Digests Tax I (2003)

Digests Taxation Law I Michael Vernon Guerrero Mendiola 2003 Shared under Creative Commons AttributionNonCommercial-ShareAlike 3.0 Philippines license.

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Table of Contents Commissioner vs. Algue, Algue, GR L-28890, 17 February 1988 …......... 1 Luzon Stevedoring Corp. vs. Court of Tax Appeals, GR L-30232, 29 July 1988 …......... 1 Lutz vs. Araneta, GR L-7859, 22 December 1955 …......... …......... 2 McCollough vs. Maryland, 17 US 316 (1819) …......... 2 Panhandle Oil vs. State of Mississippi, 277 US 218 (1928) …......... 3 Commissioner Commissioner vs. Lingayen Gulf Electric, GR L-23771, 4 August 1988 …......... 4 National Development Co. vs. Commissioner, GR L-53961, 30 June 1987 …......... 4 Domingo vs. Garlitos, GR L-18993, 29 June 1963 …......... 5 Commissioner vs. Itogon-Suyoc Itogon-Suyoc Mines, GR L-25299, 29 July 1969 …......... 5 Republic vs. Mambulao Lumber, GR L-17725, 28 February 1962 …......... 5 Francia vs. Intermediate Appellate Appellate Court, GR L-67649, 28 June 1988 …......... 6 Caltex Philippines vs. Commission on Audit (COA), GR 92585, 8 May 1992 …......... 7 Cu Unjieng vs. Patstone, GR 16254, 21 February 1922 …......... 7 Villegas vs, Hiu Chiong Tsai Pao Ho, GR L-29646, 10 November 1978 ….........8 Apostolic Prefect of Mountain Province vs. City Treasurer of Baguio City, GR 47252, 18 April 1941 …......... 8 Philippine Airlines vs. Edu, HR L-41383, 15 August 1988 …......... 9 Progressive Development Corporation vs. Quezon City, GR 36081, 24 April 1989 …......... 9 American Mail Line vs. Basilan, GR L-12647, 31 May 1961 …......... 10 Saldana vs. Iloilo, GR L-10470, 26 June 1958 …......... 10 Compania General de Tobacos de Filipinas vs. Manila, GR L-16619, 29 June 1963 …......... 11 Philippine Acetylene Co. Inc. vs. Commissioner, GR L-19707, 17 August 1967 …......... 11 Commissioner vs. American Rubber, GR L-19667, 29 November 1966 …......... 12 Commissioner Commissioner vs. Gotamco, GR L-31092, 27 February 1987 …......... …......... 12 Pascual vs. Secretary of Public Works and Communications, GR L-10405, 29 December 1960 …......... 13 Republic vs. Bacolod-Murcia Milling Co., GR L-19824-26, 9 July 1999 …......... 13 31st Infantry Post Exchange vs. Posadas, GR 33403, 4 September 1930 …......... 14 Wells Fargo vs. Collector of Internal Revenue, GR 46720, 28 June 1940 …......... 15 Philippine Match Co. Ltd. vs. Cebu City, GR L-30745, 18 January 1978 …......... 15 Commissioner vs. British Overseas Airways Corp., GR L-65773-74, 30 April 1987 …......... 16 Commissioner vs. Air Air India, GR L-72443, 29 January 1988 …......... 16 Allied Thread vs. City of Manila, GR L-40296, 21 November 1984 …......... 17 Abra vs. Hernando, GR L-49336, 31 August 1981 …......... 17 Association of Custom Brokers vs. Manila, GR L-4376, 22 May 1953 …......... …......... 18 Kapatiran ng mga Naglilingkod sa Pamahalaan vs. Tan, GR L-81311, 30 June 1988 …......... 18 Sison vs. Ancheta, Ancheta, GR L-59431, 25 July 1984 …......... 19 Juan Luna Subdivision vs. Sarmiento, GR L-3538, 28 May 1952 …......... 19 Shell Co. vs. Vano, GR L-6093, 24 February 1954…......... 20 Victorias Milling Co. vs. Municipality of Victorias, GR L-21183, 27 September 1968 …......... 20 Punsalan Punsalan vs. Manila, GR L-4817, 26 May 1954 …......... 21 Ormoc Sugar vs. Treasurer of Ormoc City, GR L-23794, 17 February 1968 …......... 21 Pepsi-Cola Bottling Bottling Co. vs. City of Butuan, GR L-22814, 28 August 1968 …......... …......... 22 Vera vs. Cuevas, GR L-33693-94, 31 May 1979 …......... 22 American Bible Society vs. Manila, GR L-9637, 30 April 1957 …......... 23 Cagayan Electric Power & Light Co. vs. Commissioner, GR L-60126, 25 September 1985 …......... 23 Casanovas vs. Hord, GR L-3473, 22 March 1907 …......... 24 Churchill vs. Concepcion, GR 11572, 22 September 1916 …......... 24 Villanueva vs. Iloilo City, GR L-26521, 28 December 1968 …......... 25 Eastern Theatrical Co. vs. Alfonso, GR L-1104, 31 May 1944 …......... 25 Reyes vs. Almanzor, GR 49839-46, 26 April 1991 …......... 26 Abra Valley College vs. Aquino, GR L-39086, 15 June 1988 …......... 26

Herrera vs. Quezon City Board of Assessment Appeals, GR L-15270, 30 September 1961 …......... 27 Lladoc vs. Commissioner, GR L-19201, 16 June 1965 …......... 27 Bishop of Nueva Nueva Segovia vs. Provincial Board Board of Ilocos Norte, GR 27588, 31 December 1927 …......... …......... 28 Commisioner vs. Bishop of Missionery District of the Philippine Islands, GR L-19445, 31 August 1965 …......... 28 Hodges vs. Iloilo City, GR L-18129, 31 January 1963…......... 1963…......... 29 Procter and Gamble vs. Jagna, GR L-24265, 28 December 1979 …......... 29 Commissioner vs. Lednicky, GR L-18169, 31 July 1964 …......... 30 Commissioner vs. Javier, GR 78953, 31 July 1991 …......... 30 Meralco vs. Vera, GR L-29987, 22 October 1975 …......... 31 Commissioner vs. Manila Jockey Club, GR L-8755, 23 March 1956 …......... 31 SSS vs. Bacolod City, GR L-35726, 21 July 1982 …......... 32 Nitafan vs. Commissioner, GR L-78780, 23 July 1987 …......... 32 Commissioner vs. Robertson, GR L-70116-19, 12 August 1986 …......... 32 Reagan vs. Commissioner, GR L-26379, 27 December 1969 …......... 33 Davao Light and Power vs. Commissioner of Customs, GR L-28739 and L-28902 …......... 33 Surigao Consolidated Mining vs. Collector, GR L-14878, 26 December 1963 …......... 34 Wonder Mechanical Engineering vs. Court of Tax Appeals, GR L-22805 and L-27858, 30 June 1975 …......... 35 Visayas Cebu Terminal vs. Commissioner, GR L-19530 and L-19444, 27 February 1965 …......... 35 Lealda Electric vs. Commissioner, GR L-16428, 30 April 1963 …......... 36 Misamis Oriental vs. Cagayan Electric, GR 45355, 12 January 1990 …......... 36 Hilado vs. Collector, GR L-9408, 31 October 1956 …......... 37 Commissioner vs. Court of Tax Appeals, GR 44007, 20 March 1991 …......... 37 Maceda vs. Macaraig, GR 88291, 31 May 1991 …......... 38 Commissioner vs. Phoenix Phoenix Assurance, GR L-19727, 20 May 1965 …......... 39 Commissioner vs. Connel Bros. Co., GR L-27752-53, 30 August 1971 …......... 39 Commissioner vs. Fireman’s Fund Insurance, GR L-30644, 9 March 1987 …......... 40 Commissioner vs. Cebu Portland Cement, GR L-29059, 15 December 1987 …......... 40 Republic vs. Vda. de Fernandez, GR L-9141, 25 September 1956 …......... 41 Tanada vs. Tuvera, GR L-63915, 24 April 1985 …......... 41 Bagatsing vs. Ramirez, GR L-41631, 17 December 1976 …......... 42 Commissioner vs. Burroughs Ltd., GR L-6653, 19 June 1986 …......... 42 Commissioner vs. Mega General Merchandise, GR L-69136, 30 September 1988 …......... 43 Commissioner vs. Court of Tax Appeals, GR 108358, 20 January 1995 …......... 43 Commissioner vs. Court of Appeals, GR 119761, 29 August 1996 …......... 44 ABS-CBN Broadcating vs. Court of Tax Appeals, GR L-52306, 12 October 1981 …......... 44 In RE Zialcita, AM 90-6-015-SC, 18 October 1990 …......... 45 Commissioner Commissioner vs. Court of Appeals, GR 96016, 17 October 1991 …......... …......... 45 Borromeo vs. Civil Service Commission, GR 96032, 31 July 1991 …......... …......... 46 Esso Standard Eastern vs. Commissioner, GR 28508-9, 7 July 1989 …......... 46 Guagua Electric Light Plant Co. vs. Collector, GR L-23611, 24 April 1967 …......... 47 Republic vs. Limaco and De Guzman Commercial Co., GR L-13081, 31 August 1962 …......... 47 Interprovincial Interprovincial Autobus Autobus Co. vs. Collector of Internal Revenue, Revenue, GR L-6741, 31 January 1956 …......... 48 Tan Guan vs. Court of Tax Appeals, GR L-23676, 27 April 1967 …......... 49 Dayrit vs. Cruz, GR L-39910, 26 September 1988 …......... 49 Collector vs. Benipayo, GR L-13656, 31 January 1962 …......... …......... 50 Meralco Securities Corp. vs. Savellano, GR L-36181, 23 October 1982…......... 1982…......... 50 Commissioner vs. Abad, GR L-19627, 27 June 1968 …......... 51 Commissioner vs. Procter & Gamble Philippines, GR L-66838, 15 April 1988 …......... 51 City Lumber vs. Domingo, GR L-18611, 30 January 1964 …......... 52 Villamin vs. Court of Tax Appeals, GR L-11536, 31 October 1960 …......... 52 Sy Po vs. Court of Tax Appeals, GR L-81446, 18 August 1988 …......... 53

This collection contains one hundred one (101) cases summarized in this format by Michael Vernon Vernon M. Gu errero (as a sophomore law student) during the First Semester, school year 2003-2004 in the Taxation Law I class under Atty. Diogenes Villarubia at the Arellano University School of Law (AUSL). Compiled as PDF, July 2011. Berne Guerrero entered AUSL in June 2002 and eventually graduated from AUSL in 2006. He passed the Philippine bar examinations immediately after (April 2007).

www.berneguerrero.com

Digests (Berne Guerrero)

[1] Commissioner vs. Algue GRL-28890, 17 February 1988 First Division, Cruz (J); 4 concur Facts: The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc. as its agent, authorizin authorizing g it to sell its land, land, factories, factories, and oil manufacturing manufacturing process. process. The Vegeta Vegetable ble Oil Investme Investment nt Corporation (VOICP) purchased PSEDC properties. For the sale, Algue received a commission of P125,000 and it was from this commission that it paid Guevara, et. al. organizers of the VOICP, VOICP, P75,000 in promotional fees. In 1965, Algue received an assessment from the Commissioner of Internal Revenue in the amount of P83,183.85 as delinquency income tax for years 1958 amd 1959. Algue filed a protest or request for reconsideration which was not acted upon by the Bureau of Internal Revenue (BIR). The counsel for Algue had to accept the warrant of distrant and levy. Algue, however, filed a petition for review with the Coourt of Tax Appeals. Appeal s. Issue: Whether the assessment was reasonable. Held: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Every person who is able to pay must contribute his share in the running of the government. The Government, for his 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 relationship is the rationale of taxation and should dispel the erroneous notion that is an arbitrary method of exaction by those in the seat of power.

Tax collection, however, should be made in accordance with law as any arbitrariness will negate the very reason for government itself. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate that the law has not been observed. Herein, the claimed deduction (pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation 2: as to compensation for personal services) had been legitimately by Algue Inc. It has further proven that the payment of fees was reasonable and necessary in light of the efforts exerted by the payees in inducing investors (in VOICP) to involve themselves in an experimental enterprise or a business requiring millions of pesos. The assessment was not reasonable. [2] Luzon Stevedoring Corp. vs. Court of Tax Appeals GR L-30232, 29 July 1988 Second Division, Paras (J): 4 concur Facts: Luzon Stevedoring Corp. imported various engine parts and other equipment for tugboat repair and maintenance in 1961 and 1962. It paid the assessed compensation tax under protest. Unable to secure a tax refund from the Commissioner (for the amount of P33,442.13), it filed a petition for review with the Court of Tax Appeals (CTA). The CTA denied the petition, as well as the motion for reconsideration filed thereafter. Issue: Whether the corporation is exempt from the compensation tax. Held: As the power of taxation is a high prerogative of sovereignty, the relinquishment of such is never presumed and any reduction or dimunition thereof with respect to its mode or its rate, must be strictly Taxation Law I, 2004 ( 1 )


construed, and the same must be couched in dear and unmistakable terms in order that it may be applied. The corporation’s corporation’s tugboats do not fall under the categories of passenger or cargo vessels to avail of the exemption from compensation tax in Section 190 of the Tax Code. It may be further noted that the amendment of Section 190 of Republic Act 3176 was intended to provide incentives and inducements to bolster the shipping industry and not the business of stevedoring, in which the corporation is engaged in. Luzon Stevedoring Corp. is not exempt from compensating tax under Section 190, and is thus not entitled to refund. [3] Lutz vs. Araneta GR L-7859, 22 December 1955 First Division, Reyes JBL (J): 8 concur Facts: AWalter Lutz, as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, sought to recover the sum of P14,6666.40 paid by the estate as taxes from the Commissioner under Section e of Commonwealth Commonwealth Act 567 (the Sugar Adjustment Adjustment Act), alleging that such tax is unconstitutional as it levied for the aid and support of the sugar industry exclusively, exclusively, which is in his opinion not a public purpose. Issue: Whether the tax is valid in supporting an industry. Held: The tax is levied with a regulatory prupose, i.e. to provide means for the rehabilitation and stabilization of the threatened sugar industry. The act is primarily an exercise of police power, and is not a pure exercise of taxing power. As sugar production is one of the great industries of the Philippines; and that its promotion, protection and advancement redounds greatly to the general welfare, the legislature found that the general welfare demanded that the industry should be stabilized, and provided that the distribution of benefits therefrom be readjusted among its component to enable it to resist the added strain of the increase in tax that it had to sustain. Further, 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, etc., as well as to the improvement of living and working conditions in sugar mills and plantations, without any part of such money being channeled diectly to private persons, constitute expenditure of tax money for private purposes.

The tax is valid. [4] McCollough vs. Maryland 17 US 316 (1819), Marshall (CJ) Facts: The United States Congress incorporated a bank, the Bank of the United States; and established a branch in the State of Maryland. The State of Maryland, in turn, through its legislature, imposed a tax upon the bank. Issue: Whether the State of Maryland can tax a federal bank. Held: The Government of the United States, though limited in its powers, is supreme. Its laws, when made in pursuance of the Constitution, form the supreme law of the land, “anything in the Constitution or laws of any State, to the contrary, not withstanding.” Among the enumerated powers of the government are to lay and collect taxes; to regulate commerce; to declare and conduct a war; and to raise and support armies and navies. Still, the power of taxation is retained by the States. It is not abridged by the grant of a similar power to the Taxation Law I, 2004 ( 2 )


Government of the Union. It is to be concurrently exercised by the two governments. Consistently with a fair construction of the Constitutions: the power to tax involves the power to destroy; the power to destroy may defeat defeat and render render useless useless the power power to create create;; and there is a plain plain repugn repugnan ance ce in confer conferrin ring g on one government a power to control the constitutional measures of another, which other, with respect to those very measures, is declared to be supreme over that whcih exerts the control. Taxation does not necessarily and unavoidably destroy. To carry it to the excess of destruction would be an abuse, and would banish that confidence which is essential to all government. Hence, the States have no power to retard, impede, burden, or in any manner control, the operations of the constitutional laws enacted by Congress to carry into execution the powers vested in the general government. The law passed by the legislature of Maryland, imposing a tax on the Bank of the United States, is unconstitutional unconstitutional and void. [5] Panhandle Oil vs. State of Mississippi 277 US 218 (1928), Butler (J) Facts: The laws of Mississippi provided that “any person engaged in the business of distributor of gasoline, or retail dealer in gasoline, shall pay an excise tax for the privilege of engaging in such business,” except that sold in interstate commerce or puchased outside the state and brought in by the consumer for his own use. Since 1925, Panhandle Oil Co. has been engaged in such business. Subsequently, the State sued to recover taxes claimed on account of sales made by the company to the United States for the use of its Coast Guard fleet in service in the Gulf of Mexico and its Veteran’s Hospital at Gulfport. The company defended on the ground that Mississippi statutes relevant to the case, if construed to impose taxes on such sales, are repugnant to the federal constitution. constitution. Issue: Whether Panhandle Oil Co. is liable for the excise tax imposed by the State of Mississippi. Held: The United States is empowered by the Constitution to maintain and operate the fleet and the hospital. Authorization and laws enacted pursuant to the Constitution are supreme, and in case of conflict, control state enactments. The States may not burden or interfere with the exertion of national power, or make it a source of revenue or take the funds raised or tax the means for for the performance of federal functions. While the State of Mississippi may impose charges upon the company for the privilege of carrying trade that is subject to the power of the State, it may not lay any tax upon transactions by which the United States secures the things desired for its governmental purposes. The necessary operation of the statutes when so construed is directly to retard, impede, and burden the exertion by the United States of its constitutional powers to operate the fleet and the hospital. The exactions demanded infringe upon the right to have the Constitutional independence of the United States, in respect to such purchases, remain untrammeled.

Panhandle Oil Co. is, thus, not liable for the taxes claimed. [ Note: It is not in the main body or decision, but in the dissenting opinion of Justice Holmes that the following doctrine was enunciated: “... (The Court), so often has defeated the attempt to tax in certain ways, can defeat an attempt to discriminate or otherwise go too far without wholly abolishing the power to tax. The power to tax is not the power to destroy while this Court sits. The power to fix rates is the power to destroy if unlimited, but this Court while it endeavors to prevent confiscation does not prevent the fixing of rates. A tax is not an unconstitutional regulation in every case where an absolute prohibition of sales would be one.” ] [6] Taxation Law I, 2004 ( 3 )


Commissioner vs. Lingayen Gulf Electric GR L-23771, 4 August 1988 En Banc, Sarmiento (J): 13 concur Facts: Lingayen Gulf Electric Power operates an electric power plant serving the municipalities of Lingayen and Binmaley, Pangaisnan, pursuant to municipal franchise granted it by the respective municipal councils. The franchises provided that the grantee shall pay quarterly to the Provincial Treasury of Pangasinan 1% of the gross earnings obtained through the privilege for the first 20 years (from 1946), and 2% during the remaining 15 years of the life of the franchise. In 1948, the Philippine President approved the franchise (RA 3843). 3843). In 1955, 1955, the BIR assess assessed ed and demand demanded ed agains againstt the the compan company y defici deficienc ency y franch franchise ise taxes taxes and surcharges fro the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts from 1948 to 1954. The company asked for a reinvestigation, which was denied. Issue [1]: Whether the Court can inquire into the wisdom of the Act. Held [1]: The Court does not have the authority to inquire into the wisdom of the Act. Charters or special laws granted and enacted by the Legislatur are in the nature of private contracts. They do not contitute a part of the machinery of the general government. They are usually adopted after careful consideration of the private rights in relation with the resultant benefits of the State. In passing a special charter, the attention of the Legislature is directed to the facts and circumstances which the act or charter is intended to meet. The Legislature considers and makes provision for all the circumstance of the particular case. The Court ought not to disturb the ruling of the Court of Tax Appeals on the constitutionality of the law in question. Issue [2]: Whether a rate below 5% on gross income violate the uniformity of tax clause in the Constitution. Held [2]: A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. Uniformity means that all property belonging to the same class shall be taxed alike. The legislature has the inherent power not only to select the subjects of taxation but to grant exemptions. Tax exemptions have never been deemed violateve of the equal protection clause. Herein, the 5% franchise tax rate provided in Section 259 of the Tax Code was never intended to have a universal application. Section 259 expressly allows the payment of taxes at rates lower than 5% when the charter granting the franchise precludes the imposition of a higher tax. RA 3843 did not only fix and specify a franchise tax of 2% on its gross receipts, but made it in lieu of any and all taxes, all laws to the contrary notwithstanding. notwithstanding. “

The company, company, hence, is not liable for f or deficiency taxes. [7] National Development Co. vs. Commissioner GR L-53961, 30 June 1987 En Banc, Cruz (J): 14 concur Facts: The The Nation National al Develo Developme pment nt Co. (NDC) (NDC) entered entered into into contra contracts cts in Tokyo okyo with with severa severall Japane Japanese se shipbuilding companies for the construction of 12 ocean-going vessels. Initial payments were made in cash and through irrevocable letters of credit. When the vessels were completed and delivered to the NDC in Tokyo, the latter remitted to the shipbilders the amount of US$ 4,066,580.70 as interest on the balance of the purchase price. No tax was withheld. The Commissioner Commissioner then held NDC liable on such tax in the total amount of P5,115,234.74. The Bureau of Internal Revenue served upon the NDC a warrant of distraint and levy after negotiations failed.

Taxation Law I, 2004 ( 4 )


Issue: Whether the NDC is liable for deficiency tax. Held: The Japanese shipbuilders were liable on the interest remitted to them under Section 37 of the Tax Code. The NDC is not the one taxed. The imposition of the deficiency taxes on the NDS is a penalty for its failure to withhold the same from the Japanese shipbuilders. Such liability is imposed by Section 53(c) of the Tax Code. NDC was remiss in the discharge of its obligation of its obligation as the withholding agent of the government and so should be liable liable for its omission. omission. [8] Domingo vs. Garlitos GR L-18993, 29 June 1963 En Banc, Labrador (J): 8 concur, 1 concur in result, 1 took no part Facts: InDomingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory the order of the Court of First Instance of Leyte for the payment of estate and inheritance taxes, charges and penalties amounting to P40,058.55 by the Estate of the late Walter Scott Price. The petition for execution filed by the fiscal, however, was denied by the lower court. The Court held that the execution is unjustified as the Government itself is indebted to the Estate for 262,200; and ordered the amount of inheritance taxes be deducted from the Government’s Government’s indebtedness to the Estate. Issue: Whether a tax and a debt may be compensated. Held: The court having having jurisdic jurisdictio tion n of the the Estate Estate had found that the claim claim of the the Estate Estate against against the Govern Governmen mentt has been been recogn recognize ized d and an amount amount of P262, P262,200 200 has alread already y been been approp appropria riated ted by a corresponding law (RA 2700). Under the circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate intestate for services rendered have already become overdue overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount. [9] Commissioner vs. Itogon-Suyoc Mines GR L-25299, 29 July 1969 En Banc, Fernando (J): 9 concur, 1 took no part Facts: Itogon-Suyoc Mines filed its income tax return for the fiscal year 1959 to 1960. Four months later, it filed an amended income tax return, reporting a loss. It thus sought a refund from the Commissioner. Commissioner. When it filed its income tax return on the next year, it deducted an amount representing alleged tax credit for overpayment for the preceding fiscal year. The Commissioner imposed an amount P1,512.83 as 1% monthly interest on the amount of P13,155.20 from January to December 1962. The basis for such assessment was allegedly the absence of a legal right to deduct said amount before the tax credit or refund is approved by the Commissioner. Issue: Whether the assessment on interest was justified. Held: The Tax Code provides that interest upon the amount determined as a deficiency shall be assessed and shall be paid upon notice and demand from the Commissioner at the rate therein specified. It made clear, however, in an earlier provision found in the same section that if in any preceding year, the taxpayer was entitled to a refund of any amount due as tax, such amount, if not refunded, may be deducted from the tax to Taxation Law I, 2004 ( 5 )


be paid. Although the imposition of monthly interest does not constitute penalty but a just compensation to the State for the delay in paying the tax and for the concomitant use by the taxpayer of funds that rightfully should be in government’s hands; in light of the overpayment for 1959 and 1960, it cannot be said that the taxpayer was guilty of delay enabling it to utilize the money. The company is entitled to refund. [10] Republic vs. Mambulao Lumber GR L-17725, 28 February 1962 En Banc, Barrera (J): 10 concur Facts: Mambulao Lumber Company paid the Government a total of P9,127.50 as reforestation charges. Having found liable for an aggregate amount of P4,802.37 for forest charges, it contended that since the Republic (Government) has not made use of the reforestation charges for reforesting the denuded area of the land covered by the company’s license, the Republic should refund said amount or, if it cannot be refunded, at least the company should be compensated with what it owed the Republic for reforestation charges. Issue: Whether taxes may be subject of set-off or compensation. Held: Internal revenue taxes, such as forest charges, cannot be the subject of set-off or compensation. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of setoff, 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 subject of recoupment since they do not arise out of the contract or transaction sued on.

Taxes are not in the nature of contracts between the parties but grow out of a 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. [11] Francia vs. Intermediate Appellate Court GR L-67649, 28 June 1988 Third Division, Gutierrez Jr. (J): 4 concur Facts: Engracio Francia was the registered owner of a house and lot located in Pasay City. A portion of such property was expropriated by the Republic of the Philippines in 1977. It appeared that Francia did not pay his real estate taxes from 1963 to 1977. Thus, his property was sold in a public auction by the City Treasurer of Pasay City. Issue: Whether the expropriation payment may compensate compensate for the real estate taxes due. Held: There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person canot 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 annot await the results of a lawsuit agianst the government. Internal revenue taxes cannot be the subject of compensation. The Government and the taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim of taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.



[ Note : See Republic Republic vs. Mambu Mambulao lao,, and Cordero Cordero vs. Gonda, Gonda, as doctri doctrine ne in said said cases cases were were merely merely reiterated. ] [12] Caltex Philippines vs. Commission on Audit (COA) GR 92585, 8 May 1992 En Banc, Davide (J): 12 concur, 2 took no part Facts: In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund (OPSF), excluding that unremitted for 1986 and 188 of the additional tax on petroleum products authorized under Section 8 of PD 1956; and that pending such remittance, all its claims for reimbursement from the OPSF shall be held in abeyance. Caltex requested COA, notwithstanding an early release of its reimbursement certificates from the OPSF, which COA denied. On 31 May 1989, Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the proposal but prohibited Caltex from further further offsetin offseting g remittanc remittances es and reimbursemen reimbursements ts for the current and ensuing years. Caltex Caltex moved moved for reconsideration. Issue: Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex’ outstanding claims from said funds. Held: Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state. PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. [13] Cu Unjieng vs. Patstone GR 16254, 21 21 February 1922 First Division, Ostrand (J): 4 concur, 1 took no part Facts: G. A. Cu Unjieng desired to erect a warehouse in Azcarraga street was denied a building permit until he shall have made provision for the construction of an arcade over the sidewalk in front of the building, and until he shall have further complied with Section 1 of Ordinance 301 of the City of Manila, i.e. payment of 1/2 of the assessed value of the city land. Cuunjieng filed a petition for a writ of mandamus to compel the city engineer to issue the permit. Issue: Whether the fee was validly imposed. Held: The allowable amount of license fee or tax depends so much on the special circumstances of each particular case. Adjudications, however, appear to recognize 3 classes of licenses (license forregulation of useful occupations or enterprises; licenses for the regulation of non-useful occupations or enterprises; and licenses for revenue only), which should be taken into consideration in determining the reasonableness of the license fee. Herein, in imposing a fee equal to 1/2 of the assessed value of the portion of the sidewalk covered by the arcade, the municipal board exceeded its powers. The construction construction of buildings is a useful enterprise enterprise and the amount of the license fee should therefore be limited to the cost of licensing, regulating, and surveillance. As it does not appear such cost would materially increase through the construction of the arcade, Taxation Law I, 2004 ( 7 )


the excess fee is clearly imposed for the purpose of revenue. There is nothing in the charter of the City indicating legislative intent to confer tot the municipal board to impose a license tax for revenue on the construction of buildings. Although the city can require the construction of arcades in certain circumstances, the license fee prescribed by Ordinance 301 is illegal. [14] Villegas vs, Hiu Chiong Tsai Pao Ho GR L-29646, 10 November 1978 En Banc, Fernandez (J): 4 concur, 3 concur in result, 1 took no part Facts: The Municipal Board of Manila enacted Ordinance 6537 requiring aliens (except those employed in the diplomatic and consular missions of foreign countries, in technical assistance programs of the government and another country, and members of religious orders or congregations) to procure the requisite mayor’s permit so as to be employed or engage in trade in the City of Manila. The permit fee is P50, and the penalty for the violation of the ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or both. Issue: Whether the ordinance imposes a regulatory fee or a tax. Held: The ordinance’s purpose is clearly to raise money under the guise of regulation by exacting P50 from aliens who have been cleared for employment. The amount is unreasonable and excessive because it fails to consider difference in situation among aliens required to pay it, i.e. being casual, permanent, part-time, rankand-file or executive.

[ The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus deprived of their rights to life, liberty and property and therefore violates the due process and equal protection clauses of the Constitution. Further, the ordinance does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion, thus conferring upon the mayor arbitrary and unrestricted powers. ] [15] Apostolic Prefect of Mountain Province vs. City Treasurer Treasurer of Baguio City GR 47252, 18 April 1941 En Banc, Imperial (J): 4 concur Facts: The Apostolic Apostolic Prefect is a corporation sole, of religious character, organized under the Philippine laws, and with residence in Baguio, The City imposed a special assessment against properties within its territorial jurisdiction, including those of the Apostolic Prefect, which benefits from its drainage and sewerage system. The Apostolic Apostolic Prefect contends that its properties should be free of tax. Issue: Whether the Apostolic Prefect, as a religious entity, is exempt from the payment of the special assessment. Held: In its broad meaning, tax includes both general taxes and special assessment. Yet actually, there is a recognized distinction between them in that assessment is confined to local impositions impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with reference to special benefits to the property assessed. A special assessment is not, strictly speaking, a tax; and neither the decree nor the Constitution exempt the Apostolic Prefect from payment of said special assessment. Furthermore, arguendo that exemption may encompass such assessmen, the Apostolic Prefect cannot claim exemption as it Taxation Law I, 2004 ( 8 )


has not proven the property in question is used exclusively for religious purposes; but that it appearsthat the same is being used to other non-religious purposes. Thus, the Apostolic Prefect is required to pay the special assessment. [16] Philippine Airlines vs. Edu HR L-41383, 15 August 1988 En Banc, Gutierrez Jr. (J): 13 concur Facts: The Philippin Philippinee Airlines (PAL) (PAL) is engaged engaged in the air transport transportatio ation n business business under a legislativ legislativee franchise, Act 4271, wherein it is exempt from the payment of taxes. On the strength of an opinion of the Secretary of Justice (Opinion 307 of 1956), PAL was determ determine ined d to have have not been been paying paying mo motor tor vehic vehicle le regist registrat ration ion fees fees since since 1956. 1956. The Land Land Transpo ransporta rtatio tion n Comm Commiss ission ioner er requi required red all tax exempt exempt entit entities ies,, includ including ing PAL, AL, to pay pay mo motor tor vehicl vehiclee registration fees. PAL protested. Issue: Whether registration fees as to motor vehicles are taxes to which Philippine Airlines Airlines is exempt. Held: Taxes are for revenue, whereas fees are exactions for purposes of regulation and inspection, and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. It is the object of the charge, and not the name, that determines whether a charge is a tax or a fee. The money collected under the Motor Vehicle Law is not intended for the expenditures of the Motor Vehicle Office but accrues to the funds for the construction and maintenance of public roads, streets and bridges. As the fees are not collected for regulatory purposes as an incident to the enforcement of regulations governing the operation of motor vehicles on public highways, but to provide revenue with which the Government is to construct and maintain public highways for everyone’s use, they are veritable taxes, not merely fees. PAL is, thus, exempt from paying such fees, except for the period between 27 June 1968 to 9 April 1979, where its tax exeption in the franchise was repealed. [17] Progressive Progressive Development Corporation vs. Quezon City GR 36081, 24 April 1989 Third Division, Feliciano (J): 4 concur Facts: The City Council of Quezon City adopted Ordinance 7997 (1969) where privately owned and operated public markets to pay 10% of the gross receipts from stall rentals to the City, as supervision fee. Such ordinance was amended by Ordinance 9236 (1972), which imposed a 5% tax on gross receipts on rentals or lease of space in privately-owned public markets in Quezon City. Progressive Progressive Development Corp., owned and operator of Farmer’s Market and Shopping Center, filed a petition for prohibition against the city on the ground that the supervision fee or license tax imposed is in reality a tax on income the city cannot impose. Issue: Whether the supervision fee / license tax is a tax on income. Held: The 5% tax imposed in Ordinance 9236 does not constitute a tax on income, nor a city income tax (distinguished from the national income tax by the Tax Tax Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of business in which the company is engaged. To be considered a license fee, the imposition must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulations for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable Taxation Law I, 2004 ( 9 )


expenses of the regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well. The gross receipts from stall rentals have been used only as a basis for computing the fees or taxes due to the city to cover the latter’s administrative expenses. The use of the gross amount of stall rentals, as basis for the determination of the collectible amount of license tax, does not by itself convert or render the license tax into a prohibited city tax on income. For ordinarily, the higher the amount of stall rentals, the higher the aggregate volume of foodstuffs and related items sold in the privately owned market; and the higher the volume of goods sold in such market, the greater extent and frequency of inspection and supervision that may be reasonably required in the interest of the buying public. [18] American Mail Line vs. Basilan GR L-12647, 31 May 1961 En Banc, Dizon (J): 9 concur, 1 took no part Facts: The City Council of Basilan City enacted Ordinance 180 (1955) imposing upon a foreign vessel engaged in coastwise trade which may anchor within the territorial waters of Basilan City to pay an anchorage fee of half centavo per registered gross ton of the vessle for the first 24 hours, provided that the maximum charge shall not exceed P75 per day. As the city treasurer assessed and attempted to collect from American Mail Line the anchorage fees, the company filed an action for declaratory relief to have the courts determine the validity of the ordinance. Issue: Whether the anchorage fees were for regulatory or revenue purposes. Held: The fees required are intended for revenue purposes. The fees have no proper or reasonable relation to the cost of issuing the permits and the cost of inspection or surveillance; being based upon the tonnage of the vessels. The fees imposed on the vessels exceed even the harbor fees imposed by the National Government to raise revenues for the Port Works Fund. The City of Basilan was not granted a blanket authority or power of taxation, but merely given the powers to levy and collect taxes for general and special purposes in accordance with or as provided by law. The power to regulate as an exercise of police power does not include the power to impose fees for review purposes.

The ordinance was invalid. [19] Saldana vs. Iloilo GR L-10470, 26 June 1958 En Banc, Montemayor (J): 8 concur Facts: In 1946, the City of Iloilo promulgated Ordinance 28, which strictly prohibits the transport of food supply and labor animals outside Iloilo without first obtaining the necessary license permit from the mayor. Under the ordinance, Serafin Saldana had been paying, under protest, so-called fees on fish bought in Iloilo and sent to Manila from 16 September to 6 December 1946. Issue: Whether the “license fee” was validly imposed. Held: A license fee represents the permission conceded to do an act is in the main purpose of police power, and is not supposed to be imposed for revenue. A property tax, on the other hand, is a tax in the ordinary sense, assessing according to the value of property. Judging from the amount of fees fixed in the ordinance, the so-called fees were in reality taxes for city revenue. As such, they are unauthorized by the law or the City Taxation Law I, 2004 ( 10 )


Charter, and are alson in contravention of Sections 2287 and 2629 of the Revised Administrative Code. The prohibition against taking animals and articles outside Iloilo without mayor’s permit is in restraint of trade and a curtailment of the rights of the owners of said animals and articles to freely sell and of prospective purchasers to buy and dispose of them without the city limits in the ordinary course of commerce and trade. The ordinance is ultra vires and, thus, is null and void. [20] Compania General de Tobacos de Filipinas vs. Manila GR L-16619, 29 June 1963 En Banc, Dizon (J): 8 concur, 2 took no part Facts: Compania General de Tabacos de Filipinas (Tabacalera) paid the City of Manila the fixed license fees prescribed by Ordinance 3358 for the years 1954 to 1957. In 1954, City Ordinance 3634 and 3816 were passed; where the term “general merchandise” found therein included all articles in Sections 123 to 148 of the Tax Code (thus, also liquor under Sedctions 133 to 135). The Tabacalera paid its wholesaler’s and retailer’s taxes. In 1954, the City Treasurer addressed a letter to an accounting firm, expressing the view that liquor dealers paying the annual wholesale and retail fixed tax under Ordinance 3358 are not subject to the wholesale aand retail deaklers’ taxes prescribed by City Ordinances 3634, 3301, and 3816. The Tabacalera, upon learning of said stopped including quarterly sworn declaratons required by the latter ordinances, and in 1957, demanded refunde of the alleged overpayment. The claim was disallowed. Issue: Whether there is a distinction between Ordinance 3358 and Ordinances 3634, 3301 and 3816, to prevent refund to the company. Held: Generally, the term “tax” applies to all kinds of exactions which become public funds. Legally, however, a license fee is a legal concept quite distinct from tax: the former is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under the taxing power for the purpose of raising revenues. Ordinance 3358 prescribes municipal license fees for the privilege to engage in the business of selling liquor or alcohol beverages; considering that the sale of intoxicating liquor is (potentially) harmful to public health and morals, morals, and must be subject to supervision supervision or regulation by the State State and by cities and municipalities authorized to act in the premises. On the other hand, Ordinances 3634 , 3301 and 3816 imposed taxes on the sales of general merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila.

Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article, without it being in violation of the rule against double taxation. The contrary view of the Treasurer in its letter letter is of no consequence consequence as the government government is not bound by the errors or mistakes mistakes committed committed by its officers, specially on matters of law. The company, company, thus, is not entitled to refund. [21] Philippine Acetylene Co. Inc. vs. Commissioner GR L-19707, 17 August 1967 En Banc, Castro (J): 7 concur, 2 took no part Facts: Philippine Acetylene Co. Inc. is engaged in the manufacture and sale of oxygen and acetylene gases. It sold its products to the National Power Corporation (Napocor), an agency of the Philippine Government, and the Voice of America (VOA), an agency of the United States Government. The Commissioner assessed Taxation Law I, 2004 ( 11 )


deficiency sales tax and surcharges against the company. company. The company denied liability for the payment of tax on the ground that both Napocor and VOA are exempt from taxes. Issue: Whether Philippine Acetylene Acetylene Co. is exempt from the tax. Held: Sales tax are paid by the manufacturer or producer who must make a true and complete return of the amount of his, her or its gross monthly sales, receipts or earnings earnings or gross value of output actually removed removed from the factory or mill, warehouse and to pay the tax due thereon. The tax imposed by Section 186 of the Tax Code is a tax on the manufacturer or producer and not a tax on the purchaser except probably in a very remote and inconsequential sense. Accordingly, its levy on the sales made to tax-exempt entities like the Napocor is permissible. On the other hand, there is nothing in the language of the Military Bases Agreement to warrant the general exemption granted by General Circular V-41 (1947). Thus, the expansive construction of the tax exemption is void; and the sales to the VOA are subject to the payment of percentage taxes under Section 186 of the Tax Code. Therefore, tax exemption is strictly construed and exemption will nbot be held to be conferred unless the terms under which it is granted clearly and distinctly show that such was the intention. [22] Commissioner vs. American Rubber GR L-19667, 29 November 1966 En Banc, Reyes JBL (J): 8 concur Facts: American Rubber Company sold its rubber products locally and as prescribed by the Commissioner’s regulation, the company declared the same for tax purposes in which the Commissioner Commissioner accordingly assessed. The company paid under protest the corresponding sales taxes thereon, claiming exemption under Section 188 (b) of the Tax Tax Code, and subsequently claimed refund. With With the Commissioner refusing to do so, the case was brought before the Court of Tax Appeals, which upheld the Commissioner’s stand that the company is not entitled to recover the sales tax that had been separately billed to its customers, and paid by the latter. Issue: Whether the company can recover the sales tax paid. Held: The sales tax is by law imposed directly, directly, not on the thing sold, but on the act (sale) of the manufacturer, manufacturer, producer, or importer, who is exclusively made liable for its timely payment. Where the tax money paid by the company came from is really no concern of the Government, but solely a matter between the company and its customers. Once recovered, the company must hold the refunded taxes in trust for hte individual purchasers who advanced payment thereof, and whose names must appear in company records. Herein, the company sales between 24 August 1956 (approval of RA 1612) to 22 June 1957 (when RA 1856 restored the exemption of agricultural products “whether in their original form or not”) were properly taxed. Such amount corresponding to the period are not recoverable. [23] Commissioner vs. Gotamco GR L-31092, 27 February 1987 First Division, Yap (J)L 6 concur Facts: The World Trade Organization (WHO) decided to construct a building to house its offices, as well as the other United Nations Offices in Manila. In inviting bids for the construction of the building, the WHO informed the bidders of its tax exemptions. The contract was awarded to John Gotamco and Sons. The Commissioner opined that a 3% contractor’s tax should be due from the contractor. The WHO issued a Taxation Law I, 2004 ( 12 )


certification that Gotamco should be exempted, but the Commissioner insisted on the tax. Raised in the Court of Tax Tax Appeals, the court ruled in favor of Gotamco. Issue: Whether Gotamco is likewise from the contractor’s tax in lieu of WHO’s exemption from indirect taxes. Held: Direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. Herein, the contractor’s tax is payable by the contractor but it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Such tax is an “indirect tax” on the organization, as the payment thereof or its inclusion in the bid price would have meant an increase in the construction cost of the building.

Hence, the Contractee’s (WHO) exemption from “indirect taxes” implies that contractor (Gotamco) is exempt from contractor’s tax. [24] Pascual vs. Secretary of Public Works and Communications GR L-10405, 29 December 1960 En Banc, Concepcion (J): 10 concur Facts: RA 920 (Act appropriating funds for public works) was enacted in 1953 containing an item (Section 1 c[a]) for the construction, reconstruction, repair, extension and improvement of Pasig feeder road terminals (the projected and planned subdivision roads, which were not yet constructed, within Antonio Subdivision owned by Senator Jose C. Zulueta). Zulueta “donated” said parcels of land to the Government 5 months after the enactment of RA 920, on the condition that if the Government violates such condition the lands would revert to Zulueta. The provincial governor of Rizal, Wenceslao Pascual, questioned the validity of the donation and the Constitutionality of the item in RA 920, it being not for a public purpose. Issue: Whether the item in the appropriation is valid. Held: The right of the legislature to appropriate funds is correlative with its right to tax, under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than a public purpose. The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events occupying, or acts performed, subsequently thereto, unless the latter consist of an amendment of the organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute. Herein, inasmuch as the land on which the projected feeder roads were to be constructed belonged to Senator Zulueta at the time RA 920 was passed by Congress, or approved by the President, and the disbursement of said sum became became effective on 20 June 1953 pursuant to Section 13 13 of the Act, the result is that the appropriating sough a private purpose and hence, null and void. [25] Republic vs. Bacolod-Murcia Milling Co. GR L-19824-26, 9 July 1999 En Banc, Regala (J): 7 concur, 1 took no part Facts: RA 632 created the Philippine Sugar Institute, a semi-public corporation. In 1951, the Institute Taxation Law I, 2004 ( 13 )


acquired the Insular Sugar Refinery for P3.07 million payable in installments from the proceeds of the sugar tax to be collected collected under under RA 632. The operation operation of the refinery refinery for 1954 to 1957 was disastrous disastrous as the Institute Institute suffered suffered tremendous tremendous losses. losses. Contendin Contending g that the purchase purchase of the refinery refinery with money from the Institute’s fund was not authorized under RA 632, and that the continued operation of the refinery is inimical to their interest, Bacolod-Murcia Milling Co., Ma-ao Sugar Central, Talisay-Silay Talisay-Silay Milling Co. and the Central Azucarera del Danao refused to continue with their contribution to said fund. The trial court found them liable under RA 632. Issue: Whether the taxpayers may refuse to pay the special assessment, allegedly distinct distinct from an ordinary tax which no one can refuse to pay. Held: The nature of a “special assessment” similar to the case has been discussed and explained in Lutz vs. Araneta. The special assessment or levy for the Philippine Sugar Sugar Institute (Philsugin) Fund is not so much an exercise of the power of taxation, nor the imposition of a special assessment, but the exercise of police power for the general welfare of the entire country. country. It is, therefore, an exercise of a sovereign power which no private citizen may lawfully resist. Section 2a of the Charter authorizing Philsugin to “conduct research work for the sugar industry in all its phases, either agricultural or industrial, for the purpose of introducing into the sugar industry such practices or processes that will reduce the cost of production and achieve greater efficiency in the industry, industry, justifies the acquisition of the refinery in question. The financial loss resulting from the operation thereof is no means an index that the industry did not profit therefrom, as other gains of a different nature (such as experience) may have been realized. [26] 31st Infantry Post Exchange vs. Posadas GR 33403, 4 September 1930 En Banc, Malcolm (J): 5 concur Facts: The 31st Infantry Post Exchange is a post exchange constituted in accordance with Army regulations and the laws of the United States. in the course of its duly authorized business transactions, the Exchange made many purchases of various and diverse commodities, goods, wares and merchandise from various merchants in the Philippines. The Commissioner collected a sales tax of 1 1/2 % ofthe gross value of the commodities, etc. from the merchants who sold said commodities to the Exchange. A formal protest was lodged by the Exchange. Issue: Whether the Exchange is exempt from the sales tax imposed against its suppliers. Held: Taxes have been collected from merchants who made sales to Army Post Exchanges since 1904 (Act 1189, Section 139). Similar taxes are paid by those who sell merchandise to the Philippine Government, and by those who do business with the US Army and Navy in the Philippines. Philippines. Herein, the merchants who effected the sales to the Post Exchange Exchange are the ones who paid the tax; and it is the officers, officers, soldiers, soldiers, and civilian civilian employees and their familites who are benefited by the post exchange to whom the tax is ultimately shifted. The tax laid upon the merchants who sell to the Army Post Exchanges does not interfere with the supremacy of the US Government, nor with the operations of its instrumentalities, such as the US Army, Army, to such extent or in such a manner as to render the tax illegal. The tax does not deprive the Army of the power to serve the Government as it was intended to serve it, or hinder the efficient exercise of its power.

An Army Post Exchange, although an agency within the US Army, cannot secure exemption from taxation for merchants who make sales to the Post Exchange. [27] Taxation Law I, 2004 ( 14 )


Wells Wells Fargo vs. Collector of Internal Revenue GR 46720, 28 June 1940 First Division, Moran (J): 4 concur, 1 concur in result Facts: Birdie Lillian Eye died on 16 September 1932, at Los Angeles, California, the place of her alleged last residence and domicile. Among the properties she left was her 1/2 conjugal shares of stock in the Benguet Consolidated Mining Co., an anonymous partnership (sociedad anonima), organized under the laws of the Philippines. She left a will duly admitted to probate in California where her estate was administered and settled. Wells Fargo bank and Union Trust Co. was duly appointed trustee of the trust by the said will. The Federal and California State’s inheritance taxes due thereon have been duly paid. The Collector of Internal Revenue in the Philippines, however, sought to subject the shares of stock to inheritance tax, to which Wells Fargo objected. Issue: Whether the shares of stock are subject to Philippine inheritance tax considering that the decedent was domiciled in California. Held: Originally, Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax, and such situs is in the domicile of the decedent at the time of his or her death. But the rule has been relaxed. The maxim “mobila sequuntur personam,” upon which the rule rests, has been decried as a mere “fiction of law having its origin in considerations of general convenience and public policy, and cannot be applied to limit or control teh right of the State to tax property within its jurisdiction” and must “yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so whould result in inescapable and patent injustice.” The relaxation of the original rule rests on either of two fundamental considerations: (1) upon the recognition of the inherent power of each government to tax persons, properties, and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that as to intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto.

Herein, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. The certificates of stock remained in the Philippines up to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the corporation, to whom they have been delivered and indorsed in blank. McKee had the legal title to the certificates of stock held in trust for the true owner owner thereo thereof. f. The owner owner residi residing ng in Califo Californi rniaa has extend extended ed here here her activi activitie tiess with with respec respectt to her intan intangib gibles les so as to avail avail herese hereself lf of the the protec protectio tion n and benefi benefitt of Phili Philippi ppine ne laws. laws. Accord According ingly ly,, the jurisdiction of the Philippine Government to tax must be upheld. [28] Philippine Match Co. Ltd. vs. Cebu City GR L-30745, 18 January 1978 Second Division, Aquino (J): 3 concur, 1 on leave Facts: Cebu City imposed a quarterly tax (sales tax of 1%) on gross sales or receipts of merchants, dealers, importers and manufacturers or any commodity doing business in Cebu City, City, through Ordinance 279. Section 9 of the Ordinance provided that, for the purpose of the tax, “all deliveries of goods or commodities stored in Cebu City, or if not stored are solld in that city sahll be considered as sales in the city and shall be taxable.” Philippine Match Co. Ltd., with principal office in Manila, questioned the legality of the tax collected by the City of Cebu on sales of matches stored by the company in Cebu City but delivered to customers outside the city.



Issue: Whether the City of Cebu can tax sales of matches which were perfected and paid for in Cebu City but where the matches were delivered to customers outside the city. Held: The city can validly tax the sales of matches to customers outside of the city as long as the orders were booked and paid for in the company’s branch office in the city. Those matches can be regarded as sold in the city, as contemplated in the ordinance, because the matches were delvered to the carrier in Cebu City. Generally, Generally, delivery to the carrier is delivery to the buyer (Article 1523, Civil Code). A different interpretation interpretation would defeat the tax ordinance in question or encourage tax evasion through the simple expedient of arranging for the delivery of the matches at the outskirts outskirts of the city though the purchases purchases were effected and paid for in the company’s branch office in the city. The municipal board of the city is empowered to provide for the levy and collection of taxes for f or general and special purposes in accordance with law. [29] Commissioner vs. British Overseas Airways Corp. GR L-65773-74, 30 April 1987 En Banc, Melencio-Herrera (J): 7 concur, 1 took no part Facts: British Overseas Airways Corp. (BOAC) is a 100% Britis Government-owned corporation engaged in international airline business and is a member of the Interline Air Transport Association, and thus, it operates air transportation service and sells transportation tickets over the routes of the other airline members. From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus did not carry passengers and/or cargo to or from the Philippines Philippines but maintained a general sales agent in the Philippines Philippines -Warner Barnes & Co. Ltd., and later, Qantas Airwayus -- which was responsible for selling BOAC tickets covering passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency income taxes against BOAC. Issue: Whether the revenue derived by BOAC from ticket sales in the Philippines for air transportation, while having having no landing landing rights in the Philippines, Philippines, constitute constitute income of BOAC from Philippine Philippine sources, and accordingly, taxable. Held: The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. Herein, the sale of tickets in the Philippines is the activity that produced the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. currency. The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occured 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. PD 68, in relation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources. The 2 1/2 %tax on gross billings is an income tax. If it had been intended as an excise or percentage tax, it would have been placed under Title V of the Tax Code covering taxes on business. [30] Commissioner vs. Air India GR L-72443, 29 January 1988 First Division, Gancayco (J): 4 concur Facts: Air India is a foreign corporation and an off-line international carrier not engaged in the business of air transporation in the Philippines. Air India sells airplane tickets in the Philippines trhough its general sales agent, Philippine Airlines. Airlines. Said tickets are serviced by Air India outside the Philippines. Philippines. The Commissioner Commissioner of Taxation Law I, 2004 ( 16 )


Internal Revenue assessed against Air India the amount of P142,471.68 representing 2.55 income tax on its gross Philippine billngs pursuant to Section 24 (b) (2) of the Tax Code, as amended, inclusive of th e50% surcharge and interest for willful neglect to file a return as provided under Section 72 of the same Code. Air India appealed to the Court of Tax Appeals. Issue: Whether the revenue derived by an international air carrier from sles of tickets in the Philippines for air transp transport ortati ation, on, while while having having no landin landing g rights rights in the the countr country y, consti constitut tutes es incom incomee of said said carrie carrierr from from Philippine sources, and thus taxable under Section 24 (b) (2) of the Tax Code. Held: Based on the doctrine enunciated in British Overseas Airways Corp., the revenue derived by Air India from the sales of airplane tickets, through its agent in the Philippines, must be considered taxable income. As correctly assessed by the Commissioner, such income is subject to a 2.5% tax pursuant to PD 1355, amending section 24 (b) (2) of the Tax Code. [31] Allied Thread vs. City of Manila GR L-40296, 21 November 1984 En Banc, Abad Santos (J): 10 concur, 2 took no part Facts: Allied Thread Co. Inc. is engaged in the business of manufacturing sewing thread and yarn. It operates its factory and maintains an office in Pasig, Rizal. In order to sell its products in Manila and in other parts of the Philippines, it engaged the services of a sales broker, Ker & Co. Ltd., the latter deriving commissions from every sale made for its principal. principal. The City of Manila enacted Ordinance Ordinance 7516 imposing business taxes based on gross sales on a graduated basis on manufacturers, importers or producers doing business in Manila. Allied Thread and Ker & Co. alleged that said ordinance is invalid for being contrary to Section 54 of PD 426. Issue: Whether Alleid Alleid Thread is properly taxed in Manila. Held: Ordinance 7516, as amended, imposes a business tax on manufacturers, importers or producers doing business in Manila. The tax imposition is upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, occupation, and hence is in the nature of an excise tax. The power power to levy an excise upon the perforance of an act or the engaging in an occupation does not depend upon the domicile of the person subject tot he excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in. Thus, since Allied Thread sells its products in the City of Manila through its broker, Ker & Co., it cannot escapte the tax liability imposed by Ordinance 7516, as amended. [32] Abra vs. Hernando GR L-49336, 31 August 1981 Second Division, Fernando (J): 3 concur, 1 concur in result, 1 on leave Facts: The provincial assessor made a tax assessment on the properties of the Roman Catholic Bishop of Bangued. The bishop claims tax exemption from real estate tax, through an action for declaratory relief. A summary judgment was made granting the exemption without hearing the side of the Province of Abra. Issue: Whether the properties of the Bishop of Bangued are tax-exempt. Taxation Law I, 2004 ( 17 )


Held: The 1935 and the 1973 Constitutions differ in language as to the exemption of religious property from taxes as tehy should not only be “exclusively” but also “actually” and “directly” used for religious purposes. Herein, the judge accepted at its face the allegation of the Bishop instead of demonstrating that there is compliance with the constitutional provision that allows an exemption. There was an allegation of lack of jurisdiction and of lack of cause of action, which should have compelled the judge to accord a hearing to the province rather than deciding the case immediately in favor of the Bishop. Exemption from taxation is not favored and is never presumed, so that if granted, granted, it must be strictly construed against the taxpayer. taxpayer. There must be proof of the actual and direct use of the lands, buildings, and improvements for religious (or charitable) purposes to be exempted from fr om taxation.

The case was remanded to the lower court for a trial on merits. [33] Association of Custom Brokers vs. Manila GR L-4376, 22 May 1953 En Banc, Bautista-Angelo (J): 3 concur, 4 concur in result Facts: The Association Association of Customs Brokers, which is composed of all brokers and public service operators of motor vehicles in the City of Manila, challenges the validity of Ordinance 3379 on the grounds (1) that while it levies a so-called property tax, it is in reality a license tax which is beyond the power of the Manila Municipal Board; (2) that said ordinance offends against the rule on uniformity of taxes; and (3) that it constitutes double taxation. Issue: Whether the ordinance infringes on the rule on uniformity of taxes as ordained by the Constitution. Held: While the tax in the Ordinance refers to property tax and it is fixed ad valorem, it is merely levied on all motor vehicles operating within Manila with the main purpose of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. The ordinance imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition in the Motor Vehicle Law. Law. Further, it does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. The distinction is necessary if he ordinance intends to burden with tax only those registered in Manila as may be inferred from the word “opera “operatin ting” g” used used therei therein. n. There There is an inequ inequali ality ty in the ordina ordinance nce which which render renderss it offen offensiv sivee to the Constitution. [34] Kapatiran ng mga Naglilingkod sa Pamahalaan vs. Tan GR L-81311, 30 June 1988 En Banc, Padilla (J): 12 concur, 2 on leave Facts: EO 273 was issued by the President of the Philippines which amended the Revenue Code, adopting the value-added tax (VAT) effective 1 January 1988. Four petitions assailed the validity of the VAT Law fro being beyond the President to enact; for being oppressive, discriminatory, regressive, and violative of the due process and equal protection clauses, among others, of the Constitution. The Integrated Customs Brokers Association particularly contend that it unduly discriminate against customs brokers (Section 103 [r]) as the amended provision of the Tax Code provides that “service performed in the exercise of profession or calling (except custom brokers) subject to occupational tax under the Local Tax Code, and professional services Taxation Law I, 2004 ( 18 )


performed by registered general professional partnerships are exempt from VAT. Issue: Whether the E-VAT law discriminates against customs brokers. Held: The phrase “except custom brokers” is not meant to discriminate against custom brokers but to avert a potential conflict between Sections 102 and 103 of the Tax Code, as amended. The distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers partake more of a business, rather than a profession and were thus subjected to the percentage tax under Section 174 of the Tax Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VA VAT. If the Association did not protest the classification of customs brokers then, there is no reason why it should protest now. [35] Sison vs. Ancheta GR L-59431, 25 July 1984 En Banc, Fernando (J): 9 concur, 2 concur in result, 1 concur in separate opinion, 1 took no part Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly discriminated against him by the imposition of higher rates upon his income as a professional, that it amounts to class legislation, and that it transgresses against the equal protection and due process clauses of the Constitution Constitution as well as the rule requiring uniformity in taxation. Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity in taxation. Held: There is a need for proof of such persuasive character as would lead to a conclusion that there was a violation of the due process and equal protection clauses. Absent such showing, the presumption of validity must prevail. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. Where the differentitation differentitation conforms to the practical dictates of justice and equity, similar to the standards of equal protection, it is not discriminatory within the meaning of the clause and is therefore uniform. Taxpayers Taxpayers may be classified into different categories, categories, such as recipients of compensation income as against professionals. Recipients of compensation income are not entitled to make deductions for income tax purposes as there is no practically no overhead expense, while professionals and busine businessm ssmen en have have no unifor uniform m costs costs or expens expenses es necess necessary aryh h to produc producee their their incom income. e. There There is ample ample justification to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income. [36] Juan Luna Subdivision vs. Sarmiento GR L-3538, 28 May 1952 En Banc, Tuason (J): 7 concur Facts: Juan Luna Subdivision is a local corporation which issued a check to the City Treasurer of Manila for amount to be applied to its land tax for the second semester of 1941. The records of the City Treasurer do not show what was done with the check (It appears that it was deposited with the Philippine National Bank [PNB]). After liberation (WWII), the City Treasurer refused to refund the corporation’s deposit or apply it to such future taxes as might be found due, while the Philippine Trust Co (to which the check was presented) was unwilling to reverse its debit entry against Juan Luna Subd. Said amount is also subject of another Taxation Law I, 2004 ( 19 )


disagr disagreem eement ent betwee between n the corpor corporati ation on and the City City Treas Treasure ure,, with with the corpo corporat ration ion claim claiming ing that that the the wholeamount of the check for the taxes for the last semester of 1941 have been remitted by Commonwealth Act 703 (1945). Issue: Whet Whethe herr the the prov provis isio ion n allo allowi wing ng the the remi remiss ssio ion n cove covers rs taxe taxess paid paid befo before re the the enac enactm tmen entt of Commonwealth Commonwealth Act 703, or taxes which were still unpaid. Held: The law is clear that it applies to “taxes and penalties due and payable,” i.e. taxes owed or owing. The remission of taxes due and payable to the exclusion og taxes already collected does not constitute unfair discrimination. Each set of taxes is a class by itself, and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. Herein, they are not. The taxpayers who paid their taxes before liberation and those who had not were not on the same footing on the need of material relief. Taxpayers Taxpayers who had been in arrears in their obligation whould have to satisfy their liability with genuine currency, while the taxes paid during the occupation had been satisfied in Japanese War Notes, many of them at a time when those notes were well-nigh worthless. To refund those taxes with restored currency would be unduly enrich many of the payers at a greater expense to the people at large. [37] Shell Co. vs. Vano GR L-6093, 24 February 1954 En Banc, Padilla (J): 10 concur Facts: The municipal council of Cordova, Cebu adopted Ordinance 10 (1946) imposing an annual tax of P150 on occupation or the exercise of the privilege of installation manager; Ordinance Ordinance 9 (1947) imposing an annual tax of P40 for local deposits in drums of combustible and inflammable materials and an annual tax of P200 for tin can factories; and Ordinance 11 (1948) imposing an annual tax of P150 on tin can factories having a maximum annual output capacity of 30,000 tin cans. Shell Co., a foreign corporation, filed suit for the refund of the taxes paid by it, on the ground that the ordinances imposing such taxes are ultra vires. Issue: Whether Ordinance 10 is discriminatory and hostile because there is no other person in the locality who exercise such designation or occupation. Held: The fact that there is no other person in the locality who exercises such a “designation” or calling does not make the ordinance discriminatory and 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.” manager.” [38] Victorias Milling Co. vs. Municipality of Victorias GR L-21183, 27 September 1968 En Banc, Sanchez (J): 9 concur Facts: Ordinance 1 (1956) was approved by the municipal council of Victorias by way of an amendment to 2 municipal ordinances separately imposing license taxes on operators of sugar centrals and sugar refineries. The changes were: (1) with respect to sugar centrals, centrals, by increasing the rates of license taxes; and (2) (2) as to sugar refineries, by increasing the rates of license taxes as well as teh range of graduated schedule of annual output capacity. capacity. Victorias Victorias Milling questioned the validity of Ordinance 1 as it, among others, allegedly singled out Victorias Milling Co. since it is the only operator of a sugar central and a sugar refinery within the jurisdiction of the municipality.



Issue: Whether Ordinance 1 is discriminatory. Held: The ordinance does not single out Victorias Victorias as the only object of the ordinance but is made to apply to any sugar central or sugar refinery which may happen to operate in the municipality. The fact that Victorias Milling is actually the sole operator of a sugar central and a sugar refinery does not make the ordinance discriminatory. The ordinance is unlike that in Ormoc Sugar Company vs. Municipal Board of Ormoc City, which specifically spelled out Ormoc Sugar as the subject of the taxation, the name of the company herein was never mentioned in the ordinance. [39] Punsalan vs. Manila GR L-4817, 26 May 1954 En Banc, Reyes (J): 7 concur Facts: Ordinance 3398 was enacted pursuant to paragraph 1 of Section 18 ofthe Revised Charter of the City of Manila, imposing a municipal occupation tax on persons exercising various professions in the city. Various Various professionals filed suit to annul the ordinance and the provision of law authorizing the enactment of the ordinance, and to call for the refund collected taxes under the ordinance. Issue: Whether the Ordinance violates the equal protection clause. Held: The legislature may, in its discretion, select what occupation 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 other untaxed. Manila, 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, municipality, 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 brethen in the provinces. The ordinance imposes the tax upon every person “exercising” or “pursuing” any of the occupation named in the ordinance, and does not make any distinction between professional professional having offices in Manila and outsiders who practice their profession therein. What constitutes exercise or pursuit of a profession in the city is a matter of judicial determination.

The Ordinance does not violate the equal protection clause. [40] Ormoc Sugar vs. Treasurer of Ormoc City GR L-23794, 17 February 1968 En Banc, Bangzon JP (J): 9 concur Facts: In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on any and all productions of centrifuga sugar milled at the Ormoc Sugar Co. Inc. in Ormoc City a municpal tax equivalent to 1% per export sale to the United States and other foreign countries. The company paid the said tax under protest. It subsequently filed a case seeking to invalidate the ordinance for being unconstitutional. unconstitutional. Issue: Whether the ordinance violates the equal protection clause. Held: The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar Co. Inc. and none other. At the time of the taxing ordinance’s enacted, the company was the only sugar central in Ormoc City. The classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar Taxation Law I, 2004 ( 21 )


central, of the same class as the present company, from the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to the company as the entity to be levied upon. [41] Pepsi-Cola Bottling Co. vs. City of Butuan GR L-22814, 28 August 1968 En Banc, Concepcion (J): 5 concur Facts: Ordinance 110 was enacted by the City of Butuan imposing a tax of P0.10 per case of 24 bottles of softdr softdrink inkss or carbon carbonate ated d drinks drinks.. The tax was impose imposed d upon upon deale dealers rs engege engeged d in sellin selling g softd softdrin rinks ks or carbonated drinks. When Ordinance 110, the tax was imposed upon an agent or consignee of any person, association, partnership, company or corporation engaged in selling softdrinks or carbonated drinks, with “agent or consignee” being particularly defined on the inserted provision Section 3-A. In effect, merchants engaged in the sale of softdrinks, etc. are not subject to the tax unless they are agents or consignees of another dealer who must be one engaged in business outside the City. City. Pepsi-Cola Bottling Co. filed suit to recover sums paid by it to the city pursuant to the Ordinance, which it claims to be null and void. Issue: Whether the Ordinance is discriminatory. Held: The Ordinance, as amended, is discriminatory since only sales by “agents or consignees” of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales , and even if the same exceeded those made by said agents or consignees of producers or merchants established outside the city, would be exempt from the tax. The classification made in the exercise of the authority to tax, to be valid must be reasonable, which would be satisfied if the classification is based upon substantial distinctions which makes real differences; these are germane to the purpose of legislation or ordinance; the classification applies not only to present conditions but also to future conditions substantially identical to those of the present; and the classification applies equally to all those who belong to the same class. These conditions are not f ully met by the ordinance in question. [42] Vera vs. Cuevas GR L-33693-94, 31 May 1979 First Division, De Castro (J): 4 concur, 1 took no part Facts: Consolidated Philippines Inc., General Milk Co. (Phil.) Inc., and Milk Industries Inc. are engaged in the manufacture, sale and distribution of filled milk products throughout the Philippines. The Institute of Evaporated Fulled Milk Manufacturers of the Philippines is a corporation organized to uphold and maintain the highest standards of local filled milk industries, of which the companies are members. The Commissioner required the companies to withdraw from the market all of their filled milk products which do not bear the inscription required by Section 169 (Inscription to be placed on skimmed milk) of the Tax Code within 15 days from receipt of order with explicit warning of prosection for non-compliance. The companies filed an action for prohibition and injunction. Issue: Whether Section 169 of theTax Code can be enforced against the companies. Held: With Section 141 (specific tax imposed on skimmed milk) and Section 177 (penalty on sale of skimmed milk without payment of specific tax and legend required in Section 169) repealed by RA 344 and RA 463, respectively; Section 169 has lost its tax purpose, and thus the Commissioner necessary lost his Taxation Law I, 2004 ( 22 )


authority to enforce the same. Further, Section 169 applies to skimmed milk, which is different to filled milk. Furth Furtherm ermore ore,, Sectio Section n 169 is only only being being enfor enforced ced agains againstt the respon responden dentt compan companies ies nad not agains againstt manufactu manufacturers, rers, distributors distributors or sellers sellers of condensed condensed skimmed skimmed milk such as SIMILAC, SIMILAC, SMA, BREMIL, BREMIL, ENFAMIL ENFAMIL,, and OLAC. Such kind of enforcemen enforcementt amounts amounts to an unconstit unconstitutio utional nal denial denial of the equal protection of the laws, for the law, if not equally enforced to persons similarly situated, would offend against the Constitution. Constitution. [43] American Bible Society vs. Manila GR L-9637, 30 April 1957 Second Division, Felix (J): 7 concur, 1 concur in result Facts: In the course of its ministry, ministry, the Philippine agency of the American Bible Society has been distributing and selling bibles and/or gospel portions thereof throughout the Philippines and translating the same into severa severall Phili Philippi ppine ne dialet dialets. s. The The acting acting City City Treas Treasure urerr of Manil Manilaa requir required ed the societ society y to secure secure the corresponding Mayor’s permit and municipal license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and filed suit questioning the legality of the ordinances under which the fees are being collected. Issue: Whether the municipal ordinances violate the freedom of religious profession and worship. Held: A tax on the income of one who engages in religious activities is different from a tax on property used or employed in connection with those activities. It is one thing to impose a tax on the income or property of a preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Even if religious groups and the press are not altogether free from the burdens of the government, the act of distributing and selling bibles is purely religious and does not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price of bibles, etc. are a little higher than actual cost of the same does not necessarily mean it is already engaged in business for profit. Ordinance 2529 and 3000 are not applicable to the Society. Society. [44] Cagayan Electric Power & Light Co. vs. Commissioner GR L-60126, 25 September 1985 Second Division, Aquino (J): 5 concur Facts: Cagayan Electric is a holder of a legislative franchise under Republic Act 3247 where payment of 3% tax on gross earnings is in lieu of all taxes and assessments upon privileges, etc. In 1968, RA 5431 amended the franchise by making all corporate taxpayers liable for income tax except those indicated in paragraph (c) (1) of Section 24 of the Tax Code. In 1969, through RA 6020, its franchise was extended to two other other towns and the tax exemption was reenacted. In 1973, the Commissioner required the company to pay deficiency income taxes for 1968 to 1971. Issue: Whether the withdrawal of the franchise’s tax exemption violates the non-impairment clause of the Constitution. Held: Congress could impair the company’s legislative franchise by making it liable for income tax. The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires. RA 3247 itself provides that the franchise is subject to amendment, etc. by Congress. The enactment of RA 5431 had the effect of withdrawing the company’s exemption from income Taxation Law I, 2004 ( 23 )


tax. The exemption was restored by the enactment of RA 6020. The company is liable only for the income tax fpr the period of 1 January to 3 August 1969. [45] Casanovas vs. Hord GR L-3473, 22 March 1907 First Division, Willard (J): 4 concur, 1 dissents Facts: In 1897, the Spanish Government, in accordance with the provisions of the royal decree of 14 may 1867, granted J. Casanovas certain mines in the province of Ambos Camarines, of which mines the latter is now the owner. That these were validly perfected mining concessions granted to prior to 11 April 1899 is conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall within the provisions of Section 134 of Act 1189 (Internal Revenue Act). The Commissioner, Commissioner, JNO S. Hord, imposed upon these properties the tax mentioned in Section 134, which Casanovas paid under protest. Issue: Whether Section 134 of Act 1189 is valid. Held: The deed constituted a contract between the Spanish Government and Casanovas. The obligation obligation in the contract was impaired impaired by the enactment of of Section 134 ofthe ofthe Internal Revenue La, La, thereby infringing the the provisions of Section 5 of the Act of Congress of 1 July 1902. Furthermore, the section conflicts with Section 60 of the Act of Congress of 1 July 1902, which indicate that concessions can be cancelled only by reason of illegality in the procedure by which they wer obtained, or for failure to comply with the conditions prescribed as requisites for their retention in the laws under which they wer granted. The grounds were not shown or claimed in the case. As to the allegation that the section violates uniformity of taxation, the Court found it unnecessary to consider the claim in view of the result at which the Court has arrived. [46] Churchill vs. Concepcion GR 11572, 22 September 1916 Second Division, Trent (J): 4 concur Facts: Section 100 of Act 2339 (promulgated 1914) imposed an annual tax of P4 per square meter upon electric signs, billboards, and spaces used for posting or displaying temporary signs, and all signs displayed on premises not occupied by buildings. The section was amended by Act 2432, reducing the tax to P2 per square meter. The taxes imposed by Act 2432 were ratified by the US Congress on 4 March 1915. Francis A. Churchill and Stewart Tait, co-partners in Mercantile Advertising Agency, owed a billboard to which they were taxed at P104. The tax was paid under protest. Churchill and Tait instituted the action to recover the amount. Issue: Whether the statute or tax is void for lack of uniformity. Held: Uniformity in taxation means that all taxable articles or kinds of property, of the same class, shall be taxed at the same rate. It does not mean that lands, chattels, securities, incomes, occupations, franchises, privileges, necessities, and luxuries shall all be assessed at the same rate. Different articles may be taxed at different amounts provided the rate is uniform on the same class everywhere, with all people, at all times. Herein, the Act imposes a tax of P2 per square meter or a fraction thereof upon every electric sign, billboard, etc., wherever found in the Philippine Islands. The rule of taxation upon such signs is uniform throughout the islands. The rule does not require taxes to be graded according to the value of the subject(s) upon which they are imposed, especially those levied as privilege or occupation taxes. Taxation Law I, 2004 ( 24 )


[47] Villanueva vs. Iloilo City GR L-26521, 28 December 1968 En Banc, Castro (J): 8 concur Facts: On 30 September 1946, the Municipal Board of Iloilo City enacted Ordinance Ordinance 86 imposing license tax fees upon tenement tenement house (P25); (P25); tenemen house house partly engaged or wholly engaged engaged in and dedicated dedicated to business in Baza, Iznart, and Aldeguer Streets (P24 per apartment); and tenement house, padtly or wholly engaged in business in other streets (P12 per apartment). The validity of such ordinance was challenged by Eusebio and Remedios Villanueva, owners of four tenement houses containing 34 apartments. The Supreme Court held the ordinance to be ultra vires. On 15 January 1960, however, the municipal board, believing that it acquired authority to enact an ordinance of the same nature pursuant to the Local Autonomy Act, enacted Ordinance 11 (series of 1960), Eusebio and Remedios Villaniue Villaniueva va assailed the ordinance anew. Issue: Whether Ordinance 11 violate the rule of uniformity of taxation. Held: The Court has ruled that tenement houses constitute a distinct class of property; and that taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority. The fact that the owners of the other classes of buildings in Iloilo are not imposed upon by the ordinance, or that tenement taxes are imposed in other cities do not violate the rule of equality and uniformity. The rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. So long as the burden of tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity is accomplished. The presumption that tax statutes are intended to operate uniformly and equally was not overthrown herein. [48] Eastern Theatrical Co. vs. Alfonso GR L-1104, 31 May 1944 Second Division, Perfecto (J): 5 concur Facts: The municipal board of Manila enacted Ordinance 2958 (series of 1946) imposing a fee on the price of every admission ticket sold by cinematograph theaters, vaudeville companies, theatrical shows and boxing exhibitions, in addition addition to fees imposed under Sections 633 and 778 of Ordinance 1600. Eastern Theatrical Theatrical Co., among others, question the validity of ordinance, on the ground that it is unconstitutional for being contrary to the provisions on uniformity and equality of taxation and the equal protection of the laws inasmuch as the ordinance does not tax other kinds of amusement, such as race tracks, cockpits, cabarets, concert halls, circuses, and other places of amusement. Issue: Whether the ordinance violates the rule on uniformity and equality of taxation. Held: Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall shall be taxed taxed at the the same same rate. rate. The taxing taxing power has the author authority ity to make make reason reasonabl ablee and natural natural classifications for purposes of taxation; and the theater companies cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance. The fact that somew places of amusement are not taxed while others, like the ones herein, are taxed is no argument at all against the equality and uniformity of the tax imposition. [49] Taxation Law I, 2004 ( 25 )


Reyes vs. Almanzor GR 49839-46, 26 April 1991 En Banc, Paras (J): 15 concur Facts: JBL, Edmundo and Milagros Reyes are owners of parcels of land in Manila which are leased and occupied as dwelling sites by tenants. In 1971, RA 6359 was passed prohibiting an increase of monthly rentals of dwelling units or of land on which another dwelling is located for one year after effectivity for rentals not exceeding P300 but allowing an increase of rent thereafter by not more than 10%. The Act also suspended the operation of Article 1673 of the Civil Code (ejectment of lessess). PD 20 amended RA 6359 by absolutel absolutely y prohibit prohibiting ing the increase increase and indefinit indefinitely ely suspendin suspending g Article 1673. 1673. The Reyeses, Reyeses, thus, thus, were precluded from raising the rentals and from ejecting the tenants. In 1973, the City Assessor of Manila reclassified and reassessed the value of the properties based on the schedule of market values duly reviewed by the Secretary of Finance. As it entailed an increase of the corresponding tax rates, the Reyeses filed a memorandum of disagreement with the Board of Tax Assessment Appeals and averring therein that the reassessments were excessive, unwarranted, unequitable, confiscatory and unconstitutional inasmuch as the taxes imposed exceeded the annual income derived from their properties; and that the income approach should have been used in determining land values instead of the comparative sales approach which the assessor adopted. Issue: Whether the reassessment is unequitable. Held: Taxation is equitable when its burden falls on those better able to pay. pay. Taxation Taxation is progressive when its rate goes up depenfing on the resources of the person affected. Taxes are uniform when all taxable articles or kinds of property of the same class are taxed at the same rate. The taxing power has the authority to make reasonable and natural classification for purposes of taxation. Laws should operate equally and uniformly, however, on all persons under similar circumstances or that all persons mus t be treated in the same manner, the conditiions not being different both in the privileges conferred and liabilities imposed. Finally, under the Real Property Tax Tax Code (PD 464), property must be appraised at its cuurent and fair market value. The market value of the properties covered by PD 20, thus cannot be equated with the market value of properties not so covered. Shcu property covered by PD 20 has naturally a much lesser market value in view of the rental restrictions. Although taxes are the lifeblood of the government and should be collected without unnecessary hindrance, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. As teh Reyeses are burdened by the Rent Freeze Laws (RA 6359 and PD 20), they should not be penalized by the same government by the imposition of excessive taxes they cancan ill afford and would eventually result in the forfeiture of their properties, under the principle of social justice. [50] Abra Valley College vs. Aquino GR L-39086, 15 June 1988 Second Division, Paras (J): 4 concur Facts: Abra Abra Valley alley Colle College ge rents rents out the ground ground floor floor of its colleg collegee buildi building ng to Northe Northern rn Market Marketing ing Corporation while the second floor thereof is used by the Director of the College for residential purposes. The municipal and provincial treasurers served upon the College a “notice of seizure” and later a “notice of sale” due to the alleged failure of the College to pay real estate taxes and penalties thereon. The school filed suit to annul said notices, claiming that it is tax-exempt. Issue: Whether the College is exempt from taxes.



Held: While the Court allows a more liberal and non-restrictive interpretation of the phrase “exclusively ised for educational purposes,” 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. While the second floor’s use, as residence of the director, is incidental to education; the lease of the first floor cannot by any stretch of imagination be considered incidental to the purposes of education. The test of exemption from taxation is the use of the property for purposes mentioned in the Constititution. Constititution. [51] Herrera vs. Quezon City Board of Assessment Appeals GR L-15270, 30 September 1961 First Division, Concepcion (J): 6 concur Facts: In 1952, the Director of the Bureau of Hospitals authorized Jose V. Herrera and Ester Ochangco Herrera to establish and operate the St. Catherine’s Hospital. In 1953, the Herreras sent a letter to the Quezon City Assessor requesting exemption from payment of real estate tax on the hospital, stating that the same was established for charitable and humanitarian purposes and not for commercial gain. The exemption was granted granted effective effective years 1953 to 1955. 1955. In 1955, 1955, however however,, the Assessor Assessor reclassifi reclassified ed the propertie propertiess from “exempt” to “taxable” effective 1956, as it was ascertained that out 32 beds in the hospital, 12 of which are for pay-patients. A school school of midwifery is also operated within the premises of the hospital. Issue: Whether St. Catherine’s Hospital Hospital is exempt from reallty tax. Held: The admission of pay-patients does not detract from the charitable character of a hospital, if all its funds are devoted devoted exclusively exclusively to the maintenanc maintenancee of the institutio institution n as a public charity. charity. The exemption exemption in favor of property used exclusively for charitable or educational purpose is not limited to property actually indispensable therefore, but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purpose, such as in the case of hospitals -- a school for training nurses; a nurses’ home; property used to provide housing facilities for interns, resident doctors, superintendents and otehr members of the hospital staff; and recreational facilities for student nurses, interns and residents. Within the purview of the Constitution, St. Catherine’s Hospital is a charitable institution exempt from taxation. [52] Lladoc vs. Commissioner GR L-19201, 16 June 1965 En Banc, Paredes (J): 9 concur, 1 took no part Facts: In 1957, the MB Estate Inc. of Bacolod City donated P10,000 in cash to the parish priest of Victorias, Negros Occidental; the amount spent for the construction of a new Catholic Church in the locality,m as intended. In1958, MB Estate filed the donor’s gift tax return. In 1960, the Commissioner Commissioner issued an assessment for donee’s gift tax against the parish. The priest lodged a protest to the assessment and requested the withdrawal thereof. Issue: Whether the Catholic Parish is tax exempt. Held: The phrase “exempt from taxation” should not be interpreted to mean exemption from all kinds of taxes. The exemption is only from the payment of taxes assessed on such properties as property taxes as contradistinguished contradistinguished from excise taxes. A donee’s donee’s gift tax is not a property tax but an excise tax imposed on the transfer of property by way of gift inter vivos. It does not rest upon general ownership, but an excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties. The imposition of Taxation Law I, 2004 ( 27 )


such excise tax on property used for religious purpose do not constitute an impairment of the Constitution. Constitution. The tax exemption of the parish, thus, does not extend to excise taxes. [53] Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte GR 27588, 31 December 1927 En Banc, Avancena (J): 5 concur Facts: The Roman Catholic Apostolic Church is the owner of a parcel of land in San Nicolas, Ilocos Norte. On the south side is a part of the Church yard, the convent and an adjacent lost used for a vegetable garden 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 side is an old cemetery with its two walls still standing, and a portion where formerly stood a tower. The provincial board assessed land tax on lots comprising the north and south side, which the church paid under protest. It filed suit to recover the amount. Issue: Whether the lots are covered by the Church’s tax exemption. Held: The exemption in favor of the convent in the payment of land tax refers to the home of the priest who presides over the church and who has to take care of himself in order to discharge his duties. The exemption includes not only the land actually occupied by the Church but also the adjacent ground destined to the ordinary incidental uses of man. A vegetable garden, thus, which belongs to a convent, where its use is limited to the necessity of the priest, comes under the exemption. Further, land used as a lodging house by the people who participate in religious festivities, which constitutes an incidental use in religious functions, likewise comes within the exemption. It cannot be taxed according to its former use, i.e. a cemetery. [54] Commisioner vs. Bishop of Missionery District of the Philippine Islands GR L-19445, 31 August 1965 En Banc, Regala (J): 7 concur, concur, 1 took no part Facts: The Missioner y District of the Philippine Islands, of the Protestant Episcopal Church in the United States, owns and operates the St. Luke’s Hospital in Quezon City, the Brent Hospital in Zamboanga City, City, and the St. Stephen’s High School in Manila. In 1957 to 1959, the Missionary District received various shipments of materials, supplies, equipment and other articles intended for use in the construction and operation of the new St. Luke’s Luke’s Hospital. On these shipments, the Commissioner collected compensation tax. The Missionary District filed claims for refund, but which was denied by the Commissioner on the ground that St. Luke’s Hospital was not a charitable institution and therefore was not exempt from taxes. Issue: Whether the shipments for St. Luke’s Luke’s Hospital are tax-exempt. Held: Under RA 1916, which covers taxes on donations in any form and all articles imported into the Philippines, requires that the imported articles ush have been donated, the donee must be a duly incorporated or established international civic organization, religious or charitable society or institution for civic, religious or charitable purposes; and the articles must have been donated for the use of the organization, society or institution; or for free distribution and not for sale, barter or hire. As the law does not distinguish or qualify the enjoyment or the exemption (as the Secretary of Finance did in Departent Order 18, series of 1958), the admission of pay patients does not detract from the charitable character of a hospital, if its funds are devoted exclusively to the maintenance of the institution. Thus, the shipments are tax exempt. Taxation Law I, 2004 ( 28 )


[55] Hodges vs. Iloilo City GR L-18129, 31 January 1963 En Banc, Bautista Angelo Angelo (J): 7 concur, 2 affirm, 1 took no part Facts: In 1960, the Municipal Board of Iloilo enacted Ordinance 33 requiring the payment of a sales tax of 1/2 of 1% of the selling price of any motor vehicle and prohibiting the registration of the sale involving said vehicle in the Motors Vehicle Office of Iloilo unless the tas has been paid. It also expressly required that the payment of the municipal tax shall be a requirement for registration and transfer of ownership. CN Hodges, engaged in buying-and-selling of second hand motor vehicles in the city, city, assailed the ordinance as invalid for being passed in excessof the authority conferred by law upon the municipal board. Issue: Whether the City of Iloilo is empowered to impose the tax. Held: The City of Iloilo is empowered to impose municipal licenses, taxes or fees upon any person engaged in any occupation or business, or exercising any privilege in the City; to regulate and impose reasonable fees for services rendered conducted within the city, and to levy for public purposes just and uniform taxes, licenses, or fees. The tax in question is in the form of percentage tax on the proceeds of the sale of a motor vehicle. The prohibition against such tax refer only to municipalities and municipal districts and does not comprehend chartered cities as the City of Iloilo. [56] Procter and Gamble vs. Jagna GR L-24265, 28 December 1979 First Division, Melencio Herrera (J): 8 concur Facts: Procter and Gamble Philippines Manufacturing Corp. is a consolidated corporation of Procter and Gamble Trading Company. It is engaged in the manufacture of soap, edible oil, margarine and otehr similar products; and maintains a “bodega” in the municipality of Jagna, where it stores copra purchased in the municipality and therefrom ships the same for its manufacturing and other operations. In 1954, the Municipal Council enacted Ordinance 4, imposing storage fees of all exportable copra deposite in the bodega within the jurisdiction of the municipality of Jagna, Bohol. From 1958 to 1963, the company paid the municipality, allegedly under protest, storage fees. In 1964, it filed suit, wherein it prayed that the Ordinance be declared inapplicable to it, and if not, that it be declared ultra vires and void. Issue: Whether the Ordinance i s void, as it amounts to double taxation. Held: The validi validity ty of the Ordina Ordinance nce mu must st be upheld upheld pursua pursuant nt to the broad broad author authority ity confer conferred red upon upon municipa municipalites lites by Commonwealth Commonwealth Act Act 472 (promulga (promulgated ted 1939), 1939), which which was the prevailing prevailing law when the Ordinance is actually a municipal license tax or fee on persons, firms and corporations exercising the privilege of storing copra within the municipality’s territorial jurisdiction. Such fees imposed do not amount to double taxation. For double taxation to exist, the same property must be taxed twice, when it should be taxed but once. A tax on the company’s producs is different from the tax on the privilege of storing copra in a bodega situated within the territorial boundary of the municipality. municipality. [57] Commissioner vs. Lednicky Taxation Law I, 2004 ( 29 )


GR L-18169, L-18286, L-21434; 31 July 1964 En Banc, Reyes JBL (J): 8 concur Facts: Spouses VE and Maria Valero Lednicky are American citizens residing in the Philippines, and have derived all their income from Philippine sources since 1947. In 1955, the spouses filed with the US Internal Revenue agent in Manila their Federal income tax return for 1947, 1951 to 1954 on income from Philippine sources. From 1956 to 1958, they filed their domesic income tax returns in compliance with local laws. They amended their tax returns in 1959 to include their taxes paid to the US Federal Government, interests, and exchange and bank charges. They filed their claims for refund. Issue: Whether income tax paid paid to foreign governments governments can be deducted from the the gross income or as a tax credit. Held: The law’s intent is that the right to deduct income taxes paid to foreign government from the taxpayer’s gross income is given given only as an alternative alternative or substitute to his his right to claim a tax credit for sich foreign foreign income taxes; so that unless the alien resident has a right to claim such tax credit if he so chooses, he is precluded from deducting the foreign income taxes from his gross income. The prupose of the law is to prevent the taxpayer from claiming twice the benefits of his payment of foreign taxes, by deduction from gross income and by tax credit. To allow an alien resident to deduct from his gross income income whatever taxes he pays to his own government amounts to confer on the latter power to reduce the tax income of the Philippine Government. Such result is incompatible with the status of the Philippines as an independent and sovereign state. Any relief from the alleged double taxation should come from the United States, since its right to burden the taxpayer is solely predicated on the taxpayer’s citizenship, without contributing to the production of the wealth that is being taxed. [58] Commissioner vs. Javier GR 78953, 31 July 1991 Second Division, Sarmiento (J): 3 concur, 1took no part Facts: In 1977, 1977, Victori ictoriaa Javier Javier (wife (wife of Melcho Melchor), r), receiv received ed from from the Pruden Prudentia tiall Bank Bank and Trust rust Co. Co. US$999,973.70 remitted by her sister, Dolores Ventosa, through some banks in the United States, among them Mellon Bank NA. Mellon Mellon Bank filed suit to recover the excess amount of US$9999,000 US$9999,000 as the remittance remittance of US$ 1 million was a clerical error and should have been US $1,000 only (Compare facts in Mellon Bank vs. Magsino, GR 71479, 18 October 1990). In 1978, Melchor Javier filed his income tax return for 1977showing a gross income of P53,053.38 and a net income of P48,053.38 and stating in the footnote of the return that “taxpayer was recepient of some money received from abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation. In 1980, the Commissioner Commissioner assessed and demanded from from Javier deficiency assessment of P9,287,297.51 for 1977. Javier protested such assessment, where the Commissioner in turn imposed a 50% fraud penalty against Javier. Issue: Whether Javier is liable for the 50% fraud penalty. Held: Under the then Section 72 of the Tax Code, a taxpayer who files a false return is liable to pay the fraud penalty of 50% of the tax due from him or of the deficiency tax in case payment has been made on the basis of the return filed before the discovery of the falsity or fraud. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most created only suspicion. A fraudulent return is always an attempt to evade a tax, but a merely false return may not be. Herein, there was no actual and intentional fraud Taxation Law I, 2004 ( 30 )


through willful and deliberate misleading of the government agency concerned (BIR) committed by Javire. Javier did not conceal anything to induce the government to give some legal right and place itself at a disadvantage. Error or mistake of law is not fraud. As ruled by the Court of Tax Appeals, the 50% surcharge imposed as fraud penalty in the deficiency assessment should be deleted. [59] Meralco vs. Vera GR L-29987, 22 October 1975 First Division, Munoz Palma (J): 4 concur, 1 took no part Facts: Meralco is the holder of a franchise to construct, maintain, and operate an electric light, heat , and power system in the City of Manila and its suburbs. In 1962 and 1963, Meralco imported and received from abroad copper wires, transformers, and insulators for use in the operation of its business. The Collector of Customs, as deputy of the Commissioner of Internal Revenue, levied and collected a compensating tax. Meralco claimed for refund for the said yeares, but such claims were either not acted upon or denied by the Commissioner. Issue: Whether Meralco is exempt from payment of a compensating tax on poles, wires, transformers and insulators imported by it for use in the operation of its electric light, heat, and power system. Held: Meralco is not exempt from f rom paying the compensationg tax provided for in Section 190 of the Tax Tax Code, the prupose of which is to “place casual importers, who are not merchants on equal forring with established merchants who pay sales tax on articles imported by them.” Meralco’s claim for exemption from payment of the compensating tax is not clear or expressed, contrary to the rule that “exemptions from taxation are highly disfavored in law, and he who claims exemption must be able to justify his claim by the clearest grant of organic organic or statute statute law.” law.” Tax exemptii exemptiion on are strictly strictly construed against against the taxpayer taxpayer,, they being highly highly disfavored and may almost be said to be “odious to the law.” When exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim. [60] Commissioner vs. Manila Jockey Club GR L-8755, 23 March 1956 First Division, Bautista Angelo (J): 9 concur Facts: The Manila Jockey Club is the owner of the San Lazaro Hippodrome, which is used for holding horse races either by the club itself or by the Philippine Charity Sweepstakes Office (PCSO) or other charitable institutions authorized by law to hold horse races. On 1951 and 1952, the PCSO held benefit races for charitable, relief and civic purposes in which the Club was paid in the form of rentals, which was included in its declared income taxes in its return for said years. The Club claimed for refund of the sum collected by the Commissioner as to the rentals, contending that it is exempt under Section 3 of RA 79. Issue: Whether the Club is exempt from income derived from the PCSO races. Held: The exemption does not refer to any income tax that may be imposed on the rentals that may be paid for the use of racing tracks and other paraphernalia. The income earned by the Club herein did not come from the horse races held by said club but it came to it as rentals paid for the use of its property. The tax paid for such income cannot be considered as one connected with those races within the purview of the exemption clause in RA 79. By its very nature, the law that exempts one from tax must be clearly expressed because the exemption must be able to justify his claim by the clearest grant of organic or statute law. law. Taxation Law I, 2004 ( 31 )


[61] SSS vs. Bacolod City GR L-35726, 21 July 1982 Second Division, Escolin (J): 5 concur Facts: The Social Security System (SSS) (SSS) is a government agency created under RA 1161. 1161. In pursuance of its operations, SSS maintains a number of regional offices, one of which is a 5-storey building occupying 4 parcels of land in Bacolod City. City. Said building and lands were assessed for taxation. taxation. For failure to pay the realty taxes thereon, the city levid upon said properties. SSS sought sought reconsideration on the ground that SSS is a government-owned and -controlled corporation and is exempt from payment of real estate taxes. Issue: Whether SSS property in Bacolod City is tax-exempt. Held: The distincti distinction on whether whether the governmen government-ow t-owned ned or controlle controlled d corporatio corporation n exercises exercises ministran ministrantt or proprietory function is of no relevance as the exemption does not relate to legal fees but on realty taxes. The Charter of Bacolod City does not contain any qualification whatsoever in providing fro the exemption from real estate taxes of lands and building owned by the Government/ It is axiomatic that when public property is involved, exemption is the rule and taxation is the exception. PD 24, amending the Social Security Act of 1954, has already removed all doubts as to the exemption of the SS from taxation (Section 16). [62] Nitafan vs. Commissioner GR L-78780, 23 July 1987 Resolution En Banc, Melencio-Herrera (J): 12 concur, 1 on leave Facts: The Chief Justice has previously issued a directive to the Fiscal Management and Budget Office to continue to deduct withholding taxes from the salaries of the Justices of the Supreme Court and other members of the judiciary. This was affirmed by the Supreme Court En Banc on 4 December 1987. RTC judges seek to prohibit or enjoin the Commissioner of the Internal Revenue and the Financial Officer of the Supreme Court from making any deduction of withholding withholding taxes from their salaries. Issue: Whether the salaries of judges are subject to tax. Held: The salaries of members of the Judiciary are subject to the general income tax applied to all taxpayers. Although such intent was somehoe and inadvertently not clearly set forth in the final text of the 1987 Constitution, Constitution, the deliberations of the 1986 Constitutional Constitutional Commission negate the contention that the intent of the framers is to revert to the original concept of “non-diminution” of salaries of judicial officers. Hence, the doctrine in Perfecto v. Meere and Endencia vs. David do not apply anymore. Justices and judges are not only the citizens whose income have been reduced in accepting service in government and yet subjecte to income tax. Such is true also of Cabinet members and all other employees. [63] Commissioner vs. Robertson GR L-70116-19, 12 August 1986 Second Division, Paras (J): 4 concur



Facts: Frank and James Robertson, Robert Cathey, and John Garrison are citizens of the United States, holders of American passports, and admitted as Special Termporary Visitors under Section 9 (a) visa of the Philippine Immigration Act of 1940, and are civilian employees in a US Military Base in the Philippines in connection with its construction, maintenance, operation and defense (The Roberstons and Garrison were born in the Philippines). Their incomes are solely derived from salaries from the US Government by reason of their employment in the US Bases in the Philippines. The Commissioner of Internal Revenue assessed deficiency income tax against them from taxable years 1969 to 1972. Issue: Whether Robertson, et. al., are exempted from tax. Held: In order to avail oneself of the tax exemption under the RP-US Military Bases Agreement Agreement (Article XIII, Paragraph a), one must be a national of the United States employed in connection with the construction, maintenance, operation or defense, of the bases, residing in the Philippines by reason of such employment, and the income derived is from the US Government. Said circumstances are all present in the present case. The basic intendment is to exempt all US citizens working in the military bases from the burden of paying Philippine Income Tax without distinction as to those born locally or born in their country of origin. Where the law does not distinguish, one must not distinguish. Ubi lex non ditinguit nec nos tinguere debemos. [64] Reagan vs. Commissioner GR L-26379, 27 December 1969 En Banc, Fernando (J): 7 concur, 1 concur in result, 1 took no part Facts: Willia William m Reagan imported imported a tax-free tax-free 1960 Cadillac Cadillac car with accessories accessories valued at US $ 6,443.83, 6,443.83, includ including ing freigh freight, t, insura insurance nce and other other charg charges. es. After After acquir acquiring ing a permit permit to sell sell the the car from from the the base base commander of Clark Air Base, Reagan sold the car to a certain Willie Johnson Jr. of the US Marine Corps stationed in Sangley Point, Cavite for US$ 6,600. Johnson sold the same, on the same day to Fred Meneses, a Filipino. As As a result of the transaction, the Commissioner Commissioner rendered Reagan liable for income tax in the sum of P2,970. Reagan claimed that he was exempt as the transaction occurred in Clark Air Base, “a base outside the Philippines.” Issue: Whether Reagan was tax-exempt. Held: The Philippines, as an independent and sovereign country, country, exercises its authority over its entire domain. Any state may, however, by its consent, express or implied, submit to a restriction of its sovereign rights. It may allow another power to participate in the exercise of jurisdictional right over certain portions of its territory. By doing so, it by no means follows that such areas become impressed with an alien character. The areas retain their status as native soil. Clark Air Base is within Philippine territorial jurisdiction to tax, and thus, Reagan was liable for the income tax arising from the sale of his automobile in Clark. The law does not look with favor on tax exemptions and that he who would seek to be thus privileged privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. misinterpreted. Reagan has not done so, and cannot do so. [65] Davao Light and Power vs. Commissioner of Customs GR L-28739 and L-28902 First Division, Reyes JBL (J): 9 concur



Facts: Davao Light is a grantee of a legislative franchise to install, install, operate and maintain an electric light, heat and power plant in the city of Davao, for 50 years. On two occasions, it imported electrical supplies, materials and equipment for installation in its power plant. The importations arrived in the port of Cebu City, where the Collector imposed custom duties and taxes amounting to P9,928. Davao Light paid under protest, claiming it is similarly tax-exempted as the National Power Corporation, which is allegedly posing as competition to Davao Light in its business. Issue: Whether Davao Light is similarly tax-exempt as Napocor. Napocor. Held: Davao Light’ Light’ss purpose purpose in securing securing a franchise franchise to establish establish and operate operate an electric electric plant and power stations stations was to engage engage in a business or profit-ma profit-making king venture, venture, while Napocor Napocor was specifica specifically lly created to undertake the development of hydraulic power nationwide and the production of power from other sources, for use of the government and the general public. In isolated sale of electric power to one government-owned plant (National Development Co., in Davao) would not be enough to classify the Napocor as a “competing” concern to Davao Light’s enterprise. Napocor’s tax exemption (RA 358) was granted in order to facilitate the liquidation by said corporation of its liabilities, and the consequential release by the government itself fro its obligation in the transactions entered into by the President on behalf of Napocor. Davao Light is not entitled to the same exemption privileges enjoyed by another operator without an express provision of the law to that effect. Exemption from taxation is never presumed. For tax exemption to be recognized, the grant must be clear and express. It cannot be made to rest on vague implications. [66] Surigao Consolidated Mining vs. Collector GR L-14878, 26 December 1963 En Banc, Ragala (J): 10 concur Facts: Before the outbreak of the War, the Surigao Consolidated Mining Co. was operating its mining concessions in Mainit, Surigao. Due to the interruption of communications at the outbreak of the war, the th company lost contact with its mines and never received the production reports for the 4 quarter of 1941. To avoid incurring any tax liability or penalty, it deposited of check payable to and indorsed in favor of the City Treasurer, Treasurer, in payment of ad valorem taxes for the said period. After the war, the company filed its ad valorem tax for the said period pursuant to Commonwealth Act 772. Its return was revised, until eventually the company claimed a refund of P17,158.01. The collector of Internal Revenue denied the request for refund. Issue: Whether Surigao Consolidated may recover its tax payment in light of the condonation made under a subsequent law, RA 81. Held: RA 81, Section 1(d) provided that “all unpaid royalties, ad valorem or specific taxes on all minerals mined from mining claims or concessions existing an din force on 1 January 1942, and which minerals were lost by reason of war, of circumstance arising therefrom are condoned…” The provision refers to the condonation of unpaid taxes only. The condonation of a tax liability is equivalent and is in the nature of tax exemption. Being so, it should be sustained only when expressed in explicit terms, and it cannot be extended beyond the plain meaning of those terms. He who claims an exemption from his share of the common burden of taxation must justify his claim by showing t hat the Legislature intended to exempt him. The company failed to show any portion of the law that explicitly provided for a refund of those taxpayers who had paid their taxes on the items. [67]



