Submitted to: ATTY.

IBANEZ

Arellano School of Law

TAXATION LAW
CLASS REPORTING

TOPIC:
NATURE OF TAXING POWERINHERENT ATTRIBUTE OF SOVEREIGNTY

CERVANTES, vs. AUDITOR GENERAL

C A S E
D O C T R I N E

The power of taxation is an incident of sovereignty as it is inherent in the State, belonging as a matter of right to every independent government. It does need constitutional conferment. Regardless of whether quarters allowance should be considered as compensation or not, the resolution of the board of the directors authorizing payment thereof to the petitioner cannot be given effect since it was disapproved by the Control Committee in the exercise of powers granted to it by Executive Order No. 93. And in any event, petitioner's contention that quarters allowance is not compensation, a proposition on which American authorities appear divided, cannot be insisted on behalf of officers and employees working for the Government of the Philippines and its Instrumentalities, including, naturally, government-controlled corporations.

TOPIC:
TAX AND LICENSEDISTINGUISHED

C A S E
D O C T R I N E

PROGRESSIVE DEVELOPMENT CORPORATION, vs. QUEZON CITY,

The five percent (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on income, not a city income tax (as distinguished from the national income tax imposed by the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which the petitioner is engaged. While it is true that the amount imposed by the questioned ordinances may be considered in determining whether the exaction is really one for revenue or prohibition, instead of one of regulation under the police power, it nevertheless will be presumed to be reasonable.

TOPIC:
EXEMPTION OF GOVERNMENT AGENCIES/ INSTRUMENTALITIES

NATIONAL DEVELOPMENT COMPANY, vs. C CEBU CITY and AUGUSTO PACIS

A S E Property owned by the State Tax exemption of property owned by the Republic of the Philippines refers to property owned by the government and its agencies which do not have separate and distinct personalities. The government does not part with its title by reserving them, but simply gives notice to the world that it desires them for a certain purpose. As its title remains with the Republic, the reserved land is clearly covered by tax exemption.

D O C T R I N E

However, the exemption does not extend to improvements on public land. Consequently, the warehouse constructed on the reserved land by NDC should properly be assessed real estate tax, as such improvement does not appear to belong to the public, [NDC v. Cebu City, 215 SCRA 382].

TOPIC:
NON-IMPAIRMENT CLAUSE

C A S E
D O C T R I N E

SMART COMMUNICATIONS, INC., VS. THE CITY OF DAVAO,

Is the Contract Clause, a limitation on the State's power to tax? HELD No. The Contract Clause has never been thought as a limitation on the exercise of the State's power of taxation save only where a tax exemption has been granted for a valid consideration. Smart's franchise was granted with the express condition that it is subject to amendment, alteration, or repeal. Therefore, the parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. Not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. Hence, the petition of Smart was DENIED.

TOPIC:
SPECIAL FUND

Virgilio Gaston, vs. Republic Planters Bank,

C A S E
D O C T R I N E The Supreme Court held that the stabilization fees collected are in the nature of a tax which constitutes public funds, which is within the power of the State to impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a "Special Fund," a "Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization Fund" created under Section 6 of Commonwealth Act 567. The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State.

TOPIC:
REVENUE REGULATIONS

CIR v. CA, ROH Auto

Is ROH covered by the tax amnesty? Was the CIRs position correct? YES. NO.

C A S E
D O C T R I N E

Ratio Decidendi: 1. The added exception urged by petitioner Commissioner based on Revenue Memorandum Order No. 4-87, further restricting the scope of the amnesty clearly amounts to an act of administrative legislation quite contrary to the mandate of the law which the regulation ought to implement 2. The authority of the Secretary of Finance, in conjunction with the CIR, to promulgate rules and regulations for the enforcement of internal revenue laws cannot be controverted. Neither can it be disputed that such rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and respect by the courts. Much more fundamental than either of the above, however, is that all such issuances must not override, but must remain consistent and in harmony with, the law they seek to apply and implement. Administrative rules and regulations are intended to carry out, neither to supplant nor to modify ,the law.

TOPIC:
SOURCE OF INCOME -INCOME ACQUIRED BY MISTAKE

North American Oil Consolidated v. Burnet, 286 U.S. 417 (1932)

C A S E
D O C T R I N E

The Court held, If a taxpayer receives earnings under a claim of right and without restriction as to its disposition, he has received income which he is required to return, even though it may still be claimed that he is not entitled to retain the money, and even though he may still be adjudged liable to restore its equivalent. It was in 1917 that the profits became entitled to them, and they achieved access to and control of the gains. If the 1922 decision had ruled in favor of the government, North American Oil would have been entitled to a deduction in the amount of those lost profits.

TOPIC:
UNREGISTERED OR REGISTERED PARTNERSHIP

ONA VS. CIR

C A S E
D O C T R I N E For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project of partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding.

Note: The income derived from inherited properties may be considered as individual income of the respective heirs only as long as the inheritance or estate is not distributed or, at least partitioned, but the moment their respective known shares are used as part of the common assets of the heirs to be used in making profits, it is but proper that the income of such shares be considered as part of the taxable income of an unregistered partnership.

TOPIC:
KINDS OF ITEMIZED DEDUCTIONS: BUSINESS EXPENSE

Hospital de San Juan De Dios vs. Com.

C A S E
D O C T R I N E

The interests and dividends in question are merely incidental income to petitioner's main activity, which is the operation of its hospital and nursing schools. Mere holding of investments cannot be considered engaging in business so that the expenses in managing the investments are not considered ordinary and necessary in the pursuit of a trade or business. Hence, it is not deductible as business or administrative expenses

TOPIC:
LIFEBLOOD THEORY

CIR vs. CA, CITYTRUST BANKING

C A S E
D O C T R I N E

It is axiomatic that the Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the Government's financial position, especially in the case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy.

