.
The basic defect in the plaintiff’s position is his assumption that the tax
provided for in Commonwealth Act No. 567 is a pure exercise of the taxing
power. Analysis of the Act, and particularly of section 6 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, sugar
occupying a leading position among its export products; that it gives
employment to thousands of laborers in fields and factories; that it is a great
source of the state’s wealth, is one of the important sources of foreign
exchange needed by our government.
Since the protection and promotion of the sugar industry is a matter of
public concern, it follows ‘that the Legislature may determine within reasonable
bounds what is necessary for its protection and expedient for its promotion.
Taxation may be made the implement of the state’s police power.
That the tax to be levied should burden the sugar producers
themselves can hardly be a ground of complaint; indeed, it appears rational
that the tax be obtained precisely from those who are to be benefited from the
expenditure of the funds derived from it. At any rate, it is inherent in the
power to tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that “inequalities which result from a singling
out of one particular class for taxation, or exemption infringe no
constitutional limitation”
6. Osmena vs Orbos
Facts:
 PD 1956 was issued to create the Oil Price Stabilization Fund (OPSF)
designed to reimburse oil companies for cost increases in crude oil resulting
from exchange rate fluctuations and from increases in the prices of oil in the
world market.
 It was later amended by EO 137 which expands the grounds for
reimbursement to oil companies for possible cost underrecovery incurred
as a result of the reduction of domestic prices of petroleum products.
 In 1991, the OPSF incurred a deficit to which the Energy Regulatory Board
(ERB) tried to resolve such problem by issuing an order to increase pump
prices of petroleum and such shall have covered the OPSF deficit within 6
months.
 Osmena reacted to this by claiming that the OPSF should be treated as a
special fund and not as a trust account/fund because a special tax collected
for a specific purpose shall have its revenue expended for such purposes
only and not channeled to another government objective and that PD 1956
is unconstitutional because it confers invalid delegation to ERB.
 It thus appears that the challenge posed by the petitioner is premised
primarily on the view that the powers granted to the ERB under PD 1956,
partake the nature of the taxation power of the State.
Issue:
Whether or not the creation of the trust fund violates29(3), Article VI of the
Constitution
Ruling:
No.
It seems clear that while the funds collected may be referred to as taxes,
they are exacted in the exercise of the police power of the State. Moreover, that the
OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is
segregated from the general fund; and while it is placed in what the law refers to as
a "trust liability account," the fund nonetheless remains subject to the scrutiny and
review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed, the practice is not without
precedent.
7. Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan
Facts:
The petitions seek to nullify Executive Order No. 273 which amended certain sections
of the National Internal Revenue Code and adopted the VAT for being
unconstitutional in that the VAT
- is oppressive, discriminatory, regressive, and
- violates the due process and equal protection clauses and other provisions
of the 1987 Constitution.
Issues and Ruling:
1. Whether or not EO 273 is oppressive, discriminatory, unjust and regressive, in
violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution
NO.
"Sec. 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation."
Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation.
The sales tax adopted in EO 273 is applied similarly on all goods and services
sold to the public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods
or services by persons engage in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine products,
so that the costs of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach of the
general public
2. Whether or not EO 273, more particularly the new Sec. 103(r) of the National
Internal Revenue Code, unduly discriminates against customs brokers
NO.
The contested provision states:
"Sec. 103. Exempt transctetions.—The following shall be exempt from the value-
added tax:
"xxx xxx xxx
"(r) Service performed in the exercise of profession or calling (except customs
brokers) subject to the occupation tax under the Local Tax Code, and professional
services performed by registered general professional partnerships;"
The phrase "except customs brokers" is not meant to discriminate against
customs brokers. It was inserted in Sec. 103(r) to complement the provisions of Sec.
102 of the Code, which makes the services of customs brokers subject to the payment
of the VAT and to distinguish customs brokers from other professionals who are
subject to the payment of an occupation tax under the Local Tax Code.
With the insertion of the clarificatory phrase "except customs brokers" in
Sec. 103(r), a potential conflict between the two sections, (Secs. 102 and 103), insofar
as customs brokers are concerned, is averted.
At any rate, the distinction of the customs brokers from the other
professionals who are subject to occupation tax under the Local Tax Code is based
upon material differences, in that the activities of customs brokers (like those of
stock, real estate and immigration brokers) partake more of a business, rather than
a profession and were thus subjected to the percentage tax under Sec. 174 of the
National Internal Revenue Code prior to its amendment by EO 273.
8. Phil. Guaranty Co., Inc, vs. Commissioner of Int. Rev.
Facts:
 The petitioner Philippine Guaranty Co., Inc., a domestic insurance company,
entered into reinsurance contracts with foreign insurance companies not
doing business in the country
 It ceded to foreign reinsurers a portion of the premiums on insurance it has
originally underwritten in the Philippines.
 The premiums paid by such companies were excluded by the petitioner from
its gross income when it file its income tax returns for 1953 and 1954.
Furthermore, it did not withhold or pay tax on them.
 Consequently, the CIR assessed against the petitioner withholding taxes on
the ceded reinsurance premiums to which the latter protested
the assessment on the ground that the premiums are not subject to tax for
the premiums did not constitute income from sources within the Philippines
 because the foreign reinsurers did not engage in business in the Philippines
Issue:
Ruling:
Section 24 of the Tax Code subjects foreign corporations to tax on their
income from sources within the Philippines. The word “sources” has been interpreted
as the activity, property or service giving rise to the income. The reinsurance
premiums were income created from the undertaking of the foreign reinsurance
companies to reinsure Philippine Guaranty Co., Inc. against liability for loss under
original insurances. Such undertaking, as explained above, took place in the
Philippines. These insurance premiums, therefore, came from sources within the
Philippines and, hence, are subject to corporate income tax.
The foreign insurers” place of business should not be confused with their