Wonder Mechanical Engineering vs. Court of Tax Appeals GR L-22805 and L-27858, 30 June 1975 First Division, Esguerra (J): 4 concur Facts: Wonder Mechanical Engineering Corp. was granted tax exemption privilege under RA 35 in respect to the “manufacture of machines for for making cigarette papers, pails, washers, washers, rivets, nails, candies, chairs, etc.” The tax exemption expired on 30 May 1951. In 1953, the company applied with the secretary of Finance for the reinstatement of the exemption privilege under the provisions of RA 901, the reinstatement to commence on the date RA 901 took effect. The company was given a Certificate of Tax Exemption on 7 July 1954, exemption it similarly as in RA 35 until 31 December 1958, with diminishing exemption until 20 June 1955. The Commissioner assessed sales tax on gross sales of articles manufactured by it, including steel chairs. The company appealed to the Court of Tax Appeals. Issue: Whether the company is exempted from the tax imposed on the manufacture and sale of articles, such as steel chairs. Held: The company was granted tax exemption in the manufacture and sale of “machines for making cigarette paper, pails, etc.” but not for the manufacture and sale of articles produced by those machines. The manufacture of steel chairs, jeep parts, and other articles not constituting machines for making certain products would not fall under the classification of “new and necessary” industries envisioned in RA 35 and 901 as to entitle the company to tax exemption. Exemptions are highly disfavored in law and he who claims tax exemption must be able to justify his claim or right thereto by the clearest grant of organic or statute law. Tax exemption must be clearly expressed and cannot be established established by implication. [68] Visayas Cebu Terminal vs. Commissioner GR L-19530 and L-19444, 27 February 1965 En Banc, Paredes (J): 8 concur, 2 took no part Facts: Visayan CebuTerminal CebuTerminal Co. was appointed the sole manager of the Irrastre Service at the Port of Cebu, after a public bidding in 1957, covering import cargoes, including transit import cargoes. In 1958, the Bureau of Intern Internal al Reven Revenue ue (Mani (Manila) la) demand demanded ed the paymen paymentt of percen percentag tagee taxes taxes and penalt penalties ies due to the Government. Subsequently Subsequently,, however, BIR examiners stated that the company was not subjected of the 3% percentage tax, it has been paying 28% of the gross receipts to the Bureau of Customs. Issue: Whether Visayas Cebu Terminal Co. In c. is exempted from the percentage tax. Held: The company is an arrastre contractor and is covered by Section 191 of the Tax Code. Section 191 of the Tax Code does not establish any distinction between an arrastre operator who handles only imported cargo in its arrastre operations , pursuant to RA 140, and those handling interisland cargo, so as to exempt the company from the percentage tax. It is a well settled rule that he who claim s exemption should prove by conv convin inci cing ng proo proofs fs that that he is exem exempt pted ed.. The The comp compan any y fail failed ed to pres presen entt such such proo proofs fs.. Furt Furthe her, r, the the recommendation of the examiners are subject to the review of their superiors, who may countermand or affirm them. The government is never estopped to collect legitimate taxes because of the error committed by its agents.

However, as the company pays 28% of the total monthly gross receipts derived from the arrastre service to the Burea Bureau u of Custo Customs, ms, to hold hold the company company liable liable for the payment payment of percen percentag tagee tax is unjust unjust and not not contemplated by Section 191 of the Tax Code.



[69] Lealda Electric vs. Commissioner GR L-16428, 30 April 1963 En Banc, Dizon (J): 8 concur, 1 took no part Facts: In 1915, Julian Locsin Anson was granted a franchise to operate an electric light and power plant in Legaspi Legaspi and Daraga, in Albay province. province. He sold the franchise, franchise, the certificate certificate of public public convenience, convenience, and electric plant to Saturnino Benito; who in turn sold the same to Lealda Electric (a partnership formed by the Benitos Benitos and other parties in 1951). Since Since 1915, 1915, the original original grantee and its successo successors-in rs-in-inte -interest rest paid a franchise tax of 2% on the gross earnings or receipts from the business under the franchise, until 1946 when RA 39 amended amended Section 259 of the Tax Tax Code, increasingly the franchise tax to 5%. Lealda Electric maintains it is only liable to 2% franchise tax, and not 5%. Issue: Whether Lealda Electric is exempted from the tax increase in light of its franchise. Held: Lealda Electric’s franchise does not specifically state that the rate of the franchise tax to be paid shall be 2% of its gross earnings or receipts. The intent of the legislature legislature was to impose upon the grantee (and its successors), the obligation to pay the same franchise tax imposed upon other grantee or franchise holders at the time its franchise (Act2475) was enacted. Lealda’s Lealda’s charter contains an express provision to the effect that the same may be altered or repealed by Congress, and does not contain any provision providing that the franchise tax were required to pay was to be “in lieu of all taxes of any kind levied, established, or collected by any authority whatsoever, now or in the future” or in lieu of all taxes of every name and nature— municipal, provincial provincial or central,,,” Tax exemptions are not to be presumed. [70] Misamis Oriental vs. Cagayan Electric GR 45355, 12 January 1990 First Division, Grino Aquino (J): 4 concur Facts: Cagayan Electric Power and light Co, Inc. (CEPALCO) was granted a franchise in 1961 under RA 3247 to install, operate and maintain an electric light, heat and power system in Cagayan de Oro and its suburbs. In 1973, the Local Tax Tax Code (PD 231) was promulgated, promulgated, where Section 9 thereof providing for a franchise tax. Pursuant thereto, the province province of Misamis Oriental enacted enacted Provincial Revenue Revenue Ordinance 19, whose whose Section Section 12 also provides for a franchise franchise tax. The Provincial Provincial Treasu Treasurer rer demanded demanded payment of the provincial franchise tax from CEPALCO. CEPALCO paid under protest. Issue: Whether CEPALCO is exempt from the provincial franchise tax. Held: Local Tax Regulation 3-75 issued by the Secretary of Finance in 1976 made it clear that the franchise tax provided in the Local Tax Code may only be imposed on companies with franchise that do not contain the exempting clause, i.e. “in-lieu-of-all-taxes-proviso.” CEPALCO’s franchise i.e. RA 3247, 3571 and 6020 (Section 3 thereof), uniformly provides that “in consideration of the franchise and rights hereby granted, the grantee shall pay a franchise tax equal to 3% of the gross earnings for electric current sold under the franchise, of which 2% goes to the national Treasury and 1% goes into the treasury of the municipalities of Tagoloan, Opol, Villanueva, Villanueva, Jasaan, and Cagayan de Oro, as the case may be: Provided, that the said franchise tax of 3% of the gross earnings shall be in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise and poles, wires, transformers, and insulators of the grantee from which taxes and assessments the grantee is hereby expressly exempted.



[71] Hilado vs. Collector GR L-9408, 31 October 1956 En Banc, Bautista Angelo (J): 8 concur Facts: Facts: Emilio Hilado filed his income tax return for 1951 with the treasurer of Bacolod City, claiming a deductible item of P12,837.65 from his gross income pursuant to General Circular V-123 issued by the Collector of Internal Revenue. The Secretary of Finance, through the Collector, issued General Circular VV139 which revoked and declared void Circular V-123; and laid down the rule[s] that losses of property which occurr occurred ed in World orld War II from from fires, fires, storms storms,, shipw shipwrec reck k or other other casual casualty ty,, or from from robber robbery y, theft, theft, or embezzlement are deductible in the year of actual loss or destruction of said property. property. The deductions were disallowed. Issue: Whether Internal Revenue Laws were enforced during the war and whether Hilado can claim compensation for destruction of his property during the war. Held: Philippines Internal Revenue Laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. Such tax laws are deemed to be laws of the occupied territory and not of the occupying enemy. As of the end of 1945, there was no law which Hilado could claim for the destruction of his properties during the battle for the liberation of the Philippines. Philippines. Under the Philippine Rehabilitation Rehabilitation Act Act of 1948, the payment of claims by the War Damage Commission depended upon its discretions non-payment of which does not give rise to any enforceable right. Assuming that the loss (deductible (deductible item) represents a portion of the 75% of his war damage claim, the amount would be at most a proper deduction of his 1950 gross income (not on his 1951 gross income) as the last installment and notice of discontinuation of payment by the War Damage Commission was made in 1950. [72] Commissioner vs. Court of Tax Appeals GR 44007, 20 March 1991 First Division, Medialdea (J): 3 concur, 1 on leave Facts: Facts: Eastern Extension Australasia and China Telegraph Co. ( a foreign corporation) was given a concession for the construction, operation and maintenance of submarine telegraph cable from Hong Kong to Manila on 30 March 1898 by a Royal Decree of the Spanish Spanish Government. When the concession expired expired in 1952, RA 808 was approved, giving the company a legislative franchise “to land, construct, maintain and operate a submarine telegraph cable connecting Manila to Hong Kong”, and a tax exception from the payment of all taxes except except a franch franchise ise tax of 5% of the gross gross earning earningss and the tax on its real real proper property ty.. The Commissioner, however, assessed deficiency income tax (inclusive of surcharges, interests and penalties thereon for years 1965-1970) against the company on the belief that the franchise is inoperative for failure to conform with the constitutional requirement that franchise holders should be organized under Philippine Laws and that 80% of its capital owned by Filipinos Issue: Whether the franchise is inoperative, rendering the company liable for deficiency income tax. Held: A law is presumed constitutional as it is supposed to have been carefully studied and determined to consti constitut tution ional al before before it was finally finally enact enacted ed by Congre Congress ss and approved approved by the Chief Chief Execut Executive ive.. No constitutional question would be resolved unless the requisites of a judicial inquiry are present; i.e. the existence of an appropriate case, an interest personal and substantial by the party raising the constitutional Taxation Law I, 2004 ( 37 )


question, the plea that the function be exercised at the earliest opportunity, and the necessity that the constitut constitutiona ionall question be passed in order to decide the case. Herein, Herein, the last criterion criterion is missing; missing; and accordingly, accordingly, the Court gives high respect for the acts of the other departments of the government and, as much as possible, avoids deciding the constitutional question. The company duly complied complied with the conditions set set forth in the legislative franchise. franchise. It has also complied with the tax requirement by paying to the Republic a tax of 5% of the gross earnings from Philippines operation operationss regularly regularly since its creation. creation. As a legislat legislative ive franchise franchise partakes partakes of the nature of a contract; contract; the franchise is the law between the the parties and they are bound by the terms terms thereof. The government agency agency cannot declare the franchise as “ineffective and unenforceable” merely by stating that the company failed to comply with the requirements of the general statutes (e.g. Public Service Act and the Corporation law) which are not mentioned mentioned in RA 808. 808. Still, Still, a remand of the case to the Court Court of Tax Appeals Appeals is necessary necessary to determine the income tax liability of the company corresponding to its income beyond the scope of RA 808. [73] Maceda vs. Macaraig GR 88291, 31 May 1991 En Banc, Gancayco (J): 6 concur, 2 took no part, 1 dissents Facts: Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of hydraulic power and the production of power from other sources. RA 358 358 (1949) granted NAPOCOR tax and duty exemption privileges. privileges. RA 6395 6395 (1971) revised the charter of the NAPOCOR, tasking it to carry out the policy policy of the national national electrifica electrification tion,, and provided provided in detail detail NAPOCOR’ NAPOCOR’ss tax exceptions exceptions.. PD 380 (1974) (1974) specified specified that NAPOCOR’s NAPOCOR’s exemption exemption includes includes all taxes, taxes, etc. imposed imposed “directly “directly or indirectl indirectly y.” PD 938 integrated the exemptions in favor of GOCCs including their subsidiaries; however, however, empowering the President or the Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or completely, completely, the exemptions withdrawn or revised. The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86 (1January (1January 1986) restored such exemption indefinitely indefinitely effective 1 July 1985. EO 93 (1987) again withdrew withdrew the the exemption. exemption. FIRB issued issued Resolutio Resolution n 17-87 (24 June 1987) 1987) restoring restoring NAPOCOR NAPOCOR’’s exemption, which was approved by the President on 5 October 1987.

Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and delivered delivered to NAPOCOR. NAPOCOR. Oil companies companies started started to pay specific and ad valorem valorem taxes on their sales of oil products products to NAPOCOR NAPOCOR only in 1984. 1984. NAPOCOR NAPOCOR claimed claimed for a refund (P468.58 (P468.58 million million). ). Only portion portion thereof, thereof, correspondi corresponding ng to Caltex, was approved approved and released released by way of a tax credit memo. memo. The claim for refund of taxes paid by PetroPhil, Shell Shell and Caltex amounting to P410.58 P410.58 million was denied. NAPOCOR moved for reconsideration, starting that all deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery. Issue: Whether NAPOCOR cease to enjoy exemption from indirect tax when PD 938 stated the exemption in general terms. Held: NAPOCOR is a non-profit public corporation created for the general good and welfare, and wholly owned by the government of the Republic Republic of the Philippines. From the very beginning of the corporation’ corporation’ss existence, NAPOCOR enjoyed preferential tax treatment “to enable the corporation to pay the indebtness and obligatio obligation” n” and effective effective implementat implementation ion of the policy enunciate enunciated d in Section Section 1 of RA 6395. From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be strictly construed against NAPOCOR. NAPOCOR. On the contrary, contrary, the law mandates that it should be interpreted liberally liberally so as to enhance the tax exempt status of NAPOCOR. NAPOCOR. It is recognized principle that the rule on strict interpretation interpretation does not Taxation Law I, 2004 ( 38 )


apply in the case of exemptions in favor of government political subdivision or instrumentality instrumentality.. In the case of property owned by the state or a city or other public corporations, the express exception should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property “exception is the rule and taxation the exception.” [74] Commissioner vs. Phoenix Assurance GR L-19727, 20 May 1965 En Banc, Bengzon JP (J): 10 concur Facts: Phoenix assurance is a foreign insurance corporation organized under the laws of Great Britain, licensed licensed to do business business in the Philippine Philippines. s. Through Through its head office office in London, London, it entered entered into worldwide worldwide reinsuranc reinsurancee treaties treaties with various various foreign foreign insurance insurance companies. companies. It agreed to cede a portion portion of premiums premiums received on original insurances underwritten by its head office, subsidiaries, and branch offices around the world, in consideration for assumption by the foreign insurance companies of n equivalent portion of the liability form such original insurances. insurances. Pursuant to such treaties, the company ceded portions of its premiums it earned from its underwriting underwriting business business in the Philippine Philippines, s, upon which assessed assessed withholding withholding tax. The company company thereafter thereafter amended its tax returns returns (1950-1954 (1950-1954)) excluding excluding reinsurance reinsurance premium and items items of deduction attributable to such premium. The Commissioner assessed deficiency income tax against the company. Issue: Whether the Commissioner is justified in the assessment of deficiency tax. Held: The changes and alteration embodied in the amended tax return consisted of the exclusion of reinsurance premium received from domestic insurance companies by the company’s company’s head office, reinsurance premium ceded to foreign insurers not doing business in the Philippines and various items of deductions attributable to such excluded reinsurance reinsurance premiums, thereby substantially substantially modifying the original return. return. As amended return is substantially different from the original return, the period of limitation of the right to issue the same should be counted from the filing of the amended income income tax return. The right of the Commissioner Commissioner to assess the deficiency tax on the amended return has not prescribed. To hold otherwise would pave the way for taxpayer to evade the payment of taxes simply reporting in their original return heavy losses and amending the same more than 5 years later when the Commissioner has lost his authority to assess the proper tax there under. under. The object of the tax code is to impose taxes for the needs of the government, not to enhance tax avoidance to its prejudice. [75] Commissioner vs. Connel Bros. Co. GR L-27752-53, 30 August 1971; En Banc, Reyes, Jr.(J).: 10 concur Facts: The Commissioner disallowed the deductions for bad debts, depreciation, and excess in valuation of leasehold improvements improvements by Connel Bros. Co. in its income tax return for taxable year 1954 and 1955. The Commissioner Commissioner thus assessed against the company deficiency deficiency taxes or assessments for said years. The Court of Tax Appeals modified modified the assessment by including the corresponding corresponding interest and surcharges pursuant pursuant to Section 51 of the Tax Code. Issue: Whether the interest and surcharges on delinquents tax payments are chargeable. Held: Delinquency indicates non-payment of the correct and collectible tax, and such state of delinquency exists not from the assessment of the deficiency but from the very time the taxpayer failed to pay the correct Taxation Law I, 2004 ( 39 )


amount due from him. Herein, the delinquency taxes taxes became due and the assessment therefore therefore were made before the amendment of Section 51 on 2 June 1959; and thus, the company’s liability should be determined pursuant to the old Section (e) of the Tax Tax code. Under the old Section, a delinquent tax payer would have to pay, in addition to the unpaid tax, a 5% surcharge thereon computed from the time the tax became due, plus interest on the whole unpaid amount at the rate of 1% a month. Under RA 2343, 2343, the delinquent taxpayer shall pay at the rate of 6% per annum computed from the date prescribed for payment of the income tax up to the assessment of the delinquency tax, but which shall not exceed the amount corresponding to a period of 3 years. Section 13 of the amendatory act shoes that there there is no intent to make RA 2343 retroactive. retroactive. [76] Commissioner vs. Fireman’s Fund Insurance GR L-30644, 9 March 1987 Second Division, Paras (J): 5 concur, 1 on leave Facts: Fireman’s Funds Insurance is a resident foreign insurance corporation organized under the laws of the United States, authorized and duly licensed to do business in the Philippines. Philippines. From 1952-1958, the company entere entered d into into variou variouss insura insurance nce contra contracts cts involv involving ing causal causality ity,, fire fire and marin marinee risks, risks, for which which the the correspond corresponding ing insurance insurance policies policies were issued. issued. From 1952-1956 1952-1956,, documenta documentary ry stamps stamps were bought bought and affixed affixed to the correspondin corresponding g pages of the policy register register,, instead instead of on the insurance insurance policies policies issued. issued. The Commissioner assessed and demanded from the company the payment of documentary stamps for the years 1952-1958, plus compromise penalties. Issue: Wheth Whether er the affix affixtur turee of docum document entary ary stamp stamp on pages pages other other than than those those author authorize ized d by law is tantamount to failure to pay the same. Held: Although the documentary stamps were affixed to papers other than those authorized by law, it is not tantam tantamoun ountt to failu failure re to pay the same same as the compan company y purcha purchased sed and paid paid the docum document entary ary stamp stampss corresponding to the various insurance insurance policies. Sections 210, 232, 221, 237 and 239 of the Tax Tax Code have the overriding purpose to collect taxes, and the steps involving documentary taxes (purchase, affixture, and cancel cancellat lation ion)) are but a means means to that that end. end. Althou Although gh the the insur insuranc ancee polic policies ies with the correspo correspondi nding ng documentary stamps affixed are the best evidence to prove payment of said documentary stamp tax, it does not preclude preclude the admissibil admissibility ity of other other proofs proofs which which are uncontradict uncontradicted ed and considerab considerable le weight. Still, Still, whenever the interpretation of statute levying taxes or duties are in doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or citizens, because burdens are not to be imposed, imposed, nor presumed presumed to be imposed imposed beyond what statutes statutes expressly expressly and clearly import. import. There is no justification for the government which has already realized the revenue, which is the object of the imposition of the subject stamp tax, to require payment of the same tax for the same documents. [77] Commissioner vs. Cebu Portland Cement GR L-29059, 15 December 1987 First Division, Cruz (J): 4 concur Facts: By virt virtue ue of a deci decisi sion on of the the Cour Courtt of Tax Appea Appeals ls,, mo modi difi fied ed by the the Supr Suprem emee Cour Court, t, the the Commissioner was ordered to refund overpayments of ad valorem taxes on cement produced and sold by the company company after October October 1957. 1957. The company company moved for a writ of execution, execution, which was opposed opposed by the Commissioner on the ground that the company had an outstanding sales tax liability to which the judgment debt had already been credited. The Court of Tax Tax Appeals Appeals held that the alleged sales tax liability was still still being questioned and therefore cannot be set-off against the refund. Taxation Law I, 2004 ( 40 )


