‘excessively’ collected as understood under Section 229 because at
184145 December 11, 2013
FACTS
Respondent DEPI filed its monthly and quarterly value-added tax
(VAT) returns for the period from January 1, 2003 to June 30,
2003. On August 9, 2004, it filed a claim for tax credit or refund for
the unutilized input VAT attributable to its zero-rated
sales. Because petitioner Commissioner of Internal Revenue (CIR)
failed to act upon the said claim, respondent was compelled to file
a petition for review with the CTA on May 5, 2005. CTA ruled in
favor of DEPI. CIR elevated the case to CTA En Banc averring that
the claim was filed out of time. DEPI asserts that its petition was
seasonably filed before the CTA in keeping with the two-year
prescriptive period provided for in Sections 204(c) and 229 of the
NIRC. CTA En Banc affirmed the CTA division ruling.
ISSUE
Whether respondent DEPI’s judicial claim was filed within
the prescriptive period under Sec. 112 of the Tax Code.
HELD
NO.
The two-year period inSec. 112 refers only to administrative claims.
Sections 204 and 229 of the NIRC pertain to the refund of
erroneously or illegally collected taxes.Input VAT is not
G.R. No.
the time the input VAT is collected the amount paid is correct and
proper. Hence, respondent cannot advance its position by
referring to Section 229 because Section 112 is the more specific
and appropriate provision of law for claims for excess input
VAT.Petitioner is entirely correct in its assertion that compliance
with the periods provided for in the abovequoted provision is
indeed mandatory and jurisdictional, as affirmed in this Court’s
ruling in San Roque, where the CourtEn Banc settled the
controversy surrounding the application of the 120+30-day period
provided for in Section 112 of the NIRC and reiterated
the Aichi doctrine that the 120+30-day period is mandatory and
jurisdictional.
Therefore, in accordance with San Roque, respondent’s judicial
claim for refund must be denied for having been filed late.
Although respondent filed its administrative claim with the BIR on
August 9, 2004 before the expiration of the two-year period in
Section l 12(A), it undoubtedly failed to comply with the 120+
30-day period in Section l l 2(D) (now subparagraph C) which
requires that upon the inaction of the CIR for 120 days after the
submission of the documents in support of the claim, the taxpayer
has to file its judicial claim within 30 days after the lapse of the
said period. The 120 days granted to the CIR to decide the case
ended on December 7, 2004. Thus, DEPI had 30 days therefrom, or
until January 6, 2005, to file a petition for review with the CTA.
Unfortunately, DEPI only sought judicial relief on May 5, 2005
when it belatedly filed its petition to the CTA, despite having had
ample time to file the same, almost four months after the period
allowed by law. As a consequence of DEPI’s late filing, the CTA did
not properly acquire jurisdiction over the claim.
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
DASH ENGINEERING PHILIPPINES, INC., Respondent.
DECISION
MENDOZA, J.:
Before the Court is a Petition for Review on Certiorari under Rule
45 of the 1997 Revised Rules of Civil Procedure, assailing the July
17, 2008 Decision1 and the August 12, 2008 Resolution2 of the
Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 357 (C.T.A.
Case No. 7243) entitled "Commissioner of Internal Revenue v. Dash
Engineering Philippines, inc."
The Facts
Respondent Dash Engineering Philippines, Inc. (DEPJ) is a
corporation duly registered with the Securities and Exchange
Commission, authorized to do business in the Philippines and listed
with the Philippine Economic Zone Authority as an ecozone IT
export enterprise.3 It is also a VAT-registered entity engaged in the
export sales of computer-aided engineering and design.4
Respondent filed its monthly and quarterly value-added tax (VAT)
returns for the period from January 1, 2003 to June 30, 2003.5 On
August 9, 2004, it filed a claim for tax credit or refund in the
amount of P 2,149,684.88 representing unutilized input VAT
attributable to its zero-rated sales.6 Because petitioner
Commissioner of Internal Revenue (CIR) failed to act upon the said
claim, respondent was compelled to file a petition for review with
the CTA on May 5, 2005.7
On October 4, 2007, the Second Division of the CTA rendered its
Decision8 partially granting respondent’s claim for refund or
issuance of a tax credit certificate in the reduced amount of P
1,147,683.78. On the matter of the timeliness of the filing of the
judicial claim, the Tax Court found that respondent’s claims for
refund for the first and second quarters of 2003 were filed within
the two-year prescriptive period which is counted from the date of
filing of the return and payment of the tax due. Because DEPI filed
its amended quarterly VAT returns for the first and second
quarters of 2003 on July 24, 2004, it had until July 24, 2006 to file
its judicial claim. As such, its filing of a petition for review with the
CTA on April 26, 20059 was within the prescriptive
period.10 Petitioner moved for reconsideration but the same was
denied in a Resolution dated January 3, 2008.11
Aggrieved, petitioner elevated the case to the CTA En Banc, where
it argued that respondent failed to show that (1) its purchases of
goods and services were made in the course of its trade and
business, (2) the said purchases were properly supported by VAT
invoices and/or official receipts and other documents, and (3) that
the claimed input VAT payments were directly attributable to its
zero-rated sales. Petitioner also averred that the petition for
review was filed out of time.12
The CTA En Banc in its Decision,13 dated July 17, 2008, upheld the
decision of the CTA Second Division, ruling that the judicial claim
was filed on time because the use of the word "may" in Section
112(D) (now subparagraph C) of the National Internal Revenue
Code (NIRC) indicates that judicial recourse within thirty (30) days
after the lapse of the 120-day period is only directory and
permissive and not mandatory and jurisdictional, as long as the
petition was filed within the two-year prescriptive period. The Tax
Court further reiterated that the two-year prescriptive period
applies to both the administrative and judicial claims. Petitioner’s
motion for reconsideration was denied in the August 12, 2008
Resolution of the CTA.14
Hence, this petition.
The Issues
Petitioner raises the following grounds for the allowance of the
petition:
I seasonably filed before the CTA in keeping with the two-year
The Court of Tax Appeals En Banc erred in holding that
respondent’s judicial claim for refund was filed within the
prescriptive period provided under the Tax Code.
II
The Court of Tax Appeals En Banc erred in partially granting
respondent’s claim for refund despite the failure of the latter to
substantiate its claim by sufficient documentary proof.15
The Court’s Ruling
As to the first issue, petitioner argues that the judicial claim was
filed out of time because respondent failed to comply with the
30-day period referred to in Section 112(D) (now subparagraph C)
of the NIRC, citing the case of Commissioner of Internal Revenue v.
Aichi16 where the Court categorically held that compliance with the
prescribed periods in Section 112 is mandatory and jurisdictional.
Respondent filed its administrative claim for refund on August 9,
2004. The 120-day period within which the CIR should act on the
claim expired on December 7, 2004 without any action on the part
of petitioner. Thus, respondent only had 30 days from the lapse of
the said period, or until January 6, 2005, to file a petition for
review with the CTA. The petition, however, was filed only on May
5, 2005.17 Petitioner further posits that the 30-day period within
which to file an appeal with the CTA is jurisdictional and failure to
comply therewith would bar the appeal and deprive the CTA of its
jurisdiction to entertain the same.18
Conversely, respondent DEPI asserts that its petition was
prescriptive period provided for in Sections 204(c) and 229 of the
NIRC.19 DEPI interprets Section 112, in relation to Section 229, to
mean that the 120-day period is the time given to the CIR to
decide the case. The taxpayer, on the other hand, has the option
of either appealing to the CTA the denial by the CIR of the claim for
refund within thirty (30) days from receipt of such denial and
within the two-year prescriptive period, or appealing an unacted
claim to the CTA anytime after the expiration of the 120-day
period given to the CIR to resolve the administrative claim for as
long as the judicial claim is made within the two-year prescriptive
period.20 Following respondent’s reasoning, its filing of the judicial
claim on April 26, 2005 was filed on time because it was made
after the lapse of the 120-day period and within the two-year
period referred to in Section 229.
The petition is meritorious.
Sec. 229 is inapplicable; two-year period in
Sec. 112 refers only to administrative claims
Sections 204 and 229 of the NIRC pertain to the refund of
erroneously or illegally collected taxes:
Sec. 204. Authority of the Commissioner to Compromise, Abate,
and Refund or Credit Taxes. – The Commissioner may –
xxx
(C) Credit or refund taxes erroneously or illegally received or
penalties imposed without authority, refund the value of internal
revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps
that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties
shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years
after the payment of the tax or penalty: Provided, however, That
a return filed showing an overpayment shall be considered as a
written claim for credit or refund.
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No
suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of
any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding may
be maintained, whether or not such tax, penalty, or sum has been
paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment xxx. (Emphases supplied)
This Court has previously made a pronouncement as to the
inapplicability of Section 229 of the NIRC to claims for excess input
VAT. In the recently decided case of Commissioner of Internal
Revenue v. San Roque Power Corporation, 21 the Court made a
lengthy disquisition on the nature of excess input VAT, clarifying
that "input VAT is not ‘excessively’ collected as understood under
Section 229 because at the time the input VAT is collected the
amount paid is correct and proper."22 Hence, respondent cannot
advance its position by referring to Section 229 because Section
112 is the more specific and appropriate provision of law for claims
for excess input VAT.
Section 112(A) also provides for a two-year period for filing a claim
for refund, to wit:
Sec. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales. – Any VATregistered
person, whose sales are zero-rated or effectively zerorated may,
within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable
to such sales, except transitional input tax, to the extent that such
input tax has not been applied against output tax
xxx
As explained in San Roque, however, the two-year prescriptive
period referred to in Section 112(A) applies only to the filing of
administrative claims with the CIR and not to the filing of judicial
claims with the CTA. In other words, for as long as the
administrative claim is filed with the CIR within the two-year
prescriptive period, the 30-day period given to the taxpayer to file
a judicial claim with the CTA need not fall in the same two-year
period.
At any rate, respondent’s compliance with the two-year
prescriptive period under Section 112(A) is not an issue. What is
being questioned in this case is DEPI’s failure to observe the
requisite 120+30-day period as mandated by Section 112(C) of the
NIRC.
120+30 day period under Sec. 112 is mandatory and jurisdictional
Section 112(D) (now subparagraph C) of the NIRC provides that:
Sec. 112. Refunds or Tax Credits of Input Tax
xxx
(D) Period within which Refund or Tax Credit of Input Taxes shall
be Made. – In proper cases, the Commissioner shall grant a refund
or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in
accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted
claim with the Court of Tax Appeals. (emphasis supplied)
Petitioner is entirely correct in its assertion that compliance with
the periods provided for in the abovequoted provision is indeed
mandatory and jurisdictional, as affirmed in this Court’s ruling
in San Roque, where the Court En Banc settled the controversy
surrounding the application of the 120+30-day period provided for
in Section 112 of the NIRC and reiterated the Aichi doctrine that
the 120+30-day period is mandatory and jurisdictional.
Nonetheless, the Court took into account the issuance by the
Bureau of Internal Revenue (BIR) of BIR Ruling No. DA-489-03
which misled taxpayers by explicity stating that taxpayers may file
a petition for review with the CTA even before the expiration of
the 120-day period given to the CIR to decide the administrative
claim for refund. Even though observance of the periods in Section
112 is compulsory and failure to do so will deprive the CTA of
jurisdiction to hear the case, such a strict application will be made
from the effectivity of the Tax Reform Act of 1997 on January 1,
1998 until the present, except for the period from December 10,
2003 (the issuance of the erroneous BIR ruling) to October 6, 2010
(the promulgation of Aichi), during which taxpayers need not wait
for the lapse of the 120+30- day period before filing their judicial
claim for refund.
The case at bench, however, does not involve the issue of
premature filing of the petition for review with the CTA. Rather,
this petition seeks the denial of DEPI’s claim for refund for having
been filed late or after the expiration of the 30-day period from
the denial by the CIR or failure of the CIR to make a decision within
120 days from the submission of the documents in support of
respondent’s administrative claim.
In San Roque, one of the respondents similarly filed its petition for
review with the CTA well after the 120+30-day period. In denying
the taxpayer’s claim for refund, this Court explained that:
Unlike San Roque and Taganito, Philex’s case is not one of
premature filing but of late filing.1âwphi1 Philex did not file any
petition with the CTA within the 120-day period. Philex did not
also file any petition with the CTA within 30 days after the
expiration of the 120-day period. Philex filed its judicial claim
long after the expiration of the 120-day period, in fact 426 days
after the lapse of the 120-day period. In any event, whether
governed by jurisprudence before, during or after the Atlas case,
Philex’s judicial claim will have to be rejected because of late filing.
Whether the two-year prescriptive period is counted from the date
of payment of the output VAT following the Atlas doctrine, or from
the close of the taxable quarter when the sales attributable to the
input VAT were made following the Mirant and Aichi doctrines,
Philex’s judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its
judicial claim. The inaction of the Commissioner on Philex’s claim
during the 120-day period is, by express provision of law,
"deemed a denial" of Philex’s claim. Philex had 30 days from the
expiration of the 120-day period to file its judicial claim with the
CTA. Philex’s failure to do so rendered the "deemed a denial"
decision of the Commissioner final and inappealable. The right to
appeal to the CTA from a decision or "deemed a denial" decision of
the Commissioner is merely a statutory privilege, not a
constitutional right. The exercise of such statutory privilege
requires strict compliance with the conditions attached by the
statute for its exercise. Philex failed to comply with the statutory
conditions and must thus bear the consequences.23 (Emphases
supplied)
Therefore, in accordance with San Roque, respondent's judicial
claim for refund must be denied for having been filed late.
Although respondent filed its administrative claim with the BIR on
August 9, 2004 before the expiration of the two-year period in
Section l 12(A), it undoubtedly failed to comply with the 120+
30-day period in Section l l 2(D) (now subparagraph C) which
requires that upon the inaction of the CIR for 120 days after the
submission of the documents in support of the claim, the taxpayer
has to file its judicial claim within 30 days after the lapse of the
said period. The 120 days granted to the CIR to decide the case
ended on December 7, 2004. Thus, DEPI had 30 days therefrom, or
until January 6, 2005, to file a petition for review with the CTA.
Unfortunately, DEPI only sought judicial relief on May 5, 2005
when it belatedly filed its petition to the CT A, despite having had
ample time to file the same, almost four months after the period
allowed by law. As a consequence of DEPI's late filing, the CTA did
not properly acquire jurisdiction over the claim.
The Court has held time and again that taxes are the lifeblood of
the government and, consequently, tax laws must be faithfully and
strictly implemented as they are not intended to be liberally
construed.24 Hence, We are left with no other recourse but to deny
respondent's judicial claim for refund for non-compliance with the
provisions of Section 112 of the NIRC.
WHEREFORE, the petition is GRANTED. The July 17, 2008 Decision
and the August 12, 2008 Resolution of the CTA En Banc in C.T.A. EB
No. 357 (C.T.A. Case No. 7243) are hereby REVERSED and SET
ASIDE. Respondent DEPI's judicial claim for refund or tax credit
through its petition for review before the CTA is DENIED.
SO ORDERED.
JOSE CATRAL MENDOZA
G.R. No. 169234 October 2, 2013
CAMP JOHN HAY DEVELOPMENT CORPORATION, Petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, REPRESENTED BY ITS
CHAIRMAN HON. CESAR S. GUTIERREZ, ADELINA A. TABANGIN, IN
HER CAPACITY AS CHAIRMAN OF THE BOARD OF TAX
(ASSESSMENT) APPEALS OF BAGUIO CITY, AND HON. ESTRELLA B.
TANO, IN HER CAPACITY AS THE CITY ASSESSOR OF THE CITY OF
BAGUIO, Respondents.
DECISION
PEREZ, J.:
A claim for tax exemption, whether full or partial, does not deal
with the authority of local assessor to assess real property tax.
Such claim questions the correctness of the assessment and
compliance with the Q applicable provisions of Republic Act (RA)
No. 7160 or the Local Government Code (LGC) of 1991, particularly
as to requirement of payment under protest, is mandatory.
Before the Court is a Petition for Review on Certiorari seeking tore
verse and set aside the 27 July 2005 Decision1of the Court of Tax
Appeals(CTA) En Banc in C.T.A. E.B. No. 48 which affirmed the
Resolutions dated 23 May 2003 and 8 September 2004 issued by
the Central Board of Assessment Appeals (CBAA) in CBAA Case No.
L-37 remanding the case to the Local Board of Assessment Appeals
(LBAA) of Baguio City for further proceedings.
The facts
The factual antecedents of the case as found by the CTA En Banc
areas follows:
In a letter dated 21 March 2002, respondent City Assessor of
Baguio City notified petitioner Camp John Hay Development
Corporation about the issuance against it of thirty-six (36) Owner’s
Copy of Assessment of Real Property (ARP), with ARP Nos.
01-07040-008887 to 01-07040-008922covering various buildings of
petitioner and two (2) parcels of land owned by the Bases
Conversion Development Authority (BCDA) in the John Hay Special
Economic Zone (JHSEZ), Baguio City, which were leased out to
petitioner.
In response, petitioner questioned the assessments in a letter
dated 3April 2002 for lack of legal basis due to the City Assessor’s
failure to identify the specific properties and its corresponding
assessed values. The City Assessor replied in a letter dated 11 April
2002 that the subject ARPs (with an additional ARP on another
building bringing the total number of ARPs to thirty-seven [37])
against the buildings of petitioner located within the JHSEZ were
issued on the basis of the approved building permits obtained
from the City Engineer’s Office of Baguio City and pursuant to
Sections 201 to 206 of RA No. 7160 or the LGC of 1991.
Consequently, on 23 May 2002, petitioner filed with the Board of
Tax Assessment Appeals (BTAA) of Baguio City an appeal under
Section 2262 of the LGC of 1991 challenging the validity and
propriety of the issuances of the City Assessor. The appeal was
docketed as Tax Appeal Case No. 2002-003. Petitioner claimed that
there was no legal basis for the issuance of the assessments
because it was allegedly exempted from paying taxes, national and
local, including real property taxes, pursuant to RA No. 7227,
otherwise known as the Bases Conversion and Development Act of
1992.3
The Ruling of the BTAA
In a Resolution dated 12 July 2002,4 the BTAA cited Section 7,5 Rule
V of the Rules of Procedure Before the LBAA, and enjoined
petitioner to first comply therewith, particularly as to the payment
under protest of the subject real property taxes before the hearing
of its appeal. Subsequently, the BTAA dismissed petitioner’s
Motion for Reconsideration in the 20 September 2002
Resolution6 for lack of merit.
Aggrieved, petitioner elevated the case before the CBAA through a
Memorandum on Appeal docketed as CBAA Case No. L-37.
The Ruling of the CBAA
The CBAA denied petitioner’s appeal in a Resolution dated 23 May
2003,7 set aside the BTAA’s order of deferment of hearing, and
remanded the case to the LBAA of Baguio City for further
proceedings subject to a full and up-to-date payment of the realty
taxes on subject properties as assessed by the respondent City
Assessor of Baguio City, either in cash or in bond.
Citing various cases it previously decided,8 the CBAA explained that
the deferment of hearings by the LBAA was merely in compliance
with the mandate of the law. The governing provision in this case
is Section 231, not Section 226, of RA No. 7160 which provides that
"appeal on assessments of real property made under the
provisions of this Code shall, in no case, suspend the collection of
the corresponding realty taxes on the property involved as
assessed by the provincial or city assessor, without prejudice to
subsequent adjustment depending upon the final outcome of the
appeal." In addition, as to the issue raised pertaining to the
propriety of the subject assessments issued against petitioner,
allegedly claimed to be a tax-exemptentity, the CBAA expressed
that it has yet to acquire jurisdiction over it since the same has not
been resolved by the LBAA.
On 8 September 2004, the CBAA denied petitioner’s Motion for
Reconsideration for lack of merit.9
Undaunted by the pronouncements in the abovementioned
Resolutions, petitioner appealed to the CTA En Banc by filing a
Petition for Review under Section 11 of RA No. 1125, as amended
by Section 9 of RA No. 9282, on 24 November 2004, docketed as
C.T.A. EB No. 48, and raised the following issues for its
consideration: (1) whether or not respondent City Assessor of the
City of Baguio has legal basis to issue against petitioner the subject
assessments with serial nos. 01-07040-008887 to
01-07040-008922for real property taxation of the buildings of the
petitioner, a tax-exemptentity, or land owned by the BCDA under
lease to the petitioner; and (2)whether or not the CBAA, in its
Resolutions dated 23 May 2003 and 8September 2004, has legal
basis to order the remand of the case to the LBAA of Baguio City
for further proceedings subject to a full and up-to- date payment,
in cash or bond, of the realty taxes on the subject properties as
assessed by the City Assessor of the City of Baguio.10
The Ruling of the CTA En Banc
In the assailed Decision dated 27 July 2005,11 the CTA En Banc
found that petitioner has indeed failed to comply with Section 252
of RA No. 7160or the LGC of 1991. Hence, it dismissed the petition
and affirmed the subject Resolutions of the CBAA which remanded
the case to the LBAA for further proceedings subject to compliance
with said Section, in relation to Section 7, Rule V of the Rules of
Procedure before the LBAA.
Moreover, adopting the CBAA’s position, the court a quo ruled
that it could not resolve the issue on whether petitioner is liable to
pay real property tax or whether it is indeed a tax-exempt entity
considering that the LBAA has not decided the case on the merits.
To do otherwise would not only be procedurally wrong but legally
wrong. It therefore concluded that before a protest may be
entertained, the tax should have been paid first without prejudice
to subsequent adjustment depending upon the final outcome of
the appeal and that the tax or portion thereof paid under protest,
shall be held in trust by the treasurer concerned.
Consequently, this Petition for Review wherein petitioner on the
ground of lack of legal basis seeks to set aside the 27 July 2005
Decision, and to nullify the assessments of real property tax issued
against it by respondent City Assessor of Baguio City.12
The Issue
The Issue before the Court is whether or not respondent CTA En
Banc erred in dismissing for lack of merit the petition in C.T.A. EB
No. 48, and accordingly affirmed the order of the CBAA to remand
the case to the LBAA of Baguio City for further proceedings subject
to a full and up-to-date payment of realty taxes, either in cash or in
bond, on the subject properties assessed by the City Assessor of
Baguio City.
In support of the present petition, petitioner posits the following
grounds: (a) Section 225 (should be Section 252) of RA No. 7160 or
the LGC of 1991 does not apply when the person assessed is a
tax-exemptentity; and (b) Under the doctrine of operative fact,
petitioner is not liable for the payment of the real property taxes
subject of this petition.13
Our Ruling
The Court finds the petition unmeritorious and therefore rules
against petitioner.
Section 252 of RA No. 7160, also known as the LGC of 1991 14,
categorically provides:
SEC. 252. Payment Under Protest. – (a) No protest shall be
entertained unless the taxpayer first pays the tax. There shall be
annotated on the tax receipts the words "paid under protest." The
protest in writing must be filed within thirty (30) days from
payment of the tax to the provincial, city treasurer or municipal
treasurer, in the case of a municipality within Metropolitan Manila
Area, who shall decide the protest within sixty (60) days from
receipt.
(b) The tax or a portion thereof paid under protest, shall beheld in
trust by the treasurer concerned.
(c) In the event that the protest is finally decided in favor of the
taxpayer, the amount or portion of the tax protested shall be
refunded to the protestant, or applied as tax credit against his
existing or future tax liability.
(d) In the event that the protest is denied or upon the lapse of the
sixty-day period prescribed in subparagraph (a), the tax payer may
avail of the remedies as provided for in Chapter 3, Title Two, Book
II of this Code. (Emphasis and underlining supplied)
Relevant thereto, the remedies referred to under Chapter 3, Title
Two, Book II of RA No. 7160 or the LGC of 1991 are those provided
for under Sections 226 to 231. Significant provisions pertaining to
the procedural and substantive aspects of appeal before the LBAA
and CBAA, including its effect on the payment of real property
taxes, follow:
SEC. 226. Local Board of Assessment Appeals. – Any owner or
person having legal interest in the property who is not satisfied
with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the
date of receipt of the written notice of assessment, appeal to the
Board of Assessment Appeals of the province or city by filing a
petition under oath in the form prescribed for the purpose,
together with copies of the tax declarations and such affidavits or
documents submitted in support of the appeal.
SEC. 229. Action by the Local Board of Assessment Appeals. –
(a)The Board shall decide the appeal within one hundred twenty
(120) days from the date of receipt of such appeal. The Board,
after hearing, shall render its decision based on substantial
evidence or such relevant evidence on record as a reasonable mind
might accept as adequate to support the conclusion.
(b) In the exercise of its appellate jurisdiction, the Board shall have
the powers to summon witnesses, administer oaths, conduct
ocular inspection, take depositions, and issue subpoena and
subpoena duces tecum. The proceedings of the Board shall be
conducted solely for the purpose of ascertaining the facts without
necessarily adhering to technical rules applicable in judicial
proceedings.
(c) The secretary of the Board shall furnish the owner of the
property or the person having legal interest therein and the
provincial or city assessor with a copy of the decision of the Board.
In case the provincial or city assessor concurs in the revision or the
assessment, it shall be his duty to notify the owner of the property
or the person having legal interest therein of such fact using the
form prescribed for the purpose. The owner of the property or the
person having legal interest therein or the assessor who is not
satisfied with the decision of the Board may, within thirty (30) days
after receipt of the decision of said Board, appeal to the Central
Board of Assessment Appeals, as here in provided. The decision of
the Central Board shall be final and executory.
SEC. 231. Effect of Appeal on the Payment of Real Property Tax. –
Appeal on assessments of real property made under the provisions
of this Code shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by
the provincial or city assessor, without prejudice to subsequent
adjustment depending upon the final outcome of the appeal.
(Emphasis supplied)
The above-quoted provisions of RA No. 7160 or the LGC of
1991,clearly sets forth the administrative remedies available to a
taxpayer or real property owner who does not agree with the
assessment of the real property tax sought to be collected.
The language of the law is clear. No interpretation is needed. The
elementary rule in statutory construction is that if a statute is clear,
plain and free from ambiguity, it must be given its literal meaning
and applied without attempted interpretation. Verba legis non est
recedendum. From the words of a statute there should be no
departure.15
To begin with, Section 252 emphatically directs that the
taxpayer/real property owner questioning the assessment should
first pay the tax due before his protest can be entertained. As a
matter of fact, the words "paid under protest" shall be annotated
on the tax receipts. Consequently, only after such payment has
been made by the taxpayer may he file a protest in writing (within
thirty (30) days from said payment of tax) to the provincial, city, or
municipal treasurer, who shall decide the protest within sixty
(60)days from its receipt. In no case is the local treasurer obliged
to entertain the protest unless the tax due has been paid.
Secondly, within the period prescribed by law, any owner or
person having legal interest in the property not satisfied with the
action of the provincial, city, or municipal assessor in the
assessment of his property may file an appeal with the LBAA of the
province or city concerned, as provided in Section 226 of RA No.
7160 or the LGC of 1991. Thereafter, within thirty (30) days from
receipt, he may elevate, by filing a notice of appeal, the adverse
decision of the LBAA with the CBAA, which exercises exclusive
jurisdiction to hear and decide all appeals from the decisions,
orders, and resolutions of the Local Boards involving contested
assessments of real properties, claims for tax refund and/or tax
credits, or overpayments of taxes.16
Significantly, in Dr. Olivares v. Mayor Marquez,17 this Court had the
occasion to extensively discuss the subject provisions of RA No.
7160 or the LGC of 1991, in relation to the impropriety of the
direct recourse before the courts on issue of the correctness of
assessment of real estate taxes. The pertinent articulations follow:
x x x A perusal of the petition before the RTC plainly shows that
what is actually being assailed is the correctness of the
assessments made by the local assessor of Parañaque on
petitioners’ properties. The allegations in the said petition
purportedly questioning the assessor’s authority to assess and
collect the taxes were obviously made in order to justify the filing
of the petition with the RTC. In fact, there is nothing in the said
petition that supports their claim regarding the assessor’s alleged
lack of authority. What petitioners raise are the following:
(1) some of the taxes being collected have already prescribed and
may no longer be collected as provided in Section 194 of the Local
Government Code of 1991; (2) some properties have been doubly
taxed/assessed; (3) some properties being taxed are no longer
existent;
(4)some properties are exempt from taxation as they are being
used exclusively for educational purposes; and (5) some errors are
made in the assessment and collection of taxes due on petitioners’
properties, and that respondents committed grave abuse of
discretion in making the "improper, excessive and unlawful the
collection of taxes against the petitioners."
Moreover, these arguments essentially involve questions of fact.
Hence, the petition should have been brought, at the very first
instance, to the LBAA.
Under the doctrine of primacy of administrative remedies, an error
in the assessment must be administratively pursued to the
exclusion of ordinary courts whose decisions would be void for lack
of jurisdiction. But an appeal shall not suspend the collection of
the tax assessed without prejudice to a later adjustment pending
the outcome of the appeal.
Even assuming that the assessor’s authority is indeed an issue, it
must be pointed out that in order for the court a quo to resolve
the petition, the issues of the correctness of the tax assessment
and collection must also necessarily be dealt with.
xxxx
In the present case, the authority of the assessor is not being
questioned. Despite petitioners’ protestations, the petition filed
before the court a quo primarily involves the correctness of the
assessments, which are questions of fact, that are not allowed in a
petition for certiorari, prohibition and mandamus. The court a quo
is therefore precluded from entertaining the petition, and it
appropriately dismissed the petition.18 (Emphasis and underlining
supplied)
By analogy, the rationale of the mandatory compliance with the
requirement of "payment under protest" similarly provided under
Section 64of the Real Property Tax Code (RPTC)19 was earlier
emphasized in Meralcov. Barlis,20wherein the Court held:
We find the petitioner’s arguments to be without merit. The trial
court has no jurisdiction to entertain a Petition for Prohibition
absent petitioner’s payment under protest, of the tax assessed as
required by Sec.64 of the RPTC. Payment of the tax assessed under
protest, is a condition sine qua non before the trial court could
assume jurisdiction over the petition and failure to do so, the RTC
has no jurisdiction to entertain it.
The restriction upon the power of courts to impeach tax
assessment without a prior payment, under protest, of the taxes
assessed is consistent with the doctrine that taxes are the lifeblood
of the nation and as such their collection cannot be curtailed by
injunction or any like action; otherwise, the state or, in this case,
the local government unit, shall be crippled in dispensing the
needed services to the people, and its machinery gravely disabled.
xxxx
There is no merit in petitioner’s argument that the trial court could
take cognizance of the petition as it only questions the validity of
the issuance of the warrants of garnishment on its bank deposits
and not the tax assessment. Petitioner MERALCO in filing the
Petition for Prohibition before the RTC was in truth assailing the
validity of the tax assessment and collection. To resolve the
petition, it would not only be the question of validity of the
warrants of garnishments that would have to be tackled, but in
addition the issues of tax assessment and collection would
necessarily have to be dealt with too. As the warrants of
garnishment were issued to collect back taxes from petitioner, the
petition for prohibition would be for no other reason than to
forestall the collection of back taxes on the basis of tax assessment
arguments. This, petitioner cannot do without first resorting to the
proper administrative remedies, or as previously discussed, by
paying under protest the tax assessed, to allow the court to
assume jurisdiction over the petition.
xxxx
It cannot be gainsaid that petitioner should have addressed its
arguments to respondent at the first opportunity - upon receipt of
the3 September 1986 notices of assessment signed by Municipal
Treasurer Norberto A. San Mateo. Thereafter, it should have
availed of the proper administrative remedies in protesting an
erroneous tax assessment, i.e., to question the correctness of the
assessments before the Local Board of Assessment Appeals (LBAA),
and later, invoke the appellate jurisdiction of the Central Board of
Assessment Appeals(CBAA).
Under the doctrine of primacy of administrative remedies, an error
in the assessment must be administratively pursued to the
exclusion of ordinary courts whose decisions would be void for lack
of jurisdiction. But an appeal shall not suspend the collection of
the tax assessed without prejudice to a later adjustment pending
the outcome of the appeal. The failure to appeal within the
statutory period shall render the assessment final and
unappealable.
Petitioner having failed to exhaust the administrative remedies
available to it, the assessment attained finality and collection
would be in order. (Emphasis and underscoring supplied)
From the foregoing jurisprudential pronouncements, it is clear that
the requirement of "payment under protest" is a condition sine
qua non before a protest or an appeal questioning the correctness
of an assessment of real property tax may be entertained.
Moreover, a claim for exemption from payment of real property
taxes does not actually question the assessor’s authority to assess
and collect such taxes, but pertains to the reasonableness or
correctness of the assessment by the local assessor, a question of
fact which should be resolved, at the very first instance, by the
LBAA. This may be inferred from Section 206 of RA No. 7160 or the
LGC of 1991which states that:
SEC. 206. Proof of Exemption of Real Property from Taxation. –
Every person by or for whom real property is declared, who shall
claim tax exemption for such property under this Title shall file
with the provincial, city or municipal assessor within thirty (30)
days from the date of the declaration of real property sufficient
documentary evidence in support of such claim including
corporate charters, title of ownership, articles of incorporation,
bylaws, contracts, affidavits, certifications and mortgage deeds,
and similar documents.
If the required evidence is not submitted within the period herein
prescribed, the property shall be listed as taxable in the
assessment roll. However, if the property shall be proven to be tax
exempt, the same shall be dropped from the assessment roll.
(Emphasis supplied)
In other words, by providing that real property not declared and
proved as tax-exempt shall be included in the assessment roll, the
above-quoted provision implies that the local assessor has the
authority to assess the property for realty taxes, and any
subsequent claim for exemption shall be allowed only when
sufficient proof has been adduced supporting the claim.21
Therefore, if the property being taxed has not been dropped from
the assessment roll, taxes must be paid under protest if the
exemption from taxation is insisted upon.
In the case at bench, records reveal that when petitioner received
the letter dated 21 March 2002 issued by respondent City Assessor,
including copies of ARPs (with ARP Nos. 01-07040-008887 to
01-07040-008922) attached thereto, it filed its protest through a
letter dated 3 April 2002seeking clarification as to the legal basis of
said assessments, without payment of the assessed real property
taxes. Afterwards, respondent City Assessor replied thereto in a
letter dated 11 April 2002 which explained the legal basis of the
subject assessments and even included an additional ARP against
another real property of petitioner. Subsequently, petitioner then
filed before the BTAA its appeal questioning the validity and
propriety of the subject ARPs.
Clearly from the foregoing factual backdrop, petitioner considered
the11 April 2002 letter as the "action" referred to in Section 226
which speaks of the local assessor’s act of denying the protest filed
pursuant to Section252. However, applying the above-cited
jurisprudence in the present case, it is evident that petitioner’s
failure to comply with the mandatory requirement of payment
under protest in accordance with Section 252 of the LGC of 1991
was fatal to its appeal. Notwithstanding such failure to comply
therewith, the BTAA elected not to immediately dismiss the case
but instead took cognizance of petitioner’s appeal subject to the
condition that payment of the real property tax should first be
made before proceeding with the hearing of its appeal, as
provided for under Section 7, Rule V of the Rules of Procedure
Before the LBAA. Hence, the BTAA simply recognized the
importance of the requirement of "payment under protest" before
an appeal may be entertained, pursuant to Section 252, and in
relation with Section231 of the same Code as to non-suspension of
collection of the realty tax pending appeal.
Notably, in its feeble attempt to justify non-compliance with the
provision of Section 252, petitioner contends that the requirement
of paying the tax under protest is not applicable when the person
being assessed is a tax-exempt entity, and thus could not be
deemed a "taxpayer" within the meaning of the law. In support
thereto, petitioner alleges that it is exempted from paying taxes,
including real property taxes, since it is entitled to the tax
incentives and exemptions under the provisions of RA No. 7227
and Presidential Proclamation No. 420, Series of 1994,22 as stated
in and confirmed by the lease agreement it entered into with the
BCDA.23
This Court is not persuaded.
First, Section 206 of RA No. 7160 or the LGC of 1991, as quoted
earlier, categorically provides that every person by or for whom
real property is declared, who shall claim exemption from payment
of real property taxes imposed against said property, shall file with
the provincial, city or municipal assessor sufficient documentary
evidence in support of such claim. Clearly, the burden of proving
exemption from local taxation is upon whom the subject real
property is declared; thus, said person shall be considered by law
as the taxpayer thereof. Failure to do so, said property shall be
listed as taxable in the assessment roll.
In the present case, records show that respondent City Assessor of
Baguio City notified petitioner, in the letters dated 21 March
200224 and 11April 2002,25 about the subject ARPs covering various
buildings owned by petitioner and parcels of land (leased out to
petitioner) all located within the JHSEZ, Baguio City. The subject
letters expressed that the assessments were based on the
approved building permits obtained from the City Engineer’s Office
of Baguio City and pursuant to Sections 201 to 206 of RA No. 7160
or the LGC of 1991 which pertains to whom the subject real
properties were declared.
Noticeably, these factual allegations were neither contested nor
denied by petitioner. As a matter of fact, it expressly admitted
ownership of the various buildings subject of the assessment and
thereafter focused on the argument of its exemption under RA No.
7227. But petitioner did not present any documentary evidence to
establish that the subject properties being tax exempt have
already been dropped from the assessment roll, in accordance
with Section 206. Consequently, the City Assessor acted in
accordance with her mandate and in the regular performance of
her official function when the subject ARPs were issued against
petitioner herein, being the owner of the buildings, and therefore
considered as the person with the obligation to shoulder tax
liability thereof, if any, as contemplated by law.
It is an accepted principle in taxation that taxes are paid by the
person obliged to declare the same for taxation purposes. As
discussed above, the duty to declare the true value of real
property for taxation purposes is imposed upon the owner, or
administrator, or their duly authorized representatives. They are
thus considered the taxpayers. Hence, when these persons fail or
refuse to make a declaration of the true value of their real
property within the prescribed period, the provincial or city
assessor shall declare the property in the name of the defaulting
owner and assess the property for taxation. In this wise, the
taxpayer assumes the character of a defaulting owner, or
defaulting administrator, or defaulting authorized representative,
liable to pay back taxes. For that reason, since petitioner herein is
the declared owner of the subject buildings being assessed for real
property tax, it is therefore presumed to be the person with the
obligation to shoulder the burden of paying the subject tax in the
present case; and accordingly, in questioning the reasonableness
or correctness of the assessment of real property tax, petitioner is
mandated by law to comply with the requirement of payment
under protest of the tax assessed, particularly Section 252 of RA
No. 7160 or the LGC of 1991.
Time and again, the Supreme Court has stated that taxation is the
rule and exemption is the exception. The law does not look with
favor on tax exemptions and the entity that would seek to be thus
privileged must justify it by words too plain to be mistaken and too
categorical to be misinterpreted.26 Thus applying the rule of strict
construction of laws granting tax exemptions, and the rule that
doubts should be resolved in favor of provincial corporations, this
Court holds that petitioner is considered a taxable entity in this
case.
Second, considering that petitioner is deemed a taxpayer within
the meaning of law, the issue on whether or not it is entitled to
exemption from paying taxes, national and local, including real
property taxes, is a matter which would be better resolved, at the
very instance, before the LBAA, for the following grounds: (a)
petitioner’s reliance on its entitlement for exemption under the
provisions of RA No. 7227 and Presidential Proclamation No. 420,
was allegedly confirmed by Section 18, 27 Article XVI of the Lease
Agreement dated 19 October 1996 it entered with the BCDA.
However, it appears from the records that said Lease Agreement
has yet to be presented nor formally offered before any
administrative or judicial body for scrutiny; (b) the subject
provision of the Lease Agreement declared a condition that in
order to be allegedly exempted from the payment of taxes,
petitioner should have first paid and remitted 5% of the gross
income earned by it within ninety (90) days from the close of the
calendar year through the JPDC. Unfortunately, petitioner has
neither established nor presented any evidence to show that it has
indeed paid and remitted 5% of said gross income tax; (c) the right
to appeal is a privilege of statutory origin, meaning a right granted
only by the law, and not a constitutional right, natural or inherent.
Therefore, it follows that petitioner may avail of such opportunity
only upon strict compliance with the procedures and rules
prescribed by the law itself, i.e. RA No. 7160 or the LGC of 1991;
and (d) at any rate, petitioner’s position of exemption is weakened
by its own admission and recognition of this Court’s previous ruling
that the tax incentives granted in RA No. 7227 are exclusive only to
the Subic Special Economic and Free Port Zone; and thus, the
extension of the same to the JHSEZ (as provided in the second
sentence of Section 3 of Presidential Proclamation No. 420) 28 finds
no support therein and therefore declared null and void and of no
legal force and effect.29 Hence, petitioner needs more than mere
arguments and/or allegations contained in its pleadings to
establish and prove its exemption, making prior proceedings
before the LBAA a necessity.
With the above-enumerated reasons, it is obvious that in order for
a complete determination of petitioner’s alleged exemption from
payment of real property tax under RA No. 7160 or the LGC of
1991, there are factual issues needed to be confirmed. Hence,
being a question of fact, petitioner cannot do without first
resorting to the proper administrative remedies, or as previously
discussed, by paying under protest the tax assessed in compliance
with Section 252 thereof.
Accordingly, the CBAA and the CTA En Banc correctly ruled that
real property taxes should first be paid before any protest thereon
may be considered. It is without a doubt that such requirement of
"payment under protest" is a condition sine qua non before an
appeal may be entertained. Thus, remanding the case to the LBAA
for further proceedings subject to a full and up-to-date payment,
either in cash or surety, of realty tax on the subject properties was
proper.
To reiterate, the restriction upon the power of courts to impeach
tax assessment without a prior payment, under protest, of the
taxes assessed is consistent with the doctrine that taxes are the
lifeblood of the nation and as such their collection cannot be
curtailed by injunction or any like action; otherwise, the state or, in
this case, the local government unit, shall be crippled in dispensing
the needed services to the people, and its machinery gravely
disabled.30 The right of local government units to collect taxes due
must always be upheld to avoid severe erosion. This consideration
is consistent with the State policy to guarantee the autonomy of
local governments and the objective of RA No. 7160 or the LGC of
1991 that they enjoy genuine and meaningful local autonomy to
empower them to achieve their fullest development as self-reliant
communities and make them effective partners in the attainment
of national goals.31
All told, We go back to what was at the outset stated, that is, that
a claim for tax exemption, whether full or partial, does not
question the authority of local assessor to assess real property tax,
but merely raises a question of the reasonableness or correctness
of such assessment, which requires compliance with Section 252 of
the LGC of 1991. Such argument which may involve a question of
fact should be resolved at the first instance by the LBAA.
The CTA En Bane was correct in dismissing the petition in C.T.A. EB
No. 48, and affirming the CBAA's position that it cannot delve on
the issue of petitioner's alleged non-taxability on the ground of
exemption since the LBAA has not decided the case on the merits.
This is in compliance with the procedural steps prescribed in the
law.
WHEREFORE, the petition is DENIED for lack of merit. The Decision
of the Court of Tax Appeals En Bane in C.T.A. EB No. 48 is
AFFIRMED. The case is remanded to the Local Board of Assessment
Appeals of Baguio City for further proceedings. No costs.
SO ORDERED.
JOSE PORTUGAL PE
[G.R. No. 197117, April 10, 2013]
 FIRST LEPANTO TAISHO INSURANCE Withholding Tax
CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL On February 24, 2000, petitioner protested theST-EWT-97-0218-99
said tax
REVENUE, Respondent. assessments.
Deficiency Final
DECISION During the pendency of the case, particularly on February 15, 2008,
Withholding Tax 299,391.84 74,847.96 120,741.73 494,981.53
petitioner filed its Motion for Partial Withdrawal of ST-FT-97-0219-99
Petition for
MENDOZA, J.: Review of Assessment Notice Nos. ST-INC-97-0220-99;
ST-VAT-97-0222-99 and ST-DST-97-0217-00, in view TOTALS of the tax P1,206,316.41 P301,579.11 P486,495.34 P1,994,390.86
Before the Court is a petition for review on certiorari1 under Rule amnesty program it had availed.�The CTA Second Division granted
45 of the 1997 Rules of Civil Procedure filed by First Lepanto the said motion in a Resolution,5 dated March 31, 2008.
Taisho Corporation, now FLT Prime Insurance Corporation
Petitioner�s Motion for Partial Reconsideration7 was likewise
(petitioner), assailing the March 1, 2011 Decision 2 and the May 27, Consequently, on May 21, 2009, the CTA Second Division partially
denied by the CTA Second Division in its October 29, 2009
2011 Resolution3 of the Court of Tax Appeals (CTA) En Banc, in CTA granted the petition.6�It directed petitioner to pay CIR a reduced
tax liability of P1,994,390.86.� The dispositive portion Resolution.8cralawvllred
E.B. No. 563, which affirmed the May 21, 2009 Decision of the
CTA-Second Division. reads:chanroblesvirtuallawlibrary
Unsatisfied, petitioner filed a Petition for Review before the
WHEREFORE, in view of the foregoing CTA En Banc.9cralawvllred
The Facts:
considerations, the instant Petition for Review is
hereby PARTIALLY GRANTED.� Accordingly, On March 1, 2011, the CTA En Banc affirmed the decision of the
Petitioner is a non-life insurance corporation and considered as a
petitioner is hereby ORDERED TO PAYdeficiency CTA Second Division.10cralawvllred
�Large Taxpayer under Revenue Regulations No. 6-85, as amended
withholding tax on compensation, expanded
by Revenue Regulations No. 12-94 effective 1994.�4� After
withholding tax and final tax in the reduced Petitioner contended that it was not liable to pay Withholding Tax
submitting its corporate income tax return for taxable year ending
amount of P1,994,390.86, computed as follows: on Compensation on the P500,000.00 Director�s Bonus to their
December 31, 1997, petitioner received a Letter of Authority,
directors, specifically, Rodolfo Bausa, Voltaire Gonzales, Felipe Yap,
dated October 30, 1998, from respondent Commissioner of
and Catalino Macaraig, Jr., because they were not employees and
Internal Revenue (CIR) to allow it to examine their books of
the amount was already subjected to Expanded Withholding Tax.�
account and other accounting records for 1997 and other Basic Tax Surcharges Interest Total
The CTA En Banc, however, ruled that Section 5 of Revenue
unverified prior years.
Deficiency Withholding Regulation No. 12-86 expressly identified a director to be an
Tax on Compensation P774,200.55 P193,550.14 P312.227.34 employee.
P1,279,978.03
On December 29, 1999, CIR issued internal revenue tax
assessments for deficiency income, withholding,ST-WC-97-0221-99
expanded
As to transportation, subsistence and lodging, and representation
withholding, final withholding, value-added, and documentary
Deficiency Expanded 132,724.02 33,181.01 53,526.27 expenses, the expenses would not be subject to withholding tax
219,431.30
stamp taxes for taxable year 1997.
only if the same were reimbursement for actual expenses of the
company.�In the present case, the CTA En Banc declared that
petitioner failed to prove that they were so.
As to deficiency expanded withholding taxes on compensation,
petitioner failed to substantiate that the commissions earned
totaling P905,428.36, came from reinsurance activities and should
not be subject to withholding tax.�Petitioner likewise failed to
prove its direct loss expense, occupancy cost and
service/contractors and purchases.
As to deficiency final withholding taxes, �petitioner failed to
present proof of remittance to establish that it had remitted the
final tax on dividends paid as well as the payments for services
rendered by the Malaysian entity.�11cralawvllred
As to the imposition of delinquency interest under Section 249 (c)
(3) of the 1997 National Internal Revenue Code (NIRC), records
reveal that petitioner failed to pay the deficiency taxes within
thirty (30) days from receipt of the demand letter, thus,
delinquency interest accrued from such non-payment.
Petitioner moved for partial reconsideration, but the CTA En Banc
denied the same in its May 27, 2011 Resolution.12cralawvllred
Hence, this petition.13cralawvllred
The principal issue in this case is whether the CTA En Banc erred in
holding petitioner liable for:
1. deficiency withholding taxes on
compensation on directors� bonuses
under Assessment No.
ST-WC-97-0021-99;cralawlibrary
2. deficiency expanded withholding taxes
on transportation, subsistence and
lodging, and representation expense;
commission expense; direct loss
expense; occupancy cost;� and
service/contractor and purchases�
under Assessment No.
ST-EWT-97-0218-99;cralawlibrary
3. deficiency final withholding taxes on
payment of dividends and
computerization expenses to foreign
entities under Assessment No.
ST-FT-97-0219-99; and
4. delinquency interest under Section 249
(c) (3) of the NIRC.
The Court finds no merit in the petition.
For taxation purposes, a director is considered an employee under
Section 5 of Revenue Regulation No. 12-86,14 to
wit:chanroblesvirtuallawlibrary
An individual, performing services for a
corporation, whether as an officer and director
or merely as a director whose duties are
confined to attendance at and participation in
the meetings of the Board of Directors, is an
employee.
The non-inclusion of the names of some of petitioner�s directors
in the company�s Alpha List does not ipso facto create a
presumption that they are not employees of the corporation,
because the imposition of withholding tax on compensation hinges
upon the nature of work performed by such individuals in the
company. Moreover, contrary to petitioner�s attestations,
Revenue Regulation No. 2-98,15 specifically, Section 2.57.2. A (9)
thereof,16�cannot be applied to this case as the latter is a later
regulation while the accounting books examined were for taxable
year 1997.
As to the deficiency withholding tax assessment on transportation,
subsistence and lodging, and representation expense, commission
expense, direct loss expense, occupancy cost, service/contractor
and purchases, the Court finds no cogent reason to deviate from
the findings of the CTA En Banc.�As correctly observed by the CTA
Second Division and the CTA En Banc, petitioner was not able to
sufficiently establish that the transportation expenses reflected in
their books were reimbursement from actual transportation
expenses incurred by its employees in connection with their duties
as the only document presented was a Schedule of Transportation
Expenses without pertinent supporting documents.�Without said
documents, such as but not limited to, receipts,
transportation-related vouchers and/or invoices, there is no way of
ascertaining whether the amounts reflected in the schedule of
expenses were disbursed for transportation.
With regard to commission expense, no additional documentary
evidence, like the reinsurance agreements contracts, was
presented to support petitioner�s allegation that the expenditure
originated from reinsurance activities that gave rise to reinsurance
commissions, not subject to withholding tax.�As to occupancy
costs, records reveal that petitioner failed to compute the correct
total occupancy cost that should be subjected to withholding tax,
hence, petitioner is liable for the deficiency.
As to service/contractors and purchases, petitioner contends that
both parties already stipulated that it correctly withheld the taxes
due. Thus, petitioner is of the belief that it is no longer required to
present evidence to prove the correct payment of taxes withheld.�
As correctly ruled by the CTA Second Division and En Banc,
however, stipulations cannot defeat the right of the State to
collect the correct taxes due on an individual or juridical person
because taxes are the lifeblood of our nation so its collection
should be actively pursued without unnecessary impediment.
As to the deficiency final withholding tax assessments for
payments of dividends and computerization expenses incurred by
petitioner to foreign entities, particularly Matsui Marine & Fire
Insurance Co. Ltd. (Matsui),17 the Court agrees with CIR that
petitioner failed to present evidence to show the supposed
remittance to Matsui.
The Court likewise holds the imposition of delinquency interest
under Section 249 (c) (3) of the 1997 NIRC to be proper, because
failure to pay the deficiency tax assessed within the time
prescribed for its payment justifies the imposition of interest at the
rate of twenty percent (20%) per annum, which interest shall be
assessed and collected from the date prescribed for its payment
until full payment is made.
It is worthy to note that tax revenue statutes are not generally
intended to be liberally construed.18�Moreover, the CTA being a
highly specialized court particularly created for the purpose of
reviewing tax and customs cases, it is settled that its findings and
conclusions are accorded great respect and are generally upheld
by this Court, unless there is a clear showing of a reversible error
or an improvident exercise of authority.19 Absent such errors, the
challenged decision should be maintained.
WHEREFORE, the petition is DENIED.�The March 1, 2011 Decision
and the May 27, 2011 Resolution of the Court of Tax Appeals En
Banc, in CTA E.B. No. 563, are AFFIRMED.
SO ORDERED.
CIR v San Roque 690 SCRA 336 This involves three cases with
similar issues: 1) CIR v San Roque Power Corp (SRPC), 2) Taganito
Mining Corp (TMC) vs CIR, and 3) Philex Mining Corp (PMC) vs CIR
SRPC, TMC, and PMC are all registered with the BIR and the BOI; all
are also VAT registered. All three cases concern with the
application for refund for unutilized input VAT.
San Roque Case In the case of SRPC, SRPC allegedly incurred excess
input VAT in the amount of P560 M M for taxable year 2001 which
it declared in its Quarterly VAT Returns filed for the same year. San
Roque duly filed with the BIR claims for refund in the total amount
of P560M representing unitilized input taxes as declared in its VAT
returns for taxable year 2001. But, on March 28, 2003, San Roque
filed an amended Quarterly Vat returns for year 2001 since it
increased its unutilized input VAT to the amount of P560.2 M.
Because of CIR's inaction, San Roque filed a Petition for Review
with the CTA on April 10, 2003. On March 8 2006, the CTA 2nd
Division denied San Roque's claim because a) it lacked of recorded
zero-rated or effectively zerorated sales, b) it failed to submit
documents identifying the purchased goods/services related to the
claimed input VAT, and c) it failed to prove that the related
construction costs were capitalized in its books of account and
subjected to depreciation. Also, it was raised that SRPC filed the
claim prematurely. The CTA en banc ruled otherwise citing
Commissioner of Internal Revenue v. Toledo Power, Inc. and Rev
Memo Cir. No. 49-03 as its bases for ruling that San Roque's
judicial claim was not prematurely filed.
TMC Case
TMC filed all its Monthly VAT declarations and Quarterly VAT
Returns for the period Jan 1, 2005 to Dec 31, 2005. On November
14, 2006, TMC filed with the CIR through BIR's Large Taxpayers
Audit and Investigation Division II (LTAID II), a letter dated
November 13, 2006 claiming a tax credit/refund of its supposed
input VAT amounting to 8.4 M for the period covering Jan 1 2004 -
Dec 31 2004. On the same date, TMC also filed an application for
tax credit/refund for the period covering Jan 1 2005 - Dec 31 2005.
On November 29, 2006, [Taganito] sent again another letter dated
November 29, 2004 to [the CIR], to correct the period of the above
claim for tax credit/refund in the said amount of P8,365,664.38 as
actually referring to the period covering January 1, 2005 to
December 31, 2005. As the statutory period within which to file a
claim for refund for said input VAT is about to lapse without action
on the part of the [CIR], TGM filed the instant Petition for Review
on February 17, 2007. CTA 2nd Division partially granted TMC's
claim. CTA found that TMC complied with the requirements of Sec
112(A) of RA 8424 to be entitled to tax refund/credit of input VAT
attributable to zero-rated or effectively zerorated sales. The case G.R. No. 134062 April 17, 2007
reached the CTA en banc where it declared that Section 112 (A)
and (B) of the 1997 Tax Code both set forth the reckoning of the COMMISSIONER OF INTERNAL REVENUE, Petitioner,
2-year prescriptive period for filing a claim for tax refund or credit vs.
over input VAT to be the close of the taxable quarter when the BANK OF THE PHILIPPINE ISLANDS, Respondent.
sales were made. It relied on the rulings in CIR v. Aichi Forging
Company of Asia, Inc and CIR v. Mirant Pagbilao Corporation. Both TOTAL AMOUNT DUE AND COLLECTIBLE ₱12,319,441.13
DECISION
cases ruled that the 2-year prescriptive period to file a refund for
input VAT arising from zero-rated sales should be reckoned from CORONA, J.:
the close of the taxable quarter when the sales were made. Aichi 1986 – Deficiency Documentary Stamp Tax
further emphasized that the failure to await the decision of the This is a petition for review on certiorari1 of a decision2 of the
Commissioner or the lapse of 120-day period prescribed in Section Court of Appeals (CA) dated May 29, 1998 in CA-G.R. SP No. 41025 Deficiency percentage tax ₱93,723,372.40
112(D) amounts to a premature filing. which reversed and set aside the decision3 and resolution4 of the
Court of Tax Appeals (CTA) dated November 16, 1995 and May 27, Add: 25% surcharge 23,430,843.10
The CTA en banc found the TMC's judicial claim was prematurely
filed because TMC filed its judicial claim on 14 Feb 2007. A lapse of 1996, respectively, in CTA Case No. 4715.
only 92 days from the filing of its administrative claim before the 15,000.00
CIR in violaiton of Sec 112(D). In two notices dated October 28, 1988, petitioner Commissioner of
Internal Revenue (CIR) assessed respondent Bank of the Philippine
Compromise penalty
PMC Case On October 21, 2005, PMC filed its Original VAT Return Islands’ (BPI’s) deficiency percentage and documentary stamp
for the third quarter of taxable year 2005 and Amended VAT taxes for the year 1986 in the total amount of ₱129,488,656.63:
Return for the same quarter on December 1, 2005. On March 20,
2006, PMC filed its claim for refund/tax credit of the amount of 1986 – Deficiency Percentage Tax
P24 M with the One Stop Shop Center of the Department of TOTAL AMOUNT DUE AND COLLECTIBLE ₱117,169,215.50.5
Finance. CIR failed to act on the claim so on October 17, 2007,
Deficiency percentage tax ₱ 7, 270,892.88
pursuant to Sections 112 and 229 of the NIRC of 1997, as amended,
PMC filed a Petition for Review. CTA 2nd Division denied PMC's Both notices of assessment contained the following note:
claim because it has prescribed. CTA en banc affirmed the 2nd Add: 25% surcharge 1,817,723.22
division. Please be informed that your [percentage and documentary stamp
20% interest from 1-21-87 to 10-28-88 3,215,825.03
taxes have] been assessed as shown above. Said assessment has
been based on return – (filed by you) – (as verified) – (made by this
Compromise penalty 15,000.00
Office) – (pending investigation) – (after investigation). You are
requested to pay the above amount to this Office or to our
Collection Agent in the Office of the City or Deputy Provincial
Treasurer of xxx6
In a letter dated December 10, 1988, BPI, through counsel, replied
as follows:
1. Your "deficiency assessments" are no assessments at all. The
taxpayer is not informed, even in the vaguest terms, why it is being
assessed a deficiency. The very purpose of a deficiency assessment
is to inform taxpayer why he has incurred a deficiency so that he
can make an intelligent decision on whether to pay or to protest
the assessment. This is all the more so when the assessment
involves astronomical amounts, as in this case.
We therefore request that the examiner concerned be required to
state, even in the briefest form, why he believes the taxpayer has a
deficiency documentary and percentage taxes, and as to the
percentage tax, it is important that the taxpayer be informed also
as to what particular percentage tax the assessment refers to.
2. As to the alleged deficiency documentary stamp tax, you are
aware of the compromise forged between your office and the
Bankers Association of the Philippines [BAP] on this issue and of
BPI’s submission of its computations under this compromise. There
is therefore no basis whatsoever for this assessment, assuming it is
on the subject of the BAP compromise. On the other hand, if it
relates to documentary stamp tax on some other issue, we should
like to be informed about what those issues are.
3. As to the alleged deficiency percentage tax, we are completely
at a loss on how such assessment may be protested since your
letter does not even tell the taxpayer what particular percentage
tax is involved and how your examiner arrived at the deficiency. As
soon as this is explained and clarified in a proper letter of
assessment, we shall inform you of the taxpayer’s decision on
whether to pay or protest the assessment.7
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991
stating that:
… although in all respects, your letter failed to qualify as a protest
under Revenue Regulations No. 12-85 and therefore not deserving
of any rejoinder by this office as no valid issue was raised against
the validity of our assessment… still we obliged to explain the basis
of the assessments.
xxx xxx xxx
… this constitutes the final decision of this office on the matter.8
On July 6, 1991, BPI requested a reconsideration of the
assessments stated in the CIR’s May 8, 1991 letter.9 This was
denied in a letter dated December 12, 1991, received by BPI on
January 21, 1992.10
On February 18, 1992, BPI filed a petition for review in the
CTA.11 In a decision dated November 16, 1995, the CTA dismissed
the case for lack of jurisdiction since the subject assessments had
become final and unappealable. The CTA ruled that BPI failed to
protest on time under Section 270 of the National Internal
Revenue Code (NIRC) of 1986 and Section 7 in relation to Section
11 of RA 1125.12 It denied reconsideration in a resolution dated
May 27, 1996.13
On appeal, the CA reversed the tax court’s decision and resolution
and remanded the case to the CTA14 for a decision on the
merits.15 It ruled that the October 28, 1988 notices were not valid
assessments because they did not inform the taxpayer of the legal
and factual bases therefor. It declared that the proper assessments
were those contained in the May 8, 1991 letter which provided the
reasons for the claimed deficiencies.16 Thus, it held that BPI filed
the petition for review in the CTA on time.17 The CIR elevated the
case to this Court.
This petition raises the following issues:
1) whether or not the assessments issued to BPI for deficiency
percentage and documentary stamp taxes for 1986 had already
become final and unappealable and
2) whether or not BPI was liable for the said taxes.
The former Section 27018 (now renumbered as Section 228) of the
NIRC stated:
Sec. 270. Protesting of assessment. — When the [CIR] or his duly
authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings. Within a
period to be prescribed by implementing regulations, the taxpayer
shall be required to respond to said notice. If the taxpayer fails to
respond, the [CIR] shall issue an assessment based on his findings.
xxx xxx xxx (emphasis supplied)
Were the October 28, 1988 Notices Valid Assessments?
The first issue for our resolution is whether or not the October 28,
1988 notices19 were valid assessments. If they were not, as held by
the CA, then the correct assessments were in the May 8, 1991
letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991
letter, seasonably asked for a reconsideration of the findings which
the CIR denied in his December 12, 1991 letter, received by BPI on
January 21, 1992. Consequently, the petition for review filed by BPI
in the CTA on February 18, 1992 would be well within the 30-day
period provided by law.20
The CIR argues that the CA erred in holding that the October 28,
1988 notices were invalid assessments. He asserts that he used BIR
Form No. 17.08 (as revised in November 1964) which was designed
for the precise purpose of notifying taxpayers of the assessed
amounts due and demanding payment thereof. 21 He contends that
there was no law or jurisprudence then that required notices to
state the reasons for assessing deficiency tax liabilities.22
BPI counters that due process demanded that the facts, data and
law upon which the assessments were based be provided to the
taxpayer. It insists that the NIRC, as worded now (referring to
Section 228), specifically provides that:
"[t]he taxpayer shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment shall
be void."
According to BPI, this is declaratory of what sound tax procedure is
and a confirmation of what due process requires even under the
former Section 270.
BPI’s contention has no merit. The present Section 228 of the NIRC
provides:
Sec. 228. Protesting of Assessment. — When the [CIR] or his duly
authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not
be required in the following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment
shall be void.
xxx xxx xxx (emphasis supplied)
Admittedly, the CIR did not inform BPI in writing of the law and
facts on which the assessments of the deficiency taxes were made.
He merely notified BPI of his findings, consisting only of the
computation of the tax liabilities and a demand for payment
thereof within 30 days after receipt.
In merely notifying BPI of his findings, the CIR relied on the
provisions of the former Section 270 prior to its amendment by RA
8424 (also known as the Tax Reform Act of 1997).23 In CIR v.
Reyes,24 we held that:
In the present case, Reyes was not informed in writing of the law
and the facts on which the assessment of estate taxes had been
made. She was merely notified of the findings by the CIR, who had
simply relied upon the provisions of former Section 229 prior to its
amendment by [RA] 8424, otherwise known as the Tax Reform Act
of 1997.
First, RA 8424 has already amended the provision of Section 229
on protesting an assessment. The old requirement
of merely notifying the taxpayer of the CIR's findings was
changed in 1998 to informing the taxpayer of not only the law, but
also of the facts on which an assessment would be made;
otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice
was issued against the estate. On April 22, 1998, the final estate
tax assessment notice, as well as demand letter, was also issued.
During those dates, RA 8424 was already in effect. The notice
required under the old law was no longer sufficient under the
new law.25(emphasis supplied; italics in the original)
Accordingly, when the assessments were made pursuant to the
former Section 270, the only requirement was for the CIR to
"notify" or inform the taxpayer of his "findings." Nothing in the old
law required a written statement to the taxpayer of the law and
facts on which the assessments were based. The Court cannot read
into the law what obviously was not intended by Congress. That
would be judicial legislation, nothing less.
Jurisprudence, on the other hand, simply required that the
assessments contain a computation of tax liabilities, the amount
the taxpayer was to pay and a demand for payment within a
prescribed period.26 Everything considered, there was no doubt
the October 28, 1988 notices sufficiently met the requirements of
a valid assessment under the old law and jurisprudence.
The sentence
[t]he taxpayers shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment shall
be void
was not in the old Section 270 but was only later on inserted in the
renumbered Section 228 in 1997. Evidently, the legislature saw the
need to modify the former Section 270 by inserting the
aforequoted sentence.27 The fact that the amendment was
necessary showed that, prior to the introduction of the
amendment, the statute had an entirely different meaning. 28
Contrary to the submission of BPI, the inserted sentence in the
renumbered Section 228 was not an affirmation of what the law
required under the former Section 270. The amendment
introduced by RA 8424 was an innovation and could not be
reasonably inferred from the old law.29 Clearly, the legislature
intended to insert a new provision regarding the form and
substance of assessments issued by the CIR.30
In ruling that the October 28, 1988 notices were not valid
assessments, the CA explained:
xxx. Elementary concerns of due process of law should have
prompted the [CIR] to inform [BPI] of the legal and factual basis of
the former’s decision to charge the latter for deficiency
documentary stamp and gross receipts taxes.31
In other words, the CA’s theory was that BPI was deprived of due
process when the CIR failed to inform it in writing of the factual
and legal bases of the assessments —even if these were not called
for under the old law.
We disagree.
Indeed, the underlying reason for the law was the basic
constitutional requirement that "no person shall be deprived of his
property without due process of law."32 We note, however, what
the CTA had to say:
xxx xxx xxx
From the foregoing testimony, it can be safely adduced that not
only was [BPI] given the opportunity to discuss with the [CIR] when
the latter issued the former a Pre-Assessment Notice (which [BPI]
ignored) but that the examiners themselves went to [BPI] and "we
talk to them and we try to [thresh] out the issues, present
evidences as to what they need." Now, how can [BPI] and/or its
counsel honestly tell this Court that they did not know anything
about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew
beforehand the assessments[,] contrary to the allegations of its
counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant
Manager of the Accounting Department of [BPI]. He testified to the
fact that he prepared worksheets which contain his analysis
regarding the findings of the [CIR’s] examiner, Mr. San Pedro and
that the same worksheets were presented to Mr. Carlos Tan,
Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that [BPI]
was indeed aware of the nature and basis of the assessments, and
was given all the opportunity to contest the same but ignored it
despite the notice conspicuously written on the assessments which
states that "this ASSESSMENT becomes final and unappealable if
not protested within 30 days after receipt." Counsel resorted to
dilatory tactics and dangerously played with time. Unfortunately,
such strategy proved fatal to the cause of his client. 33
The CA never disputed these findings of fact by the CTA:
[T]his Court recognizes that the [CTA], which by the very nature of
its function is dedicated exclusively to the consideration of tax
problems, has necessarily developed an expertise on the subject,
and its conclusions will not be overturned unless there has been an
abuse or improvident exercise of authority. Such findings can only
be disturbed on appeal if they are not supported by substantial
evidence or there is a showing of gross error or abuse on the part
of the [CTA].34
Under the former Section 270, there were two instances when an
assessment became final and unappealable: (1) when it was not
protested within 30 days from receipt and (2) when the adverse
decision on the protest was not appealed to the CTA within 30
days from receipt of the final decision:35
Sec. 270. Protesting of assessment.1a\^/phi1.net
xxx xxx xxx
Such assessment may be protested administratively by filing a
request for reconsideration or reinvestigation in such form and
manner as may be prescribed by the implementing regulations
within thirty (30) days from receipt of the assessment; otherwise,
the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual,
association or corporation adversely affected by the decision on
the protest may appeal to the [CTA] within thirty (30) days from
receipt of the said decision; otherwise, the decision shall become
final, executory and demandable.
Implications Of A Valid Assessment
Considering that the October 28, 1988 notices were valid
assessments, BPI should have protested the same within 30 days
from receipt thereof. The December 10, 1988 reply it sent to the
CIR did not qualify as a protest since the letter itself stated that
"[a]s soon as this is explained and clarified in a proper letter of
assessment, we shall inform you of the taxpayer’s decision on
whether to pay or protest the assessment."36 Hence, by its own
declaration, BPI did not regard this letter as a protest against the
assessments. As a matter of fact, BPI never deemed this a protest
since it did not even consider the October 28, 1988 notices as valid
or proper assessments.
The inevitable conclusion is that BPI’s failure to protest the
assessments within the 30-day period provided in the former
Section 270 meant that they became final and unappealable. Thus,
the CTA correctly dismissed BPI’s appeal for lack of jurisdiction. BPI
was, from then on, barred from disputing the correctness of the
assessments or invoking any defense that would reopen the
question of its liability on the merits.37 Not only that. There arose a
presumption of correctness when BPI failed to protest the
assessments:
Tax assessments by tax examiners are presumed correct and made
in good faith. The taxpayer has the duty to prove otherwise. In the
absence of proof of any irregularities in the performance of duties,
an assessment duly made by a Bureau of Internal Revenue
examiner and approved by his superior officers will not be
disturbed. All presumptions are in favor of the correctness of tax
assessments.38
Even if we considered the December 10, 1988 letter as a protest,
BPI must nevertheless be deemed to have failed to appeal the
CIR’s final decision regarding the disputed assessments within the
30-day period provided by law. The CIR, in his May 8, 1991
response, stated that it was his "final decision … on the matter."
BPI therefore had 30 days from the time it received the decision on
June 27, 1991 to appeal but it did not. Instead it filed a request for
reconsideration and lodged its appeal in the CTA only on February
18, 1992, way beyond the reglementary period. BPI must now
suffer the repercussions of its omission. We have already declared
that:
… the [CIR] should always indicate to the taxpayer in clear and
unequivocal language whenever his action on an assessment
questioned by a taxpayer constitutes his final determination on the
disputed assessment, as contemplated by Sections 7 and 11 of [RA
1125], as amended. On the basis of his statement indubitably
showing that the Commissioner's communicated action is his
final decision on the contested assessment, the aggrieved
taxpayer would then be able to take recourse to the tax court at
the opportune time. Without needless difficulty, the taxpayer
would be able to determine when his right to appeal to the tax
court accrues.
The rule of conduct would also obviate all desire and opportunity
on the part of the taxpayer to continually delay the finality of the
assessment — and, consequently, the collection of the amount
demanded as taxes — by repeated requests for recomputation
and reconsideration. On the part of the [CIR], this would
encourage his office to conduct a careful and thorough study of
every questioned assessment and render a correct and definite
decision thereon in the first instance. This would also deter the
[CIR] from unfairly making the taxpayer grope in the dark and
speculate as to which action constitutes the decision appealable to
the tax court. Of greater import, this rule of conduct would meet a
pressing need for fair play, regularity, and orderliness in
administrative action.39(emphasis supplied)
Either way (whether or not a protest was made), we cannot
absolve BPI of its liability under the subject tax assessments.
We realize that these assessments (which have been pending for
almost 20 years) involve a considerable amount of money. Be that
as it may, we cannot legally presume the existence of something
which was never there. The state will be deprived of the taxes
validly due it and the public will suffer if taxpayers will not be held
liable for the proper taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from
the very existence of the state whose social contract with its
citizens obliges it to promote public interest and common good.
The theory behind the exercise of the power to tax emanates from awarded to the heirs and the proceedings terminated on June 8,
necessity; without taxes, government cannot fulfill its mandate of 1948. Manuel B. Pineda's share amounted to about P2,500.00.
Total amount due P2,707.44
promoting the general welfare and well-being of the people.40
After the estate proceedings were closed, the Bureau of Internal ===========
WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 Revenue investigated the income tax liability of the estate for the
Additional residence tax P14.50
decision of the Court of Appeals in CA-G.R. SP No. 41025 years 1945, 1946, 1947 and 1948 and it found that the 2.
for 1945 ===========
is REVERSED and SET ASIDE. corresponding income tax returns were not filed. Thereupon, the
representative of the Collector of Internal Revenue filed said 3. Real Estate dealer's tax for
SO ORDERED. returns for the estate on the basis of information and data the fourth quarter of 1946
obtained from the aforesaid estate proceedings and issued an and the whole year of P207.50
RENATO C. CORONA assessment for the following: 1947 ===========