place of activity. Business implies continuity and progression of transactions2 while
activity may consist of only a single transaction. An activity may occur outside the
place of business. Section 24 of the Tax Code does not require a foreign corporation
to engage in business in the Philippines in subjecting its income to tax. It suffices that
the activity creating the income is performed or done in the Philippines. What is
controlling, therefore, is not the place of business but the place of activity that
created an income.
9. Sison, Jr. vs. Ancheta
Facts:
 Petitioner challenged the constitutionality of Section 1 of Batas Pambansa
Blg. 135.
 He alleges that by virtue thereof, “he would be unduly discriminated against
by the imposition of higher rates of tax upon his income arising from the
exercise of his profession vis-a-vis those which are imposed upon fixed
income or salaried individual taxpayers.”
 For him, therefore, there is a transgression of both the equal protection and
due process clauses of the Constitution as well as of the rule requiring
uniformity in taxation.
Issue:
Whether the imposition of a higher tax rate on taxable net income derived from
business or profession than on compensation is constitutionally infirm.
Ruling:
NO.
On due process - it is undoubted that it may be invoked where a taxing statute is so
arbitrary that it finds no support in the Constitution. An obvious example is where it
can be shown to amount to the confiscation of property from abuse of power.
Petitioner alleges arbitrariness but his mere allegation does not suffice and there
must be a factual foundation of such unconsitutional taint.
On equal protection - it suffices that the laws operate equally and uniformly on all
persons under similar circumstances, both in the privileges conferred and the
liabilities imposed.
On the matter that the rule of taxation shall be uniform and equitable - this
requirement is met when the tax operates with the same force and effect in every
place where the subject may be found." Also, the rule of uniformity does not call for
perfect uniformity or perfect equality, because this is hardly unattainable." When the
problem of classification became of issue, the Court said: "Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class shall be
taxed the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation..." As provided by this Court, where
"the differentiation" complained of "conforms to the practical dictates of justice and
equity" it "is not discriminatory within the meaning of this clause and is therefore
uniform."
10. CIR vs Central Luzon Drug Corporation
Facts:
 Central Luzon Drug Corporation, respondent, is a domestic corporation
engaged in retailing medicines and other pharmaceutical products. In 1996,
they have almost 6 drugstores under the business name “Mercury Drug.”
 From January to December 1996, respondent granted 20% discount to
qualified Senior Citizens pursuant to RA 7432. The amount allegedly
representing the 20% sales discount granted by respondent to qualified
senior citizens totaled P904,769.00.
 On January 16, 1998, respondent filed with petitioner a claim for tax
refund/credit amounting to P904,769 from the 20% sales discount. Unable
to obtain affirmative response from petitioner, respondent elevated its
claim to the Court of Tax Appeals via a Petition for Review
 On February 12, 2001, the Tax Court rendered a Decision 5 dismissing
respondent's Petition for lack of merit. It claimed that tax refund can only
 be done when taxes are illegally collected.
 Respondent lodged a Motion for Reconsideration. The CTA, in its assailed
resolution, granted respondent's motion for reconsideration and ordered
herein petitioner to issue a Tax Credit Certificate in favor of respondent
saying that tax refund can also be done because of excess tax payment. CA
affirmed in toto.
Issue:
Ruling:
11. Chavez vs. Ongpin
Facts:
 The petition seeks to declare unconstitutional Executive Order No. 73 dated
November 25, 1986
 The petitioner, Francisco I. Chavez, is a taxpayer and an owner of three
parcels of land.
 He alleges that Executive Order No. 73 accelerated the application of the
general revision of assessments to January 1, 1987 thereby mandating an
excessive increase in real property taxes
 Petitioner Chavez and intervenor ROAP question the constitutionality of
Executive Order No. 73 insofar as the revision of the assessments and the
effectivity thereof are concerned.
Issue:
Whether or not EO 73 is unconstitutional
Ruling:
NO.
EO 73 merely changed the date of implementation of the increase in real
property taxes from January 1, 1988 to January 1, 1987 and therefore repealed
Executive Order No. 1019.
The general revision of assessments completed in 1984 is based on Section
21 of Presidential Decree No. 464
The attack on Executive Order No. 73 has no legal basis as the general
revision of assessments is a continuing process mandated by Section 21 of
Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should
be challenged as constitutionally infirm. However, Chavez failed to raise any
objection against said decree.
Furthermore, the SC agreed with the observation of the Office of the
Solicitor General that without Executive Order No. 73, the basis for collection of real
property taxes will still be the 1978 revision of property values. Certainly, to continue
collecting real property taxes based on valuations arrived at several years ago, in
disregard of the increases in the value of real properties that have occurred since
then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of
the characteristics of a sound tax system, requires that sources of revenues must be
adequate to meet government expenditures and their variations.
12. Francia vs. Intermediate Appellate Court
Facts:
 Engracio Francia was the owner of a 328 square meter land in Pasay City.
 In October 1977, a portion of his land (125 square meter) was expropriated
by the government for P4,116.00.
 It also appears that Francia failed to pay his real estate taxes since 1963
amounting to P2,400.00.
 So in December 1977, the remaining 203 square meters of his land was sold
at a public auction (after due notice was given him). The highest bidder was
a certain Ho Fernandez who paid the purchase price of P2,400.00 (which was
lesser than the price of the portion of his land that was expropriated).
 Later, Francia filed a complaint to annul the auction sale on the ground that
the selling price was grossly inadequate.
 He further argued that his land should have never been auctioned because
the P2,400.00 he owed the government in taxes should have been set-off by
the debt the government owed him (legal compensation).
Issue:
May the expropriation payment compensate for the real estate taxes due?
Ruling:
NO.
Francia contends that his tax delinquency of P2,400.00 has been
extinguished by legal compensation. He claims that the government owed him
P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence,
his tax obligation had been set-off by operation of law as of October 15, 1977.
 This principal contention of the petitioner has no merit. We have
consistently ruled that there can be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person cannot refuse to pay a tax on
the ground that the government owes him an amount equal to or greater than the
tax being collected. The collection of a tax cannot await the results of a lawsuit
against the government.

