G.R. No.

L-42780

January 17, 1936

MANILA GAS CORPORA ION, plaintiff-appellant, vs. !" COLL"C OR O# IN "RNAL R"$"N%", defendant-appellee. DeWitt, Perkins and Ponce Enrile for appellant. Office of the Solicitor-General Hilado for appellee. MALCOLM, J.: This is an action brought by the Manila Gas Corporation against the Collector of Internal Revenue for the recovery of P5 ,!5!."!, #hich the plaintiff #as re$uired by the defendant to deduct and #ithhold fro% the various su%s paid it to foreign corporations as dividends and interest on bonds and other indebtedness and #hich the plaintiff paid under protest. &n the trial court dis%issing the co%plaint, #ith costs, the plaintiff appealed assigning as the principal errors alleged to have been co%%itted the follo#ing' (. The trial court erred in holding that the dividends paid by the plaintiff corporation #ere sub)ect to inco%e ta* in the hands of its stoc+holders, because to i%pose the ta* thereon #ould be to i%pose a ta* on the plaintiff, in violation of the ter%s of its franchise, and #ould, %oreover, be oppressive and ine$uitable. ,. The trial court erred in not holding that the interest on bonds and other indebtedness of the plaintiff corporation, paid by it outside of the Philippine Islands to corporations not residing therein, #ere not, on the part of the recipients thereof, inco%e fro% Philippine sources, and hence not sub)ect to Philippine inco%e ta*. The facts, as stated by the appellant and as accepted by the appellee, %ay be su%%ari-ed as follo#s' The plaintiff is a corporation organi-ed under the la#s of the Philippine Islands. It operates a gas plant in the City of Manila and furnishes gas service to the people of the %etropolis and surrounding

%unicipalities by virtue of a franchise granted to it by the Philippine Govern%ent. .ssociated #ith the plaintiff are the Islands Gas and /lectric Co%pany do%iciled in 0e# 1or+, 2nited 3tates, and the General 4inance Co%pany do%iciled in 5urich, 3#it-erland. 0either of these last %entioned corporations is resident in the Philippines. 4or the years (6"7, (6"(, and (6",, dividends in the su% of P(,"89,98!.57 #ere paid by the plaintiff to the Islands Gas and /lectric Co%pany in the capacity of stoc+holders upon #hich #ithholding inco%e ta*es #ere paid to the defendant totalling P87,8 7.7" 4or the sa%e years interest on bonds in the su% of P8((, 77 #as paid by the plaintiff to the Islands Gas and /lectric Co%pany upon #hich #ithholding inco%e ta*es #ere paid to the defendant totalling P(,,"89. 4inally for the stated ti%e period, interest on other indebtedness in the su% of P("(, 88,67 #as paid by the plaintiff to the Islands Gas and /lectric Co%pany and the General 4inance Co%pany respectively upon #hich #ithholding inco%e ta*es #ere paid to the defendant totalling P",686."8. 3o%e uncertainty e*isting regarding the place of pay%ent, #e #ill not go into this factor of the case at this point, e*cept to re%ar+ that the bonds and other to+ens of indebtedness are not to be found in the record. :o#ever, /*hibits /, 4, and G, certified correct by the Treasurer of the Manila Gas Corporation, purport to prove that the place of pay%ent #as the 2nited 3tates and 3#it-erland. The appeal naturally divides into t#o sub)ects, one covered by the first assigned error, and the other by the second assigned error. ;e shall discuss these sub)ects and errors in order. (. .ppellant first contends that the dividends paid by it to its stoc+holders, the Islands Gas and /lectric Co%pany , #ere not sub)ect to ta* because to i%pose a ta* thereon #ould be to do so on the plaintiff corporation, in violation of the ter%s of its franchise and #ould, %oreover, be oppressive and ine$uitable. This argu%ent is predicated on the constitutional provision that no la# i%pairing the obligation of contracts shall be enacted. The particular portion of the franchise #hich is invo+ed provides'

2
The grantee shall annually on the fifth day of <anuary of each year pay to the City of Manila and the %unicipalities in the Province of Ri-al in #hich gas is sold, t#o and one half per centu% of the gross receipts #ithin said city and %unicipalities, respectively, during the preceding year. 3aid pay%ent shall be in lieu of all ta*es, Insular, provincial and %unicipal, e*cept ta*es on the real estate, buildings, plant, %achinery, and other personal property belonging to the grantee. The trial )udge #as of the opinion that the instant case #as governed by our previous decision in the case of Philippine Telephone and Telegraph Co., vs. Collector of nternal !even"e =>(6""?, 59 Phil. "6@. In this vie# #e concur. It is true that the ta* e*e%ption provision relating to the Manila Gas Corporation hereinbefore $uoted differs in phraseology fro% the ta* e*e%ption provision to be found in the franchise of the Telephone and Telegraph Co%pany, but the ratio decidendi of the t#o cases is substantially the sa%e. .s there held and as no# confir%ed, a corporation has a personality distinct fro% that of its stoc+holders, enabling the ta*ing po#er to reach the latter #hen they receive dividends fro% the corporation. It %ust be considered as settled in this )urisdiction that dividends of a do%estic corporation, #hich are paid and delivered in cash to foreign corporations as stoc+holders, are sub)ect to the pay%ent in the inco%e ta*, the e*e%ption clause in the charter of the corporation not#ithstanding. 4or the foreign reasons, #e are led to sustain the decision of the trial court and to overrule appellantAs first assigned error. ,. In support of its second assign%ent of error, appellant contends that, as the Islands Gas and /lectric Co%pany and the General 4inance Co%pany are do%iciled in the 2nited 3tates and 3#it-erland respectively, and as the interest on the bonds and other indebtedness earned by said corporations has been paid in their respective do%iciles, this is not inco%e fro% Philippine sources #ithin the %eaning of the Philippine Inco%e Ta* Ba#. Citing sections (7 =a@ and (" =e@ of .ct 0o. ,9"", the Inco%e Ta* Ba#, appellant asserts that their applicability has been s$uarely deter%ined by decisions of this court in the cases of #anila !ailroad Co. vs. Collector of nternal !even"e =0o. "((6 , pro%ulgated Cece%ber ,, (6,6, nor reported@, and Philippine !ail$a% Co. vs. Posadas =0o. "9! , pro%ulgated &ctober "7, (6"" >59 Phil., 6 9?@ #herein it #as held that interest paid to nonresident individuals or corporations is not inco%e fro% Philippine sources, and hence not sub)ect to the Philippine Inco%e Ta*. The 3olicitor-General ans#ers #ith the observation that the cited decisions interpreted the Inco%e Ta* Ba# before it #as a%ended by .ct 0o. "! ( to cover the interest on bonds and other obligations or securities paid D#ithin or #ithout the Philippine Islands.D .ppellant rebuts this argu%ent by Dassu%ing, for the sa+e of the argu%ent, that by the a%end%ent introduced to section (" of .ct 0o. ,9"" by .ct 0o. "! ( the Begislature intended the interest fro% Philippine sources and so is sub)ect to ta*,D but #ith the necessary se$uel that the a%endatory statute is invalid and unconstitutional as being the po#er of the Begislature to enact. Ta+ing first under observation that last point, it is to be observed that neither in the pleadings, the decision of the trial court, nor the assign%ent of errors, #as the $uestion of the validity of .ct 0o. "! ( raised. 2nder such circu%stances, and no )urisdictional issue being involved, #e do not feel that it is the duty of the court to pass on the constitutional $uestion, and accordingly #ill refrain fro% doing so. =Cad#aller-Gibson Bu%ber Co. vs. Cel Rosario >(6("?, , Phil., (6,E Macondray and Co. vs. Fenito and &ca%po, P. ("!, anteE 3tate vs. Fur+e >(6(,?, (!5 .la., 5 (.@ .s to the applicability of the local cases cited and of the Porto Rican case of Co%enech vs. 2nited Porto Rican 3ugar co. =>(6",?, , 4. >,d?, 55,@, #e need only observe that these cases announced good la#, but that each he %ust be decided on its particular facts. In other #ords, in the opinion of the %a)ority of the court, the facts at bar and the facts in those cases can be clearly differentiated. .lso, in the case at bar there is so%e uncertainty concerning the place of pay%ent, #hich under one vie# could be considered the Philippines and under another vie# the 2nited 3tates and 3#it-erland, but #hich cannot be definitely deter%ined #ithout the necessary docu%entary evidence before, us.

3
The approved doctrine is that no state %ay ta* anything not #ithin its )urisdiction #ithout violating the due process clause of the constitution. The ta*ing po#er of a state does not e*tend beyond its territorial li%its, but #ithin such it %ay ta* persons, property, inco%e, or business. If an interest in property is ta*ed, the situs of either the property or interest %ust be found #ithin the state. If an inco%e is ta*ed, the recipient thereof %ust have a do%icile #ithin the state or the property or business out of #hich the inco%e issues %ust be situated #ithin the state so that the inco%e %ay be said to have a situs therein. Personal property %ay be separated fro% its o#ner, and he %ay be ta*ed on its account at the place #here the property is although it is not the place of his o#n do%icile and even though he is not a citi-en or resident of the state #hich i%poses the ta*. Fut debts o#ing by corporations are obligations of the debtors, and only possess value in the hands of the creditors. =4ar%ers Boan Co. vs. Minnesota >(6"7?, ,97 2.3., ,78E 2nion Refrigerator Transit Co. vs. Gentuc+y >(675?, (66 2.3., (68 3tate Ta* on 4oreign held Fonds >(9!", (5 ;all., "77E Fic+ vs. Feach >(67!?, ,7 2. 3., "6,E 3tate e& rel. Manito#oc Gas Co. vs. ;ig. Ta* Co%%. >(6(5?, ( ( ;is., (((E 2nited 3tates Revenue .ct of (6",, sec. (8".@ These vie#s concerning situs for ta*ation purposes apply as #ell to an organi-ed, unincorporated territory or to a Co%%on#ealth having the status of the Philippines. Pushing to one side that portion of .ct 0o. "! ( #hich per%its ta*ation of interest on bonds and other indebtedness paid #ithout the Philippine Islands, the $uestion is if the inco%e #as derived fro% sources #ithin the Philippine Islands. In the )udg%ent of the %a)ority of the court, the $uestion should be ans#ered in the affir%ative. The Manila Gas Corporation operates its business entirely #ithin the Philippines. Its earnings, therefore co%e fro% local sources. The place of %aterial delivery of the interest to the foreign corporations paid out of the revenue of the do%estic corporation is of no particular %o%ent. The place of pay%ent even if conceded to be outside of tho country cannot alter the fact that the inco%e #as derived fro% the Philippines. The #ord DsourceD conveys only one idea, that of origin, and the origin of the inco%e #as the Philippines. In synthesis, therefore, #e hold that conditions have not been provided #hich )ustify the court in passing on the constitutional $uestion suggestedE that the facts #hile so%e#hat obscure differ fro% the facts to be found in the cases relied upon, and that the Collector of Internal Revenue #as )ustified in #ithholding inco%e ta*es on interest on bonds and other indebtedness paid to non-resident corporations because this inco%e #as received fro% sources #ithin the Philippine Islands as authori-ed by the Inco%e Ta* Ba#. 4or the foregoing reasons, the second assigned error #ill be overruled. Fefore concluding, it is but fair to state that the #riterAs opinion on the first sub)ect and the first assigned error herein discussed is accurately set forth, but that his opinion on the second sub)ect and the second assigned error is not accurately reflected, because on this last division his vie#s coincide #ith those of the appellant. :o#ever, in the interest of the pro%pt disposition of this case, the decision has been #ritten up in accordance #ith instructions received fro% the court. <udg%ent affir%ed, #ith the cost of this instance assessed against the appellant. H"ll, 'ickers, (perial, )"tte, and !ecto, **., conc"r.

S&'ara(& O')n)on* $ILLA-R"AL, J., concurring and dissenting' I concur #ith the %a)ority decision regarding the disposition of the second error, but dissent as to its disposition of the first error. In %y opinion, the e*e%ption clause to be found in the charter of the plaintiff is broader in scope than that to be found in the charter of the Philippine Telephone and Telegraph Co%pany, thus %a+ing inapplicable the decision of this court in the case of Philippine Telephone and Telegraph Co. vs. Collector of nternal !even"e =59 Phil., "6@. A+A, SAN OS, J., concurring in part and dissenting in part'

4
I a% of opinion that the first assign%ent of error should be sustained and the )udg%ent belo# reversed in that respect. The franchise held by the appellant corporation contains a stipulation by the Govern%ent to the effect that the pay%ent by the corporation to the entities na%ed in the franchise of t#o and one-half per centu% of its gross receipts, shall be in lieu of all ta*es, e*cept ta*es on the real estate, buildings, plant, %achinery and other personal property belonging to the corporation. The dividends paid by the appellant corporation to its stoc+holders #ere a part of its earnings and as such not sub)ect to ta* under the ter%s of the franchise. The franchise in this case is a contract, the obligation of #hich can not be i%paired. I agree #ith the %a)ority of the court that the second assign%ent of error should be overruled, and the )udg%ent affir%ed in that particular. 3ection (" =e@ of .ct 0o. ,9"", as a%ended by .ct 0o. "! (, e*pressly provides for the i%position of a ta* D... upon the inco%e derived fro% interest upon bonds and %ortgages, or deeds of trust, notes, or other interest-bearing obligations of a do%estic or resident foreign corporation, ...D The inco%e derived fro% the interest on bonds and other indebtedness of the appellant corporation, is clearly #ithin the purvie# of the statute. The po#er of the legislature to i%pose such a ta* %ust be recogni-ed. .s stated by <ustice Fradley in 2nited 3tates vs. /rie R. Co. =(7 2.3., ",!E ,! Ba#. ed., (5(, (5"@ ' D... The ta* laid upon their bonds #as intended to affect the o#ners of the bonds, and #hilst the co%panies #ere directed to pay it, they #ere authori-ed to retain the a%ount fro% the install%ents due to the bondholders, #hether citi-ens or aliens. The ob)ection that Congress had no po#er to ta* non-resident aliens, is %et by the fact that the ta* #as not assessed against the% personally, but against the re(, the credit, the debt due to the%. Congress has the right to ta* all property #ithin the )urisdiction of the 2nited 3tates, #ith certain e*ceptions not necessary to be noted. The %oney due to non-resident bondholders in this case #as in the 2nited 3tates in the hands of the co%pany before it could be trans%itted to Bondon, or other place #here the bondholders resided. ;hilst here it #as liable to ta*ation. Congress, by the internal revenue la#, by #ay of ta*., stopped a part of the %oney before its trans%ission, na%elyE 5 per cent of it. Plausible grounds for levying such a ta* %ight be assigned. It %ight be said that the creditor is protected by our la#s in the en)oy%ent of the debtE that the #hole %achinery of our courts and the physical po#er of the govern%ent are placed at his disposal for its security and collection.D A$ANC"-A, C.J., dissenting' I do not agree #ith the %a)ority opinion #ith respect to the appellantAs second assign%ent of error, #hich in %y opinion should be sustained. The $uestion involved in this error has been clearly decided by this court in the case of #anila !ailroad Co. vs. Collector of nternal !even"e =G.R. 0o. "((6 , pro%ulgated Cece%ber ,, (6,6, not reported@. In said case it #as held that interest on bonds purchased outside the Philippine Islands by nonresidents of the Islands cannot be considered derived fro% sources #ithin the Islands. The a%end%ent of the la# introduced by .ct no. "! ( as to the place of pay%ent of interest does not affect the aspect of the $uestion raised in this error if the interest on #hich the ta* in the present case has been collected is not derived fro% sources #ithin the Islands, as it is not so in fact, in accordance #ith the doctrine laid do#n in said case of #anila !ailroad Co. vs. Collector of nternal !even"e. GO,,AR,, J., dissenting' The ta* e*e%ption and co%%utation clause in the plaintiffs franchise provides that' The grantee shall annually on the 5th day of <anuary of each year pay to the City of Manila and to the %unicipalities in the Province of Ri-al in #hich gas is sold, t#o and one half per centu% of the gross receipts #ithin said city and %unicipalities, respectively, during the preceding year. Said pa%(ent shall +e in lie" of all ta&, ns"lar, provincial and ("nicipal, e&cept ta&es on the real estate, +"ildings, plant, (achiner%, and other personal propert% +elonging to the grantee. This franchise is a contract bet#een the Govern%ent and the grantees thereof, #hose rights have been ac$uired by the plaintiff corporation. In #anila !ailroad Co. vs. !affert% =87 Phil., ,,8, ,"7@, this court held that D... &nce granted, a charter beco%es a private contract ....D .rticle (76( of the Civil Code provides that D&bligations arising fro% contract shall have the force of la# bet#een the contracting parties and %ust be perfor%ed in

5
accordance #ith their stipulations.D It follo#s that as the plaintiff corporation has paid to the City of Manila and to the %unicipalities of Ri-al, #here gas is sold by it, the franchise ta* stipulated in the contract, the Govern%ent has no legal right to i%pose another ta* on its earnings. The case of 4arrington vs. Tennessee =65 2.3., !6E ,8 Ba#. ed., 559@, is al%ost in e*act parallel #ith the case at bar. The facts of that case #ere as follo#s' The 2nion and PlantersA Fan+ of Me%phis #as duly organi-ed under the charter granted by the Begislature of Tennessee, by t#o .cts, respectively dated March ,7, (959, and 4ebruary (,, (9 6. 3ince its organi-ation it continued doing a regular ban+ing business. Its capital subscribed and paid in a%ounted to H !5,777, divided into ,!57 shares of H(77 each. 4arrington, the plaintiff in error, #as the o#ner of (57 shares, of the value of H(5,777. The tenth section of the charter of the ban+ declared' That said Co%pany shall pay to the 3tate an annual ta* of one-half of one per cent on each share of the capital stoc+ subscribe, #hich shall be in lieu of all other ta*es. The 3tate of Tennessee and the County of 3helby, clai%ing the right under the Revenue Ba# of the 3tate, to ta* the stoc+ of the plaintiff in error, a stoc+holder of the ban+, assessed and ta*ed it for the year (9!,. It #as assessed at its per value. The ta* i%posed by the 3tate #as forty cents on the H(77, %a+ing the state ta* H 7. The county ta* #as H(.,7 on the H(77, %a+ing the county ta* H(97. The plaintiff in error denied the right of the 3tate and County to i%pose these ta*es. :e clai%edE =(@ That the (7th section of the charter #as a contract bet#een the 3tate and the ban+E =,@ That any other ta* than that therein specified #as e*pressly forbidden, and. ="@ That the revenue la#s i%posing the ta*es in $uestion i%paired the obligation of the contract. The 3upre%e Court of Tennessee ad)udge the ta*es to be valid and the plaintiff in error thereupon re%oved the case to the 4ederal 3upre%e Court for revie#. In upholding all of the contentions of the plaintiff in error, and pronouncing invalid the ta*es involved as i%pairing the obligation of the contract created by the franchise, the 2nited 3tates 3upre%e court said' This case turns upon the construction to be given to the (7th section of the charter of the ban+. . . . *** *** ***

;hen this charter #as granted, the 3tate %ight have been silent as to ta*ation. In that case, the po#er #ould have been unfettered. =F+. vs. Fillings, 8 Pet., 5(8.@ It %ight have reserved the po#er as to so%e things, and yielded it as to others. It had the po#er to %a+e its o#n ter%s or to refuse the charter. It chose to stipulate for a specified ta* on the and declared and bound itself that this ta* should be Din lieu of all other ta*es.D There is no $uestion before us as to the ta* i%posed on the shares by the charter. Fut the 3tate has by her revenue i%posed another and an additional ta* on these sa%e shares. This is one of those Dother ta*esD #hich it had stipulated to forego. The identity of the thing doubly ta*ed is not affected by the fact that in one case the ta* is to be paid vicariously by the ban+, and in the other by the o#ner of the share hi%self. The thing thus ta*ed is to the sa%e, and the second ta* is e*pressly forbidden by the contract of the parties. .fter the %ost careful consideration, #e can co%e to no other conclusion. 3uch, #e thin+, %ust have been the understanding and intent of the parties #hen the charter #as granted and the ban+ #as organi-ed. .ny other vie# #ould ignore the covenant that the ta* specified should be Din lieu of all other ta*es.D It #ould blot those ter%s fro% the conte*t, and construe it as if they #ere not a part of it. . . .

6
*** *** *** an o%ission by the court to consider all the language of the e*e%ption clause si%ply because a portion of its o%itted in the $uotation fro% the record %ade in the opinion therein delivered. ;e are not inclined, therefore, to overrule or distinguish the ,arrington Case, and #e %ust no# told that the charter clause of e*e%ption li%its the a%ount of ta* on each share of stoc+ in the hands of the shareholder, and that any subse$uent revenue la# of the state #hich i%poses an additional ta* on such shares in the hands or shareholders, i%pairs the obligation of the contract, and is void. This co%pels us to reverse the )udg%ents herein against the shareholders. =Fan+ of Co%%erce vs. Tennessee, ( 2.3. ("8E 87 Ba#. ed., 85, 89.@ The doctrine of the ,arrington Case is no# the settled rule of the highest court of the 2nited 3tates. The first assign%ent of error should therefore be sustained. .s to the second assign%ent of error I concur #ith the dissenting opinion of the Chief <ustice for the reasons set forth therein. Conse$uently that assign%ent of error should also be sustained. The trial court erred in not holding that interest received by a non-resident corporation, outside the Philippine Islands, is not inco%e fro% Philippine sources and so not sub)ect to inco%e ta*. In vie# of the above I a% of the opinion that the appealed decision should be reversed and another entered by this courts ordering the defendant to pay the plaintiff the su% of P87,8 7.7", the a%ount of #ithholding ta*es paid on account of interest on bonds and other indebtedness, or a total of P5 ,!5!."!.

The decree of the 3upre%e Court of Tennessee is reversed and the case #ill be re%anded, #ith directions to enter a decree in favor of the plaintiff in error. =4arrington vs. Tennessee, 65 2.3., !6E ,8 Ba#. ed., 5 7, 5 (.@ That case, it #ill be observed, is al%ost in e*act parallel #ith the case at bar. Foth cases deal #ith ta* co%%utation provided for in a franchise granted by the 3tate. In both cases the 3tate covenanted that the ta* specified in the franchise should be in lieu of all other ta*es. In both cases the additional ta* #hich the ta* authorities sought to i%pose #as a revenue ta*. In both cases the ta* provided for in the franchise #as paid by the corporation, and the ta* #hich the authorities atte%pted to collect #ere i%posed on the stoc+holders. In the ,arrington case the provision in the 4ederal Constitution that D0o 3tate shall ... pass any ... la# i%pairing the obligation of contractsD #as appliedE in this case the provision of our &rganic Ba# that Dno la# i%pairing the obligation of contracts shall be enactedD is involved. It #ill be observed further, that in the ,arrington case the franchise #as granted to a corporation, yet the court held that the court %utation provision of the franchise e*tended to the individual stoc+holders. In the case at bar, #hile the plaintiff the present o#ner of the franchise. is a corporation, the original grantees #ere natural personsE hence there is %ore reason for holding in the present case that the %utation provision in the franchise granted by the Philippine Govern%ent should e*tend to the stoc+holders of plaintiff corporation. The ,arrington Case, decided in (9!9, #as by a divided court. /ighteen years I later in (96 I the 3tate of Tennessee sought to have the decision in that case revie#ed, on the ground that the court did not consider the other portions of the charter #hich, according to the 3tate, #ere %aterial. The 3upre%e Court I this ti%e unani%ously I declined to reverse its vie# as e*pressed in the 4arrington decision, saying. ;e do not thin+ under the circu%stances that #e ought no# to co%e to a different conclusion upon the $uestion of e*e%ption fro% that #hich #as arrived at by this court in the ,arrington Case. .s the #hole charter #as then before the court, #e are not prepared to say that its force #as %isunderstood, or that there #as

7
goods of #hich sales or e*changes are effected, but does not include %erchandise bro+ers. G.R. No. L-2147. Mar/0 26, 1924 The case #as sub%itted to the Court of 4irst Instance upon the follo#ing agreed state%ent of facts' The parties hereto have agreed, and do agree, that the follo#ing facts shall be considered as having been proven in the above cause' =(@ The plaintiff is a foreign corporation, duly licensed to transact business in the Philippine Islands and having its principal place of business therein in the City of Manila. Cefendant is the duly appointed and acting Collector of Internal Revenue of the Philippine Islands. =,@ The plaintiff at all ti%es since the (st day of .pril, (6,,, has been, and is no#, engaged in the purchase of copra, in the Philippine Islands, and the ship%ent of such copra to its %ills in the 2nited 3tates of .%erica for %anufacture into vegetable oil. Plaintiff during said period has been, and is no#, engaged in no other business in the Philippine Islands. The coconut oil %anufactured by the plaintiff is sold in the 2nited 3tates. ="@ Curing the period fro% .pril (, (6,,, to <une "7, (6,,, the plaintiff purchased in the Philippine Islands, and shipped to its %ills in he 2nited 3tates of .%erica, copra of the value of t#o hundred and fifty-si* thousand seven hundred and ninety-seven pesos =P,5 ,!6!@. The shipping docu%ents covering the said copra #ere signed by the plaintiff. The copra so shipped #as converted into vegetable oil by the plaintiff in the 2nited 3tates, and there sold. =8@ Cefendant, under the alleged authority of section (856 of .ct 0o. ,!((, de%anded of plaintiff a ta* of one per centu% =(J@ of the value of the ship%ents of copra referred to in the preceding paragraph, or the su% of t#o thousand five hundred and si*tyseven pesos and ninety-seven centavos =P,,5 !.6!@. Plaintiff, on the ,7th day of <uly, (6,,, to avoid penalties and forfeitures for non-pay%ent, paid to defendant the su% of t#o thousand five

$"G" A+L" OIL CORPORA ION, plaintiff-appellee, vs. 1"NC"SLAO RINI,A,, Co22&/(or o3 In(&rna2 R&4&nu& o3 (0& P0)2)'')n& I*2an5*, defendant-appellant. -ttorne%-General 'illa-!eal for appellant. !oss, .a$rence and Selph for appellee. OS RAN,, J.: This action is brought to recover bac+ %erchantsA percentage ta*es to the a%ount of P(6,6!5.!7 levied on consign%ents under section (856 of .ct 0o. ,!(( and paid by the plaintiff under protest. The pertinent portions of the section %entioned, #hich #ent into effect on &ctober (, (6(!, reads as follo#s' .ll %erchants not herein specifically e*e%pted shall pay a ta* of one per centu% on the gross value in %oney of the co%%odities, goods, #ares, and %erchandise sold, bartered, e*changed, or consigned abroad by the%, such ta* to be based on the actual selling price or value of the things in $uestion at the ti%e they are disposed of or consigned, #hether consisting of ra# %aterial or of %anufactured or partially %anufactured products, and #hether of do%estic or foreign origin. The ta* upon things consigned abroad shall be refunded upon satisfactory proof of the return thereof to the Philippine Islands unsold. *** *** ***

DMerchant,D as here used, %eans a person engaged in the sale, barter, or e*change of personal property of #hatever character. /*cept as specially provided, the ter% includes %anufacturers #ho sell articles of their o#n production and co%%ission %erchants having establish%ents of their o#n for the +eeping and disposal of

8
hundred and si*ty-seven pesos and ninety-seven centavos =P,,5 !.6!@ under #ritten protest, #hich protest defendant overruled. =5@ Curing the period fro% <uly (, (6,,, to 3epte%ber "7, (6,,, the plaintiff purchased in the Philippine Islands, and shipped to its %ills in the 2nited 3tates of .%erica, copra of the value of one %illion four hundred and t#o thousand, one hundred and si*tynine pesos =P(,87,,( 6@. The shipping docu%ents covering the said copra #ere signed by plaintiff. The copra so shipped #as converted into vegetable oil by the plaintiff in the 2nited 3tates, and there sold. = @ Cefendant, under the alleged authority of section (856 of .ct 0o. ,!((, de%anded of plaintiff a ta* of one per centu% =(J@ of the value of the ship%ents of copra referred to in the preceding paragraph, or the su% of fourteen thousand and t#enty-one pesos and si*ty-nine centavos =P(8,7,(. 6@. Plaintiff, on the ( th day of &ctober, (6,,, to avoid penalties and forfeitures for non-pay%ent, paid to defendant the su% of fourteen thousand and t#enty-one pesos and si*ty-nine centavos =P(8,7,(. 6@ under #ritten protest, #hich protest defendant overruled. =!@ Curing the period fro% &ctober (, (6,,, to Cece%ber "(, (6,,, the plaintiff purchased in the Philippine Islands and shipped to its %ills in the 2nited 3tates of .%erica copra of the value of three hundred and thirty-nine thousand and four pesos =P"66,778@. The shipping docu%ents covering the said copra #ere signed by the plaintiff. The copra so shipped #as converted into vegetable oil by the plaintiff in the 2nited 3tates, and there sold. =9@ Cefendant, under the alleged authority of section (856 of .ct 0o. ,!((, de%anded of plaintiff a ta* of one per centu% =(J@ of the value of the ship%ents of copra referred to in the preceding paragraph, or the su% of three thousand three hundred and ninety pesos and four centavos =P","67.78@. Plaintiff, on the (9th day of <anuary, (6,", paid to defendant the su% of three thousand three hundred and ninety pesos and four centavos =P","67.78@ under #ritten protest, #hich protest defendant overruled. 2pon the facts so stated the court belo# rendered )udg%ent in favor of the plaintiff for the recovery of the full a%ount of the ta* paid and the case is no# before us upon appeal by the defendant fro% that )udg%ent. The case is not one of first i%pression. The $uestions involved have been passed upon repeatedly by this court in various cases and, so far, the court has been entirely consistent in its final disposal of all of the%. Fut it often occurs due to the idiosyncracies of the #riters of the decisions in several of these cases, dicta have crept into the% #hich have tended to %islead the %erchants and the Far and to lay the court open to the charge of inconsistency. In order to correct e*isting %isconceptions, a brief resu%e of both the legislative and the )udicial history of the %erchantsA percentage ta* in $uestion %ay, perhaps, be useful. The ta* originated in section ("6 of the Internal Revenue .ct of (678 =.ct 0o. ((96@ #hich, in part, reads as follo#s' /*cept as hereinafter specifically e*e%pted, there shall be paid by each %erchant and %anufacturer a ta* at the rate of one-third of one per centu% on the gross value in %oney of all goods, #ares, and %erchandise sold, bartered or e*changed for do%estic consu%ption in the Philippine Islands, and this ta* shall be paid #hether such co%%odities consist of ra# %aterials or %anufactured or partially %anufactured products, and #hether of do%estic production or i%ported. 3ection (8, of the sa%e .ct contains the follo#ing provisions' The follo#ing persons shall be e*e%pted fro% the pay%ent of the ta*es i%posed in section one hundred and thirty-nine' *** *** ***

=b@ /*porters, on the ra# %aterial and %anufactured or partially %anufactured products actually e*ported by the%.

9
Fy .ct 0o. ,""6, entitled D.n act revising and consolidating the la#s relative to Internal Revenue,D effective <uly (, (6(8, it #as provided' 3/C. 87. .ll %erchants not herein specifically e*e%pted shall pay a ta* of one-third of one per cent on the gross value in %oney of the co%%odities, goods, #ares, and %erchandise sold, bartered or e*changed by the%, such ta* to be based on the actual selling price or value at #hich the things in $uestion are disposed of, #hether consisting of ra# %aterials or of %anufactured or partially %anufactured products, and #hether of do%estic or foreign origin. 3/C. 8(. In co%puting the ta* above i%posed transactions in the follo#ing co%%odities shall be e*cluded' =a@ Merchandise actually e*ported by the vendorE *** *** *** The ne*t legislation on the sub)ect is contained in section ( (8 of the .d%inistrative Code of (6( , effective &ctober (st of the sa%e year, #hich section is practically identical #ith section (856 of .ct 0o. ,!(( $uoted on the first page of the present decision. The latter section =(856@ #as e*pressly ratified and confir%ed by the Congress of the 2nited 3tates in the .ct of <une 5, (6(9 =87 3tat. at B., p. 568@ in the follo#ing language' The ta*es i%posed by the Philippine Begislature in section fourteen hundred and fifty-nine of the .ct 0u%bered T#entyseven hundred and eleven, enacted by that body on March tenth, nineteen hundred and seventeen, are hereby legali-ed and ratified, and the collection of all such ta*es heretofore or hereafter is legali-ed, ratified, and confir%ed hereby as fully to all intents and purposes as if the sa%e by prior .ct of Congress specifically had been authori-ed and directed. .pparently, through an oversight, section ( (8 of the .d%inistrative Code of (6( #as not included in the ratification. 3ection (( of .ct of Congress of .ugust ,6, (6( , the so-called D<ones Ba#,D prohibited the levying or collection of duties on e*ports fro% the Philippine Islands and on the strength of this provision a large nu%ber of actions #ere brought during the years (6(! and (6(9 to recover bac+ percentage ta*es paid on consign%ents abroad. &f these cases, the case of 3%ith, Fell K Co. vs. Rafferty is typical. In that case the plaintiff alleged that during the period fro% &ctober (, (6( to Cece%ber "(, (6(!, it paid, under protest, the su% of P8(",(97.75 in percentage ta*es on %erchandise e*ported fro% the Philippine Islands and %aintained that all of these ta*es #ere in reality duties on e*ports and collected in violation of the <ones Ba#. This court held, in substance, that the ta*es levied under section (856 of .ct 0o. ,!(( #ere legal by virtue of the ratification of that section by Congress, but that section ( (8 of .ct 0o. , 5! not having been ratified, the collection of ta*es thereunder #as illegal. =3%ith, Fell K Co. vs. Rafferty, 87 Phil., 6(.@ The case #as ta+en to the 2nited 3tates 3upre%e Court by #rit of certiorari and #hile it #as there pending section ( (8 of .ct 0o. , 5! #as ratified by .ct of Congress of <une 5, (6,7, in substantially the sa%e language as that

3ection 5 of .ct 0o. ,8",, approved Cece%ber ,", (6(8, a%ended section 87 of .ct 0o. ,""6 by increasing the rate fro% one-third of ( per cent to ( per cent. 3ection " of .ct 0o. ,58(, effective fro% <anuary (, (6( , a%ended section 8( of .ct 0o. ,""6 by eli%inating the clause D=a@ Merchandise actually e*ported by the vendor.D .s #ill be seen, up to this point the %erchantsA percentage ta* #as a do%estic sales ta* pure and si%ple and %erchandise e*ported #as specifically e*e%pted fro% the ta*. Fut section " of .ct 0o. ,58(, by eli%inating the e*e%ption in favor of co%%odities e*ported, placed a severe handicap upon the local %erchants engaged in selling the products of the Islands for e*port #ho, in vie# of the fact that such sales are usually consu%%ated here, #ere co%pelled to pay the sales ta*, #hile the foreign fir%s, #ho %aintained branches or agencies here, could ship directly to the%selves #ithout selling and thus escape the pay%ent of the ta*. This fact beco%ing obvious i%%ediately after the passage of .ct 0o. ,58(, the Begislature at its ne*t session passed .ct 0o. , ,,, effective <anuary (, (6( , #hich a%ended section 87 of .ct 0o. ,""6 by inserting the #ord DconsignedD i%%ediately after the #ord DbarteredD therein. This section #as ratified by .ct of Congress of <uly (, (6( .

10
e%ployed in the ratification of section (856 of .ct 0o. ,!((, and the 2nited 3tates 3upre%e Court accordingly declared the collection of ta*es under both sections valid. =Rafferty vs. 3%ith, Fell K Co., ,5! 2. 3., ,, .@ .t the <anuary ter% of (6,", in the case of Murphy vs. Trinidad =88 Phil., 86@, this court #as again called upon to interpret the provisions of section (856. The facts in that case are thus stated in the decision of the court' It appears fro% the pleadings and ad%itted facts that the .%erican I%port Co%pany, of 3an 4rancisco, California, is e*tensively engaged in the e*portation of e%broideries fro% the Philippine Islands for sale in the 2nited 3tatesE and the plaintiff, R. /. Murphy, during the period covered by the transactions no# in $uestion, #as e%ployed by said co%pany as its supervising agent in these Islands, upon a co%%ission of three per centu% of the value of the labor e*pended in the e%broidery #or+. It further appears that the co%pany has adopted the plan of causing all its product fro% the Philippine Islands to be e%broidered here by native #or+ers under the supervision of the co%panyAs agent, and upon %aterial supplied by the co%pany fro% the 2nited 3tates. 4or the purpose of securing a unifor% $uality of #or+, even the thread used in the e%broidery is supplied by said co%pany to the e%broiderers, but for this a charge is %ade at cost price. In his capacity as agent, the plaintiff receives fro% 3an 4rancisco the goods to be e%broidered, supervises the %anufacture of the e%broidered product, and returns the sa%e fro% ti%e to ti%e in a finished state to the co%pany in 3an 4rancisco. In respect to the transactions thus conducted by the plaintiff for the .%erican I%port Co%pany of 3an 4rancisco during the period of five years fro% <uly (, (6( , to <uly (, (6,(, the said plaintiff %ade returns to the Collector of Internal Revenue, for the purposes of ta*ation under section (856 of the .d%inistrative Code, sho#ing ta*able transactions to the value of P""6,588.56, consisting, first, of P" , 6(.68 the value of thread and da%aged %aterials sold by the plaintiff in the IslandsE and, secondly, of P"7,,95,. 5, the value of the labor e*pended upon the e%broidery #or+ prior to 3epte%ber of the year (6(6. 2pon these returns he #as ta*ed accordingly and paid the ta* #ithout protest. 4ro% the forgoing it #ill be seen that in the returns upon #hich the plaintiff #as thus ta*ed, no account #as ta+en of the value of the goods used in the %a+ing of the e%broideries, and after 3epte%ber, (6(6, no account #as ta+en even of the value of the e%broidery #or+. It appears, ho#ever, that during the aforesaid period of five years the plaintiff caused to be e%broidered cloth belonging to the .%erican I%port Co%pany of a total value of P56!,,89."(, upon #hich there #as e*pended labor of a total value of P6"(,9,"."7, all of #hich #as returned to the .%erican I%port Co%pany fro% ti%e to ti%e during the said period at its office in 3an 4rancisco, California. The freight and cartage on said ship%ents a%ounted to P !7.8,E and the plaintiff earned as his co%%ission during the sa%e ti%e the su% of P,9,!95.78. In vie# of the facts stated in the preceding paragraph, the Collector of Internal Revenue, evidently assu%ing that the plaintiff had previously been under assessed, de%anded pay%ent of the ta* of one per centu% on the difference bet#een the gross a%ount of P(,565,,(6.7( and the a%ount upon #hich the plaintiff had already been ta*ed =""6,588.56@, that is to say, upon the a%ount of P(,,55, !8.8(, thus clai%ing additional ta* to the a%ount of P(,,55 .!8, together #ith the statutory penalty of t#enty-five per centu% for delin$uency, as prescribed in section (859 of the .d%inistrative Code, and a fine of P,77, %a+ing in all the su% of P(5,965.6". This a%ount the plaintiff paid under protest, and no# sues to recover the sa%e, under the authority granted in section (5!6 of the .d%inistrative Code. In discussing the la# of the case the court, spea+ing through Mr. <ustice 3treet, said' .t the inception of the discussion #e should note the fact that in the section referred to a ta* of one per centu% is i%posed upon the gross value of goods sold, bartered, e*changed, or consigned abroad. The e*pression Dconsigned abroad,D as here used, %eans appro*i%ately the sa%e as De*portedED and under the organic la# here in force the Philippine Begislature has no po#er, #ithout the

11
e*press approval of Congress, to %a+e a la# i%posing a ta* on e*ports. Fut the provision no# in $uestion has been three ti%es ratified by different .cts of the Congress of the 2nited 3tates, that is to say, first, as it originally stood in .ct 0o. ,58(, as a%ended by .ct 0o. , ,, of the Philippine BegislatureE secondly, as it no# stands in section (856 of the .d%inistrative Code of (6(!E and, thirdly and lastly, as it stood in section ( (8 in the .d%inistrative Code of (6( =.cts of Congress of <uly (, (6( E of <une 8, (6(9E and of <une 5, (6,7@. There can therefore be no $uestion as to the validity of said provision as it has stood at all ti%es upon our statute boo+s since its first enact%entE and #e %ay say that the Congressional .ct of ratification of <une 5, (6,7, #as passed by Congress after this court had decided the case of 3%ith, Fell K Co. vs. Rafferty =87 Phil., 6(@, and said decision #as reversed by the 3upre%e Court of the 2nited 3tates, in so far as relates to the efficacy of section ( (8 of the .d%inistrative Code of (6( , solely because of said ratification by Congress pending the appeal. .nd no#, upon the point of liability for the ta* that has been collected, #e note the contention in the appellantAs brief that the plaintiff Murphy hi%self is not a D%erchant.D This contention is undoubtedly correct if the plaintiff is considered #ithout relation to the %aster that stands behind hu%. Individually the plaintiff is no %erchant. Fut he is the agent and representative in the Philippine Islands of the .%erican I%port Co%pany of 3an 4ranciscoE and that the latter is a %erchant in the sense intended in section (856 of the .d%inistrative Code is obvious. The ter% D%erchantD is there defined as a person engaged in the sale, barter, or e*change of personal property of #hatever character, and it is declared that the ter% includes %anufacturers #ho sell articles of their o#n production. The .%erican I%port Co%pany fulfills every re$uire%ent of this definition because it is engaged in the %anufacture of Philippine e%broideries and e*ports the finished product for sale in the 2nited 3tates. The fact that the production and e*port of these e%broideries is effected through the agency of the plaintiff Murphy and that the operations of the Co%pany in these islands are conducted in his na%e in no #ise alters the case. 0or is the further circu%stance here %aterial that the consignor, or shipper of the goods fro% these Islands is Murphy and the consignee in the 2nited 3tates is the .%erican I%port Co%pany. ;here a consign%ent of goods is other#ise ta*able, the ta* should be assessed and collected regardless of the personality of the consignor or consignee. . ship%ent of goods abroad is no less ta*able under this section, through consigned to the order of the shipper hi%self. *** *** ***

4ro% any point of vie# the ta* #hich #as collected in this case #as due to the Philippine Govern%ent fro% the .%erican I%port Co%pany of 3an 4ranciscoE and the circu%stance that it has been collected no%inally fro% the plaintiff Murphy should %islead no one. :e has acted throughout as agent, and it is to be assu%ed, in the absence of proof to the contrary, that the %oney #hich #ent into the public coffers belonged to his principal. Fesides, as consignor of the e*ported product, the plaintiff #as apparently the person directly responsible to the Collector for the ta*es due on the several consign%ents. The court decided the case in favor of the defendant and held that the ta* #as la#fully collected. The close analogy bet#een that case and the one at bar #ill be readily observedE the distinctions sought to be dra#n bet#een the t#o cases have, as far as #e can see, no bearing #hatever upon the legal principles involved. They are distinctions #ithout differences. Curing the <uly ter% of (6,", cases R. G. 0os. ,7(7( and ,7877, El Dorado Oil Works vs. Collector of nternal !even"e,( ca%e before this court. In these cases the plaintiff also sought to recover bac+ percentage ta*es paid under protest on Dconsign%ents abroad,D under section (856. The court held that the ta*es #ere i%properly i%posed and rendered )udg%ent in favor of the plaintiff. The opinion of the court #as prepared by Mr. <ustice <ohns, #ho dissented in the Murphy case, and states the essential facts in the follo#ing language' L L L It #ill be noted that the plaintiff is a foreign corporation organi-ed under the la#s of the 3tate of California, #ith its principal office and place of business in the City of 3an 4rancisco, #here it is engaged in the %anufacture and sale of coconut oil and its by-products. .lthough it is duly licensed to transact business in

12
the Philippine Islands, it has a resident purchasing agent only here. That under the ter%s and conditions by #hich the agent %ade all of the purchases in $uestion, the copra #as sold to the plaintiff, a foreign corporation, f. o. b. ship, Manila Fay. That the %erchants fro% #ho% it #as purchased signed and e*ecuted all bills of lading for its ship%ent, and directed the ship%ent of the copra to the plaintiff at 3an 4rancisco, and that upon presenting the bills of lading thus prepared and signed, the %erchants #ere then, and not before, paid for the copra by the resident purchasing agent. &n all such copra the percentage ta* of ( per cent, payable under section (856, #as paid by the respective o#ners and sellers prior to the date of the de%and #hich #as %ade by the defendant upon the resident purchasing agent for the ta* in $uestion. 2pon these facts no fault can be found #ith the disposal %ade of the case and if the #riter of the decision had rested there, no possible %isunderstanding could have arisen. The issues are clean-cut and clear' The plaintiffAs local agent purchased the copraE the sales ta*es #ere duly paid by the vendors, #ho also %ade out and signed the bills of lading and placed the copra aboard the ship. The vendors thus beca%e the consignorsE the plaintiffAs agent did nothing but to pay for the copra after it #as consigned. Clearly, in such circu%stances, the plaintiff #as not the consignor and could not be re$uired to pay the consign%ent ta*. Fut, unfortunately, the subse$uent pages of the decision contain dicta #hich tend to cloud that issues and to lead the Far to believe that the case is on a parity #ith the one no# before us, #hich belief, as #ill be readily seen, is #ithout substantial foundation. Indeed, aside fro% the fact that in both cases the ta*es in dispute #ere collected on consign%ents, there is no essential rese%blance bet#een the t#o. In the present case it is not disputed that the plaintiff corporation #as the consignor of the %erchandise, but it is strenuously argued that inas%uch as it is not Dengaged in the sale, barter, or e*changed of personal propertyD in the Philippine slands, it is not a %erchant #ithin the statutory definition of the ter% and therefore cannot be re$uired to pay the consign%ent ta*. <ust upon #hat ground this assu%ption rests is not $uite clearE so far no ade$uate e*planation has been vouchsafed us. The statute itself does not provide that the sale, barter, or e*change %ust ta+e place in the Philippine Islands in order to %a+e a person engaged in such business a %erchant. Fut, presu%ably, the idea is the result of a %isconception of the nature of the ta* on consign%ents, confusing it #ith the ta* on sales. That the consign%ent ta* is not a sales ta* is, ho#ever, too obvious for argu%entE the fact that it is provided for in the sa%e section as the sales ta* does not necessarily %a+e it so. There is all the difference in the #orld bet#een a consign%ent and a sale. .s stated by counsel for the appellee, the ta* on consign%ents is Da privilege ta* pure and si%pleED it is a ta* on the business of consigning co%%odities abroad fro% these Islands. The definition of the #ord D%erchantD as a person #ho is engaged in the sale, barter, or e*changed of personal property is %erely descriptive of the persons #ho are re$uired to pay the ta* and does not %ean that, in order to e*act fro% the% the pay%ent of the consign%ent ta*, the Govern%ent %ust also be in position to i%pose ta*es on their sales, barter, or e*change. If the ta* #ere one on sales, #e #ould readily agree that the sales, in order to be ta*able in the Philippine Islands, %ust be consu%%ated thereE the Philippine Govern%ent cannot, of course, collect privilege ta*es on sales ta+ing place in foreign countries no %atter #hether the vendor is a Philippine %erchant or #hether he is a foreign one. 0either can the Govern%ent i%pose such ta*es on consign%ents fro% one foreign port to another. Fut, #ith the approval of Congress, it %ay legally levy ta*es on consign%ents fro% Philippine ports. That is #hat has been done in the present instance. It has i%posed the ta* on local transactionsE it does not see+ to ta* transactions carried out abroad. Fut #hen a foreign %erchant, as the #ord D%erchantD is defined in our statutes, co%es to our shores and enters into transactions upon #hich a ta* is laid, the Govern%ent can, and does, place hi% on an e$uality #ith do%estic %erchants and re$uires hi% to pay the sa%e privilege ta*es. .s #e have seen, section (856 provides that D.ll %erchants not herein especificall% e*e%pted shall pay a ta* of one per centu% on the gross value in %oney of the co%%odities, goods, #ares, and %erchandise . . . consigned abroad by the%.D =/%phasis ours.@ It defines the #ord D%erchantD as a person #ho is engaged in the sale, barter, or e*change of personal property, but does not say that he %ust be so engaged in the Philippine Islands in order to be considered a %erchant. .s far as %ay be gathered fro% the plain language of the statute, he %ay do his selling, bartering or e*changing #herever he pleases, but if he consigns %erchandise abroad fro% the Philippine Islands he %ust pay the ta* on his consign%ents. :ad it been the

13
intention of the Begislature to re$uire only the local %erchant to pay the ta*, the definition of the #ord D%erchantD in section (856 #ould have read' DMerchantD as here used %eans a person engaged in the sale, barter or e*change of personal property of #hatever character in the Philippine Islands.D Fut it does not so read. It is not disputed that the Begislature has the po#er to define the class of persons #ho %ust pay certain local ta*esE in fact, the appelleeAs argu%ent rests precisely on such a statutory definition. 0either can it be $uestioned that the Govern%ent %ay i%pose ta*es on local business transacted by foreigners. In the absence of #ords of li%itation or e*e%ption in the statute, #hy %ust #e then assu%e that, in defining the #ord D%erchants,D the class of persons re$uired to pay consign%ent ta*es, the definition applies only to do%estic and not to foreign %erchantsM Perhaps it #ill be argued that a statutory definition is only of local application and is of no legal effect beyond the boundaries of the country in #hich the statute is enacted. That is true, but has nothing to do #ith the present case. ;e are not here applying the definition in relation to the collection of a foreign ta*E #e are considering it in connection #ith the ta* on a local transaction. To hold that only persons #ho engage in sales, barter or e*change in the Philippine Islands are to pay the ta* on consign%ents #ould place the local %erchants at a serious disadvantage in co%petition #ith the foreign %erchants, and #ould defeat the very evident purpose of the ta*. The language of the statute is perfectly clear and places the burden of the ta* on all %erchants ali+e. .re #e then )ustified in e*e%pting so%e of the %erchants by reading non-e*istent provisions into the statute #hich #ould defeat its un%ista+able intent and seriously handicap the local %erchants, in so%e cases, perhaps, driving the% out of businessM ;e sub%it that to do so #ould violate every canon of statutory construction and #ould clearly a%ount to un#arranted )udicial legislation. It is also contended that %erely shipping %erchandise out of the country does not constitute consigning abroad. In ans#er to this, it is sufficient to call attention to the facts that in the 3panish te*t of section (856 the ter% Dconsigned abroadD is rendered /enviado al e&tran0ero/ =sent or shipped abroad@ and that under the provisions of .ct 0o. ,!(! of the Philippine Begislature the 3panish te*t prevails in the interpretation of .ct 0o. ,!((. There is, ho#ever, no real conflict bet#een the 3panish and the /nglish versions. ;hile for%erly the verb DconsignD %ay have had a %ore restricted signification, it is no#, in shipping and co%%ercial circles, used as the e$uivalent of the verb DshipD or Dsend.D That this is the sense in #hich it is used in the section under discussion is $uite obvious. It has been suggested that the ta* applies only to a consign%ent or ship%ent of %erchandise destined for sale and that as it is in this case appears that only the oil e*tracted fro% the copra and not the copra itself #as to be sold, the ta* on the consign%ent #as unla#fully i%posed. ;e find nothing in the la# )ustifying this conclusion. . ship%ent is a ship%ent %o %atter #hat its purpose %ay be and the only re$uisite for the collection of the ta* upon it is that the consignor or shipper %ust be a %erchant. It #ould, indeed, be unreasonable to re$uire the ta* collector to postpone the collection of the ta* on a ship%ent until he could ascertain #hat had ulti%ately been done #ith the goods shipped. 4or the reasons stated, the )udg%ent appealed fro% is hereby reversed and the defendant is absolved fro% the co%plaint, #ithout costs. 3o ordered. -ra"llo, C.*., Street, -vance1a and !o("alde2, **., conc"r. #alcol(, *., dissents.

S&'ara(& O')n)on* JO!NS, J., dissenting' The %a)ority opinion is #ell reasoned and #ell #ritten, but it is not funda%entally sound. It $uotes very freely portions of the body of the %a)ority opinion Murphy vs. Trinidad. It is very apparent that there is a %ar+ed difference bet#een the facts of the t#o cases. In the Murphy-Trinidad case, the syllabus says'

14
(. I0T/R0.B R/N/02/E M/RC:.0T3A T.OE /MFR&IC/R1 M.T/RI.B 3/0T 4R&M .FR&.C. I The %erchantsA ta* i%posed by section (856 of the .d%inistrative Code %ust be paid by a person #ho sends %aterial to the Philippine Islands to be e%broidered under the supervision of its local agents by #ho% the finished product is returned to the o#ner. The person so sending %aterial to be e%broidered and returned is engaged in the business of %anufacture in these Islands and is a %anufacturing %erchant #ithin the %eaning of the Internal Revenue Ba#. .nd in analy-ing section (856 of the .d%inistrative Code in $uestion, the opinion says' The ter% D%erchantD is there defined as a person engaged in the sale, barter, or e*change of personal property of #hatever character, and it is declared that the ter% includes %anufacturers #ho sell articles of their o#n production. The .%erican I%port Co%pany fulfills every re$uire%ent of this definition because it is engaged in the %anufacture of Philippine e%broideries and e*ports the finished product for sale in the 2nited 3tates. There is no clai% or pretense that the plaintiff directly or indirectly ever %anufactured anything in the Philippine Islands, or that it is a %anufacturer #ithin the Philippine Islands, as the #ord is defined in section (856 of the .d%inistrative Code. It is stipulated that' =,@ The plaintiff at all ti%es since the (st day of .pril, (6,,, has been, and is no#, engaged in the purchase of copra, in the Philippine Islands, and the ship%ent of such copra to its %ills in the 2nited 3tates of .%erica for %anufacture into vegetable oil. Plaintiff during said period has been, and is no#, engaged in no other business in the Philippine islands. The coconut oil %anufactured by the plaintiff is sold in the 2nited 3tates. The opinion in the Murphy-Trinidad case is e*pressly founded upon the fact that the .%erican I%port Co%pany, #ho% the plaintiff represented, #as a %anufacturer #ithin the %eaning of section (856 of the .d%inistrative Code, and that because it #as a %anufacturer, the plaintiff #as liable for the pay%ent of the ta*. The %a)ority opinion cites and $uotes #ith approval a portion of the opinion of this court in R. G. 0o. ,7(7(, /l Corado &il ;or+s vs. Collector of Internal Revenue, and says that the portion $uoted is good la# upon the facts therein stated, and then says' The subse$uent pages of the decision contain dicta #hich tend to cloud the issues and to lead the Far to believe that the case is on a parity #ith the one no# before us. 3uffice it to say that all of the %aterial facts in the /l Corado &il ;or+s cases #ere fully and fairly discussed in open court, voted and decided before the opinion #as #ritten. ;hen #ritten the opinion #as first presented to the #riter of the opinion in the Murphy case for his signature and approval, and that after giving the case his usual careful consideration, he signed the opinion as #ritten, and it #as then presented to the other %e%bers of the court, and that in turn it #as signed by all of the% #ho #ere then present. Curing the discussion, the legal distinction bet#een the /l Corado &il ;or+s case and the Murphy case #as clearly pointed out and #ell understood, and for such reason the opinion in the /l Corado &il ;or+s case, as it #as #ritten, #as unani%ously approved by the court. 0o %e%ber of the court, #ho signed the opinion, #as %isled or deceived by anything that #as said in the opinion. There is no clai% or pretense that the plaintiff here is a %anufacturer in the Philippine Islands #ithin the %eaning of section (856 of the .d%inistrative Code. The only $uestion involved is #hether or not it is a %erchant #ithin the %eaning of that section. It is a %erchant #ithin the %eaning of that section, it is liable for the ta*. If it is not a %erchant, it is not liable, an i%portant fact #hich is ignored and overloo+ed in the %a)ority opinion. The statute in $uestion reads' .ll %erchants not herein specifically e*e%pted shall pay a ta* of one per centu% on the gross value in %oney of the co%%odities, goods, #ares, and %erchandise sold, bartered, e*changed, or

15
consigned abroad by the%, such ta* to be based on the actual selling price or value of the things in $uestion at the ti%e they are disposed of or consigned, #hether consisting of ra# %aterial or of %anufactured or partially %anufactured products, and #hether of do%estic or foreign origin. The ta* upon things consigned abroad shall be refunded upon satisfactory proof of the return thereof to the Philippine Islands unsold. In other #ords, a person #ho is a %erchant is liable for the ta* in $uestion, and a person #ho is not a %erchant #ithin the %eaning of the section is not liable for the ta*. The statute having specified that %erchants only are liable for the ta*, it %ust follo# that a person #ho is not a %erchant is not liable for the ta*. The statute then says that' DMerchant,D as here used, %eans a person engaged in the sale, barter, or e*changed of personal property of #hatever character. There is no clai% or pretense that the plaintiff ever sold, bartered or e*changed personal property of any +ind #ithin the Philippine Islands. The statute then says that the #ord DMerchantD ... includes %anufacturers #ho sell articles of their o#n production and co%%ission %erchants having establish%ents of their o#n for the +eeping and disposal of goods of #hich sales or e*changes are effected, but does not include %erchandise bro+ers.D There is no clai% or pretense that the plaintiff ever sold any articles of its o#n production #ithin the Philippine Islands, or that it is a co%%ission %erchant #ithin the Philippine Islands. Fut the %a)ority opinion says that it is a %erchant and a %anufacturer in the 2nited 3tates, and because it buys copra #ithin the Philippine Islands and consigns it to itself, it follo#s that it is and has been a %erchant #ithin the Philippine Islands. The statute having defined the %eaning of the #ord D%erchant,D this court has no legal right to enlarge upon the definition or give it to any other or different %eaning than the statute itself gives. 1et, that is #hat the %a)ority opinion does. It #ould have been a very easy %atter for the Begislature, in defining the #ord D%erchant,D to have said that any person #ho buys copra or tobacco or he%p in the Philippine Islands to be consigned abroad is a %erchant #ithin the %eaning of the act. The Begislature did not say that, but in legal effect that is #hat the %a)ority opinion has said. . statute ought not to be construed for or against the interests of resident %erchants or anyone else. The %a)ority opinion says' To hold that only persons #ho engage in sales, barter or e*change in the Philippine Islands are to pay the ta* on consign%ents #ould place the local %erchants at a serious disadvantage in co%petition #ith the foreign %erchants, and #ould defeat the very evident purpose of the ta*. In other #ords, the plain, ordinary language of the statute should be given an unnatural and strained construction to protect the interests of resident %erchants. If the Begislature had intended that the #ord D%erchantD to %ean #hat the %a)ority opinion says it does, it #ould have said, %erchant, as here used, %eans a person engaged in the sale, barter, or e*change of personal property of #hatever character, or one #ho purchases personal property #ithin the Philippine Islands for consign%ent abroad. Through )udicial legislation, the %a)ority opinion has supplied the %issing definition of the #ord D%erchant.D That is a very dangerous thing for a court to do. It overloo+s the fact that a %erchant, as the #ord is defined by the act, and a %erchant only, is liable for the sales ta* on D%erchandise sold, bartered, e*changed or consigned abroad by the%,D and that if you are not a %erchant #ithin the %eaning of the act, you are not liable for the sales ta*, and that the act defines the #ord D%erchantD as Da person engaged in the sale, barter, or e*change of personal property,D no %atter #hat the purpose %ay be, #hether it is for local consu%ption or consign%ent abroad. There is no clai% or pretense that the plaintiff ever sold, bartered, or e*changed any personal property of any +ind #ithin the Philippine Islands. It is ad%itted that the only thing #hich it ever did #as to purchase copra for consign%ent abroad. :o# can you %a+e a person, even though he be a %erchant, liable for the pay%ent of the ta* for the purchase of property under a statute, #hich %a+es a %erchant only, #ho is Dengaged in the sale, barter or e*change of personal property,D liable for the pay%ent of the ta*M 1et, the %a)ority opinion %a+es a purchaser of property liable for a sales ta* under a statute #hich provides that a %erchant Dengaged in the sale, barter or e*change of personal property is liable for the ta*.D It is a clear case of

16
)udicial legislation. The re%edy should have been in the Begislature and not in the court. I vigorously dissent. JO!NS, J., dissenting' I agree #ith the argu%ent and conclusions of Mr. <ustice <ohns.

#oo(no(&*
(

Page (, ante.

17
that such transfer is not sub)ect to said ta*, the respondent #ill not proceed to assess and collect the sa%e.D The Court of 4irst Instance of Manila rendered )udg%ent, holding that the trans%ission by #ill of the said "5,777 shares of stoc+ is sub)ect to Philippine inheritance ta*. :ence, this appeal by the petitioner. Petitioner concedes =(@ that the Philippine inheritance ta* is not a ta* property, but upon trans%ission by inheritance =Boren-o vs. Posadas, "5 &ff. Ga-., ,"6", ,"65@, and =,@ that as to real and tangible personal property of a non-resident decedent, located in the Philippines, the Philippine inheritance ta* %ay be i%posed upon their trans%ission by death, for the self-evident reason that, being a property situated in this country, its transfer is, in so%e #ay, defendant, for its effectiveness, upon Philippine la#s. It is contended, ho#ever, that, as to intangibles, li+e the shares of stoc+ in $uestion, their situs is in the do%icile of the o#ner thereof, and, therefore, their trans%ission by death necessarily ta+es place under his do%iciliary la#s. 3ection (5" of the .d%inistrative Code, as a%ended, provides that every trans%ission by virtue of inheritance of any share issued by any corporation of sociedad anoni(a organi-ed or constituted in the Philippines, is sub)ect to the ta* therein provided. This provision has already been applied to shares of stoc+ in a do%estic corporation #hich #ere o#ned by a Fritish sub)ect residing and do%iciled in Great Fritain. =Gno#les vs. 1atco, G. R. 0o. 8,6 !. See also Gibbs vs. Govern%ent of P. I., G. R. 0o. "5 68.@ Petitioner, ho#ever, invo+es the rule laid do#n by the 2nited 3tates 3upre%e Court in four cases =4ar%ers Boan K Trust Co%pany vs. Minnesota, ,97 2.3. ,78E !8 Ba#. ed., "!(E Fald#in vs. Missouri, ,9( 2.3., 59 E !8 Ba#. ed., (75 , Feidler vs. 3outh Carolina Ta* Co%%ission ,9, 2. 3., (E !5 Ba#. ed., ("(E 4irst 0ational Fan+ of Foston vs. Maine, ,98 2. 3., "(,E 5, 3. Ct., (!8, ! Ba#. ed., "("E !! .. B. R., (87(@, to the effect that an inheritance ta* can be i%posed #ith respect to intangibles only by the 3tate #here the decedent #as do%iciled at the ti%e of his death, and that, under the due-process clause, the 3tate in #hich a corporation has been incorporated has no po#er to i%pose such ta* if the shares of stoc+ in such corporation are o#ned by a non-resident decedent. It is to be observed, ho#ever, that in a later case =Furnet vs. Froo+s, ,99 2. 3., "!9E !! Ba#. ed., 988@, the 2nited 3tates 3upre%e Court upheld the authority of the 4ederal Govern%ent to i%pose an inheritance ta* on the trans%ission, by

G.R. No. L-46720

Jun& 28, 1940

1"LLS #ARGO +AN6 7 %NION R%S COMPAN8, petitionerappellant, vs. !" COLL"C OR O# IN "RNAL R"$"N%", respondent-appellee. De Witt, Perkins and Ponce Enrile for appellant. Office of the Solicitor-General O2aeta and -ssistant Solicitor-General Concepcion for appellee. !oss, .a$rence, Selph and Carrascoso, *a(es #adison !oss and ,ederico -grava as a(ici c"ri3. MORAN, J.: .n appeal fro% a declaratory )udg%ent rendered by the Court of 4irst Instance of Manila. Firdie Billian /ye, #ife of Clyde Milton /ye, died on 3epte%ber ( , (6",, at Bos .ngeles, California, the place of her alleged last residence and do%icile. .%ong the properties she left her one-half con)ugal share in !7,777 shares of stoc+ in the Fenguet Consolidated Mining Co%pany, an anony%ous partnership =sociedad anoni(a@, organi-ed and e*isting under the la#s of the Philippines, #ith is principal office in the City of Manila. 3he left a #ill #hich #as duly ad%itted to probate in California #here her estate #as ad%inistered and settled. Petitioner-appellant, ;ells 4argo Fan+ K 2nion Trust Co%pany, #as duly appointed trustee of the created by the said #ill. The 4ederal and 3tate of CaliforniaAs inheritance ta*es due on said shares have been duly paid. Respondent Collector of Internal Revenue sought to sub)ect ane# the aforesaid shares of stoc+ to the Philippine inheritance ta*, to #hich petitioner-appellant ob)ected. ;herefore, a petition for a declaratory )udg%ent #as filed in the lo#er court, #ith the state%ent that, Dif it should be held by a final declaratory )udg%ent that the transfer of the aforesaid shares of stoc+ is legally sub)ect to the Philippine inheritance ta*, the petitioner #ill pay such ta*, interest and penalties =saving error in co%putation@ #ithout protest and #ill not file to recover the sa%eE and the petitioner believes and t herefore alleges that it should be held

18
death of a non-resident, of stoc+ in a do%estic =.%erica@ corporation, irrespective of the situs of the corresponding certificates of stoc+. Fut it is contended that the doctrine in the foregoing case is not applicable, because the due-process clause is directed at the 3tate and not at the 4ederal Govern%ent, and that the federal or national po#er of the 2nited 3tates is to be deter%ined in relation to other countries and their sub)ects by applying the principles of )urisdiction recogni-ed in international relations. Fe that as it %ay, the truth is that the due-process clause is Ddirected at the protection of the individual and he is entitled to its i%%unity as %uch against the state as against the national govern%ent.D =Curry vs. McCanless, "7! 2. 3., "5!, "!7E 9" Ba#. ed., (""6, ("86.@ Indeed, the rule laid do#n in the four cases relied upon by the appellant #as predicated on a proper regard for the relation of the states of the .%erican 2nion, #hich re$uires that property should be ta*ed in only one state and that )urisdiction to ta* is restricted accordingly. In other #ords, the application to the states of the due-process rule springs fro% a proper distribution of their po#ers and spheres of activity as ordained by the 2nited 3tates Constitution, and such distribution is enforced and protected by not allo#ing one state to reach out and ta* property in another. .nd these considerations do not apply to the Philippines. &ur status rests upon a #holly distinct basis and no analogy, ho#ever re%ote, ca% be suggested in the relation of one state of the 2nion #ith another or #ith the 2nited 3tates. The status of the Philippines has been aptly defined as one #hich, though a part of the 2nited 3tates in the international sense, is, nevertheless, foreign thereto in a do%estic sense. =Co#nes vs. Fid#ell, (9, 2. 3., ,88, "8(.@ .t any rate, #e see nothing of conse$uence in dra#ing any distinct bet#een the operation and effect of the due-process clause as it applies to the individual states and to the national govern%ent of the 2nited 3tates. The $uestion here involved is essentially not one of due-process, but of the po#er of the Philippine Govern%ent to ta*. If that po#er be conceded, the guaranty of due process cannot certainly be invo+ed to frustrate it, unless the la# involved is challenged, #hich is not, on considerations repugnant to such guaranty of due process of that of the e$ual protection of the la#s, as, #hen the la# is alleged to be arbitrary, oppressive or discri%inatory. &riginally, the settled la# in the 2nited 3tates is that intangibles have only one situs for the purpose of inheritance ta*, and that such situs is in the do%icile of the decedent at the ti%e of his death. Fut this rule has, of late, been rela*ed. The %a*i% (o+ilia se4""nt"r persona(, upon #hich the rule rests, has been described as a %ere Dfiction of la# having its origin in consideration of general convenience and public policy, and cannot be applied to li%it or control the right of the state to ta* property #ithin its )urisdictionD =3tate Foard of .ssessors vs. Co%ptoir 0ational CA/sco%pte, (6( 2. 3., "99, 87", 878@, and %ust Dyield to established fact of legal o#nership, actual presence and control else#here, and cannot be applied if to do so result in inescapable and patent in)ustice.D =3afe Ceposit K Trust Co. vs. Nirginia, ,97 2. 3., 9", 6(-6,@ There is thus a %ar+ed shift fro% artificial postulates of la#, for%ulated for reasons of convenience, to the actualities of each case. .n e*a%ination of the ad)udged cases #ill disclose that the rela*ation of the original rule rests on either of t#o funda%ental considerations' =(@ upon the recognition of the inherent po#er of each govern%ent to ta* persons, properties and rights #ithin its )urisdiction and en)oying, thus, the protection of its la#sE and =,@ upon the principle that as o intangibles, a single location in space is hardly possible, considering the %ultiple, distinct relationships #hich %ay be entered into #ith respect thereto. It is on the basis of the first consideration that the case of Furnet vs. Froo+s, s"pra, #as decided by the 4ederal 3upre%e Court, sustaining the po#er of the Govern%ent to i%pose an inheritance ta* upon trans%ission, by death of a non-resident, of shares of stoc+ in a do%estic =.%erica@ corporation, regardless of the situs of their corresponding certificatesE and on the basis of the second consideration, the case of Cury vs. McCanless, supra. In Furnet vs. Froo+s, the court, in disposing of the argu%ent that the i%position of the federal estate ta* is precluded by the due-process clause of the 4ifth .%end%ent, held' The point, +eing solel% one of 0"risdiction to ta*, involves none of the other consideration raised by confiscatory or arbitrary legislation inconsistent #ith the funda%ental conceptions of )ustice #hich are e%bodied in the due-process clause for the protection of life, liberty, and property of all persons I citi-ens and friendly aliens ali+e. Russian Nolunteer 4leet vs. 2nited 3tates, ,9, 2. 3., 89(, 896E !5 Ba# ed., 8!", 8! E 8( 3. Ct., ,,6E 0icholas vs. Coolidge, ,!8 2. 3., 5"(E 58,, !( Ba# ed., ((98, ((6,E 8! 3. Ct., !(7E 5, .. B. R., (79(E :einer vs. Connon, ,95 2.3., "(,, ", E !

19
Ba# ed., !!,, !!6E 5, 3. Ct., "59. f in the instant case the ,ederal Govern(ent had 0"risdiction to i(pose the ta&, there is (anifestl% no gro"nd for assailing it. Gno#lton vs. Moore, (!9 2.3., 8(, (76E 88 Ba#. ed., 6 6, 66 E ,7 3. Ct., !8!E MaGray vs. 2nited 3tates, (65 2.3., ,!, (E 86 Ba#. ed., !9E 6!E ,8 3. Ct., ! 6E ( .nn. Cas., 5 (E 4lint vs. 3tone Tracy Co., ,,7 2.3., (7!, (5", (58E 55 Ba#. ed., "96, 8(8, 8(5E "( 3. Ct., "8,E .nn. Cas., (6(,F, ("(,E Frushaber vs. 2nion p. R. Co., ,87 2.3., (, ,8E 7 Ba#. ed., 86", 578E " 3. Ct., ," E B. R. .., (6(! CE 8(8, .nn. Cas, (6(!F, !("E 2nited 3tates vs. Core%us, ,86 2. 3., 9 , 6"E " Ba#. ed., 8"6, 86 E "6 3. Ct., ,(8. =/%phasis ours.@ .nd, in sustaining the po#er of the 4ederal Govern%ent to ta* properties #ithin its borders, #herever its o#ner %ay have been do%iciled at the ti%e of his death, the court ruled' . . . There does not appear, a priori, to be anything contrary to the principles of international la#, or hurtful to the polity of nations, in a 3tateAs ta*ing property physically situated #ithin its borders, #herever its o#ner %ay have been do%iciled at the ti%e of his death. . . . .s )urisdiction %ay e*ist in %ore than one govern%ent, that is, )urisdiction based on distinct grounds I the citi-enship of the o#ner, his do%icile, the source of inco%e, the situs of the property I efforts have been %ade to preclude %ultiple ta*ation through the negotiation of appropriate international conventions. These endeavors, ho#ever, have proceeded upon e*press or i%plied recognition, and not in denial, of the sovereign ta*ing po#er as e*erted by govern%ents in the e*ercise of )urisdiction upon any one of these grounds. . . . =See pages "6 -"6!E "66.@ In Curry vs. McCanless, s"pra, the court, in deciding the $uestion of #hether the 3tates of .laba%a and Tennessee %ay each constitutionally i%pose death ta*es upon the transfer of an interest in intangibles held in trust by an .laba%a trustee but passing under the #ill of a beneficiary decedent do%iciles in Tennessee, sustained the po#er of each 3tate to i%pose the ta*. In arriving at this conclusion, the court %ade the follo#ing observations' In cases #here the o#ner of intangibles confines his activity to the place of his do%icile it has been found convenient to substitute a rule for a reason, cf. 0e# 1or+ e* rel., Cohn vs. Graves, "77 2.3., "79, "("E 9( Ba#. ed., , !7E 5! 3. Ct., 8 E (79 .. B. R., !,(E 4irst Fan+ 3toc+ Corp. vs. Minnesota, "7( 2. 3., ,"8, ,8(E 9( Ba#. ed., (7 (, (7 5E 5! 3. Ct., !!E ((" .. B. R., ,,9, by saying that his intangibles are ta*ed at their situs and not else#here, or perhaps less artificially, by invo+ing the %a*i% (o+ilia se4""nt"r persona(. Flodgett vs. 3ilber%an, ,!! 2.3., (E !, Ba#. ed., !86E 3. Ct., 8(7, supraE Fald#in vs. Missouri, ,9( 2. 3., 5 9E !8 Ba#. ed., (75 E 57 3. Ct., 8" E !, .. B. R., ("7", s"pra, #hich %eans only that it is the identify o#ner at his do%icile #hich gives )urisdiction to ta*. Fut #hen the ta*payer e*tends his activities #ith respect to his intangibles, so as to avail hi%self of the protection and benefit of the la#s of another state, in such a #ay as to bring his person or properly #ithin the reach of the ta* gatherer there, the reason for a single place of ta*ation no longer obtains, and the rule even #or+able substitute for the reasons %ay e*ist in any particular case to support the constitutional po#er of each state concerned to ta*. ;hether #e regard the right of a state to ta* as founded on po#er over the ob)ect ta*ed, as declared by Chief <ustice Marshall in McCulloch vs. Maryland, 8 ;heat., "( E 8 Ba#. ed., 5!6, supra, through do%inion over tangibles or over persons #hose relationships are source of intangibles rights, or on the benefit and protection conferred by the ta*ing sovereignty, or both, it is undeniable that the state of do%icile is not deprived, by the ta*payerAs activities else#here, of its constitutional )urisdiction to ta*, and conse$uently that there are %any circu%stances in #hich %ore than one state %ay have )urisdiction to i%pose a ta* and %easure it by so%e or all of the ta*payerAs intangibles. 3hares or corporate stoc+ be ta*ed at the do%icile of the shareholder and also at that of the corporation #hich the ta*ing state has created and controlsE and inco%e %ay be ta*ed both by the state #here it is earned and by the state of the recipientAs do%icile. protection, benefit, and po#er over the sub)ect %atter are not confined to either state. . . .=p. ("8!-("86.@ . . . ;e find it i%possible to say that ta*ation of intangibles can be reduced in every case to the %ere %echanical operation of locating at a single place, and there ta*ing, every legal interest gro#ing out

20
of all the co%ple* legal relationships #hich %ay be entered into bet#een persons. This is the case because in point of actuality those interests %ay be too diverse in their relationships to various ta*ing )urisdictions to ad%it of unitary treat%ent #ithout discarding %odes of ta*ation long accepted and applied before the 4ourteen .%end%ent #as adopted, and still recogni-ed by this Court as valid. =P. ("5(.@ ;e need not belabor the doctrines of the foregoing cases. ;e believe, and so hold, that the issue here involved is controlled by those doctrines. In the instant case, the actual situs of the shares of stoc+ is in the Philippines, the corporation being do%iciled therein. .nd besides, the certificates of stoc+ have re%ained in this country up to the ti%e #hen the deceased died in California, and they #ere in possession of one 3yrena McGee, secretary of the Fenguet Consolidated Mining Co%pany, to #ho% they have been delivered and indorsed in blan+. This indorse%ent gave 3yrena McGee the right to vote the certificates at the general %eetings of the stoc+holders, to collect dividends, and dispose of the shares in the %anner she %ay dee% fit, #ithout pre)udice to her liability to the o#ner for violation of instructions. 4or all practical purposes, then, 3yrena McGee had the legal title to the certificates of stoc+ held in trust for the true o#ner thereof. In other #ords, the o#ner residing in California has e*tended here her activities #ith respect to her intangibles so as to avail herself of the protection and benefit of the Philippine la#s. .ccordingly, the )urisdiction of the Philippine Govern%ent to ta* %ust be upheld. <udg%ent is affir%ed, #ith costs against petitioner-appellant. -vance1a, C.*., (perial, Dia2 and Concepcion, **., conc"r.

21
Philippines and #hich is outside the )urisdiction of defendantE G.R. No. L-.2019 Au9u*( 19, 1988 ILOILO +O L"RS, INC., plaintiff-appellee, vs. CI 8 O# ILOILO, defendant-appellant. Efrain ). Trenas for plaintiff-appellee. Diosdado Garingalao for defendant-appellant. ". That defendant enacted an ordinance on <anuary ((, (6 7 +no#n as &rdinance 0o. 5, 3eries of (6 7 #hich ordinance #as successively a%ended by &rdinance 0o. ,9, 3eries of (6 7E &rdinance 0o. (5, 3eries of (6 8E and &rdinance 0o. 85, 3eries of (6 8E #hich provides as follo#s' 3ection l. I .ny person, fir% or corporation engaged in the distribution, %anufacture or bottling of coca-cola, pepsi cola, tru-orange, seven-up and other soft drin+s #ithin the )urisdiction of the City of Iloilo, shall pay a %unicipal license ta* of ten =P7.(7@ centavos for every case of t#enty-four bottlesE PR&NIC/C, :&;/N/R, that softdrin+s sold to the public at not %ore than five =P7.75@ centavos per bottle shall pay a ta* of one and one half =P7.7(5@ =centavos@ per case of t#enty four bottles. 3ection (-.I4or purposes of this &rdinance, all deliveries andPor dispatches e%anating or %ade at the plant and all goods or stoc+s ta+en out of the plant for distribution, sale or e*change irrespective =of@ #here it #ould ta+e place shall be covered by the operation of this &rdinance. 8. That prior to 3epte%ber, (6 , 3antiago 3y)uco Inc., o#ned and operated a bottling plant at Muelle Boney 3treet, Iloilo City, #hich #as doing business under the na%e of 3even-up Fottling Co%pany of the Philippines and bottled the soft-drin+s Pepsi-Cola and !-upE ho#ever so%eti%e on 3epte%ber (8,(6 , 3antiago 3y)uco, Inc., infor%ed all its e%ployees that it =#as@ closing its Iloilo Plant due to financial losses and in fact closed the sa%e and later sold the plant to the plaintiff Iloilo Fottlers, Inc. 5. That thereafter, plaintiff operated the said plant by bottling the soft drin+s Pepsi-Cola and !-upE ho#ever,

COR "S, J.: The funda%ental issue in this appeal is #hether the Iloilo Fottlers, Inc. #hich had its bottling plant in Pavia, Iloilo, but #hich sold softdrin+s in Iloilo City, is liable under Iloilo City ta* &rdinance 0o. 5, series of (6 7, as a%ended, #hich i%poses a %unicipal license ta* on distributors of softdrin+s. &n <uly (,,(6!,, Iloilo Fottlers, Inc. filed a co%plaint doc+eted as Civil Case 0o. 678 #ith the Court of 4irst Instance of Iloilo praying for the recovery of the su% of P",",6.,7, #hich a%ount allegedly constituted pay%ents of %unicipal license ta*es under &rdinance 0o. 5 series of (6 7, as a%ended, that the co%pany paid under protest. &n 0ove%ber (5,(6!,, the parties sub%itted a partial stipulation of facts, the %aterial portions of #hich state *** *** *** ,. That plaintiff is engaged in the business of bottling softdrin+s under the trade na%e of Pepsi Cola .nd !-up and selling the sa%e to its custo%ers, #ith a bottling plant situated at Farrio 2ngca Municipality of Pavia, Iloilo,

22
so%eti%e in <uly (6 9, plaintiff closed said bottling plant at Muelle Boney, Iloilo City, and transferred its bottling operations to its ne# plant in Farrio 2ngca, Municipality of Pavia, Province of Iloilo, and #hich is outside the )urisdiction of the City of IloiloE . That fro% the ti%e of =the@ enact%ent =of the ordinance@, the 3even 2p Fottling Co%pany of the Philippines under 3antiago 3y)uco Inc., had been religiously paying the defendant City of Iloilo the above%entioned %unicipal license ta* due therefro% for bottler because its bottling plant #as then still situated at Muelle Boney 3t., Iloilo CityE but the plaintiff stopped paying the %unicipal license ta* =after@ &ctober ,(, (6 9 =#hen@ it transferred its plant to Farrio 2ngca Municipality of Pavia, Iloilo #hich is outside the )urisdiction of the City of IloiloE !. That so%eti%e on <uly "(, (6 6, the defendant de%anded fro% the plaintiff the pay%ent of the %unicipal license ta* under the above-%entioned ordinance, a *ero* copy of the said letter is attached to the co%plaint as .nne* D.D and %ade an integral part hereof by reference. 9. That plaintiff e*plained in a letter to the defendant that it could not any%ore be liable to pay the %unicipal license fee because its bottling plant =#as@ not any%ore inside the City of Iloilo, and that %oreover, since it itself =sold@ its o#n products to its =custo%ers@ directly, it could not be considered as a distributor in line #ith the doctrines enunciated by the 3upre%e Court in the cases of City of Manila vs. Fugsu+ Bu%ber Co., B- 9,55, <uly ((, (65!E Manila Trading K 3upply Co., Inc. vs. City of Manila B-( ,(5 , .pril ,6, (656E Central .-ucarera de Con Pedro vs. City of Manila et al., G.R. 0o. B! !6, 3epte%ber ,6,(655E Cebu Portland Ce%ent vs. City of Manila and City Treasurer of Manila, B-( 8,,6,<uly , ,(6 7. . *ero* copy of the said letter is attached as .nne* DFD to the co%plaint and %ade an integral part hereof by reference. .s a result of the said letter of the plaintiff, the defendant did not any%ore press the plaintiff to pay the said %unicipal license ta*E 6. That so%eti%e on <anuary ,5, (6!,, the defendant de%anded fro% the plaintiff co%pliance #ith the said ordinance for (6!, in vie# of the fact that it #as engaged in distribution of the softdrin+s in the City of Iloilo, and it further de%anded fro% the plaintiff pay%ent of bac+ ta*es fro% the ti%e it transferred its bottling plant to the Municipality of Pavia, IloiloE (7. That the plaintiff de%urred to the said de%and of the defendant raising as its )urisdiction the reason that its bottling plant is situated outside the City of Iloilo and as bottler could not be considered as distributor under the said ordinance although it sells its product directly to the consu%er, in line #ith the )urisprudence enunciated by the 3upre%e Court but due to insistence of the defendant, the plaintiff paid on .pril ,7, (6!,, the first $uarter pay%ent of the %unicipal licence ta* in the su% of P",",6.,7, under protest, and thereafter has been paying defendant every $uarter under protestE ((. That on <une l5, (6!,,the defendant infor%ed the plaintiff that it %ust pay all the ta*es due since <uly, (6 9 up to the last $uarter of (6!(, other#ise it shall be constrained to cancel the operation of the business of the plaintiff, and because of this threat, and so as not to occasion disruption of its business operation, the plaintiff under protest agreed to the pay%ent of the bac+ ta*es, on staggered basis, #hich #as acceded to by the defendantE (,. That as co%puted by the plaintiff the follo#ing are its softdrin+s sold in Iloilo City since it transferred its bottling plant fro% the City of Iloilo to Farrio 2ngca Pavia, Iloilo in <uly (6 9, to #it' 0o. of Cases sold

23
3/N /02P (6 9 (6 6 (6!7 (6!( <ul to Cec <an. to Cec. <an. to Cec. <an. to Cec. T&T .B "6," 87 9(,, 87 !6," 96 97, !7 ,97, "6 P/P 3IC&B . 86,7 7 9!, 7 96,, (( 99,8 97 "(8, 8(( T&T .B 99,8 77 ( 9, 677 ( 9, 77 ( 6, (57 565, 757 T.O C2/ P9,98 7 ( ,96 7 ( , 7 7 ( ,6( 5 P 56,57 5 &.R. 0o. 5 (896! - May D D ( ,!(7.66 &.R. 0o. 5 (86"5 - <une D D (8,!6(.,7 &.R. 0o. 5 (86 ! - <uly D D (",65,.77 &.R. 0o. 5 (86!" - .ugust D D (5,!, .( &.R. 0o. 5 AB8666 - 3epte%ber D D (6,(56.58 and is also paying the %unicipal license ta* to the %unicipality of Pavia, Iloilo in the a%ount of P l7,777.77 every year, plus a %unicipal license ta* for engaging in its business to the %unicipality of Pavia in its a%ount of P,,777.77 every year. *** *** *** >Rollo, P. (7 =Record on .ppeal, pp. ,5-"(@? &n the basis of the above stipulations, the court a $uo rendered on <anuary , , (6!" a decision in favor of Iloilo Fottlers, Inc. declaring the Corporation not liable under the ordinance and directing the City of Iloilo to pay the su% ofA P",",6.,7. The decision #as a%ended in an &rder dated March (5, (6!", so as to include the a%ounts paid by the co%pany after the filing of the co%plaint. The City of Iloilo appealed to the Court of .ppeals #hich certified the case to this Court. The ta* ordinance i%poses a ta* on persons, fir%s, and corporations engaged in the business of' (. distribution of soft-drin+s ,. %anufacture of soft-drin+s, and ". bottling of softdrin+s #ithin the territorial )urisdiction of the City of Iloilo.

(". That the plaintiff does not %aintain any store or co%%ercial establish%ent in the City of Iloilo fro% #hich it distributes its products, but by %eans of a fleet of delivery truc+s, plaintiff distributes its products fro% its bottling plant at Farrio 2ngca Municipality of Pavia, Iloilo, directly to its custo%ers in the different to#ns of the Province of Iloilo as #ell as the City of IloiloE (8. That the plaintiff is already paying the 0ational Govern%ent a percentage Ta* of !(Pt, as %anufacturerAs sales ta* on all the softdrin+s it %anufactures as follo#s' &.R. 0o. 8 9"665 - <anuary, (6!, 3ales P(!,,,,.67 &.R. 0o. 5 (8! ! - 4ebruary D D (!,7,8.9( &.R. 0o. .5 (89!7 - March D D (!,596.(6 &.R. 0o. 5 (896( - .pril D D (9,!, .!!

24
There is no $uestion that after it transferred its plant to Pavia, Iloilo province, Iloilo Fottlers, Inc. no longer %anufacturedPbottled its softdrin+s #ithin Iloilo City. Thus, it cannot be ta*ed as one falling under the second or the third type of business. The resolution of this case therefore hinges on #hether the co%pany %ay be considered engaged in the distribution of softdrin+s in Iloilo City, even after it had transferred its bottling plant to Pavia, so as to be #ithin the purvie# of the ordinance. Iloilo Fottlers, Inc. disclai%s liability on t#o grounds' 4irst, it contends that since it is not engaged in the independent business of distributing softdrin+s, but that its activity of selling is %erely an incident to, or is a necessary conse$uence of its %ain or principal business of bottling, then it is 0&T liable under the city ta* ordinance. 3econd, it clai%s that only %anufacturers or bottlers having their plants inside the territorial )urisdiction of the city are covered by the ordinance. The second ground is %anifestly devoid of %erit. It is clear fro% the ordinance that three types of activities are covered' =(@ distribution, =,@ %anufacture and ="@ bottling of softdrin+s. . person engaged in any or all of these activities is sub)ect to the ta*. The first ground, ho#ever, %erits serious consideration. This Court has al#ays recogni-ed that the right to %anufacture i%plies the right to sellPdistribute the %anufactured products >3ee Central .-ucarera de Con Pedro v. City of Manila and 3ar%iento, 6! Phil. ,! =(655@E Calte* =Philippines@, Inc. v. City of Manila and Cudia%at, G.R. 0o. B-,,! 8, <uly ,9, (6 6, ,9 3CR. 987, 98".? :ence, for ta* purposes, a %anufacturer does not necessarily beco%e engaged in the separate business of selling si%ply because it sells the products it %anufactures. In certain cases, ho#ever, a %anufacturer %ay also be considered as engaged in the separate business of selling its products. To deter%ine #hether an entity engaged in the principal business of %anufacturing, is li+e#ise engaged in the separate business of selling, its %ar+eting syste% or sales operations %ust be loo+ed into. In several cases >3ee Central .-ucarera de Con Pedro v. City of Manila and 3ar%iento, s"praE Cebu Portland Ce%ent Co. v. City of Manila and the City Treasurer, (79 Phil. (7 " =(6 7@E Calte* =Philippines@, Inc. v. City of Manila and Cudia%at, s"pra?, this Court had occasion to distinguish t#o %ar+eting syste%s' 2nder the first syste%, the %anufacturer enters into sales transactions and invoices the sales at its %ain office #here purchase orders are received and approved before delivery orders are sent to the co%panyAs #arehouses, #here in turn actual deliveries are %ade. 0o #arehouse sales are %adeE nor are separate stores %aintained #here products %ay be sold independently fro% the %ain office. The #arehouses only serve as storage sites and delivery points of the products earlier sold at the %ain office. 2nder the second syste%, sales transactions are entered into and perfected at stores or #arehouses %aintained by the co%pany. .ny one #ho desires to purchase the product %ay go to the store or #arehouse and there purchase the %erchandise. The stores and #arehouses serve as selling centers. /ntities operating under the first syste% are 0&T considered engaged in the separate business of selling or dealing in their products, independent of their %anufacturing business. /ntities operating under the second syste% are considered engaged in the separate business of selling. In the case at bar, the co%pany distributed its softdrin+s by %eans of a fleet of delivery truc+s #hich #ent directly to custo%ers in the different places in lloilo province. 3ales transactions #ith custo%ers #ere entered into and sales #ere perfected and consu%%ated by route sales%en. Truc+ sales #ere %ade independently of transactions in the %ain office. The delivery truc+s #ere not used solely for the purpose of delivering softdrin+s previously sold at Pavia. They served as selling units. They #ere #hat #ere called, until recently, Drolling storesD. The delivery truc+s #ere therefore %uch the sa%e as the stores and #arehouses under the second %ar+eting syste%. Iloilo Fottlers, Inc. thus falls under the second category above. That is, the corporation #as engaged in the separate business of selling or distributing soft-drin+s, independently of its business of bottling the%. The ta* i%posed under &rdinance 0o. 5 is an e*cise ta*. It is a ta* on the privilege of distributing, %anufacturing or bottling softdrin+s. Feing an e*cise ta*, it can be levied by the ta*ing authority only #hen the acts, privileges or businesses are done or perfor%ed #ithin the )urisdiction of said authority >Co%%issioner of Internal Revenue v. Fritish &verseas

25
.ir#ays Corp. and Court of .ppeals, G.R. 0os. 5!!"-!8, .pril "7, (69!, (86 3CR. "65, 8(7.? 3pecifically, the situs of the act of distributing, bottling or %anufacturing softdrin+s %ust be #ithin city li%its, before an entity engaged in any of the activities %ay be ta*ed in Iloilo City. .s stated above, sales #ere %ade by Iloilo Fottlers, Inc. in Iloilo City. Thus, ;e have no option but to declare the co%pany liable under the ta* ordinance. ;ith the foregoing discussion, it beco%es unnecessary to discuss the other issues raised by the parties. ;:/R/4&R/, the appealed decision is hereby R/N/R3/C. The co%plaint in Civil Case 0o. 678 is ordered CI3MI33/C. 0o Costs. 3& &RC/R/C. ,ernan, C.*., ,eliciano and )idin, **., conc"r. G"tierre2, *r., *., took no part.

26
I #hich #as responsible for selling F&.C tic+ets covering passengers and cargoes. 1 G.R. No. L-6.773-74 A'r)2 30, 1987 COMMISSION"R O# IN "RNAL R"$"N%", petitioner, vs. +RI IS! O$"RS"AS AIR1A8S CORPORA ION an5 CO%R O# A: APP"ALS, respondents. 5"asha, -sperilla, -ncheta, Pe1a, 'al(onte 6 #arcos for respondent )ritish -ir$a%s. G.!. 7o. 89::; =CT. Case 0o. ,"!", the 4irst Case@ &n ! May (6 9, petitioner Co%%issioner of Internal Revenue =CIR, for brevity@ assessed F&.C the aggregate a%ount of P,,869,"59.5 for deficiency inco%e ta*es covering the years (656 to (6 ". This #as protested by F&.C. 3ubse$uent investigation resulted in the issuance of a ne# assess%ent, dated ( <anuary (6!7 for the years (656 to (6 ! in the a%ount of P959,"7!.!6. F&.C paid this ne# assess%ent under protest. &n ! &ctober (6!7, F&.C filed a clai% for refund of the a%ount of P959,"7!.!6, #hich clai% #as denied by the CIR on ( 4ebruary (6!,. Fut before said denial, F&.C had already filed a petition for revie# #ith the Ta* Court on ,! <anuary (6!,, assailing the assess%ent and praying for the refund of the a%ount paid. G.!. 7o. 89::< =CT. Case 0o. ,5 (, the 3econd Case@ &n (! 0ove%ber (6!(, F&.C #as assessed deficiency inco%e ta*es, interests, and penalty for the fiscal years (6 9-(6 6 to (6!7-(6!( in the aggregate a%ount of P586,",!.8", and the additional a%ounts of P(,777.77 and P(,977.77 as co%pro%ise penalties for violation of 3ection 8 =re$uiring the filing of corporation returns@ penali-ed under 3ection !8 of the 0ational Internal Revenue Code =0IRC@. &n ,5 0ove%ber (6!(, F&.C re$uested that the assess%ent be counter%anded and set aside. In a letter, dated ( 4ebruary (6!,, ho#ever, the CIR not only denied the F&.C re$uest for refund in the 4irst Case but also re-issued in the 3econd Case the deficiency inco%e ta* assess%ent for P5"8,(",.79 for the years (6 6 to (6!7-!( plus P(,777.77 as co%pro%ise penalty under 3ection !8 of the Ta* Code. F&.CAs re$uest for reconsideration #as denied by the CIR on ,8 .ugust (6!". This pro%pted F&.C to file the 3econd Case before the Ta* Court praying that it be absolved of liability for deficiency inco%e ta* for the years (6 6 to (6!(. This case #as subse$uently tried )ointly #ith the 4irst Case.

M"L"NCIO-!"RR"RA, J.: Petitioner Co%%issioner of Internal Revenue =CIR@ see+s a revie# on certiorari of the )oint Cecision of the Court of Ta* .ppeals =CT.@ in CT. Cases 0os. ,"!" and ,5 (, dated , <anuary (69", #hich set aside petitionerAs assess%ent of deficiency inco%e ta*es against respondent Fritish &verseas .ir#ays Corporation =F&.C@ for the fiscal years (656 to (6 !, (6 9- 6 to (6!7-!(, respectively, as #ell as its Resolution of (9 0ove%ber, (69" denying reconsideration. F&.C is a (77J Fritish Govern%ent-o#ned corporation organi-ed and e*isting under the la#s of the 2nited Gingdo% It is engaged in the international airline business and is a %e%ber-signatory of the Interline .ir Transport .ssociation =I.T.@. .s such it operates air transportation service and sells transportation tic+ets over the routes of the other airline %e%bers. Curing the periods covered by the disputed assess%ents, it is ad%itted that F&.C had no landing rights for traffic purposes in the Philippines, and #as not granted a Certificate of public convenience and necessity to operate in the Philippines by the Civil .eronautics Foard =C.F@, e*cept for a nine%onth period, partly in (6 ( and partly in (6 ,, #hen it #as granted a te%porary landing per%it by the C.F. Conse$uently, it did not carry passengers andPor cargo to or fro% the Philippines, although during the period covered by the assess%ents, it %aintained a general sales agent in the Philippines I ;a%er Farnes and Co%pany, Btd., and later Qantas .ir#ays

27
&n , <anuary (69", the Ta* Court rendered the assailed )oint Cecision reversing the CIR. The Ta* Court held that the proceeds of sales of F&.C passage tic+ets in the Philippines by ;arner Farnes and Co%pany, Btd., and later by Qantas .ir#ays, during the period in $uestion, do not constitute F&.C inco%e fro% Philippine sources Dsince no service of carriage of passengers or freight #as perfor%ed by F&.C #ithin the PhilippinesD and, therefore, said inco%e is not sub)ect to Philippine inco%e ta*. The CT. position #as that inco%e fro% transportation is inco%e fro% services so that the place #here services are rendered deter%ines the source. Thus, in the dispositive portion of its Cecision, the Ta* Court ordered petitioner to credit F&.C #ith the su% of P959,"7!.!6, and to cancel the deficiency inco%e ta* assess%ents against F&.C in the a%ount of P5"8,(",.79 for the fiscal years (6 9- 6 to (6!7-!(. :ence, this Petition for Revie# on certiorari of the Cecision of the Ta* Court. The 3olicitor General, in representation of the CIR, has aptly defined the issues, thus' (. ;hether or not the revenue derived by private respondent Fritish &verseas .ir#ays Corporation =F&.C@ fro% sales of tic+ets in the Philippines for air transportation, #hile having no landing rights here, constitute inco%e of F&.C fro% Philippine sources, and, accordingly, ta*able. ,. ;hether or not during the fiscal years in $uestion F&.C s a resident foreign corporation doing business in the Philippines or has an office or place of business in the Philippines. ". In the alternative that private respondent %ay not be considered a resident foreign corporation but a nonresident foreign corporation, then it is liable to Philippine inco%e ta* at the rate of thirty-five per cent ="5J@ of its gross inco%e received fro% all sources #ithin the Philippines. 2nder 3ection ,7 of the (6!! Ta* Code' =h@ the ter% resident foreign corporation engaged in trade or business #ithin the Philippines or having an office or place of business therein. =i@ The ter% Dnon-resident foreign corporationD applies to a foreign corporation not engaged in trade or business #ithin the Philippines and not having any office or place of business therein It is our considered opinion that F&.C is a resident foreign corporation. There is no specific criterion as to #hat constitutes DdoingD or Dengaging inD or DtransactingD business. /ach case %ust be )udged in the light of its peculiar environ%ental circu%stances. The ter% i%plies a continuity of co%%ercial dealings and arrange%ents, and conte%plates, to that e*tent, the perfor%ance of acts or #or+s or the e*ercise of so%e of the functions nor%ally incident to, and in progressive prosecution of co%%ercial gain or for the purpose and ob)ect of the business organi-ation. 2 DIn order that a foreign corporation %ay be regarded as doing business #ithin a 3tate, there %ust be continuity of conduct and intention to establish a continuous business, such as the appoint%ent of a local agent, and not one of a te%porary character. 3 F&.C, during the periods covered by the sub)ect - assess%ents, %aintained a general sales agent in the Philippines, That general sales agent, fro% (656 to (6!(, D#as engaged in =(@ selling and issuing tic+etsE =,@ brea+ing do#n the #hole trip into series of trips I each trip in the series corresponding to a different airline co%panyE ="@ receiving the fare fro% the #hole tripE and =8@ conse$uently allocating to the various airline co%panies on the basis of their participation in the services rendered through the %ode of interline settle%ent as prescribed by .rticle NI of the Resolution 0o. 957 of the I.T. .gree%ent.D 4 Those activities #ere in e*ercise of the functions #hich are nor%ally incident to, and are in progressive pursuit of, the purpose and ob)ect of its organi-ation as an international air carrier. In fact, the regular sale of tic+ets, its %ain activity, is the very lifeblood of the airline business, the generation of sales being the para%ount ob)ective. There should be no doubt then that F&.C #as Dengaged inD business in the Philippines through a local agent during the period covered by the

28
assess%ents. .ccordingly, it is a resident foreign corporation sub)ect to ta* upon its total net inco%e received in the preceding ta*able year fro% all sources #ithin the Philippines. . 3ec. ,8. Rates of ta* on corporations. I ... =b@ Ta* on foreign corporations. I ... =,@ Resident corporations. I . corporation organi-ed, authori-ed, or e*isting under the la#s of any foreign country, e*cept a foreign fife insurance co%pany, engaged in trade or business #ithin the Philippines, shall be ta*able as provided in subsection =a@ of this section upon the total net inco%e received in the preceding ta*able year fro% all so"rces $ithin the Philippines. =/%phasis supplied@ 0e*t, #e address ourselves to the issue of #hether or not the revenue fro% sales of tic+ets by F&.C in the Philippines constitutes inco%e fro% Philippine sources and, accordingly, ta*able under our inco%e ta* la#s. The Ta* Code defines Dgross inco%eD thus' DGross inco%eD includes gains, profits, and inco%e derived fro% salaries, #ages or co%pensation for personal service of #hatever +ind and in #hatever for% paid, or fro% profession, vocations, trades, +"siness, co((erce, sales, or dealings in property, #hether real or personal, gro#ing out of the o#nership or use of or interest in such propertyE also fro% interests, rents, dividends, securities, or the transactions of an% +"siness carried on for gain or profile, or gains, profits, and inco(e derived fro( an% so"rce $hatever =3ec. ,6>"?E /%phasis supplied@ The definition is broad and co%prehensive to include proceeds fro% sales of transport docu%ents. DThe #ords Ainco%e fro% any source #hateverA disclose a legislative policy to include all inco%e not e*pressly e*e%pted #ithin the class of ta*able inco%e under our la#s.D Inco%e %eans Dcash The records sho# that the Philippine gross inco%e of F&.C for the fiscal years (6 9- 6 to (6!7-!( a%ounted to P(7,8,9," 9 .77. 7 Cid such Dflo# of #ealthD co%e fro% Dsources #ithin the PhilippinesD, The source of an inco%e is the property, activity or service that produced the inco%e. 8 4or the source of inco%e to be considered as co%ing fro% the Philippines, it is sufficient that the inco%e is derived fro% activity #ithin the Philippines. In F&.CAs case, the sale of tic+ets in the Philippines is the activity that produces the inco%e. The tic+ets e*changed hands here and pay%ents for fares #ere also %ade here in Philippine currency. The site of the source of pay%ents is the Philippines. The flo# of #ealth proceeded fro%, and occurred #ithin, Philippine territory, en)oying the protection accorded by the Philippine govern%ent. In consideration of such protection, the flo# of #ealth should share the burden of supporting the govern%ent. . transportation tic+et is not a %ere piece of paper. ;hen issued by a co%%on carrier, it constitutes the contract bet#een the tic+et-holder and the carrier. It gives rise to the obligation of the purchaser of the tic+et to pay the fare and the corresponding obligation of the carrier to transport the passenger upon the ter%s and conditions set forth thereon. The ordinary tic+et issued to %e%bers of the traveling public in general e%braces #ithin its ter%s all the ele%ents to constitute it a valid contract, binding upon the parties entering into the relationship. 9 True, 3ection "!=a@ of the Ta* Code, #hich enu%erates ite%s of gross inco%e fro% sources #ithin the Philippines, na%ely' =(@ interest, =,(@ dividends, ="@ service, =8@ rentals and royalties, =5@ sale of real property, and = @ sale of personal property, does not %ention inco%e fro% the sale of tic+ets for international transportation. :o#ever, that does not render it less an inco%e fro% sources #ithin the Philippines. 3ection "!, by its language, does not intend the enu%eration to be e*clusive. It %erely directs that the types of inco%e listed therein be treated as inco%e fro% sources #ithin the Philippines. . cursory reading of the section #ill sho# that it does not state received or its e$uivalentDE it is the a%ount of %oney co%ing to a person #ithin a specific ti%e ...E it %eans so%ething distinct fro% principal or capital. 4or, #hile capital is a fund, inco%e is a flo#. .s used in our inco%e ta* la#, Dinco%eD refers to the flo# of #ealth. 6

29
that it is an all-inclusive enu%eration, and that no other +ind of inco%e %ay be so considered. D 10 F&.C, ho#ever, #ould i%press upon this Court that inco%e derived fro% transportation is inco%e for services, #ith the result that the place #here the services are rendered deter%ines the sourceE and since F&.CAs service of transportation is perfor%ed outside the Philippines, the inco%e derived is fro% sources #ithout the Philippines and, therefore, not ta*able under our inco%e ta* la#s. The Ta* Court upholds that stand in the )oint Cecision under revie#. The absence of flight operations to and fro% the Philippines is not deter%inative of the source of inco%e or the site of inco%e ta*ation. .d%ittedly, F&.C #as an off-line international airline at the ti%e pertinent to this case. The test of ta*ability is the DsourceDE and the source of an inco%e is that activity ... #hich produced the inco%e. 11 2n$uestionably, the passage docu%entations in these cases #ere sold in the Philippines and the revenue therefro% #as derived fro% a activity regularly pursued #ithin the Philippines. business a .nd even if the F&.C tic+ets sold covered the Dtransport of passengers and cargo to and fro% foreign citiesD, 12 it cannot alter the fact that inco%e fro% the sale of tic+ets #as derived fro% the Philippines. The #ord DsourceD conveys one essential idea, that of origin, and the origin of the inco%e herein is the Philippines. 13 It should be pointed out, ho#ever, that the assess%ents upheld herein apply only to the fiscal years covered by the $uestioned deficiency inco%e ta* assess%ents in these cases, or, fro% (656 to (6 !, (6 9- 6 to (6!7-!(. 4or, pursuant to Presidential Cecree 0o. 6, pro%ulgated on ,8 0ove%ber, (6!,, international carriers are no# ta*ed as follo#s' ... Provided, ho#ever, That international carriers shall pay a ta* of ,-R per cent on their cross Philippine billings. =3ec. ,8>b? >,(, Ta* Code@. Presidential Cecree 0o. ("55, pro%ulgated on ,( .pril, (6!9, provided a statutory definition of the ter% Dgross Philippine billings,D thus' ... DGross Philippine billingsD includes gross revenue reali-ed fro% uplifts any#here in the #orld by any international carrier doing business in the Philippines of passage docu%ents sold therein, #hether for passenger, e*cess baggage or %ail provided the cargo or %ail originates fro% the Philippines. ... The foregoing provision ensures that international airlines are ta*ed on their inco%e fro% Philippine sources. The ,-R J ta* on gross Philippine billings is an inco%e ta*. If it had been intended as an e*cise or percentage ta* it #ould have been place under Title N of the Ta* Code covering Ta*es on Fusiness. Bastly, #e find as untenable the F&.C argu%ent that the dis%issal for lac+ of %erit by this Court of the appeal in *-. vs. Co((issioner of nternal !even"e =G.R. 0o. B-"778(@ on 4ebruary ", (6 6, is res 0"dicata to the present case. The ruling by the Ta* Court in that case #as to the effect that the %ere sale of tic+ets, unacco%panied by the physical act of carriage of transportation, does not render the ta*payer therein sub)ect to the co%%on carrierAs ta*. .s elucidated by the Ta* Court, ho#ever, the co%%on carrierAs ta* is an e*cise ta*, being a ta* on the activity of transporting, conveying or re%oving passengers and cargo fro% one place to another. It purports to ta* the business of transportation. (8 Feing an e*cise ta*, the sa%e can be levied by the 3tate only #hen the acts, privileges or businesses are done or perfor%ed #ithin the )urisdiction of the Philippines. The sub)ect %atter of the case under consideration is inco%e ta*, a direct ta* on the inco%e of persons and other entities Dof #hatever +ind and in #hatever for% derived fro% any source.D 3ince the t#o cases treat of a different sub)ect %atter, the decision in one cannot be res 0"dicata to the other. ;:/R/4&R/, the appealed )oint Cecision of the Court of Ta* .ppeals is hereby 3/T .3IC/. Private respondent, the Fritish &verseas .ir#ays Corporation =F&.C@, is hereby ordered to pay the a%ount of P5"8,(",.79 as deficiency inco%e ta* for the fiscal years (6 9- 6 to (6!7-!( plus 5J surcharge, and (J %onthly interest fro% .pril ( , (6!, for a period not to e*ceed three ="@ years in accordance #ith the Ta* Code. The F&.C clai% for refund in the a%ount of P959,"7!.!6 is hereby denied. ;ithout costs. 3& &RC/R/C. Paras, Ganca%co, Padilla, )idin, Sar(iento and Cortes, **., conc"r.

30
,ernan, *., took no part. The funda%ental issue raised in this petition for revie# is #hether the Fritish &verseas .ir#ays Corporation =F&.C@, a foreign airline co%pany #hich does not %aintain any flight operations to and fro% the Philippines, is liable for Philippine inco%e ta*ation in respect of Dsales of air tic+etsD in the Philippines through a general sales agent, relating to the carriage of passengers and cargo bet#een t#o points both outside the Philippines. (. The 3olicitor General has defined as one of the issue in this case the $uestion of' ,. ;hether or not during the fiscal years in $uestion 1 F&.C >#as? a resident foreign corporation doing business in the Philippines or >had? an office or place of business in the Philippines. It is i%portant to note at the outset that the ans#er to the above-$uoted issue is not deter%inative of the lialibity of the F&.C to Philippine inco%e ta*ation in respect of the inco%e here involved. The liability of F&.C to Philippine inco%e ta*ation in respect of such inco%e depends, not on F&.CAs status as a Dresident foreign corporationD or alternatively, as a Dnon-resident foreign corporation,D but rather on #hether or not such inco%e is derived fro% Dsource #ithin the Philippines.D . Dresident foreign corporationD or foreign corporation engaged in trade or business in the Philippines or having an office or place of business in the Philippines is sub)ect to Philippine inco%e ta*ation onl% in respect of inco%e derived fro( so"rces $ithin the Philippines. 3ection ,8 =b@ =,@ of the 0ational Internal Revenue C&C/ =DTa* CodeD@, as a%ended by Republic .ct 0o. ,"8", approved ,7 <une (656, as it e*isted up to " .ugust (6 6, read as follo#s' =,@ !esident corporations. I . foreign corporation engaged in trade or business #ith in the Philippines =e*pect foreign life insurance co%panies@ shall be ta*able as provided in subsection =a@ of this section. 3ection ,8 =a@ of the Ta* Code in turn provides'

S&'ara(& O')n)on*

""!AN6"", C.J., concurring' I concur #ith the CourtAs %a)ority )udg%ent upholding the assess%ents of deficiency inco%e ta*es against respondent F&.C for the fiscal years (656-(6 6 to (6!7-(6!( and therefore setting aside the appealed )oint decision of respondent Court of Ta* .ppeals. I )ust #ish to point out that the conflict bet#een the %a)ority opinion penned by Mr. <ustice 4eliciano as to the proper characteri-ation of the ta*able inco%e derived by respondent F&.C fro% the sales in the Philippines of tic+ets foe F&.C for% the issued by its general sales agent in the Philippines gas beco%e %oot after 0ove%ber ,8, (6!,. Footh opinions state that by a%end%ent through P.C. 0o. 6, pro%ulgated on 0ove%ber ,8, (6!,, of section ,8=b@ =,@ of the Ta* Code providing dor the rate of inco%e ta* on foreign corporations, international carriers such as respondent F&.C, have since then been ta*ed at a reduced rate of ,-RJ on their gross Philippine billings. There is, therefore, no longer ant source of substantial conflict bet#een the t#o opinions as to the present ,-RJ ta* on their gross Philippine billings charged against such international carriers as herein respondent foreign corporation. #"LICIANO, J., dissenting' ;ith great respect and reluctance, i record %y dissent fro% the opinion of M%e. <ustice .... Melencio-:errera spea+ing for the %a)ority . In %y opinion, the )oint decision of the Court of Ta* .ppeals in CT. Cases 0os. ,"!" and ,5 (, dated , <anuary (69", is correct and should be affir%ed.

31
!ate of ta& on corporations. I =a@ Ta& on do(estic corporations. I ... and a li+e ta* shall be livied, collected, and paid annually upon the total net inco(e received in the preceeding ta*able year fro( all so"rces $ithin the Philippines by every corporation organi2ed, authori-ed, or e*isting "nder the la$s of an% foreign co"ntr%' ... . =/%phasis supplied@ Republic .ct 0o. ((7, #hich too+ effect on 8 .ugust (6 6, %ade this even clearer #hen it a%ended once %ore 3ection ,8 =b@ =,@ of the Ta* Code so as to read as follo#s' =,@ !esident Corporations. I . corporation, organi-ed, authori-ed or e&isting "nder the la$s of an% foreign co"nrt%, e*cept foreign life insurance co%pany, engaged in trade or +"siness $ithin the Philippines, shall be ta*able as provided in subsection =a@ of this section upon the total net inco%e received in the preceding ta*able year fro( all so"rces $ithin the Philippines. =/%phasis supplied@ /*actly the sa%e rule is provided by 3ection ,8 =b@ =(@ of the Ta* Code upon non-resident foreign corporations. 3ection ,8 =b@ =(@ as a%ended by Republic .ct 0o. "9,5 approved ,, <une (6 ", read as follo#s' =b@ Ta& on foreign corporations. I =>? 7on-resident corporations. I There shall be levied, collected and paid for each ta*able year, in lieu of the ta* i%posed by the preceding paragraph upon the a%ount received by ever% foreign corporation not engaged in trade or +"siness $ithin the Philippines, fro( all so"rces $ithin the Philippines, as interest, dividends, rents, salaries, #ages, pre%iu%, annuities, co%pensations, re%unerations, e%olu%ents, or other fi*ed or deter%inative annual or periodical gains, profits and inco%e a ta* e$ual to thirty per centu% of such a%ount' provided, ho#ever, that pre%iu%s shall not include reinsurance pre%iu%s. 2 Clearly, #hether the foreign corporate ta*payer is doing business in the Philippines and therefore a resident foreign corporation, or not doing business in the Philippines and therefore a non-resident foreign corporation, it is liable to inco%e ta* only to the e*tent that it derives inco%e fro% sources #ithin the Philippines. The circu%tances that a foreign corporation is resident in the Philippines yields no inference that all or any part of its inco%e is Philippine source inco%e. 3i%ilarly, the non-resident status of a foreign corporation does not i%ply that it has no Philippine source inco%e. Conversely, the receipt of Philippine source inco%e creates no presu%ption that the recipient foreign corporation is a resident of the Philippines. The critical issue, for present purposes, is therefore $hether of not )O-C is deriving inco(e fro( so"rces $ithin the Philippines. ,. 4or purposes of inco%e ta*ation, it is #ell to bear in %ind that the Dsource of inco%eD relates not to the ph%sical so"rcing of a flo$ of (one% or the ph%sical sit"s of pa%(ent but rather to the Dproperty, activity or service #hich produced the inco%e.D In Ho$den and Co., .td. vs. Collector of nternal !even"e, 3 the court dealt #ith the issue of the applicable source rule relating to reinsurance pre%iu%s paid by a local insurance co%pany to a foreign reinsurance co%pany in respect of ris+s located in the Philippines. The Court said' The so"rce of an inco(e is the propert%, activit% or services that prod"ced the inco(e. The reins"rance pre(i"(s re(itted to appellants +% virt"e of the reins"rance contract, accordingl%, had for their so"rce the "ndertaking to inde(nif% Co((on$ealth ns"rance Co. against lia+ilit%. Said "ndertaking is the activit% that prod"ced the reins"rance pre(i"(s, and the sa(e took place in the Philippines. I >T?he reinsurance, the liabilities insured and the ris+ originally under#ritten by Co%%on#ealth Insurance Co., upon #hich the reinsurance pre%iu%s and inde%nity #ere based, #ere all situated in the Philippines. I 4 The Court %ay be seen to be saying that it is the "nderl%ing prestation #hich is properly regarded as the activity giving rise to the inco%e that is sought to be ta*ed. In the Ho$den case, that underlying prestation #as the inde(nification of the local ins"rance co(pan%. 3uch inde%nification

32
could ta+e place only in the Philippines #here the ris+s #ere located and #here pay%ent fro% the foreign reinsurance =in case the casualty insured against occurs@ #ould be received in Philippine pesos under the reinsurance pre%iu%s paid by the local insurance co%panies constituted Philippine source inco%e of the foreign reinsurances. The concept of Dsource of inco%eD for purposes of inco%e ta*ation originated in the 2nited 3tates inco%e ta* syste%. The phrase Dsources #ithin the 2nited 3tatesD #as first introduced into the 2.3. ta* syste% in (6( , and #as subse$uently e%bodied in the (6"6 2.3. Ta* Code. .s is co%%only +no#n, our Ta* Code =Co%%on#ealth .ct 8 , as a%ended@ #as patterned after the (6"6 2.3. Ta* Code. It therefore see%s useful to refer to a standard 2.3. te*t on federal inco%e ta*ation' The 3upre%e Court has said, in a definition %uch $uoted but often debated, that inco(e (a% +e derived fro( three possi+le so"rces onl%@ =(@ capital andPor =,@ la+or andPor ="@ the sale of capital assets. ;hile the three ele%ents of this atte%pt at definition need not be accepted as allinclusive, they serve as useful guides in any in$uiry into #hether a particular ite% is fro% Dsource #ithin the 2nited 3tatesD and suggest an investigation into the nat"re and location of the activities or propert% $hich prod"ce the inco(e. If the inco%e is fro% labor =services@ the place $here the la+or is done should be decisiveE if it is done in this counrty, the inco%e should be fro% Dsource #ithin the 2nited 3tates.D If the inco%e is fro% capital, the place $here the capital is e(plo%ed should be decisiveE if it is e%ployed in this country, the inco%e should be fro% Dsource #ithin the 2nited 3tatesD. If the inco%e is fro% the sale of capital assets, the place #here the sale is %ade should be li+e#ise decisive. #"ch conf"sion $ill +e avoided +% regarding the ter( /so"rce/ in this f"nda(ental light. t is not a placeA it is an activit% or propert%. -s s"ch, it has a sit"s or locationA and if that situs or location is #ithin the 2nited 3tates the resulting inco%e is ta*able to nonresident aliens and foreign corporations. The intention of Congress in the (6( and subse$uent statutes #as to discard the (676 and (6(" basis of ta*ing nonresident aliens and foreign corporations and to (ake the test of ta&a+ilit% the /so"rce/, or sit"s of the activities or propert% $hich prod"ce the inco(e . . . . Th"s, if inco%e is to ta*ed, the recipient thereof %ust be resident #ithin the )urisdiction, or the propert% or activities o"t of $hich the inco(e iss"e or is derived ("st +e sit"ated $ithin the 0"risdiction so that the so"rce of the inco(e (a% +e said to have a sit"s in this co"ntr%. The underlying theory is that the consideration for ta*ation is protection of life and propert% and that the inco(e rightl% to +e levied "pon to defray the burdens of the 2nited 3tates Govern%ent is that inco(e $hich is created +% activities and propert% protected +% this Govern(ent or o+tained +% persons en0o%ing that protection. . ". ;e turn no# to the $uestion #hat is the source of inco%e rule applicable in the instant case. There are t#o possibly relevant source of inco%e rules that %ust be confrontedE =a@ the source rule applicable in respect of contracts of serviceE and =b@ the source rule applicable in respect of sales of personal propert%. ;here a contract for the rendition of service is involved, the applicable source rule %ay be si%ply stated as follo#s' the inco%e is sourced in the place #here the service contracted for is rendered. 3ection "! =a@ ="@ of our Ta* Code reads as follo#s' 3ection "!. Inco%e for sources #ithin the Philippines. =a@ Gross inco(e fro( so"rces $ithin the Philippines. B The follo$ing ite(s of gross inco(e shall +e treated as gross inco(e fro( so"rces $ithin the Philippines@ *** *** *** ="@ Services. I Co%pensation for labor or personal services perfor(ed in the PhilippinesE... =/%phasis supplied@

33
3ection "! =c@ ="@ of the Ta* Code, on the other hand, deals #ith inco%e fro% sources #ithout the Philippines in the follo#ing %anner' =c@ Gross inco(e fro( so"rces $itho"t the Philippines. I The follo#ing ite%s of gross inco%e shall be treated as inco(e fro( so"rces $itho"t the Philippines@ ="@ Co%pensation for labor or personal services perfor(ed $itho"t the PhilippinesA ... =/%phasis supplied@ It should not be supposed that 3ection "! =a@ ="@ and =c@ ="@ of the Ta* Code apply only in respect of services rendered by individual natural personsE they also apply to services rendered by or through the %ediu% of a )uridical person. 6 4urther, a contract of carriage or of transportation is assi%ilated in our Ta* Code and Revenue Regulations to a contract for services. Thus, 3ection "! =e@ of the Ta* Code provides as follo#s' =e@ nco(e for( so"rces partl% $ithin and partl% $itho"t the Philippines. I Ite%s of gross inco%e, e*penses, losses and deductions, other than those specified in subsections =a@ and =c@ of this section shall be allocated or apportioned to sources #ithin or #ithout the Philippines, under the rules and regulations prescribed by the 3ecretary of 4inance. ... Gains, profits, and inco(e fro( =(@ transportation or other services rendered partl% $ithin and partl% $itho"t the Philippines, or =,@ fro% the sale of personnel property produced =in #hole or in part@ by the ta*payer #ithin and sold #ithout the Philippines, or produced =in #hole or in part@ by the ta*payer #ithout and sold #ithin the Philippines, shall be treated as derived partl% fro( so"rces $ithin and partl% fro( so"rces $itho"t the Philippines. ... =/%phasis supplied@ It should be noted that the above underscored portion of 3ection "! =e@ #as derived fro% the (6"6 2.3. Ta* Code #hich D#as based upon a recognition that transportation $as a service and that the so"rce of the inco(e derived therefro( $as to +e treated as +eing the place $here the service of transportation $as rendered. 7 3ection "! =e@ of the Ta* Code $uoted above carries a strong #ell-nigh irresistible, i%plication that inco%e derived fro% transportation or other services rendered entirely outside the Philippines %ust be treated as derived entirely fro% sources #ithout the Philippines. This i%plication is reinforced by a consideration of certain provisions of Revenue Regulations 0o. , entitled DInco%e Ta* RegulationsD as a%ended, first pro%ulgated by the Cepart%ent of 4inance on (7 4ebruary (687. 3ection (55 of Revenue Regulations 0o. , =i%ple%enting 3ection "! of the Ta* Code@ provides in part as follo#s' 3ection (55. Co(pensation for la+or or personnel services. I Gross inco%e fro% sources #ithin the Philippines includes co%pensation for labor or personal services #ithin the Philippines regardless of the residence of the pa%er, of the place in $hich the contract for services $as (ade, or of the place of pa%(ent I =/%phasis supplied@ 3ection ( " of Revenue Regulations 0o. , =still relating to 3ection "! of the Ta* Code@ deals #ith a particular species of foreign transportation co%panies I i.e., foreign stea(ship co%panies deriving inco%e fro% sources partly #ithin and partly #ithout the Philippines' 3ection ( " ,oreign stea(ship co(panies. I The return of foreign stea%ship co%panies $hose vessels to"ch parts of the Philippines should include as gross inco%e, the total receipts of all o"t-going +"siness #hether freight or passengers. ;ith the gross inco%e thus ascertained, the ratio e*isting bet#een it and the gross inco%e fro% all ports, both #ithin and #ithout the Philippines of all vessels, #hether touching of the Philippines or not, should be deter%ined as the basis upon #hich allo#able deductions %ay be co%puted, I . =/%phasis supplied@ .nother type of utility or service enterprise is dealt #ith in 3ection ( 8 of Revenue Regulations 0o. , =again i%ple%enting 3ection "! of the Ta* Code@ #ith provides as follo#s'

34
3ection ( 8. Telegraph and cable services. I . foreign corporation carrying on the business of trans%ission of telegraph or cable %essages bet#een points in the Philippines and points outside the Philippines derives inco%e partly for% source #ithin and partly fro% sources #ithout the Philippines. ... =/%phasis supplied@ &nce %ore, a very strong inference arises under 3ections ( " and ( 8 of Revenue Regulations 0o. , that stea%ship and telegraph and cable services rendered +et$een points +oth o"tside the Philippines give rise to inco%e $holl% fro( so"rces o"tside the Philippines, and therefore not sub)ect to Philippine inco%e ta*ation. ;e turn to the Dsource of inco%eD rules relating to the sale of personal property, upon the one hand, and to the purchase and sale of personal property, upon the other hand. ;e consider first sales of personal property. Inco%e fro% the sale of personal property by the producer or %anufacturer of such personal property #ill be regarded as sourced entirel% $ithin or entirel% $itho"t the Philippines or as sourced partl% $ithin and partl% $itho"t the Philippines, depending upon t#o factors' =a@ the place #here the sale of such personal property occursE and =b@ the place #here such personal property #as produced or %anufactured. If the personal property involved #as both produced or %anufactured and sold outside the Philippines, the inco%e derived therefro% #ill be regarded as sourced entirely outside the Philippines, although the personal property had been produced outside the Philippines, or if the sale of the property ta+es place outside the Philippines and the personal #as produced in the Philippines, then, the inco%e derived fro% the sale #ill be dee%ed partly as inco%e sourced #ithout the Philippines. In other #ords, the inco%e =and the related e*penses, losses and deductions@ #ill be allocated bet#een sources #ithin and sources #ithout the Philippines. Thus, 3ection "! =e@ of the Ta* Code, although already $uoted above, %ay be usefully $uoted again' =e@ nco(e fro( so"rces partl% $ithin and partl% $itho"t the Philippines. ... Gains, profits and inco%e fro% =(@ transportation or other services rendered partly #ithin and partly #ithout the PhilippinesE or =,@ fro( the sale of personal propert% prod"ced =in $hole or in part? +% the ta&pa%er $ithin and sold $itho"t the Philippines, or prod"ced =in $hole or in part? +% the ta&pa%er $itho"t and sold $ithin the Philippines, shall be treated as derived partly fro% sources #ithin and partly fro% sources #ithout the Philippines. ... =/%phasis supplied@ In contrast, inco%e derived fro% the purchase and sale of personal property I i. e., trading I is, under the Ta* Code, regarded as sourced #holly in the place $here the personal propert% is sold. 3ection "! =e@ of the Ta* Code provides in part as follo#s' =e@ Inco%e fro% sources partly #ithin and partly #ithout the Philippines ... Gains, profits and inco%e derived fro% the p"rchase of personal propert% $ithin and its sale $itho"t the Philippines or fro( the p"rchase of personal propert% $itho"t and its sale $ithin the Philippines, shall +e treated as derived entirel% fro( so"rces $ithin the co"ntr% in $hich sold. =/%phasis supplied@ 3ection (56 of Revenue Regulations 0o. , puts the applicable rule succinctly' 3ection (56. Sale of personal propert%. nco(e derived fro( the p"rchase and sale of personal propert% shall +e treated as derived entirel% fro( the co"ntr% in $hich sold. The #ord DsoldD includes De*change.D The DcountryD in #hich DsoldD ordinarily %eans the place #here the property is %ar+eted. This 3ection does not apply to inco%e fro% the sale personal property produced =in #hole or in part@ by the ta*payer #ithin and sold #ithout the Philippines or produced =in #hole or in part@ by the ta*payer #ithout and sold #ithin the Philippines. =3ee 3ection ( , of these regulations@. =/%phasis supplied@ 8. It #ill be seen that the basic proble% is one of characteri-ation of the transactions entered into by F&.C in the Philippines. Those transactions