Issue: Whether the assessment of sales tax liability may be enforced, i.e. to set off against the refund. Held: The argument, that the assessment cannot as yet be enforced because it is still being contested, loss sight of the urgency of of the need to collect taxes as “the life life blood of the government.” government.” If the payment of taxes could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government government functions functions would be paralyzed. paralyzed. To require the Commissione Commissionerr to actually actually refund to the company the amount of the judgment debt. Which he will later have the right to distrait for payment of its sales tax liability, is an idle ritual. [78] Republic vs. Vda. de Fernandez GR L-9141, 25 September 1956 En Banc, Labrador (J): 7 concur Facts: Olimpio Fernandez and his wife Angelina Oasan had a net worth of P8, 000 on 8 December 1941. During the Japanese occupation, occupation, the spouses acquired several real properties. properties. At the time of the husband’s husband’s death in 1945, he had a net worth worth of P31,489. The Collector of Internal Internal Revenue assessed a war profits tax (RA 55) on the estate of the deceased at P7, 614.00, which was administrative refused to pay. The validity of RA 55 was questioned, as well as the validity and the legality of the assessment. Issue: Whether the War Profits tax Law may be retroactively applied without violating the Constitution (especially the provision on ex-post facto laws). Held: The prohibition against the ex facto laws applies only to criminal or penal matters, and not to laws which concern civil matters matters or proceedings generally generally,, or which affect or regulate civil or private private right. Ex post facto is confined to laws respecting criminal punishments, and had no relation whatever to retrospective legislati legislation on of any other descriptio description. n. Retrospect Retrospective ive laws, when not of a criminal nature, nature, do not come in conflict with the Constitution, unless obnoxious to its provisions on other grounds than their respective character character.. The law may not be considered considered harsh and oppressive oppressive because because of the force of its impact impact fell on those who had amassed wealth or increased their wealth during the war, but did not touch the less fortunate. The policy followed is the same as that which underlies the Income Tax Tax Law, imposing the burden upon those who have and relieving those who have not. [79] Tanada vs. Tuvera GR L-63915, 24 April 1985 En Banc, Escolin (J): 1 concur, concur, 2 concur with reservation, 1 on leave, 1 took no part Facts: Invoking the people’s right to be informed on matters of public concern as well as the principle that laws laws to be valid valid and enforc enforceab eable le mu must st be publis published hed in the Offic Official ial Gazett Gazettee or otherw otherwise ise effect effective ively ly promulgated, Tañada, et.al. seek a writ of mandamus to compel public officials to publish presidential decrees, letters of instructions, general orders, proclamation, executive orders, letter of implementation and administrative administrative orders. Issue: Whether the unpublished laws have binding force and effect. Held: The publication in the Official Gazette is required to give the general public adequate notice of the various laws which are to regulate regulate their actins and conduct as citizens. citizens. Publication is necessary necessary to apprise the Taxation Law I, 2004 ( 41 )


public public of the contents contents of regulatio regulations ns and make penalties penalties binding binding on the person person affected affected thereby. thereby. The publication of all presidential issuances of a “public nature” or “of general applicability” is a mandated by law, law, and is a requirement of due process. Presidential decrees decrees that provide for fines, forfeitures or penalties penalties for their violation or otherwise impose a burden on the people, such as tax and revenue measures fall within this category. category. Before a person may be bound by law, law, he must be first be officially and specifically informed informed of its conte content nts. s. When When not publi publish shed ed,, such such shall shall have have no force force and effec effect. t. Howe Howeve verr, the the implemen implementatio tation/en n/enforcem forcement ent of the presiden presidential tial decrees prior prior to their their publicati publication on in the Gazette is an operative facts, which may have consequences which cannot be justly ignored. (Note: The aspect of “operative facts” was dropped in subsequent resolution.) [80] Bagatsing vs. Ramirez GR L-41631, 17 December 1976 En Banc, Martin (J): 7 concur, concur, 1 concur with qualification, 1 reserved vote Facts: In 1974, the Municipal Board of Manila enacted Ordinance 7522, regulating the operation of public markets markets and prescribing prescribing fees for the rentals rentals of stalls and providing providing penalties penalties for violation violation thereof. The Federation of Manila Market Vendors Inc. assailed the validity of the ordinance, alleging among others the non-compliance to the publication requirement under the Revised Charter of the City of Manila. Issue: Whether the publication requirement was complied with. Held: The Revised Charter of the City of Manila is a special act since it relates only to the City of Manila, whereas the Local Tax Tax Code id a general law because it applies universally to all local governments. Section 17 of the Charter speaks of “ordinance” in general. Whereas, Section 43 of the Local Tax Code relates to “ordinance “ordinancess levying or imposing imposing taxes, fees or other other charges” in particular particular.. While While the Charter Charter requires publication, before the enactment of the ordinance and after approval thereof, in two daily newspapers of the general circulation in the city, city, the Local Tax Tax Code only prescribes for publication widely circulated within the jurisdiction of the local government or by posting the ordinance in the local legislative hall or premises and in two other conspicuous places within within the territorial jurisdiction of of the local government. Being a general law with a special provision applicable in the case, the Local Tax Code prevails. [81] Commissioner vs. Burroughs Ltd. GR L-6653, 19 June 1986 Second Division, Paras (J): 4 concur Facts: Burroughs Ltd is a foreign corporation corporation authorized to engage in business business in the Philippines. Its branch office in Makati applied with the Central Bank for authority to remit to its parent company abroad, branch profits. It paid 15% branch profit remittance remittance tax. The branch, however, however, later claimed claimed for a refund or credit contending that the branch branch profit remittance tax pursuant pursuant to a BIR ruling of 21 January January 1980. The Court of Tax Appeals Appeals granted granted the company’s company’s petition. petition. The Commissione Commissionerr filed a petition petition for certiorari certiorari,, claiming claiming Memorandum Circular 8-82 (17 March 1982) should apply. apply. Issue: Whether the Memorandum Circular 8-82 should be retroactively applied. Held: Revenue Ruling of 21 January 1980 remains to apply in the case as the company paid the tax on 14 March 1979. Memorandum Circular Circular 8-82 cannot be given retroactive retroactive effect in the light of Section Section 327 (nonTaxation Law I, 2004 ( 42 )


retroactiv retroactively ely of rulings) rulings) of the tax code. The retroactiv retroactivee application application of the Circular Circular would deprive deprive the company the substantial substantial amount of P172,058.90. The misstates or omits material material facts from his return or I any document required of him by the BIR, or where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based, or where the taxpayer acted in bad faith to allow the retroactive application of the circular. circular. [82] Commissioner vs. Mega General Merchandise GR L-69136, 30 September 1988 Facts: Prior to the promulgation of PD 392, all importations of paraffin wax, irrespective of kind and nature, were subject to 7% advance sales tax on landed costs plus 25% markup (Section 183[b] in relation to Section 186 of the Tax Code. Code. With With the promulgatio promulgation n of PD 392, effective effective 18 February 1974, 1974, all importatio importation n of paraffin wax were subject to the specific tax imposed under Section 142 (i) of the Tax Code, instead of the former 7% sales tax. When the issue “whether imported crude paraffin paraffin wax was subject to the specific tax” was brought to the BIR for clarification, then Commissioner Vera ruled that only wax used as high pressure lubricant and micro-crystalline is subject to specific tax, while the rest are subject to the sales tax. Thus, Mega General Merchandise filed claims claims for tax refund or tax credit. Acting Commissioner Commissioner Plana denied the claims in 28 January 1977. On 11 January 1978, however, however, Plana granted the corporation’s corporation’s claim for refund or credit pertaining to the importation importation made 18 April 1975. The Corporation protested protested the tax assessment of 8 May 1978, which was denied by the Commissioner. Issue: Whether the 11 January 1978 grant (letter) revoked the ruling dated 28 January 1977. Held: The letter dated 11 January 1978 did not in any way revoke the ruling dated 28 January 1977, which ruling applied the specific tax to was without distinction. distinction. The reason Plana removed in 1978 the company’s company’s liability for specific tax was because he wanted to revoke his ruling of 28 January 1977 but because the tax referred to an importation made before 28 January 1977 (i.e. 18 April 1975), which was still covered by the ruling of Commissioner Vera (ruling of 14 May 1975). [83] Commissioner vs. Court of Tax Appeals GR 108358, 20 January 1995 Third Division, Vitug (J): 4 concur Facts: On 22 August 1986, Executive Order 41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later amended to include estate and donor’s taxes and taxes on business for the taxable years 1981 to 19985. Availing itself of the amnesty, amnesty, ROH Autoparts Philippines Inc. filed its Tax Amnesty Amnesty Return and paid the corresponding corresponding amnesty taxes due. due. The Company requested requested that the deficiency tax notice notice (13 August 1986) be cancelled and withdrawn as it has availed of the tax amnesty. amnesty. The Commissioner Commissioner denied the reque request, st, constr construin uing g that that the amnest amnesty y covera coverage ge includ includee only only assess assessmen ments ts issued issued by the BIR after after the promulgation of EO41 and not to assessments theretofore made. Issue: Whether the assessment can withstand effects of tax amnesty. Held: A tax amnesty, being a general pardon or intentional overlooking by the state its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the government itself of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, to give tax evaders, who wish to relent and are willing to reform a chance to for Taxation Law I, 2004 ( 43 )


so and thereby thereby become a part of the new society society with a clean slate. Section Section 4 of EO 41 enumerate enumerated, d, in no uncertain terms, taxpayers taxpayers who may not avail to the amnesty amnesty granted. The company does not fall fall under any of the exceptions. The added exception urged by the the Commissioner Commissioner based on Revenue Memorandum Order Order 4-87, further restricting the scope of the amnesty, amnesty, work against the raison d’etre of EO 41 and clearly amounts to an alt of administrative legislation contrary to the mandate of the law which the regulation ought to implement. The rule in the order that only assessments issued after 21 August August 1986 shall be abated is beyond the contemplation of the law. [84] Commissioner vs. Court of Appeals GR 119761, 29 August 1996 First Division, Vitug (J): 2 concur Facts: Fortu Fortune ne Tobacco obacco is engage engaged d in the the manufa manufactu cture re of differ different ent brands brands of cigare cigarette ttes, s, specif specifica ically lly “Champion”, “Hope4”, and “More” (which are foreign brands listed in the World Tobacco Directory as belonging belonging to foreign companies. companies. Fortune Fortune Tobacc Tobacco, o, however, however, changed changed names of “Hope” “Hope” to “Luxury” “Luxury” and “More” to “Premium “Premium More” thereby removing removing said brands from the the foreign brand category. category. Proof was also also made/ submitted to the BIR that “Champion” was an original Fortune Tobacco Tobacco Corp. register and thus a local brand. RA 7654 7654 was enacted on 10 June 1993, levying a P5 minimum minimum tax on locally manufactured manufactured cigarettes taxed at 55% or exportation of which is not authorized by contract, and P2 minimum tax per pack on other locally locally manufactured manufactured cigarette cigarette.. The BIR sent the Company Company a month month later a copy Revenue Revenue Memorandum Memorandum Circular 37-93 declaring “Hope”, “More” and “Champion” as foreign brands, and thus subjecting them to 55% as valorem tax, a review r eview of RMC 37-93 was denied. Issue: Whether the brands may be placed within the scope of the amendatory law (RA 7654) and subject then to an increased, through RMC 37-93. Held: Prior to the issuance of RMC 37-93, the brands were in the category of locally manufactured cigarettes not bearing foreign brands, subject to 45% ad valorem tax. tax. Without Without RMC 37-93, the enactment of RA7654 would would not have new tax rate consequences consequences on the company’ company’ss products. products. In issuing RMC 37-93, 37-93, the BIR legislated under its quasi-legislative quasi-legislative authority and not simply simply interpreted the law. law. When an administrative rule rule goes goes beyond beyond merely merely provid providing ing for the the means means that that can facili facilitat tatee or rende renderr least least cumber cumberso some me the the implementation implementation of the law but substantially substantially adds to or increases the burden of those governed. governed. It behooves the agency to accord at least to those directly affected a chance to be heard, and thereby be duly informed, before that new issuance is given the force and effect of law. [85] ABS-CBN Broadcating vs. Court of Tax Appeals GR L-52306, 12 October 1981 First Division, Melencio Herrrera (J): 4 concur Facts: In implementing Section 4(b) of the Tax Code, the Commissioner issued General Circular V-334. Pursuant thereto, ABS-CBN Broadcasting Corp. dutifully withheld and turned over to the BIR 30% of ½ of the film rentals paid by it to foreign corporations not engaged in trade or business in the Philippines. Philippines. The last year that the company company withheld withheld taxes pursuant pursuant to the Circular Circular was in 1968. On 27 June 1908, RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30% to 35% and revising the tax basis from “such amount” referring referring to rents, etc. to “gross income.” income.” In 1971, the Commissioner Commissioner issued a letter letter of assessmen assessmentt and demand demand for deficiency deficiency withholdi withholding ng income tax for years 1965 to 1968. 1968. The company company requested for reconsideration; where the Commissioner did not act upon. Taxation Law I, 2004 ( 44 )


Issue: Whether Revenue Memorandum Circular 4-71, revoking General Circular V-334, V-334, may be retroactively applied. Held: Rulings or circulars promulgated by the Commissioner have no retroactive application where to so apply apply them them would would be prejud prejudici icial al to taxpay taxpayers ers.. Herein Herein ,the prejud prejudice ice the compan company y of the retroact retroactive ive application of Memorandum Memorandum Circular 4-71 is beyond question. The company was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and had no longer longer control over over them when the new circular circular was issued. Insofar Insofar as the enumerated enumerated exceptions exceptions are concerned, the company does not fall under any of them. [86] In RE Zialcita AM 90-6-015-SC, 18 October 1990 En Banc, Gutierrez Jr. (J): 13 concur, 1 on leave Facts: Amounts were claimed by Atty. Bernardo F. Zialcity on the occasion of his retirement. On 23 August 1990, a resolution was issued by the Court En Banc stating that the terminal leave pay of Atty. Zialcita received by virtue of his compulsory retirement can never be considered a part of his salary subject to the paymen paymentt of incom incomee tax but falls falls under under the the phrase phrase “other “other benefi benefits ts receiv received ed by retiri retiring ng employ employees ees and workers,” within the meaning of Section 1 of PD 220 and is thus exempt from the payment of income tax. That the money value of his accrued leave credits is not part of his salary is buttessed by Section 3 of PD 985, which it makes it clear that the actual service is the period of time for which pay has been received, excluding the period covered by terminal leave. The Commissioner filed a motion for reconsideration. reconsideration. Issue: Whether terminal leave pay is exempt from tax; as well as other amounts claimed herein. Held: Applying Section 12 (c) of Commonwealth Commonwealth Act 186, as incorporated into RA 660, and Section 28 (c) of the former law, the amount received by Atty. Zialcita as a result of the converson of unused leave credits, commonly known as terminal leave, is applied for by an officer or employee who retires, resigns, or is separated from the service through no fault of his own. Since the terminal leave is applied for after the severance of the employment, terminal pay is no longer compensation for services rendered. It cannot be viewed as salary. Further, Further, the terminal leave pay may also be considered as a retirement gratuity, gratuity, which is also another exclusion from gross income as provided for in Section 28 (b), 7 (f) of the Tax Code.

The 23 August August Resoluti Resolution on (AM 90-6-015-SC) 90-6-015-SC),, however however,, specifica specifically lly applies only to employees employees of the Judiciary who retire, resign or are separated through no fault of their own. The resolution cannot be made to apply to otehr government employees, absent an actual case or controversy, as that would be in principle an advisory opinion. [87] Commissioner vs. Court of Appeals GR 96016, 17 October 1991 Second Division, Padilla (J): 2 concur, 1 on leave Facts: Efren Castaneda retired from government service as Revenue Atrtache in the Philippine Embassy in London, England on 10 December 1982 under the provisiions of Section 12 (c) of Commonwealth Act 186, as amend amended. ed. Upon Upon retire retiremen ment, t, he receiv received, ed, among among other other benefi benefits, ts, termin terminal al leave leave pay from from which which the Commissioner withheld P12,557.13, allegedly representing income tax thereon. Castaneda claimed for a Taxation Law I, 2004 ( 45 )


refund. Issue: Whether terminal leave pay is subject to withholding income tax. Held: Terminal Leave Pay received by a government official or employee is not subject to withholding income tax. In the exercise of sound personnel policy, the Government encourages unused leaves to be accumulated. The Government recognizes that retirement pay for public servants is less than generous, if not meager or scrimpy. Terminal leave payments are given thus not only at the same time but also foor the same policy considerations governing retirement benefits. Not being part of the gross salary or income of a government official or employee but a retirement benefit, terminal leave pay is not subject to income tax. [88] Borromeo vs. Civil Service Commission GR 96032, 31 July 1991 En Banc, Gutierrez Jr. (J): 15 concur Facts: Jesus N. Borromeo was the Chairman of the Civil Service Commission until his retirement on 1 April 1986. In 1988, he wrote the Commission on Audit requesting an opinion opinion whether the money value of the terminal leave of retired Constitutional Commission members should include the allowances received at the time of retirement. Borromeo requested for the payment ofterminal leave differential representing the unpaid Cost of Living Allowance (COLA) and Representation and Transportation Allownace (RATA) amounting to P111,229.04. P111,229.04. The Department of Budget and Management denied the request. Issue: Whether the terminal leave pay of the former CSC Chairman should be computed on the basis of the highest monthly salary plus COLA and RATA, or solely on the basis of highest monthly salary without said allowances. Held: An application for terminal leave is an application for a “commutation of leave credits” and not a “commutation of salary” as the officer or employee has already severed his conncection with his employer and is no longe longerr worki working. ng. The cash cash value value of his accumula accumulated ted leave credits credits should should not be treate treated d as compensation for services rendered at that time. Inasmuch as terminal leave payments are given not only at teh same time but also for the same policy considerations governing retirement benefits, the payments therefore should include COLA and RATA. Section 286 of the Revised Administrative Code is not applicable. It cannot be construed as limiting the basis of the computation of terminal leave pay to monthly salary only. [89] Esso Standard Eastern vs. Commissioner GR 28508-9, 7 July 1989 First Division, Cruz (J): 4 concur Facts: ESSO deducted from its gross income for 1959, as part of its ordinary and necessary business expens expenses, es, the amoun amountt it had spent spent for drilli drilling ng and explor explorati ation on of its petrol petroleum eum consce conscess ssion ions. s. The Commissioner disallowed the claim on the ground that the expenses should be capitalized and might be written off as a loss only when a “dry hole” should result. Hence, ESSO filed an amended return where it asked for the refund of P323,270 by reason of its abandonment, as dry holes, of several of its oil wells. It also claimed as ordinary and necessary expenses in the same return amount representing margin fees it had paid to the Central Bank on its profit remittances to its New York Office. Issue: Whether the margin fees may be considered ordinary and necessary expenses when paid. Taxation Law I, 2004 ( 46 )