This rule was reiterated in the case of Cordero v. Gonda (18 SCRA 331) where
we stated that: “x x x internal revenue taxes can not be the subject of compensation:
Reason: government and taxpayer ‘are not mutually creditors and debtors of each
other’ under Article 1278 of the Civil Code and a “claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off.”

13. Domingo vs Garlitos

Facts:

 In Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as
final and executory the order of the Court of First Instance of Leyte for the
payment of estate and inheritance taxes, charges and penalties amounting
to P40,058.55 by the Estate of the late Walter Scott Price.
 The petition for execution filed by the fiscal, however, was denied by the
lower court.
 The Court held that the execution is unjustified as the Government itself is
indebted to the Estate for 262,200; and ordered the amount of inheritance
taxes be deducted from the Government’s indebtedness to the Estate.

Issue:

May the claim by the government against the estate be deducted from its debt to the
estate? May compensation take place?

Ruling:

YES.

The fact that the court having jurisdiction of the estate had found that the
claim of the estate against the Government has been appropriated for the purpose
by a corresponding law (Rep. Act No. 2700) shows that both the claim of the
Government for inheritance taxes and the claim of the intestate for services rendered
have already become overdue and demandable as well as fully liquidated.
Compensation, therefore, takes place by operation of law, in accordance with the
provisions of Articles 1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount.