Taxatation 1

Haystacks
Taxation Law I
Michael Vernon Guerrero Mendiola 2003 Shared under Creative Co ons !ttri"ution# $onCo ercial#Share!like 3%0 &hili''ines license%
So e (i)hts (eserved%
Ta"le o* Contents
!"ra v% Hernando +G( L#,-33./ 30 !u)ust 0-102 3%%%%%%%%% 0 !"ra Valley Colle)e v% !4uino +G( L#3-01./ 05 6une 0-112 3%%%%%%%%% 2 !7S C7$ 7roadcastin) vs% CT! +G%(% $o% L#5230.% 8cto"er 02/ 0-10%2 3%%%%%%%%% 3 ! erican 7i"le Society v% City o* Manila +G( L#-.39/ 30 !'ril 0-592 3%%%%%%%%% . ! erican Mail Line vs% 7asilan +G%(% $o% L#02.,9% May 30/ 0-.0%2 3%%%%%%%%% 1 7a)atsin) vs% (a ire: +G%(% $o% L#,0.30% ;ece "er 09/ 0-9.%2 3%%%%%%%%% 00 7isho' o* $ueva Se)ovia v% &rovincial 7oard/ Ilocos $orte +G( 29511/ 30 ;ece "er 0-292 3%%%%%%%%% 03 Ca)ayan <lectric vs% CI( +G%(% $o% L#.002.% Se'te "er 25/ 0-15%2 3%%%%%%%%% 0, CI( v% !l)ue +G( L#211-./ 09 =e"ruary 0-112 3%%%%%%%%% 05 CI( vs% ! erican (u""er Co 'any +G%(% $o% L#0-..9% $ove "er 2-/ 0-..%2 3%%%%%%%%% 09 CI( vs% 7urrou)hs Ltd% +G%(% $o% L#...53% 6une 0-/ 0-1.%2 3%%%%%%%%% 20 CI( vs% Ce"u &ortland Ce ent +G%(% $o% L#2-05-% ;ece "er 05/ 0-19%2 3%%%%%%%%% 23 CI( vs% Connel 7ros% Co% +G%(% $os% L#29952#53% !u)ust 30/ 0-90%2 3%%%%%%%%% 2, CI( vs% C! +G%(% $o% 001351% 6anuary 20/ 0--5%2 3%%%%%%%%%2. CI( vs% =ire an>s =und Insurance +G%(% $o% L#30.,,% March -/ 0-19%2 3%%%%%%%%% 2CI( vs% Gota co +G%(% $o% L#300-2% =e"ruary 29/ 0-19%2 3%%%%%%%%% 32 CI( vs% Ito)on#Suyoc Mines +G%(% $o% L#252--% 6uly 2-/ 0-.-%2 3%%%%%%%%% 3, CI( vs% Lednicky +G%(% $os% L#010.-/ L#0121./ ? L#20,3,% 6uly 30/ 0-.,%2 3%%%%%%%%% 35 CI( vs% Lin)ayen Gul* <lectric &ower +G%(% $o% L#23990% !u)ust ,/ 0-11%2 3%%%%%%%%% 31 CI( vs% Manila 6ockey Clu" +G%(% $o% L#1955% March 23/ 0-5.%2 3%%%%%%%%% ,0 CI( vs% Me)a General Merchandisin) +G%(% $o% L#.-03.% Se'te "er 30/ 0-11%2 3%%%%%%%%% ,2 CI( vs% &hoenix !ssurance +G%(% $o% L#0-929% May 20/ 0-.5%2 3%%%%%%%%% ,3 CI( vs% (o"ertson +G%(% $os% L#9000.#0-% !u)ust 02/ 0-1.%2 3%%%%%%%%% ,9 Co 'ania General de Ta"acos de =ili'inas vs% Manila +G%(% $o% L#0..0-% 6une 2-/ 0-.3%2 3%%%%%%%%% ,;avao Li)ht and &ower vs% Co issioner o* Custo s +G%(% $os% L#2193- ? L#21-02% March 2-/ 0-92%2 3%%%%%%%%% 50 ;o in)o vs% Garlitos +G( L#01--,/ 2- 6une 0-.3%2 3%%%%%%%%% 52 =rancia vs% I!C +G%(% $o% L#.9.,-% 6une 21/ 0-11%2 3%%%%%%%%% 5, Hilado vs% CI( +G%(% $o% L#-,01% 8cto"er 30/ 0-5.%2 3%%%%%%%%% 59 Lealda <lectric vs% CI( +G%(% $o% L#0.,21% !'ril 30/ 0-.3%2 3%%%%%%%%% 5Lladoc v% Co issioner o* Internal (evenue +G( L#0-200/ 0. 6une 0-.52 3%%%%%%%%% .0 Lut: vs% !raneta +G%(% $o% L#915-% ;ece "er 22/ 0-55%2 3%%%%%%%%% .2 Lu:on Stevedorin) vs% CT! +G%(% $o% L#30232% 6uly 2-/ 0-11%2 3%%%%%%%%% ., Misa is 8riental vs% Ca)ayan <lectric +G%(% $o% ,5355% 6anuary 02/ 0--0%2 3%%%%%%%%% .. $ational ;evelo' ent Co% vs% CI( +G%(% $o% L#53-.0% 6une 30/ 0-19%2 3%%%%%%%%% .$ita*an v% Co issioner o* Internal (evenue +G( L#91910/ 23 6uly 0-192@ (esolution 3%%%%%%%%% 90 &hili''ine !cetylene vs% CI( +G%(% $o% L#0-909% !u)ust 09/ 0-.9%2 3%%%%%%%%% 92 &hili''ine !irlines vs% <du +G%(% $o% L#,0313% !u)ust 05/ 0-11%23%%%%%%%%% 9. &ro)ressive ;evelo' ent Cor'% vs% AC +G%(% $o% 3.010% !'ril 2,/ 0-1-%2 3%%%%%%%%% 10 &unsalan v% Munici'al 7oard o* Manila +G( L#,109/ 2. May 0-5,2 3%%%%%%%%% 1, (ea)an vs% CI( +G%(% $o% L#2.39-% ;ece "er 29/ 0-.-%2 3%%%%%%%%% 15 (e'u"lic vs% Ma "ulao Lu "er +G%(% $o% L#09925% =e"ruary 21/ 0-.2%2 3%%%%%%%%% 11 (e'u"lic vs% Vda% ;e =ernande: +G%(% $o% L#-0,0% Se'te "er 25/ 0-5.%2 3%%%%%%%%% -0 Saldana vs% Iloilo +G%(% $o% L#00,90% 6une 2./ 0-51%2 3%%%%%%%%% -2 Sison v% !ncheta +G( L#5-,30/ 25 6uly 0-1,2 3%%%%%%%%% -, SSS vs% 7acolod City +G%(% $o% L#3592.% 6uly 20/ 0-12%2 3%%%%%%%%% -9 Suri)ao Consolidated Minin) vs% Collector +G%(% $o% L#0,191% ;ece "er 2./ 0-.3%2 3%%%%%%%%% -Tanada v% Tuvera + G( L#.3-05/ 2, !'ril 0-152 3%%%%%%%%% 000 Ville)as v% Hiu Chion) Tsai &ao Ho BG( L#2-.,./ 00 $ov 0-91C 3%%%%%%%%% 002 Visayan Ce"u Ter inal vs% CI( +G%(% $os% L#0-530 ? L#0-,,,% =e"ruary 29/ 0-.5%2 3%%%%%%%%% 003 Donder Mechanical <n)ineerin) vs% CT! +G%(% $os% L#22105 ? L#29151% 6une 30/ 0-95%2 3%%%%%%%%% 005
This collection contains fifty (50) cases summarized in this format by Michael Vernon M. Guerrero (as a sophomore law student) during the irst !emester" school year #00$%#00& in the Ta'ation (aw ) class under *tty. +iogenes Villarubia at the *rellano ,ni-ersity !chool of (aw (*,!(). .ompiled as /+ " 0uly #011. 2erne Guerrero entered *,!( in 0une #00# and e-entually graduated from *,!( in #003. 4e passed the /hilippine bar e'aminations immediately after (*pril #005).
www%"erne)uerrero%co
Haystacks (Berne Guerrero)
[1] Abra v. Hernando [GR L-4933 ! 31 Au"ust 19#1] Second Division, Fernando (p): 3 concur, 1 concur in result, 1 on leave $acts% The provincial assessor made a tax assessment on the properties of the Roman Catholic ishop of an!ued" The #ishop claims tax exemption from real estate tax, throu!h an action for declarator$ relief" %ud!e &ernando of the CF' (#ra presided over the case" The petitioner province filed a motion to dismiss, #ased on lac) of *urisdiction, +hich +as denied" 't +as follo+ed #$ a summar$ *ud!ment !rantin! the exemption +ithout hearin! the side of the petitioner" The Supreme Court !ranted the petition, set aside the 1, %une 1,-. resolution, and ordered the respondent *ud!e, or +hoever is actin! on his #ehalf, to hear the case on merit/ +ithout costs" 1. &'e()t*ons *n 19+3 ,onst*tut*on d*--erent -ro( 193. ,/arter0 Actua11y and d*rect1y 0nder the 1,31 Constitution: 2Cemeteries, churches, and parsona!es or convents appurtenant thereto, and all lands, #uildin!s, and improvements used exclusivel$ for reli!ious, charita#le, or educational purposes shall #e exempt from taxation"3 The 1,-3 Constitution added 2charita#le institutions, mos4ues, and non5profit cemeteries3 and re4uired that for the exemption of 2lands, #uildin!s, and improvements,3 the$ should not onl$ #e 2exclusivel$3 #ut also 2actuall$3 and 2directl$3 used for reli!ious or charita#le purposes" The Constitution is +orded differentl$" The chan!e should not #e i!nored, and must #e dul$ ta)en into consideration" Reliance on past decisions +ould have sufficed +ere the +ords 2actuall$3 as +ell as 2directl$3 not added" There must #e proof therefore of the actual and direct use of the lands, #uildin!s, and improvements for reli!ious or charita#le purposes to #e exempt from taxation" 2. ,onstruct*on o- ta' e'e()t*on 6xemption from taxation is not favored and is never presumed, so that if !ranted it must #e strictl$ construed a!ainst the taxpa$er" (ffirmativel$ put, the la+ fro+ns on exemption from taxation, hence, an exemptin! provision should #e construed strictissimi *uris" 3. 3rocedura1 due )rocess v*o1ated %ud!e accepted at its face the alle!ation of ishop 7 that the certain parcels of land o+ned #$ it, are used 2actuall$, directl$ and exclusivel$3 as sources of support of the parish priest and his helpers and also of the ishop 7 instead of demonstratin! that there is compliance +ith the constitutional provision that allo+s an exemption" There +as an alle!ation of lac) of *urisdiction (contestin! that the validit$ of the assessment ma$ #e 4uestioned #efore the 8ocal oard of (ssessment (ppeals and not the court), and of lac) of cause of action (contestin! that declarator$ relief is not proper, as there had #een #reach or violation of the ri!ht of !overnment to assess and collect taxes on such propert$), +hich should have compel the *ud!e to accord a hearin! to the petitioner rather than decidin! the case immediatel$ in favor of the ishop" 4. Act*on -or dec1aratory re1*e(n action for declarator$ relief +ould #e proper onl$ #efore a #reach or violation of an$ statute, executive order or re!ulation" 'n the case at #ar, there #ein! a tax assessment made #$ the 9rovincial (ssessor on the properties of the ishop, the latter failed to exhaust the administrative remedies availa#le under 9D :;: #efore filin! the court action" [Petitioners contention, not resolved] .. &'/aust*on o- ad(*n*strat*ve re(ed*es 9D :;: provides that no court shall entertain an$ suit assailin! the validit$ of a tax assessed under this Code until the taxpa$er, shall have paid, under protest, the tax assessed a!ainst him nor shall an$ court declare an$ tax invalid #$ reason of irre!ularities or informalities in the proceedin!s of the officers char!ed +ith the assessment or collection of taxes, or of failure to perform their duties +ithin this time herein
4a'at*on La5 6! 2773 ( 1 )
specified for their performance unless such irre!ularities, informalities or failure shall have impaired the su#stantial ri!hts of the taxpa$ers/ nor shall an$ court declare an$ portion of the tax assessed under the provisions of this Code invalid except upon condition that the taxpa$er shall pa$ the *ust amount of the tax, as determined #$ the court in the pendin! proceedin!" [Petitioners contention, not resolved] [2] Abra 8a11ey ,o11e"e v. A9u*no [GR L-397# ! 1. :une 19##] Second Division, 9aras (p): : concur $acts% 9etitioner (#ra <alle$ Colle!e is an educational corporation and institution of hi!her learnin! dul$ incorporated +ith the S6C in 1,:." =n ; %ul$ 1,->, the ?unicipal and 9rovincial treasurers (@aspar os4ue and (rmin Caria!a, respectivel$) and issued a Aotice of SeiBure upon the petitioner for the colle!e lot and #uildin! (=CT C5.3) for the satisfaction of said taxes thereon" The treasurers served upon the petitioner a Aotice of Sale on . %ul$ 1,->, the sale #ein! held on the same da$" Dr" 9aterno ?illare, then municipal ma$or of an!ued, (#ra, offered the hi!hest #id of 9 ;,DDD on pu#lic auction involvin! the sale of the colle!e lot and #uildin!" The certificate of sale +as correspondin!l$ issued to him" The petitioner filed a complaint on 1D %ul$ 1,-> in the court a 4uo to annul and declare void the 2Aotice of SeiBure3 and the 2Aotice of Sale3 of its lot and #uildin! located at an!ued, (#ra, for non5pa$ment of real estate taxes and penalties amountin! to 91,1:D"31" =n 1> (pril 1,-3, the parties entered into a stipulation of facts adopted and em#odied #$ the trial court in its 4uestioned decision" The trial court ruled for the !overnment, holdin! that the second floor of the #uildin! is #ein! used #$ the director for residential purposes and that the !round floor used and rented #$ Aorthern ?ar)etin! Corporation, a commercial esta#lishment, and thus the propert$ is not #ein! used 2exclusivel$3 for educational purposes" 'nstead of perfectin! an appeal, petitioner availed of the instant petition for revie+ on certiorari +ith pra$er for preliminar$ in*unction #efore the Supreme Court, #$ filin! said petition on 1- (u!ust 1,-:" The Supreme Court affirmed the decision of the CF' (#ra ( ranch ') su#*ect to the modification that half of the assessed tax #e returned to the petitioner" The modification is derived from the fact that the !round floor is #ein! used for commercial purposes (leased) and the second floor #ein! used as incidental to education (residence of the director)" 1. 6nter)retat*on o- t/e )/rase ;used e'c1us*ve1y -or educat*ona1 )ur)oses< Section >>, para!raph 3, (rticle <', of the then 1,31 9hilippine Constitution, expressl$ !rants exemption from realt$ taxes for 2Cemeteries, churches and parsona!es or convents appurtenant thereto, and all lands, #uildin!s, and improvements used exclusivel$ for reli!ious, charita#le or educational purposes"3 This constitution is relative to Section 1:, para!raph c, Common+ealth (ct :-D as amended #$ R( :D, ((ssessment 8a+)" (n institution used exclusivel$ for reli!ious, charita#le and educational purposes, and as such, it is entitled to #e exempted from taxation/ not+ithstandin! that it )eeps a lod!in! and a #oardin! house and maintains a restaurant for its mem#ers (E?C( case)" ( lot +hich is not used for commercial purposes #ut serves solel$ as a sort of lod!in! place, also 4ualifies for exemption #ecause this constitutes incidental use in reli!ious functions ( ishop of Aueva Se!ovia case)" 6xemption in favor of propert$ used exclusivel$ for charita#le or educational purposes is Fnot limited to propert$ actuall$ indispensa#leG therefor #ut extends to facilities +hich are incidental to and reasona#l$ necessar$ for the accomplishment of said purposes (&errera v" CueBon Cit$ oard of (ssessment (ppeals)" Hhile the Court allo+s a more li#eral and non5restrictive interpretation of the phrase 2exclusivel$ used for educational purposes,3 reasona#le emphasis has al+a$s #een made that exemption extends to facilities +hich are incidental to and reasona#l$ necessar$ for the accomplishment of the main purposes" The use of the school #uildin! or lot for commercial purposes is neither contemplated #$ la+, nor #$ *urisprudence" 'n the case at #ar, the lease of the first floor of the #uildin! to the Aorthern ?ar)etin! Corporation cannot #$ an$ stretch of the ima!ination #e considered incidental to
4a'at*on La5 6! 2773 ( 2 )
the purpose of education" 2. 4est o- ta' e'e()t*on The test of exemption from taxation is the use of the propert$ for purposes mentioned in the Constitution ((postolic 9refect v" Cit$ Treasurer of a!uio)" 3. 6ssues not ra*sed *n t/e 1o5er court cannot be taken on a))ea10 ru1e re1a'ed *n t/e *nterest o=ust*ce 't is axiomatic that facts not raised in the lo+er court cannot #e ta)en up for the first time on appeal" Aonetheless, as an exception to the rule, the Court has held that althou!h a factual issue is not s4uarel$ raised #elo+, still in the interest of su#stantial *ustice, the Court is not prevented from considerin! a pivotal factual matter" The Supreme Court is clothed +ith ample authorit$ to revie+ palpa#le errors not assi!ned as such if it finds that their consideration is necessar$ in arrivin! at a *ust decision (9ereB vs" C()" [3] AB> ,B? Broadcast*n" vs. ,4A [G.R. ?o. L-.237 . @ctober 12! 19#1.] First Division, ?elencio5&errera (%): : concurrin! $acts% ( S5C A roadcastin! Corporation +as en!a!ed in the #usiness of telecastin! local as +ell as forei!n films ac4uired from forei!n corporations not en!a!ed in trade or #usiness +ithin the 9hilippines, for +hich it paid rentals after +ithholdin! income tax of 3DI of one5half of the film rentals" =n 1> (pril 1,;1, in implementation of Section >: (#) of the Aational 'nternal Revenue Code, the Commissioner of 'nternal Revenue issued @eneral Circular <533:" 9ursuant to the fore!oin!, the compan$ dutifull$ +ithheld and turned over to the ureau of 'nternal Revenue the amount of 3DI of one5half of the film rentals paid #$ it to forei!n corporations not en!a!ed in trade or #usiness +ithin the 9hilippines" The last $ear that the compan$ +ithheld taxes pursuant to the fore!oin! Circular +as in 1,;." =n >- %une 1,;., R( 1:31 amended Section >:(#) of the Tax Code increasin! the tax rate from 3DI to 31I and revisin! the tax #asis from 2such amount3 referrin! to rents" etc" to 2!ross income"3 =n . Fe#ruar$ 1,-1, the Commissioner of 'nternal Revenue issued Revenue ?emorandum Circular :5-1, revo)in! @eneral Circular <533:, and holdin! that the latter +as 2erroneous for lac) of le!al #asis,3 #ecause 2the tax therein prescri#ed should #e #ased on !ross income +ithout deduction +hatever"3 =n the #asis of the ne+ Circular, the Commissioner issued a!ainst the compan$ a letter of assessment and demand dated 1; (pril 1,-1, #ut alle!edl$ released #$ it and received #$ the Commissioner on 1> (pril 1,-1, re4uirin! them to pa$ deficienc$ +ithholdin! income tax on the remitted film rentals for the $ears 1,;1 throu!h 1,;. and film ro$alt$ as of the end of 1,;. in the total amount of 91>1,.,-"D;" =n 1 ?a$ 1,-1, the compan$ re4uested for a reconsideration and +ithdra+al of the assessment" &o+ever, +ithout actin! thereon, the Commissioner, on ; (pril 1,-;, issued a +arrant of distraint and lev$ over the compan$Gs personal as +ell as real properties" The compan$ then filed its 9etition for Revie+ +ith the Court of Tax (ppeals (CT( Case >.D,) +hose Decision, dated >, Aovem#er 1,-,, affirmed the assessment #$ the Commissioner of 'nternal Revenue of a deficienc$ +ithholdin! income tax a!ainst the compan$ for the $ears 1,;1 to 1,;. for a total amount of 91>1,.,-"D; (9-1,.,1">:, 9,,,>3,"1., 91>.,1D>"DD and 9>>>,>;D";:), plus the surchar!e and interest +hich have accrued thereon incident to delin4uenc$, pursuant to Section 11(e) of the Aational 'nternal Revenue Code, as amended/ +ith the costs a!ainst the compan$" &ence, the 9etition for Revie+ on Certiorari" The Supreme Court reversed the *ud!ment of the Court of Tax (ppeals, and set aside the 4uestioned assessment/ +ithout costs" 1. Genera1 ,*rcu1ar 8-334 (12 A)r*1 19 1) @eneral Circular <533: issued #$ Commissioner of 'nternal Revenue reads: 2'n connection +ith
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Section >:(#) of Tax Code, the amendment introduced #$ Repu#lic (ct Ao" >3:3, under +hich an income tax e4ual to 3DI is levied upon the amount received #$ ever$ forei!n corporation not en!a!ed in trade or #usiness +ithin the 9hilippines from all sources +ithin this countr$ as interest, dividends, rents, salaries, +a!es, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determina#le annual or periodical !ains, profits and income, it has #een determined that the tax is still imposed on income derived from capital, or la#or, or #oth com#ined, in accordance +ith the #asic principle of income taxation (Sec" 3,, 'ncome Tax Re!ulations), and that a mere return of capital or investment is not income (9ar" 1"D;, 1 ?ertens 8a+ of Federal Taxation)" Since accordin! to the findin!s of the Special Team +ho in4uired into #usiness of the non5resident forei!n film distri#utors, the distri#ution or exhi#ition ri!ht on a film is invaria#l$ ac4uired for a consideration, either for a lump sum or a percenta!e of the film rentals, +hether from a parent compan$ or an independent outside producer, a part of the receipts of a non5resident forei!n film distri#utor derived from said film represents, therefore, a return of investment" xxx :" The local distri#utor should +ithhold 3DI of one5half of the film rentals paid to the non5resident forei!n film distri#utor, and pa$ the same to this office in accordance +ith la+ unless the non5resident forei!n film distri#utor ma)es a prior settlement of its income tax lia#ilit$"3 2. Revenue Ae(orandu( ,*rcu1ar 4-+1 (# $ebruary 19+1) Revenue ?emorandum Circular :5-1 #$ the Commissioner of 'nternal Revenue stated that 2(fter a restud$ and anal$sis of Section >:(#) of the Aational 'nternal Revenue Code, as amended #$ Repu#lic (ct Ao" 1:31, and !uided #$ the interpretation !iven #$ tax authorities to a similar provision in the 'nternal Revenue Code of the 0nited States, on +hich the aforementioned provision of our Tax Code +as patterned, this =ffice has come to the conclusion that the tax therein prescri#ed should #e #ased on !ross income +ithout deduction +hatever" Conse4uentl$, the rulin! in @eneral Circular Ao" <533:, dated (pril 1>, 1,;1, allo+in! the deduction of the proportionate cost of production or exhi#ition of motion picture films from the rental income of non5resident forei!n corporations, is erroneous for lac) of le!al #asis" 'n vie+ thereof, @eneral Circular Ao" <533:, dated (pril 1>, 1,;1, is here#$ revo)ed and henceforth, local films distri#utors and exhi#itors shall deduct and +ithhold 31I of the entire amount pa$a#le #$ them to non5resident forei!n corporations, as film rental or ro$alt$, or +hatever such pa$ment ma$ #e denominated, +ithout an$ deduction +hatever, pursuant to Section >:(#), and pa$ the +ithheld taxes in accordance +ith Section 1: of the Tax Code, as amended" (ll rulin!s inconsistent +ith his Circular is li)e+ise revo)ed"3 3. >tatutory bas*s o- Genera1 ,*rcu1ar 8-334 and Ae(orandu( ,*rcu1ar 4-+1! a--ect*n" >ect*on 24(b) o- t/e 4a' ,ode R( >3:3, dated >D %une 1,1,, +hich +as the #asis of @eneral Circular Ao" <533:, +as *ust one in a series of enactments re!ardin! Sec" >:(#) of the Tax Code" R( 3.>1 came next on >> %une 1,;3/ and R( 3.:1 similarl$ dated >> %une 1,;3" 't +as onl$ on >- %une 1,;. under R( 1:31 +hich #ecame the #asis of Revenue ?emorandum Circular Ao" :5-1, that Sec" >:(#) +as amended to refer specificall$ to 31I of the 2!ross income"3 4. >ect*on 24 (b) o- t/e ?at*ona1 6nterna1 Revenue! as a(ended by RA 2343 (27 :une 19.9) 'n so far as the income tax on non5resident corporations is concerned, Section >:(#) of the Aational 'nternal Revenue Code, as amended #$ R( >3:3 dated >D %une 1,1,, used to provide: (#) Tax on forei!n corporations" J (1) Aon5resident corporations" J There shall #e levied, collected, and paid for each taxa#le $ear, in lieu of the tax imposed #$ the precedin! para!raph, upon the amount received #$ ever$ forei!n corporation not en!a!ed in trade or #usiness +ithin the 9hilippines, from all sources +ithin the 9hilippines, as interest, dividends, rents, salaries, +a!es, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determina#le annual or periodical !ains, profits and income, a tax e4ual to thirt$ per centum of such amount"3 .. >ect*on 24 (b) o- t/e ?at*ona1 6nterna1 Revenue! as a(ended by RA 3#2. (22 :une 19 3) Section >:(#) of the Aational 'nternal Revenue Code, as amended #$ R( 3.>1 dated >> %une 1,;3,
4a'at*on La5 6! 2773 ( 4 )
provides: 2(#) Tax on forei!n corporation" J (1) Aon5resident corporations" J There shall #e levied, collected, and paid for each taxa#le $ear, in lieu of the tax imposed #$ the precedin! para!raph, upon the amount received #$ ever$ forei!n corporation not en!a!ed in trade or #usiness +ithin the 9hilippines, from all sources +ithin the 9hilippines, as interest, dividends, rents, salaries, +a!es, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determina#le annual or periodical !ains, profits and income, a tax e4ual to thirt$ per centum of such amount: 9R=<'D6D, &=H6<6R, T&(T 9R6?'0?S S&(88 A=T 'AC80D6 R6'AS0R(AC6 9R6?'0?S"3 >ect*on 24 (b) o- t/e ?at*ona1 6nterna1 Revenue! as a(ended by RA 3#41 (22 :une 19 3) Section >:(#) of the Aational 'nternal Revenue Code, as amended #$ R( 3.:1 similarl$ dated >> %une 1,;3, provides: Tax on forei!n corporations" J (1) Aon5resident corporations" J There shall #e levied, collected and paid for each taxa#le $ear, in lieu of the tax imposed #$ the precedin! para!raph, upon the amount received #$ ever$ forei!n corporation not en!a!ed in trade or #usiness +ithin the 9hilippines, from all sources +ithin the 9hilippines, as interest, dividends, rents, salaries, +a!es, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determina#le annual or periodical =R C(S0(8 !ains, profits and income, (AD C(9'T(8 @('AS, a tax e4ual to thirt$ per centum of such amount"3 +. >ect*on 24 (b) o- t/e ?at*ona1 6nterna1 Revenue! as a(ended by RA .431 (2+ :une 19 #) Section >:(#) of the Aational 'nternal Revenue Code, as amended #$ R( 1:31 dated >- %une 1,;., provides: 2(#) Tax on forei!n corporations" J (1) Aon5resident corporations" J ( forei!n corporation not en!a!ed in trade or #usiness in the 9hilippines includin! a forei!n life insurance compan$ not en!a!ed in the life insurance #usiness in the 9hilippines shall pa$ a tax e4ual to thirt$5five per cent of the !ross income received durin! each taxa#le $ear from all sources +ithin the 9hilippines, as interests, dividends, rents, ro$alties, salaries, +a!es, premiums, annuities, compensations, remunerations for technical servicesor other+ise, emoluments or other fixed or determina#le annual, periodical or casual !ains, profits and income, and capital !ains, 9rovided, ho+ever, That premiums shall not include reinsurance premiums"3 #. >ect*on 33#-A! as *nserted by RA 117 (9 Au"ust 19 9)0 ?on-retroact*v*ty o- Ru1*n"s Section 33.5( (no+ Sec" 3>-/ Aon5retroactivit$ of rulin!s) of the Tax Code, as inserted #$ R( ;11D on , (u!ust 1,;,, provides: 2(n$ revocation, modification, or reversal of an$ of the rules and re!ulations promul!ated in accordance +ith the precedin! Section or an$ of the rulin!s or circulars promul!ated #$ the Commissioner of 'nternal Revenue shall not #e !iven retroactive application if the revocation, modification, or reversal +ill #e pre*udicial to the taxpa$ers, except in the follo+in! cases: (a) +here the taxpa$er deli#eratel$ mis5states or omits material facts from his return or an$ document re4uired of him #$ the ureau of 'nternal Revenue/ (#) +here the facts su#se4uentl$ !athered #$ the ureau of 'nternal Revenue are materiall$ different from the facts on +hich the rulin! is #ased/ or (c) +here the taxpa$er acted in #ad faith"3 9. Ru1*n"s 5*t/out retroact*ve a))1*cat*on *- a))1*cat*on )re=ud*c*a1 to ta')ayer0 ,o()any does not -a11 under e'ce)t*ons to a11o5 retroact*v*ty Rulin!s or circulars promul!ated #$ the Commissioner of 'nternal Revenue have no retroactive application +here to so appl$ them +ould #e pre*udicial to taxpa$ers" 'n the present case, the pre*udice to the compan$ of the retroactive application of ?emorandum Circular :5-1 is #e$ond 4uestion" 't +as issued onl$ in 1,-1, or 3 $ears after 1,;., the last $ear that the compan$ had +ithheld taxes under @eneral Circular <5 33:" The assessment and demand on compan$ to pa$ deficienc$ +ithholdin! income tax +as also made 3 $ears after 1,;. for a period of time commencin! in 1,;1" The compan$ +as no lon!er in a position to +ithhold taxes due from forei!n corporations #ecause it had alread$ remitted all film rentals and no lon!er had an$ control over them +hen the ne+ Circular +as issued" (nd in so far as the enumerated exceptions are concerned, admittedl$, the compan$ does not fall under an$ of them" 17. Rat*ona1e be/*nd Genera1 ,*rcu1ar 8-334 The rationale #ehind @eneral Circular <533: +as clearl$ stated in the CT( rulin!, i"e" 2't had #een
4a'at*on La5 6! 2773 ( . )
determined that the tax is still imposed on income derived from capital, or la#or, or #oth com#ined, in accordance +ith the #asic principle of income taxation " " " and that a mere return of capital or investment is not income" " " "3 2( part of the receipts of a non5resident forei!n film distri#utor derived from said film represents, therefore, a return of investment"3 The circular thus fixed the return of capital at 1DI to simplif$ the administrative chore of determinin! the portion of the rentals coverin! the return of capital" Here the 2!ross income3 #ase clear from Sec" >:(#), perhaps, the ratiocination of the Tax Court could #e upheld" 17. 3r*nc*)1e o- 1e"*s1at*ve a))rova1 o- ad(*n*strat*ve *nter)retat*on by re-enact(ent The principle of le!islative approval of administrative interpretation #$ re5enactment clearl$ o#tains in the present case" 't provides that 2the re5enactment of a statute su#stantiall$ unchan!ed is persuasive indication of the adoption #$ Con!ress of a prior executive construction"3 Aote should #e ta)en of the fact that the case involves not a mere opinion of the Commissioner or rulin! rendered on a mere 4uer$, #ut a Circular formall$ issued to 2all internal revenue officials3 #$ the then Commissioner of 'nternal Revenue" 11. Govern(ent never esto))ed -ro( co11ect*n" ta'es because o- errors on )art o- *ts a"ents0 &'ce)t*on% "ood -a*t/ The @overnment is never estopped from collectin! taxes #ecause of mista)es or errors on the part of its a!ents" ut, li)e other principles of la+, this also admits of exceptions in the interest of *ustice and fairpla$" The insertion of Sec" 33.5( into the Aational 'nternal Revenue Code, as held in the case of Tuason, %r" vs" 8in!ad, is indicative of le!islative intention to support the principle of !ood faith" 'n fact, in the 0nited States, from +here Sec" >:(#) +as patterned, it has #een held that the Commissioner or Collector is precluded from adoptin! a position inconsistent +ith one previousl$ ta)en +here in*ustice +ould result therefrom, or +here there has #een a misrepresentation to the taxpa$er" 12. @rder to )ay *nterest and surc/ar"e unca11ed -or The Decision of the Court of Tax (ppeals re4uirin! the compan$ to pa$ interest and surchar!e, as provided for in Sec" 11(e) of the Tax Code in addition to the deficienc$ +ithholdin! tax of 91>1,.,-"D;, is much less called for #ecause the compan$ relied in !ood faith and reli!iousl$ complied +ith no less than a Circular issued 2to all internal revenue officials3 #$ the hi!hest official of the ureau of 'nternal Revenue and approved #$ the then Secretar$ of Finance" [4] A(er*can B*b1e >oc*ety v. ,*ty o- Aan*1a [GR L-9 3+! 37 A)r*1 19.+] Second Division, Felix (p): - concur, 1 concur in result $acts% 9laintiff5appellant, (merican i#le Societ$, is a forei!n, non5stoc), non5profit, reli!ious, missionar$ corporation dul$ re!istered and doin! #usiness in the 9hilippines throu!h its 9hilippine a!enc$ esta#lished in ?anila in Aovem#er 1.,." The defendant5appellee, Cit$ of ?anila, is a municipal corporation +ith po+ers that are to #e exercised in conformit$ +ith the provisions of R( :D,, (Revised Charter of the Cit$ of ?anila)" 'n the course of its ministr$, plaintiffGs 9hilippine a!enc$ has #een distri#utin! and sellin! #i#les andKor !ospel portions thereof (except durin! the %apanese occupation) throu!hout the 9hilippines and translatin! the same into several 9hilippine dialects" =n >, ?a$ 1,13, the actin! Cit$ Treasurer of the Cit$ of ?anila informed plaintiff that it +as conductin! the #usiness of !eneral merchandise since Aovem#er 1,:1, +ithout providin! itself +ith the necessar$ ?a$orGs permit and municipal license, in violation of =rdinance 3DDD, as amended, and =rdinances >1>,, 3D>. and 33;:, and re4uired plaintiff to secure, +ithin 3 da$s, the correspondin! permit and license fees, to!ether +ith compromise coverin! the period from the :th 4uarter of 1,:1 to the >nd 4uarter of 1,13, in the total sum of 91,.>1":1" =n >: =cto#er 1,13, plaintiff paid to the defendant under protest the said permit and license fees, !ivin! at the same time notice to the Cit$ Treasurer that suit +ould #e ta)en in court to 4uestion the le!alit$ of
4a'at*on La5 6! 2773 ( )
the ordinances under +hich the said fees +ere #ein! collected, +hich +as done on the same date #$ filin! the complaint that !ave rise to this action" (fter hearin!, the lo+er court dismissed the complaint for lac) of merit" 9laintiff appealed to the C(,, +hich in turn certified the case to the Supreme Court for the reason that the errors assi!ned involved onl$ 4uestions of la+" The Supreme Court reversed the decision appealed and orderin! the defendant to return to plaintiff the sum of 91,.,1":1 undul$ collected from it/ +ithout pronouncement as to costs" 1. Re)ea1 o- >tatutes0 Reenact(ent neutra1*Bes t/e re)ea1! 1a5 *n -orce 5*t/out *nterru)t*on =ften the le!islature, instead of simpl$ amendin! the preexistin! statute, +ill repeal the old statute in its entiret$ and #$ the same enactment re5enact all or certain portions of the preexistin! la+" =f course, the pro#lem created #$ this sort of le!islative action involves mainl$ the effect of the repeal upon ri!hts and lia#ilities +hich accrued under the ori!inal statute" The authorities are divided as to the effect of simultaneous repeals and re5 enactments" Some adhere to the vie+ that the ri!hts and lia#ilities accrued under the repealed act are destro$ed, since the statutes from +hich the$ spran! are actuall$ terminated, even thou!h for onl$ a ver$ short period of time" =thers, and the$ seem to #e in the ma*orit$, refuse to accept this vie+ of the situation, and conse4uentl$ maintain that all ri!hts and lia#ilities +hich have accrued under the ori!inal statute are preserved and ma$ #e enforced, since the re5enactment neutraliBes the repeal, therefore continuin! the la+ in force +ithout interruption" 'n the case at #ar, #ased on the latter vie+, the Court held that the 4uestioned ordinances of the Cit$ of ?anila are still in force and effect" 2. A))rova1 o- 3res*dent o- (un*c*)a1 ta' (easures not needed *n case at bar (n ordinance prescri#in! a municipal tax on a #usiness does not have to #e approved #$ the 9resident to #e effective if it is not amon! those referred to in su#section (ii), Section 1., R( :D, (Retail dealers in !eneral merchandise is expressl$ enumerated in su#section (o) of the same section)" 3. $reedo( o- re1*"*ous )ro-ess*on and 5ors/*) (rticle ''', section 1, clause (-) of the Constitution !uarantees the freedom of reli!ious profession and +orship" Reli!ion has #een spo)en of as Fa profession of faith to an active po+er that #inds and elevates man to its Creator ((!lipa$ v" RuiB)" 't has reference to oneGs vie+s of his relations to &is Creator and to the o#li!ations the$ impose of reverence to &is #ein! and character, and o#edience to &is Hill (Davis v" eason)" The constitutional !uarant$ of the free exercise and en*o$ment of reli!ious profession and +orship carries +ith it the ri!ht to disseminate reli!ious information" (n$ restraint of such ri!ht can onl$ #e *ustified li)e other restraints of freedom of expression on the !rounds that there is a clear and present dan!er of an$ su#stantive evil +hich the State has the ri!ht to prevent" (TaLada and Fernando)" 4. 4a' on )ro)erty *s d*--erent -ro( ta' to e'erc*se re1*"*ous r*"/ts0 ?ature o- 1*cense ta' ( tax on the income of one +ho en!a!es in reli!ious activities is different from a tax on propert$ used or emplo$ed in connection +ith those activities" 't is one thin! to impose a tax on the income or propert$ of a preacher" 't is 4uite another thin! to exact a tax from him for the privile!e of deliverin! a sermon" The po+er to tax the exercise of a privile!e is the po+er to control or suppress its en*o$ment" The po+er to impose a license tax on the exercise of these freedoms is indeed as potent as the po+er of censorship +hich this Court has repeatedl$ struc) do+n" 't is not a nominal fee imposed as a re!ulator$ measure to defra$ the expenses of policin! the activities in 4uestion" 't is in no +a$ apportioned" 't is flat license tax levied and collected as a condition to the pursuit of activities +hose en*o$ment is !uaranteed #$ the constitutional li#erties of press and reli!ion and inevita#l$ tends to suppress their exercise" Such is the inherent vice and evil of a flat license tax" .. Re1*"*ous -reedo( )re-erred over )ro)erty r*"/ts Dissemination of reli!ious information cannot #e conditioned upon the approval of an official or mana!er" The ri!ht to en*o$ freedom of the press and reli!ion occupies a preferred position as a!ainst the
4a'at*on La5 6! 2773 ( + )
constitutional ri!ht of propert$ o+ners" $*nanc*a1 burden u)on re1*"*ous "rou)s and )ress0 )1a*nt*-- e'e()ted Reli!ious !roups and the press are not free from all financial #urdens of !overnment" Section >- (e) of Common+ealth (ct :;; (A'RC) exempts corporations or associations or!aniBed and operated exclusivel$ for reli!ious, charita#le, or educational purposes, Provided however, That the income of whatever kind and character from any of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition made of such income, shall be liable to the tax imposed under the Code 'n the case at #ar, the act of distri#utin! and sellin! #i#les, etc" is purel$ reli!ious and does not fall under said le!al provisions" +. @rd*nance 2.29 not a))1*cab1e to )1a*nt*-=rdinance >1>,, as amended, cannot #e applied to the Societ$, for in doin! so it +ould impair its free exercise and en*o$ment of its reli!ious profession and +orship as +ell as its ri!hts of dissemination of reli!ious #eliefs" The fact that the price of the #i#les and other reli!ious pamphlets are little hi!her than the actual cost of the same does not necessaril$ mean that it is alread$ en!a!ed in the #usiness or occupation of sellin! said 2merchandise3 for profit" #. @rd*nance 3777 not unconst*tut*ona1! not a))1*cab1e to )1a*nt*-=rdinance 3DDD of the Cit$ of ?anila is of !eneral application and it does not contain an$ provisions +hatsoever prescri#in! reli!ious censorship nor restrainin! the free exercise and en*o$ment of an$ reli!ious profession" The =rdinance, +hich re4uires the o#tention of the ?a$orGs permit #efore an$ person can en!a!e in an$ of the #usinesses, trades or occupations enumerated therein, does not impose an$ char!e upon the en*o$ment of a ri!ht !ranted #$ the Constitution, nor tax the exercise of reli!ious practices" The ordinance is not applica#le to the plaintiff, as its #usiness, trade or occupation is not particularl$ mentioned in Section 3 of the =rdinance, and the record does not sho+ that a permit is re4uired therefor under existin! la+s and ordinances for the proper supervision and enforcement of their provisions !overnin! the sanitation, securit$ and +elfare of the pu#lic and the health of the emplo$ees en!a!ed in the #usiness of the plaintiff" 't must #e noted that, ho+ever, that =rdinance 3DDD cannot #e considered unconstitutional even if applied to the plaintiff" 9. Aun*c*)a1 )er(*ts do not *()a*r re1*"*ous -reedo( (C>) (n ordinance declarin! that the practice of distri#utin! either #$ hand or other+ise, circulars, hand#oo)s, advertisin!, or literature of an$ )ind, +hether said articles are #ein! delivered free, or +hether same are #ein! sold +ithin the limits of a cit$, +ithout first o#tainin! +ritten permission from the cit$ mana!er of the Cit$, can #e deemed a nuisance and punisha#le as an offense, does not deprive defendant of his constitutional ri!ht of the free exercise and en*o$ment of reli!ious profession and +orship, even thou!h it prohi#its him from introducin! and carr$in! out a scheme or purpose +hich he sees fit to claim as a part of his reli!ious s$stem (case involvin! Cit$ of @riffin)" [.] A(er*can Aa*1 L*ne vs. Bas*1an [G.R. ?o. L-12 4+. Aay 31! 19 1.] 6n anc, DiBon (%): , concur, 1 too) no part $acts% =n 1> Septem#er 1,11 the Cit$ Council of asilan Cit$ enacted =rdinance 1.D, Series of 1,11, amendin! Title '<, =rdinance -, Series of 1,:. #$ addin! thereto Section 1 (D) and Sections > (C) and (D)" Section 1 (D) provides that 2an$ forei!n vessel en!a!ed in coast+ise trade +hich ma$ anchor at an$ open #a$, channel, or an$ loadin! point +ithin the territorial +aters of the Cit$ of asilan for the purpose of loadin! or unloadin! lo!s or passen!ers and other car!oes shall pa$ an anchora!e fee of 1K> centavo (9"DD1) per re!istered !ross ton of the vessel for the first t+ent$5four (>:) hours, or part thereof, 9R=<'D6D, that maximum char!e shall not exceed, sevent$5five pesos (9-1"DD) per da$, irrespective of the !reater tonna!e of
4a'at*on La5 6! 2773 ( # )
the vessels"3 (merican ?ail 8ine, et" al", are forei!n shippin! companies licensed to do #usiness in the 9hilippines, +ith offices in ?anila" Their vessels call at asilan Cit$ and anchor in the #a$ or channel +ithin its territorial +aters" (s the cit$ treasurer assessed and attempted to collect from them the anchora!e fees prescri#ed in the amendator$ ordinance, the$ filed the action for Declarator$ Relief to have the courts determine its validit$" 0pon their petition the CF' ?anila issued a +rit of preliminar$ in*unction restrainin! appellants from collectin! or attemptin! to collect from them the fees prescri#ed therein" (fter the denial of the cit$Gs motion to dismiss the complaint on the !round of +ron! venue, the$ filed their ans+er alle!in! therein that the Cit$ of asilan had authorit$, throu!h its cit$ council, to enact the 4uestioned ordinance in the exercise of either its revenue5raisin! po+er or of its police po+er" The$ also filed a counterclaim to recover alle!ed uncollected anchora!e dues amountin! to 9-,1DD"DD, and the sum of 9>,DDD"DD for expenses incurred in defendin! the suit" The lo+er court declared =rdinance 1.D, Series of 1,11, of the Cit$ of asilan ille!al and void and dismissin! the cit$Gs counterclaim for lac) of merit" The Supreme Court affirmed the decision appealed from, and made final the preliminar$ in*unction issued/ +ithout costs" 1. ,*ty o- Bas*1an not "ranted a b1anket )o5er o- ta'at*on0 Aean*n" o- t/e )/rase ;6n accordance 5*t/ 1a5< 0nder para!raph (a) of the Charter of the Cit$ of asilan (R( >..), +hich provides that the council has the le!islative po+ers to onl$ lev$ and collect taxes for !eneral and special purposes in accordance +ith or as provided #$ la+" The Cit$ of asilan +as not !ranted a #lan)et po+er of taxation" The use of the phrase 2in accordance +ith la+3 means the same 2as provided #$ la+3 clearl$ discloses the le!islative intent to limit the taxin! po+er of the Cit$" 2. >ect*on 14 (v) does not aut/or*Be t/e c*ty to )ro(u1"ate ord*nance -or t/e co11ect*on oAnc/ora"e -ees Section 1: (v) of R( >.., +hich provides that the council has the le!islative po+er to fix the char!es to #e paid #$ all +atercraft landin! at or usin! pu#lic +harves, doc)s, levees, or landin! places, does not authoriBe the Cit$ of asilan to promul!ate ordinances providin! for the collection of 2(nchora!e3 fees" This is clearl$ not included in the po+er !ranted #$ the provision under consideration 2to fix the char!es to #e paid #$ all +atercraft landin! at or usin! pu#lic +harves, doc)s, levees or landin! places3" That this is so is sho+n #$ the need +hich the Cit$ of asilan had to enact the amendator$ ordinance" 3. 3o5er to re"u1ate as e'erc*se o- )o1*ce )o5er does not *nc1ude )o5er to *()ose -ees -or revenue )ur)oses The po+er to re!ulate as an exercise of police po+er does not include the po+er to impose fees for revenue purposes (Cu 0n*ien! vs" 9atstone, :> 9hil", .1./ 9acific Commercial Co" vs" RomualdeB, etc", et al", :; 9hil", ,1-/ (r4uiBa etc" vs" ?unicipalit$ of Mam#oan!a, 11 9hil", ;13)" 4. $ees -or re"u1atory )ur)ose enou"/ -or e')enses o- *ssu*n" 1*cense! cost o- *ns)ect*on or surve*11ance 'n the Cu 0n*ien! case it +as held that fees for purel$ re!ulator$ purposes 2ma$ onl$ #e of sufficient amount to include the expenses of issuin! the license and the cost of the necessar$ inspection or police surveillance, ta)in! into account not onl$ the expense of direct re!ulation #ut also incidental expenses" 'n ?anila 6lectric Co" vs" (uditor @eneral (-3 9hil", 1>,5131), it +as also held that the re!ulator$ fee 2must #e no more than sufficient to cover the actual cost of inspection or examination as nearl$ as the same can #e estimated" 'f it +ere possi#le to prove in advance the exact cost, that +ould #e the limit of the fee"3 .. @rd*nance *ntended -or revenue )ur)oses The fees re4uired are intended for revenue purposes" 'n the first place, #ein! #ased upon the tonna!e of the vessels, the fees have no proper or reasona#le relation to the cost of issuin! the permits and the cost of
4a'at*on La5 6! 2773 ( 9 )
inspection or surveillance" 'n the second place, the fee imposed on forei!n vessels J 1K> centavo per re!istered !ross ton for the first >: hours, and +hich shall not exceed 9-1"DD per da$ J exceeds even the har#or fee imposed #$ the Aational @overnment, +hich is onl$ 91D"DD for forei!n vessels (Sec" >-D> of the Tariff and Customs Code, R( 1,3-, ta)en from Sec" >, R( 131- +hich +as enacted #$ Con!ress to raise revenues for the 9ort Hor)s Fund)" ?oreover, ?ariano ?ancao, 9ort 'nspector of the Cit$ of asilan, in his affidavit dated 1- Fe#ruar$ 1,1;, states that +ere it not for the in*unction issued #$ the lo+er court in the present case, the cit$ 2+ould have collected considera#le amounts from the plaintiffs for anchora!e fees3" (ll these circumstances point to the conclusion that the fees +ere intended for revenue purposes" &sto))e1 The cit$Gs o+n contention that the 4uestioned ordinance +as enacted in the exercise of its po+er of taxation, ma)es it o#vious that the fees imposed therein are not merel$ re!ulator$" [ ] Ba"ats*n" vs. Ra(*reB [G.R. ?o. L-41 31. Dece(ber 1+! 19+ .] 6n anc, ?artin (%): - concurrin!, 1 4ualified his concurrence, 1 reserved his vote $acts% =n 1> %une 1,-:, the ?unicipal oard of ?anila enacted =rdinance -1>>, 2(n ordinance re!ulatin! the operation of pu#lic mar)ets and prescri#in! fees for the rentals of stalls and providin! penalties for violation thereof and for other purposes"3 The Cit$ ?a$or, Ramon D" a!atsin!, approved the ordinance on 11 %une 1,-:" =n 1- Fe#ruar$ 1,-1, the Federation of ?anila ?ar)et <endors 'nc" commenced Civil Case ,;-.- #efore the CF' ?anila ( ranch NNN, presided over #$ %ud!e 9edro RamireB), see)in! the declaration of nullit$ of =rdinance -1>> for the reason that (a) the pu#lication re4uirement under the Revised Charter of the Cit$ of ?anila has not #een complied +ith/ (#) the ?ar)et Committee +as not !iven an$ participation in the enactment of the ordinance, as envisioned #$ R( ;D3,/ (c) Section 3 (e) of the (nti5@raft and Corrupt 9ractices (ct has #een violated/ and (d) the ordinance +ould violate 9D - of 3D Septem#er 1,-> prescri#in! the collection of fees and char!es on livestoc) and animal products" Resolvin! the accompan$in! pra$er for the issuance of a +rit of preliminar$ in*unction, the %ud!e issued an order on 1 ?arch 1,-1, den$in! the plea for failure of the Federation to exhaust the administrative remedies outlined in the 8ocal Tax Code" (fter due hearin! on the merits, the %ud!e rendered its decision on >, (u!ust 1,-1, declarin! the nullit$ of =rdinance -1>> of the Cit$ of ?anila on the primar$ !round of non5compliance +ith the re4uirement of pu#lication under the Revised Cit$ Charter" ?a$or a!atsin!, the Secretar$ to the ?a$or (Roman @" @ar!antiel), the ?ar)et (dministrator and the ?unicipal oard of ?anila moved for reconsideration of the adverse decision, stressin! that (a) onl$ a post5 pu#lication is re4uired #$ the 8ocal Tax Code/ and (#) the Federation failed to exhaust all administrative remedies #efore institutin! an action in court" =n >; Septem#er 1,-1, the %ud!e denied the motion" Forth+ith, ?a$or a!atsin!, et" al" #rou!ht the matter to the Supreme Court throu!h the present petition for revie+ on certiorari" The Supreme Court reversed and set aside the decision of the lo+er court, and holdin! that =rdinance -1>> of the Cit$ of ?anila, dated 11 %une 1,-1 to have #een validl$ enacted/ +ithout costs" 1. >ect*on 1+ o- t/e Rev*sed ,/arter o- Aan*1a (RA 479! as a(ended) Section 1- of the Revised Charter of ?anila provides: 26ach proposed ordinance shall #e pu#lished in t+o dail$ ne+spapers of !eneral circulation in the cit$, and shall not #e discussed or enacted #$ the oard until after the third da$ follo+in! such pu#lication" " " " 6ach approved ordinance " " " shall #e pu#lished in t+o dail$ ne+spapers of !eneral circulation in the cit$, +ithin ten da$s after its approval/ and shall ta)e effect and #e in force on and after the t+entieth da$ follo+in! its pu#lication, if no date is fixed in the ordinance"3 .
4a'at*on La5 6! 2773 ( 17 )
2.