TOPIC:
REGULATORY MEASURE

MANILA RACE HORSE vs DE LA FUENTE

C A S E
D O C T R I N E The owners of boarding stables for race horses and, for that matter, the race horse owners themselves, who in the scheme of shifting may carry the taxation burden, are a class by themselves and appropriately taxed where owners of other kinds of horses are taxed less or not at all, considering that equity in taxation is generally conceived in terms of ability to pay in relation to the benefits received by the taxpayer and by the public from the business or property taxed. Race horses are devoted to gambling if legalized, their owners derive fat income and the public hardly any profit from horse racing, and this business demands relatively heavy police supervision. Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discrimatory within the meaning of the Constitution.

TOPIC:
PUBLIC PURPOSE

LUTZ VS. ARANETA

C A S E
D O C T R I N E The tax levied under the Sugar Adjustment Act is constitutional. The tax under said Act is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. Since sugar production is one of the great industries of our nation, its promotion, protection, and advancement, therefore redounds greatly to the general welfare. Hence, said objectives of the Act is a public concern and is therefore constitutional. It follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. If objectives 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 with the implement of the states police power. In addition, it is only rational that the taxes be obtained from those that will directly benefit from it. Therefore, the tax levied under the Sugar Adjustment Act is held to be constitutional.

TOPIC:
UNIFORMITY

IN RE STATE RAILROAD TAX CASES, 92 U.S. 575 (1875)

C A S E
D O C T R I N E There can be no doubt that all the classes named in this 92 U.S. 575 612 clause, including pedlers, showmen, innkeepers, ferries, express, insurance, and telegraph companies, are taken out of the general rule of uniformity prescribed by the first clause, and the only limitation as to them is that of uniformity as to the class upon which the law shall operate; that is, innkeepers may be taxed by one, ferries by another, railroads by another, provided that the rule as to innkeepers be uniform as to all innkeepers, the rule as to ferries uniform as to all ferries, and the rule as to railroad companies be uniform as to all railroad companies. As we have seen no evidence that the rule by which railroad property is taxed is not uniform in its action on all the railroad companies of Illinois, we can perceive no opposition to the constitution of the State in that rule

TOPIC:
TAX EXEMPTION

ABRA VALLEY COLLEGE, INC vs. AQUINO

C A S E
D O C T R I N E It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purposeeducational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.

TOPIC:
: THE ALL-EVENTS TEST; WHEN DEDUCTIONS FROM INCOME TAXES MAY BE CLAIMED

CIR vs. CA, CITYTRUST BANKING

C A S E
D O C T R I N E The deductions for expenses for professional fees consisting of expenses for legal and auditing services are NOT allowable. However, the deductions for expenses for security services were properly claimed by Isabela Cultural Corporation. For the legal and auditing services, Isabela Cultural Corporation could have reasonably known the fees of those firms that it hired, thus satisfying the all-events test. As such per Revenue Audit Memorandum Order No. 1-2000, they cannot validly be deducted from its gross income for the said year and were therefore properly disallowed by the BIR. As for the security services, because they were incurred in 1986, they could be properly claimed as deductions for the said year. Thus, a taxpayer who is authorized to deduct certain expenses and other allowable deductions for the current year but failed to do so cannot deduct the same for the next year.

TOPIC:
EMPLOYER-EMPLOYEE RELATIONSHIP

Brotherhood Labor vs. Zamora

C A S E
D O C T R I N E ISSUE: Whether or not the employer employee relationship exists between the Brotherhood Labor Union Movement and San Miguel Corporation?

HELD:
The petition is granted. SMC was ordered to reinstate petitioners, with three (3) years backwages. However, if reinstatement is no longer possible, SMC is ordered to pay separation pay equivalent to one (1) month pay for every year of service. Ratio: T he question of whether an employer employee relationship exists in a certain situation continues to bedevil the courts. Some businessmen try to avoid the bringing about of an employer employee relationship in their enterprises because that judicial relation spawns obligations connected with workmens compensation, social security, medicare, termination pay, and unionism

TOPIC:
BAD DEBTS

Philippine Refining Co. (PRC) vs CA

C A S E
D O C T R I N E

Mere testimony of the financial accountant of the petitioner is not sufficient it must be supported by evidences. The court provides rule in determining the worthlessness of a debt such as the tax payer must show that there is a valid and subsisting debt, the debt must be actually ascertained to be worthless and uncollectible during the taxable year, the debt must be charged off during the taxable year, and the debt must arise from the business a trade of the tax payer. Petitioner did not satisfy the requirements of worthlessness of a debt as to 13 accounts.

TOPIC:
LIFEBLOOD THEORY

Philippine Guaranty, Co., Inc. vs. CIR

C A S E
D O C T R I N E Taxation as stated in the case of Phil. Guaranty Co., Inc. v. Commissioner [13 SCRA 775], is a power predicated upon necessity. It is a necessary burden to preserve the States sovereignty and a means to give the citizenry an army to resist aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements for the enjoyment of the citizenry, and those which come within the States territory and facilities and protection which a government is supposed to provide.

