TAXATION 1 CASE DIGESTS ad majorem Dei gloriam 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, authorizing it to sell its land, factories, and oil manufacturing process. The Vegetable Oil Investment 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, 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. 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 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 inducing investors (in VOICP) to involve themselves in experimental enterprise or a business requiring millions pesos.
in an of
The assessment was not reasonable.
Commissioner vs. Cebu Portland Cement GR L-29059, 15 December 1987 First Division, Cruz (J): 4 concur Facts: By virtue of a decision of the Court of Tax Appeals, modified by the Supreme Court, the Commissioner was ordered to refund overpayments of ad valorem taxes on cement produced and sold by the company after October 1957. The company moved for a writ of execution, which was 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 Appeals held that the alleged sales tax liability was still being questioned and therefore cannot be set-off against the refund. 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 the need to collect taxes as “the life blood of the 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 functions would be paralyzed. To require the Commissioner to 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.
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 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 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 may be classified into different 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 businessmen have no uniform costs or expenses necessaryh to produce their income. There is 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.
Lutz vs. Araneta GR L-7859, 22 December 1955 First Division, Reyes JBL (J): 8 concur Facts: Walter 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 Act 567 (the Sugar Adjustment Act), alleging that such tax is unconstitutional as it levied for the aid and support of the sugar industry 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.
Pascual vs. Secretary of Public Communications GR L-10405, 29 December 1960 En Banc, Concepcion (J): 10 concur
Works
and
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 effective on 20 June 1953 pursuant to Section 13 of the Act, the result is that the appropriating sough a private purpose and hence, null and void.
Bagatsing vs. Ramirez GR L-41631, 17 December 1976 En Banc, Martin (J): 7 concur, qualification, 1 reserved vote
1
concur
with
Facts: In 1974, the Municipal Board of Manila enacted Ordinance 7522, regulating the operation of public markets and prescribing fees for the rentals of stalls and providing penalties for violation thereof. The Federation of Manila Market Vendors Inc. assailed the validity of the ordinance, alleging among others the non-compliance to the publication requirement under the Revised Charter of the City of Manila. Issue:
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 Code id a general law because it applies universally to all local governments. Section 17 of the Charter speaks of “ordinance” in general. Whereas, Section 43 of the Local Tax Code relates to “ordinances levying or imposing taxes, fees or other charges” in particular. While the Charter requires publication, before the enactment of the ordinance and after approval thereof, in two daily newspapers of the general circulation in the city, the Local Tax Code only prescribes for publication widely circulated within the jurisdiction of the local government or by posting the ordinance in the local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction of the local government. Being a general law with a special provision applicable in the case, the Local Tax Code prevails.
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 (1949) granted NAPOCOR tax and duty exemption privileges. RA 6395 (1971) revised the charter of the NAPOCOR, tasking it to carry out the policy of the national electrification, and provided in detail NAPOCOR’s tax exceptions. PD 380 (1974) specified that NAPOCOR’s exemption includes all taxes, etc. imposed “directly or indirectly.” PD 938 integrated the exemptions in favor of GOCCs including their subsidiaries; however, empowering the President or the Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or 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 1986) restored such exemption indefinitely effective 1 July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24 June 1987) restoring 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 to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sales of oil products to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58 million). Only portion thereof, corresponding to Caltex, was approved and released by way of a tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltex amounting to 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 of the Philippines. From the very beginning of the corporation’s existence, NAPOCOR enjoyed preferential tax treatment “to enable the corporation to pay the indebtness and
obligation” and effective implementation of the policy enunciated in 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. On the contrary, the law mandates that it should be interpreted liberally so as to enhance the tax exempt status of NAPOCOR. It is recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of government political subdivision or 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.”
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). In 1955, the BIR assessed and demanded against the company deficiency franchise 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. “ The company, hence, is not liable for deficiency taxes.
Hodges vs. Iloilo City GR L-18129, 31 January 1963 En Banc, Bautista 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, 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.
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 effective years 1953 to 1955. In 1955, however, the Assessor reclassified the properties 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 of midwifery is also operated within the premises of the hospital. Issue: Whether St. Catherine’s 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 exclusively to the maintenance of the institution as a public charity. The 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 other 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.
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. Issue: Whether clause.
the
ordinance
violates
the
equal
protection
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 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.
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 86 imposing license tax fees upon tenement house (P25); tenemen house partly engaged or wholly engaged in and 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 Villaniueva 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.