>ect*on 43 o- t/e Loca1 4a' ,ode (3D 231) Section :3 of the 8ocal Tax Code directs 2Hithin ten da$s after their approval, certified true copies of all provincial, cit$, municipal and #arrio ordinances lev$in! or imposin! taxes, fees or other char!es shall #e pu#lished for three consecutive da$s in a ne+spaper or pu#lication +idel$ circulated +ithin the *urisdiction of the local !overnment, or posted in the local le!islative hall or premises and in t+o other conspicuous places +ithin the territorial *urisdiction of the local !overnment" 'n either case, copies of all provincial, cit$, municipal and #arrio ordinances shall #e furnished the treasurers of the respective component and mother units of a local !overnment for dissemination"3 3. ,o()ar*son o- t/e 1a5s as to t/e *ssue o- )ub1*cat*on Hhile the Revised Charter of the Cit$ of ?anila re4uires pu#lication #efore the enactment of the ordinance and after the approval thereof in t+o dail$ ne+spapers of !eneral circulation in the cit$, the 8ocal Tax Code onl$ prescri#es for pu#lication after the approval of 2ordinances lev$in! or imposin! taxes, fees or other char!es3 either in a ne+spaper or pu#lication +idel$ circulated +ithin the *urisdiction of the local !overnment or #$ postin! the ordinance in the local le!islative hall or premises and in t+o other conspicuous places +ithin the territorial *urisdiction of the local !overnment" 4. Genera1 and s)ec*a1 1a5s de-*ned The Revised Charter of the Cit$ of ?anila is a special act since it relates onl$ to the Cit$ of ?anila, +hereas the 8ocal Tax Code is a !eneral la+ #ecause it applies universall$ to all local !overnments" lac)stone defines !eneral la+ as a universal rule affectin! the entire communit$ and special la+ as one relatin! to particular persons or thin!s of a class" .. >)ec*a1 1a5 not ord*nar*1y re)ea1ed by subse9uent "enera1 1a50 Ru1e y*e1ds *- s)ec*a1 statute re-ers to a sub=ect *n "enera1 5/*c/ t/e "enera1 statute treats *n )art*cu1ar ( prior special la+ is not ordinaril$ repealed #$ a su#se4uent !eneral la+" The fact that one is special and the other !eneral creates a presumption that the special is to #e considered as remainin! an exception of the !eneral, one as a !eneral la+ of the land, the other as the la+ of a particular case" &o+ever, the rule readil$ $ields to a situation +here the special statute refers to a su#*ect in !eneral, +hich the !eneral statute treats in particular" The exactl$ is the circumstance o#tainin! in the present case" Section 1- of the Revised Charter of the Cit$ of ?anila spea)s of 2ordinance3 in !eneral, i"e", irrespective of the nature and scope thereof, +hereas, Section :3 of the 8ocal Tax Code relates to 2ordinances lev$in! or imposin! taxes, fees or other char!es3 in particular" 'n re!ard, therefore, to ordinances in !eneral, the Revised Charter of the Cit$ of ?anila is dou#tless dominant, #ut, that dominant force loses its continuit$ +hen it approaches the realm of 2ordinances lev$in! or imposin! taxes, fees or other char!es3 in particular" There, the 8ocal Tax Code controls" &ere, as al+a$s, a !eneral provision must !ive +a$ to a particular provision" Special provision !overns" This is especiall$ true +here the la+ containin! the particular provision +as enacted later than the one containin! the !eneral provision" The Cit$ Charter of ?anila +as promul!ated on 1. %une 1,:, as a!ainst the 8ocal Tax Code +hich +as decreed on 1 %une 1,-3" . La5 (ak*n" )o5er does not *ntend estab1*s/(ent o- con-1*ct*n" and /ost*1e syste(s u)on sa(e sub=ect The la+5ma)in! po+er cannot #e said to have intended the esta#lishment of conflictin! and hostile s$stems upon the same su#*ect, or to leave in force provisions of a prior la+ #$ +hich the ne+ +ill of the le!islatin! po+er ma$ #e th+arted and overthro+n" Such a result +ould render le!islation a useless and idle ceremon$, and su#*ect the la+ to the reproach of uncertaint$ and unintelli!i#ilit$" +. ,ase o- ,*ty o- Aan*1a vs. 4eot*co *s o))os*te o- )resent case0 $acts and ru1*n" The case of Cit$ of ?anila v" Teotico is opposite" 'n that case, Teotico sued the Cit$ of ?anila for dama!es arisin! from the in*uries he suffered +hen he fell inside an uncovered and unli!hted catch#asin or manhole on 9" ur!os (venue" The Cit$ of ?anila denied lia#ilit$ on the #asis of the Cit$ Charter (R( :D,)
4a'at*on La5 6! 2773 ( 11 )
exemptin! the Cit$ of ?anila from an$ lia#ilit$ for dama!es or in*ur$ to persons or propert$ arisin! from the failure of the cit$ officers to enforce the provisions of the charter or an$ other la+ or ordinance, or from ne!li!ence of the Cit$ ?a$or, ?unicipal oard, or other officers +hile enforcin! or attemptin! to enforce the provisions of the charter or of an$ other la+ or ordinance" 0pon the other hand, (rticle >1., of the Civil Code ma)es cities lia#le for dama!es for the death of, or in*ur$ suffered #$ an$ persons #$ reason of the defective condition of roads, streets, #rid!es, pu#lic #uildin!s, and other pu#lic +or)s under their control or supervision" =n revie+, the Court held the Civil Code controllin!" 't is true that, insofar as its territorial application is concerned, the Revised Cit$ Charter is a special la+ and the su#*ect matter of the t+o la+s, the Revised Cit$ Charter esta#lishes a !eneral rule of lia#ilit$ arisin! from ne!li!ence in !eneral, re!ardless of the o#*ect thereof, +hereas the Civil Code constitutes a particular prescription for lia#ilit$ due to defective streets in particular" 'n the same manner, the Revised Charter of the Cit$ prescri#es a rule for the pu#lication of 2ordinance3 in !eneral, +hile the 8ocal Tax Code esta#lishes a rule for the pu#lication of 2ordinance lev$in! or imposin! taxes fees or other char!es in particular" #. 6()1*ed re)ea1 There is no rule +hich prohi#its the repeal even #$ implication of a special or specific act #$ a !eneral or #road one" ( charter provision ma$ #e impliedl$ modified or superseded #$ a later statute, and +here a statute is controllin!, it must #e read into the charter not+ithstandin! an$ particular charter provision" 9. >ubse9uent "enera1 1a5 (ust be cons*stent 5*t/ "enera1 1a5s and )ub1*c )o1*cy o- t/e >tate ( su#se4uent !eneral la+ similarl$ applica#le to all cities prevails over an$ conflictin! charter provision, for the reason that a charter must not #e inconsistent +ith the !eneral la+s and pu#lic polic$ of the state" ( chartered cit$ is not an independent soverei!nt$" The state remains supreme in all matters not purel$ local" =ther+ise stated, a charter must $ield to the constitution and !eneral la+s of the state, it is to have read into it that !eneral la+ +hich !overns the municipal corporation and +hich the corporation cannot set aside #ut to +hich it must $ield" Hhen a cit$ adopts a charter, it in effect adopts as part of its charter !eneral la+ of such character" 17. 3r*nc*)1e o- e'/aust*on o- ad(*n*strat*ve re(ed*es Section :- of the 8ocal Tax Code provides that an$ 4uestion or issue raised a!ainst the le!alit$ of an$ tax ordinance, or portion thereof, shall #e referred for opinion to the cit$ fiscal in the case of tax ordinance of a cit$" The opinion of the cit$ fiscal is appeala#le to the Secretar$ of %ustice, +hose decision shall #e final and executor$ unless contested #efore a competent court +ithin thirt$ (3D) da$s" 11. 3r*nc*)1e o- e'/aust*on o- ad(*n*strat*ve re(ed*es not abso1ute0 3ure 9uest*ons o- 1a5 6xhaustion of administrative remedies #efore resort to *udicial #odies is not an a#solute rule" 't admits of exceptions" Hhere the 4uestion liti!ated upon is purel$ a le!al one, the rule does not appl$" The principle ma$ also #e disre!arded +hen it does not provide a plain, speed$ and ade4uate remed$" 't ma$ and should #e relaxed +hen its application ma$ cause !reat and irrepara#le dama!e" &ence, in the present case, the controvers$ #et+een the parties is deepl$ rooted in a pure 4uestion of la+: +hether it is the Revised Charter of the Cit$ of ?anila or the 8ocal Tax Code that should !overn the pu#lication of the tax ordinance" 'n other +ords, the dispute is sharpl$ focused on the applica#ilit$ of the Revised Cit$ Charter or the 8ocal Tax Code on the point at issue, and not on the le!alit$ of the imposition of the tax" 12. Ra*s*n" o- revenues *s t/e )r*nc*)a1 ob=ect o- ta'at*on Raisin! of revenues is the principal o#*ect of taxation" 0nder Section 1, (rticle N' of the Ae+ Constitution, 26ach local !overnment unit shall have the po+er to create its o+n sources of revenue and to lev$ taxes, su#*ect to such provisions as ma$ #e provided #$ la+"3 (nd one of those sources of revenue is +hat the 8ocal Tax Code points to in particular: 28ocal !overnments ma$ collect fees or rentals for the occupanc$ or use of pu#lic mar)ets and premises " " "3 The$ can provide for and re!ulate mar)et stands, stalls and privile!es, and, also, the sale, lease or occupanc$ thereof" The$ can license, or permit the use of, lease,
4a'at*on La5 6! 2773 ( 12 )
sell or other+ise dispose of stands, stalls or mar)etin! privile!es" 13. @rd*nance does not v*o1ate 3D # *nso-ar as *t a--ects 1*vestock and an*(a1 )roducts The ordinance does not violate 9D -, dated 3D Septem#er 1,->, insofar as it affects livestoc) and animal products, #ecause the said decree prescri#es the collection of other fees and char!es thereon 2+ith the exception of ante5mortem and post5mortem inspection fees, as +ell as the deliver$, stoc)$ard and slau!hter fees as ma$ #e authoriBed #$ the Secretar$ of (!riculture and Aatural Resources"3 Clearl$, even the exception clause of the decree itself permits the collection of the proper fees for livestoc)" (nd the 8ocal Tax Code (9D >31, 1 %ul$ 1,-3) authoriBes in its Section 31: 28ocal !overnments ma$ collect fees for the slau!hter of animals and the use of corrals " " "3 14. ?on-)art*c*)at*on o- t/e Aarket ,o((*ttee does not render ord*nance *nva1*d0 ,o((*ttee (ere1y reco((endatory0 3otestas de1e"ata non de1e"are )otest The non5participation of the ?ar)et Committee in the enactment of =rdinance -1>> supposedl$ in accordance +ith R( ;D3,, an amendment to the Cit$ Charter of ?anila, providin! that 2the mar)et committee shall formulate, recommend and adopt, su#*ect to the ratification of the municipal #oard, and approval of the ma$or, policies and rules or re!ulation repealin! or amendin! existin! provisions of the mar)et code3 does not infect the ordinance +ith an$ !erm of invalidit$" The function of the committee is purel$ recommendator$ as the underscored phrase su!!ests, its recommendation is +ithout #indin! effect on the ?unicipal oard and the Cit$ ?a$or" 'ts prior ac4uiescence of an intended or proposed cit$ ordinance is not a condition sine 4ua non #efore the ?unicipal oard could enact such ordinance" The native po+er of the ?unicipal oard to le!islate remains undistur#ed even in the sli!htest de!ree" 't can move in its o+n initiative and the ?ar)et Committee cannot demur" (t most, the ?ar)et Committee ma$ serve as a le!islative aide of the ?unicipal oard in the enactment of cit$ ordinances affectin! the cit$ mar)ets or, in plain +ords, in the !atherin! of the necessar$ data, studies and the collection of consensus for the proposal of ordinances re!ardin! cit$ mar)ets" ?uch less could it #e said that R( ;D3, intended to dele!ate to the ?ar)et Committee the adoption of re!ulator$ measures for the operation and administration of the cit$ mar)ets" 9otestas dele!ata non dele!are potest" 1.. &ntrust*n" t/e co11ect*on o- -ees to a )r*vate ent*ty does not destroy t/e )ub1*c )ur)ose o- t/e ord*nance The fees collected in the ordinance do not !o direct to the private coffers of the (siatic 'nte!rated Corporation" =rdinance -1>> +as not made for the corporation #ut for the purpose of raisin! revenues for the cit$" That is the o#*ect it serves" The entrustin! of the collection of the fees does not destro$ the pu#lic purpose of the ordinance" So lon! as the purpose is pu#lic, it does not matter +hether the a!enc$ throu!h +hich the mone$ is dispensed is pu#lic or private" The ri!ht to tax depends upon the ultimate use, purpose and o#*ect for +hich the fund is raised" 't is not dependent on the nature or character of the person or corporation +hose intermediate a!enc$ is to #e used in appl$in! it" The people ma$ #e taxed for a pu#lic purpose, althou!h it #e under the direction of an individual or private corporation" 1 . @rd*nance not v*o1at*ve o- >ect*on 3 (e) o- t/e Ant*-Gra-t and ,orru)t 3ract*ces Act Aor can the ordinance #e stric)en do+n as violative of Section 3(e) of the (nti5@raft and Corrupt 9ractices (ct #ecause the increased rates of mar)et stall fees as levied #$ the ordinance +ill necessaril$ inure to the un+arranted #enefit and advanta!e of the corporation" The measure ma$ not #e invalidated *ust #ecause of conse4uences that ma$ arise from its enforcement" [+] B*s/o) o- ?ueva >e"ov*a v. 3rov*nc*a1 Board! 61ocos ?orte [GR 2+.##! 31 Dece(ber 192+] 6n anc, (vancena (p): 1 concur
4a'at*on La5 6! 2773 ( 13 )
$acts% The Roman Catholic (postolic Church (plaintiff), represented #$ the ishop of Aueva Se!ovia, possesses and is the o+ner of a parcel of land in the municipalit$ of San Aicolas, 'locos Aorte, all four sides of +hich face on pu#lic streets" =n the south side is a part of the church $ard, the convent and an ad*acent lot used for a ve!eta#le !arden, containin! an area of 1,;>: s4uare meters, in +hich there is a sta#le and a +ell for the use of the convent" 'n the center is the remainder of the church$ard and the church" =n the north side is an old cemeter$ +ith t+o of its +alls still standin!, and a portion +here formerl$ stood a to+er, the #ase of +hich ma$ still #e seen, containin! a total area of .,,11 s4uare meters" (s re4uired #$ the provincial #oard (defendant), the Church paid on 3 %ul$ 1,>1, under protest, the land tax on the lot ad*oinin! the convent and the lot +hich formerl$ +as the cemeter$ +ith the portion +here the to+er stood" The plaintiff filed an action for the recover$ of the sum paid #$ it to the defendants #$ +a$ of land tax, alle!in! that the collection of this tax is ille!al" The lo+er court a#solved the defendants from the complaint in re!ard to the lot ad*oinin! the convent and declared that the tax collected on the lot, +hich formerl$ +as the cemeter$ and on the portion +here the to+er stood, +as ille!al" oth parties appealed from this *ud!ment" The Supreme Court reversed the appealed *ud!ment in all its parts and held that #oth lots are exempt from land tax and the defendants are ordered to refund to plaintiff +hatever +as paid as such tax, +ithout an$ special pronouncement as to costs" 1. Land used 1*(*ted to necess*ty o- )r*est! convent are ta' e'e()ted The exemption in favor of the convent in the pa$ment of the land tax (sec" 3:: OcP (dministrative Code) refers to the home of the priest +ho presides over the church and +ho has to ta)e care of himself in order to dischar!e his duties" 't therefore must, in this sense, include not onl$ the land actuall$ occupied #$ the church, #ut also the ad*acent !round destined to the ordinar$ incidental uses of man" 6xcept in lar!e cities +here the densit$ of the population and the development of commerce re4uire the use of lar!er tracts of land for #uildin!s, a ve!eta#le !arden #elon!s to a house and, in the case of a convent, its use is limited to the necessities of the priest, +hich comes under the exemption" 2. Land used *nc*denta11y *n re1*"*ous -unct*ons are ta' e'e()ted 8and used as a lod!in! house #$ the people +ho participate in reli!ious festivities, +hich constitutes an incidental use in reli!ious functions, not for commercial purposes, comes +ithin the exemption" 't cannot #e taxed accordin! to its former use (cemeter$)" [#] ,a"ayan &1ectr*c vs. ,6R [G.R. ?o. L- 712 . >e)te(ber 2.! 19#..] Second Division, (4uino (%): 1 concurrin! $acts% Ca!a$an 6lectric 9o+er and 8i!ht Co" is the holder of a le!islative franchise, R( 3>:-, under +hich its pa$ment of 3I tax on its !ross earnin!s from the sale of electric current is 2in lieu of all taxes and assessments of +hatever authorit$ upon privile!es, earnin!s, income, franchise, and poles, +ires, transformers, and insulators of the !rantee, from +hich taxes and assessments the !rantee is here#$ expressl$ exempted"3 =n >- %une 1,;., R( 1:31 amended section >: of the Tax Code #$ ma)in! lia#le for income tax all corporate taxpa$ers not specificall$ exempt under para!raph (c) (1) of said section and section >- of the Tax Code not+ithstandin! the 2provisions of existin! special or !eneral la+s to the contrar$3" Thus, franchise companies +ere su#*ected to income tax in addition to franchise tax" &o+ever, in the compan$Gs case, its franchise +as amended #$ R( ;D>D, effective : (u!ust 1,;,, #$ authoriBin! the compan$ to furnish electricit$ to the municipalities of <illanueva and %asaan, ?isamis =riental in addition to Ca!a$an de =ro Cit$ and the municipalities of Ta!oloan and =pol" The amendment reenacted the tax exemption in its ori!inal charter or neutraliBed the modification made #$ R( 1:31 more than a $ear #efore" $ reason of the amendment to section >: of the Tax Code, the Commissioner of 'nternal Revenue in a demand letter dated 11
4a'at*on La5 6! 2773 ( 14 )
Fe#ruar$ 1,-3 re4uired the compan$ to pa$ deficienc$ income taxes for 1,;. to 1,-1" The compan$ contested the assessments" The Commissioner cancelled the assessments for 1,-D and 1,-1 #ut insisted on those for 1,;. and 1,;," The compan$ filed a petition for revie+ +ith the Tax Court, +hich on >; Fe#ruar$ 1,.> held the compan$ lia#le onl$ for the income tax for the period from 1 %anuar$ to 3 (u!ust 1,;, or #efore the passa!e of R( ;D>D +hich reiterated its tax exemption" The lia#ilit$ of the compan$ for income tax amounted to 9-1,1:,"-3 for the more than seven5month period of the $ear 1,;, in addition to franchise tax" The compan$ appealed to the Supreme Court" The Supreme Court affirmed +ith modification the *ud!ment of the Tax Court that the compan$ is lia#le onl$ for the tax proper and that it should not pa$ the delin4uenc$ penalties/ +ithout costs" 1. ,onst*tut*on a11o5s ,on"ress to a(end! a1ter or re)ea1 -ranc/*ses 5/en )ub1*c *nterest so re9u*res Con!ress could impair the compan$Gs le!islative franchise #$ ma)in! it lia#le for income tax from +hich heretofore it +as exempted #$ virtue of the exemption provided for in section 3 of its franchise" The Constitution provides that a franchise is su#*ect to amendment, alteration or repeal #$ the Con!ress +hen the pu#lic interest so re4uires (Sec" ., (rt" N'<, 1,31 Constitution/ Sec" 1, (rt" N'<, 1,-3 Constitution)" Section 1 of the compan$Gs franchise, R( 3>:-, provides that it is su#*ect to the provisions of the Constitution and to the terms and conditions esta#lished in (ct 3;3; +hose section 1> provides that the franchise is su#*ect to amendment, alteration or repeal #$ Con!ress" 2. &--ect o- RA .431 a(end*n" t/e 4a' ,ode R( 1:31, in amendin! section >: of the Tax Code #$ su#*ectin! to income tax all corporate taxpa$ers not expressl$ exempted therein and in section >- of the Code, had the effect of +ithdra+in! the compan$Gs exemption from income tax" 3. ,o()anyEs ta' e'e()t*on restored 5*t/ t/e enact(ent o- RA 727 The exemption +as restored #$ the su#se4uent enactment on : (u!ust 1,;, of R( ;D>D +hich reenacted the said tax exemption" &ence, the compan$ is lia#le onl$ for the income tax for the period from 1 %anuar$ to 3 (u!ust 1,;, +hen its tax exemption +as modified #$ R( 1:31" 4. @t/er -ranc/*ses are )ay*n" *nco(e ta' *n add*t*on to -ranc/*se ta' 't is relevant to note that franchise companies, li)e the 9hilippine 8on! Distance Telephone Compan$, have #een pa$in! income tax in addition to the franchise tax" .. 19 9 assess(ent /*"/1y controvers*a10 ,o()any 1*ab1e on1y -or ta' )ro)er and not -or surc/ar"e and *nterest The assessment appears to #e hi!hl$ controversial" The Commissioner at the outset +as not certain as to the compan$Gs income tax lia#ilit$" 't had reason not to pa$ income tax #ecause of the tax exemption in its franchise" For this reason, it should #e lia#le onl$ for tax proper and should not #e held lia#le for the surchar!e and interest" ((dvertisin! (ssociates, 'nc" vs" Commissioner of 'nternal Revenue and Court of Tax (ppeals, @" R" Ao" 1,-1., Decem#er >;, 1,.:, 133 SCR( -;1/ 'mus 6lectric Co", 'nc" vs" Commissioner of 'nternal Revenue, 1>1 9hil" 1D>:/ C"?" &os)ins Q Co", 'nc" vs" Commissioner of 'nternal Revenue, 85>.3.3, %une >>, 1,-;, -1 SCR( 111") [9] ,6R v. A1"ue [GR L-2##9 ! 1+ $ebruary 19##] First Division, CruB (p): : concur $acts% The 9hilippine Su!ar 6state Development Compan$ (9S6DC) appointed (l!ue, a domestic
4a'at*on La5 6! 2773 ( 1. )
corporation en!a!ed in en!ineerin!, construction and other allied activities, as its a!ent, authoriBin! it to sell its land, factories and oil manufacturin! process" 9ursuant to such authorit$, (l#erto @uevara, %r", 6duardo @uevara, 'sa#el @uevara, 6dith =GFarell, and 9a#lo SancheB +or)ed for the formation of the <e!eta#le =il 'nvestment Corporation (<='C9), inducin! other persons to invest in it" 0ltimatel$, after its incorporation lar!el$ throu!h the promotion of the said persons, this ne+ corporation purchased the 9S6DC properties" For this sale, (l!ue received as a!ent a commission of 91>1,DDD"DD, and it +as from this commission that the 9-1,DDD"DD promotional fees +ere paid to the aforenamed individuals" =n 1: %anuar$ 1,;1, (l!ue received a letter from the petitioner assessin! it in the total amount of 9.3,1.3".1 as delin4uenc$ income taxes for the $ears 1,1. and 1,1," =n 1. %anuar$ 1,;1, (l!ue filed a letter of protest or re4uest for reconsideration, +hich letter +as stamp5received on the same da$ in the office of the petitioner" =n 1> ?arch 1,;1, a +arrant of distraint and lev$ +as presented to (l!ue, throu!h its counsel, +ho refused to receive it on the !round of the pendin! protest" ( search of the protest in the doc)ets of the case proved fruitless" The counsel produced his file cop$ and !ave a photostat to 'R a!ent Re$es, +ho deferred service of the +arrant" =n - (pril 1,;1, the Counsel +as finall$ informed that the 'R +as not ta)in! an$ action on the protest and it +as onl$ then that he accepted the +arrant of distraint and lev$ earlier sou!ht to #e served" =n >3 (pril 1,;1, (l!ue filed a petition for revie+ of the decision of the Commissioner of 'nternal Revenue +ith the Court of Tax (ppeals" The Supreme Court affirmed in toto the appealed decision of the Court of Tax (ppeals, +ithout costs" 1. 3ur)ose o- ta'es Taxes are the life#lood of the !overnment and so should #e collected +ithout unnecessar$ hindrance" Despite the natural reluctance to surrender part of oneGs hard5earned income to the taxin! authorities, ever$ person +ho is a#le to must contri#ute his share in the runnin! of the !overnment" The !overnment for its part, is expected to respond in the form of tan!i#le and intan!i#le #enefits intended to improve the lives of the people and enhance their moral and material values" This s$m#iotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an ar#itrar$ method of exaction #$ those in the seat of po+er" 2. 4a'es s/ou1d be reasonab1e Tax collection should #e made in accordance +ith la+ as an$ ar#itrariness +ill ne!ate the ver$ reason for !overnment itself" 't is a re4uirement in all democratic re!imes that it #e exercised reasona#l$ and in accordance +ith the prescri#ed procedure" 't is therefore necessar$ to reconcile the apparentl$ conflictin! interests of the authorities and the taxpa$ers so that the real purpose of taxation, +hich is the promotion of the common !ood, ma$ #e achieved" 'f it is not, then the taxpa$er has a ri!ht to complain and the courts +ill then come to his succor" For all the a+esome po+er of the tax collector, he ma$ still #e stopped in his trac)s if the taxpa$er can demonstrate that the la+ has not #een o#served" 3. Farrant o- d*stra*nt and 1evy (s a rule, the +arrant of distraint and lev$ is proof of the finalit$ of the assessment and renders hopeless a re4uest for reconsideration, #ein! tantamount to an outri!ht denial thereof and ma)es the said re4uest deemed re*ected" Special circumstances, ho+ever, prevents application of the doctrine" 'n the case at #ar, : da$s after the private respondent received the petitionerGs notice of assessment, it filed its letter of protest" This +as apparentl$ not ta)en into account #efore the +arrant of distraint and lev$ +as issued" The protest filed #$ private respondent +as not pro forma and +as #ased on stron! le!al considerations" 't had the effect of suspendin! +hen it +as filed (1. %anuar$ 1,;1), the re!lementar$ period +hich started on the date the assessment +as received (1: %anuar$ 1,;1)" The period started runnin! a!ain onl$ +hen the private respondent +as definitel$ informed of the implied re*ection of the said protest and the +arrant +as finall$ served on it (- (pril 1,;1)" &ence, +hen the appeal +as filed (>3 (pril 1,;1), onl$ >D da$s of the re!lementar$ period had #een consumed"
4a'at*on La5 6! 2773 ( 1 )
4.
4a' code )rov*des -or deduct*ons0 3rocedures *n -a(*1y cor)orat*ons *n-or(a1 Section 3D (a, 1) of the Tax Code provides for the deduction from !ross income, +hich includes all ordinar$ and necessar$ expenses in a taxa#le $ear in carr$in! on trade or #usiness, includin! reasona#le allo+a#le for salaries and other compensation for personal services actuall$ rendered" Revenue Re!ulations >, Section -D (1) provides for compensation for personal services" 'n the case at #ar, the claimed deduction had #een le!itimatel$ paid #$ (l!ue for actual services rendered" The pa$ment +as in the form of promotional fees, +hich +ere not excessive" These +ere collected #$ the pa$ees for their +or) in the creation of the <='C9 and its su#se4uent purchase of the properties of the 9S6DC" The pa$ments +ere not fictional/ the$ +ere not paid in lump sum #ut periodicall$ and in different amounts a each pa$eeGs need arose" ( famil$ corporation does not appl$ strict #usiness procedures and the immediate issuance +as not re4uired/ #ut it is ade4uate that each pa$ee made an accountin! of all fees received #$ him #efore the #oo)s are closed at the end of the $ear" The arran!ement is understanda#le in vie+ of the close relationship amon! the persons in the famil$ corporation" .. Burden o- )roo- *nvo1v*n" ta' e'e()t*on be1on"s to ta')ayer The #urden is on the taxpa$er to prove the validit$ of the claimed deduction" 'n the case at #ar, (l!ue has proved that the pa$ment of the fees +as necessar$ and reasona#le in the li!ht of the efforts exerted #$ the pa$ees in inducin! investors and prominent #usinessmen to venture in an experimental enterprise and involve themselves in a ne+ #usiness re4uirin! millions of pesos" [17] ,6R vs. A(er*can Rubber ,o()any [G.R. ?o. L-19 American Rubber vs. CIR [G.R. Nos. L-19801-03.] 6n anc, Re$es % 8 (%): . concurrin! +. ?ove(ber 29! 19 .]
$acts% (merican Ru##er Compan$, a domestic corporation, from 1 %anuar$ 1,11 to 1 Decem#er 1,1., +as en!a!ed in producin! ru##er from its approximate ,DD5hectare ru##er tree plantation, +hich it o+ned and operated in 8atuan, 'sa#ela, Cit$ of asilan" 'ts products, )no+n in the mar)et as 9reserved 8atex, 9ale Crepe Ao" 1, 9ale Crepe Ao" >, Ri##ed Smo)ed Sheets Aos" 1 and >, Flat ar) Ru##er, >N ro+n Crepe and 3N ro+n Crepe" The compan$ durin! the said period sold its fore!oin! ru##er products locall$ and as prescri#ed #$ the CommissionerGs re!ulations declared same for tax purposes +hich respondent accordin!l$ assessed" The compan$ paid, under protest, the correspondin! sales taxes thereon claimin! exemption therefrom under Section 1.., (#) of the Aational 'nternal Revenue Code" The sales taxes under protest are in the amount of 9.3,1,3":. for the period of 1 %anuar$ 1,11 to 31 Decem#er 1,1;/ 9>D,1D:",, from 1 %anuar$ 1,1- to 3D %une 1,1-/ 913,3-.",D from %ul$ 1,1- to 31 Decem#er 1,1." (fter pa$in! under protest, the compan$ claimed refund of the sales taxes paid #$ it on the !round that, under Section 1.., para!raph #, of the 'nternal Revenue Code, as amended, its ru##er products +ere a!ricultural products exempt from sales tax, and upon refusal of the Commissioner of 'nternal Revenue, #rou!ht the case on appeal to the Court of Tax (ppeals (CT( Cases 31;, ::D, ;3>)" The Commissioner interposed defenses, den$in! that petitionerGs products +ere a!ricultural ones +ithin the exemption/ claimin! that there had #een no exhaustion of administrative remedies, and ar!ued that the sales tax havin! #een passed to the #u$ers durin! the period that elapsed from 1 %anuar$ 1,11 to > (u!ust 1,1-, the compan$ did not have personalit$ to demand, sue for and recover the aforesaid sales taxes, plus interest" 'n its decision, the Tax Court held 9reserved 8atex, Flat ar) Ru##er, and 3x ro+n Crepe to #e a!ricultural products, 2#ecause the la#or emplo$ed in the processin! thereof is a!ricultural la#or3, and, hence, the sales of such products +ere exempt from sales tax #ut declared 9ale Crepe 1, Ri##ed Smo)ed Sheets 1 and 3, as +ell as >N ro+n Crepe (+hich is o#tained from rollin! excess pieces of Smo)ed Sheets) to #e manufactured products, sales of +hich +ere su#*ect to tax" 't overruled the defense of non5exhaustion of administrative remedies and upheld the Revenue CommissionerGs stand that compan$ +as not entitled to recover the sales
4a'at*on La5 6! 2773 ( 1+ )
tax that had #een separatel$ #illed to its customers, and paid #$ the latter" &ence, it dismissed the appeal in CT( Cases 31; and ::D, and ordered the Commissioner to refund onl$ 93,,1;":, +ithout interest, or costs" oth parties appealed" The Supreme Court affirmed the decision of the Court of Tax (ppeals in @R 851,;;- and modified the decisions in @R 851,.D1, 1,.D> and 1,.D3, #$ declarin! the sales taxes therein involved to have #een improperl$ levied and collected and orderin! the Commissioner of 'nternal Revenue to refund the same, except the taxes correspondin! to the period from >: (u!ust 1,1; to >> %une 1,1-, durin! +hich R( 1;1> +as in force" The amount of 93-,D-1":- paid #$ the taxpa$er for this period is here#$ declared properl$ collected and not refunda#le/ Hithout special pronouncement as to costs" 1. 3roduct*on o- rubber )roducts (>te) 1) The initial step common to the production of all the fore!oin! ru##er products is tappin!, i"e", the collection of latex (ru##er *uice) from ru##er trees" This is done #$ the dail$ cuttin! earl$ in the mornin!, of a spiral incision in the #ar) of ru##er trees and placin! a cup #elo+ the lo+er end of the incision to receive the flo+ of latex" The collectin! cup is filled after t+o hours" The tapper then collects the latex into #uc)ets and carries them to the collectin! shed" The tapper su#se4uentl$ pours the latex collected into #i! mil) cans" The filled mil) cans are then ta)en in motor vehicles to a coa!ulatin! shed, also +ithin the premises of petitionerGs plantation, +here the latex is strained into coa!ulatin! tan)s to remove forei!n matter such as leaves and dirt" (fter these initial steps, the processes var$ in the production of the various ru##er products" 2. 3roduct*on o- 3reserved Rubber Late' (>te) 2! end) Fresh latex is diluted +ith 1 to 151K: ounces of ammonia per !allon of latex" The mixture is thorou!hl$ stirred and then poured into metal drums" The addition of ammonia preserves the latex in li4uid form and prevents its deterioration or its ac4uisition of a repulsive smell, and at the same time preserves its uniform color" 8atex +hich has #een thus artificiall$ preserved in its li4uid form !enerall$ lasts for a#out a month +ithout spoilin!" =n the other hand, fresh latex in its ori!inal state lasts for onl$ a#out t+o hours, after +hich it #ecomes spoiled ((merican Ru##er Co" sells preserved latex onl$ upon previous orders of customers +ho suppl$ empt$ metal drum containers)" 3. 3roduct*on o- 3a1e ,re)e ?os. 1 and 2 and R*bbed >(oked >/eets ?os. 1 and 2 (>te) 2! co((on) To produce 9ale Crepe Aos" 1 and > and Ri##ed Smo)ed Sheets Aos" 1 and >, the compan$ adds to the latex in the coa!ulatin! tan) a#out 11 or 1; ounces of !lacial acetic acid per !allon of latex" The mixture is stirred thorou!hl$" Thereafter aluminum are placed cross+ise inside the tan) so that the latex +ill coa!ulate into uniform sla#s" (cetic acid is added to the latex to hasten coa!ulation +hich other+ise ta)es place naturall$, and to preserve its fresh state and color" The similarit$ in the production of 9ale Crepe Aos" 1 and > and Ri##ed Smo)ed Sheets Aos" 1 and > ends at the point of removin! the coa!ulum (coa!ulated ru##er sheets) from the coa!ulatin! tan)s" The compan$sGs rollers are po+ered #$ en!ines althou!h the$ could #e turned #$ hand as it is done in small ru##er plantations" 'f 9ale Crepe Aos" 1 and > and Ri##ed Smo)ed Sheets Aos" 1 and > are not air5dried and smo)ed, the$ deteriorate, !et spoiled, and the color varies" 4. 3roduct*on o- 3a1e ,re)e 1 and 2 (>te) 3! end) To produce 9ale Crepe Ao" 1, the coa!ulum is passed throu!h a series of rollers until the desired thic)ness is attained, +hereupon it is moved to the air5dr$in! house situated inside petitionerGs plantation and hun! for a period of a#out t+elve or thirteen da$s to dr$" There are no mechanical driers used/ the air5dr$in! is done naturall$" (s soon as the 9ale Crepe is dried, the sheets are sorted/ those +hich are of uniform pale color are classified as 9ale Crepe Ao" >, +hereupon the$ are #aled and stored, read$ for the mar)et" .. 3roduct*on o- R*bbed G >(oked >/eets ?os. 1 and 2 (>te) 3! end) Ri##ed Q Smo)ed Sheets Aos" 1 and > are produced practicall$ in the same manner as 9ale Crepe,
4a'at*on La5 6! 2773 ( 1# )
except that the coa!ulum is passed onl$ once throu!h a roller provided +ith ri#s after +hich the flattened and ri##ed coa!ulum is removed to petitionerGs smo)e5house +here it is hun! and cured #$ exposure to heat and smo)e from +ood fires for a#out six or seven da$s" The resultin! smo)ed sheets are sorted and classified dependent upon color and opa4ueness into ri##ed smo)ed sheets (RSS) Ao" 1 and Ao" >, #aled, and stored read$ for the mar)et" Ao mechanical e4uipment is used in !eneratin! the smo)e in the smo)e5house" 3roduct*on o- $1at Bark Rubber (>te) 2! end) 6ach mornin! #efore a tapper ma)es a fresh incision in the #ar) of a ru##er tree, he !athers the latex drippin!s from the !round around the tree, called 2!round ru##er3, as +ell as the dried latex from the incisions made the previous da$ called 2#ar) ru##er3" @round and #ar) ru##er are not intentionall$ produced" Ao chemicals are added to the latex transformed into !round and #ar) ru##er" This )ind of dried latex is spoiled and has a #ad odor" @round and #ar) ru##er +hen !athered in sufficient 4uantities are passed numerous times throu!h the rollers or mills until the$ form a uniform mass or sheet +hich, finall$ is called Flat ar) Ru##er" Ao chemical is used to coa!ulate the dried !round and #ar) ru##er #ecause the$ are alread$ coa!ulated" The$ are formed into sheets #$ means onl$ of pressure of the mills or rollers throu!h +hich the$ are passed" Flat Ru##er commands the lo+est prices in the ru##er mar)et" +. 3roduct*on o- 3H Bro5n ,re)e (>te) 2! end) 6ver$ mornin!, #efore a fresh incision is made in the #ar) of the ru##er trees, the tapper collects not onl$ !round and #ar) ru##er #ut removes and collects the latex in the cups, )no+n as 2cup ru##er3" The cup ru##er coa!ulates and dries throu!h natural processes and, +hen !athered in sufficient 4uantities, is milled and rolled throu!h a series of rollers until #$ force of pressure it is formed into a mass of the desired thic)ness called 23x ro+n Crepe3" 8i)e !round and #ar) ru##er, no chemicals are added to cup ru##er to produce 3x ro+n Crepe" Cup ru##er in its ori!inal form, li)e !round and #ar) ru##er, is spoiled and has a #ad odor" #. 3roduct*on o- 2H Bro5n ,re)e (>te) 2! end) >N ro+n Crepe is o#tained #$ millin! or rollin! the excess pieces of coa!ulated ru##er latex +hich had #een cut or trimmed from the ri##ed smo)ed sheets Ao" > into a uniform mass" >N ro+n Crepe is produced in the same manner as the other sheets of crepe ru##er, i"e", +ithout the addition of an$ chemicals" 9. &'e()t*on -ro( sa1es ta' *n -avor o- sa1es o- a"r*cu1tura1 )roducts0 3/*1*))*ne 3ack*n" ,or). vs. ,6R 'n 9hilippine 9ac)in! Corporation vs" Collector of 'nternal Revenue (1DD 9hil" 1:1 et se4"), it +as ruled that the exemption from sales tax esta#lished in Section 1..(#) of the 'nternal Revenue Tax Code in favor of sales of a!ricultural products, +hether in their ori!inal form or not, made #$ the producer or o+ner of the land +here produced is not ta)en a+a$ merel$ #ecause the produce under!oes processin! at the hand of said producer or o+ner for the purpose of +or)in! his product into a more convenient and valua#le form suited to meet the demand of an expanded mar)et/ that the exemption +as not desi!ned in favor of the small a!ricultural producer, alread$ exempted #$ the su#se4uent para!raphs of the same Section 1.., #ut that said exemption is not incompati#le +ith lar!e scale a!ricultural production that incidentall$ re4uired resort to preservative processes desi!ned to increase or prolon! mar)eta#ilit$ of the product" 17. $res/ 1ate' an a"r*cu1tura1 )roduct 5*t/ severe1y 1*(*ted (arketab*1*ty0 3reserved 1ate' not re(oved -ro( ta' e'e()t*on Fresh latex directl$ o#tained from the ru##er tree, +hich is clearl$ an a!ricultural product, #ecomes spoiled after onl$ t+o hours" 't has, therefore, a severel$ limited mar)eta#ilit$" The addition of ammonia prevents its deterioration for a#out a month, and there is no reason +h$ this preservative process should +rest a+a$ from the preserved latex the protective mantle of the tax exemption" 11. ,oa"u1at*on does not a1ter a"r*cu1tura1 nature o- t/e resu1t Ta)in! also into account the !reat distance that separates the compan$Gs plantation from the main
4a'at*on La5 6! 2773 ( 19 )
ru##er processin! centres in %apan, the 0nited States and 6urope, and the difficult$ in handlin! products in li4uid form, it can #e discerned +ithout difficult$ that preserved latex, +ith its 3D5da$ spoila!e limit, is still severel$ handicapped for export and dollar earnin! purposes" To overcome these shortcomin!s, and extend its useful life almost indefinitel$, it #ecomes necessar$ to separate and solidif$ the ru##er !ranules diffused in the latex, and hence, acetic acid is added to hasten coa!ulation" There is nothin! on record to sho+ that the acetic acid in an$ +a$ produces an$thin! that +as not ori!inall$ in the source, the li4uid latex" The coa!ulum is then rolled and compacted and after+ards air dried to ma)e 9ale Crepe (1 and >), or else cured and smo)ed to produce ru##er sheets" =nce a!ain there is nothin! in this processin! to alter the a!ricultural nature of the result, +hat ta)es place is merel$ an accelerated coa!ulation and desiccation that +ould naturall$ occur an$+a$, onl$ +ithin a lon!er period of time, coupled +ith !reater spoila!e of the product" 12. 3roduct*on )ure1y )reservat*ve nature and t/us sa1es ta' e'e()t The operations carried out #$ compan$ appear to #e purel$ preservative in nature, made necessar$ #$ its production of fresh ru##er latex in a lar!e scale" The$ are purel$ incidental to the latter, *ust as the cannin! of s)inned and cored pineapples in s$rup +as held to #e incidental to the lar!e5scale cultivation of the fruit in the 9hilippine 9ac)in! Corporation case (ante)" ein! necessar$ to suit the product to the demands of the mar)et, the operations in #oth cases should lead to the same result, non5taxa#ilit$ of the sales of the respective a!ricultural products" 13. $1at Bark and 3' Bro5n ,re)e rubber are a"r*cu1tura1 )roducts Flat ar) and 3N ro+n Crepe ru##er are a!ricultural products" These sheets results from the drippin!s and +aste ru##er that have dried naturall$, that are rolled and compacted into the desired thic)ness, +ithout an$ other processin!" (s to >N ro+n Crepe +hich is compacted out of the trimmin!s and +aste left from the production of ri##ed smo)ed sheets, no reason is seen +h$ it should #e treated differentl$ from the ri##ed smo)ed sheets themselves" 14. De-*n*t*on o- (anu-acturer under >ect*on 194 (n) o- t/e Revenue ,ode Section 1,: (n) of the Revenue Code definin! a 2manufacturer3 as 2ever$ person +ho #$ ph$sical or chemical process alters the exterior texture or form or inner su#stance of an$ ra+ material, or manufactured or partiall$ manufactured product in such manner as to prepare it for a special use or uses to +hich it could not have #een put to in its ori!inal condition, or +ho " " " alters the 4ualit$ of an$ such ra+ material " " " as to reduce it to mar)eta#le shape " " "3 1.. >a1es ta' e'e()t )r*or to )ro(u1"at*on o- RA 1 12 and a-ter )ro(u1"at*on o- RA 1#. 'n the 9hilippine 9ac)in! Corporation case, the definition is not applica#le to the exemption of a!ricultural products, 2+hether in their ori!inal form or not3" The use of this last phrase in the statute clearl$ indicates that the a!ricultural product ma$ #e altered in texture or form +ithout #ein! divested of the exemption (cas" cit" 1D1 9hil", p" 1:.)" The exception +ould #e sales of a!ricultural products +hile R( 1;1> +as in effect #ecause under this (ct the freedom from sales tax #ecame restricted to a!ricultural products 2in their ori!inal form3 onl$" Therefore, the compan$Gs sales from >: (u!ust 1,1; (approval of R( 1;1>) to >> %une 1,1- (+hen R( 1.1; #ecame effective and restored the exemption of a!ricultural products 2+hether in their ori!inal form or not3) #ecame properl$ taxa#le" 0nder para!raphs ((>) and (:) of the additional stipulation of facts, the sales tax properl$ collected durin! this period on the compan$Gs transactions amounted to 91.,1.-"1, from >: (u!ust to 31 Decem#er 1,1;/ and 91.,...">. from 1 %anuar$ to >1 %une 1,1-, or a total of 93-,D-1":-" This last amount is, therefore, non5recovera#le" 1 . Aed*na vs. ,*ty o- Ba"u*o not a))1*cab1e0 Aun*c*)a1 ta' 1ev*ed u)on t/eater"oers ?edina rulin! (+hich +as merel$ follo+ed in Ro*as Q ros" vs" Cavite, supra, and in ?endoBa, Santos Q Co" vs" ?unicipalit$ of ?e$ca+a$an, ,: 9hil" 1D:-) is not applica#le to the present case, since the municipal taxes therein imposed +ere taxes on the admission tic)ets sold, so that, in effect, the$ +ere levies upon the theater !oers +ho #ou!ht them/ so much so that (as the decision expressl$ ruled) the tax +as
4a'at*on La5 6! 2773 ( 27 )
collected #$ the theater o+ners as a!ents of the respective municipal treasurers" This does not o#tain in the present case" 1+. 4a' )a*d *nvo1ve sa1e by (anu-acturer! )roducer or *()orter! and not t/e t/*n" so1d *tse1$ contrast +ith the municipal taxes involved in the case of ?edina vs" a!uio, the sales tax is #$ la+ imposed directl$, not on the thin! sold, #ut on the act (sale) of the manufacturer, producer or importer (=p" of the Secretar$ of %ustice, %une 11, 1,:;/ :- C" %" S", p" 11:1), +ho is exclusivel$ made lia#le for its timel$ pa$ment" There is no proof that the tax paid #$ the compan$ is the ver$ mone$ paid #$ its customers" Hhere the tax mone$ paid #$ the compan$ came from is reall$ no concern of the @overnment, #ut solel$ a matter #et+een the compan$ and its customers" (n$+a$, once recovered, the compan$ must hold the refunded taxes in trust for the individual purchasers +ho advanced pa$ment thereof, and +hose names must appear in compan$Gs records" 1#. >e)arate b*11*n" o- sa1es ta' )ursuant to ,o((*ss*onerEs ,*rcu1ar 447 The separate #illin! of the sales tax in appellantGs involves +as a direct result of the CommissionerGs Circular Ao" ::D, providin! that 2if a manufacturer, producer, or importer, in fixin! the !ross sellin! price of an article sold #$ him, has included an amount intended to cover the sales tax in the !ross sellin! price of the article, the sales tax shall #e #ased on the !ross sellin! price less the amount intended to cover the tax, if the same is #illed to the purchaser as a separate item in the invoice " " "3 'n other +ords, the separate itemiBation of the sales tax in the invoices +as su#mitted to avoid the taxpa$er #ein! compelled to pa$ a sales tax on the tax itself" 't does not seem either *ust or proper that a step su!!ested #$ the 'nternal Revenue authorities themselves to protect the taxpa$er from pa$in! a dou#le tax should no+ #e used to #loc) his action to recover taxes collected +ithout le!al sanction" 19. 6nd*scr*(*nate a))1*cat*on o- Aed*na ru1*n" )er)etuates *11e"a1 ta'at*on0 ,4A ru1*n" v*o1ates (ora1s and )ub1*c )o1*cy ( more important reason that militates a!ainst extensive and indiscriminate application of the ?edina vs" Cit$ of a!uio rulin! is that it +ould tend to perpetuate ille!al taxation/ for the individual customers to +hom the tax is ultimatel$ shifted +ill, ordinaril$ not care to sue for its recover$, in vie+ of the small amount paid #$ each and the hi!h cost of liti!ation for the reclaimin! of an ille!al tax" 'nsofar, therefore, as it favors the imposition, collection and retention of ille!al taxes, and encoura!es a multiplicit$ of suits, the Tax CourtGs rulin! under appeal violates morals and pu#lic polic$" 27. ?o )atent arb*trar*ness s/o5n to (er*t *nc1us*on o- *nterest *n t/e re-und o- ta'es Hhile the Court has allo+ed recover$ of interest in some cases, it has done so onl$ in cases of patent ar#itrariness on the part of the Revenue authorities/ and in this instance" no such patent ar#itrariness has #een sho+n" [11] ,6R vs. Burrou"/s Ltd. [G.R. ?o. L.3. :une 19! 19# .] Second Division, 9aras (%): : concurrin! $acts% urrou!hs 8imited is a forei!n corporation authoriBed to en!a!e in trade or #usiness in the 9hilippines throu!h a #ranch office located at De la Rosa corner 6ste#an Streets, 8e!aspi <illa!e, ?a)ati, ?etro ?anila" Sometime in ?arch 1,-,, said #ranch office applied +ith the Central an) for authorit$ to remit to its parent compan$ a#road, #ranch profit amountin! to 9-,;:-,D1."DD" Thus, on 1: ?arch 1,-,, it paid the 11I #ranch profit remittance tax, pursuant to Sec" >: (#) (>) (ii) and remitted to its head office the amount of 9;,:,,,,,,"3D" Claimin! that the 11I profit remittance tax should have #een computed on the #asis of the amount actuall$ remitted (9;,:,,,,,,"3D) and not on the amount #efore profit remittance tax (9-,;:-,D1."DD), urrou!hs 8td" filed on >: Decem#er 1,.D, a +ritten claim for the refund or tax credit of the amount of
4a'at*on La5 6! 2773 ( 21 )
91->,D1.",D representin! alle!ed overpaid #ranch profit remittance tax" =n >: Fe#ruar$ 1,.1, urrou!hs 8td" filed +ith the Court of Tax (ppeals, a petition for revie+ (CT( Case) 3>D: for the recover$ of the amount of 91->,D1.".1" =n >- %une 1,.3, the tax court rendered its Decision, orderin! the Commission of 'nternal Revenue to !rant a tax credit in favor of urrou!hs 8td" the said amount claimed/ +ithout pronouncement as to costs" 0na#le to o#tain a reconsideration from the decision, the Commissioner filed the petition for certiorari #efore the Supreme Court" The Supreme Court affirmed the assailed decision of the Court of Tax (ppeals/ +ithout pronouncement as to costs" 1. >ect*on 24 (b) (2) (**) o- t/e ?at*ona1 Revenue ,ode The pertinent provision of the Aational Revenue Code is Sec" >: (#) (>) (ii) +hich states: 2Sec" >:" Rates of tax on corporations" " " " (#) Tax on forei!n corporations" " " " (>) (ii) Tax on #ranch profits remittances" J (n$ profit remitted a#road #$ a #ranch to its head office shall #e su#*ect to a tax of fifteen per cent (11I) " " " "3 2. 6nter)retat*on o- t/e )rov*s*on as )er ru1*n" o- t/e B6R 21 :anuary 19#7 'n a ureau of 'nternal Revenue rulin! dated >1 %anuar$ 1,.D #$ then (ctin! Commissioner of 'nternal Revenue &on" 6fren '" 9lana, Section >: (#) (>) (ii) had #een interpreted to mean that 2the tax #ase upon +hich the 11I #ranch profit remittance tax " " " shall #e imposed " " " (is) the profit actuall$ remitted a#road and not on the total #ranch profits out of +hich the remittance is to #e made"3 ased on such rulin! urrou!hs 8td" should have paid onl$ the amount of 9,-:,,,,"., in remittance tax computed #$ ta)in! the 11I of the profits of 9;,:,,,,,,"., in remittance tax actuall$ remitted to its head office in the 0nited States, instead of 91,1:-,D1."-D, on its net profits of 9-,;:-,D1."DD" 0ndou#tedl$, it has overpaid its #ranch profit remittance tax in the amount of 91->,D1.",D" 3. Ae(orandu( ,*rcu1ar #-#2 (1+ Aarc/ 19#2) does not a))1y Hhat is applica#le in the present case is still the Revenue Rulin! of >1 %anuar$ 1,.D #ecause urrou!hs 8imited paid the #ranch profit remittance tax in 4uestion on 1: ?arch 1,-," ?emorandum Circular .5.> dated 1- ?arch 1,.>, +hich states that 2considerin! that the 11I #ranch profit remittance tax is imposed and collected at source, necessaril$ the tax #ase should #e the amount actuall$ applied for #$ the #ranch +ith the Central an) of the 9hilippines as profit to #e remitted a#road,3 cannot #e !iven retroactive effect in the li!ht of Section 3>- of the Aational 'nternal Revenue Code" 4. >ect*on 32+ o- t/e ?at*ona1 6nterna1 Revenue ,ode Section 3>- (Aon5retroactivit$ of rulin!s) of the Aational 'nternal Revenue Code provides 2an$ revocation, modification, or reversal of an$ of the rules and re!ulations promul!ated in accordance +ith the precedin! section or an$ of the rulin!s or circulars promul!ated #$ the Commissioner shall not #e !iven retroactive application if the revocation, modification, or reversal +ill #e pre*udicial to the taxpa$er except in the follo+in! cases (a) +here the taxpa$er deli#eratel$ misstates or omits material facts from his return or in an$ document re4uired of him #$ the ureau of 'nternal Revenue/ (#) +here the facts su#se4uentl$ !athered #$ the ureau of 'nternal Revenue are materiall$ different from the facts on +hich the rulin! is #ased, or (c) +here the taxpa$er acted in #ad faith"3 (( S5C A roadcastin! Corp" v" CT(, 1D. SCR( 111511>) .. #-#2 Burrou"/s L*(*ted 5*11 be )re=ud*ced by t/e retroact*ve a))1*cat*on o- Ae(orandu( ,*rcu1ar
The pre*udice that +ould result to urrou!hs 8imited #$ a retroactive application of ?emorandum Circular .5.> is #e$ond 4uestion for it +ould #e deprived of the su#stantial amount of 91->,D1.",D" 'nsofar as the enumerated exceptions are concerned, admittedl$, urrou!hs 8imited does not fall under an$ of them" [12]
4a'at*on La5 6! 2773 ( 22 )
,6R vs. ,ebu 3ort1and ,e(ent [G.R. ?o. L-297.9. Dece(ber 1.! 19#+.] First Division, CruB (%): : concurrin! $acts% $ virtue of a decision of the Court of Tax (ppeals rendered on >1 %une 1,;1, as modified on appeal #$ the Supreme Court on >- Fe#ruar$ 1,;1, the Commissioner of 'nternal Revenue +as ordered to refund to the Ce#u 9ortland Cement Compan$ the amount of 931,,:D.",., representin! overpa$ments of ad valorem taxes on cement produced and sold #$ it after =cto#er 1,1-" =n >. ?arch 1,;., follo+in! denial of motions for reconsideration filed #$ #oth the Commissioner and the compan$, the latter moved for a +rit of execution to enforce the said *ud!ment" The motion +as opposed #$ the Commissioner on the !round that the compan$ had an outstandin! sales tax lia#ilit$ to +hich the *ud!ment de#t had alread$ #een credited (i"e" #alance o+in! on the sales taxes in the amount of 9:,-.,,>-,".1 plus >.I surchar!e)" =n >> (pril 1,;., the Court of Tax (ppeals !ranted the motion, holdin! that the alle!ed sales tax lia#ilit$ of the compan$ +as still #ein! 4uestioned and therefore could not #e set5off a!ainst the refund" &ence, the petition for revie+" The Supreme Court !ranted the petition and set aside the resolution dated >> (pril 1,;., in CT( Case -.;, +ithout an$ pronouncement as to costs" 1. >a1es ta' *()osed as ce(ent *s cons*dered a (anu-actured )roduct The sales tax +as properl$ imposed upon the compan$ for the reason that cement has al+a$s #een considered a manufactured product and not a mineral product" This matter +as extensivel$ discussed and cate!oricall$ resolved in Commissioner of 'nternal Revenue v" Repu#lic Cement Corporation, decided on 1D (u!ust 1,.3" 2. ,e(ent not a (*nera1 )roduct 5*t/*n t/e (ean*n" o- >ect*on 24 o- t/e 4a' ,ode Cement 4ua cement +as never considered as a mineral product +ithin the meanin! of Section >:; of the Tax Code, not+ithstandin! that at least .DI of its components are minerals, for the simple reason that cement is the product of a manufacturin! process and is no lon!er the Fmineral productG contemplated in the Tax Code (i"e"/ minerals su#*ected to simple treatments) for the purpose of imposin! the ad valorem tax" 3. ,ebu 3ort1and ,e(ent vs. ,o11ector case does not su))ort content*on t/at ce(ent *s a (*nera1 )roduct The decision in Ce#u 9ortland Cement Co" v" Collector of 'nternal Revenue (85>D1;3, >, =cto#er 1,;.,>. SCR( -.,) is no authorit$ for the proposition that after the enactment of R( 1>,, in 1,11 (definin! mineral product as thin!s +ith at least .DI mineral content), cement #ecame a Fmineral product,G as distin!uished from a Fmanufactured product,G and therefore ceased to #e su#*ect to sales tax" 6ven assumin! R( 1>,, had re5classified cement +as a mineral product, the reclassification could not #e !iven retrospective application (so as to *ustif$ the refund of sales taxes paid #efore Repu#lic (ct 1>,, +as adopted) #ecause la+s operate prospectivel$ onl$, unless the le!islative intent to the contrar$ is manifest, +hich +as not so in the case of R( 1>;;" OThe situation +ould have #een different if the Court instead had ruled in favor of refund, in +hich case it +ould have #een a#solutel$ necessar$ (1) to ma)e an unconditional rulin! that Repu#lic (ct 1>,, re5classified cement as a mineral product (not su#*ect to sales tax), and (>) to declare the la+ retroactive, as a #asis for !rantin! refund of sales tax paid #efore Repu#lic (ct 1>,,"P 4. Assess(ent -or sa1es ta' /ave not )rescr*bed The assessment for sales taxes made on 1; %anuar$ 1,;. and : ?arch 1,;., +ere not out of time" Hhat C69=C filed +as not the sales returns re4uired in Section 1.3(n) #ut the ad valorem tax returns re4uired under Section >:1 of the Tax Code" 'n order to avail itself of the #enefits of the 15$ear prescription period under Section 331 of the Tax Code, the taxpa$er should have filed the re4uired return for the tax involved, that is, a sales tax return" ( utuan Sa+mill, 'nc" v" CT(, et al", @"R" Ao" 85>111;, (pril >,, 1,;;, 1; SCR( >--)" Thus the cement compan$ should have filed sales tax returns of its !ross sales for the su#*ect
4a'at*on La5 6! 2773 ( 23 )
periods" 't has #een held in utuan Sa+mill, 'nc" v" CT(, that the filin! of an income tax return cannot #e considered as su#stantial compliance +ith the re4uirement of filin! sales tax returns, in the same +a$ that an income tax return cannot #e considered as a return for compensatin! tax for the purpose of computin! the period of prescription under Section 331" (Citin! isa$a 8and Transportation Co", 'nc" v" Collector of 'nternal Revenue, @"R" Aos" 851>1DD and 8511.1>, ?a$ >,, 1,1,)" There #ein! no sales tax returns filed #$ cement compan$, the statute of limitations in Section 331 did not #e!in to run a!ainst the !overnment" The assessment made #$ the Commissioner on the cement compan$Gs cement sales is not #arred #$ the 15$ear prescriptive period" (#sent a return, or +hen the return is false or fraudulent, the applica#le period is 1D da$s from the discover$ of the fraud, falsit$ or omission" .. ,ode Cr"ency to co11ect ta'es0 6n=unct*on not ava*1ab1e to restra*n co11ect*on o- ta'es0 >ect*on 291! 4a'
The ar!ument that the assessment cannot as $et #e enforced #ecause it is still #ein! contested loses si!ht of the ur!enc$ of the need to collect taxes as 2the life#lood of the !overnment"3 'f the pa$ment of taxes could #e postponed #$ simpl$ 4uestionin! their validit$, the machiner$ of the state +ould !rind to a halt and all !overnment functions +ould #e paral$Bed" That is the reason +h$, save for the exception alread$ noted, the Section >,1 ('n*unction not availa#le to restrain collection of tax ) of the Tax Code provides that 2Ao court shall have authorit$ to !rant an in*unction to restrain the collection of an$ national internal revenue tax, fee or char!e imposed #$ this Code"3 Thus, there is all the more reason to appl$ the rule in the present case #ecause it appears that even after creditin! of the refund a!ainst the tax deficienc$, a #alance of more than 9: million is still due from the compan$" To re4uire the Commissioner to actuall$ refund to the compan$ the amount of the *ud!ment de#t, +hich he +ill later have the ri!ht to distrain for pa$ment of its sales tax lia#ilit$ is an idle ritual" [13] ,6R vs. ,onne1 Bros. ,o. [G.R. ?os. L-2++.2-.3. Au"ust 37! 19+1.] 6n anc, Re$es % 8 (%): 1D concurrin! $acts% Connel ros" Compan$ (9hil"), a domestic corporation, filed petitions in the Court of Tax (ppeals for revie+ of the assessments made a!ainst it #$ the Commissioner of 'nternal Revenue for deficienc$ income taxes for 1,11 in the sum of 9>.,D;1"DD, said to #e due and pa$a#le on >D (u!ust 1,1- (Case :11), and for 1,1: in the sum of 9:1,;>,"DD, said to #e due on > (u!ust 1,1; (Case ;1D)" The deficienc$ assessments arose from the disallo+ance #$ the Commissioner of 'nternal Revenue of deductions for #ad de#ts, depreciation, and excess in valuation of leasehold improvements claimed #$ the taxpa$er in its income tax return for said taxa#le $ears" (fter due trial, the Court of Tax (ppeals rendered on >D (pril 1,;; a *oint decision in the t+o cases, reducin! the lia#ilit$ of the taxpa$er for deficienc$ tax for 1,1:, from 9:1,;>,"DD to 9>,1D,"DD, #ut sustainin! the assessment of 9>.,D;1"DD as deficienc$ income taxes for 1,11" Connel ros" +as thus ordered to pa$ to the 'nternal Revenue Commissioner the amount of 9>,1D,"DD and 9>.,D;1"DD as deficienc$ income taxes for 1,1: and 1,11, respectivel$, plus the correspondin! interests thereon, pursuant to Section 11 of the Tax Code, +ith provision that if the said deficienc$ taxes +ere not paid in full +ithin 3D da$s from the finalit$ of the decision, petitioner shall pa$ a surchar!e of 1I of the unpaid amount, plus interest at the rate of 1I a month computed from the date the decision #ecomes final until it is full$ paid, #ut not to exceed an amount correspondin! to the interest for a period of 3 $ears" =n motions for clarification #$ #oth parties, the Tax Court in its resolution of 3D %une 1,;- modified its decision in CT( Case ;1D, #$ orderin! Connel ros" to pa$ the Commissionerthe taxes for 1,1: and 1,11 plus the correspondin! interests of 1K>I a month provided in Section 11 (d) of the Revenue Code, as amended #$ R( >3:3, +hich in no case shall exceed 1.I correspondin! to a period of three $ears" 'f the said deficienc$ taxes are not paid in full +ithin 3D da$s from the date this decision #ecomes final and executor$, Connel ros" shall pa$ a surchar!e of 1I of the unpaid amount, plus interest at the rate of 1I a month, computed from the date the decision #ecomes final until paid/ provided, that the maximum amount that ma$ #e collected as interests shall not exceed the amount
4a'at*on La5 6! 2773 ( 24 )
correspondin! to a period of 3 $ears" Aot satisfied +ith the rulin! of the court, the Commissioner of 'nternal Revenue interposed the present appeals onl$ from that portion of the decision prescri#in! the rate of interest on the delin4uent taxes and the surchar!es thereon pa$a#le #$ the taxpa$er, and the period +ithin +hich said additional pa$ments must #e made" The Supreme Court modified the decision appealed from/ orderin! the taxpa$er to pa$ the amounts of 9>,1D,"DD and 9>.,D;1"DD as deficienc$ income taxes for 1,1: and 1,11, respectivel$, plus 1I surchar!e on the amount of unpaid tax and interest at the rate of 1I a month until full$ paid, computed from >D (u!ust 1,1-, as re!ards tax $ear 1,11, and from > (u!ust 1,1;, as re!ards tax $ear 1,1:, deductin! therefrom +hatever amount the taxpa$er mi!ht have alread$ paid on the said tax o#li!ation/ +ithout costs" 1. >ect*on .1 (e) o- t/e 6nterna1 Revenue ,ode! )r*or to a(end(ent by RA 2343 Section 11 (e) ((ssessment and pa$ment of income tax/ Surchar!e and interest in case of delin4uenc$") of the 'nternal Revenue Code, prior to its amendment provides 2To an$ sum or sums due and unpaid after the dates prescri#ed in su#sections (#), (c) and (d) for the pa$ment of the same, there shall #e added the sum of five per centum on the amount of tax unpaid and interest at the rate of one per centum a month upon said tax from the time the same #ecame due, except from the estates of insane, deceased, or insolvent persons"3 2. 19.9 >ect*on .1 (d) and (e) o- t/e 6nterna1 Revenue ,ode! as a(ended by RA 2343 e--ect*ve 27 :une
(s amended #$ Repu#lic (ct >3:3, effective >D %une 1,1,, Section 11 (d) ('nterest on deficienc$) reads as 2interest upon the amount determined as a deficienc$ shall #e assessed at the same time as the deficienc$ and shall #e paid upon notice and demand from the Commissioner of 'nternal Revenue/ and shall #e collected as part of the tax, at the rate of six per centum per annum from the date prescri#ed for the pa$ment of the tax (or, if the tax is paid in installments, from the date prescri#ed for the pa$ment of the first installment) to the date the deficienc$ is assessed: 9rovided, that the maximum amount that ma$ #e collected as interest on deficienc$ shall in no case exceed the amount correspondin! to a period of three $ears, the present provisions re!ardin! prescription to the contrar$ not+ithstandin!"3 Section 11 (e) ((dditions to the tax in case of non5pa$ment) reads as 2(>) Deficienc$" J Hhere a deficienc$, or an$ interest assessed in connection there+ith under para!raph (d) of this section, or an$ addition to the taxes provided for in section sevent$5t+o of this Code is not paid in full +ithin thirt$5t+o da$s from the date of notice and demand from the Commissioner of 'nternal Revenue, there shall #e collected upon the unpaid amount, as part of the tax, interest at the rate of one per centum, a month from the date of such notice and demand until it is paid: 9rovided, That the maximum amount that ma$ #e collected as interest on deficienc$ shall in no case exceed the amount correspondin! to a period of three $ears, the present provisions re!ardin! prescription to the contrar$ not+ithstandin!" (3) Surchar!e" J 'f an$ amount included in the notice and demand from the Commissioner of 'nternal Revenue is not paid in full +ithin thirt$ da$s after such notice and demand, there shall #e collected in addition to the interest prescri#ed herein and in para!raph (d) a#ove and as part of the tax a surchar!e of five per centum of the amount of tax unpaid"3 3. A(end(ent e')1a*ned 0nder the old Section 11 (e), a delin4uent taxpa$er +ould have to pa$, in addition to the unpaid tax, a 1I surchar!e thereon computed from the time the tax #ecame due, plus interest on the +hole unpaid amount at the rate of 1I a month" 0nder the amendator$ act (R( >3:3), the delin4uent taxpa$er shall pa$, in addition to the tax, a deficienc$ interest thereon at the rate of ;I per annum computed from the date prescri#ed for pa$ment of the income tax up to the assessment of the delin4uenc$ tax, #ut +hich shall not exceed the amount correspondin! to a period of 3 $ears" The interest of 1I a month and surchar!e of 1I on the +hole unpaid amount shall #e imposed onl$ in case the delin4uenc$ tax and deficienc$ interest are not paid +ithin 3D da$s
4a'at*on La5 6! 2773 ( 2. )
from the date the$ #ecome due" 4. F/en *nterest and surc/ar"es on de1*n9uent ta' )ay(ents c/ar"eab1e The rule as to +hen interests and surchar!es on delin4uent tax pa$ments #ecame char!ea#le is alread$ +ell5settled" Construin! the same provisions of the old Section 11 (e) and the present Section 11 (d) of the Tax Code, as amended #$ R( >3:3, the Court has declared that the interests and surchar!es on deficienc$ tax are to #e imposed upon failure of the taxpa$er to pa$ the tax on the date fixed in the la+ for pa$ment thereof, +hich is, under the unamended Section 11, on or #efore 11 ?a$ after the close of the calendar $ear, or on or #efore the 11th da$ of the fifth month follo+in! the close of the fiscal $ear, as the case ma$ #e" The rule has to #e so #ecause a deficienc$ indicates non5pa$ment of the correct and collecti#le tax, and such state of deficienc$ exists not onl$ from the assessment of the deficienc$ #ut from the ver$ time the taxpa$er failed to pa$ the correct amount due from him" .. Date 5/en correct ta'es -*'ed by 1a5 not sub=ect to t/e d*scret*on o- t/e ,o((*ss*oner o6nterna1 Revenue 9u#lic polic$ demands that the date +ithin +hich the correct taxes, as +ell as the surchar!es and interests in case of deficienc$, are pa$a#le, #ein! specificall$ fixed #$ la+, should not #e moved or chan!ed or made su#*ect to the discretion of the Commissioner of 'nternal Revenue" Aeither should the accrual of the interests #e made dependent on the final outcome of an action contestin! the correctness of the assessment of deficienc$ tax #$ the Revenue Commissioner" For there is nothin! in the 'nternal Revenue Code nor in R( 11>1, creatin! the Court of Tax (ppeals, +hich invests the said #od$ +ith authorit$ to supersede the period for pa$ment of the tax prescri#ed in Section 11, or to exercise the primar$ function of the Commissioner of 'nternal Revenue of assessin! and collectin! taxes" . De1*n9uency ta'es due and assess(ent (ade be-ore a(end(ent o- >ect*on .10 @1d >ect*on .1 (e) o- t/e 6nterna1 Revenue ,ode a))1*es The delin4uenc$ taxes #ecame due and the assessments therefor +ere made #efore the amendment of Section 11 on >D %une 1,1," Since the taxpa$er has failed to pa$ the correct amount of taxes due and collecti#le in 1,11 and 1,1;, his lia#ilit$ therefor should #e determined pursuant to the la+ then in force +hen the tax ori!inall$ fell due, +hich +as the old Section 11(e) of the 'nternal Revenue Code" +. >ect*on 13 o- RA 2342 s/o5s t/at t/ere *s no *ntent to (ake RA 2342 retroact*ve Section 13 of Repu#lic (ct >3:3 expressl$ provides that 2this (ct shall ta)e effect upon its approval: 9rovided, That the rate hereina#ove stipulated shall appl$ to income received from %anuar$ first, nineteen hundred and fift$5nine, and for the fiscal periods endin! after %une thirt$, nineteen hundred and fift$5nine"3 't is evident from Section 13 a#ove 4uoted that there +as no intent to ma)e Repu#lic (ct >3:3 retroactive" [14] ,6R vs. ,A [G.R. ?o. 17#3.#. :anuary 27! 199..] Third Division, <itu! (%): : concurrin! $acts% =n >> (u!ust 1,.;, durin! the period +hen the 9resident of the Repu#lic still +ielded le!islative po+ers, 6xecutive =rder :1 +as promul!ated declarin! a one5time tax amnest$ on unpaid income taxes, later amended to include estate and donorGs taxes and taxes on #usiness, for the taxa#le $ears 1,.1 to 1,.1" (vailin! itself of the amnest$, R"="&" (uto 9roducts 9hilippines 'nc", filed, in =cto#er 1,.; and Aovem#er 1,.;, its Tax (mnest$ Return 3:5F5DD1:;5:1 and Supplemental Tax (mnest$ Return 3:5F5DD1:;5;:5 , respectivel$, and paid the correspondin! amnest$ taxes due" 9rior to this availment, the Commissioner of 'nternal Revenue, in a communication received #$ the compan$ on 13 (u!ust 1,.;, assessed the latter deficienc$ income and #usiness taxes for its fiscal $ears ended 3D Septem#er 1,.1 and 3D Septem#er 1,.> in an a!!re!ate amount of 91,:1D,11-"-1" The taxpa$er +rote #ac) to state that since it had #een a#le to avail
4a'at*on La5 6! 2773 ( 2 )
itself of the tax amnest$, the deficienc$ tax notice should forth+ith #e cancelled and +ithdra+n" The re4uest +as denied #$ the Commissioner, in his letter of >> Aovem#er 1,.., on the !round that Revenue ?emorandum =rder :5.-, dated D, Fe#ruar$ 1,.-, implementin! 6= :1, had construed the amnest$ covera!e to include onl$ assessments issued #$ the ureau of 'nternal Revenue after the promul!ation of the executive order on >> (u!ust 1,.; and not to assessments theretofore made" The compan$ appealed the CommissionerGs denial to the Court of Tax (ppeals" Rulin! for the taxpa$er, the tax court held that the Commissioner failed to present an$ case or la+ +hich proves than an assessment can +ithstand or ne!ate the force of a tax amnest$" =n appeal #$ the Commissioner to the Court of (ppeals, the decision of the tax court +as affirmed" &ence, the present petition" The Supreme Court affimed the decision of the court of (ppeals, sustainin! that of the court of Tax (ppeals, in toto/ +ithout costs" 1. ,4A ru1*n"% ,o((*ss*oner -a*1ed to )resent case and 1a5 5/*c/ )roves assess(ent can 5*t/stand e--ects o- ta' a(nesty0 Burden o- )rooThe Commissioner failed to present an$ case or la+ +hich proves that an assessment can +ithstand or ne!ate the force and effects of a tax amnest$" This #urden of proof on the compan$ +as created #$ the clear and express terms of the executive orderGs intention J 4ualified availers of the amnest$ ma$ pa$ an amnest$ tax in lieu of said unpaid taxes +hich are for!iven (Section >, Section 1, 6= :1, as amended)" ?ore specificall$, the plain provisions in the statute !rantin! tax amnest$ for unpaid taxes for the period 1 %anuar$ 1,.1 to 31 Decem#er 1,.1 shifted the #urden of proof on the Commissioner to sho+ ho+ the issuance of an assessment #efore the date of the promul!ation of the executive order could have a reasona#le relation +ith the o#*ective periods of the amnest$, so as to ma)e the compan$ still ans+era#le for a tax lia#ilit$ +hich, throu!h the statute, should have #een erased +ith the proper availment of the amnest$" 2. ,4A Ru1*n"% &'ce)t*ons do not *nd*cate any re-erence to an assess(ent or )end*n" *nvest*"at*on as*de -ro( one ar*s*n" -ro( *n-or(at*on -urn*s/ed by an *n-or(er The exceptions enumerated in Section : of 6= :1, as amended, do not indicate an$ reference to an assessment or pendin! investi!ation aside from one arisin! from information furnished #$ an informer" Thus, the rule in Revenue ?emorandum =rder :5.- promul!atin! that onl$ assessments issued after (u!ust >1, 1,.; shall #e a#ated #$ the amnest$ is #e$ond the contemplation of 6= :1, as amended" 3. ,A Ru1*n"% ,o((*ss*onerEs add*t*ona1 e'ce)t*on a"a*nst co()any an act o- ad(*n*strat*ve 1e"*s1at*on There is nothin! +hich *ustifies the CommissionerGs !round for den$in! the compan$Gs claim to the #enefits of the amnest$ la+" Section : of the su#*ect la+ enumerates, in no uncertain terms, taxpa$ers +ho ma$ not avail of the amnest$ !ranted" The compan$ does not fall under an$ of the exceptions" The added exception ur!ed #$ the Commissioner #ased on Revenue ?emorandum =rder :5.-, further restrictin! the scope of the amnest$, clearl$ amounts to an act of administrative le!islation 4uite contrar$ to the mandate of the la+ +hich the re!ulation ou!ht to implement" 4. ,A Ru1*n"% 4a' A(nesty $ its ver$ nature, a tax amnest$, #ein! a !eneral pardon or intentional overloo)in! #$ the State of its authorit$ to impose penalties on persons other+ise !uilt$ of evasion or violation of a revenue or tax la+, parta)es of an a#solute for!iveness or +aiver #$ the @overnment of its ri!ht to collect +hat other+ise +ould #e due it, and in this sense, pre*udicial thereto, particularl$ to !ive tax evaders, +ho +ish to relent and are +illin! to reform a chance to do so and there#$ #ecome a part of the ne+ societ$ +ith a clean slate" (Repu#lic vs" 'ntermediate (ppellate Court" 1,; SCR( 331, 3:D O1,,1P citin! Commissioner of 'nternal Revenue vs" otelho Shippin! Corp", >D SCR( :.-) To follo+ the restrictive application of Revenue ?emorandum =rder :5.- pressed #$ the Commissioner +ould #e to +or) a!ainst the raison dGetre of 6= :1, as amended, i"e", to
4a'at*on La5 6! 2773 ( 2+ )
raise !overnment revenues #$ encoura!in! taxpa$ers to declare their untaxed income and pa$ the tax due thereon" .. Ad(*n*strat*ve a"enc*es )o5er to )ro(u1"ate need-u1 ru1es and re"u1at*ons to carry out t/e 1a5 The authorit$ of the ?inister of Finance (no+ the Secretar$ of Finance), in con*unction +ith the Commissioner of 'nternal Revenue, to promul!ate all needful rules and re!ulations for the effective enforcement of internal revenue la+s cannot #e controverted" Aeither can it #e disputed that such rules and re!ulations, as +ell as administrative opinions and rulin!s, ordinaril$ should deserve +ei!ht and respect #$ the courts" ?uch more fundamental than either of the a#ove is that all such issuances must not override, #ut must remain consistent and in harmon$ +ith, the la+ the$ see) to appl$ and implement" (dministrative rules and re!ulations are intended to carr$ out, neither to supplant nor to modif$, the la+" &@ 41 ()ro(u1"ated 22 Au"ust 19# )0 >ect*ons 1-4! 9 and 11 Section 1 (Scope of (mnest$) of 6= :1 provides that 2a one5time tax amnest$ coverin! unpaid income taxes for the $ears 1,.1 to 1,.1 is here#$ declared"3 Section > (Conditions of the (mnest$) provides that 2a taxpa$er +ho +ishes to avail himself of the tax amnest$ shall, on or #efore =cto#er 31, 1,.;/ a) file a s+orn statement declarin! his net +orth as of Decem#er 31, 1,.1/ #) file a certified true cop$ of his statement declarin! his net +orth as of Decem#er 31, 1,.D on record +ith the ureau of 'nternal Revenue, or if no such record exists, file a statement of said net +orth there+ith, su#*ect to verification #$ the ureau of 'nternal Revenue/ c) file a return and pa$ a tax e4uivalent to ten per cent (1DI) of the increase in net +orth from Decem#er 31, 1,.D to Decem#er 31, 1,.1: 9rovided, That in no case shall the tax #e less than 91,DDD"DD for individuals and 91D,DDD"DD for *udicial persons"3 Section 3 (Computation of Aet Horth) provides that 2'n computin! the net +orths referred to in Section > hereof, the follo+in! rules shall !overn: a) Aon5cash assets shall #e valued at ac4uisition cost" #) Forei!n currencies shall #e valued at the rates of exchan!e prevailin! as of the date of the net +orth statement"3 Section : (6xceptions) provides that 2the follo+in! taxpa$ers ma$ not avail themselves of the amnest$ herein !ranted: 2a) Those fallin! under the provisions of 6xecutive =rder Aos" 1, > and 1:/ #) Those +ith income tax cases alread$ filed in Court as of the effectivit$ hereof/ c) Those +ith criminal cases involvin! violations of the income tax alread$ filed in court as of the effectivit$ filed in court as of the effectivit$ hereof/ d) Those that have +ithholdin! tax lia#ilities under the Aational 'nternal Revenue Code, as amended, insofar as the said lia#ilities are concerned/ e) Those +ith tax cases pendin! investi!ation #$ the ureau of 'nternal Revenue as of the effectivit$ hereof as a result of information furnished under Section 31; of the Aational 'nternal Revenue Code, as amended/ f) Those +ith pendin! cases involvin! unexplained or unla+full$ ac4uired +ealth #efore the Sandi!an#a$an/ !) Those lia#le under Title Seven, Chapter Three (Frauds, 'lle!al 6xactions and Transactions) and Chapter Four (?alversation of 9u#lic Funds and 9ropert$) of the Revised 9enal Code, as amended"3 Section , provides that 2the ?inister of finance, upon the recommendation of the Commissioner of 'nternal Revenue, shall promul!ate the necessar$ rules and re!ulations to implement this 6xecutive =rder"3 Section 11 provides that the 2This 6xecutive =rder shall ta)e effect immediatel$"3 +. A(nesty e'tended by 1ater &@ .4 ()er*od) and &@ 4 (covera"e) The period of the amnest$ +as later extended to D1 Decem#er 1,.; from 31 =cto#er 1,.; #$ 6xecutive =rder 1:, dated D: Aovem#er 1,.;, and, its covera!e expanded, under 6xecutive =rder ;:, dated 1- Aovem#er 1,.;, to include estate and honors taxes and taxes on #usiness" #. &'c1us*on c1ause re9u*red to e'c1ude ta' 1*ab*1*t*es a1ready assessed0 &@ 41 *n t/e nature o- a "enera1 "rant o- ta' a(nesty 'f 6= :1 had not #een intended to include 1,.151,.1 tax lia#ilities alread$ assessed (administrativel$) prior to >> (u!ust 1,.;, the la+ could have simpl$ so provided in its exclusionar$ clauses" 't did not" Thus, the executive order has #een desi!ned to #e in the nature of a !eneral !rant of tax amnest$ su#*ect onl$ to the cases specificall$ excepted #$ it" .