Held: For an item to be deductible as a business expense, the expense must ebe ordinary and necessary; it must be paid or incurred within the taxable year; and it must be paid or incurred in carrying on a trade or business. In addition, the taxpayrer must substantially prove by evidence or records teh deductions claimed under law, otherwise, the same will be disallowed. There has been no attempt to define “ordinary and necessary” with precision. However, as guiding principle in the proper adjudication of conflicting claims, an expenses is considered necessary where the expenditure is appropriate and helpdul in the development of the taxpayer’s business. It is ordinary when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. Assuming that the expenditure is ordinary and necessary in the operation of the taxpayer’s business; the expenditure, to be an allowable deduction as a business expense, must be determined from the nature of the expenditure itself, and on the extent and permanency of the work accomplished by the expenditure. Herein, ESSO has not shown that the remittance to the head office of part of its profits was made in furtherance of its own trade or business. The petitioner merely presumed that all corporate expenses are necessary and appropriate in the absence of a showing that they are illegal or ultra vires; which is erroneous. Claims for deductions are a matter of legislative grace and do not turn on mere equitable considerations. considerations. [90] Guagua Electric Light Plant Co. vs. Collector GR L-23611, 24 April 1967 En Banc, Bengzon JP (J): 8 concur Facts: Guagua Electric Light Plant Co. is a grantee of municipal franchises by the municpal councils of Guagua and Sexmoan, Pampanga. It reported a gross income of P1,133,003.44 for 1947 go 1956 and paid thereon a franchise tax of P56,664.97 computed at 5% in accordance with Section 259 of the Tax Code. Believing that it should pay a lower franchise tax as provided by its franchises, it filed a claim for refund on 25 March 1957 for overpayment. The Commissioner denied the refund of franchise tax for the period prior to the 4th quarter of 1951 on the ground that the right to refund has prescribed. The Commissioner allowed the refund of P16,593.87. Later however, due to the holding in Hoa Hin Co. vs. David, the Commissioner assessed against the company deficiency franchise tax subject to a 25% surcharge, and thereby including the amount previously allowed by the Commissioner to be refunded. Issue: Whether the tax “refunded erroneously” should be imposed against the company, or if the right to recover has prescribed. Held: Guagua Electric would be paying the same deficiency tax for the period of 1 January to 30 November 1956 if it is required to pay P16,593.87 in addition to the sum of P19,938.12, the difference between the tax computed at 5% pursuant to Section 259 of the Tax Code and the franchise tax paid at 1% and 2% under the franchise. Further, by insisting on the payment of P16,593.87 (September 1951 to November 1956), the Commissioner is trying to collect the same deficiency tax where the right to assess the same, according to him, has been lost by prescription. The demand on the taxpayer to pay the sum of P16,593.87 is in effecct an assessment of deficiency franchise tax. The right to assess, thus, and to collect is governed by Section 331 of the Tax Code rather than by Article 1145 of the Civil Code, as a special law prevails over a general law. Guagua Electric is absolved from the payment of P16,593.87. [91] Republic vs. Limaco and De Guzman Commercial Co. GR L-13081, 31 August 1962 En Banc, Paredes (J): 8 concur, 2 took no part Taxation Law I, 2004 ( 47 )


Facts: In 1946, Limaco & De Guzman Co. was engaged in the importation of cigarettes. To guarantee payment of revenue taxes, the company and the Visayan Surety and Insurance Corp.. as surety, executed 2 importer bonds. On 27 June 1946, the company filed with the Bureau of Customs entry papers covering shipment of 2 million “Spud” cigarettes it had imported from New York. the specific tax due thereon amounted to P6,000. The company, through its agent/broker J. O. Hiponia, paid the Bureau of Customs the tax with P1000 in cash and P5,000 in a PNB Check on 15 July 1946. The cigarettes were released to the company but the check bounced. On 17 June 1948, the Collector of Internal Revenue demanded the payment of the deficiency specific tax. The amount remained unpaid. On 15 April 1951, the company requested that action be deferred as it intends to settle the matter amicably with the BIR. The Republic filed a complaint for the forfeiture of the bonds, and the payment of the sum of P5,000 plus interest. The company invoked the defense of estoppel and prescription. Issue: Whether the action has prescribed. Held: Under Section 332 (c) of the Tax Code, the collection of the tax by summary method or by judicial action shall be effected within 5 years after the assessment of the tax. To assess means to impose a tax; to charge with a tax; to declare a tax to be payable; to apportion a tax to be paid or contributed; to fix a rate, to fix or settle a sum to be paid by way of tax; to set, fix or charge a certain sum to each taxpayer; to settle, determine or fix the amount of tax to be paid. Herein, the assessment was made on 17 June 1948 (when a letter of demand for the amount of the rubber check was sent to the company) and not on 15 Jne 1946 (the date of payment). Even assuming that the latter date is the date of assessment, the action is still not barred by the statute of limitations as teh statute was suspended when the company acknowledged the debt in writing in April 1951, and requested the deferment of the judicial action to be taken by the Government towards the collection of the obligation, so that the company could make representations with the COllector to settle the matter amicably. amicably. Prescription has not set in. [92] Interprovincial Autobus Co. vs. Collector of Internal Revenue GR L-6741, 31 January 1956 First Division, Labrador (J): 8 concur Facts: Interprovincial Autobus Co. is a common carrier engaged in transporting passengers and freight by means of TPU buses in Misamis Occidental and Northern Zamboanga. The company was not able to preserve the receipt stubs from 1936 to 1938 but was able to preserve those for 1939 and 1940. The provincial revenue agent for Misamis Occidental ascertained the number of receipts by referring to the conductor’s daily report for the said period 1936 to 1938. From there, the tax assessed amounted to P7,776.24, which was collected from the company’s deposit in Philippine National Bank. The company demanded the refund of the said amount, but which was denied. Issue: Whether the freight receipts were actually issued for more than P5 each, to warrant the assessed tax of P7,776.24. Held: Receipts must have been issued for valuable cargo to insure against the loss of which, unlike cargo handcarried by townfolks and farmers where the latter avoid to secure receipts thereto. Such finding by the revenue agent was not controverted. In actions fro the recovery of taxes assessed and collected, the taxpayer has the burden of proving that the assessment is illegal as all presumptions are in favor of the correctness of tax assessments. The good faith of tax assessors and the validity of their actions are presumed. As such rule, on the burden of proof, has not been complied with, the action for recovery must be denied.



[93] Tan Guan vs. Court of Tax Appeals GR L-23676, 27 April 1967 En Banc, Bengzon JP (J): 8 concur Facts: In 1947, Tan Guan and Sia Lin, Chinamen, organized and registered the Philippine Surplus Company, a general partnership. A general partnership is exempt from income tax although it is required to file an income tax return. Profits, whether distributed or not, are considered income of the partners. Acting upon a confidential report, however, that the company posted fictitious expesnes in its books to avoid taxes, the BIR investigated in 1954 the books of the partnership and discovered that the expenses were not covered by receipts, that the names of payees were erased, and that the payees did not report the sums in question in their income tax. The BIR disallowed expense deductions for the year 1948 amounting to P206,380 for being fictitious. Said sum was treated as income of the individual partners, and thus, the BIR assessed P50,956.57 as deficiency income tax against Tan Guan. Tan Guan appealed. Issue: Whether the deduction claimed by the company as business income should be allowed, and thus absolve Tan Guan of the assessed tax liability. Held: The Commissioner’s Commissioner’s finding on the facts constituting fraud, proven, and found established by the Court of Tax Appeals, was not rebutted by the taxpayer. Tan Guan did not present any evidence to disprove the findings that the expenses are fictitious; considering that the investigation on Tan Guan’s liability was made prior to the expiration of the 5-year period to preserve and keep receipts as set fgorth in Section 337 of the Tax Code. As the determination of the Commissioner is presumed correct, it behooves the taxpayers to rebut such presumption. For failure to overcome the burden, Tan Guan or the company cannot claim the expenses as deduction from gross income. [94] Dayrit vs. Cruz GR L-39910, 26 September 1988 First Division, Gancayco (J): 3 concur, 1 took no part Facts: Cecilia Teodoro Dayrit, Toribia Teodoro Castaneda, Prudencio Teodor, Francisco Teodoro and Josefina Teodoro Tiongson are legitimate children and heirs of the deceased spouses Marta and Toribio Teodoro who died intestate on 1 July 1965 and 30 August 1965. The heirs separately filed estate and inheritance tax returns for the estates of the spouses with the BIR. In 1972, the BIR issued deficiency estate and inheritance tax assess assessmen ments ts for P1,66 P1,662,0 2,072, 72,34 34 and P1,747 P1,747,79 ,790.9 0.94 4 respec respectiv tively ely for the Estate Estate of Dona Dona Marta Marta and P1,5 P1,542 42,2 ,293 93.0 .01 1 amd amd P518 P518,4 ,458 58.7 .72, 2, resp respec ecti tive vely ly for for the the Esta Estate te of Don Don Torib oribio io.. The The heir heirss aske asked d for for reconsideration as the assessment was allegedly contrary to law and not supported by sufficient evidence. In a tax return dated 31 March 1973, Dayrit declared an additional amount of P3,655,595.78 as part of the estates of the Teodoro spouses. The BIR issued tax payment acceptance orders, as the heirs and estate have paid a total of P285,046.88. In 1974, the Commissioner Commissioner filed a motion for allowance of claim against the estates, and for an order of payment of taxes before the trial court, praying that Dayrit be ordered to pay the BIR the sum of P6,470,391.91 plus surcharges and interest. Dayrit filed oppositions contending that the taxes have been settled according to to the provisions of of PD 23, as amended by PD PD 67. Issue: Whether the assessment is final, executory, and demandable. Held: The act of the Commissioner, in filing an action for allowance of the claim for estate and inheritance taxes, may be construed as a denial of the taxpayers’ request for reconsideration. From the date of receipt of Taxation Law I, 2004 ( 49 )


the copy of the Commissioner’s Commissioner’s letter for collection of taxes, the taxpayers must contest and dispute the same, and upon denial thereof, they have a period of 30 days to appeal the case to the Court of Tax Appeals. Tax assessment made by tax examiners are presumed correct and made in good faith. A taxpayer has to prove otherwise. Failure of the taxpayers to appeal to the Court of Tax Appeals in due time made the assessments fina, executory and demandable. [95] Collector vs. Benipayo GR L-13656, 31 January 1962 En Banc, Dizon (J): 8 concur, 1 took no part Facts: Alberto Benipayo is the owner of the Lucena Theater in Lucena, Quezon. In 1953, the internal revenue agent investigated Benipayo’s tax liability for the period of August 1952 to September 1953. The examiner recommended a deficiency tax assessment in the sum of P11,193.45 inclusive of 25% surcharge plus a suggested compromise penalty of P900.00 based on the conclusion that Benipayo sold 2 tax-free 20c ticlets fraudulently in order to avoid payment of amusement tax prescribed by Section 260 of the Tax Code (based on a reverse ratio of adult to children; 3:1 in 1949 to 1951, and 1:3 for period in question; and average attendance for the past years). Benipayo protested, claiming that the findings of the examiners are mrere presumptions and conclusions, devoid of findings of fact of alleged fraudulent practices by him. Issue: Whether there is evidence in the record to show Benipayo committed the alleged act to cheat or defraud the Government. Held: An assessment fixes and determines the tax liability of a taxpayer. In order to stand the test of judicial scrutiny, scrutiny, the assessment must be based on actual facts. The presumption of correctness of assessment, being a mere presumption, cannot be made to rest on another presumption, no matter how reasonable or logical such may be; i.e. that the circumstances in 1952 and 1953 are presumed to be the same as those existing in 1949 to 1951, and July 1955. There are no substantial facts to support the assessment in question. Neither was there any proof of the fraud allegedly committed. Fraud is a serious charge, and to be sustained, it must also be supported by clear and convincing proof. [96] Meralco Securities Corp. vs. Savellano GR L-36181, 23 October 1982 First Division, Teehankee (J): 4 concur, 1 took no part Facts: In 1967, the late Juan G. Maniago submitted to the Commissioner confidential denunciation against the Meralco Securities Corp. for tax evasion for not having paid income tax on 25% of the dividends it received from the Manila Electric Co. for years 1962 to 1966. The Commissioner caused the investigation of the denunciation and found that no deficiency corporate tax was due from Meralco Securities. Maniago was informed of the findings. The Secretary of Finance sustained the Commissioner’s action. Maniago filed a petition for mandamus against the Commissioner so as to compel it to impose the alleged deficiency tax assessment against Meralco Securities and to award him the corresponding informer’s award. Issue: Whether the Commissioner may be compelled to impose the alleged deficiency tax assessment. Held: Mandamus only lies to enforce the performance of a ministerial act or duty and not to control the performance of discretionary power. power. Mandamus may not be made against teh Commissioner to compel him to impose a tax assessment not found by him to be due or proper, for that would be tantamount to a usurpation of Taxation Law I, 2004 ( 50 )


executive functions. Purely administrative and discretionary functions may not be interfered with by the Courts. The discretionary power vested in the proper executive official, in the absence of arbitrariness or grave abuse so as to go beyonf the statutory authority, is not subject to the contrary judgment or control of others. [97] Commissioner vs. Abad GR L-19627, 27 June 1968 En Banc, Castro (J): 8 concur Facts: Armando Abad (Republic Alcohol Distillery) is a manufacturer and seller of denatured alcohol. On 14 August 1958, he applied for the denaturation of 33,000 gauge liters of rectified alcohol. On 21 August 1958, a denaturing committee from the BIR supervised the denaturation of the alcohol in Abad’s warehouse in Caloocan, Rizal .The alcohol was certified to be denatured by the Committee. Domestic alcohol, when denatured and used for industrial purposes, is exempt from payment of specific tax. In a surprise inspection on 25 August 1958, however, the BIR inspectors found that the alcohol has not been completely denatured and still may be used for compounding liquors. The team also discovered that only 10,480 gauge liters were left. Abad was made liable for specific tax. Issue: Whether the government is estopped by mistakes of its agents. Held: The BIR denaturing committed remissed in its performance of its duties as it certified the alcohol to be denatured, where it was found in a subsequent examination that it is not completely denatured. It is a settled rule in the performance of its governmental functions, the State cannot be estopped by the neglect or omission of its agents. For if otherwise held, it would be easy for manufacturers to evade liability on the pretext that some government official has certified to the quality of their products (and possibly the tax exemption resulting therefrom) and that they have every right to rely on this certificate. Abad was ordered to pay P19,402.20 as specific tax, with interest thereon from the date of last sale. [98] Commissioner vs. Procter & Gamble Philippines GR L-66838, 15 April 1988 Second Division, Paras (J) Facts: Procter and Gamble Philippines is a wholly owned subsidiary of Procter and Gamble USA (PMCUSA), a non-resident foreign corporation in the Philippines, not engaged in trade and business therein. PMCUSA is the sole shareholder of PMC Philippines and is entitled to receive income from PMC Philippines in the form of dividends, if not rents or royalties. For the taxable years 1974 and 1975, PMC Philippines Philippines filed its income tax return and also declared dividends in favor of PMC-USA. In 1977, PMC Philippines, invoking the tax-sparing provision of Section 24 (b) as the withholding agent of the Philippine Government with respect to dividend taxes paid by PMC-USA, filed a claim for the refund of 20 percentage point portion of the 35 percentage whole tax paid with the Commissioner of Internal Revenue. Issue: Whether PMC Philippines is entitled to the 15% preferential tax rate on dividends declared and remitted to its parent corporation. Held: The issue raised is one made for the first time before the Supreme Court. Under the same underlying principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower court cannot be generally raised for the first time on appeal. Nonetheless, it is axiomatic that the state can Taxation Law I, 2004 ( 51 )


never be allowed to jeopardize the government’s government’s financial position. The submission of the Commissioner that PMC Philippines is but a withholding agent of the government and therefore cannot claim reimbursement of alleged overpaid taxes, is completely meritorious. The real party in interest is PMC-USA, which should prove that it is entitled under the US Tax Code to a US Foreign Tax Credit equivalent to at least 20 percentage points spared or waived as otherwise considered or deemed paid by the Government. Herein, the claimant failed to show or justify the tax return of the disputed 15% as it failed to show the actual amount credited by the US Government against the income tax due from PMC-USA on the dividends received from PMC Philippines; to present the income tax return of PMC-USA for 1975 when the dividends were received; and to submit duly authenticated document showing that the US government credited teh 20% tax deemed paid in the Philippines. [99] City Lumber vs. Domingo GR L-18611, 30 January 1964 En Banc, Labrador (J): 8 concur, 2 took no part Facts: The Commissioner assessed on an additional income against City Lunber Inc., representing minor deductions from alleged expenses on undisclosed sales of plywood, nails, and GI sheets amounting to P7,902.07 and on a cash credit balance of P7,896.80. The company claims that the plywood and the GI sheets were actually lost in a fire occuring in the city and thatthe credit cash balance is a loan secured by it. It appears that the regional director reviewing the case reduced the assessment from P5,028.00 to P176. Still, the company alleged that the assessment is violative of Memorandum Order V-634 V-634 (of 3 July 1956), issued by the Commissioner, granting Regional Directors authority to close tax cases involving deficiency assessments not exceeding P10,000 in taxes and penalties. Issue: Whether the assessment violates Memorandum Order V-634. Held: The order in question was applicable only to subordinace officers of the BIR and could not bind the Commissioner himself, who has been entrusted by law to make final assessments. The Commissioner cannot delegate this power to make a final assessment to his subordinate. Delegatus nor potest delegare; i.e. the peroson to whom an office or duty is delegated cannot lawfully devolve the duty on another. [100] Villamin vs. Court of Tax Appeals GR L-11536, 31 October 1960 Second Division, Bautista Angelo (J): 7 concur, 1 concur in result Facts: An assessment was issued by the Provincial Revenue agent of Oriental Mindoro against Tomas B. Villamin. In 1955, Villamin requested reconsideration of the assessment, but which was denied by the Collector of Internal Revenue, through the Acting Chief of the Assessment Assessment Department on 7 June 1955. Issue: Wheth Whether er the the letter letter signed signed by the Acting Acting Chief Chief of the the Assess Assessmen mentt Depart Departmen mentt is the decisi decision on contemplated by law. Held: The issue is of no moment considering that Memorandum Order V-603 V-603 (15 March 1956) of the Bureau of Internal Revenue, which authorizes said official (Acting Chief of Assessment Assessment Department) to sign letters of demand involving assessment in behald of the Collector of Internal Revenue. Moreover, the subsequent letters signed by the Collector affirming and upholding the correctness of the assessment made by his Assessment Taxation Law I, 2004 ( 52 )


Depart Departmen mentt consti constitut tutes es eviden evidentt proof proof that that the offic official ial who who signe signed d the letter letter of 7 June June 1955 1955 was duly duly authorized to do so. [101] Sy Po vs. Court of Tax Appeals GR L-81446, 18 August 1988 Second Division, Sarmiento (J): 3 concur Facts: Bonifacio Sy Po is the widow of the late Po Bien Sing, (who died on 7 September 1980). In the taxable years 1964 to 1972, the deceased Po Bien Sing was the sole proprietor of Silver Cup Wine Factory (Talisay, Cebu), and was engaged in the business of manufacture and sale of compounded liquors, using alcohol and other ingredients as raw materials. On the basis of a denunciation against Silver Cup, the Secretary of Finance directed the Finance-BIR-NBI team to investigate. Silver Cup was required to produce accounting records and other related documents for the examination of the team. Po Bien Sing failed to do so. This prompted the team to enter the factory bodega of Silver Cup and seize different brands, consisting of 1,555 cases of alcohol products. On the basis of the team’s report of investigation, the Commissioner assessed Po Bien Sing deficiency income tax for 1966 to 1970 in thhe amount of P7,154,685.16 and for deficiency specific tax for 2 January 1964 to 19 January 1972 in the amount of P5,595,003.68. Po Bien Sing protested the assessment. Issue: Whether the assessment have valid and legal bases. Held: Section 16 (b) of the National Internal Revenue Code of 1977 is specific and clear. The rule on the “best evidence obtainable” applies when a tax report required by law for the purpose of assessment is not available or when the tax report is incomplete or fraudulent. Herein, the persistent failure of Po Bien Sing and Bonifacia Sy Po to present their books of accounts for examination for the taxable years involved left the Commissioner no other legal option except to resort to the power conferred upon him under Section 16 of the Tax Code.


Digests Tax I (2003)

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