TOPIC:
TAXATION VS. POLICE POWER

U.S. vs Dominador Gomez

C A S E
D O C T R I N E In order to enforce the police power of the state, it may, under certain conditions, become necessary to deprive its citizens of property and of a right providing for the continuance of property, when the property or the exercise of the right may tend to destroy the public health, the public morals, the public safety, and the general welfare and prosperity of its inhabitants. The police power of the state extends to the protection of the lives, limbs, health, comfort, and quiet of all persons, and the protection of all property within its borders. Under the general police power of the state, persons and property are subjected to all kinds of restrictions and burdens in order to secure the general health, comfort, and prosperity of all. This power, or the right to exercise it, as need may require, cannot be bargained away by the state.

TOPIC:
PROPERTY TAX (PERSONAL)

Union Refrigerator Transit Co. v. Kentucky

C A S E
D O C T R I N E

The court found that the cars other than those mentioned were not liable to assessment. The order of the county court was affirmed by the circuit court, and an appeal taken to the court of appeals of Kentucky, which reversed the judgment of the court below, and found that the company was liable to taxation upon its entire number of 2,000 cars, and directed the court below to enter judgment against it for the taxes appropriate to this number

TOPIC:
EQUALITY AND UNIFORMITY DISTINGUISHED

C A S E
D O C T R I N E

Shell Company of P.I., Ltd., vs. Municipality of Cordova

The contention that the ordinance is discriminatory and hostile because there is no other person in the locality who exercises such designation or occupation is also without merit, because the fact that there is no other person in the locality who exercises such a designation or calling does not make the ordinance discriminatory or hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation named or designated as installation manager. Lastly, Ordinance no. 11 is valid and lawful because it is neither a percentage tax nor one on specified articles, which are the only exemptions provided in Section 1, Commonwealth Act no. 472. Neither does it fall under any of the prohibitions provided for in Section 3 of the same Act.

TOPIC:
APPROPRIATION OF PUBLIC MONEY

Virgilio Gaston, et. al. vs. Republic Planters Bank

C A S E
D O C T R I N E The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose that of "financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market the fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special purpose. Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, "administered in trust' for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the Government. The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made by law..

TOPIC:
RULE ON CONSTRUCTION OF EXEMPTIONS

Misamis Oriental Assn., Inc. vs. Dept. of Fin.

C A S E
D O C T R I N E

It is not true that oil millers are exempt from VAT. Pursuant to Sec 102 of the NIRC, they are subject to 10% VAT on the sale of services. Under Sec 104 of the Tax Code, they are allowed to credit the input tax on the sale of copra by traders and dealers, but there is no tax credit if the sale is made directly by the copra producer as the sale is VAT exempt. In the same manner, copra traders and dealers are allowed to credit the input tax on the sale of copra by other traders and dealers, but there is no tax credit if the sale is made by the producer.

TOPIC:
INCOME DEFINED

Eisner v. Macomber 252 U.S. 189 (1920)

C A S E
D O C T R I N E Tax is levied on income derived from corporate earnings," when in truth the stockholder has "derived" nothing except paper certificates which, so far as they have any effect, deny him [or "her" in this case, Mrs. Macomber] present participation in such earnings. It [the government] contends that the tax may be laid when earnings "are received by the stockholder," whereas [s]he has received none; that the profits are "distributed by means of a stock dividend," although a stock dividend distributes no profits; that under the Act of 1916 "the tax is on the stockholder's share in corporate earnings," when in truth a stockholder has no such share, and receives none in a stock dividend; that "the profits are segregated from his [her] former capital, and [s]he has a separate certificate representing his [her] invested profits or gains," whereas there has been no segregation of profits, nor has [s]he any separate certificate representing a personal gain, since the certificates, new and old, are alike in what they representa capital interest in the entire concerns of the corporation.

TOPIC:
CAPITAL ASSETS

TUASON, JR., vs. LINGAD

C A S E
D O C T R I N E The term "capital assets" includes all the properties of a taxpayer whether or not connected with his trade or business, except: (1) stock in trade or other property included in the taxpayer's inventory; (2) property primarily for sale to customers in the ordinary course of his trade or business; (3) property used in the trade or business of the taxpayer and subject to depreciation allowance; and (4) real property used in trade or business. If the taxpayer sells or exchanges any of the properties above enumerated, any gain or loss relative thereto is an ordinary gain or an ordinary loss; the gain or loss from the sale or exchange of all other properties of the taxpayer is a capital gain or a capital loss.

TOPIC:
TAXATION DEFINED

Vera vs Fernandez
C A S E
D O C T R I N E 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.

TOPIC:
ASSESSMENT AND COLLECTION

Roxas vs CTA
C A S E
D O C T R I N E No. the contention of the CIR Roxas y Cia should be considered a real estate dealer because it engaged in the selling of real estate as without merit. The sale of the farm was not only in consonance with but in obedience to the request and pursuant to the policy of the government to allocate lands to the landless. It is the duty of the government to pay the agreed compensation after it persuaded Roxas y Cia to sell the hacienda, and to subsequently subdivide them among the farmers at very reasonable terms and prices. Power of Taxation should be exercise with caution to minimize invasion to proprietary rights of a taxpayer, it must be exercised fairly equally and uniformly, lest tax collector kill the hen that lays the golden eggs

TOPIC:
EQUAL PROTECTION

Domingo vs Garlitos
C A S E
D O C T R I N E All persons subject to legislation shall be treated alike under similar circumstances and conditions both in privilege conferred and liabilities imposed. The doctrine does not require that persons or properties different in fact be treated in law as though they were the same. What it prohibits is class legislation which discriminates against some and favors others. As long as there are rational or reasonable grounds for so doing, Congress may group persons or properties to be taxed and it is sufficient if all members of the same class are subject to the same rate and the tax is administered impartially upon them.