4a'at*on La5 6! 2773 ( 2# )
9.
&vents t/at 1ead to t/e )ro(u1"at*on o- t/e ta' a(nesty The taxa#le periods covered #$ the amnest$ include the $ears immediatel$ precedin! the 1,.; revolution durin! +hich time there had #een persistent calls for civil diso#edience, most particularl$ in the pa$ment of taxes, to the martial la+ re!ime" 't should #e understanda#le then that those +ho ultimatel$ too) over the rei!ns of !overnment follo+in! the successful revolution +ould promptl$ provide for a#road, and not a confined, tax amnest$" 17. >ect*on o- &@ 410 6((un*t*es and 3r*v*1e"es Section ; of 6= :1 provides that 2upon full compliance +ith the conditions of the tax amnest$ and the rules and re!ulations issued pursuant to this 6xecutive order, the taxpa$er shall en*o$ the follo+in! immunities and privile!es: a) The taxpa$er shall #e relieved of an$ income tax lia#ilit$ on an$ untaxed income from %anuar$ 1, 1,.1 to Decem#er 31, 1,.1, includin! increments thereto and penalties on account of the non5pa$ment of the said tax" Civil, criminal or administrative lia#ilit$ arisin! from the non5pa$ment of the said tax, +hich are actiona#le under the Aational 'nternal Revenue Code, as amended, are li)e+ise deemed extin!uished" #) The taxpa$erGs tax amnest$ declaration shall not #e admissi#le in evidence in all proceedin!s #efore *udicial, 4uasi5*udicial or administrative #odies, in +hich he is a defendant or respondent, and the same shall not #e examined, in4uired or loo)ed into #$ an$ person, !overnment official, #ureau or office" c) The #oo)s of account and other records of the taxpa$er for the period from %anuar$ 1, 1,.1 to Decem#er 31, 1,.1 shall not #e examined for income tax purposes: 9rovided, That the Commissioner of 'nternal Revenue ma$ authoriBe in +ritin! the examination of the said #oo)s of accounts and other records to verif$ the validit$ or correctness of a claim for !rant of an$ tax refund, tax credit (other than refund on credit of +ithheld taxes on +a!es), tax incentives, andKor exemptions under existin! la+s"3 There is no pretension that the tax amnest$ returns and due pa$ments made #$ the taxpa$er did not conform +ith the conditions expressed in the amnest$ order" [1.] ,6R vs. $*re(anEs $und 6nsurance [G.R. ?o. L-37 44. Aarc/ 9! 19#+.] Second Division, 9aras (%): 1 concurrin!, 1 on leave $acts% FiremanGs Fund 'nsurance Compan$ is a resident forei!n insurance corporation or!aniBed under the la+s of the 0nited States, authoriBed and dul$ licensed to do #usiness in the 9hilippines" 't is a mem#er of the (merican Forei!n 'nsurance (ssociation, throu!h +hich its #usiness is cleared" From %anuar$ 1,1> to Decem#er 1,1., FiremanGs Fund entered into various insurance contracts involvin! casualt$, fire and marine ris)s, for +hich the correspondin! insurance policies +ere issued" From %anuar$ 1,1> to 1,1;, documentar$ stamps +ere #ou!ht and affixed to the monthl$ statements of policies issued/ and from 1,1- to 1,1. documentar$ stamps +ere #ou!ht and affixed to the correspondin! pa!es of the polic$ re!ister, instead of on the insurance policies issued" =n 3 %ul$ 1,1,, the compan$ discovered that its monthl$ statements of #usiness and polic$ re!ister +ere lost" The loss +as reported to the uildin! (dministration of ($ala uildin! and the Aational ureau of 'nvesti!ation on ; %ul$ 1,1," The Commissioner of 'nternal Revenue +as also informed of such loss #$ the compan$, throu!h the latterGs auditors, S$cip, @orres and <ela$o, in a letter dated 1: %ul$ 1,1," (fter conductin! an investi!ation of said loss, the compan$Gs examinerGs examiner ascertained that the compan$ failed to affix the re4uired documentar$ stamps to the insurance policies issued #$ it and failed to preserve its accountin! records +ithin the time prescri#ed #$ Section 33- of the Revenue Code #$ usin! loose leaf forms as re!isters of documentar$ stamps +ithout +ritten authorit$ from the Commissioner as re4uired #$ Section : of Revenue Re!ulations <51" (s a conse4uence of these findin!s, the Commissioner, in a letter dated - Decem#er 1,;>, assessed and demanded from petitioner the pa$ment of documentar$ stamp taxes for the $ears 1,1> to 1,1. in the total amount of 9-,,.D;".- and plus compromise penalties, a total of 9.1,:D;".-" The compromise penalties consisted of the sum of 91,DDD"DD as penalt$ for the alle!ed failure to affix documentar$ stamps and the further sum of 9;DD"DD as penalt$ for an alle!ed violation of Revenue Re!ulations <51 other+ise )no+n as the oo))eepin! Re!ulations" 'n a letter dated 1: %anuar$ 1,;3, the
4a'at*on La5 6! 2773 ( 29 )
compan$ contested the assessment" (fter the Commissioner denied the protest in a decision dated 1- ?arch 1,;1, the compan$ appealed to the Court of Tax (ppeals on . ?a$ 1,;1 (CT( Case 1;>,)" (fter hearin! the court rendered its decision dated >: ?a$ 1,;, reversin! the decision of the Commissioner of 'nternal Revenue" &ence, the petition filed on >; %une 1,;," The Supreme Court resolved to dismiss the petition and to affirm the assailed decision of the Court of Tax (ppeals" 1. ,4A Ru1*n"% a--*'ture o- docu(entary sta()s to )a)er ot/er t/ose aut/or*Bed by 1a5 not tanta(ount to -a*1ure to )ay t/e sa(e The affixture of documentar$ stamps to papers other than those authoriBed #$ la+ is not tantamount to failure to pa$ the same" 't is true that the mode of affixin! the stamps as prescri#ed #$ la+ +as not follo+ed, #ut the fact remains that the documentar$ stamps correspondin! to the various insurance policies +ere purchased and paid #$ the compan$" There is no le!al *ustification for the Commissioner to re4uire the compan$ to pa$ a!ain the documentar$ stamp tax +hich it had alread$ paid" To sustain the CommissionerGs stand +ould re4uire the compan$ to pa$ the same tax t+ice" 'f at all, the compan$ should #e proceeded a!ainst for failure to compl$ +ith the re4uirement of affixin! the documentar$ stamps to the taxa#le insurance policies and not for failure to pa$ the tax" (See Sec" >3, and 33>, Rev" Code)" 2. ,4A Ru1*n"% ,o()ro(*se )ena1t*es cannot be *()osed *- t/e co()any /as not consented t/ereto Hith respect to the Fcompromise penaltiesG in the total sum of 91,;DD"DD, the penalties cannot #e imposed in the a#sence of a sho+in! that the compan$ consented thereto" ( compromise implies a!reement" 'f the offer is re*ected #$ the taxpa$er, the Commissioner cannot enforce it except throu!h a criminal action" (See Comm" of 'nt" Rev" vs" (#ad, 851,;>-, >- %une 1,;.") 3. >ect*on 217 o- t/e ?at*ona1 6nterna1 Revenue ,ode0 >ta() ta'es u)on docu(ents! *nstru(ents! and )a)ers Section >1D of the Aational 'nternal Revenue Code provides 20pon documents, instruments, and papers, and upon acceptances, assi!nments, sales, and transfers of the o#li!ation, ri!ht, or propert$ incident thereto, there shall #e levied, collected and paid, for and in respect of the transaction so had or accomplished, the correspondin! documentar$ stamp taxes prescri#ed in the follo+in! sections of this Title, #$ the person ma)in!, si!nin!, issuin!, acceptin!, or transferrin! the same, and at the same time such act is done or transaction had"3 (Ao+" Sec" >>>)" 4. >ect*on 232 o- t/e ?at*ona1 6nterna1 Revenue ,ode0 >ta() ta' on 1*-e *nsurance )o1*c*es Section >3> of the Aational 'nternal Revenue Code provides 2=n all policies of insurance or other instruments #$ +hatever name the same ma$ #e called, +here#$ an$ insurance shall #e made or rene+ed upon an$ life or lives, there shall #e collected a documentar$ stamp tax of thirt$5five centavos on each t+o hundred pesos or fractional part thereof, of the amount issued #$ an$ such polic$" (>>D) ((s amended #$ 9D 1:1-)" 'nsurance policies issued #$ a 9hilippine compan$ to persons in other countries are not su#*ect to documentar$ stamp tax" (Rev" Re!s" >;)" ?edical certificate attached to an insurance polic$ is not a part of the said polic$" 'nsurance polic$ is su#*ect to Section >3> of the Tax Code +hile medical certificate is taxa#le under Section >3- of the same Code" 'nsurance policies are issued in the place +here delivered to the person insured"3 ((s amended") .. >ect*on 221 o- t/e ?at*ona1 6nterna1 Revenue ,ode0 >ta() ta' on )o1*c*es o- *nsurance u)on )ro)erty Section >>1 of the Aational 'nternal Revenue Code provides 2=n all policies of insurance or other
4a'at*on La5 6! 2773 ( 37 )
instruments #$ +hatever name the same ma$ #e called, #$ +hich insurance shall #e made or rene+ed upon propert$ of an$ description, includin! rents or profits, a!ainst peril #$ sea or on inland +aters, or #$ fire or li!htnin!, there shall #e collected a documentar$ stamp tax of six centavos on each four persons, or fractional part thereof, of the amount of premium char!ed"3 (Ao+ Sec" >1D")" >ect*on 23+ o- t/e ?at*ona1 6nterna1 Revenue ,ode0 3ay(ent o- docu(entary sta() ta' Section >3- of the Aational 'nternal Revenue Code provides 2Documentar$ stamp taxes shall #e paid #$ the purchase and affixture of documentar$ stamps to the document or instrument taxed or to such other paper as ma$ #e indicated #$ la+ or re!ulations as the proper recepient of the stamp, and #$ the su#se4uent cancellation of same, such cancellation to #e accomplished #$ +ritin!, stampin!, or perforatin! the date of the cancellation across the face of each stamp in such manner that part of the +ritin!, impression, or perforation shall #e on the stamp itself and part on the paper to +hich it is attached/ 9rovided, That if the cancellation is accomplished #$ +ritin! or stampin! the date of cancellation, a hole sufficientl$ lar!e to #e visi#le to the na)ed e$e shall #e punched, cut or perforated on #oth the stamp and the document either #$ the use of a hand punch, )nife, perforatin! machine, scissors, or an$ other cuttin! instrument #ut if the cancellation is accomplished #$ perforatin! the date of cancellation, no other hole need #e made on the stamp"3 (Ao+ Sec" >:,")" +. >ect*on 239 o- t/e ?at*ona1 6nterna1 Revenue ,ode0 $a*1ure to a--*' or cance1 docu(entary sta()s Section >3, of the Aational 'nternal Revenue Code provides 2(n$ person +ho fails to affix the correct amount of documentar$ stamps to an$ taxa#le document, instrument, or paper, or to cancel in the manner prescri#ed #$ section >3- an$ documentar$ stamp affixed to an$ document, instrument, or paper, shall #e su#*ect to a fine of not less than t+ent$ pesos or more than three hundred pesos" (Ao+ Sec" >1D") #. Docu(entary ta'es! 5/en dee(ed )a*d Documentar$ tax is deemed paid #$: (a) the purchase of documentar$ stamps/ (#) affixture of documentar$ stamps to the document or instrument taxed or to such other paper as ma$ #e indicated #$ la+ or re!ulations/ and (c) cancellation of the stamps as re4uired #$ la+" 9. 3ur)ose o- t/e 1a5 *s to co11ect ta'0 Docu(entary sta()s )a*d -or and cance11ed The over5ridin! purpose of these provisions of la+ is the collection of taxes" The three steps involvin! documentar$ stamps are #ut the means to that end" Thus, the purchase of the stamps is the form of pa$ment made/ the affixture thereof on the document or instrument taxed is to insure that the correspondin! tax has #een paid for such document +hile the cancellation of the stamps is to o#viate the possi#ilit$ that said stamps +ill #e reused for similar documents for similar purposes" 'n the present case, there appears to #e no dispute on the fact that the documentar$ stamps correspondin! to the various policies +ere purchased and paid for #$ the Compan$" Aeither is there an$ ar!ument that the same +ere cancelled as re4uired #$ la+" This conclusion are also the findin!s of the CommissionerGs examiner ((mando " ?el!ar), and confirmed #$ the ?emorandum of (ctin! Commissioner of 'nternal Revenue %ose " 8in!ad, dated - Aovem#er 1,;> to the Chief of usiness Tax Division" The purchase of documentar$ stamps and their #ein! affixed to the monthl$ statements of #usiness and polic$ re!isters +ere also admitted #$ counsel for the @overnment as could clearl$ #e !leaned from his ?emorandum su#mitted to the Court of Tax (ppeals" Simpl$ said, the purpose of imposin! documentar$ stamp taxes is to raise revenue and the correspondin! amount has alread$ #een paid #$ the compan$ and has actuall$ #ecome part of the revenue of the !overnment" 17. &v*dence to )rove )ay(ent o- docu(entary sta() ta' The insurance policies +ith the correspondin! documentar$ stamps affixed are the #est evidence to prove pa$ment of said documentar$ stamp tax" This rule ho+ever does not preclude the admissi#ilit$ of other proofs +hich are uncontradicted and of considera#le +ei!ht, such as: copies of the applications for mana!erGs chec)s, copies of the mana!erGs chec) vouchers of the #an) sho+in! the purchases of documentar$ stamps
4a'at*on La5 6! 2773 ( 31 )
correspondin! to the various insurance policies issued, in the present case, durin! the $ears 1,1>51,1. dul$ and properl$ identified #$ the +itnesses for the compan$ durin! the hearin! and admitted #$ the Court of Tax (ppeals" 11. >tatutes 1evy*n" ta'es or dut*es! *n case o- doubt! construed stron"1y a"a*nst t/e "overn(ent 't is a !eneral rule in the interpretation of statutes lev$in! taxes or duties, that in case of dou#t, such statutes are to #e construed most stron!l$ a!ainst the !overnment and in favor of the su#*ects or citiBens, #ecause #urdens are not to #e imposed, nor presumed to #e imposed #e$ond +hat statutes expressl$ and clearl$ import (?anila Railroad Co" v" Collector of Customs, 1> 9hil" ,1D O1,>,P)" 12. A--*'ture o- s*"nature not attended by bad -a*t/0 :ust*-*cat*on -or t/e acts o- a"ents c1a*(ed -or t/e acts o- t/e )r*nc*)a1 *tse1The affixture of the stamps on documents not authoriBed #$ la+ is not attended #$ #ad faith as the practice +as adopted from the authorit$ !ranted to Hise Q Compan$, one of the compan$Gs !eneral a!ents" 'ndeed, the Commissioner ar!ued that such authorit$ +as not !iven to the compan$ specificall$, #ut under the !eneral principle of a!enc$, +here the acts of the a!ents #ind the principal, the conclusion is inescapa#le that the *ustification for the acts of the a!ents ma$ also #e claimed for the acts of the principal itself" 13. Doctr*ne t/at no )erson s/a11 un=ust1y enr*c/ /*(se1- at t/e e')ense o- anot/er a))1*es a1so to t/e Govern(ent There is no *ustification for the !overnment +hich has alread$ realiBed the revenue +hich is the o#*ect of the imposition of su#*ect stamp tax, to re4uire the pa$ment of the same tax for the same documents" 6nshrined in our #asic le!al principles is the time honored doctrine that no person shall un*ustl$ enrich himself at the expense of another" 't !oes +ithout sa$in! that the !overnment is not exempted from the application of this doctrine (Ramie Textiles, 'nc" v" ?atha$ Sr", ., SCR( 1.- O1,-,P)" [1 ] ,6R vs. Gota(co [G.R. ?o. L-31792. $ebruary 2+! 19#+.] First Division, Eap (%): ; concurrin! $acts% The Horld &ealth =r!aniBation (H&=) is an international or!aniBation +hich has a re!ional office in ?anila" (s an international or!aniBation, it en*o$s privile!es and immunities +hich are defined more specificall$ in the &ost (!reement entered into #et+een the Repu#lic of the 9hilippines and the said =r!aniBation on >> %ul$ 1,11" Section 11 of that (!reement provides, inter alia, that 2the =r!aniBation, its assets, income and other properties shall #e: (a) exempt from all direct and indirect taxes" 't is understood, ho+ever, that the =r!aniBation +ill not claim exemption from taxes +hich are, in fact, no more than char!es for pu#lic utilit$ services/ " " "3 Hhen the H&= decided to construct a #uildin! to house its o+n offices, as +ell as the other 0nited Aations offices stationed in ?anila, it entered into a further a!reement +ith the @overnment of the Repu#lic of the 9hilippines on >; Aovem#er 1,1-" This a!reement contained provides that 2the =r!aniBation ma$ import into the countr$ materials and fixtures re4uired for the construction free from all duties and taxes and a!rees not to utiliBe an$ portion of the international reserves of the @overnment ((rticle ''', para!raph >)"3 'n invitin! #ids for the construction of the #uildin!, the H&= informed the #idders that the #uildin! to #e constructed #elon!ed to an international or!aniBation +ith diplomatic status and thus exempt from the pa$ment of all fees, licenses, and taxes, and that therefore their #ids 2must ta)e this into account and should not include items for such taxes, licenses and other pa$ments to @overnment a!encies"3 The construction contract +as a+arded to %ohn @otamco Q Sons, 'nc" (@otamco) on 1D Fe#ruar$ 1,1. for the stipulated price of 93-D,DDD"DD, #ut +hen the #uildin! +as completed the price reached a total of 9:1>,1::"DD" Sometime in ?a$ 1,1., the H&= received an opinion from the 'R Commissioner statin! that 2as the 3I
4a'at*on La5 6! 2773 ( 32 )
contractorGs tax is an indirect tax on the assets and income of the =r!aniBation, the !ross receipts derived #$ contractors from their contracts +ith the H&= for the construction of its ne+ #uildin!, are exempt from tax in accordance +ith the &ost (!reement"3 Su#se4uentl$, ho+ever, on 3 %une 1,1., the Commissioner reversed his opinion and stated that 2as the 3I contractorGs tax is not a direct nor an indirect tax on the H&=, #ut a tax that is primaril$ due from the contractor, the same is not covered #$ the &ost (!reement"3 =n > %anuar$ 1,;D, the H&= issued a certification statin! that the #id of %ohn @otamco Q Sons, made under the condition stated a#ove, should #e exempted from an$ taxes in connection +ith the construction of the H&= office #uildin! as the$ +ere informed that there +ould #e no taxes or fees levied upon them for their +or) in connection +ith the construction of the #uildin!" =n 1- %anuar$ 1,;1, the Commissioner sent a letter of demand to @otamco demandin! pa$ment of 91;,,-D":D, representin! the 3I contractorGs tax plus surchar!es on the !ross receipts it received from the H&= in the construction of the latterGs #uildin!" @otamco appealed the CommissionerGs decision to the Court of Tax (ppeals, +hich after trial rendered a decision, in favor of @otamco and reversed the CommissionerGs decision" The Commissioner filed the petition for revie+ on certiorari #efore the Supreme Court" The Supreme Court found no reversi#le error committed #$ the Court of Tax (ppeals, and affirmed the appealed decision" 1. Less -or(a1 ty)es o- *nternat*ona1 a"ree(ents! suc/ as Host A"ree(ents! entered by 3res*dent b*nd*n" even 5*t/out concurrence o- >enate0 3r*v*1e"es and *((un*t*es "ranted b*nd*n" on aut/or*t*es Hhile treaties are re4uired to #e ratified #$ the Senate under the Constitution, less formal t$pes of international a!reements ma$ #e entered into #$ the Chief 6xecutive and #ecome #indin! +ithout the concurrence of the le!islative #od$" The &ost (!reement comes +ithin the latter cate!or$/ it is a valid and #indin! international a!reement even +ithout the concurrence of the 9hilippine Senate" The privile!es and immunities !ranted to the H&= under the &ost (!reement have #een reco!niBed #$ the Supreme Court as le!all$ #indin! on 9hilippine authorities" 2. D*rect and *nd*rect ta'es d*st*n"u*s/ed0 ,ontractorEs ta' 1ev*ed on Gota(co *s an *nd*rect ta' a"a*nst t/e FH@ 'n context, direct taxes are those that are demanded from the ver$ person +ho, it is intended or desired, should pa$ them/ +hile indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the #urden to someone else" (9olloc) vs" Farmers, 8 Q T Co", 1,1- 0S :>,,11 S" Ct" ;-3, 3, 8a+" 6d" -1,") The contractorGs tax is of course pa$a#le #$ the contractor #ut in the last anal$sis it is the o+ner of the #uildin! that shoulders the #urden of the tax #ecause the same is shifted #$ the contractor to the o+ner as a matter of self5preservation" Thus, it is an indirect tax" (nd it is an indirect tax on the H&= #ecause, althou!h it is pa$a#le #$ @otamco, the latter can shift its #urden on the H&=" 'n the last anal$sis it is the H&= that +ill pa$ the tax indirectl$ throu!h the contractor and it certainl$ cannot #e said that 2this tax has no #earin! upon the Horld &ealth =r!aniBation"3 Thus, the 3I contractorGs tax should #e vie+ed as a form of an 2indirect tax3 on the =r!aniBation, as the pa$ment thereof or its inclusion in the #id price +ould have meant an increase in the construction cost of the #uildin!" 3. 3/*1*))*ne Acety1ene case not contro11*n" The case of 9hilippine (cet$lene Compan$ versus Commissioner of 'nternal Revenue is not controllin! in the present case, since the &ost (!reement specificall$ exempts the H&= from 2indirect taxes"3 The 9hilippine (cet$lene case involved a tax on sales of !oods +hich under the la+ had to #e paid #$ the manufacturer or producer/ the fact that the manufacturer or producer mi!ht have added the amount of the tax to the price of the !oods did not ma)e the sales tax 2a tax on the purchaser"3 The Court held that the sales tax must #e paid #$ the manufacturer or producer even if the sale is made to tax5exempt entities li)e the Aational 9o+er Corporation, an a!enc$ of the 9hilippine @overnment, and to the <oice of (merica, an a!enc$ of the 0nited States @overnment"
4a'at*on La5 6! 2773 ( 33 )
4.
Rat*ona1e o- t/e FH@ e'e()t*on -ro( *nd*rect ta'es The &ost (!reement, in specificall$ exemptin! the H&= from 2indirect taxes,3 contemplates taxes +hich, althou!h not imposed upon or paid #$ the =r!aniBation directl$, form part of the price paid or to #e paid #$ it" This is made clear in Section 1> of the &ost (!reement +hich provides 2Hhile the =r!aniBation +ill not, as a !eneral rule, in the case of minor purchases, claim exemption from excise duties, and from taxes on the sale of mova#le and immova#le propert$ +hich form part of the price to #e paid, nevertheless, +hen the =r!aniBation is ma)in! important purchases for official use of propert$ on +hich such duties and taxes have #een char!ed or are char!ea#le the @overnment of the Repu#lic of the 9hilippines shall ma)e appropriate administrative arran!ements for the remission or return of the amount of dut$ or tax"3 Section 1>, althou!h referrin! onl$ to purchases made #$ the H&=, elucidates the clear intention of the (!reement to exempt the H&= from 2indirect3 taxation" [1+] ,6R vs. 6to"on->uyoc A*nes [G.R. ?o. L-2.299. :u1y 29! 19 9.] 6n anc, Fernando (%): , concurrin!, 1 too) no part $acts% 'to!on5Su$oc ?ines 'nc", a minin! corporation dul$ or!aniBed and existin! in accordance +ith the la+s of the 9hilippines, filed on 13 %anuar$ 1,;1, its income tax return for the fiscal $ear 1,1,51,;D" 't declared a taxa#le income of 911:,3;."D: and a tax due there on amountin! to 9>;,31D":1, for +hich it paid on the same da$, the amount of 913,111">D as the first installment of the income tax due" =n 1- ?a$ 1,;1, the corporation filed an amended income tax return, reportin! therein a net loss of 9331,-D-"33" 't thus sou!ht a refund from the Commissioner of 'nternal Revenue" =n 1: Fe#ruar$ 1,;>, 'to!on5Su$oc ?ines, 'nc" filed its income tax return for the fiscal $ear 1,;D51,;1, settin! forth its income tax lia#ilit$ to the tune of 9,-,3:1"DD, #ut deductin! the amount of 913,111">D representin! alle!ed tax credit for overpa$ment of the precedin! fiscal $ear 1,1,51,;D" =n 1. Decem#er 1,;>, the Commissioner assessed a!ainst the corporation the amount of 91,11>".3 as 1I monthl$ interest on the amount of 913,111">D from 1; %anuar$ 1,;> to 31 Decem#er 1,;>" The #asis for such an assessment +as the a#sence of le!al ri!ht to deduct said amount #efore the refund or tax credit thereof +as approved #$ Commissioner of 'nternal Revenue" Such an assessment +as contested #$ the corporation #efore the Court of Tax (ppeals" The assessment representin! interest +as set aside in the decision of 3D Septem#er 1,;1 #$ the Court of Tax (ppeals" &ence, the petition for revie+" The Supreme Court affirmed the 3D Septem#er 1,;1 decision of the Court of Tax (ppeals/ +ithout pronouncement as to costs" 1. Assess(ent on *nterest over su( a1ready )a*d un-a*r and un=ust The Commissioner assessed a!ainst the corporation the amount of 91,11>".3 as 1I monthl$ interest on the sum of 913,111">D from 1; %anuar$ 1,;> to 31 Decem#er 1,;> on the !round that the corporation had no le!al ri!ht to deduct the said amount from its income tax lia#ilit$ for the fiscal $ear 1,;D51,;1 until the refund or tax credit thereof has #een approved #$ the Commissioner" The corporation paid the amount of 913,111">D as first installment on its reported income tax lia#ilit$ for the fiscal $ear 1,1,51,;D" ut, it turned out that instead of derivin! a net !ain, it sustained a net loss durin! the said fiscal $ear" (ccordin!l$, it filed an amended income tax return and a claim for the refund of the sum of 913,111">D, +hich sum it su#se4uentl$ deducted from its income tax lia#ilit$ for the succeedin! fiscal $ear 1,;D51,;1" The overpa$ment for the fiscal $ear 1,1,51,;D and the deduction of the overpaid amount from its 1,;D51,;1 tax lia#ilit$ are not denied #$ the Commissioner" 'n this circumstance, it is unfair and un*ust for the Commissioner to exact an interest on the said sum of 913,111">D, +hich, after all, +as paid to and received #$ the !overnment even #efore the incidence of the tax in 4uestion" 2. 6()os*t*on o- *nterest *s not su))orted by 1a5
4a'at*on La5 6! 2773 ( 34 )
The Aational 'nternal Revenue Code provides that interest upon the amount determined as a deficienc$ shall #e assessed and shall #e paid upon notice and demand from the Commissioner of 'nternal Revenue at the rate therein specified" 't is made clear, ho+ever, in an earlier provision found in the same section that if in an$ precedin! $ear, the taxpa$er +as entitled to a refund of an$ amount due as tax, such amount, if not $et refunded, ma$ #e deducted from the tax to #e paid" 3. ,or)orat*on ent*t1ed to re-und! to 5/*c/ t/e ,o((*ss*oner d*d not a11e"e ot/er5*se! t/us /as r*"/t accord*n" to 1a5 to deduct over)ay(ent -ro( ta' )ay(ent The corporation +as entitled to a refund" 'nstead of +aitin! for the sum involved to #e delivered to it, it deducted the said amount from the tax that it had to pa$" That it had a ri!ht to do accordin! to the la+" 't is true a dou#t could have arisen due to the fact that as of the time such a deduction +as made, the Commissioner of 'nternal Revenue had not as $et approved such a refund" 't is an admitted fact thou!h that corporation +as clearl$ entitled to it, and the Commissioner did not alle!e other+ise" Aor could he do so" 0nder all the circumstances disclosed therefore, the applica#ilit$ of the le!al provision allo+in! such a deduction from the amount of the tax to #e paid cannot #e disputed" 4. Aont/1y *nterest not a )ena1ty but a co()ensat*on Thou!h not in point to the present case, 't +as held in Castro vs" Collector of 'nternal Revenue that the imposition of the monthl$ interest +as considered as not constitutin! a penalt$ 2#ut a *ust compensation to the state for the dela$ in pa$in! the tax, and for the concomitant use #$ the taxpa$er of funds that ri!htfull$ should #e in the !overnmentGs hands"3 .. ,or)orat*on not "u*1ty o- de1ay so as to ut*1*Be (oney t/at s/ou1d /ave been *n "overn(ent treasury Hhat is the la+ sou!ht to #e avoided is for the taxpa$er to ma)e use of funds that should have #een paid to the !overnment" 'n the present case, in vie+ of the overpa$ment for the fiscal $ear 1,1,51,;D, the sum of 913,111">D had alread$ formed part of the pu#lic funds" 't cannot #e said, therefore, that the taxpa$er +as !uilt$ of an$ dela$ ena#lin! it to utiliBe a sum of mone$ that should have #een in the !overnment treasur$" [1#] ,6R vs. Ledn*cky [G.R. ?os. L-1#1 9! L-1#2# ! G L-21434. :u1y 31! 19 4.] 6n anc, Re$es % 8 (%): . concurrin! $acts% <" 6" 8ednic)$ and ?aria <alero 8ednic)$, are hus#and and +ife, #oth (merican citiBens residin! in the 9hilippines, and have derived all their income from 9hilippine sources for the taxa#le $ears under 4uestion" [GR L-1#2# ] 'n compliance +ith local la+, the spouses, on >- ?arch 1,1-, filed their income tax return for 1,1;, reportin! therein a !ross income of 91,D1-,>.-";1 and a net income of 9-33,.D,":: on +hich the amount of 931-,3,1":1 +as assessed after deductin! 9:,.D1"1, as +ithholdin! tax" 9ursuant to the Commissioner of 'nternal RevenueGs assessment notice, the spouses paid the total amount of 93>;,>:-":1, inclusive of the +ithheld taxes, on 11 (pril 1,1-" =n 1- ?arch 1,1,, the spouses filed an amended income tax return for 1,1;" The amendment consists in a claimed deduction of 9>D1,,3,">: paid in 1,1; to the 0S !overnment as federal income tax for 1,1;" Simultaneousl$ +ith the filin! of the amended return, the spouses re4uested the refund of 911>,:3-",D" Hhen the Commissioner of 'nternal Revenue failed to ans+er the claim for refund, the spouses filed their petition +ith the tax court on 11 (pril 1,1, as CT( Case ;:;" [GR L1#1 .] =n >. Fe#ruar$ 1,1;, the spouses filed their domestic income tax return for 1,11, reportin! a !ross income of 91,--1,1>:";3 and a net income of 91,D1>,11D";-" =n 1, (pril 1,1;, the$ filed an amended income tax return, the amendment upon the ori!inal #ein! a lesser net income of 91,D1>,11:"11, and, on the #asis of this amended return, the$ paid 91-D,>1>"DD, inclusive of +ithholdin! taxes" (fter audit, the Commissioner determined a deficienc$ of 91;,11;"DD, +hich amount the spouses paid on 1 Decem#er 1,1;" ac) in 1,11, ho+ever, the spouses filed +ith the 0S 'nternal Revenue (!ent in ?anila their Federal income
4a'at*on La5 6! 2773 ( 3. )
tax return for the $ears 1,:-, 1,11, 1,1>, 1,13 and 1,1: on income from 9hilippine sources on a cash #asis" 9a$ment of these federal income taxes, includin! penalties and delin4uenc$ interest in the amount of R>;:,1..".>, +ere made in 1,11 to the 0S Director of 'nternal Revenue, altimore, ?ar$land, throu!h the Aational Cit$ an) of Ae+ Eor), ?anila ranch" 6xchan!e and #an) char!es in remittin! pa$ment totaled 9:,1:3",1" =n 11 (u!ust 1,1. the said respondents amended their 9hilippines income tax return for 1,11 to includin! 0S Federal income taxes, interest accruin! up to 11 ?a$ 1,11, and exchan!e and #an) char!es, totalin! 911;,3:1"11 and there+ith filed a claim for refund of the sum of 91;;,3.:"DD, +hich +as later reduced to 911D,>;,"DD" The spouses #rou!ht suit in the Tax Court, +hich +as doc)eted therein as CT( Case 1-D" [GR 21434] The facts are similar to a#ove cases #ut refer to the spousesG income tax returns for 1,1-, filed on >. Fe#ruar$ 1,1., and for +hich the spouses paid a total sum of 91,;,-,,";1" 'n 1,1,, the$ filed an amended return for 1,1-, claimin! deduction of 91,D,-11".D, representin! taxes paid to the 0S @overnment on income derived +holl$ from 9hilippine sources" =n the stren!th thereof, spouses see) refund of 9,D,1>D"-1 as overpa$ment (CT( Case -.3)" The Tax Court decide for the spouses" The Commissioner thus elevated under separate petitions for revie+ of the correspondin! decisions of the Court of Tax (ppeals to the Supreme Court" Since these cases involve the same parties and issues a)in to each case presented, the Court decided them *ointl$" The Supreme Court reversed the decisions of the Court of Tax (ppeals, and affirmed the disallo+ance of the refunds claimed #$ the spouses, +ith costs a!ainst said spouses" 1. >ect*on 37 (c-1) o- t/e 3/*1*))*ne 6nterna1 Revenue ,ode Section 3D (c) (1) (Deduction from !ross income) provides that 2in computin! net income there shall #e allo+ed as deductions: (c) Taxes: (1) 'n !eneral" J Taxes paid or accrued +ithin the taxa#le $ear, except (() The income tax provided for under this Title/ ( ) 'ncome, +ar5profits, and excess profits taxes imposed #$ the authorit$ of an$ forei!n countr$/ #ut this deduction shall #e allo+ed in the case of a taxpa$er +ho does not si!nif$ in his return his desire to have to an$ extent the #enefits of para!raph (3) of this su#section (relatin! to credit for taxes of forei!n countries)/ (C) 6state, inheritance and !ift taxes/ and (D) Taxes assessed a!ainst local #enefits of a )ind tendin! to increase the value of the propert$ assessed"3 2. 3ara"ra)/ (c) (3) (b) o- t/e 4a' ,ode0 ,red*ts a"a*nst ta' -or ta'es o- -ore*"n countr*es 9ara!raph 3 ( ) of the su#section (Credits a!ainst tax for taxes of forei!n countries), reads: 2'f the taxpa$er si!nifies in his return his desire to have the #enefits of this para!raph, the tax imposed #$ this Title shall #e credited +ith ( ) (lien resident of the 9hilippines" J 'n the case of an alien resident of the 9hilippines, the amount of an$ such taxes paid or accrued durin! the taxa#le $ear to an$ forei!n countr$, if the forei!n countr$ of +hich such alien resident is a citiBen or su#*ect, in imposin! such taxes, allo+s a similar credit to citiBens of the 9hilippines residin! in such countr$/3 3. 3ara"ra)/ (c) (4) o- t/e 4a' ,ode0 L*(*tat*on on cred*t The tax credit so authoriBed is limited under para!raph : (( and ) of the same su#section, in the follo+in! terms: 29ar" (c) (:) 8imitation on credit" J The amount of the credit ta)en under this section shall #e su#*ect to each of the follo+in! limitations: (() The amount of the credit in respect to the tax paid or accrued to an$ countr$ shall not exceed the same proportion of the tax a!ainst +hich such credit is ta)en, +hich the taxpa$erGs net income from sources +ithin such countr$ taxa#le under this Title #ears to his entire net income for the same taxa#le $ear/ and ( ) The total amount of the credit shall not exceed the same proportion of the tax a!ainst +hich such credit is ta)en, +hich the taxpa$erGs net income from sources +ithout the 9hilippines taxa#le under this Title #ears to his entire net income for the same taxa#le $ear"3 4. La5Es *ntent t/at r*"/t to deduct *nco(e ta'es )a*d to -ore*"n "overn(ent taken as an a1ternat*ve or subst*tute to c1a*( o- ta' cred*t -or suc/ -ore*"n *nco(e ta' Construction and +ordin! of Section 3D (c) (1) ( ) of the 'nternal Revenue (ct sho+s the la+Gs intent
4a'at*on La5 6! 2773 ( 3 )
that the ri!ht to deduct income taxes paid to forei!n !overnment from the taxpa$erGs !ross income is !iven onl$ as an alternative or su#stitute to his ri!ht to claim a tax credit for such forei!n income taxes under section 3D (c) (3) and (:)/ so that unless the alien resident has a ri!ht to claim such tax credit if he so chooses, he is precluded from deductin! the forei!n income taxes from his !ross income" For it is o#vious that in prescri#in! that such deduction shall #e allo+ed in the case of a taxpa$er +ho does not si!nif$ in his return his desire to have to an$ extent the #enefits of para!raph (3) (relatin! to credits for taxes paid to forei!n countries), the statute assumes that the taxpa$er in 4uestion also ma$ si!nif$ his desire, to claim a tax credit and +aive the deduction/ other+ise, the forei!n taxes +ould al+a$s #e deducti#le, and their mention in the list of non5deducti#le items in Section 3D (c) mi!ht as +ell have #een omitted, or at least expressl$ limited to taxes on income from sources outside the 9hilippine 'slands" &ad the la+ intended that forei!n income taxes could #e deducted from !ross income in an$ event, re!ardless of the taxpa$erGs ri!ht to claim a tax credit, it is the latter ri!ht that should #e conditioned upon the taxpa$erGs +aivin! the deduction/ in +hich case the ri!ht to reduction under su#section (c515 ) +ould have #een made a#solute or unconditional (#$ omittin! forei!n taxes from the enumeration of non5 deductions), +hile the ri!ht to a tax credit under su#section (c53) +ould have #een expressl$ conditioned upon the taxpa$erGs not claimin! an$ deduction under su#section (c51)" .. Dan"er o- doub1e cred*t does not e'*st *- ta')ayer cannot c1a*( bene-*t -ro( e*t/er /ead*n"s at /*s o)t*on The purpose of the la+ is to prevent the taxpa$er from claimin! t+ice the #enefits of his pa$ment of forei!n taxes, #$ deduction from !ross income (su#s" c51) and #$ tax credit (su#s" c53)" This dan!er of dou#le credit certainl$ can not exist if the taxpa$er can not claim #enefit under either of these headin!s at his option, so that he must #e entitled to a tax credit (the spouses admittedl$ are not so entitled #ecause all their income is derived from 9hilippine sources), or the option to deduct from !ross income disappears alto!ether" F/en doub1e ta'at*on0 4a' *nco(e s/ou1d accrue to bene-*t o- t/e 3/*1*))*nes Dou#le taxation #ecomes o#noxious onl$ +here the taxpa$er is taxed t+ice for the #enefit of the same !overnmental entit$ (cf" ?anila vs" 'nterisland @as Service, 1> =ff" @aB" ;1-,, ?anuf" 8ife 'ns" Co" vs" ?eer, ., 9hil" 31-)" 'n the present case, +hile the taxpa$ers +ould have to pa$ t+o taxes on the same income, the 9hilippine !overnment onl$ receives the proceeds of one tax" (s #et+een the 9hilippines, +here the income +as earned and +here the taxpa$er is domiciled, and the 0nited States, +here that income +as not earned and +here the taxpa$er did not reside, it is indisputa#le that *ustice and e4uit$ demand that the tax on the income should accrue to the #enefit of the 9hilippines" (n$ relief from the alle!ed dou#le taxation should come from the 0nited States, and not from the 9hilippines, since the formerGs ri!ht to #urden the taxpa$er is solel$ predicated on his citiBenship, +ithout contri#utin! to the production of the +ealth that is #ein! taxed" +. $unda(enta1 doctr*ne o- *nco(e ta'at*on The fundamental doctrine of income taxation provides that the ri!ht of a !overnment to tax income emanates from its partnership in the production of income, #$ providin! the protection, resources, incentives, and proper climate for such production" #. 6nter)retat*on cannot resu1t to an absurd s*tuat*on The interpretation !iven #$ the spouses to the revenue la+ provision in 4uestion operates, in its application, to place a resident alien +ith onl$ domestic sources of income in an e4ual, if not in a #etter, position than one +ho has #oth domestic and forei!n sources of income, a situation +hich is manifestl$ unfair and short of lo!ic" 9. &rroneous *nter)retat*on 5ou1d subro"ate 3/*1*))*ne ta'es to t/ose 1ev*ed by a -ore*"n "overn(ent To allo+ an alien resident to deduct from his !ross income +hatever taxes he pa$s to his o+n !overnment amounts to conferrin! on the latter po+er to reduce the tax income of the 9hilippine !overnment simpl$ #$ increasin! the tax rates on the alien resident" 6ver$time the rate of taxation imposed upon an alien
4a'at*on La5 6! 2773 ( 3+ )
resident is increased #$ his o+n !overnment, his deduction from 9hilippine taxes +ould correspondin!l$ increase, and the proceeds for the 9hilippines diminished, there#$ su#ordinatin! our o+n taxes to those levied #$ a forei!n !overnment" Such a result is incompati#le +ith the status of the 9hilippines as an independent and soverei!n state" [19] ,6R vs. L*n"ayen Gu1- &1ectr*c 3o5er [G.R. ?o. L-23++1. Au"ust 4! 19##.] 6n anc, Sarmiento (%): 13 concurrin! $acts% 8in!a$en @ulf 6lectric 9o+er Co" 'nc" operates an electric po+er plant servin! the ad*oinin! municipalities of 8in!a$en and inmale$, #oth in the province of 9an!asinan, pursuant to the municipal franchise !ranted it #$ their respective municipal councils, under Resolutions 1: and >1 of %une >, and %ul$ >, 1,:;, respectivel$" Section 1D of these franchises provide that the 2said !rantee in consideration of the franchise here#$ !ranted, shall pa$ 4uarterl$ into the 9rovincial Treasur$ of 9an!asinan, one per centum of the !ross earnin!s o#tained thru this privile!e durin! the first t+ent$ $ears and t+o per centum durin! the remainin! fifteen $ears of the life of said franchise"3 =n >: Fe#ruar$ 1,:., the 9resident of the 9hilippines approved the franchises !ranted to the compan$" =n >1 Aovem#er 1,11, the ureau of 'nternal Revenue ( 'R) assessed a!ainst and demanded from the compan$ the total amount of 91,,>,3":1 representin! deficienc$ franchise taxes and surchar!es for the $ears 1,:; to 1,1: appl$in! the franchise tax rate of 1I on !ross receipts from 1 ?arch 1,:. to 31 Decem#er 1,1: as prescri#ed in Section >1, of the Aational 'nternal Revenue Code, instead of the lo+er rates as provided in the municipal franchises" =n >, Septem#er 1,1;, the compan$ re4uested for a reinvesti!ation of the case on the !round that instead of incurrin! a deficienc$ lia#ilit$, it made an overpa$ment of the franchise tax" =n 3D (pril 1,1-, the 'R throu!h its re!ional director, denied the compan$Gs re4uest for reinvesti!ation and reiterated the demand for pa$ment of the same" 'n its letters dated > %ul$ and , (u!ust 1,1. to the Commissioner, the compan$ protested the said assessment and re4uested for a conference +ith a vie+ to settlin! the lia#ilit$ amica#l$" 'n his letters dated >1 %ul$ and >. (u!ust 1,1., the Commissioner denied the re4uest of the compan$" Thus, the appeal to the Court of Tax (ppeals on 1, Septem#er 1,1. (CT( Case 1.1)" 'n a letter dated >1 (u!ust 1,;>, the Commissioner demanded from the compan$ the pa$ment of 93,;1;".; representin! deficienc$ franchise tax and surchar!es for the $ears 1,1, to 1,;1 a!ain appl$in! the franchise tax rate of 1I on !ross receipts as prescri#ed in Section >1, of the Aational 'nternal Revenue Code" 'n a letter dated 1 =cto#er 1,;>, the compan$ protested the assessment and re4uested reconsideration thereof" The same +as denied on , Aovem#er 1,;>" Thus, the appeal to the Court of (ppeals on >, Aovem#er 1,;> (CT( Case 13D>)" 9endin! the hearin! of the said cases, R( 3.:3 +as passed on >> %une 1,;3, !rantin! to the compan$ a le!islative franchise for the operation of the electric li!ht, heat, and po+er s$stem in the same municipalities of 9an!asinan" Section : thereof provides that 2'n consideration of the franchise and ri!hts here#$ !ranted, the !rantee shall pa$ into the 'nternal Revenue office of each ?unicipalit$ in +hich it is suppl$in! electric current to the pu#lic under this franchise, a tax e4ual to t+o per centum of the !ross receipts from electric current sold or supplied under this franchise" Said tax shall #e due and pa$a#le 4uarterl$ and shall #e in lieu of an$ and all taxes andKor licenses of an$ )ind, nature or description levied, esta#lished, or collected #$ an$ authorit$ +hatsoever, municipal, provincial or national, no+ or in the future, on its poles, +ires, insulator " " " and on its franchise, ri!hts, privile!es, receipts, revenues and profits, from +hich taxes andKor licenses, the !rantee is here#$ expressl$ exempted and effective further upon the date the ori!inal franchise +as !ranted, no other tax andKor licenses other than the franchise tax of t+o per centum on the !ross receipts as provided for in the ori!inal franchise shall #e collected, an$ provision of la+ to the contrar$ not+ithstandin!"3 =n 11 Septem#er 1,;:, the court ruled that the provisions of R( 3.:3 should appl$ and accordin!l$ dismissed the claim of the Commissioner of 'nternal Revenue" &ence, the appeal" The Supreme Court affirmed the appealed decision of the respondent Court of Tax (ppeals/ +ithout
4a'at*on La5 6! 2773 ( 3# )
pronouncement as to costs" 1. RA 3#43 a(ended or re)ea1ed or*"*na1 (un*c*)a1 -ranc/*se0 &--ect retroact*ve R( 3.:3 !ranted the compan$ respondent a le!islative franchise in %une, 1,;3, amendin!, alterin!, or even repealin! the ori!inal municipal franchises, and providin! that the compan$ should pa$ onl$ a >I franchise tax on its !ross receipts, 2in lieu of an$ and all taxes andKor licenses of an$ )ind, nature or description levied, esta#lished, or collected #$ an$ authorit$ +hatsoever, municipal, provincial, or national, no+ or in the future " " " and effective further upon the date the ori!inal franchise +as !ranted, no other tax andKor licenses other than the franchise tax of t+o per centum on the !ross receipts " " " shall #e collected, an$ provision of la+ to the contrar$ not+ithstandin!"3 Thus, #$ virtue of R( 3.:3, the compan$ +as lia#le to pa$ onl$ the >I franchise tax, effective from the date the ori!inal municipal franchise +as !ranted" 2. Cn*-or(*ty o- ta'at*on ( tax is uniform +hen it operates +ith the same force and effect in ever$ place +here the su#*ect of it is found" 0niformit$ means that all propert$ #elon!in! to the same class shall #e taxed ali)e" The 8e!islature has the inherent po+er not onl$ to select the su#*ects of taxation #ut to !rant exemptions" Tax exemptions have never #een deemed violative of the e4ual protection clause" 3. 4a' reduct*on a))1*ed to co()anyEs )o5er )1ant0 4rans-er o- ta'ab1e )ro)erty -ro( one c1ass to anot/er 't is true that the compan$Gs municipal franchises +ere o#tained under (ct ;;- of the 9hilippine Commission, #ut these ori!inal franchises have #een replaced #$ a ne+ le!islative franchise, i"e" R( 3.:3" The latter +as !ranted su#*ect to the terms and conditions esta#lished in (ct 3;3;, as amended #$ C( 13>" These conditions identif$ the compan$Gs po+er plant as fallin! +ithin that class of po+er plants created #$ (ct 3;3;, as amended" The #enefits of the tax reduction provided #$ la+ ((ct 3;3; as amended #$ C( 13> and R( 3.:3) appl$ to the compan$Gs po+er plant and others circumscri#ed +ithin this class R( 3.:3 merel$ transferred the petitionerGs po+er plant from that class provided for in (ct ;;-, as amended, to +hich it #elon!ed until the approval of R( 3.:3, and placed it +ithin the class fallin! under (ct 3;3;, as amended" Thus, it onl$ effected the transfer of a taxa#le propert$ from one class to another" 4. ,ourt cannot *n9u*re *nto 5*sdo( o- t/e act0 ,/arters or s)ec*a1 1a5s are *n t/e nature o)r*vate contract The Court does not have the authorit$ to in4uire into the +isdom of such act" Furthermore, the 1I franchise tax rate provided in Section >1, of the Tax Code +as never intended to have a universal application" Section >1, of the Tax Code expressl$ allo+s the pa$ment of taxes at rates lo+er than 1I +hen the charter !rantin! the franchise of a !rantee precludes the imposition of a hi!her tax" R( 3.:3 did not onl$ fix and specif$ a franchise tax of >I on its !ross receipts, #ut made it 2in lieu of an$ and all taxes, all la+s to the contrar$ not+ithstandin!,3 thus, leavin! no room for dou#t re!ardin! the le!islative intent" 2Charters or special la+s !ranted and enacted #$ the 8e!islature are in the nature of private contracts" The$ do not constitute a part of the machiner$ of the !eneral !overnment" The$ are usuall$ adopted after careful consideration of the private ri!hts in relation +ith resultant #enefits to the State" in passin! a special charter the attention of the 8e!islature is directed to the facts and circumstances +hich the act or charter is intended to meet, The 8e!islature considers and ma)es) provision for all the circumstances of a particular case" The Court found no reason to distur# the CT(Gs rulin! upholdin! the constitutionalit$ of the la+ in 4uestion" .. La5 s)ec*-*ca11y )rov*ded -or retroact*ve e--ect (ct 3.:3 provides that 2effective " " " upon the date the ori!inal franchise +as !ranted, no other tax andKor licenses other than the franchise tax of t+o per centum on the !ross receipts " " " shall #e collected, an$ provision to the contrar$ not+ithstandin!"3 R( 3.:3 therefore specificall$ provided for the retroactive effect of the la+"
4a'at*on La5 6! 2773 ( 39 )
,o()any e'e()ted a-ter! not be-ore! 24 $ebruary 194# The municipal franchises +ere approved #$ the 9resident onl$ on >: Fe#ruar$ 1,:." efore the said date, i"e" from 1 %anuar$ 1,:; to >, Fe#ruar$ 1,:., the compan$ +as lia#le for the pa$ment of percenta!e and fixed taxes as seller of li!ht, heat, and po+er (amountin! to 93,D>1",;)" The le!islative franchise (R( 3.:3) exempted the !rantee from all )inds of taxes other than the >I tax from the date the ori!inal franchise +as !ranted" The exemption, therefore, did not cover the period #efore the franchise +as !ranted, i"e" #efore Fe#ruar$ >:, 1,:." +. ,o()any not 1*ab1e -or de-*c*ency ta'es as t/ere 5ere )ay(ent Durin! the period covered #$ the present case, that is from 1 %anuar$ 1,:; to 31 Decem#er 1,;1, the compan$ paid the amount of 93:,1.:"3;, +hich +as ver$ much more than the amount ri!htfull$ due from it" &ence, the compan$ should no lon!er #e made to pa$ for the deficienc$ tax in the amount of 93,D>1",. for the period from 1 %anuar$ 1,:; to >, Fe#ruar$ 1,:." [27] ,6R vs. Aan*1a :ockey ,1ub [G.R. ?o. L-#+... Aarc/ 23! 19. .] First Division, autista (n!elo (%): , concurrin! $acts% The ?anila %oc)e$ Clu# 'nc" is the o+ner of the San 8aBaro &ippodrome +hich is used principall$ for holdin! horse races either #$ the clu# itself or #$ the 9hilippine Charit$ S+eepsta)e =ffice (9CS=) or other charita#le institutions authoriBed #$ la+ to hold horse races" Durin! the fiscal $ears 1,11 and 1,1>, the 9CS= held #enefit races for charita#le, relief and civic purposes in said hippodrome for the use of +hich the Clu# +as paid in the form of rentals the sums of 91D-,1.1"D> and 91>>,.11":- respectivel$, +hich +ere included in its total income declared in its return for said $ears" The Collector of 'nternal Revenue collected on the first rental the amount of 93D,D11".D +hich +as paid in t+o installments and on the second the amount of 9>,,;.1"1- +hich +as also paid in t+o installments as income taxes, and upon advice of its counsel, the Clu# filed a claim for refund of said amounts +ith the Collector claimin! that the$ +ere ille!all$ paid and, +hen the refund +as denied, it filed an action in the CF' ?anila to recover the total sum of 91,,;,>",- a!ainst the Collector alle!in! that the same has #een +ron!full$ collected" The case +as pendin! trial +hen R( 11>1 creatin! the Court of Tax (ppeals (CT() +as approved on 1; %une 1,1:" 9ursuant to section >> of said (ct, the court transmitted the case to the CT( in an order dated 1. (u!ust 1,1:" (fter hearin!, the CT( rendered a decision holdin! that the rentals received #$ the Clu# from the 9CS= for the use of its premises +ere exempt from income tax under section 3 of R( -, and, as a conse4uence, it ordered the Collector of 'nternal Revenue to refund to the Clu# the amount of 91,,;,>",-" From this decision, the Collector of 'nternal Revenue #rou!ht the case on appeal to the Supreme Court" The Supreme Court reversed the decision appealed from, and the +as dismissed +ith costs a!ainst ?anila %oc)e$ Clu#" 1. Lease arran"e(ent o- >an LaBaro H*))odro(e 5*t/ 3,>@ =n the da$s the San 8aBaro &ippodrome +as leased and used #$ the 9hilippine Charit$ S+eepsta)e =ffice to hold #enefit races for charita#le and civic purposes, said =ffice emplo$ed its o+n emplo$ees, tellers and other personnel in the race trac)" 't did not emplo$ the personnel of the clu# #ut merel$ used its trac), apparatus and other paraphernalia necessar$ for horse racin!" For such use, the Clu# +as paid for each da$ a flat rental and not on percenta!e #asis" Durin! those da$s it +as the 9CS= that held the races and not the Clu# itself" 2. Re)ub1*c Act +9% An Act to aut/or*Be t/e /o1d*n" by t/e 3/*1*))*ne ,/ar*ty >5ee)stake @--*ce o- /orse races! 5*t/ bett*n"! on saturday a-ternoons! -or c/ar*tab1e! re1*e- and c*v*c )ur)oses (21 @ctober 194 )
4a'at*on La5 6! 2773 ( 47 )
Section 1 provides that 2the provisions of existin! la+s to the contrar$ not +ithstandin!, the oard of Directors of the 9hilippine Charit$ S+eepsta)e =ffice is authoriBed to hold horse races, +ith #ettin!, on such Saturda$ afternoons as it ma$ determine for charita#le, relief and civic purposes" =nl$ native horses shall #e allo+ed to run in an$ of these races"3 Section > provides that 2all proceeds derived from these races, after deductin! the priBes customaril$ set aside for horses +innin! first, second, and third places and their *oc)e$s/ the priBes for the o+ners of the +innin! horses/ and the necessar$ administration expenses not to exceed ten per centum of the !ross receipts, shall #e apportioned and distri#uted #$ the oard of Directors of the 9hilippine Charit$ S+eepsta)e =ffice to disa#led veterans, +ar +ido+s and orphans and to charita#le, relief and civic or!aniBations in such amounts and under such rules and re!ulations as ma$ #e approved #$ the 9resident of the 9hilippines"3 Section 3 provides that 2the racin! clu# holdin! these races shall #e exempt from the pa$ment of an$ municipal or national tax"3 Section : provides that 2the term FhorsesG +hen used in this (ct shall #e understood to refer to stallions and mares"3 3. Re)ub1*c Act +9 e')1a*ned The title of the (ct sa$s 2(n (ct to authoriBe the &oldin! #$ the 9hilippine Charit$ S+eepsta)e =ffice of &orse Races, +ith ettin!, on Saturda$ (fternoons, for Charita#le, Relief and Civic 9urposes"3 0nder section 1, the oard of Directors is the one authoriBed to hold the races for the declaredd purposes and, under section >, it is provided that the administration expenses for runnin! the races, includin! the priBes to #e paid to the +inners, shall not exceed 1DI of the !ross receipts that ma$ #e collected, +hich shall #e deducted from said !ross receipts #efore turnin! them over to the #eneficiaries named in the la+" 'n section 3, there appears the follo+in! proviso: 2The racin! clu# holdin! these races shall #e exempt from the pa$ment of an$ municipal or national tax"3 't is under the proviso that the Clu# claims exemption from the pa$ment of income tax on the rentals in 4uestion" 4. 3ur)ose o- t/e 1a5 Hhat is contemplated #$ the la+ is the holdin! of horse races, not merel$ under its auspices, #ut #$ the 9CS= itself, even if for that purpose it has to lease or ma)e use of race trac)s #elon!in! to private racin! clu#s" The purpose of the la+ undou#tedl$ is to !ive to said =ffice full control of the horse races considerin! that the$ involve the handlin! of funds" This is also the interpretation entertained #$ 9CS= officials, +hen, instead of emplo$in! the personnel of the ?anila %oc)e$ Clu# 'nc", emplo$ed its o+n personnel and assumed full control of the races" 't is #ecause of this vie+ of the la+ that the Court #elieve that the provisions of section 3 should #e interpreted as conve$in! the meanin! that the one holdin! the races is not the racin! clu# #ut the 9CS= and that the exemption therein provided onl$ refers to those taxes, municipal or national, that the la+ re4uires to #e paid in connection +ith said races" 'n other +ords, said section should #e read to mean 2the racin! clu# +here the races are held3 in order that it ma$ #e consistent +ith the purpose of the la+" .. Rac*n" c1ubEs e'e()t*on 5/en races are /e1d by 3,>@ 0nder section >; of R( 3D, (+hich re!ulates the horse racin! in the 9hilippines), an$ person, race trac), racin! clu#, or other entities holdin! or conductin! a horse race shall #e re4uired to pa$ a cit$ or municipal license fee of 9;DD for each da$ of racin!" 0nder section 1,3 of the Aational 'nternal Revenue Code, as amended #$ R( 1.., an$ o+ner of race trac)s is re4uired to pa$ a fixed tax of 91DD for each da$ on +hich races are run on said trac)s" Said provisions re4uire the pa$ment of said taxes from the o+ner of an$ race trac) for each da$ of horse racin! re!ardless of +hether said horse racin! is held #$ the o+ner himself or #$ an$ other person or entit$" 't is therefore imperative that such exemption #e expressl$ provided for in order to exempt the o+ner of the race trac) of such taxes if the same is to #e used #$ a charita#le institution li)e the 9CS=" Thus, the exemption clause provided for in section 3 of R( -, merel$ intends to exempt the racin! clu# in +hose premises or trac)s the races are held #$ the 9CS= from the pa$ment of the taxes #ecause the$ are the onl$ ones that have an$ connection +ith the races held #$ said =ffice" . &'e()t*on does not re-er to *nco(e der*ved -ro( renta1s o- )ro)erty The exemption cannot refer to an$ income tax that ma$ #e imposed on the rentals that ma$ #e paid for the use
4a'at*on La5 6! 2773 ( 41 )
of those trac)s and other paraphernalia" That is an income that the racin! clu# has to account for income tax purposes #ecause it is an income that the clu# earned #ecause of the use of its trac)s #$ the 9CS= 't is an income that, strictl$ spea)in!, did not come from the horse races held #$ said clu# #ut it came to it as rentals paid for the use of its propert$" (nd the tax paid for such income cannot therefore #e considered as one connected +ith those races +ithin the purvie+ of the exemption clause" +. $ear t/at rac*n" c1ubs s/*-ts ta' burden to 3,>@ not enterta*ned0 $ear does not 5arrant ado)t*on o- contrary *nter)retat*on o- t/e 1a5 The CourtGs attention +as called to the fact that, if the racin! clu# +ere to pa$ income tax on the rentals that ma$ #e paid to it for the use of its trac)s #$ the 9CS= or +ere to #e denied the #enefit of the exemption clause under consideration, the #eneficiaries of the #ount$ +ould #e the ones pre*udiced #ecause the racin! clu# mi!ht #e o#li!ed to shift the #urden to the 9CS= in the form of additional rentals or #$ increasin! their amount so as to compensate the clu# for the tax that it should other+ise pa$ to the @overnment" Such fear can hardl$ #e entertained not onl$ #ecause there are several racin! clu#s in ?anila +hich ma$ #e availed of #$ the 9CS= #ut also #ecause the la+ itself limits the administration expenses that said =ffice ma$ incur in connection +ith the authoriBed horse races for the purposes intended" 6ven if this contin!enc$ ma$ eventuall$ occur, this +ould not +arrant the adoption of an interpretation +hich +ould #e contrar$ to the clear import and intendment of the la+" #. &'e()t*on cannot be created by *()1*cat*on $ its ver$ nature, the la+ that exempts one from tax must #e clearl$ expressed #ecause the exemption cannot #e created #$ implication" 6xemption from taxation are hi!hl$ disfavored in la+/ and he +ho claims an exemption must #e a#le to *ustif$ his claim #$ the clearest !rant of or!anic or statute la+" (n exemption from the common #urden cannot #e permitted to exist upon va!ue implication" ((siatic 9etroleum Co" vs" 8lanes, :, 9hil", :;;/ See also &ouse vs" 9osadas, 13 9hil", 33.") 'n the present case, there is no clear sho+in! that the exemption clause under consideration exempts the racin! clu# from its dut$ to pa$ income tax" [21] ,6R vs. Ae"a Genera1 Aerc/and*s*n" [G.R. ?o. L- 913 . >e)te(ber 37! 19##.] Second Division, 9aras (%): : concurrin! $acts% 9rior to the promul!ation of 9D 3,> on 1. Fe#ruar$ 1,-:, all importations of paraffin +ax, irrespective of )ind and nature, +ere su#*ect to -I advance sales tax on landed costs plus >1I mar) up pursuant to Section 1.3(#) no+ Section 1,-('') in relation to Section 1.; (no+ Section >DD) of the Tax Code" Hith the promul!ation of 9D 3,>, a ne+ provision for the imposition of specific tax +as added to Section 1:> of the Tax Code, that is, su#5section(i)" Therefore, #e!innin! 1. Fe#ruar$ 1,-:, the date of effectivit$ of 9D 3,>, all importations of paraffin +ax +ere su#*ect to the specific tax imposed under Section 1:>(i) of the Tax Code, instead of the former -I sales tax" &ence, ?e!a @eneral ?erchandisin! Corporation paid the correspondin! specific tax thereon in the total amount of 9:--,-1D"DD +hich applies to its total importation of crude paraffin on 1. (pril 1,-1, or exactl$ 1 $ear and > months after the effectivit$ of 9D 3,>" =n >> (pril 1,-1, the corporation +rote the Commissioner of 'nternal Revenue for clarification as to +hether imported crude paraffin +ax is su#*ect to specific tax under Section 1:> (i) of the Tax Code, as amended #$ 9D 3,>, or to the -I advance sales tax" Former Commissioner ?isael 9" <era in his repl$ to said 4uer$ dated 1: ?a$ 1,-1 ruled that onl$ +ax used as hi!h5pressure lu#ricant and micro5cr$stallin is su#*ect to specific tax/ that paraffin +hich +as used as ra+ material in the manufacture of candles, +ax paper, matches, cra$ons, dru!s, ointments, etc", is su#*ect to the -I advance sales tax, the tax to #e #ased on the landed cost thereof plus >1I mar)5up" Due to Commissioner <eraGs rulin!, several importers includin! the corporation filed several claims for tax refund or tax credit of specific tax paid #$ them on importation of crude paraffin +ax" Considerin! that the corporation had paid the amount of 9:--,-1D"DD as specific tax pursuant to Section 1:>(i) of the Tax Code
4a'at*on La5 6! 2773 ( 42 )
on its importation of crude paraffin +ax on 1. (pril 1,-1 (an amount #i!!er than the -I advance sales tax prescri#ed under Section 1.3(#) (no+ Section 1,- '') in relation to Section 1.; (no+ Sec" >DD of the Tax Code) the corporation in a letter, dated >- Aovem#er 1,-1, re4uested for a refund or tax credit of the amount of 93>1,:3;"-, representin! the difference #et+een the amount paid as specific tax and the -I advance sales tax" Since the la+ (Section 1:>(i) of the Tax Code, amended #$ 9D 3,>) does not ma)e an$ distinction as to the )ind of +ax su#*ect to specific tax, then (ctin! Commissioner of 'nternal Revenue 6fren '" 9lana, on >. %anuar$ 1,-- denied the CorporationGs claim for refund or tax credit of the amount of 93>1,:3;"-," =n this rulin!, the corporation filed a re4uest for reconsideration/ +hich +as denied #$ the Commissioner" Durin! the pendenc$ of the corporationGs re4uest for reconsideration, an investi!ation +as conducted #$ the ureau of 'nternal Revenue and it +as ascertained that the Corporation o+es the !overnment specific tax for importation of 1,>1:,:DD )ilo!rams of paraffin +ax on >1 %une 1,-- and 1- (u!ust 1,-- +hich !ave rise to the letter of assessment dated . ?a$ 1,-. for 9>-1,;1>"DD re the su#*ect matter in this case" 9rior, ho+ever, to the issuance of the said letter of assessment of . ?a$ 1,-., the Commissioner in a letter dated 11 %anuar$ 1,-., !ranted the corporationGs claim for refund or tax credit of the amount of 93>1,:3;"-, since the importation +hich had arrived in ?anila on 1. (pril 1,-1 +as covered #$ the rulin! of 1: ?a$ 1,-1 (#efore its revocation #$ the rulin! of >. %anuar$ 1,--)" The corporation protested the tax assessment of . ?a$ 1,-. in a letter dated 1 %une 1,-. alle!in! that crude paraffin +ax is su#*ect to -I advance sales tax pursuant to the CommissionerGs rulin! of ?a$ 1:, 1,-1" The protest +as denied #$ the Commissioner in a letter dated 11 Fe#ruar$ 1,.D" Durin! the pendenc$ of the re4uest of the corporation for reconsideration, it appealed to the Court of Tax (ppeals (CT( Case 3D-.)" =n >1 ?a$ 1,.:, the Court of Tax (ppeals rendered its decision, reversin! the decision of the Commissioner, and holdin! that the compan$ is not lia#le for specific tax on its importation of crude paraffin +ax in the sum of 9>-1,;1>"DD imposed a!ainst it, #ut onl$ su#*ect to the -I advance sales tax +hich it had alread$ paid" (ccordin!l$, the Commissioner +as ordered to refund or credit the compan$ specific tax it paid in the sum of 9>-1,;1>"DD/ +ithout pronouncement as to costs" 't +as later amended #$ removin! the order a!ainst the Commissioner to refund the specific tax alread$ paid" &ence, the present petition" The Supreme Court reversed and set aside the decision of the Court of Tax (ppeals, and ordered the compan$ to pa$ the tax as assessed #$ the Commissioner of 'nternal Revenue, to!ether +ith interest/ +ithout costs" 1. >ect*on 142 (*) o- t/e 4a' ,ode Section 1:> (i) OSpecific tax on manufactured oils and other fuelsP of the Tax Code provides that 2=n refined and manufactured mineral oils and other motor fuels, there shall #e collected the follo+in! taxes: xxx (i) @reases, +axes and petroleum, per )ilo!ram, thirt$5five centavos/ " " "3 2. Letter o- ,o((*ss*oner 31ana d*d not revoke ru1*n" dated 2# :anuary 19++ The letter of Commissioner 9lana dated 11 %anuar$ 1,-. did not in an$ +a$ revo)e his rulin! dated >. %anuar$ 1,-- +hich rulin! applied the specific tax to +ax (+ithout distinction)" The reason he removed in 1,-. the compan$Gs lia#ilit$ for the specific tax +as A=T #ecause he +anted to revo)e, expressl$ or implicitl$, his rulin! of >. %anuar$ 1,-- #ut #ecause the 93>1,:3;"-, tax referred to importation #efore >. %anuar$ 1,-- and hence still covered #$ the rulin! of Commissioner <era, and not #$ the >. %anuar$ 1,-rulin! of Commissioner 9lana" [22] ,6R vs. 3/oen*' Assurance [G.R. ?o. L-19+2+. Aay 27! 19 ..] Phoeni Assurance vs. CIR [G.R. No. L-19903. !a" #0$ 19%&.] 6n anc, en!Bon %9 (%): 1D concurrin!
4a'at*on La5 6! 2773 ( 43 )
$acts% 9hoenix (ssurance Co" 8td", a forei!n insurance corporation or!aniBed under the la+s of @reat ritain, is licensed to do #usiness in the 9hilippines +ith head office in 8ondon" Throu!h its head office it entered, in 8ondon, into +orld+ide reinsurance treaties +ith various forei!n insurance companies" 't a!reed to cede a portion of premiums received on ori!inal insurances under+ritten #$ its head office, su#sidiaries, and #ranch offices throu!hout the +orld, in consideration for assumption #$ the forei!n insurance companies of an e4uivalent portion of the lia#ilit$ from such ori!inal insurances" 9ursuant to such reinsurance treaties, 9hoenix (ssurance Co", 8td" ceded portions of the premiums it earned from its under+ritin! #usiness in the 9hilippines (1,1>, 931;,1>;"-1/ 1,13, 9>:;,D.>"D:/ 1,1:, 9>D3,3.:";,) upon +hich the Commissioner of 'nternal Revenue, #$ letter of ; ?a$ 1,1., assessed +ithholdin! tax totalin! 91.3,.3.":> (1,1>, 9-1,,;;":>/ 1,13, 1,,D1,";./ 1,1:, :.,.1>"3>)" =n 1 (pril 1,11, 9hoenix (ssurance filed its 9hilippine income tax return for 1,1D, claimin! therein, amon! others, a deduction of 93-,1:-"D: as net addition to marine insurance reserve e4uivalent to :DI of the !ross marine insurance premiums received durin! the $ear" The Commissioner disallo+ed 911,-->"1- of such claim for deduction and su#se4uentl$ assessed a!ainst 9hoenix (ssurance the sum of 91,..:"DD as deficienc$ income tax" The disallo+ance resulted from the fixin! #$ the Commissioner of the net addition to the marine insurance reserve at 1DDI of the marine insurance premiums received durin! the last three months of the $ear" The Commissioner assumed that 2ninet$ and thirt$ da$s are approximatel$ the len!th of time re4uired #efore shipments reach their destination or #efore claims are received #$ the insurance companies"3 =n 1 (pril 1,13 9hoenix (ssurance filed its 9hilippine income tax return for 1,1>, declarin! therein a deduction from !ross income of 931,,1>">1 as part of the head office expenses incurred for its 9hilippine #usiness, computed at 1I on its !ross 9hilippine income" =n 3D (u!ust 1,11 it amended its income tax return for 1,1> #$ excludin! from its !ross income the amount of 931;,1>;"-1 representin! reinsurance premiums ceded to forei!n reinsurers and further eliminatin! deductions correspondin! to the ceded premiums" The amended return sho+ed an income tax due in the amount of 9>,1D>"DD" The Commissioner disallo+ed 911,.>;"31 of the claimed deduction for head office expenses and assessed a deficienc$ tax of 91,;;-"DD on >: %ul$ 1,1." =n 3D (pril 1,1: 9hoenix (ssurance filed its 9hilippine income tax return for 1,13 and claimed therein a deduction from !ross income of 933,D-D".. as head office expenses alloca#le to its 9hilippine #usiness, e4uivalent to 1I of its !ross 9hilippine income" =n 3D (u!ust 1,11 it amended its 1,13 income tax return to exclude from its !ross income the amount of 9>:;,D.>"D: representin! reinsurance premiums ceded to forei!n reinsurers" (t the same time it re4uested the refund of 9>3,:D,"DD as overpaid income tax for 1,13" To avoid the prescriptive period provided for in Section 3D; of the Tax Code, it filed a petition for revie+ on 11 (u!ust 1,1; in the Court of Tax (ppeals pra$in! for such refund" (fter verification of the amended income tax return the Commissioner disallo+ed 91>,3D:"1D of the deduction representin! head office expenses alloca#le to 9hilippine #usiness there#$ reducin! the refunda#le amount to 9>D,1.D"DD" =n >, (pril 1,11 9hoenix (ssurance filed its 9hilippine income tax return for 1,1: claimin! therein, amon! others, a deduction from !ross income of 9>,,;>:"-1 as head office expenses alloca#le to its 9hilippine #usiness, computed at 1I of its !ross 9hilippine income" 't also excluded from its !ross income the amount of 9>D3,3.:";, representin! reinsurance premiums ceded to forei!n reinsurers not doin! #usiness in the 9hilippines" =n 1 (u!ust 1,1. the ureau of 'nternal Revenue released an assessment for deficienc$ income tax for the $ears 1,1> and 1,1: a!ainst 9hoenix (ssurance amountin! to 9>,.:-" The assessment resulted from the disallo+ance of a portion of the deduction claimed #$ 9hoenix (ssurance as head office expenses alloca#le to its #usiness in the 9hilippines fixed #$ the Commissioner at 1I of the net 9hilippine income instead of 1I of the !ross 9hilippine income as claimed in the returns" 9hoenix (ssurance protested a!ainst the assessments for +ithholdin! tax and deficienc$ income tax" &o+ever, the Commissioner denied such protest" Su#se4uentl$, 9hoenix (ssurance appealed to the Court of Tax (ppeals (CT( Cases 3D1 and 1:3)" 'n a decision dated 1: Fe#ruar$ 1,;>, the Court of Tax (ppeals allo+ed in full the deduction claimed #$ 9hoenix (ssurance for 1,1D as net addition to marine insurance reserve/ determined the allo+a#le head office expenses alloca#le to 9hilippine #usiness to #e 1I of the net income in the 9hilippines/ declared the ri!ht of the Commissioner to assess deficienc$ income tax for 1,1> to have prescri#ed/ a#solved 9hoenix (ssurance from pa$ment of the statutor$ penalties for non5filin! of +ithholdin! tax return" Thus, the court ordered
4a'at*on La5 6! 2773 ( 44 )
9hoenix (ssurance to pa$ the Commissioner the respective amounts of 9-1,,;;":>, 91,,D1,";. and 9:.,.1>"3>, as +ithholdin! tax for the $ears 1,1>, 1,13 and 1,1:, and 9>,.:-"DD as income tax for 1,1:, or the total sum of 91.;,;.1":> +ithin 3D da$s from the date the decision #ecomes final" 0pon the other hand, the Commissioner +as ordered to refund to 9hoenix (ssurance the sum of 9>D,1.D"DD as overpaid income tax for 1,13, +hich sum is to #e deducted from the total sum of 91.;,;.1":> due as taxes/ and ordered further that if an$ amount of the tax is not paid +ithin the time prescri#ed, there shall #e collected a surchar!e of 1I of the tax unpaid, plus interest at the rate of 1I a month from the date of delin4uenc$ to the date of pa$ment, provided that the maximum amount that ma$ #e collected as interest shall not exceed the amount correspondin! to a period of 3 $ears/ +ithout pronouncement as to costs" oth parties appealed to the Supreme Court" The Supreme Court modified the decision appealed from, and ordered 9hoenix (ssurance to pa$ the Commissioner the amount of 9-1,,;;":>, 91,,D1,";. and 9:.,.1>"3> as +ithholdin! tax for the $ears 1,1>, 1,13 and 1,1:, respectivel$, and the sums of 91,;;-"DD and 9>,.:-"DD as income tax for 1,1> and 1,1: or a total of 91,>,31>":>/ and ordered the Commissioner to refund to 9hoenix (ssurance the amount of 9>D,1.D"DD as overpaid income tax for 1,13, +hich should #e deducted from the amount of 91,>,31>":>/ and ordered further that if the amount of 91,>,31>":> or a portion thereof is not paid +ithin 3D da$s from the date the *ud!ment #ecomes final, there shall #e collected a surchar!e and interest as provided for in Section 11 (e) (>) of the Tax Code" Ao costs" 1. Br*t*s/ 4radersE 6nsurance vs. ,6R0 Re*nsurance )re(*u(s ceded to -ore*"n re*nsurers not do*n" bus*ness *n t/e 3/*1*))*nes )ursuant to contracts e'ecuted abroad are *nco(e -ro( sources 5*t/*n t/e 3/*1*))*nes sub=ect to 5*t//o1d*n" ta' The 4uestion of +hether reinsurance premiums ceded to forei!n reinsurers not doin! #usiness in the 9hilippines pursuant to contracts executed a#road are income from sources +ithin the 9hilippines su#*ect to +ithholdin! tax under Section 13 and 1: of the Tax Code has alread$ #een resolved in the affirmative in ritish TradersG 'nsurance Co" 8td" vs" Commissioner of 'nternal Revenue, 85>D1D1, 3D (pril 1,;1" 2. >ect*on 331 o- t/e 4a' ,ode0 3er*od o- 1*(*tat*on u)on assess(ent and co11ect*on Section 331 of the Tax Code, +hich limits the ri!ht of the Commissioner of 'nternal Revenue to assess income tax +ithin five $ears from the filin! of the income tax return, states: 26xcept as provided in the succeedin! section, internal5revenue taxes shall #e assessed +ithin five $ears after the return +as filed, and no proceedin! in court +ithout assessment for the collection of such taxes shall #e #e!un after the expiration of such period" For the purposes of this section a return filed #efore the last da$ prescri#ed #$ la+ for the filin! thereof shall #e considered as filed on such last da$: 9rovided, That this limitation shall not appl$ to cases alread$ investi!ated prior to the approval of this Code"3 3. Runn*n" o- t/e )rescr*)t*ve )er*od co((ence -ro( -*1*n" o- or*"*na1 return The Court of Tax (ppeals ruled that the ori!inal return +as a complete return containin! 2information on various items of income and deduction from +hich respondent ma$ intelli!entl$ compute and determine the tax lia#ilit$ of petitioner3, hence, the prescriptive period should #e counted from the filin! of said ori!inal return/ the vie+ +hich the Supreme Court sustains" The o#*ect of the Tax Code is to impose taxes for the needs of the @overnment, not to enhance tax avoidance to its pre*udice" To hold other+ise +ould pave the +a$ for taxpa$ers to evade the pa$ment of taxes #$ simpl$ reportin! in their ori!inal return heav$ losses and amendin! the same more than five $ears later +hen the Commissioner of 'nternal Revenue has lost his authorit$ to assess the proper tax thereunder" 4. R*"/t o- ,o((*ss*oner to assess t/e de-*c*ency ta' /as not )rescr*bed Considerin! that the deficienc$ assessment +as #ased on the amended return +hich, as aforestated, is su#stantiall$ different from the ori!inal return, the period of limitation of the ri!ht to issue the same should #e counted from the filin! of the amended income tax return" From (u!ust 3D, 1,11, +hen the amended return
4a'at*on La5 6! 2773 ( 4. )
+as filed, to %ul$ >:, 1,1., +hen the deficienc$ assessment +as issued, less than five $ears elapsed" The ri!ht of the Commissioner to assess the deficienc$ tax on such amended return has not prescri#ed" .. >ect*on 32! )ara"ra)/ (a) o- t/e 4a' ,ode >)ec*a1 )rov*s*ons re"ard*n" *nco(e and deduct*ons o- *nsurance co()an*es! 5/et/er do(est*c or -ore*"n! >)ec*a1 deduct*ons a11o5ed to *nsurance co()an*es 9ara!raph (a) of Section 3> of the Tax Code states 2'n the case of insurance companies, except domestic life insurance companies and forei!n life insurance companies doin! #usiness in the 9hilippines, the net additions, if an$, re4uired #$ la+ to #e made +ithin the $ear to reserve funds and the sums other than dividends paid +ithin the $ear on polic$ and annuit$ contracts ma$ #e deducted from their !ross income: 9rovided, ho+ever, That the released reserve #e treated as income for the $ear of release"3 >ect*on 1# o- t/e 6nsurance La5 Section 1.; of the 'nsurance 8a+ re4uires the settin! up of reserves for lia#ilit$ on marine insurance, thus 2" " " 9rovided, That for marine ris)s the insurin! compan$ shall #e re4uired to char!e as the lia#ilit$ for reinsurance fift$ per centum of the premiums +ritten in the policies upon $earl$ ris)s, and the full premiums +ritten in the policies upon all other marine ris)s not terminated"3 +. Deter(*nat*on o- t/e re9u*red reserve -or (ar*ne *nsurance The reserve re4uired for marine insurance is determined on t+o #ases: 1DI of premiums under policies on $earl$ ris)s and 1DDI of premiums under policies of marine ris)s not terminated durin! the $ear" Section 3> (a) of the Tax Code allo+s the full amount of such reserve to #e deducted from !ross income" 'n the present case, the formulas for determinin! the marine reserve emplo$ed #$ 9hoenix (ssurance and the Commissioner (:DI of premiums received durin! the $ear and 1DDI of premiums received durin! the last three months of the $ear, respectivel$) do not compl$ +ith Section 1.;" Said determinations run short of the re4uirement" For purposes of the 'nsurance 8a+, the Court therefore cannot countenance the same" 9hoenix (ssuranceGs claim for deduction of 93-,1:-"D: #ein! less than the amount re4uired in Section 1.; of the 'nsurance 8a+, the same cannot #e and is not excessive, and should therefore #e full$ allo+ed" #. 3ur)ose o- t/e reserve0 F/at *s )ro/*b*ted by *nco(e ta' 1a5 The reserve called for in Section 1.; is a safe!uard to the !eneral pu#lic and should #e strictl$ follo+ed not onl$ #ecause it is an express provision #ut also as a matter of pu#lic polic$" &o+ever, for income tax purposes a taxpa$er is free to deduct from its !ross income a lesser amount, or not to claim an$ deduction at all" Hhat is prohi#ited #$ the income tax la+ is to claim a deduction #e$ond the amount authoriBed therein" S 9. 6te(s o- *nco(e not be1on"*n" to t/e co()anyEs 3/*1*))*ne bus*ness e'c1uded -ro( /ead o--*ce e')enses a11ocab1e to 3/*1*))*ne Branc/0 3ara"ra)/ 2! subsect*on (a)! >ect*on 37 o- t/e 4a' ,ode The !ross income of 9hoenix (ssurance consists of income from its 9hilippine #usiness as +ell as reinsurance premiums received for its head office in 8ondon and reinsurance premiums ceded to forei!n reinsurers" Since the items of income not #elon!in! to its 9hilippine #usiness are not taxa#le to its 9hilippine #ranch, the$ should #e excluded in determinin! the head office expenses alloca#le to said 9hilippine #ranch" This conclusion finds support in para!raph >, su#section (a), Section 3D of the Tax Code, +hich provides that 26xpenses allo+a#le to non5resident alien individuals and forei!n corporations" J 'n the case of a non5 resident alien individual or a forei!n corporation, the expenses deducti#le are the necessar$ expenses paid or incurred in carr$in! on an$ #usiness or trade conducted +ithin the 9hilippines exclusivel$"3 Conse4uentl$, the deficienc$ assessments for 1,1>, 1,13 and 1,1:, resultin! from partial disallo+ance of deduction representin! head office expenses, are sustained" 17. 6nterest on ta' )ay(ent0 Abso1ut*on based on e9u*tab1e "round The imposition of interest on unpaid taxes is one of the statutor$ penalties for tax delin4uenc$, from
4a'at*on La5 6! 2773 ( 4 )
the pa$ments of +hich the Court of Tax (ppeals a#solved the 9hoenix (ssurance on the e4uita#le !round that the latterGs failure to pa$ the +ithholdin! tax +as due to the CommissionerGs opinion that no +ithholdin! tax +as due" Conse4uentl$, the taxpa$er could #e lia#le for the pa$ment of statutor$ penalties onl$ upon its failure to compl$ +ith the Tax CourtGs *ud!ment rendered on 1: Fe#ruar$ 1,;>, after Repu#lic (ct >3:3 too) effect" This part of the rulin! of the court ou!ht not to #e distur#ed" [23] ,6R vs. Robertson [G.R. ?os. L-+711 -19. Au"ust 12! 19# .] Second Division, 9aras (%): : concurrin! $acts% Fran) Ro#ertson is an (merican citiBen #orn in the 9hilippines on . %ul$ 1,>:" &e resided in the 9hilippines until repatriated to the 0nited States in 1,:1 and too) residence at 8on! each, California" Soon after he +as emplo$ed #$ the 0S Federal @overnment +ith a *o# at the 0S Aav$" &is +or) #rou!ht him to the 0S Aav$Gs various installations overseas +ith eventual assi!nment at the 0S Aaval Ship Repair Facilit$ at Su#ic a$, =lon!apo, 9hilippines, in 1,;>" 8i)e his #rother Fran), %ames Ro#ertson +as #orn in the 9hilippines on >> Decem#er 1,1. and had since resided in this countr$ until repatriated to the 0nited States in 1,:1 and there, esta#lished his domicile" &e landed a *o# +ith the 0S Aav$ Ship$ard at 8on! each, California as a 0S Federal Civil Service emplo$ee" &e returned to the 9hilippines in 1,1. +ith assi!nment at the 0S Aaval ase at Su#ic a$, =lon!apo, and has since remained thru 1,->" Ro#ert &" Cathe$, on the other hand, is a 0nited States #orn citiBen +ho first came to the 9hilippines +ith the 0S li#eration force in 1,::, and upon dischar!e from the militar$ service in 1,:; turned a 0S Aav$Gs civilian emplo$ee +ith station at ?a)ati, ?etro ?anila" %ohn @arrison is a 9hilippine #orn (merican citiBen also repatriated to the 0nited States in 1,:1 esta#lishin! his domicile at San Francisco, California" Soon after he +as emplo$ed #$ the 0S Federal @overnment in its militar$ installations" &e returned to the 9hilippines in 1,1> assi!ned at the 0S Aaval ase, Su#ic a$, 9hilippines" Thus, Fran) and %ames Ro#ertson, Ro#ert Cathe$, and %ohn @arrison are citiBens of the 0nited States, holders of (merican passports and admitted as Special Temporar$ <isitors under Section , (a) visa of the 9hilippine 'mmi!ration (ct of 1,:D, as amended, civilian emplo$ees in the 0S ?ilitar$ ase in the 9hilippines in connection +ith its construction, maintenance, operation, and defense/ and incomes are solel$ derived from salaries from the 0S !overnment #$ reason of their emplo$ment in the 0S ases in the 9hilippines" The Commissioner of 'nternal Revenue made assessments a!ainst Fran) Ro#ertson (CT( Case >-31), %ames H" Ro#ertson (CT( >-3;), Ro#ert &" Cathe$ (CT( >-3.), and %ohn 8" @arrison (CT( Case >-3,) for deficienc$ income tax for taxa#le $ears 1,;,51,->, inclusive of interests and penalties for the amounts of 913>,-1D,;1/ 91,D,:33"1-/ 9,>,D13"1-, and 91,;,-1:"3> respectivel$" Raised in the Court of Tax (ppeals, the cases +ere consolidated as these involve similar or identical fact situations on a 4uestion involvin! the scope of the tax exemption provision in (rticle N'', 9ar" >, of the R95 0S ?ilitar$ ases (!reement of 1,:-" The court a 4uo after due hearin! and on 1: Decem#er 1,.:, rendered its *ud!ment in favor of Ro#ertson, et"al" cancellin! and settin! aside the assessments for deficienc$ income taxes" &ence, the Commissioner of 'nternal Revenue filed a petition for revie+" The Supreme Court affirmed the appealed decision of the Court of Tax (ppeals and dismissed the petition for revie+/ +ithout costs" 1. Art*c1e H666! 3ara"ra)/ 2! o- t/e R3-C> A*1*tary Bases A"ree(ent o- 194+ (rticle N'', 9ar" >, of the R950S ?ilitar$ ases (!reement of 1,:-, provides that 2no national of the 0nited States servin! in or emplo$ed in the 9hilippines in connection +ith the construction, maintenance, operation or defense of the #ases and residin! in the 9hilippines #$ reason onl$ of such emplo$ment, or his spouse and minor children and dependent parents of either spouse, shall #e lia#le to pa$ income tax in the 9hilippines except in respect of income derived from 9hilippine sources or sources other than the 0nited States sources"3
4a'at*on La5 6! 2773 ( 4+ )
2.
La5 and -acts o- t/e case c1ear0 Robertson! et.a1. are e'e()ted -ro( ta' The la+ and the facts of the case are so clear that there is no room left for the Court to dou#t the validit$ of Ro#ertson, et"al"Gs defense" 'n order to avail oneself of the tax exemption under the R950S ?ilitar$ ases (!reement: he must #e a national of the 0nited States emplo$ed in connection +ith the construction, maintenance, operation or defense, of the #ases, residin! in the 9hilippines #$ reason of such emplo$ment, and the income derived is from the 0S @overnment ((rt" N'' par" > of 9'50S ?ilitar$ ases (!reement of 1,:-)" Said circumstances are all present in the present case" 3. Cb* 1e' non d*st*n"u*t nec nos d*st*n"uere debe(os0 @ne does not d*st*n"u*s/ 5/ere t/e 1a5 does not d*st*n"u*s/ There is nothin! in the treat$ provision that *ustified the liftin! of the tax exemption privile!e of Ro#ertson, et" al" The Commissioner has !rafted a meanin! other than that conve$ed #$ the plain and clear tenor of the (!reement" (n examination of the +ords used and the circumstances in +hich the$ +ere used, sho+s the #asic intendment 2to exempt all 0S citiBens +or)in! in the ?ilitar$ ases from the #urden of pa$in! 9hilippine 'ncome Tax +ithout distinction as to +hether #orn locall$ or #orn in their countr$ of ori!in"3 0#i lex non distin!uit nec nos distin!uere de#emos (one must not distin!uish +here the la+ does not distin!uish) 4. @b1*"at*on to -u1-*11 a treaty en"a"e(ent *n "ood -a*t/ The CommissionerGs rulin! has altered a satisfactoril$ settled application of the exemption clause and has fallen short of measurin! up to the familiar principle of 'nternational 8a+ that, 2The o#li!ation to fulfill in !ood faith a treat$ en!a!ement re4uires that the stipulations #e o#served in their spirit as +ell as accordin! to their letter and that +hat has #een promised #e performed +ithout evasion, or su#terfu!e, honestl$ and to the #est of the a#ilit$ of the part$ +hich made the promise"3 (TunB, The ?eanin! and Ran!e of the Aorm (9acta Sunt Servanda, >, ("%"'"8" 1.D (1,:1)/ cited in Freidmann, 8isstB$n, 9u!h, 'nternational 8a+ (1,;,) 3>,)" Someho+, the rulin! #ecomes an anacoluthon and a persifla!e" .. >*tuat*on o- Robertson! et.a1. not d*--erent -ro( ot/er C> c*v*1*an e()1oyees Ro#ertson, et" al" returned to the 9hilippines not so much of honorin! a pled!e nor of sentimental *ourne$ #ut #$ reason of ta)in! up assi!ned duties +ith the 0nited States militar$ #ases in the 9hilippines +here the$ +ere !ainfull$ emplo$ed #$ the 0S Federal @overnment" The situation of Ro#ertson, et" al" is of no different mold as of the rest of the 0S civilian emplo$ees +ho continued to en*o$ the #enefits of tax exemption under the (!reement" 't appears too much of a stretch to hold them strai!ht5*ac)eted to an irreversi#le situs of #irth constraint and #$ reason thereof den$ alto!ether an$ opportunit$ to a serendipitous en*o$ment of a tax relief accorded in the (!reement" Such a random 4uir) of pirouette in the tax treatment falls sharpl$ at odds +ith the shared expectations of the hi!h contractin! parties" Rea"an vs. ,6R does not a))1y The circumstances in the case of Rea!an vs" Commissioner of 'nternal Revenue (3D SCR( ,;.) are different from the circumstances of the present case and the rulin! o#tained in the former case cannot #e invo)ed or applied in support of the CommissionerGs contention" ( cursor$ readin! of said case sho+s that Hilliam Rea!an +as at one time a civilian emplo$ee of an (merican corporation providin! technical assistance to the 0S (ir Force in the 9hilippines" &e 4uestioned the pa$ment of the income tax assessed on him #$ the Commissioner of 'nternal Revenue on an amount realiBed #$ him on a sale of his automo#ile to a mem#er of the 0S ?arine Corps", the transaction havin! ta)en place at the Clar) Field (ir ase in 9ampan!a" 't +as his contention that in le!al contemplation the sale +as made outside 9hilippine territor$ and therefore #e$ond our *urisdictional po+er to tax" Clearl$, the facts in said case are different from those o#tainin! in the present suit" [24]
4a'at*on La5 6! 2773 ( 4# )
,o()an*a Genera1 de 4abacos de $*1*)*nas vs. Aan*1a [G.R. ?o. L-1 6n anc, DiBon (%): . concurrin!, > too) no part
19. :une 29! 19 3.]
$acts% CompaLia @eneral de Ta#acos de Filipinas (Ta#acalera), as a dul$ licensed first class +holesale and retail li4uor dealer paid the Cit$ the fixed license fees prescri#ed #$ =rdinance 331. for the $ears 1,1: to 1,1-, inclusive" 'n 1,1:, Cit$ =rdinance 3;3:, amendin! Cit$ =rdinance 3:>D, and Cit$ =rdinance 3.1;, amendin! Cit$ =rdinance 33D1 +ere passed" $ reason thereof, the Cit$ Treasurer issued the re!ulations, accordin! to +hich, the term 2!eneral merchandise3, as used in said ordinances, includes all articles referred to in chapter 1, Sections 1>3 to 1:. of the Aational 'nternal Revenue Code" =f these, Section 1335131 included li4uor amon! the taxa#le articles" 9ursuant to said re!ulations, Ta#acalera included its sales of li4uor in its s+orn 4uarterl$ declaration su#mitted to the Cit$ Treasurer #e!innin! from the third 4uarter of 1,1: to the second 4uarter of 1,1-, +ith a total value of 9->>,1D1"D, and correspondin!l$ paid a +holesalerGs tax amountin! to 913,;.. and a retailerGs tax amountin! to 91,1>D, or a total of 911,>D." 'n 1,1:, the Cit$, throu!h its treasurer, addressed a letter to ?essrs" S$cip, @orres, <ela$o and Co", an accountin! firm, expressin! the vie+ that li4uor dealers pa$in! the annual +holesale and retail fixed tax under Cit$ =rdinance 331. are not su#*ect to the +holesale and retail dealersG taxes prescri#ed #$ Cit$ =rdinances 3;3:, 33D1, and 3.1;" 0pon learnin! of said opinion, the Ta#acalera stopped includin! its sales of li4uor in its 4uarterl$ s+orn declarations su#mitted in accordance +ith the Cit$ =rdinances 3;3:, 33D1, and 3.1;, and on 3 Decem#er 1,1-, it addressed a letter to the Cit$ Treasurer demandin! refund of the alle!ed overpa$ment" (s the claim +as disallo+ed, the Ta#acalera filed the action in the CF' ?anila to recover from the Cit$ of ?anila and its Treasurer, ?arcelino Sarmiento the sum of 911,>.D"DD alle!edl$ overpaid #$ it as taxes on its +holesale and retail sales of li4uor for the period from the third 4uarter of 1,1: to the second 4uarter of 1,1-, inclusive, under =rdinances 3;3:, 33D1, and 3.1;" The CF' ?anila ordered the Cit$ Treasurer of ?anila to refund the sum of 911,>.D to CompaLia @eneral de Ta#acos de Filipinas" &ence, the appeal" The Supreme Court reversed the decision appealed from, +ith the result that the case should #e dismissed, +ith costs" 1. Aean*n" o- ;ta'<0 D*st*nct*on o- ta'es and 1*cense -ee The term 2tax3 applies J !enerall$ spea)in! J to all )inds of exactions +hich #ecome pu#lic funds" The term is often loosel$ used to include levies for revenue as +ell as levies for re!ulator$ purposes" Thus license fees are commonl$ called taxes" 8e!all$ spea)in!, ho+ever, license fee is a le!al concept 4uite distinct from tax/ the former is imposed in the exercise of police po+er for purposes of re!ulation, +hile the latter is imposed under the taxin! po+er for the purpose of raisin! revenues (?acCuillin, ?unicipal Corporations, <ol" ,, 3rd 6dition, p" >;)" 2. @rd*nance 33.# a va1*d re"u1atory enact(ent -or t/e sa1e o- *nto'*cat*n" 1*9uors =rdinance 331. is clearl$ one that prescri#es municipal license fees for the privile!e to en!a!e in the #usiness of sellin! li4uor or alcoholic #evera!es, havin! #een enacted #$ the ?unicipal oard of ?anila pursuant to its charter po+er to fix license fees on, and re!ulate, the sale of intoxicatin! li4uors, +hether imported or locall$ manufactured" (Section 1. OpP, R( as amended)" The license fees imposed #$ it are essentiall$ for purposes of re!ulation, and are *ustified, considerin! that the sale of intoxicatin! li4uor is, potentiall$ at least, harmful to pu#lic health and morals, and must #e su#*ect to supervision or re!ulation #$ the state and #$ cities and municipalities authoriBed to act in the premises" (?acCuillin, supra, p" ::1)" 3. @rd*nance 3 34! 3371 and 31 are revenue (easures =n the other hand, it is clear that =rdinances Aos" 3;3:, 33D1, and 3.1; impose taxes on the sales of !eneral merchandise, +holesale or retail, and are revenue measures enacted #$ the ?unicipal oard of ?anila #$ virtue of its po+er to tax dealers for the sale of such merchandise" (Section 1D OoP, R( :D,, as amended")
4a'at*on La5 6! 2773 ( 49 )
4.
Aerc/and*se *nc1udes 1*9uor0 Aerc/and*se de-*ned 0nder =rdinance 3;3: the +ord 2merchandise3 as emplo$ed therein clearl$ includes li4uor" (side from this, it +as held in Cit$ of ?anila vs" 'nter5'sland @as Service 'nc" (,, 9hil" .:-), that the +ord 2merchandise3 refers to all su#*ects of commerce and traffic/ +hatever is usuall$ #ou!ht and sold in trade or mar)et/ !oods or +ares #ou!ht and sold for !ain/ commodities or !oods to trade/ and commercial commodities in !eneral" .. 4abaca1era not sub=ect to doub1e ta'at*on0 L*cense -ee and ta' (ay be *()osed on sa(e sub=ect (atter That Ta#acalera is #ein! su#*ected to dou#le taxation is more apparent than real" Hhat is collected under =rdinance 331. is a license fee for the privile!e of en!a!in! in the sale of li4uor, a callin! in +hich not an$one or an$#od$ ma$ freel$ en!a!e, considerin! that the sale of li4uor indiscriminatel$ ma$ endan!er pu#lic health and morals" =n the other hand, +hat the three ordinances impose is a tax for revenue purposes #ased on the sales made of the same article or merchandise" oth a license fee and a tax ma$ #e imposed on the same #usiness or occupation, or for sellin! the same article, this not #ein! in violation of the rule a!ainst dou#le taxation ( entle$ @ra$ Dr$ @oods Co", vs" Cit$ of Tampa 13- Fla" ;:1, 1.. S=" -1./ ?acCuillin, ?unicipal Corporations, <ol" ,, 3rd 6dition, p" .3)" Govern(ent not bound by errors o- *ts o--*cers! s)ec*a11y on (atters o- 1a5 The contention that the Cit$ is repudiatin! its previous vie+, expressed #$ its Treasurer in a letter addressed to ?essrs" S$cip, @orres, <ela$o Q Co" in 1,1:, that a li4uor dealer +ho pa$s the annual license fee under =rdinance 331. is exempted from the +holesalers and retailers taxes under the other three ordinances is of no conse4uence" The !overnment is not #ound #$ the errors or mista)es committed #$ its officers, speciall$ on matters of la+" [2.] Davao L*"/t and 3o5er vs. ,o((*ss*oner o- ,usto(s [G.R. ?os. L-2#+39 G L-2#972. Aarc/ 29! 19+2.] First Division, Re$es % 8 (%): , concurrin! $acts% The Davao 8i!ht Q 9o+er Co" 'nc" (Davao 8i!ht) is the !rantee of a le!islative franchise to install, operate and maintain an electric li!ht, heat and po+er plant in the cit$ (then ?unicipalit$) of Davao, for a period of 1D $ears" =n t+o different occasions in 1,;>, it imported electrical supplies, materials and e4uipment for installation in its po+er plant" The importations arrived in the port of Ce#u Cit$, on +hich the Collector of Customs imposed, and Davao 8i!ht paid under protest, customs duties and taxes in the total amount of 9,,,>."DD" (s the Collector of Customs later ruled unfavora#l$ on the protests (>;-, >;., >;, and >-.) and denied its claim for refund of the taxes and duties paid on the imported articles, Davao 8i!ht appealed to the Commissioner of Customs" (nd +hen said official sustained the action of the Collector, Davao 8i!ht +ent to the Court of Tax (ppeals (CT( Cases 133- and 1111), maintainin! its claim to exemption from the taxes and duties imposa#le on the importations" 'n its decision of 11 Decem#er 1,;-, the Court of Tax (ppeals affirmed the rulin! of the Customs Commissioner, the Court holdin! that the tax exemption privile!es !ranted to the Aational 9o+er Corporation +ere intended to #enefit onl$ said !overnment corporation and did not extend to other #odies or entities" Davao 8i!ht thus #rou!ht the present petition for revie+ in the Supreme Court" The Supreme Court affirmed the decision of the Court of Tax (ppeals, +ith costs a!ainst Davao 8i!ht" 1. >ect*on 1+ o- Act 3 3 (ere1y )rov*des -or )r*nc*)1e o- -a*r )1ay0 does not -*nd o)erat*on *n )resent case
4a'at*on La5 6! 2773 ( .7 )
Section 1- of (ct 3;3; ma)es mention of franchise or permit issued to 2competin!3 individuals, associations or corporations" 'n short, #$ express provision of la+ favora#le terms contained in a su#se4uent franchise issued to an individual, association, etc" shall automaticall$ #e considered incorporated in the franchise or permit earlier issued to another individual, association, etc" en!a!ed in the same #usiness" The idea is to place #oth competin! !roups or entities on e4ual footin! and not to !ive one an advanta!e over the other" This principle of fair pla$, +hich is the #asic idea #ehind the provision, does not find operation in the present case" 2. ,1ear d*st*nct*on bet5een Davao L*"/t and ?a)ocor Davao 8i!htGs purpose in securin! a franchise to esta#lish and operate an electric plant and po+er stations +as to en!a!e in a #usiness or profit5ma)in! venture" The Aapocor, on the other hand, +as specificall$ created to underta)e the development of h$draulic po+er throu!hout the countr$ and the production of po+er from other sources, for use of the !overnment and the !eneral pu#lic" (s envisioned #$ the la+ creatin! it, the activit$ to #e pursued #$ the A9C can hardl$ #e motivated #$ profit or income" 3. ?a)ocor *s not co()et*t*on by o)erat*n" and (a*nta*n )o5er )1ant! )o5er stat*ons and trans(*ss*on 1*nes *n Davao ,*ty 'n operatin! and maintainin! a po+er plant, po+er stations and transmission lines in Davao Cit$, as dul$ authoriBed in its charter, the Aapocor can not #e considered as posin! competition to Davao 8i!htGs #usiness" 'n fact, there is evidence on record that the Aapocor does not sell electric po+er directl$ to the !eneral pu#lic/ instead, it did sell po+er to Davao 8i!ht for resale to the latterGs customers" 'n other +ords, the Aapocor is even the source of Davao 8i!htGs merchandise/ it is aidin! the latter in its #usiness operations, not competin! +ith it" 4. Duty o- ?a)ocor to su))1y )o5er to ?D,0 $act does not render ?a)ocor as co()et*t*on The fact that the Aapocor supplies electric po+er to the Aational Development Compan$ (ADC) plant in Davao *ustif$ the claim that the Aapocor is a competitor to Davao 8i!htGs #usiness, #ecause Section 1D of Common+ealth (ct 1>D (Aapocor charter) made it AapocorGs dut$ to suppl$ po+er to the ADC" e that as it ma$, such an isolated case of sale of electric po+er to one !overnment o+ned plant +ould not #e enou!h to classif$ the Aapocor as a 2competin!3 concern to Davao 8i!htGs enterprise, +hich must #e assumed to #e caterin! to the !eneral pu#lic to +hich the Aapocor has no dealin!" .. >ect*on 17 o- ,o((on5ea1t/ Act 127 Section 1D provides that 2at an$ time that the oard certifies that the Corporation is a#le to furnish electric po+er for li!htin! and other purposes to an$ office, shop, or esta#lishment operated andKor o+ned or controlled #$ the Aational @overnment or #$ an$ cit$, province, municipalit$ or other political su#division of the Common+ealth of the 9hilippines, the Aational @overnment and the !overnment of said cit$, province, municipalit$ or other political su#division shall #e compelled to secure from the Corporation as soon as practica#le such electric po+er as it ma$ need for li!htin! and the operation of its offices, shops or esta#lishments or for an$ +or) underta)en #$ it" The provisions of this section shall also appl$ to firms or #usiness o+ned or controlled #$ the Aational @overnment or #$ the !overnment of an$ cit$, province, municipalit$ or other political su#divisions"3 >ect*ons 1 and 2 o- RA 3.# Section 1 of Repu#lic (ct 31., approved on : %une 1,:,, amended Section > ()) of Common+ealth (ct 1>D, +hich authoriBed the A9C to 2contract inde#tedness and issue #onds su#*ect to the approval of the 9resident of the 9hilippines, upon recommendation of the Secretar$ of Finance3, in an amount not to exceed one hundred sevent$ million five hundred pesos" Then in its Section >, the same la+ provided that 2to facilitate pa$ment of its inde#tedness, the Aational 9o+er Corporation shall #e exempt from all taxes, duties, fees, imposts, char!es, and restrictions of the Repu#lic of the 9hilippines, its provinces, cities, and municipalities"3
4a'at*on La5 6! 2773 ( .1 )
+. 4a' e'e()t*on *n >ect*on 2 o- RA 3.# *ntended to bene-*t ?a)ocor on1y0 ?o bas*s -or a5ard*n" e9ua1 )r*v*1e"es to Davao L*"/t =n the same da$ Repu#lic (ct 31- +as approved, i"e" : %une 1,:,, authoriBin! the 9resident of the 9hilippines to ne!otiate and contract loans from time to time from the 'nternational an) for Reconstruction and Development, on #ehalf of the Aapocor, and to !uarantee, a#solutel$ and unconditionall$, as primar$ o#li!or and not merel$ as suret$, the pa$ment of loans therefore contracted" The provisions of Section > of R( 31. !rantin! tax exemptions to the Aapocor, ta)en in the li!ht of the existin! le!islation affectin! the Aapocor, nota#l$ R( 31-, must #e construed as intended to #enefit onl$ the Aapocor, the la+ma)ers expectin! that #$ relievin! said corporation of tax o#li!ations, the Aapocor +ould #e ena#led to pa$ easil$ its inde#tedness or +hatever inde#tedness it is certain to incur" 'n !rantin! such tax exemption the !overnment actuall$ +aived its ri!ht to collect taxes from the Aapocor in order to facilitate the li4uidation #$ said corporation of its lia#ilities, and the conse4uential release #$ the !overnment itself from its o#li!ation (as principal o#li!or) in the transactions entered into #$ the 9resident on #ehalf of the Aapocor" Such condition, peculiar onl$ to the Aapocor, cannot #e said to exist in Davao 8i!htGs case/ hence, the a#solute lac) of #asis for a+ardin! of e4ual privile!es (!ranted to the Aapocor) to Davao 8i!ht" #. &'e()t*on -ro( ta'at*on not )resu(ed 6xemption from taxation is never presumed/ for tax exemption to #e reco!niBed, the !rant must #e clear and expressed/ it cannot #e made to rest on va!ue implications" The possession #$ Davao 8i!ht of a permit to operate an electric plant in Davao Cit$ does not entitle it to the same exemption privile!es en*o$ed #$ another operator +ithout an express provision of the la+ to that effect" Thus, Davao 8i!ht cannot la$ claim to the en*o$ment of the tax exemption #enefits !iven to the Aapocor#ecause said corporation happened to #e operatin! a po+er plant in the same localit$ +here Davao 8i!ht has a franchise" [2 ] Do(*n"o vs. Gar1*tos [GR L-1#994! 29 :une 19 3.] 6n anc, 8a#rador (%):. concurrin!, 1 concurrin! in result, 1 too) no part $acts% 'n ?elecio R" Domin!o vs" &on" %ud!e S" C" ?oscoso (1D; 9hil" 113.), the Supreme Court declared as final and executor$ the order for the pa$ment #$ the estate of the estate and inheritance taxes, char!es and penalties amountin! to 9:D,D1."11, issued #$ the CF' 8e$te in special proceedin!s 1: entitled 2'n the ?atter of the 'ntestate 6state of the 8ate Halter Scott 9rice"3 'n order to enforce the claims a!ainst the estate the fiscal presented a petition dated >1 %une 1,;1, to the CF' for the execution of the *ud!ment" The petition +as, ho+ever, denied #$ the court +hich held that the execution is not *ustifia#le as the @overnment is inde#ted to the estate under administration in the amount of 9>;>,>DD" The lo+er court ordered on >D (u!ust 1,;D that the pa$ment of inheritance taxes in the sum of 9:D,D1."11 due the Collector of 'nternal Revenue as ordered paid #$ said Court on 1 %ul$ 1,;D in accordance +ith the order of the Supreme Court promul!ated 3D %ul$ 1,;D in 1D; 9hil" 113., #e deducted from the amount of 9>;>,>DD"DD due and pa$a#le to the administratrix Simeona T" 9rice, in the estate, the #alance to #e paid #$ the @overnment to her +ithout further dela$" The lo+er court ordered on >. Septem#er 1,;D that the pa$ment of the claim of the Collector of 'nternal Revenue #e deferred until the @overnment shall have paid its accounts to the administratrix amountin! to 9>;>,>DD"DD" The court ruled that it is onl$ fair for the @overnment, as a de#tor, to pa$ its accounts to its citiBens5creditors #efore it can insist in the prompt pa$ment of the latterGs account to it, speciall$ ta)in! into consideration that the amount due the @overnment dra+s interests +hile the credit due to the present estate does not accrue an$ interest" Thus, the petition for certiorari and madamus filed #$ ?elecio R" Domin!o, as Commissioner of 'nternal Revenue, a!ainst the %ud!e of the Court of First 'nstance of 8e$te, &on" 8orenBo C" @arlitos, presidin!, see)in! to annul the orders of the court and for an order in the Supreme Court directin! the lo+er court to execute the *ud!ment in favor of the @overnment a!ainst the estate of Halter Scott 9rice for internal revenue taxes"
4a'at*on La5 6! 2773 ( .2 )
The Supreme Court dismissed the petition, +ithout costs" 1. ,1a*(s a"a*nst estate o- deceased )erson to be -*1ed be-ore )robate court The ordinar$ procedure #$ +hich to settle claims or inde#tedness a!ainst the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim #efore the pro#ate court so that said court ma$ order the administrator to pa$ the amount thereof" To such effect is the decision of this Court in (ldamiB vs" %ud!e of the Court of First 'nstance of ?indoro (@R 85>3;D, >, Decem#er 1,:,)" 2. A1da(*B vs. :ud"e o- ,$6 A*ndoro0 Fr*t o- e'ecut*on not )ro)er )rocedure -or )ay(ent odebts and e')enses o- ad(*n*strat*on ( +rit of execution is not the proper procedure allo+ed #$ the Rules of Court for the pa$ment of de#ts and expenses of administration" The proper procedure is for the court to order the sale of personal estate or the sale or mort!a!e of real propert$ of the deceased and all de#ts or expenses of administration should #e paid out of the proceeds of the sale or mort!a!e" The order for the sale or mort!a!e should #e issued upon motion of the administrator and +ith the +ritten notice to all the heirs, le!atees and devisees residin! in the 9hilippines, accordin! to Rule .,, section 3, and Rule ,D, section >" (nd +hen sale or mort!a!e of real estate is to #e made, the re!ulations contained in Rule ,D, section -, should #e complied +ith" 3. F/en e'ecut*on as )ro)er )rocedure 6xecution ma$ issue onl$ +here the devisees, le!atees or heirs have entered into possession of their respective portions in the estate prior to settlement and pa$ment of the de#ts and expenses of administration and it is later ascertained that there are such de#ts and expenses to #e paid, in +hich case Fthe court havin! *urisdiction of the estate ma$, #$ order for that purpose, after hearin!, settle the amount of their several lia#ilities, and order ho+ much and in +hat manner each person shall contri#ute, and ma$ issue execution if circumstances re4uireG (Rule ., section ;/ see also Rule -:, section :)"3 4. Le"a1 bas*s o- )rocedure *nvo1v*n" testate or *ntestate )roceed*n"s The le!al #asis for the procedure is the fact that in the testate or intestate proceedin!s to settle the estate of a deceased person, the properties #elon!in! to the estate are under the *urisdiction of the court and such *urisdiction continues until said properties have #een distri#uted amon! the heirs entitled thereto" Durin! the pendenc$ of the proceedin!s all the estate is in custodia le!is and the proper procedure is not to allo+ the sheriff, in case of a court *ud!ment, to seiBe the properties #ut to as) the court for an order to re4uire the administrator to pa$ the amount due from the estate and re4uired to #e paid" .. ,o()ensat*on The court havin! *urisdiction of the estate had found that the claim of the estate a!ainst the @overnment has #een reco!niBed and an amount of 9>;>,>DD has alread$ #een appropriated for the purpose #$ a correspondin! la+ (R( >-DD)" 0nder the circumstances, #oth the claim of the @overnment for inheritance taxes and the claim of the intestate for services rendered have alread$ #ecome overdue and demanda#le as +ell as full$ li4uidated" Compensation, therefore, ta)es place #$ operation of la+, in accordance +ith the provisions of (rticles 1>-, and 1>,D of the Civil Code, and #oth de#ts are extin!uished to the concurrent amount" (rticle 1>DD provides that 2+hen all the re4uisites mentioned in article 1>-, are present, compensation ta)es effect #$ operation of la+, and extin!uishes #oth de#ts to the concurrent amount, even thou!h the creditors and de#tors are not a+are of the compensation"3 A))ea1! not cert*orar* and (anda(us! *s t/e )ro)er re(edy The Commissioner of 'nternal Revenue has no clear ri!ht to execute the *ud!ment for taxes a!ainst the estate of the deceased Halter Scott 9rice" The petition for certiorari and mandamus is not the proper remed$, appeal is" .
4a'at*on La5 6! 2773 ( .3 )
[2+] $ranc*a vs. 6A, [G.R. ?o. L- + 49. :une 2#! 19##.] Third Division, @utierreB %r" (%): : concurrin! $acts% 6n!racio Francia is the re!istered o+ner of a residential lot and a t+o5stor$ house #uilt upon it situated at arrio San 'sidro, no+ District of Sta" Clara, 9asa$ Cit$, ?etro ?anila" The lot, +ith an area of a#out 3>. s4uare meters, is descri#ed and covered #$ TCT :-3, (3--,1) of the Re!istr$ of Deeds of 9asa$ Cit$" =n 11 =cto#er 1,--, a 1>1 s4uare meter portion of FranciaGs propert$ +as expropriated #$ the Repu#lic of the 9hilippines for the sum of 9:,11;"DD representin! the estimated amount e4uivalent to the assessed value of the aforesaid portion" Since 1,;3 up to 1,-- inclusive, Francia failed to pa$ his real estate taxes" Thus, on 1 Decem#er 1,--, his propert$ +as sold at pu#lic auction #$ the Cit$ Treasurer of 9asa$ Cit$ pursuant to Section -3 of 9D :;: )no+n as the Real 9ropert$ Tax Code in order to satisf$ a tax delin4uenc$ of 9>,:DD"DD" &o FernandeB +as the hi!hest #idder for the propert$" Francia +as not present durin! the auction sale since he +as in 'li!an Cit$ at that time helpin! his uncle ship #ananas" =n 3 ?arch 1,-,, Francia received a notice of hearin! of 8RC Case 11,359 2'n re: 9etition for 6ntr$ of Ae+ Certificate of Title3 filed #$ &o FernandeB, see)in! the cancellation of TCT :-3, (3--,1) and the issuance in his name of a ne+ certificate of title" 0pon verification throu!h his la+$er, Francia discovered that a Final ill of Sale had #een issued in favor of &o FernandeB #$ the Cit$ Treasurer on 11 Decem#er 1,-." The auction sale and the final #ill of sale +ere #oth annotated at the #ac) of TCT :-3, (3--,1) #$ the Re!ister of Deeds" =n >D ?arch 1,-,, Francia filed a complaint to annul the auction sale" &e later amended his complaint on >: %anuar$ 1,.D" =n >3 (pril 1,.1, the lo+er court rendered a decision, dismissin! the amended complaint and orderin! the Re!ister of Deeds of 9asa$ Cit$ to issue a ne+ TCT in favor of FernandeB over the parcel of land includin! the improvements thereon, su#*ect to +hatever encum#rances appearin! at the #ac) of TCT :-3, (3--,1) and orderin! the same TCT :-3, (3--,1) cancelled/ and orderin! Francia to pa$ FernandeB the sum of 91,DDD"DD as attorne$Gs fees" The 'ntermediate (ppellate Court affirmed the decision of the lo+er court in toto" &ence, the petition for revie+" The Supreme Court dismissed the petition for revie+ and affirmed the decision of the appellate court" 1. Reason 5/y )et*t*on 5as "*ven due course0 5/y *t s/ou1d be d*s(*ssed The Court !ave due course to the petition for a more thorou!h in4uir$ into FranciaGs alle!ations that his propert$ +as sold at pu#lic auction +ithout notice to him and that the price paid for the propert$ +as shoc)in!l$ inade4uate, amountin! to fraud and deprivation +ithout due process of la+"( careful revie+ of the case, ho+ever, discloses that Francia #rou!ht the pro#lems raised in his petition upon himself" Hhile the Court commiserate +ith him at the loss of his propert$, the la+ and the facts militate a!ainst the !rant of his petition" The Court is constrained to dismiss it" 2. Le"a1 ,o()ensat*on! Art*c1es 12+# and 12+9 o- t/e ,*v*1 ,ode0 ,ase -act do not sat*s-y re9u*re(ents $ le!al compensation, o#li!ations of persons, +ho in their o+n ri!ht are reciprocall$ de#tors and creditors of each other, are extin!uished ((rt" 1>-., Civil Code)" The circumstances of the case do not satisf$ the re4uirements provided #$ (rticle 1>-,, to +it: 2(1) that each one of the o#li!ors #e #ound principall$ and that he #e at the same time a principal creditor of the other/ xxx (3) that the t+o de#ts #e due" 3. 4a'es cannot be o--set 5*t/ ta')ayerEs c1a*( a"a*nst t/e "overn(ent The Court has consistentl$ ruled that there can #e no off5settin! of taxes a!ainst the claims that the taxpa$er ma$ have a!ainst the !overnment" ( person cannot refuse to pa$ a tax on the !round that the !overnment o+es him an amount e4ual to or !reater than the tax #ein! collected" The collection of a tax cannot a+ait the results of a la+suit a!ainst the !overnment"
4a'at*on La5 6! 2773 ( .4 )
3.
Re)ub1*c vs. Aa(bu1ao0 6nterna1 revenue ta'es not sub=ect o- set-o-- or co()ensat*on 'n the case of Repu#lic v" ?am#ulao 8um#er Co" (: SCR( ;>>), the Court ruled that 'nternal Revenue Taxes can not #e the su#*ect of set5off or compensation" 't stated: 2( claim for taxes is not such a de#t, demand, contract or *ud!ment as is allo+ed to #e set5off under the statutes of set5off, +hich are construed uniforml$, in the li!ht of pu#lic polic$, to exclude the remed$ in an action or an$ inde#tedness of the state or municipalit$ to one +ho is lia#le to the state or municipalit$ for taxes" Aeither are the$ a proper su#*ect of recoupment since the$ do not arise out of the contract or transaction sued on" " " " " (.D C"%"S", -35 -:)" 2The !eneral rule #ased on !rounds of pu#lic polic$ is +ell5settled that no set5off admissi#le a!ainst demands for taxes levied for !eneral or local !overnmental purposes" The reason on +hich the !eneral rule is #ased, is that taxes are not in the nature of contracts #et+een the part$ and part$ #ut !ro+ out of dut$ to, and are the positive acts of the !overnment to the ma)in! and enforcin! of +hich, the personal consent of individual taxpa$ers is not re4uired" " " "G3 ( taxpa$er cannot refuse to pa$ his tax +hen called upon #$ the collector #ecause he has a claim a!ainst the !overnmental #od$ not included in the tax lev$" 4. ,ordero vs. Gonda0 Ru1e re*terated The rule +as reiterated in the case of Cordero v" @onda (1. SCR( 331) +here the Court stated that: 2" " " internal revenue taxes can not #e the su#*ect of compensation: Reason: !overnment and taxpa$er Fare not mutuall$ creditors and de#tors of each otherG under (rticle 1>-. of the Civil Code and a 2claim for taxes is not such a de#t, demand, contract or *ud!ment as is allo+ed to #e set5off"3 .. 4a' due to t/e (un*c*)a1*ty! 5/*1e e')ro)r*at*on e--ected by ?at*ona1 Govern(ent0 3ub1*c auct*on sa1e avo*dab1e The tax +as due to the cit$ !overnment +hile the expropriation +as effected #$ the national !overnment" ?oreover, the amount of 9:,11;"DD paid #$ the national !overnment for the 1>1 s4uare meter portion of his lot +as deposited +ith the 9hilippine Aational an) lon! #efore the sale at pu#lic auction of his remainin! propert$" Aotice of the deposit dated Septem#er >., 1,-- +as received #$ Francia on 3D Septem#er 1,--" Francia admitted in his testimon$ that he )ne+ a#out the 9:,11;"DD deposited +ith the #an) #ut he did not +ithdra+ it" 't +ould have #een an eas$ matter to +ithdra+ 9>,:DD"DD from the deposit so that he could pa$ the tax o#li!ation thus a#ortin! the sale at pu#lic auction" Due )rocess *n ta' )roceed*n"s 'n the case of <alencia v" %imeneB (11 9hil" :,>), the Court laid do+n the doctrine that 2due process of la+ to #e follo+ed in tax proceedin!s must #e esta#lished #$ proof and the !eneral rule is that the purchaser of a tax title is #ound to ta)e upon himself the #urden of sho+in! the re!ularit$ of all proceedin!s leadin! up to the sale"3 +. ?o )resu()t*on o- re"u1ar*ty 5/en ad(*n*strat*ve act*on de)r*ves ta')ayer o- /*s )ro)erty t/rou"/ ta' sa1e There is no presumption of the re!ularit$ of an$ administrative action +hich results in deprivin! a taxpa$er of his propert$ throu!h a tax sale" (Camo v" Riosa o$co, >, 9hil" :3-)/ Deno!a v" 'nsular @overnment, 1, 9hil" >;1)" This is actuall$ an exception to the rule that administrative proceedin!s are presumed to #e re!ular" #. Burden o- )roo- to s/o5 co()1*ance 5*t/ 1e"a1 )rere9u*s*te o- ta' sa1es 1*es 5*t/ one 5/o a11e"es0 Ad(*ss*on by t/e ot/er )arty &o FernandeB, the purchaser at the auction sale, has the #urden of proof to sho+ that there +as compliance +ith all the prescri#ed re4uisites for a tax sale" ut even if the #urden of proof lies +ith the purchaser to sho+ that all le!al prere4uisites have #een complied +ith, Francia cannot, ho+ever, den$ that he did receive the notice for the auction sale as he admitted (surprisin!l$) in his testimon$ that he received the letter dated >1 Aovem#er 1,-- as sho+n #$ his si!nature thereof" Francia, therefore, +as notified a#out the
4a'at*on La5 6! 2773 ( .. )
auction sale" 't +as ne!li!ence on his part +hen he i!nored such notice/ so as not to #e present on 1 Decem#er 1,-- the date of the auction sale #ecause he +ent to 'li!an Cit$" (s lon! as there +as su#stantial compliance +ith the re4uirements of the notice, the validit$ of the auction sale cannot #e assailed" Further, #$ his ver$ o+n admission that he received the notice, his stance to assail the validit$ of the auction sale loses its force" 9. Gross *nade9uacy o- )r*ce not (ater*a1 *- o5ner /as r*"/t to redee( (s a !eneral rule, !ross inade4uac$ of price is not material (De 8eon v" Salvador, 3; SCR( 1;-/ 9once de 8eon v" Reha#ilitation Finance Corporation, 3; SCR( >.,/ Tolentino v" (!caoili, ,1 9hil" ,10nrep")" See also arroBo <da" de @ordon v" Court of (ppeals (1D, SCR( 3..)" The Court held that 2alle!ed !ross inade4uac$ of price is not material +hen the la+ !ives the o+ner the ri!ht to redeem as +hen a sale is made at pu#lic auction, upon the theor$ that the lesser the price, the easier it is for the o+ner to effect redemption"3 17. 8e1as9ueB vs. ,orone10 6nade9uacy o- )r*ce 'n <elas4ueB v" Coronel (1 SCR( ,.1), the Court held that +hile in ordinar$ sales for reasons of e4uit$ a transaction ma$ #e invalidated on the !round of inade4uac$ of price, or +hen such inade4uac$ shoc)s oneGs conscience as to *ustif$ the courts to interfere, such does not follo+ +hen the la+ !ives to the o+ner the ri!ht to redeem, as +hen a sale is made at pu#lic auction, upon the theor$ that the lesser the price the easier it is for the o+ner to effect the redemption" (nd so it +as aptl$ said: 2Hhen there is the ri!ht to redeem, inade4uac$ of price should not #e material, #ecause the *ud!ment de#tor ma$ reac4uire the propert$ or also sell his ri!ht to redeem and thus recover the loss he claims to have suffered #$ reason of the price o#tained at the auction sale"3 11. @b=ect*on o- *nade9uacy o- )r*ce *n ta' sa1es 5*11 render co11ect*on o- ta'es *()ract*cab1e 'n the case of &ilton et" ux" v" De 8on!, et al" (1.. Hash" 1;>, ;1 9" >d, 1>,D), it +as held that 2'f mere inade4uac$ of price is held to #e a valid o#*ection to a sale for taxes, the collection of taxes in this manner +ould #e !reatl$ em#arrassed, if not rendered alto!ether impractica#le" 'n lac) on Tax Titles (>nd 6d") >3., the correct rule is stated as follo+s: F+here land is sold for taxes, the inade4uac$ of the price !iven is not a valid o#*ection to the sale"G This rule arises from necessit$, for, if a fair price for the land +ere essential to the sale, it +ould #e useless to offer the propert$" 'ndeed, it is notorious that the prices ha#ituall$ paid #$ purchasers at tax sales are !rossl$ out of proportion to the value of the land"3 (Rothchild ros" v" Rollin!er, 3> Hash" 3D-, -3 9" 3;-, 3;,)" 12. 4a'es are 1*-eb1ood o- t/e >tate 'n ?c@uire, et al" v" ean, et al" (>;- 9" 111), it +as stated that 28i)e most cases of this character there is here a certain element of hardship from +hich +e +ould #e !lad to relieve, #ut do so +ould unsettle lon!5esta#lished rules and lead to uncertaint$ and difficult$ in the collection of taxes +hich are the life #lood of the state" He are convinced that the present rules are *ust, and that the$ #rin! hardship onl$ to those +ho have invited it #$ their o+n ne!lect"3 13. 3r*ce 9uoted by $ranc*a on t/e va1ue o- )ort*on o- 1ot "reat1y e'a""erated Thou!h the value of the lot has !reatl$ appreciated in value precisel$ #ecause of the +idenin! of uendia (venue in 9asa$ Cit$, +hich necessitated the expropriation of ad*oinin! areas thus resultin! in real estate values !oin! up in the area" The price 4uoted #$ Francia for a >D3 s4uare meter lot, ho+ever, appears 4uite exa!!erated" 14. $ranc*a not ent*t1ed to re1*e- based on e9u*ty 6ven if the Court is inclined to !ive relief to Francia on e4uita#le !rounds, there are no stron! considerations of su#stantial *ustice in his favor" ?r" Francia failed to pa$ his taxes for 1: $ears from 1,;3 up to the date of the auction sale" &e claims to have poc)eted the notice of sale +ithout readin! it +hich, if true, is still an act of inexplica#le ne!li!ence" &e did not +ithdra+ from the expropriation pa$ment deposited +ith
4a'at*on La5 6! 2773 ( . )
the 9hilippine Aational an) an amount sufficient to pa$ for the #ac) taxes" Francia did not pa$ attention to another notice sent #$ the Cit$ Treasurer on 3 Aovem#er 1,-., durin! the period of redemption, re!ardin! his tax delin4uenc$" There is furthermore no sho+in! of #ad faith or collusion in the purchase of the propert$ #$ FernandeB" Francia has no standin! to invo)e e4uit$ in his attempt to re!ain the propert$ #$ #elatedl$ as)in! for the annulment of the sale" [2#] H*1ado vs. ,6R [G.R. ?o. L-947#. @ctober 31! 19. .] 6n anc, autista (n!elo (%): . concurrin! $acts% =n 31 ?arch 1,1>, 6milio E" &ilado filed his income tax return for 1,11 +ith the treasurer of acolod Cit$ +herein he claimed, amon! other thin!s, the amount of 91>,.3-";1 as a deducti#le item from his !ross income pursuant to @eneral Circular <51>3 issued #$ the Collector of 'nternal Revenue" This circular +as issued pursuant to certain rules laid do+n #$ the Secretar$ of Finance" =n the #asis of said return, an assessment notice demandin! the pa$ment of 9,,:1, +as sent to &ilado, +ho paid the tax in monthl$ installments, the last pa$ment havin! #een made on > %anuar$ 1,13" ?ean+hile, on 3D (u!ust 1,1>, the Secretar$ of Finance, throu!h the Collector of 'nternal Revenue, issued @eneral Circular <513, +hich not onl$ revo)ed and declared void his !eneral Circular <5 1>3 #ut laid do+n the rule that losses of propert$ +hich occurred durin! the period of Horld Har '' from fires, storms, ship+rec) or other casualt$, or from ro##er$, theft, or em#eBBlement are deducti#le in the $ear of actual loss or destruction of said propert$" (s a conse4uence, the amount of 91>,.3-";1 +as disallo+ed as a deduction from &iladoGs !ross income for 1,11 and the Collector of 'nternal Revenue demanded from him the pa$ment of the sum of 93,1:; as deficienc$ income tax for said $ear" Hhen the petition for reconsideration filed #$ &ilado +as denied, he filed a petition for revie+ +ith the Court of Tax (ppeals" 'n due time, the court rendered decision affirmin! the assessment made #$ Collector of 'nternal Revenue" &ence, the appeal to the Supreme Court" The Supreme Court affirmed the decision appealed from, +ithout pronouncement as to costs" 1. A(ount cannot be deducted as a 1oss *n 19.1 (ssumin! that the amount claimed as a loss represents a portion of the -1I of his +ar dama!e claim +hich +as not paid, the same +ould not #e deducti#le as a loss in 1,11 #ecause, accordin! to &ilado, the last installment he received from the Har Dama!e Commission, to!ether +ith the notice that no further pa$ment +ould #e made on his claim, +as in 1,1D" 'n the circumstance, said amount +ould at most #e a proper deduction from his 1,1D !ross income" 'n the second place, said amount cannot #e considered as a 2#usiness asset3 +hich can #e deducted as a loss in contemplation of la+ #ecause its collection is not enforcea#le as a matter of ri!ht, #ut is dependent merel$ upon the !enerosit$ and ma!nanimit$ of the 0S !overnment" 2. ?o 1a5 a11o5*n" H*1ado co()ensat*on -or t/e )ro)erty destruct*on *n 194.0 3ay(ent d*scret*onary under 3/*1*))*ne Re/ab*1*tat*on Act o- 194 (s of the end of 1,:1, there +as a#solutel$ no la+ under +hich &ilado could claim compensation for the destruction of his properties durin! the #attle for the li#eration of the 9hilippines" (nd under the 9hilippine Reha#ilitation (ct of 1,:;, the pa$ments of claims #$ the Har Dama!e Commission merel$ depended upon its discretion to #e exercised in the manner it ma$ see fit, #ut the non5pa$ment of +hich cannot !ive rise to an$ enforcea#le ri!ht, for, under said (ct, 2(ll findin!s of the Commission concernin! the amount of loss or dama!e sustained, the cause of such loss or dama!e, the persons to +hom compensation pursuant to this title is pa$a#le, and the value of the propert$ lost or dama!ed, shall #e conclusive and shall not #e revie+a#le #$ an$ court3" (section 113)" 3. @)*n*on o- t/e >ecretary o- :ust*ce! 5/o( t/e >ecretary o- $*nance sou"/t adv*ce -ro( 2U it mi!ht #e ar!ued that +ar losses +ere not included as deductions for the $ear +hen the$ +ere
4a'at*on La5 6! 2773 ( .+ )
sustained #ecause the taxpa$ers had prospects that losses +ould #e compensated for #$ the 0nited States @overnment/ that since onl$ uncompensated losses are deducti#le, the$ had to +ait until after the determination #$ the 9hilippine Har Dama!e Commission as to the compensa#ilit$ in part or in +hole of their +ar losses so that the$ could exclude from the deductions those compensated for #$ the said Commission/ and that, of necessit$, such determination could #e complete onl$ much later than in the $ear +hen the loss +as sustained" This contention falls to the !round +hen it is considered that the 9hilippine Reha#ilitation (ct +hich authoriBed the pa$ment #$ the 0nited States @overnment of +ar losses suffered #$ propert$ o+ners in the 9hilippines +as passed onl$ on (u!ust 3D, 1,:;, lon! after the losses +ere sustained" 't cannot #e said therefore, that the propert$ o+ners had an$ conclusive assurance durin! the $ears said losses +ere sustained, that the compensation +as to #e paid therefor" Hhatever assurance the$ could have had, could have #een #ased onl$ on some information less relia#le and less conclusive than the passa!e of the (ct itself" &ence, as dili!ent propert$ o+ners, the$ should adopt the safest alternative #$ considerin! such losses deducti#le durin! the $ear +hen the$ +ere sustained"3 4. Genera1 ,*rcu1ar 8-139 revokes 8-123! and 1a*d do5n ru1es R& 1osses o- )ro)erty occurred *n FF66 'n line +ith the opinion of the Secretar$ of %ustice, the Secretar$ of Finance, throu!h the Collector of 'nternal Revenue, issued @eneral Circular <513, +hich not onl$ revo)ed and declared void his previous Circular <51>3 #ut laid do+n the rule that losses of propert$ +hich occurred durin! the period of Horld Har '' from fires, storms, ship+rec) or other casualt$, or from ro##er$, theft, or em#eBBlement are deducti#le for income tax purposes in the $ear of actual destruction of said propert$" Thus, as to the present case, it is clear that the loss of the correspondin! asset or propert$ could onl$ #e deducted in the $ear it +as actuall$ sustained" This is in line +ith section 3D (d) of the Aational 'nternal Revenue Code +hich prescri#es that losses sustained are allo+a#le as deduction onl$ +ithin the correspondin! taxa#le $ear" .. 6nterna1 revenue 1a5s are not )o1*t*ca1 nature and 5ere *n -orce dur*n" ene(y occu)at*on 9hilippine internal revenue la+s are not political in nature and as such +ere continued in force durin! the period of enem$ occupation and in effect +ere actuall$ enforced #$ the occupation !overnment" (s a matter of fact, income tax returns +ere filed durin! that period and income tax pa$ment +ere effected and considered valid and le!al" Such tax la+s are deemed to #e the la+s of the occupied territor$ and not of the occup$in! enem$" . La5! e'ce)t t/ose o- )o1*t*ca1 nature! once estab1*s/ed cont*nues unt*1 c/an"ed by co()etent 1e"*s1at*ve )o5er 't is a le!al maxim, that exceptin! that of a political nature, 28a+ once esta#lished continues until chan!ed #$ some competent le!islative po+er" 't is not chan!ed merel$ #$ chan!e of soverei!nt$"3 (%oseph &" eale, Cases on Conflict of 8a+s, ''', Summar$ section ,, citin! Common+ealth vs" Chapman, 13 ?et", ;.") (s the same author sa$s, in his Treatise on the Conflict of 8a+s (Cam#rid!e, 1,1;, section 131): 2There can #e no #rea) or interruption in la+" From the time the la+ comes into existence +ith the first5felt corporateness of a primitive people it must last until the final disappearance of human societ$" =nce created, it persists until a chan!e ta)es place, and +hen chan!ed it continues in such chan!ed condition until the next chan!e and so forever" Con4uest or coloniBation is impotent to #rin! la+ to an end/ inspite of chan!e of constitution, the la+ continues unchan!ed until the ne+ soverei!n #$ le!islative act creates a chan!e"3 (Co Tim Chan vs" <aldes Tan Teh and DiBon, -1 9hil", 113, 1:>51:3") +. >ecretary o- $*nance vested to revoke! re)ea1 or abro"ate acts or )rev*ous ru1*n"s o- )redecessor The Secretar$ of Finance is vested +ith authorit$ to revo)e, repeal or a#ro!ate the acts or previous rulin!s of his predecessor in office #ecause the construction of a statute #$ those administerin! it is not #indin! on their successors if thereafter the latter #ecome satisfied that a different construction should #e !iven" O(ssociation of Clerical 6mplo$ees vs" rotherhood of Rail+a$s Q Steamship Cler)s, .1 F" (>d) 11>, 1D, ("8"R", 3:1"P Thus, in the present case, +hen the Commissioner determined in 1,3- that the petitioner
4a'at*on La5 6! 2773 ( .# )
+as not exempt and never had #een, it +as his dut$ to determine, assess and collect the tax due for all $ears not #arred #$ the statutes of limitation" The conclusion reached and announced #$ his predecessor in 1,>: +as not #indin! upon him" 't did not exempt &ilado from tax (This same point +as decided in this +a$ in Stanford 0niversit$ oo)store, >, " T" (", 1>.D/ affd", .3 Fed" (>d) -1D"/ Southern ?ar$land (!ricultural Fair (ssociation vs" Commissioner of 'nternal Revenue, :D " T" (", 1:,, 11:)" #. 8ested r*"/t cannot s)r*n" -ro( a 5ron" *nter)retat*on @eneral Circular <51>3, havin! #een issued on a +ron! construction of the la+, cannot !ive rise to a vested ri!ht that can #e invo)ed #$ a taxpa$er" ( vested ri!ht cannot sprin! from a +ron! interpretation" 9. &rroneous *nter)retat*on o- a statute *s a nu11*ty0 &rroneous construct*on o- 1a5 does not )rec1ude "overn(ent -ro( co11ect*n" ta' (n administrative officer can not chan!e a la+ enacted #$ Con!ress" ( re!ulation that is merel$ an interpretation of the statute +hen once determined to have #een erroneous #ecomes nullit$" (n erroneous construction of the la+ #$ the Treasur$ Department or the collector of internal revenue does not preclude or estop the !overnment from collectin! a tax +hich is le!all$ due" ( en Stoc)er, et al", 1> " T" (", 1311") 17. Art*c1e 22.4 o- t/e ?e5 ,*v*1 ,ode (rticle >>1: provides that 2Ao vested or ac4uired ri!ht can arise from acts or omissions +hich are a!ainst the la+ or +hich infrin!e upon the ri!hts of others"3 ((rticle >>1:, Ae+ Civil Code") [29] Lea1da &1ectr*c vs. ,6R [G.R. ?o. L-1 42#. A)r*1 37! 19 3.] 6n anc, DiBon (%): . concurrin!, 1 too) no part $acts% 'n 1,11, %ulian ?" 8ocsin (nson +as !ranted a franchise to operate an electric li!ht and po+er plant to suppl$ electric current to the residents of the municipalities of 8e!aspi (no+ cit$) and Dara!a, #oth in (l#a$ province ((ct >:-1, as amended #$ (ct >;>D)" Su#se4uentl$, he sold his franchise, certificate of pu#lic convenience and the electric plant operated thereunder, to Saturnino enito, +ho in turn sold the same to (lfredo, ?ario and en*amin, all surnamed enito, on 13 ?arch 1,:1" =n 11 %une 1,:,, the enitos and other parties formed a partnership to operate the electric plant" (fter the incorporation of 8ealda 6lectric on . Fe#ruar$ 1,11, the franchise, certificate of pu#lic convenience and the electric plant operated thereunder, +ere transferred to it #$ said partnership" (ll these transactions +ere approved #$ the 9u#lic Service Commission" Since 1,11, the ori!inal !rantee and, after him, his various successors in interest, paid a franchise tax of >I on the !ross earnin!s or receipts from the #usiness operated under the franchise, #ecause that +as the same franchise tax paid #$ 2las demas fran4uicias $ privile!ios ho$ existentes3 ((rt" ., (ct >:-1), until 1 =cto#er 1,:; +hen Section >1, of the Aational 'nternal Revenue Code +as amended #$ R( 3, +hich increased the franchise tax to 1I" 0pon the approval of this mandator$ act, 8ealda 6lectric +as re4uired to pa$, as it did pa$, the increased franchise tax, except those that #ecame pa$a#le #efore its incorporation, these havin! #een paid #$ its predecessors in interest" (pparentl$ on >- =cto#er 1,13, 8ealda 6lectric had filed a claim for refund, action on +hich, ho+ever, +as held in a#e$ance pendin! receipt #$ the Collector of 'nternal Revenue of an audit report expected from the @eneral (uditin! =ffice" =n . %anuar$ 1,1:, 8ealda 6lectric filed +ith the Commissioner of 'nternal Revenue a petition for refund contendin! that, under its charter, it +as lia#le to pa$ a franchise tax e4uivalent to onl$ >I and not 1I of its !ross earnin!s or receipts" =n >> %une 1,1., 8ealda 6lectric filed its last claim for refund of the total amount of 9-.,.,1"3: representin! alle!ed excess pa$ments of franchise tax coverin! the period from >D %anuar$ 1,:- to 11 (pril 1,1." (s no definite action thereon +as ta)en #$ the Commission, on . %anuar$ 1,1, petitioner filed +ith the Court of Tax (ppeals a petition for revie+ pra$in! for the refund of the total sum of 9.:,1-3";1 representin!
4a'at*on La5 6! 2773 ( .9 )
alle!ed excess pa$ments of franchise tax for the period from >D %anuar$ 1,:- to 1: =cto#er 1,1., and for an order restrainin! said commission and its a!ents from collectin! from it more than >I of its !ross earnin!s or receipts, as franchise tax" (fter proper proceedin!s in the Court of Tax (ppeals, the court held that 8ealda 6lectric +as 2su#*ect to pa$ the 1I franchise tax as prescri#ed in Section >1, of the Aational 'nternal Revenue Code, as amended #$ R( 3,3 and, as a conse4uence, dismissin! the petition for refund for lac) of merit" &ence, the present appeal" The Supreme Court affirmed the decision appealed from #ein! in accordance +ith la+ and the evidence, +ith costs" 1. Art*c1e # o- Act 24+. (rticle . of (ct >:-1 +hich !ranted the franchise reads as follo+s, 2" " " 6ntendiendose, Cue en consideracion del privile!io concedido por la presente el concesionario, sus sucesores o cesionarios a#onaran trimentralmente a la tesoreria de (l#a$ o en la de Dara!a $ 8e!aspi en el caso de 4ue estos dos ultimos fuesen se!re!ados por autoridad competente en municipious independiente, con rentas correspondientes de acuerdo con la le$, por sus entradas en #ruto tales como se exi!en a las demas fran4uicias $ privile!ios ho$ existentes"3 2. $ranc/*se does not s)ec*-*ca11y state rate o- -ranc/*se ta' to be )a*d 8eal 6lectricGs franchise does not specificall$ state that the rate of the franchise tax to #e paid thereunder #$ the ori!inal !rantee J and his successors in interestJ shall #e >I of his !ross earnin!s or receipts" 't simpl$ provides that the !rantee and his successors in interest shall pa$ 2por sus entradas en #ruto tales como se exi!en a las demas fran4uicias $ privile!ios ho$ existentes"3 't seems clear, therefore, that the intention of the le!islature +as to impose upon the !rantee and his successors in interest, the o#li!ation to pa$ the same franchise tax imposed upon other !rantees or franchise holders at the time (ct >:-1 +as enacted" 3. &'*st*n" -ranc/*se rates at t/e t*(e o- t/e enact(ent o- t/e -ranc/*se Durin! all the time prior to the enactment on 1 =cto#er 1,:; of R( 3,, amendin! Section >1, of the Tax Code, franchise holders +ere and had #een pa$in! a franchise tax e4uivalent to >I of their !ross earnin!s or receipts, pursuant to the provisions of Section 11D. of the (dministrative Code of 1,1-, and of Section 1D of (ct 3;3;, )no+n as the ?odel 6lectric 8i!ht and 9o+er (ct" 8i)e them, the ori!inal !rantee under (ct >:-1 and his successors in interest +ere re4uired to pa$ and did pa$ the same franchise tax #ecause (rt" . of (ct >:-1 so provided" This rate continued until the rate of this franchise tax +as increased to 1I on 1 =cto#er 1,:; #$ the provisions of R( 3," 4. >ect*on 2.9 o- 4a' ,ode! bas*c -ranc/*se ta' 1a5 9rior to its amendment, Section >1, of the Tax Code merel$ provided that the !rantees of franchises should pa$ on their !ross earnin!s or receipts 2such taxes, char!es and percenta!es as are specified in special charters of corporations upon +hom such franchises are conferred3 This provision did not cover the case of franchise holders +hose charters did not specif$ the rate of franchise tax to #e paid #$ them" Conse4uentl$, prior to the enactment of R( 3,, the franchise tax paid #$ !rantees +hose charters did not specif$ the rate of the franchise tax to #e paid #$ them +as the one provided for in Section 1D of (ct 3;3;, )no+n as the ?odel 6lectric 8i!ht and 9o+er Franchise (ct" Conse4uentl$, Section >1, of the Tax Code, as amended #$ R( 3,, #ecame the #asic franchise tax la+ #ecause it +as not onl$ entitled 2Tax on Corporate Franchises3 #ut it fixed the rate of the franchise tax to #e paid #$ holders of all existin! and future franchises" Such #ein! the case, the provisions of the act amendin! said section must #e deemed to appl$ li)e+ise to 8ealda 6lectric #ecause its franchise +as alread$ existin! at the time of the adoption of the amendment" .. 8*sayan &1ectr*c v. Dav*d and Aan*1a Ra*1road vs. Ra--erty do not a))1y The rulin! in <isa$an 6lectric Compan$, vs" Saturnino David (:, ="@" Ao" :, p" 13.1) and ?anila Railroad Compan$ vs" Raffert$ (:D 9hil >>:) 7 mainl$ to the effect that special la+s or charters ma$ not #e
4a'at*on La5 6! 2773 ( 7 )
amended, altered or repealed, except #$ consent of all concerned, unless the ri!ht +as expressl$ reserved 7 is of no avail to 8ealda 6lectric for t+o reasons: (1) 8ealdaGs charter ((rt" 11, (ct >:-1) contains an express provision to the effect that the same ma$ #e altered or repealed #$ the Con!ress of the 0nited States (no+ 9hilippines), and the rate of the franchise tax 8ealda 6lectric had #een pa$in! under the provisions of Section 1D of (ct 3;3; +as expressl$ amended #$ (ct 3,/ and (>) the franchises involved in the cases cited differ su#stantiall$ from 8ealdaGs franchise in that those of the <isa$an 6lectric Compan$ and of the ?anila Railroad Compan$ specificall$ provided that the franchise tax +hich the !rantees +ere re4uired to pa$ +as to #e 2in lieu of all taxes of an$ )ind levied, esta#lished, or collected #$ an$ authorit$ +hatsoever, no+ or in the future3 (Charter of the <isa$an 6lectric, (rt" ., (ct 3:,,), or 2in lieu of all taxes of ever$ name and nature J municipal, provincial or central " " " "3 (Charter of the ?anila Railroad Compan$, Section 1, Su#section 1> of (ct 111D) 8ealda 6lectricGs charter contains no such provision" 4a' e'e()t*ons not )resu(ed0 Ru1*n" *n Hoa H*n ,o. case Tax exemptions are not to #e presumed" Such in effect is the rulin! in &oa &in Co" 'nc", (@R 85,;1; and 8511-.3, >1 ?a$ 1,1,) to the effect that 2The rate imposed #$ Section >1, of the Aational 'nternal Revenue Code, as amended, #ein! hi!her than imposed in petitionerGs Charter, (ct 1>1;, the petitioner has to pa$ the rate imposed #$ Section >1, of the Aational Revenue Code" The rule in ?anila Railroad Compan$ vs" Raffert$, :D 9hil" >>:/ 9hilippine Rail+a$ Compan$ vs" Collector of 'nternal Revenue, @R 853.1,, >1 ?arch 1,1>/ <isa$an 6lectric Compan$ vs" David, :, =@ 13.1/ and Carcar 6lectric Q 'ce 9lant vs" Collector of 'nternal Revenue, 13 =@ 1D;. cannot #e invo)ed #$ the petitioner, #ecause in the !ranteesG respective franchises there is a provision that Fsuch annual pa$ments, +hen promptl$ and full$ made #$ the !rantee, shall #e in lieu of all taxes of ever$ name and nature J municipal, provincial or central J upon its capital stoc), franchises, ri!ht of +a$, earnin!s, and all other propert$ o+ned or operated #$ the !rantee under this concession or franchiseG" The petitionerGs franchise, (ct 1>1;, does not em#od$ such exemption"3 [37] L1adoc v. ,o((*ss*oner o- 6nterna1 Revenue [GR L-19271! 1 :une 19 .] 6n anc, 9aredes (p): , concur, 1 too) no part $acts% Sometime in 1,1-, the ? 6state 'nc", of acolod Cit$, donated 91D,DDD"DD in cash to Fr" Crispin RuiB then parish priest of <ictorias, Ae!ros =ccidental, and predecessor of petitioner Fr" Casimiro 8ladoc, for the construction of a ne+ Catholic Church in the localit$" The total amount +as actuall$ spent for the purpose intended" =n 3 ?arch 1,1., ? 6state filed the donorGs !ift tax return" 0nder date of >, (pril 1,;D, the Commissioner of 'nternal Revenue issued as assessment for doneeGs !ift tax a!ainst the Catholic 9arish of <ictorias, Ae!ros =ccidental, of +hich petitioner +as the priest" The tax amounted to 91,3-D"DD includin! surchar!es, interest of 1I monthl$ from 11 ?a$ 1,1. to 11 %une 1,;D, and the compromise for the late filin! of the return" 9etitioner lod!ed a protest to the assessment and re4uested the +ithdra+al thereof" The protest and the motion for reconsideration presented to the Commissioner of 'nternal Revenue +ere denied" The petitioner appealed to the CT( on > Aovem#er 1,;D" (fter hearin!, the CT( affirmed the decision of the Commissioner of 'nternal Revenue except the imposition of compromise penalt$ of 9>D" Fr" 8ladoc appealed to the Supreme Court" The Court on 1: ?arch 1,;1 issued a resolution orderin! parties to sho+ cause +h$ the &ead of the Diocese should not #e su#stituted in lieu of 8ladoc" 't also issued a resolution on 3D (pril 1,;1 orderin! the &ead of the Diocese to present issues and defenses he mi!ht +ish to raise" The counsel of the &ead of the Diocese, +ho is also the counsel for Fr" 8ladoc, adopted #$ reference the #rief of Fr" 8ladoc as its o+n and for all purposes" The Supreme Court affirmed the appealed decision, insofar as tax lia#ilit$ is concerned, #ut modified it, in the sense that Fr" 8ladoc is not personall$ lia#le for the said !ift tax, and that the &ead of the Diocese, should pa$,
4a'at*on La5 6! 2773 ( 1 )
as he is presentl$ ordered to pa$, the said !ift tax/ +ithout special pronouncement as to costs" 1. G*-t ta' *s an e'c*se ta'! not )ro)erty ta'0 &'c*se ta' e'c1uded -ro( ta' e'e()t*on The phrase 2exempt from taxation,3 as emplo$ed in the Constitution supra should not #e interpreted to mean exemption from all )inds of taxes" Section >>(3), (rt" <' of the Constitution of the 9hilippines, exempts from taxation cemeteries, churches and persona!es or convents, appurtenant thereto, and all lands, #uildin!s, and improvements used exclusivel$ for reli!ious purposes" The exemption is onl$ from the pa$ment of taxes assessed on such properties enumerated, as propert$ taxes, as contra5distin!uished from excise taxes" ( doneeGs !ift tax is not a propert$ tax #ut an excise tax imposed on the transfer of propert$ #$ +a$ of !ift inter vivos" 'ts assessment +as not on the propert$ themselves" 't does not rest upon !eneral o+nership, #ut an excise upon the use made of the properties, upon the exercise of the privile!e of receivin! the properties" The imposition of such excise tax on propert$ used for reli!ious purposes do not constitute an impairment of the Constitution" 2. Head o- D*ocese rea1 )arty *n *nterest Fr" 8ladoc cannot #e lia#le as he +as not $et a priest of <ictorias at the time of donation" The parish of <ictorias pertains to the &ead of the Diocese, therefore ma)in! the latter the real part$ in interest and thus validl$ su#stitute Fr" 8ladoc as part$ in the case/ and thus lia#le for the pa$ment of the excise tax" [31] LutB vs. Araneta [G.R. ?o. L-+#.9. Dece(ber 22! 19...] First Division, Re$es % 8 (%): . concurrin! $acts% Halter 8utB, in his capacit$ as %udicial (dministrator of the 'ntestate 6state of (ntonio %a$me 8edesma, see)s to recover from the Collector of 'nternal Revenue the sum of 91:,;;;":D paid #$ the estate as taxes, under section 3 of Common+ealth (ct 1;- (the Su!ar (d*ustment (ct), for the crop $ears 1,:.51,:, and 1,:,51,1D" &e initiated the action in the CF' Ae!ros =ccidental, alle!in! that such tax is unconstitutional and void, #ein! levied for the aid and support of the su!ar industr$ exclusivel$, +hich in his opinion is not a pu#lic purpose for +hich a tax ma$ #e constitutionall$ levied" The action havin! #een dismissed #$ the lo+er court, 8utB appealed the case directl$ to the Supreme Court, pursuant to Section 1- of the %udiciar$ (ct" The Supreme Court affirmed the decision appealed, +ith costs a!ainst 8utB" 1. Reason -or t/e )ro(u1"at*on o- ,o((on5ea1t/ Act . + or t/e >u"ar Ad=ust(ent Act The Su!ar (d*ustment (ct (Common+ealth (ct 1;-) +as promul!ated in 1,:D, +ith a declaration of emer!enc$, due to the threat to 9hilippine industr$ #$ the imminent imposition of export taxes upon su!ar as provided in the T$din!s5?cDuffie (ct, and the 2eventual loss of its preferential position in the 0nited States mar)et3/ +herefore, the national polic$ +as expressed 2to o#tain a read*ustment of the #enefits derived from the su!ar industr$ #$ the component elements thereof3 and 2to sta#iliBe the su!ar industr$ so as to prepare it for the eventualit$ of the loss of its preferential position in the 0nited States mar)et and the imposition of the export taxes (Section 1)"3 2. >ub=ect (atter and )ersons a--ected by t/e 1a5 Section > of the la+ provides for an increase of the existin! tax on the manufacture of su!ar, on a !raduated #asis, on each picul of su!ar manufactures/ +hile section 3 levies on o+ners or persons in control of lands devoted to the cultivation of su!ar cane and ceded to others for a consideration, on lease or other+ise 2a tax e4uivalent to the difference #et+een the mone$ value of the rental or consideration collected and the amount representin! 1> per centum of the assessed value of such land"3 3. >u"ar Ad=ust(ent and >tab*1*Bat*on $und! d*sburse(ent
4a'at*on La5 6! 2773 ( 2 )
(ccordin! to section ; of the la+, 2all collections made under this (ct shall accrue to a special fund in the 9hilippine Treasur$, to #e )no+n as the FSu!ar (d*ustment and Sta#iliBation Fund,G and shall #e paid out onl$ for an$ or all of the follo+in! purposes or to attain an$ or all of the follo+in! o#*ectives, as ma$ #e provided #$ la+: (1) to place the su!ar industr$ in a position to maintain itself despite the !radual loss of the preferential position of the 9hilippine su!ar in the 0nited States mar)et, and ultimatel$ to insure its continued existence not+ithstandin! the loss of that mar)et and the conse4uent necessit$ of meetin! competition in the free mar)ets of the +orld/ (>) to read*ust the #enefits derived from the su!ar industr$ #$ all of the component elements thereof J the mill, the lando+ner, the planter of the su!ar cane, and the la#orers in the factor$ and in the field J so that all mi!ht continue profita#l$ to en!a!e therein/ (3) to limit the production of su!ar to areas more economicall$ suited to the production thereof/ and (:) to afford la#or emplo$ed in the industr$ a livin! +a!e and to improve their livin! and +or)in! conditions: 9rovided, That the 9resident of the 9hilippines ma$, until the ad*ournment of the next re!ular session of the Aational (ssem#l$, ma)e the necessar$ dis#ursements from the fund herein created (1) for the esta#lishment and operation of su!ar experiment station or stations and the underta)in! of researchers (a)to increase the recoveries of the centrifu!al su!ar factories +ith the vie+ of reducin! manufacturin! costs, (#) to produce and propa!ate hi!her $ieldin! varieties of su!ar cane more adapta#le to different distinct conditions in the 9hilippines, (c) to lo+er the costs of raisin! su!ar cane, (d) to improve the #u$in! 4ualit$ of denatured alcohol from molasses for motor fuel, (e) to determine the possi#ilit$ of utiliBin! the other #$5products of the industr$, (f) to determine +hat crop or crops are suita#le for rotation and for the utiliBation of excess cane lands, and (!) on other pro#lems the solution of +hich +ould help reha#ilitated and sta#iliBe the industr$, and (>) for the improvement of livin! and +or)in! conditions in su!ar mills and su!ar plantations, authoriBin! him to or!aniBe the necessar$ a!enc$ or a!encies to ta)e char!e of the expenditure and allocation of said funds to carr$ out the purpose herein#efore enumerated, and, li)e+ise, authoriBin! the dis#ursement from the fund herein created of the necessar$ amount of amounts needed for salaries, +a!es, travellin! expenses, e4uipment, and other sundr$ expenses or said a!enc$ or a!encies"3 4. Act *s an e'erc*se o- )o1*ce )o5er (nal$sis of the (ct, and particularl$ of section ;, +ill sho+ that the tax is levied +ith a re!ulator$ purpose, to provide means for the reha#ilitation and sta#iliBation of the threatened su!ar industr$" The act is primaril$ an exercise of the police po+er, and is not a pure exercise of the taxin! po+er" .. 3ro(ot*on o- su"ar *ndustry redounds "reat1y to "enera1 5e1-are Su!ar production in one of the !reat industries of the 9hilippines" Su!ar occupies a leadin! position amon! its export products" 't !ives emplo$ment to thousands of la#orers in fields and factories" 't is a !reat source of the stateGs +ealth" 't is one of the important sources of forei!n exchan!e needed #$ our !overnment, and is thus pivotal in the plans of a re!ime committed to a polic$ of currenc$ sta#ilit$" 'ts promotion, protection and advancement, therefore redounds !reatl$ to the !eneral +elfare" &ence it +as competent for the le!islature to find that the !eneral +elfare demanded that the su!ar industr$ should #e sta#iliBed in turn/ and in the +ide field of its police po+er, the la+5ma)in! #od$ could provide that the distri#ution of #enefits therefrom #e read*usted amon! its components to ena#le it to resist the added strain of the increase in taxes that it had to sustain (Sli!h vs" Tir)+ood, >3- 0" S" 1>, 1, 8" 6d" .31/ %ohnson vs" State ex rel" ?are$, ,, Fla" 1311, 1>. So .13/ ?axc$ 'nc" vs" ?a$o, 1D3 Fla" 11>, 13, So" 1>1)" Re1ated A(er*can =ur*s)rudence0 3rotect*on o- 1ar"e *ndustry 5*t/*n )o1*ce )o5er o- sovere*"n (s stated in %ohnson vs" State ex rel" ?are$, +ith reference to the citrus industr$ in Florida, 2the protection of a lar!e industr$ constitutin! one of the !reat sources of the stateGs +ealth and therefore directl$ or indirectl$ affectin! the +elfare of so !reat a portion of the population of the State is affected to such an extent #$ pu#lic interests as to #e +ithin the police po+er of the soverei!n"3 +. 4ests o- va1*d e'erc*se o- )o1*ce )o5er0 4a'at*on as (eans to *()1e(ent )o1*ce )o5er =nce it is conceded that the protection and promotion of the su!ar industr$ is a matter of pu#lic
4a'at*on La5 6! 2773 ( 3 )
concern, it follo+s that the 8e!islature ma$ determine +ithin reasona#le #ounds +hat is necessar$ for its protection and expedient for its promotion" &ere, the le!islative discretion must #e allo+ed full pla$, su#*ect onl$ to the test of reasona#leness/ and it is not contended that the means provided in section ; of the la+ #ear no relation to the o#*ective pursued or are oppressive in character" 'f o#*ective and methods are ali)e constitutionall$ valid, no reason is seen +h$ the state ma$ not #e lev$ taxes to raise funds for their prosecution and attainment" Taxation ma$ #e made the implement of the stateGs police po+er (@reat (tl" Q 9ac" Tea Co" vs" @ros*ean, 3D1 0" S" :1>, .1 8" 6d" 11,3/ 0" S" vs" utler, >,- 0" S" 1, .D 8" 6d" :--/ ?GCulloch vs" ?ar$land, : Hheat" 31., : 8" 6d" 1-,)" #. >tate *s -ree to se1ect sub=ects o- ta'at*on0 Rat*ona1 t/at bene-*c*ar*es s/ou1d be 1ev*ed u)on 't is inherent in the po+er to tax that a state #e free to select the su#*ects of taxation, and it has #een repeatedl$ held that 2ine4ualities +hich result from a sin!lin! out of one particular class for taxation, or exemption infrin!e no constitutional limitation3 (Carmichael vs" Southern Coal Q Co)e Co", 3D1 0" S" :,1, .1 8" 6d" 1>:1, citin! numerous authorities, at p" 1>11)" That the tax to #e levied should #urden the su!ar producers themselves can hardl$ #e a !round of complaint/ indeed, it appears rational that the tax #e o#tained precisel$ from those +ho are to #e #enefited from the expenditure of the funds derived from it" 9. ,onst*tut*on does not re9u*re to ad/ere to a )o1*cy o- ;a11 or none<0 Le"*s1at*ve aut/or*ty need not e(brace a11 ev*1s 5*t/*n *ts reac/ 't appears of no moment that the funds raised under the Su!ar Sta#iliBation (ct should #e exclusivel$ spent in aid of the su!ar industr$, since it is that ver$ enterprise that is #ein! protected" 't ma$ #e that other industries are also in need of similar protection/ #ut the le!islature is not re4uired #$ the Constitution to adhere to a polic$ of 2all or none"3 (s ruled in ?innesota ex rel" 9earson vs" 9ro#ate Court, 3D, 0" S" >-D, .: 8" 6d" -::, 2if the la+ presuma#l$ hits the evil +here it is most felt, it is not to #e overthro+n #ecause there are other instances to +hich it mi!ht have #een applied/3 and that the le!islative authorit$, exerted +ithin its proper field, need not em#race all the evils +ithin its reach3 (A" 8" R" " vs" %ones Q 8au!hlin Steel Corp" 3D1 0" S" 1, .1 8" 6d" .,3)" 17. Devot*on o- ta' (oney to e')er*(enta1 stat*ons does not const*tute e')end*ture -or )r*vate )ur)oses 6ven from the standpoint that the (ct is a pure tax measure, it cannot #e said that the devotion of tax mone$ to experimental stations to see) increase of efficienc$ in su!ar production, utiliBation of #$5 products and solution of allied pro#lems, as +ell as to the improvement of livin! and +or)in! conditions in su!ar mills or plantations, +ithout an$ part of such mone$ #ein! channeled directl$ to private persons, constitutes expenditure of tax mone$ for private purposes, (compare 6verson vs" oard of 6ducation, ,1 8" 6d" :->, 1;. (8R 13,>, 1:DD)" [32] LuBon >tevedor*n" vs. ,4A [G.R. ?o. L-37232. :u1y 29! 19##.] Second Division, 9aras (%): : concurrin! $acts% 8uBon Stevedorin! Corp", in 1,;1 and 1,;>, imported various en!ine parts and other e4uipment for the repair and maintenance of its tu!#oats for +hich it paid the assessed compensatin! tax under protest" 0na#le to secure a tax refund from the Commissioner of 'nternal Revenue, on > %anuar$ 1,;:, it filed a 9etition for Revie+ +ith the Court of Tax (ppeals (CT( Case 1:.:), pra$in! amon! others, that it #e !ranted the refund of the amount of 933,::>"13" The Court of Tax (ppeals, ho+ever, in a Decision dated >1 =cto#er 1,;,, denied the various claims for tax refund (findin! said claims +ithout sufficient le!al *ustification)/ +ith costs a!ainst the corporation" =n >: %anuar$ 1,;,, the Corporation filed a ?otion for Reconsideration, #ut the same +as denied in a Resolution dated >D Fe#ruar$ 1,;," &ence, the petition for revie+" The Supreme Court, in a Resolution dated 13 ?arch 1,;,, !ave due course to the petition"
4a'at*on La5 6! 2773 ( 4 )
The Supreme Court dismissed the petition, and affirmed the decision of the Court of Tax (ppeals" 1. 31+ >ect*on 197 (,o()ensat*n" ta') o- t/e ?at*ona1 6nterna1 Revenue ,ode! as a(ended by RA
Said la+ provides: 2Uand 9rovided further, That the tax imposed in this section shall not appl$ to articles to #e used #$ the importer himself in the manufacture or preparation of articles su#*ect to specific tax or those for consi!nment a#road and are to form part thereof or to articles to #e used #$ the importer himself as passen!er andKor car!o vessel, +hether coast+ise or ocean5!oin!, includin! en!ines and spare parts of said vessel" " "3 2. 3o5er o- ta'at*on a /*"/ )rero"at*ve o- sovere*"nty0 Re1*n9u*s/(ent or reduct*on not )resu(ed0 4a' e'e()t*on str*ct1y construed a"a*nst ta')ayer 2(s the po+er of taxation is a hi!h prero!ative of soverei!nt$, the relin4uishment is never presumed and an$ reduction or dimunition thereof +ith respect to its mode or its rate, must #e strictl$ construed, and the same must #e coached in clear and unmista)a#le terms in order that it ma$ #e applied"3 (.: C"%"S" pp" ;1,5 .DD), ?ore specificall$ stated, an$ claim for exemption from the tax statute should #e strictl$ construed a!ainst the taxpa$er ((ctin! Commissioner of Customs v" ?anila 6lectric Co" et al", ;, SCR( :;, O1,--P and Commissioner of 'nternal Revenue v" 9"%" Tiener Co" 8td", et al", ;1 SCR( 1:> O1,-1P)" 3. Re9u*re(ents o- 1a5 to be co()1*ed 5*t/ -or *()ortat*ons be dec1ared e'e()t -ro( ta' 'n order that the importations in 4uestion ma$ #e declared exempt from the compensatin! tax, it is indispensa#le that the re4uirements of the amendator$ la+ #e complied +ith, namel$: (1) the en!ines and spare parts must #e used #$ the importer himself as a passen!er andKor car!o vessel/ and (>) the said passen!er andKor car!o vessel must #e used in coast+ise or ocean!oin! navi!ation" The amendator$ provisions of Repu#lic (ct Ao" 31-; limit tax exemption from the compensatin! tax to imported items to #e used #$ the importer himself as operator of passen!er andKor car!o vessel" 4. 4u"boat de-*ned 2( tu!#oat is a stron!l$ #uilt, po+erful steam or po+er vessel, used for to+in! and, no+, also used for attendance on vessel" (He#ster Ae+ 'nternational Dictionar$, >nd 6d") 2( tu!#oat is a diesel or steam po+er vessel desi!ned primaril$ for movin! lar!e ships to andG from piers for to+in! #ar!es and li!hters in har#ors, rivers and canals" (6nc$clopedia 'nternational @rolier, <ol" 1., p">1;)" 2( tu! is a steam vessel #uilt for to+in!, s$non$mous +ith tu!#oat" ( ouvierGs 8a+ Dictionar$")"3 .. F/en 1a5 *s c1ear! a))1*cat*on and not *nter)retat*on o- 1a5 *s re9u*red The corporationGs tu!#oats do not fall under the cate!ories of passen!er andKor car!o vessels" 't is a cardinal principle of statutor$ construction that +here a provision of la+ spea)s cate!oricall$, the need for interpretation is o#viated, no plausi#le pretense #ein! entertained to *ustif$ non5compliance" (ll that has to #e done is to appl$ it in ever$ case that falls +ithin its terms ((llied ro)era!e Corp" v" Commissioner of Customs, 85>-;:1, :D SCR( 111 O1,-1P/ Cui*ano, etc" v" D 9, 85>;:1,,31 SCR( >-D O1,-DP)" >tatutes to be construed *n t/e 1*"/t o- )ur)oses to be ac/*eved and ev*1s sou"/t to be re(ed*ed 6ven if construction and interpretation of the la+ is insisted upon, follo+in! another fundamental rule that statutes are to #e construed in the li!ht of purposes to #e achieved and the evils sou!ht to #e remedied (9eople v" 9urisima etc", et al", 85:>D1D5;;, .; SCR( 1:: O1,-.P, it +ill #e noted that the le!islature in amendin! Section 1,D of the Tax Code #$ R( 31-; intended to provide incentives and inducements to #olster the shippin! industr$ and not the #usiness of stevedorin!, as manifested in the sponsorship speech of Senator @il 9u$at" .
4a'at*on La5 6! 2773 ( . )
+.