35
%ay be characteri-ed either as sales of personal property =i. e., Dsales of airline ticketsD@ or as entering into a lease of services or a contract of service or carriage. The applicable Dsource of inco%eD rules differ depending upon #hich characteri-ation is given to the F&.C transactions. The appropriate characteri-ation, in %y opinion, of the F&.C transactions is that of entering into contracts of service, i.e., carriage of passengers or cargo bet#een points located outside the Philippines. The phrase Dsale of airline tic+ets,D #hile #idely used in popular parlance, does not appear to be correct as a %atter of ta* la#. The airline tic+et in and of itself has no %onetary value, even as scrap paper. The value of the tic+et lies #holly in the right ac$uired by the DpurchaserD I the passenger I to de%and a prestation fro% F&.C, #hich prestation consists of the carriage of the DpurchaserD or passenger fro% the one point to another outside the Philippines. The tic+et is really the evidence of the contract of carriage entered into bet#een F&.C and the passenger. The %oney paid by the passenger changes hands in the Philippines. Fut the passenger does not receive underta+en to be delivered by F&.C. The Dpurchase price of the airline tic+etD is $uite different fro% the purchase price of a physical good or co%%odity such as a pair of shoes of a refrigerator or an auto%obileE it is really the co(pensation paid for the "ndertaking of )O-C to transport the passenger or cargo outside the Philippines. The characteri-ation of the F&.C transactions either as sales of personal property or as purchases and sales of personal property, appear entirely inappropriate fro% other vie#point. Consider first purchases and sales' is F&.C properly regarded as engaged in trading I in the purchase and sale of personal propertyM Certainly, F&.C #as not purchasing tic+ets outside the Philippines and selling the% in the Philippines. Consider ne*t sales' can F&.C be regarded as DsellingD personal property produced or %anufactured by itM In a popular or )ournalistic sense, F&.C %ight be described as DsellingD Da productD I its service. :o#ever, for the technical purposes of the la# on inco%e ta*ation, F&.C is in fact entering into contracts of service or carriage. The very e*istance of Dsource rulesD specifically and precisely applicable to the rendition of services %ust preclude the application here of Dsource rulesD applying generally to sales, and purchases and sales, of personal property #hich can be invo+ed only by the grace of popular language. &n a slighty %ore abstract level, F&.CAs inco%e is %ore appropriately characteri-ed as derived fro% a DserviceD, rather than fro% an DactivityD =a broader ter% than service and including the activity of selling@ or fro% the here involved is inco(e ta*ation, and not a sales ta* or an e&cise or privilege ta*. 5. The ta*ation of international carriers is today effected under 3ection ,8 =b@ =,@ of the Ta* Code, as a%ended by Presidential Cecree 0o. 6, pro%ulgated on ,8 0ove%ber (6!, and by Presidential Cecree 0o. ("55, pro%ulgated on ,( .pril (6!9, in the follo#ing %anner' =,@ !esident corporations. I . corporation organi-ed, authori-ed, or e*isting under the la#s of any foreign country, engaged in trade or business #ithin the Philippines, shall be ta*able as provided in subsection =a@ of this section upon the total net inco%e received in the preceeding ta*able year fro% all sources #ithin the Philippines' Provided, ho$ever, That international carriers shall pa% a ta& of t$o and one-half per cent on their gross Philippine +illings. DGross Philippines of passage docu%ents sold therein, #hether for passenger, e*cess baggege or %ail, provide the cargo or %ail originates fro% the Philippines. The gross revenue reali-ed fro% the said cargo or %ail shall include the gross freight charge up to final destination. Gross revenues fro% chartered flights originating fro% the Philippines shall li+e#ise for% part of Dgross Philippine billingsD regardless of the place of sale or pay%ent of the passage docu%ents. 4or purposes of deter%ining the ta*ability to revenues fro% chartered flights, the ter% Doriginating fro% the PhilippinesD shall include flight of passsengers #ho stay in the Philippines for %ore than forty-eight =89@ hours prior to e%bar+ation. =/%phasis supplied@ 2nder the above-$uoted proviso international carriers issuing for co%pensation passage docu%entation in the Philippines for uplifts fro% any point in the #orld to any other point in the #orld, are not charged any Philippine inco(e ta* on their Philippine billings =i.e., billings in respect of passenger or cargo originating fro% the Philippines@. 2nder this ne#

36
approach, international carriers #ho service port or points in the Philippines are treated in e*actly the sa%e #ay as international carriers not serving any port or point in the Philippines. Thus, the source of inco%e rule applicable, as above discussed, to transportation or other services rendered partly #ithin and partly #ithout the Philippines, or #holly #ithout the Philippines, has been set aside. in place of Philippine inco%e ta*ation, the Ta* Code no# i%poses this ,R per cent ta* co%puted on the basis of billings in respect of passengers and cargo originating fro% the Philippines regardless of #here e%bar+ation and debar+ation #ould be ta+ing place. This ,-R per cent ta* is effectively a ta* on gross receipts or an e*cise or privilege ta* and not a ta* on inco(e. Thereby, the Govern%ent has done a#ay #ith the difficulties attending the allocation of inco%e and related e*penses, losses and deductions. Fecause ta*es are the very lifeblood of govern%ent, the resulting potential DlossD or DgainD in the a%ount of ta*es collectible by the state is so%eti%es, #ith varying degrees of consciousness, considered in choosing fro% a%ong co%peting possible characteri-ations under or interpretation of ta* statutes. It is hence perhaps useful to point out that the deter%ination of the appropriate characteri-ation here I that of contracts of air carriage rather than sales of airline tic+ets I entails no do#n-the-road loss of inco%e ta* revenues to the Govern%ent. In lieu thereof, the Govern%ent ta+es in revenues generated by the ,-R per cent ta* on the gross Philippine billings or receipts of international carriers. I #ould vote to affir% the decision of the Court of Ta* .ppeals. decision of respondent Court of Ta* .ppeals. I )ust #ish to point out that the conflict bet#een the %a)ority opinion penned by Mr. <ustice 4eliciano as to the proper characteri-ation of the ta*able inco%e derived by respondent F&.C fro% the sales in the Philippines of tic+ets foe F&.C for% the issued by its general sales agent in the Philippines gas beco%e %oot after 0ove%ber ,8, (6!,. Footh opinions state that by a%end%ent through P.C. 0o. 6, pro%ulgated on 0ove%ber ,8, (6!,, of section ,8=b@ =,@ of the Ta* Code providing dor the rate of inco%e ta* on foreign corporations, international carriers such as respondent F&.C, have since then been ta*ed at a reduced rate of ,-RJ on their gross Philippine billings. There is, therefore, no longer ant source of substantial conflict bet#een the t#o opinions as to the present ,-RJ ta* on their gross Philippine billings charged against such international carriers as herein respondent foreign corporation. #"LICIANO, J., dissenting' ;ith great respect and reluctance, i record %y dissent fro% the opinion of M%e. <ustice .... Melencio-:errera spea+ing for the %a)ority . In %y opinion, the )oint decision of the Court of Ta* .ppeals in CT. Cases 0os. ,"!" and ,5 (, dated , <anuary (69", is correct and should be affir%ed. The funda%ental issue raised in this petition for revie# is #hether the Fritish &verseas .ir#ays Corporation =F&.C@, a foreign airline co%pany #hich does not %aintain any flight operations to and fro% the Philippines, is liable for Philippine inco%e ta*ation in respect of Dsales of air tic+etsD in the Philippines through a general sales agent, relating to the carriage of passengers and cargo bet#een t#o points both outside the Philippines. (. The 3olicitor General has defined as one of the issue in this case the $uestion of' S&'ara(& O')n)on* ""!AN6"", C.J., concurring' I concur #ith the CourtAs %a)ority )udg%ent upholding the assess%ents of deficiency inco%e ta*es against respondent F&.C for the fiscal years (656-(6 6 to (6!7-(6!( and therefore setting aside the appealed )oint ,. ;hether or not during the fiscal years in $uestion 1 F&.C >#as? a resident foreign corporation doing business in the Philippines or >had? an office or place of business in the Philippines. It is i%portant to note at the outset that the ans#er to the above-$uoted issue is not deter%inative of the lialibity of the F&.C to Philippine inco%e

37
ta*ation in respect of the inco%e here involved. The liability of F&.C to Philippine inco%e ta*ation in respect of such inco%e depends, not on F&.CAs status as a Dresident foreign corporationD or alternatively, as a Dnon-resident foreign corporation,D but rather on #hether or not such inco%e is derived fro% Dsource #ithin the Philippines.D . Dresident foreign corporationD or foreign corporation engaged in trade or business in the Philippines or having an office or place of business in the Philippines is sub)ect to Philippine inco%e ta*ation onl% in respect of inco%e derived fro( so"rces $ithin the Philippines. 3ection ,8 =b@ =,@ of the 0ational Internal Revenue C&C/ =DTa* CodeD@, as a%ended by Republic .ct 0o. ,"8", approved ,7 <une (656, as it e*isted up to " .ugust (6 6, read as follo#s' =,@ !esident corporations. I . foreign corporation engaged in trade or business #ith in the Philippines =e*pect foreign life insurance co%panies@ shall be ta*able as provided in subsection =a@ of this section. 3ection ,8 =a@ of the Ta* Code in turn provides' !ate of ta& on corporations. I =a@ Ta& on do(estic corporations. I ... and a li+e ta* shall be livied, collected, and paid annually upon the total net inco(e received in the preceeding ta*able year fro( all so"rces $ithin the Philippines by every corporation organi2ed, authori-ed, or e*isting "nder the la$s of an% foreign co"ntr%' ... . =/%phasis supplied@ Republic .ct 0o. ((7, #hich too+ effect on 8 .ugust (6 6, %ade this even clearer #hen it a%ended once %ore 3ection ,8 =b@ =,@ of the Ta* Code so as to read as follo#s' =,@ !esident Corporations. I . corporation, organi-ed, authori-ed or e&isting "nder the la$s of an% foreign co"nrt%, e*cept foreign life insurance co%pany, engaged in trade or +"siness $ithin the Philippines, shall be ta*able as provided in subsection =a@ of this section upon the total net inco%e received in the preceding ta*able year Clearly, #hether the foreign corporate ta*payer is doing business in the Philippines and therefore a resident foreign corporation, or not doing business in the Philippines and therefore a non-resident foreign corporation, it is liable to inco%e ta* only to the e*tent that it derives inco%e fro% sources #ithin the Philippines. The circu%tances that a foreign corporation is resident in the Philippines yields no inference that all or any part of its inco%e is Philippine source inco%e. 3i%ilarly, the non-resident status of a foreign corporation does not i%ply that it has no Philippine source inco%e. Conversely, the receipt of Philippine source inco%e creates no presu%ption that the recipient foreign corporation is a resident of the Philippines. The critical issue, for present purposes, is therefore $hether of not )O-C is deriving inco(e fro( so"rces $ithin the Philippines. ,. 4or purposes of inco%e ta*ation, it is #ell to bear in %ind that the Dsource of inco%eD relates not to the ph%sical so"rcing of a flo$ of (one% or the ph%sical sit"s of pa%(ent but rather to the Dproperty, activity or service #hich produced the inco%e.D In Ho$den and Co., .td. vs. Collector of nternal !even"e, 3 the court dealt #ith the issue of the applicable source rule relating to reinsurance pre%iu%s paid by a local insurance co%pany to fro( all so"rces $ithin the Philippines. =/%phasis supplied@ /*actly the sa%e rule is provided by 3ection ,8 =b@ =(@ of the Ta* Code upon non-resident foreign corporations. 3ection ,8 =b@ =(@ as a%ended by Republic .ct 0o. "9,5 approved ,, <une (6 ", read as follo#s' =b@ Ta& on foreign corporations. I =>? 7on-resident corporations. I There shall be levied, collected and paid for each ta*able year, in lieu of the ta* i%posed by the preceding paragraph upon the a%ount received by ever% foreign corporation not engaged in trade or +"siness $ithin the Philippines, fro( all so"rces $ithin the Philippines, as interest, dividends, rents, salaries, #ages, pre%iu%, annuities, co%pensations, re%unerations, e%olu%ents, or other fi*ed or deter%inative annual or periodical gains, profits and inco%e a ta* e$ual to thirty per centu% of such a%ount' provided, ho#ever, that pre%iu%s shall not include reinsurance pre%iu%s. 2

38
a foreign reinsurance co%pany in respect of ris+s located in the Philippines. The Court said' The so"rce of an inco(e is the propert%, activit% or services that prod"ced the inco(e. The reins"rance pre(i"(s re(itted to appellants +% virt"e of the reins"rance contract, accordingl%, had for their so"rce the "ndertaking to inde(nif% Co((on$ealth ns"rance Co. against lia+ilit%. Said "ndertaking is the activit% that prod"ced the reins"rance pre(i"(s, and the sa(e took place in the Philippines. I >T?he reinsurance, the liabilities insured and the ris+ originally under#ritten by Co%%on#ealth Insurance Co., upon #hich the reinsurance pre%iu%s and inde%nity #ere based, #ere all situated in the Philippines. I 4 The Court %ay be seen to be saying that it is the "nderl%ing prestation #hich is properly regarded as the activity giving rise to the inco%e that is sought to be ta*ed. In the Ho$den case, that underlying prestation #as the inde(nification of the local ins"rance co(pan%. 3uch inde%nification could ta+e place only in the Philippines #here the ris+s #ere located and #here pay%ent fro% the foreign reinsurance =in case the casualty insured against occurs@ #ould be received in Philippine pesos under the reinsurance pre%iu%s paid by the local insurance co%panies constituted Philippine source inco%e of the foreign reinsurances. The concept of Dsource of inco%eD for purposes of inco%e ta*ation originated in the 2nited 3tates inco%e ta* syste%. The phrase Dsources #ithin the 2nited 3tatesD #as first introduced into the 2.3. ta* syste% in (6( , and #as subse$uently e%bodied in the (6"6 2.3. Ta* Code. .s is co%%only +no#n, our Ta* Code =Co%%on#ealth .ct 8 , as a%ended@ #as patterned after the (6"6 2.3. Ta* Code. It therefore see%s useful to refer to a standard 2.3. te*t on federal inco%e ta*ation' The 3upre%e Court has said, in a definition %uch $uoted but often debated, that inco(e (a% +e derived fro( three possi+le so"rces onl%@ =(@ capital andPor =,@ la+or andPor ="@ the sale of capital assets. ;hile the three ele%ents of this atte%pt at definition need not be accepted as allinclusive, they serve as useful guides in any in$uiry into #hether a particular ite% is fro% Dsource #ithin the 2nited 3tatesD and suggest an investigation into the nat"re and location of the activities or propert% $hich prod"ce the inco(e. If the inco%e is fro% labor =services@ the place $here the la+or is done should be decisiveE if it is done in this counrty, the inco%e should be fro% Dsource #ithin the 2nited 3tates.D If the inco%e is fro% capital, the place $here the capital is e(plo%ed should be decisiveE if it is e%ployed in this country, the inco%e should be fro% Dsource #ithin the 2nited 3tatesD. If the inco%e is fro% the sale of capital assets, the place #here the sale is %ade should be li+e#ise decisive. #"ch conf"sion $ill +e avoided +% regarding the ter( /so"rce/ in this f"nda(ental light. t is not a placeA it is an activit% or propert%. -s s"ch, it has a sit"s or locationA and if that situs or location is #ithin the 2nited 3tates the resulting inco%e is ta*able to nonresident aliens and foreign corporations. The intention of Congress in the (6( and subse$uent statutes #as to discard the (676 and (6(" basis of ta*ing nonresident aliens and foreign corporations and to (ake the test of ta&a+ilit% the /so"rce/, or sit"s of the activities or propert% $hich prod"ce the inco(e . . . . Th"s, if inco%e is to ta*ed, the recipient thereof %ust be resident #ithin the )urisdiction, or the propert% or activities o"t of $hich the inco(e iss"e or is derived ("st +e sit"ated $ithin the 0"risdiction so that the so"rce of the inco(e (a% +e said to have a sit"s in this co"ntr%. The underlying theory is that the consideration for ta*ation is protection of life and propert% and that the inco(e rightl% to +e levied "pon to defray the burdens of the 2nited 3tates Govern%ent is that inco(e $hich is created +% activities and propert% protected +% this Govern(ent or o+tained +% persons en0o%ing that protection. . ". ;e turn no# to the $uestion #hat is the source of inco%e rule applicable in the instant case. There are t#o possibly relevant source of inco%e rules that %ust be confrontedE =a@ the source rule applicable in respect of

39
contracts of serviceE and =b@ the source rule applicable in respect of sales of personal propert%. ;here a contract for the rendition of service is involved, the applicable source rule %ay be si%ply stated as follo#s' the inco%e is sourced in the place #here the service contracted for is rendered. 3ection "! =a@ ="@ of our Ta* Code reads as follo#s' 3ection "!. Inco%e for sources #ithin the Philippines. =a@ Gross inco(e fro( so"rces $ithin the Philippines. I The follo#ing ite%s of gross inco%e shall be treated as gross inco%e fro% sources #ithin the Philippines' *** *** *** ="@ Services. I Co%pensation for labor or personal services perfor(ed in the PhilippinesE... =/%phasis supplied@ 3ection "! =c@ ="@ of the Ta* Code, on the other hand, deals #ith inco%e fro% sources #ithout the Philippines in the follo#ing %anner' =c@ Gross inco(e fro( so"rces $itho"t the Philippines. I The follo#ing ite%s of gross inco%e shall be treated as inco(e fro( so"rces $itho"t the Philippines@ ="@ Co%pensation for labor or personal services perfor(ed $itho"t the PhilippinesA ... =/%phasis supplied@ It should not be supposed that 3ection "! =a@ ="@ and =c@ ="@ of the Ta* Code apply only in respect of services rendered by individual natural personsE they also apply to services rendered by or through the %ediu% of a )uridical person. 6 4urther, a contract of carriage or of transportation is assi%ilated in our Ta* Code and Revenue Regulations to a contract for services. Thus, 3ection "! =e@ of the Ta* Code provides as follo#s' =e@ nco(e for( so"rces partl% $ithin and partl% $itho"t the Philippines. I Ite%s of gross inco%e, e*penses, losses and deductions, other than those specified in subsections =a@ and =c@ of this section shall be allocated or apportioned to sources #ithin or #ithout the Philippines, under the rules and regulations prescribed by the 3ecretary of 4inance. ... Gains, profits, and inco(e fro( =(@ transportation or other services rendered partl% $ithin and partl% $itho"t the Philippines, or =,@ fro% the sale of personnel property produced =in #hole or in part@ by the ta*payer #ithin and sold #ithout the Philippines, or produced =in #hole or in part@ by the ta*payer #ithout and sold #ithin the Philippines, shall be treated as derived partl% fro( so"rces $ithin and partl% fro( so"rces $itho"t the Philippines. ... =/%phasis supplied@ It should be noted that the above underscored portion of 3ection "! =e@ #as derived fro% the (6"6 2.3. Ta* Code #hich D#as based upon a recognition that transportation $as a service and that the so"rce of the inco(e derived therefro( $as to +e treated as +eing the place $here the service of transportation $as rendered. 7 3ection "! =e@ of the Ta* Code $uoted above carries a strong #ell-nigh irresistible, i%plication that inco%e derived fro% transportation or other services rendered entirely outside the Philippines %ust be treated as derived entirely fro% sources #ithout the Philippines. This i%plication is reinforced by a consideration of certain provisions of Revenue Regulations 0o. , entitled DInco%e Ta* RegulationsD as a%ended, first pro%ulgated by the Cepart%ent of 4inance on (7 4ebruary (687. 3ection (55 of Revenue Regulations 0o. , =i%ple%enting 3ection "! of the Ta* Code@ provides in part as follo#s' 3ection (55. Co(pensation for la+or or personnel services. I Gross inco%e fro% sources #ithin the Philippines includes co%pensation for labor or personal services #ithin the Philippines regardless of the residence of the pa%er, of the place in $hich the contract for services $as (ade, or of the place of pa%(ent I =/%phasis supplied@

40
3ection ( " of Revenue Regulations 0o. , =still relating to 3ection "! of the Ta* Code@ deals #ith a particular species of foreign transportation co%panies I i.e., foreign stea(ship co%panies deriving inco%e fro% sources partly #ithin and partly #ithout the Philippines' 3ection ( " ,oreign stea(ship co(panies. I The return of foreign stea%ship co%panies $hose vessels to"ch parts of the Philippines should include as gross inco%e, the total receipts of all o"t-going +"siness #hether freight or passengers. ;ith the gross inco%e thus ascertained, the ratio e*isting bet#een it and the gross inco%e fro% all ports, both #ithin and #ithout the Philippines of all vessels, #hether touching of the Philippines or not, should be deter%ined as the basis upon #hich allo#able deductions %ay be co%puted, I . =/%phasis supplied@ .nother type of utility or service enterprise is dealt #ith in 3ection ( 8 of Revenue Regulations 0o. , =again i%ple%enting 3ection "! of the Ta* Code@ #ith provides as follo#s' 3ection ( 8. Telegraph and ca+le services. I . foreign corporation carrying on the business of trans%ission of telegraph or cable %essages bet#een points in the Philippines and points o"tside the Philippines derives inco(e partl% for( so"rce $ithin and partl% fro( so"rces $itho"t the Philippines. ... =/%phasis supplied@ &nce %ore, a very strong inference arises under 3ections ( " and ( 8 of Revenue Regulations 0o. , that stea%ship and telegraph and cable services rendered +et$een points +oth o"tside the Philippines give rise to inco%e $holl% fro( so"rces o"tside the Philippines, and therefore not sub)ect to Philippine inco%e ta*ation. ;e turn to the Dsource of inco%eD rules relating to the sale of personal property, upon the one hand, and to the purchase and sale of personal property, upon the other hand. ;e consider first sales of personal property. Inco%e fro% the sale of personal property by the producer or %anufacturer of such personal property #ill be regarded as sourced entirel% $ithin or entirel% $itho"t the Philippines or as sourced partl% $ithin and partl% $itho"t the Philippines, depending upon t#o factors' =a@ the place #here the sale of such personal property occursE and =b@ the place #here such personal property #as produced or %anufactured. If the personal property involved #as both produced or %anufactured and sold outside the Philippines, the inco%e derived therefro% #ill be regarded as sourced entirely outside the Philippines, although the personal property had been produced outside the Philippines, or if the sale of the property ta+es place outside the Philippines and the personal #as produced in the Philippines, then, the inco%e derived fro% the sale #ill be dee%ed partly as inco%e sourced #ithout the Philippines. In other #ords, the inco%e =and the related e*penses, losses and deductions@ #ill be allocated bet#een sources #ithin and sources #ithout the Philippines. Thus, 3ection "! =e@ of the Ta* Code, although already $uoted above, %ay be usefully $uoted again' =e@ nco(e fro( so"rces partl% $ithin and partl% $itho"t the Philippines. ... Gains, profits and inco%e fro% =(@ transportation or other services rendered partly #ithin and partly #ithout the PhilippinesE or =,@ fro( the sale of personal propert% prod"ced =in $hole or in part? +% the ta&pa%er $ithin and sold $itho"t the Philippines, or prod"ced =in $hole or in part? +% the ta&pa%er $itho"t and sold $ithin the Philippines, shall be treated as derived partly fro% sources #ithin and partly fro% sources #ithout the Philippines. ... =/%phasis supplied@ In contrast, inco%e derived fro% the purchase and sale of personal property I i. e., trading I is, under the Ta* Code, regarded as sourced #holly in the place $here the personal propert% is sold. 3ection "! =e@ of the Ta* Code provides in part as follo#s' =e@ Inco%e fro% sources partly #ithin and partly #ithout the Philippines ... Gains, profits and inco%e derived fro% the p"rchase of personal propert% $ithin and its sale $itho"t the Philippines or fro( the p"rchase of personal propert% $itho"t and its sale $ithin the Philippines , shall

41
be treated as derived entirel% fro( so"rces $ithin the co"ntr% in $hich sold. =/%phasis supplied@ 3ection (56 of Revenue Regulations 0o. , puts the applicable rule succinctly' 3ection (56. Sale of personal propert%. nco(e derived fro( the p"rchase and sale of personal propert% shall +e treated as derived entirel% fro( the co"ntr% in $hich sold. The #ord DsoldD includes De*change.D The DcountryD in #hich DsoldD ordinarily %eans the place #here the property is %ar+eted. This 3ection does not apply to inco%e fro% the sale personal property produced =in #hole or in part@ by the ta*payer #ithin and sold #ithout the Philippines or produced =in #hole or in part@ by the ta*payer #ithout and sold #ithin the Philippines. =3ee 3ection ( , of these regulations@. =/%phasis supplied@ 8. It #ill be seen that the basic proble% is one of characteri-ation of the transactions entered into by F&.C in the Philippines. Those transactions %ay be characteri-ed either as sales of personal property =i. e., Dsales of airline ticketsD@ or as entering into a lease of services or a contract of service or carriage. The applicable Dsource of inco%eD rules differ depending upon #hich characteri-ation is given to the F&.C transactions. The appropriate characteri-ation, in %y opinion, of the F&.C transactions is that of entering into contracts of service, i.e., carriage of passengers or cargo bet#een points located outside the Philippines. The phrase Dsale of airline tic+ets,D #hile #idely used in popular parlance, does not appear to be correct as a %atter of ta* la#. The airline tic+et in and of itself has no %onetary value, even as scrap paper. The value of the tic+et lies #holly in the right ac$uired by the DpurchaserD I the passenger I to de%and a prestation fro% F&.C, #hich prestation consists of the carriage of the DpurchaserD or passenger fro% the one point to another outside the Philippines. The tic+et is really the evidence of the contract of carriage entered into bet#een F&.C and the passenger. The %oney paid by the passenger changes hands in the Philippines. Fut the passenger does not receive underta+en to be delivered by F&.C. The Dpurchase price of the airline tic+etD is $uite different fro% the purchase price of a physical good or co%%odity such as a pair of shoes of a refrigerator or an auto%obileE it is really the co(pensation paid for the "ndertaking of )O-C to transport the passenger or cargo outside the Philippines. The characteri-ation of the F&.C transactions either as sales of personal property or as purchases and sales of personal property, appear entirely inappropriate fro% other vie#point. Consider first purchases and sales' is F&.C properly regarded as engaged in trading I in the purchase and sale of personal propertyM Certainly, F&.C #as not purchasing tic+ets outside the Philippines and selling the% in the Philippines. Consider ne*t sales' can F&.C be regarded as DsellingD personal property produced or %anufactured by itM In a popular or )ournalistic sense, F&.C %ight be described as DsellingD Da productD I its service. :o#ever, for the technical purposes of the la# on inco%e ta*ation, F&.C is in fact entering into contracts of service or carriage. The very e*istance of Dsource rulesD specifically and precisely applicable to the rendition of services %ust preclude the application here of Dsource rulesD applying generally to sales, and purchases and sales, of personal property #hich can be invo+ed only by the grace of popular language. &n a slighty %ore abstract level, F&.CAs inco%e is %ore appropriately characteri-ed as derived fro% a DserviceD, rather than fro% an DactivityD =a broader ter% than service and including the activity of selling@ or fro% the here involved is inco(e ta*ation, and not a sales ta* or an e&cise or privilege ta*. 5. The ta*ation of international carriers is today effected under 3ection ,8 =b@ =,@ of the Ta* Code, as a%ended by Presidential Cecree 0o. 6, pro%ulgated on ,8 0ove%ber (6!, and by Presidential Cecree 0o. ("55, pro%ulgated on ,( .pril (6!9, in the follo#ing %anner' =,@ !esident corporations. I . corporation organi-ed, authori-ed, or e*isting under the la#s of any foreign country, engaged in trade or business #ithin the Philippines, shall be ta*able as provided in subsection =a@ of this section upon the total net inco%e received in the preceeding ta*able year fro% all sources #ithin the Philippines' Provided, ho$ever, That international carriers shall pa% a ta& of t$o and one-half per cent on their gross Philippine +illings. DGross Philippines of

42
passage docu%ents sold therein, #hether for passenger, e*cess baggege or %ail, provide the cargo or %ail originates fro% the Philippines. The gross revenue reali-ed fro% the said cargo or %ail shall include the gross freight charge up to final destination. Gross revenues fro% chartered flights originating fro% the Philippines shall li+e#ise for% part of Dgross Philippine billingsD regardless of the place of sale or pay%ent of the passage docu%ents. 4or purposes of deter%ining the ta*ability to revenues fro% chartered flights, the ter% Doriginating fro% the PhilippinesD shall include flight of passsengers #ho stay in the Philippines for %ore than forty-eight =89@ hours prior to e%bar+ation. =/%phasis supplied@ 2nder the above-$uoted proviso international carriers issuing for co%pensation passage docu%entation in the Philippines for uplifts fro% any point in the #orld to any other point in the #orld, are not charged any Philippine inco(e ta* on their Philippine billings =i.e., billings in respect of passenger or cargo originating fro% the Philippines@. 2nder this ne# approach, international carriers #ho service port or points in the Philippines are treated in e*actly the sa%e #ay as international carriers not serving any port or point in the Philippines. Thus, the source of inco%e rule applicable, as above discussed, to transportation or other services rendered partly #ithin and partly #ithout the Philippines, or #holly #ithout the Philippines, has been set aside. in place of Philippine inco%e ta*ation, the Ta* Code no# i%poses this ,R per cent ta* co%puted on the basis of billings in respect of passengers and cargo originating fro% the Philippines regardless of #here e%bar+ation and debar+ation #ould be ta+ing place. This ,-R per cent ta* is effectively a ta* on gross receipts or an e*cise or privilege ta* and not a ta* on inco(e. Thereby, the Govern%ent has done a#ay #ith the difficulties attending the allocation of inco%e and related e*penses, losses and deductions. Fecause ta*es are the very lifeblood of govern%ent, the resulting potential DlossD or DgainD in the a%ount of ta*es collectible by the state is so%eti%es, #ith varying degrees of consciousness, considered in choosing fro% a%ong co%peting possible characteri-ations under or interpretation of ta* statutes. It is hence perhaps useful to point out that the deter%ination of the appropriate characteri-ation here I that of contracts of air carriage rather than sales of airline tic+ets I entails no do#n-the-road loss of inco%e ta* revenues to the Govern%ent. In lieu thereof, the Govern%ent ta+es in revenues generated by the ,-R per cent ta* on the gross Philippine billings or receipts of international carriers. I #ould vote to affir% the decision of the Court of Ta* .ppeals. 7arvasa, G"tierre2, *r., and Cr"2, **., dissent.

#oo(no(&* ( Partial 3tipulation of 4acts, .nne* D/D and .nne* D8D, pp. !8-!! and 9!-67, Rollo. , The Mentholatu% Co., Inc., et al. vs. .nacleto Mangali%an, et al., !, Phil. 5,8 =(68(@E 3ection (, R... 0o. 5855. " Pacific Micronesian Bine, Inc. vs. Cel Rosario and Peligon, 6 Phil. ,", "7, citing Tho%pson on Corporations, Nol. 9, "rd ed., pp. 988-98! and 4isherAs Philippine Ba# of 3toc+ Corporation, p. 8(5. 8 P. ((, F&.C Me%orandu%E p. , (, Rollo. 5 3ection ,8=b@, =,@, Ta* Code, as a%ended by R... ((7, approved on 8 .ugust (6 6. Madrigal and Paternol vs. Rafferty and Concepcion, "9 Phil. 8(8 =(6(9@. ! Me%orandu% for Petitioner, p. ,,E p. ,66, Rollo. 9 Mertens, <r., <acob, Ba# on 4ederal Inco%e Ta*ation, Nol. 9, 3ection 85.,!E cited in :o#den K Co., Btd. vs. Collector of Internal Revenue, (" 3CR. 7( =(6 5@.