G.R. No. L-22734 September 15, 1967 1. Deficiency income tax

COMMISSIONER OF INTERNAL REVENUE, petitioner, 1945
vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO 1946
PINEDA, respondent.
1947
Office of the Solicitor General for petitioner. Add: 5% surcharge
Manuel B. Pineda for and in his own behalf as respondent.
BENGZON, J.P., J.:
On May 23, 1945 Atanasio Pineda died, survived by his wife,
Felicisima Bagtas, and 15 children, the eldest of whom is Manuel B.
Pineda, a lawyer. Estate proceedings were had in the Court of First
Instance of Manila (Case No. 71129) wherein the surviving widow
was appointed administratrix. The estate was divided among and
Manuel B. Pineda, who received the assessment, contested the
P135.83 same. Subsequently, he appealed to the Court of Tax Appeals
alleging that he was appealing "only that proportionate part or
436.95 portion pertaining to him as one of the heirs."
1,206.91 P1,779.69
After hearing the parties, the Court of Tax Appeals rendered
88.98 judgment reversing the decision of the Commissioner on the
ground that his right to assess and collect the tax has prescribed.
1% monthly interest The Commissioner appealed and this Court affirmed the findings of
from November 30, the Tax Court in respect to the assessment for income tax for the
1953 to April 15, year 1947 but held that the right to assess and collect the taxes for
1957 720.77 1945 and 1946 has not prescribed. For 1945 and 1946 the returns
were filed on August 24, 1953; assessments for both taxable years
Compromise for late were made within five years therefrom or on October 19, 1953;
filing 80.00 and the action to collect the tax was filed within five years from
the latter date, on August 7, 1957. For taxable year 1947, however,
Compromise for late the return was filed on March 1, 1948; the assessment was made
payment 40.00 on October 19, 1953, more than five years from the date the
return was filed; hence, the right to assess income tax for 1947 had
prescribed. Accordingly, We remanded the case to the Tax Court total amount of P760.28 instead of only for the amount of taxes
for further appropriate proceedings.1 corresponding to his share in the estate.1awphîl.nèt
In the Tax Court, the parties submitted the case for decision Manuel B. Pineda opposes the proposition on the ground that as
without additional evidence. an heir he is liable for unpaid income tax due the estate only up to
the extent of and in proportion to any share he received. He relies
On November 29, 1963 the Court of Tax Appeals rendered on Government of the Philippine Islands v. Pamintuan 2 where We
judgment holding Manuel B. Pineda liable for the payment held that "after the partition of an estate, heirs and distributees
corresponding to his share of the following taxes: are liable individually for the payment of all lawful outstanding
claims against the estate in proportion to the amount or value of
Deficiency income tax the property they have respectively received from the estate."
1945 P135.83 We hold that the Government can require Manuel B. Pineda to pay
the full amount of the taxes assessed.
1946 436.95
Pineda is liable for the assessment as an heir and as a
Real holder-transferee of property belonging to the estate/taxpayer. As
estate an heir he is individually answerable for the part of the tax
dealer' proportionate to the share he received from the inheritance. 3 His
s fixed liability, however, cannot exceed the amount of his share. 4
tax 4th
quarter As a holder of property belonging to the estate, Pineda is liable for
of 1946 he tax up to the amount of the property in his possession. The
and reason is that the Government has a lien on the P2,500.00
whole received by him from the estate as his share in the inheritance, for
year of unpaid income taxes4a for which said estate is liable, pursuant to
1947 P187.50 the last paragraph of Section 315 of the Tax Code, which we quote
hereunder:
amount shall be a lien in favor of the Government of the
Philippines from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with interest,
penalties, and costs that may accrue in addition thereto upon all
property and rights to property belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the
property in Pineda's possession, i.e., the P2,500.00, to satisfy the
income tax assessment in the sum of P760.28. After such payment,
Pineda will have a right of contribution from his co-heirs,5 to
achieve an adjustment of the proper share of each heir in the
distributable estate.
All told, the Government has two ways of collecting the tax in
question. One, by going after all the heirs and collecting from each
one of them the amount of the tax proportionate to the
inheritance received. This remedy was adopted in Government of
the Philippine Islands v. Pamintuan, supra. In said case, the
Government filed an action against all the heirs for the collection
of the tax. This action rests on the concept that hereditary
property consists only of that part which remains after the
settlement of all lawful claims against the estate, for the
settlement of which the entire estate is first liable.6 The reason
why in case suit is filed against all the heirs the tax due from the
estate is levied proportionately against them is to achieve thereby
two results: first, payment of the tax; and second, adjustment of
the shares of each heir in the distributed estate as lessened by the
tax.

The Commissioner of Internal Revenue has appealed to Us and has
proposed to hold Manuel B. Pineda liable for the payment of all
the taxes found by the Tax Court to be due from the estate in the
If any person, corporation, partnership, joint-account (cuenta en
participacion), association, or insurance company liable to pay the
income tax, neglects or refuses to pay the same after demand, the
Another remedy, pursuant to the lien created by Section 315 of
the Tax Code upon all property and rights to property belonging to
the taxpayer for unpaid income tax, is by subjecting said property
of the estate which is in the hands of an heir or transferee to the
payment of the tax due, the estate. This second remedy is the very
avenue the Government took in this case to collect the tax. The
Bureau of Internal Revenue should be given, in instances like the
case at bar, the necessary discretion to avail itself of the most
expeditious way to collect the tax as may be envisioned in the
particular provision of the Tax Code above quoted, because taxes
are the lifeblood of government and their prompt and certain
availability is an imperious need.7 And as afore-stated in this case
the suit seeks to achieve only one objective: payment of the tax.
The adjustment of the respective shares due to the heirs from the
inheritance, as lessened by the tax, is left to await the suit for
contribution by the heir from whom the Government recovered
said tax.
WHEREFORE, the decision appealed from is modified. Manuel B.
Pineda is hereby ordered to pay to the Commissioner of Internal
Revenue the sum of P760.28 as deficiency income tax for 1945 and
1946, and real estate dealer's fixed tax for the fourth quarter of
1946 and for the whole year 1947, without prejudice to his right of
contribution for his co-heirs. No costs. So ordered.
G.R. No. L-31364 March 30, 1979
MISAEL P. VERA, as Commissioner of Internal Revenue, and
JAIME ARANETA, as Regional Director, Revenue Region No. 14,
Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of
Negros Occidental, Branch V, and FRANCIS A. TONGOY,
Administrator of the Estate of the late LUIS D.
TONGOY respondents.
DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of Negros
Occidental, Branch V in Special Proceedings No. 7794, entitled:
"Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
dismissing the Motion for Allowance of Claim and for an Order of
Payment of Taxes by the Government of the Republic of the
Philippines against the Estate of the late Luis D. Tongoy, for
deficiency income taxes for the years 1963 and 1964 of the
decedent in the total amount of P3,254.80, inclusive 5% surcharge,
1% monthly interest and compromise penalties, and the second,
dated October 7, 1969, denying the Motion for reconsideration of
the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated
May 28, 1969 was filed on June 3, 1969 in the abovementioned
special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo).
The claim represents the indebtedness to the Government of the
late Luis D. Tongoy for deficiency income taxes in the total sum of
P3,254.80 as above stated, covered by Assessment Notices Nos.
11-50-29-1-11061-21-63 and 11-50-291-1 10875-64, to which
motion was attached Proof of Claim (Annex B, Petition, pp. 21-22,
Rollo). The Administrator opposed the motion solely on the ground
that the claim was barred under Section 5, Rule 86 of the Rules of
Court (par. 4, Opposition to Motion for Allowance of Claim, pp.
23-24, Rollo). Finding the opposition well-founded, the respondent
Judge, Jose F. Fernandez, dismissed the motion for allowance of
claim filed by herein petitioner, Regional Director of the Bureau of
Internal Revenue, in an order dated July 29, 1969 (Annex D,
Petition, p. 26, Rollo). On September 18, 1969, a motion for
reconsideration was filed, of the order of July 29, 1969, but was
denied in an Order dated October 7, 1969.
Hence, this appeal on certiorari, petitioner assigning the following
errors:
1. The lower court erred in holding that the claim for taxes by the
government against the estate of Luis D. Tongoy was filed beyond
the period provided in Section 2, Rule 86 of the Rules of Court.
2. The lower court erred in holding that the claim for taxes of the
government was already barred under Section 5, Rule 86 of the
Rules of Court.
which raise the sole issue of whether or not the statute of
non-claims Section 5, Rule 86 of the New Rule of Court, bars claim
of the government for unpaid taxes, still within the period of
limitation prescribed in Section 331 and 332 of the National
Internal Revenue Code.
Section 5, Rule 86, as invoked by the respondent Administrator in
hid Oppositions to the Motion for Allowance of Claim, etc. of the
petitioners reads as follows:
All claims for money against the decedent, arising from contracts,
express or implied, whether the same be due, not due, or
contingent, all claims for funeral expenses and expenses for the
last sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in they notice;
otherwise they are barred forever, except that they may be set
forth as counter claims in any action that the executor or
administrator may bring against the claimants. Where the executor
or administrator commence an action, or prosecutes an action
already commenced by the deceased in his lifetime, the debtor
may set forth may answer the claims he has against the decedents,
instead of presenting them independently to the court has herein
provided, and mutual claims may be set off against each other in
such action; and in final judgment is rendered in favored of the
decedent, the amount to determined shall be considered the true
balance against the estate, as though the claim has been
presented directly before the court in the administration
proceedings. Claims not yet due, or contingent may be approved at
their present value.
A perusal of the aforequoted provisions shows that it makes no
mention of claims for monetary obligation of the decedent created
by law, such as taxes which is entirely of different character from
the claims expressly enumerated therein, such as: "all claims for
money against the decedent arising from contract, express or
implied, whether the same be due, not due or contingent, all claim
for funeral expenses and expenses for the last sickness of the
decedent and judgment for money against the decedent." Under
the familiar rule of statutory construction of expressio unius est
exclusio alterius, the mention of one thing implies the exclusion of
another thing not mentioned. Thus, if a statute enumerates the
things upon which it is to operate, everything else must necessarily,
and by implication be excluded from its operation and effect
(Crawford, Statutory Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric
& Ice Plant, et al., G.R. No. L-23081, December 30, 1969, it was
held that the assessment, collection and recovery of taxes, as well
as the matter of prescription thereof are governed by the
provisions of the National Internal revenue Code, particularly
Sections 331 and 332 thereof, and not by other provisions of law.
(See also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals &
Collector of Internal Revenue, G.R. No. L-10681, March 29, 1958).
Even without being specifically mentioned, the provisions of
Section 2 of Rule 86 of the Rules of Court may reasonably be
presumed to have been also in the mind of the Court as not
affecting the aforecited Section of the National Internal Revenue
Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even
more pointedly held that "taxes assessed against the estate of a
deceased person ... need not be submitted to the committee on
claims in the ordinary course of administration. In the exercise of
its control over the administrator, the court may direct the
payment of such taxes upon motion showing that the taxes have
been assessed against the estate." The abolition of the Committee
on Claims does not alter the basic ruling laid down giving exception
to the claim for taxes from being filed as the other claims
mentioned in the Rule should be filed before the Court. Claims for
taxes may be collected even after the distribution of the
decedent's estate among his heirs who shall be liable therefor in
proportion of their share in the inheritance. (Government of the
Philippines vs. Pamintuan, 55 Phil. 13).
The reason for the more liberal treatment of claims for taxes
against a decedent's estate in the form of exception from the
application of the statute of non-claims, is not hard to find. Taxes
are the lifeblood of the Government and their prompt and certain
availability are imperious need. (Commissioner of Internal Revenue
vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105).
Upon taxation depends the Government ability to serve the people
for whose benefit taxes are collected. To safeguard such interest,
neglect or omission of government officials entrusted with the
collection of taxes should not be allowed to bring harm or
detriment to the people, in the same manner as private persons
may be made to suffer individually on account of his own
negligence, the presumption being that they take good care of
their personal affairs. This should not hold true to government
officials with respect to matters not of their own personal concern.
This is the philosophy behind the government's exception, as a
general rule, from the operation of the principle of estoppel.
(Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177;
Manila Lodge No. 761, Benevolent and Protective Order of the Elks
Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA
162; Sy vs. Central Bank of the Philippines, L-41480, April 30,1976,
70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553;
Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs.
Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs.
Philippine Long Distance Telephone Company, L-18841, January 27,
1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L-23272,
November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of
Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already
shown, taxes may be collected even after the distribution of the
estate of the decedent among his heirs (Government of the
Philippines vs. Pamintuan, supra; Pineda vs. CFI of
Tayabas, supra Clara Diluangco Palanca vs. Commissioner of
Internal Revenue, G. R. No. L-16661, January 31, 1962).
Furthermore, as held in Commissioner of Internal Revenue vs.
Pineda, supra, citing the last paragraph of Section 315 of the Tax
Code payment of income tax shall be a lien in favor of the
Government of the Philippines from the time the assessment was
made by the Commissioner of Internal Revenue until paid with
interests, penalties, etc. By virtue of such lien, this court held that
the property of the estate already in the hands of an heir or
transferee may be subject to the payment of the tax due the
estate. A fortiori before the inheritance has passed to the heirs,
the unpaid taxes due the decedent may be collected, even without
its having been presented under Section 2 of Rule 86 of the Rules
of Court. It may truly be said that until the property of the estate
of the decedent has vested in the heirs, the decedent, represented
by his estate, continues as if he were still alive, subject to the
payment of such taxes as would be collectible from the estate
even after his death. Thus in the case above cited, the income
taxes sought to be collected were due from the estate, for the
three years 1946, 1947 and 1948 following his death in May, 1945.
Even assuming arguendo that claims for taxes have to be filed
within the time prescribed in Section 2, Rule 86 of the Rules of
Court, the claim in question may be filed even after the expiration
of the time originally fixed therein, as may be gleaned from the
italicized portion of the Rule herein cited which reads:
Section 2. Time within which claims shall be filed. - In the notice
provided in the preceding section, the court shall state the time for
the filing of claims against the estate, which shall not be more than
twelve (12) nor less than six (6) months after the date of the first
publication of the notice. However, at any time before an order of
distribution is entered, on application of a creditor who has failed
to file his claim within the time previously limited the court may,
for cause shown and on such terms as are equitable, allow such
claim to be flied within a time not exceeding one (1)
month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for
Allowance of Claim and for an Order of Payment of Taxes) which,
though filed after the expiration of the time previously limited but
before an order of the distribution is entered, should have been
granted by the respondent court, in the absence of any valid
ground, as none was shown, justifying denial of the motion,
specially considering that it was for allowance Of claim for taxes
due from the estate, which in effect represents a claim of the
people at large, the only reason given for the denial that the claim
was filed out of the previously limited period, sustaining thereby
private respondents' contention, erroneously as has been
demonstrated.
WHEREFORE, the order appealed from is reverse. Since the Tax
Commissioner's assessment in the total amount of P3,254.80 with
5 % surcharge and 1 % monthly interest as provided in the Tax
Code is a final one and the respondent estate's sole defense of
prescription has been herein overruled, the Motion for Allowance
of Claim is herein granted and respondent estate is ordered to pay
and discharge the same, subject only to the limitation of the
interest collectible thereon as provided by the Tax Code. No
pronouncement as to costs.
SO ORDERED.
G.R. No. 106611 July 21, 1994
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and
COURT OF TAX APPEALS, respondents.
The Solicitor General for petitioner.
Palaez, Adriano & Gregorio for private respondent.
REGALADO, J.:
The judicial proceedings over the present controversy commenced
with CTA Case No. 4099, wherein the Court of Tax Appeals ordered
herein petitioner Commissioner of Internal Revenue to grant a
refund to herein private respondent Citytrust Banking Corporation
(Citytrust) in the amount of P13,314,506.14, representing its
overpaid income taxes for 1984 and 1985, but denied its claim for
the alleged refundable amount reflected in its 1983 income tax
return on the ground of prescription.1 That judgment of the tax
court was affirmed by respondent Court of Appeals in its judgment
in CA-G.R. SP
No. 26839.2 The case was then elevated to us in the present
petition for review on certiorari wherein the latter judgment is
impugned and sought to be nullified and/or set aside.
It appears that in a letter dated August 26, 1986, herein private
respondent corporation filed a claim for refund with the Bureau of
Internal Revenue (BIR) in the amount of P19,971,745.00
representing the alleged aggregate of the excess of its carried-over
total quarterly payments over the actual income tax due, plus
carried-over withholding tax payments on government securities
and rental income, as computed in its final income tax return for
the calendar year ending December 31, 1985. 3
Two days later, or on August 28, 1986, in order to interrupt the
running of the prescriptive period, Citytrust filed a petition with
the Court of Tax Appeals, docketed therein as CTA Case No. 4099,
claiming the refund of its income tax overpayments for the years
1983, 1984 and 1985 in the total amount of P19,971,745.00.4
In the answer filed by the Office of the Solicitor General, for and in
behalf of therein respondent commissioner, it was asserted that
the mere averment that Citytrust incurred a net loss in 1985 does
not ipso facto merit a refund; that the amounts of P6,611,223.00,
P1,959,514.00 and P28,238.00 claimed by Citytrust as 1983 income
tax overpayment, taxes withheld on proceeds of government
securities investments, as well as on rental income, respectively,
are not properly documented; that assuming arguendo that
petitioner is entitled to refund, the right to claim the same has
prescribed
with respect to income tax payments prior to August 28, 1984,
pursuant to Sections 292 and 295 of the National Internal Revenue
Code of 1977, as amended, since the petition was filed only on
August 28, 1986.5
On February 20, 1991, the case was submitted for decision based
solely on the pleadings and evidence submitted by herein private
respondent Citytrust. Herein petitioner could not present any
evidence by reason of the repeated failure of the Tax
Credit/Refund Division of the BIR to transmit the records of the
case, as well as the investigation report thereon, to the Solicitor
General.6
However, on June 24, 1991, herein petitioner filed with the tax
court a manifestation and motion praying for the suspension of the
proceedings in the said case on the ground that the claim of
Citytrust for tax refund in the amount of P19,971,745.00 was hereby denied on the ground of prescription. Respondent is
already being processed by the Tax Credit/Refund Division of the hereby ordered to grant a refund to petitioner Citytrust Banking
BIR, and that said bureau was only awaiting the submission by Corp. in the amount of P13,314,506.14 representing the overpaid
Citytrust of the required confirmation receipts which would show income taxes for 1984 and 1985, recomputed as follows:
whether or not the aforestated amount was actually paid and
remitted to the BIR.7 1984 Income tax due P 4,715,533.00
Less: 1984 Quarterly payments P 16,214,599.00*
Citytrust filed an opposition thereto, contending that since the 1984 Tax Credits —
Court of Tax Appeals already acquired jurisdiction over the case, it W/T on int. on gov't. sec. 1,921,245.37*
could no longer be divested of the same; and, further, that the W/T on rental inc. 26,604.30* 18,162,448.67
proceedings therein could not be suspended by the mere fact that ——————— ———————
the claim for refund was being administratively processed, Tax Overpayment (13,446,915.67)
especially where the case had already been submitted for Less: FCDU payable 150,252.00
decision. ———————
It also argued that the BIR had already conducted an audit, citing Amount refundable for 1984 P (13,296,663.67)
therefor Exhibits Y, Y-1, Y-2 and Y-3 adduced in the case, which
clearly showed that there was an overpayment of income taxes 1985 Income tax due (loss) P — 0 —
and for which a tax credit or refund was due to Citytrust. The Less: W/T on rentals 36,716.47*
Foregoing exhibits are allegedly conclusive proof of and an ———————
admission by herein petitioner that there had been an Tax Overpayment (36,716.47)*
overpayment of income taxes.8 Less: FCDU payable 18,874.00
———————
The tax court denied the motion to suspend proceedings on the Amount Refundable for 1985 P (17,842.47)
ground that the case had already been submitted for decision
since February 20, 1991.9 * Note:
Thereafter, said court rendered its decision in the case, the These credits are smaller than the claimed amount because only
decretal portion of which declares: the above figures are well supported by the various exhibits
presented during the hearing.
WHEREFORE, in view of the foregoing, petitioner is entitled to a
refund but only for the overpaid taxes incurred in 1984 and 1985. No pronouncement as to costs.
The refundable amount as shown in its 1983 income tax return is
SO ORDERED.10
The order for refund was based on the following findings of the
Court of Tax Appeals: (1) the fact of withholding has been
established by the statements and certificates of withholding taxes
accomplished by herein private respondent's withholding agents,
the authenticity of which were neither disputed nor controverted
by herein petitioner; (2) no evidence was presented which could
effectively dispute the correctness of the income tax return filed
by herein respondent corporation and other material facts stated
therein; (3) no deficiency assessment was issued by herein
petitioner; and (4) there was an audit report submitted by the BIR
Assessment Branch, recommending the refund of overpaid taxes
for the years concerned (Exhibits Y to Y-3), which enjoys the
presumption of regularity in the performance of official duty.11
A motion for the reconsideration of said decision was initially filed
by the Solicitor General on the sole ground that the statements
and certificates of taxes allegedly withheld are not conclusive
evidence of actual payment and remittance of the taxes withheld
to the BIR.12 A supplemental motion for reconsideration was
thereafter filed, wherein it was contended for the first time that
herein private respondent had outstanding unpaid deficiency
income taxes. Petitioner alleged that through an inter-office
memorandum of the Tax Credit/Refund Division, dated August 8,
1991, he came to know only lately that Citytrust had outstanding
tax liabilities for 1984 in the amount of P56,588,740.91
representing deficiency income and business taxes covered by
Demand/Assessment Notice No. FAS-1-84-003291-003296.13
Oppositions to both the basic and supplemental motions for
reconsideration were filed by private respondent
Citytrust.14 Thereafter, the Court of Tax Appeals issued a resolution
denying both motions for the reason that Section 52 (b) of the Tax
Code, as implemented by Revenue Regulation
6-85, only requires that the claim for tax credit or refund must
show that the income received was declared as part of the gross
income, and that the fact of withholding was duly established.
Moreover, with regard to the argument raised in the supplemental
motion for reconsideration anent the deficiency tax assessment
against herein petitioner, the tax court ruled that since that matter
was not raised in the pleadings, the same cannot be considered,
invoking therefor the salutary purpose of the omnibus motion rule
which is to obviate multiplicity of motions and to discourage
dilatory pleadings.15
As indicated at the outset, a petition for review was filed by herein
petitioner with respondent Court of Appeals which in due course
promulgated its decision affirming the judgment of the Court of
Tax Appeals. Petitioner eventually elevated the case to this Court,
maintaining that said respondent court erred in affirming the grant
of the claim for refund of Citytrust, considering that, firstly, said
private respondent failed to prove and substantiate its claim for
such refund; and, secondly, the bureau's findings of deficiency
income and business tax liabilities against private respondent for
the year 1984 bars such payment.16
After a careful review of the records, we find that under the
peculiar circumstances of this case, the ends of substantial justice
and public interest would be better subserved by the remand of
this case to the Court of Tax Appeals for further proceedings.
It is the sense of this Court that the BIR, represented herein by
petitioner Commissioner of Internal Revenue, was denied its day in
court by reason of the mistakes and/or negligence of its officials
and employees. It can readily be gleaned from the records that
when it was herein petitioner's turn to present evidence, several
postponements were sought by its counsel, the Solicitor General,
due to the unavailability of the necessary records which were not
transmitted by the Refund Audit Division of the BIR to said counsel,
as well as the investigation report made by the Banks/Financing
and Insurance Division of the said bureau/ despite repeated
requests.17 It was under such a predicament and in deference to
the tax court that ultimately, said records being still unavailable,
herein petitioner's counsel was constrained to submit the case for
decision on February 20, 1991 without presenting any evidence.
For that matter, the BIR officials and/or employees concerned also
failed to heed the order of the Court of Tax Appeals to remand the
records to it pursuant to Section 2, Rule 7 of the Rules of the Court
of Tax Appeals which provides that the Commissioner of Internal
Revenue and the Commissioner of Customs shall certify and
forward to the Court of Tax Appeals, within ten days after filing his
answer, all the records of the case in his possession, with the
pages duly numbered, and if the records are in separate folders,
then the folders shall also be numbered.
The aforestated impassé came about due to the fact that, despite
the filing of the aforementioned initiatory petition in CTA Case No.
4099 with the Court of Tax Appeals, the Tax Refund Division of the
BIR still continued to act administratively on the claim for refund
previously filed therein, instead of forwarding the records of the
case to the Court of Tax Appeals as ordered.18
It is a long and firmly settled rule of law that the Government is
not bound by the errors committed by its agents.19 In the
performance of its governmental functions, the State cannot be
estopped by the neglect of its agent and officers. Although the
Government may generally be estopped through the affirmative
acts of public officers acting within their authority, their neglect or
omission of public duties as exemplified in this case will not and
should not produce that effect.
Nowhere is the aforestated rule more true than in the field of
taxation.20 It is axiomatic that the Government cannot and must
not be estopped particularly in matters involving taxes. Taxes are
the lifeblood of the nation through which the government
agencies continue to operate and with which the State effects its
functions for the welfare of its constituents. 21 The errors of certain
administrative officers should never be allowed to jeopardize the
Government's financial position,22 especially in the case at bar
where the amount involves millions of pesos the collection
whereof, if justified, stands to be prejudiced just because of
bureaucratic lethargy.
Further, it is also worth nothing that the Court of Tax Appeals
erred in denying petitioner's supplemental motion for
reconsideration alleging bringing to said court's attention the
existence of the deficiency income and business tax assessment
against Citytrust. The fact of such deficiency assessment is
intimately related to and inextricably intertwined with the right of
respondent bank to claim for a tax refund for the same year. To
award such refund despite the existence of that deficiency
assessment is an absurdity and a polarity in conceptual effects.
Herein private respondent cannot be entitled to refund and at the
same time be liable for a tax deficiency assessment for the same
year.
The grant of a refund is founded on the assumption that the tax
return is valid, that is, the facts stated therein are true and correct.
The deficiency assessment, although not yet final, created a doubt
as to and constitutes a challenge against the truth and accuracy of
the facts stated in said return which, by itself and without
unquestionable evidence, cannot be the basis for the grant of the
refund.
Section 82, Chapter IX of the National Internal Revenue Code of
1977, which was the applicable law when the claim of Citytrust
was filed, provides that "(w)hen an assessment is made in case of
any list, statement, or return, which in the opinion of the
Commissioner of Internal Revenue was false or fraudulent or
contained any understatement or undervaluation, no tax collected
under such assessment shall be recovered by any suits unless it is
proved that the said list, statement, or return was not false nor
fraudulent and did not contain any understatement or
undervaluation; but this provision shall not apply to statements or
returns made or to be made in good faith regarding annual
depreciation of oil or gas wells and mines."
Moreover, to grant the refund without determination of the
proper assessment and the tax due would inevitably result in
multiplicity of proceedings or suits. If the deficiency assessment
should subsequently be upheld, the Government will be forced to
institute anew a proceeding for the recovery of erroneously
refunded taxes which recourse must be filed within the
prescriptive period of ten years after discovery of the falsity, fraud
or omission in the false or fraudulent return involved.23 This would
necessarily require and entail additional efforts and expenses on
the part of the Government, impose a burden on and a drain of
government funds, and impede or delay the collection of
much-needed revenue for governmental operations.
Thus, to avoid multiplicity of suits and unnecessary difficulties or
expenses, it is both logically necessary and legally appropriate that
the issue of the deficiency tax assessment against Citytrust be
resolved jointly with its claim for tax refund, to determine once
and for all in a single proceeding the true and correct amount of
tax due or refundable.
In fact, as the Court of Tax Appeals itself has heretofore
conceded, 24 it would be only just and fair that the taxpayer and
the Government alike be given equal opportunities to avail of
remedies under the law to defeat each other's claim and to
determine all matters of dispute between them in one single case.
It is important to note that in determining whether or not
petitioner is entitled to the refund of the amount paid, it would
necessary to determine how much the Government is entitled to
collect as taxes. This would necessarily include the determination
of the correct liability of the taxpayer and, certainly, a
determination of this case would constitute res judicata on both
parties as to all the matters subject thereof or necessarily involved
therein.
The Court cannot end this adjudication without observing that
what caused the Government to lose its case in the tax court may
hopefully be ascribed merely to the ennui or ineptitude of
officialdom, and not to syndicated intent or corruption. The
evidential cul-de-sac in which the Solicitor General found himself
once again gives substance to the public perception and suspicion
that it is another proverbial tip in the iceberg of venality in a
government bureau which is pejoratively rated over the years.
What is so distressing, aside from the financial losses to the
Government, is the erosion of trust in a vital institution wherein
the reputations of so many honest and dedicated workers are
besmirched by the acts or omissions of a few. Hence, the liberal
view we have here taken pro hac vice, which may give some
degree of assurance that this Court will unhesitatingly react to any
bane in the government service, with a replication of such
response being likewise expected by the people from the
executive authorities.
WHEREFORE, the judgment of respondent Court of Appeals in
CA-G.R. SP No. 26839 is hereby SET ASIDE and the case at bar is
REMANDED to the Court of Tax Appeals for further proceedings
and appropriate action, more particularly, the reception of
evidence for petitioner and the corresponding disposition of CTA
Case No. 4099 not otherwise inconsistent with our adjudgment
herein.
SO ORDERED.
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance On the other hand, such
collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is
therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good,
may be achieved.
The main issue in this case is whether or not the Collector of
Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by private respondent Algue as legitimate business
expenses in its income tax returns. The corollary issue is whether
or not the appeal of the private respondent from the decision of
the Collector of Internal Revenue was made on time and in
accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent,
a domestic corporation engaged in engineering, construction and
other allied activities, received a letter from the petitioner
assessing it in the total amount of P83,183.85 as delinquency
income taxes for the years 1958 and 1959.1 On January 18, 1965,
Algue flied a letter of protest or request for reconsideration, which
letter was stamp received on the same day in the office of the
petitioner. 2 On March 12, 1965, a warrant of distraint and levy
was presented to the private respondent, through its counsel, Atty.
Alberto Guevara, Jr., who refused to receive it on the ground of
the pending protest. 3 A search of the protest in the dockets of the
case proved fruitless. Atty. Guevara produced his file copy and
gave a photostat to BIR agent Ramon Reyes, who deferred service
of the warrant. 4 On April 7, 1965, Atty. Guevara was finally
informed that the BIR was not taking any action on the protest and
it was only then that he accepted the warrant of distraint and levy
earlier sought to be served.5 Sixteen days later, on April 23, 1965,
Algue filed a petition for review of the decision of the
Commissioner of Internal Revenue with the Court of Tax Appeals.6
The above chronology shows that the petition was filed seasonably.
According to Rep. Act No. 1125, the appeal may be made within
thirty days after receipt of the decision or ruling challenged. 7 It is
true that as a rule the warrant of distraint and levy is "proof of the
finality of the assessment" 8 and renders hopeless a request for
reconsideration," 9 being "tantamount to an outright denial
thereof and makes the said request deemed rejected." 10 But there
is a special circumstance in the case at bar that prevents
application of this accepted doctrine.
The proven fact is that four days after the private respondent
received the petitioner's notice of assessment, it filed its letter of
protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest
could not be located in the office of the petitioner. It was only
after Atty. Guevara gave the BIR a copy of the protest that it was, if
at all, considered by the tax authorities. During the intervening
period, the warrant was premature and could therefore not be
served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by
private respondent was not pro forma and was based on strong
legal considerations. It thus had the effect of suspending on
January 18, 1965, when it was filed, the reglementary period which
started on the date the assessment was received, viz., January 14,
1965. The period started running again only on April 7, 1965, when
the private respondent was definitely informed of the implied
rejection of the said protest and the warrant was finally served on
it. Hence, when the appeal was filed on April 23, 1965, only 20
days of the reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00
was properly disallowed because it was not an ordinary reasonable
or necessary business expense. The Court of Tax Appeals had seen
it differently. Agreeing with Algue, it held that the said amount had
been legitimately paid by the private respondent for actual
services rendered. The payment was in the form of promotional
fees. These were collected by the Payees for their work in the
creation of the Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of the properties of the
Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had
Originally claimed these promotional fees to be personal holding
company income 12 but later conformed to the decision of the
respondent court rejecting this assertion.13 In fact, as the said
court found, the amount was earned through the joint efforts of
the persons among whom it was distributed It has been
established that the Philippine Sugar Estate Development
Company had earlier appointed Algue as its agent, authorizing it to
sell its land, factories and oil manufacturing process. Pursuant to
such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel
Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the
formation of the Vegetable Oil Investment Corporation, inducing
other persons to invest in it.14 Ultimately, after its incorporation
largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties. 15 For this sale, Algue
received as agent a commission of P126,000.00, and it was from
this commission that the P75,000.00 promotional fees were paid
to the aforenamed individuals.16
There is no dispute that the payees duly reported their respective
shares of the fees in their income tax returns and paid the
corresponding taxes thereon.17 The Court of Tax Appeals also
found, after examining the evidence, that no distribution of
dividends was involved.18
The petitioner claims that these payments are fictitious because
most of the payees are members of the same family in control of
Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is
not enough substantiation of such payments. In short, the
petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private
respondent when its President, Alberto Guevara, and the
accountant, Cecilia V. de Jesus, testified that the payments were
not made in one lump sum but periodically and in different
amounts as each payee's need arose. 19 It should be remembered
that this was a family corporation where strict business procedures
were not applied and immediate issuance of receipts was not
required. Even so, at the end of the year, when the books were to
be closed, each payee made an accounting of all of the fees
received by him or her, to make up the total of
P75,000.00. 20 Admittedly, everything seemed to be informal. This
arrangement was understandable, however, in view of the close
relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the
promotional fees was not excessive. The total commission paid by
the Philippine Sugar Estate Development Co. to the private
respondent was P125,000.00. 21After deducting the said fees,
Algue still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it
was the payees who did practically everything, from the formation
of the Vegetable Oil Investment Corporation to the actual
purchase by it of the Sugar Estate properties. This finding of the
respondent court is in accord with the following provision of the
Tax Code:
SEC. 30. Deductions from gross income.--In computing net income
there shall be allowed as deductions —
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or
business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary
and necessary expenses paid or incurred in carrying on any trade
or business may be included a reasonable allowance for salaries or
other compensation for personal services actually rendered. The
test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for
service. This test and deductibility in the case of compensation
payments is whether they are reasonable and are, in fact,
payments purely for service. This test and its practical application
may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as
the purchase price of services, is not deductible. (a) An ostensible
salary paid by a corporation may be a distribution of a dividend on
stock. This is likely to occur in the case of a corporation having few
stockholders, Practically all of whom draw salaries. If in such a case
the salaries are in excess of those ordinarily paid for similar
services, and the excessive payment correspond or bear a close
relationship to the stockholdings of the officers of employees, it
would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of
earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G.
No. 18, 325.)
It is worth noting at this point that most of the payees were not in
the regular employ of Algue nor were they its controlling
stockholders. 23
The Solicitor General is correct when he says that the burden is on
the taxpayer to prove the validity of the claimed deduction. In the
present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment
of the fees was necessary and reasonable in the light of the efforts
exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve
themselves in a new business requiring millions of pesos. This was
no mean feat and should be, as it was, sufficiently recompensed.
It is said that taxes are what we pay for civilization society.
Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one's hard earned income
to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The
government for its part, is expected to respond in the form of
tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This
symbiotic relationship is the rationale of taxation and should dispel
the erroneous notion that it is an arbitrary method of exaction by
those in the seat of power.
But even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not
been observed.
We hold that the appeal of the private respondent from the
decision of the petitioner was filed on time with the respondent
court in accordance with Rep. Act No. 1125. And we also find that
the claimed deduction by the private respondent was permitted
under the Internal Revenue Code and should therefore not have
been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals
is AFFIRMED in toto, without costs.
SO ORDERED.
G.R. No. 124043 October 14, 1998
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S
CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC., respondents.
PANGANIBAN, J.:
Is the income derived from rentals of real property owned by the
Young Men's Christian Association of the Philippines, Inc. (YMCA)
— established as "a welfare, educational and charitable non-profit
corporation" — subject to income tax under the National Internal
Revenue Code (NIRC) and the Constitution?
The Case
This is the main question raised before us in this petition for
review on certiorari challenging two Resolutions issued by the
Court of Appeals1 on September 28, 19952 and February 29,
19963 in CA-GR SP No. 32007. Both Resolutions affirmed the
Decision of the Court of Tax Appeals (CTA) allowing the YMCA to
claim tax exemption on the latter's income from the lease of its
real property.
The Facts
The facts are undisputed.4 Private Respondent YMCA is a
non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public,
especially the young people, pursuant to its religious, educational
and charitable objectives.
In 1980, private respondent earned, among others, an income of
P676,829.80 from leasing out a portion of its premises to small
shop owners, like restaurants and canteen operators, and
P44,259.00 from parking fees collected from non-members. On
July 2, 1984, the commissioner of internal revenue (CIR) issued an
assessment to private respondent, in the total amount of
P415,615.01 including surcharge and interest, for deficiency
income tax, deficiency expanded withholding taxes on rentals
and professional fees and deficiency withholding tax on wages.
Private respondent formally protested the assessment and, as a
supplement to its basic protest, filed a letter dated October 8,
1985. In reply, the CIR denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a petition for
review at the Court of Tax Appeals (CTA) on March 14, 1989. In
due course, the CTA issued this ruling in favor of the YMCA:
. . . [T]he leasing of [private respondent's] facilities to small shop
owners, to restaurant and canteen operators and the operation
of the parking lot are reasonably incidental to and reasonably
necessary for the accomplishment of the objectives of the
[private respondents]. It appears from the testimonies of the
witnesses for the [private respondent] particularly Mr. James C.
Delote, former accountant of YMCA, that these facilities were
leased to members and that they have to service the needs of its
members and their guests. The rentals were minimal as for
example, the barbershop was only charged P300 per month. He xxx xxx xxx
also testified that there was actually no lot devoted for parking
space but the parking was done at the sides of the building. The WHEREFORE, in view of all the foregoing, the following
parking was primarily for members with stickers on the assessments are hereby dismissed for lack of merit:
windshields of their cars and they charged P.50 for non-members.
The rentals and parking fees were just enough to cover the costs 1980 Deficiency Fixed Tax — P353,15;
of operation and maintenance only. The earning[s] from these
rentals and parking charges including those from lodging and 1980 Deficiency Contractor's Tax — P3,129.23;
other charges for the use of the recreational facilities constitute
[the] bulk of its income which [is] channeled to support its many 1980 Deficiency Income Tax — P372,578.20.
activities and attainment of its objectives. As pointed out earlier,
the membership dues are very insufficient to support its program. While the following assessments are hereby sustained:
We find it reasonably necessary therefore for [private
respondent] to make [the] most out [of] its existing facilities to
1980 Deficiency Expanded Withholding Tax — P1,798.93;
earn some income. It would have been different if under the
circumstances, [private respondent] will purchase a lot and
1980 Deficiency Withholding Tax on Wages — P33,058.82
convert it to a parking lot to cater to the needs of the general
public for a fee, or construct a building and lease it out to the
plus 10% surcharge and 20% interest per annum from July 2, 1984
highest bidder or at the market rate for commercial purposes, or
until fully paid but not to exceed three (3) years pursuant to
should it invest its funds in the buy and sell of properties, real or
Section 51(e)(2) & (3) of the National Internal Revenue Code
personal. Under these circumstances, we could conclude that the
effective as of 1984. 5
activities are already profit oriented, not incidental and
reasonably necessary to the pursuit of the objectives of the
Dissatisfied with the CTA ruling, the CIR elevated the case to the
association and therefore, will fall under the last paragraph of
Court of Appeals (CA). In its Decision of February 16, 1994, the
Section 27 of the Tax Code and any income derived therefrom
CA6 initially decided in favor of the CIR and disposed of the
shall be taxable.
appeal in the following manner:
Considering our findings that [private respondent] was not
Following the ruling in the afore-cited cases of Province of Abra
engaged in the business of operating or contracting [a] parking
vs. Hernando and Abra Valley College Inc. vs. Aquino, the ruling
lot, we find no legal basis also for the imposition of [a] deficiency
of the respondent Court of Tax Appeals that "the leasing of
fixed tax and [a] contractor's tax in the amount[s] of P353.15 and
petitioner's (herein respondent's) facilities to small shop owners,
P3,129.73, respectively.
to restaurant and canteen operators and the operation of the
parking lot are reasonably incidental to and reasonably necessary
for the accomplishment of the objectives of the petitioners, and
the income derived therefrom are tax exempt, must be reversed.
WHEREFORE, the appealed decision is hereby REVERSED in so far
as it dismissed the assessment for:
1980 Deficiency Income Tax P 353.15
1980 Deficiency Contractor's Tax P 3,129.23, &
1980 Deficiency Income Tax P 372,578.20
but the same is AFFIRMED in all other respect. 7
Aggrieved, the YMCA asked for reconsideration based on the
following grounds:
I The Court, therefore, finds the second ground of the motion to be
The findings of facts of the Public Respondent Court of Tax
Appeals being supported by substantial evidence [are] final and
conclusive.
II
The conclusions of law of [p]ublic [r]espondent exempting
[p]rivate [r]espondent from the income on rentals of small shops
and parking fees [are] in accord with the applicable law and
jurisprudence. 8
Finding merit in the Motion for Reconsideration filed by the
YMCA, the CA reversed itself and promulgated on September 28,
1995 its first assailed Resolution which, in part, reads:
The Court cannot depart from the CTA's findings of fact, as they
are supported by evidence beyond what is considered as
substantial.
xxx xxx xxx
The second ground raised is that the respondent CTA did not err
in saying that the rental from small shops and parking fees do not
result in the loss of the exemption. Not even the petitioner would
hazard the suggestion that YMCA is designed for profit.
Consequently, the little income from small shops and parking
fees help[s] to keep its head above the water, so to speak, and
allow it to continue with its laudable work.
meritorious and in accord with law and jurisprudence.
WHEREFORE, the motion for reconsideration is GRANTED; the
respondent CTA's decision is AFFIRMED in toto.9
The internal revenue commissioner's own Motion for
Reconsideration was denied by Respondent Court in its second
assailed Resolution of February 29, 1996. Hence, this petition for
review under Rule 45 of the Rules of Court. 10
The Issues
Before us, petitioner imputes to the Court of Appeals the
following errors:
I
In holding that it had departed from the findings of fact of
Respondent Court of Tax Appeals when it rendered its Decision
dated February 16, 1994; and
II
In affirming the conclusion of Respondent Court of Tax Appeals
that the income of private respondent from rentals of small
shops and parking fees [is] exempt from taxation. 11
This Court's Ruling
The petition is meritorious.
First Issue:
Factual Findings of the CTA
Private respondent contends that the February 16, 1994 CA
Decision reversed the factual findings of the CTA. On the other
hand, petitioner argues that the CA merely reversed the
"ruling of the CTA that the leasing of private respondent's
facilities to small shop owners, to restaurant and canteen
operators and the operation of parking lots are reasonably
incidental to and reasonably necessary for the accomplishment of
the objectives of the private respondent and that the income
derived therefrom are tax exempt." 12 Petitioner insists that what
the appellate court reversed was the legal conclusion, not the
factual finding, of the CTA. 13The commissioner has a point.
Indeed, it is a basic rule in taxation that the factual findings of the
CTA, when supported by substantial evidence, will be disturbed
on appeal unless it is shown that the said court committed gross
error in the appreciation of facts. 14 In the present case, this Court
finds that the February 16, 1994 Decision of the CA did not
deviate from this rule. The latter merely applied the law to the
facts as found by the CTA and ruled on the issue raised by the CIR:
"Whether or not the collection or earnings of rental income from
the lease of certain premises and income earned from parking
fees shall fall under the last paragraph of Section 27 of the
National Internal Revenue Code of 1977, as amended." 15
Clearly, the CA did not alter any fact or evidence. It merely
resolved the aforementioned issue, as indeed it was expected to.
That it did so in a manner different from that of the CTA did not
necessarily imply a reversal of factual findings.
The distinction between a question of law and a question of fact
is clear-cut. It has been held that "[t]here is a question of law in a
given case when the doubt or difference arises as to what the law
is on a certain state of facts; there is a question of fact when the
doubt or difference arises as to the truth or falsehood of alleged
facts." 16 In the present case, the CA did not doubt, much less
change, the facts narrated by the CTA. It merely applied the law
to the facts. That its interpretation or conclusion is different from
that of the CTA is not irregular or abnormal.
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental income of the
YMCA from its real estate subject to tax? At the outset, we set
forth the relevant provision of the NIRC:
Sec. 27. Exemptions from tax on corporations. — The following
organizations shall not be taxed under this Title in respect to
income received by them as such —
xxx xxx xxx
(g) Civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare;
(h) Club organized and operated exclusively for pleasure,
recreation, and other non-profitable purposes, no part of the net
income of which inures to the benefit of any private stockholder
or member;
xxx xxx xxx
Notwithstanding the provisions in the preceding paragraphs, the
income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or
from any of their activities conducted for profit, regardless of the
disposition made of such income, shall be subject to the tax
imposed under this Code. (as amended by Pres. Decree No. 1457)
Petitioner argues that while the income received by the
organizations enumerated in Section 27 (now Section 26) of the
NIRC is, as a rule, exempted from the payment of tax "in respect
to income received by them as such," the exemption does not
apply to income derived ". . . from any of their properties, real or
personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income . . . ."
Petitioner adds that "rental income derived by a tax-exempt
organization from the lease of its properties, real or personal, [is]
not, therefore, exempt from income taxation, even if such
income [is] exclusively used for the accomplishment of its
objectives." 17 We agree with the commissioner.
Because taxes are the lifeblood of the nation, the Court has
always applied the doctrine of strict in interpretation in
construing tax exemptions. 18 Furthermore, a claim of statutory
exemption from taxation should be manifest. and unmistakable
from the language of the law on which it is based. Thus, the
claimed exemption "must expressly be granted in a statute
stated in a language too clear to be mistaken." 19
In the instant case, the exemption claimed by the YMCA is
expressly disallowed by the very wording of the last paragraph of
then Section 27 of the NIRC which mandates that the income of
exempt organizations (such as the YMCA) from any of their
properties, real or personal, be subject to the tax imposed by the
same Code. Because the last paragraph of said section
unequivocally subjects to tax the rent income of the YMCA from
its real property, 20 the Court is duty-bound to abide strictly by its
literal meaning and to refrain from resorting to any convoluted
attempt at construction.
It is axiomatic that where the language of the law is clear and
unambiguous, its express terms must be
applied. 21 Parenthetically, a consideration of the question of
construction must not even begin, particularly when such
question is on whether to apply a strict construction or a liberal
one on statutes that grant tax exemptions to "religious,
charitable and educational propert[ies] or institutions." 22
The last paragraph of Section 27, the YMCA argues, should be
"subject to the qualification that the income from the properties
must arise from activities 'conducted for profit' before it may be
considered taxable." 23This argument is erroneous. As previously
stated, a reading of said paragraph ineludibly shows that the
income from any property of exempt organizations, as well as
that arising from any activity it conducts for profit, is taxable. The
phrase "any of their activities conducted for profit" does not
qualify the word "properties." This makes from the property of
the organization taxable, regardless of how that income is used
— whether for profit or for lofty non-profit purposes.
Verba legis non est recedendum. Hence, Respondent Court of
Appeals committed reversible error when it allowed, on
reconsideration, the tax exemption claimed by YMCA on income
it derived from renting out its real property, on the solitary but
unconvincing ground that the said income is not collected for
profit but is merely incidental to its operation. The law does not
make a distinction. The rental income is taxable regardless of
whence such income is derived and how it is used or disposed of.
Where the law does not distinguish, neither should we.
Constitutional Provisions
On Taxation
Invoking not only the NIRC but also the fundamental law, private
respondent submits that Article VI, Section 28 of par. 3 of the
1987 Constitution, 24 exempts "charitable institutions" from the
payment not only of property taxes but also of income tax from
any source. 25 In support of its novel theory, it compares the use
of the words "charitable institutions," "actually" and "directly" in
the 1973 and the 1987 Constitutions, on the one hand; and in
Article VI, Section 22, par. 3 of the 1935 Constitution, on the
other hand. 26
Private respondent enunciates three points. First, the present
provision is divisible into two categories: (1) "[c]haritable
institutions, churches and parsonages or convents appurtenant
thereto, mosques and non-profit cemeteries," the incomes of
which are, from whatever source, all tax-exempt; 27 and (2) "[a]ll
lands, buildings and improvements actually and directly used for
religious, charitable or educational purposes," which are exempt
only from property taxes. 28 Second, Lladoc v. Commissioner of
Internal Revenue, 29which limited the exemption only to the
payment of property taxes, referred to the provision of the 1935
Constitution and not to its counterparts in the 1973 and the 1987
Constitutions. 30 Third, the phrase "actually, directly and
exclusively used for religious, charitable or educational purposes"
refers not only to "all lands, buildings and improvements," but
also to the above-quoted first category which includes charitable
institutions like the private respondent. 31
The Court is not persuaded. The debates, interpellations and
expressions of opinion of the framers of the Constitution reveal
their intent which, in turn, may have guided the people in
ratifying the Charter. 32 Such intent must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional
commissioner, who is now a member of this Court, stressed
during the Concom debates that ". . . what is exempted is not the
institution itself . . .; those exempted from real estate taxes are
lands, buildings and improvements actually, directly and
exclusively used for religious, charitable or educational
purposes." 33 Father Joaquin G. Bernas, an eminent authority on
the Constitution and also a member of the Concom, adhered to
the same view that the exemption created by said provision
pertained only to property taxes. 34
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs,
stating that "[t]he tax exemption coversproperty taxes
only." 35 Indeed, the income tax exemption claimed by private
respondent finds no basis in Article VI, Section 26, par. 3 of the
Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3 of
the Character, 36 claiming that the YMCA "is a non-stock,
non-profit educational institution whose revenues and assets are
used actually, directly and exclusively for educational purposes
so it is exempt from taxes on its properties and income." 37 We
reiterate that private respondent is exempt from the payment of
property tax, but not income tax on the rentals from its property.
The bare allegation alone that it is a non-stock, non-profit
educational institution is insufficient to justify its exemption from
the payment of income tax.
As previously discussed, laws allowing tax exemption are
construed strictissimi juris. Hence, for the YMCA to be granted
the exemption it claims under the aforecited provision, it must
prove with substantial evidence that (1) it falls under the
classification non-stock, non-profit educational institution; and (2)
the income it seeks to be exempted from taxation is
used actually, directly, and exclusively for educational purposes.
However, the Court notes that not a scintilla of evidence was
submitted by private respondent to prove that it met the said
requisites.
Is the YMCA an educational institution within the purview of
Article XIV, Section 4, par. 3 of the Constitution? We rule that it is
not. The term "educational institution" or "institution of
learning" has acquired a well-known technical meaning, of which
the members of the Constitutional Commission are deemed
cognizant. 38 Under the Education Act of 1982, such term refers to
schools. 39 The school system is synonymous with formal
education, 40 which "refers to the hierarchically structured and
chronologically graded learnings organized and provided by the
formal school system and for which certification is required in
order for the learner to progress through the grades or move to
the higher levels." 41 The Court has examined the "Amended
Articles of Incorporation" and "By-Laws"43 of the YMCA, but
found nothing in them that even hints that it is a school or an
educational institution. 44
Furthermore, under the Education Act of 1982, even non-formal
education is understood to be school-based and "private auspices
such as foundations and civic-spirited organizations" are ruled
out. 45 It is settled that the term "educational institution," when
used in laws granting tax exemptions, refers to a ". . . school
seminary, college or educational establishment . . . ." 46 Therefore,
the private respondent cannot be deemed one of the educational
institutions covered by the constitutional provision under
consideration.
. . . Words used in the Constitution are to be taken in their
ordinary acceptation. While in its broadest and best sense
education embraces all forms and phases of instruction,
improvement and development of mind and body, and as well of
religious and moral sentiments, yet in the common
understanding and application it means a place where systematic
instruction in any or all of the useful branches of learning is given
by methods common to schools and institutions of learning. That
we conceive to be the true intent and scope of the term
[educational institutions,] as used in the
Constitution. 47
Moreover, without conceding that Private Respondent YMCA is
an educational institution, the Court also notes that the former
did not submit proof of the proportionate amount of the subject
income that was actually, directly and exclusively used for
educational purposes. Article XIII, Section 5 of the YMCA by-laws,
which formed part of the evidence submitted, is patently
insufficient, since the same merely signified that "[t]he net
income derived from the rentals of the commercial buildings shall
be apportioned to the Federation and Member Associations as
the National Board may decide." 48 In sum, we find no basis for
granting the YMCA exemption from income tax under the
constitutional provision invoked.
Cases Cited by Private
Respondent Inapplicable
49
The cases relied on by private respondent do not support its
cause. YMCA of Manila v. Collector of Internal
Revenue 50 and Abra Valley College, Inc. v. Aquino 51 are not
applicable, because the controversy in both cases involved
exemption from the payment of property tax, not income
tax. Hospital de San Juan de Dios, Inc. v. Pasay City 52 is not in
point either, because it involves a claim for exemption from the
payment of regulatory fees, specifically electrical inspection fees,
imposed by an ordinance of Pasay City — an issue not at all
related to that involved in a claimed exemption from the
payment of income taxes imposed on property leases. In Jesus
Sacred Heart College v. Com. of Internal Revenue, 53 the party
therein, which claimed an exemption from the payment of
income tax, was an educational institution which submitted
substantial evidence that the income subject of the controversy
had been devoted or used solely for educational purposes. On
the other hand, the private respondent in the present case has
not given any proof that it is an educational institution, or that
part of its rent income is actually, directly and exclusively used
for educational purposes.
Epilogue
In deliberating on this petition, the Court expresses its sympathy
with private respondent. It appreciates the nobility of its cause.
However, the Court's power and function are limited merely to
applying the law fairly and objectively. It cannot change the law
or bend it to suit its sympathies and appreciations. Otherwise, it
would be overspilling its role and invading the realm of
legislation.
We concede that private respondent deserves the help and the
encouragement of the government. It needs laws that can
facilitate, and not frustrate, its humanitarian tasks. But the Court
regrets that, given its limited constitutional authority, it cannot
rule on the wisdom or propriety of legislation. That prerogative
belongs to the political departments of government. Indeed,
some of the members of the Court may even believe in the
wisdom and prudence of granting more tax exemptions to
private respondent. But such belief, however well-meaning and
sincere, cannot bestow upon the Court the power to change or
amend the law.
WHEREFORE, the petition is GRANTED. The Resolutions of the
Court of Appeals dated September 28, 1995 and February 29,
1996 are hereby REVERSED and SET ASIDE. The Decision of the
Court of Appeals dated February 16, 1995 is REINSTATED, insofar
as it ruled that the income derived by petitioner from rentals of
its real property is subject to income tax. No pronouncement as
to costs.
SO ORDERED.
Lumber Corporation v. CIR
G.R. No. 117359 July 23, 1998
PANGANIBAN, J
Lessons Applicable: tax exemption should be construed
strictissimi juris against the grantee, equity is not a ground for tax
exemption
Laws Applicable:
FACTS:
 Davao Gulf Lumber Corporation, a licensed forest
concessionaire possessing a Timber License Agreement
granted by the Ministry of Natural Resources (Now DENR),
purchased from various oil companies refined and
FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS,
manufactured oils as well as motor and diesel fuels for its
THE COMMISSIONER OF THE BUREAU OF INTERNAL
exploitation and operation.
REVENUE and HERMINIA D. DE GUZMAN, respondents.
 Selling companies paid and passed the specific taxes
imposed under Sec. 153 and 156 of the 1997 NIRC to
petitioner as purchaser who in turn filed before CIR a Claim DECISION
for Refund for P120, 825 representing 25% of the specific TORRES, JR., J.:
taxes actually paid based on Insular Lumber Co. v. CTA and Sec.
5 of RA 1435 and complied with its procedure. In this Petition for Review on Certiorari, Government action is
 Then, petitioner filed before CA a Petition for Review: once again assailed as precipitate and unfair, suffering the basic
Favored petitioner to a partial refund P2,923 (excluding those and oftly implored requisites of due process of law.Specifically, the
that have prescribed) and based on the rates deemed paid petition assails the Decision[1] of the Court of Appeals dated
under RA 1435 (NOT higher rates actually paid under the November 29, 1994 in CA-G.R. SP No. 31363, where the said court
NIRC) held:
 Insisting that the basis be the higher rate, petitioner
elevated the case to the CTA who affirmed the CA's decision
"In view of all the foregoing, we rule that the deficiency income tax
ISSUE: W/N the basis should be the higher rates prescribed by Sec.
assessments and estate tax assessment, are already final and
153 and 156 of the 1997 NIRC
(u)nappealable -and- the subsequent levy of real properties is a tax
remedy resorted to by the government, sanctioned by Section 213
HELD: NO. A tax cannot be imposed unless it is supported by the
and 218 of the National Internal Revenue Code. This summary tax
clear and express language of a statute; On the other hand, once
remedy is distinct and separate from the other tax remedies (such
the tax is unquestionably imposed, a claim of exemption from tax
as Judicial Civil actions and Criminal actions), and is not affected or
payments must be clearly shown and based on language in the law
precluded by the pendency of any other tax remedies instituted by
too plain to be mistaken. Section 5, RA 1435 as a tax exemption,
the government.
must be construed strictissimi juris against the grantee.
WHEREFORE, premises considered, judgment is hereby rendered
 Supported by CIR v. CA and Atlas Co., CIR v. Rio Tuba
Nickel Mining Corp. and Insular Lumber Co. - all cases where DISMISSING the petition for certiorari with prayer for Restraining
Order and Injunction.
purchases was made BEFORE 1997 NIRC is in effect.
 According to an eminent authority on taxation, there is no
tax exemption solely on the ground of equity No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the late Ferdinand
E. Marcos, the former President of the Republic of the Philippines,
the matter of the settlement of his estate, and its dues to the
government in estate taxes, are still unresolved, the latter issue
being now before this Court for resolution. Specifically, petitioner
Ferdinand R. Marcos II, the eldest son of the decedent, questions
the actuations of the respondent Commissioner of Internal
Revenue in assessing, and collecting through the summary remedy
of Levy on Real Properties, estate and income tax delinquencies
upon the estate and properties of his father, despite the pendency
of the proceedings on probate of the will of the late president,
which is docketed as Sp. Proc. No. 10279 in the Regional Trial
Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a
Petition for Certiorari and Prohibition with an application for writ
of preliminary injunction and/or temporary restraining order on
June 28, 1993, seeking to -
I. Annul and set aside the Notices of Levy on real property dated
February 22, 1993 and May 20, 1993, issued by respondent
Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II
(Collection Service), from proceeding with the Auction of the real
properties covered by Notices of Sale.
After the parties had pleaded their case, the Court of Appeals
rendered its Decision[2] on November 29, 1994, ruling that the
deficiency assessments for estate and income tax made upon the
petitioner and the estate of the deceased President Marcos have
already become final and unappealable, and may thus be enforced
by the summary remedy of levying upon the properties of the late
President, as was done by the respondent Commissioner of
Internal Revenue.
"WHEREFORE, premises considered judgment is hereby rendered
DISMISSING the petition for Certiorari with prayer for Restraining
Order and Injunction.
No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing the validity
of the appellate court's decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT
THE SUMMARY TAX REMEDIES RESORTED TO BY THE
GOVERNMENT ARE NOT AFFECTED AND PRECLUDED BY THE
PENDENCY OF THE SPECIAL PROCEEDING FOR THE ALLOWANCE OF
THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS
PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH
FORM PART OF THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS
OF THE PROBATE COURT TO THE EXCLUSION OF ALL OTHER
COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY
DECIDING THAT SINCE THE TAX ASSESSMENTS OF PETITIONER AND
HIS PARENTS HAD ALREADY BECOME FINAL AND UNAPPEALABLE,
THERE WAS NO NEED TO GO INTO THE MERITS OF THE GROUNDS
CITED IN THE PETITION. INDEPENDENT OF WHETHER THE TAX
ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER,
PETITIONER HAS THE RIGHT TO QUESTION THE UNLAWFUL
MANNER AND METHOD IN WHICH TAX COLLECTION IS SOUGHT TO
BE ENFORCED BY RESPONDENTS COMMISSIONER AND DE
GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY
CONSIDERED THE MERITS OF THE FOLLOWING GROUNDS IN THE
PETITION:
(1) The Notices of Levy on Real Property were issued beyond
the period provided in the Revenue Memorandum Circular
No. 38-68.
(2) [a] The numerous pending court cases questioning the
late President's ownership or interests in several properties
(both personal and real) make the total value of his estate,
and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents
assessment of the estate tax and their issuance of the
Notices of Levy and Sale are premature, confiscatory and
oppressive.
[b] Petitioner, as one of the late President's compulsory heirs,
was never notified, much less served with copies of the
Notices of Levy, contrary to the mandate of Section 213 of
the NIRC. As such, petitioner was never given an opportunity
to contest the Notices in violation of his right to due process
of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION,
RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT IT HAD
NO POWER TO GRANT INJUNCTIVE RELIEF TO
PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING,
COURTS POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY
INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S AND
DE GUZMAN'S ARBITRARY METHOD OF COLLECTING THE ALLEGED
DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and
are hereby adopted:
"On September 29, 1989, former President Ferdinand Marcos died
in Honolulu, Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct
investigations and examinations of the tax liabilities and
obligations of the late president, as well as that of his family,
associates and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26, 1991. The
investigation disclosed that the Marcoses failed to file a written
notice of the death of the decedent, an estate tax returns [sic], as
well as several income tax returns covering the years 1982 to 1986,
-all in violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R.
Marcos before the Regional Trial of Quezon City for violations of
Sections 82, 83 and 84 (has penalized under Sections 253 and 254
in relation to Section 252- a & b) of the National Internal Revenue
Code (NIRC).
The Commissioner of Internal Revenue thereby caused the
preparation and filing of the Estate Tax Return for the estate of the
late president, the Income Tax Returns of the Spouses Marcos for
the years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to
1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate
tax assessment no. FAC-2-89-91-002464 (against the estate of the
late president Ferdinand Marcos in the amount of
P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment
no. FAC-1-85-91-002452 and Deficiency income tax assessment no.
FAC-1-86-91-002451 (against the Spouses Ferdinand and Imelda
Marcos in the amounts of P149,551.70 and P184,009,737.40
representing deficiency income tax for the years 1985 and 1986);
(3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to
FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong'
Marcos II in the amounts of P258.70 pesos; P9,386.40
Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing his
deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the
deficiency estate and income tax assessments were all personally
and constructively served on August 26, 1991 and September 12,
1991 upon Mrs. Imelda Marcos (through her caretaker Mr.
Martinez) at her last known address at No. 204 Ortega St., San
Juan, M.M. (Annexes 'D' and 'E' of the Petition). Likewise, copies of
the deficiency tax assessments issued against petitioner Ferdinand
'Bongbong' Marcos II were also personally and constructively
served upon him (through his caretaker) on September 12, 1991,
at his last known address at Don Mariano Marcos St. corner P.
Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the
Petition). Thereafter, Formal Assessment notices were served on
October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office,
House of Representatives, Batasan Pambansa, Quezon
City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her
duly authorized representative or counsel), to a conference, was
furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but
to no avail.
The deficiency tax assessments were not protested
administratively, by Mrs. Marcos and the other heirs of the late
president, within 30 days from service of said assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two
notices of levy on real property against certain parcels of land
owned by the Marcoses - to satisfy the alleged estate tax and
deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were
issued for the purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real
property were again issued. The foregoing tax remedies were
resorted to pursuant to Sections 205 and 213 of the National
Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto
Ata (counsel of herein petitioner) calling the attention of the BIR
and requesting that they be duly notified of any action taken by
the BIR affecting the interest of their client Ferdinand 'Bongbong
Marcos II, as well as the interest of the late president - copies of
the aforesaid notices were served on April 7, 1993 and on June 10,
1993, upon Mrs. Imelda Marcos, the petitioner, and their counsel
of record, 'De Borja, Medialdea, Ata, Bello, Guevarra and Serapio
Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at
the lobby of the City Hall of Tacloban City. The public auction for
the sale of the eleven (11) parcels of land took place on July 5,
1993.There being no bidder, the lots were declared forfeited in
favor of the government.
estate of a deceased, person, as in an inheritance (estate) tax, is
for the claimant to present a claim before the probate court so
that said court may order the administrator to pay the amount
therefor." This remedy is allegedly, exclusive, and cannot be
effected through any other means.
ministerial in character, the function of the court in a case of the
present character is not one of them; and here, the court cannot
be an organism endowed with latitude of judgment in one
direction, and converted into a mere mechanical contrivance in
another direction."

Petitioner goes further, submitting that the probate court is

On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed
the instant petition for certiorari and prohibition under Rule 65 of
the Rules of Court, with prayer for temporary restraining order
and/or writ of preliminary injunction."
It has been repeatedly observed, and not without merit, that
the enforcement of tax laws and the collection of taxes, is of
paramount importance for the sustenance of government.Taxes
are the lifeblood of the government and should be collected
without unnecessary hindrance. However, such collection should
be made in accordance with law as any arbitrariness will negate
the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and
the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved."[3]
Whether or not the proper avenues of assessment and
collection of the said tax obligations were taken by the respondent
Bureau is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and
subsequent sale of properties of the late President Marcos
effected by the BIR are null and void for disregarding the
established procedure for the enforcement of taxes due upon the
estate of the deceased. The case of Domingo vs. Garlitos[4] is
specifically cited to bolster the argument that "the ordinary
procedure by which to settle claims of indebtedness against the
On the other hand, it is argued by the BIR, that the state's
not precluded from denying a request by the government for the
authority to collect internal revenue taxes is paramount. Thus, the
immediate payment of taxes, and should order the payment of the
pendency of probate proceedings over the estate of the deceased
same only within the period fixed by the probate court for the
does not preclude the assessment and collection, through
payment of all the debts of the decedent. In this regard, petitioner
summary remedies, of estate taxes over the same. According to
cites the case of Collector of Internal Revenue vs. The
the respondent, claims for payment of estate and income taxes
Administratrix of the Estate of Echarri (67 Phil 502), where it was
due and assessed after the death of the decedent need not be
held that:
presented in the form of a claim against the estate. These can and
should be paid immediately. The probate court is not the
"The case of Pineda vs. Court of First Instance of Tayabas and
government agency to decide whether an estate is liable for
Collector of Internal Revenue (52 Phil 803), relied upon by the
payment of estate of income taxes. Well-settled is the rule that the
petitioner-appellant is good authority on the proposition that the
probate court is a court with special and limited jurisdiction.
court having control over the administration proceedings has
jurisdiction to entertain the claim presented by the government Concededly, the authority of the Regional Trial Court,
for taxes due and to order the administrator to pay the tax should sitting, albeit with limited jurisdiction, as a probate court over
it find that the assessment was proper, and that the tax was legal, estate of deceased individual, is not a trifling thing. The court's
due and collectible. And the rule laid down in that case must be jurisdiction, once invoked, and made effective, cannot be treated
understood in relation to the case of Collector of Customs vs. with indifference nor should it be ignored with impunity by the
Haygood, supra., as to the procedure to be followed in a given case very parties invoking its authority.
by the government to effectuate the collection of the
In testament to this, it has been held that it is within the
tax. Categorically stated, where during the pendency of judicial
jurisdiction of the probate court to approve the sale of properties
administration over the estate of a deceased person a claim for
of a deceased person by his prospective heirs before final
taxes is presented by the government, the court has the authority
adjudication;[5] to determine who are the heirs of the
to order payment by the administrator; but, in the same way that
decedent;[6] the recognition of a natural child;[7] the status of a
it has authority to order payment or satisfaction, it also has the
woman claiming to be the legal wife of the decedent;[8] the legality
negative authority to deny the same. While there are cases where
courts are required to perform certain duties mandatory and
of disinheritance of an heir by the testator;[9] and to pass upon the
validity of a waiver of hereditary rights.[10]
The pivotal question the court is tasked to resolve refers to
the authority of the Bureau of Internal Revenue to collect by the
summary remedy of levying upon, and sale of real properties of
the decedent, estate tax deficiencies, without the cognition and
authority of the court sitting in probate over the supposed will of
the deceased.
The nature of the process of estate tax collection has been
described as follows:
"Strictly speaking, the assessment of an inheritance tax does not
directly involve the administration of a decedent's estate, although
it may be viewed as an incident to the complete settlement of an
estate, and, under some statutes, it is made the duty of the
probate court to make the amount of the inheritance tax a part of
the final decree of distribution of the estate. It is not against the
property of decedent, nor is it a claim against the estate as such,
but it is against the interest or property right which the heir,
legatee, devisee, etc., has in the property formerly held by
decedent. Further, under some statutes, it has been held that it is
not a suit or controversy between the parties, nor is it an
adversary proceeding between the state and the person who owes
the tax on the inheritance. However, under other statutes it has
been held that the hearing and determination of the cash value of
the assets and the determination of the tax are adversary
proceedings. The proceeding has been held to be necessarily a
proceeding in rem.[11]
In the Philippine experience, the enforcement and collection
of estate tax, is executive in character, as the legislature has seen it
fit to ascribe this task to the Bureau of Internal Revenue. Section 3
of the National Internal Revenue Code attests to this:
"Sec. 3. Powers and duties of the Bureau.-The powers and duties
of the Bureau of Internal Revenue shall comprehend the
assessment and collection of all national internal revenue taxes,
fees, and charges, and the enforcement of all forfeitures, penalties,
and fines connected therewith, including the execution of
judgments in all cases decided in its favor by the Court of Tax
Appeals and the ordinary courts. Said Bureau shall also give effect
to and administer the supervisory and police power conferred to it
by this Code or other laws."
Thus, it was in Vera vs. Fernandez[12] that the court
recognized the liberal treatment of claims for taxes charged
against the estate of the decedent. Such taxes, we said, were
exempted from the application of the statute of non-claims, and
this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the
government.Vectigalia nervi sunt rei publicae - taxes are the
sinews of the state.
"Taxes assessed against the estate of a deceased person, after
administration is opened, need not be submitted to the committee
on claims in the ordinary course of administration. In the exercise
of its control over the administrator, the court may direct the
payment of such taxes upon motion showing that the taxes have
been assessed against the estate."
Such liberal treatment of internal revenue taxes in the
probate proceedings extends so far, even to allowing the
enforcement of tax obligations against the heirs of the decedent,
even after distribution of the estate's properties.
"Claims for taxes, whether assessed before or after the death of
the deceased, can be collected from the heirs even after the
distribution of the properties of the decedent. They are exempted
from the application of the statute of non-claims. The heirs shall be
liable therefor, in proportion to their share in the inheritance."[13]
"Thus, the Government has two ways of collecting the taxes in
question. One, by going after all the heirs and collecting from each
one of them the amount of the tax proportionate to the
inheritance received.Another remedy, pursuant to the lien created
by Section 315 of the Tax Code upon all property and rights to
property belong to the taxpayer for unpaid income tax, is by
subjecting said property of the estate which is in the hands
of an heir or transferee to the payment of the tax due the estate.
(Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105,
September 15, 1967.)
From the foregoing, it is discernible that the approval of the
court, sitting in probate, or as a settlement tribunal over the
deceased is not a mandatory requirement in the collection of
estate taxes. It cannot therefore be argued that the Tax Bureau
erred in proceeding with the levying and sale of the properties
allegedly owned by the late President, on the ground that it was
required to seek first the probate court's sanction. There is nothing
in the Tax Code, and in the pertinent remedial laws that implies
the necessity of the probate or estate settlement court's approval
of the state's claim for estate taxes, before the same can be
enforced and collected.
 On the contrary, under Section 87 of the NIRC, it is the
probate or settlement court which is bidden not to authorize the
executor or judicial administrator of the decedent's estate to
deliver any distributive share to any party interested in the estate,
unless it is shown a Certification by the Commissioner of Internal
Revenue that the estate taxes have been paid. This provision
disproves the petitioner's contention that it is the probate court
which approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to
assess the estate taxes, this should have been pursued through the
proper administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
"Sec. 229. Protesting of assessment.-When the Commissioner of
Internal Revenue or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer
of his findings. Within a period to be prescribed by implementing
regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner shall
issue an assessment based on his findings.
Such assessment may be protested administratively by filing a
request for reconsideration or reinvestigation in such form and
manner as may be prescribed by implementing regulations within
(30) days from receipt of the assessment; otherwise, the
assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual,
association or corporation adversely affected by the decision on
the protest may appeal to the Court of Tax Appeals within thirty
(30) days from receipt of said decision; otherwise, the decision
shall become final, executory and demandable. (As inserted by P.D. latter should have complied with Revenue Memorandum Circular
1773)" No. 38-68 and issued these Notices of Levy not earlier than three
(3) months nor later than six (6) months from 12 September
Apart from failing to file the required estate tax return within 1991. In accordance with the Circular, respondents only had until
the time required for the filing of the same, petitioner, and the 12 March 1992 (the last day of the sixth month) within which to
other heirs never questioned the assessments served upon them, issue these Notices of Levy. The Notices of Levy, having been
allowing the same to lapse into finality, and prompting the BIR to issued beyond the period allowed by law, are thus void and of no
collect the said taxes by levying upon the properties left by effect."[15]
President Marcos.
We hold otherwise. The Notices of Levy upon real property
Petitioner submits, however, that "while the assessment of
were issued within the prescriptive period and in accordance with
taxes may have been validly undertaken by the Government,
the provisions of the present Tax Code. The deficiency tax
collection thereof may have been done in violation of the law.Thus,
assessment, having already become final, executory, and
the manner and method in which the latter is enforced may be
demandable, the same can now be collected through the summary
questioned separately, and irrespective of the finality of the
remedy of distraint or levy pursuant to Section 205 of the NIRC.
former, because the Government does not have the unbridled
discretion to enforce collection without regard to the clear The applicable provision in regard to the prescriptive period
provision of law."[14] for the assessment and collection of tax deficiency in this instance
is Article 223 of the NIRC, which pertinently provides:
Petitioner specifically points out that applying Memorandum
Circular No. 38-68, implementing Sections 318 and 324 of the old
"Sec. 223. Exceptions as to a period of limitation of assessment
tax code (Republic Act 5203), the BIR's Notices of Levy on the
and collection of taxes.- (a) In the case of a false or fraudulent
Marcos properties, were issued beyond the allowed period, and
return with intent to evade tax or of a failure to file a return, the
are therefore null and void:
tax may be assessed, or a proceeding in court for the collection of
such tax may be begun without assessment, at any time within ten
"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex
(10) years after the discovery of the falsity, fraud, or
C of this Petition) in satisfaction of said assessments were still
omission: Provided, That, in a fraud assessment which has become
issued by respondents well beyond the period mandated in
final and executory, the fact of fraud shall be judicially taken
Revenue Memorandum Circular No. 38-68. These Notices of Levy
cognizance of in the civil or criminal action for the collection
were issued only on 22 February 1993 and 20 May 1993 when at
thereof.
least seventeen (17) months had already lapsed from the last
service of tax assessment on 12 September 1991. As no notices of
xxx
distraint of personal property were first issued by respondents, the
(c) Any internal revenue tax which has been assessed within the
period of limitation above prescribed, may be collected by distraint
or levy or by a proceeding in court within three years following the
assessment of the tax.
xxx
The omission to file an estate tax return, and the subsequent
failure to contest or appeal the assessment made by the BIR is fatal
to the petitioner's cause, as under the above-cited provision, in
case of failure to file a return, the tax may be assessed at any time
within ten years after the omission, and any tax so assessed may
be collected by levy upon real property within three years
following the assessment of the tax. Since the estate tax
assessment had become final and unappealable by the petitioner's
default as regards protesting the validity of the said assessment,
there is now no reason why the BIR cannot continue with the
collection of the said tax. Any objection against the assessment
should have been pursued following the avenue paved in Section
229 of the NIRC on protests on assessments of internal revenue
taxes.
Petitioner further argues that "the numerous pending court
cases questioning the late president's ownership or interests in
several properties (both real and personal) make the total value of
his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents'
assessment of the estate tax and their issuance of the Notices of
Levy and sale are premature and oppressive." He points out the
pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141,
which were filed by the government to question the ownership
and interests of the late President in real and personal properties
located within and outside the Philippines. Petitioner, however,
omits to allege whether the properties levied upon by the BIR in
the collection of estate taxes upon the decedent's estate were
among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases
are relevant to the matter at issue. The mere fact that the
decedent has pending cases involving ill-gotten wealth does not
affect the enforcement of tax assessments over the properties
indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety
of the BIR's total assessment of P23,292,607,638.00, stating that
this amount deviates from the findings of the Department of
Justice's Panel of Prosecutors as per its resolution of 20 September
1991. Allegedly, this is clear evidence of the uncertainty on the
part of the Government as to the total value of the estate of the
late President.
This is, to our mind, the petitioner's last ditch effort to assail
the assessment of estate tax which had already become final and
unappealable.
It is not the Department of Justice which is the government
agency tasked to determine the amount of taxes due upon the
subject estate, but the Bureau of Internal Revenue[16] whose
determinations and assessments are presumed correct and made
in good faith.[17] The taxpayer has the duty of proving otherwise. In
the absence of proof of any irregularities in the performance of
official duties, an assessment will not be disturbed. Even an
assessment based on estimates is prima facie valid and lawful
where it does not appear to have been arrived at arbitrarily or
capriciously. The burden of proof is upon the complaining party to
show clearly that the assessment is erroneous. Failure to present
proof of error in the assessment will justify the judicial affirmance
of said assessment.[18] In this instance, petitioner has not pointed
out one single provision in the Memorandum of the Special Audit
Team which gave rise to the questioned assessment, which bears a
trace of falsity. Indeed, the petitioner's attack on the assessment
bears mainly on the alleged improbable and unconscionable
amount of the taxes charged. But mere rhetoric cannot supply the
basis for the charge of impropriety of the assessments made.
Moreover, these objections to the assessments should have
been raised, considering the ample remedies afforded the
taxpayer by the Tax Code, with the Bureau of Internal Revenue and
the Court of Tax Appeals, as described earlier, and cannot be
raised now via Petition for Certiorari, under the pretext of grave
abuse of discretion. The course of action taken by the petitioner
reflects his disregard or even repugnance of the established
institutions for governance in the scheme of a well-ordered
society. The subject tax assessments having become final,
executory and enforceable, the same can no longer be contested
by means of a disguised protest. In the main, Certiorari may not be
used as a substitute for a lost appeal or remedy.[19]This judicial
policy becomes more pronounced in view of the absence of
sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of
Assessment to the petitioner, we find the respondent appellate
court's pronouncements sound and resilient to petitioner's attacks.
"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice
- We find, after considering the facts and circumstances, as well as
evidences, that there was sufficient, constructive and/or actual
notice of assessments, levy and sale, sent to herein petitioner
Ferdinand "Bongbong" Marcos as well as to his mother Mrs.
Imelda Marcos.
Even if we are to rule out the notices of assessments personally
given to the caretaker of Mrs. Marcos at the latter's last known
address, on August 26, 1991 and September 12, 1991, as well as
the notices of assessment personally given to the caretaker of
petitioner also at his last known address on September 12, 1991 -
the subsequent notices given thereafter could no longer be
ignored as they were sent at a time when petitioner was already
here in the Philippines, and at a place where said notices would
surely be called to petitioner's attention, and received by
responsible persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served
upon Mrs. Marcos c/o the petitioner, at his office, House of
Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-1",
"A-2", "A-3"; pp. 207-210, Comment/Memorandum of
OSG). Moreover, a notice to taxpayer dated October 8, 1992
inviting Mrs. Marcos to a conference relative to her tax liabilities,
was furnished the counsel of Mrs. Marcos - Dean Antonio Coronel
(Annex "B", p. 211, ibid). Thereafter, copies of Notices were also
served upon Mrs. Imelda Marcos, the petitioner and their counsel
"De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office",
on April 7, 1993 and June 10, 1993. Despite all of these Notices,
petitioner never lifted a finger to protest the assessments, (upon
which the Levy and sale of properties were based), nor appealed
the same to the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner (and
his mother) and it appearing that petitioner continuously ignored
said Notices despite several opportunities given him to file a
protest and to thereafter appeal to the Court of Tax Appeals, - the
tax assessments subject of this case, upon which the levy and sale
of properties were based, could no longer be contested (directly or
indirectly) via this instant petition for certiorari."[20]
Petitioner argues that all the questioned Notices of Levy,
however, must be nullified for having been issued without validly
serving copies thereof to the petitioner. As a mandatory heir of the
decedent, petitioner avers that he has an interest in the subject
estate, and notices of levy upon its properties should have been
served upon him.
We do not agree. In the case of notices of levy issued to
satisfy the delinquent estate tax, the delinquent taxpayer is the
Estate of the decedent, and not necessarily, and exclusively, the
petitioner as heir of the deceased. In the same vein, in the matter
of income tax delinquency of the late president and his spouse,
petitioner is not the taxpayer liable. Thus, it follows that service of
notices of levy in satisfaction of these tax delinquencies upon the
petitioner is not required by law, as under Section 213 of the NIRC,
which pertinently states:
"xxx
...Levy shall be effected by writing upon said certificate a
description of the property upon which levy is made. At the same
time, written notice of the levy shall be mailed to or served upon
the Register of Deeds of the province or city where the property is
located and upon the delinquent taxpayer, or if he be absent from
the Philippines, to his agent or the manager of the business in
respect to which the liability arose, or if there be none, to the
occupant of the property in question.
xxx"
The foregoing notwithstanding, the record shows that notices
of warrants of distraint and levy of sale were furnished the counsel
of petitioner on April 7, 1993, and June 10, 1993, and the
petitioner himself on April 12, 1993 at his office at the Batasang
Pambansa.[21] We cannot therefore, countenance petitioner's
insistence that he was denied due process. Where there was an
opportunity to raise objections to government action, and such
opportunity was disregarded, for no justifiable reason, the party
claiming oppression then becomes the oppressor of the orderly
functions of government. He who comes to court must come with
clean hands. Otherwise, he not only taints his name, but ridicules
the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present
petition. The Decision of the Court of Appeals dated November 29,
1994 is hereby AFFIRMED in all respects.
SO ORDERED.
G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their
capacities as appointed and Acting Members of the CENTRAL
BOARD OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS,
ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as
appointed and Acting Members of the BOARD OF ASSESSMENT
APPEALS of Manila; and NICOLAS CATIIL in his capacity as City
Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the June 10,
1977 decision of the Central Board of Assessment Appeals1 in
CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al.
v. Board of Assessment Appeals of Manila and City Assessor of
Manila" which affirmed the March 29, 1976 decision of the Board
of Tax Assessment Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615,
615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and
"Edmundo Reyes and Milagros Reyes v. City Assessor of Manila"
upholding the classification and assessments made by the City
Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners
of parcels of land situated in Tondo and Sta. Cruz Districts, City of
Manila, which are leased and entirely occupied as dwelling sites by
tenants. Said tenants were paying monthly rentals not exceeding
three hundred pesos (P300.00) in July, 1971. On July 14, 1971, the
National Legislature enacted Republic Act No. 6359 prohibiting for
one year from its effectivity, an increase in monthly rentals of
dwelling units or of lands on which another's dwelling is located,
where such rentals do not exceed three hundred pesos (P300.00) a
month but allowing an increase in rent by not more than 10%
thereafter. The said Act also suspended paragraph (1) of Article
1673 of the Civil Code for two years from its effectivity thereby
disallowing the ejectment of lessees upon the expiration of the
usual legal period of lease. On October 12, 1972, Presidential
Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by
indefinitely suspending the aforementioned provision of the Civil
Code, excepting leases with a definite period. Consequently, the
Reyeses, petitioners herein, were precluded from raising the
rentals and from ejecting the tenants. In 1973, respondent City
Assessor of Manila re-classified and reassessed the value of the
subject properties based on the schedule of market values duly
reviewed by the Secretary of Finance. The revision, as expected,
entailed an increase in the corresponding tax rates prompting
petitioners to file a Memorandum of Disagreement with the Board
of Tax Assessment Appeals. They averred that the reassessments
made were "excessive, unwarranted, inequitable, confiscatory and
unconstitutional" considering that the taxes imposed upon them
greatly exceeded the annual income derived from their properties.
They argued that the income approach should have been used in
determining the land values instead of the comparable sales
approach which the City Assessor adopted (Rollo, pp. 9-10-A). The
Board of Tax Assessment Appeals, however, considered the
assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to
submit concrete evidence which could overcome the presumptive
regularity of the classification and assessments appear to be in
accordance with the base schedule of market values and of the
base schedule of building unit values, as approved by the Secretary
of Finance, the cases should be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment
Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment
Appeals.1âwphi1 They submitted, among others, the summary of
the yearly rentals to show the income derived from the properties.
Respondent City Assessor, on the other hand, submitted three (3)
deeds of sale showing the different market values of the real
property situated in the same vicinity where the subject properties
of petitioners are located. To better appreciate the locational and
physical features of the land, the Board of Hearing Commissioners
conducted an ocular inspection with the presence of two
representatives of the City Assessor prior to the healing of the case.
Neither the owners nor their authorized representatives were
present during the said ocular inspection despite proper notices
served them. It was found that certain parcels of land were below
street level and were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals
rendered its decision, the dispositive portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and
assessment of the lots covered by Tax Declaration Nos. (5835)
PD-5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432,
PD-1509, 146 and (1) PD-266, the appealed Decision is modified by
allowing a 20% reduction in their respective market values and
applying therein the assessment level of 30% to arrive at the
corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment
Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied,
hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE
SALES APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF
APPELLANTS' PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax
assessment of the properties in question. Petitioners maintain that
the "Income Approach" method would have been more realistic
for in disregarding the effect of the restrictions imposed by P.D. 20
on the market value of the properties affected, respondent
Assessor of the City of Manila unlawfully and unjustifiably set
increased new assessed values at levels so high and successive that
the resulting annual real estate taxes would admittedly exceed the
sum total of the yearly rentals paid or payable by the dweller
tenants under P.D. 20. Hence, petitioners protested against the
levels of the values assigned to their properties as revised and
increased on the ground that they were arbitrarily excessive,
unwarranted, inequitable, confiscatory and unconstitutional (Rollo,
p. 10-A).
On the other hand, while respondent Board of Tax Assessment
Appeals admits in its decision that the income approach is used in
determining land values in some vicinities, it maintains that when
income is affected by some sort of price control, the same is
rejected in the consideration and study of land values as in the
case of properties affected by the Rent Control Law for they do not
project the true market value in the open market (Rollo, p. 21).
Thus, respondents opted instead for the "Comparable Sales
Approach" on the ground that the value estimate of the properties
predicated upon prices paid in actual, market transactions would
be a uniform and a more credible standards to use especially in
case of mass appraisal of properties (Ibid.). Otherwise stated,
public respondents would have this Court completely ignore the
effects of the restrictions of P.D. No. 20 on the market value of
properties within its coverage. In any event, it is unquestionable
that both the "Comparable Sales Approach" and the "Income
Approach" are generally acceptable methods of appraisal for
taxation purposes (The Law on Transfer and Business Taxation by
Hector S. De Leon, 1988 Edition). However, it is conceded that the
propriety of one as against the other would of course depend on
several factors. Hence, as early as 1923 in the case of Army & Navy
Club, Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383),
it has been stressed that the assessors, in finding the value of the
property, have to consider all the circumstances and elements of
value and must exercise a prudent discretion in reaching
conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced,
the rule of taxation must not only be uniform, but must also be
equitable and progressive.
Uniformity has been defined as that principle by which all taxable
articles or kinds of property of the same class shall be taxed at the
same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the
equitable or progressive aspects of taxation required in the 1973
Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and determine
the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those
better able to pay. Taxation is progressive when its rate goes up
depending on the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the
strongest of all the powers of government. But for all its plenitude
the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process
and equal protection clauses of the Constitution may properly be
invoked to invalidate in appropriate cases a revenue measure. If it
were otherwise, there would be truth to the 1903 dictum of Chief
Justice Marshall that "the power to tax involves the power to
destroy." The web or unreality spun from Marshall's famous
dictum was brushed away by one stroke of Mr. Justice Holmes pen,
thus: "The power to tax is not the power to destroy while this
Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130
SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue,
139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a
taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to
amount to confiscation of property. That would be a clear abuse of
power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and
natural classification for purposes of taxation but the
government's act must not be prompted by a spirit of hostility, or
at the very least discrimination that finds no support in reason. It
suffices then that the laws operate equally and uniformly on all
persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different
both in the privileges conferred and the liabilities imposed (Ibid., p.
662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it
is declared that the first Fundamental Principle to guide the
appraisal and assessment of real property for taxation purposes is
that the property must be "appraised at its current and fair market
value."
By no strength of the imagination can the market value of
properties covered by P.D. No. 20 be equated with the market
value of properties not so covered. The former has naturally a
much lesser market value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of
the assessed value of subject properties under the "comparable
sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length
transaction between a willing seller and a willing buyer and (2) the
property must be comparable property (Rollo, p. 27). Nothing can
justify or support their view as it is of judicial notice that for
properties covered by P.D. 20 especially during the time in
question, there were hardly any willing buyers. As a general rule,
there were no takers so that there can be no reasonable basis for
the conclusion that these properties were comparable with other
residential properties not burdened by P.D. 20. Neither can the
given circumstances be nonchalantly dismissed by public
respondents as imposed under distressed conditions clearly
implying that the same were merely temporary in character. At
this point in time, the falsity of such premises cannot be more [G.R. No. 112024. January 28, 1999]
convincingly demonstrated by the fact that the law has existed for
around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
collected without unnecessary hindrance. However, such vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF
collection should be made in accordance with law as any TAX APPEALS and COURT OF APPEALS, respondents.
arbitrariness will negate the very reason for government itself It is
therefore necessary to reconcile the apparently conflicting DECISION
interests of the authorities and the taxpayers so that the real QUISUMBING, J.:
purpose of taxations, which is the promotion of the common good,
may be achieved (Commissioner of Internal Revenue v. Algue Inc.,
This petition for review assails the Resolution [1] of the Court
et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that
of Appeals dated September 22, 1993, affirming the Decision[2] and
petitioners who are burdened by the government by its Rental
Resolution[3] of the Court of Tax Appeals which denied the claims
Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle
of the petitioner for tax refund and tax credits, and disposing as
of social justice should not now be penalized by the same
follows:
government by the imposition of excessive taxes petitioners can ill
afford and eventually result in the forfeiture of their properties.
IN VIEW OF ALL THE FOREGOING, the instant petition for review is
DENIED due course. The Decision of the Court of Tax Appeals
By the public respondents' own computation the assessment by
dated May 20, 1993 and its resolution dated July 20, 1993, are
income approach would amount to only P10.00 per sq. meter at
hereby AFFIRMED in toto.
the time in question.
SO ORDERED.[4]
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the
assailed decisions of public respondents are REVERSED and SET
The Court of Tax Appeals earlier ruled as follows:
ASIDE; and (e) the respondent Board of Assessment Appeals of
Manila and the City Assessor of Manila are ordered to make a new
WHEREFORE, petitioners claim for refund/tax credit of overpaid
assessment by the income approach method to guarantee a fairer
income tax for 1985 in the amount of P5,299,749.95 is hereby
and more realistic basis of computation (Rollo, p. 71).
denied for having been filed beyond the reglementary period. The
1986 claim for refund amounting to P234,077.69 is likewise denied
SO ORDERED.
since petitioner has opted and in all likelihood automatically
credited the same to the succeeding year. The petition for review Thereafter, on July 25, 1988, petitioner filed a claim for Payme
is dismissed for lack of merit. refund of creditable taxes withheld by their lessees from property nts
rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
SO ORDERED.[5] *CTAs decision reflects PBComs 1985 tax claim
Pending the investigation of the respondent Commissioner of
as P5,299,749.95. A forty-five centavo difference was noted.
Internal Revenue, petitioner instituted a Petition for Review on
The facts on record show the antecedent circumstances
November 18, 1988 before the Court of Tax Appeals (CTA). The
pertinent to this case. On May 20, 1993, the CTA rendered a decision which, as
petition was docketed as CTA Case No. 4309 entitled: Philippine
stated on the outset, denied the request of petitioner for a tax
Petitioner, Philippine Bank of Communications (PBCom), a Bank of Communications vs. Commissioner of Internal Revenue.
refund or credit in the sum amount of P5,299,749.95, on the
commercial banking corporation duly organized under Philippine
The losses petitioner incurred as per the summary of ground that it was filed beyond the two-year reglementary period
laws, filed its quarterly income tax returns for the first and second
petitioners claims for refund and tax credit for 1985 and 1986, provided for by law. The petitioners claim for refund in 1986
quarters of 1985, reported profits, and paid the total income tax
filed before the Court of Tax Appeals, are as follows: amounting to P234,077.69 was likewise denied on the assumption
of P5,016,954.00. The taxes due were settled by applying PBComs
that it was automatically credited by PBCom against its tax
tax credit memos and accordingly, the Bureau of Internal Revenue 1985 1986
payment in the succeeding year.
(BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 Net (P25,317,228.00) (P14,129,602.00)
for P3,401,701.00 and P1, 615,253.00, respectively. Incom On June 22, 1993, petitioner filed a Motion for
e Reconsideration of the CTAs decision but the same was denied due
Subsequently, however, PBCom suffered losses so that when
(Loss) course for lack of merit.[6]
it filed its Annual Income Tax Returns for the year-ended
Tax NIL NIL
December 31, 1985, it declared a net loss of P25,317,228.00, Thereafter, PBCom filed a petition for review of said decision
Due
thereby showing no income tax liability. For the succeeding year, and resolution of the CTA with the Court of Appeals. However on
Quarte
ending December 31, 1986, the petitioner likewise reported a net September 22, 1993, the Court of Appeals affirmed in toto the
rly tax
loss of P14,129,602.00, and thus declared no tax payable for the CTAs resolution dated July 20, 1993. Hence this petition now
Payme 5,016,954.00 ---
year. before us.
nts
But during these two years, PBCom earned rental income Made The issues raised by the petitioner are:
from leased properties. The lessees withheld and remitted to the Tax 282,795.50 234,077.69
Withh I. Whether taxpayer PBCom -- which relied in good faith
BIR withholding creditable taxes of P282,795.50 in 1985
eld at on the formal assurances of BIR in RMC No. 7-85 and
and P234,077.69 in 1986.
Source did not immediately file with the CTA a petition for
On August 7, 1987, petitioner requested the Commissioner of Ex P5,299,749.50*====== P234,077.69====== review asking for the refund/tax credit of its 1985-86
Internal Revenue, among others, for a tax credit of P5,016,954.00 cess ======== ======== excess quarterly income tax payments -- can be
representing the overpayment of taxes in the first and second Tax prejudiced by the subsequent BIR rejection, applied
quarters of 1985. retroactively, of its assurances in RMC No. 7-85 that
 the prescriptive period for the refund/tax credit of
excess quarterly income tax payments is not two
years but ten (10).[7]
II. Whether the Court of Appeals seriously erred in
affirming the CTA decision which denied PBComs
claim for the refund of P234,077.69 income tax
overpaid in 1986 on the mere speculation, without
proof, that there were taxes due in 1987 and that
PBCom availed of tax-crediting that year.[8]
Simply stated, the main question is: Whether or not the Court
of Appeals erred in denying the plea for tax refund or tax credits
on the ground of prescription, despite petitioners reliance on RMC
No. 7-85, changing the prescriptive period of two years to ten
years?
Petitioner argues that its claims for refund and tax credits are
not yet barred by prescription relying on the applicability of
Revenue Memorandum Circular No. 7-85 issued on April 1,
1985. The circular states that overpaid income taxes are not
covered by the two-year prescriptive period under the tax Code
and that taxpayers may claim refund or tax credits for the excess
quarterly income tax with the BIR within ten (10) years under
Article 1144 of the Civil Code. The pertinent portions of the circular
reads:
REVENUE MEMORANDUM CIRCULAR
NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS
CORPORATE INCOME TAX RESULTING
FROM THE FILING OF THE FINAL
ADJUSTMENT RETURN
TO: All Internal Revenue Officers and Others Concerned
Sections 85 and 86 of the National Internal Revenue Code provide:
xxxxxxxxx
The foregoing provisions are implemented by Section 7 of Revenue
Regulations Nos. 10-77 which provide:
xxxxxxxxx
It has been observed, however, that because of the excess tax
payments, corporations file claims for recovery of overpaid income
tax with the Court of Tax Appeals within the two-year period from
the date of payment, in accordance with Sections 292 and 295 of
the National Internal Revenue Code. It is obvious that the filing of
the case in court is to preserve the judicial right of the corporation
to claim the refund or tax credit.
It should be noted, however, that this is not a case of erroneously
or illegally paid tax under the provisions of Sections 292 and 295 of
the Tax Code.
In the above provision of the Regulations the corporation may
request for the refund of the overpaid income tax or claim for
automatic tax credit. To insure prompt action on corporate annual
income tax returns showing refundable amounts arising from
overpaid quarterly income taxes, this Office has promulgated
Revenue Memorandum Order No. 32-76 dated June 11, 1976,
containing the procedure in processing said returns. Under these
procedures, the returns are merely pre-audited which consist
mainly of checking mathematical accuracy of the figures of the
return. After which, the refund or tax credit is granted, and, this
procedure was adopted to facilitate immediate action on cases like
this.
In this regard, therefore, there is no need to file petitions for
review in the Court of Tax Appeals in order to preserve the right
to claim refund or tax credit within the two-year period. As
already stated, actions hereon by the Bureau are immediate after
only a cursory pre-audit of the income tax returns. Moreover, a
taxpayer may recover from the Bureau of Internal Revenue excess
income tax paid under the provisions of Section 86 of the Tax Code
within 10 years from the date of payment considering that it is an
obligation created by law (Article 1144 of the Civil
Code).[9] (Emphasis supplied.)
Petitioner argues that the government is barred from
asserting a position contrary to its declared circular if it would
result to injustice to taxpayers. Citing ABS-CBN Broadcasting
Corporation vs. Court of Tax Appeals[10] petitioner claims that
rulings or circulars promulgated by the Commissioner of Internal
Revenue have no retroactive effect if it would be prejudicial to
taxpayers. In ABS-CBN case, the Court held that the government is
precluded from adopting a position inconsistent with one
previously taken where injustice would result therefrom or where
there has been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal
Revenue Code explicitly provides for this rule as follows:
Sec. 246. Non-retroactivity of rulings-- Any revocation,
modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding section or any of
the rulings or circulars promulgated by the Commissioner shall not
be given retroactive application if the revocation, modification, or
reversal will be prejudicial to the taxpayers except in the following
cases:
a) where the taxpayer deliberately misstates or omits material
facts from his return or in any document required of him by the
Bureau of Internal Revenue;
b) where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on which
the ruling is based;
c) where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through the
Solicitor General, argues that the two-year prescriptive period for
filing tax cases in court concerning income tax payments of
Corporations is reckoned from the date of filing the Final Adjusted
Income Tax Return, which is generally done on April 15 following
the close of the calendar year. As precedents, respondent
Commissioner cited cases which adhered to this principle,
to wit: ACCRA Investments Corp. vs. Court of Appeals, et
al.,[11] and Commissioner of Internal Revenue vs. TMX Sales, Inc., et
al..[12] Respondent Commissioner also states that since the Final
Adjusted Income Tax Return of the petitioner for the taxable year
1985 was supposed to be filed on April 15, 1986, the latter had
only until April 15, 1988 to seek relief from the court.Further,
respondent Commissioner stresses that when the petitioner filed
the case before the CTA on November 18, 1988, the same was filed
beyond the time fixed by law, and such failure is fatal to
petitioners cause of action.
After a careful study of the records and applicable
jurisprudence on the matter, we find that, contrary to the
petitioners contention, the relaxation of revenue regulations by
RMC 7-85 is not warranted as it disregards the two-year
prescriptive period set by law.
Basic is the principle that taxes are the lifeblood of the
nation. The primary purpose is to generate funds for the State to
finance the needs of the citizenry and to advance the common
weal.[13] Due process of law under the Constitution does not
require judicial proceedings in tax cases. This must necessarily be
so because it is upon taxation that the government chiefly relies to
obtain the means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the collection of
taxes levied should be summary and interfered with as little as
possible.[14]
From the same perspective, claims for refund or tax credit
should be exercised within the time fixed by law because the BIR
being an administrative body enforced to collect taxes, its
functions should not be unduly delayed or hampered by incidental
matters.
Section 230 of the National Internal Revenue Code (NIRC) of
1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive
period for filing a court proceeding for the recovery of tax
erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. -- No
suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of
any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding may
be maintained, whether or not such tax, penalty, or sum has been
paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment; Provided however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where
on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid. (Italics
supplied)
The rule states that the taxpayer may file a claim for refund
or credit with the Commissioner of Internal Revenue, within two (2)
years after payment of tax, before any suit in CTA is
commenced. The two-year prescriptive period provided, should be
computed from the time of filing the Adjustment Return and final
payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American
Life Insurance Co.,[15] this Court explained the application of Sec.
230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to
run only from the time that the refund is ascertained, which can
only be determined after a final adjustment return is
accomplished. In the present case, this date is April 16, 1984, and
two years from this date would be April 16, 1986. x x x As we have
earlier said in the TMX Sales case, Sections 68,[16] 69,[17] and
70[18] on Quarterly Corporate Income Tax Payment and Section 321
should be considered in conjunction with it.[19]
When the Acting Commissioner of Internal Revenue issued
RMC 7-85, changing the prescriptive period of two years to ten
years on claims of excess quarterly income tax payments, such
circular created a clear inconsistency with the provision of Sec. 230
of 1977 NIRC. In so doing, the BIR did not simply interpret the law;
rather it legislated guidelines contrary to the statute passed by
Congress.
It bears repeating that Revenue memorandum-circulars are
considered administrative rulings (in the sense of more specific
and less general interpretations of tax laws) which are issued from
time to time by the Commissioner of Internal Revenue. It is widely
accepted that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled to great
respect by the courts.Nevertheless, such interpretation is not
conclusive and will be ignored if judicially found to be
erroneous.[20] Thus, courts will not countenance administrative
issuances that override, instead of remaining consistent and in
harmony with, the law they seek to apply and implement. [21]
In the case of People vs. Lim,[22] it was held that rules and
regulations issued by administrative officials to implement a law
cannot go beyond the terms and provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because
it is not only inconsistent with but is contrary to the provisions and
spirit of Act. No. 4003 as amended, because whereas the
prohibition prescribed in said Fisheries Act was for any single
period of time not exceeding five years duration, FAO No. 37-1
fixed no period, that is to say, it establishes an absolute ban for all
time. This discrepancy between Act No. 4003 and FAO No. 37-1
was probably due to an oversight on the part of Secretary of
Agriculture and Natural Resources. Of course, in case of
discrepancy, the basic Act prevails, for the reason that the
regulation or rule issued to implement a law cannot go beyond the
terms and provisions of the latter. x x x In this connection, the
attention of the technical men in the offices of Department Heads
who draft rules and regulation is called to the importance and
necessity of closely following the terms and provisions of the law
which they intended to implement, this to avoid any possible
misunderstanding or confusion as in the present case.[23]
Further, fundamental is the rule that the State cannot be put
in estoppel by the mistakes or errors of its officials or agents. [24] As
pointed out by the respondent courts, the nullification of RMC No.
7-85 issued by the Acting Commissioner of Internal Revenue is an
administrative interpretation which is not in harmony with Sec.
230 of 1977 NIRC, for being contrary to the express provision of a
statute. Hence, his interpretation could not be given weight for to
do so would, in effect, amend the statute.
As aptly stated by respondent Court of Appeals:
It is likewise argued that the Commissioner of Internal Revenue,
after promulgating RMC No. 7-85, is estopped by the principle of
non-retroactivity of BIR rulings. Again We do not agree. The
Memorandum Circular, stating that a taxpayer may recover the
excess income tax paid within 10 years from date of payment
because this is an obligation created by law, was issued by the
Acting Commissioner of Internal Revenue. On the other hand, the
decision, stating that the taxpayer should still file a claim for a
refund or tax credit and the corresponding petition for review
within the two-year prescription period, and that the lengthening
of the period of limitation on refund from two to ten years would
be adverse to public policy and run counter to the positive
mandate of Sec. 230, NIRC, - was the ruling and judicial
interpretation of the Court of Tax Appeals. Estoppel has no
application in the case at bar because it was not the Commissioner
of Internal Revenue who denied petitioners claim of refund or tax
credit. Rather, it was the Court of Tax Appeals who denied (albeit
correctly) the claim and in effect, ruled that the RMC No. 7-85
issued by the Commissioner of Internal Revenue is an
administrative interpretation which is out of harmony with or
contrary to the express provision of a statute (specifically Sec. 230,
NIRC), hence, cannot be given weight for to do so would in effect
amend the statute.[25]
Article 8 of the Civil Code[26] recognizes judicial decisions,
applying or interpreting statutes as part of the legal system of the
country. But administrative decisions do not enjoy that level of
recognition.A memorandum-circular of a bureau head could not
operate to vest a taxpayer with a shield against judicial action. For
there are no vested rights to speak of respecting a wrong
construction of the law by the administrative officials and such
wrong interpretation could not place the Government in estoppel
to correct or overrule the same.[27] Moreover, the non-retroactivity
of rulings by the Commissioner of Internal Revenue is not
applicable in this case because the nullity of RMC No. 7-85 was
declared by respondent courts and not by the Commissioner of
Internal Revenue. Lastly, it must be noted that, as repeatedly held
by this Court, a claim for refund is in the nature of a claim for
exemption and should be construed in strictissimi juris against the
taxpayer.[28]
On the second issue, the petitioner alleges that the Court of
Appeals seriously erred in affirming CTAs decision denying its claim
for refund of P 234,077.69 (tax overpaid in 1986), based on mere
speculation, without proof, that PBCom availed of the automatic
tax credit in 1987.
Sec. 69 of the 1977 NIRC[29] (now Sec. 76 of the 1997 NIRC)
provides that any excess of the total quarterly payments over the
actual income tax computed in the adjustment or final corporate
income tax return, shall either (a) be refunded to the corporation,
or (b) may be credited against the estimated quarterly income tax
liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate
adjustment return (by marking the option box provided in the BIR
form) its intention, whether to request for a refund or claim for an
automatic tax credit for the succeeding taxable year. To ease the
administration of tax collection, these remedies are in the
alternative, and the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 -
the Court of Tax Appeals, after examining the adjusted final
corporate annual income tax return for taxable year 1986, found
out that petitioner opted to apply for automatic tax credit. This
was the basis used (vis-avis the fact that the 1987 annual
corporate tax return was not offered by the petitioner as evidence)
by the CTA in concluding that petitioner had indeed availed of and
applied the automatic tax credit to the succeeding year, hence it
can no longer ask for refund, as to [sic] the two remedies of refund
and tax credit are alternative.[30]
That the petitioner opted for an automatic tax credit in
accordance with Sec. 69 of the 1977 NIRC, as specified in its 1986
Final Adjusted Income Tax Return, is a finding of fact which we
must respect.Moreover, the 1987 annual corporate tax return of
the petitioner was not offered as evidence to controvert said
fact. Thus, we are bound by the findings of fact by respondent
courts, there being no showing of gross error or abuse on their
part to disturb our reliance thereon.[31]
WHEREFORE, the petition is hereby DENIED. The decision of
the Court of Appeals appealed from is AFFIRMED, with COSTS
against the petitioner.
SO ORDERED.
G.R. No. L-22074 April 30, 1965
THE PHILIPPINE GUARANTY CO., INC., petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF
TAX APPEALS, respondents.
Josue H. Gustilo and Ramirez and Ortigas for petitioner.
Office of the Solicitor General and Attorney V.G. Saldajena for
respondents.
BENGZON, J.P., J.:
The Philippine Guaranty Co., Inc., a domestic insurance company,
entered into reinsurance contracts, on various dates, with foreign
insurance companies not doing business in the Philippines namely:
Imperio Compañia de Seguros, La Union y El Fenix Español,
Overseas Assurance Corp., Ltd., Socieded Anonima de Reaseguros
Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union Assurance
Society Ltd., Swiss Reinsurance Company and Tariff Reinsurance
Limited. Philippine Guaranty Co., Inc., thereby agreed to cede to
the foreign reinsurers a portion of the premiums on insurance it
has originally underwritten in the Philippines, in consideration for
the assumption by the latter of liability on an equivalent portion of
the risks insured. Said reinsurrance contracts were signed by
Philippine Guaranty Co., Inc. in Manila and by the foreign
reinsurers outside the Philippines, except the contract with Swiss
Reinsurance Company, which was signed by both parties in
Switzerland.
The reinsurance contracts made the commencement of the
reinsurers' liability simultaneous with that of Philippine Guaranty
Co., Inc. under the original insurance. Philippine Guaranty Co., Inc.
was required to keep a register in Manila where the risks ceded to
the foreign reinsurers where entered, and entry therein was
binding upon the reinsurers. A proportionate amount of taxes on
insurance premiums not recovered from the original assured were
to be paid for by the foreign reinsurers. The foreign reinsurers
further agreed, in consideration for managing or administering
their affairs in the Philippines, to compensate the Philippine
Guaranty Co., Inc., in an amount equal to 5% of the reinsurance
premiums. Conflicts and/or differences between the parties under
the reinsurance contracts were to be arbitrated in Manila.
Philippine Guaranty Co., Inc. and Swiss Reinsurance Company
stipulated that their contract shall be construed by the laws of the
Philippines.
Pursuant to the aforesaid reinsurance contracts, Philippine income tax Philippine Guaranty Co., Inc., protested the assessment on the
Guaranty Co., Inc. ceded to the foreign reinsurers the following return . . . . . . . . . . . . . . . . . . . . . . . . . ground that reinsurance premiums ceded to foreign reinsurers not
premiums: doing business in the Philippines are not subject to withholding tax.
Its protest was denied and it appealed to the Court of Tax Appeals.
1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71 TOTAL AMOUNT DUE &
COLLECTIBLE . . . . P230,673.00 On July 6, 1963, the Court of Tax Appeals rendered judgment with
========== this dispositive portion:
1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85
IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner
1954
Philippine Guaranty Co., Inc. is hereby ordered to pay to the
Said premiums were excluded by Philippine Guaranty Co., Inc. Commissioner of Internal Revenue the respective sums of
from its gross income when it file its income tax returns for 1953 Gross premium per P202,192.00 and P173,153.00 or the total sum of P375,345.00 as
P780.880.68
and 1954. Furthermore, it did not withhold or pay tax on them. investigation . . . . . . . . . . withholding income taxes for the years 1953 and 1954, plus the
Consequently, per letter dated April 13, 1959, the Commissioner of statutory delinquency penalties thereon. With costs against
Internal Revenue assessed against Philippine Guaranty Co., Inc. Withholding tax due thereon at petitioner.
withholding tax on the ceded reinsurance premiums, thus: P184,411.00
24% . . . . . . . .
Philippine Guaranty Co, Inc. has appealed, questioning the legality
1953 25% of the Commissioner of Internal Revenue's assessment for
P184,411.00 withholding tax on the reinsurance premiums ceded in 1953 and
surcharge . . . . . . . . . . . . . . . . . . . . . . . . . .
1954 to the foreign reinsurers.
Gross premium per
P768,580.00
investigation . . . . . . . . . . Compromise for non-filing of
Petitioner maintain that the reinsurance premiums in question did
withholding
100.00 not constitute income from sources within the Philippines because
Withholding tax due thereon at income tax
P184,459.00 the foreign reinsurers did not engage in business in the Philippines,
24% . . . . . . . . return . . . . . . . . . . . . . . . . . . . . . . . . .
nor did they have office here.

25% The reinsurance contracts, however, show that the transactions or

46,114.00 TOTAL AMOUNT DUE &
surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . activities that constituted the undertaking to reinsure Philippine
COLLECTIBLE . . . . P234,364.00
========== Guaranty Co., Inc. against loses arising from the original insurances
Compromise for non-filing of 100.00 in the Philippines were performed in the Philippines. The liability of
withholding the foreign reinsurers commenced simultaneously with the liability
of Philippine Guaranty Co., Inc. under the original insurances.
Philippine Guaranty Co., Inc. kept in Manila a register of the risks
ceded to the foreign reinsurers. Entries made in such register
bound the foreign resinsurers, localizing in the Philippines the
actual cession of the risks and premiums and assumption of the
reinsurance undertaking by the foreign reinsurers. Taxes on
premiums imposed by Section 259 of the Tax Code for the privilege
of doing insurance business in the Philippines were payable by the
foreign reinsurers when the same were not recoverable from the
original assured. The foreign reinsurers paid Philippine Guaranty
Co., Inc. an amount equivalent to 5% of the ceded premiums, in
consideration for administration and management by the latter of
the affairs of the former in the Philippines in regard to their
reinsurance activities here. Disputes and differences between the
parties were subject to arbitration in the City of Manila. All the
reinsurance contracts, except that with Swiss Reinsurance
Company, were signed by Philippine Guaranty Co., Inc. in the
Philippines and later signed by the foreign reinsurers abroad.
Although the contract between Philippine Guaranty Co., Inc. and
Swiss Reinsurance Company was signed by both parties in
Switzerland, the same specifically provided that its provision shall
be construed according to the laws of the Philippines, thereby
manifesting a clear intention of the parties to subject themselves
to Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax on
their income from sources within the Philippines. The word
"sources" has been interpreted as the activity, property or service
giving rise to the income. 1 The reinsurance premiums were income
created from the undertaking of the foreign reinsurance
companies to reinsure Philippine Guaranty Co., Inc., against
liability for loss under original insurances. Such undertaking, as
explained above, took place in the Philippines. These insurance
premiums, therefore, came from sources within the Philippines
and, hence, are subject to corporate income tax.
The foreign insurers' place of business should not be confused with
their place of activity. Business should not be continuity and
progression of transactions 2 while activity may consist of only a
single transaction. An activity may occur outside the place of
business. Section 24 of the Tax Code does not require a foreign
corporation to engage in business in the Philippines in subjecting
its income to tax. It suffices that the activity creating the income is
performed or done in the Philippines. What is controlling,
therefore, is not the place of business but the place of activity that
created an income.
Petitioner further contends that the reinsurance premiums are not
income from sources within the Philippines because they are not
specifically mentioned in Section 37 of the Tax Code. Section 37 is
not an all-inclusive enumeration, for it merely directs that the
kinds of income mentioned therein should be treated as income
from sources within the Philippines but it does not require that
other kinds of income should not be considered
likewise.1äwphï1.ñët
The power to tax is an attribute of sovereignty. It is a power
emanating from necessity. It is a necessary burden to preserve the
State's sovereignty and a means to give the citizenry an army to
resist an aggression, a navy to defend its shores from invasion, a
corps of civil servants to serve, public improvement designed for
the enjoyment of the citizenry and those which come within the
State's territory, and facilities and protection which a government
is supposed to provide. Considering that the reinsurance premiums
in question were afforded protection by the government and the
recipient foreign reinsurers exercised rights and privileges
guaranteed by our laws, such reinsurance premiums and
reinsurers should share the burden of maintaining the state.
Petitioner would wish to stress that its reliance in good faith on the
rulings of the Commissioner of Internal Revenue requiring no
withholding of the tax due on the reinsurance premiums in
question relieved it of the duty to pay the corresponding
withholding tax thereon. This defense of petitioner may free if
from the payment of surcharges or penalties imposed for failure to
pay the corresponding withholding tax, but it certainly would not
exculpate if from liability to pay such withholding tax The
Government is not estopped from collecting taxes by the mistakes
or errors of its agents.3
In respect to the question of whether or not reinsurance premiums
ceded to foreign reinsurers not doing business in the Philippines
are subject to withholding tax under Section 53 and 54 of the Tax
Code, suffice it to state that this question has already been
answered in the affirmative in Alexander Howden & Co., Ltd. vs.
Collector of Internal Revenue, L-19393, April 14, 1965.
Finally, petitioner contends that the withholding tax should be
computed from the amount actually remitted to the foreign
reinsurers instead of from the total amount ceded. And since it did
not remit any amount to its foreign insurers in 1953 and 1954, no
withholding tax was due.
The pertinent section of the Tax Code States:
Sec. 54. Payment of corporation income tax at source. — In the
case of foreign corporations subject to taxation under this Title not
engaged in trade or business within the Philippines and not having
any office or place of business therein, there shall be deducted and
withheld at the source in the same manner and upon the same
items as is provided in Section fifty-three a tax equal to
twenty-four per centum thereof, and such tax shall be returned
and paid in the same manner and subject to the same conditions
as provided in that section.
The applicable portion of Section 53 provides:
(b) Nonresident aliens. — All persons, corporations and general
copartnerships (compañias colectivas), in what ever capacity acting,
including lessees or mortgagors of real or personal property,
trustees acting in any trust capacity, executors, administrators,
receivers, conservators, fiduciaries, employers, and all officers and
employees of the Government of the Philippines having the
control, receipt, custody, disposal, or payment of interest,
dividends, rents, salaries, wages, premiums, annuities,
compensation, remunerations, emoluments, or other fixed or
determinable annual or periodical gains, profits, and income of any
nonresident alien individual, not engaged in trade or business
within the Philippines and not having any office or place of
business therein, shall (except in the case provided for in
subsection [a] of this section) deduct and withhold from such
annual or periodical gains, profits, and income a tax equal to
twelve per centum thereof: Provided That no deductions or
withholding shall be required in the case of dividends paid by a
foreign corporation unless (1) such corporation is engaged in trade
or business within the Philippines or has an office or place of
business therein, and (2) more than eighty-five per centum of the
gross income of such corporation for the three-year period ending
with the close of its taxable year preceding the declaration of such
dividends (or for such part of such period as the corporation has
been in existence)was derived from sources within the Philippines
as determined under the provisions of section
thirty-seven: Provided, further, That the Collector of Internal
Revenue may authorize such tax to be deducted and withheld
from the interest upon any securities the owners of which are not
known to the withholding agent.
The above-quoted provisions allow no deduction from the income
therein enumerated in determining the amount to be withheld.
According, in computing the withholding tax due on the
reinsurance premium in question, no deduction shall be
recognized.
WHEREFORE, in affirming the decision appealed from, the
Philippine Guaranty Co., Inc. is hereby ordered to pay to the
Commissioner of Internal Revenue the sums of P202,192.00 and
P173,153.00, or a total amount of P375,345.00, as withholding tax
for the years 1953 and 1954, respectively. If the amount of
P375,345.00 is not paid within 30 days from the date this
judgement becomes final, there shall be collected a surcharged of
5% on the amount unpaid, plus interest at the rate of 1% a month
from the date of delinquency to the date of payment, provided
that the maximum amount that may be collected as interest shall
not exceed the amount corresponding to a period of three (3)
years. With costs againsts petitioner.
G.R. No. 148187 April 16, 2008
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000
Decision1 of the Court of Appeals in CA-G.R. SP No. 49385, which
affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case
No. 5200. Also assailed is the April 3, 2001 Resolution 3 denying the
motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex
Mining), entered into an agreement4 with Baguio Gold Mining
Company ("Baguio Gold") for the former to manage and operate
the latter’s mining claim, known as the Sto. Nino mine, located in
Atok and Tublay, Benguet Province. The parties’ agreement was
denominated as "Power of Attorney" and provided for the
following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio
Gold) shall make available to the MANAGERS (Philex Mining) up to
ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from
time to time may be required by the MANAGERS within the said
3-year period, for use in the MANAGEMENT of the STO. NINO
MINE. The said ELEVEN MILLION PESOS (P11,000,000.00) shall be
deemed, for internal audit purposes, as the owner’s account in the
Sto. Nino PROJECT. Any part of any income of the PRINCIPAL from
the STO. NINO MINE, which is left with the Sto. Nino PROJECT,
shall be added to such owner’s account.
5. Whenever the MANAGERS shall deem it necessary and
convenient in connection with the MANAGEMENT of the STO.
NINO MINE, they may transfer their own funds or property to the
Sto. Nino PROJECT, in accordance with the following
arrangements:
(a) The properties shall be appraised and, together with the cash,
shall be carried by the Sto. Nino PROJECT as a special fund to be
known as the MANAGERS’ account.
(b) The total of the MANAGERS’ account shall not exceed
P11,000,000.00, except with prior approval of the PRINCIPAL;
provided, however, that if the compensation of the MANAGERS as
herein provided cannot be paid in cash from the Sto. Nino PROJECT,
the amount not so paid in cash shall be added to the MANAGERS’
account.
(c) The cash and property shall not thereafter be withdrawn from
the Sto. Nino PROJECT until termination of this Agency.
(d) The MANAGERS’ account shall not accrue interest. Since it is
the desire of the PRINCIPAL to extend to the MANAGERS the
benefit of subsequent appreciation of property, upon a projected
termination of this Agency, the ratio which the MANAGERS’
account has to the owner’s account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO
MINE, excluding the claims, shall be transferred to the MANAGERS,
except that such transferred assets shall not include mine
development, roads, buildings, and similar property which will be
valueless, or of slight value, to the MANAGERS. The MANAGERS
can, on the other hand, require at their option that property
originally transferred by them to the Sto. Nino PROJECT be
re-transferred to them. Until such assets are transferred to the
MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%)
of the net profit of the Sto. Nino PROJECT before income tax. It is
understood that the MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income tax on the
net profit of the Sto. Nino PROJECT after deduction therefrom of
the MANAGERS’ compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the
MANAGERS and, in the future, may incur other obligations in favor
of the MANAGERS. This Power of Attorney has been executed as
security for the payment and satisfaction of all such obligations of
the PRINCIPAL in favor of the MANAGERS and as a means to fulfill
the same. Therefore, this Agency shall be irrevocable while any
obligation of the PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS’ account. After all
obligations of the PRINCIPAL in favor of the MANAGERS have been
paid and satisfied in full, this Agency shall be revocable by the
PRINCIPAL upon 36-month notice to the MANAGERS.
17. Notwithstanding any agreement or understanding between the
PRINCIPAL and the MANAGERS to the contrary, the MANAGERS
may withdraw from this Agency by giving 6-month notice to the
PRINCIPAL. The MANAGERS shall not in any manner be held liable
to the PRINCIPAL by reason alone of such withdrawal. Paragraph
5(d) hereof shall be operative in case of the MANAGERS’
withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining
made advances of cash and property in accordance with paragraph
5 of the agreement. However, the mine suffered continuing losses
over the years which resulted to petitioner’s withdrawal as
manager of the mine on January 28, 1982 and in the eventual
cessation of mine operations on February 20, 1982.6
Thereafter, on September 27, 1982, the parties executed a
"Compromise with Dation in Payment"7 wherein Baguio Gold
admitted an indebtedness to petitioner in the amount of
P179,394,000.00 and agreed to pay the same in three segments by
first assigning Baguio Gold’s tangible assets to petitioner,
transferring to the latter Baguio Gold’s equitable title in its
Philodrill assets and finally settling the remaining liability through
properties that Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to
Compromise with Dation in Payment"8 where the parties
determined that Baguio Gold’s indebtedness to petitioner actually
amounted to P259,137,245.00, which sum included liabilities of
Baguio Gold to other creditors that petitioner had assumed as
guarantor. These liabilities pertained to long-term loans amounting
to US$11,000,000.00 contracted by Baguio Gold from the Bank of
America NT & SA and Citibank N.A. This time, Baguio Gold
undertook to pay petitioner in two segments by first assigning its
tangible assets for P127,838,051.00 and then transferring its
equitable title in its Philodrill assets for P16,302,426.00. The
parties then ascertained that Baguio Gold had a remaining
outstanding indebtedness to petitioner in the amount of
P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the
remaining outstanding indebtedness of Baguio Gold by charging
P112,136,000.00 to allowances and reserves that were set up in
1981 and P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its
gross income the amount of P112,136,000.00 as "loss on
settlement of receivables from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal Revenue (BIR)
disallowed the amount as deduction for bad debt and assessed
petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction
must be allowed since all requisites for a bad debt deduction were
satisfied, to wit: (a) there was a valid and existing debt; (b) the
debt was ascertained to be worthless; and (c) it was charged off
within the taxable year when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid
management contract it entered into with Baguio Gold. The bad
debt deduction represented advances made by petitioner which,
pursuant to the management contract, formed part of Baguio
Gold’s "pecuniary obligations" to petitioner. It also included
payments made by petitioner as guarantor of Baguio Gold’s
long-term loans which legally entitled petitioner to be subrogated
to the rights of the original creditor.
Petitioner also asserted that due to Baguio Gold’s irreversible
losses, it became evident that it would not be able to recover the
advances and payments it had made in behalf of Baguio Gold. For a
debt to be considered worthless, petitioner claimed that it was
neither required to institute a judicial action for collection against
the debtor nor to sell or dispose of collateral assets in satisfaction
of the debt. It is enough that a taxpayer exerted diligent efforts to
enforce collection and exhausted all reasonable means to collect.
On October 28, 1994, the BIR denied petitioner’s protest for lack of
legal and factual basis. It held that the alleged debt was not
ascertained to be worthless since Baguio Gold remained existing
and had not filed a petition for bankruptcy; and that the deduction
did not consist of a valid and subsisting debt considering that,
under the management contract, petitioner was to be paid fifty
percent (50%) of the project’s net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which
rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for
Review is hereby DENIED for lack of merit. The assessment in
question, viz: FAS-1-82-88-003067 for deficiency income tax in the
amount of P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby
ORDERED to PAY respondent Commissioner of Internal Revenue
the amount of P62,811,161.39, plus, 20% delinquency interest due
computed from February 10, 1995, which is the date after the
20-day grace period given by the respondent within which
petitioner has to pay the deficiency amount x x x up to actual date
of payment.
SO ORDERED.11
The CTA rejected petitioner’s assertion that the advances it made
for the Sto. Nino mine were in the nature of a loan. It instead
characterized the advances as petitioner’s investment in a
partnership with Baguio Gold for the development and
exploitation of the Sto. Nino mine. The CTA held that the "Power
of Attorney" executed by petitioner and Baguio Gold was actually a
partnership agreement. Since the advanced amount partook of the
nature of an investment, it could not be deducted as a bad debt
from petitioner’s gross income.
The CTA likewise held that the amount paid by petitioner for the
long-term loan obligations of Baguio Gold could not be allowed as
a bad debt deduction. At the time the payments were made,
Baguio Gold was not in default since its loans were not yet due and
demandable. What petitioner did was to pre-pay the loans as
evidenced by the notice sent by Bank of America showing that it
was merely demanding payment of the installment and interests
due. Moreover, Citibank imposed and collected a "pre-termination
penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA.12 Hence,
upon denial of its motion for reconsideration, 13petitioner took this
recourse under Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made
by Philex in the management of the Sto. Nino Mine pursuant to the
Power of Attorney partook of the nature of an investment rather
than a loan.
 II.
The Court of Appeals erred in ruling that the 50%-50% sharing in
the net profits of the Sto. Nino Mine indicates that Philex is a
partner of Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of
Philex and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of
Attorney and in completely disregarding the Compromise
Agreement and the Amended Compromise Agreement when it
construed the nature of the advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of
the propriety of the bad debts write-off.14
Petitioner insists that in determining the nature of its business
relationship with Baguio Gold, we should not only rely on the
"Power of Attorney", but also on the subsequent "Compromise
with Dation in Payment" and "Amended Compromise with Dation
in Payment" that the parties executed in 1982. These documents,
allegedly evinced the parties’ intent to treat the advances and
payments as a loan and establish a creditor-debtor relationship
between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the
instrument that is material in determining the true nature of the
business relationship between petitioner and Baguio Gold. Before
resort may be had to the two compromise agreements, the
parties’ contractual intent must first be discovered from the
expressed language of the primary contract under which the
parties’ business relations were founded. It should be noted that
the compromise agreements were mere collateral documents
executed by the parties pursuant to the termination of their
business relationship created under the "Power of Attorney". On
the other hand, it is the latter which established the juridical
relation of the parties and defined the parameters of their dealings
with one another.
The execution of the two compromise agreements can hardly be
considered as a subsequent or contemporaneous act that is
reflective of the parties’ true intent. The compromise agreements
were executed eleven years after the "Power of Attorney" and
merely laid out a plan or procedure by which petitioner could
recover the advances and payments it made under the "Power of
Attorney". The parties entered into the compromise agreements
as a consequence of the dissolution of their business relationship.
It did not define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a
partnership or joint venture was indeed intended by the parties.
Under a contract of partnership, two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among
themselves.15 While a corporation, like petitioner, cannot generally
enter into a contract of partnership unless authorized by law or its
charter, it has been held that it may enter into a joint venture
which is akin to a particular partnership:
The legal concept of a joint venture is of common law origin. It has
no precise legal definition, but it has been generally understood to
mean an organization formed for some temporary purpose. x x x It
is in fact hardly distinguishable from the partnership, since their
elements are similar – community of interest in the business,
sharing of profits and losses, and a mutual right of control. x x x
The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is
formed for the execution of a single transaction, and is thus of a
temporary nature. x x x This observation is not entirely accurate in
this jurisdiction, since under the Civil Code, a partnership may be
particular or universal, and a particular partnership may have for
its object a specific undertaking. x x x It would seem therefore that
under Philippine law, a joint venture is a form of partnership and
should be governed by the law of partnerships. The Supreme Court
has however recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into
a partnership contract, it may however engage in a joint venture
with others. x x x (Citations omitted) 16
Perusal of the agreement denominated as the "Power of Attorney"
indicates that the parties had intended to create a partnership and
establish a common fund for the purpose. They also had a joint
interest in the profits of the business as shown by a 50-50 sharing
in the income of the mine.
Under the "Power of Attorney", petitioner and Baguio Gold
undertook to contribute money, property and industry to the
common fund known as the Sto. Niño mine.17 In this regard, we
note that there is a substantive equivalence in the respective
contributions of the parties to the development and operation of
the mine. Pursuant to paragraphs 4 and 5 of the agreement,
petitioner and Baguio Gold were to contribute equally to the joint
venture assets under their respective accounts. Baguio Gold would
contribute P11M under its owner’s account plus any of its income
that is left in the project, in addition to its actual mining claim.
Meanwhile, petitioner’s contribution would consist of
its expertise in the management and operation of mines, as well as
the manager’s account which is comprised of P11M in funds and
property and petitioner’s "compensation" as manager that cannot
be paid in cash.
However, petitioner asserts that it could not have entered into a
partnership agreement with Baguio Gold because it did not "bind"
itself to contribute money or property to the project; that under
paragraph 5 of the agreement, it was only optional for petitioner
to transfer funds or property to the Sto. Niño project "(w)henever
the MANAGERS shall deem it necessary and convenient in
connection with the MANAGEMENT of the STO. NIÑO MINE."18
The wording of the parties’ agreement as to petitioner’s
contribution to the common fund does not detract from the fact
that petitioner transferred its funds and property to the project as
specified in paragraph 5, thus rendering effective the other
stipulations of the contract, particularly paragraph 5(c) which
prohibits petitioner from withdrawing the advances until
termination of the parties’ business relations. As can be seen,
petitioner became bound by its contributions once the transfers
were made. The contributions acquired an obligatory nature as
soon as petitioner had chosen to exercise its option under
paragraph 5.
There is no merit to petitioner’s claim that the prohibition in
paragraph 5(c) against withdrawal of advances should not be taken
as an indication that it had entered into a partnership with Baguio
Gold; that the stipulation only showed that what the parties
entered into was actually a contract of agency coupled with an
interest which is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be
revoked or withdrawn by the principal due to an interest of a third
party that depends upon it, or the mutual interest of both principal
and agent.19 In this case, the non-revocation or non-withdrawal
under paragraph 5(c) applies to the advances made by petitioner
who is supposedly the agent and not the principal under the
contract. Thus, it cannot be inferred from the stipulation that the
parties’ relation under the agreement is one of agency coupled
with an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an
indication that the relationship of the parties was one of agency
and not a partnership. Although the said provision states that "this
Agency shall be irrevocable while any obligation of the PRINCIPAL
in favor of the MANAGERS is outstanding, inclusive of the
MANAGERS’ account," it does not necessarily follow that the
parties entered into an agency contract coupled with an interest
that cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power of
Attorney" was not to confer a power in favor of petitioner to
contract with third persons on behalf of Baguio Gold but to create
a business relationship between petitioner and Baguio Gold, in
which the former was to manage and operate the latter’s mine
through the parties’ mutual contribution of material resources and
industry. The essence of an agency, even one that is coupled with
interest, is the agent’s ability to represent his principal and bring
about business relations between the latter and third
persons.20 Where representation for and in behalf of the principal
is merely incidental or necessary for the proper discharge of one’s
paramount undertaking under a contract, the latter may not
necessarily be a contract of agency, but some other agreement
depending on the ultimate undertaking of the parties. 21
In this case, the totality of the circumstances and the stipulations
in the parties’ agreement indubitably lead to the conclusion that a
partnership was formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally
obligated to return the advances made by petitioner under the
agreement. Paragraph 5 (d) thereof provides that upon
termination of the parties’ business relations, "the ratio which the
MANAGER’S account has to the owner’s account will be
determined, and the corresponding proportion of the entire assets
of the STO. NINO MINE, excluding the claims" shall be transferred
to petitioner.22 As pointed out by the Court of Tax Appeals,
petitioner was merely entitled to a proportionate return of the
mine’s assets upon dissolution of the parties’ business relations.
There was nothing in the agreement that would require Baguio
Gold to make payments of the advances to petitioner as would be
recognized as an item of obligation or "accounts payable" for
Baguio Gold.
Thus, the tax court correctly concluded that the agreement
provided for a distribution of assets of the Sto. Niño mine upon
termination, a provision that is more consistent with a partnership
than a creditor-debtor relationship. It should be pointed out that in
a contract of loan, a person who receives a loan or money or any
fungible thing acquires ownership thereof and is bound to pay the
creditor an equal amount of the same kind and quality. 23 In this
case, however, there was no stipulation for Baguio Gold to actually
repay petitioner the cash and property that it had advanced, but
only the return of an amount pegged at a ratio which the
manager’s account had to the owner’s account.
In this connection, we find no contractual basis for the execution
of the two compromise agreements in which Baguio Gold
recognized a debt in favor of petitioner, which supposedly arose
from the termination of their business relations over the Sto. Nino
mine. The "Power of Attorney" clearly provides that petitioner
would only be entitled to the return of a proportionate share of
the mine assets to be computed at a ratio that the manager’s
account had to the owner’s account. Except to provide a basis for
claiming the advances as a bad debt deduction, there is no reason
for Baguio Gold to hold itself liable to petitioner under the
compromise agreements, for any amount over and above the
proportion agreed upon in the "Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a
business corporation to lend hundreds of millions of pesos to
another corporation with neither security, or collateral, nor a
specific deed evidencing the terms and conditions of such loans.
The parties also did not provide a specific maturity date for the
advances to become due and demandable, and the manner of
payment was unclear. All these point to the inevitable conclusion
that the advances were not loans but capital contributions to a
partnership.
The strongest indication that petitioner was a partner in the Sto
Niño mine is the fact that it would receive 50% of the net profits as
"compensation" under paragraph 12 of the agreement. The
entirety of the parties’ contractual stipulations simply leads to no
other conclusion than that petitioner’s "compensation" is actually
its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the
"receipt by a person of a share in the profits of a business is prima
facie evidence that he is a partner in the business." Petitioner
asserts, however, that no such inference can be drawn against it
since its share in the profits of the Sto Niño project was in the
nature of compensation or "wages of an employee", under the
exception provided in Article 1769 (4) (b).24
On this score, the tax court correctly noted that petitioner was not
an employee of Baguio Gold who will be paid "wages" pursuant to
an employer-employee relationship. To begin with, petitioner was
the manager of the project and had put substantial sums into the
venture in order to ensure its viability and profitability. By pegging
its compensation to profits, petitioner also stood not to be
remunerated in case the mine had no income. It is hard to believe
that petitioner would take the risk of not being paid at all for its
services, if it were truly just an ordinary employee.
Consequently, we find that petitioner’s "compensation" under
paragraph 12 of the agreement actually constitutes its share in the
net profits of the partnership. Indeed, petitioner would not be
entitled to an equal share in the income of the mine if it were just
an employee of Baguio Gold.25 It is not surprising that petitioner
was to receive a 50% share in the net profits, considering that the
"Power of Attorney" also provided for an almost equal
contribution of the parties to the St. Nino mine. The
"compensation" agreed upon only serves to reinforce the notion
that the parties’ relations were indeed of partners and not
employer-employee.
All told, the lower courts did not err in treating petitioner’s
advances as investments in a partnership known as the Sto. Nino
mine. The advances were not "debts" of Baguio Gold to petitioner
inasmuch as the latter was under no unconditional obligation to
return the same to the former under the "Power of Attorney". As
for the amounts that petitioner paid as guarantor to Baguio Gold’s
creditors, we find no reason to depart from the tax court’s factual
finding that Baguio Gold’s debts were not yet due and demandable
at the time that petitioner paid the same. Verily, petitioner
pre-paid Baguio Gold’s outstanding loans to its bank creditors and
this conclusion is supported by the evidence on record.26
In sum, petitioner cannot claim the advances as a bad debt
deduction from its gross income. Deductions for income tax
purposes partake of the nature of tax exemptions and are strictly
construed against the taxpayer, who must prove by convincing
evidence that he is entitled to the deduction claimed.27 In this case,
petitioner failed to substantiate its assertion that the advances
were subsisting debts of Baguio Gold that could be deducted from
its gross income. Consequently, it could not claim the advances as
a valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of
Appeals in CA-G.R. SP No. 49385 dated June 30, 2000, which
affirmed the decision of the Court of Tax Appeals in C.T.A. Case No.
5200 is AFFIRMED. Petitioner Philex Mining Corporation
is ORDERED to PAY the deficiency tax on its 1982 income in the
amount of P62,811,161.31, with 20% delinquency interest
computed from February 10, 1995, which is the due date given for
the payment of the deficiency income tax, up to the actual date of
payment.
SO ORDERED.
[G.R. No. L-12353. September 30, 1960.]
NORTH CAMARINES LUMBER Co., INC., Petitioner, v. COLLECTOR
OF INTERNAL REVENUE, Respondent.
Miguel V. San Jose and A. B. Christi for Petitioner.
Assistant Solicitor General Jose P. Alejandro and Atty. S. D.
Paredes for Respondent.
SYLLABUS
1. COURT OF TAX APPEALS; PERIOD FOR FILING PETITION FOR
REVIEW; DECISION OF COLLECTOR OF INTERNAL REVENUES, WHAT
CONSTITUTES. — In computing the 30-day period fixed in Section
11 of Republic Act No. 1125 within which a taxpayer may file with
the Court of Tax Appeals his petition for review of the decision of
the Collector of Internal Revenue, the said collector’s letter of
demand, not the letter denying the taxpayer’s request for
reconsideration, should be considered.
DECISION
PARAS, J.:
This is an appeal from a resolution of the Court of Tax Appeals
dismissing the petition for review filed by the petitioner for lack of
jurisdiction to try it on the merits, the same having been filed
beyond the 30-day period fixed in Section 11 of Republic Act No.
1125.
The petitioner, North Camarines Lumber Co., Inc., is a domestic
corporation engaged in the lumber business. On June 19, 1951 and
July 31, 1951, it sold a total of 2,164,863 board feet of logs to the
General Lumber Co., Inc., with the agreement that the latter would
assume responsibility for the payment of the sales tax thereon in
the amount of P7,768.51. After being consulted on the matter, the
respondent Collector of Internal Revenue, in his letters dated June
18, 1951 and August 6, 1951, advised the petitioner that he was
interposing no objection to the arrangement, provided the General
Lumber Co., Inc., would file the corresponding bonds to cover the
sales tax liabilities.
The General Lumber Co., Inc., complied with the condition. In view,
however, of its failure and that of the surety to pay the tax
liabilities, the respondent Collector, in his letter dated August 30,
1955, required the petitioner to pay the total amount of P9,598.72
as sales tax and incidental penalties in the sale of logs to the
General Lumber Co., Inc. Although the date of receipt by petitioner
of this letter does not appear in the records, it may be presumed
to be September 9, 1955, when the petitioner addressed a letter
to the respondent Collector, which was received on September 12,
1955, wherein the petitioner acknowledged receipt of the letter of
demand and at the same time requested for the reconsideration of
the assessment. This was denied by the respondent Collector in his
letter of December 8, 1955, received by the petitioner on January
5, 1956. The respondent Collector having denied the second
request for reconsideration in his letter dated January 30, 1956,
which the petitioner received on February 16, 1956, the latter, on
March 13, 1956, filed a petition for review with the Court of Tax
Appeals. The Court, after a preliminary hearing on respondent
Collector’s motion to dismiss, ruled that, as the petition was filed
beyond the 30-day period prescribed by Section 11 of Republic Act
No. 1125, it has no jurisdiction to try the same. Accordingly, the
case was dismissed.
In contending that the Court of Tax Appeals erred, the petitioner
points out that Section 7, and not Section 11, of Republic Act No.
1125 confers and determines the jurisdiction of the respondent
court, and that Section 11 refers merely to the prescriptive period
for filing appeals.
While the petitioner is correct as to the attribute of Section 7, it
should be remembered that, for the respondent court to have
jurisdiction over any case, the party seeking redress must first
invoke its exercise in the manner and within the time prescribed
by the law. Thus Section 7, which enumerates the specific cases
falling within the jurisdiction of the Court of Tax Appeals must be
read together with Section 11, which fixes the time for invoking
said jurisdiction.
There is no question that petitioner’s case is covered by Section 7
and, therefore, comes within the jurisdiction of the respondent
court. But was said jurisdiction invoked by toe petitioner within
the period prescribed by Section 11?
The respondent court ruled that the time consumed by the
petitioner in perfecting its appeal after deducting the time during
which the period for appeal was suspended by a pending request
for reconsideration is as follows:chanrob1es virtual 1aw library
From September 9, 1955, presumed date of receipt of
decision, to September 12, 1955, the filing of request
for reconsideration 3 days
From January 5, 1956, presumed date of receipt
of denial of reconsideration, to January
9, 1956, the filing of the second request
for reconsideration 4 days
From February 16, 1956, receipt of denial of second
request for reconsideration, to March
13, 1956, the filing of petition for review 26 days
Total 33 days
As the petitioner had consumed thirty-three days, its appeal was
clearly filed out of time. It is argued, however, that in computing
the 30-day period fixed in Section 11 of Republic Act No. 1125, the
letter of the respondent Collector dated January 30, 1956, denying
the second request for reconsideration, should be considered as
the final decision contemplated in Section 7, and not the letter of
demand dated August 30, 1955.
This contention is untenable. We cannot countenance the theory
that would make the commencement of the statutory 30-day
period solely dependent on the will of the taxpayer and place the
latter in a position to put off indefinitely and at his convenience
the finality of a tax assessment. Such an absurd procedure would
be detrimental to the interest of the Government, for "taxes are
the lifeblood of the government, and their prompt and certain
availability an imperious need." (Bull v. U.S. 295, U. S. 247.) .
Wherefore, the resolution appealed from is affirmed, with costs.
So ordered.
G.R. No. L-7859 December 22, 1955
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of
the deceased Antonio Jayme Ledesma,plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal
Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant
Solicitor General Guillermo E. Torres and Solicitor Felicisimo R.
Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of Negros
Occidental to test the legality of the taxes imposed by
Commonwealth Act No. 567, otherwise known as the Sugar
Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a
declaration of emergency, due to the threat to our industry by the
imminent imposition of export taxes upon sugar as provided in the
Tydings-McDuffe Act, and the "eventual loss of its preferential
position in the United States market"; wherefore, the national
policy was expressed "to obtain a readjustment of the benefits
derived from the sugar industry by the component elements
thereof" and "to stabilize the sugar industry so as to prepare it for
the eventuality of the loss of its preferential position in the United
States market and the imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of
the existing tax on the manufacture of sugar, on a graduated basis,
on each picul of sugar manufactured; while section 3 levies on
owners or persons in control of lands devoted to the cultivation of
sugar cane and ceded to others for a consideration, on lease or
otherwise —
a tax equivalent to the difference between the money value of the
rental or consideration collected and the amount representing 12
per centum of the assessed value of such land.
According to section 6 of the law —
SEC. 6. All collections made under this Act shall accrue to a special
fund in the Philippine Treasury, to be known as the 'Sugar
Adjustment and Stabilization Fund,' and shall be paid out only for
any or all of the following purposes or to attain any or all of the
following objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself,
despite the gradual loss of the preferntial position of the Philippine
sugar in the United States market, and ultimately to insure its
continued existence notwithstanding the loss of that market and
the consequent necessity of meeting competition in the free
markets of the world;
Second, to readjust the benefits derived from the sugar industry by
all of the component elements thereof — the mill, the landowner,
the planter of the sugar cane, and the laborers in the factory and in
the field — so that all might continue profitably to engage
therein;lawphi1.net
Third, to limit the production of sugar to areas more economically
suited to the production thereof; and
Fourth, to afford labor employed in the industry a living wage and
to improve their living and working conditions: Provided, That the
President of the Philippines may, until the adjourment of the next
regular session of the National Assembly, make the necessary
disbursements from the fund herein created (1) for the
establishment and operation of sugar experiment station or
stations and the undertaking of researchers (a) to increase the
recoveries of the centrifugal sugar factories with the view of
reducing manufacturing costs, (b) to produce and propagate higher
yielding varieties of sugar cane more adaptable to different district
conditions in the Philippines, (c) to lower the costs of raising sugar
cane, (d) to improve the buying quality of denatured alcohol from
molasses for motor fuel, (e) to determine the possibility of utilizing
the other by-products of the industry, (f) to determine what crop
or crops are suitable for rotation and for the utilization of excess
cane lands, and (g) on other problems the solution of which would
help rehabilitate and stabilize the industry, and (2) for the
improvement of living and working conditions in sugar mills and
sugar plantations, authorizing him to organize the necessary
agency or agencies to take charge of the expenditure and
allocation of said funds to carry out the purpose hereinbefore
enumerated, and, likewise, authorizing the disbursement from the
fund herein created of the necessary amount or amounts needed
for salaries, wages, travelling expenses, equipment, and other
sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the
Intestate Estate of Antonio Jayme Ledesma, seeks to recover from
the Collector of Internal Revenue the sum of P14,666.40 paid by
the estate as taxes, under section 3 of the Act, for the crop years
1948-1949 and 1949-1950; alleging that such tax is
unconstitutional and void, being levied for the aid and support of
the sugar industry exclusively, which in plaintiff's opinion is not a
public purpose for which a tax may be constitutioally levied. The
action having been dismissed by the Court of First Instance, the
plaintifs appealed the case directly to this Court (Judiciary Act,
section 17).
The basic defect in the plaintiff's position is his assumption that
the tax provided for in Commonwealth Act No. 567 is a pure
exercise of the taxing power. Analysis of the Act, and particularly
of section 6 (heretofore quoted in full), will show that the tax is
levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry. In
other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production
is one of the great industries of our nation, sugar occupying a
leading position among its export products; that it gives
employment to thousands of laborers in fields and factories; that it
is a great source of the state's wealth, is one of the important
sources of foreign exchange needed by our government, and is
thus pivotal in the plans of a regime committed to a policy of
currency stability. Its promotion, protection and advancement,
therefore redounds greatly to the general welfare. Hence it was
competent for the legislature to find that the general welfare
demanded that the sugar industry should be stabilized in turn; and
in the wide field of its police power, the lawmaking body could
provide that the distribution of benefits therefrom be readjusted
among its components to enable it to resist the added strain of the
increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S.
52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128
So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the
citrus industry in Florida —
The protection of a large industry constituting one of the great
sources of the state's wealth and therefore directly or indirectly
affecting the welfare of so great a portion of the population of the
State is affected to such an extent by public interests as to be
within the police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion
of the sugar industry is a matter of public concern, it follows that
the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here,
the legislative discretion must be allowed fully play, subject only to
the test of reasonableness; and it is not contended that the means
provided in section 6 of the law (above quoted) bear no relation to
the objective pursued or are oppressive in character. If objective
and methods are alike constitutionally valid, no reason is seen why
the state may not levy taxes to raise funds for their prosecution
and attainment. Taxation may be made the implement of the
state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.
S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477;
M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).
That the tax to be levied should burden the sugar producers
themselves can hardly be a ground of complaint; indeed, it appears
rational that the tax be obtained precisely from those who are to
be benefited from the expenditure of the funds derived from it. At
any rate, it is inherent in the power to tax that a state be free to
select the subjects of taxation, and it has been repeatedly held
that "inequalities which result from a singling out of one particular
class for taxation, or exemption infringe no constitutional
limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495,
81 L. Ed. 1245, citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment
that the funds raised under the Sugar Stabilization Act, now in
question, should be exclusively spent in aid of the sugar industry,
since it is that very enterprise that is being protected. It may be
that other industries are also in need of similar protection; that the
legislature is not required by the Constitution to adhere to a policy
of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate
Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the
evil where it is most felt, it is not to be overthrown because there
are other instances to which it might have been applied;" and that
"the legislative authority, exerted within its proper field, need not
embrace all the evils within its reach" (N. L. R. B. vs. Jones &
Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, it
cannot be said that the devotion of tax money to experimental
stations to seek increase of efficiency in sugar production,
utilization of by-products and solution of allied problems, as well
as to the improvements of living and working conditions in sugar
mills or plantations, without any part of such money being
channeled directly to private persons, constitutes expenditure of
tax money for private purposes, (compare Everson vs. Board of
Education, 91 L. Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against
appellant. So ordered.
G.R. No. L-23645 October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON.
BRIGIDO R. VALENCIA, in his capacity as Secretary of Public
Works and Communications, and DOMINGO GOPEZ, in his
capacity as Acting Postmaster of San Fernando,
Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for
petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor
General Frine C. Zaballero and Solicitor Dominador L. Quiroz for
respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act
1635,1 as amended by Republic Act 2631,2 which provides as
follows:
To help raise funds for the Philippine Tuberculosis Society, the
Director of Posts shall order for the period from August nineteen
to September thirty every year the printing and issue of
semi-postal stamps of different denominations with face value
showing the regular postage charge plus the additional amount of
five centavos for the said purpose, and during the said period, no
mail matter shall be accepted in the mails unless it bears such
semi-postal stamps: Provided, That no such additional charge of
five centavos shall be imposed on newspapers. The additional
proceeds realized from the sale of the semi-postal stamps shall
constitute a special fund and be deposited with the National
Treasury to be expended by the Philippine Tuberculosis Society in
carrying out its noble work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law,
thereafter issued four (4) administrative orders numbered 3 (June
20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15,
1960). All these administrative orders were issued with the
approval of the respondent Secretary of Public Works and
Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the
period from August 19 to September 30, 1957, for lack of time.
However, two denominations of such stamps, one at "5 + 5"
centavos and another at "10 + 5" centavos, will soon be released
for use by the public on their mails to be posted during the same
period starting with the year 1958.
xxx xxx xxx
During the period from August 19 to September 30 each year
starting in 1958, no mail matter of whatever class, and whether
domestic or foreign, posted at any Philippine Post Office and
addressed for delivery in this country or abroad, shall be accepted
for mailing unless it bears at least one such semi-postal stamp
showing the additional value of five centavos intended for the
Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of
mail permits or impressions of postage meters, each piece of such
mail shall bear at least one such semi-postal stamp if posted during
the period above stated starting with the year 1958, in addition to
being charged the usual postage prescribed by existing regulations.
In the case of business reply envelopes and cards mailed during
said period, such stamp should be collected from the addressees at
the time of delivery. Mails entitled to franking privilege like those
from the office of the President, members of Congress, and other
offices to which such privilege has been granted, shall each also
bear one such semi-postal stamp if posted during the said period.
Mails posted during the said period starting in 1958, which are
found in street or post-office mail boxes without the required
semi-postal stamp, shall be returned to the sender, if known, with
a notation calling for the affixing of such stamp. If the sender is
unknown, the mail matter shall be treated as nonmailable and
forwarded to the Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3,
reads as follows:
In the case of the following categories of mail matter and mails
entitled to franking privilege which are not exempted from the
payment of the five centavos intended for the Philippine
Tuberculosis Society, such extra charge may be collected in cash,
for which official receipt (General Form No. 13, A) shall be issued,
instead of affixing the semi-postal stamp in the manner hereinafter
indicated:
1. Second-class mail. — Aside from the postage at the second-class
rate, the extra charge of five centavos for the Philippine
Tuberculosis Society shall be collected on each
separately-addressed piece of second-class mail matter, and the
total sum thus collected shall be entered in the same official
receipt to be issued for the postage at the second-class rate. In
making such entry, the total number of pieces of second-class mail
posted shall be stated, thus: "Total charge for TB Fund on 100
pieces . .. P5.00." The extra charge shall be entered separate from
the postage in both of the official receipt and the Record of
Collections.
2. First-class and third-class mail permits. — Mails to be posted
without postage affixed under permits issued by this Bureau shall
each be charged the usual postage, in addition to the five-centavo
extra charge intended for said society. The total extra charge thus
received shall be entered in the same official receipt to be issued
for the postage collected, as in subparagraph 1.
3. Metered mail. — For each piece of mail matter impressed by
postage meter under metered mail permit issued by this Bureau,
the extra charge of five centavos for said society shall be collected
in cash and an official receipt issued for the total sum thus
received, in the manner indicated in subparagraph 1.
4. Business reply cards and envelopes. — Upon delivery of business
reply cards and envelopes to holders of business reply permits, the
five-centavo charge intended for said society shall be collected in
cash on each reply card or envelope delivered, in addition to the
required postage which may also be paid in cash. An official receipt
shall be issued for the total postage and total extra charge
received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. — Government agencies,
officials, and other persons entitled to the franking privilege under
existing laws may pay in cash such extra charge intended for said
society, instead of affixing the semi-postal stamps to their mails,
provided that such mails are presented at the post-office window,
where the five-centavo extra charge for said society shall be
collected on each piece of such mail matter. In such case, an
official receipt shall be issued for the total sum thus collected, in
the manner stated in subparagraph 1.
Mail under permits, metered mails and franked mails not
presented at the post-office window shall be affixed with the
necessary semi-postal stamps. If found in mail boxes without such
stamps, they shall be treated in the same way as herein provided
for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts
"Government and its Agencies and Instrumentalities Performing
Governmental Functions." Adm. Order 10, amending Adm. Order 3,
as amended, exempts "copies of periodical publications received
for mailing under any class of mail matter, including newspapers
and magazines admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P.
Gomez mailed a letter at the post office in San Fernando,
Pampanga. Because this letter, addressed to a certain Agustin
Aquino of 1014 Dagohoy Street, Singalong, Manila did not bear the
special anti-TB stamp required by the statute, it was returned to
the petitioner.
In view of this development, the petitioner brough suit for
declaratory relief in the Court of First Instance of Pampanga, to
test the constitutionality of the statute, as well as the
implementing administrative orders issued, contending that it
violates the equal protection clause of the Constitution as well as
the rule of uniformity and equality of taxation. The lower court
declared the statute and the orders unconstitutional; hence this
appeal by the respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed
from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the
respondents' contention that declaratory relief is unavailing
because this suit was filed after the petitioner had committed a
breach of the statute. While conceding that the mailing by the
petitioner of a letter without the additional anti-TB stamp was a
violation of Republic Act 1635, as amended, the trial court
nevertheless refused to dismiss the action on the ground that
under section 6 of Rule 64 of the Rules of Court, "If before the final
termination of the case a breach or violation of ... a statute ...
should take place, the action may thereupon be converted into an
ordinary action."
The prime specification of an action for declaratory relief is that it
must be brought "before breach or violation" of the statute has
been committed. Rule 64, section 1 so provides. Section 6 of the
same rule, which allows the court to treat an action for declaratory
relief as an ordinary action, applies only if the breach or violation
occurs after the filing of the action but before the termination
thereof.3
Hence, if, as the trial court itself admitted, there had been a
breach of the statute before the firing of this action, then indeed
the remedy of declaratory relief cannot be availed of, much less
can the suit be converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of
the letter in question did not constitute a breach of the statute
because the statute appears to be addressed only to postal
authorities. The statute, it is true, in terms provides that "no mail
matter shall be accepted in the mails unless it bears such
semi-postal stamps." It does not follow, however, that only postal
authorities can be guilty of violating it by accepting mails without
the payment of the anti-TB stamp. It is obvious that they can be
guilty of violating the statute only if there are people who use the
mails without paying for the additional anti-TB stamp. Just as in
bribery the mere offer constitutes a breach of the law, so in the
matter of the anti-TB stamp the mere attempt to use the mails
without the stamp constitutes a violation of the statute. It is not
required that the mail be accepted by postal authorities. That
requirement is relevant only for the purpose of fixing the liability
of postal officials.
Nevertheless, we are of the view that the petitioner's choice of
remedy is correct because this suit was filed not only with respect
to the letter which he mailed on September 15, 1963, but also with
regard to any other mail that he might send in the future. Thus, in
his complaint, the petitioner prayed that due course be given to
"other mails without the semi-postal stamps which he may deliver
for mailing ... if any, during the period covered by Republic Act
1635, as amended, as well as other mails hereafter to be sent by or
to other mailers which bear the required postage, without
collection of additional charge of five centavos prescribed by the
same Republic Act." As one whose mail was returned, the
petitioner is certainly interested in a ruling on the validity of the
statute requiring the use of additional stamps.
II.
We now consider the constitutional objections raised against the
statute and the implementing orders.
1. It is said that the statute is violative of the equal protection
clause of the Constitution. More specifically the claim is made that
it constitutes mail users into a class for the purpose of the tax
while leaving untaxed the rest of the population and that even
among postal patrons the statute discriminatorily grants
exemption to newspapers while Administrative Order 9 of the
respondent Postmaster General grants a similar exemption to
offices performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended,
is in the nature of an excise tax, laid upon the exercise of a
privilege, namely, the privilege of using the mails. As such the
objections levelled against it must be viewed in the light of
applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent
power to select the subjects of taxation and to grant
exemptions.4 This power has aptly been described as "of wide
range and flexibility."5 Indeed, it is said that in the field of taxation,
more than in other areas, the legislature possesses the greatest
freedom in classification.6 The reason for this is that traditionally,
classification has been a device for fitting tax programs to local
needs and usages in order to achieve an equitable distribution of
the tax burden.7
That legislative classifications must be reasonable is of course
undenied. But what the petitioner asserts is that statutory
classification of mail users must bear some reasonable relationship
to the end sought to be attained, and that absent such relationship
the selection of mail users is constitutionally impermissible. This is
altogether a different proposition. As explained in Commonwealth
v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship
between classification made by the legislation and its purpose is
undoubtedly true in some contexts, it has no application to a
measure whose sole purpose is to raise revenue ... So long as the
classification imposed is based upon some standard capable of
reasonable comprehension, be that standard based upon ability to
produce revenue or some other legitimate distinction, equal
protection of the law has been afforded. See Allied Stores of Ohio,
Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown
Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S.
Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection
grounds except by the clearest demonstration that it sanctions
invidious discrimination, which is all that the Constitution forbids.
The remedy for unwise legislation must be sought in the legislature.
Now, the classification of mail users is not without any reason. It is
based on ability to pay, let alone the enjoyment of a privilege, and
on administrative convinience. In the allocation of the tax burden,
Congress must have concluded that the contribution to the anti-TB
fund can be assured by those whose who can afford the use of the
mails.
The classification is likewise based on considerations of
administrative convenience. For it is now a settled principle of law
that "consideration of practical administrative convenience and
cost in the administration of tax laws afford adequate ground for
imposing a tax on a well recognized and defined class." 9 In the case
of the anti-TB stamps, undoubtedly, the single most important and
influential consideration that led the legislature to select mail
users as subjects of the tax is the relative ease and convenienceof
collecting the tax through the post offices. The small amount of
five centavos does not justify the great expense and inconvenience
of collecting through the regular means of collection. On the other
hand, by placing the duty of collection on postal authorities the tax
was made almost self-enforcing, with as little cost and as little
inconvenience as possible.
And then of course it is not accurate to say that the statute
constituted mail users into a class. Mail users were already a class
by themselves even before the enactment of the statue and all
that the legislature did was merely to select their class. Legislation
is essentially empiric and Republic Act 1635, as amended, no more
than reflects a distinction that exists in fact. As Mr. Justice
Frankfurter said, "to recognize differences that exist in fact is living
law; to disregard [them] and concentrate on some abstract
identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's
power to grant exemption must likewise be conceded as a
necessary corollary. Tax exemptions are too common in the law;
they have never been thought of as raising issues under the equal
protection clause.
It is thus erroneous for the trial court to hold that because certain
mail users are exempted from the levy the law and administrative
officials have sanctioned an invidious discrimination offensive to
the Constitution. The application of the lower courts theory would
require all mail users to be taxed, a conclusion that is hardly
tenable in the light of differences in status of mail users. The
Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may
withhold the burden of the tax in order to foster what it conceives
to be a beneficent enterprise.11 This is the case of newspapers
which, under the amendment introduced by Republic Act 2631,
are exempt from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption
rests on the State's sovereign immunity from taxation. The State
cannot be taxed without its consent and such consent, being in
derogation of its sovereignty, is to be strictly
12
construed. Administrative Order 9 of the respondent Postmaster
General, which lists the various offices and instrumentalities of the
Government exempt from the payment of the anti-TB stamp, is but
a restatement of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it
singles out tuberculosis to the exclusion of other diseases which, it
is said, are equally a menace to public health. But it is never a
requirement of equal protection that all evils of the same genus be
eradicated or none at all.13 As this Court has had occasion to say,
"if the law presumably hits the evil where it is most felt, it is not to
be overthrown because there are other instances to which it might
have been applied."14
2. The petitioner further argues that the tax in question is invalid,
first, because it is not levied for a public purpose as no special
benefits accrue to mail users as taxpayers, and second, because it
violates the rule of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by
public purpose the petitioner means benefit to a taxpayer as a
return for what he pays, then it is sufficient answer to say that the
only benefit to which the taxpayer is constitutionally entitled is
that derived from his enjoyment of the privileges of living in an
organized society, established and safeguarded by the devotion of
taxes to public purposes. Any other view would preclude the
levying of taxes except as they are used to compensate for the
burden on those who pay them and would involve the
abandonment of the most fundamental principle of government —
that it exists primarily to provide for the common good.15
Nor is the rule of uniformity and equality of taxation infringed by
the imposition of a flat rate rather than a graduated tax. A tax
need not be measured by the weight of the mail or the extent of
the service rendered. We have said that considerations of
administrative convenience and cost afford an adequate ground
for classification. The same considerations may induce the
legislature to impose a flat tax which in effect is a charge for the
transaction, operating equally on all persons within the class
regardless of the amount involved.16 As Mr. Justice Holmes said in
sustaining the validity of a stamp act which imposed a flat rate of
two cents on every $100 face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of
$100, the other $172. The inequality of the tax, so far as actual
values are concerned, is manifest. But, here again equality in this
sense has to yield to practical considerations and usage. There
must be a fixed and indisputable mode of ascertaining a stamp tax.
In another sense, moreover, there is equality. When the taxes on
two sales are equal, the same number of shares is sold in each case;
that is to say, the same privilege is used to the same extent.
Valuation is not the only thing to be considered. As was pointed
out by the court of appeals, the familiar stamp tax of 2 cents on
checks, irrespective of income or earning capacity, and many
others, illustrate the necessity and practice of sometimes
substituting count for weight ...17
According to the trial court, the money raised from the sales of the
anti-TB stamps is spent for the benefit of the Philippine
Tuberculosis Society, a private organization, without appropriation
by law. But as the Solicitor General points out, the Society is not
really the beneficiary but only the agency through which the State
acts in carrying out what is essentially a public function. The
money is treated as a special fund and as such need not be
appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn
that to execute it the respondents had to issue administrative
orders far beyond their powers. Indeed, this is one of the grounds
on which the lower court invalidated Republic Act 1631, as
amended, namely, that it constitutes an undue delegation of
legislative power.
Administrative Order 3, as amended by Administrative Orders 7
and 10, provides that for certain classes of mail matters (such as
mail permits, metered mails, business reply cards, etc.), the
five-centavo charge may be paid in cash instead of the purchase of
the anti-TB stamp. It further states that mails deposited during the
period August 19 to September 30 of each year in mail boxes
without the stamp should be returned to the sender, if known,
otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of
five centavos except through the sale of anti-TB stamps, but such
authority may be implied in so far as it may be necessary to
prevent a failure of the undertaking. The authority given to the
Postmaster General to raise funds through the mails must be
liberally construed, consistent with the principle that where the
end is required the appropriate means are given. 19
The anti-TB stamp is a distinctive stamp which shows on its face
not only the amount of the additional charge but also that of the
regular postage. In the case of business reply cards, for instance, it
is obvious that to require mailers to affix the anti-TB stamp on
their cards would be to make them pay much more because the
cards likewise bear the amount of the regular postage.
It is likewise true that the statute does not provide for the
disposition of mails which do not bear the anti-TB stamp, but a
declaration therein that "no mail matter shall be accepted in the
mails unless it bears such semi-postal stamp" is a declaration that
such mail matter is nonmailable within the meaning of section
1952 of the Administrative Code. Administrative Order 7 of the
Postmaster General is but a restatement of the law for the
guidance of postal officials and employees. As for Administrative
Order 9, we have already said that in listing the offices and entities
of the Government exempt from the payment of the stamp, the
respondent Postmaster General merely observed an established
principle, namely, that the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint
is dismissed, without pronouncement as to costs.
G.R. No. L-4817 May 26, 1954
SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,
vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET
AL., defendants-appellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno
for defendants-appellants.
REYES, J.:
This suit was commenced in the Court of First Instance of Manila
by two lawyers, a medical practitioner, a public accountant, a
dental surgeon and a pharmacist, purportedly "in their own behalf
and in behalf of other professionals practising in the City of Manila
who may desire to join it." Object of the suit is the annulment of
Ordinance No. 3398 of the City of Manila together with the
provision of the Manila charter authorizing it and the refund of
taxes collected under the ordinance but paid under protest.
The ordinance in question, which was approved by the municipal
board of the City of Manila on July 25, 1950, imposes a municipal
occupation tax on persons exercising various professions in the city
and penalizes non-payment of the tax "by a fine of not more than
two hundred pesos or by imprisonment of not more than six
months, or by both such fine and imprisonment in the discretion of
the court." Among the professions taxed were those to which
plaintiffs belong. The ordinance was enacted pursuant to
paragraph (1) of section 18 of the Revised Charter of the City of
Manila (as amended by Republic Act No. 409), which empowers
the Municipal Board of said city to impose a municipal occupation
tax, not to exceed P50 per annum, on persons engaged in the
various professions above referred to.
Having already paid their occupation tax under section 201 of the
National Internal Revenue Code, plaintiffs, upon being required to
pay the additional tax prescribed in the ordinance, paid the same
under protest and then brought the present suit for the purpose
already stated. The lower court upheld the validity of the provision
of law authorizing the enactment of the ordinance but declared
the ordinance itself illegal and void on the ground that the penalty
there in provided for non-payment of the tax was not legally
authorized. From this decision both parties appealed to this Court,
and the only question they have presented for our determination
is whether this ruling is correct or not, for though the decision is
silent on the refund of taxes paid plaintiffs make no assignment of
error on this point.
To begin with defendants' appeal, we find that the lower court was
in error in saying that the imposition of the penalty provided for in
the ordinance was without the authority of law. The last paragraph
(kk) of the very section that authorizes the enactment of this tax
ordinance (section 18 of the Manila Charter) in express terms also
empowers the Municipal Board "to fix penalties for the violation of
ordinances which shall not exceed to(sic) two hundred pesos fine or
six months" imprisonment, or both such fine and imprisonment, for
a single offense." Hence, the pronouncement below that the
ordinance in question is illegal and void because it imposes a
penalty not authorized by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this
ordinance and the law authorizing it constitute class legislation,
are unjust and oppressive, and authorize what amounts to double
taxation.
In raising the hue and cry of "class legislation", the burden of
plaintiffs' complaint is not that the professions to which they
respectively belong have been singled out for the imposition of
this municipal occupation tax; and in any event, the Legislature
may, in its discretion, select what occupations shall be taxed, and
in the exercise of that discretion it may tax all, or it may select for
taxation certain classes and leave the others untaxed. (Cooley on
Taxation, Vol. 4, 4th ed., pp. 3393-3395.) Plaintiffs' complaint is
that while the law has authorized the City of Manila to impose the
said tax, it has withheld that authority from other chartered cities,
not to mention municipalities. We do not think it is for the courts
to judge what particular cities or municipalities should be
empowered to impose occupation taxes in addition to those
imposed by the National Government. That matter is peculiarly
within the domain of the political departments and the courts
would do well not to encroach upon it. Moreover, as the seat of
the National Government and with a population and volume of
trade many times that of any other Philippine city or municipality,
Manila, no doubt, offers a more lucrative field for the practice of
the professions, so that it is but fair that the professionals in
Manila be made to pay a higher occupation tax than their brethren
in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because they
say that it creates discrimination within a class in that while
professionals with offices in Manila have to pay the tax, outsiders
who have no offices in the city but practice their profession therein
are not subject to the tax. Plaintiffs make a distinction that is not
found in the ordinance. The ordinance imposes the tax upon every
person "exercising" or "pursuing" — in the City of Manila naturally
— any one of the occupations named, but does not say that such
person must have his office in Manila. What constitutes exercise or
pursuit of a profession in the city is a matter of judicial
determination. The argument against double taxation may not be
invoked where one tax is imposed by the state and the other is
imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it being
widely recognized that there is nothing inherently obnoxious in the
requirement that license fees or taxes be exacted with respect to
the same occupation, calling or activity by both the state and the
political subdivisions thereof. (51 Am. Jur., 341.)
In view of the foregoing, the judgment appealed from is reversed
in so far as it declares Ordinance No. 3398 of the City of Manila
illegal and void and affirmed in so far as it holds the validity of the
provision of the Manila charter authorizing it. With costs against
plaintiffs-appellants.
G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO
FERNANDEZ, respondents.
GUTIERREZ, JR., J.:
The petitioner invokes legal and equitable grounds to reverse the
questioned decision of the Intermediate Appellate Court, to set
aside the auction sale of his property which took place on
December 5, 1977, and to allow him to recover a 203 square meter
lot which was, sold at public auction to Ho Fernandez and ordered
titled in the latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a
two-story house built upon it situated at Barrio San Isidro, now
District of Sta. Clara, Pasay City, Metro Manila. The lot, with an
area of about 328 square meters, is described and covered by
Transfer Certificate of Title No. 4739 (37795) of the Registry of
Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's
property was expropriated by the Republic of the Philippines for
the sum of P4,116.00 representing the estimated amount
equivalent to the assessed value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real
estate taxes. Thus, on December 5, 1977, his property was sold at
public auction by the City Treasurer of Pasay City pursuant to
Section 73 of Presidential Decree No. 464 known as the Real
Property Tax Code in order to satisfy a tax delinquency of
P2,400.00. Ho Fernandez was the highest bidder for the property.
Francia was not present during the auction sale since he was in
Iligan City at that time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case
No. 1593-P "In re: Petition for Entry of New Certificate of Title"
filed by Ho Fernandez, seeking the cancellation of TCT No. 4739
(37795) and the issuance in his name of a new certificate of title.
Upon verification through his lawyer, Francia discovered that a
Final Bill of Sale had been issued in favor of Ho Fernandez by the
City Treasurer on December 11, 1978. The auction sale and the
final bill of sale were both annotated at the back of TCT No. 4739
(37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction
sale. He later amended his complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered dismissing the amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a new Transfer
Certificate of Title in favor of the defendant Ho Fernandez over the
parcel of land including the improvements thereon, subject to
whatever encumbrances appearing at the back of TCT No. 4739
(37795) and ordering the same TCT No. 4739 (37795) cancelled.
(b) The plaintiff to pay defendant Ho Fernandez the sum of
P1,000.00 as attorney's fees. (p. 30, Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the
lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of
grave errors of law:
I A careful review of the case, however, discloses that Mr. Francia
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A
GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S
OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY
WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE
GOVERNMENT IS INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A
GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT PETITIONER
WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE
OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO
SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER
COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID
BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS
TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A
DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW,
AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID.
(pp. 10, 17, 20-21, Rollo)
We gave due course to the petition for a more thorough inquiry
into the petitioner's allegations that his property was sold at public
auction without notice to him and that the price paid for the
property was shockingly inadequate, amounting to fraud and
deprivation without due process of law.
brought the problems raised in his petition upon himself. While we
commiserate with him at the loss of his property, the law and the
facts militate against the grant of his petition. We are constrained
to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been
extinguished by legal compensation. He claims that the
government owed him P4,116.00 when a portion of his land was
expropriated on October 15, 1977. Hence, his tax obligation had
been set-off by operation of law as of October 15, 1977.
There is no legal basis for the contention. By legal compensation,
obligations of persons, who in their own right are reciprocally
debtors and creditors of each other, are extinguished (Art. 1278,
Civil Code). The circumstances of the case do not satisfy the
requirements provided by Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he
be at the same time a principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have
consistently ruled that there can be no off-setting of taxes against
the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax
being collected. The collection of a tax cannot await the results of
a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this
Court ruled that Internal Revenue Taxes can not be the subject of
set-off or compensation. We stated that:
A claim for taxes is not such a debt, demand, contract or judgment
as is allowed to be set-off under the statutes of set-off, which are
construed uniformly, in the light of public policy, to exclude the
remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for
taxes. Neither are they a proper subject of recoupment since they
do not arise out of the contract or transaction sued on. ... (80 C.J.S.,
7374). "The general rule based on grounds of public policy is
well-settled that no set-off admissible against demands for taxes
levied for general or local governmental purposes. The reason on
which the general rule is based, is that taxes are not in the nature
of contracts between the party and party but grow out of duty to,
and are the positive acts of the government to the making and
enforcing of which, the personal consent of individual taxpayers is
not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called
upon by the collector because he has a claim against the
governmental body not included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA
331) where we stated that: "... internal revenue taxes can not be
the subject of compensation: Reason: government and taxpayer
are not mutually creditors and debtors of each other' under Article
1278 of the Civil Code and a "claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off."
There are other factors which compel us to rule against the
petitioner. The tax was due to the city government while the
expropriation was effected by the national government. Moreover,
the amount of P4,116.00 paid by the national government for the
125 square meter portion of his lot was deposited with the
Philippine National Bank long before the sale at public auction of
his remaining property. Notice of the deposit dated September 28,
1977 was received by the petitioner on September 30, 1977. The
petitioner admitted in his testimony that he knew about the
P4,116.00 deposited with the bank but he did not withdraw it. It
would have been an easy matter to withdraw P2,400.00 from the
deposit so that he could pay the tax obligation thus aborting the
sale at public auction.
Petitioner had one year within which to redeem his property
although, as well be shown later, he claimed that he pocketed the
notice of the auction sale without reading it.
Petitioner contends that "the auction sale in question was made
without complying with the mandatory provisions of the statute
governing tax sale. No evidence, oral or otherwise, was presented
that the procedure outlined by law on sales of property for tax
delinquency was followed. ... Since defendant Ho Fernandez has
the affirmative of this issue, the burden of proof therefore rests
upon him to show that plaintiff was duly and properly
notified ... .(Petition for Review, Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the
purchaser at the auction sale, has the burden of proof to show that
there was compliance with all the prescribed requisites for a tax
sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the
doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be
established by proof and the general rule is that the purchaser of a
tax title is bound to take upon himself the burden of showing the
regularity of all proceedings leading up to the sale. (emphasis
supplied)
There is no presumption of the regularity of any administrative
action which results in depriving a taxpayer of his property through
a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular
Government, 19 Phil. 261). This is actually an exception to the rule
that administrative proceedings are presumed to be regular.
But even if the burden of proof lies with the purchaser to show
that all legal prerequisites have been complied with, the petitioner
can not, however, deny that he did receive the notice for the
auction sale. The records sustain the lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted
that he was not properly notified of the auction sale. Surprisingly,
however, he admitted in his testimony that he received the letter
dated November 21, 1977 (Exhibit "I") as shown by his signature
(Exhibit "I-A") thereof. He claimed further that he was not present
on December 5, 1977 the date of the auction sale because he went
to Iligan City. As long as there was substantial compliance with the
requirements of the notice, the validity of the auction sale can not
be assailed ... .
We quote the following testimony of the petitioner on
cross-examination, to wit:
Q. My question to you is this letter marked as Exhibit I for Ho
Fernandez notified you that the property in question shall be sold
at public auction to the highest bidder on December 5, 1977
pursuant to Sec. 74 of PD 464. Will you tell the Court whether you
received the original of this letter?
A. I just signed it because I was not able to read the same. It was
just sent by mail carrier.
Q. So you admit that you received the original of Exhibit I and you
signed upon receipt thereof but you did not read the contents of
it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was
negligence on his part when he ignored such notice. By his very
own admission that he received the notice, his now coming to
court assailing the validity of the auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As
a general rule, gross inadequacy of price is not material (De Leon v.
Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance
Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917
Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109
SCRA 388) we held that "alleged gross inadequacy of price is not
material when the law gives the owner the right to redeem as
when a sale is made at public auction, upon the theory that the
lesser the price, the easier it is for the owner to effect
redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which the
lands were sold are unconscionable considering the wide
divergence between their assessed values and the amounts for
which they had been actually sold. However, while in ordinary
sales for reasons of equity a transaction may be invalidated on the
ground of inadequacy of price, or when such inadequacy shocks
one's conscience as to justify the courts to interfere, such does not
follow when the law gives to the owner the right to redeem, as
when a sale is made at public auction, upon the theory that the
lesser the price the easier it is for the owner to effect the
redemption. And so it was aptly said: "When there is the right to
redeem, inadequacy of price should not be material, because the
judgment debtor may reacquire the property or also sell his right
to redeem and thus recover the loss he claims to have suffered by
reason of the price obtained at the auction sale."
The reason behind the above rulings is well enunciated in the case
of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale
for taxes, the collection of taxes in this manner would be greatly
embarrassed, if not rendered altogether impracticable. In Black on
Tax Titles (2nd Ed.) 238, the correct rule is stated as follows:
"where land is sold for taxes, the inadequacy of the price given is
not a valid objection to the sale." This rule arises from necessity,
for, if a fair price for the land were essential to the sale, it would
be useless to offer the property. Indeed, it is notorious that the
prices habitually paid by purchasers at tax sales are grossly out of
proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32
Wash. 307, 73 P. 367, 369).
In this case now before us, we can aptly use the language
of McGuire, et al. v. Bean, et al. (267 P. 555):
Like most cases of this character there is here a certain element of
hardship from which we would be glad to relieve, but do so would
unsettle long-established rules and lead to uncertainty and
difficulty in the collection of taxes which are the life blood of the
state. We are convinced that the present rules are just, and that
they bring hardship only to those who have invited it by their own
neglect.
We are inclined to believe the petitioner's claim that the value of
the lot has greatly appreciated in value. Precisely because of the
widening of Buendia Avenue in Pasay City, which necessitated the
expropriation of adjoining areas, real estate values have gone up in
the area. However, the price quoted by the petitioner for a 203
square meter lot appears quite exaggerated. At any rate, the
foregoing reasons which answer the petitioner's claims lead us to
deny the petition.
And finally, even if we are inclined to give relief to the petitioner
on equitable grounds, there are no strong considerations of
substantial justice in his favor. Mr. Francia failed to pay his taxes
for 14 years from 1963 up to the date of the auction sale. He
claims to have pocketed the notice of sale without reading it which,
if true, is still an act of inexplicable negligence. He did not
withdraw from the expropriation payment deposited with the
Philippine National Bank an amount sufficient to pay for the back
taxes. The petitioner did not pay attention to another notice sent
by the City Treasurer on November 3, 1978, during the period of
redemption, regarding his tax delinquency. There is furthermore
no showing of bad faith or collusion in the purchase of the
property by Mr. Fernandez. The petitioner has no standing to
invoke equity in his attempt to regain the property by belatedly
asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review
is DISMISSED. The decision of the respondent court is affirmed.
SO ORDERED.
Engracio Francia was the owner of a 328 square meter land in
Pasay City. In October 1977, a portion of his land (125 square
meter) was expropriated by the government for P4,116.00. The
expropriation was made to give way to the expansion of a nearby
road.
It also appears that Francia failed to pay his real estate taxes since
1963 amounting to P2,400.00. So in December 1977, the
remaining 203 square meters of his land was sold at a public
auction (after due notice was given him). The highest bidder was a
certain Ho Fernandez who paid the purchase price of P2,400.00
(which was lesser than the price of the portion of his land that was
expropriated).
Later, Francia filed a complaint to annul the auction sale on the
ground that the selling price was grossly inadequate. He further
argued that his land should have never been auctioned because
the P2,400.00 he owed the government in taxes should have been
set-off by the debt the government owed him (legal
compensation). He alleged that he was not paid by the
government for the expropriated portion of his land because
though he knew that the payment therefor was deposited in the
Philippine National Bank, he never withdrew it.
ISSUE: Whether or not the tax owed by Francia should be set-off
by the “debt” owed him by the government.
HELD: No. As a rule, set-off of taxes is not allowed. There is no
legal basis for the contention. By legal compensation, obligations
of persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code).
This is not applicable in taxes. There can be no off-setting of taxes
against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground
that the government owes him an amount equal to or greater than
the tax being collected. The collection of a tax cannot await the
results of a lawsuit against the government.
The Supreme Court emphasized: A claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be set-off
under the statutes of set-off, which are construed uniformly, in the
light of public policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable to
the state or municipality for taxes. Neither are they a proper
subject of recoupment since they do not arise out of the contract
or transaction sued on.
Further, the government already Francia. All he has to do was to
withdraw the money. Had he done that, he could have paid his tax
obligations even before the auction sale or could have exercised
his right to redeem – which he did not do.
Anent the issue that the selling price of P2,400.00 was grossly
inadequate, the same is not tenable. The Supreme Court said:
“alleged gross inadequacy of price is not material when the law
gives the owner the right to redeem as when a sale is made at
public auction, upon the theory that the lesser the price, the easier
it is for the owner to effect redemption.” If mere inadequacy of
price is held to be a valid objection to a sale for taxes, the
collection of taxes in this manner would be greatly embarrassed, if
not rendered altogether impracticable. “Where land is sold for
taxes, the inadequacy of the price given is not a valid objection to
the sale.” This rule arises from necessity, for, if a fair price for the
land were essential to the sale, it would be useless to offer the
property. Indeed, it is notorious that the prices habitually paid by
purchasers at tax sales are grossly out of proportion to the value of
the land.
G.R. No. L-75697
VALENTIN TIO doing business under the name and style of OMI
ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE,
METRO MANILA COMMISSION, CITY MAYOR and CITY
TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City
Treasurer.

MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his
own behalf and purportedly on behalf of other videogram
operators adversely affected. It assails the constitutionality of
Presidential Decree No. 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to regulate and
supervise the videogram industry (hereinafter briefly referred to as
the BOARD). The Decree was promulgated on October 5, 1985 and
took effect on April 10, 1986, fifteen (15) days after completion of
its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the
abovementioned decree, Presidential Decree No. 1994 amended
the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. — There shall be collected on each
processed video-tape cassette, ready for playback, regardless of
length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to
sales tax.
On October 23, 1986, the Greater Manila Theaters Association,
Integrated Movie Producers, Importers and Distributors
Association of the Philippines, and Philippine Motion Pictures
Producers Association, hereinafter collectively referred to as the
Intervenors, were permitted by the Court to intervene in the case,
over petitioner's opposition, upon the allegations that intervention
was necessary for the complete protection of their rights and that
their "survival and very existence is threatened by the unregulated
proliferation of film piracy." The Intervenors were thereafter
allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its
preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of
videograms including, among others, videotapes, discs, cassettes
or any technical improvement or variation thereof, have greatly
prejudiced the operations of moviehouses and theaters, and have
caused a sharp decline in theatrical attendance by at least forty
percent (40%) and a tremendous drop in the collection of sales,
contractor's specific, amusement and other taxes, thereby
resulting in substantial losses estimated at P450 Million annually in
government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around
P600 Million per annum from rentals, sales and disposition of
videograms, and such earnings have not been subjected to tax,
thereby depriving the Government of approximately P180 Million
in taxes each year;
3. WHEREAS, the unregulated activities of videogram
establishments have also affected the viability of the movie
industry, particularly the more than 1,200 movie houses and
theaters throughout the country, and occasioned industry-wide
displacement and unemployment due to the shutdown of
numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is
imperative for the Government to create an environment
conducive to growth and development of all business industries,
including the movie industry which has an accumulated
investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram
establishments will not only alleviate the dire financial condition of
the movie industry upon which more than 75,000 families and
500,000 workers depend for their livelihood, but also provide an
additional source of revenue for the Government, and at the same
time rationalize the heretofore uncontrolled distribution of
videograms;
6. WHEREAS, the rampant and unregulated showing of obscene
videogram features constitutes a clear and present danger to the
moral and spiritual well-being of the youth, and impairs the
mandate of the Constitution for the State to support the rearing of
the youth for civic efficiency and the development of moral
character and promote their physical, intellectual, and social
well-being;
7. WHEREAS, civic-minded citizens and groups have called for
remedial measures to curb these blatant malpractices which have
flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the
moral values of the people and betraying the national economic
recovery program, bold emergency measures must be adopted
with dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on
the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross
receipts payable to the local government is a RIDER and the same
is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in
unlawful restraint of trade in violation of the due process clause of
the Constitution;
3. There is no factual nor legal basis for the exercise by the
President of the vast powers conferred upon him by Amendment
No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a
nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace
only one subject which shall be expressed in the title thereof" 1 is
sufficiently complied with if the title be comprehensive enough to
include the general purpose which a statute seeks to achieve. It is
not necessary that the title express each and every end that the
statute wishes to accomplish. The requirement is satisfied if all the
parts of the statute are related, and are germane to the subject
matter expressed in the title, or as long as they are not
inconsistent with or foreign to the general subject and title. 2An act
having a single general subject, indicated in the title, may contain
any number of provisions, no matter how diverse they may be, so
long as they are not inconsistent with or foreign to the general
subject, and may be considered in furtherance of such subject by
providing for the method and means of carrying out the general
object." 3 The rule also is that the constitutional requirement as to
the title of a bill should not be so narrowly construed as to cripple
or impede the power of legislation. 4 It should be given practical
rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the
tax provision of the DECREE is a rider is without merit. That section
reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. —
Notwithstanding any provision of law to the contrary, the province
shall collect a tax of thirty percent (30%) of the purchase price or
rental rate, as the case may be, for every sale, lease or disposition
of a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax
collected shall accrue to the province, and the other fifty percent
(50%) shall acrrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared
equally by the City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably
necessary for the accomplishment of, the general object of the
DECREE, which is the regulation of the video industry through the
Videogram Regulatory Board as expressed in its title. The tax
provision is not inconsistent with, nor foreign to that general
subject and title. As a tool for regulation 6 it is simply one of the
regulatory and control mechanisms scattered throughout the
DECREE. The express purpose of the DECREE to include taxation of
the video industry in order to regulate and rationalize the
heretofore uncontrolled distribution of videograms is evident from
Preambles 2 and 5, supra. Those preambles explain the motives of
the lawmaker in presenting the measure. The title of the DECREE,
which is the creation of the Videogram Regulatory Board, is
comprehensive enough to include the purposes expressed in its
Preamble and reasonably covers all its provisions. It is unnecessary
to express all those objectives in the title or that the latter be an
index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax
imposed is harsh and oppressive, confiscatory, and in restraint of
trade. However, it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or even
definitely deters the activities taxed. 8 The power to impose taxes
is one so unlimited in force and so searching in extent, that the
courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the
authority which exercises it. 9 In imposing a tax, the legislature acts
upon its constituents. This is, in general, a sufficient security
against erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a
revenue measure prompted by the realization that earnings of
videogram establishments of around P600 million per annum have
not been subjected to tax, thereby depriving the Government of
an additional source of revenue. It is an end-user tax, imposed on
retailers for every videogram they make available for public
viewing. It is similar to the 30% amusement tax imposed or borne
by the movie industry which the theater-owners pay to the
government, but which is passed on to the entire cost of the
admission ticket, thus shifting the tax burden on the buying or the
viewing public. It is a tax that is imposed uniformly on all
videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed
primarily to answer the need for regulating the video industry,
particularly because of the rampant film piracy, the flagrant
violation of intellectual property rights, and the proliferation of
pornographic video tapes. And while it was also an objective of the
DECREE to protect the movie industry, the tax remains a valid
imposition.
The public purpose of a tax may legally exist even if the motive
which impelled the legislature to impose the tax was to favor one
industry over another. 11
It is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that
"inequities which result from a singling out of one particular class
for taxation or exemption infringe no constitutional
limitation". 12 Taxation has been made the implement of the
state's police power.13
At bottom, the rate of tax is a matter better addressed to the
taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for
the promulgation of the DECREE by the former President under
Amendment No. 6 of the 1973 Constitution providing that
"whenever in the judgment of the President ... , there exists a
grave emergency or a threat or imminence thereof, or whenever
the interim Batasang Pambansa or the regular National Assembly
fails or is unable to act adequately on any matter for any reason
that in his judgment requires immediate action, he may, in order
to meet the exigency, issue the necessary decrees, orders, or
letters of instructions, which shall form part of the law of the
land."
In refutation, the Intervenors and the Solicitor General's Office
aver that the 8th "whereas" clause sufficiently summarizes the
justification in that grave emergencies corroding the moral values
of the people and betraying the national economic recovery
program necessitated bold emergency measures to be adopted
with dispatch. Whatever the reasons "in the judgment" of the then
President, considering that the issue of the validity of the exercise
of legislative power under the said Amendment still pends
resolution in several other cases, we reserve resolution of the
question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains
an undue delegation of legislative power. The grant in Section 11
of the DECREE of authority to the BOARD to "solicit the direct
assistance of other agencies and units of the government and
deputize, for a fixed and limited period, the heads or personnel of
such agencies and units to perform enforcement functions for the
Board" is not a delegation of the power to legislate but merely a
conferment of authority or discretion as to its execution,
enforcement, and implementation. "The true distinction is
between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and
conferring authority or discretion as to its execution to be
exercised under and in pursuance of the law. The first cannot be
done; to the latter, no valid objection can be made." 14 Besides, in
the very language of the decree, the authority of the BOARD to
solicit such assistance is for a "fixed and limited period" with the
deputized agencies concerned being "subject to the direction and
control of the BOARD." That the grant of such authority might be
the source of graft and corruption would not stigmatize the
DECREE as unconstitutional. Should the eventuality occur, the
aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex
post facto law is, among other categories, one which "alters the
legal rules of evidence, and authorizes conviction upon less or
different testimony than the law required at the time of the
commission of the offense." It is petitioner's position that Section
15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a
period of forty-five (45) days after the effectivity of this Decree
within which to register with and secure a permit from the BOARD
to engage in the videogram business and to register with the
BOARD all their inventories of videograms, including videotapes,
discs, cassettes or other technical improvements or variations
thereof, before they could be sold, leased, or otherwise disposed
of. Thereafter any videogram found in the possession of any
person engaged in the videogram business without the required
proof of registration by the BOARD, shall be prima facie evidence
of violation of the Decree, whether the possession of such
videogram be for private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the
DECREE when the required proof of registration of any videogram
cannot be presented and thus partakes of the nature of an ex post
facto law.
The argument is untenable. As this Court held in the recent case
of Vallarta vs. Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to
the passage of a law providing that the presumption of innocence
may be overcome by a contrary presumption founded upon the
experience of human conduct, and enacting what evidence shall be
sufficient to overcome such presumption of innocence" (People vs.
Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE
ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the
"legislature may enact that when certain facts have been proved
that they shall be prima facie evidence of the existence of the guilt
of the accused and shift the burden of proof provided there be a
rational connection between the facts proved and the ultimate
facts presumed so that the inference of the one from proof of the
others is not unreasonable and arbitrary because of lack of
connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there
is a rational connection between the fact proved, which is
non-registration, and the ultimate fact presumed which is violation
of the DECREE, besides the fact that the prima facie presumption
of violation of the DECREE attaches only after a forty-five-day
period counted from its effectivity and is, therefore, neither
retrospective in character.
6. We do not share petitioner's fears that the video industry is
being over-regulated and being eased out of existence as if it were
a nuisance. Being a relatively new industry, the need for its
regulation was apparent. While the underlying objective of the
DECREE is to protect the moribund movie industry, there is no
question that public welfare is at bottom of its enactment,
considering "the unfair competition posed by rampant film piracy;
the erosion of the moral fiber of the viewing public brought about
by the availability of unclassified and unreviewed video tapes
containing pornographic films and films with brutally violent
sequences; and losses in government revenues due to the drop in
theatrical attendance, not to mention the fact that the activities of
video establishments are virtually untaxed since mere payment of
Mayor's permit and municipal license fees are required to engage
in business. 17
The enactment of the Decree since April 10, 1986 has not brought
about the "demise" of the video industry. On the contrary, video
establishments are seen to have proliferated in many places
notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the
necessity, wisdom and expediency of the DECREE. These
considerations, however, are primarily and exclusively a matter of
legislative concern.
Only congressional power or competence, not the wisdom of the
action taken, may be the basis for declaring a statute invalid. This
is as it ought to be. The principle of separation of powers has in the
main wisely allocated the respective authority of each department
and confined its jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to
the discretion of a coordinate branch, the judiciary would
substitute its own. If there be adherence to the rule of law, as
there ought to be, the last offender should be courts of justice, to
which rightly litigants submit their controversy precisely to
maintain unimpaired the supremacy of legal norms and
prescriptions. The attack on the validity of the challenged provision
likewise insofar as there may be objections, even if valid and
cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity
which attaches to a challenged statute. We find no clear violation
of the Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
G.R. No. L-24756 October 31, 1968
CITY OF BAGUIO, plaintiff-appellee,
vs.
FORTUNATO DE LEON, defendant-appellant.
The City Attorney for plaintiff-appellee.
Fortunato de Leon for and in his own behalf as
defendant-appellant.
FERNANDO, J.:
In this appeal, a lower court decision upholding the validity of an
ordinance1 of the City of Baguio imposing a license fee on any
person, firm, entity or corporation doing business in the City of
Baguio is assailed by defendant-appellant Fortunato de Leon. He
was held liable as a real estate dealer with a property therein
worth more than P10,000, but not in excess of P50,000, and
therefore obligated to pay under such ordinance the P50 annual
fee. That is the principal question. In addition, there has been a
firm and unyielding insistence by defendant-appellant of the lack
of jurisdiction of the City Court of Baguio, where the suit originated,
a complaint having been filed against him by the City Attorney of
Baguio for his failure to pay the amount of P300 as license fee
covering the period from the first quarter of 1958 to the fourth
quarter of 1962, allegedly, inspite of repeated demands. Nor was
defendant-appellant agreeable to such a suit being instituted by
the City Treasurer without the consent of the Mayor, which for
him was indispensable. The lower court was of a different mind.
In its decision of December 19, 1964, it declared the above
ordinance as amended, valid and subsisting, and held
defendant-appellant liable for the fees therein prescribed as a real
estate dealer. Hence, this appeal. Assume the validity of such
ordinance, and there would be no question about the liability of
defendant-appellant for the above license fee, it being shown in
the partial stipulation of facts, that he was "engaged in the rental
of his property in Baguio" deriving income therefrom during the
period covered by the first quarter of 1958 to the fourth quarter of
1962.
The source of authority for the challenged ordinance is supplied by
Republic Act No. 329, amending the city charter of
Baguio2 empowering it to fix the license fee and regulate
"businesses, trades and occupations as may be established or
practiced in the City."
Unless it can be shown then that such a grant of authority is not
broad enough to justify the enactment of the ordinance now
assailed, the decision appealed from must be affirmed. The task
confronting defendant-appellant, therefore, was far from easy.
Why he failed is understandable, considering that even a cursory
reading of the above amendment readily discloses that the
enactment of the ordinance in question finds support in the power
thus conferred.
Nor is the question raised by him as to the validity thereof novel in
character. In Medina v. City of Baguio,3 the effect of the
amendatory section insofar as it would expand the previous power
vested by the city charter was clarified in these terms: "Appellants
apparently have in mind section 2553, paragraph (c) of the Revised
Administrative Code, which empowers the City of Baguio merely to
impose a license fee for the purpose of rating the business that
may be established in the city. The power as thus conferred is
indeed limited, as it does not include the power to levy a tax. But
on July 15, 1948, Republic Act No. 329 was enacted amending the
charter of said city and adding to its power to license the power to
tax and to regulate. And it is precisely having in view this
amendment that Ordinance No. 99 was approved in order to
increase the revenues of the city. In our opinion, the amendment
above adverted to empowers the city council not only to impose a
license fee but also to levy a tax for purposes of revenue, more so
when in amending section 2553 (b), the phrase 'as provided by
law' has been removed by section 2 of Republic Act No. 329. The
city council of Baguio, therefore, has now the power to tax, to
license and to regulate provided that the subjects affected be one
of those included in the charter. In this sense, the ordinance under
consideration cannot be considered ultra vires whether its purpose
be to levy a tax or impose a license fee. The terminology used is of
no consequence."
It would be an undue and unwarranted emasculation of the above
power thus granted if defendant-appellant were to be sustained in
his contention that no such statutory authority for the enactment
of the challenged ordinance could be discerned from the language
used in the amendatory act. That is about all that needs to be said
in upholding the lower court, considering that the City of Baguio
was not devoid of authority in enacting this particular ordinance.
As mentioned at the outset, however, defendant-appellant
likewise alleged procedural missteps and asserted that the
challenged ordinance suffered from certain constitutional
infirmities. To such points raised by him, we shall now turn.
1. Defendant-appellant makes much of the alleged lack of
jurisdiction of the City Court of Baguio in the suit for the collection
of the real estate dealer's fee from him in the amount of P300. He
contended before the lower court, and it is his contention now,
that while the amount of P300 sought was within the jurisdiction
of the City Court of Baguio where this action originated, since the
principal issue was the legality and constitutionality of the
challenged ordinance, it is not such City Court but the Court of First
Instance that has original jurisdiction.
There is here a misapprehension of the Judiciary Act. The City
Court has jurisdiction. Only recently, on September 7, 1968 to be
exact, we rejected a contention similar in character in Nemenzo v.
Sabillano.4 The plaintiff in that case filed a claim for the payment of
his salary before the Justice of the Peace Court of Pagadian,
Zamboanga del Sur. The question of jurisdiction was raised; the
defendant Mayor asserted that what was in issue was the
enforcement of the decision of the Commission of Civil Service; the
Justice of the Peace Court was thus without jurisdiction to try the
case. The above plea was curtly dismissed by Us, as what was
involved was "an ordinary money claim" and therefore "within the
original jurisdiction of the Justice of the Peace Court where it was
filed, considering the amount involved." Such is likewise the
situation here.
Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect
from a defendant this license fee corresponding to the years 1951
and 1952 was filed with the Municipal Court of Manila, in view of
the amount involved. The thought that the municipal court lacked
jurisdiction apparently was not even in the minds of the parties
and did not receive any consideration by this Court.
Evidently, the fear is entertained by defendant-appellant that
whenever a constitutional question is raised, it is the Court of First
Instance that should have original jurisdiction on the matter. It
does not admit of doubt, however, that what confers jurisdiction is
the amount set forth in the complaint. Here, the sum sought to be
recovered was clearly within the jurisdiction of the City Court of
Baguio.
Nor could it be plausibly maintained that the validity of such
ordinance being open to question as a defense against its
enforcement from one adversely affected, the matter should be
elevated to the Court of First Instance. For the City Court could rely
on the presumption of the validity of such ordinance, 6 and the
mere fact, however, that in the answer to such a complaint a
constitutional question was raised did not suffice to oust the City
Court of its jurisdiction. The suit remains one for collection, the
lack of validity being only a defense to such an attempt at recovery.
Since the City Court is possessed of judicial power and it is likewise
axiomatic that the judicial power embraces the ascertainment of
facts and the application of the law, the Constitution as the highest
law superseding any statute or ordinance in conflict therewith, it
cannot be said that a City Court is bereft of competence to
proceed on the matter. In the exercise of such delicate power,
however, the admonition of Cooley on inferior tribunals is well
worth remembering. Thus: "It must be evident to any one that the
power to declare a legislative enactment void is one which the
judge, conscious of the fallibility of the human judgment, will
shrink from exercising in any case where he can conscientiously
and with due regard to duty and official oath decline the
responsibility."7 While it remains undoubted that such a power to
pass on the validity of an ordinance alleged to infringe certain
constitutional rights of a litigant exists, still it should be exercised
with due care and circumspection, considering not only the
presumption of validity but also the relatively modest rank of a city
court in the judicial hierarchy.
2. To repeat the challenged ordinance cannot be considered ultra
vires as there is more than ample statutory authority for the
enactment thereof. Nonetheless, its validity on constitutional
grounds is challenged because of the allegation that it imposed
double taxation, which is repugnant to the due process clause, and
that it violated the requirement of uniformity. We do not view the
matter thus.
As to why double taxation is not violative of due process, Justice
Holmes made clear in this language: "The objection to the taxation
as double may be laid down on one side. ... The 14th Amendment
[the due process clause] no more forbids double taxation than it
does doubling the amount of a tax, short of confiscation or
proceedings unconstitutional on other grounds."8With that
decision rendered at a time when American sovereignty in the
Philippines was recognized, it possesses more than just a
persuasive effect. To some, it delivered the coup de graceto the
bogey of double taxation as a constitutional bar to the exercise of
the taxing power. It would seem though that in the United States,
as with us, its ghost as noted by an eminent critic, still stalks the
juridical state. In a 1947 decision, however,9 we quoted with
approval this excerpt from a leading American decision:10 "Where,
as here, Congress has clearly expressed its intention, the statute
must be sustained even though double taxation results."
At any rate, it has been expressly affirmed by us that such an
"argument against double taxation may not be invoked where one
tax is imposed by the state and the other is imposed by the city ...,
it being widely recognized that there is nothing inherently
obnoxious in the requirement that license fees or taxes be exacted
with respect to the same occupation, calling or activity by both the
state and the political subdivisions thereof."11
The above would clearly indicate how lacking in merit is this
argument based on double taxation.
Now, as to the claim that there was a violation of the rule of
uniformity established by the constitution. According to the
challenged ordinance, a real estate dealer who leases property
worth P50,000 or above must pay an annual fee of P100. If the
property is worth P10,000 but not over P50,000, then he pays P50
and P24 if the value is less than P10,000. On its face, therefore, the
above ordinance cannot be assailed as violative of the
constitutional requirement of uniformity. In Philippine Trust
Company v. Yatco,12 Justice Laurel, speaking for the Court, stated:
"A tax is considered uniform when it operates with the same force
and effect in every place where the subject may be found."
There was no occasion in that case to consider the possible effect
on such a constitutional requirement where there is a classification.
The opportunity came in Eastern Theatrical Co. v. Alfonso.13 Thus:
"Equality and uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed at the same
rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation; ..." About two years
later, Justice Tuason, speaking for this Court in Manila Race Horses
Trainers Assn. v. De la Fuente14incorporated the above excerpt in
his opinion and continued: "Taking everything into account, the
differentiation against which the plaintiffs complain conforms to
the practical dictates of justice and equity and is not discriminatory
within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in
another case decided two years later, 15 is that the statute or
ordinance in question "applies equally to all persons, firms and
corporations placed in similar situation." This Court is on record as
accepting the view in a leading American case16 that "inequalities
which result from a singling out of one particular class for taxation
or exemption infringe no constitutional limitation."17
It is thus apparent from the above that in much the same way that
the plea of double taxation is unavailing, the allegation that there
was a violation of the principle of uniformity is inherently lacking in
persuasiveness. There is no need to pass upon the other
allegations to assail the validity of the above ordinance, it being
maintained that the license fees therein imposed "is excessive,
unreasonable and oppressive" and that there is a failure to
observe the mandate of equal protection. A reading of the
ordinance will readily disclose their inherent lack of plausibility.
3. That would dispose of all the errors assigned, except the last
two, which would predicate a grievance on the complaint having
been started by the City Treasurer rather than the City Mayor of
Baguio. These alleged errors, as was the case with the others
assigned, lack merit.
In much the same way that an act of a department head of the
national government, performed within the limits of his authority,
is presumptively the act of the President unless reprobated or
disapproved,18 similarly the act of the City Treasurer, whose
position is roughly analogous, may be assumed to carry the seal of
approval of the City Mayor unless repudiated or set aside. This
should be the case considering that such city official is called upon
to see to it that revenues due the City are collected. When
administrative steps are futile and unavailing, given the
stubbornness and obduracy of a taxpayer, convinced in good faith
that no tax was due, judicial remedy may be resorted to by him. It
would be a reflection on the state of the law if such fidelity to duty
would be met by condemnation rather than commendation.
So, much for the analytical approach. The conclusion thus reached
has a reinforcement that comes to it from the functional and
pragmatic test. If a city treasurer has to await the nod from the city
mayor before a municipal ordinance is enforced, then opportunity
exists for favoritism and undue discrimination to come into play.
Whatever valid reason may exist as to why one taxpayer is to be
accorded a treatment denied another, the suspicion is unavoidable
that such a manifestation of official favor could have been induced
by unnamed but not unknown consideration. It would not be going
too far to assert that even defendant-appellant would find no
satisfaction in such a sad state of affairs. The more desirable legal
doctrine therefore, on the assumption that a choice exists, is one
that would do away with such temptation on the part of both
taxpayer and public official alike.
WHEREFORE, the lower court decision of December 19, 1964, is
hereby affirmed. Costs against defendant-appellant.
TERRIORALITY
G.R. No. L-65773-74 April 30, 1987
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX
APPEALS, respondents.
Quasha, Asperilla, Ancheta, Peña, Valmonte & Marcos for
respondent British Airways.
MELENCIO-HERRERA, J.:
Petitioner Commissioner of Internal Revenue (CIR) seeks a review
on certiorari of the joint Decision of the Court of Tax Appeals (CTA)
in CTA Cases Nos. 2373 and 2561, dated 26 January 1983, which
set aside petitioner's assessment of deficiency income taxes
against respondent British Overseas Airways Corporation (BOAC)
for the fiscal years 1959 to 1967, 1968-69 to 1970-71, respectively,
as well as its Resolution of 18 November, 1983 denying
reconsideration.
BOAC is a 100% British Government-owned corporation organized
and existing under the laws of the United Kingdom It is engaged in
the international airline business and is a member-signatory of the
Interline Air Transport Association (IATA). As such it operates air
transportation service and sells transportation tickets over the
routes of the other airline members. During the periods covered
by the disputed assessments, it is admitted that BOAC had no
landing rights for traffic purposes in the Philippines, and was not
granted a Certificate of public convenience and necessity to
operate in the Philippines by the Civil Aeronautics Board (CAB),
except for a nine-month period, partly in 1961 and partly in 1962,
when it was granted a temporary landing permit by the CAB.
Consequently, it did not carry passengers and/or cargo to or from
the Philippines, although during the period covered by the
assessments, it maintained a general sales agent in the Philippines
— Wamer Barnes and Company, Ltd., and later Qantas Airways —
which was responsible for selling BOAC tickets covering passengers
and cargoes. 1
G.R. No. 65773 (CTA Case No. 2373, the First Case)
On 7 May 1968, petitioner Commissioner of Internal Revenue (CIR,
for brevity) assessed BOAC the aggregate amount of P2,498,358.56
for deficiency income taxes covering the years 1959 to 1963. This
was protested by BOAC. Subsequent investigation resulted in the
issuance of a new assessment, dated 16 January 1970 for the years
1959 to 1967 in the amount of P858,307.79. BOAC paid this new
assessment under protest.
On 7 October 1970, BOAC filed a claim for refund of the amount of
P858,307.79, which claim was denied by the CIR on 16 February
1972. But before said denial, BOAC had already filed a petition for
review with the Tax Court on 27 January 1972, assailing the
assessment and praying for the refund of the amount paid.
G.R. No. 65774 (CTA Case No. 2561, the Second Case)
On 17 November 1971, BOAC was assessed deficiency income
taxes, interests, and penalty for the fiscal years 1968-1969 to
1970-1971 in the aggregate amount of P549,327.43, and the
additional amounts of P1,000.00 and P1,800.00 as compromise
penalties for violation of Section 46 (requiring the filing of
corporation returns) penalized under Section 74 of the National
Internal Revenue Code (NIRC).
On 25 November 1971, BOAC requested that the assessment be
countermanded and set aside. In a letter, dated 16 February 1972,
however, the CIR not only denied the BOAC request for refund in
the First Case but also re-issued in the Second Case the deficiency
income tax assessment for P534,132.08 for the years 1969 to
1970-71 plus P1,000.00 as compromise penalty under Section 74
of the Tax Code. BOAC's request for reconsideration was denied by
the CIR on 24 August 1973. This prompted BOAC to file the Second
Case before the Tax Court praying that it be absolved of liability for
deficiency income tax for the years 1969 to 1971.
This case was subsequently tried jointly with the First Case.
On 26 January 1983, the Tax Court rendered the assailed joint
Decision reversing the CIR. The Tax Court held that the proceeds of
sales of BOAC passage tickets in the Philippines by Warner Barnes
and Company, Ltd., and later by Qantas Airways, during the period
in question, do not constitute BOAC income from Philippine
sources "since no service of carriage of passengers or freight was
performed by BOAC within the Philippines" and, therefore, said
income is not subject to Philippine income tax. The CTA position
was that income from transportation is income from services so
that the place where services are rendered determines the source.
Thus, in the dispositive portion of its Decision, the Tax Court
ordered petitioner to credit BOAC with the sum of P858,307.79,
and to cancel the deficiency income tax assessments against BOAC
in the amount of P534,132.08 for the fiscal years 1968-69 to
1970-71.
Hence, this Petition for Review on certiorari of the Decision of the
Tax Court.
The Solicitor General, in representation of the CIR, has aptly
defined the issues, thus:
1. Whether or not the revenue derived by private respondent
British Overseas Airways Corporation (BOAC) from sales of tickets
in the Philippines for air transportation, while having no landing
rights here, constitute income of BOAC from Philippine sources,
and, accordingly, taxable.
2. Whether or not during the fiscal years in question BOAC s a
resident foreign corporation doing business in the Philippines or
has an office or place of business in the Philippines.
3. In the alternative that private respondent may not be
considered a resident foreign corporation but a non-resident
foreign corporation, then it is liable to Philippine income tax at the
rate of thirty-five per cent (35%) of its gross income received from
all sources within the Philippines.
Under Section 20 of the 1977 Tax Code:
(h) the term resident foreign corporation engaged in trade or
business within the Philippines or having an office or place of
business therein.
(i) The term "non-resident foreign corporation" applies to a foreign
corporation not engaged in trade or business within the Philippines
and not having any office or place of business therein
It is our considered opinion that BOAC is a resident foreign
corporation. There is no specific criterion as to what constitutes
"doing" or "engaging in" or "transacting" business. Each case must
be judged in the light of its peculiar environmental circumstances.
The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance
of acts or works or the exercise of some of the functions normally
incident to, and in progressive prosecution of commercial gain or
for the purpose and object of the business organization. 2 "In order
that a foreign corporation may be regarded as doing business
within a State, there must be continuity of conduct and intention
to establish a continuous business, such as the appointment of a
local agent, and not one of a temporary character. 3
BOAC, during the periods covered by the subject - assessments,
maintained a general sales agent in the Philippines, That general
sales agent, from 1959 to 1971, "was engaged in (1) selling and
issuing tickets; (2) breaking down the whole trip into series of trips
— each trip in the series corresponding to a different airline
company; (3) receiving the fare from the whole trip; and (4)
consequently allocating to the various airline companies on the
basis of their participation in the services rendered through the
mode of interline settlement as prescribed by Article VI of the
Resolution No. 850 of the IATA Agreement." 4 Those activities were
in exercise of the functions which are normally incident to, and are
in progressive pursuit of, the purpose and object of its organization
as an international air carrier. In fact, the regular sale of tickets, its
main activity, is the very lifeblood of the airline business, the
generation of sales being the paramount objective. There should
be no doubt then that BOAC was "engaged in" business in the
Philippines through a local agent during the period covered by the
assessments. Accordingly, it is a resident foreign corporation
subject to tax upon its total net income received in the preceding
taxable year from all sources within the Philippines. 5
Sec. 24. Rates of tax on corporations. — ...
(b) Tax on foreign corporations. — ...
(2) Resident corporations. — A corporation organized, authorized,
or existing under the laws of any foreign country, except a foreign
fife insurance company, engaged in trade or business within the
Philippines, shall be taxable as provided in subsection (a) of this
section upon the total net income received in the preceding
taxable year from all sources within the Philippines. (Emphasis
supplied)
Next, we address ourselves to the issue of whether or not the
revenue from sales of tickets by BOAC in the Philippines
constitutes income from Philippine sources and, accordingly,
taxable under our income tax laws.
The Tax Code defines "gross income" thus:
"Gross income" includes gains, profits, and income derived from
salaries, wages or compensation for personal service of whatever
kind and in whatever form paid, or from profession, vocations,
trades, business, commerce, sales, or dealings in property, whether
real or personal, growing out of the ownership or use of or interest
in such property; also from interests, rents, dividends, securities,
or the transactions of any business carried on for gain or profile, or
gains, profits, and income derived from any source whatever (Sec.
29[3]; Emphasis supplied)
The definition is broad and comprehensive to include proceeds
from sales of transport documents. "The words 'income from any
source whatever' disclose a legislative policy to include all income
not expressly exempted within the class of taxable income under
our laws." Income means "cash received or its equivalent"; it is the
amount of money coming to a person within a specific time ...; it
means something distinct from principal or capital. For, while
capital is a fund, income is a flow. As used in our income tax law,
"income" refers to the flow of wealth. 6
The records show that the Philippine gross income of BOAC for the
fiscal years 1968-69 to 1970-71 amounted to P10,428,368 .00. 7
Did such "flow of wealth" come from "sources within the
Philippines",
The source of an income is the property, activity or service that
produced the income. 8 For the source of income to be considered
as coming from the Philippines, it is sufficient that the income is
derived from activity within the Philippines. In BOAC's case, the
sale of tickets in the Philippines is the activity that produces the
income. The tickets exchanged hands here and payments for fares
were also made here in Philippine currency. The site of the source
of payments is the Philippines. The flow of wealth proceeded from,
and occurred within, Philippine territory, enjoying the protection
accorded by the Philippine government. In consideration of such
protection, the flow of wealth should share the burden of
supporting the government.
A transportation ticket is not a mere piece of paper. When issued
by a common carrier, it constitutes the contract between the
ticket-holder and the carrier. It gives rise to the obligation of the
purchaser of the ticket to pay the fare and the corresponding
obligation of the carrier to transport the passenger upon the terms
and conditions set forth thereon. The ordinary ticket issued to
members of the traveling public in general embraces within its
terms all the elements to constitute it a valid contract, binding
upon the parties entering into the relationship. 9
True, Section 37(a) of the Tax Code, which enumerates items of
gross income from sources within the Philippines, namely: (1)
interest, (21) dividends, (3) service, (4) rentals and royalties, (5)
sale of real property, and (6) sale of personal property, does not
mention income from the sale of tickets for international
transportation. However, that does not render it less an income
from sources within the Philippines. Section 37, by its language,
does not intend the enumeration to be exclusive. It merely directs
that the types of income listed therein be treated as income from
sources within the Philippines. A cursory reading of the section will
show that it does not state that it is an all-inclusive enumeration,
and that no other kind of income may be so considered. " 10
BOAC, however, would impress upon this Court that income
derived from transportation is income for services, with the result
that the place where the services are rendered determines the
source; and since BOAC's service of transportation is performed
outside the Philippines, the income derived is from sources
without the Philippines and, therefore, not taxable under our
income tax laws. The Tax Court upholds that stand in the joint
Decision under review.
The absence of flight operations to and from the Philippines is not
determinative of the source of income or the site of income
taxation. Admittedly, BOAC was an off-line international airline at
the time pertinent to this case. The test of taxability is the "source";
and the source of an income is that activity ... which produced the
income. 11 Unquestionably, the passage documentations in these
cases were sold in the Philippines and the revenue therefrom was
derived from a activity regularly pursued within the Philippines.
business a And even if the BOAC tickets sold covered the
"transport of passengers and cargo to and from foreign
cities", 12 it cannot alter the fact that income from the sale of
tickets was derived from the Philippines. The word "source"
conveys one essential idea, that of origin, and the origin of the
income herein is the Philippines. 13
It should be pointed out, however, that the assessments upheld
herein apply only to the fiscal years covered by the questioned
deficiency income tax assessments in these cases, or, from 1959 to
1967, 1968-69 to 1970-71. For, pursuant to Presidential Decree No.
69, promulgated on 24 November, 1972, international carriers are
now taxed as follows:
... Provided, however, That international carriers shall pay a tax of
2-½ per cent on their cross Philippine billings. (Sec. 24[b] [21, Tax
Code).
Presidential Decree No. 1355, promulgated on 21 April, 1978,
provided a statutory definition of the term "gross Philippine
billings," thus:
... "Gross Philippine billings" includes gross revenue realized from
uplifts anywhere in the world by any international carrier doing
business in the Philippines of passage documents sold therein,
whether for passenger, excess baggage or mail provided the cargo
or mail originates from the Philippines. ...
The foregoing provision ensures that international airlines are
taxed on their income from Philippine sources. The 2-½ % tax on
gross Philippine billings is an income tax. If it had been intended as
an excise or percentage tax it would have been place under Title V
of the Tax Code covering Taxes on Business.
Lastly, we find as untenable the BOAC argument that the dismissal
for lack of merit by this Court of the appeal in JAL vs. Commissioner
of Internal Revenue (G.R. No. L-30041) on February 3, 1969, is res
judicata to the present case. The ruling by the Tax Court in that
case was to the effect that the mere sale of tickets,
unaccompanied by the physical act of carriage of transportation,
does not render the taxpayer therein subject to the common
carrier's tax. As elucidated by the Tax Court, however, the common
carrier's tax is an excise tax, being a tax on the activity of
transporting, conveying or removing passengers and cargo from
one place to another. It purports to tax the business of
transportation. 14 Being an excise tax, the same can be levied by
the State only when the acts, privileges or businesses are done or
performed within the jurisdiction of the Philippines. The subject
matter of the case under consideration is income tax, a direct tax
on the income of persons and other entities "of whatever kind and
in whatever form derived from any source." Since the two cases
treat of a different subject matter, the decision in one cannot
be res judicata to the other.
WHEREFORE, the appealed joint Decision of the Court of Tax
Appeals is hereby SET ASIDE. Private respondent, the British
Overseas Airways Corporation (BOAC), is hereby ordered to pay
the amount of P534,132.08 as deficiency income tax for the fiscal
years 1968-69 to 1970-71 plus 5% surcharge, and 1% monthly
interest from April 16, 1972 for a period not to exceed three (3)
years in accordance with the Tax Code. The BOAC claim for refund
in the amount of P858,307.79 is hereby denied. Without costs.
SO ORDERED.
NON DELEGATION OF THE POWER TO TAX
G.R. No. L-18125 May 31, 1963
BOARD OF ASSESSMENT APPEALS, PROVINCE OF
LAGUNA, petitioner,
vs.
COURT OF TAX APPEALS and THE NATIONAL WATERWORKS AND
SEWERAGE AUTHORITY (NAWASA),respondents.
Gabriel V. Valero and Rodolfo F. de Gorostiza for petitioner.
Manuel B. Roño for respondent National Waterworks and
Sewerage Authority.
CONCEPCION, J.:
This is a petition for review of a decision of the Court of Tax
Appeals reversing a resolution or decision of the Board of
Assessment Appeals for the Province of Laguna.
The question involved in this case is whether the water pipes,
reservoir, intake and buildings used by herein respondent,
National Waterworks and Sewerage Authority — hereinafter
referred to as NAWASA — in the operation of its waterworks
system in the municipalities of Cabuyao, Sta. Rosa and Biñan,
province of Laguna, are subject to real estate tax.
Wherefore, the parties respectfully pray that the foregoing
stipulation of facts be admitted and approved by this Honorable
Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of
facts. 1äwphï1.ñët
The parties have submitted in the Court of Tax Appeals a
stipulation of facts. The pertinent parts thereof are to the effect:
1. That the petitioner National Waterworks and Sewerage
Authority (NWSA) is a public corporation created by virtue of
Republic Act No. 1383, and that it is owned by the Government of
the Philippines as well as all property comprising waterworks and
sewerage systems placed under it:.
2. That, pursuant to the provisions of Republic Act No. 1383,
petitioner NWSA took over all the property of the former
Metropolitan Water District and all the existing local
government-owned waterworks and sewerage systems all over the
Philippines, including the Cabuyao-Sta. Rosa-Biñan Waterworks
System owned by the Province of Laguna (Section 8, Republic Act
No. 1283);
3. That the functions and activities of petitioner NWSA, as
enumerated in Republic Act No. 1383, more particularly Section 2
thereof, are the same and identical with the functions of the
defunct Metropolitan Water District, particularly Section 2, Act
2832, is amended;
4. That petitioner National Waterworks and Sewerage Authority
(NWSA) has no capital stock divided into shares of stocks, no
stockholders, and is not authorized by its Charter to distribute
dividends; and, on the other hand, whatever surplus funds it has
realized, may and will after meeting its yearly obligations, have
been, are and may be, used for the construction, expansion and
improvement of its waterworks and sewer services;
5. That at the time that the Cabuyao-Sta. Rosa-Biñan Waterworks
System was taken over by petitioner NWSA in 1956, the former
was self-supporting and revenue-producing, but that all its surplus
income are not declared as profits as this surplus are or may be
invested for the expansion thereof;
6. That in the year 1956 the Provincial Assessor of Laguna assessed,
for purposes of real estate taxes, the property comprising the
Cabuyao-Sta. Rosa-Biñan Waterworks System and described in Tax
Declaration No. 5987 (Exh. "A-l") which, as stated in Paragraph 2
hereof, herein petitioner NWSA had taken over;
7. That against the above-mentioned assessment made by the
Provincial Assessor of Laguna, petitioner NWSA protested, claiming
that the property described under Tax Declaration No. 5987 (Exh.
"A-l") are exempted from the payment of real estate taxes in view
of the nature and kind of said property and functions and activities
of petitioner, as provided in Republic Act No. 1383;.
8. That the said protest of petitioner NWSA was overruled on
appeal before the herein respondent Board of Assessment Appeals,
hence the present petition for review filed by petitioner;
xxx xxx xxx"
After appropriate proceedings, the Court of Tax Appeals rendered
the aforementioned decision reversing the action taken by
petitioner Board, which, accordingly, has brought the case to us for
review, under the provisions of Republic Act No. 1125, contending
that the properties in question are subject to real estate tax
because: (1) although said properties belong to the Republic of the
Philippines, the same holds it, not in its governmental, political or
sovereign capacity, but in a private, proprietary or patrimonial
character, which, allegedly, is not covered by the exemption
contained in section 3(a) of Republic Act No. 470; and 2) this
exemption, even if applicable to patrimonial property, must yield
to the provisions of section 1 of Republic Act No. 104, under which
all corporations, agencies or instrumentalities owned or controlled
by the Government are subject to taxation, according to petitioner
appellant.
Sections 2 and 3(a) of Commonwealth Act No. 470 provide:
SEC. 2. Incidence of real property tax. — Except in chartered cities,
there shall be levied, assessed, and collected, an annual ad
valorem tax on real property, including land, buildings, machinery,
and other improvements not hereinafter specifically exempted.
SEC. 3. Property exempt from tax. — The exemptions shall be as
follows:
(a) Property owned by . . . the Republic of the Philippines, any
province, city, municipality or municipal district. . . .
It is conceded, in the stipulation of facts, that the property
involved in this case "is owned by the Government of the
Philippines". Hence, it belongs to the Republic of the Philippines
and falls squarely within the letter of the above provision. This
notwithstanding, petitioner Board maintains that respondent
NAWASA is not entitled to the benefits of the exemption
established in said section 3(a), inasmuch as, in the case of the City
of Cebu vs. NAWASA, G. R. No. L-12892, decided on April 30, 1960,
we ruled that the assets of the water system of the City of Cebu,
which the NAWASA had sought to take over, pursuant to the
provisions of Republic Act No. 1383 — as it did in the case at bar,
with respect to the Cabuyao-Sta. Rosa-Biñan Waterworks System
— are patrimonial property of said city, which held it in a
proprietary character, not in its governmental capacity.
We did not declare, however, in the Cebu case that said assets
were subject to taxation. In that case we merely reiterated the
doctrine, laid down in the case of City of Baguio vs. NAWASA, G. R.
No. L-12032, decided on August 31, 1959, that municipal
corporations hold in their proprietary character, the assets of their
respective waterworks, which, accordingly, cannot be taken or
appropriated by the National Government and placed under the
NAWASA without payment of just compensation. Neither the Cebu
case nor that of Baguio sustains the theory that said assets are
taxable.
Upon the other hand, in exempting from taxation "property owned
by the Republic of the Philippines, any province, city, municipality
or municipal district . . .," said section 3(a) of Republic Act No. 470
makes no distinction between property held in a sovereign,
governmental or political capacity and those possessed in a private,
proprietary or patrimonial character. And where the law does not
distinguish neither may we, unless there are facts and
circumstances clearly showing that the lawmaker intended the
contrary, but no such facts and circumstances have been brought
to our attention. Indeed, the noun "property" and the verb
"owned" used in said section 3(a) strongly suggest that the object
of exemption is considered more from the view point of dominion,
than from that of domain. Moreover, taxes are financial burdens
imposed for the purpose of raising revenues with which to defray
the cost of the operation of the Government, and a tax on
property of the Government, whether national or local, would
merely have the effect of taking money from one pocket to put it
in another pocket (Cooley on Taxation, Sec. 621, 4th Edition.)
Hence, it would not serve, in the final analysis, the main purpose of
taxation. What is more, it would tend to defeat it, on account of
the paper work, time and consequently, expenses it would entail.
(The Law on Local Taxation, by Justiniano Y. Castillo, p. 13.)
Section 1 of the Republic Act No. 101, upon which petitioner relies,
reads:
. . . All corporations, agencies, or instrumentalities owned or
controlled by the government shall pay such duties, taxes, fees and
other charges upon their transaction, business, industries, sale, or
income as are imposed by law upon individuals, associations or
corporations engaged in any taxable business, industry, or activity
except on goods or commodities imported or purchased and sold
or distributed for relief purposes as may be determined by the
President of the Philippines.
This provision is inapplicable to the case at bar for it refers only to
duties, taxes, fees and other charges upon "transaction, business,
industry, sale or income" and does not include taxes on property
like real estate tax.
WHEREFORE, the decision appealed from is hereby affirmed,
without special pronouncement as to costs. It is so ordered.
Pepsi-Cola Bottling Co. of the Philippines, Inc. vs City of Butuan
In 1960, Ordinance No. 110 was passed in Butuan. It was later
amended by Ordinance 122. This Ordinance imposes a tax on any
person, association, etc., of P0.10 per case of 24 bottles of Pepsi-
Cola. Pepsi operates within Butuan and it paid under protest the
amount of P4.926.63 from August 16 to December 31, 1960 and
the amount of P9,250.40 from January 1 to July 30, 1961 pursuant
to said ordinance. Pepsi filed a complaint for the recovery of the
total amount of P14,177.03 paid under protest and those that it
may later on pay until the termination of this case on the ground
that Ordinance No. 110 as amended of the City of Butuan is illegal,
that the tax imposed is excessive and that it is unconstitutional.
Pepsi averred it is unconstitutional because of the following
reasons:
1. it partakes of the nature of an import tax because the tax
“shall be based and computed from the cargo manifest or bill of
lading . . . showing the number of cases” — not sold;
2. it is highly unjust and discriminatory because some dealers
engaged in selling of carbonated drinks are exempt while others
are covered and such exemption is not justified in the ordinance.
ISSUE: Whether or not the Ordinance is valid.
HELD: No, it is invalid. The tax prescribed in said Ordinance, as
originally approved, was imposed upon dealers “engaged in
selling” soft drinks or carbonated drinks. Thus, it would seem that
the intent was then to levy a tax upon the sale of said merchandise.
As amended by Ord No. 122, the tax is, however, imposed only
upon “any agent and/or consignee of any person, association,
partnership, company or corporation engaged in selling . . . soft
drinks or carbonated drinks.” As a consequence, merchants
engaged in the sale of soft drinks or carbonated drinks, are not
subject to the tax, unless they are agents and/or consignees of
another dealer, who, in the very nature of things, must be one
engaged in business outside the City. Besides, the tax would not be
applicable to such agent and/or consignee, if less than 1,000 cases
of soft drinks are consigned or shipped to him every month.
When we consider, also, that the tax “shall be based and
computed from the cargo manifest or bill of lading . . . showing the
number of cases” — not sold — but “received” by the taxpayer,
the intention to limit the application of the ordinance to soft drinks
and carbonated drinks brought into the City from outside thereof
becomes apparent. Viewed from this angle, the tax partakes of the
nature of an import duty, which is beyond defendant’s authority to
impose by express provision of law. It is true that the uniformity
essential to the valid exercise of the power of taxation does not
require identity or equality under all circumstances, or negate the
authority to classify the objects of taxation.
The classification made in the exercise of this authority, to be valid,
must, however, be reasonable and this requirement is not
deemed satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are germane to
the purpose of the legislation or ordinance; (3) the classification
applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4)
the classification applies equally to all those who belong to the
same class. These conditions are not fully met by the ordinance in
question.
Indeed, if its purpose were merely to levy a burden upon the sale
of soft drinks or carbonated beverages, there is no reason why
sales thereof by dealers other than agents or consignees of
producers or merchants established outside the City of Butuan
should be exempt from the tax.
EXEMPTION FROM TAXATION OF GOVERNMENT
G.R. No. L-34029 February 26, 1931
THE STANDARD OIL COMPANY OF NEW YORK, plaintiff-appellant,
vs.
JUAN POSADAS, Jr., Collector of Internal Revenue of the
Philippine Islands, defendant-appellee.
Ross, Lawrence and Selph for appellant.
Attorney-General Jaranilla for appellee.
DeWitt, Perkins and Brady as amici curiae.
MALCOLM, J.:
This test case presents for decision the question of whether sales
of merchandise made in the Philippines to the United States Army
and the United States Navy are subject to the sales tax. In the
lower court, the demurrer to the complaint was sustained, and the
plaintiff having elected not to amend its complaint, judgement was
rendered upon the subject matter involved in the pleadings,
adjudging that the plaintiff take nothing by the action and
defendant recover costs.
The Standard Oil Company of New York is a foreign corporation
duly authorized to do business in the Philippines. During the period
from October 1, 1929, to December 31, 1929, the Standard Oil
Company sold and delivered in the Philippines to the
Quartermaster Department of the United States Army, for the use
of the Army, fuel oil and asphalt of the value of P6,832.84. The
Collector of Internal Revenue of the Philippine Government, acting
under authority of section 1459 of the Administrative Code and Act
No. 3243 of the Philippine Legislature as ratified by the Congress of
the United States, demanded a tax of one and one-half per cent
upon the value of the merchandise, amounting to P102.49. During
the identical period of time above-mentioned, the Standard Oil
Company likewise made delivery in the Philippines to the United
States Navy, under a contract executed in New York, United States,
for the use of the Navy, of fuel oil of the value of P172,059.36,
which was paid in New York, and which contract provided that all
internal revenue taxes and charges under the laws of the
Philippine Islands were to be assumed and paid by the United
States Navy. The Collector of Internal Revenue required payment
of the sales tax upon the value of the fuel oil, in the amount of
P2,580.89. the Standard Oil Company paid the taxes assessed
under protest and is now suing to recover the corresponding
refunds.
This court has recently decided the case entitled, Thirty First
Infantry Post Exchange and First Lieutenant David L. Hardee,
Thirty-First Infantry, United States Army, plaintiffs, vs. Juan
Posadas, Jr., Collector of Internal Revenue, Philippine Islands,
defendant ([1930], 54 Phil., 866). There it was held that a tax may
be levied by the Government of the Philippine Islands on sales
made by merchants to Post Exchanges of the United States Army
in the Philippines. It was ruled that the Acts of the Philippine
Legislature imposing the sales tax, which have been confirmed by
Acts of Congress, form a part of the Philippine Organic Law. That
same principle would again apply to the facts before us. However,
it was indicated that the waiver must be clear and that every
well-grounded doubt should be resolved in favor of the exemption,
citing Austin vs. Aldermen of Boston ([1869], 7 Wall., 694). That
principle would likewise govern here.
In the course of the decision in the Post Exchange case, the United
States Army was mentioned, and properly so, as an instrumentality
of the United States Government. Regarding the correctness of
this proposition, there could, of course, be no real dispute. The
United States Army and the United States Navy derive their
powers from the Constitution of the United States. The Congress
of the United States has created two agencies, or more correctly
stated, three agencies to serve the United States in the Philippine
Islands. Two of these agencies are the United States Army and the
United States Navy, and the third is the Government of the
Philippine Islands. The military establishment and the civil
government stand side by side but independent of each other in
the Philippines. The tax collected from the plaintiff by one of these
agencies, the Philippine Government, is in reality a tax on the
United States Army and the United States Navy — in other words,
on the United States Government — for the consumer pays the tax
as part of the purchase price. (Tan Te vs. Bell [1914], 27 Phil., 354;
U. S. vs. Smith [1919], 39 Phil., 533.).
It would further appear perfectly clear that the principle which
prohibits a State from taxing the instrumentalities of the Federal
Government applies with equal force to the Philippine Islands. At
least, that was our holding in the Post Exchange case. Nevertheless
the Attorney-General persists in assuming a difference in tax
powers between the relations of the Philippine Government to the
National Government and of a State Government to the National
Government. We are frank to say that we are unable to see eye to
eye with the Attorney-General. It would be absurd to think that a
derivative sovereignty like the Government of the Philippine
Islands, could tax the instrumentalities of the very Government
which brought it into existence. If a sovereign State of the
American Union cannot abridge or restrict the activities of the
United States Government, much less can a creature of that
Government, as the Philippine Government is, do so. (Note the
well-considered opinion of Attorney-General Wickersham of June
8, 1912, appearing in 29 Opinions, Attorneys-General, United
States, 442.)
The case before us is readily distinguishable on the facts from the
Post Exchange case. The theory of the Post Exchange case was that
a tax on sales, which ultimately passed on to the consumers,
individuals in the Army, was not a tax on the United States
Government or with the operations of the United States Army to
such an extent or in such a manner as to render the tax illegal.
There is no such condition in this case. The goods which were
claimed to be subject to tax are for the use of the United States
itself in its own operations in the Philippines.
The case at bar is more nearly analogous to the case of Panhandle
Oil Co. vs. Knox ([1928], 277 U. S., 218), than was the Post
Exchange case. The Panhandle Oil case and the case at bar differ in
that in the Panhandle Oil case, the United States Supreme Court
dealt with a State law that had never been ratified by Congress,
whereas there is now to be applied an Act of the Philippine
Legislature which had been ratified by Congress. On the other
hand, the Panhandle Oil case at bar are similar in that both
concern privilege taxes the amount of which is measured by the
amount of the sale; in that in both cases the sales were made to
instrumentalities of the Federal Government; and in that in both
cases, the party to suit was the merchant and not the United
States Government or an agency within the United States Army
like a Post Exchange. Inasmuch, however, as the distinction
between a State law and an Act of a territorial legislature is no
distinction at all, and inasmuch as the ratification by Congress
failed to grant any express waiver of the exemption in favor of the
United States Government, it would require more than ordinary
ingenuity to avoid the consequences of the decision of the United
States Supreme Court in the Panhandle Oil Case.
Not long since, the District of Columbia endeavored to recover
taxes on gasoline imported into the District of Columbia by the
American Oil Company, under a contract with the Secretary of the
Treasury, for use by the executive departments and governmental
agencies. In both the Supreme Court of the District of Columbia
and the Court of Appeals, the seller was held not liable for the tax.
In the opinion of the appellate court, it was said: "While for
convenience, the tax is levied upon the importer, it is apparent
that the tax is really to be paid by the consumer. . . . To sustain the
contention of appellant, it must clearly appear that the United
States intended to tax itself. See Dollar Savings Bank vs. United
States, 19 Wall., 227; 22 L. ed., 80." (District of
Columbia vs. American Oil Co. [1930], 39 Fed. 2nd., 510.).
The Asiatic Petroleum Company began suit in the Court of Claims
against the United States for the recovery of more than $100,000
due on the purchase price of fuel oil sold by the company for the
use of the Navy. The defendant admitted the claim but interposed
a counterclaim for the same amount, alleged to be due and owing
to the Philippine Government as customs duties on oil under this
contract. In the Philippines the Tariff Act in force was the Act of
Congress of August 5, 1909, which was silent on the question. It
was the holding of the Court of Claims that this Act of Congress did
not require the United States to pay duty on oil owned by it and
imported into the Philippine Islands for use in the Military or Naval
Establishments. The court said: "The purpose of the statute
providing for customs duties on importations into the Philippine
Islands was to provide revenue for the use of the Philippine
Government, for the protection, and partial support of which the
United States held itself responsible. It is inconceivable that
Congress in the enactment of the said statute should have
intended that the United States would be required to pay duty on
its own oil imported into the Philippine Islands, for its own use, in
supplying its Navy vessels used in the protection of the Philippine
Government, as well as for the maintenance of its own Military
and Naval Establishments in the national defense." (Asiatic
Petroleum Co. vs. U. S. [1928],65 Ct. of Cl. Rep., 100.).
We sustain the first, second, third, and fifth errors assigned, going
to the proposition that the lower court erred in not deciding that
sales made in the Philippines to the United States Army and the
United States Navy are made to instrumentalities of the United
States Government, and, therefore, are not subject to tax by the
Philippine Government. This holding makes unnecessary any
reference to the fourth error assigned, relating to the additional
question having to do with the contract with the United States
Navy, and to the point that this question was not mentioned in the
protest filed with the Bureau of Internal Revenue and so may not
be raised on appeal. It is sufficient to state that, in our opinion, the
assessment and collection by the Philippine Government of the tax
on sales of merchandise made in the Philippines to the United
States Army and the United States Navy is illegal.
Judgment reversed, and the record ordered returned to the court
of origin for further proceedings, without express finding as to
costs in either instance.
G.R. No. L-18125 May 31, 1963
BOARD OF ASSESSMENT APPEALS, PROVINCE OF
LAGUNA, petitioner,
vs.
COURT OF TAX APPEALS and THE NATIONAL WATERWORKS AND
SEWERAGE AUTHORITY (NAWASA),respondents.
Gabriel V. Valero and Rodolfo F. de Gorostiza for petitioner.
Manuel B. Roño for respondent National Waterworks and
Sewerage Authority.
CONCEPCION, J.:
This is a petition for review of a decision of the Court of Tax
Appeals reversing a resolution or decision of the Board of
Assessment Appeals for the Province of Laguna.
The question involved in this case is whether the water pipes,
reservoir, intake and buildings used by herein respondent,
National Waterworks and Sewerage Authority — hereinafter
referred to as NAWASA — in the operation of its waterworks
system in the municipalities of Cabuyao, Sta. Rosa and Biñan,
province of Laguna, are subject to real estate tax.
Wherefore, the parties respectfully pray that the foregoing
stipulation of facts be admitted and approved by this Honorable
Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of
facts. 1äwphï1.ñët
The parties have submitted in the Court of Tax Appeals a
stipulation of facts. The pertinent parts thereof are to the effect:
1. That the petitioner National Waterworks and Sewerage
Authority (NWSA) is a public corporation created by virtue of
Republic Act No. 1383, and that it is owned by the Government of
the Philippines as well as all property comprising waterworks and
sewerage systems placed under it:.
2. That, pursuant to the provisions of Republic Act No. 1383,
petitioner NWSA took over all the property of the former
Metropolitan Water District and all the existing local
government-owned waterworks and sewerage systems all over the
Philippines, including the Cabuyao-Sta. Rosa-Biñan Waterworks
System owned by the Province of Laguna (Section 8, Republic Act
No. 1283);
3. That the functions and activities of petitioner NWSA, as
enumerated in Republic Act No. 1383, more particularly Section 2
thereof, are the same and identical with the functions of the
defunct Metropolitan Water District, particularly Section 2, Act
2832, is amended;
4. That petitioner National Waterworks and Sewerage Authority
(NWSA) has no capital stock divided into shares of stocks, no
stockholders, and is not authorized by its Charter to distribute
dividends; and, on the other hand, whatever surplus funds it has
realized, may and will after meeting its yearly obligations, have
been, are and may be, used for the construction, expansion and
improvement of its waterworks and sewer services;
5. That at the time that the Cabuyao-Sta. Rosa-Biñan Waterworks
System was taken over by petitioner NWSA in 1956, the former
was self-supporting and revenue-producing, but that all its surplus
income are not declared as profits as this surplus are or may be
invested for the expansion thereof;
6. That in the year 1956 the Provincial Assessor of Laguna assessed,
for purposes of real estate taxes, the property comprising the
Cabuyao-Sta. Rosa-Biñan Waterworks System and described in Tax
Declaration No. 5987 (Exh. "A-l") which, as stated in Paragraph 2
hereof, herein petitioner NWSA had taken over;
7. That against the above-mentioned assessment made by the
Provincial Assessor of Laguna, petitioner NWSA protested, claiming
that the property described under Tax Declaration No. 5987 (Exh.
"A-l") are exempted from the payment of real estate taxes in view
of the nature and kind of said property and functions and activities
of petitioner, as provided in Republic Act No. 1383;.
8. That the said protest of petitioner NWSA was overruled on
appeal before the herein respondent Board of Assessment Appeals,
hence the present petition for review filed by petitioner;
xxx xxx xxx"
After appropriate proceedings, the Court of Tax Appeals rendered
the aforementioned decision reversing the action taken by
petitioner Board, which, accordingly, has brought the case to us for
review, under the provisions of Republic Act No. 1125, contending
that the properties in question are subject to real estate tax
because: (1) although said properties belong to the Republic of the
Philippines, the same holds it, not in its governmental, political or
sovereign capacity, but in a private, proprietary or patrimonial
character, which, allegedly, is not covered by the exemption
contained in section 3(a) of Republic Act No. 470; and 2) this
exemption, even if applicable to patrimonial property, must yield
to the provisions of section 1 of Republic Act No. 104, under which
all corporations, agencies or instrumentalities owned or controlled
by the Government are subject to taxation, according to petitioner
appellant.
Sections 2 and 3(a) of Commonwealth Act No. 470 provide:
SEC. 2. Incidence of real property tax. — Except in chartered cities,
there shall be levied, assessed, and collected, an annual ad
valorem tax on real property, including land, buildings, machinery,
and other improvements not hereinafter specifically exempted.
SEC. 3. Property exempt from tax. — The exemptions shall be as
follows:
(a) Property owned by . . . the Republic of the Philippines, any
province, city, municipality or municipal district. . . .
It is conceded, in the stipulation of facts, that the property
involved in this case "is owned by the Government of the
Philippines". Hence, it belongs to the Republic of the Philippines
and falls squarely within the letter of the above provision. This
notwithstanding, petitioner Board maintains that respondent
NAWASA is not entitled to the benefits of the exemption
established in said section 3(a), inasmuch as, in the case of the City
of Cebu vs. NAWASA, G. R. No. L-12892, decided on April 30, 1960,
we ruled that the assets of the water system of the City of Cebu,
which the NAWASA had sought to take over, pursuant to the
provisions of Republic Act No. 1383 — as it did in the case at bar,
with respect to the Cabuyao-Sta. Rosa-Biñan Waterworks System
— are patrimonial property of said city, which held it in a
proprietary character, not in its governmental capacity.
We did not declare, however, in the Cebu case that said assets
were subject to taxation. In that case we merely reiterated the
doctrine, laid down in the case of City of Baguio vs. NAWASA, G. R.
No. L-12032, decided on August 31, 1959, that municipal
corporations hold in their proprietary character, the assets of their
respective waterworks, which, accordingly, cannot be taken or
appropriated by the National Government and placed under the
NAWASA without payment of just compensation. Neither the Cebu
case nor that of Baguio sustains the theory that said assets are
taxable.
Upon the other hand, in exempting from taxation "property owned
by the Republic of the Philippines, any province, city, municipality
or municipal district . . .," said section 3(a) of Republic Act No. 470
makes no distinction between property held in a sovereign,
governmental or political capacity and those possessed in a private,
proprietary or patrimonial character. And where the law does not
distinguish neither may we, unless there are facts and
circumstances clearly showing that the lawmaker intended the
contrary, but no such facts and circumstances have been brought
to our attention. Indeed, the noun "property" and the verb WHEREFORE, the decision appealed from is hereby affirmed,
"owned" used in said section 3(a) strongly suggest that the object without special pronouncement as to costs. It is so ordered.
of exemption is considered more from the view point of dominion,
than from that of domain. Moreover, taxes are financial burdens DUE PROCESS OF LAW
imposed for the purpose of raising revenues with which to defray
the cost of the operation of the Government, and a tax on ARLOS SUPERDRUG CORP., G.R. No. 166494
property of the Government, whether national or local, would doing business under the name
merely have the effect of taking money from one pocket to put it and style Carlos Superdrug, Present:
in another pocket (Cooley on Taxation, Sec. 621, 4th Edition.) ELSIE M. CANO, doing business
Hence, it would not serve, in the final analysis, the main purpose of under the name and style Advance PUNO, C.J.,
taxation. What is more, it would tend to defeat it, on account of Drug, Dr. SIMPLICIO L. YAP, JR., QUISUMBING,*
the paper work, time and consequently, expenses it would entail. doing business under the name and YNARES-SANTIAGO,
(The Law on Local Taxation, by Justiniano Y. Castillo, p. 13.) style City Pharmacy, MELVIN S. SANDOVAL-GUTIERREZ,**
DELA SERNA, doing business under CARPIO,
the name and style Botica dela Serna, AUSTRIA-MARTINEZ,
Section 1 of the Republic Act No. 101, upon which petitioner relies,
and LEYTE SERV-WELL CORP., CORONA,
reads:
doing business under the name and CARPIO MORALES,
style Leyte Serv-Well Drugstore, AZCUNA,
. . . All corporations, agencies, or instrumentalities owned or
Petitioners, TINGA,
controlled by the government shall pay such duties, taxes, fees and
CHICO-NAZARIO,
other charges upon their transaction, business, industries, sale, or
- versus - GARCIA,
income as are imposed by law upon individuals, associations or
VELASCO, JR., and
corporations engaged in any taxable business, industry, or activity
DEPARTMENT OF SOCIAL NACHURA, JJ.
except on goods or commodities imported or purchased and sold
WELFARE and DEVELOPMENT
or distributed for relief purposes as may be determined by the
(DSWD), DEPARTMENT OF Promulgated:
President of the Philippines.
HEALTH (DOH), DEPARTMENT
OF FINANCE (DOF), DEPARTMENT June 29, 2007
This provision is inapplicable to the case at bar for it refers only to
OF JUSTICE (DOJ), and
duties, taxes, fees and other charges upon "transaction, business,
DEPARTMENT OF INTERIOR and
industry, sale or income" and does not include taxes on property
LOCAL GOVERNMENT (DILG),
like real estate tax.
Respondents.
x the total amount of the claimed tax deduction
----------------------------------------------------------------------------------------
x The antecedents are as follows:
DECISION
AZCUNA, J.:
[1]
This is a petition for Prohibition with Prayer for
Preliminary Injunction assailing the constitutionality of Section 4(a)
[2]
of Republic Act (R.A.) No. 9257, otherwise known as the
Expanded Senior Citizens Act of 2003.
Petitioners are domestic corporations and proprietors
operating drugstores in the Philippines.
Public respondents, on the other hand, include the Department of
Social Welfare and Development (DSWD), the Department of
Health (DOH), the Department of Finance (DOF), the Department
of Justice (DOJ), and the Department of Interior and Local
Government (DILG) which have been specifically tasked to monitor
the drugstores compliance with the law; promulgate the
implementing rules and regulations for the
implementation of the law; and prosecute and revoke the licenses
of erring drugstore establishments.
net of value added tax if applicable, shall be
included in their gross sales receipts for tax
purposes and shall be subject to proper
documentation and to the provisions of the
On February 26, 2004, R.A. No. 9257, amending R.A. No.
National Internal Revenue Code, as amended.[4]
7432,[3] was signed into law by President Gloria Macapagal-Arroyo
and it became effective on March 21, 2004. Section 4(a) of the Act
states: On May 28, 2004, the DSWD approved and adopted the
Implementing Rules and Regulations of R.A. No. 9257, Rule VI,
SEC. 4. Privileges for the Senior Citizens. The
Article 8 of which states:
senior citizens shall be entitled to the following:
Article 8. Tax Deduction of
(a) the grant of twenty percent (20%)
Establishments. The establishment may claim the
discount from all establishments relative to the
discounts granted under Rule V, Section
utilization of services in hotels and similar
4 Discounts for Establishments;[5] Section 9,
lodging establishments, restaurants and
Medical and Dental Services in Private
recreation centers, and purchase of medicines in
Facilities[,][6] and Sections 10[7] and 11[8] Air, Sea
all establishments for the exclusive use or
and Land Transportation as tax deduction based
enjoyment of senior citizens, including funeral
on the net cost of the goods sold or services
and burial services for the death of senior
rendered. Provided, That the cost of the discount
citizens;
shall be allowed as deduction from gross income
for the same taxable year that the discount is
...
granted; Provided, further, That the total amount
of the claimed tax deduction net of value added
The establishment may claim the
tax if applicable, shall be included in their gross
discounts granted under (a), (f), (g) and (h) as tax
sales receipts for tax purposes and shall be
effective deduction based on the net cost of the goods
subject to proper documentation and to the
sold or services rendered: Provided, That the cost
provisions of the National Internal Revenue Code,
of the discount shall be allowed as deduction
as amended; Provided, finally, that the
from gross income for the same taxable year that
implementation of the tax deduction shall be
the discount is granted. Provided, further, That
 subject to the Revenue Regulations to be issued
by the Bureau of Internal Revenue (BIR) and
approved by the Department of Finance (DOF).[9]
On July 10, 2004, in reference to the query of the Drug
Stores Association of the Philippines (DSAP) concerning the
meaning of a tax deduction under the Expanded Senior Citizens Act,
the DOF, through Director IV Ma. Lourdes B. Recente, clarified as
follows:
1) The difference between the Tax
Credit (under the Old Senior Citizens Act) and Tax
Deduction (under the Expanded Senior Citizens
Act).
1.1. The provision of Section 4
of R.A. No. 7432 (the old Senior Citizens
Act) grants twenty percent (20%)
discount from all establishments relative
to the utilization of transportation
services, hotels and similar lodging
establishment, restaurants and
recreation centers and purchase of
medicines anywhere in the country, the
costs of which may be claimed by the
private establishments concerned as tax
credit.
Effectively, a tax credit is a
peso-for-peso deduction from a
taxpayers tax liability due to the
government of the amount of discounts
such establishment has granted to a
senior citizen. The establishment
recovers the full amount of discount
given to a senior citizen and hence, the
government shoulders 100% of the
discounts granted.
It must be noted, however,
that conceptually, a tax credit scheme
under the Philippine tax system,
necessitates that prior payments of
taxes have been made and the taxpayer
is attempting to recover this tax
payment from his/her income tax due.
The tax credit scheme under R.A. No.
7432 is, therefore, inapplicable since no
tax payments have previously occurred.
1.2. The provision under
R.A. No. 9257, on the other hand,
provides that the establishment
concerned may claim the discounts
under Section 4(a), (f), (g) and (h) as tax
deduction from gross income, based on
the net cost of goods sold or services
rendered.
Under this scheme, the
establishment concerned is allowed to
deduct from gross income, in computing
for its tax liability, the amount of
discounts granted to senior citizens.
Effectively, the government loses in
terms of foregone revenues an amount
equivalent to the marginal tax rate the
said establishment is liable to pay the
government. This will be an amount
equivalent to 32% of the twenty percent
(20%) discounts so granted. The
establishment shoulders the remaining
portion of the granted discounts.
It may be necessary to note
that while the burden on [the]
government is slightly diminished in
terms of its percentage share on the
discounts granted to senior citizens, the
number of potential establishments that
may claim tax deductions, have
however, been broadened. Aside from
the establishments that may claim tax
credits under the old law, more
establishments were added under the
new law such as: establishments
providing medical and dental services,
diagnostic and laboratory services,
including professional fees of attending
doctors in all private hospitals and
medical facilities, operators of domestic
air and sea transport services, public
railways and skyways and bus transport
services.
 A simple illustration might help
amplify the points discussed above, as
follows:
Tax
Deducti
on Tax
Credit
Gross Sales x x x x x x x x x x x x
Less : Cost of goods sold x x x x x x x x x x
Net Sales x x x x x x x x x x x x
Less: Operating Expenses:
Tax Deduction on Discounts x x x x --
Other deductions: x x x x x x x x
Net Taxable Income x x x x x x x x x x
Tax Due x x x x x x
Less: Tax Credit -- ______x x
Net Tax Due -- x x
As shown above, under a tax
deduction scheme, the tax deduction on
discounts was subtracted from Net Sales
together with other deductions which are
considered as operating expenses before the Tax
Due was computed based on the Net Taxable
Income. On the other hand, under a tax
credit scheme, the amount of discounts which is
the tax credit item, was deducted directly from
the tax due amount.[10]
Meanwhile, on October 1, 2004, Administrative Order
(A.O.) No. 171 or the Policies and Guidelines to Implement the
Relevant Provisions of Republic Act 9257, otherwise known as the
Expanded Senior Citizens Act of 2003[11] was issued by the DOH,
providing the grant of twenty percent (20%) discount in the
purchase of unbranded generic medicines from all establishments
dispensing medicines for the exclusive use of the senior citizens.
On November 12, 2004, the DOH issued Administrative Order No
177[12] amending A.O. No. 171. Under A.O. No. 177, the twenty
percent discount shall not be limited to the purchase of unbranded
generic medicines only, but shall extend to both prescription and
non-prescription medicines whether branded or generic. Thus, it
stated that [t]he grant of twenty percent (20%) discount shall be
provided in the purchase of medicines from all establishments
dispensing medicines for the exclusive use of the senior citizens.
Petitioners assail the constitutionality of Section 4(a) of the
Expanded Senior Citizens Act based on the following grounds:[13]
1) The law is confiscatory because it
infringes Art. III, Sec. 9 of the
Constitution which provides that private
property shall not be taken for public
use without just compensation;
2) It violates the equal protection
clause (Art. III, Sec. 1) enshrined in our
Constitution which states that no
person shall be deprived of life, liberty
or property without due process of law,
nor shall any person be denied of the
equal protection of the laws; and
3) The 20% discount on medicines
violates the constitutional guarantee in
Article XIII, Section 11 that makes
essential goods, health and other social
services available to all people at
affordable cost.[14]
Petitioners assert that Section 4(a) of the law is unconstitutional
because it constitutes deprivation of private property. Compelling
drugstore owners and establishments to grant the discount will
result in a loss of profit
and capital because 1) drugstores impose a mark-up of only 5% to
10% on branded medicines; and 2) the law failed to provide a
scheme whereby drugstores will be justly compensated for the
discount.
Examining petitioners arguments, it is apparent that what
petitioners are ultimately questioning is the validity of the tax
deduction scheme as a reimbursement mechanism for the twenty
percent (20%) discount that they extend to senior citizens.
Based on the afore-stated DOF Opinion, the tax deduction
scheme does not fully reimburse petitioners for the discount
privilege accorded to senior citizens. This is because the discount is
treated as a deduction, a tax-deductible expense that is subtracted
from the gross income and results in a lower taxable income.
Stated otherwise, it is an amount that is allowed by law [15] to
reduce the income prior to the application of the tax rate to
compute the amount of tax which is due.[16] Being a tax deduction,
the discount does not reduce taxes owed on a peso for peso basis
but merely offers a fractional reduction in taxes owed.
Theoretically, the treatment of the discount as a
deduction reduces the net income of the private establishments
concerned. The discounts given would have entered the coffers
and formed part of the gross sales of the private establishments,
were it not for R.A. No. 9257.
The permanent reduction in their total revenues is a
forced subsidy corresponding to the taking of private property for
public use or benefit.[17] This constitutes compensable taking for
which petitioners would ordinarily become entitled to a just
compensation.
Just compensation is defined as the full and fair
equivalent of the property taken from its owner by the
expropriator. The measure is not the takers gain but the owners
loss. The word just is used to intensify the meaning of the
word compensation, and to convey the idea that the equivalent to
be rendered for the property to be taken shall be real, substantial,
full and ample.[18]
A tax deduction does not offer full reimbursement of the
senior citizen discount. As such, it would not meet the definition of
just compensation.[19]
Having said that, this raises the question of whether the
State, in promoting the health and welfare of a special group of
citizens, can impose upon private establishments the burden of
partly subsidizing a government program.
The Court believes so.
The Senior Citizens Act was enacted primarily to maximize
the contribution of senior citizens to nation-building, and to grant
benefits and privileges to them for their improvement and
well-being as the State considers them an integral part of our
society.[20]
The priority given to senior citizens finds its basis in the
Constitution as set forth in the law itself. Thus, the Act provides:
SEC. 2. Republic Act No. 7432 is hereby
amended to read as follows:
SECTION 1. Declaration of Policies and
Objectives. Pursuant to Article XV, Section 4 of
the Constitution, it is the duty of the family to
take care of its elderly members while the State
may design programs of social security for them.
In addition to this, Section 10 in the Declaration
of Principles and State Policies provides: The
State shall provide social justice in all phases of
national development. Further, Article XIII,
Section 11, provides: The State shall adopt an
integrated and comprehensive approach to
health development which shall endeavor to
make essential goods, health and other social
services available to all the people at affordable
 cost. There shall be priority for the needs of the
The law is a legitimate exercise of police power which, similar to petitioners that they will suffer loss of earnings and capital, the
underprivileged sick, elderly, disabled, women
and children. Consonant with these the power of eminent domain, has general welfare for its object. questioned provision is invalidated. Moreover, in the absence of
constitutional principles the following are the Police power is not capable of an exact definition, but has been evidence demonstrating the alleged confiscatory effect of the
declared policies of this Act:
purposely veiled in general terms to underscore its provision in question, there is no basis for its nullification in view
... comprehensiveness to meet all exigencies and provide enough of the presumption of validity which every law has in its favor.[26]
room for an efficient and flexible response to conditions and
(f) To recognize the important role of
the private sector in the improvement of the circumstances, thus assuring the greatest benefits. [22] Accordingly, Given these, it is incorrect for petitioners to insist that the
welfare of senior citizens and to actively seek it has been described as the most essential, insistent and the least grant of the senior citizen discount is unduly oppressive to their
their partnership.[21] limitable of powers, extending as it does to all the great public business, because petitioners have not taken time to calculate
needs.[23] It is [t]he power vested in the legislature by the correctly and come up with a financial report, so that they have

To implement the above policy, the law grants a twenty percent constitution to make, ordain, and establish all manner of not been able to show properly whether or not the tax deduction

discount to senior citizens for medical and dental services, and wholesome and reasonable laws, statutes, and ordinances, either scheme really works greatly to their disadvantage.[27]

diagnostic and laboratory fees; admission fees charged by theaters, with penalties or without, not repugnant to the constitution, as

concert halls, circuses, carnivals, and other similar places of culture, they shall judge to be for the good and welfare of the In treating the discount as a tax deduction, petitioners

leisure and amusement; fares for domestic land, air and sea travel; commonwealth, and of the subjects of the same.[24] insist that they will incur losses because, referring to the DOF

utilization of services in hotels and similar lodging establishments, Opinion, for every P1.00 senior citizen discount that petitioners

restaurants and recreation centers; and purchases of medicines for For this reason, when the conditions so demand as would give, P0.68 will be shouldered by them as only P0.32 will be

the exclusive use or enjoyment of senior citizens. As a form of determined by the legislature, property rights must bow to the refunded by the government by way of a tax deduction.

reimbursement, the law provides that business establishments primacy of police power because property rights, though sheltered

extending the twenty percent discount to senior citizens may claim by due process, must yield to general welfare.[25] To illustrate this point, petitioner Carlos Super Drug cited

the discount as a tax deduction. the anti-hypertensive maintenance drug Norvasc as an example.
Police power as an attribute to promote the common According to the latter, it acquires Norvasc from the distributors
good would be diluted considerably if on the mere plea of at P37.57 per tablet, and retails it at P39.60 (or at a margin of 5%).
If it grants a 20% discount to senior citizens or an amount
equivalent to P7.92, then it would have to sell Norvasc at P31.68
which translates to a loss from capital of P5.89 per tablet. Even if
the government will allow a tax deduction, only P2.53 per tablet
will be refunded and not the full amount of the discount which
is P7.92. In short, only 32% of the 20% discount will be reimbursed
to the drugstores.[28]
Petitioners computation is flawed. For purposes of
reimbursement, the law states that the cost of the discount shall
be deducted from gross income,[29] the amount of income
derived from all sources before deducting allowable expenses,
which will result in net income. Here, petitioners tried to show a
loss on a per transaction basis, which should not be the case. An
income statement, showing an accounting of petitioners sales,
expenses, and net profit (or loss) for a given period could have
accurately reflected the effect of the discount on their income.
Absent any financial statement, petitioners cannot substantiate
their claim that they will be operating at a loss should they give the
discount. In addition, the computation was erroneously based on
the assumption that their customers consisted wholly of senior
citizens. Lastly, the 32% tax rate is to be imposed on income, not
on the amount of the discount.
Furthermore, it is unfair for petitioners to criticize the law
because they cannot raise the prices of their medicines given the
cutthroat nature of the players in the industry. It is a business
decision on the part of petitioners to peg the mark-up at 5%.
Selling the medicines below acquisition cost, as alleged by
petitioners, is merely a result of this decision. Inasmuch as pricing
is a property right, petitioners cannot reproach the law for being
oppressive, simply because they cannot afford to raise their prices
for fear of losing their customers to competition.
The Court is not oblivious of the retail side of the
pharmaceutical industry and the competitive pricing component of
the business. While the Constitution protects property rights,
petitioners must accept the realities of business and the State, in
the exercise of police power, can intervene in the operations of a
business which may result in an impairment of property rights in
the process.
Moreover, the right to property has a social dimension.
While Article XIII of the Constitution provides the precept for the
protection of property, various laws and jurisprudence, particularly
on agrarian reform and the regulation of contracts and public
utilities, continuously serve as a reminder that the right to
property can be relinquished upon the command of the State for
the promotion of public good.[30]
Undeniably, the success of the senior citizens program
rests largely on the support imparted by petitioners and the other
private establishments concerned. This being the case, the means
employed in invoking the active participation of the private sector,
in order to achieve the purpose or objective of the law, is
reasonably and directly related. Without sufficient proof that
Section 4(a) of R.A. No. 9257 is arbitrary, and that the continued
implementation of the same would be unconscionably detrimental
to petitioners, the Court will refrain from quashing a legislative
act.[31]
WHEREFORE, the petition is DISMISSED for lack of merit.
G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their
capacities as appointed and Acting Members of the CENTRAL
BOARD OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS,
ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as
appointed and Acting Members of the BOARD OF ASSESSMENT
APPEALS of Manila; and NICOLAS CATIIL in his capacity as City
Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the June 10,
1977 decision of the Central Board of Assessment Appeals1 in
CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al.
v. Board of Assessment Appeals of Manila and City Assessor of
Manila" which affirmed the March 29, 1976 decision of the Board
of Tax Assessment Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615,
615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and
"Edmundo Reyes and Milagros Reyes v. City Assessor of Manila"
upholding the classification and assessments made by the City
Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners
of parcels of land situated in Tondo and Sta. Cruz Districts, City of
Manila, which are leased and entirely occupied as dwelling sites by
tenants. Said tenants were paying monthly rentals not exceeding
three hundred pesos (P300.00) in July, 1971. On July 14, 1971, the
National Legislature enacted Republic Act No. 6359 prohibiting for
one year from its effectivity, an increase in monthly rentals of
dwelling units or of lands on which another's dwelling is located,
where such rentals do not exceed three hundred pesos (P300.00) a
month but allowing an increase in rent by not more than 10%
thereafter. The said Act also suspended paragraph (1) of Article
1673 of the Civil Code for two years from its effectivity thereby
disallowing the ejectment of lessees upon the expiration of the
usual legal period of lease. On October 12, 1972, Presidential
Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by
indefinitely suspending the aforementioned provision of the Civil
Code, excepting leases with a definite period. Consequently, the
Reyeses, petitioners herein, were precluded from raising the
rentals and from ejecting the tenants. In 1973, respondent City
Assessor of Manila re-classified and reassessed the value of the
subject properties based on the schedule of market values duly
reviewed by the Secretary of Finance. The revision, as expected,
entailed an increase in the corresponding tax rates prompting
petitioners to file a Memorandum of Disagreement with the Board
of Tax Assessment Appeals. They averred that the reassessments
made were "excessive, unwarranted, inequitable, confiscatory and
unconstitutional" considering that the taxes imposed upon them
greatly exceeded the annual income derived from their properties.
They argued that the income approach should have been used in
determining the land values instead of the comparable sales
approach which the City Assessor adopted (Rollo, pp. 9-10-A). The
Board of Tax Assessment Appeals, however, considered the
assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to
submit concrete evidence which could overcome the presumptive
regularity of the classification and assessments appear to be in
accordance with the base schedule of market values and of the
base schedule of building unit values, as approved by the Secretary
of Finance, the cases should be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment
Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment
Appeals.1âwphi1 They submitted, among others, the summary of
the yearly rentals to show the income derived from the properties.
Respondent City Assessor, on the other hand, submitted three (3)
deeds of sale showing the different market values of the real
property situated in the same vicinity where the subject properties
of petitioners are located. To better appreciate the locational and
physical features of the land, the Board of Hearing Commissioners
conducted an ocular inspection with the presence of two
representatives of the City Assessor prior to the healing of the case.
Neither the owners nor their authorized representatives were
present during the said ocular inspection despite proper notices
served them. It was found that certain parcels of land were below
street level and were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals
rendered its decision, the dispositive portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and
assessment of the lots covered by Tax Declaration Nos. (5835)
PD-5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432,
PD-1509, 146 and (1) PD-266, the appealed Decision is modified by
allowing a 20% reduction in their respective market values and
applying therein the assessment level of 30% to arrive at the
corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment
Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied,
hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE
SALES APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF
APPELLANTS' PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax
assessment of the properties in question. Petitioners maintain that
the "Income Approach" method would have been more realistic
for in disregarding the effect of the restrictions imposed by P.D. 20
on the market value of the properties affected, respondent
Assessor of the City of Manila unlawfully and unjustifiably set
increased new assessed values at levels so high and successive that
the resulting annual real estate taxes would admittedly exceed the
sum total of the yearly rentals paid or payable by the dweller
tenants under P.D. 20. Hence, petitioners protested against the
levels of the values assigned to their properties as revised and
increased on the ground that they were arbitrarily excessive,
unwarranted, inequitable, confiscatory and unconstitutional (Rollo,
p. 10-A).
On the other hand, while respondent Board of Tax Assessment
Appeals admits in its decision that the income approach is used in
determining land values in some vicinities, it maintains that when
income is affected by some sort of price control, the same is
rejected in the consideration and study of land values as in the
case of properties affected by the Rent Control Law for they do not
project the true market value in the open market (Rollo, p. 21).
Thus, respondents opted instead for the "Comparable Sales
Approach" on the ground that the value estimate of the properties
predicated upon prices paid in actual, market transactions would
be a uniform and a more credible standards to use especially in
case of mass appraisal of properties (Ibid.). Otherwise stated,
public respondents would have this Court completely ignore the
effects of the restrictions of P.D. No. 20 on the market value of
properties within its coverage. In any event, it is unquestionable
that both the "Comparable Sales Approach" and the "Income
Approach" are generally acceptable methods of appraisal for
taxation purposes (The Law on Transfer and Business Taxation by
Hector S. De Leon, 1988 Edition). However, it is conceded that the
propriety of one as against the other would of course depend on
several factors. Hence, as early as 1923 in the case of Army & Navy
Club, Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383),
it has been stressed that the assessors, in finding the value of the
property, have to consider all the circumstances and elements of
value and must exercise a prudent discretion in reaching
conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced,
the rule of taxation must not only be uniform, but must also be
equitable and progressive.
Uniformity has been defined as that principle by which all taxable
articles or kinds of property of the same class shall be taxed at the
same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the
equitable or progressive aspects of taxation required in the 1973
Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and determine
the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those
better able to pay. Taxation is progressive when its rate goes up
depending on the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the
strongest of all the powers of government. But for all its plenitude
the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process
and equal protection clauses of the Constitution may properly be
invoked to invalidate in appropriate cases a revenue measure. If it
were otherwise, there would be truth to the 1903 dictum of Chief
Justice Marshall that "the power to tax involves the power to
destroy." The web or unreality spun from Marshall's famous
dictum was brushed away by one stroke of Mr. Justice Holmes pen,
thus: "The power to tax is not the power to destroy while this
Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130
SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue,
139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a
taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to
amount to confiscation of property. That would be a clear abuse of
power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and
natural classification for purposes of taxation but the
government's act must not be prompted by a spirit of hostility, or
at the very least discrimination that finds no support in reason. It
suffices then that the laws operate equally and uniformly on all
persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different
both in the privileges conferred and the liabilities imposed (Ibid., p.
662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it
is declared that the first Fundamental Principle to guide the
appraisal and assessment of real property for taxation purposes is
that the property must be "appraised at its current and fair market
value."
By no strength of the imagination can the market value of
properties covered by P.D. No. 20 be equated with the market
value of properties not so covered. The former has naturally a
much lesser market value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of
the assessed value of subject properties under the "comparable
sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length
transaction between a willing seller and a willing buyer and (2) the
property must be comparable property (Rollo, p. 27). Nothing can
justify or support their view as it is of judicial notice that for
properties covered by P.D. 20 especially during the time in
question, there were hardly any willing buyers. As a general rule,
there were no takers so that there can be no reasonable basis for
the conclusion that these properties were comparable with other
residential properties not burdened by P.D. 20. Neither can the
given circumstances be nonchalantly dismissed by public
respondents as imposed under distressed conditions clearly
implying that the same were merely temporary in character. At
this point in time, the falsity of such premises cannot be more
convincingly demonstrated by the fact that the law has existed for
around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself It is
therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxations, which is the promotion of the common good,
may be achieved (Commissioner of Internal Revenue v. Algue Inc.,
et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that
petitioners who are burdened by the government by its Rental
Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle
of social justice should not now be penalized by the same
government by the imposition of excessive taxes petitioners can ill
afford and eventually result in the forfeiture of their properties.
By the public respondents' own computation the assessment by
income approach would amount to only P10.00 per sq. meter at
the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the
assailed decisions of public respondents are REVERSED and SET
ASIDE; and (e) the respondent Board of Assessment Appeals of
Manila and the City Assessor of Manila are ordered to make a new
assessment by the income approach method to guarantee a fairer
and more realistic basis of computation (Rollo, p. 71).
SO ORDERED.
EQUAL PROTECTION OF LAW
G.R. No. L-23645 October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON.
BRIGIDO R. VALENCIA, in his capacity as Secretary of Public
Works and Communications, and DOMINGO GOPEZ, in his
capacity as Acting Postmaster of San Fernando,
Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for
petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor
General Frine C. Zaballero and Solicitor Dominador L. Quiroz for
respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act
1635,1 as amended by Republic Act 2631,2 which provides as
follows:
To help raise funds for the Philippine Tuberculosis Society, the
Director of Posts shall order for the period from August nineteen
to September thirty every year the printing and issue of
semi-postal stamps of different denominations with face value
showing the regular postage charge plus the additional amount of
five centavos for the said purpose, and during the said period, no
mail matter shall be accepted in the mails unless it bears such
semi-postal stamps: Provided, That no such additional charge of
five centavos shall be imposed on newspapers. The additional
proceeds realized from the sale of the semi-postal stamps shall
constitute a special fund and be deposited with the National
Treasury to be expended by the Philippine Tuberculosis Society in
carrying out its noble work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law,
thereafter issued four (4) administrative orders numbered 3 (June
20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15,
1960). All these administrative orders were issued with the
approval of the respondent Secretary of Public Works and
Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the
period from August 19 to September 30, 1957, for lack of time.
However, two denominations of such stamps, one at "5 + 5"
centavos and another at "10 + 5" centavos, will soon be released
for use by the public on their mails to be posted during the same
period starting with the year 1958.
xxx xxx xxx
During the period from August 19 to September 30 each year
starting in 1958, no mail matter of whatever class, and whether
domestic or foreign, posted at any Philippine Post Office and
addressed for delivery in this country or abroad, shall be accepted
for mailing unless it bears at least one such semi-postal stamp
showing the additional value of five centavos intended for the
Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of
mail permits or impressions of postage meters, each piece of such
mail shall bear at least one such semi-postal stamp if posted during
the period above stated starting with the year 1958, in addition to
being charged the usual postage prescribed by existing regulations.
In the case of business reply envelopes and cards mailed during
said period, such stamp should be collected from the addressees at
the time of delivery. Mails entitled to franking privilege like those
from the office of the President, members of Congress, and other
offices to which such privilege has been granted, shall each also
bear one such semi-postal stamp if posted during the said period.
Mails posted during the said period starting in 1958, which are
found in street or post-office mail boxes without the required
semi-postal stamp, shall be returned to the sender, if known, with
a notation calling for the affixing of such stamp. If the sender is
unknown, the mail matter shall be treated as nonmailable and
forwarded to the Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3,
reads as follows:
In the case of the following categories of mail matter and mails
entitled to franking privilege which are not exempted from the
payment of the five centavos intended for the Philippine
Tuberculosis Society, such extra charge may be collected in cash,
for which official receipt (General Form No. 13, A) shall be issued,
instead of affixing the semi-postal stamp in the manner hereinafter
indicated:
1. Second-class mail. — Aside from the postage at the second-class
rate, the extra charge of five centavos for the Philippine
Tuberculosis Society shall be collected on each
separately-addressed piece of second-class mail matter, and the
total sum thus collected shall be entered in the same official
receipt to be issued for the postage at the second-class rate. In
making such entry, the total number of pieces of second-class mail
posted shall be stated, thus: "Total charge for TB Fund on 100
pieces . .. P5.00." The extra charge shall be entered separate from
the postage in both of the official receipt and the Record of
Collections.
2. First-class and third-class mail permits. — Mails to be posted
without postage affixed under permits issued by this Bureau shall
each be charged the usual postage, in addition to the five-centavo
extra charge intended for said society. The total extra charge thus
received shall be entered in the same official receipt to be issued
for the postage collected, as in subparagraph 1.
3. Metered mail. — For each piece of mail matter impressed by
postage meter under metered mail permit issued by this Bureau,
the extra charge of five centavos for said society shall be collected
in cash and an official receipt issued for the total sum thus
received, in the manner indicated in subparagraph 1.
4. Business reply cards and envelopes. — Upon delivery of business
reply cards and envelopes to holders of business reply permits, the
five-centavo charge intended for said society shall be collected in
cash on each reply card or envelope delivered, in addition to the
required postage which may also be paid in cash. An official receipt
shall be issued for the total postage and total extra charge
received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. — Government agencies,
officials, and other persons entitled to the franking privilege under
existing laws may pay in cash such extra charge intended for said
society, instead of affixing the semi-postal stamps to their mails,
provided that such mails are presented at the post-office window,
where the five-centavo extra charge for said society shall be
collected on each piece of such mail matter. In such case, an
official receipt shall be issued for the total sum thus collected, in
the manner stated in subparagraph 1.
Mail under permits, metered mails and franked mails not
presented at the post-office window shall be affixed with the
necessary semi-postal stamps. If found in mail boxes without such
stamps, they shall be treated in the same way as herein provided
for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts
"Government and its Agencies and Instrumentalities Performing
Governmental Functions." Adm. Order 10, amending Adm. Order 3,
as amended, exempts "copies of periodical publications received
for mailing under any class of mail matter, including newspapers
and magazines admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P.
Gomez mailed a letter at the post office in San Fernando,
Pampanga. Because this letter, addressed to a certain Agustin
Aquino of 1014 Dagohoy Street, Singalong, Manila did not bear the
special anti-TB stamp required by the statute, it was returned to
the petitioner.
In view of this development, the petitioner brough suit for
declaratory relief in the Court of First Instance of Pampanga, to
test the constitutionality of the statute, as well as the
implementing administrative orders issued, contending that it
violates the equal protection clause of the Constitution as well as
the rule of uniformity and equality of taxation. The lower court
declared the statute and the orders unconstitutional; hence this
appeal by the respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed
from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the
respondents' contention that declaratory relief is unavailing
because this suit was filed after the petitioner had committed a
breach of the statute. While conceding that the mailing by the
petitioner of a letter without the additional anti-TB stamp was a
violation of Republic Act 1635, as amended, the trial court
nevertheless refused to dismiss the action on the ground that
under section 6 of Rule 64 of the Rules of Court, "If before the final
termination of the case a breach or violation of ... a statute ...
should take place, the action may thereupon be converted into an
ordinary action."
The prime specification of an action for declaratory relief is that it
must be brought "before breach or violation" of the statute has
been committed. Rule 64, section 1 so provides. Section 6 of the
same rule, which allows the court to treat an action for declaratory
relief as an ordinary action, applies only if the breach or violation
occurs after the filing of the action but before the termination
thereof.3
Hence, if, as the trial court itself admitted, there had been a
breach of the statute before the firing of this action, then indeed
the remedy of declaratory relief cannot be availed of, much less
can the suit be converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of
the letter in question did not constitute a breach of the statute
because the statute appears to be addressed only to postal
authorities. The statute, it is true, in terms provides that "no mail
matter shall be accepted in the mails unless it bears such
semi-postal stamps." It does not follow, however, that only postal
authorities can be guilty of violating it by accepting mails without
the payment of the anti-TB stamp. It is obvious that they can be
guilty of violating the statute only if there are people who use the
mails without paying for the additional anti-TB stamp. Just as in
bribery the mere offer constitutes a breach of the law, so in the
matter of the anti-TB stamp the mere attempt to use the mails
without the stamp constitutes a violation of the statute. It is not
required that the mail be accepted by postal authorities. That
requirement is relevant only for the purpose of fixing the liability
of postal officials.
Nevertheless, we are of the view that the petitioner's choice of
remedy is correct because this suit was filed not only with respect
to the letter which he mailed on September 15, 1963, but also with
regard to any other mail that he might send in the future. Thus, in
his complaint, the petitioner prayed that due course be given to
"other mails without the semi-postal stamps which he may deliver
for mailing ... if any, during the period covered by Republic Act
1635, as amended, as well as other mails hereafter to be sent by or
to other mailers which bear the required postage, without
collection of additional charge of five centavos prescribed by the
same Republic Act." As one whose mail was returned, the
petitioner is certainly interested in a ruling on the validity of the
statute requiring the use of additional stamps.
II.
We now consider the constitutional objections raised against the
statute and the implementing orders.
1. It is said that the statute is violative of the equal protection
clause of the Constitution. More specifically the claim is made that
it constitutes mail users into a class for the purpose of the tax
while leaving untaxed the rest of the population and that even
among postal patrons the statute discriminatorily grants
exemption to newspapers while Administrative Order 9 of the
respondent Postmaster General grants a similar exemption to
offices performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended,
is in the nature of an excise tax, laid upon the exercise of a
privilege, namely, the privilege of using the mails. As such the
objections levelled against it must be viewed in the light of
applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent
power to select the subjects of taxation and to grant
exemptions.4 This power has aptly been described as "of wide
range and flexibility."5 Indeed, it is said that in the field of taxation,
more than in other areas, the legislature possesses the greatest
freedom in classification.6 The reason for this is that traditionally,
classification has been a device for fitting tax programs to local
needs and usages in order to achieve an equitable distribution of
the tax burden.7
That legislative classifications must be reasonable is of course
undenied. But what the petitioner asserts is that statutory
classification of mail users must bear some reasonable relationship
to the end sought to be attained, and that absent such relationship
the selection of mail users is constitutionally impermissible. This is
altogether a different proposition. As explained in Commonwealth
v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship
between classification made by the legislation and its purpose is
undoubtedly true in some contexts, it has no application to a
measure whose sole purpose is to raise revenue ... So long as the
classification imposed is based upon some standard capable of
reasonable comprehension, be that standard based upon ability to
produce revenue or some other legitimate distinction, equal
protection of the law has been afforded. See Allied Stores of Ohio,
Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown
Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S.
Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection
grounds except by the clearest demonstration that it sanctions
invidious discrimination, which is all that the Constitution forbids.
The remedy for unwise legislation must be sought in the legislature.
Now, the classification of mail users is not without any reason. It is
based on ability to pay, let alone the enjoyment of a privilege, and
on administrative convinience. In the allocation of the tax burden,
Congress must have concluded that the contribution to the anti-TB
fund can be assured by those whose who can afford the use of the
mails.
The classification is likewise based on considerations of
administrative convenience. For it is now a settled principle of law
that "consideration of practical administrative convenience and
cost in the administration of tax laws afford adequate ground for
imposing a tax on a well recognized and defined class." 9 In the case
of the anti-TB stamps, undoubtedly, the single most important and
influential consideration that led the legislature to select mail
users as subjects of the tax is the relative ease and convenienceof
collecting the tax through the post offices. The small amount of
five centavos does not justify the great expense and inconvenience
of collecting through the regular means of collection. On the other
hand, by placing the duty of collection on postal authorities the tax
was made almost self-enforcing, with as little cost and as little
inconvenience as possible.
And then of course it is not accurate to say that the statute
constituted mail users into a class. Mail users were already a class
by themselves even before the enactment of the statue and all
that the legislature did was merely to select their class. Legislation
is essentially empiric and Republic Act 1635, as amended, no more
than reflects a distinction that exists in fact. As Mr. Justice
Frankfurter said, "to recognize differences that exist in fact is living
law; to disregard [them] and concentrate on some abstract
identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's
power to grant exemption must likewise be conceded as a
necessary corollary. Tax exemptions are too common in the law;
they have never been thought of as raising issues under the equal
protection clause.
It is thus erroneous for the trial court to hold that because certain
mail users are exempted from the levy the law and administrative
officials have sanctioned an invidious discrimination offensive to
the Constitution. The application of the lower courts theory would
require all mail users to be taxed, a conclusion that is hardly
tenable in the light of differences in status of mail users. The
Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may
withhold the burden of the tax in order to foster what it conceives
to be a beneficent enterprise.11 This is the case of newspapers
which, under the amendment introduced by Republic Act 2631,
are exempt from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption
rests on the State's sovereign immunity from taxation. The State
cannot be taxed without its consent and such consent, being in
derogation of its sovereignty, is to be strictly
construed.12 Administrative Order 9 of the respondent Postmaster
General, which lists the various offices and instrumentalities of the
Government exempt from the payment of the anti-TB stamp, is but
a restatement of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it
singles out tuberculosis to the exclusion of other diseases which, it
is said, are equally a menace to public health. But it is never a
requirement of equal protection that all evils of the same genus be
eradicated or none at all.13 As this Court has had occasion to say,
"if the law presumably hits the evil where it is most felt, it is not to
be overthrown because there are other instances to which it might
have been applied."14
2. The petitioner further argues that the tax in question is invalid,
first, because it is not levied for a public purpose as no special
benefits accrue to mail users as taxpayers, and second, because it
violates the rule of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by
public purpose the petitioner means benefit to a taxpayer as a
return for what he pays, then it is sufficient answer to say that the
only benefit to which the taxpayer is constitutionally entitled is
that derived from his enjoyment of the privileges of living in an
organized society, established and safeguarded by the devotion of
taxes to public purposes. Any other view would preclude the
levying of taxes except as they are used to compensate for the
burden on those who pay them and would involve the
abandonment of the most fundamental principle of government —
that it exists primarily to provide for the common good.15
Nor is the rule of uniformity and equality of taxation infringed by
the imposition of a flat rate rather than a graduated tax. A tax
need not be measured by the weight of the mail or the extent of
the service rendered. We have said that considerations of
administrative convenience and cost afford an adequate ground
for classification. The same considerations may induce the
legislature to impose a flat tax which in effect is a charge for the
transaction, operating equally on all persons within the class
regardless of the amount involved.16 As Mr. Justice Holmes said in
sustaining the validity of a stamp act which imposed a flat rate of
two cents on every $100 face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of
$100, the other $172. The inequality of the tax, so far as actual
values are concerned, is manifest. But, here again equality in this
sense has to yield to practical considerations and usage. There
must be a fixed and indisputable mode of ascertaining a stamp tax.
In another sense, moreover, there is equality. When the taxes on
two sales are equal, the same number of shares is sold in each case;
that is to say, the same privilege is used to the same extent.
Valuation is not the only thing to be considered. As was pointed
out by the court of appeals, the familiar stamp tax of 2 cents on
checks, irrespective of income or earning capacity, and many
others, illustrate the necessity and practice of sometimes
substituting count for weight ...17
According to the trial court, the money raised from the sales of the
anti-TB stamps is spent for the benefit of the Philippine
Tuberculosis Society, a private organization, without appropriation
by law. But as the Solicitor General points out, the Society is not
really the beneficiary but only the agency through which the State
acts in carrying out what is essentially a public function. The
money is treated as a special fund and as such need not be
appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn
that to execute it the respondents had to issue administrative
orders far beyond their powers. Indeed, this is one of the grounds
on which the lower court invalidated Republic Act 1631, as
amended, namely, that it constitutes an undue delegation of
legislative power.
Administrative Order 3, as amended by Administrative Orders 7
and 10, provides that for certain classes of mail matters (such as
mail permits, metered mails, business reply cards, etc.), the
five-centavo charge may be paid in cash instead of the purchase of
the anti-TB stamp. It further states that mails deposited during the
period August 19 to September 30 of each year in mail boxes
without the stamp should be returned to the sender, if known,
otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of
five centavos except through the sale of anti-TB stamps, but such
authority may be implied in so far as it may be necessary to
prevent a failure of the undertaking. The authority given to the
Postmaster General to raise funds through the mails must be
liberally construed, consistent with the principle that where the
end is required the appropriate means are given. 19
The anti-TB stamp is a distinctive stamp which shows on its face
not only the amount of the additional charge but also that of the
regular postage. In the case of business reply cards, for instance, it
is obvious that to require mailers to affix the anti-TB stamp on
their cards would be to make them pay much more because the
cards likewise bear the amount of the regular postage.
It is likewise true that the statute does not provide for the
disposition of mails which do not bear the anti-TB stamp, but a
declaration therein that "no mail matter shall be accepted in the
mails unless it bears such semi-postal stamp" is a declaration that
such mail matter is nonmailable within the meaning of section
1952 of the Administrative Code. Administrative Order 7 of the
Postmaster General is but a restatement of the law for the
guidance of postal officials and employees. As for Administrative
Order 9, we have already said that in listing the offices and entities
of the Government exempt from the payment of the stamp, the
respondent Postmaster General merely observed an established
principle, namely, that the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint
is dismissed, without pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles
and Capistrano, JJ., concur.
Zaldivar, J., is on leave.
Separate Opinions
FERNANDO, J., concurring:
I join fully the rest of my colleagues in the decision upholding
Republic Act No. 1635 as amended by Republic Act No. 2631 and
the majority opinion expounded with Justice Castro's usual vigor
and lucidity subject to one qualification. With all due recognition of
its inherently persuasive character, it would seem to me that the
same result could be achieved if reliance be had on police power
rather than the attribute of taxation, as the constitutional basis for
the challenged legislation.
1. For me, the state in question is an exercise of the regulatory
power connected with the performance of the public service. I
refer of course to the government postal function, one of
respectable and ancient lineage. The United States Constitution of
1787 vests in the federal government acting through Congress the
power to establish post offices.1 The first act providing for the
organization of government departments in the Philippines,
approved Sept. 6, 1901, provided for the Bureau of Post Offices in
the Department of Commerce and Police.2 Its creation is thus a
manifestation of one of the many services in which the
government may engage for public convenience and public
interest. Such being the case, it seems that any legislation that in
effect would require increase cost of postage is well within the
discretionary authority of the government.
It may not be acting in a proprietary capacity but in fixing the fees
that it collects for the use of the mails, the broad discretion that it
enjoys is undeniable. In that sense, the principle announced
in Esteban v. Cabanatuan City,3 in an opinion by our Chief Justice,
while not precisely controlling furnishes for me more than ample
support for the validity of the challenged legislation. Thus: "Certain
exactions, imposable under an authority other than police power,
are not subject, however, to qualification as to the amount
chargeable, unless the Constitution or the pertinent laws provide
otherwise. For instance, the rates of taxes, whether national or
municipal, need not be reasonable, in the absence of such
constitutional or statutory limitation. Similarly, when a municipal
corporation fixes the fees for the use of its properties, such as
public markets, it does not wield the police power, or even the
power of taxation. Neither does it assert governmental authority.
It exercises merely a proprietary function. And, like any private
owner, it is — in the absence of the aforementioned limitation,
which does not exist in the Charter of Cabanatuan City (Republic
Act No. 526) — free to charge such sums as it may deem best,
regardless of the reasonableness of the amount fixed, for the
prospective lessees are free to enter into the corresponding
contract of lease, if they are agreeable to the terms thereof or,
otherwise, not enter into such contract."
2. It would appear likewise that an expression of one's personal
view both as to the attitude and awareness that must be displayed
by inferior tribunals when the "delicate and awesome" power of
passing on the validity of a statute would not be inappropriate.
"The Constitution is the supreme law, and statutes are written and
enforced in submission to its commands." 4 It is likewise common
place in constitutional law that a party adversely affected could,
again to quote from Cardozo, "invoke, when constitutional
immunities are threatened, the judgment of the courts."5
Since the power of judicial review flows logically from the judicial
function of ascertaining the facts and applying the law and since
obviously the Constitution is the highest law before which statutes
must bend, then inferior tribunals can, in the discharge of their
judicial functions, nullify legislative acts. As a matter of fact, in
clear cases, such is not only their power but their duty. In the
language of the present Chief Justice: "In fact, whenever the
conflicting claims of the parties to a litigation cannot properly be
settled without inquiring into the validity of an act of Congress or
of either House thereof, the courts have, not only jurisdiction to
pass upon said issue but, also, the duty to do so, which cannot be
evaded without violating the fundamental law and paving the way
to its eventual destruction."6
Nonetheless, the admonition of Cooley, specially addressed to
inferior tribunals, must ever be kept in mind. Thus: "It must be
evident to any one that the power to declare a legislative
enactment void is one which the judge, conscious of the fallibility
of the human judgment, will shrink from exercising in any case
where he can conscientiously and with due regard to duty and
official oath decline the responsibility."7
There must be a caveat however to the above Cooley
pronouncement. Such should not be the case, to paraphrase
Freund, when the challenged legislation imperils freedom of the
mind and of the person, for given such an undesirable situation, "it
is freedom that commands a momentum of respect." Here then,
fidelity to the great ideal of liberty enshrined in the Constitution
may require the judiciary to take an uncompromising and militant
stand. As phrased by us in a recent decision, "if the liberty involved
were freedom of the mind or the person, the standard of its
validity of governmental acts is much more rigorous and
exacting."8
So much for the appropriate judicial attitude. Now on the question
of awareness of the controlling constitutional doctrines.
There is nothing I can add to the enlightening discussion of the
equal protection aspect as found in the majority opinion. It may
not be amiss to recall to mind, however, the language of Justice
Laurel in the leading case of People v. Vera,9 to the effect that the
basic individual right of equal protection "is a restraint on all the
three grand departments of our government and on the
subordinate instrumentalities and subdivisions thereof, and on
many constitutional powers, like the police power, taxation and
eminent domain."10 Nonetheless, no jurist was more careful in
avoiding the dire consequences to what the legislative body might
have deemed necessary to promote the ends of public welfare if
the equal protection guaranty were made to constitute an
insurmountable obstacle.
A similar sense of realism was invariably displayed by Justice
Frankfurter, as is quite evident from the various citations from his
pen found in the majority opinion. For him, it would be a
misreading of the equal protection clause to ignore actual
conditions and settled practices. Not for him the at times academic
and sterile approach to constitutional problems of this sort. Thus:
"It would be a narrow conception of jurisprudence to confine the
notion of 'laws' to what is found written on the statute books, and
to disregard the gloss which life has written upon it. Settled state
practice cannot supplant constitutional guaranties, but it can
establish what is state law. The Equal Protection Clause did not
write an empty formalism into the Constitution. Deeply embedded
traditional ways of carrying out state policy, such as those of which
petitioner complains, are often tougher and truer law than the
dead words of the written text."11 This too, from the same
distinguished jurist: "The Constitution does not require things
which are different in fact or opinion to be treated in law as
though they were the same."12
Now, as to non-delegation. It is to be admitted that the problem of
non-delegation of legislative power at times occasions difficulties.
Its strict view has been announced by Justice Laurel in the
aforecited case of People v. Verain this language. Thus: "In testing
whether a statute constitutes an undue delegation of legislative
power or not, it is usual to inquire whether the statute was
complete in all its terms and provisions when it left the hands of
the legislature so that nothing was left to the judgment of any
other appointee or delegate of the legislature. .... In United States
v. Ang Tang Ho ..., this court adhered to the foregoing rule; it held
an act of the legislature void in so far as it undertook to authorize
the Governor-General, in his discretion, to issue a proclamation
fixing the price of rice and to make the sale of it in violation of the
proclamation a crime."13
Only recently, the present Chief Justice reaffirmed the above view
in Pelaez v. Auditor General,14 specially where the delegation deals
not with an administrative function but one essentially and
eminently legislative in character. What could properly be
stigmatized though to quote Justice Cardozo, is delegation of
authority that is "unconfined and vagrant, one not canalized within
banks which keep it from overflowing."15
This is not the situation as it presents itself to us. What was
delegated was power not legislative in character. Justice Laurel
himself, in a later case, People v. Rosenthal,16 admitted that within
certain limits, there being a need for coping with the more
intricate problems of society, the principle of "subordinate
legislation" has been accepted, not only in the United States and
England, but in practically all modern governments. This view was
reiterated by him in a 1940 decision, Pangasinan Transportation
Co., Inc. v. Public Service Commission.17 Thus: "Accordingly, with
the growing complexity of modern life, the multiplication of the
subjects of governmental regulation, and the increased difficulty of
administering the laws, there is a constantly growing tendency
toward the delegation of greater powers by the legislature, and
toward the approval of the practice by the courts."
In the light of the above views of eminent jurists, authoritative in
character, of both the equal protection clause and the
non-delegation principle, it is apparent how far the lower court
departed from the path of constitutional orthodoxy in nullifying
Republic Act No. 1635 as amended. Fortunately, the matter has
been set right with the reversal of its decision, the opinion of the
Court, manifesting its fealty to constitutional law precepts, which
have been reiterated time and time again and for the soundest of
reasons.
UNIFORMITY OF TAXATION
G.R. No. 81311 June 30, 1988
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG
PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q.
QUADRA, and MARIO C. VILLANUEVA, petitioners,
vs.
HON. BIENVENIDO TAN, as Commissioner of Internal
Revenue, respondent.
G.R. No. 81820 June 30, 1988
KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and
affiliated labor federations and alliances, petitioners,
vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE, and SECRETARY OF
BUDGET, respondents.
G.R. No. 81921 June 30, 1988
INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE
PHILIPPINES and JESUS B. BANAL, petitioners,
vs.
The HON. COMMISSIONER, BUREAU OF INTERNAL
REVENUE, respondent.
G.R. No. 82152 June 30, 1988
RICARDO C. VALMONTE, petitioner,
vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE,
COMMISSIONER OF INTERNAL REVENUE and SECRETARY OF
BUDGET, respondent.
Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.
Jaime C. Opinion for individual petitioners in G.R. No. 81311.
Banzuela, Flores, Miralles, Rañeses, Sy, Taquio and Associates for
petitioners in G.R. No 81820.
Union of Lawyers and Advocates for Peoples Right collaborating
counsel for petitioners in G.R. No 81820.
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No.
81921.
PADILLA, J.:
These four (4) petitions, which have been consolidated because of
the similarity of the main issues involved therein, seek to nullify
Executive Order No. 273 (EO 273, for short), issued by the
President of the Philippines on 25 July 1987, to take effect on 1
January 1988, and which amended certain sections of the National
Internal Revenue Code and adopted the value-added tax (VAT, for
short), for being unconstitutional in that its enactment is not
alledgedly within the powers of the President; that the VAT is
oppressive, discriminatory, regressive, and violates the due
process and equal protection clauses and other provisions of the
1987 Constitution.
The Solicitor General prays for the dismissal of the petitions on the
ground that the petitioners have failed to show justification for the
exercise of its judicial powers, viz. (1) the existence of an
appropriate case; (2) an interest, personal and substantial, of the
party raising the constitutional questions; (3) the constitutional
question should be raised at the earliest opportunity; and (4) the
question of constitutionality is directly and necessarily involved in
a justiciable controversy and its resolution is essential to the
protection of the rights of the parties. According to the Solicitor
General, only the third requisite — that the constitutional question
should be raised at the earliest opportunity — has been complied
with. He also questions the legal standing of the petitioners who,
he contends, are merely asking for an advisory opinion from the
Court, there being no justiciable controversy for resolution.
Objections to taxpayers' suit for lack of sufficient personality
standing, or interest are, however, in the main procedural matters.
Considering the importance to the public of the cases at bar, and in
keeping with the Court's duty, under the 1987 Constitution, to
determine wether or not the other branches of government have
kept themselves within the limits of the Constitution and the laws
and that they have not abused the discretion given to them, the
Court has brushed aside technicalities of procedure and has taken
cognizance of these petitions.
But, before resolving the issues raised, a brief look into the tax law
in question is in order.
The VAT is a tax levied on a wide range of goods and services. It is
a tax on the value, added by every seller, with aggregate gross
annual sales of articles and/or services, exceeding P200,00.00, to
his purchase of goods and services, unless exempt. VAT is
computed at the rate of 0% or 10% of the gross selling price of
goods or gross receipts realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple rated
sales tax on manufacturers and producers, advance sales tax, and
compensating tax on importations. The framers of EO 273 that it is
principally aimed to rationalize the system of taxing goods and
services; simplify tax administration; and make the tax system
more equitable, to enable the country to attain economic
recovery.
The VAT is not entirely new. It was already in force, in a modified
form, before EO 273 was issued. As pointed out by the Solicitor
General, the Philippine sales tax system, prior to the issuance of
EO 273, was essentially a single stage value added tax system
computed under the "cost subtraction method" or "cost deduction
method" and was imposed only on original sale, barter or
exchange of articles by manufacturers, producers, or importers.
Subsequent sales of such articles were not subject to sales tax.
However, with the issuance of PD 1991 on 31 October 1985, a 3%
tax was imposed on a second sale, which was reduced to 1.5%
upon the issuance of PD 2006 on 31 December 1985, to take effect
1 January 1986. Reduced sales taxes were imposed not only on the
second sale, but on every subsequent sale, as well. EO 273 merely
increased the VAT on every sale to 10%, unless zero-rated or
exempt.
Petitioners first contend that EO 273 is unconstitutional on the
Ground that the President had no authority to issue EO 273 on 25
July 1987.
The contention is without merit.
It should be recalled that under Proclamation No. 3, which decreed
a Provisional Constitution, sole legislative authority was vested
upon the President. Art. II, sec. 1 of the Provisional Constitution
states:
Sec. 1. Until a legislature is elected and convened under a new
Constitution, the President shall continue to exercise legislative
powers.
On 15 October 1986, the Constitutional Commission of 1986
adopted a new Constitution for the Republic of the Philippines
which was ratified in a plebiscite conducted on 2 February 1987.
Article XVIII, sec. 6 of said Constitution, hereafter referred to as the
1987 Constitution, provides:
Sec. 6. The incumbent President shall continue to exercise
legislative powers until the first Congress is convened.
It should be noted that, under both the Provisional and the 1987
Constitutions, the President is vested with legislative powers until
a legislature under a new Constitution is convened. The first
Congress, created and elected under the 1987 Constitution, was
convened on 27 July 1987. Hence, the enactment of EO 273 on 25
July 1987, two (2) days before Congress convened on 27 July 1987,
was within the President's constitutional power and authority to
legislate.
Petitioner Valmonte claims, additionally, that Congress was really
convened on 30 June 1987 (not 27 July 1987). He contends that
the word "convene" is synonymous with "the date when the
elected members of Congress assumed office."
The contention is without merit. The word "convene" which has
been interpreted to mean "to call together, cause to assemble, or
convoke," 1 is clearly different from assumption of office by
the individual members of Congress or their taking the oath of
office. As an example, we call to mind the interim National
Assembly created under the 1973 Constitution, which had not
been "convened" but some members of the body, more
particularly the delegates to the 1971 Constitutional Convention
who had opted to serve therein by voting affirmatively for the
approval of said Constitution, had taken their oath of office.
To uphold the submission of petitioner Valmonte would stretch
the definition of the word "convene" a bit too far. It would also
defeat the purpose of the framers of the 1987 Constitutional and
render meaningless some other provisions of said Constitution. For
example, the provisions of Art. VI, sec. 15, requiring Congress
to convene once every year on the fourth Monday of July for its
regular session would be a contrariety, since Congress would
already be deemed to be in session after the individual members
have taken their oath of office. A portion of the provisions of Art.
VII, sec. 10, requiring Congress to convene for the purpose of
enacting a law calling for a special election to elect a President and
Vice-President in case a vacancy occurs in said offices, would also
be a surplusage. The portion of Art. VII, sec. 11, third paragraph,
requiring Congress to convene, if not in session, to decide a conflict
between the President and the Cabinet as to whether or not the
President and the Cabinet as to whether or not the President can
re-assume the powers and duties of his office, would also be
redundant. The same is true with the portion of Art. VII, sec. 18,
which requires Congress to convene within twenty-four (24) hours
following the declaration of martial law or the suspension of the
privilage of the writ of habeas corpus.
The 1987 Constitution mentions a specific date when the President
loses her power to legislate. If the framers of said Constitution had
intended to terminate the exercise of legislative powers by the
President at the beginning of the term of office of the members of
Congress, they should have so stated (but did not) in clear and
unequivocal terms. The Court has not power to re-write the
Constitution and give it a meaning different from that intended.
The Court also finds no merit in the petitioners' claim that EO 273
was issued by the President in grave abuse of discretion amounting
to lack or excess of jurisdiction. "Grave abuse of discretion" has
been defined, as follows:
Grave abuse of discretion" implies such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction (Abad
Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other words,
where the power is exercised in an arbitrary or despotic manner by
reason of passion or personal hostility, and it must be so patent
and gross as to amount to an evasion of positive duty or to a
virtual refusal to perform the duty enjoined or to act at all in
contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz.
62). 2
Petitioners have failed to show that EO 273 was issued capriciously
and whimsically or in an arbitrary or despotic manner by reason of
passion or personal hostility. It appears that a comprehensive
study of the VAT had been extensively discussed by this framers
and other government agencies involved in its implementation,
even under the past administration. As the Solicitor General
correctly sated. "The signing of E.O. 273 was merely the last stage
in the exercise of her legislative powers. The legislative process
started long before the signing when the data were gathered,
proposals were weighed and the final wordings of the measure
were drafted, revised and finalized. Certainly, it cannot be said that
the President made a jump, so to speak, on the Congress, two days
before it convened." 3
Next, the petitioners claim that EO 273 is oppressive,