,or)orat*on *s *n stevedor*n" and 1*"/tera"e bus*ness and not as a co((on carr*er by 5ater =n anal$sis of the corporationGs transactions, the Court of Tax (ppeals found that no evidence that tu!#oats are passen!er andKor car!o vessels used in the shippin! industr$ as an independent #usiness" =n the contrar$, the corporationGs o+n evidence supports the vie+ that it is en!a!ed as a stevedore, i"e" the +or) of unloadin! and loadin! of a vessel in port/ and to+in! of #ar!es containin! car!oes is a part of its underta)in! as a stevedore" 'n fact, even its trade name is indicative that its sole and principal #usiness is stevedorin! and li!htera!e, taxed under Section 1,1 of the Aational 'nternal Revenue Code as a contractor, and not an entit$ +hich transports passen!ers or frei!ht for hire +hich is taxed under Section 1,> of the same Code as a common carrier #$ +ater" #. ,ourt o- 4a' A))ea1s /as e')ert*se0 ,ourt 5*11 not set as*de dec*s*on o- a"ency un1ess t/ere *s abuse or *()rov*dent e'erc*se o- aut/or*ty (s a matter of principle, the Supreme Court +ill not set aside the conclusion reached #$ an a!enc$ such as the Court of Tax (ppeals, +hich is, #$ the ver$ nature of its function, dedicated exclusivel$ to the stud$ and consideration of tax pro#lems and has necessaril$ developed an expertise on the su#*ect unless there has #een an a#use or improvident exercise of authorit$ (Re$es v" Commissioner of 'nternal Revenue, >: SCR( 1,, O1,.1P), +hich is not present in the present case" [33] A*sa(*s @r*enta1 vs. ,a"ayan &1ectr*c [G.R. ?o. 4.3... :anuary 12! 1997.] First Division, @rino5(4uino (%): : concurrin! $acts% Ca!a$an 6lectric 9o+er and 8i!ht Compan$, 'nc" (C69(8C=) +as !ranted a franchise on 1- %une 1,;1 under R( 3>:- to install, operate and maintain an electric li!ht, heat and po+er s$stem in the Cit$ of Ca!a$an de =ro and its su#ur#s" Said franchise +as amended on >1 %une 1,;3 #$ R( 31-D +hich added the municipalities of Ta!oloan and =pol to C69(8C=Gs sphere of operation, and +as further amended on : (u!ust 1,;, #$ R( ;D>D +hich extended its field of operation to the municipalities of <illanueva and %asaan" =n >. %une 1,-3, the 8ocal Tax Code (9D >31) +as promul!ated" Section , of +hich provides for a Franchise Tax" 9ursuant thereto, the 9rovince of ?isamis =riental enacted 9rovincial Revenue =rdinance 1,, +hose Section 1> also provides for a Franchise Tax" The 9rovincial Treasurer of ?isamis =riental demanded pa$ment of the provincial franchise tax from C69(8C=" The compan$ refused to pa$, alle!in! that it is exempt from all taxes except the franchise tax re4uired #$ R( ;D>D" Aevertheless, in vie+ of the opinion rendered #$ the 9rovincial Fiscal, upon C69(8C=Gs re4uest, upholdin! the le!alit$ of the Revenue =rdinance, C69(8C= paid under protest on >- ?a$ 1,-: the sum of 9:,>-;">. and appealed the fiscalGs rulin! to the Secretar$ of %ustice +ho reversed it and ruled in favor of C69(8C=" =n >; %une 1,-;, the Secretar$ of Finance issued 8ocal Tax Re!ulation 35-1 adoptin! entirel$ the opinion of the Secretar$ of %ustice" =n 1; Fe#ruar$ 1,-;, the 9rovince filed in the CF' ?isamis =riental a complaint for declarator$ relief pra$in!, amon! others, that the Court exercise its po+er to construe 9D >31 in relation to the franchise of C69(8C= (R( ;D>D), and to declare the franchise as havin! #een amended #$ 9D >31" The Court dismissed the complaint and ordered the 9rovince to return to C69(8C= the sum of 9:,>-;">. paid under protest" The 9rovince appealed to the Supreme Court" The Supreme Court denied the petition for revie+, and affirmed in toto the decision of the Court of First 'nstance/ +tihout costs" 1. >ect*on 3 o- RA 324+! 3.+7! and 727 Section 3 of R( 3>:-, 31-D and ;D>D uniforml$ provide that 2in consideration of the franchise and ri!hts here#$ !ranted, the !rantee shall pa$ a franchise tax e4ual to three per centum of the !ross earnin!s for
4a'at*on La5 6! 2773 ( )
electric current sold under this franchise, of +hich t+o per centum !oes into the Aational Treasur$ and one per centum !oes into the treasur$ of the ?unicipalities of Ta!oloan, =pol, <illanueva and %asaan and Ca!a$an de =ro Cit$, as the case ma$ #e: 9rovided, That the said franchise tax of three per centum of the !ross earnin!s shall #e in lieu of all taxes and assessments of +hatever authorit$ upon privile!es, earnin!s, income, franchise, and poles, +ires, transformers, and insulators of the !rantee from +hich taxes and assessments the !rantee is here#$ expressl$ exempted"3 2. >ect*on 9 o- 3D 2310 $ranc/*se 4a' Section , of 9D >31 provides that 2an$ provision of special la+s to the contrar$ not+ithstandin!, the province ma$ impose a tax on #usinesses en*o$in! franchise, #ased on the !ross receipts realiBed +ithin its territorial *urisdiction, at the rate of not exceedin! one5half of one per cent of the !ross annual receipts for the precedin! calendar $ear" 'n the case of ne+l$ started #usiness, the rate shall not exceed three thousand pesos per $ear" Sixt$ per cent of the proceeds of the tax shall accrue to the !eneral fund of the province and fort$ per cent to the !eneral fund of the municipalities serviced #$ the #usiness on the #asis of the !ross annual receipts derived therefrom #$ the franchise holder" 'n the case of a ne+l$ started #usiness, fort$ per cent of the proceeds of the tax shall #e divided e4uall$ amon! the municipalities serviced #$ the #usiness"3 3. >ect*on 12 o- 3rov*nc*a1 Revenue @rd*nance 190 $ranc/*se 4a' Section of the 9rovincial Revenue =rdinance 1, provides that 2there shall #e levied, collected and paid on #usinesses en*o$in! franchise tax of one5half of one per cent of their !ross annual receipts for the precedin! calendar $ear realiBed +ithin the territorial *urisdiction of the province of ?isamis =riental"3 4. >)ec*a1 and 1oca1 statute *s not re)ea1ed by 1ater statute 5/*c/ *s "enera1 *n *ts ter(s! etc. There is no provision in 9D >31 expressl$ or impliedl$ amendin! or repealin! Section 3 of R( ;D>D" The perceived repu!nanc$ #et+een the t+o statutes should #e ver$ clear #efore the Court ma$ hold that the prior one has #een repealed #$ the later, since there is no express provision to that effect (?anila Railroad Co" vs" Raffert$, :D 9hil" >>:)" The rule is that a special and local statute applica#le to a particular case is not repealed #$ a later statute +hich is !eneral in its terms, provisions and application even if the terms of the !eneral act are #road enou!h to include the cases in the special la+ (id") unless there is manifest intent to repeal or alter the special la+" .. >)ec*a1 statutes are e'ce)t*ons to t/e "enera1 1a5 Repu#lic (cts 3>:-, 31-D and ;D>D are special la+s applica#le onl$ to C69(8C=, +hile 9D >31 is a !eneral tax la+" The presumption is that the special statutes are exceptions to the !eneral la+ (9D >31) #ecause the$ pertain to a special charter !ranted to meet a particular set of conditions and circumstances" The C69(8C=Gs franchise expressl$ exempts it from pa$ment of 2all taxes of +hatever authorit$3 except the three per centum (3I) tax on its !ross earnin!s" . ;>/a11 be *n 1*eu o- a11 ta'es and at any t*(e 1ev*ed! estab1*s/ed by! or co11ected by any aut/or*ty< construed0 8*sayan &1ectr*c ,o. case The phrase 2shall #e in lieu of all taxes and at an$ time levied, esta#lished #$, or collected #$ an$ authorit$3 found in the franchise of the <isa$an 6lectric Compan$ +as held to exempt the compan$ from pa$ment of the 1I tax on corporate franchise provided in Section >1, of the 'nternal Revenue Code (<isa$an 6lectric Co" vs" David, :, ="@" OAo" :P 13.1)" +. ;>/a11 be *n 1*eu o- a11 ta'es o- every na(e and nature< construed0 Aan*1a Ra*1road and 3/*1*))*ne Ra*15ay cases The provision: 2shall #e in lieu of all taxes of ever$ name and nature3 in the franchise of the ?anila Railroad (Su#section 1>, Section 1, (ct 111D) exempts the ?anila Railroad from pa$ment of internal revenue tax for its importations of coal and oil under (ct >:3> and the (mendator$ (cts of the 9hilippine 8e!islature (?anila Railroad vs" Raffert$, :D 9hil" >>:)" The same phrase found in the franchise of the 9hilippine
4a'at*on La5 6! 2773 ( + )
Rail+a$ Co" (Sec" 13, (ct 1:,-) *ustified the exemption of the 9hilippine Rail+a$ Compan$ from pa$ment of the tax on its corporate franchise under Section >1, of the 'nternal Revenue Code, as amended #$ R( 3, (9hilippine Rail+a$ Co" vs" Collector of 'nternal Revenue, ,1 9hil" 31)" #. ;>/a11 be *n 1*eu o- a11 ta'es< construed0 ,otabato L*"/t case Those ma!ic +ords: 2shall #e in lieu of all taxes3 also excused the Cota#ato 8i!ht and 'ce 9lant Compan$ from the pa$ment of the tax imposed #$ =rdinance - of the Cit$ of Cota#ato (Cota#ato 8i!ht and 9o+er Co" vs" Cit$ of Cota#ato, 3> SCR( >31)" 9. &'e()t*on *s )art o- *nduce(ent -or t/e acce)tance o- -ranc/*se and rend*t*on o- )ub1*c serv*ce by t/e "rantee0 ,arcar &1ectr*c G 6ce 31ant case The Court pointed out in the case of Carcar 6lectric Q 'ce 9lant vs" Collector of 'nternal Revenue (13 ="@" OAo" :P 1D;.) that such exemption is part of the inducement for the acceptance of the franchise and the rendition of pu#lic service #$ the !rantee" (s a charter is in the nature of a private contract, the imposition of another franchise tax on the corporation #$ the local authorit$ +ould constitute an impairment of the contract #et+een the !overnment and the corporation" The Court, in that case, upheld in favor of the Carcar 6lectric and 'ce 9lant Compan$ +hen it +as re4uired to pa$ the corporate franchise tax under Section >1, of the 'nternal Revenue Code, as amended #$ R( 3," 17. L*n"ayen Gu1- case0 &'e()t*on -ro( $ranc/*se 4a' The Court ruled that the franchise (R( 3.:3) of the 8in!a$en @ulf 6lectric 9o+er Compan$ +hich provided that the compan$ shall pa$ 2tax e4ual to >I per annum of the !ross receipts " " " and shall #e in lieu of an$ and all taxes " " " no+ or in the future " " " from +hich taxes " " " the !rantee is here#$ expressl$ exempted and " " " no other tax " " " other than the franchise tax of >I on the !ross receipts as provided for in the ori!inal franchise shall #e collected3 exempts the compan$ from pa$in! the franchise tax under Section >1, of the Aational 'nternal Revenue Code (Commissioner of 'nternal Revenue vs" 8in!a$en @ulf 6lectric 9o+er Co", 'nc", @"R" Ao" >3--1, (u!ust :, 1,..)" 11. &--ect o- t/e absence o- t/e ;*n-1*eu-o--a11-ta'es< c1ause The alan!a 9o+er 9lant Compan$, 'mus 6lectric Compan$, 'nc", @ua!ua 6lectric Compan$, 'nc" +ere su#*ected to the 1I tax on corporate franchise under Section >1, of the 'nternal Revenue Code, as amended, #ecause (ct ;;- of the 9hilippine Commission and the ordinance or resolutions !rantin! their respective franchises did not contain the 2in5lieu5of5all5taxes3 clause !"alanga Power Plant Co vs Commissioner of #nternal $evenue, % $ &o '()*+,,, -une .*, /,012 #mus 3lectric Co vs Court of Tax 4ppeals, % $ &o '())+)/, 5arch /6, /,072 %uagua 3lectric 'ight vs Collector of #nternal $evenue, % $ &o '().0//, 4pril )+, /,078 12. $ranc/*se 4a' *n 3D 231 *()osed on1y on co()an*es 5*t/ -ranc/*se not conta*n*n" t/e e'e()t*n" c1ause The 8ocal Tax Re!ulation 35-1 issued #$ the Secretar$ of Finance on >; %une 1,-;, has made it cr$stal clear that the franchise tax provided in the 8ocal Tax Code (9D >31, Sec" ,) ma$ onl$ #e imposed on companies +ith franchises that do not contain the exemptin! clause" 't provides that 2the franchise tax imposed under local tax ordinance pursuant to Section , of the 8ocal Tax Code, as amended, shall #e collected from #usinesses holdin! franchise #ut not from #usiness esta#lishments +hose franchise contain the Fin5lieu5of5all5taxes5provisoG"3 13. Aera1co vs. 8era does not a))1y ?anila 6lectric Compan$ vs" <era, ;- SCR( 311, is not applica#le in the present case #ecause +hat the @overnment sou!ht to impose on ?eralco in that case +as not a franchise tax #ut a compensatin! tax on the poles, +ires, transformers and insulators +hich it imported for its use"
4a'at*on La5 6! 2773 ( # )
[34] ?at*ona1 Deve1o)(ent ,o. vs. ,6R [G.R. ?o. L-.39 1. :une 37! 19#+.] 6n anc, CruB (%): 1: concurrin! $acts% The Aational Development Compan$ entered into contracts in To)$o +ith several %apanese ship#uildin! companies for the construction of 1> ocean5!oin! vessels" The purchase price +as to come from the proceeds of #onds issued #$ the Central an)" 'nitial pa$ments +ere made in cash and throu!h irrevoca#le letters of credit" 1: promissor$ notes +ere si!ned for the #alance #$ the ADC and, as re4uired #$ the ship#uilders, !uaranteed #$ the Repu#lic of the 9hilippines" 9ursuant thereto, the remainin! pa$ments and the interests thereon +ere remitted in due time #$ the ADC to To)$o" The vessels +ere eventuall$ completed and delivered to the ADC in To)$o" The ADC remitted to the ship#uilders in To)$o the total amount of 0SR:,D;;,1.D"-D as interest on the #alance of the purchase price" Ao tax +as +ithheld" The Commissioner then held the ADC lia#le on such tax in the total sum of 91,111,>3:"-:" Ae!otiations follo+ed #ut failed" The 'R thereupon served on the ADC a +arrant of distraint and lev$ to enforce collection of the claimed amount" The ADC +ent to the Court of Tax (ppeals" The 'R +as sustained #$ the CT( except for a sli!ht reduction of the tax deficienc$ in the sum of 9,DD"DD, representin! the compromise penalt$" The ADC then came to the Supreme Court in a petition for certiorari" The Supreme Court affirmed the appealed decision, +ithout an$ pronouncement as to costs" 1. >ect*on 3+ o- 4a' ,ode0 >/*)bu*1ders 1*ab1e to ta' on *nterest re(*tted to t/e( The %apanese ship#uilders +ere lia#le to tax on the interest remitted to them under Section 3- of the Tax Code ('ncome from sources +ithin the 9hilippines), +hich provides 2(a) @ross income from sources +ithin the 9hilippines" J The follo+in! items of !ross income shall #e treated as !ross income from sources +ithin the 9hilippines: (1) 'nterest" J 'nterest derived from sources +ithin the 9hilippines, and interest on #onds, notes, or other interest5#earin! o#li!ations of residents, corporate or other+ise/""3 The interest paid #$ ADC, +hich is admittedl$ a resident of the 9hilippines, is on the promissor$ notes issued #$ it" The interest remitted to the %apanese ship#uilders in %apan in 1,;D, 1,;1 and 1,;> on the unpaid #alance of the purchase price of the vessels ac4uired #$ ADC is interest derived from sources +ithin the 9hilippines su#*ect to income tax under the then Section >:(#)(1) of the Aational 'nternal Revenue Code"3 2. Govern(entEs r*"/t to 1evy and co11ect *nco(e ta' on *nterest based on source and not on act*v*ty The la+, ho+ever, does not spea) of activit$ (i"e" the si!nin! of the contract, the construction of the vessels, the pa$ment of the stipulated price, and their deliver$ to the ADC, +hich +ere done in To)$o) #ut of 2source3 ( +hich is the ADC)" ACDis a domestic and resident corporation +ith principal offices in ?anila" The @overnmentGs ri!ht to lev$ and collect income tax on interest received #$ forei!n corporations not en!a!ed in trade or #usiness +ithin the 9hilippines is not planted upon the condition that Fthe activit$ or la#or and the sale from +hich the (interest) income flo+ed had its situs3 in the 9hilippines" Aothin! in the la+ spea)s of the 2act or activit$3 of non5resident corporations in the 9hilippines, or place +here the contract is si!ned" 3. Res*dence o- ob1*"or deter(*n*n" -actor o- t/e source o- *nterest *nco(e The residence of the o#li!or +ho pa$s the interest rather than the ph$sical location of the securities, #onds or notes or the place of pa$ment, is the determinin! factor of the source of interest income" (?ertens, 8a+ of Federal 'ncome Taxation, <ol" ., p" 1>., citin! ("C" ?on) .: Co" 'nc" 1D T"C" --/ Sumitomo an), 8td", 1, T( :.D/ 6state of 8"6" ?c)innon, ; T( :1>/ Standard ?arine 'ns" Co", 8td", : T( .13/ ?arine 'ns" Co", 8td", : T( .;-)" (ccordin!l$, if the o#li!or is a resident of the 9hilippines the interest pa$ment paid #$ him can have no other source than +ithin the 9hilippines" The interest is paid not #$ the #ond, note or other interest5#earin! o#li!ations, #ut #$ the o#li!or" (See ?ertens, 'd", <ol" ., p" 1>:")
4a'at*on La5 6! 2773 ( 9 )
4. >ect*on 29(b)[4] o- t/e 4a' ,ode0 Gross *nco(e! e'c1us*ons -ro( "ross *nco(e! *nterest on "overn(ent secur*t*es Section >,(#)O:P of the Tax Code, provides 23S6C" >," @ross 'ncome" J " " " (#) 6xclusions from !ross income" J The follo+in! items shall not #e included in !ross income and shall #e exempt from taxation under this Title: (:) 'nterest on @overnment Securities" J 'nterest upon the o#li!ations of the @overnment of the Repu#lic of the 9hilippines or an$ political su#division thereof, #ut in the case of such o#li!ations issued after approval of this Code, onl$ to the extent provided in the act authoriBin! the issue thereof" ((s amended #$ Section ;, R( .>)" .. ,A 1#2 as a(ended by ,A 311! not RA 147+! aut/or*Bes *ssuance o- secur*t*es but does not e'e()t *nterests -ro( ta'es0 Cndertak*n" does not e'e()t *nterest -ro( ta'at*on The la+ invo)ed #$ ADC as authoriBin! the issuance of securities is R( 1:D-, +hich in fact is silent on this matter" C( 1.> as amended #$ C( 311 does carr$ such authoriBation #ut, li)e R( 1:D-, does not exempt from taxes the interests on such securities" Further, the underta)in! si!ned #$ the Secretar$ of Finance in each of the promissor$ notes states that 20pon authorit$ of the 9resident of the Repu#lic of the 9hilippines, the undersi!ned, for value received, here#$ a#solutel$ and unconditionall$ !uarantees, on #ehalf of the Repu#lic of the 9hilippines, the due and punctual pa$ment of #oth principal and interest3 of the note" There is nothin! in the underta)in! exemptin! the interests from taxes" Ao+here in the said underta)in! do +e find an$ inhi#ition a!ainst the collection of the disputed taxes" ADC has not esta#lished a clear +aiver therein of the ri!ht to tax interests" 4a' e'e()t*ons cannot be *()1*ed! Doubt *n -avor o- ta'*n" )o5er Tax exemptions cannot #e merel$ implied #ut must #e cate!oricall$ and unmista)a#l$ expressed" (n$ dou#t concernin! this 4uestion must #e resolved in favor of the taxin! po+er" +. Govern(ent undertak*n" *n consonance not a"a*nst t/e )rov*s*ons o- t/e 4a' ,ode0 >ect*ons .3(b)! .4 The underta)in! made #$ the !overnment is in consonance +ith and certainl$ not a!ainst the follo+in! provisions of the Tax Code, to +it: 2Sec" 13(#)" Aonresident aliens" J (ll persons, corporations and !eneral co5partnerships (companies colectivas), in +hatever capacit$ actin!, includin! lessees or mort!a!ors of real or personal capacit$, executors, administrators, receivers, conservators, fiduciaries, emplo$ers, and all officers and emplo$ees of the @overnment of the 9hilippines havin! control, receipt, custod$/ disposal or pa$ment of interest, dividends, rents, salaries, +a!es, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determina#le annual or cate!orical !ains, profits and income of an$ nonresident alien individual, not en!a!ed in trade or #usiness +ithin the 9hilippines and not havin! an$ office or place of #usiness therein, shall (except in the cases provided for in su#section (a) of this section deduct and +ithhold from such annual or periodical !ains, profits and income a tax e4ual to t+ent$ (no+ 3DI) per centum thereof: " " " "3 2Sec" 1:" 9a$ment of corporation income tax at source" J 'n the case of forei!n corporations su#*ect to taxation under this Title not en!a!ed in trade or #usiness +ithin the 9hilippines and not havin! an$ office or place of #usiness therein, there shall #e deducted and +ithheld at the source in the same manner and upon the same items as is provided in section fift$5three a tax e4ual to thirt$ (no+ 31I) per centum thereof, and such tax shall #e returned and paid in the same manner and su#*ect to the same conditions as provided in that section: " " " "3 #. Cndertak*n" o- Re)ub1*c (ere1y to "uarantee ?D,Es ob1*"at*on The underta)in! of the Repu#lic of the 9hilippines merel$ !uaranteed the o#li!ations of the ADC #ut +ithout diminution of its taxin! po+er under existin! la+s" 9. ?D, not ad(*n*strator o- -unds o- Re)ub1*c0 ?D, a cor)orat*on "overned *n *ts )ro)r*etary act*v*t*es
4a'at*on La5 6! 2773 ( +7 )
'n su!!estin! that the ADC is merel$ an administrator of the funds of the Repu#lic of the 9hilippines, the ADC closes its e$es to the nature of the entit$ as a corporation" (s such, it is !overned in its proprietar$ activities not onl$ #$ its charter #ut also #$ the Corporation Code and other pertinent la+s" 17. ?D, not be*n" ta'ed0 De-*c*ency ta'es *s )ena1ty -or -a*1ure to 5*t//o1d t/e sa(e -ro( t/e s/*)bu*1ders The ADC is not the one #ein! taxed" The tax +as due on the interests earned #$ the %apanese ship#uilders" 't +as the income of these companies and not the Repu#lic of the 9hilippines that +as su#*ect to the tax the ADC did not +ithhold" 'n effect, therefore, the imposition of the deficienc$ taxes on the ADC is a penalt$ for its failure to +ithhold the same from the %apanese ship#uilders" Such lia#ilit$ is imposed #$ Section 13(c) of the Tax Code, thus: 2Section 13(c)" Return and 9a$ment" J 6ver$ person re4uired to deduct and +ithhold an$ tax under this section shall ma)e return thereof, in duplicate, on or #efore the fifteenth da$ of (pril of each $ear, and, on of #efore the time fixed #$ la+ for the pa$ment of the tax, shall pa$ the amount +ithheld to the officer of the @overnment of the 9hilippines authoriBed to receive it" 6ver$ such person is made personall$ lia#le for such tax, and is indemnified a!ainst the claims and demands of an$ person for the amount of an$ pa$ments made in accordance +ith the provisions of this section" ((s amended #$ Section ,, R( >3:3")3 11. Res)ons*b*1*t*es o- 5*t//o1d*n" a"ents0 ?D, re(*ss *n d*sc/ar"e o- ob1*"at*on as 5*t//o1d*n" a"ent 'n 9hilippine @uarant$ Co" v" The Commissioner of 'nternal Revenue and the Court of Tax (ppeals, the Court 4uoted +ith approval the re!ulation of the 'R on the responsi#ilities of +ithholdin! a!ents, to +it: 2'n case of dou#t, a +ithholdin! a!ent ma$ al+a$s protect himself #$ +ithholdin! the tax due, and promptl$ causin! a 4uer$ to #e addressed to the Commissioner of 'nternal Revenue for the determination +hether or not the income paid to an individual is not su#*ect to +ithholdin!" 'n case the Commissioner of 'nternal Revenue decides that the income paid to an individual is not su#*ect to +ithholdin!, the +ithholdin! a!ent ma$ thereupon remmit the amount of tax +ithheld"3 (>nd par", Sec" >DD, 'ncome Tax Re!ulations)" Strict o#servance of said steps is re4uired of a +ithholdin! a!ent #efore he could #e released from lia#ilit$,3 so said %ustice %ose 9" en!son, +ho +rote the decision" 2@enerall$, the la+ fro+ns upon exemption from taxation/ hence, an exemptin! provision should #e construed strictissimi *uris"3 'n the present case, ADC +as remiss in the dischar!e of its o#li!ation as the +ithholdin! a!ent of the !overnment and so should #e held lia#le for its omission" [3.] ?*ta-an v. ,o((*ss*oner o- 6nterna1 Revenue [GR L-+#+#7! 23 :u1y 19#+]0 Reso1ut*on 6n anc, ?elencio5&errera (p): 1> concur, 1 on leave $acts% The Chief %ustice has previousl$ issued a directive to the Fiscal ?ana!ement and ud!et =ffice to continue the deduction of +ithholdin! taxes from salaries of the %ustices of the Supreme Court and other mem#ers of the *udiciar$" This +as affirmed #$ the Supreme Court en #anc on : Decem#er 1,.-" 9etitioners are the dul$ appointed and 4ualified %ud!es presidin! over ranches 1>, 1, and 13, respectivel$, of the RTC, Aational Capital %udicial Re!ion, all +ith stations in ?anila" The$ see) to prohi#it andKor perpetuall$ en*oin the Commissioner of 'nternal Revenue and the Financial =fficer of the Supreme Court, from ma)in! an$ deduction of +ithholdin! taxes from their salaries" Hith the filin! of the petition, the Court deemed it #est to settle the issue throu!h *udicial pronouncement, even if it had dealt +ith the matter administrativel$" The Supreme Court dismissed the petition for prohi#ition" 1. 6ntent to de1ete e')ress "rant o- e'e()t*on o- *nco(e ta'es to (e(bers o- :ud*c*ary The salaries of mem#ers of the %udiciar$ are su#*ect to the !eneral income tax applied to all
4a'at*on La5 6! 2773 ( +1 )
taxpa$ers" This intent +as someho+ and inadvertentl$ not clearl$ set forth in the final text of the Constitution as approved and ratified in Fe#ruar$, 1,.- (infra, pp" -5.)" (lthou!h the intent ma$ have #een o#scured #$ the failure to include in the @eneral 9rovisions a proscription a!ainst exemption of an$ pu#lic officer or emplo$ee, includin! constitutional officers, from pa$ment of income tax, the Court since then has authoriBed the continuation of the deduction of the +ithholdin! tax from the salaries of the mem#ers of the Supreme Court, as +ell as from the salaries of all other mem#ers of the %udiciar$" The Court here#$ ma)es of record that it had then discarded the rulin! in 9erfecto vs" ?eer and 6ndencia vs" David" The 1,-3 Constitution has provided that 2no salar$ or an$ form of emolument of an$ pu#lic officer or emplo$ee, includin! constitutional officers, shall #e exempt from pa$ment of income tax (Section ;, (rticle N<)3 +hich +as not present in the 1,.- Constitution" The deli#erations of the 1,.; Constitutional Commission relevant to Section 1D, (rticle <''' (The salar$ of the Chief %ustice and of the (ssociate %ustices of the Supreme Court, and of *ud!es of lo+er courts shall #e fixed #$ la+" Durin! their continuance in office, their salar$ shall not #e decreased), ne!ate the contention that the intent of the framers is to revert to the ori!inal concept of 2non5diminution3 of salaries of *udicial officers" 2. &9ua1*ty o- branc/es o- "overn(ent e--ected by (od*-*cat*ons *n )rov*s*on The term 2diminished3 #e chan!ed to 2decreased3 and that the +ords 2nor su#*ected to income tax3 #e deleted so as to !ive su#stance to e4ualit$ amon! the three #ranches in the !overnment" ( period (") after 2decreased3 +as made on the understandin! that the salar$ of *ustices is su#*ect to tax" Hith the period, the doctrine in 9erfecto vs" ?eer and 6ndencia vs" David is understood not to appl$ an$more" %ustices and *ud!es are not onl$ the citiBens +hose income have #een reduced in acceptin! service in !overnment and $et su#*ected to income tax" Such is true also of Ca#inet mem#ers and all other emplo$ees" 3. ,onst*tut*ona1 construct*on ado)ts t/e *ntent o- t/e -ra(ers and )eo)1e ado)t*n" t/e 1a5 The ascertainment of the intent is #ut in )eepin! +ith the fundamental principle of constitutional construction that the intent of the framers of the or!anic la+ and of the people adoptin! it should #e !iven effect" The primar$ tas) in constitutional construction is to ascertain and thereafter assure the realiBation of the purpose of the framers and of the people in the adoption of the Constitution" 't ma$ also #e safel$ assumed that the people in ratif$in! the Constitution +ere !uided mainl$ #$ the explanation offered #$ the framers" 'n the case at #ar, Section 1D, (rticle <''' is plain that the Constitution authoriBes Con!ress to pass a la+ fixin! another rate of compensation of %ustices and %ud!es #ut such rate must #e hi!her than that +hich the$ are receivin! at the time of enactment, or if lo+er, it +ould #e applica#le onl$ to those appointed after its approval" 't +ould #e a strained construction to read into the provision an exemption from taxation in the li!ht of the discussion in the Constitutional Commission" [3 ] 3/*1*))*ne Acety1ene vs. ,6R [G.R. ?o. L-19+7+. Au"ust 1+! 19 +.] 6n anc, Castro (%): - concurrin!, > too) no part $acts% 9hilippine (cet$lene Co" 'nc" is a corporation en!a!ed in the manufacture and sale of ox$!en and acet$lene !ases" Durin! the period from > %une 1,13 to 3D %une 1,1., it made various sales of its products to the Aational 9o+er Corporation, an a!enc$ of the 9hilippine @overnment, and to the <oice of (merica, an a!enc$ of the 0nited States @overnment" The sales to the A9C amounted to 91:1,.;;"-D, +hile those to the <=( amounted to 91,;.3, on account of +hich the Commission of 'nternal Revenue assessed a!ainst, and demanded from, the compan$ the pa$ment of 91>,,1D";D as deficienc$ sales tax and surchar!e, pursuant to the Sections 1.3 and 1.; of the Aational 'nternal Revenue Code" The compan$ denied lia#ilit$ for the pa$ment of the tax on the !round that #oth the Aapocor and the <=( are exempt from taxation" 't as)ed for a reconsideration of the assessment and, failin! to secure one, appealed to the Court of Tax (ppeals" The CT( ruled that the tax on the sale of articles or !oods in section 1.; of the Code is a tax on the manufacturer and not on the #u$er +ith the result that the 2 9hilippine (cet$lene Compan$, the manufacturer or producer of
4a'at*on La5 6! 2773 ( +2 )
ox$!en and acet$lene !ases sold to the Aapocor, cannot claim exemption from the pa$ment of sales tax simpl$ #ecause its #u$er, Aapocor, is exempt from the pa$ment of all taxes"3 Hith respect to the sales made to the <=(, the court held that !oods purchased #$ the (merican @overnment or its a!encies from manufacturers or producers are exempt from the pa$ment of the sales tax under the a!reement #et+een the @overnment of the 9hilippines and that of the 0nited States, provided the purchases are supported #$ certificates of exemption, and since purchases amountin! to onl$ 911., out of a total of 91,;.3, +ere not covered #$ certificates of exemption, onl$ the sales in the sum of 911. +ere su#*ect to the pa$ment of tax" (ccordin!l$, the assessment +as revised and the compan$Gs lia#ilit$ +as reduced from 91>,,1D";D, as assessed #$ the Commission, to 91>,.1>"1;" &ence, the appeal #$ the compan$" The Supreme Court modified the decision a 4uo #$ orderin! the compan$ to pa$ to the Commission the amount of 91>,,1D";D as sales tax and surchar!e, +ith costs a!ainst the compan$" 1. >ect*on 1# o- t/e ?at*ona1 6nterna1 Revenue ,ode0 3ercenta"e ta' on sa1es o- ot/er art*c1es Section 1.; provides that 2there shall #e levied, assessed and collected once onl$ on ever$ ori!inal sale, #arter, exchan!e, and similar transaction either for nominal or valua#le considerations, intended to transfer o+nership of, or title to, the articles not enumerated in sections one hundred and ei!ht$5 four and one hundred and ei!ht$5five a tax e4uivalent to seven per centum of the !ross sellin! price or !ross value in mone$ of the articles so sold, #artered, exchan!ed, or transferred, such tax to #e paid #$ the manufacturer or producer: " " "3 2. >ect*on 1#3 o- t/e ?at*ona1 6nterna1 Revenue ,ode0 3ay(ent o- )ercenta"e ta'es Section 1.; provides that 2'n !eneral" J 't shall #e the dut$ of ever$ person conductin! a #usiness on +hich a percenta!e tax is imposed under this Title, to ma)e a true and complete return of the amount of his, her or its !ross monthl$ sales, receipts or earnin!s, or !ross value of output actuall$ removed from the factor$ or mill +arehouse and +ithin t+ent$ da$s after the end of each month, pa$ the tax due thereon: 9rovided, That an$ person retirin! from a #usiness su#*ect to the percenta!e tax shall notif$ the nearest internal revenue officer thereof, file his return or declaration and pa$ the tax due thereon +ithin t+ent$ da$s after closin! his #usiness" 'f the percenta!e tax on an$ #usiness is not paid +ithin the time specified a#ove, the amount of the tax shall #e increased #$ t+ent$5five per centum, the increment to #e a part of the tax"3 3. ?a)ocorEs ta' e'e()t*on The Aapocor en*o$s tax exemption #$ virtue of an act of Con!ress, +hich provides 2To facilitate the pa$ment of its inde#tedness, the Aational 9o+er Corporation shall #e exempt from all taxes, except real propert$ tax, and from all duties, fees, imposts, char!es, and restrictions of the Repu#lic of the 9hilippines, its provinces, cities and municipalities (Section >)"3 4. >a1es ta' )a*d by (anu-acturer or )roducer Statutes of the t$pe under consideration, +hich impose a tax on sales, have #een descri#ed as 2actOsP +ith schiBophrenic s$mptoms,3 as the$ apparentl$ have t+o faces J one that of a vendor tax, the other, a vendee tax" Fortunatel$, the provisions of the Code thro+ some li!ht on the pro#lem" The Code states that the sales tax 2shall #e paid #$ the manufacturer or producer,3 +ho must 2ma)e a true and complete return of the amount of his, her or its !ross monthl$ sales, receipts or earnin!s or !ross value of output actuall$ removed from the factor$ or mill +arehouse and +ithin t+ent$ da$s after the end of each month, pa$ the tax due thereon"3 .. Las/ 3roducts vs. C>0 ;3assed t/e ta' on< *naccurate accord*n" to :ust*ce Ho1(es ?an$ $ears a!o, ?r" %ustice =liver Hendell &olmes expressed dissatisfaction +ith the use of the phrase 2pass the tax on"3 Hritin! the opinion of the 0"S" Supreme Court in 8ashGs 9roducts vs" 0nited States, he said: 2The phrase Fpassed the tax onG is inaccurate, as o#viousl$ the tax is laid and remains on the manufacturer and on him alone" The purchaser does not reall$ pa$ the tax" &e pa$s or ma$ pa$ the seller more
4a'at*on La5 6! 2773 ( +3 )
for the !oods #ecause of the sellerGs o#li!ation, #ut that is all"" The price is the sum total paid for the !oods" The amount added #ecause of the tax is paid to !et the !oods and for nothin! else" Therefore it is part of the price " " "3 3an/and1e @*1 v. A*ss*ss*))* 0 Doctr*ne o- *nter"overn(enta1 ta' *((un*ty 'n 9anhandle =il Co" vs" ?ississippi, the doctrine of inter!overnmental tax immunit$ +as held as prohi#itin! the imposition of a tax on sales of !asoline made to the Federal @overnment" Said the Supreme Court of the 0nited States: 2( char!e at the prescri#ed rate is made on account of ever$ !allon ac4uired #$ the 0nited States" 't is immaterial that the seller and not the purchaser is re4uired to report and ma)e pa$ment to the state" Sale and purchase constitute a transaction #$ +hich the tax is measured and on +hich the #urden rests " " " The necessar$ operation of these enactments +hen so construed is directl$ to retard, impede and #urden the exertion #$ the 0nited States, of its constitutional po+ers to operate the fleet and hospital " " " To use the num#er of !allons sold the 0nited States as a measure of the privile!e tax is in su#stance and le!al effect to tax the sale"" (nd that is to tax the 0nited States J to exact tri#ute on its transactions and appl$ the same to the support of the state"3 %ustice &olmes did not a!ree" +. 3and/and1e @*1 case0 D*ssent o- :ust*ce Ho1(es %ustice &olmes did not a!ree" 'n a po+erful dissent *oined #$ %ustice randeis and Stone, he said: 2'f the plaintiff in error had paid the tax and added it to the price the !overnment +ould have nothin! to sa$" 't could ta)e the !asoline or leave it #ut it could not re4uire the seller to a#ate his char!e even if it had #een ar#itraril$ increased in the hope of !ettin! more from the !overnment than could #e !ot from the pu#lic at lar!e " " " 't does not appear that the !overnment +ould have refused to pa$ a price that included the tax if demanded, #ut if the !overnment had refused it +ould not have exonerated the seller " " " ' am not a+are that the 9resident, the ?em#ers of the Con!ress, the %udiciar$ or to come nearer to the case at hand, the Coast @uard or the officials of the <eteransG &ospital Oto +hich the sales +ere madeP, #ecause the$ are instrumentalities of !overnment and cannot function na)ed and unfed, hitherto have #een held entitled to have their #ills for food and clothin! cut do+n so far as their #utchers and tailors have #een taxed on their sales/ and ' had not supposed that the #utchers and tailors could omit from their tax returns all receipts from the lar!e class of customers to +hich ' have referred" The 4uestion of interference +ith @overnment, ' repeat, is one of reasona#leness and de!ree and it seems to me that the interference in this case is too remote"3 #. :a(es vs. Dravo ,onstruct*on0 ,ases d*st*n"u*s/ed and 1*(*ted to t/e*r )art*cu1ar -acts 't #ecame o#vious later on that to test the constitutionalit$ of a statute #$ determinin! the part$ on +hich the le!al incidence of the tax fell +as an unsatisfactor$ +a$ of doin! thin!s" The fall of the #astion +as si!nalled #$ Chief %ustice &u!hesG statement in %ames vs" Dravo Constructin! Co" that 2These cases Oreferrin! to 9anhandle and 'ndian ?otorc$cle Co" vs" 0nited States, >.3 0"S" 1-D (1,31)P have #een distin!uished and must #e deemed to #e limited to their particular facts"3 9. A1aba(a vs. I*n" and BooBer0 Govern(ent *((un*ty -ro( state ta'at*on not *n-r*n"ed by *()os*t*on o- state sa1es ta' c/ar"eab1e and co11ected by se11er -ro( buyer 'n 1,:1, (la#ama vs" Tin! Q ooBer held that the constitutional immunit$ of the 0nited States from state taxation +as not infrin!ed #$ the imposition of a state sales tax +ith +hich the seller +as char!ea#le #ut +hich he +as re4uired to collect from the #u$er, in respect of materials purchased #$ a contractor +ith the 0nited States on a cost5plus #asis for use in carr$in! out its contract, despite the fact that the economic #urden of the tax +as #orne #$ the 0nited States" 't +as therein that 2the asserted ri!ht of the one to #e free of taxation #$ the other does not spell immunit$ from pa$in! the added costs, attri#uta#le to the taxation of those +ho furnish supplies to the @overnment and +ho have #een !ranted no tax immunit$" So far as a different vie+ has prevailed, see 9anhandle =il Co" vs" ?ississippi and @raves vs" Texas Co", supra, +e thin) it no lon!er tena#le"3 17. >ubse9uent cases a-ter 3an/and1e @*10 6((un*ty -ro( state re"u1at*on does not e'tend to t/ose
4a'at*on La5 6! 2773 ( +4 )
contracted Further inroads into the doctrine of 9anhandle +ere made in 1,:3 +hen the 0" S" Supreme Court held that immunit$ from state re!ulation in the performance of !overnmental functions #$ Federal officers and a!encies did not extend to those +ho merel$ contracted to furnish supplies or render services to the @overnment even thou!h as a result of an increase in the price of such supplies or services attri#uta#le to the state re!ulation, its ultimate effect ma$ #e to impose an additional economic #urden on the @overnment" 11. &sso >tandard @*1 vs. &vans! ,ontractor not e'e()t -ro( )ay(ent o- state )r*v*1e"e ta' 'n 1,1>, in 6sso Standard =il vs" 6vans, it +as held that a contractor is not exempt from the pa$ment of a state privile!e tax on the #usiness of storin! !asoline simpl$ #ecause the Federal @overnment +ith +hich it has a contract for the stora!e of !asoline is immune from state taxation" The Court said therein, 2This tax +as imposed #ecause 6sso stored !asoline" 't is not"" #ased on the +orth of the !overnment propert$" 'nstead, the amount collected is !raduated in accordance +ith the exercise of 6ssoGs privile!e to en!a!e in such operations/ so it is not FonG the federal propert$ " " " Federal o+nership of the fuel +ill not immuniBe such a private contractor from the tax on stora!e" 't ma$ !enerall$, as it did here, #urden the 0nited States financiall$" ut since %ames vs" Dravo Contractin! Co", 3D> 0"S" 13:, 111, .> 8 ed 111, 1;-, 1. S Ct >D., 11: (8R 31., this has #een no fatal fla+ " " "3 12. Rev*e5 o- t/e doctr*ne enunc*ated *n 3an/and1e @*1 case (s Thomas Reed 9o+ell noted in 1,:1 in revie+in! the development of the doctrine: 2Since the Dravo case settled that it does not matter that the economic #urden of the !ross receipt tax ma$ #e shifted to the @overnment, it could hardl$ matter that the shift comes a#out #$ explicit a!reement coverin! taxes rather than #$ #ein! a#sor#ed in a hi!her contract price #$ #idders for a contract" The situation differed from that in the 9anhandle and similar cases in that the$ involved #ut t+o parties +hereas here the transaction +as tripartite" These cases are condemned in so far as the$ rested on the economic !round of the ultimate incidence of the #urden #ein! on the @overnment, #ut this condemnation still leaves open the 4uestion +hether either the state or the 0nited States +hen actin! in !overnmental matters ma$ #e made le!all$ lia#le to the other for a tax imposed on it as vendee" 2The carefull$ chosen lan!ua!e of the Chief %ustice )eeps these cases from foreclosin! the issue " " " Eet at the time it +ould have #een a rash man +ho +ould find in this a dictum that a sales tax clearl$ on the @overnment as purchaser is invalid or a dictum that Con!ress ma$ immuniBe its contractors"3 13. &cono(*c burden o- ta' eventua11y -a11s on t/e )urc/aser0 >a1es ta' no 1on"er ta' on )urc/aser 't ma$ indeed #e that the economic #urden of the tax finall$ falls on the purchaser/ +hen it does the tax #ecomes a part of the price +hich the purchaser must pa$" 't does not matter that an additional amount is #illed as tax to the purchaser" The method of listin! the price and the tax separatel$ and definin! taxa#le !ross receipts as the amount received less the amount of the tax added, merel$ avoids pa$ment #$ the seller of a tax on the amount of the tax" The effect is still the same, namel$, that the purchaser does not pa$ the tax" &e pa$s or ma$ pa$ the seller more for the !oods #ecause of the sellerGs o#li!ation, #ut that is all and the amount added #ecause of the tax is paid to !et the !oods and for nothin! else" ut the tax #urden ma$ not even #e shifted to the purchaser at all" ( decision to a#sor# the #urden of the tax is lar!el$ a matter of economics" Then it can no lon!er #e contended that a sales tax is a tax on the purchaser" 14. Levy on sa1es (ade to ta'-e'e()t ent*t*es *s )er(*ss*b1e The tax imposed #$ section 1.; of the Aational 'nternal Revenue Code is a tax on the manufacturer or producer and not a tax on the purchaser except pro#a#l$ in a ver$ remote and inconse4uential sense" (ccordin!l$ its lev$ on the sales made to tax5exempt entities li)e the A9C is permissi#le" 1.. Art*c1e 8 o- t/e A"ree(ent bet5een t/e Re)ub1*c o- t/e 3/*1*))*nes and t/e Cn*ted >tates oA(er*ca ,oncern*n" A*1*tary Bases0 &'e()t*on -ro( ,usto(s and @t/er Dut*es The (!reement provides that 2Ao import, excise, consumption or other tax, dut$ or impost shall #e
4a'at*on La5 6! 2773 ( +. )
char!ed on material, e4uipment, supplies or !oods, includin! food stores and clothin!, for exclusive use in the construction, maintenance, operation or defense of the #ases, consi!ned to, or destined for, the 0nited States authorities and certified #$ them to #e for such purposes"3 1 . Art*c1e H8666 o- t/e A"ree(ent bet5een t/e Re)ub1*c o- t/e 3/*1*))*nes and t/e Cn*ted >tates o- A(er*ca ,oncern*n" A*1*tary Bases0 >a1es and >erv*ces 5*t/*n t/e bases The (!reement provides that 2't is mutuall$ a!reed that the 0nited States shall have the ri!ht to esta#lish on #ases, free of all licenses/ fees/ sales, excise or other taxes, or imposts/ @overnment a!encies, includin! concessions, such as sales from commissaries and post exchan!es, messes and social clu#s, for the exclusive use of the 0nited States militar$ forces and authoriBed civilian personnel and their families" The merchandise or services sold or dispensed #$ such a!encies shall #e free of all taxes, duties and inspection #$ the 9hilippine authorities " " "3 1+. A"ree(ent -oes not conta*n "enera1 e'e()t*on "ranted by ,*rcu1ar 8-41 dated 1 @ctober 194+ @eneral Circular Ao" <5:1, dated 1; =cto#er 1,:- provides that 2@oods purchased locall$ #$ 0"S" civilian a!encies directl$ from manufacturers, producers, or importers shall #e exempt from the sales tax"3 Said circular +as issued purportedl$ to implement the (!reement #et+een the Repu#lic of the 9hilippines and the 0nited States of (merica Concernin! ?ilitar$ ases, #ut there is nothin! in the lan!ua!e of the (!reement to +arrant the !eneral exemption !ranted #$ that circular" Thus onl$ sales made 2for exclusive use in the construction, maintenance, operation or defense of the #ases,3 in a +ord, onl$ sales to the 4uartermaster, are exempt under article < from taxation" Sales of !oods to an$ other part$ even if it #e an a!enc$ of the 0nited States, such as the <=(, or even to the 4uartermaster #ut for a different purpose, are not free from the pa$ment of the tax" =n the other hand, article N<''' exempts from the pa$ment of the tax sales made +ithin the #ases #$ (not sales to) commissaries and the li)e in reco!nition of the principle that a sales tax is a tax on the seller and not on the purchaser" 1#. 4a' e'e()t*on str*ct1y construed0 &')ans*ve construct*on o- ta' e'e()t*on *n a"ree(ent vo*d Tax exemption must #e strictl$ construed and that the exemption +ill not #e held to #e conferred unless the terms under +hich it is !ranted clearl$ and distinctl$ sho+ that such +as the intention of the parties" &ence, in so far as the circular of the ureau of 'nternal Revenue +ould !ive the tax exemptions in the (!reement an expansive construction it is void" The sales to the <=( are su#*ect to the pa$ment of percenta!e taxes under section 1.; of the Code" 19. 3ro)er co()utat*on o- t/e co()anyEs 1*ab*1*ty The compan$ is thus lia#le for computed as follo+s:
Sales to A9C 91:1,.;;"-D Sales to <=( 91,;.3"DD JJJJJ Total sales su#*ect to tax 91:-,1:,"-D VVVVVVVVV -I sales tax due thereon 91D,3>.":. (dd: >1I surchar!e 9>,1.>"1> JJJJJ Total amount due and collecti#le 91>,,1D";D VVVVVVVVV [3+] 3/*1*))*ne A*r1*nes vs. &du [G.R. ?o. L-413#3. Au"ust 1.! 19##.] 6n anc, @utierreB %r" (%): 13 concurrin!