TOPIC:
LEGAL BASIS OF EXEMPTION

Republic vs Caguioa
C A S E
D O C T R I N E A tax exemption cannot be grounded upon the continued existence of a statute which precludes its change or repeal. Flowing from the basic precept of constitutional law that no law is irrepealable, Congress, in the legitimate exercise of its lawmaking powers, can enact a law withdrawing a tax exemption just as efficaciously as it may grant the same under Section 28(4) of Article VI of the Constitution. There is no gainsaying therefore that Congress can amend Section 131 of the NIRC in a manner it sees fit, as it did when it passed R.A. No. 9334.

TOPIC:
RETIREMENT BENEFITS

CIR vs GCL Retiremennt Plan

C A S E
D O C T R I N E Employees' trusts or benefit plans normally provide economic assistance to employees upon the occurrence of certain contingencies, particularly, old age retirement, death, sickness, or disability. It provides security against certain hazards to which members of the Plan may be exposed. It is an independent and additional source of protection for the working group. What is more, it is established for their exclusive benefit and for no other purpose. The tax advantage was conceived in order to encourage the formation and establishment of such private plans for the benefit of laborers and employees outside of the Social Security Act. It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those earnings would result in a diminution accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. This would run afoul of the very intendment of the law.

TOPIC:
SPECIAL KIND OF LOSSES

CIR vs Priscilla Estate

C A S E
D O C T R I N E All these facts, taken together, belie any intention on the part of the corporation to demolish the old building merely for the purpose of erecting another in its place. Since the demolished building was not compensated for by insurance or otherwise, its loss should be charged off as deduction from gross income. (Sec. 30[2], Internal Revenue Code.)

Submitted to: ATTY. IBANEZ

Arellano School of Law

TAXATION LAW
THANK YOU

Submitted to: ATTY. IBANEZ

Arellano School of Law

TAXATION LAW
CLASS REPORTING

Taxation is the inherent power of the sovereign, exercised through the legislature, to impose burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of government.

TOPIC:
TAXATION DEFINED

It is also defined as the act of levying a tax, i.e. the process or means by which the sovereign, through its law-making body, raises income to defray the necessary expenses of government. It is a method of apportioning the cost of government among those who, in some measure, are privileged to enjoy its benefits and must therefore bear its burdens. It is a mode of raising revenue for public purposes,

Vera vs Fernandez
C A S E
D O C T R I N E 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.

UNDERLYING THEORY AND BASIS OF TAXATION 1.LIFEBLOOD THEORY 2. NECESSITY THEORY 3. BENEFITS PROTECTION THEORY

TOPIC:
LIFEBLOOD THEORY

CIR vs. CA, CITYTRUST BANKING

C A S E
D O C T R I N E

It is axiomatic that the Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the Government's financial position, especially in the case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy.

Philippine Guaranty, Co., Inc. vs. CIR

C A S E
D O C T R I N E Taxation as stated in the case of Phil. Guaranty Co., Inc. v. Commissioner [13 SCRA 775], is a power predicated upon necessity. It is a necessary burden to preserve the States sovereignty and a means to give the citizenry an army to resist aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements for the enjoyment of the citizenry, and those which come within the States territory and facilities and protection which a government is supposed to provide.

TOPIC:
NATURE OF TAXING POWERINHERENT ATTRIBUTE OF SOVEREIGNTY

CERVANTES, vs. AUDITOR GENERAL

C A S E
D O C T R I N E

The power of taxation is an incident of sovereignty as it is inherent in the State, belonging as a matter of right to every independent government. It does need constitutional conferment. Regardless of whether quarters allowance should be considered as compensation or not, the resolution of the board of the directors authorizing payment thereof to the petitioner cannot be given effect since it was disapproved by the Control Committee in the exercise of powers granted to it by Executive Order No. 93. And in any event, petitioner's contention that quarters allowance is not compensation, a proposition on which American authorities appear divided, cannot be insisted on behalf of officers and employees working for the Government of the Philippines and its Instrumentalities, including, naturally, government-controlled corporations.

PHASES OF TAXATION: 1. LEVY/IMPOSITION 2. ASSESSMENT/COLLECTION 3. PAYMENT

TOPIC:
ASSESSMENT AND COLLECTION

Roxas vs CTA
C A S E
D O C T R I N E No. the contention of the CIR Roxas y Cia should be considered a real estate dealer because it engaged in the selling of real estate as without merit. The sale of the farm was not only in consonance with but in obedience to the request and pursuant to the policy of the government to allocate lands to the landless. It is the duty of the government to pay the agreed compensation after it persuaded Roxas y Cia to sell the hacienda, and to subsequently subdivide them among the farmers at very reasonable terms and prices. Power of Taxation should be exercise with caution to minimize invasion to proprietary rights of a taxpayer, it must be exercised fairly equally and uniformly, lest tax collector kill the hen that lays the golden eggs

PURPOSES OF TAXATION: PRIMARY: RAISE REVENUE SECONDARY: 1. REDUCTION OF SOCIAL INEQUALITY 2. 2. ENCOURAGES GROWTH OF LOCAL INDUSTRIES 3. 3. PROTECT OUR LOCAL INDUSTRIES AGAINST UNFAIR COMPETITION 4. 3. AS IMPLEMENT OF POLICE POWER OF THE STATE ( REGULATORY MEASURE)

TOPIC:

REGULATORY MEASURE

MANILA RACE HORSE vs DE LA FUENTE

C A S E
D O C T R I N E The owners of boarding stables for race horses and, for that matter, the race horse owners themselves, who in the scheme of shifting may carry the taxation burden, are a class by themselves and appropriately taxed where owners of other kinds of horses are taxed less or not at all, considering that equity in taxation is generally conceived in terms of ability to pay in relation to the benefits received by the taxpayer and by the public from the business or property taxed. Race horses are devoted to gambling if legalized, their owners derive fat income and the public hardly any profit from horse racing, and this business demands relatively heavy police supervision. Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discrimatory within the meaning of the Constitution.