discriminatory, unjust and regressive, in violation of the provisions
of Art. VI, sec. 28(1) of the 1987 Constitution, which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
The petitioners" assertions in this regard are not supported by
facts and circumstances to warrant their conclusions. They have
failed to adequately show that the VAT is oppressive,
discriminatory or unjust. Petitioners merely rely upon newspaper
articles which are actually hearsay and have evidentiary value. To
justify the nullification of a law. there must be a clear and
unequivocal breach of the Constitution, not a doubtful and
argumentative implication. 4
As the Court sees it, EO 273 satisfies all the requirements of a valid
tax. It is uniform. The court, in City of Baguio vs. De Leon, 5 said:
... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel,
speaking for the Court, stated: "A tax is considered uniform when
it operates with the same force and effect in every place where the
subject may be found."
There was no occasion in that case to consider the possible effect
on such a constitutional requirement where there is a classification.
The opportunity came in Eastern Theatrical Co. v. Alfonso (83 Phil.
852, 862). Thus: "Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall be
taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of
taxation; . . ." About two years later, Justice Tuason, speaking for
this Court in Manila Race Horses Trainers Assn. v. de la Fuente (88
Phil. 60, 65) incorporated the above excerpt in his opinion and
continued; "Taking everything into account, the differentiation
against which the plaintiffs complain conforms to the practical
dictates of justice and equity and is not discriminatory within the
meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in
another case decided two years later, (Uy Matias v. City of Cebu,
93 Phil. 300) is that the statute or ordinance in question "applies
equally to all persons, firms and corporations placed in similar
situation." This Court is on record as accepting the view in a
leading American case (Carmichael v. Southern Coal and Coke Co.,
301 US 495) that "inequalities which result from a singling out of
one particular class for taxation or exemption infringe no
constitutional limitation." (Lutz v. Araneta, 98 Phil. 148, 153).
The sales tax adopted in EO 273 is applied similarly on all goods
and services sold to the public, which are not exempt, at the
constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales
of goods or services by persons engage in business with an
aggregate gross annual sales exceeding P200,000.00. Small
corner sari-sari stores are consequently exempt from its
application. Likewise exempt from the tax are sales of farm and
marine products, spared as they are from the incidence of the VAT,
are expected to be relatively lower and within the reach of the
general public. 6
The Court likewise finds no merit in the contention of the
petitioner Integrated Customs Brokers Association of the
Philippines that EO 273, more particularly the new Sec. 103 (r) of
the National Internal Revenue Code, unduly discriminates against
customs brokers. The contested provision states:
Sec. 103. Exempt transactions. — The following shall be exempt
from the value-added tax:
xxx xxx xxx
(r) Service performed in the exercise of profession or calling
(except customs brokers) subject to the occupation tax under the
Local Tax Code, and professional services performed by registered
general professional partnerships;
The phrase "except customs brokers" is not meant to discriminate
against customs brokers. It was inserted in Sec. 103(r) to
complement the provisions of Sec. 102 of the Code, which makes
the services of customs brokers subject to the payment of the VAT
and to distinguish customs brokers from other professionals who
are subject to the payment of an occupation tax under the Local
Tax Code. Pertinent provisions of Sec. 102 read:
Sec. 102. Value-added tax on sale of services. — There shall be
levied, assessed and collected, a value-added tax equivalent to
10% percent of gross receipts derived by any person engaged in
the sale of services. The phrase sale of services" means the
performance of all kinds of services for others for a fee,
remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real
estate, commercial, customs and immigration brokers; lessors of
personal property; lessors or distributors of cinematographic films;
persons engaged in milling, processing, manufacturing or
repacking goods for others; and similar services regardless of
whether or not the performance thereof call for the exercise or
use of the physical or mental faculties: ...
With the insertion of the clarificatory phrase "except customs
brokers" in Sec. 103(r), a potential conflict between the two
sections, (Secs. 102 and 103), insofar as customs brokers are
concerned, is averted.
At any rate, the distinction of the customs brokers from the other
professionals who are subject to occupation tax under the Local
Tax Code is based upon material differences, in that the activities
of customs brokers (like those of stock, real estate and
immigration brokers) partake more of a business, rather than a
profession and were thus subjected to the percentage tax under
Sec. 174 of the National Internal Revenue Code prior to its
amendment by EO 273. EO 273 abolished the percentage tax and
replaced it with the VAT. If the petitioner Association did not
protest the classification of customs brokers then, the Court sees
no reason why it should protest now.
The Court takes note that EO 273 has been in effect for more than
five (5) months now, so that the fears expressed by the petitioners
that the adoption of the VAT will trigger skyrocketing of prices of
basic commodities and services, as well as mass actions and
demonstrations against the VAT should by now be evident. The
fact that nothing of the sort has happened shows that the fears
and apprehensions of the petitioners appear to be more imagined
than real. It would seem that the VAT is not as bad as we are made
to believe.
In any event, if petitioners seriously believe that the adoption and
continued application of the VAT are prejudicial to the general
welfare or the interests of the majority of the people, they should
seek recourse and relief from the political branches of the
government. The Court, following the time-honored doctrine of
separation of powers, cannot substitute its judgment for that of
the President as to the wisdom, justice and advisability of the
adoption of the VAT. The Court can only look into and determine
whether or not EO 273 was enacted and made effective as law, in
the manner required by, and consistent with, the Constitution, and
to make sure that it was not issued in grave abuse of discretion
amounting to lack or excess of jurisdiction; and, in this regard, the
Court finds no reason to impede its application or continued
implementation.
WHEREFORE, the petitions are DISMISSED. Without
pronouncement as to costs.
SO ORDERED.
NON IMPAIRMENT CLAUSE
G.R. No. 3473 March 22, 1907
J. CASANOVAS, plaintiff-appellant,
vs.
JNO. S. HORD, defendant-appellee.
F.G. Waite for appellant.
Attorney-General Araneta for appellee.
WILLARD, J.:
The plaintiff brought this action against the defendant, the
Collector of Internal Revenue, to recover the sum of P9,600, paid
by him under protest as taxes on certain mining claims owned by
him in the Province of Ambos Camarines. Judgment was rendered
in the court below in favor of the defendant, and from that
judgment the plaintiff appealed.
There is no dispute about the facts.
In January, 1897, the Spanish Government, in accordance with the
provisions of the royal decree of the 14th of May, 1867, granted to
the plaintiff certain mines in the said Province of Ambos Camarines,
of which mines the plaintiff is now the owner.
That there were valid perfected mining concessions granted prior
to the 11th of April, 1899, is conceded. They were so considered by
the Collector of Internal Revenue and were by him said to fall
within the provisions of section 134 of Act No. 1189, known as the
Internal Revenue Act. That section is as follows:
SEC. 134. On all valid perfected mining concessions granted prior
to April eleventh, eighteen hundred and ninety-nine, there shall be
levied and collected on the after January first, nineteen hundred
and five, the following taxes:
2. (a) On each claim containing an area of sixty thousand square
meters, an annual tax of one hundred pesos; (b) and at the same
rate proportionately on each claim containing an area in excess of,
or less than, sixty thousand square meters.
3. On the gross output of each an ad valorem tax equal to three
per centum of the actual market value of such output.
The defendant accordingly imposed upon these properties the tax
mentioned in section 134, which tax, as has before been stated,
plaintiff paid under protest.
The only question in the case is whether this section 134 is void or
valid.
I. It is claimed by the plaintiff that it is void because it comes within
the provision of section 5 of the act of Congress of July 1, 19021 (32
U.S. Stat. L., 691), which provides "that no law impairing the
obligation of contracts shall be enacted." The royal decree of the
14th of May, 1867, provided, among other things, as follows:
ART. 76. On each pertenencia minera (mining claim) of the area
prescribed in the first paragraph of article 13 (sixty thousand
square meters) there shall be paid annually a fixed tax of
forty escudos (about P20.00). The pertenencia referred to in the
second paragraph of the same article, though of greater area than
the others (one hundred and fifty thousand square meters), shall
pay only twenty escudos (about P10.00).
ART. 78. Pertenencia of iron mines and mines of combustible
minerals shall be exempt from the annual tax for a period of thirty
years from the date of publication of this decree.
ART. 80. A further tax of three per centum on the gross earnings
shall be paid without deduction of costs of any kind whatsoever.
All substances enumerated in section one shall be exempt from
said tax of three per centum for a period of thirty years.
ART. 81. No other taxes than those herein mentioned shall be
imposed upon mining and metallurgical industries.
The royal decree and regulation for its enforcement provided that
the deeds granted by the Government should be in a particular
form, which form was inserted in the regulations. It must be
presumed that the deeds granted to the plaintiff were made as
provided by law, and, in fact, one of such concessions was
exhibited during the argument in this court, and was found to be in
exact conformity with the form prescribed by law. The deed is as
follows:
Don Camilo Garcia de Polavieja, Marquez de Polavieja, Teniente
General de los Ejercitos Nacionales, Caballero Gran Cruz de la Real
y Militar Orden de San Hermenegildo, de la Real y distinguida de
Isabel la Catolica, de la del Merito Militar Roja, de la de la Corona
de Italia, Comendador de Carlos Tercero, Bennemerito de la Patria
en grado eminente, condecorado con varias cruses de distincion
por meritos de guerra, Capitan General y Gobernador General de
Filipinas.
Whereas I have granted to Don Joaquin Casanovas y Llovet and to
Don Martin Buck the concession of a gold mine entitled "Nueva
California Segunda" in the jurisdiction of Paracale, Province of
Ambos Camarines: Now, therefore, in the name of His Majesty the
King (whom God preserve), and pursuant to the provisions of
article 37 of the royal decree of May 14, 1867, regulating mining in
these Islands, I issue, this fifth day of November, eighteen hundred
and ninety-six, this title deed to four pertenencias, comprising an
area of two hundred and forty thousand square meters, as shown
in the attached sketch map drafted by the engineer Don Enrique
Abella y Casariego, and dated at Manila December sixteenth of the
said year, subject to the following general terms and conditions:
1. That the mine shall be worked in conformity with the rules in
mining, the grantee and his laborers to be governed by the police
rules established by existing regulations.
2. That the grantee shall be liable for all damages to third parties
that may be caused by his operations.
3. That the grantee shall likewise indemnify his neighbors for any
damage they may suffer by reason of water accumulated on his
works, if, upon being requested, he fail to drain the same within
the time indicated.
4. That he shall contribute for the drainage of the adjacent mines
and for the general galleries for drainage or haulage in proportion
to the benefit he derives therefrom, whenever, by authority of the
Governor-General, such works shall be opened for a group
of pertenencias or for the entire mining locality in which the mine
is situated.
5. That he shall commence work on the mine immediately upon
receipt of this concession unless prevented by force majeure.
6. That he shall keep the mine in active operation by employing at
the rate of at least four laborers for each pertenencia for at least
six months of each year.
7. That he shall strengthen the walls of the mine within the time
indicated whenever, by reason of mismanagement of the work, it
threatens to cave in, unless he be prevented by force majeure.
8. That he shall not render further profitable development of the
mine difficult or impossible by avaricious operation.
9. That he shall not suspend the operation of the mine with the
intention of abandoning the same without first informing the
Governor of his intention, in which case he must leave the mine in
a good state of timbering.
10. That he shall pay taxes on the mine and its output as
prescribed in the royal decree.
11. Finally, that he shall comply with all the requirements
contained in the royal decree and in the regulations for
concessions of the same nature as the present.
Without special conditions.
Now, therefore, by virtue of this title deed, I grant to Don Joaquin
Casanovas y Llovet and to Don Martin Buck the ownership of the
said mine for an unlimited period of time so long as they shall
comply with the foregoing terms and conditions, to the end that
they may develop the same and make free use and disposition of
the output thereof, with the right to alienate the said mine subject
to the provisions of existing laws, and to enjoy all the rights and
benefits conceded to such grantees by the royal decree and by the
mining regulations. And for the prompt fulfillment and observance
of the said conditions, both on the part of the said grantees and by
all authorities, courts, corporations, and private persons whom it
may concern, I have ordered this title deed to be issued — given
under my hand and the proper seal and countersigned by the
undersigned Director-General of Civil Administration.
It seems very clear to us that this deed constituted a contract
between the Spanish Government and the plaintiff, the obligation
of which contract was impaired by the enactment of section 134 of
the Internal Revenue Law above cited, thereby infringing the
provisions above quoted from section 5 of the act of Congress of
July 1, 1902. This conclusion seems necessarily to result from the
decisions of the Supreme Court of the United States in similar
cases. In the case of McGee vs. Mathis (4 Wallace, 143), it
appeared that the State of Arkansas, by an act of the legislature of
1851, provided for the sale of certain swamp lands granted to it by
the United States; for the issue of transferable scrip receivable for
any lands not already taken up at the time of selection by the
holder; for contracts for the making of levees and drains, and for
the payment of contractors in scrip and otherwise. In the
fourteenth section of this act it was provided that —
To encourage by all just means the progress and completion of the
reclaiming of such lands by offering inducements to purchasers
and contractors to take up said lands, all said swamp and
overflowed lands shall be exempt from taxation for the term of ten
years or until they shall be reclaimed.
In 1855 this section was repealed and provision was made by law
for the taxation of swamp and overflowed lands, sold or to be sold,
precisely as other lands. McGee, before this appeal, had become
the owner by transfer from contractors of a large amount of scrip
issued under the Act of 1851, and with this scrip, after the repeal,
took up and paid for many sections and parts of sections of the
granted lands. Taxes were levied by the State on the lands so taken
up by McGee. The Supreme Court held that these taxes could not
be collected. The Court said at page 156:
It seems quite clear that the Act of 1851 authorizing the issue of
land scrip constituted a contract between the State and the
holders of the land scrip issued under the act.
In the case of the Home of the Friendless vs. Rouse (8 Wallace,
430), it appeared that on the 3d day of February, 1853, the
legislature of Missouri passed on act to incorporate the Home of
the Friendless in the city of St. Louis. Section 1 of the act provided
that —
All property of said corporation shall be exempt from taxation.
The court held that the State had no power afterwards to pass
laws providing for the levying of taxes upon this institution. The
Court said among other things at page 438:
The validity of this contract is questioned at the bar on the ground
that the legislature had no authority to grant away the power of
taxation. The answer to this position is, that the question is no
longer open for argument here, for it is settled by the repeated
adjudications of this court, that a State may be contract based on a
consideration exempt the property of an individual or corporation
from taxation, either for a specified period or permanently. And it
is equally well settled that the exemption is presumed to be on
sufficient consideration, and binds the State if the charter
containing it is accepted.
In the case of The Asylum vs. The City of New Orleans (105 U.S.,
362), it appears that St. Ariva's Asylum was incorporated by an act
of the legislature of Louisiana, approved April 29, 1853. The law
incorporating it provided that it should enjoy the same exemption
from taxation which was enjoyed by the Orphan Boys' Asylum of
New Orleans. The law relating to the last named institution
provided (page 364):
That, from and after the passage of this act, all the property, real
and personal, belonging to the Orphan Boys' Asylum of New
Orleans be, and the same is hereby exempted from all taxation,
either by the State, parish, or city in which it is situated, any law to
the contrary notwithstanding.
It was held that the State had no power by subsequent legislation
to impose taxes upon the property of this institution.
That the doctrine announced in these cases is still maintained in
that court is apparent from the case of Powers vs.The Detroit,
Grand Haven and Milwaukee Railway which was decided on the
16th of April, 1906, and reported in 201 U. S., 543. Section 9 of the
act of the legislature of Michigan, incorporating the railway
company, provided:
Said company shall, on or before the 1st day of July, pay to the
State treasurer, an annual tax of one per cent on the capital stock
of said company, pain in, which tax shall be in lieu of all other
taxation.
The court said at page 556:
It has often been decided by this court, so often that a citation on
authorities in unnecessary, that the legislature of a State may, in
the absence of special restrictions in its constitution, make a valid
contract with a corporation in respect to taxation, and that such
contract can be enforced against the State at the instance of the
corporation.
The case at bar falls within the cases hereinbefore cited. It is to be
distinguished from the case of the Metropolitan Street Railway
Company vs. The New York State Board of Tax Commissioners (199
U.S., 1). In that case it was provided by various acts of the
legislature, that the companies therein referred to, should pay
annually to the city of New York, a fixed amount or percentage,
varying from 2 to 8 per cent of their gross earnings additional taxes
was sustained by the court. It was sustained on the ground that
the prior legislation did not expressly say that the taxes thus
provided for should be in lieu of all other taxes. The court said at
page 37:
Applying these well-established rules to the several contracts, it
will be perceived that there was no express relinquishment of the
right of taxation. The plaintiff in error must rely upon some
implication, and not upon any direct stipulation. In each contract
there was a grant of privileges, but the grant was specifically or
privileges in respect to the construction, operation and
maintenance of the street railroad. These were all that in terms
were granted. As consideration for this grant, the grantees were to
pay something, and such payment is nowhere said to be in lieu of,
or as an equivalent or substitute of taxes. All that can be extracted
from the language used, was a grant of privileges and a payment
therefor. Other words must be written into the contract before
there can be found any relinquishment of the power of taxation.
But in the case at bar, there is found not only the provisions for the
payment of certain taxes annually, but there is also found the
provision contained in article 81, above quoted, which expressly
declares that no other taxes shall be imposed upon these mines.
The present case is to be distinguished also from that class of cases
of which Grands Lodge vs. The City of New Orleans (166 U.S., 143)
is a type, and which includes Salt Company vs. East Saginaw (13
Wall., 373) and Welch vs.Cook (97 U.S., 541). In these cases the
exemption was a mere bounty and did not form a part of any
contract.
The fact that this concession was made by the Government of
Spain, and not by the Government of the United States, is not
important. (Trustees of Dartmouth College vs. Woodward, 4
Wheaton, 518.)
Our conclusion is that the concessions granted by the Government
of Spain to the plaintiff, constitute contracts between the parties;
that section 134 of the Internal Revenue Law impairs the
obligation of these contracts, and is therefore void as to them.
II. We think that this section is also void because in conflict with
section 60 of the act of Congress of July 1, 1902. This section is as
follows:
That nothing in this Act shall be construed to effect the rights of
any person, partnership, or corporation, having a valid, perfected
mining concession granted prior to April eleventh, eighteen
hundred and ninety-nine, but all such concessions shall be
conducted under the provisions of the law in force at the time they
were granted, subject at all times to cancellation by reason of
illegality in the procedure by which they were obtained, or for
failure to comply with the conditions prescribed as requisite to
their retention in the laws under which they were
granted: Provided, That the owner or owners of every such
concession shall cause the corners made by its boundaries to be
distinctly marked with permanent monuments within six months
after this act has been promulgated in the Philippine Islands, and
that any concessions, the boundaries of which are not so marked
within this period shall be free and open to explorations and
purchase under the provisions of this act.2
This section seems to indicate that concessions, like those in
question, can be canceled only by reason of illegality in the
procedure by which they were obtained, or for failure to comply
with the conditions prescribed as requisite for their retention in
the laws under which they were granted. There is nothing in the
section which indicates that they can be canceled for failure to
comply with the conditions prescribed by subsequent legislation.
In fact, the real intention of the act seems to be that such
concession should be subject to the former legislation and not to
any subsequent legislation. There is no claim in this case that there
was any illegality in the procedure by which these concessions
were obtained, nor is there any claim that the plaintiff has not
complied with the conditions prescribed in the said royal decree of
1867.
III. In view of the result at which we have arrived, it is not
necessary to consider the further claim made by the plaintiff that
the taxes imposed by article 134 above quoted, are in violation of
the part of section 5 of the act of July 1, 1902, which declares "that
the rule of taxation in said Islands shall be uniform."
The judgment of the court below is reversed, and judgment is
ordered in favor of the plaintiff and against the defendant for
P9,600, with interest thereon, at 6 per cent, from the 21st day of
February, 1906, and the costs of the Court of First Instance. No
costs will be allowed to either party in this court.
After the expiration of twenty days let judgment be entered in
accordance herewith and ten days thereafter let the case be
remanded to the court from whence it came for proper action. So
ordered.
Arturo Tolentino vs Secretary of Finance
Arturo Tolentino et al are questioning the constitutionality of RA
7716 otherwise known as the Expanded Value Added Tax (EVAT)
Law. Tolentino averred that this revenue bill did not exclusively
originate from the House of Representatives as required by Section
24, Article 6 of the Constitution. Even though RA 7716 originated
as HB 11197 and that it passed the 3 readings in the HoR, the same
did not complete the 3 readings in Senate for after the 1st reading
it was referred to the Senate Ways & Means Committee thereafter
Senate passed its own version known as Senate Bill 1630.
Tolentino averred that what Senate could have done is amend HB
11197 by striking out its text and substituting it with the text of SB
1630 in that way “the bill remains a House Bill and the Senate
version just becomes the text (only the text) of the HB”. (It’s
ironic however to note that Tolentino and co-petitioner Raul Roco
even signed the said Senate Bill.)
ISSUE: Whether or not the EVAT law is procedurally infirm.
HELD: No. By a 9-6 vote, the Supreme Court rejected the challenge,
holding that such consolidation was consistent with the power of
the Senate to propose or concur with amendments to the version
originated in the HoR. What the Constitution simply means,
according to the 9 justices, is that the initiative must come from
the HoR. Note also that there were several instances before where
Senate passed its own version rather than having the HoR version
as far as revenue and other such bills are concerned. This practice
of amendment by substitution has always been accepted. The
proposition of Tolentino concerns a mere matter of form. There is
no showing that it would make a significant difference if Senate
were to adopt his over what has been done.
DOCTRINE FOR EXEMPTIONS
Abra Valley College vs Aquino (G.R. No. L-39086)
Posted: July 25, 2011 in Case Digests
0 of the school building or lot for commercial purposes is neither
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 P5,140.31. Said “Notice of
Seizure” by respondents Municipal Treasurer and Provincial
Treasurer, defendants below, was issued for the satisfaction of the
said taxes thereon.
The parties entered into a stipulation of facts adopted and
embodied by the trial court in its questioned decision. The trial
court ruled for the government, holding that the second floor of
the building is being used by the director for residential purposes
and that the ground floor used and rented by Northern Marketing
Corporation, a commercial establishment, and thus the property is
not being used exclusively for educational purposes. Instead of
perfecting an appeal, petitioner availed of the instant petition for
review on certiorari with prayer for preliminary injunction before
the Supreme Court, by filing said petition on 17 August 1974.
ISSUE: Whether or not the lot and building are used exclusively for
educational purposes.
HELD: Section 22, paragraph 3, Article VI, of the then 1935
Philippine Constitution, expressly grants exemption from realty
taxes for cemeteries, churches and parsonages or convents
appurtenant thereto, and all lands, buildings, and improvements
used exclusively for religious, charitable or educational purposes.ﾝ
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
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).
G.R. No. L-19201 June 16, 1965
REV. FR. CASIMIRO LLADOC, petitioner,
vs.
The COMMISSIONER OF INTERNAL REVENUE and The COURT of
TAX APPEALS, respondents.
Hilado and Hilado for petitioner.
Office of the Solicitor General for respondents.
PAREDES, J.:
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated
P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of
Victorias, Negros Occidental, and predecessor of herein petitioner,
for the construction of a new Catholic Church in the locality. The
total amount was actually spent for the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift
tax return. Under date of April 29, 1960, the respondent
Commissioner of Internal Revenue issued an assessment for
donee's gift tax against the Catholic Parish of Victorias, Negros
Occidental, of which petitioner was the priest. The tax amounted
to P1,370.00 including surcharges, interests of 1% monthly from
May 15, 1958 to June 15, 1960, and the compromise for the late
filing of the return.
Petitioner lodged a protest to the assessment and requested the
withdrawal thereof. The protest and the motion for
reconsideration presented to the Commissioner of Internal
Revenue were denied. The petitioner appealed to the Court of Tax
Appeals on November 2, 1960. In the petition for review, the Rev.
Fr. Casimiro Lladoc claimed, among others, that at the time of the
donation, he was not the parish priest in Victorias; that there is no
legal entity or juridical person known as the "Catholic Parish Priest
of Victorias," and, therefore, he should not be liable for the
donee's gift tax. It was also asserted that the assessment of the gift
tax, even against the Roman Catholic Church, would not be valid,
for such would be a clear violation of the provisions of the
Constitution.
After hearing, the CTA rendered judgment, the pertinent portions
of which are quoted below:
... . Parish priests of the Roman Catholic Church under canon laws
are similarly situated as its Archbishops and Bishops with respect
to the properties of the church within their parish. They are the
guardians, superintendents or administrators of these properties,
with the right of succession and may sue and be sued.
xxx xxx xxx
The petitioner impugns the, fairness of the assessment with the
argument that he should not be held liable for gift taxes on
donation which he did not receive personally since he was not yet
the parish priest of Victorias in the year 1957 when said donation
was given. It is intimated that if someone has to pay at all, it should
be petitioner's predecessor, the Rev. Fr. Crispin Ruiz, who received
the donation in behalf of the Catholic parish of Victorias or the
Roman Catholic Church. Following petitioner's line of thinking, we
should be equally unfair to hold that the assessment now in
question should have been addressed to, and collected from, the
Rev. Fr. Crispin Ruiz to be paid from income derived from his
present parish where ever it may be. It does not seem right to
indirectly burden the present parishioners of Rev. Fr. Ruiz for
donee's gift tax on a donation to which they were not benefited.
xxx xxx xxx
We saw no legal basis then as we see none now, to include within
the Constitutional exemption, taxes which partake of the nature of
an excise upon the use made of the properties or upon the
exercise of the privilege of receiving the properties. (Phipps vs.
Commissioner of Internal Revenue, 91 F [2d] 627; 1938, 302 U.S.
742.)
It is a cardinal rule in taxation that exemptions from payment
thereof are highly disfavored by law, and the party claiming
exemption must justify his claim by a clear, positive, or express
grant of such privilege by law. (Collector vs. Manila Jockey Club,
G.R. No. L-8755, March 23, 1956; 53 O.G. 3762.)
The phrase "exempt from taxation" as employed in Section 22(3),
Article VI of the Constitution of the Philippines, should not be
interpreted to mean exemption from all kinds of taxes. Statutes
exempting charitable and religious property from taxation should
be construed fairly though strictly and in such manner as to give
effect to the main intent of the lawmakers. (Roman Catholic
Church vs. Hastrings 5 Phil. 701.)
xxx xxx xxx
WHEREFORE, in view of the foregoing considerations, the decision
of the respondent Commissioner of Internal Revenue appealed
from, is hereby affirmed except with regard to the imposition of
the compromise penalty in the amount of P20.00 (Collector of
Internal Revenue v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ...,
and the petitioner, the Rev. Fr. Casimiro Lladoc is hereby ordered
to pay to the respondent the amount of P900.00 as donee's gift tax,
plus the surcharge of five per centum (5%) as ad valorem penalty
under Section 119 (c) of the Tax Code, and one per centum (1%)
monthly interest from May 15, 1958 to the date of actual payment.
The surcharge of 25% provided in Section 120 for failure to file a
return may not be imposed as the failure to file a return was not
due to willful neglect.( ... ) No costs.
The above judgment is now before us on appeal, petitioner
assigning two (2) errors allegedly committed by the Tax Court, all
of which converge on the singular issue of whether or not
petitioner should be liable for the assessed donee's gift tax on the
P10,000.00 donated for the construction of the Victorias Parish
Church.
Section 22 (3), Art. VI of the Constitution of the Philippines,
exempts from taxation cemeteries, churches and parsonages or
convents, appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious purposes. The
exemption is only from the payment of taxes assessed on such
properties enumerated, as property taxes, as contra distinguished
from excise taxes. In the present case, what the Collector assessed
was a donee's gift tax; the assessment was not on the properties
themselves. It did not rest upon general ownership; it was an
excise upon the use made of the properties, upon the exercise of
the privilege of receiving the properties (Phipps vs. Com. of Int. Rec.
91 F 2d 627). Manifestly, gift tax is not within the exempting
provisions of the section just mentioned. A gift tax is not a
property tax, but an excise tax imposed on the transfer of property
by way of gift inter vivos, the imposition of which on property used
exclusively for religious purposes, does not constitute an
impairment of the Constitution. As well observed by the learned
respondent Court, the phrase "exempt from taxation," as
employed in the Constitution (supra) should not be interpreted to
mean exemption from all kinds of taxes. And there being no clear,
positive or express grant of such privilege by law, in favor of
petitioner, the exemption herein must be denied.
The next issue which readily presents itself, in view of petitioner's
thesis, and Our finding that a tax liability exists, is, who should be
called upon to pay the gift tax? Petitioner postulates that he
should not be liable, because at the time of the donation he was
not the priest of Victorias. We note the merit of the above claim,
and in order to put things in their proper light, this Court, in its
Resolution of March 15, 1965, ordered the parties to show cause
why the Head of the Diocese to which the parish of Victorias
pertains, should not be substituted in lieu of petitioner Rev. Fr.
Casimiro Lladoc it appearing that the Head of such Diocese is the
real party in interest. The Solicitor General, in representation of
the Commissioner of Internal Revenue, interposed no objection to
such a substitution. Counsel for the petitioner did not also offer
objection thereto.
On April 30, 1965, in a resolution, We ordered the Head of the
Diocese to present whatever legal issues and/or defenses he might
wish to raise, to which resolution counsel for petitioner, who also
appeared as counsel for the Head of the Diocese, the Roman
Catholic Bishop of Bacolod, manifested that it was submitting itself
to the jurisdiction and orders of this Court and that it was
presenting, by reference, the brief of petitioner Rev. Fr. Casimiro
Lladoc as its own and for all purposes.
In view here of and considering that as heretofore stated, the
assessment at bar had been properly made and the imposition of
the tax is not a violation of the constitutional provision exempting
churches, parsonages or convents, etc. (Art VI, sec. 22 [3],
Constitution), the Head of the Diocese, to which the parish
Victorias Pertains, is liable for the payment thereof.
The decision appealed from should be, as it is hereby affirmed
insofar as tax liability is concerned; it is modified, in the sense that
petitioner herein is not personally liable for the said gift tax, and
that the Head of the Diocese, herein substitute petitioner, should
pay, as he is presently ordered to pay, the said gift tax, without
special, pronouncement as to costs.
G.R. No. L-7988 January 19, 1916
THE YOUNG MEN'S CHRISTIAN ASSOCIATION OF
MANILA, plaintiff-appellant,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
Haussermann, Cohn and Fisher for appellant.
City Attorney Escaler for appellee.
MORELAND, J.:
The question at issue in this case is whether or not the building
and grounds of the Young Men's Christian Association of Manila
are subject to taxation, under section 48 of the charter of the city
of Manila quoted in the footnote [syllabus].
The city of Manila, contending that the property is taxable,
assessed it and levied a tax thereon. It was paid under protest and
this action begun to recover it on the ground that the property was
exempt from taxation under the charter of the city of Manila. The
decision was for the city and the association appealed.
The Young Men's Christian Association came to the Philippine with
the army of occupation in 1898. When the large body of troops in
Manila was removed to permanent quarters at Fort William
McKinley in February, 1905, an independent association for Manila
was organized under the direction of the Army and navy
departments. Shortly after the organization of the association the
directors made a formal request to the international committee of
the Young Men's Christian Association in New York City for the
assistance and cooperation of its foreign department. I response to
this request Mr. John R. Mott, general secretary of the foreign
department, visited Manila in January 1907. After a conference
with the directors and interested friends it was decided to conduct
a campaign to secure funds for an adequate and permanent
association. In the name of the international committee and
friends in America Mr. Mott guaranteed P170,000 for the
construction of a building on condition that friend in the
Philippines secure the site and adequately furnish the building. The
campaign for funds was begun here on February 15, 1907, and, by
the 15th of March following, P83,000 was subscribed, nearly one
thousand different persons contributing. Thereupon the Young
Men's Christian Association of Manila was incorporated under the
law of the Philippine Islands and received its character in June,
1907.
A site for the new building was selected on Calle Concepcion,
Ermita, and the building contract was let on the 8th of January
following. The cornerstone was laid with appropriate ceremonies
on July 10, 1908, and the building was formally dedicated on
October 20, 1909.
The building is composed of three parts. The main structure,
located in the center, is three stories high and includes a reception
hall, social hall and game rooms, lecture room, library, reading
room and rooming apartments. The small building lying to the left
of the principal structure, as one faces the front from Called
Concepcion, is the kitchen and servant's quarters. The large wing
to the right is known as the athletic building, where the bowling
alleys, swimming pool, locker rooms and gymnasium-auditorium
are located. The construction is of reinforced concrete with steel
trussed roof covered with interlocking red tiles.
The main or central portion of the building is 150 by 45 feet and
stands 20 meters back from the sidewalk. An iron canopy,
suspended by brackets, projects over the driveway which lies in
front and shelters the main entrance. A wide arched doorway
opens into a large reception room, on the left of which is the
public office and the secretary's private office, while on the right is
the reading and writing rooms, and beyond that the library, each
about 30 feet square. From the reception room, on the left, a
broad concrete stairway leads to the second floor.
Passing out of the rear of the reception hall one enters upon a
veranda some 15 feet in width running the full length of the main
structure which looks out on the tennis courts and affords an
excellent place for lounging, games and general social purposes. To
the left of the entrance hall and also opening upon the veranda are
two large rooms of about the same size as those on the right of the
reception hall, the first being the billiard room and the other the
restaurant. The athletic building is entered from the rear veranda.
It is a two story wing 68 by 85 feet. Passing from the veranda into
the athletic hall one finds first, on the left, the toilet room, and
beyond this, to the rear, the shower baths and locker rooms. The
swimming pool is in the center of the athletic wing and is 60 by 19
feet in size, lined with cement. To the right of the swimming pool
are the bowling alleys. A wide stairways leads to the second floor.
Above the swimming-pool and bowling alley is a large room 50 by
85 feet which is the gymnasium and also the auditorium when
occasion requires. About one-third of the roof converting the
athletic wing is used as a roof garden.
The second and third floors of the main building are given over
almost wholly to rooming apartments and baths. On the second
floor over the entrance hall is a members' parlor, from which a
small balcony projects over the main entrance. The remainder of
the second floor and all to the third are composed of the living
rooms. These apartments, of which there are 14 on the second and
20 on the third floor are approximately 18 by 14 feet each. They
provide accommodations for 64 men.
The purposes of the association, as set forth in its charter and
constitution, are:
To develop the Christian character and usefulness of its members,
to improve the spiritual, intellectual, social and physical condition
of young men, and to acquire, hold, mortgage, and dispose of the
necessary lands, buildings and personal property for the use of
said corporation exclusively for religious, charitable and
educational purposes, and not for investment or profit.
The purposes of this association shall be exclusively religious,
charitable and educational, in developing the Christian character
and usefulness of its members and in improving the spiritual,
mental, social and physical condition of young men.
Speaking generally, the association claims exemption from
taxation on the ground that it is a religious, charitable and
educational institution combined. That it has an educational
department is not denied. It is undisputed that the aim of this
department is to furnish, at much less than cost, instruction in
subjects that will greatly increase the mental efficiency and
wage-earning capacity of young men, prepare them in special lines
of business and offer them special lines of study. Attention is given
to subjects included in civil service and consular examinations both
here and in the United States. The courses offer commercial
subjects, as well as many others, and include stenography and
typewriting, bookkeeping, arithmetic, English composition, foreign
languages, including elementary and advanced Spanish and
Tagalog, special courses in Philippine history, public speaking,
surveying, horticulture, tropical dependencies, and the group of
subjects required for entrance into the consular services, such as
political economy, American and modern history. Courses are also
offered in law, social, ethics, political economy and other subjects.
The institution has also its religious department. In that
department there are, generally speaking, three main lines of work
— Bible study, religious meetings and special classes. Course are
offered in the Life of Christ and the Old Testament and in the
larger social significance of the teachings of Jesus. Meetings are
held on Sunday afternoons and several times during the week and
courses are offered in the study of missions, in the method of
teaching the Bible and kindred subjects.
The atmosphere of the Young Men's Christian Association is
distinctly religious and there is constant effort on the part of the
officials to create a religious spirit; and to that end there is
continuous pressure to induce members to attend not only the
religious services of the association but also those of one or
another of the churches of Manila. While the association is
nonsectarian, it is preeminently religious; and the fundamental
basis and groundwork is the Christian religion. All of the officials of
the association are devoted Christians, members of a church, and
have dedicated their lives to the spread of the Christian principles
and building of Christian character.
The institution also has charitable features. It makes no profit on
any of its activities. The professors and instructors in all
departments serve without pay and freely give of their time and
ability to further the purposes of the institution. The chief
secretary and his assistant receive no salary from the institution.
Whatever they are paid comes from the United States. In
estimating the cost of instruction in the various departments, or of
the other things for which pay is received, no account is taken of
the interest on the money invested in the grounds and building, of
deterioration in value resulting from the lapse of time, or of the
fact that the professors and instructors and certain officials receive
no pay. We have, then, a building and grounds, professors and
instructors, and certain institution officials, furnished free of
charge, and which makes no profit even on that basis. This, it
would seem, would lend some color to the claim that the
association takes on some of the aspect of a charitable institution.
While it appears that the association is not exclusively religious or
charitable or educational, it is demonstrated that it is a happy
combination of all three, giving to its membership the religious
opportunities of the church, the educational opportunities of the
school and the blessings of charity where needed without the
recipient feeling or even knowing that he is the object of charity.
It is claimed, however, that the institution is run as a business in
that it keeps a lodging and boarding house. It may be admitted
that there are 64 persons occupying rooms in the main building as
lodgers or roomers and that they take their meals at the
restaurant below. These facts, however, are far from constituting a
business in ordinary acceptation of the word. In the first place, no
profit is realized by the association in any sense. In the second
place, it is undoubted, as it is undisputed, that the purpose of the
association is not, primarily, to obtain the money which comes
from the lodgers and boarders. The real purpose is to keep the
membership continually within the sphere of influence of the
institution; and thereby to prevent, as far as possible, the
opportunities which vice president to young men in foreign
countries who lack home or other similar influences. We regard
this feature of the institution not as a business or means of making
money, but, rather, as a very efficient means of maintaining the
influence of the institution over its membership. As we held in the
case of the Columbia Club, religious and moral teachings do not
always stop with the spoken word; but to be effective in the
highest degree they must follow the young man through as many
moments of his life as possible. To this end the feature of the
Young Men's Christian Association to which objection is made
lends itself with great effect; and we are, accordingly, forced to
regards this activity of the institution not as a business but as a
method by which the institution maintains its influence and
conserves the benefits which its organization was designed to
confer.
As we have seen in the description already given of the association
building and grounds, no part is occupied for any but institutional
purposes. From end to end the building and grounds are devoted
exclusively to the purposes stated in the constitution of the
association. The library and reading rooms, the game and lounging
halls, the lecture rooms, the auditorium, the baths, pools, devices
for physical development, and the grounds, are all dedicated
exclusively to the objects and purpose of the association — the
building of Christian character and the creation of moral sentiment
and fiber in men. It is the belief of the Young Men's Christian
Association that a Christian man, a man of moral sentiment and
firm moral fiber, is yet a better man for being also all-round man
— one who is sound not only according to Christian principles and
the highest moral conceptions, but physically and mentally; whose
body and mind act in harmony and within the limits which the
rights of others set; who are gentleman in physical and mental
struggles, as well as in religious service; who have self-respect and
self-restraint; who can hit hard and still kindly; who can lose
without envy; who can congratulate his conqueror with sincerity;
who can vie without temper, contend without malice, concede
without regret; who can win and still be generous, — in short, one
who fights hard but square. To the production of such men the
association lends all its efforts, husbands all its resources.
We are aware that there are many decisions holding that
institutions of this character are not exempt from taxation; but, on
investigation, we find that the majority of them are based on
statutes much narrower than the one under consider and that in
all probability the decisions would have been otherwise if the
court had been passing on a statute similar to ours. On the other
hand, there are many decisions of the courts in the United States
founded on statutes like the Philippine statute which hold that
associations of this class are exempt from taxation. We have
examined all of the decisions, both for and against, with care and
deliberation, and we are convinced that the weight of authority
sustains the positions we take in this case.
There is no doubt about the correctness of the contention that an
institution must devote itself exclusively to one or the other of the
purpose mentioned in the statute before it can be exempt from
taxation; but the statute does not say that it must be
devoted exclusively to any one of the purposes therein mentioned.
It may be a combination of two or three or more of those purposes
and still be entitled to exempt. The Young Men's Christian
Association of Manila cannot be said to be an institution
used exclusively for religious purposes, or an institution used
exclusively for charitable purposes, or an institution devoted
exclusively to educational purposes; but we believe it can be
truthfully said that it is an institution used exclusively for all three
purposes, and that, as such, it is entitled to be exempted from
taxation.
The judgment appealed from is reversed and the cause remanded
with instructions to enter a judgment against the city of Manila
and in favor of the Young Men's Christian Association of Manila in
the sum of P6,221.35. Without costs in this instance. So ordered.
G.R. No. L-27588 December 31, 1927
THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA, as
representative of the Roman Catholic Apostolic
Church, plaintiff-appellant,
vs.
THE PROVINCIAL BOARD OF ILOCOS NORTE, ET
AL., defendants-appellants.
Vicente Llanes and Proceso Coloma for plaintiff-appellant.
Provincial Fiscal Santos for defendant-appellants.
AVANCEÑA, J.:
The plaintiff, the Roman Catholic Apostolic Church, represented by
the Bishop of Nueva Segovia, possesses and is the owner of a
parcel of land in the municipality of San Nicolas, Ilocos Norte, all
four sides of which face on public streets. On the south side is a
part of the churchyard, the convent and an adjacent lot used for a
vegetable garden, containing an area off 1,624 square meters, in
which there is a stable and a well for the use of the convent. In the
center is the remainder of the churchyard and the church. On the
north is an old cemetery with two of its walls still standing, and a
portion where formerly stood a tower, the base of which still be
seen, containing a total area of 8,955 square meters.
As required by the defendants, on July 3, 1925 the plaintiff paid,
under protest, the land tax on the lot adjoining the convent and
the lot which formerly was the cemetery with the portion where
the tower stood.
The plaintiff filed this action for the recovery of the sum paid by to
the defendants by way of land tax, alleging that the collection of
this tax is illegal. The lower court absolved the defendants from
the complaint in regard to the lot adjoining convent and declared
that the tax collected on the lot, which formerly was the cemetery
and on the portion where the lower stood, was illegal. Both parties
appealed from this judgment.
The exemption in favor of the convent in the payment of the land
tax (sec. 344 [c] Administrative Code) refers to the home of the
parties who presides over the church and who has to take care of
himself in order to discharge his duties. In therefore must, in the
sense, include not only the land actually occupied by the church,
but also the adjacent ground destined to the ordinary incidental
uses of man. Except in large cities where the density of the
population and the development of commerce require the use of
larger tracts of land for buildings, a vegetable garden belongs to a
house and, in the case of a convent, it use is limited to the
necessities of the priest, which comes under the
exemption.lawphi1.net
In regard to the lot which formerly was the cemetery, while it is no
longer used as such, neither is it used for commercial purposes and,
according to the evidence, is now being used as a lodging house by
the people who participate in religious festivities, which
constitutes an incidental use in religious functions, which also
comes within the exemption.
The judgment appealed from is reversed in all it parts and it is held
that both lots are exempt from land tax and the defendants are
ordered to refund to plaintiff whatever was paid as such tax,
without any special pronouncement as to costs. So ordered.
TAX EXEMPTION
G.R. No. L-21841 October 28, 1966
ESSO STANDARD EASTERN, INC., petitioner-appellant,
vs.
ACTING COMMISSIONER OF CUSTOMS, respondent-appellee.
Ross, Selph and Carrascoso for petitioners.
Office of the Solicitor General for respondents.
SANCHEZ, J.:
Claim for the refund of P722.84 paid in 1956 as special import tax
on pump parts imported by petitioner. Petitioner's ground: The
imported articles "consist of equipment and spare parts for its own
exclusive use and therefore were exempt from special import tax",
by the terms of Section 6, Republic Act 1394.1 The Collector of
Customs of Manila rejected the claim. Respondent Acting
Commissioner of Customs, on appeal, affirmed the rejection.
Petitioner's case suffered the same fate in the Court of Tax
Appeals.2 We are asked to review the Court on Tax Appeals'
judgment.
The interrelated errors assigned in petitioner's brief funnel down
to one controlling legal issue: Are the imported pump parts
exempt from the payment of special import tax?
By Section 1 of Republic Act 1394, a special import tax is imposed
"on all goods, articles or products imported or brought into the
Philippines" during the period from 1956 up to and including 1965
in accordance with the schedule of rates therein provided. Exempt
from this tax, by express mandate of Section 6 of the same
law, inter alia, are "machinery, equipment, accessories, and spare
parts, for the use of industries, miners, mining enterprises,
planters and farmers".
Petitioner is engaged in the industry of processing gasoline, and
manufacturing lubricating oil, grease and tin containers. Petitioner
owns gasoline stations with pumps, which are leased to and
operated by gasoline dealers. It sells gasoline to these dealers. The
pump parts imported by petitioner in 1956 were intended,
installed and actually used by gasoline dealers in pumping gasoline
from under around tanks into customers' motor vehicles. These
pump parts, in other words, are used in the sale at retail of
gasoline — not by petitioner but by lessees of gasoline stations. In
this factual environment, it is quite evident that the pump parts
are not used in petitioner's industry of processing gasoline, or
manufacturing lubricating oil, grease and tin containers.
The drive of petitioner's argument is that marketing of its gasoline
product "is corollary to or incidental to its industrial
operations."3 But this contention runs smack against the familiar
rules that exemption from taxation is not favored,4and that
exemptions in tax statutes are never presumed.5 Which are but
statements in adherence to the ancient rule that exemptions from
taxation are construed in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.6 Tested by this precept,
we cannot indulge in expansive construction and write into the law
an exemption not therein set forth. Rather, we go by the
reasonable assumption that where the State has granted in
express terms certain exemptions, those are the exemptions to be
considered, and no more. Since the law states that, to be tax
exempt, equipment and spare parts should be "for the use of
industries", the coverage herein should not be enlarged to include
equipment and spare parts for use in dispensing gasoline at retail.
In comparable factual backdrop, this Court has held that tax
exemption in connection with the manufacture of asbestos roof
does not extend to the installation thereof.7
Upon the facts and the law, we vote to affirm the decision of the
Court of Tax Appeals under review. Costs against petitioner. So
ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon,
J.P., Zaldivar and Castro, JJ., concur.
Barrera, J., is on leave.
LOCAL TAXATION
G.R. No. L-26521 December 28, 1968
EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,
vs.
CITY OF ILOILO, defendants-appellants.
Pelaez, Jalandoni and Jamir for plaintiff-appellees.
Assistant City Fiscal Vicente P. Gengos for defendant-appellant.
of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) Section 3. — The municipal license tax provided in Section 1 hereof
tenement house, partly or wholly engaged in business in any other shall be as follows:
streets, P12.00 per apartment. The validity and constitutionality of
this ordinance were challenged by the spouses Eusebio Villanueva
and Remedies Sian Villanueva, owners of four tenement houses I. Tenement houses:
containing 34 apartments. This Court, in City of Iloilo vs. Remedios
Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, (a) Apartment house made of strong materials P20.00
declared the ordinance ultra vires, "it not appearing that the
power to tax owners of tenement houses is one among those (b) Apartment house made of mixed materials P10.00
clearly and expressly granted to the City of Iloilo by its Charter."
II Rooming house of strong materials P10.00
On January 15, 1960 the municipal board of Iloilo City, believing, Rooming house of mixed materials P5.00
obviously, that with the passage of Republic Act 2264, otherwise
known as the Local Autonomy Act, it had acquired the authority or III. Tenement house partly or wholly engaged in or dedicated to business in
power to enact an ordinance similar to that previously declared by the following streets: J.M. Basa, Iznart, Aldeguer, Guanco and Ledesma
this Court as ultra vires, enacted Ordinance 11, series of 1960, from Plazoleto Gay to Valeria. St. P30.00
hereunder quoted in full:
IV. Tenement house partly or wholly engaged in or dedicated to business in
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS any other street P12.00