4a'at*on La5 6! 2773 ( + )
$acts% The 9hilippine (irlines (9(8) is a corporation or!aniBed and existin! under the la+s of the 9hilippines and en!a!ed in the air transportation #usiness under a le!islative franchise, (ct :>-1, as amended #$ R( >3;D and >;;-" 0nder its franchise, 9(8 is exempt from the pa$ment of taxes" =n the stren!th of an opinion of the Secretar$ of %ustice (=p" Ao" 3D-, series of 1,1;) 9(8 has, since 1,1;, not #een pa$in! motor vehicle re!istration fees" Sometime in 1,-1, ho+ever, Commissioner Romeo F" 6du, in his capacit$ as 8and Transportation Commissioner, issued a re!ulation re4uirin! all tax exempt entities, amon! them 9(8 to pa$ motor vehicle re!istration fees" This is pursuant to Section ., R( :13;, other+ise )no+n as the 8and Transportation and Traffic Code" Despite 9(8Gs protestations, Commissioner 6du refused to re!ister the appellantGs motor vehicles unless the amounts imposed under R( :13; +ere paid" 9(8 thus paid, under protest, the amount of 91,,1>,"-1 as re!istration fees of its motor vehicles" (fter pa$in! under protest, 9(8 throu!h counsel, +rote a letter dated 1, ?a$ 1,-1, to Commissioner 6du demandin! a refund of the amounts paid, invo)in! the rulin! in Calalan! v" 8orenBo (,- 9hil" >1> O1,11P) +here it +as held that motor vehicle re!istration fees are in realit$ taxes from the pa$ment of +hich 9(8 is exempt #$ virtue of its le!islative franchise" Commissioner 6du denied the re4uest for refund #asin! his action on the decision in Repu#lic v" 9hilippine Ra##it us 8ines, 'nc", (3> SCR( >11, ?arch 3D, 1,-D) to the effect that motor vehicle re!istration fees are re!ulator$ exactions and not revenue measures and, therefore, do not come +ithin the exemption !ranted to 9(8 under its franchise" &ence, 9(8 filed the complaint a!ainst Commissioner 6du and Aational Treasurer 0#aldo Car#onell +ith the CF' RiBal, ranch 1. (Civil Case C511.;>") =n >: (pril 1,-3, the trial court rendered a decision dismissin! the 9(8Gs complaint 2!uided #$ the later rulin! laid do+n #$ the Supreme Court in the case of Repu#lic v" 9hilippine Ra##it us 8ines, 'nc" (supra)"3 From this *ud!ment, 9(8 appealed to the Court of (ppeals +hich certified the case to the Supreme Court" The Supreme Court partiall$ !ranted the petition, and denied the refund of re!istration fees paid in 1,-1" The 8and Transportation Franchisin! and Re!ulator$ oard (8TFR ) +as en*oined from collectin! an$ tax, fee, or other char!e on the re!istration and licensin! of the petitionerGs motor vehicles from , (pril 1,-, as provided in 9D 11,D" 1. >ect*on 13 o- t/e 3AL -ranc/*se (Act 42+1! as a(ended by RA 23 7 and 2 +) The franchise provides that 2 'n consideration of the franchise and ri!hts here#$ !ranted, the !rantee shall pa$ to the Aational (@overnment durin! the life of this franchise a tax of t+o per cent of the !ross revenue or !ross earnin! derived #$ the !rantee from its operations under this franchise" Such tax shall #e due and pa$a#le 4uarterl$ and shall #e in lieu of all taxes of an$ )ind, nature or description, levied, esta#lished or collected #$ an$ municipal, provincial or national authorit$/ 9rovided, that if, after the audit of the accounts of the !rantee #$ the Commissioner of 'nternal Revenue, a deficienc$ tax is sho+n to #e due, the deficienc$ tax shall #e pa$a#le +ithin the ten da$s from the receipt of the assessment" The !rantee shall pa$ the tax on its real propert$ in conformit$ +ith existin! la+"3 2. Re)ub1*c vs. 3/*1*))*ne Rabb*t Bus L*nes0 Re"*strat*on -ee an e'erc*se o- )o1*ce )o5er and not ta'! back)ay cert*-*cates cannot be used to (eet ob1*"at*on The re!istration fee +as imposed #$ Section . of the Revised ?otor <ehicle 8a+ (R( 1.- O1,1DP)" 'ts headin! spea)s of re!istration fees"G The term is repeated four times in the #od$ thereof" 64uall$ so, mention is made of the Ffee for re!istration"G ('#id", Su#section @) ( su#section starts +ith a cate!orical statement Ao fees shall #e char!ed"G ('#id", Su#section &) The conclusion is difficult to resist therefore that the ?otor <ehicle (ct re4uires the pa$ment not of a tax #ut of a re!istration fee under the police po+er" &ence the inapplica#ilit$ of the section relied upon #$ defendant5appellee under the ac) 9a$ 8a+" 't is not held lia#le for a tax #ut for a re!istration fee" 't therefore cannot ma)e use of a #ac)pa$ certificate to meet such an o#li!ation" 3. Re)ub1*c vs. 3/*1*))*ne Rabb*t Bus L*nes0 RA .44# e')1*c*t *n enact*n" re"u1atory (easure Section 3 of R( 1::. O1,;.P as to the imposition of additional tax on privatel$5o+ned passen!er
4a'at*on La5 6! 2773 ( ++ )
automo#iles, motorc$cles and scooters +as amended #$ R( 1:-D +hich +as approved on 3D ?a$ 1,;,") ( special science fund +as there#$ created and its title expressl$ sets forth that a tax on privatel$5o+ned passen!er automo#iles, motorc$cles and scooters +as imposed" The rates thereof +ere provided for in its Section 3 +hich clearl$ specifies that additional tax +as to #e paid as distin!uished from the re!istration fee under the ?otor <ehicle (ct" There cannot #e an$ clearer expression therefore of the le!islative +ill, even on the assumption that the earlier le!islation could #$ stretchin! the point #e suscepti#le of the interpretation that a tax rather than a fee +as levied" Hhat is thus most apparent is that +here the le!islative #od$ relies on its authorit$ to tax it expressl$ so states, and +here it is enactin! a re!ulator$ measure, it is e4uall$ explicit"3 4. ,a1a1an" vs. LorenBo *n contrast 5*t/ Re)ub1*c vs. 3RBL 'n Calalan! v" 8orenBo (supra), it +as held that 2the char!es prescri#ed #$ the Revised ?otor <ehicle 8a+ for the re!istration of motor vehicles are in section . of that la+ called fees"G ut the appellation is no impediment to their #ein! considered taxes if taxes the$ reall$ are" For not the name #ut the o#*ect of the char!e determines +hether it is a tax or a fee" @enerall$ spea)in!, taxes are for revenue, +hereas fees are exactions for purposes of re!ulation and inspection and are for that reason limited in amount to +hat is necessar$ to cover the cost of the services rendered in that connection" &ence, Fa char!e fixed #$ statute for the service to #e performed #$ an officer, +here the char!e has no relation to the value of the services performed and +here the amount collected eventuall$ finds its +a$ into the treasur$ of the #ranch of the !overnment +hose officer or officers collected the char!e, is not a fee #ut a tax"G (Coole$ on Taxation, <ol" 1, :th ed", p" 11D") .. ,a1a1an" case% Aotor 8e/*c1e La5! &')end*tures (ere1y .J o- co11ected re"*strat*on -ees! )o*nts to conc1us*on t/at suc/ -ees are *n t/e nature o- ta' The expenditures of the ?otor <ehicle =ffice are #ut a small portion J a#out 1 per centum J of the total collections from motor vehicle re!istration fees" (nd as proof that the mone$ collected is not intended for the expenditures of that office, the la+ itself provides that all such mone$ shall accrue to the funds for the construction and maintenance of pu#lic roads, streets and #rid!es" 't is thus o#vious that the fees are not collected for re!ulator$ purposes as an incident to the enforcement of re!ulations !overnin! the operation of motor vehicles on pu#lic hi!h+a$s, for their express o#*ect is to provide revenue +ith +hich the @overnment is to dischar!e one of its principal functions J the construction and maintenance of pu#lic hi!h+a$s for ever$#od$Gs use" The$ are verita#le taxes, not merel$ fees" ,a1a1an" case% Rev*sed Aotor 8e/*c1e La5! -ees are *n t/e cate"ory o- ta'es The Revised ?otor <ehicle 8a+ itself re!ards those fees as taxes, for it provides that Fno other taxes or fees than those prescri#ed in this (ct shall #e imposed,G thus impl$in! that the char!es therein imposed J thou!h called fees J are of the cate!or$ of taxes" The provision is contained in section -D, of su#section (#), of the la+, as amended #$ section 1- of R( 1.-, provides that 2Ao other taxes or fees than those prescri#ed in this (ct shall #e imposed for the re!istration or operation or on the o+nership of an$ motor vehicle, or for the exercise of the profession of chauffeur, #$ an$ municipal corporation, the provisions of an$ cit$ charter to the contrar$ not+ithstandin!: 9rovided, ho+ever, That an$ provincial #oard, cit$ or municipal council or #oard, or other competent authorit$ ma$ exact and collect such reasona#le and e4uita#le toll fees for the use of such #rid!es and ferries, +ithin their respective *urisdiction, as ma$ #e authoriBed and approved #$ the Secretar$ of 9u#lic Hor)s and Communications, and also for the use of such pu#lic roads, as ma$ #e authoriBed #$ the 9resident of the 9hilippines upon the recommendation of the Secretar$ of 9u#lic Hor)s and Communications, #ut in none of these cases, shall an$ toll fees #e char!ed or collected until and unless the approved schedule of tolls shall have #een posted le!i#l$ in a conspicuous place at such toll station"3 +. 3ro)er 1a5s a))1*cab1e *n t/e )resent case ?otor vehicle re!istration fees +ere matters ori!inall$ !overned #$ the Revised ?otor <ehicle 8a+ ((ct 3,,> O1,3>P as amended #$ Common+ealth (ct 1>3 and R( 1.- and 1;D3)" Toda$, the matter is !overned #$ R( :13; O1,;:P other+ise )no+n as the 8and Transportation Code, (as amended #$ R( 1-11
4a'at*on La5 6! 2773 ( +# )
and ;3-:, 9D 3.>, .:3, .,;, 1D1- and 9 :3, -: and 3,.)" #. >ect*on +3 o- ,A 123 unrev*sed by RA .#+ and 1 730 D*s)osa1 o- Aoneys co11ected Section -3 of Common+ealth (ct 1>3 (+hich amended Sec" -3 of (ct 3,,> and remained unrevised #$ R( 1.- and 1;D3) states that, on Disposal of mone$s collected, 2t+ent$ per centum of the mone$ collected under the provisions of this (ct shall accrue to the road and #rid!e funds of the different provinces and chartered cities in proportion to the cedula sales durin! the next previous $ear and the remainin! ei!ht$ per centum shall #e deposited in the 9hilippine Treasur$ to create a special fund for the construction and maintenance of national and provincial roads and #rid!es, as +ell as the streets and #rid!es in the chartered cities to #e alloted #$ the Secretar$ of 9u#lic Hor)s and Communications for pro*ects recommended #$ the Director of 9u#lic Hor)s in the different provinces and chartered cities " " "3 9. >ect*on 1 o- t/e Land 4rans)ortat*on and 4ra--*c ,ode0 D*s)osa1 o- (on*es co11ected 9resentl$, Section ;1 of the 8and Transportation and Traffic Code provides, on the disposal of monies collected, that 2?onies collected under the provisions of this (ct shall #e deposited in a special trust account in the Aational Treasur$ to constitute the &i!h+a$ Special Fund, +hich shall #e apportioned and expended in accordance +ith the provisions of the F9hilippine &i!h+a$ (ct of 1,31"G 9rovided, ho+ever, That the amount necessar$ to maintain and e4uip the 8and Transportation Commission #ut not to exceed t+ent$ per cent of the total collection durin! one $ear, shall #e set aside for the purpose" ((s amended #$ R( ;3-:, approved (u!ust ; 1,-1)"3 17. Le"*s1at*ve *ntent as to t/e )ay(ent o- re"*strat*on -ees The le!islative intent and purpose #ehind the la+ re4uirin! o+ners of vehicles to pa$ for their re!istration is mainl$ to raise funds for the construction and maintenance of hi!h+a$s and to a much lesser de!ree, pa$ for the operatin! expenses of the administerin! a!enc$" 11. 3resu()t*on o- -ees d*st*nct -ro( ot/er ta'es The 9hilippine Ra##it case mentions a presumption arisin! from the use of the term 2fees3 +hich appears to have #een favored #$ the le!islature to distin!uish fees from other taxes such as those mentioned in Section 13 of R( :13;, +hich provides that provides that 2Ao ori!inal re!istration of motor vehicles su#*ect to pa$ment of taxes, customs duties or other char!es shall #e accepted unless proof of pa$ment of the taxes due thereon has #een presented to the Commission3 refer to taxes other than those imposed on the re!istration, operation or o+nership of a motor vehicle (Sec" 1,, #, R( :13;, as amended)" 12. $ees (ay be )ro)er1y re"arded as ta'es even t/ou"/ t/ey a1so serve as an 6nstru(ent ore"u1at*on 't is possi#le for an exaction to #e #oth tax and re!ulation" 8icense fees are often loo)ed to as a source of revenue as +ell as a means of re!ulation" (SonBins)$ v" 0"S", 3DD 0"S" 1D;) This is true, for example, of automo#ile license fees" 'n such case, the fees ma$ properl$ #e re!arded as taxes even thou!h the$ also serve as an instrument of re!ulation" 'f the purpose is primaril$ revenue, or if revenue is at least one of the real and su#stantial purposes, then the exaction is properl$ called a tax" (1,11 CC& Fed" Tax Course, 9ar" 31D1, citin! Coole$ on Taxation (>nd 6d") 1,>, 1,3/ Calalan! v" 8orenBo, ,- 9hil" >1>/ 8utB v" (raneta, ,. 9hil" 1,.") These exactions are sometimes called re!ulator$ taxes" (See Secs" :-D1, :-11, :-:1, :.D1, :.11, :.11, and :..1, 0"S" 'nternal Revenue Code of 1,1:, +hich classif$ taxes on to#acco and alcohol as re!ulator$ taxes")3 (0mali, Revie+er in Taxation, 1,.D, pp" 1>513, citin! Coole$ on Taxation, >nd 6dition, 1,151,3)" 'ndeed, taxation ma$ #e made the implement of the stateGs police po+er (8utB v" (raneta, ,. 9hil" 1:.)" 13. @r*"*na1 *ntent*on as to ve/*c1e re"*strat*on -ees0 3resent )ur)ose <ehicle re!istration fees +ere ori!inall$ simple exactions intended onl$ for re!ulator$ purposes in the exercise of the StateGs police po+ers" =ver the $ears, ho+ever, as vehicular traffic exploded in num#er and
4a'at*on La5 6! 2773 ( +9 )
motor vehicles #ecame a#solute necessities +ithout +hich modern life as +e )no+ it +ould stand still, Con!ress found the re!istration of vehicles a ver$ convenient +a$ of raisin! much needed revenues" Hithout chan!in! the earlier denomination of re!istration pa$ments as 2fees,3 their nature has #ecome that of 2taxes"3 ?otor vehicle re!istration fees as at present exacted pursuant to the 8and Transportation and Traffic Code are actuall$ taxes intended for additional revenues of !overnment even if one fifth or less of the amount collected is set aside for the operatin! expenses of the a!enc$ administerin! the pro!ram" 14. F/en e'act*on *s -or revenue! *t *s a ta'0 La5 need not be e')1*c*t 'f the purpose is primaril$ revenue, or if revenue is, at least, one of the real and su#stantial purposes, then the exaction is properl$ called a tax (0mali, id") Such is the case of motor vehicle re!istration fees" The conclusions #ecome inescapa#le in vie+ of Section -D(#) of R( 1.- 4uoted in the Calalan! case" The same provision appears as Section 1,(#) in the 8and Transportation Code" 't is patent therefrom that the le!islators had in mind a re!ulator$ tax as the la+ refers to the imposition on the re!istration, operation or o+nership of a motor vehicle as a 2tax or fee"3 Thou!h no+here in R( :13; does the la+ specificall$ state that the imposition is a tax, Section 1,(#) spea)s of 2taxes or fees " " " for the re!istration or operation or on the o+nership of an$ motor vehicle, or for the exercise of the profession of chauffeur " " "3 ma)in! the intent to impose a tax more apparent" Thus, even R( 1::. spea) of an 2additional tax,3 +here the la+ could have referred to an ori!inal tax and not one in addition to the tax alread$ imposed on the re!istration, operation, or o+nership of a motor vehicle under R( :13;" Simpl$ put, if the exaction under R( :13; +ere merel$ a re!ulator$ fee, the imposition in R( 1::. need not #e an 2additional3 tax" R( :13; also spea)s of other 2fees3 such as the special permit fees for certain t$pes of motor vehicles (Sec" 1D) and additional fees for chan!e of re!istration (Sec" 11)" These are not to #e understood as taxes #ecause such fees are ver$ minimal to #e revenue5raisin!" Thus, the$ are not mentioned #$ Sec" 1,(#) of the Code as taxes li)e the motor vehicle re!istration fee and chauffeursG license fee" Such fees are to !o into the expenditures of the 8and Transportation Commission as provided for in the last proviso of sec" ;1" 1.. >ect*on 24 o- RA .431 re)ea1ed a11 ear1*er ta' e'e()t*on o- cor)orate ta')ayers -ound *n 1e"*s1at*ve -ranc/*ses Section >: of R( 1:31, dated >- %une 1,;., repealed all earlier tax exemptions of corporate taxpa$ers found in le!islative franchises" (n examination of Section >: of the Tax Code as amended sho+s clearl$ that the la+ intended all corporate taxpa$ers to pa$ income tax as provided #$ the statute" There can #e no dou#t as to the po+er of Con!ress to repeal the earlier exemption it !ranted" (rticle N'<, Section . of the 1,31 Constitution and (rticle N'<, Section 1 of the Constitution as amended in 1,-3 expressl$ provide that no franchise shall #e !ranted to an$ individual, firm, or corporation except under the condition that it shall #e su#*ect to amendment, alteration, or repeal #$ the le!islature +hen the pu#lic interest so re4uires" There is no 4uestion as to the pu#lic interest involved" The countr$ needs increased revenues" The repealin! clause is clear and unam#i!uous" There is a listin! of entities entitled to tax exemption (See Radio Communications of the 9hilippines 'nc" v" Court of Tax (ppeals, et al" O@R ;D1:-, 11 %ul$ 1,.1P)" 1 . Re"*strat*on -ees bet5een 2+ :une 19 # and 9 A)r*1 19+9 correct1y *()osed (n$ re!istration fees collected #et+een >- %une 1,;. and , (pril 1,-,, +ere correctl$ imposed #ecause the tax exemption in the franchise of 9(8 +as repealed durin! the period" &o+ever, an amended franchise +as !iven to 9(8 in 1,-," Section 13 of 9D 11,D no+ provides: 2'n consideration of the franchise and ri!hts here#$ !ranted, the !rantee shall pa$ to the 9hilippine @overnment durin! the lifetime of this franchise +hichever of su#sections (a) and (#) hereunder +ill result in a lo+er tax: (a) The #asic corporate income tax #ased on the !ranteeGs annual net taxa#le income computed in accordance +ith the provisions of the 'nternal Revenue Code/ or (#) ( franchise tax of t+o per cent (>I) of the !ross revenues derived #$ the !rantees from all sources, +ithout distinction as to transport or nontransport corporations/ provided that +ith respect to international airtransport service, onl$ the !ross passen!ers, mail, and frei!ht revenues from its out!oin! fli!hts shall #e su#*ect to this la+"3 2The tax paid #$ the !rantee under either of the a#ove alternatives shall #e in lieu of all other taxes,
4a'at*on La5 6! 2773 ( #7 )
duties, ro$alties, re!istration, license and other fees and char!es of an$ )ind, nature or description imposed, levied, esta#lished, assessed, or collected #$ an$ municipal, cit$, provincial, or national authorit$ or !overnment a!enc$, no+ or in the future, includin! #ut not limited to the follo+in!: xxx (1) (ll taxes, fees and other char!es on the re!istration, licensin!, ac4uisition, and transfer of aircraft, e4uipment, motor vehicles, and all other personal or real propert$ of the !rantee"3 (9D 11,D, -1 =@ Ao" 11, 3>1,, (pril ,, 1,-,)" 1+. 3ALEs current -ranc/*se c1ear and s)ec*-*c0 3AL *s ta' e'e()t 9(8Gs current franchise is clear and specific" 't has removed the am#i!uit$ found in the earlier la+" 9(8 is no+ exempt from the pa$ment of an$ tax, fee, or other char!e on the re!istration and licensin! of motor vehicles" Such pa$ments are alread$ included in the #asic tax or franchise tax provided in Su#sections (a) and (#) of Section 13, 9D 11,D and ma$ no lon!er #e exacted" [3#] 3ro"ress*ve Deve1o)(ent ,or). vs. K, [G.R. ?o. 3 7#1. A)r*1 24! 19#9.] Third Division, Feliciano (%): : concurrin! $acts% =n >: Decem#er 1,;,, the Cit$ Council of CueBon Cit$ adopted =rdinance -,,-, Series of 1,;,, other+ise )no+n as the ?ar)et Code of CueBon Cit$, Section 3 of +hich provided 2privatel$ o+ned and operated pu#lic mar)ets shall su#mit monthl$ to the TreasurerGs =ffice, a certified list of stallholders sho+in! the amount of stall fees or rentals paid dail$ #$ each stallholder, and shall pa$ 1DI of the !ross receipts from stall rentals to the Cit$, as supervision fee" Failure to su#mit said list and to pa$ the correspondin! amount +ithin the period herein prescri#ed shall su#*ect the operator to the penalties provided in this Code includin! revocation of permit to operate"3 The ?ar)et Code +as thereafter amended #$ =rdinance ,>3;, Series of 1,->, on >3 ?arch 1,->, +hich imposed a 1I tax on !ross receipts on rentals or lease of space in privatel$5 o+ned pu#lic mar)ets in CueBon Cit$" For the effective implementation of the =rdinance, it ordered o+ners of privatel$ o+ned pu#lic mar)ets shall su#mit " " " a monthl$ certified list of stallholders of lessees of space in their mar)ets sho+in! the name of stallholder or lessee/ the amount of rental/ and the period of lease, indicatin! therein +hether the same is on a dail$, monthl$ or $earl$ #asis" The ordinance provides that in case of consistent failure to pa$ the percenta!e tax for 3 consecutive months, the Cit$ shall revo)e the permit of the privatel$5o+ned mar)et to operate andKor ta)e an$ other appropriate action or remed$ allo+ed #$ la+ for the collection of the overdue percenta!e tax and surchar!e" =n 11 %ul$ 1,->, petitioner 9ro!ressive Development Corporation, o+ner and operator of a pu#lic mar)et )no+n as the 2Farmers ?ar)et Q Shoppin! Center3 filed a 9etition for 9rohi#ition +ith 9reliminar$ 'n*unction a!ainst the cit$ #efore the then CF' RiBal on the !round that the supervision fee or license tax imposed #$ the ordinances is in realit$ a tax on income +hich respondent ma$ not impose, the same #ein! expressl$ prohi#ited #$ R( >>;:, as amended" =n >1 =cto#er 1,->, the lo+er court dismissed the petition, rulin! that the 4uestioned imposition is not a tax on income, #ut rather a privile!e tax or license fee +hich local !overnments are empo+ered to impose and collect" &avin! failed to o#tain reconsideration of said decision, the compan$ filed the petition for revie+" The Supreme Court affirmed the Decision of the then CF' RiBal, CueBon Cit$, petition for lac) of merit" ranch 1., and denied the
1. >ect*on 12! Art*c1e 666 o- RA .3+ "rants t/e c*ty counc*1 )o5er to ta'! not (ere1y re"u1ate or -*' 1*cense -ees Section 1>, (rticle ''' of Repu#lic (ct Ao" 13-, other+ise )no+n as the Revised Charter of CueBon Cit$, authoriBes the Cit$ Council: 2To provide for the lev$ and collection of taxes and other cit$ revenues and appl$ the same to the pa$ment of cit$ expenses in accordance +ith appropriations" To tax, fix the license fee,
4a'at*on La5 6! 2773 ( #1 )
and re!ulate the #usiness of the follo+in!: preparation and sale of meat, poultr$, fish, !ame, #utter, cheese, lard, ve!eta#les, #read and other provisions"3 The scope of le!islative authorit$ conferred upon the CueBon Cit$ Council in respect of #usinesses is comprehensive: the !rant of authorit$ is not onl$3 OtoP re!ulate3 and 2fix the license fee,3 #ut also 2to tax"3 2. >ect*on 2 o- RA 22 40 Aut/or*ty o- c*t*es and (un*c*)a1*t*es to *()ose (un*c*)a1 1*cense ta'es Section > of Repu#lic (ct Ao" >>;:, as amended, other+ise )no+n as the 8ocal (utonom$ (ct, provides that: 2(n$ provision of la+ to the contrar$ not+ithstandin!, all chartered cities, municipalities and municipal districts shall have authorit$ to impose municipal license taxes or fees upon persons en!a!ed in an$ occupation or #usiness, or exercisin! privile!es in chartered cities, municipalities or municipal districts #$ re4uirin! them to secure licenses at rates fixed #$ the municipal #oard or cit$ council of the cit$, the municipal council of the municipalit$, or the municipal district council of the municipal district/ to collect fees and char!es for service rendered #$ the cit$, municipalit$ or municipal district/ to re!ulate and impose reasona#le fees for services rendered in connection +ith an$ #usiness, profession or occupation #ein! conducted +ithin the cit$, municipalit$ or municipal district and other+ise to lev$ for pu#lic purposes *ust and uniform taxes licenses or fees"3 T( >>;: confers upon local !overnments #road taxin! authorit$ extendin! to almost 2ever$thin!, exceptin! those +hich are mentioned therein,3 provided that the tax levied is 2for pu#lic purposes, *ust and uniform,3 does not trans!ress an$ constitutional provision and is not repu!nant to a controllin! statute" 3. Bot/ c*ty c/arter and Loca1 Autono(y Act aut/or*Be c*ty to -*' 1*cense -ees oth the 8ocal (utonom$ (ct and the Charter of the cit$ clearl$ sho+ that the cit$ is authoriBed to fix the license fee collecti#le from and re!ulate the #usiness of the compan$ as operator of a privatel$5o+ned pu#lic mar)et" 4. 4a' construed The term 2tax3 fre4uentl$ applies to all )inds of exactions of monies +hich #ecome pu#lic funds" 't is often loosel$ used to include levies for revenue as +ell as levies for re!ulator$ purposes such that license fees are fre4uentl$ called taxes althou!h license fee is a le!al concept distin!uisha#le from tax: the former is imposed in the exercise of police po+er primaril$ for purposes of re!ulation, +hile the latter is imposed under the taxin! po+er primaril$ for purposes of raisin! revenues" Thus, if the !eneratin! of revenue is the primar$ purpose and re!ulation is merel$ incidental, the imposition is a tax/ #ut if re!ulation is the primar$ purpose, the fact that incidentall$ revenue is also o#tained does not ma)e the imposition a tax" .. L*cense -ee construed To #e considered a license fee, the imposition 4uestioned must relate to an occupation or activit$ that so en!a!es the pu#lic interest in health, morals, safet$ and development as to re4uire re!ulation for the protection and promotion of such pu#lic interest/ the imposition must also #ear a reasona#le relation to the pro#a#le expenses of re!ulation, ta)in! into account not onl$ the costs of direct re!ulation #ut also its incidental conse4uences as +ell" Hhen an activit$, occupation or profession is of such a character that inspection or supervision #$ pu#lic officials is reasona#l$ necessar$ for the safe!uardin! and furtherance of pu#lic health, morals and safet$, or the !eneral +elfare, the le!islature ma$ provide that such inspection or supervision or other form of re!ulation shall #e carried out at the expense of the persons en!a!ed in such occupation or performin! such activit$, and that no one shall en!a!e in the occupation or carr$ out the activit$ until a fee or char!e sufficient to cover the cost of the inspection or supervision has #een paid" (ccordin!l$, a char!e of a fixed sum +hich #ears no relation at all to the cost of inspection and re!ulation ma$ #e held to #e a tax rather than an exercise of the police po+er" Reso1ut*on creat*n" t/e $ar(ers Aarket and >/o))*n" ,enter0 @b1*"at*on o- t/e co()any The 2Farmers ?ar)et Q Shoppin! Center3 +as #uilt #$ virtue of Resolution -31D passed on 3D %anuar$ 1,;- #$ cit$Gs local le!islative #od$ authoriBin! petitioner to esta#lish and operate a mar)et +ith a
4a'at*on La5 6! 2773 ( #2 )
permit to sell fresh meat, fish, poultr$ and other foodstuffs" The same resolution imposed upon the compan$, as a condition for continuous operation, the o#li!ation to 2a#ide #$ and compl$ +ith the ordinances, rules and re!ulations prescri#ed for the esta#lishment, operation and maintenance of mar)ets in CueBon Cit$"3 +. @)erat*on o- $ar(ers Aarket e9u*va1ent to t/ose o- a "overn(ent-o5ned (arket The 2FarmersG ?ar)et and Shoppin! Center3 #ein! a pu#lic mar)et in the sense of a mar)et open to and invitin! the patrona!e of the !eneral pu#lic, even thou!h privatel$ o+ned, petitionerGs operation thereof re4uired a license issued #$ the Cit$, the issuance of +hich, appl$in! the standards set forth a#ove, +as done principall$ in the exercise of the cit$Gs police po+er" The operation of a privatel$ o+ned mar)et is e4uivalent to or 4uite the same as the operation of a !overnment5o+ned mar)et/ #oth are esta#lished for the rendition of service to the !eneral pu#lic, +hich +arrants close supervision and control #$ the cit$, for the protection of the health of the pu#lic #$ insurin!, e"!", the maintenance of sanitar$ and h$!ienic conditions in the mar)et, compliance of all food stuffs sold therein +ith applica#le food and dru! and related standards, for the prevention of fraud and imposition upon the #u$in! pu#lic, and so forth" #. .J ta' not a ta' *nco(e! nor a c*ty *nco(e ta'! but a 1*cense ta' or -ee -or t/e re"u1at*on obus*ness The 1I tax imposed in =rdinance ,>3; constitutes, not a tax on income, not a cit$ income tax (as distin!uished from the national income tax imposed #$ the Aational 'nternal Revenue Code) +ithin the meanin! of Section > (!) of the 8ocal (utonom$ (ct, #ut rather a license tax or fee for the re!ulation of the #usiness in +hich the compan$ is en!a!ed" 9. Rates )resu(ed to be reasonab1e Hhile it is true that the amount imposed #$ the 4uestioned ordinances ma$ #e considered in determinin! +hether the exaction is reall$ one for revenue or prohi#ition, instead of one of re!ulation under the police po+er, it nevertheless +ill #e presumed to #e reasona#le" 8ocal !overnments are allo+ed +ide discretion in determinin! the rates of imposa#le license fees even in cases of purel$ police po+er measures, in the a#sence of proof as to particular municipal conditions and the nature of the #usiness #ein! taxed as +ell as other detailed factors relevant to the issue of ar#itrariness or unreasona#leness of the 4uestioned rates" 17. @rd*nance carr*es )resu()t*on o- va1*d*ty (n ordinance carries +ith it the presumption of validit$" The 4uestion of reasona#leness thou!h is open to *udicial in4uir$" ?uch should #e left thus to the discretion of municipal authorities Courts +ill !o slo+ in +ritin! off an ordinance as unreasona#le unless the amount is so excessive as to #e prohi#itor$, ar#itrar$, unreasona#le, oppressive, or confiscator$" ( rule +hich has !ained acceptance is that factors relevant to such an in4uir$ are the municipal conditions as a +hole and the nature of the #usiness made su#*ect to imposition" The compan$ has not sho+n that the rate of the !ross receipts tax is so unreasona#l$ lar!e and excessive and so !rossl$ disproportionate to the costs of the re!ulator$ service #ein! performed #$ the cit$ as to compel the Court to characteriBe the imposition as a revenue measure exclusivel$" Still it must #e emphasiBed that the authorit$ conferred upon the Cit$ Council is not merel$ 2to re!ulate3 #ut also em#races the po+er 2to tax3 the compan$Gs #usiness" 11. Gross a(ount o- sta11 renta1s as bas*s -or t/e co()utat*on o- -ees =ust*-*ed The !ross receipts from stall rentals have #een used onl$ as a #asis for computin! the fees or taxes due the cit$ to cover the latterGs administrative expenses, i"e", for re!ulation and supervision of the sale of foodstuffs to the pu#lic" The use of the !ross amount of stall rentals as #asis for determinin! the collecti#le amount of license tax, does not #$ itself convert or render the license tax into a prohi#ited cit$ tax on income" Aeither has it #een su!!ested that such #asis has no reasona#le relationship to the pro#a#le costs of re!ulation and supervision of the compan$Gs )ind of #usiness" For, ordinaril$, the hi!her the amount of stall rentals, the hi!her the a!!re!ate volume of foodstuffs and related items sold in petitionerGs privatel$ o+ned mar)et/ and the hi!her the volume of !oods sold in such private mar)et, the !reater the extent and fre4uenc$ of inspection
4a'at*on La5 6! 2773 ( #3 )
and supervision that ma$ #e reasona#l$ re4uired in the interest of the #u$in! pu#lic" 12. >tatutory "rant -or 1oca1 "overn(ent un*t to 1a5-u11y *()ose a "ross rece*)ts ta' (s a !eneral rule, there must #e a statutor$ !rant for a local !overnment unit to impose la+full$ a !ross receipts tax, that unit not havin! the inherent po+er of taxation" The rule, ho+ever, finds no application in the present case +here +hat is involved is an exercise of, principall$, the re!ulator$ po+er of the cit$ and +here that re!ulator$ po+er is expressl$ accompanied #$ the taxin! po+er" [39] 3unsa1an v. Aun*c*)a1 Board o- Aan*1a [GR L-4#1+! 2 Aay 19.4] 6n anc, Re$es (p): - concur $acts% =rdinance 33,. +as approved #$ the municipal #oard of the Cit$ of ?anila on >1 %ul$ 1,1D" 't imposes a municipal occupation tax on persons exercisin! various professions in the cit$ and penaliBes non5 pa$ment of the tax #$ a fine of not more than 9>DD or #$ imprisonment of not more than ; months, or #$ #oth such fine and imprisonment in the discretion of the court" The ordinance +as enacted pursuant to para!raph (1) of section 1. of the Revised Charter of the Cit$ of ?anila (as amended #$ R( :D,), +hich empo+ers the ?unicipal oard of said cit$ to impose a municipal occupation tax, not to exceed 91D per annum, on persons en!a!ed in the various professions, such as those +ere the petitioners #elon!" The petitioners (> la+$ers, a medical practitioner, a pu#lic accountant, a dental sur!eon and a pharmacist) filed a suit in the CF' ?anila in their o+n #ehalf and in #ehalf of other professionals practicin! in the Cit$ of ?anila, callin! for the annulment of =rdinance 33,. of the Cit$ of ?anila to!ether +ith the provision of the ?anila charter authoriBin! it and the refund of taxes collected under the ordinance #ut paid under protest (as the$ have paid their occupation tax under Section >D1 of the A'RC)" The lo+er court upheld the validit$ of the provision of la+ authoriBin! the enactment of the ordinance #ut declared the ordinance itself ille!al and void on the !round that the penalt$ therein provided for non5pa$ment of the tax +as not le!all$ authoriBed" oth parties appealed to the Supreme Court" The Supreme Court reversed the appealed *ud!ment insofar as it declares =rdinance 33,. ille!al and void and affirmed insofar as it holds the validit$ of the provision of the ?anila charter authoriBin! it"/ +ith costs a!ainst plaintiffs5appellants" 1" &nact(ent o- ord*nance 5*t/ aut/or*ty o- 1a5 The last para!raph ())) of the ver$ section that authoriBes the enactment of this tax ordinance (section 1. of the ?anila Charter) in express terms also empo+ers the ?unicipal oard 2to fix penalties for the violation of ordinances +hich shall not exceed to (sic) t+o hundred pesos fine or six monthsG imprisonment, or #oth such fine and imprisonment, for a sin!le offense"3 >" >e)arat*on o- 3o5ers0 6()os*t*on o- (un*c*)a1 occu)at*on ta' d*scret*on o- 1e"*s1ature! not tanta(ount to c1ass 1e"*s1at*on 't is for the courts to *ud!e +hat particular cities or municipalities should #e empo+ered to impose occupation taxes in addition to those imposed #$ the Aational @overnment" That matter is peculiarl$ +ithin the domain of the political departments and the courts +ould do +ell not to encroach upon it" The 8e!islature ma$, in its discretion, select +hat occupations shall #e taxed, and in the exercise of that discretion it ma$ tax all, or it ma$ select for taxation certain classes and leave the others untaxed" ?anila, as the seat of the Aational @overnment and +ith a population and volume of trade man$ times that of an$ other 9hilippine cit$ or municipalit$, offers a more lucrative field for the practice of the professions, so that it is #ut fair that the professionals in ?anila #e made to pa$ a hi!her occupation tax than their #rethren in the provinces"
4a'at*on La5 6! 2773 ( #4 )
3"
@rd*nance not un=ust or o))ress*ve! no d*st*nct*on *nvo1v*n" )ro-ess*ona1s. The ordinance imposes the tax upon ever$ person 2exercisin!3 or 2pursuin!3 an$ one of the occupations named, #ut does not sa$ that such person must have his office in ?anila" There is no distinction found in the ordinance #et+een professionals havin! offices in manila and outsiders +ho have no offices in the cit$ #ut practice their profession therein" Hhat constitutes exercise or pursuit of a profession in the cit$ is a matter of *udicial determination" :" 4a' *()osed by state and c*ty not doub1e ta'at*on Hhere one tax is imposed #$ the state and the other is imposed #$ the cit$, the ar!ument a!ainst dou#le taxation ma$ not #e invo)ed, as there is nothin! inherentl$ o#noxious in the re4uirement that license fees or taxes #e exacted +ith respect to the same occupation, callin! or activit$ #$ #oth the state and the political su#divisions thereof" [47] Rea"an vs. ,6R [G.R. ?o. L-2 3+9. Dece(ber 2+! 19 9.] 6n anc, Fernando (%): - concurrin!, 1 concurrin! in result, 1 too) no part $acts% Hilliam C" Rea!an, a citiBen of the 0nited States and an emplo$ee of endix adio, Division of endix (viation Corporation, +hich provides technical assistance to the 0nited States (ir Force (0S(F), +as assi!ned at Clar) (ir ase, 9hilippines, on - %ul$ 1,1," , months thereafter and #efore his tour of dut$ expired, Rea!an imported on >> (pril 1,;D a tax5free 1,;D Cadillac car +ith accessories valued at R;,::3".3, includin! frei!ht, insurance and other char!es"3 =n 11 %ul$ 1,;D, Rea!an re4uested the ase Commander, Clar) (ir ase, for a permit to sell the car, +hich +as !ranted provided that the sale +as made to a mem#er of the 0S(F or a citiBen of the 0nited States emplo$ed in the 0S militar$ #ases in the 9hilippines" =n the same date, Rea!an sold his car for R;,;DD"DD to a certain Hillie %ohnson, %r" (9rivate first class), 0nited States ?arine Corps, San!le$ 9oint, Cavite, 9hilippines, as sho+n #$ a ill of Sale executed at Clar) (ir ase" =n the same date, 9fc" Hillie (Hilliam) %ohnson, %r" sold the car to Fred ?eneses for 93>,DDD"DD as evidenced #$ a deed of sale executed in ?anila" (s a result of the transaction thus made, the Commissioner of 'nternal Revenue, after deductin! the landed cost of the car as +ell as the personal exemption to +hich Rea!an +as entitled, fixed as his net taxa#le income arisin! from such transaction the amount of 91-,,1>"3:, renderin! him lia#le for income tax in the sum of 9>,,-,"DD" (fter pa$in! the sum, he sou!ht a refund from the Commissioner claimin! that he +as exempt, #ut pendin! action on his re4uest for refund, he filed the case +ith the Court of Tax (ppeals see)in! recover$ of the sum of 9>,,-,"DD plus the le!al rate of interest" (fter discussin! the le!al issues raised, primaril$ the contention that the Clar) (ir ase 2in le!al contemplation, is a #ase outside the 9hilippines3 the sale therefore havin! ta)en place on 2forei!n soil,3 the Court of Tax (ppeals found nothin! o#*ectiona#le in the assessment and thereafter the pa$ment of 9>,,-,"DD as income tax and denied the refund on the same" &ence, the appeal" The Supreme Court affirmed the decision of the Court of Tax (ppeals of 1> ?a$ 1,;; den$in! the refund of 9>,,-,"DD as the income tax paid #$ Rea!an/ +ith costs a!ainst the latter" 1. 4/e 3/*1*))*nes *s *nde)endent and sovere*"n! *ts aut/or*ty e'erc*se over *ts ent*re do(a*n The 9hilippines #ein! independent and soverei!n, its authorit$ ma$ #e exercised over its entire domain" There is no portion there of that is #e$ond its po+er" Hithin its limits, its decrees are supreme, its commands paramount" 'ts la+s !overn therein, and ever$one to +hom it applies must su#mit to its terms" That is the extent of its *urisdiction, #oth territorial and personal" Aecessaril$, li)e+ise, it has to #e exclusive" 'f it +ere not thus, there is a diminution of its soverei!nt$"
4a'at*on La5 6! 2773 ( #. )
2.
>tate! by *ts consent! (ay sub(*t to a restr*ct*on o- *ts sovere*"n r*"/ts0 Auto-L*(*tat*on (n$ state ma$, #$ its consent, express or implied, su#mit to a restriction of its soverei!n ri!hts" There ma$ thus #e a curtailment of +hat other+ise is a po+er plenar$ in character" That is the concept of soverei!nt$ as auto5limitation, +hich, in the succinct lan!ua!e of %elline), 2is the propert$ of a state5force due to +hich it has the exclusive capacit$ of le!al self5determination and self5restriction"3 ( state then, if it chooses to, ma$ refrain from the exercise of +hat other+ise is illimita#le competence" 3. F/en anot/er )o5er a11o5ed to e'erc*se o- =ur*sd*ct*ona1 r*"/t over certa*n terr*tory! suc/ areas do not beco(e *()ressed 5*t/ a1*en c/aracter0 C> Bases not -ore*"n terr*tory $ auto5limitation, its la+s ma$ as to some persons found +ithin its territor$ no lon!er control" 't is not precluded from allo+in! another po+er to participate in the exercise of *urisdictional ri!ht over certain portions of its territor$" 'f it does so, it #$ no means follo+s that such areas #ecome impressed +ith an alien character" The$ retain their status as native soil" The$ are still su#*ect to its authorit$" 'ts *urisdiction ma$ #e diminished, #ut it does not disappear" So it is +ith the #ases under lease to the (merican armed forces #$ virtue of the militar$ #ases a!reement of 1,:-" The$ are not and cannot #e forei!n territor$" 4. C> ,/*e- :ust*ce Aars/a11 *n >c/ooner &'c/an"e vs. Ac$addon (1#12)0 L*(*tat*ons u)on a >tate s/ou1d be traced u) to t/e consent o- t/e nat*on *tse1'n Schooner 6xchan!e v" ?GFaddon, an 1.1> decision, it +as announced that 2the *urisdiction of the nation +ithin its o+n territor$ is necessaril$ exclusive and a#solute" 't is suscepti#le of no limitation not imposed #$ itself" (n$ restriction upon it, derivin! validit$ from an external source, +ould impl$ a diminution of its soverei!nt$ to the extent of the restriction, and an investment of that soverei!nt$ to the same extent in that po+er +hich could impose such restriction" xxx (ll exceptions, therefore, to the full and complete po+er of a nation +ithin its o+n territories, must #e traced up to the consent of the nation itself" The$ can flo+ from no other le!itimate source"3 .. C> ,/*e- :ust*ce 4eney! :ust*ce Bre5er0 &veryone 5*t/*n terr*tor*a1 do(a*n o- state sub=ect to *ts co((ands Chief %ustice Tane$, in an 1.1- decision, affirmed the fundamental principle of ever$one +ithin the territorial domain of a state #ein! su#*ect to its commands: 2For undou#tedl$ ever$ person +ho is found +ithin the limits of a !overnment, +hether the temporar$ purposes or as a resident, is #ound #$ its la+s"3 't is no exa!!eration then for %ustice re+er to stress that the 0nited States !overnment 2is one havin! *urisdiction over ever$ foot of soil +ithin its territor$, and actin! directl$ upon each Oindividual found thereinP/ " " "3 C> :ust*ce 8an Devanter% >co)e o- terr*tory %ustice <an Devanter announced thus: 2't no+ is settled in the 0nited States and reco!niBed else+here that the territor$ su#*ect to its *urisdiction includes the land areas under its dominion and control the ports, har#ors, #a$s, and other inclosed arms of the sea alon! its coast, and a mar!inal #elt of the sea extendin! from the coast line out+ard a marine lea!ue, or 3 !eo!raphic miles"3 &e could cite moreover, in addition to man$ (merican decisions, such eminent treatise5+riters as Tent, ?oore, &$de, Hilson, Hestla)e, Hheaton and =ppenheim" +. HydeEs 6nternat*ona1 La5% &(bassy )re(*ses outs*de t/e terr*tor*a1 do(a*n o- /ost state The eminent commentator &$de in his three5volume +or) on 'nternational 8a+, as interpreted and applied #$ the 0nited States, made clear that not even the em#ass$ premises of a forei!n po+er are to #e considered outside the territorial domain of the host state" Thus: 2The !round occupied #$ an em#ass$ is not in fact the territor$ of the forei!n State to +hich the premises #elon! throu!h possession or o+nership" The la+fulness or unla+fulness of acts there committed is determined #$ the territorial soverei!n" 'f an attach commits an offense +ithin the precincts of an em#ass$, his immunit$ from prosecution is not #ecause he has not violated the local la+, #ut rather for the reason that the individual is exempt from prosecution" 'f a person not so exempt, or +hose immunit$ is +aived, similarl$ commits a crime therein, the territorial soverei!n, if it
4a'at*on La5 6! 2773 ( # )
secures custod$ of the offender, ma$ su#*ect him to prosecution, even thou!h its criminal code normall$ does not contemplate the punishment of one +ho commits an offense outside of the national domain" 't is not #elieved, therefore, that an am#assador himself possesses the ri!ht to exercise *urisdiction, contrar$ to the +ill of the State of his so*ourn, even +ithin his em#ass$ +ith respect to acts there committed" Aor is there apparent at the present time an$ tendenc$ on the part of States to ac4uiesce in his exercise of it"3 #. >aura 6()ort and &')ort vs. Aeer 'n Saura 'mport and 6xport Co" v" ?eer, the Court affirmed a decision rendered a#out seven months previousl$, holdin! lia#le as an importer, +ithin the contemplation of the Aational 'nternal Revenue Code provision, the tradin! firm that purchased arm$ !oods from a 0nited States !overnment a!enc$ in the 9hilippines" 'f it +ere not thus, tax evasion +ould have #een facilitated" The 0nited States forces that #rou!ht in such e4uipment later disposed of as surplus, +hen no lon!er needed for militar$ purposes, +as #e$ond the reach of 9hilippine tax statutes" 9. Genera1 e')ress*ons *n o)*n*ons to be taken *n connect*on *n 5/*c/ t/ose e')ress*ons are used 2't is a maxim, not to #e disre!arded, that !eneral expressions, in ever$ opinion, are to #e ta)en in connection +ith the case in +hich those expressions are used" 'f the$ !o #e$ond the case" the$ ma$ #e respected, #ut ou!ht not to control the *ud!ment in a su#se4uent suit +hen the ver$ point is presented for decision" (Chief %ustice ?arshall)3 %ustice Tuason, +ho spo)e for the Court in the case of Saura 'mport and 6xport vs" ?eer, proceeded to discuss the role of the (merican militar$ contin!ent in the 9hilippines as a #elli!erent occupant, instead of merel$ adherin! to the " 'n the course of such a dissertion, dra+in! on his +ell5)no+n !ift for rhetoric and co!niBant that he +as ma)in! an as if statement, he did sa$: 2Hhile in arm$ #ases or installations +ithin the 9hilippines those !oods +ere in contemplation of la+ on forei!n soil"3 't +as clearl$ o#iter not #ein! necessar$ for the resolution of the issue #efore the Court" 't +as an opinion 2uttered #$ the +a$"3 17. Ctterance c*ted *n ,o 3o vs. ,6R (ere e(be11*s/(ent! a (eans to st*"(at*Be ta')ayerEs atte()t to esca)e ob1*"at*on to )ay ta'0 C> Bases not -ore*"n terr*tor*es bot/ *n )o1*t*ca1 and "eo"ra)/*ca1 sense The fact that such utterance of %ustice Tuason +as cited in Co 9o v" Collector of 'nternal Revenue (1,;>) put a different complexion on the matter" (!ain, it +as #$ +a$ of pure em#ellishment to reach the conclusion that it +as the purchaser of arm$ !oods, this time from militar$ #ases, that must respond for the advance sales taxes as importer" (!ain, the purpose that animated the reiteration of such a vie+ +as clearl$ to emphasiBe that throu!h the emplo$ment of such a fiction, tax evasion is precluded" Hhat is more, ho+ far divorced from the truth +as such statement +as emphasiBed #$ %ustice arrera, +ho penned the Co 9o opinion, thus: 2't is true that the areas covered #$ the 0nited States ?ilitar$ ases are not forei!n territories #oth in the political and !eo!raphical sense"3 The utterance need not have #een i!nored alto!ether after+ards" 't could #e utiliBed a!ain, as it undou#tedl$ +as, especiall$ so for the purpose intended, namel$ to sti!matiBe as +ithout support in la+ an$ attempt on the part of a taxpa$er to escape an o#li!ation incum#ent upon him" So it +as 4uoted +ith that end in vie+ in the Co 9o case" 't certainl$ does not *ustif$ an$ effort to render futile the collection of a tax le!all$ due" 11. Cses o- $*ct*o :ur*s *n t/e sc*ence o- 1a5 The statement on its face is a le!al fiction" This is not to discount the uses of a fictio *uris in the science of the la+" 't +as CardoBo +ho pointed out the value of fictio *uris value as a device 2to advance the ends of *ustice3 althou!h at times it could #e 2clums$3 and even 2offensive3" Certainl$, then, +hile far from o#*ectiona#le as thus enunciated, the o#servation of %ustice Tuason could #e misused or misconstrued in a clums$ manner to reach an offensive result" 9roperl$ used, a le!al fiction could #e relied upon #$ the la+, as Fran)furter noted, in the pursuit of le!itimate ends" To impute then to the statement of %ustice Tuason the meanin! that Rea!an +ould fasten on it is, to paraphrase Fran)furter, to #e !uilt$ of succum#in! to the vice of literalness"
4a'at*on La5 6! 2773 ( #+ )
12.
3eo)1e vs. Ac*erto 'n 9eople v" (cierto, %ustice Tuason set forth cate!oricall$ that 2#$ the O?ilitar$ asesP (!reement, it should #e noted, the 9hilippine @overnment merel$ consents that the 0nited States exercise *urisdiction in certain cases" The consent +as !iven purel$ as a matter of comit$, courtes$, or expedienc$ over the #ases as part of the 9hilippine territor$ or divested itself completel$ of *urisdiction over offenses committed therein"3 &e did stress further the full extent of our territorial *urisdiction in +ords that do not admit of dou#t" Thus: 2This provision is not and can not on principle or authorit$ #e construed as a limitation upon the ri!hts of the 9hilippine @overnment" 'f an$thin!, it is an emphatic reco!nition and reaffirmation of 9hilippine soverei!nt$ over the #ases and of the truth that all *urisdictional ri!hts !ranted to the 0nited States and not exercised #$ the latter are reserved #$ the 9hilippines for itself"3 13. >a1e o- auto(ob*1e 5*t/*n 3/*1*))*ne terr*tor*a1 =ur*sd*ct*on to ta' Rea!an +as lia#le for the income tax arisin! from a sale of his automo#ile in the Clar) Field (ir ase, +hich clearl$ is and cannot other+ise #e other than, +ithin 9hilippine territorial *urisdiction to tax"
14.
4a' e'e()t*on need to be )roven conc1us*ve by one a11e"*n" *t The la+ does not loo) +ith favor on tax exemptions and that he +ho +ould see) to #e thus privile!ed must *ustif$ it #$ +ords too plain to #e mista)en and too cate!orical to #e misinterpreted" Rea!an had not done so, and cannot do so" [41] Re)ub1*c vs. Aa(bu1ao Lu(ber [G.R. ?o. L-1++2.. $ebruary 2#! 19 2.] 6n anc, arrera (%): 1D concurrin! $acts% 'n a case filed #$ the Repu#lic a!ainst the ?am#ulao 8um#er Compan$ #efore the CF' ?anila (Civil Case 3:1DD), the compan$ admitted that the$ have a lia#ilit$ of 91.-"3- in favor of the !overnment for forest char!es coverin! the period from 1D Septem#er 1,1> to >: ?a$ 1,13, +hich lia#ilit$ is covered #$ a #ond executed #$ @eneral 'nsurance Q Suret$ Corporation for ?am#ulao 8um#er Compan$, *ointl$ and severall$ in character, on >, %ul$ 1,13, in favor of the Repu#lic" 't also admitted lia#ilit$ in the sum of 9>.;"-D in favor of the Repu#lic, covered #$ a #ond dated >- Aovem#er 1,13/ and another amount of 93,,>."3D, covered #$ a #ond dated >D %ul$ 1,1:" These three lia#ilities a!!re!ate to 9:,.D>"3-" (s a defense, the compan$ claimed to have paid to the Repu#lic of the 9hilippines 9.,>DD"1> for 2reforestation char!es3 for the period commencin! from >1 %ul$ 1,:. to >, Decem#er 1,1;/ and another 9,>-"D. as 2reforestation char!es3 for the period commencin! from 3D (pril 1,:- to >: %une 1,:." These reforestation char!es +ere paid to the Repu#lic in pursuance of Section 1 of R( 111 +hich provides that there shall #e collected, in addition to the re!ular forest char!es provided under Section >;: of Common+ealth (ct :;; )no+n as the Aational 'nternal Revenue Code, the amount of 9D"1D on each cu#ic meter of tim#er cut out and removed from an$ pu#lic forest for commercial purposes" The amount collected shall #e expended #$ the director of forestr$, +ith the approval of the secretar$ of a!riculture and commerce, for reforestation and afforestation of +ater sheds, denuded areas and other pu#lic forest lands, +hich upon investi!ation, are found needin! reforestation or afforestation" The total amount of the reforestation char!es paid #$ ?am#ulao 8um#er Compan$ is 9,,1>-"1D, and it is its contention since the Repu#lic has not made use of those reforestation char!es collected from it for reforestin! the denuded area of the land covered #$ its license, the Repu#lic should refund said amount, or, if it cannot #e refunded, at least it should #e compensated +ith +hat the compan$ o+ed the Repu#lic for reforestation char!es" 'n line +ith this thou!ht, the compan$ +rote the Director of Forestr$, on >1 Fe#ruar$ 1,1-, a letter +here it re4uested that its account +ith the #ureau #e credited +ith all the reforestation char!es that it have imposed on them from 1 %ul$ 1,:- to 1: %une 1,1;, amountin! to around 9>,,..";>" 2 This letter +as ans+ered #$ the Director of Forestr$ on 1> ?arch 1,1-, in +hich the Director 4uoted an opinion of the Secretar$ of %ustice, to the effect that he has no discretion to extend the time for pa$in! the reforestation char!es and also explained +h$ not all denuded areas are #ein! reforested" The trial court ordered the
4a'at*on La5 6! 2773 ( ## )
compan$ to pa$ the Repu#lic the sum of 9:,.D>"3- +ith ;I interest thereon from the date of the filin! of the complaint until full$ paid, plus costs" The lum#er compan$ interposed the appeal" The Supreme Court affirmed the *ud!ment of the trial court appealed from in all respects, +ith costs a!ainst the lum#er compan$" 1. >ect*on 1 o- RA 11. Section 1 provides that 2there shall #e collected, in addition to the re!ular forest char!es provided for under section >;: of Common+ealth (ct :;;, )no+n as the Aational 'nternal Revenue Code, the amount of 1D centavos on each cu#ic meter of tim#er for the first and second !roups and 3D centavos for the third and fourth !roups cut out and removed from an$ pu#lic forest for commercial purposes" The amount collected shall #e expended #$ the Director of Forestr$, +ith the approval of the Secretar$ of (!riculture and Aatural Resources (Commerce), for reforestation and afforestation of +atersheds, denuded areas and co!on and open lands +ithin forest reserves, communal forest, national par)s, tim#er lands, sand dunes, and other pu#lic forest lands, +hich, upon investi!ation, are found needin! reforestation or afforestation, or needin! to #e under forest cover for the !ro+in! of economic trees for tim#er, tannin, oils, !ums, and other minor forest products or medicinal plants, or for +atersheds protection, or for prevention of erosion and floods and preparation of necessar$ plans and estimate of costs and for reconnaissance surve$ of pu#lic forest lands and for such other expenses as ma$ #e deemed necessar$ for the proper carr$in! out of the purposes of this (ct"3 2(ll revenues collected #$ virtue of, and pursuant to, the provisions of the precedin! para!raph and from the sale of #ar)s, medicinal plants and other products derived from plantations as herein provided shall constitute a fund to #e )no+n as Reforestation Fund, to #e expended exclusivel$ in carr$in! out the purposes provided for under this (ct" (ll provincial or cit$ treasurers and their deputies shall act as a!ents of the Director of Forestr$ for the collection of the revenues or incomes derived from the provisions of this (ct"3 2. Re-orestat*on $und0 La5 does not re9u*re -und to be used e'c1us*ve1y -or re-orestat*on o- area covered by t/e 1*cense o- t/e concess*ona*re! and t/e 1a5 does not )rov*de t/at *- unused! *t s/ou1d be re-unded 0nder this provision, it seems 4uite clear that the amount collected as reforestation char!es from a tim#er licensee or concessionaire shall constitute a fund to #e )no+n as the Reforestation Fund, and that the same shall #e expended #$ the Director of Forestr$, +ith the approval of the Secretar$ of (!riculture and Aatural Resources for the reforestation or afforestation, amon! others, of denuded areas +hich, upon investi!ation, are found to #e needin! reforestation or afforestation" Aote that there is nothin! in the la+ +hich re4uires that the amount collected as reforestation char!es should #e used exclusivel$ for the reforestation of the area covered #$ the license of a licensee or concessionaire, and that if not so used, the same should #e refunded to him" The licenseeGs area ma$ or ma$ not #e reforested at all, dependin! on +hether the investi!ation thereof #$ the Director of Forestr$ sho+s that said area needs reforestation" 3. A(ount )a*d *s *n nature o- ta' e')ended -or t/e )ur)ose o- re-orestat*on or a--orestat*on The amount paid #$ a licensee as reforestation char!es is in the nature of a tax +hich forms a part of the Reforestation Fund, pa$a#le #$ him irrespective of +hether the area covered #$ his license is reforested or not" Said fund, as the la+ expressl$ provides, shall #e expended in carr$in! out the purposes provided for thereunder, namel$, the reforestation or afforestation, amon! others, of denuded areas needin! reforestation or afforestation" 4. La5 on co()ensat*on does not a))1y 0nder (rticle 1>-., ACC, compensation should ta)e place +hen t+o persons in their o+n ri!ht are creditors and de#tors of each other" Hith respect to the forest char!es +hich the compan$ has paid to the !overnment, the$ are in the coffers of the !overnment as taxes collected, and the !overnment does not o+e an$thin! to the compan$" The Repu#lic and the compan$ are not creditors and de#tors of each other, #ecause compensation refers to mutual de#ts" 'n short, the la+ on compensation is inapplica#le and the sum of
4a'at*on La5 6! 2773 ( #9 )
9,,1>-"1D paid #$ the compan$ as reforestation char!es ma$ not #e compensated for its inde#tedness to the @overnment in the sum of 9:,.D>"3- as forest char!es" .. 6nterna1 Revenue 4a'es cannot be t/e sub=ect o- set-o-- or co()ensat*on 'nternal revenue taxes, such as forest char!es, can not #e the su#*ect of set5off or compensation" ( claim for taxes is not such a de#t, demand, contract or *ud!ment as is allo+ed to #e set5off under the statutes of set5off, +hich are construed uniforml$, in the li!ht of pu#lic polic$, to exclude the remed$ in an action or an$ inde#tedness of the state or municipalit$ to one +ho is lia#le to the state or municipalit$ for taxes" Aeither are the$ a proper su#*ect of recoupment since the$ do not arise out of the contract or transaction sued on (.D C"%"S" -35-:")"3 Rat*ona1e -or t/e ru1e t/at ta' cannot be sub=ect o- set-o--% 4a' not *n t/e nature o- contracts ased on !rounds of pu#lic polic$, no set5off is admissi#le a!ainst demands for taxes levied for !eneral or local !overnmental purposes" The reason on +hich the !eneral rule is #ased, is that taxes are not in the nature of contracts #et+een the part$ and part$ #ut !ro+ out of a dut$ to, and are the positive acts of the !overnment, to the ma)in! and enforcin! of +hich, the personal consent of individual taxpa$ers is not re4uired" 'f the taxpa$er can properl$ refuse to pa$ his tax +hen called upon #$ the Collector, #ecause he has a claim a!ainst the !overnmental #od$ +hich is not included in the tax lev$, it is plain that some le!itimate and necessar$ expenditure must #e curtailed" 'f the taxpa$erGs claim is disputed, the collection of the tax must a+ait and a#ide the result of a la+suit, and mean+hile the financial affairs of the !overnment +ill #e thro+n into !reat confusion"3 (:- (m" %ur" -;;5-;-") [42] Re)ub1*c vs. 8da. De $ernandeB [G.R. ?o. L-9141. >e)te(ber 2.! 19. .] 6n anc, 8a#rador (%): - concurrin! $acts% =limpio FernandeB and his +ife (n!elina =asan had a net +orth of 9.,;DD on . Decem#er 1,:1" Durin! the %apanese occupation the spouses ac4uired several real properties, and at the time of his death on 11 Fe#ruar$ 1,:1 he had a net +orth of 931,:.," The Collector of 'nternal Revenue assessed a +ar profits tax (pursuant to R( 11, Har 9rofits Tax 8a+) on the estate of the deceased at 9-,;1:";D, +hich his administratrix refused to pa$" The case +as #rou!ht to the Court of Tax (ppeals +hich sustained the validit$ and le!alit$ of the assessment" The administratrix has appealed the decision to the Supreme Court" The Supreme Court affirmed the *ud!ment appealed, +ith costs a!ainst the appellants, (n!elina =asan <da de FernandeB, 9riscilla =" FernandeB, and 6stela =" FernandeB"" 1. ?ature o- t/e ta' The Har 9rofit Tax, insofar as applica#le to the estate of the deceased =limpio FernandeB, is #oth a propert$ tax and a tax on income" 't is a propert$ tax in relation to the properties that FernandeB had in Decem#er 1,:1/ and it is an income tax in relation to the properties +hich he purchased durin! the %apanese occupation" 2. 3ro/*b*t*on on e'-)ost -acto 1a5s a))1*es on1y to cr*(*na1 or )ena1 (atters The prohi#ition a!ainst ex post facto la+s applies onl$ to criminal or penal matters, and not to la+s +hich concern civil matters or proceedin!s !enerall$, or +hich affect or re!ulate civil or private ri!hts (6x parte @arland, 1. 8a+ 6d", 3;;/ 1; C" %" S", ..,5.,1)" The term ex post facto, that in their scope and purpose these provisions +ere confined to la+s respectin! criminal punishments, and had no relation +hatever to retrospective le!islation of an$ other description" 3. Retros)ect*ve 1a5 does not con-1*ct 5*t/ ,onst*tut*on un1ess )rov*s*ons are obno'*ous
4a'at*on La5 6! 2773 ( 97 )
Retrospective la+s, +hen not of a criminal nature, do not come in conflict +ith the national Constitution, unless o#noxious to its provisions on other !rounds than their respective character" 4. :ur*s)rudence% ,onst*tut*ona1*ty o- retros)ect*ve 1a5s The Court has applied the a#ove principle in the cases of ?e)in vs" Holf, > 9hil" -: and =n!sia)o vs" @am#oa, :- =ff" @aB", Ao" 11, 1;13, 1;1;" .. Retroact*ve a))1*cat*on o- revenue acts *s not a den*a1 o- due )rocess 9ropert$ taxes and #enefit assessments on real estate, retroactivel$ applied, are not open to the o#*ection that the$ infrin!e upon the due process of la+ clause of the Constitution (Ha!ner vs" altimore, >3, 0" S" >D-, ;D 8" 6d" >3D)/ that taxes on income are not su#*ect to the constitutional o#*ection #ecause of their retroactivit$" The universal practice has #een to increase taxes on incomes alread$ earned/ $et not+ithstandin! this retroactive operation, income taxes have not #een successfull$ assailed as invalid" The uniform rulin! of the courts in the 0nited States has #een to re*ect the contention that the retroactive application of revenue acts is a denial of the due process !uaranteed #$ the Fifth (mendment (Helch vs" &enr$, 3D1 0" S" 13:, .3 8" 6d" .-)" Rat*ona1e on t/e enact(ent o- t/e Far 3ro-*t 4a' The last 9acific +ar and the %apanese occupation of the 'slands have +rou!ht diver!ent effects upon the different sectors of the population" The 4uiet and the timid, +ho +ere afraid to !o out of their homes or +ho refused to have an$ dealin!s +ith the enem$, stopped from exercisin! their callin!s or professions, losin! their incomes/ and the$ supported themselves +ith properties the$ alread$ o+ned, sellin! these from time to time to raise funds +ith +hich to purchase their dail$ needs" These +ere reduced to penur$ and +ant" ut the #old and the darin!, as +ell as those +ho +ere callous to the criticism of #ein! colla#orators, en!a!ed in tradin! in all forms or sorts of commodities, from foodstuffs to +ar materials, earnin! fa#ulous incomes and ac4uirin! properties +ith their earnin!s" Those +ho +ere a#le to retain their properties found themselves possessed of increased +ealth #ecause inflation set in, the currenc$ dropped in value and properties soared in prices" 't +ould have #een unrealistic for the le!islature to have i!nored all these facts and circumstances" (fter the +ar it could not, +ith *ustice to all concerned, apportion the expenses of !overnment e4uall$ on all the people irrespective of the vicissitudes of +ar, e4uall$ on those +ho had their properties decimated as on those +ho had #ecome fa#ulousl$ rich after the +ar" Those +ho +ere fortunate to increase their +ealth durin! the trou#ulous period of the +ar +ere made to contri#ute a portion of their ne+l$5ac4uired +ealth for the maintenance of the !overnment and defra$ its expenses" Those +ho in turn +ere reduced to penur$ or +hose incomes suffered reductions could not #e compelled to share in the expenses to the same extent as those +ho !re+ rich" This in effect is +hat the le!islature did +hen it enacted the Har 9rofits Tax 8a+" +. La5 not /ars/ and o))ress*ve0 3o1*cy -o11o5ed sa(e as t/e 6nco(e 4a' La50 La5 *s const*tut*ona1 The la+ ma$ not #e considered harsh and oppressive #ecause the force of its impact fell on those +ho had amassed +ealth or increased their +ealth durin! the +ar, #ut did not touch the less fortunate" The polic$ follo+ed is the same as that +hich underlies the 'ncome Tax 8a+, imposin! the #urden upon those +ho have and relievin! those +ho have not" Ao one can dare challen!e the la+ as harsh and oppressive" The Court declare it to #e *ust and sound and overrule the o#*ection thereto on the !round of unconstitutionalit$" #. $ernandeB )ro-*ted -ro( 5ar! deat/ does not re1*eve estate -ro( ta' The contention that the deceased =limpio FernandeB or his estate should not #e responsi#le #ecause he died in 1,:1 and +as no lon!er livin! +hen the la+ +as enacted at a later date, in 1,:;, is a#solutel$ +ithout merit" FernandeB died immediatel$ #efore the li#eration and the actual cessation of hostilities" &e profited #$ the +ar/ there is no reason +h$ the incident of his death should relieve his estate from the tax" 9. >ect*on 1# o- 6nterna1 Revenue ,ode *ncor)orated *n RA .. >ect*on 9
4a'at*on La5 6! 2773 ( 91 )
The provisions of section 1. of the 'nternal Revenue Code have #een incorporated in R( 11 #$ virtue of Section , ((dministrative remedies) thereof, +hich provides 2(ll administrative, special and !eneral provisions of la+, includin! the la+s in relation to the assessment, remission, collection and refund of national internal revenue taxes, not inconsistent +ith the provisions of the (ct, are here#$ extended and made applica#le to all the provisions of this la+, and to the tax herein imposed"3 17. 3erson de-*ned0 >ect*on #4 o- t/e ?at*ona1 6nterna1 Revenue ,ode 0nder section .: of the Aational 'nternal Revenue Code, the term 2person3 means an individual, a trust, estate, corporation, or a dul$ re!istered !eneral co5partnership" 'f the individual is alread$ dead, propert$ or estate left #$ him should #e su#*ect to the tax in the same manner as if he +ere alive" 11. $ernandeBE )ro)erty )resu(ed to be con=u"a1 The propert$ +hich =limpio FernandeB possessed as of Decem#er 1,:1 is presumed to #e con*u!al propert$ and so are the properties +hich +ere ac4uired #$ him durin! the +ar, #ecause at that time he +as married" There is no claim or evidence to support the claim that an$ of the properties +ere paraphernal properties of the +ife/ so the presumption stands that the$ +ere con*u!al properties of the hus#and and +ife" 0nder these circumstances the$ cannot #e considered as properties #elon!in! to t+o individuals, each of +hich shall #e su#*ect to the tax independentl$ of the other" [43] >a1dana vs. 61o*1o [G.R. ?o. L-174+7. :une 2 ! 19.#.] 6n anc, ?ontema$or (%): . concurrin! $acts% =n >1 ?a$ 1,:;, the Cit$ of 'loilo promul!ated =rdinance >., series of 1,:;, due to emer!enc$ and possi#le shorta!e of food in 'loilo, re!ulatin! the exit of food suppl$ and la#or animals and imposin! permit fee therefore" The la+ strictl$ prohi#its to send outside 'loilo Cit$, +ithout first o#tainin! the necessar$ license permit from the ?a$or, 8ar!e cattle, pi!s, !oats, sheep or the li)e/ Domestic fo+ls, e!!s/ Fish, +hether fresh, salted or dried/ ?il)fish (semilla), #a!oon (!uinamos, cra#s, pra+n or the li)e)/ Fruits, such as #ananas, melon, papa$as or the li)e" The ordinance also fixes the fee for the issuance of license permit at 91D per head of lar!e cattle (+hether alive or slau!htered)/ 91 each for pi!s, !oats, and sheep (+hether alive or slau!htered), 9D"1D each for Chic)en and other domestic fo+ls (+hether alive or dressed)/ 9>"DD per hundred or 9D"D> each e!!/ 9D">D per )ilo of Fish (+hether fresh, dried or salted), 9D"1D per )ilo of a!oon (!uinamos), 9D">D per )ilo of cra#s, pra+n or the li)e, 9> per pot of ?il)fish (semilla), 9>, per hundred #unches or 9D"D> per #unch of #ananas, and 9D"D> per )ilo for other fruits" The ordinance declares it unla+ful for an$ carrier +hether land, +ater or air, to load an$ of said animals or articles +ithout the correspondin! permit" The ordinance penaliBed violation of the ordinance +ith a fine of not less than 91DD 9esos, or more than 9>DD 9esos, imprisonment of not less than 1D da$s #ut not exceedin! ; months and to suffer su#sidiar$ 'mprisonment in case of insolvenc$ to pa$ the fine" =rdinance 3D, passed on : %une 1,:;, amended =rdinance >. #$ reducin! the fees for each chic)en from 9"1D to 9">D, e!!s from 9> to 91 per hundred, and for fish from 9">D to 9"1D per )ilo, #ananas from 9> to 91 per hundred #unches etc" 0nder said ordinances, Serafin SaldaLa had #een pa$in!, thou!h under protest, so5called fees on fish #ou!ht in the Cit$ of 'loilo and sent #$ him to ?anila #$ plane, durin! the period from 1; Septem#er 1,:; to ; Decem#er 1,:;, totallin! 91,31,".D" =n 1- Septem#er 1,11, Saldana commenced the present proceedin!s #$ complaint for the reim#ursement to him of the said amount +ith interest, on the !round that the ordinances in 4uestion +ere ille!al, null and void, havin! #een enacted #e$ond the po+ers of the ?unicipal oard of the Cit$" 'n its ans+er, the cit$ contended that the imposition and collection of the municipal licenses +ere +ithin the po+er and duties of the ?unicipal oard in the exercise of its police po+er" The CF' 'loilo (Civil Case >>3-) dismissed the complaint and upheld the le!alit$ of =rdinance >., Series of 1,:;, as amened #$ =rdinance 3D, same series of 'loilo Cit$"
4a'at*on La5 6! 2773 ( 92 )
Saldana appealed" The Supreme Court reversed the appealed decision, and ordered the Cit$ of 'loilo to reim#urse Saldana the amount of 91,31,".D, +ith le!al interest and costs" 1. L*cense and )ro)erty ta'es d*st*n"u*s/ed The differences #et+een the license and the propert$ tax are +ell esta#lished" The license represents the permission conceded to do an act, is not supposed to #e imposed for revenue, and is in the main for police purposes" ( propert$ tax, on the other hand, is a tax in the ordinar$ sense, assessed accordin! to the value of propert$" (Cit$ of ?anila vs" Tan4uintic 1. 9hil" >,- 3DD)" 2. ;Derec/os< or -ees! and ;6()uestos< or ta'es d*st*n"u*s/ed The t+o terms 2derechos3 and 2impuestos3 do not involve the same concept, #ecause 2impuestos3 or taxes is, accordin! to all +ell5)no+n authorities, an enforced contri#ution of mone$ or other propert$ assessed in accordance +ith some reasona#le rule of apportionment #$ authorit$ of a soverei!n state, on persons or propert$ +ithin its *urisdiction, for the purpose of defra$in! the pu#lic expensesG (>; R" C" 8" par" >, pa!e 13)/ or a rate or sum of mone$ assessed on the person or propert$ of a citiBen #$ !overnment for the use of the nation or state/ #urdens or char!es imposed #$ the le!islative po+er upon persons or propert$ to raise mone$ for pu#lic purposesG (;1 C" %", ;1)/ +hile 2derechos3 o fees, on the other hand, are 2a re+ard or compensation allo+ed #$ la+ to an officer for specific services performed #$ him in the dischar!e of his official duties/ a sum certain !iven for a particular service/ the sum prescri#ed #$ la+ as char!e for services rendered #$ pu#lic officers (>1 C" %", 1DD,)"3 (?anila 6lectric Co" vs" (uditor @eneral, et al", -3 9hil" 1>., 133)" 3. L*cense ta'es are o- t5o k*nds% one -or t/e )ur)ose o- revenue! and t/e ot/er an e'erc*se o)o1*ce )o5er So5called license taxes are of t+o )inds" The one is a tax for the purpose of revenue" The other, +hich is, strictl$ spea)in!, not a tax at all #ut merel$ an exercise of the police po+er, is a fee imposed for the purpose of re!ulation" " " " ut a char!e of a fixed sum +hich #ears no relation to the cost of and +hich is pa$a#le into the !eneral revenue of the state is a tax rather than an 6xercise of the police po+er"3 (Coole$, Taxation, :th ed", <ol" ', pp" ,-5,.)" 4. $ees 5ere ta'es -or c*ty revenue %ud!in! from the amount of the fees fixed in the ordinances, the so5called fees +ere in realit$ taxes for cit$ revenue" For instance, the 91D"DD fee for ever$ head of lar!e cattle, +hether alive or slau!htered, and the 91"DD fee for ever pi!, !oat, or sheep, +hether alive or slau!htered, cannot possi#l$ #e considered as mere expense incurred for, or the cost of the inspection of each animal and the issuance of the correspondin! permit" 'f a pi!, !oat, or sheep costs, sa$, 911 or even 9>D, then the 91"DD fee +ould constitute 4uite a considera#le slice or portion of said cost/ and if the animals and articles listed in the ordinances +ere sent out from the Cit$ of 'loilo in lar!e 4uantities and num#ers, there +ould #e no dou#t that the fees collected +ould amount to a siBa#le sum and au!ment !reatl$ the revenues of the municipal corporation, +a$ in excess of the cost of inspections and the issuance of the permits" .. @rd*nance -a*1s to )rov*de re"u1at*ons or cond*t*ons under 5/*c/ )er(*t can be "ranted or den*ed The ordinance fails to provide for an$ re!ulations or conditions under +hich the permit can #e !ranted or denied" The ma$or has a#solute po+er to refuse to issue an$ permit, practicall$ ma)in! him a#solute dictator over the su#*ect matter" Hith merel$ tellin! the applicant and prospective licensee that said animals and articles are needed in the Cit$ of 'loilo, the ma$or could refuse to !rant the permit" To realiBe the dan!er of the !rant of said a#solute po+er is not difficult"
4a'at*on La5 6! 2773 ( 93 )
An*(a1s and art*c1es not )roduced *n c*ty The animals and articles enumerated in the ordinance are not all produced in the Cit$ of 'loilo, #ut come from other to+ns of the province, even from other provinces ad*acent, and are ta)en to the Cit$ of 'loilo onl$ for the purpose of transportation to other places, li)e ?anila" 'n other +ords, the$ are not #rou!ht into the Cit$ of 'loilo for the consumption of the residents thereof, #ut for export to other places" ut once inside the cit$ limits, under the ordinance, the ma$or ta)es a#solute control and has *urisdiction to allo+ or disallo+ their #ein! ta)en out of the cit$, and in case he issues the permit for their #ein! ta)en a+a$, taxes are imposed thereon under the !uise of license fees" +. 3o5er to ta' not *n/erent! not assu(ed0 Grant o- )o5er construed str*ct*ss*(* =ur*s Ao+here in the charter of the defendant Cit$ is it authoriBed to re!ulate and collect fees or taxes for, the ta)in! out of the cit$, of animals and articles listed in the ordinance" ( municipal corporation li)e 'loilo Cit$ has no inherent po+er of taxation" To enact a valid ordinance, the Cit$ must find in its charter the po+er to do so, for said po+er cannot #e assumed" ( municipal corporation, unli)e a soverei!n state, is clothed +ith no inherent po+er of taxation" 'ts charter must plainl$ sho+ an intent to confer that po+er or the corporation cannot assume it" (nd the po+er +hen !ranted is to #e construed strictissimi *uris" (n$ dou#t or am#i!uit$ arisin! out of the term used must #e resolved a!ainst the corporation"3 (Santos 8um#er Co" vs" Cit$ of Ce#u, et al", 1D> 9hil", .-D/ See also (ron! vs" RaffiLan, ,. 9hil", :>>)" #. >ect*on 22#+! and 2 29! o- t/e Rev*sed Ad(*n*strat*ve ,ode (side from the lac) of inherent po+er of taxation #$ a municipal corporation, Section >>.- of the Revised (dministrative Code provides that municipal revenue o#taina#le #$ taxation shall #e derived from such sources onl$ as are expressl$ authoriBed #$ la+/ and it further provides that 2it shall not #e in the po+er of the municipal council to impose a tax in an$ form +hatever upon !oods and merchandise carried into the municipalit$, or out of the same, and an$ attempt to impose an import or export tax upon such !oods in the !uise of an unreasona#le char!e for +harfa!e, use of #rid!es or other+ise, shall #e void"3 This last provision is reproduced in Section >;>,, of the same Revised (dministrative Code, entitled 2@eneral Rules for ?unicipal Taxation and 8icense"3 9. @rd*nance *s u1tra v*res0 nu11 and vo*d The ordinance, as amended, is ultra vires, enacted #e$ond the !eneral po+ers of a municipal corporation and not authoriBed #$ the cit$Gs charter, and conse4uentl$ null and void/ that the prohi#ition a!ainst ta)in! animals and articles out of the Cit$ of 'loilo +ithout permit of the ma$or is in restraint of trade and a curtailment of the ri!hts of the o+ners of the said animals and articles to freel$ sell and of prospective purchasers to #u$ and dispose of them +ithout the cit$ limits in the ordinar$ course of commerce and trade/ that the fees imposed in the said ordinances are in fact taxes not onl$ unauthoriBed #$ the la+ or the charter of Cit$, #ut also in contravention of the provisions of Sections >>.- and >;>, of the Revised (dministrative Code, +hich prohi#it municipal corporations from imposin! an$ tax in an$ from upon !oods and merchandise carried into or out of the to+n or Cit$" [44] >*son v. Anc/eta [GR L-.9431! 2. :u1y 19#4] 6n anc, Fernando (%): , concur, > concur in result, 1 concur in separate opinion, 1 too) no part $acts% 9etitioner as taxpa$er alle!es that Section 1 of 9 131 (alle!edl$ modif$in! Section >1 of the 1,-Aational 'nternal Revenue Code) undul$ discriminated a!ainst him #$ the imposition of hi!her rates of tax upon his income arisin! from the exercise of his profession vis5a5vis those +hich are imposed upon fixed income or salaried individual taxpa$ers" &e characteriBes the a#ove section as ar#itrar$ amountin! to class le!islation, oppressive and capricious in character/ that there is a trans!ression of #oth the e4ual protection and due process clauses of the Constitution as +ell as of the rule re4uirin! uniformit$ in taxation"
4a'at*on La5 6! 2773 ( 94 )
'n a resolution of >; %anuar$ 1,.>, the Court re4uired respondents to file an ans+er +ithin 1D da$s from notice" Such an ans+er, after t+o extensions +ere !ranted the =ffice of the Solicitor @eneral, +as filed on >. ?a$ 1,.>" The facts as alle!ed +ere admitted #ut not the alle!ations +hich +ere mere ar!uments, opinions or conclusions on the part of the petitioner (the truth Ofor themP #ein! those stated Oin theirP Special and (ffirmative Defenses), and affirmed that 9 131 is a valid exercise of the StateGs po+er to tax" The Supreme Court dismissed the petition for lac) of merit (considerin! the lac) of factual foundation to sho+ the ar#itrar$ character of the assailed provision/ the force of controllin! doctrines on due process, e4ual protection, and uniformit$ in taxation and the reasona#leness of the distinction #et+een compensation and taxa#le net income of professionals and #usinessmen certainl$ not a suspect classification), +ith costs a!ainst petitioner" 1. A*n*ster*a1 act*v*t*es o- Govern(ent0 Assu()t*on o- act*v*t*es re9u*re (ore revenues0 4a'es are 1*-eb1ood o- Govern(ent The field of state activit$ has assumed a much +ider scope" The areas +hich used to #e left to private enterprise and initiative and +hich the !overnment +as called upon to enter optionall$, and onl$ #ecause it +as #etter e4uipped to administer for the pu#lic +elfare than is an$ private individual or !roup of individuals, continue to lose their +ell5defined #oundaries and to #e a#sor#ed +ithin activities that the !overnment must underta)e in its soverei!n capacit$ if it is to meet the increasin! social challen!es of the times" There is need for more revenues" The po+er to tax, an inherent prero!ative, has to #e availed of to assure the performance of vital state functions" 't is the source of the #ul) of pu#lic funds" Taxes #ein! the life#lood of the !overnment, their prompt and certain availa#ilit$ is of the essence" 2. 3o5er to ta' not abso1ute0 Due 3rocess and e9ua1 )rotect*on c1auses can be )ro)er1y *nvoked0 3o5er to ta' *s not t/e )o5er to destroy The po+er to tax is an attri#ute of soverei!nt$" 't is the stron!est of all the po+ers of !overnment" For all its plenitude, the po+er to tax has restrictions" The Constitution sets forth such limits" (dversel$ affectin! as it does propert$ ri!hts, #oth the due process and e4ual protection clauses ma$ properl$ #e invo)ed to invalidate in appropriate cases a revenue measure" 'f it +ere other+ise, there +ould #e truth to the 1.D3 dictum of Chief %ustice ?arshall that 2the po+er to tax involves the po+er to destro$ (+hich +as #rushed a+a$ #$ %ustice &olmes, statin! that 2the po+er to tax is not the po+er to destro$ +hile this Court sits"3) 3. >u)re(acy o- t/e ,onst*tut*on The Constitution as the fundamental la+ overrides an$ le!islative or executive act that runs counter to it" 'n an$ case therefore +here it can #e demonstrated that the challen!ed statutor$ provision fails to a#ide #$ its command, the Court must so declared and ad*ud!e it null" 4. Burden o- )roo- 5*t/ one a11e"*n" unconst*tut*ona1*ty0 F*t/out )roo-! )resu()t*on o- va1*d*ty (ust )reva*1 ( mere alle!ation, as here, does not suffice" There must #e a factual foundation of such unconstitutional taint" ?erel$ adherin! to the authoritative doctrine that +here the due process and e4ual protection clauses are invo)ed, considerin! that the$ are not fixed rules #ut rather #road standards, there is a need for proof of such persuasive character as +ould lead to such a conclusion" (#sent such a sho+in!, the presumption of validit$ must prevail" .. F/en due )rocess c1ause (ay be *nvoked *n ta' statutes Due process clause ma$ #e invo)ed +here a taxin! statute is so ar#itrar$ that it finds no support in the Constitution" Tax measures, +hich amount to the confiscation of propert$, are clear a#use of po+er, +here the Court is dut$ #ound to sa$ that such an ar#itrar$ act amounted to the exercise of an authorit$ not conferred callin! for the application of the &olmes dictum" Hhere the tax measure is #e$ond the *urisdiction of the
4a'at*on La5 6! 2773 ( 9. )
state, or is not for a pu#lic purpose, or, in case of a retroactive statute is so harsh and unreasona#le, it is su#*ect to attac) on due process !rounds" F/en e9ua1 )rotect*on (ay be *nvoked *n )o1*ce )o5er or )o5er o- e(*nent do(a*n The applica#le standard to avoid the char!e that there is a denial of this constitutional mandate +hether the assailed act is in the exercise of the police po+er or the po+er of eminent domain is to demonstrate 2that the !overnmental act assailed, far from #ein! inspired #$ the attainment of the common +eal +as prompted #$ the spirit of hostilit$, or at the ver$ least, discrimination that finds to support in reason" 't suffices then that the la+s operate e4uall$ and uniforml$ on all persons under similar circumstances or that all persons must #e treated in the same manner, the conditions not #ein! different, #oth in the privile!es conferred and the lia#ilities imposed" Favoritism and undue preference cannot #e allo+ed" For the principle is that e4ual protection and securit$ shall #e !iven to ever$ person under circumstances, +hich if not identical are analo!ous" 'f la+ #e loo)s upon in terms of #urden or char!es, those that fall +ithin a class should #e treated in the same fashion, +hatever restrictions cast on some in the !roup e4uall$ #indin! on the rest"3 The same principle applies to the po+er of taxation" +. 3ur)ose o- ta' (easures The e4ual protection clause is inspired #$ the no#le concept of approximatin! the ideal of the la+sGs #enefits #ein! availa#le to all and the affairs of men #ein! !overned #$ that serene and impartial uniformit$, +hich is of the ver$ essence of the idea of la+" 't is inherent in the po+er to tax that a state #e free to select the su#*ects of taxation, and it has #een repeatedl$ held that Fine4ualities +hich result from a sin!lin! out of one particular class for taxation, or exemption infrin!e no constitutional limitation" #. Ru1e on un*-or(*ty The rule of taxation shall #e uniform and e4uita#le" This re4uirement is met +hen the tax operates +ith the same force and effect in ever$ place +here the su#*ect ma$ #e found" The rule of uniformit$ does not call for perfect uniformit$ or perfect e4ualit$, #ecause this is hardl$ attaina#le" 9. &9ua1*ty and un*-or(*ty *n ta'at*on de-*ned 64ualit$ and uniformit$ in taxation means that all taxa#le articles or )inds of propert$ of the same class shall #e taxed at the same rate" The taxin! po+er has the authorit$ to ma)e reasona#le and natural classifications for purposes of taxation" Hhere the differentiation conforms to the practical dictates of *ustice and e4uit$, it is not discriminator$ +ithin the meanin! of this clause and is therefore uniform" There is 4uite a similarit$ then to the standard of e4ual protection for all that is re4uired is that the tax applies e4uall$ to all persons, firms and corporations placed in similar situation" 17. >ubstant*a1 D*st*nct*on0 D*st*nct*on on ta' rate and ta' base Taxpa$ers ma$ #e classified into different cate!ories" 't is enou!h that the classification must rest upon su#stantial distinctions that ma)e real differences" 'n the case of the !ross income taxation em#odied in 9 131, the discerni#le #asis of classification is the suscepti#ilit$ of the income to the application of !eneraliBed rules removin! all deducti#le items for all taxpa$ers +ithin the class and fixin! a set of reduced tax rates to #e applied to all of them" Taxpa$ers +ho are recipients of compensation income are set apart as a class" (s there is practicall$ no overhead expense, these taxpa$ers are not entitled to ma)e deductions for income tax purposes #ecause the$ are in the same situation more or less" =n the other hand, in the case of professionals in the practice of their callin! and #usinessmen, there is no uniformit$ in the costs or expenses necessar$ to produce their income" 't +ould not #e *ust then to disre!ard the disparities #$ !ivin! all of them Bero deduction and indiscriminatel$ impose on all ali)e the same tax rates on the #asis of !ross income" There is ample *ustification to adopt the !ross s$stem of income taxation to compensation income, +hile continuin! the s$stem of net income taxation as re!ards professional and #usiness income" [4.]