43
6 (8 .% <ur ,d 9(". (7 Fritish TraderAs Insurance Co., Btd. vs. Co%%issioner of Internal Revenue, (" 3CR. !(6 =(6 5@. (( :o#den K Co., Btd. vs. Collector of Internal Revenue, (" 3CR. 7( =(6 5@. (, Partial 3tipulation of 4acts, paragraph 5, p. 96, Rollo. (" Manila Gas Corporation vs. Collector of Internal Revenue. , Phil. 965 =(6"5@. (8 Co%%issioner of Internal Revenue vs. 2.3. Bines, Co., 5 3CR. (!5 =(6 ,@. 4eliciano, <. ( I.e., (656-(6 6 and (6!(. , 2nderscoring supplied, Republic .ct 0o. ((7 continued the above-$uoted subparagraph, e*cept that it raised the ta* rate fro% "7J to "7J " (" 3CR. 7( =(6 5@. 8 (" 3CR., at 78E underscoring supplied. 5 9 Mertens, Ba# of 4ederal Inco%e Ta*ation, 3ection 85.,! =(65!@E underscoring suppliedE footnotes o%itted. Co%%issioner v. :a#aiian Philippine Co., (77 4. ,d 699, 66( =6th Cir. (6"6@, #here the Court also observed that the sugar %illing services rendered by the respondent #ere not any less in the nature of DpersonalD services %erely because Dthey #ere perfor%ed, in part, through the use of %achinery, or because of the %agnitude of the ta*payers operations.D d. ! 9 Mertens, d., 3ection 85.8", #hich goes on the state that' DIt #as the intention of Congress under the (6,( la# to place the ta*ation of transportation co%panies upon a sounder and %ore scientific basis=rather than the species of franchise ta& previously i%posed upon non-residents in general@, and so the principle $as adopted of considering inco(e derived fro( transportation to +e inco(e for services, $ith the res"lt that the place $here the services $ere rendered deter(ined the so"rce. The result #as inco%e fro% sources partly #ithin and partly #ithout the 2nited 3tates.D = d@ =/%phasis supplied@

44

20IT/C 3T.T/3 C&2RT &4 .PP/.B3 Fefore B2C/R&, P&R4IBI&, and .0C/R3&0, Circuit <udges. 4&R T:/ T/0T: CIRC2IT .fter e*a%ining the briefs and appellate record, this panel has deter%ined unani%ously that oral argu%ent #ould not %aterially assist the deter%ination of this appeal. See 4ed. R. .pp. P. "8=a@=,@E (7th Cir. R. "8.(=G@. The case is therefore ordered sub%itted #ithout oral argu%ent. In these appeals, Cavid Bee 3%ith asserts that the 2nited 3tates Ta* Court erred in denying his %otions for leave to file %otions to vacate or revise that courtTs earlier decisions. ;e affir%, and #e deny 3%ithTs %otions for recusal of this court and his %otion for attorney fees. ;e grant the govern%entTs %otion for sanctions. Motions to Recuse 4irst, #e address Mr. 3%ithTs %otion and supple%ental %otion for recusal and dis$ualification of the entire 2nited 3tates Court of .ppeals for the Tenth Circuit. 4ederal )udges have a UVduty to sitT on cases filed #ith the court.W S$it2er v. )err%, (69 4."d (,55, (,5! =(7th Cir. ,777@. Recusal of a )udge is not U%andated upon the %erest unsubstantiated suggestion of personal bias or pre)udice.W d. at (,59 =$uotations o%itted@. In S$it2er, #e applied these principles and held that Ua la#suit brought indiscri%inately against all the active and senior )udges on the Tenth Circuit Court of .ppeals does not operate auto%atically to render the court unable to hear and decide an appeal brought by the plaintiffPpetitioner.W d. Mr. 3%ith, an attorney, has a lengthy history #ith this court. Cue to his pattern of abusive pro se litigation, the Tenth Circuit has en)oined his Uproceeding as an appellant, or as a petitioner in an original proceeding, #ithout the representation of a licensed attorney ad%itted to practice in this court, unless he first obtains per%ission to proceed pro se.W Ho$ard v. #ail-Well Envelope Co., (57 4."d (,,!, (,", =(7th Cir. (669@. There is no restriction on Mr. 3%ithTs proceeding as a represented litigant in this court. .lso, Mr. 3%ith has been disbarred fro% the practice of la# in the Tenth Circuit for violating a prior suspension order and for practicing #ithout authori-ation. n re S(ith, ! 4."d ""5, "" =(7th Cir. (66 @E see also n re S(ith, (7 4."d !,", !,8 =(7th Cir. (66"@ =suspending Mr. 3%ith

C.NIC B// 3MIT:, Petitioner-.ppellant, v. C&MMI33I&0/R &4 I0T/R0.B R/N/02/, Respondent-.ppellee. SSSSSSSSSSSSSSSSSSSS C.NIC B// 3MIT:, Petitioner-.ppellant, v. C&MMI33I&0/R &4 I0T/R0.B R/N/02/, Respondent-.ppellee. 0o. 78-67(7 =T.C. 0o. ((!,5-7,@ =Ta* Court@ 0o. 78-6776 =T.C. 0o. 9!8!-77@ =Ta* Court@

&RC/R .0C <2CGM/0TL

This order and )udg%ent is not binding precedent, e*cept under the doctrines of la# of the case, res )udicata, and collateral estoppel. The court generally disfavors the citation of orders and )udg%entsE nevertheless, an order and )udg%ent %ay be cited under the ter%s and conditions
*

of (7th Cir. R. " .".

45
fro% practicing la# in the Tenth Circuit@. .ccording to Mr. 3%ith, the 2nited 3tates Court of .ppeals for the 4ifth Circuit, the 2nited 3tates Cistrict Court for the Cistrict of Colorado, the 2nited 3tates Cistrict Court for the 0orthern Cistrict of Te*as, and the Colorado 3upre%e Court have also suspended or disbarred hi%, based on the Tenth CircuitTs rulings. 3uppTl Mot. at ,-". Mr. 3%ith has filed a co%plaint in district court pursuant to 8, 2.3.C. X (69", na%ing as defendants eleven active and senior )udges of the 2nited 3tates Courts of .ppeals for the Tenth and 4ifth Circuits, the Cler+ of Court for the Tenth Circuit Court of .ppeals, several )udges of the 2nited 3tates Cistrict Courts of Colorado and the 0orthern Cistrict of Te*as, a Colorado attorney, and the Chief <ustice of the Colorado 3upre%e Court. The district court dis%issed the action and Mr. 3%ith filed an appeal. That appeal, S(ith v. Se%(o"r, 0o. 75-(7", =(7th Cir., filed <an. (, ,775@, is pending in this court. 0o %e%ber of this panel is na%ed as a defendantPappellee in Mr. 3%ithTs current appeal. Mr. 3%ith assu%es, but does not sho#, pre)udice or even a fact fro% #hich the appearance of pre)udice %ight arise. 0either this courtTs enforce%ent of sanctions against hi% nor his action against other )udges dis$ualifies this panel fro% hearing and resolving this appeal. Mr. 3%ithTs %otions are denied. Ta* CourtTs Cis%issal of Motions to Nacate or Revise Cecision In the su%%er of ,777, Mr. 3%ith and his spouse Mary <ulia :oo+, #ho is also an attorney, filed a petition #ith the 2nited 3tates Ta* Court see+ing a redeter%ination of assessed deficiencies in their federal inco%e ta* liabilities for (66,, (66", and (668 =Case I@. T#o years later, Mr. 3%ith and Ms. :oo+ filed another petition see+ing a redeter%ination of deficiencies for (665 and (66 =Case II@. This court has described the Ta* Court litigation' Case I #as originally set for trial on 3epte%ber (7, ,77(, but #as continued, at Ta*payersT re$uest, after a hearing. 4ollo#ing four days of trial bet#een May ,, ,77,, and .ugust (6, ,77,E several additional continuances at >T?a*payersT re$uest and the consolidation of the first case #ith the %ore recently filed second case. Ta*payers failed to appear at the resu%ption of the trial scheduled for May (6, ,77". Ta*payers had filed an e%ergency %otion to stri+e and reset the trial date on May ( , ,77". Ta*payers neglected to notify their ten #itnesses under subpoena #ho did appear at the trial setting along #ith one #itness on behalf of the Co%%issioner. Ms. :oo+ clai%s that she and her husband %issed the trial setting because Uthey #ere both very, very sic+.W .fter per%itting the ta*payers to sho# cause, the ta* court then dis%issed the consolidated cases for failure to properly prosecute, and entered a decision in the a%ounts re$uested by the Co%%issioner for each year. Hook v. Co((Cr, (7" 4ed. .pp*. (, ,- " =(7th Cir. <uly (", ,778@ =unpublished@ =citations o%itted@. Ms. :oo+, but not Mr. 3%ith, appealed the dis%issal. In the course of resolving the appeal, this court observed that U>n?o court, including the ta* court, is re$uired to tolerate conduct that disrupts the orderly ad%inistration of )ustice and hinders the courtTs %anage%ent of its doc+et.W d. at ". ;e concluded that the Ta* Court did not abuse its discretion in dis%issing the cases for failure to prosecute. d. at 8. .fter this court affir%ed the )udg%ent against Ms. :oo+ on appeal, Mr. 3%ith filed %otions in the t#o Ta* Court cases for leave to vacate or revise its decisions #ith regard to his interests. The Ta* Court pro%ptly denied the %otions by i%print sta%p, #ithout co%%ent. Mr. 3%ith, #ho is being represented by Ms. :oo+ in this court, then filed a notice of appeal fro% the denial of his %otion in each of the cases. The appeals have been consolidated for procedural purposes only. . Ta* Court decision nor%ally beco%es final ninety days after entry if no party files a notice of appeal. See , 2.3.C. XX !89(=a@=(@, !89". .nd, Uas a general rule, the Ta* Court lac+s )urisdiction to vacate a decision once it beco%es final.W Davenport !ec%cling -ssocs. v. Co((Cr, ,,7 4."d (,55, (,56 =((th Cir. ,777@ =collecting cases@. &ur sister circuits, ho#ever, have recogni-ed an e*ception to the rule in instances of fraud on the court. d.E see also Dro+n% v. Co((Cr, ((" 4."d !7, !! =!th Cir. (66!@ =allo#ing a narro# e*ception to the rule of finality Uif the party see+ing to vacate the decision could convincingly establish that the decision resulted fro% a fraud upon the courtW@ =$uotation o%itted@E )illingsle% v. Co((Cr, 9 9 4.,d (79(, (795 =6th Cir. (696@ =ac+no#ledging Ta* Court )urisdiction to entertain a %otion to vacate at any ti%e if the decision #as obtained by fraud on the court@. In the Ta* Court, Mr. 3%ith alleged that the dis%issal orders #ere based on Ufalse and defa%atoryW charges, #hich Uconstituted a fraud on petitioners and the Court.W R., Nol. I, Coc. ",-. at , =Case II@E id. at vol. NI, Coc. 67-. at , =Case I@. .ccordingly, #e conclude that the Ta* Court had )urisdiction to deny the %otions to vacate. ;e therefore proceed to the only substantive issue in this case' #hether these rulings a%ounted to an abuse of discretion. See Davenport !ec%cling -ssocs., ,,7 4."d at (,59 =collecting cases applying the abuse-of-

46
discretion standard to the Ta* CourtTs denial of leave to file a %otion to vacate@. The UhighW standard for abuse of discretion re$uires a sho#ing of Uan arbitrary, capricious, #hi%sical, or %anifestly unreasonable )udg%ent.W Schrier v. Dniv. of Colo., 0o. 7"-(,!5, ,775 ;B ,67,59 , at L" =(7th Cir. &ct. "(, ,775@ =$uotation o%itted@. Fased on the record before us, #e discern absolutely no abuse of discretion in the denial of Mr. 3%ithTs %otions to vacate. Motions for 3anctions The Co%%issioner has %oved for an order re$uiring Mr. 3%ith and Ms. :oo+ to pay sanctions in the a%ount of H ,777 for bringing and %aintaining a groundless appeal. Mr. 3%ith has opposed the %otion and countered #ith a re$uest for sanctions against the govern%ent for H,,997 in attorney fees attributable to responding to the Co%%issionerTs %otion. This court has the authority to i%pose sanctions' U>t?o deter frivolous and abusive litigation and pro%ote )ustice and )udicial efficiency, the federal courts are e%po#ered to i%pose %onetary sanctions, by statutes and the rules of civil and appellate procedure as #ell as their inherent right to %anage their o#n proceedings.W )rale% v. Ca(p+ell, 9", 4.,d (578, (5(7 =(7th Cir. (69!@E see also 4ed. R. .pp. P. "9 =UIf a court of appeals deter%ines that an appeal is frivolous, it %ay, after a separately filed %otion or notice fro% the court and reasonable opportunity to respond, a#ard )ust da%ages and single or double costs to the appellee.W@. In an appropriate case, Rule "9 per%its sanctions against attorneys as #ell as parties, if an attorney has brought a truly frivolous appeal on behalf of a client. )rale%, 9", 4.,d at (5((. U.n appeal is frivolous #hen the result is obvious, or the appellantTs argu%ents of error are #holly #ithout %erit.W d. at (5(7 =$uotation o%itted@.. ;hen a court is considering the i%position of sanctions under Rule "9, due process re$uires that notice and an opportunity to be heard be given to the persons against #ho% sanctions are re$uested. d. at (5(8. Cue process re$uire%ents are satisfied if the party see+ing sanctions files a separate %otion for sanctions and the party against #ho% sanctions are sought has Uthe opportunity to file a brief or other#ise be heard.W d. at (5(5. .n unvarnished recitation of the steps leading to Mr. 3%ithTs appeal de%onstrates its frivolousness. :e and Ms. :oo+ #ere copetitioners in the dis%issed Ta* Court cases. &nly Ms. :oo+ ti%ely appealed the dis%issals. In Ms. :oo+Ts appeal, this court su%%arily affir%ed the Ta* CourtTs actions. Hook, (7" 4ed. .pp*. at 8. Mr. 3%ith then as+ed the Ta* Court for leave to vacate or revise its )ust-affir%ed decisions. The Ta* Court denied his %otions. Mr. 3%ith, represented by Ms. :oo+, appealed to this court. 4or this blatant #aste of )udicial ti%e and resources, sanctions are appropriate. Fecause the Co%%issioner filed a separate %otion for sanctions =#ith docu%entation of the average e*pense in attorney salaries and costs incurred in defense of frivolous ta*payer appeals@ and Mr. 3%ith responded in opposition to the %otion, due process considerations have been %et. ;e grant the Co%%issionerTs %otion and order Mr. 3%ith and Ms. :oo+, )ointly and severally, to pay the lu%p su% of H ,777 to the Co%%issioner. 4or obvious reasons, #e deny Mr. 3%ithTs counter-%otion for attorney fees. The )udg%ent of the 2nited 3tates Ta* Court is .44IRM/C. Mr. 3%ithTs %otions for recusal of this court are C/0I/C. The Co%%issionerTs %otion for sanctions is GR.0T/CE Mr. 3%ithTs %otion for sanctions is C/0I/C.

47

/ntered for the Court

<ohn C. Porfilio Circuit <udge

48
retire%ent, Miller accepted an e*ecutive position in the local branch of Ginn K Co., boo+ publishers #ith principal offices in 0e# 1or+ and Foston, 2.3..., up to the outbrea+ of the Pacific ;ar. 4ro% (6,, up to Cece%ber !, (68(, he #as stationed in the Philippines as &riental representative of Ginn K Co., covering not only the Philippines, but also China and <apan. :is principal #or+ #as selling boo+s specially #ritten for Philippine schools. In or about the year (6,,, Miller lived at the Manila :otel. :is #ife re%ained at their ho%e in Fen-Bo%ond, 3anta Cru-, California, but she used to co%e to the Philippines for brief visits #ith Miller, staying three or four %onths. Miller also used to visit his #ife in California. :e never lived in any residential house in the Philippines. .fter the death of his #ife in (6"(, he transferred fro% the Manila :otel to the .r%y and 0avy Club, #here he #as staying at the outbrea+ of the Pacific ;ar. &n <anuary (!, (68(, Miller e*ecuted his last #ill and testa%ent in 3anta Cru-, California, in #hich he declared that he #as Dof 3anta Cru-, CaliforniaD. &n Cece%ber !, (68(, because of the Pacific ;ar, the office of Ginn K Co. #as closed, and Miller )oined the Foard of Censors of the 2nited 3tates 0avy. Curing the #ar, he #as ta+en prisoner by the <apanese forces in Beyte, and in <anuary, (688, he #as transferred to Catbalogan, 3a%ar, #here he #as reported to have been e*ecuted by said forces on March ((, (688, and since then, nothing has been heard fro% hi%. .t the ti%e of his death in (688, Miller o#ned the follo#ing properties' Real Property situated in Fen-Bo%ond, 3anta Cru-, California valued at ...................................................................... Real property situated in Furlinga%e, 3an Mateo, California valued at ........................................................................................ Tangible Personal property, #orth............................................. Cash in the ban+s in the 2nited 3tates.................................... The facts in the case gathered fro% the record and as found by the Court of Ta* .ppeals %ay be briefly stated as follo#s' :ugo :. Miller, an .%erican citi-en, #as born in 3anta Cru-, California, 2.3..., in (99". In (675, he ca%e to the Philippines. 4ro% (67 to (6(!, he #as connected #ith the public school syste%, first as a teacher and later as a division superintendent of schools, later retiring under the &s%eiia Retire%ent .ct. .fter his .ccounts Receivable fro% various persons in the 2nited 3tates including notes ............................................................... 3toc+s in 2.3. Corporations and 2.3. 3avings Fonds, valued at ........................................................................................

G.R. No*. L-94.6 an5 L-9481

January 6, 19.8

!" COLL"C OR O# IN "RNAL R"$"N%", petitioner, vs. ,OMINGO ," LARA, a* an/)22)ary a5;)n)*(ra(or o3 (0& &*(a(& o3 !%GO !. MILL"R <,&/&a*&5=, an5 (0& CO%R O# A: APP"ALS, respondents. -llison *. Gi++s, Eafra, De .eon and 'eneracion for Do(ingo E. de .ara. -ssistant Solicitor General !a(on .. -vancena and Ce2ar .. Fier"lf for the Collector of nternal !even"e. MON "MA8OR, J.> These are t#o separate appeals, one by the Collector of Internal Revenue, later on referred to as the Collector, and the other by Co%ingo de Bara as .ncilliary .d%inistrator of the estate of :ugo :. Miller, fro% the decision of the Court of Ta* .ppeals of <une ,5, (655, #ith the follo#ing dispositive part' ;:/R/4&R/, respondentAs assess%ent for estate and inheritance ta*es upon the estate of the decedent :ugo :. Miller is hereby %odified in accordance #ith the co%putation attached as .nne* D.D of this decision. Petitioner is hereby ordered to pay the a%ount of P,,78!.,, representing estate ta*es due, together #ith the interests and other incre%ents. In case of failure to pay the a%ount of P,,78!.,, #ithin thirty ="7@ days fro% the ti%e this decision has beco%e final, the 5 per cent surcharge and the corresponding interest due thereon shall be paid as a part of the ta*.

P 5,777.77

( ,,77.77 ,,(87.77 ,(,(!9.,7

" ,7 ,.!8 (,", "!.(

49
3hares of stoc+ in Philippine Corporations, valued at .......... 5(,67 .85 ;e agree #ith the Court of Ta* .ppeals that at the ti%e that The 0ational Internal Revenue Code #as pro%ulgated in (6"6, the prevailing construction given by the courts to the DresidenceD #as synony%ous #ith do%icile. and that the t#o #ere used intercnangeabiy. Cases #ere cited in support of this vie#, paricularly that of Nelilla vs. Posadas, , Phil. ,8, #herein this Tribunal used the ter%s DresidenceD and Ddo%icileD interchangeably and #ithout distinction, the case involving the application of the ter% residence e%ployed in the inheritance ta* la# at the ti%e =section (5" - (589 of the Revised .d%inistrative Code@, and that conse$uently, it #ill be presu%ed that in using the ter% residence or resident in the %eaning as construed and interpreted by the Court. Moreover, there is reason to believe that the Begislature adopted the .%erican =4ederal and 3tate@ estate and inheritance ta* syste% =see e.g. Report to the Ta* Co%%ision of the Philippines, Nol. II, pages (,,-(,8, cited in I Calupan, 0ational Internal Revenue Code .nnotated, p. 8 6-8!7@. In the 2nited 3tates, for estate ta* purposes, a resident is considered one #ho at the ti%e of his death had his do%icile in the 2nited 3tates, and in .%erican )urisprudence, for purposes of estate and ta*ation, DresidenceD is interpreted as synony%ous #ith do%icile, and thatI The incidence of estate and succession has historically been deter%ined by do%icile and situs and not by the fact of actual residence. =Fo#ring vs. Fo#ers, =(6,9@ ,8 4 ,d 6(9, at 6,(, .4TR !869, cert. den =(6,9@ ,!, 2.3. 79@. ;e also agree #ith the Court of Ta* .ppeals that at the ti%e of his death, Miller had his residence or do%icile in 3anta Cru-, California. Curing his country, Miller never ac$uired a house for residential purposes for he stayed at the Manila :otel and later on at the .r%y and 0avy Club. /*cept this #ife never stayed in the Philippines. The bul+ of his savings and properties #ere in the 2nited 3tates. To his ho%e in California, he had been sending souvenirs, such as carvings, curios and other si%ilar collections fro% the Philippines and the 4ar /ast. In 0ove%ber, (687, Miller too+ out a property insurance policy and indicated therein his address as 3anta Cru-, California, this aside fro% the fact that Miller, as already stated, e*ecuted his #ill in 3anta Cru-, California, #herein he stated that he #as Dof 3anta Cru-, CaliforniaD. 4ro% the foregoing, it is clear that as a non-resident of the Philippines, the only properties of his estate sub)ect to estate and inheritance ta*es are those shares of stoc+ issued by Philippines corporations, valued at

Testate proceedings #ere instituted before the Court of California in 3anta Cru- County, in the course of #hich MillerAs #ill of <anuary (!, (68( #as ad%itted to probate on May (7, (68 . 3aid court subse$uently issued an order and decree of settle%ent of final account and final distribution, #herein it found that Miller #as a Dresident of the County of 3anta Cru-, 3tate of CaliforniaD at the ti%e of his death in (688. Thereafter ancilliary proceedings #ere filed by the e*ecutors of the #ill before the Court of 4irst Instance of Manila, #hich court by order of 0ove%ber ,(, (68 , ad%itted to probate the #ill of Miller #as probated in the California court, also found that Miller #as a resident of 3anta Cru-, California, at the ti%e of his death. &n <uly ,6, (686, the Fan+ of .%erica, 0ational Trust and 3avings .ssociation of 3an 4rancisco California, co-e*ecutor na%ed in MillerAs #ill, filed an estate and inheritance ta* return #ith the Collector, covering only the shares of stoc+ issued by Philippines corporations, reporting a liability of P, 6.8" for ta*es and P,"7.,! for inheritance ta*es. .fter due investigation, the Collector assessed estate and inheritance ta*es, #hich #as received by the said e*ecutor on .pril ", (657. The estate of Miller protested the assess%ent of the liability for estate and inheritance ta*es, including penalties and other incre%ents at P!!,"77.6,, as of <anuary ( , (658. This assess%ent #as appealed by Ce Bara as .ncilliary .d%inistrator before the Foard of Ta* .ppeals, #hich appeal #as later heard and decided by the Court of Ta* .ppeals. In deter%ining the Dgross estateD of a decedent, under 3ection (,, in relation to section 99 of our Ta* Code, it is first necessary to decide #hether the decedent #as a resident or a non-resident of the Philippines at the ti%e of his death. The Collector %aintains that under the ta* la#s, residence and do%icile have different %eaningsE that ta* la#s on estate and inheritance ta*es only %ention resident and non-resident, and no reference #hatsoever is %ade to do%icile e*cept in 3ection 6" =d@ of the Ta* CodeE that Miller during his long stay in the Philippines had re$uired a DresidenceD in this country, and #as a resident thereof at the ti%e of his death, and conse$uently, his intangible personal properties situated here as #ell as in the 2nited 3tates #ere sub)ect to said ta*es. The .ncilliary .d%inistrator, ho#ever, e$ually %aintains that for estate and inheritance ta* purposes, the ter% DresidenceD is synony%ous #ith the ter% do%icile.

50
P5(,67 .85. It is true, as stated by the Ta* Court, that #hile it %ay be the general rule that personal property, li+e shares of stoc+ in the Philippines, is ta*able at the do%icile of the o#ner =Miller@ under the doctrine of (o+ilia sec""nt"r persona, nevertheless, #hen he during his life ti%e, . . . e*tended his activities #ith respect to his intangibles, so as to avail hi%self of the protection and benefits of the la#s of the Philippines, in such a #ay as to bring his person or property #ithin the reach of the Philippines, the reason for a single place of ta*ation no longer obtains- protection, benefit, and po#er over the sub)ect %atter are no longer confined to California, but also to the Philippines =;ells 4argo Fan+ K 2nion Trust Co. vs. Collector =(687@, !7 Phil. ",5@. In the instant case, the actual situs of the shares of stoc+ is in the Philippines, the corporation being do%iciled herein' and besides, the right to vote the certificates at stoc+holdersA %eetings, the right to collect dividends, and the right to dispose of the shares including the trans%ission and ac$uisition thereof by succession, all en)oy the protection of the Philippines, so that the right to collect the estate and inheritance ta*es cannot be $uestioned =;ells 4argo Fan+ K 2nion Trust Co. vs. Collector supra@. It is recogni-ed that the state %ay, consistently #ith due process, i%pose a ta* upon transfer by death of shares of stoc+ in a do%estic corporation o#ned by a decedent #hose do%icile #as outside of the state =Furnett vs. Froo+s, ,99 2.3. "!9E 3tate Co%%ission vs. .ldrich, =(68,@ "( 2.3. (!8, 9 B. /d. ("59, , .BR (779@.D =Frief for the Petitioner, p. !6-97@. The .ncilliary .d%inistrator for purposes of e*e%ption invo+es the proviso in 3ection (,, of the Ta* Code, #hich provides as follo#s' . . .D.nd Provided, ho#ever, That no ta* shall be collected under this Title in respect of intangible personal property =a@ if the decedent at the ti%e of his death #as a resident of a foreign country #hich at the ti%e of his death did not i%pose a transfer ta* or death ta* of any character in respect of intangible personal property of citi-ens of the Philippines not residing in that country, or =b@ if the la#s of the foreign country of #hich the decedent #as resident at the tune of his death allo# a si%ilar e*e%ption fro% transfer ta*es or death ta*es of every character in respect of intangible personal property o#ned by citi-en, of the Philippine not residing in that foreign country. The .ncilliary .d%inistrator bases his clai% of e*e%ption on =a@ the e*e%ption of non-residents fro% the California inheritance ta*es #ith respect to intangibles, and =b@ the e*e%ption by #ay of reduction of P8,777 fro% the estates of non-residents, under the 2nited 3tates 4ederal /state Ta* Ba#. 3ection of the California Inheritance Ta* .ct of (6"5, no# reenacted as 3ection ("95(, California Revenue and Ta*ation Code, reads as follo#s' 3/C. . The follo#ing e*e%ption fro% the ta* are hereby allo#ed' *** *** ***.

=!@ The ta* i%posed by this act in respect of intangible personal property shall not be payable if decedent is a resident of a 3tate or Territory of the 2nited 3tates or a foreign state or country #hich at the ti%e of his death i%posed a legacy, succession of death ta* in respect of intangible personal property #ithin the 3tate or Territory or foreign state or country of residents of the 3tates or Territory or foreign state or country of residence of the decedent at the ti%e of his death contained a reciprocal provision under #hich nonresidents #ere e*e%pted fro% legacy or succession ta*es or death ta*es of every character in respect of intangible personal property providing the 3tate or Territory or foreign state or country of residence of such non-residents allo#ed a si%ilar e*e%ption to residents of the 3tate, Territory or foreign state or country of residence of such decedent. Considering the 3tate of California as a foreign country in relation to section (,, of &ur Ta* Code #e beleive and hold, as did the Ta* Court, that the .ncilliary .d%inistrator is entitled to e*e%ption fro% the ta* on the intangible personal property found in the Philippines. Incidentally, this e*e%ption granted to non-residents under the provision of 3ection (,, of our Ta* Code, #as to reduce the burden of %ultiple ta*ation, #hich other#ise #ould sub)ect a decedentAs intangible personal property to the inheritance ta*, both in his place of residence and do%icile and the place #here those properties are found. .s regards the e*e%ption or reduction of

51
P8,777 based on the reduction under the 4ederal Ta* Ba# in the a%ount of H,,777, #e agree #ith the Ta* Court that the a%ount of H,,777 allo#ed under the 4ederal /state Ta* Ba# is in the nature of deduction and not of an e*e%ption. Fesides, as the Ta* Court observes--. . . . this e*e%ption is allo#ed on all gross estate of non-residents of the 2nited 3tates, #ho are not citi-ens thereof, irrespective of #hether there is a corresponding or si%ilar e*e%ption fro% transfer or death ta*es of non-residents of the Philippines, #ho are citi-ens of the 2nited 3tatesE and thirdly, because this e*e%ption is allo#ed on all gross estates of non-residents irrespective of #hether it involves tangible or intangible, real or personal propertyE so that for these reasons petitioner cannot clai% a reciprocity. . . 4urther%ore, in the Philippines, there is already a reduction on gross estate ta* in the a%ount of P",777 under section 95 of the Ta* Code, before it #as a%ended, #hich in part provides as follo#s' 3/C. 95. !ates of estate ta&.IThere shall be levied, assessed, collected, and paid upon the transfer of the net estate of every decedent, #hether a resident or non-resident of the Philippines, a ta* e$ual to the su% of the follo#ing percentages of the value of the net estate deter%ined as provided in sections 99 and 96' &ne per centru% of the a%ount by #hich the net estate e*ceeds three thousand pesos and does not e*ceed ten thousand pesosE. . . It #ill be noticed fro% the dispositive part of the appealed decision of the Ta* Court that the .ncilliary .d%inistrator #as ordered to pay the a%ount of P,,78!.,,, representing estate ta*es due, together #ith interest and other incre%ents. 3aid .ncilliary .d%inistrator invo+es the provisions of Republic .ct 0o. (,5", #hich #as passed for the benefit of veterans, guerrillas or victi%s of <apanese atrocities #ho died during the <apanese occupation. The provisions of this .ct could not be invo+ed during the hearing before the Ta* Court for the reason that said Republic .ct #as approved only on <une (7, (655. ;e are satisfied that inas%uch as Miller, not only suffered deprivation of the #ar, but #as +illed by the <apanese %ilitary forces, his estate is entitled to the benefits of this .ct. Conse$uently, the interests and other incre%ents provided in the appealed )udg%ent should not be paid by his estate. ;ith the above %odification, the appealed decision of the Court of Ta* .ppeals is hereby affir%ed. ;e dee% it unnecessary to pass upon the other points raised in the appeal. 0o costs. )eng2on, Paras, C.*., Padilla, !e%es, -., )a"tista -ngelo, .a+rador, Concepcion, !e%es, *.)..., Endencia, and ,eli&, **., concur.