CASTRO, J.: ENGAGED IN THE BUSINESS OF OPERATING TENEMENT HOUSES

Appeal by the defendant City of Iloilo from the decision of the
Court of First Instance of Iloilo declaring illegal Ordinance 11, series
of 1960, entitled, "An Ordinance Imposing Municipal License Tax
On Persons Engaged In The Business Of Operating Tenement
Houses," and ordering the City to refund to the plaintiffs-appellees
the sums of collected from them under the said ordinance.
On September 30, 1946 the municipal board of Iloilo City enacted
Ordinance 86, imposing license tax fees as follows: (1) tenement
house (casa de vecindad), P25.00 annually; (2) tenement house,
partly or wholly engaged in or dedicated to business in the streets
Be it ordained by the Municipal Board of the City of Iloilo, pursuant
to the provisions of Republic Act No. 2264, otherwise known as the
Autonomy Law of Local Government, that:
Section 1. — A municipal license tax is hereby imposed on
tenement houses in accordance with the schedule of payment
herein provided.
Section 2. — Tenement house as contemplated in this ordinance
shall mean any building or dwelling for renting space divided into
separate apartments or accessorias.
V. Tenement houses at the streets surrounding the super market as soon as
said place is declared commercial P24.00
Section 4. — All ordinances or parts thereof inconsistent herewith
are hereby amended.
Section 5. — Any person found violating this ordinance shall be
punished with a fine note exceeding Two Hundred Pesos (P200.00)
or an imprisonment of not more than six (6) months or both at the
discretion of the Court.
Section 6 — This ordinance shall take effect upon approval.
ENACTED, January 15, 1960.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S.
Villanueva are owners of five tenement houses, aggregately
containing 43 apartments, while the other appellees and the same
Remedios S. Villanueva are owners of ten apartments. Each of the
appellees' apartments has a door leading to a street and is rented
by either a Filipino or Chinese merchant. The first floor is utilized
as a store, while the second floor is used as a dwelling of the
owner of the store. Eusebio Villanueva owns, likewise, apartment
buildings for rent in Bacolod, Dumaguete City, Baguio City and
Quezon City, which cities, according to him, do not impose
tenement or apartment taxes.
By virtue of the ordinance in question, the appellant City collected
from spouses Eusebio Villanueva and Remedios S. Villanueva, for
the years 1960-1964, the sum of P5,824.30, and from the
appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S.
Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio
Villanueva has likewise been paying real estate taxes on his
property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a
complaint, and an amended complaint, respectively, against the
City of Iloilo, in the aforementioned court, praying that Ordinance
11, series of 1960, be declared "invalid for being beyond the
powers of the Municipal Council of the City of Iloilo to enact, and
unconstitutional for being violative of the rule as to uniformity of
taxation and for depriving said plaintiffs of the equal protection
clause of the Constitution," and that the City be ordered to refund
the amounts collected from them under the said ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring
the ordinance illegal on the grounds that (a) "Republic Act 2264
does not empower cities to impose apartment taxes," (b) the same
is "oppressive and unreasonable," for the reason that it penalizes
owners of tenement houses who fail to pay the tax, (c) it
constitutes not only double taxation, but treble at that and (d) it
violates the rule of uniformity of taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal
because it imposes double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to
impose tenement taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable
because it carries a penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity
of taxation?
1. The pertinent provisions of the Local Autonomy Act are
hereunder quoted:
SEC. 2. Any provision of law to the contrary notwithstanding, all
chartered cities, municipalities and municipal districts shall have
authority to impose municipal license taxes or fees upon persons
engaged in any occupation or business, or exercising privileges in
chartered cities, municipalities or municipal districts by requiring
them to secure licences at rates fixed by the municipal board or
city council of the city, the municipal council of the municipality, or
the municipal district council of the municipal district; to collect
fees and charges for services rendered by the city, municipality or
municipal district; to regulate and impose reasonable fees for
services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or
municipal district and otherwise to levy for public purposes, just
and uniform taxes, licenses or fees; Provided, That municipalities
and municipal districts shall, in no case, impose any percentage tax
on sales or other taxes in any form based thereon nor impose
taxes on articles subject to specific tax, except gasoline, under the
provisions of the National Internal Revenue Code; Provided,
however, That no city, municipality or municipal district may levy
or impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and
publication of any newspaper, magazine, review or bulletin
appearing at regular intervals and having fixed prices for for
subscription and sale, and which is not published primarily for the
purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other
public utilities except electric light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies, and other
acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned
by the national government, tonnage, and all other kinds of
customs fees, charges and duties;
(j) Taxes of any kind on banks, insurance companies, and persons
paying franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain
insurance directly with foreign insurance companies.
A tax ordinance shall go into effect on the fifteenth day after its
passage, unless the ordinance shall provide otherwise: Provided,
however, That the Secretary of Finance shall have authority to
suspend the effectivity of any ordinance within one hundred and
twenty days after its passage, if, in his opinion, the tax or fee
therein levied or imposed is unjust, excessive, oppressive, or
confiscatory, and when the said Secretary exercises this authority
the effectivity of such ordinance shall be suspended.
In such event, the municipal board or city council in the case of
cities and the municipal council or municipal district council in the
case of municipalities or municipal districts may appeal the
decision of the Secretary of Finance to the court during the
pendency of which case the tax levied shall be considered as paid
under protest.
It is now settled that the aforequoted provisions of Republic Act
2264 confer on local governments broad taxing authority which
extends to almost "everything, excepting those which are
mentioned therein," provided that the tax so levied is "for public
purposes, just and uniform," and does not transgress any
constitutional provision or is not repugnant to a controlling
statute.2 Thus, when a tax, levied under the authority of a city or
municipal ordinance, is not within the exceptions and limitations
aforementioned, the same comes within the ambit of the general
rule, pursuant to the rules of expressio unius est exclusio alterius,
and exceptio firmat regulum in casibus non excepti.
Does the tax imposed by the ordinance in question fall within any
of the exceptions provided for in section 2 of the Local Autonomy
Act? For this purpose, it is necessary to determine the true nature
of the tax. The appellees strongly maintain that it is a "property
tax" or "real estate tax,"3 and not a "tax on persons engaged in any
occupation or business or exercising privileges," or a license tax, or
a privilege tax, or an excise tax.4 Indeed, the title of the ordinance
designates it as a "municipal license tax on persons engaged in
the business of operating tenement houses," while section 1
thereof states that a "municipal license tax is hereby imposed on
tenement houses." It is the phraseology of section 1 on which the
appellees base their contention that the tax involved is a real
estate tax which, according to them, makes the ordinance ultra
vires as it imposes a levy "in excess of the one per centum real
estate tax allowable under Sec. 38 of the Iloilo City Charter, Com.
Act 158."5.
It is our view, contrary to the appellees' contention, that the tax in
question is not a real estate tax. Obviously, the appellees confuse
the tax with the real estate tax within the meaning of the
Assessment Law,6 which, although not applicable to the City of
Iloilo, has counterpart provisions in the Iloilo City Charter. 7 A real
estate tax is a direct tax on the ownership of lands and buildings or
other improvements thereon, not specially exempted,8 and is
payable regardless of whether the property is used or not,
although the value may vary in accordance with such factor.9 The
tax is usually single or indivisible, although the land and building or
improvements erected thereon are assessed separately, except
when the land and building or improvements belong to separate
owners.10 It is a fixed proportion11 of the assessed value of the
property taxed, and requires, therefore, the intervention of
assessors.12 It is collected or payable at appointed times,13 and it
constitutes a superior lien on and is enforceable against the
property14 subject to such taxation, and not by imprisonment of
the owner.
The tax imposed by the ordinance in question does not possess the
aforestated attributes. It is not a tax on the land on which the
tenement houses are erected, although both land and tenement
houses may belong to the same owner. The tax is not a fixed
proportion of the assessed value of the tenement houses, and
does not require the intervention of assessors or appraisers. It is
not payable at a designated time or date, and is not enforceable
against the tenement houses either by sale or distraint. Clearly,
therefore, the tax in question is not a real estate tax.
"The spirit, rather than the letter, or an ordinance determines the
construction thereof, and the court looks less to its words and
more to the context, subject-matter, consequence and effect.
Accordingly, what is within the spirit is within the ordinance
although it is not within the letter thereof, while that which is in
the letter, although not within the spirit, is not within the
ordinance."15 It is within neither the letter nor the spirit of the
ordinance that an additional real estate tax is being imposed,
otherwise the subject-matter would have been not merely
tenement houses. On the contrary, it is plain from the context of
the ordinance that the intention is to impose a license tax on the
operation of tenement houses, which is a form of business or
calling. The ordinance, in both its title and body, particularly
sections 1 and 3 thereof, designates the tax imposed as a
"municipal license tax" which, by itself, means an "imposition or
exaction on the right to use or dispose of property, to pursue a
business, occupation, or calling, or to exercise a privilege."16.
"The character of a tax is not to be fixed by any isolated words that
may beemployed in the statute creating it, but such words must be
taken in the connection in which they are used and the true
character is to be deduced from the nature and essence of the
subject."17 The subject-matter of the ordinance is tenement
houses whose nature and essence are expressly set forth in section
2 which defines a tenement house as "any building or dwelling for
renting space divided into separate apartments or accessorias."
The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et
al., L-12695, March 23, 1959, adopted the definition of a tenement
house18 as "any house or building, or portion thereof, which
is rented, leased, or hired out to be occupied, or is occupied, as the
home or residence of three families or more living independently
of each other and doing their cooking in the premises or by more
than two families upon any floor, so living and cooking, but having
a common right in the halls, stairways, yards, water-closets, or
privies, or some of them." Tenement houses, being necessarily
offered for rent or lease by their very nature and essence,
therefore constitute a distinct form of business or calling, similar to
the hotel or motel business, or the operation of lodging houses or
boarding houses. This is precisely one of the reasons why this
Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva,
et al., supra, declared Ordinance 86 ultra vires, because, although
the municipal board of Iloilo City is empowered, under sec. 21, par.
j of its Charter, "to tax, fix the license fee for, and regulate hotels,
restaurants, refreshment parlors, cafes, lodging houses, boarding
houses, livery garages, public warehouses, pawnshops, theaters,
cinematographs," tenement houses, which constitute a different
business enterprise,19 are not mentioned in the aforestated section
of the City Charter of Iloilo. Thus, in the aforesaid case, this Court
explicitly said:.
"And it not appearing that the power to tax owners of tenement
houses is one among those clearly and expressly granted to the
City of Iloilo by its Charter, the exercise of such power cannot be
assumed and hence the ordinance in question is ultra vires insofar
as it taxes a tenement house such as those belonging to
defendants." .
The lower court has interchangeably denominated the tax in
question as a tenement tax or an apartment tax. Called by either
name, it is not among the exceptions listed in section 2 of the Local
Autonomy Act. On the other hand, the imposition by the ordinance
of a license tax on persons engaged in the business of operating
tenement houses finds authority in section 2 of the Local
Autonomy Act which provides that chartered cities have the
authority to impose municipal license taxes or fees upon persons
engaged in any occupation or business, or exercising privileges
within their respective territories, and "otherwise to levy for public
purposes, just and uniform taxes, licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not
only double taxation but treble at that," because "buildings pay
real estate taxes and also income taxes as provided for in Sec. 182
(A) (3) (s) of the National Internal Revenue Code, besides the
tenement tax under the said ordinance." Obviously, what the trial
court refers to as "income taxes" are the fixed taxes on business
and occupation provided for in section 182, Title V, of the National
Internal Revenue Code, by virtue of which persons engaged in
"leasing or renting property, whether on their account as principals
or as owners of rental property or properties," are considered
"real estate dealers" and are taxed according to the amount of
their annual income.20.
While it is true that the plaintiffs-appellees are taxable under the
aforesaid provisions of the National Internal Revenue Code as real
estate dealers, and still taxable under the ordinance in question,
the argument against double taxation may not be invoked. The
same tax may be imposed by the national government as well as
by the local government. There is nothing inherently obnoxious in
the exaction of license fees or taxes with respect to the same
occupation, calling or activity by both the State and a political
subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly taxed
because they are paying the real estate taxes and the tenement
tax imposed by the ordinance in question, is also devoid of merit. It
is a well-settled rule that a license tax may be levied upon a
business or occupation although the land or property used in
connection therewith is subject to property tax. The State may
collect an ad valorem tax on property used in a calling, and at the
same time impose a license tax on that calling, the imposition of
the latter kind of tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or
prohibited sense the same property must be taxed twice when it
should be taxed but once; both taxes must be imposed on the
same property or subject-matter, for the same purpose, by the
same State, Government, or taxing authority, within the same
jurisdiction or taxing district, during the same taxing period, and
they must be the same kind or character of tax."23 It has been
shown that a real estate tax and the tenement tax imposed by the
ordinance, although imposed by the sametaxing authority, are not
of the same kind or character.
At all events, there is no constitutional prohibition against double
taxation in the Philippines.24 It is something not favored, but is
permissible, provided some other constitutional requirement is
not thereby violated, such as the requirement that taxes must be
uniform."25.
3. The appellant City takes exception to the conclusion of the
lower court that the ordinance is not only oppressive because it
"carries a penal clause of a fine of P200.00 or imprisonment of 6
months or both, if the owner or owners of the tenement buildings
divided into apartments do not pay the tenement or apartment tax
fixed in said ordinance," but also unconstitutional as it subjects the
owners of tenement houses to criminal prosecution for
non-payment of an obligation which is purely sum of money." The
lower court apparently had in mind, when it made the above ruling,
the provision of the Constitution that "no person shall be
imprisoned for a debt or non-payment of a poll tax."26 It is
elementary, however, that "a tax is not a debt in the sense of an
obligation incurred by contract, express or implied, and therefore
is not within the meaning of constitutional or statutory provisions
abolishing or prohibiting imprisonment for debt, and a statute or
ordinance which punishes the non-payment thereof by fine or
imprisonment is not, in conflict with that prohibition."27 Nor is the
tax in question a poll tax, for the latter is a tax of a fixed amount
upon all persons, or upon all persons of a certain class, resident
within a specified territory, without regard to their property or the
occupations in which they may be engaged.28 Therefore, the tax in
question is not oppressive in the manner the lower court puts it.
On the other hand, the charter of Iloilo City29 empowers its
municipal board to "fix penalties for violations of ordinances,
which shall not exceed a fine of two hundred pesos or six months'
imprisonment, or both such fine and imprisonment for each
offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this
Court overruled the pronouncement of the lower court declaring
illegal and void an ordinance imposing an occupation tax on
persons exercising various professions in the City of Manilabecause
it imposed a penalty of fine and imprisonment for its violation.30.
4. The trial court brands the ordinance as violative of the rule of
uniformity of taxation.
"... because while the owners of the other buildings only pay real
estate tax and income taxes the ordinance imposes aside from
these two taxes an apartment or tenement tax. It should be noted
that in the assessment of real estate tax all parts of the building or
buildings are included so that the corresponding real estate tax
could be properly imposed. If aside from the real estate tax the
owner or owners of the tenement buildings should pay apartment
taxes as required in the ordinance then it will violate the rule of
uniformity of taxation.".
Complementing the above ruling of the lower court, the appellees
argue that there is "lack of uniformity" and "relative inequality,"
because "only the taxpayers of the City of Iloilo are singled out to
pay taxes on their tenement houses, while citizens of other cities,
where their councils do not enact a similar tax ordinance, are
permitted to escape such imposition." .
It is our view that both assertions are undeserving of extended
attention. This Court has already ruled that tenement houses
constitute a distinct class of property. It has likewise ruled that
"taxes are uniform and equal when imposed upon all property of
the same class or character within the taxing authority."31 The fact,
therefore, that the owners of other classes of buildings in the City
of Iloilo do not pay the taxes imposed by the ordinance in question
is no argument at all against uniformity and equality of the tax
imposition. Neither is the rule of equality and uniformity violated
by the fact that tenement taxesare not imposed in other cities, for
the same rule does not require that taxes for the same purpose
should be imposed in different territorial subdivisions at the same
time.32 So long as the burden of the tax falls equally and impartially
on all owners or operators of tenement houses similarly classified
or situated, equality and uniformity of taxation is
accomplished.33 The plaintiffs-appellees, as owners of tenement
houses in the City of Iloilo, have not shown that the tax burden is
not equally or uniformly distributed among them, to overthrow
the presumption that tax statutes are intended to operate
uniformly and equally.34.
5. The last important issue posed by the appellees is that since the
ordinance in the case at bar is a mere reproduction of Ordinance
86 of the City of Iloilo which was declared by this Court in
L-12695, supra, as ultra vires, the decision in that case should be
accorded the effect of res judicata in the present case or should
constitute estoppel by judgment. To dispose of this contention, it
suffices to say that there is no identity of subject-matter in that
case andthis case because the subject-matter in L-12695 was an
ordinance which dealt not only with tenement houses but also
warehouses, and the said ordinance was enacted pursuant to the
provisions of the City charter, while the ordinance in the case at
bar was enacted pursuant to the provisions of the Local Autonomy
Act. There is likewise no identity of cause of action in the two cases
because the main issue in L-12695 was whether the City of Iloilo
had the power under its charter to impose the tax levied by
Ordinance 11, series of 1960, under the Local Autonomy Act which
took effect on June 19, 1959, and therefore was not available for
consideration in the decision in L-12695 which was promulgated
on March 23, 1959. Moreover, under the provisions of section 2 of
the Local Autonomy Act, local governments may now tax any
taxable subject-matter or object not included in the enumeration
of matters removed from the taxing power of local
governments.Prior to the enactment of the Local Autonomy Act
the taxes that could be legally levied by local governments were
only those specifically authorized by law, and their power to tax
was construed in strictissimi juris. 35.
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance
in questionbeing valid, the complaint is hereby dismissed. No
pronouncement as to costs..
Pepsi Cola Bottling Company vs Municipality of Tanauan
Pepsi Cola has a bottling plant in the Municipality of Tanauan,
Leyte. In September 1962, the Municipality approved Ordinance
No. 23 which levies and collects “from soft drinks producers and
manufacturers a tai of one-sixteenth (1/16) of a centavo for every
bottle of soft drink corked.”
In December 1962, the Municipality also approved Ordinance No. revenue and to levy taxes, subject to such limitations as may be
27 which levies and collects “on soft drinks produced or provided by law.” Withal, it cannot be said that Section 2 of
manufactured within the territorial jurisdiction of this municipality Republic Act No. 2264 emanated from beyond the sphere of the
a tax of one centavo P0.01) on each gallon of volume capacity.” legislative power to enact and vest in local governments the power
of local taxation.
Pepsi Cola assailed the validity of the ordinances as it alleged that
they constitute double taxation in two instances: a) double There is no double taxation. The argument of the Municipality is
taxation because Ordinance No. 27 covers the same subject matter well taken. Further, Pepsi Cola’s assertion that the delegation of
and impose practically the same tax rate as with Ordinance No. 23, taxing power in itself constitutes double taxation cannot be
b) double taxation because the two ordinances impose percentage merited. It must be observed that the delegating authority
or specific taxes. specifies the limitations and enumerates the taxes over which local
taxation may not be exercised. The reason is that the State has
Pepsi Cola also questions the constitutionality of Republic Act 2264
exclusively reserved the same for its own prerogative. Moreover,
which allows for the delegation of taxing powers to local
double taxation, in general, is not forbidden by our fundamental
government units; that allowing local governments to tax
law unlike in other jurisdictions. Double taxation becomes
companies like Pepsi Cola is confiscatory and oppressive.
obnoxious only where the taxpayer is taxed twice for the benefit of
The Municipality assailed the arguments presented by Pepsi Cola. the same governmental entity or by the same jurisdiction for the
It argued, among others, that only Ordinance No. 27 is being same purpose, but not in a case where one tax is imposed by the
enforced and that the latter law is an amendment of Ordinance No. State and the other by the city or municipality.
23, hence there is no double taxation.
ISSUE: Whether or not there is undue delegation of taxing powers.
Whether or not there is double taxation.
HELD: No. There is no undue delegation. The Constitution even
allows such delegation. Legislative powers may be delegated to
local governments in respect of matters of local concern. By
necessary implication, the legislative power to create political
corporations for purposes of local self-government carries with it
the power to confer on such local governmental agencies the
power to tax. Under the New Constitution, local governments are
granted the autonomous authority to create their own sources of
revenue and to levy taxes. Section 5, Article XI provides: “Each
local government unit shall have the power to create its sources of