4a'at*on La5 6! 2773 ( 9 )
>>> vs. Baco1od ,*ty [G.R. ?o. L-3.+2 . :u1y 21! 19#2.] Second Division, 6scolin (%): 1 concurrin! $acts% Social Securit$ S$stem (SSS) is a !overnment a!enc$ created under R( 11;1, +hose primar$ function is to 2develop, esta#lish !raduall$ and perfect a social securit$ s$stem +hich shall #e suita#le to the needs of the people throu!hout the 9hilippines, and shall provide protection a!ainst the haBards of disa#ilit$, sic)ness, old a!e, and death"3 'n pursuance of its operations, SSS maintains a num#er of re!ional offices, one of +hich is the 15store$ #uildin!, )no+n as SSS uildin! in acolod Cit$, occup$in! : parcels of land" 'n 1,-D, said lands and #uildin! +ere assessed for taxation at 91,-::,.:D" For its failure to pa$ the realt$ taxes for the $ears 1,;., 1,;, and 1,-D +hich, includin! penalties, amounted to 91D:,,1;"D;, the cit$ sometime in earl$ 1,-D levied upon said lands and #uildin!/ and on 3 (pril 1,-D, it declared said properties forfeited in its favor" 'n protest thereto, SSS addressed a letter dated >- %ul$ 1,-D to the Cit$ ?a$or of acolod, throu!h its treasurer, ?i!uel Re$naldo, see)in! reconsideration of the forfeiture proceedin!s on the !round that SSS, #ein! a !overnment5o+ned and controlled corporation, is exempt from pa$ment of real estate taxes" Hhen no action thereon +as ta)en #$ the cit$ treasurer, SSS filed an action in the CF' Ae!ros =ccidental for nullification of the forfeiture proceedin!s" 'n the same complaint it sou!ht the issuance of a +rit of preliminar$ in*unction to restrain the cit$ from consolidatin! its o+nership over the forfeited properties, and this +rit +as issued #$ the court upon SSSG postin! of a cash #ond in the amount of 91D1,DDD"DD" (fter due hearin!, the lo+er court rendered a decision declarin! that the SS properties are not except from the pa$ment of real propert$ tax inasmuch as SSS does not fall under the provisions of Section >, of the Charter of the Cit$ of acolod, and considerin! further that there is no la+ +hich exempts said entit$ from taxes/ thus dismissin! the complaint +ith costs a!ainst SSS" &ence, the petition" The Supreme Court set aide the decision under revie+, and cancelled the suret$ #ond filed #$ the SSS" 1. >ect*on 29 o- ,o((on5ea1t/ Act 32 (,/arter o- ,*ty o- Baco1od) Section >, (6xemption from taxation) of the Common+ealth (ct 3>;, other+ise )no+n as the Charter of the Cit$ of acolod, provides that 2lands and #uildin!s o+ned #$ the 0nited States of (merica, the Common+ealth of the 9hilippines, the Cit$ of acolod, the 9rovince of =ccidental Ae!ros, and cemeteries, churches and their ad*acent parsona!es and convents, and lands, #uildin!s and improvements used exclusivel$ for reli!ious, charita#le, scientific or educational purposes, and not for profit, shall #e exempt from taxation/ #ut such exemptions shall not extend to lands or #uildin!s held for investment, thou!h the income therefrom #e devoted to reli!ious, charita#le, scientific or educational purposes"3 2. G@,,s sub=ect to )ay(ent o- 1e"a1 -ees0 RA 174! >ect*on 1 ( !overnment o+ned or controlled corporation is su#*ect to pa$ment of the le!al fees provided for in Rule 13D of the Rules of Court" Such lia#ilit$ is plainl$ +ritten in Section 1 of R( 1D:, +hich reads 2" " " (ll corporations, a!encies, or instrumentalities o+ned or controlled #$ the !overnment shall pa$ such duties, taxes, fees and other char!es upon their transaction, #usiness, industr$, sale, or income as are imposed #$ la+ upon individuals, associations or corporations en!a!ed in an$ taxa#le #usiness, industr$, or activit$ except on !oods or commodities imported or purchased and sold or distri#uted for relief purposes as ma$ #e determined #$ 9resident of the 9hilippines"3 3. ?A,@,@ v. Bacan* and >>> vs. >or*ano do not a))1y0 >>> e'e()t -ro( rea1ty ta'es 'n 2A(C=C= v" acani, 2 the Court held to the effect that the Aational Coconut Corporation, a !overnment a!enc$ performin! mere ministrant functions, is not included in the term 2@overnment of the Repu#lic of the 9hilippines3 for purposes of exemption from the le!al fees provided for in Rule 13D of the Rules of Court" =n the other hand, in 2SSS v" Soriano3 the Court definitivel$ cate!oriBed the SSS as a !overnment a!enc$ performin! proprietar$ functions" &o+ever, the su#*ect of in4uir$ in the present case is
4a'at*on La5 6! 2773 ( 9+ )
not +hether a !overnment corporation exercisin! ministrant or proprietar$ function, such as the SSS, is exempt from the pa$ment of le!al fees, #ut +hether the properties in 4uestion, +hich are concededl$ o+ned #$ the !overnment, are exempt from realt$ taxes" The distinction laid do+n in 2A(C=C= v" acani3 #et+een !overnment a!encies exercisin! constituent functions, on the one hand, and those performin! ministrant functions, on the other, has therefore no relevance to the present issue for +hat is decisive is that the properties possessed #$ the SSS, al#eit devoted to private or proprietar$ purpose, are in fact o+ned #$ the !overnment of the 9hilippines" (s such the$ are exempt from realt$ taxes" 4. >ect*on 29 does not conta*n any 9ua1*-*cat*on0 ,on"ress *ntends broad and co()re/ens*ve a))1*cat*on o- (andate The section does not contain an$ 4ualification +hatsoever in providin! for the exemption from real estate taxes of 2lands and #uildin!s o+ned #$ the Common+ealth or Repu#lic of 9hilippines"3 &ence, +hen the le!islature exempted lands and #uildin!s o+ned #$ the !overnment from pa$ment of said taxes, +hat it intended +as a #road and comprehensive application of such mandate, re!ardless of +hether such propert$ is devoted to !overnmental or proprietar$ purpose" .. Board o- Assess(ent A))ea1s vs. ,4A in 2 oard of (ssessment (ppeals versus Court of Tax (ppeals,3 the Court interpreted Section 3 (a) of Common+ealth (ct :-D, +hich contains a similarl$ +orded exemption from the pa$ment of realt$ taxes of 2properties o+ned #$ " " " the Repu#lic of the 9hilippines, an$ province, cit$, municipalit$ or municipal district " " "3 in this +ise: 2" " " in exemptin! from taxation Fpropert$ o+ned #$ the Repu#lic of the 9hilippines, an$ province, cit$, municipalit$ or municipal district " " "G said section 3(a) of R( :-D ma)es no distinction #et+een propert$ held in a soverei!n, !overnmental or political capacit$ and those possessed in a private propriet$ or patrimonial character" (nd +here the la+ does not distin!uish neither ma$ +e, unless there are facts and circumstances clearl$ sho+in! that the la+ma)er intended the contrar$, #ut no such facts and circumstances have #een #rou!ht to our attention" 'ndeed, the noun Fpropert$G and the ver# Fo+nedG used in said section 3 (a) stron!l$ su!!est that the o#*ect of exemption is considered more from the vie+ point of dominion, than from that of domain" ?oreover, taxes are financial #urdens imposed for the purpose of raisin! revenues +ith +hich to defra$ the cost of the operation of the @overnment, and a tax on propert$ of the @overnment, +hether national or local, +ould merel$ have the effect of ta)in! mone$ from one poc)et to put it in another poc)et (Coole$ on Taxation, Sec" ;>1, :th 6dition)" &ence, it +ould not serve, in the final anal$sis, the main purpose of taxation" Hhat is more, it +ould tend to defeat it, on account of the paper +or), time and conse4uentl$, expenses it +ould entail" (The 8a+ on 8ocal Taxation, #$ %ustiniano E" Castillo, p" 13)"3 Ru1es on ta'at*on o- )ub1*c )ro)erty 't is axiomatic that +hen pu#lic propert$ is involved, exemption is the rule and taxation, the exception" +. 3D 24! a(end*n" >oc*a1 >ecur*ty Act o- 19.4! re(oved a11 doubts as to e'e()t*on o- >>> -ro( ta'at*on 9D >:, +hich amended the Social Securit$ (ct of 1,1:, has alread$ removed all dou#ts as to the exemption of the SSS from taxation" Thus in Section 1; (6xemption from tax, le!al process, and lien), it is provided that 2(ll la+s to the contrar$ not+ithstandin!, the SSS and all its assets, all contri#utions collected and all accruals thereto and income therefrom as +ell as all #enefit pa$ments and all papers or documents +hich ma$ #e re4uired in connection +ith the operation or execution of this (ct shall #e exempt from an$ tax, assessment, fee, char!e or customs or import dut$/ and all #enefit pa$ments made #$ the SSS shall li)e+ise #e exempt from all )inds of taxes, fees or char!es, and shall not #e lia#le to attachment, !arnishments, lev$ or seiBure #$ or under an$ le!al or e4uita#le process +hatsoever, either #efore or after receipt #$ the person or persons entitled thereto, except to pa$ an$ de#t of the covered emplo$ee to the SSS"3 .
4a'at*on La5 6! 2773 ( 9# )
[4 ] >ur*"ao ,onso1*dated A*n*n" vs. ,o11ector [G.R. ?o. L-14#+#. Dece(ber 2 ! 19 3.] 6n anc, Re!ala (%): 1D concurrin! $acts% efore the out#rea) of Horld Har '', the Suri!ao Consolidated ?inin! Compan$ (Suri!ao Consolidated), a domestic corporation +hich then had its principal office in the cit$ of 'loilo, +as operatin! its minin! concessions in ?ainit, Suri!ao" 9ursuant to section >:; of the 'nternal Revenue Code, +hich prescri#es the time and manner of pa$ment of ro$alties or ad valorem taxes, it filed a #ond and had #een re!ularl$ filin! its returns for minerals removed from its mines durin! each calendar 4uarter and pa$in! ad valorem tax thereon +ithin >D da$s after the close of ever$ 4uarter" 'n each case, computation of the ad valorem tax +as #ased on the mar)et value of the minerals set forth in the returns, su#*ect to ad*ustment upon the receipt of the smelter returns sho+in! the actual mar)et value of the minerals shipped to the 0nited States" Due to the interruption of communications at the out#rea) of the +ar, the principal office of Suri!ao Consolidated lost contact +ith its mines and never received the production reports for the fourth 4uarter of 1,:1" 'n order to avoid incurrin! an$ tax penalt$, said compan$, on 1, %anuar$ 1,:> deposited a chec) in the amount of 9>-,DDD"DD pa$a#le to and 2indorsed in favor of the Cit$ Treasurer (of 'loilo) in pa$ment of the ad valorem taxes (approximate ad*ustment to #e made +hen circumstances allo+ it) for the fourth 4uarter of 1,:1"3 (fter the termination of the +ar, Common+ealth (ct ->> +as enacted, +hich provided for the filin! of returns for minerals removed durin! the last 4uarter of 1,:1 up to 31 Decem#er 1,:1 and the pa$ment of ad valorem tax on said minerals to >. Fe#ruar$ 1,:;" (vailin! of the provisions of the (ct, the Suri!ao Consolidated, on >. Decem#er 1,:1, filed its ad valorem tax returns for the fourth 4uarter of 1,:1, declarin! as its tax lia#ilit$ the amount of 9:3,:.;"1:" (ppl$in! the amount of 9>-,DDD"DD previousl$ deposited +ith the Cit$ Treasurer of 'loilo, the returns indicated an unpaid #alance of 91;,:.;"1: as the 2tax su#*ect to revision"3 &o+ever, on >; Fe#ruar$ 1,:;, the Suri!ao Consolidated filed an amended ad valorem tax returns, under +hich amendment it declared a reduced ad valorem tax in the amount of 93-,1.,"DD" Creditin! itself +ith the amount of 9>-,DDD"DD previousl$ deposited +ith the Cit$ Treasurer of 'loilo, it paid the remainin! #alance of 91D,1.,"DD" =n >: Septem#er 1,:;, the Suri!ao Consolidated a!ain filed a statement of ad*ustment alle!edl$ containin! fi!ures and data of the complete smelter returns for minerals shipped to the 0nited States" 'n the accompan$in! letter, a re4uest +as made, this time not onl$ for the reduction of tax, #ut for the refund of the amount of 91.,1D-".-" =n 1, =cto#er 1,:;, another statement of ad*ustment +as filed reducin! the claim for refund to 91-,11."D1" Finall$, on 11 ?arch 1,:-, a third statement of ad*ustment +as su#mitted further reducin! the claim for refund to the amount of 91-,D11"1:" (s the Collector of 'nternal Revenue denied the re4uest for the refund of the said 91-,D11"1: on the !round that the mone$ alread$ paid as ad valorem tax +as le!all$ due to the @overnment, the Suri!ao Consolidated instituted +ith the CF' ?anila a civil action for its recover$ (Civil Case :--D)" &o+ever, upon the enactment of Repu#lic (ct 11>1 creatin! the Court of Tax (ppeals, the case +as remanded to the latter court for proper disposition" (fter hearin! the Court of Tax (ppeals, on 1; %ul$ 1,1. findin! that the amount sou!ht to #e refunded had #een la+full$ collected, rendered its decision den$in! the claim for refund" The Suri!ao Consolidated in due time filed a motion for ne+ trial on the !round that the decision +as 2not *ustified #$ the over+helmin! +ei!ht of evidence3 and that it +as contrar$ to la+" The tax court, ho+ever, denied the motion" &ence, the petition for revie+" The Supreme Court affirmed the decision appealed from/ +ith costs a!ainst Suri!ao Consolidated" 1. >ect*on 1 (d) o- RA #1 Section 1 (d) of R( .1 provides that 2an$ provision of existin! la+ to the contrar$ not+ithstandin!: (d) (ll unpaid ro$alties, ad valorem or specific taxes on all minerals mined from minin! claims or concessions existin! and in force on %anuar$ first, nineteen hundred and fort$5t+o, and +hich minerals +ere lost #$ reason of the +ar of circumstances arisin! therefrom, are here#$ condoned: 9rovided, That if said
4a'at*on La5 6! 2773 ( 99 )
minerals had #een or shall #e recovered #$ the miner or producer, such ro$alties, ad valorem or specific taxes on the same shall #e immediatel$ #ecome due and demanda#le"3 2. ,ondonat*on o- ta' 1*ab*1*ty *n t/e nature o- ta' e'e()t*on0 >ect*on 1(d) a))1*es on1y to condonat*on o- un)a*d ta'es Section 1 (d) clearl$ refers to the condonation of unpaid taxes onl$" The condonation of a tax lia#ilit$ is e4uivalent and is in the nature of a tax exemption" ein! so, it should #e sustained onl$ +hen expressed in explicit terms, and it cannot #e extended #e$ond the plain meanin! of those terms" 3. He 5/o c1a*(s e'e()t*on -ro( ta'at*on /as t/e burden o- )roo- to s/o5 /e *s e'e()t 't is the universal rule that he +ho claims an exemption from his share of the common #urden of taxation must *ustif$ his claim #$ sho+in! that the 8e!islature intended to exempt him #$ +ords too plain to #e mista)en" (Statutor$ Construction #$ Francisco, citin! @overnment of 9" '" vs" ?onte de 9iedad, >1 9hil" :>") 4. A))1*cat*on o- statute creat*n" e'e()t*on to ta'es a1ready assessed de)ends *- *t *s retros)ect*ve *n o)erat*on The application of a statute creatin! an exemption from taxation to taxes alread$ assessed depends upon +hether it is retrospective in its operation" Such a statute has no retrospective operation, unless #$ the terms thereof it clearl$ appears to #e the intention of the le!islature that the exemption shall relate #ac) to taxes +hich have alread$ #ecome fixed, as a statute +hich releases a person or corporation from a #urden common to the +hole communit$ should #e strictl$ construed (8ouisville Hater Co", vs" &amilton, .1 T$", 11-, " " " cited in ; (merican and 6n!lish (nn" Cases, p" :3.)" .. ,o()any -a*1ed to )rove e'e()t*on The compan$ failed to sho+ an$ portion of the la+ that explicitl$ provides for a refund of those taxpa$ers +ho had paid their taxes on the items" 6ven assumin! ar!uendo that the provisions of R( .1 authoriBes the refund of taxes alread$ paid #$ the compan$, the latter +ould not still #e entitled to the refund sou!ht for" The compan$Gs evidence of the alle!ed loss in transit merel$ consisted of testimon$ of +itnesses +ho did not have personal )no+led!e of the circumstances +hich !ave rise to the loss" Such evidence cannot, of course, #e considered sufficient to esta#lish that the minerals +ere in fact lost" . >(e1ter returns are best ev*dence o- actua1 (arket va1ue o- (*nera1s0 ?on-)roduct*on oreturns "enerates )resu()t*on t/at t/ey are adverse to c1a*( The amount of ad valorem tax on the minerals shipped to the 0nited States is su#*ect to ad*ustment upon the receipt of the smelter returns sho+in! their actual mar)et value" The #est evidence of the actual mar)et value of the minerals shipped to the 0nited States are the smelter returns themselves" These returns are admittedl$ in the compan$Gs possession, #ut for un)no+n reasons, the compan$ failed to produce them durin! the trial" (s there is no credi#le and satisfactor$ explanation for the non5production of said returns, there arises the presumption that if produced the$ +ould #e adverse to the compan$" +. Burden o- )roo- 1*es 5*t/ ta')ayer c1a*(*n" *11e"a1 or erroneous co11ect*on o- ta' 'n a suit for the recover$ of the pa$ment of taxes or an$ portion thereof as havin! #een ille!all$ or erroneousl$ collected, the #urden is upon the taxpa$er to esta#lish the facts +hich sho+ the ille!alit$ of the tax or that the determination thereof is erroneous" 'n the present case, the compan$ failed to sho+ that the amount of taxes sou!ht to #e refunded have #een erroneousl$ collected" [4+] 4anada v. 4uvera [ GR L- 391.! 24 A)r*1 19#.] 6n anc, 6scolin (p): 1 concur, > concur +ith reservation, 1 too) no part, 1 on leave
4a'at*on La5 6! 2773 ( 177 )
'nvo)in! the peopleGs ri!ht to #e informed on matters of pu#lic concern (Section ;, (rticle '< of the 1,-3 9hilippine Constitution) as +ell as the principle that la+s to #e valid and enforcea#le must #e pu#lished in the =fficial @aBette or other+ise effectivel$ promul!ated, petitioners see) a +rit of mandamus to compel respondent pu#lic officials to pu#lish, and or cause the pu#lication in the =fficial @aBette of various presidential decrees, letters of instructions, !eneral orders, proclamations, executive orders, letter of implementation and administrative orders" The Supreme Court ordered the respondents to pu#lish in the =fficial @aBette all unpu#lished presidential issuances +hich are of !eneral application, and that unless so pu#lished, the$ shall have no #indin! force and effect" 1. 3eo)1e )ro)er )arty *n )et*t*on -or (anda(us *- 9uest*on *s o- )ub1*c r*"/t and ob=ect *s to en-orce a )ub1*c duty Hhile the !eneral rule is that a +rit of mandamus +ould #e !ranted to a private individual onl$ in those cases +here he has some private or particular interest to #e su#served, or some particular ri!ht to #e protected, independent of that +hich he holds +ith the pu#lic at lar!e (Severino v" @overnor @eneral), and it is for the pu#lic officers exclusivel$ to appl$ for the +rit +hen pu#lic ri!hts are to #e su#served (?ithchell vs" oardmen), nevertheless, +hen the 4uestion is one of pu#lic ri!ht and the o#*ect of the mandamus is to procure the enforcement of a pu#lic dut$, the people are re!arded as the real part$ in interest and the relator at +hose insti!ation the proceedin!s are instituted need not sho+ that he has an$ le!al or special interest in the result, it #ein! sufficient to sho+ that he is a citiBen and as such interested in the execution of the la+s" 2. 3r*vate c*t*BenEs 1e"a1 )ersona1*ty reco"n*Bed The petitionerKrelator is a proper part$ to proceedin!s of this character +hen a pu#lic ri!ht is sou!ht to #e enforced" 'f the petitionerKrelator is not a proper part$ to these proceedin!s no other person could #e, as it is not the dut$ of the la+ officer of the @overnment to appear and represent the people in cases of this character" 'n the case at #ar, private citiBenGs le!al personalit$ in the Severino v" @overnor @eneral appl$ s4uarel$ to the present petition" The Solicitor @eneral, the !overnment officer !enerall$ empo+ered to represent the people, has entered his appearance for respondents in the case" 3. 3ub1*cat*on *n t/e @--*c*a1 GaBette necessary to "*ve )ub1*c ade9uate not*ce 9u#lication in the =fficial @aBette is necessar$ in those cases +here the le!islation itself does not provide for its effectivit$ date J for then the date of pu#lication is material for determinin! its date of effectivit$, +hich is the fifteenth da$ follo+in! its pu#lication J #ut not +hen the la+ itself provides for the date +hen it !oes into effect" This is correct insofar as it e4uates the effectivit$ of la+s +ith the fact of pu#lication" (rticle > ho+ever, considered in the li!ht of other statutes applica#le to the issue (see Section 1, C( ;3.), does not preclude the re4uirement of pu#lication in the =fficial @aBette, even if the la+ itself provides for the date of its effectivit$" The clear o#*ect of the such provision is to !ive the !eneral pu#lic ade4uate notice of the various la+s +hich are to re!ulate their actions and conduct as citiBens" Hithout such notice and pu#lication, there +ould #e no #asis for the application of the maxim 2i!norantia le!is non excusat"3 't +ould #e the hei!ht of in*ustice to punish or other+ise #urden a citiBen for the trans!ression of a la+ of +hich he had no notice +hatsoever, not even a constructive one" Further, pu#lication is necessar$ to apprise the pu#lic of the contents of re!ulations and ma)e the said penalties #indin! on the persons affected there#$ (9esi!an v" (n!eles) 4. 3ub1*cat*on v*ta1 as no )ub1*c*ty acco()an*es 1a5-(ak*n" )rocess o- 3res*dent The pu#lication of la+s has ta)en so vital si!nificance +hen the people have #esto+ed upon the 9resident a po+er heretofore en*o$ed solel$ #$ the le!islature" Hhile the people are )ept a#reast #$ the mass media of the de#ates and deli#erations in the atasan 9am#ansa J and for the dili!ent ones, read$ access to the le!islative records J no such pu#licit$ accompanies the la+5ma)in! process of the 9resident" Thus,
4a'at*on La5 6! 2773 ( 171 )
+ithout pu#lication, the people have no means of )no+in! +hat presidential decrees have actuall$ #een promul!ated, much less a definite +a$ of informin! themselves of the specific contents and texts of such decrees" .. 4/e 5ord ;s/a11< *()oses an *()erat*ve duty The ver$ first clause of Section 1 of C( ;3. provides that there shall #e pu#lished in the =fficial @aBette""" The +ord 2shall3 used therein imposes upon an imperative dut$" That dut$ must #e enforced if the Constitutional ri!ht of the people to #e informed on matters of pu#lic concern is to #e !iven su#stance and realit$" The la+ itself ma)es a list of +hat should #e pu#lished in the official @aBette" 'n the case at #ar, such listin! leaves the officials +ith no discretion +hatsoever as to +hat must #e included or excluded from such pu#lication" . 3ub1*cat*on o- )res*dent*a1 *ssuance o- )ub1*c nature or "enera1 a))1*cab*1*ty (andated0 )ub1*cat*on a re9u*re(ent o- due )rocess The pu#lication of all presidential issuances 2of a pu#lic nature3 or 2of !eneral applica#ilit$3 is mandated #$ la+" 9residential decrees that provide for fines, forfeitures or penalties for their violation or other+ise impose a #urden on the people, such as tax and revenue measures, fall +ithin this cate!or$" =ther presidential issuances +hich appl$ onl$ to particular persons or class of persons such as administrative and executive orders need not #e pu#lished on the assumption that the$ have #een circulariBed to all concerned" The pu#lication of presidential issuances 2of a pu#lic nature3 or 2of !eneral applica#ilit$3 is a re4uirement of due process" 't is a rule of la+ that #efore a person ma$ #e #ound #$ la+, he must first #e officiall$ and specificall$ informed of its contents (See 9eralta v" Comelec)" +. Cn)ub1*s/ed )res*dent*a1 *ssuance o- "enera1 a))1*cat*on /ave no -orce and e--ect0 &--ect oru1*n" and t/e conce)t o- o)erat*ve -act 9residential issuances of !eneral application, +hich have not #een pu#lished, shall have no force and effect" The implementationKenforcement of presidential decrees prior to their pu#lication in the =fficial @aBette is an operative fact, +hich ma$ have conse4uences +hich cannot #e *ustl$ i!nored" The past cannot al+a$s #e erased #$ a ne+ *udicial declaration that an all5inclusive statement of a principle of a#solute retroactive invalidit$ cannot #e *ustified" #. ,onse9uence o- nu11*ty cannot be *"nored0 @rt/odo' v. Aodern v*e5 on unconst*tut*ona1*ty 't is the theor$ that the (ct of Con!ress, havin! #een found to #e unconstitutional, +as not a la+/ that it +as inoperative, conferrin! no ri!hts and imposin! no duties, and hence affordin! no #asis for the challen!ed decree (Aorton v" Shel#$ Count$/ Chica!o, '" Q 8" R$" Co" v" &ac)ett)" Such #road statements as to the effect of a determination of unconstitutionalit$ must #e ta)en +ith 4ualifications" The actual existence of a statute, prior to such a determination, is an operative fact and ma$ have conse4uences +hich cannot *ustl$ #e i!nored" The past cannot al+a$s #e erased #$ a ne+ *udicial declaration" The effect of the su#se4uent rulin! as to invalidit$ ma$ have to #e considered in various aspects J +ith respect to particular conduct, private and official" Cuestions of ri!hts claimed to have #ecome vested, of status, of prior determinations deemed to have finalit$ and acted upon accordin!l$, of pu#lic polic$ in the li!ht of the nature #oth of the statute and of its previous application, demand examination" These 4uestions are amon! the most difficult of those +hich have en!a!ed the attention of courts and it is manifest from numerous decisions that an all5 inclusive statement of a principle of a#solute retroactive invalidit$ cannot #e *ustified (Chicot Count$ Draina!e District vs" axter an))" [4#] 8*11e"as v. H*u ,/*on" 4sa* 3ao Ho (GR L-29 4 ! 17 ?ov 19+#) 6n anc, FernandeB (p) : : concurrin!, 3 concurrin! in result, 1 not ta)in! part"
4a'at*on La5 6! 2773 ( 172 )
$acts% =n >> Fe#ruar$ 1,;., =rdinance ;13- +as passed #$ the ?unicipal oard of ?anila and si!ned #$ ?anila ?a$or (ntonio %" <ille!as on ?arch >-, 1,;." =rdinance ;13-, entitled 2(n ordinance ma)in! it unla+ful for an$ person not a citiBen of the 9hilippines to #e emplo$ed in an$ place of emplo$ment or to #e en!a!ed in an$ )ind of trade, #usiness or occupation +ithin the Cit$ of ?anila +ithout first securin! an emplo$ment permit from the ma$or of ?anila/ and for other purposes"3 8a+ prohi#its aliens from emplo$ment and trade in the Cit$ of ?anila +ithout the re4uisite ma$orGs permit)" 6xceptions to la+ are persons emplo$ed in the diplomatic or consular missions of forei!n countries, or in the technical assistance pro!rams of #oth the 9hilippine @overnment and an$ forei!n !overnment, and those +or)in! in their respective households, and mem#ers of reli!ious orders or con!re!ations, sect or denomination, +ho are not paid monetaril$ or in )ind" 9ermit fee is 91D" 9enalt$ is imprisonment of 3 to ; months or fine of 91DD5>DD, or #oth" =n : ?a$ 1,;., &iu Chion! Tsai 9ao &o, +ho +as emplo$ed in ?anila, filed a petition, +ith the CF' ?anila (Civil Case ->-,-), pra$in! for (1) the issuance of the +rit of preliminar$ in*unction and restrainin! order to stop the implementation of the ordinance, and (>) *ud!ment to declare the ordinance null and void" =n >: ?a$ 1,;., %ud!e Francisco (rca (CF' ?anila, ranch ') issued the +rit of preliminar$ in*unction and on 1- Septem#er 1,;., the %ud!e rendered a decision declarin! the ordinance null and void, and the preliminar$ in*unction is made permanent" ?a$or <ille!as filed a petition for certiorari to revie+ the decision of the CF'" Supreme Court affirmed the decision of the CF'" 1. Due )rocess and e9ua1 )rotect*on c1auses The ordinance is ar#itrar$, oppressive and unreasona#le, #ein! applied onl$ to aliens +ho are thus, deprived of their ri!hts to life, li#ert$ and propert$ and therefore, violates the due process and e4ual protection clauses of the Constitution" Re4uirin! a person, #efore he can #e emplo$ed, to !et a permit from the Cit$ ?a$or of ?anila, +ho ma$ +ithhold or refuse it at +ill is tantamount to den$in! him the #asic ri!ht of the people in the 9hilippines to en!a!e in a means of livelihood" =nce an alien is admitted #$ the State +ithin its territor$, he cannot #e deprived of life +ithout due process of la+, includin! the means of livelihood" The shelter of protection under the due process and e4ual protection clause is !iven to all persons, #oth aliens and citiBens" 2. 3o1*ce 3o5er! *11e"a1 de1e"at*on o- 1e"*s1at*ve )o5ers The ordinance does not la$ do+n an$ criterion or standard to !uide the ?a$or in the exercise of his discretion, thus conferrin! upon the ma$or ar#itrar$ and unrestricted po+ers" The ordinance does not provide a standard to !uide or limit the ma$orGs action, expresses no purpose to #e attained #$ re4uirin! a permit, and enumerates no conditions for its !rant or refusal" !9ee also Chinese :lour #mporters 4ssociation vs Price 9tabili;ation "oard, and Primicias vs :ugoso for related principles 3. Cn*-or(*ty o- 4a'at*on! d*scr*(*natory and v*o1at*ve The ordinanceGs purpose is clearl$ to raise mone$ under the !uise of re!ulation #$ exactin! 91D from aliens +ho have #een cleared for emplo$ment" The amount is unreasona#le and excessive #ecause it fails to consider differences in situation amon! aliens re4uired to pa$ it, i"e" #ein! casual, permanent, full5time, part5 time, ran)5an5file or executive" [49] 8*sayan ,ebu 4er(*na1 vs. ,6R [G.R. ?os. L-19.37 G L-19444. $ebruary 2+! 19 ..] 6n anc, 9aredes (%): . concurrin!, > too) no part
4a'at*on La5 6! 2773 ( 173 )
$acts% 9ursuant to a ?ana!ement (!reement entered into #$ and #et+een the ureau of customs and the <isa$an Ce#u Terminal Co" 'nc", on >: %une 1,1-, after a pu#lic #iddin!, the latter as Contractor, +as appointed the sole mana!er of the (rrastre Service at the 9ort of Ce#u, coverin! import car!oes, includin! transit import car!oes" =n >; Aovem#er 1,1., Restituto acareBa of the 'R ?anila, demanded of the Compan$ the pa$ment of 91>1,,1,":1, due the !overnment, coverin! percenta!e taxes and penalties, for the period from >: (u!ust 1,1; to 31 =cto#er 1,1." The compan$, on 1. Decem#er 1,1., replied that it +as not lia#le for the 3I percenta!e tax demanded" Thereafter, the #oo)s of the compan$ +ere examined #$ > 'nternal Revenue 6xaminers (9ascual and Fuentes) +ho +ere introduced to the compan$ #$ (ndres Relampa!os, then 9rovincial Revenue =fficer of Ce#u, in a formal letter dated >: ?arch 1,1," The t+o examiners, on - (pril 1,1,, issued a certificate that the$ had !one over the #oo)s of the compan$ and made a memorandum to the 9rovincial Revenue =fficer, statin! that the compan$ +as not 2su#*ect to the 3I percenta!e tax contemplated in Section 1,1 in relation to 1.>, #oth of the Aational 'nternal Revenue Code, as amended, #ecause the$ are pa$in! >.I strai!ht #ased on their !ross receipts as per contract entered into and #$ the ureau of Customs, hence no assessment could #e made"3 'n spite of the ?emorandum, the Deput$ Commissioner of 'nternal Revenue, ?elecio Domin!o, +rote the compan$, advisin! that it +as lia#le to the !overnment in the total sum of 9-3,D->"1-, as percenta!e taxes and surchar!es" (fter a series of communications, the lia#ilit$ of the compan$ +as computed at 91;,>D>",-, includin! 9:,DDD"DD as compromise penalt$, +hich +as finall$ reduced to 91>,1->",-" The compromise penalt$ +as also reduced from 9:,DDD"DD to 91DD"DD" Aot satisfied +ith the assessment, the petitioner appealed the case to the Court of Tax (ppeals" The Court of Tax (ppeals found the compan$ to #e +ithin the am#it of Section 1,1 of the Tax Code and thus lia#le for the pa$ment of the percenta!e tax provided therefor" &o+ever, since >.I of the compan$Gs !ross receipts !oes to the ureau of Customs as its share, the same should not #e included in computin! the 3I percenta!e tax" The court held that to hold the compan$ lia#le for the pa$ment of percenta!e tax is un4uestiona#l$ un*ust and not contemplated #$ Section 1,1 of the Tax Code, and thus modified the decision appealed from in the sense that the compan$ is ordered to pa$ the Commissioner of 'nternal Revenue the sum of 9:1,:1;"3., as unpaid percenta!e tax and >1I surchar!e/ +ithout special pronouncement as to costs" oth appealed to the Supreme Court" The Supreme Court affirmed the decision appealed from in all respects/ +ithout special pronouncement as to costs" 1. >ect*on 191 o- t/e 4a' ,ode Section 1,1 of the Aational 'nternal Revenue Code provides that 2percenta!e tax on road, #uildin!, irri!ation, artesian +ell, +ater+or)s and other construction +or) contractors, or proprietors or operators of doc)$ards, and others" Road, #uildin!, irri!ation, artesian +ell, +ater+or)s, and other construction +or) contractors/ arrastre contractors/ " " " shall pa$ a tax e4uivalent to three per centum of their !ross receipts"3 2. ,o()any *s an arrastre contractor The Compan$, as found #$ the Court of Tax (ppeals, is an arrastre contractor, under Section 1,1 of the Tax Code" The nature of the +or) underta)en #$ the compan$ is more than sufficient to sho+ that it is an arrastre contractor, +hich renders service coverin! the handlin! of car!oes at piers and +harves (Sada$a vs" Coll" of 'nt" Rev", 85-:::, ?a$ 3D, 1,1;") The ver$ ?ana!ement (!reement, the compan$ has #een cate!oricall$ referred to as contracted" ein! a contractor, the compan$ is su#*ect to the percenta!e tax" 3. 3ay(ent o- 2#J o- "ross rece*)ts does not detract t/e co()anyEs c/aracter as contractor The mere fact that the compan$ pa$s the ureau of Customs >.I of its !ross receipts, does not detract from its character as Contractor" 'f the ureau of Customs is the principal of the Compan$, there is no sense in !ivin! said ureau >.I of the !ross receipts onl$, and petitioner, the a!ent ->I"
4a'at*on La5 6! 2773 ( 174 )
4.
4a' e'e()t*on need to be )roven Section 1,1 of the Tax Code does not esta#lish an$ distinction #et+een an arrastre operator +ho handles onl$ imported car!o in its arrastre operations, pursuant to R( 1:D, and those handlin! interisland car!o/ so as to exempt the compan$ from the percenta!e tax" 't is a +ell settled rule that he +ho claims exemption should prove #$ convincin! proofs that he is exempted" The compan$ utterl$ failed to present such proofs" .. Govern(ent not esto))ed -ro( co11ect*n" 1e"*t*(ate ta'es due to error o- *ts a"ents The a!ents of the 'nternal Revenue did not have the po+er to ma)e pronouncements that the compan$ is not lia#le for the percenta!e tax, and even if the$ +ere so authoriBed, their recommendations are al+a$s su#*ect to the revie+ of their superiors, +ho ma$ countermand or affirm them" The !overnment is never estopped to collect le!itimate taxes #ecause of the error committed #$ its a!ents (@enato Commercial Corp" vs" CT(, 8511->-, Septem#er >,, 1,1.)" Aan*1a :ockey ,1ub vs. ,o11ector case 'n exemptin! the compan$ from the pa$ment of 3I tax on the >.I !iven to the ureau of Customs, the CT( cited the case of ?anila %oc)e$ Clu# vs" Collector, supra, +herein the Supreme Court, amon! others, has said 2 !ross receipts of the proprietor of the amusement place should not include an$ mone$ +hich althou!h delivered to the amusement place has #een especiall$ earmar)ed #$ la+ or re!ulation for some person other than the proprietor"3 +. $urt/er 1*ab*1*ty -or t/e )ay(ent o- )ercenta"e ta' un=ust and not conte()1ated by >ect*on 191 o- t/e 4a' ,ode 6ven if there is no la+ or re!ulation +hich specificall$ earmar)s >.I of the total monthl$ !ross receipts derived from the arrastre service in 4uestion, for the ureau of Customs (i"e" R( 1:D, amendin! (ct 3DD> and Common+ealth (ct >.1 7 under +hich the mana!ement a!reement +as entered into 7 does not so provide), it is not disputed that the amount had #een !iven to the ureau of Customs under the authorit$ of para!raph >3 of the ?ana!ement Contract +hich can #e la+full$ construed as 2re!ulation"3 Thus, the !overnment could not have intended to consider as !ross receipts the >.I that +ent to one of its institutions, the ureau of Customs, and there5#$ collect percenta!e tax on it from the compan$" To hold the compan$ lia#le for the pa$ment of percenta!e tax is un4uestiona#l$ un*ust and not contemplated #$ Section 1,1 of the Tax Code" [.7] Fonder Aec/an*ca1 &n"*neer*n" vs. ,4A [G.R. ?os. L-22#7. G L-2+#.#. :une 37! 19+..] First Division, 6s!uerra (%): : concurrin! $acts% Honder ?echanical 6n!ineerin! Corporation is a corporation +hich +as !ranted tax exemption privile!e under R( 31 in respect to the 2manufacture of machines for ma)in! ci!arette paper, pails, lead +ashers, rivets, nails, candies, chairs, etc"3" The tax exemption expired on 3D ?a$ 1,11" =n 1: Septem#er 1,13, the compan$ applied +ith the Secretar$ of Finance for reinstatement of the exemption privile!e under the provisions of R( ,D1 approved - %ul$ 1,1:, the reinstatement to commence on >D %une 1,13, the date R( ,D1 too) effect" [GR L-22#7.] The Commissioner of 'nternal Revenue, sometime in 1,11, caused the investi!ation of the compan$ for the purpose of ascertainin! +hether or not it had an$ tax lia#ilit$" The findin!s of Revenue 6xaminer (lfonso " Camillo on 3D Septem#er 1,11, stated that durin! the $ears 1,13 and 1,1: the compan$ did not provide itself +ith the proper privile!e tax receipts as re4uired #$ Section 1.> of the Tax Code and did not pa$ the sales tax on its !ross sales of articles manufactured #$ it and the percenta!e tax due on the !ross receipts of its electroplatin! and repair #usiness pursuant to Sections 1.3, 1.1, 1.; and 1,1 of the same Code" ased on the fore!oin!, the Commissioner of 'nternal Revenue assessed a!ainst compan$ on >, Aovem#er ,11, the total amount of 9;,,;,,"1; as fixed taxes and sales and
4a'at*on La5 6! 2773 ( 17. )
percenta!e taxes, inclusive of the >1I surchar!e" The Commissioner also su!!ested the pa$ment of the amount of 93,3DD"DD as penalties in extra*udicial settlement of the compan$Gs violations of Sections 1.>, 1.3, 1.1, 1.; and 1,1 of the Tax Code and of the oo))eepin! Re!ulations" [GRL-2+#.#] The Commissioner of 'nternal Revenue caused the investi!ation of the compan$ for the purpose of ascertainin! its tax lia#ilit$ on 1D (u!ust 1,;D, as a result of +hich on - Decem#er 1,;D, Revenue 6xaminer 9edro Ca#i!ao reported that compan$ had manufactured and sold steel chairs +ithout pa$in! the 3DI sales tax imposed #$ Section 1.1(c) of the Tax Code/ accepted *o# orders +ithout pa$in! the 3I tax in !ross receipts imposed #$ Section 1,1 of the same Code/ manufactured and sold other articles su#*ect to -I sales tax under Section 1.; of the same Code #ut not covered #$ the tax exemption privile!e/ failed to re!ister +ith the ureau of 'nternal Revenue #oo)s of accounts and sales invoices as re4uired #$ the oo))eepin! Re!ulations/ failed to indicate in the sales invoices the Residence Certificate num#er of customers +ho purchased articles +orth 91D"DD or over, in violation of the oo))eepin! Re!ulation/ and failed to produce its #oo)s of accounts and #usiness records for inspection and examination +hen re4uired to do so #$ the revenue examiner in violation of the oo))eepin! Re!ulations" ased on the fore!oin!, the Commissioner of 'nternal Revenue on ; =cto#er 1,;1, assessed a!ainst the compan$ 2the pa$ment of 9>1,D.D",1 as deficienc$ percenta!e taxes and >1I surchar!e for 1,1to 1,;D and su!!ested the pa$ment of 91,D>D"DD as total compromise penalt$ in extra*udicial settlement of the various violations of the Tax Code and oo))eepin! Re!ulation" The compan$, represented #$ its 9resident and @enerla ?ana!er ?r" 8ucio Cui*ano, appealed to the Court of Tax (ppeals, +hich dismissed the compan$Gs appeal in CT( Case 1D3; (85>>.D1), for lac) of *urisdiction, the same havin! #een filed #e$ond the 3D da$ period prescri#ed in Section 11 of R( 11>1, and confirmed the decision of Commissioner of 'nternal Revenue +hich assessed a!ainst the compan$ the total amount of 9;,,;,,"1; as fixed taxes and sales and percenta!e taxes, inclusive of the >1I surchar!e for the $ears 1,135 1:" The court also ordered the compan$ (in 85>-.1.) to pa$ the Commissioner of 'nternal Revenue the amount of 9>1,D.D",1 as deficienc$ sales and percenta!e taxes from 1,1- to %une 3D, 1,;D, inclusive of the >1I surchar!e, plus costs" The Compan$ filed the t+o petitions for revie+, #ased on the common principal issue of 2+hether or not the manufacture and sale of steel chairs, *eepne$ parts and other articles +hich are not machines for ma)in! other products, and *o# orders done #$ petitioner come +ithin the purvie+ of the tax exemption !ranted it under R( 31 and ,D1"3 The Supreme Court affirmed the decisions of the Court of Tax (ppeals in the t+o cases/ +ith costs a!ainst the compan$ in #oth cases" 1. ,o()any /as not acce)ted t/e *()os*t*on o- t/e co()ro(*se a(ounts 't does not appear that the compan$ accepted the imposition of the compromise amounts (91,D>D), as su!!ested #$ the Commissioner" The Court thus found no compellin! reasons to alter the decision of the Court of Tax (ppeals in 85>-.1. that 2compromise penalt$ cannot #e imposed or collected +ithout the a!reement and conformit$ of the taxpa$er !Collector of #nternal $evenue vs <niversity of 9anto Tomas, et al , %$ '(//)7+ = '(//)6*, )6 &ovember /,162 the Collector of #nternal $evenue v "autista, et al , %$ '( /))1* = /))1,, )7 5ay /,1,2 the Philippines #nternational :air, #nc v Collector of #nternal $evenue, %$ '(/),)6 = '(/),.), ./ 5arch /,0)8 > 2. A))ea1 o- dec*s*on (ust be (ade 5*t/ re"1e(entary )er*od! ot/er5*se ,ourt ac9u*res no =ur*sd*ct*on The Court of Tax (ppeals dismissed the appeal in CT( 1D3; (su#*ect matter of 85>>.D1) for lac) of *urisdiction, the same havin! #een filed #e$ond the 3D5da$ period prescri#ed in Section 11 of Repu#lic (ct 11>;" (ppellants must perfect their appeal from the decision of the Commissioner of 'nternal Revenue to the Court of Tax (ppeals +ithin the statutor$ period of 3D da$s, other+ise said Court ac4uires no *urisdiction" 3. ,ert*-*cate o- 4a' &'e()t*on "*ven to t/e co()any by >ecretary o- $*nance The Compan$ +as !iven a Certificate of Tax 6xemption #$ the Secretar$ of Finance of - %ul$ 1,1:,
4a'at*on La5 6! 2773 ( 17 )
+hich reads: 2 e it )no+n that upon application filed #$ Honder ?echanical 6n!ineerin! Corporation, 131D ?" &iBon, Sta" CruB, ?anila, in respect to the manufacture of machines for ma)in! ci!arette paper, pails, lead +ashers, nails, rivets, candies, etc", the said industr$Kindustries have #een determined to #e ne+ and necessar$ under the provisions of Repu#lic (ct Ao" ,D1 (or of Repu#lic (ct Ao" 31), in vie+ of +hich this Certificate of Tax 6xemption has #een issued entitlin! the a#ovenamed firmKperson to tax exemption from the pa$ment of taxes directl$ pa$a#le #$ itKhim in respect to the said industr$Kindustries until Decem#er 31, 1,1., and thereafter to a diminishin! exemption until %une >D, 1,1,, as provided in section 1 of Repu#lic (ct Ao" ,D1, except the exemption from the income tax +hich +ill +holl$ terminate on %une >D, 1,113" 4. years RA 3. "ranted e'e()t*on to )ersons en"a"ed *n ne5 and necessary *ndustry -or a )er*od o- 4
R( 31, approved on 3D Septem#er 1,:;, !rants to persons 2+ho or +hich shall en!a!e in a ne+ and necessar$ industr$3, for a period of : $ears from the date of the or!aniBation of such industr$, exemption 2from the pa$ment of all internal revenue taxes directl$ pa$a#le #$ such person3" .. RA 971 e'tended t/e )er*od o- ta' e'e()t*on! e1aborated t/e (ean*n" o- ne5 and necessary *ndustry R( ,D1, approved on >D %une 1,13, +hich amended R( #$ extendin! the period of tax exemption, ela#orated on the meanin! of 2ne+ and necessar$ industr$"3 Thus, an industr$ to #e entitled to tax exemption must #e 2ne+ and necessar$3 and that the tax exemption +as !ranted to ne+ and necessar$ industries as an incentive to !reater and ade4uate production of products made scarce #$ the second +orld +ar +hich +rou!ht havoc on our national econom$, a production 2sufficient to meet local demand or consumption3/ that +ill contri#ute 2to the attainment of a sta#le and #alanced national econom$3/ an industr$ that 2+ill ma)e its products availa#le in the !eneral pu#lic in 4uantities and at prices +hich +ill *ustif$ its operation"3 ?e5 6ndustry! accord*n" to RA 971! >ect*on 2 Section > of R( ,D1 provides that 2for the purposes of this (ct, a 2ne+ industr$ is one not existin! or operatin! on a commercial scale prior to %anuar$ first, nineteen hundred and fort$5five" Hhere several applications for exemption are filed in connection +ith the same )ind of industr$, the Secretar$ of Finance shall approve them in the order in +hich the$ have #een filed until the total output or production of those alread$ !ranted exemption for that particular )ind of industr$ is sufficient to meet local demand or consumption/ 9rovided, That the limitation shall not appl$ to products intended for export"3 +. ?ecessary 6ndustry! accord*n" to RA 971! >ect*on 3 Section 3 of R( ,D1 provides that 2for the purposes of this (ct, a 2necessar$3 industr$ is one compl$in! +ith the follo+in! re4uirements: (1) Hhere the esta#lishment of the industr$ +ill contri#ute to the attainment of a sta#le and #alanced national econom$/ (>) Hhere the industr$ +ill operate on a commercial scale in conformit$ +ith up5to5date practices and +ill ma)e its products availa#le to the !eneral pu#lic in 4uantities and at prices +hich +ill *ustif$ its operation +ith a reasona#le de!ree of permanenc$/ (3) Hhere the imported ra+ materials represent a value not exceedin! sixt$ percentum of the manufacturin! cost plus reasona#le sellin! and administrative expenses: 9rovided, That a !rantee of tax exemption shall use materials of domestic ori!in, !ro+th, or manufacture +herever the same are availa#le or could #e made availa#le in reasona#le 4uantit$ and 4ualit$ and at reasona#le prices" " " "3" #. &'e()t*on on (anu-acture and sa1e o- (ac/*nes and not o- art*c1es )roduced by t/ose (ac/*nes The compan$ +as !ranted tax exemption in the manufacture and sale 2of machines for ma)in! ci!arette paper, pails, lead +ashers, nails, rivets, candies, etc"3, as explicitl$ stated in the Certificate of 6xemption, #ut certainl$ not for the manufacture and sale of the articles produced #$ those machines" The intent of the State to such effect ma$ #e discerned from the memorandum of the then Secretar$ of Finance (9io 9edrosa), dated 3 ?arch 1,:,, su#mitted to the Ca#inet/ and from the letter of the 6xecutive Secretar$
4a'at*on La5 6! 2773 ( 17+ )
(Teodoro 6van!elista) to the compan$ dated 3D ?a$ 1,:," Thus, the manufacture of steel chairs, *eep parts, and other articles not constitutin! machines for ma)in! certain products +ould not fall under the classification of 2ne+ and necessar$3 industries envisioned in Repu#lic (cts 31 and ,D1 as to entitle the compan$ to tax exemption" Therefore, the tax assessment of 9>1,D.D",1 as deficienc$ sales and percenta!e taxes from 1,1- to %une 3D, 1,;D must #e paid #$ the compan$ as the sale of other manufactured items did not come +ithin the purvie+ of the tax exemption !ranted the compan$" 9. &'e()t*on /*"/1y d*s-avored *n 1a50 Burden o- )roo- 1*es u)on ta')ayer c1a*(*n" e'e()t*on The cardinal rule in taxation is that exemptions therefrom are hi!hl$ disfavored in la+ and he +ho claims tax exemption must #e a#le to *ustif$ his claim or ri!ht thereto #$ the clearest !rant of or!anic or statute la+" 17. &'e()t*on not )resu(ed Tax exemption must #e clearl$ expressed and cannot #e esta#lished #$ implication" 6xemption from a common #urden cannot #e permitted to exist upon va!ue implication" ((siatic 9etroleum Co" vs" 8lanes, :, 9hil" :;;/ &ouse vs" 9osadas, 13 9hil" 33./ Collector of 'nternal Revenue vs" ?anila %oc)e$ Clu#, 'nc", @"R" Ao" 85.-11, ?arch >3, 1,1;, ,. 9hil" ;-;)"
4a'at*on La5 6! 2773 ( 17# )

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