TOPIC:
TAXATION VS. POLICE POWER

TAXATION POLICE POWER DEFIN Power of the State to demand enforced contributions Power of the State to enact such laws in ITION for public purposes. relation to persons and property as may promote public health, safety, morals, and the general welfare of the public. Authori Only the government or its political subdivisions. ty exercisi ng the power TAXATION Purpose Enforced contribution is demanded for the support of the government. Only the government and its political subdivisions.

EMINENT DOMAIN Power of the State to take private property for public use upon paying to the owner a just compensation to be ascertained according to law. May be granted to public service or public utility companies.

POLICE POWER Use of property is regulated for the purpose of promoting the general welfare. Persons Operates upon a community, a class of individuals or Operates upon a community, a class of affected their property. individuals or their property. Effect Money contributed in the concept of taxes becomes part of public funds.

EMINENT DOMAIN Property is taken for public use. Operates on an individual as the owner of a particular property.

No transfer of ownership of the There is transfer of ownership or a property seized, at most there is restraint lesser right (e.g. lease), of the on the injurious use of the property. property. Restraint on the exercise of a right. Persons affected receives no direct benefit but only as such as may arise from the maintenance of the healthy economic standard of society. Amount imposed should not be more that that sufficient to cover the cost of the license and the necessary expenses of regulation. Relatively free from Constitutional limitations and is superior to the nonimpairment provisions. Person affected receives just compensation for the property taken from him. No amount imposed, since it is property which is taken. Subject to certain Constitutional limitations (e.g. inferior to the nonimpairment of contracts clause).

Benefits Presumed that the taxpayer receives the equivalent of received what he contributed in the form of protection from the government, and the enjoyment of living in a civilized society. Amount Generally no limit as to the amount of tax to be of imposed. impositi on Relatio Subject to certain Constitutional limitations nship to the Constit ution

U.S. vs Dominador Gomez

C A S E
D O C T R I N E In order to enforce the police power of the state, it may, under certain conditions, become necessary to deprive its citizens of property and of a right providing for the continuance of property, when the property or the exercise of the right may tend to destroy the public health, the public morals, the public safety, and the general welfare and prosperity of its inhabitants. The police power of the state extends to the protection of the lives, limbs, health, comfort, and quiet of all persons, and the protection of all property within its borders. Under the general police power of the state, persons and property are subjected to all kinds of restrictions and burdens in order to secure the general health, comfort, and prosperity of all. This power, or the right to exercise it, as need may require, cannot be bargained away by the state.

LICENSE OR REGULATORY FEE AND TAX License fee is legal compensation or reward of an officer for specific services while a tax is an enforced contribution from persons or property by the law-making body of the State by virtue of its sovereignty and for the support of the government and all public needs. License fee is imposed for regulation, while a tax is levied for revenue. License fee involves the exercise of police power, while tax the exercise of power of taxation.

TOPIC:

TAX AND LICENSEDISTINGUISHED

Amount of license fees should be limited to the necessary expenses of inspection and regulation, while there is generally no limit on the amount of the tax to be imposed.

License fees are imposed only on the right to exercise a privilege, while taxes are also imposed on persons and property.
Failure to pay a license fee makes the act or business illegal, while failure to pay a tax does not necessarily make the act or business illegal.

C A S E
D O C T R I N E

PROGRESSIVE DEVELOPMENT CORPORATION, vs. QUEZON CITY,

The five percent (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on income, not a city income tax (as distinguished from the national income tax imposed by the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which the petitioner is engaged. While it is true that the amount imposed by the questioned ordinances may be considered in determining whether the exaction is really one for revenue or prohibition, instead of one of regulation under the police power, it nevertheless will be presumed to be reasonable.

INHERENT LIMITATIONS 2. 4. 5. Purpose must be public in nature. Prohibition against delegation of the taxing power. Exemption of government entities, agencies, and instrumentalities. International comity. Limitations of territorial jurisdiction

TOPIC:
PUBLIC PURPOSE

LUTZ VS. ARANETA

C A S E
D O C T R I N E The tax levied under the Sugar Adjustment Act is constitutional. The tax under said Act is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. Since sugar production is one of the great industries of our nation, its promotion, protection, and advancement, therefore redounds greatly to the general welfare. Hence, said objectives of the Act is a public concern and is therefore constitutional. It follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. If objectives 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 with the implement of the states police power. In addition, it is only rational that the taxes be obtained from those that will directly benefit from it. Therefore, the tax levied under the Sugar Adjustment Act is held to be constitutional.

TOPIC:
EXEMPTION OF GOVERNMENT AGENCIES/ INSTRUMENTALITIES

NATIONAL DEVELOPMENT COMPANY, vs. C CEBU CITY and AUGUSTO PACIS

A S E Property owned by the State Tax exemption of property owned by the Republic of the Philippines refers to property owned by the government and its agencies which do not have separate and distinct personalities. The government does not part with its title by reserving them, but simply gives notice to the world that it desires them for a certain purpose. As its title remains with the Republic, the reserved land is clearly covered by tax exemption.