52
revolutioni-ed international business and econo%ic relations a%ongst states. It has irreversibly propelled the #orld to#ards trade liberali-ation and econo%ic globali-ation. Biberali-ation, globali-ation, deregulation and privati-ation, the third-%illenniu% bu-- #ords, are ushering in a ne# borderless #orld of business by s#eeping a#ay as %ere historical relics the heretofore traditional %odes of pro%oting and protecting national econo%ies li+e tariffs, e*port subsidies, i%port $uotas, $uantitative restrictions, ta* e*e%ptions and currency controls. 4inding %ar+et niches and beco%ing the best in specific industries in a %ar+et-driven and e*portoriented global scenario are replacing age-old Ubeggar-thy-neighborW policies that unilaterally protect #ea+ and inefficient do%estic producers of goods and services. In the #ords of Peter Cruc+er, the #ell-+no#n %anage%ent guru, UIncreased participation in the #orld econo%y has beco%e the +ey to do%estic econo%ic gro#th and prosperity.W Frief :istorical Fac+ground To hasten #orld#ide recovery fro% the devastation #rought by the 3econd ;orld ;ar, plans for the establish%ent of three %ultilateral institutions -inspired by that grand political body, the 2nited 0ations -- #ere discussed at Cu%barton &a+s and Fretton ;oods. The first #as the ;orld Fan+ =;F@ #hich #as to address the rehabilitation and reconstruction of #arravaged and later developing countriesE the second, the International Monetary 4und =IM4@ #hich #as to deal #ith currency proble%sE and the third, the International Trade &rgani-ation =IT&@, #hich #as to foster order and predictability in #orld trade and to %ini%i-e unilateral protectionist policies that invite challenge, even retaliation, fro% other states. :o#ever, for a variety of reasons, including its non-ratification by the 2nited 3tates, the IT&, unli+e the IM4 and ;F, never too+ off. ;hat re%ained #as only G.TT -- the General .gree%ent on Tariffs and Trade. G.TT #as a collection of treaties governing access to the econo%ies of treaty adherents #ith no institutionali-ed body ad%inistering the agree%ents or dependable syste% of dispute settle%ent. .fter half a century and several di--ying rounds of negotiations, principally the Gennedy Round, the To+yo Round and the 2ruguay Round, the #orld finally gave birth to that ad%inistering body -- the ;orld Trade &rgani-ation -- #ith the signing of the U4inal .ctW in Marra+esh, Morocco and the ratification of the ;T& .gree%ent by its %e%bers.

>G.R. 0o. ((9,65. May ,, (66!? ;IGF/RT& /. T.Y.C. and .00. C&MI0IQ2/ C&3/T/0G, as %e%bers of the Philippine 3enate and as ta*payersE GR/G&RI& .0C&B.0. and <&G/R .RR&1& as %e%bers of the :ouse of Representatives and as ta*payersE 0IC.0&R P. P/RB.3 and :&R.CI& R. M&R.B/3, both as ta*payersE CINIB BIF/RTI/3 20I&0, 0.TI&0.B /C&0&MIC PR&T/CTI&0I3M .33&CI.TI&0, C/0T/R 4&R .BT/R0.TIN/ C/N/B&PM/0T I0ITI.TIN/3, BIG.3G.1.0G G.20B.R.0 4&20C.TI&0, I0C., P:IBIPPI0/ R2R.B R/C&03TR2CTI&0 M&N/M/0T, C/M&GR.TIG&0G GIB23.0 0G M.GF2F2GIC 0G PIBIPI0.3, I0C., and P:IBIPPI0/ P/.3.0T I03TIT2T/, in representation of various ta*payers and as nongovern%ental organi-ations, petitioners, vs. /CG.RC& .0G.R., .BF/RT& R&M2B&, B/TICI. R.M&3-3:.:.0I, :/:/R3&0 .BN.R/5, .G.PIT& .Q2I0&, R&C&B4& FI.5&0, 0/PT.BI G&05.B/3, /R0/3T& :/RR/R., <&3/ BI0., GB&RI. M.C.P.G.B-.RR&1&, &RB.0C& M/RC.C&, FB.3 &PB/, <&:0 &3M/Y., 3.0T.0I0. R.32B, R.M&0 R/NIBB., R.2B R&C&, 4R.0CI3C& T.T.C and 4R/CCI/ ;/FF, in their respective capacities as %e%bers of the Philippine 3enate #ho concurred in the ratification by the President of the Philippines of the .gree%ent /stablishing the ;orld Trade &rgani-ationE 3.BN.C&R /0RIQ2/5, in his capacity as 3ecretary of Fudget and Manage%entE C.RIC.C N.BC/:2/3., in her capacity as 0ational TreasurerE RI5.BI0& 0.N.RR&, in his capacity as 3ecretary of Trade and IndustryE R&F/RT& 3/F.3TI.0, in his capacity as 3ecretary of .gricultureE R&F/RT& C/ &C.MP&, in his capacity as 3ecretary of 4inanceE R&F/RT& R&M2B&, in his capacity as 3ecretary of 4oreign .ffairsE and T/&4I3T& T. G2I0G&0., in his capacity as /*ecutive 3ecretary, respondents. C/CI3I&0 P.0G.0IF.0, *.' The e%ergence on <anuary (, (665 of the ;orld Trade &rgani-ation, abetted by the %e%bership thereto of the vast %a)ority of countries has

53
Bi+e %any other developing countries, the Philippines )oined ;T& as a founding %e%ber #ith the goal, as articulated by President 4idel N. Ra%os in t#o letters to the 3enate =infra@, of i%proving UPhilippine access to foreign %ar+ets, especially its %a)or trading partners, through the reduction of tariffs on its e*ports, particularly agricultural and industrial products.W The President also sa# in the ;T& the opening of Une# opportunities for the services sector * * *, =the reduction of@ costs and uncertainty associated #ith e*porting * * *, and =the attraction of@ %ore invest%ents into the country.W .lthough the Chief /*ecutive did not e*pressly %ention it in his letter, the Philippines - - and this is of special interest to the legal profession - - #ill benefit fro% the ;T& syste% of dispute settle%ent by )udicial ad)udication through the independent ;T& settle%ent bodies called =(@ Cispute 3ettle%ent Panels and =,@ .ppellate Tribunal. :eretofore, trade disputes #ere settled %ainly through negotiations #here solutions #ere arrived at fre$uently on the basis of relative bargaining strengths, and #here naturally, #ea+ and underdeveloped countries #ere at a disadvantage. The Petition in Frief .rguing %ainly =(@ that the ;T& re$uires the Philippines Uto place nationals and products of %e%ber-countries on the sa%e footing as 4ilipinos and local productsW and =,@ that the ;T& Uintrudes, li%its andPor i%pairsW the constitutional po#ers of both Congress and the 3upre%e Court, the instant petition before this Court assails the ;T& .gree%ent for violating the %andate of the (69! Constitution to Udevelop a self-reliant and independent national econo%y effectively controlled by 4ilipinos * * * =to@ give preference to $ualified 4ilipinos =and to@ pro%ote the preferential use of 4ilipino labor, do%estic %aterials and locally produced goods.W 3i%ply stated, does the Philippine Constitution prohibit Philippine participation in #orld#ide trade liberali-ation and econo%ic globali-ationM Coes it prescribe Philippine integration into a global econo%y that is liberali-ed, deregulated and privati-edM These are the %ain $uestions raised in this petition for certiorari, prohibition and (anda("s under Rule 5 of the Rules of Court praying =(@ for the nullification, on constitutional grounds, of the concurrence of the Philippine 3enate in the ratification by the President of the Philippines of the .gree%ent /stablishing the ;orld Trade &rgani-ation =;T& .gree%ent, for brevity@ and =,@ for the prohibition of its i%ple%entation and enforce%ent through the release and utili-ation of public funds, the assign%ent of public officials and e%ployees, as #ell as the use of govern%ent properties and resources by respondent-heads of various e*ecutive offices concerned there#ith. This concurrence is e%bodied in 3enate Resolution 0o. 6!, dated Cece%ber (8, (668. The 4acts &n .pril (5, (668, Respondent Ri-alino 0avarro, then 3ecretary of the Cepart%ent of Trade and Industry =3ecretary 0avarro, for brevity@, representing the Govern%ent of the Republic of the Philippines, signed in Marra+esh, Morocco, the 4inal .ct /%bodying the Results of the 2ruguay Round of Multilateral 0egotiations =4inal .ct, for brevity@. Fy signing the 4inal .ct, 3ecretary 0avarro on behalf of the Republic of the Philippines, agreed' U=a@ to sub%it, as appropriate, the ;T& .gree%ent for the consideration of their respective co%petent authorities, #ith a vie# to see+ing approval of the .gree%ent in accordance #ith their proceduresE and =b@ to adopt the Ministerial Ceclarations and Cecisions.W &n .ugust (,, (668, the %e%bers of the Philippine 3enate received a letter dated .ugust ((, (668 fro% the President of the Philippines, stating a%ong others that Uthe 2ruguay Round 4inal .ct is hereby sub%itted to the 3enate for its concurrence pursuant to 3ection ,(, .rticle NII of the Constitution.W &n .ugust (", (668, the %e%bers of the Philippine 3enate received another letter fro% the President of the Philippines li+e#ise dated .ugust ((, (668, #hich stated a%ong others that Uthe 2ruguay Round 4inal .ct, the .gree%ent /stablishing the ;orld Trade &rgani-ation, the Ministerial Ceclarations and Cecisions, and the 2nderstanding on Co%%it%ents in 4inancial 3ervices are hereby sub%itted to the 3enate for its concurrence pursuant to 3ection ,(, .rticle NII of the Constitution.W &n Cece%ber 6, (668, the President of the Philippines certified the necessity of the i%%ediate adoption of P.3. (79", a resolution entitled

54
UConcurring in the Ratification of the .gree%ent /stablishing the ;orld Trade &rgani-ation.W &n Cece%ber (8, (668, the Philippine 3enate adopted Resolution 0o. 6! #hich UResolved, as it is hereby resolved, that the 3enate concur, as it hereby concurs, in the ratification by the President of the Philippines of the .gree%ent /stablishing the ;orld Trade &rgani-ation.W The te*t of the ;T& .gree%ent is #ritten on pages ("! et se4. of Nolu%e I of the " volu%e Dr"g"a% !o"nd of #"ltilateral Trade 7egotiations and includes various agree%ents and associated legal instru%ents =identified in the said .gree%ent as .nne*es (, , and " thereto and collectively referred to as Multilateral Trade .gree%ents, for brevity@ as follo#s' U.00/O ( .nne* (.' Multilateral .gree%ent on Trade in Goods General .gree%ent on Tariffs and Trade (668 .gree%ent on .griculture .gree%ent on the .pplication of 3anitary and Phytosanitary Measures .gree%ent on Te*tiles and Clothing .gree%ent on Technical Farriers to Trade .gree%ent on Trade-Related Invest%ent Measures .gree%ent on I%ple%entation of .rticle NI of the General .gree%ent on Tariffs and Trade (668 .nne* (F' .nne* (C' Rights .gree%ent on I%ple%entation of .rticle NII of the General on Tariffs and Trade (668 .gree%ent on Pre-3hip%ent Inspection .gree%ent on Rules of &rigin .gree%ent on I%ports Bicensing Procedures .gree%ent on 3ubsidies and Coordinating Measures .gree%ent on 3afeguards General .gree%ent on Trade in 3ervices and .nne*es .gree%ent on Trade-Related .spects of Intellectual Property

.00/O , 2nderstanding on Rules and Procedures Governing the 3ettle%ent of Cisputes .00/O " Trade Policy Revie# Mechanis%W &n Cece%ber ( , (668, the President of the Philippines signed the Instru%ent of Ratification, declaring' U0&; T:/R/4&R/, be it +no#n that I, 4IC/B N. R.M&3, President of the Republic of the Philippines, after having seen and considered the afore%entioned .gree%ent /stablishing the ;orld Trade &rgani-ation and the agree%ents and associated legal instru%ents included in .nne*es one =(@, t#o =,@ and three ="@ of that .gree%ent #hich are integral parts thereof,

55
signed at Marra+esh, Morocco on (5 .pril (668, do hereby ratify and confir% the sa%e and every .rticle and Clause thereof.W To e%phasi-e, the ;T& .gree%ent ratified by the President of the Philippines is co%posed of the .gree%ent Proper and Uthe associated legal instru%ents included in .nne*es one =(@, t#o =,@ and three ="@ of that .gree%ent #hich are integral parts thereof.W &n the other hand, the 4inal .ct signed by 3ecretary 0avarro e%bodies not only the ;T& .gree%ent =and its integral anne*es afore%entioned@ but also =(@ the Ministerial Ceclarations and Cecisions and =,@ the 2nderstanding on Co%%it%ents in 4inancial 3ervices. In his Me%orandu% dated May (", (66 , the 3olicitor General describes these t#o latter docu%ents as follo#s' UThe Ministerial Cecisions and Ceclarations are t#enty-five declarations and decisions on a #ide range of %atters, such as %easures in favor of least developed countries, notification procedures, relationship of ;T& #ith the International Monetary 4und =IM4@, and agree%ents on technical barriers to trade and on dispute settle%ent. The 2nderstanding on Co%%it%ents in 4inancial 3ervices d#ell on, a%ong other things, standstill or li%itations and $ualifications of co%%it%ents to e*isting non-confor%ing %easures, %ar+et access, national treat%ent, and definitions of non-resident supplier of financial services, co%%ercial presence and ne# financial service.W &n Cece%ber ,6, (668, the present petition #as filed. .fter careful deliberation on respondentsT co%%ent and petitionersT reply thereto, the Court resolved on Cece%ber (,, (665, to give due course to the petition, and the parties thereafter filed their respective %e%oranda. The Court also re$uested the :onorable Bilia R. Fautista, the Philippine .%bassador to the 2nited 0ations stationed in Geneva, 3#it-erland, to sub%it a paper, hereafter referred to as UFautista Paper,W for brevity, =(@ providing a historical bac+ground of and =,@ su%%ari-ing the said agree%ents. Curing the &ral .rgu%ent held on .ugust ,!, (66 , the Court directed' U=a@ the petitioners to sub%it the =(@ 3enate Co%%ittee Report on the %atter in controversy and =,@ the transcript of proceedingsPhearings in the 3enateE and =b@ the 3olicitor General, as counsel for respondents, to file =(@ a list of Philippine treaties signed prior to the Philippine adherence to the ;T& .gree%ent, #hich derogate fro% Philippine sovereignty and =,@ copies of the %ulti-volu%e ;T& .gree%ent and other docu%ents %entioned in the 4inal .ct, as soon as possible.W .fter receipt of the foregoing docu%ents, the Court said it #ould consider the case sub%itted for resolution. In a Co%pliance dated 3epte%ber ( , (66 , the 3olicitor General sub%itted a printed copy of the " -volu%e Dr"g"a% !o"nd of #"ltilateral Trade 7egotiations, and in another Co%pliance dated &ctober ,8, (66 , he listed the various Ubilateral or %ultilateral treaties or international instru%ents involving derogation of Philippine sovereignty.W Petitioners, on the other hand, sub%itted their Co%pliance dated <anuary ,9, (66!, on <anuary "7, (66!. The Issues In their Me%orandu% dated March ((, (66 , petitioners su%%ari-ed the issues as follo#s' U.. ;hether the petition presents a political $uestion or is other#ise not )usticiable. F. ;hether the petitioner %e%bers of the 3enate #ho participated in the deliberations and voting leading to the concurrence are estopped fro% i%pugning the validity of the .gree%ent /stablishing the ;orld Trade &rgani-ation or of the validity of the concurrence. C. ;hether the provisions of the .gree%ent /stablishing the ;orld Trade &rgani-ation contravene the provisions of 3ec. (6, .rticle II, and 3ecs. (7 and (,, .rticle OII, all of the (69! Philippine Constitution.

56
C. ;hether provisions of the .gree%ent /stablishing the ;orld Trade &rgani-ation unduly li%it, restrict and i%pair Philippine sovereignty specifically the legislative po#er #hich, under 3ec. ,, .rticle NI, (69! Philippine Constitution is Vvested in the Congress of the PhilippinesTE /. ;hether provisions of the .gree%ent /stablishing the ;orld Trade &rgani-ation interfere #ith the e*ercise of )udicial po#er. 4. ;hether the respondent %e%bers of the 3enate acted in grave abuse of discretion a%ounting to lac+ or e*cess of )urisdiction #hen they voted for concurrence in the ratification of the constitutionally-infir% .gree%ent /stablishing the ;orld Trade &rgani-ation. G. ;hether the respondent %e%bers of the 3enate acted in grave abuse of discretion a%ounting to lac+ or e*cess of )urisdiction #hen they concurred only in the ratification of the .gree%ent /stablishing the ;orld Trade &rgani-ation, and not #ith the Presidential sub%ission #hich included the 4inal .ct, Ministerial Ceclaration and Cecisions, and the 2nderstanding on Co%%it%ents in 4inancial 3ervices.W &n the other hand, the 3olicitor General as counsel for respondents Usynthesi-ed the several issues raised by petitioners into the follo#ingW' U(. ;hether or not the provisions of the V.gree%ent /stablishing the ;orld Trade &rgani-ation and the .gree%ents and .ssociated Begal Instru%ents included in .nne*es one =(@, t#o =,@ and three ="@ of that agree%entT cited by petitioners directly contravene or under%ine the letter, spirit and intent of 3ection (6, .rticle II and 3ections (7 and (,, .rticle OII of the (69! Constitution. ,. ;hether or not certain provisions of the .gree%ent unduly li%it, restrict or i%pair the e*ercise of legislative po#er by Congress. ". ;hether or not certain provisions of the .gree%ent i%pair the e*ercise of )udicial po#er by this :onorable Court in pro%ulgating the rules of evidence. 8. ;hether or not the concurrence of the 3enate Vin the ratification by the President of the Philippines of the .gree%ent establishing the ;orld Trade &rgani-ationT i%plied re)ection of the treaty e%bodied in the 4inal .ct.W Fy raising and arguing only four issues against the seven presented by petitioners, the 3olicitor General has effectively ignored three, na%ely' =(@ #hether the petition presents a political $uestion or is other#ise not )usticiableE =,@ #hether petitioner-%e%bers of the 3enate =;igberto /. TaZada and .nna Co%ini$ue Coseteng@ are estopped fro% )oining this suitE and ="@ #hether the respondent-%e%bers of the 3enate acted in grave abuse of discretion #hen they voted for concurrence in the ratification of the ;T& .gree%ent. The foregoing not#ithstanding, this Court resolved to deal #ith these three issues thus' =(@ The Upolitical $uestionW issue -- being very funda%ental and vital, and being a %atter that probes into the very )urisdiction of this Court to hear and decide this case -- #as deliberated upon by the Court and #ill thus be ruled upon as the first issueE =,@ The %atter of estoppel #ill not be ta+en up because this defense is #aivable and the respondents have effectively #aived it by not pursuing it in any of their pleadingsE in any event, this issue, even if ruled in respondentsT favor, #ill not cause the petitionTs dis%issal as there are petitioners other than the t#o senators, #ho are not vulnerable to the defense of estoppelE and ="@ The issue of alleged grave abuse of discretion on the part of the respondent senators #ill be ta+en up as an integral part of the disposition of the four issues raised by the 3olicitor General. Curing its deliberations on the case, the Court noted that the respondents did not $uestion the loc"s standi of petitioners. :ence, they are also dee%ed to have #aived the benefit of such issue. They probably reali-ed that grave constitutional issues, e*penditures of public funds and serious international co%%it%ents of the nation are involved here, and that

57
transcendental public interest re$uires that the substantive issues be %et head on and decided on the %erits, rather than s+irted or deflected by procedural %atters. To recapitulate, the issues that #ill be ruled upon shortly are' =(@ C&/3 T:/ P/TITI&0 PR/3/0T . <23TICI.FB/ C&0TR&N/R31M &T:/R;I3/ 3T.T/C, C&/3 T:/ P/TITI&0 I0N&BN/ . P&BITIC.B Q2/3TI&0 &N/R ;:IC: T:I3 C&2RT :.3 0& <2RI3CICTI&0M =,@ C& T:/ PR&NI3I&03 &4 T:/ ;T& .GR//M/0T .0C IT3 T:R// .00/O/3 C&0TR.N/0/ 3/C. (6, .RTICB/ II, .0C 3/C3. (7 .0C (,, .RTICB/ OII, &4 T:/ P:IBIPPI0/ C&03TIT2TI&0M ="@ C& T:/ PR&NI3I&03 &4 3.IC .GR//M/0T .0C IT3 .00/O/3 BIMIT, R/3TRICT, &R IMP.IR T:/ /O/RCI3/ &4 B/GI3B.TIN/ P&;/R F1 C&0GR/33M =8@ C& 3.IC PR&NI3I&03 20C2B1 IMP.IR &R I0T/R4/R/ ;IT: T:/ /O/RCI3/ &4 <2CICI.B P&;/R F1 T:I3 C&2RT I0 PR&M2BG.TI0G R2B/3 &0 /NIC/0C/M =5@ ;.3 T:/ C&0C2RR/0C/ &4 T:/ 3/0.T/ I0 T:/ ;T& .GR//M/0T .0C IT3 .00/O/3 3244ICI/0T .0CP&R N.BIC, C&03IC/RI0G T:.T IT CIC 0&T I0CB2C/ T:/ 4I0.B .CT, MI0I3T/RI.B C/CB.R.TI&03 .0C C/CI3I&03, .0C T:/ 20C/R3T.0CI0G &0 C&MMITM/0T3 I0 4I0.0CI.B 3/RNIC/3M The 4irst Issue' Does the Co"rt Have *"risdiction Over the Controvers%M In see+ing to nullify an act of the Philippine 3enate on the ground that it contravenes the Constitution, the petition no doubt raises a )usticiable controversy. ;here an action of the legislative branch is seriously alleged to have infringed the Constitution, it beco%es not only the right but in fact the duty of the )udiciary to settle the dispute. UThe $uestion thus posed is )udicial rather than political. The duty =to ad)udicate@ re%ains to assure that the supre%acy of the Constitution is upheld.W &nce a Ucontroversy as to the application or interpretation of a constitutional provision is raised before this Court =as in the instant case@, it beco%es a legal issue #hich the Court is bound by constitutional %andate to decide.W The )urisdiction of this Court to ad)udicate the %atters raised in the petition is clearly set out in the (69! Constitution, as follo#s' U<udicial po#er includes the duty of the courts of )ustice to settle actual controversies involving rights #hich are legally de%andable and enforceable, and to deter%ine #hether or not there has been a grave abuse of discretion a%ounting to lac+ or e*cess of )urisdiction on the part of any branch or instru%entality of the govern%ent.W The foregoing te*t e%phasi-es the )udicial depart%entTs duty and po#er to stri+e do#n grave abuse of discretion on the part of any branch or instru%entality of govern%ent including Congress. It is an innovation in our political la#. .s e*plained by for%er Chief <ustice Roberto Concepcion, Uthe )udiciary is the final arbiter on the $uestion of #hether or not a branch of govern%ent or any of its officials has acted #ithout )urisdiction or in e*cess of )urisdiction or so capriciously as to constitute an abuse of discretion a%ounting to e*cess of )urisdiction. This is not only a )udicial po#er but a duty to pass )udg%ent on %atters of this nature.W .s this Court has repeatedly and fir%ly e%phasi-ed in %any cases, it #ill not shir+, digress fro% or abandon its sacred duty and authority to uphold the Constitution in %atters that involve grave abuse of discretion brought before it in appropriate cases, co%%itted by any officer, agency, instru%entality or depart%ent of the govern%ent. .s the petition alleges grave abuse of discretion and as there is no other plain, speedy or ade$uate re%edy in the ordinary course of la#, #e have no hesitation at all in holding that this petition should be given due course and the vital $uestions raised therein ruled upon under Rule 5 of the Rules of Court. Indeed, certiorari, prohibition and (anda("s are appropriate re%edies to raise constitutional issues and to revie# andPor prohibitPnullify, #hen proper, acts of legislative and e*ecutive officials. &n this, #e have no e$uivocation.

58
;e should stress that, in deciding to ta+e )urisdiction over this petition, this Court #ill not revie# the $isdo( of the decision of the President and the 3enate in enlisting the country into the ;T&, or pass upon the (erits of trade liberali-ation as a policy espoused by said international body. 0either #ill it rule on the propriet% of the govern%entTs econo%ic policy of reducingPre%oving tariffs, ta*es, subsidies, $uantitative restrictions, and other i%portPtrade barriers. Rather, it #ill only e*ercise its constitutional duty Uto deter%ine #hether or not there had been a grave abuse of discretion a%ounting to lac+ or e*cess of )urisdictionW on the part of the 3enate in ratifying the ;T& .gree%ent and its three anne*es. 3econd Issue' The WTO -gree(ent and Econo(ic 7ationalis( This is the lis (ota, the %ain issue, raised by the petition. Petitioners vigorously argue that the Uletter, spirit and intentW of the Constitution %andating Uecono%ic nationalis%W are violated by the socalled Uparity provisionsW and Unational treat%entW clauses scattered in various parts not only of the ;T& .gree%ent and its anne*es but also in the Ministerial Cecisions and Ceclarations and in the 2nderstanding on Co%%it%ents in 4inancial 3ervices. 3pecifically, the UflagshipW constitutional provisions referred to are 3ec. (6, .rticle II, and 3ecs. (7 and (,, .rticle OII, of the Constitution, #hich are #orded as follo#s' U.rticle II C/CB.R.TI&0 &4 PRI0CIPB/3 .0C 3T.T/ P&BICI/3 ** ** ** ** .rticle OII 0.TI&0.B /C&0&M1 .0C P.TRIM&01 ** ** ** **

3ec. (7. * * *. The Congress shall enact %easures that #ill encourage the for%ation and operation of enterprises #hose capital is #holly o#ned by 4ilipinos. In the grant of rights, privileges, and concessions covering the national econo%y and patri%ony, the 3tate shall give preference to $ualified 4ilipinos. ** ** ** **

3ec. (,. The 3tate shall pro%ote the preferential use of 4ilipino labor, do%estic %aterials and locally produced goods, and adopt %easures that help %a+e the% co%petitive.W Petitioners aver that these sacred constitutional principles are desecrated by the follo#ing ;T& provisions $uoted in their %e%orandu%' ?a= In (0& ar&a o3 )n4&*(;&n( ;&a*ur&* r&2a(&5 (o (ra5& )n 9oo5* < RIMS, 3or @r&4)(y=> U.rticle , Na()ona2 r&a(;&n( and Quantitative Restrictions. (. ;ithout pre)udice to other rights and obligations under G.TT (668. no Me%ber shall apply any TRIM that is inconsistent #ith the provisions of .rticle III or .rticle OI of G.TT (668.

3ec. (6. The 3tate shall develop a self-reliant and independent national econo%y effectively controlled by 4ilipinos. ** ** ** **

59
,. .n Illustrative list of TRIM3 that are inconsistent #ith the obligations of general eli%ination of $uantitative restrictions provided for in paragraph I of .rticle OI of G.TT (668 is contained in the .nne* to this .gree%ent.W =.gree%ent on Trade-Related Invest%ent Measures, Nol. ,!, 2ruguay Round, Begal Instru%ents, p.,,(,(, e%phasis supplied@. The .nne* referred to reads as follo#s' U.00/O Illustrative Bist (. RIMS (0a( ar& )n/on*)*(&n( A)(0 (0& o@2)9a()on o3 na()ona2 (r&a(;&n( 'ro4)5&5 3or )n 'ara9ra'0 4 o3 Ar()/2& III o3 GA 1994 )n/2u5& (0o*& A0)/0 ar& ;an5a(ory or &n3or/&a@2& un5&r 5o;&*()/ 2aA or un5&r a5;)n)*(ra()4& ru2)n9*, or /o;'2)an/& A)(0 A0)/0 )* n&/&**ary (o o@(a)n an a54an(a9&, an5 A0)/0 r&Bu)r&' =a@ the purchase or use by an enterprise of products of do%estic origin or fro% any do%estic source, #hether specified in ter%s of particular products, in ter%s of volu%e or value of products, or in ter%s of proportion of volu%e or value of its local productionE or =b@ that an enterpriseTs purchases or use of i%ported products be li%ited to an a%ount related to the volu%e or value of local products that it e*ports. ,. TRIM3 that are inconsistent #ith the obligations of general eli%ination of $uantitative restrictions provided for in paragraph ( of .rticle OI of G.TT (668 include those #hich are %andatory or enforceable under do%estic la#s or under ad%inistrative rulings, or co%pliance #ith #hich is necessary to obtain an advantage, and #hich restrict' =a@ the i%portation by an enterprise of products used in or related to the local production that it e*portsE =b@ the i%portation by an enterprise of products used in or related to its local production by restricting its access to foreign e*change inflo#s attributable to the enterpriseE or =c@ the e*portation or sale for e*port specified in ter%s of particular products, in ter%s of volu%e or value of products, or in ter%s of a preparation of volu%e or value of its local production.W =.nne* to the .gree%ent on Trade-Related Invest%ent Measures, Nol. ,!, 2ruguay Round Begal Cocu%ents, p.,,(,5, e%phasis supplied@. The paragraph 8 of .rticle III of G.TT (668 referred to is $uoted as follo#s' The products of the territory of any contracting party i%ported into the territory of any other contracting party *0a22 @& a//or5&5 (r&a(;&n( no 2&** 3a4ora@2& (0an (0a( a//or5&5 (o 2)C& 'ro5u/(* o3 na()ona2 or)9)n in respect of la#s, regulations and re$uire%ents affecting their internal sale, offering for sale, purchase, transportation, distribution or use. the provisions of this paragraph shall not prevent the application of differential internal transportation charges #hich are based e*clusively on the econo%ic operation of the %eans of transport and not on the nationality of the product.W =.rticle III, G.TT (68!, as a%ended by the Protocol Modifying Part II, and .rticle OONI of G.TT, (8 3epte%ber (689, , 2MT3 9,-98 in relation to paragraph (=a@ of the General .gree%ent on Tariffs and Trade (668, Nol. (, 2ruguay Round, Begal Instru%ents p.(!!, e%phasis supplied@. U@= In (0& ar&a o3 (ra5& r&2a(&5 a*'&/(* o3 )n(&22&/(ua2 'ro'&r(y r)90(* < RIPS, 3or @r&4)(y=' "a/0 M&;@&r *0a22 a//or5 (o (0& na()ona2* o3 o(0&r M&;@&r* (r&a(;&n( no 2&** 3a4oura@2& (0an (0a( )( a//or5* (o )(* oAn na()ona2* #ith regard to the protection of intellectual property... =par. (, .rticle ", .gree%ent on Trade-Related .spect of Intellectual Property rights, Nol. "(, 2ruguay Round, Begal Instru%ents, p.,58", =e%phasis supplied@

60
U</= In (0& ar&a o3 (0& G&n&ra2 A9r&&;&n( on ra5& )n S&r4)/&*' Na()ona2 r&a(;&n( (. In the sectors inscribed in its schedule, and sub)ect to any conditions and $ualifications set out therein, each Me%ber shall accord to services and service suppliers of any other Me%ber, in respect of all %easures affecting the supply of services, (r&a(;&n( no 2&** 3a4oura@2& (0an )( a//or5* (o )(* oAn 2)C& *&r4)/&* an5 *&r4)/& *u''2)&r*. ,. . Me%ber %ay %eet the re$uire%ent of paragraph I by according to services and service suppliers of any other Me%ber, either for%ally identical treat%ent or for%ally different treat%ent to that it accords to its o#n li+e services and service suppliers. ". 4or%ally identical or for%ally different treat%ent shall be considered to be less favourable if it %odifies the conditions of co%pletion in favour of services or service suppliers of the Me%ber co%pared to li+e services or service suppliers of any other Me%ber. =.rticle ONII, General .gree%ent on Trade in 3ervices, Nol. ,9, 2ruguay Round Begal Instru%ents, p.,, (7 e%phasis supplied@.W It is petitionersT position that the foregoing Unational treat%entW and Uparity provisionsW of the ;T& .gree%ent Uplace nationals and products of %e%ber countries on the sa%e footing as 4ilipinos and local products,W in contravention of the U4ilipino 4irstW policy of the Constitution. They allegedly render %eaningless the phrase Ueffectively controlled by 4ilipinos.W The constitutional conflict beco%es %ore %anifest #hen vie#ed in the conte*t of the clear duty i%posed on the Philippines as a ;T& %e%ber to ensure the confor%ity of its la#s, regulations and ad%inistrative procedures #ith its obligations as provided in the anne*ed agree%ents. Petitioners further argue that these provisions contravene constitutional li%itations on the role e*ports play in national develop%ent and negate the preferential treat%ent accorded to 4ilipino labor, do%estic %aterials and locally produced goods. &n the other hand, respondents through the 3olicitor General counter =(@ that such Charter provisions are not self-e*ecuting and %erely set out general policiesE =,@ that these nationalistic portions of the Constitution invo+ed by petitioners should not be read in isolation but should be related to other relevant provisions of .rt. OII, particularly 3ecs. ( and (" thereofE ="@ that read properly, the cited ;T& clauses do not conflict #ith the ConstitutionE and =8@ that the ;T& .gree%ent contains sufficient provisions to protect developing countries li+e the Philippines fro% the harshness of sudden trade liberali-ation. ;e shall no# discuss and rule on these argu%ents. Ceclaration of Principles 0ot 3elf-/*ecuting Fy its very title, .rticle II of the Constitution is a Udeclaration of principles and state policies.W The counterpart of this article in the (6"5 Constitution is called the Ubasic political creed of the nationW by Cean Nicente 3inco. These principles in .rticle II are not intended to be self-e*ecuting principles ready for enforce%ent through the courts. They are used by the )udiciary as aids or as guides in the e*ercise of its po#er of )udicial revie#, and by the legislature in its enact%ent of la#s. .s held in the leading case of Filos+a%an, ncorporated vs. #orato, the principles and state policies enu%erated in .rticle II and so%e sections of .rticle OII are not Uselfe*ecuting provisions, the disregard of #hich can give rise to a cause of action in the courts. They do not e%body )udicially enforceable constitutional rights but guidelines for legislation.W In the sa%e light, #e held in )asco vs. Pagcor that broad constitutional principles need legislative enact%ents to i%ple%ent the%, thus' U&n petitionersT allegation that P.C. (9 6 violates 3ections (( =Personal Cignity@ (, =4a%ily@ and (" =Role of 1outh@ of .rticle IIE 3ection (" =3ocial <ustice@ of .rticle OIII and 3ection , =/ducational Nalues@ of .rticle OIN of the (69! Constitution, suffice it to state also that these are %erely state%ents of principles and policies. .s such, they are basically not self-e*ecuting, %eaning a la# should be passed by Congress to clearly define and effectuate such principles.