D O C T R I N E

However, the exemption does not extend to improvements on public land. Consequently, the warehouse constructed on the reserved land by NDC should properly be assessed real estate tax, as such improvement does not appear to belong to the public, [NDC v. Cebu City, 215 SCRA 382].

1. CONSTITUTIONAL LIMITATIONS
1. 2. 3. 4. 5. 6. 7. Due process of law; Equal protection of laws; Rule of uniformity and equity in taxation; Prohibition against imprisonment for non-payment of poll tax; Prohibition against impairment of obligations and contracts; Prohibition against infringement of religious freedom; Prohibition against appropriation of proceeds of taxation for the use, benefit, or support of any church; 8. Prohibition against taxation of religious, charitable, and educational entities; 9. Prohibition against taxation of non-stock, non-profit educational institutions; 10. Others 1. Grant of tax exemption 2. Veto of appropriation, revenue, tariff bills by the President 3. Non-impairment of the SC jurisdiction 4. Revenue bills shall originate exclusively from the House of Representatives 5. Infringement of press freedom 6. Grant of franchise

TOPIC:
SPECIAL FUND

TOPIC:
TAX EXEMPTION

ABRA VALLEY COLLEGE, INC vs. AQUINO

C A S E
D O C T R I N E It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purposeeducational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.

Virgilio Gaston, vs. Republic Planters Bank,

C A S E
D O C T R I N E The Supreme Court held that the stabilization fees collected are in the nature of a tax which constitutes public funds, which is within the power of the State to impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a "Special Fund," a "Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization Fund" created under Section 6 of Commonwealth Act 567. The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State.

Sec. 28 c, Art. VI of the Constitution provides that the rule of taxation shall be uniform and equitable. The concept of uniformity in taxation implies that all taxable articles or properties of the same class shall be taxed at the same rate. It requires the uniform application and operation, without discrimination, of the tax in every place where the subject of the tax is found. It does not, however, require absolute identity or equality under all circumstances, but subject to reasonable classification.

TOPIC:

EQUALITY AND UNIFORMITY DISTINGUISHED

The concept of equity in taxation requires that the apportionment of the tax burden be, more or less, just in the light of the taxpayers ability to shoulder the tax burden and, if warranted, on the basis of the benefits received from the government. Its cornerstone is the taxpayers ability to pay.

C A S E
D O C T R I N E

Shell Company of P.I., Ltd., vs. Municipality of Cordova

The contention that the ordinance is discriminatory and hostile because there is no other person in the locality who exercises such designation or occupation is also without merit, because the fact that there is no other person in the locality who exercises such a designation or calling does not make the ordinance discriminatory or hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation named or designated as installation manager. Lastly, Ordinance no. 11 is valid and lawful because it is neither a percentage tax nor one on specified articles, which are the only exemptions provided in Section 1, Commonwealth Act no. 472. Neither does it fall under any of the prohibitions provided for in Section 3 of the same Act.

IN RE STATE RAILROAD TAX CASES, 92 U.S. 575 (1875)

C A S E
D O C T R I N E There can be no doubt that all the classes named in this 92 U.S. 575 612 clause, including pedlers, showmen, innkeepers, ferries, express, insurance, and telegraph companies, are taken out of the general rule of uniformity prescribed by the first clause, and the only limitation as to them is that of uniformity as to the class upon which the law shall operate; that is, innkeepers may be taxed by one, ferries by another, railroads by another, provided that the rule as to innkeepers be uniform as to all innkeepers, the rule as to ferries uniform as to all ferries, and the rule as to railroad companies be uniform as to all railroad companies. As we have seen no evidence that the rule by which railroad property is taxed is not uniform in its action on all the railroad companies of Illinois, we can perceive no opposition to the constitution of the State in that rule

TOPIC:
APPROPRIATION OF PUBLIC MONEY

Virgilio Gaston, et. al. vs. Republic Planters Bank

C A S E
D O C T R I N E The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose that of "financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market the fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special purpose. Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, "administered in trust' for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the Government. The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made by law..

Interpretation of laws granting tax exemptions

General rule: In the construction of tax statutes, exemptions are not favored an are construed strictissimi juris against the taxpayer. The fundamental theory is that all taxable property should bear its share in the cost and expense of the government. He who claims exemption must be able to justify his claim or right thereto by a grant express in terms too plain to be mistaken and too categorical to be misinterpreted. If not expressly mentioned in the law, it must be at least within its purview by clear legislative intent.

TOPIC:

Exceptions:

RULE ON CONSTRUCTION OF EXEMPTIONS

When the law itself expressly provides for a liberal construction thereof. In cases of exemptions granted to religious, charitable and educational institutions or to the government or its agencies or to public property because the general rule is that they are exempted from tax.

Misamis Oriental Assn., Inc. vs. Dept. of Fin.

C A S E
D O C T R I N E

It is not true that oil millers are exempt from VAT. Pursuant to Sec 102 of the NIRC, they are subject to 10% VAT on the sale of services. Under Sec 104 of the Tax Code, they are allowed to credit the input tax on the sale of copra by traders and dealers, but there is no tax credit if the sale is made directly by the copra producer as the sale is VAT exempt. In the same manner, copra traders and dealers are allowed to credit the input tax on the sale of copra by other traders and dealers, but there is no tax credit if the sale is made by the producer.

TOPIC:
LEGAL BASIS OF EXEMPTION

Republic vs Caguioa
C A S E
D O C T R I N E

A tax exemption cannot be grounded upon the continued existence of a statute which precludes its change or repeal. Flowing from the basic precept of constitutional law that no law is irrepealable, Congress, in the legitimate exercise of its lawmaking powers, can enact a law withdrawing a tax exemption just as efficaciously as it may grant the same under Section 28(4) of Article VI of the Constitution. There is no gainsaying therefore that Congress can amend Section 131 of the NIRC in a manner it sees fit, as it did when it passed R.A. No. 9334.

SOURCES OF TAX LAWS: 1. CONSTITUTION 2. STATUTES 3. REVENUE REGULATIONS

TOPIC:
REVENUE REGULATIONS

CIR v. CA, ROH Auto

Is ROH covered by the tax amnesty? Was the CIRs position correct? YES. NO.

C A S E
D O C T R I N E

Ratio Decidendi: 1. The added exception urged by petitioner Commissioner based on Revenue Memorandum Order No. 4-87, further restricting the scope of the amnesty clearly amounts to an act of administrative legislation quite contrary to the mandate of the law which the regulation ought to implement 2. The authority of the Secretary of Finance, in conjunction with the CIR, to promulgate rules and regulations for the enforcement of internal revenue laws cannot be controverted. Neither can it be disputed that such rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and respect by the courts. Much more fundamental than either of the above, however, is that all such issuances must not override, but must remain consistent and in harmony with, the law they seek to apply and implement. Administrative rules and regulations are intended to carry out, neither to supplant nor to modify ,the law.

TOPIC:
SOURCE OF INCOME -INCOME ACQUIRED BY MISTAKE

SOURCES OF INCOME: 1. 2. 3. 4. PROPERTY LABOR SALE/EXCHANGE OF CAPITAL ASSET AND ACTIVITY INCOME DERIVED FROM OTHER SOURCES

TOPIC:
SOURCE OF INCOME -INCOME ACQUIRED BY MISTAKE

North American Oil Consolidated v. Burnet, 286 U.S. 417 (1932)

C A S E
D O C T R I N E

The Court held, If a taxpayer receives earnings under a claim of right and without restriction as to its disposition, he has received income which he is required to return, even though it may still be claimed that he is not entitled to retain the money, and even though he may still be adjudged liable to restore its equivalent. It was in 1917 that the profits became entitled to them, and they achieved access to and control of the gains. If the 1922 decision had ruled in favor of the government, North American Oil would have been entitled to a deduction in the amount of those lost profits.

CORPORATE INCOME TAX

TOPIC:
UNREGISTERED OR REGISTERED PARTNERSHIP

ONA VS. CIR

C A S E
D O C T R I N E For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project of partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding.

Note: The income derived from inherited properties may be considered as individual income of the respective heirs only as long as the inheritance or estate is not distributed or, at least partitioned, but the moment their respective known shares are used as part of the common assets of the heirs to be used in making profits, it is but proper that the income of such shares be considered as part of the taxable income of an unregistered partnership.

TOPIC:
KINDS OF ITEMIZED DEDUCTIONS: BUSINESS EXPENSE

Hospital de San Juan De Dios vs. Com.

C A S E
D O C T R I N E

The interests and dividends in question are merely incidental income to petitioner's main activity, which is the operation of its hospital and nursing schools. Mere holding of investments cannot be considered engaging in business so that the expenses in managing the investments are not considered ordinary and necessary in the pursuit of a trade or business. Hence, it is not deductible as business or administrative expenses

TOPIC:
LIFEBLOOD THEORY

CIR vs. CA, CITYTRUST BANKING

C A S E
D O C T R I N E

It is axiomatic that the Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the Government's financial position, especially in the case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy.

TOPIC:
REGULATORY MEASURE

MANILA RACE HORSE vs DE LA FUENTE

C A S E
D O C T R I N E The owners of boarding stables for race horses and, for that matter, the race horse owners themselves, who in the scheme of shifting may carry the taxation burden, are a class by themselves and appropriately taxed where owners of other kinds of horses are taxed less or not at all, considering that equity in taxation is generally conceived in terms of ability to pay in relation to the benefits received by the taxpayer and by the public from the business or property taxed. Race horses are devoted to gambling if legalized, their owners derive fat income and the public hardly any profit from horse racing, and this business demands relatively heavy police supervision. Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discrimatory within the meaning of the Constitution.

TOPIC:
PUBLIC PURPOSE

LUTZ VS. ARANETA

C A S E
D O C T R I N E The tax levied under the Sugar Adjustment Act is constitutional. The tax under said Act is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. Since sugar production is one of the great industries of our nation, its promotion, protection, and advancement, therefore redounds greatly to the general welfare. Hence, said objectives of the Act is a public concern and is therefore constitutional. It follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. If objectives 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 with the implement of the states police power. In addition, it is only rational that the taxes be obtained from those that will directly benefit from it. Therefore, the tax levied under the Sugar Adjustment Act is held to be constitutional.

TOPIC:
UNIFORMITY

IN RE STATE RAILROAD TAX CASES, 92 U.S. 575 (1875)

C A S E
D O C T R I N E There can be no doubt that all the classes named in this 92 U.S. 575 612 clause, including pedlers, showmen, innkeepers, ferries, express, insurance, and telegraph companies, are taken out of the general rule of uniformity prescribed by the first clause, and the only limitation as to them is that of uniformity as to the class upon which the law shall operate; that is, innkeepers may be taxed by one, ferries by another, railroads by another, provided that the rule as to innkeepers be uniform as to all innkeepers, the rule as to ferries uniform as to all ferries, and the rule as to railroad companies be uniform as to all railroad companies. As we have seen no evidence that the rule by which railroad property is taxed is not uniform in its action on all the railroad companies of Illinois, we can perceive no opposition to the constitution of the State in that rule

TOPIC:
TAX EXEMPTION

ABRA VALLEY COLLEGE, INC vs. AQUINO

C A S E
D O C T R I N E It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purposeeducational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.

North American Oil Consolidated v. Burnet, 286 U.S. 417 (1932)

C A S E
D O C T R I N E

The Court held, If a taxpayer receives earnings under a claim of right and without restriction as to its disposition, he has received income which he is required to return, even though it may still be claimed that he is not entitled to retain the money, and even though he may still be adjudged liable to restore its equivalent. It was in 1917 that the profits became entitled to them, and they achieved access to and control of the gains. If the 1922 decision had ruled in favor of the government, North American Oil would have been entitled to a deduction in the amount of those lost profits.

CORPORATE INCOME - TAXABLE AS A CORPORATION PROVIDED THE FF. REQ CONCUR: - 1. AGREEMENT, ORAL OR WRITTEN TO CONTRIBUTE MONEY, PROPERTY OR INDUSTRY TO A COMMON FUND - 2. INTENTION TO DIVIDE THE PROFITS

TOPIC:
UNREGISTERED OR REGISTERED PARTNERSHIP

ONA VS. CIR

C A S E
D O C T R I N E For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project of partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding.

Note: The income derived from inherited properties may be considered as individual income of the respective heirs only as long as the inheritance or estate is not distributed or, at least partitioned, but the moment their respective known shares are used as part of the common assets of the heirs to be used in making profits, it is but proper that the income of such shares be considered as part of the taxable income of an unregistered partnership.

TOPIC:
: THE ALL-EVENTS TEST; WHEN DEDUCTIONS FROM INCOME TAXES MAY BE CLAIMED

CIR vs. CA, CITYTRUST BANKING

C A S E
D O C T R I N E The deductions for expenses for professional fees consisting of expenses for legal and auditing services are NOT allowable. However, the deductions for expenses for security services were properly claimed by Isabela Cultural Corporation. For the legal and auditing services, Isabela Cultural Corporation could have reasonably known the fees of those firms that it hired, thus satisfying the all-events test. As such per Revenue Audit Memorandum Order No. 1-2000, they cannot validly be deducted from its gross income for the said year and were therefore properly disallowed by the BIR. As for the security services, because they were incurred in 1986, they could be properly claimed as deductions for the said year. Thus, a taxpayer who is authorized to deduct certain expenses and other allowable deductions for the current year but failed to do so cannot deduct the same for the next year.

TOPIC:
EMPLOYER-EMPLOYEE RELATIONSHIP

Brotherhood Labor vs. Zamora

C A S E
D O C T R I N E ISSUE: Whether or not the employer employee relationship exists between the Brotherhood Labor Union Movement and San Miguel Corporation?

HELD:
The petition is granted. SMC was ordered to reinstate petitioners, with three (3) years backwages. However, if reinstatement is no longer possible, SMC is ordered to pay separation pay equivalent to one (1) month pay for every year of service. Ratio: T he question of whether an employer employee relationship exists in a certain situation continues to bedevil the courts. Some businessmen try to avoid the bringing about of an employer employee relationship in their enterprises because that judicial relation spawns obligations connected with workmens compensation, social security, medicare, termination pay, and unionism

Two kinds of deduction available to individuals, except a non-resident alien

1. Itemized deduction 2. Optional standard deduction

TOPIC:
KINDS OF ITEMIZED DEDUCTIONS: BUSINESS EXPENSE

Hospital de San Juan De Dios vs. Com.

C A S E
D O C T R I N E

The interests and dividends in question are merely incidental income to petitioner's main activity, which is the operation of its hospital and nursing schools. Mere holding of investments cannot be considered engaging in business so that the expenses in managing the investments are not considered ordinary and necessary in the pursuit of a trade or business. Hence, it is not deductible as business or administrative expenses

TOPIC:
BAD DEBTS

Philippine Refining Co. (PRC) vs CA

C A S E
D O C T R I N E

Mere testimony of the financial accountant of the petitioner is not sufficient it must be supported by evidences. The court provides rule in determining the worthlessness of a debt such as the tax payer must show that there is a valid and subsisting debt, the debt must be actually ascertained to be worthless and uncollectible during the taxable year, the debt must be charged off during the taxable year, and the debt must arise from the business a trade of the tax payer. Petitioner did not satisfy the requirements of worthlessness of a debt as to 13 accounts.

TOPIC:
RETIREMENT BENEFITS

CIR vs GCL Retiremennt Plan

C A S E
D O C T R I N E Employees' trusts or benefit plans normally provide economic assistance to employees upon the occurrence of certain contingencies, particularly, old age retirement, death, sickness, or disability. It provides security against certain hazards to which members of the Plan may be exposed. It is an independent and additional source of protection for the working group. What is more, it is established for their exclusive benefit and for no other purpose. The tax advantage was conceived in order to encourage the formation and establishment of such private plans for the benefit of laborers and employees outside of the Social Security Act. It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those earnings would result in a diminution accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. This would run afoul of the very intendment of the law.

TOPIC:
SPECIAL KIND OF LOSSES

CIR vs Priscilla Estate

C A S E
D O C T R I N E All these facts, taken together, belie any intention on the part of the corporation to demolish the old building merely for the purpose of erecting another in its place. Since the demolished building was not compensated for by insurance or otherwise, its loss should be charged off as deduction from gross income. (Sec. 30[2], Internal Revenue Code.)

Submitted to: ATTY. IBANEZ

Arellano School of Law

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