61
VIn general, therefore, the (6"5 provisions #ere not intended to be selfe*ecuting principles ready for enforce%ent through the courts. They #ere rather directives addressed to the e*ecutive and to the legislature. If the e*ecutive and the legislature failed to heed the directives of the article, the available re%edy #as not )udicial but political. The electorate could e*press their displeasure #ith the failure of the e*ecutive and the legislature through the language of the ballot. =Fernas, Nol. II, p. ,@.W The reasons for denying a cause of action to an alleged infringe%ent of broad constitutional principles are sourced fro% basic considerations of due process and the lac+ of )udicial authority to #ade Uinto the uncharted ocean of social and econo%ic policy %a+ing.W Mr. <ustice 4lorentino P. 4eliciano in his concurring opinion in Oposa vs. ,actoran, *r., e*plained these reasons as follo#s' UMy suggestion is si%ply that petitioners %ust, before the trial court, sho# a %ore specific legal right -- a right cast in language of a significantly lo#er order of generality than .rticle II =(5@ of the Constitution -- that is or %ay be violated by the actions, or failures to act, i%puted to the public respondent by petitioners so that the trial court can validly render )udg%ent granting all or part of the relief prayed for. To %y %ind, the court should be understood as si%ply saying that such a %ore specific legal right or rights %ay #ell e*ist in our corpus of la#, considering the general policy principles found in the Constitution and the e*istence of the Philippine /nviron%ent Code, and that the trial court should have given petitioners an effective opportunity so to de%onstrate, instead of aborting the proceedings on a %otion to dis%iss. It see%s to %e i%portant that the legal right #hich is an essential co%ponent of a cause of action be a specific, operable legal right, rather than a constitutional or statutory policy, for at least t#o =,@ reasons. &ne is that unless the legal right clai%ed to have been violated or disregarded is given specification in operational ter%s, defendants %ay #ell be unable to defend the%selves intelligently and effectivelyE in other #ords, there are due process di%ensions to this %atter. The second is a broader-gauge consideration -- #here a specific violation of la# or applicable regulation is not alleged or proved, petitioners can be e*pected to fall bac+ on the e*panded conception of )udicial po#er in the second paragraph of 3ection ( of .rticle NIII of the Constitution #hich reads' V3ection (. ***

<udicial po#er includes the duty of the courts of )ustice to settle actual controversies involving rights #hich are legally de%andable and enforceable, and to deter%ine #hether or not there has been a grave abuse of discretion a%ounting to lac+ or e*cess of )urisdiction on the part of any branch or instru%entality of the Govern%ent.T =/%phases supplied@ ;hen substantive standards as general as Vthe right to a balanced and healthy ecologyT and Vthe right to healthT are co%bined #ith re%edial standards as broad ranging as Va grave abuse of discretion a%ounting to lac+ or e*cess of )urisdiction,T the result #ill be, it is respectfully sub%itted, to propel courts into the uncharted ocean of social and econo%ic policy %a+ing. .t least in respect of the vast area of environ%ental protection and %anage%ent, our courts have no clai% to special technical co%petence and e*perience and professional $ualification. ;here no specific, operable nor%s and standards are sho#n to e*ist, then the policy %a+ing depart%ents -- the legislative and e*ecutive depart%ents -- %ust be given a real and effective opportunity to fashion and pro%ulgate those nor%s and standards, and to i%ple%ent the% before the courts should intervene.W /cono%ic 0ationalis% 3hould Fe Read #ith &ther Constitutional Mandates to .ttain Falanced Cevelop%ent of /cono%y &n the other hand, 3ecs. (7 and (, of .rticle OII, apart fro% %erely laying do#n general principles relating to the national econo%y and patri%ony, should be read and understood in relation to the other sections in said article, especially 3ecs. ( and (" thereof #hich read' U3ection (. The goals of the national econo%y are a %ore e$uitable distribution of opportunities, inco%e, and #ealthE a sustained increase in the a%ount of goods and services produced by the nation for the benefit of the peopleE and an e*panding productivity as the +ey to raising the $uality of life for all, especially the underprivileged.

62
The 3tate shall pro%ote industriali-ation and full e%ploy%ent based on sound agricultural develop%ent and agrarian refor%, through industries that %a+e full and efficient use of hu%an and natural resources, and #hich are co%petitive in both do%estic and foreign %ar+ets. :o#ever, the 3tate shall protect 4ilipino enterprises against unfair foreign co%petition and trade practices. In the pursuit of these goals, all sectors of the econo%y and all regions of the country shall be given opti%u% opportunity to develop. * * * *** * ** *** arrange%ents of e*change on the basis of e$uality and reciprocityWE and spea+s of industries U#hich are co%petitive in both do%estic and foreign %ar+etsW as #ell as of the protection of U4ilipino enterprises against unfair foreign co%petition and trade practices.W It is true that in the recent case of #anila Prince Hotel vs. Govern(ent Service ns"rance S%ste(, et al., this Court held that U3ec. (7, second par., .rt. OII of the (69! Constitution is a %andatory, positive co%%and #hich is co%plete in itself and #hich needs no further guidelines or i%ple%enting la#s or rules for its enforce%ent. 4ro% its very #ords the provision does not re$uire any legislation to put it in operation. It is per se )udicially enforceable.W :o#ever, as the constitutional provision itself states, it is enforceable only in regard to Uthe grants of rights, privileges and concessions covering national econo%y and patri%onyW and not to every aspect of trade and co%%erce. It refers to e*ceptions rather than the rule. The issue here is not #hether this paragraph of 3ec. (7 of .rt. OII is selfe*ecuting or not. Rather, the issue is #hether, as a rule, there are enough balancing provisions in the Constitution to allo# the 3enate to ratify the Philippine concurrence in the ;T& .gree%ent. .nd #e hold that there are. .ll told, #hile the Constitution indeed %andates a bias in favor of 4ilipino goods, services, labor and enterprises, at the sa%e ti%e, it recogni-es the need for business e*change #ith the rest of the #orld on the bases of e$uality and reciprocity and li%its protection of 4ilipino enterprises only against foreign co%petition and trade practices that are unfair. In other #ords, the Constitution did not intend to pursue an isolationist policy. It did not shut out foreign invest%ents, goods and services in the develop%ent of the Philippine econo%y. ;hile the Constitution does not encourage the unli%ited entry of foreign goods, services and invest%ents into the country, it does not prohibit the% either. In fact, it allo#s an e*change on the basis of e$uality and reciprocity, fro#ning only on foreign co%petition that is unfair. ;T& Recogni-es 0eed to Protect ;ea+ /cono%ies 2pon the other hand, respondents %aintain that the ;T& itself has so%e built-in advantages to protect #ea+ and developing econo%ies, #hich co%prise the vast %a)ority of its %e%bers. 2nli+e in the 20 #here %a)or

3ec. (". The 3tate shall pursue a trade policy that serves the general #elfare and utili-es all for%s and arrange%ents of e*change on the basis of e$uality and reciprocity.W .s pointed out by the 3olicitor General, 3ec. ( lays do#n the basic goals of national econo%ic develop%ent, as follo#s' (. . %ore e$uitable distribution of opportunities, inco%e and #ealthE ,. . sustained increase in the a%ount of goods and services provided by the nation for the benefit of the peopleE and ". .n e*panding productivity as the +ey to raising the $uality of life for all especially the underprivileged. ;ith these goals in conte*t, the Constitution then ordains the ideals of econo%ic nationalis% =(@ by e*pressing preference in favor of $ualified 4ilipinos Uin the grant of rights, privileges and concessions covering the national econo%y and patri%onyW and in the use of U4ilipino labor, do%estic %aterials and locally-produced goodsWE =,@ by %andating the 3tate to Uadopt %easures that help %a+e the% co%petitiveE and ="@ by re$uiring the 3tate to Udevelop a self-reliant and independent national econo%y effectively controlled by 4ilipinos.W In si%ilar language, the Constitution ta+es into account the realities of the outside #orld as it re$uires the pursuit of Ua trade policy that serves the general #elfare and utili-es all for%s and

63
states have per%anent seats and veto po#ers in the 3ecurity Council, in the ;T&, decisions are %ade on the basis of sovereign e$uality, #ith each %e%berTs vote e$ual in #eight to that of any other. There is no ;T& e$uivalent of the 20 3ecurity Council. U;T& decides by consensus #henever possible, other#ise, decisions of the Ministerial Conference and the General Council shall be ta+en by the %a)ority of the votes cast, e*cept in cases of interpretation of the .gree%ent or #aiver of the obligation of a %e%ber #hich #ould re$uire three fourths vote. .%end%ents #ould re$uire t#o thirds vote in general. .%end%ents to M40 provisions and the .%end%ents provision #ill re$uire assent of all %e%bers. .ny %e%ber %ay #ithdra# fro% the .gree%ent upon the e*piration of si* %onths fro% the date of notice of #ithdra#als.W :ence, poor countries can protect their co%%on interests %ore effectively through the ;T& than through one-on-one negotiations #ith developed countries. ;ithin the ;T&, developing countries can for% po#erful blocs to push their econo%ic agenda %ore decisively than outside the &rgani-ation. This is not %erely a %atter of practical alliances but a negotiating strategy rooted in la#. Thus, the basic principles underlying the ;T& .gree%ent recogni-e the need of developing countries li+e the Philippines to Ushare in the gro#th in international trade co%%ensurate #ith the needs of their econo%ic develop%ent.W These basic principles are found in the prea%ble of the ;T& .gree%ent as follo#s' UThe Parties to this .gree%ent, Recogni-ing that their relations in the field of trade and econo%ic endeavour should be conducted #ith a vie# to raising standards of living, ensuring full e%ploy%ent and a large and steadily gro#ing volu%e of real inco%e and effective de%and, and e*panding the production of and trade in goods and services, #hile allo#ing for the opti%al use of the #orldTs resources in accordance #ith the ob)ective of sustainable develop%ent, see+ing both to protect and preserve the environ%ent and to enhance the %eans for doing so in a %anner consistent #ith their respective needs and concerns at different levels of econo%ic develop%ent, Recogni-ing further that there is need for positive efforts designed to ensure that developing countries, and especially the least developed a%ong the%, secure a share in the gro#th in international trade co%%ensurate #ith the needs of their econo%ic develop%ent, Feing desirous of contributing to these ob)ectives by entering into reciprocal and %utually advantageous arrange%ents directed to the substantial reduction of tariffs and other barriers to trade and to the eli%ination of discri%inatory treat%ent in international trade relations, Resolved, therefore, to develop an integrated, %ore viable and durable %ultilateral trading syste% enco%passing the General .gree%ent on Tariffs and Trade, the results of past trade liberali-ation efforts, and all of the results of the 2ruguay Round of Multilateral Trade 0egotiations, Ceter%ined to preserve the basic principles and to further the ob)ectives underlying this %ultilateral trading syste%, * * *.W =underscoring supplied.@ 3pecific ;T& Provisos Protect Ceveloping Countries 3o too, the 3olicitor General points out that pursuant to and consistent #ith the foregoing basic principles, the ;T& .gree%ent grants developing countries a %ore lenient treat%ent, giving their do%estic industries so%e protection fro% the rush of foreign co%petition. Thus, #ith respect to tariffs in general, preferential treat%ent is given to developing countries in ter%s of the a%ount of tariff reduction and the period #ithin #hich the reduction is to be spread out. 3pecifically, G.TT re$uires an average tariff reduction rate of " J for developed countries to be effected #ithin a period of si* = @ years #hile developing countries -- including the Philippines -are re$uired to effect an average tariff reduction of only ,8J #ithin ten =(7@ years. In respect to do%estic subsidy, G.TT re$uires developed countries to reduce do%estic support to agricultural products by ,7J over si* = @ years, as co%pared to only ("J for developing countries to be effected #ithin ten =(7@ years. In regard to e*port subsidy for agricultural products, G.TT re$uires developed countries to reduce their budgetary outlays for e*port subsidy by

64
" J and e*port volu%es receiving e*port subsidy by ,(J #ithin a period of si* = @ years. 4or developing countries, ho#ever, the reduction rate is only t#o-thirds of that prescribed for developed countries and a longer period of ten =(7@ years #ithin #hich to effect such reduction. Moreover, G.TT itself has provided built-in protection fro% unfair foreign co%petition and trade practices including anti-du%ping %easures, countervailing %easures and safeguards against i%port surges. ;here local businesses are )eopardi-ed by unfair foreign co%petition, the Philippines can avail of these %easures. There is hardly therefore any basis for the state%ent that under the ;T&, local industries and enterprises #ill all be #iped out and that 4ilipinos #ill be deprived of control of the econo%y. Quite the contrary, the #ea+er situations of developing nations li+e the Philippines have been ta+en into accountE thus, there #ould be no basis to say that in )oining the ;T&, the respondents have gravely abused their discretion. True, they have %ade a bold decision to steer the ship of state into the yet uncharted sea of econo%ic liberali-ation. Fut such decision cannot be set aside on the ground of grave abuse of discretion, si%ply because #e disagree #ith it or si%ply because #e believe only in other econo%ic policies. .s earlier stated, the Court in ta+ing )urisdiction of this case #ill not pass upon the advantages and disadvantages of trade liberali-ation as an econo%ic policy. It #ill only perfor% its constitutional duty of deter%ining #hether the 3enate co%%itted grave abuse of discretion. Constitution Coes 0ot Rule &ut 4oreign Co%petition 4urther%ore, the constitutional policy of a Uself-reliant and independent national econo%yW does not necessarily rule out the entry of foreign invest%ents, goods and services. It conte%plates neither Uecono%ic seclusionW nor U%endicancy in the international co%%unity.W .s e*plained by Constitutional Co%%issioner Fernardo Nillegas, sponsor of this constitutional policy' UEcono(ic self-reliance is a pri(ar% o+0ective of a developing co"ntr% that is keenl% a$are of overdependence on e&ternal assistance for even its (ost +asic needs. t does not (ean a"tark% or econo(ic secl"sionE rather, it %eans avoiding %endicancy in the international co%%unity. Independence refers to the freedo% fro% undue foreign control of the national econo%y, especially in such strategic industries as in the develop%ent of natural resources and public utilities.W The ;T& reliance on U%ost favored nation,W Unational treat%ent,W and Utrade #ithout discri%inationW cannot be struc+ do#n as unconstitutional as in fact they are rules of e$uality and reciprocity that apply to all ;T& %e%bers. .side fro% envisioning a trade policy based on Ue$uality and reciprocity,W the funda%ental la# encourages industries that are Uco%petitive in both do%estic and foreign %ar+ets,W thereby de%onstrating a clear policy against a sheltered do%estic trade environ%ent, but one in favor of the gradual develop%ent of robust industries that can co%pete #ith the best in the foreign %ar+ets. Indeed, 4ilipino %anagers and 4ilipino enterprises have sho#n capability and tenacity to co%pete internationally. .nd given a free trade environ%ent, 4ilipino entrepreneurs and %anagers in :ong+ong have de%onstrated the 4ilipino capacity to gro# and to prosper against the best offered under a policy of laisse2 faire. Constitution 4avors Consu%ers, 0ot Industries or /nterprises The Constitution has not really sho#n any unbalanced bias in favor of any business or enterprise, nor does it contain any specific pronounce%ent that 4ilipino co%panies should be pa%pered #ith a total proscription of foreign co%petition. &n the other hand, respondents clai% that ;T&PG.TT ai%s to %a+e available to the 4ilipino consu%er the best goods and services obtainable any#here in the #orld at the %ost reasonable prices. Conse$uently, the $uestion boils do#n to #hether ;T&PG.TT #ill favor the general #elfare of the public at large. ;ill adherence to the ;T& treaty bring this ideal =of favoring the general #elfare@ to realityM ;ill ;T&PG.TT succeed in pro%oting the 4ilipinosT general #elfare because it #ill -- as pro%ised by its pro%oters -- e*pand the countryTs e*ports and generate %ore e%ploy%entM ;ill it bring %ore prosperity, e%ploy%ent, purchasing po#er and $uality products at the %ost reasonable rates to the 4ilipino publicM

65
The responses to these $uestions involve U)udg%ent callsW by our policy %a+ers, for #hich they are ans#erable to our people during appropriate electoral e*ercises. 3uch $uestions and the ans#ers thereto are not sub)ect to )udicial pronounce%ents based on grave abuse of discretion. Constitution Cesigned to Meet 4uture /vents and Contingencies 0o doubt, the ;T& .gree%ent #as not yet in e*istence #hen the Constitution #as drafted and ratified in (69!. That does not %ean ho#ever that the Charter is necessarily fla#ed in the sense that its fra%ers %ight not have anticipated the advent of a borderless #orld of business. Fy the sa%e to+en, the 2nited 0ations #as not yet in e*istence #hen the (6"5 Constitution beca%e effective. Cid that necessarily %ean that the then Constitution %ight not have conte%plated a di%inution of the absoluteness of sovereignty #hen the Philippines signed the 20 Charter, thereby effectively surrendering part of its control over its foreign relations to the decisions of various 20 organs li+e the 3ecurity CouncilM It is not difficult to ans#er this $uestion. Constitutions are designed to %eet not only the vagaries of conte%porary events. They should be interpreted to cover even future and un+no#n circu%stances. It is to the credit of its drafters that a Constitution can #ithstand the assaults of bigots and infidels but at the sa%e ti%e bend #ith the refreshing #inds of change necessitated by unfolding events. .s one e%inent political la# #riter and respected )urist e*plains' UThe Constitution %ust be $uintessential rather than superficial, the root and not the blosso%, the base and fra%e#or+ only of the edifice that is yet to rise. It is but the core of the drea% that %ust ta+e shape, not in a t#in+ling by %andate of our delegates, but slo#ly Vin the crucible of 4ilipino %inds and hearts,T #here it #ill in ti%e develop its sine#s and gradually gather its strength and finally achieve its substance. In fine, the Constitution cannot, li+e the goddess .thena, rise full-gro#n fro% the bro# of the Constitutional Convention, nor can it con)ure by %ere fiat an instant 2topia. It %ust gro# #ith the society it see+s to re-structure and %arch apace #ith the progress of the race, dra#ing fro% the vicissitudes of history the dyna%is% and vitality that #ill +eep it, far fro% beco%ing a petrified rule, a pulsing, living la# attuned to the heartbeat of the nation.W Third Issue' The WTO -gree(ent and .egislative Po$er The ;T& .gree%ent provides that U=e@ach Me%ber shall ensure the confor%ity of its la#s, regulations and ad%inistrative procedures #ith its obligations as provided in the anne*ed .gree%ents.W Petitioners %aintain that this underta+ing Uunduly li%its, restricts and i%pairs Philippine sovereignty, specifically the legislative po#er #hich under 3ec. ,, .rticle NI of the (69! Philippine Constitution is vested in the Congress of the Philippines. It is an assault on the sovereign po#ers of the Philippines because this %eans that Congress could not pass legislation that #ill be good for our national interest and general #elfare if such legislation #ill not confor% #ith the ;T& .gree%ent, #hich not only relates to the trade in goods * * * but also to the flo# of invest%ents and %oney * * * as #ell as to a #hole sle# of agree%ents on socio-cultural %atters * * *.W More specifically, petitioners clai% that said ;T& proviso derogates fro% the po#er to ta*, #hich is lodged in the Congress. .nd #hile the Constitution allo#s Congress to authori-e the President to fi* tariff rates, i%port and e*port $uotas, tonnage and #harfage dues, and other duties or i%posts, such authority is sub)ect to Uspecified li%its and * * * such li%itations and restrictionsW as Congress %ay provide, as in fact it did under 3ec. 87( of the Tariff and Custo%s Code. 3overeignty Bi%ited by International Ba# and Treaties This Court notes and appreciates the ferocity and passion by #hich petitioners stressed their argu%ents on this issue. :o#ever, #hile sovereignty has traditionally been dee%ed absolute and all-enco%passing on the do%estic level, it is ho#ever sub)ect to restrictions and li%itations voluntarily agreed to by the Philippines, e*pressly or i%pliedly, as a %e%ber of the fa%ily of nations. 2n$uestionably, the Constitution did not envision a her%it-type isolation of the country fro% the rest of the #orld. In its Ceclaration of Principles and 3tate Policies, the Constitution Uadopts the generally accepted principles of international la# as part of the la# of the land, and adheres to the policy of peace, e$uality, )ustice, freedo%, cooperation and a%ity, #ith all nations.D Fy the doctrine of incorporation, the country is bound by generally accepted principles of international la#, #hich are considered to be auto%atically part of our o#n la#s. &ne of the oldest and %ost funda%ental rules in international la# is pacta s"nt

66
servanda -- international agree%ents %ust be perfor%ed in good faith. U. treaty engage%ent is not a %ere %oral obligation but creates a legally binding obligation on the parties * * *. . state #hich has contracted valid international obligations is bound to %a+e in its legislations such %odifications as %ay be necessary to ensure the fulfill%ent of the obligations underta+en.W Fy their inherent nature, treaties really li%it or restrict the absoluteness of sovereignty. Fy their voluntary act, nations %ay surrender so%e aspects of their state po#er in e*change for greater benefits granted by or derived fro% a convention or pact. .fter all, states, li+e individuals, live #ith coe$uals, and in pursuit of %utually covenanted ob)ectives and benefits, they also co%%only agree to li%it the e*ercise of their other#ise absolute rights. Thus, treaties have been used to record agree%ents bet#een 3tates concerning such #idely diverse %atters as, for e*a%ple, the lease of naval bases, the sale or cession of territory, the ter%ination of #ar, the regulation of conduct of hostilities, the for%ation of alliances, the regulation of co%%ercial relations, the settling of clai%s, the laying do#n of rules governing conduct in peace and the establish%ent of international organi-ations. The sovereignty of a state therefore cannot in fact and in reality be considered absolute. Certain restrictions enter into the picture' =(@ li%itations i%posed by the very nature of %e%bership in the fa%ily of nations and =,@ li%itations i%posed by treaty stipulations. .s aptly put by <ohn 4. Gennedy, UToday, no nation can build its destiny alone. The age of self-sufficient nationalis% is over. The age of interdependence is here.W 20 Charter and &ther Treaties Bi%it 3overeignty Thus, #hen the Philippines )oined the 2nited 0ations as one of its 5( charter %e%bers, it consented to restrict its sovereign rights under the Uconcept of sovereignty as auto-li%itation.W8!-. 2nder .rticle , of the 20 Charter, U=a@ll %e%bers shall give the 2nited 0ations every assistance in any action it ta+es in accordance #ith the present Charter, and shall refrain fro% giving assistance to any state against #hich the 2nited 0ations is ta+ing preventive or enforce%ent action.W 3uch assistance includes pay%ent of its corresponding share not %erely in ad%inistrative e*penses but also in e*penditures for the peace-+eeping operations of the organi-ation. In its advisory opinion of <uly ,7, (6 (, the International Court of <ustice held that %oney used by the 2nited 0ations /%ergency 4orce in the Middle /ast and in the Congo #ere Ue*penses of the 2nited 0ationsW under .rticle (!, paragraph ,, of the 20 Charter. :ence, all its %e%bers %ust bear their corresponding share in such e*penses. In this sense, the Philippine Congress is restricted in its po#er to appropriate. It is co%pelled to appropriate funds #hether it agrees #ith such peace-+eeping e*penses or not. 3o too, under .rticle (75 of the said Charter, the 20 and its representatives en)oy diplo%atic privileges and i%%unities, thereby li%iting again the e*ercise of sovereignty of %e%bers #ithin their o#n territory. .nother e*a%ple' although Usovereign e$ualityW and Udo%estic )urisdictionW of all %e%bers are set forth as underlying principles in the 20 Charter, such provisos are ho#ever sub)ect to enforce%ent %easures decided by the 3ecurity Council for the %aintenance of international peace and security under Chapter NII of the Charter. . final e*a%ple' under .rticle (7", U=i@n the event of a conflict bet#een the obligations of the Me%bers of the 2nited 0ations under the present Charter and their obligations under any other international agree%ent, their obligation under the present charter shall prevail,W thus un$uestionably denying the Philippines -- as a %e%ber -- the sovereign po#er to %a+e a choice as to #hich of conflicting obligations, if any, to honor. .part fro% the 20 Treaty, the Philippines has entered into %any other international pacts -- both bilateral and %ultilateral -- that involve li%itations on Philippine sovereignty. These are enu%erated by the 3olicitor General in his Co%pliance dated &ctober ,8, (66 , as follo#s' U=a@ Filateral convention #ith the 2nited 3tates regarding ta*es on inco%e, #here the Philippines agreed, a%ong others, to e*e%pt fro% ta*, inco%e received in the Philippines by, a%ong others, the 4ederal Reserve Fan+ of the 2nited 3tates, the /*portPI%port Fan+ of the 2nited 3tates, the &verseas Private Invest%ent Corporation of the 2nited 3tates. Bi+e#ise, in said convention, #ages, salaries and si%ilar re%unerations paid by the 2nited 3tates to its citi-ens for labor and personal services perfor%ed by the% as e%ployees or officials of the 2nited 3tates are e*e%pt fro% inco%e ta* by the Philippines. =b@ Filateral agree%ent #ith Felgiu%, providing, a%ong others, for the avoidance of double ta*ation #ith respect to ta*es on inco%e.

67
=c@ Filateral convention #ith the Gingdo% of 3#eden for the avoidance of double ta*ation. =d@ Filateral convention #ith the 4rench Republic for the avoidance of double ta*ation. =e@ Filateral air transport agree%ent #ith Gorea #here the Philippines agreed to e*e%pt fro% all custo%s duties, inspection fees and other duties or ta*es aircrafts of 3outh Gorea and the regular e$uip%ent, spare parts and supplies arriving #ith said aircrafts. =f@ Filateral air service agree%ent #ith <apan, #here the Philippines agreed to e*e%pt fro% custo%s duties, e*cise ta*es, inspection fees and other si%ilar duties, ta*es or charges fuel, lubricating oils, spare parts, regular e$uip%ent, stores on board <apanese aircrafts #hile on Philippine soil. =g@ Filateral air service agree%ent #ith Felgiu% #here the Philippines granted Felgian air carriers the sa%e privileges as those granted to <apanese and Gorean air carriers under separate air service agree%ents. =h@ Filateral notes #ith Israel for the abolition of transit and visitor visas #here the Philippines e*e%pted Israeli nationals fro% the re$uire%ent of obtaining transit or visitor visas for a so)ourn in the Philippines not e*ceeding 56 days. =I@ Filateral agree%ent #ith 4rance e*e%pting 4rench nationals fro% the re$uire%ent of obtaining transit and visitor visa for a so)ourn not e*ceeding 56 days. =)@ Multilateral Convention on 3pecial Missions, #here the Philippines agreed that pre%ises of 3pecial Missions in the Philippines are inviolable and its agents can not enter said pre%ises #ithout consent of the :ead of Mission concerned. 3pecial Missions are also e*e%pted fro% custo%s duties, ta*es and related charges. =+@ Multilateral Convention on the Ba# of Treaties. In this convention, the Philippines agreed to be governed by the Nienna Convention on the Ba# of Treaties. =l@ Ceclaration of the President of the Philippines accepting co%pulsory )urisdiction of the International Court of <ustice. The International Court of <ustice has )urisdiction in all legal disputes concerning the interpretation of a treaty, any $uestion of international la#, the e*istence of any fact #hich, if established, #ould constitute a breach of international obligation.W In the foregoing treaties, the Philippines has effectively agreed to li%it the e*ercise of its sovereign po#ers of ta*ation, e%inent do%ain and police po#er. The underlying consideration in this partial surrender of sovereignty is the reciprocal co%%it%ent of the other contracting states in granting the sa%e privilege and i%%unities to the Philippines, its officials and its citi-ens. The sa%e reciprocity characteri-es the Philippine co%%it%ents under ;T&-G.TT. UInternational treaties, #hether relating to nuclear disar%a%ent, hu%an rights, the environ%ent, the la# of the sea, or trade, constrain do%estic political sovereignty through the assu%ption of e*ternal obligations. Fut unless anarchy in international relations is preferred as an alternative, in %ost cases #e accept that the benefits of the reciprocal obligations involved out#eigh the costs associated #ith any loss of political sovereignty. =T@rade treaties that structure relations by reference to durable, #ell-defined substantive nor%s and ob)ective dispute resolution procedures reduce the ris+s of larger countries e*ploiting ra# econo%ic po#er to bully s%aller countries, by sub)ecting po#er relations to so%e for% of legal ordering. In addition, s%aller countries typically stand to gain disproportionately fro% trade liberali-ation. This is due to the si%ple fact that liberali-ation #ill provide access to a larger set of potential ne# trading relationship than in case of the larger country gaining enhanced success to the s%aller countryTs %ar+et.W The point is that, as sho#n by the foregoing treaties, a portion of sovereignty %ay be #aived #ithout violating the Constitution, based on the rationale that the Philippines Uadopts the generally accepted principles of

68
international la# as part of the la# of the land and adheres to the policy of * * * cooperation and a%ity #ith all nations.W 4ourth Issue' The WTO -gree(ent and *"dicial Po$er Petitioners aver that paragraph (, .rticle "8 of the General Provisions and Fasic Principles of the .gree%ent on Trade-Related .spects of Intellectual Property Rights =TRIP3@ intrudes on the po#er of the 3upre%e Court to pro%ulgate rules concerning pleading, practice and procedures. To understand the scope and %eaning of .rticle "8, TRIP3, it #ill be fruitful to restate its full te*t as follo#s' U.rticle "8 Process Patents' Furden of Proof (. 4or the purposes of civil proceedings in respect of the infringe%ent of the rights of the o#ner referred to in paragraph (=b@ of .rticle ,9, if the sub)ect %atter of a patent is a process for obtaining a product, the )udicial authorities shall have the authority to order the defendant to prove that the process to obtain an identical product is different fro% the patented process. Therefore, Me%bers shall provide, in at least one of the follo#ing circu%stances, that any identical product #hen produced #ithout the consent of the patent o#ner shall, in the absence of proof to the contrary, be dee%ed to have been obtained by the patented process' =a@ if the product obtained by the patented process is ne#E =b@ if there is a substantial li+elihood that the identical product #as %ade by the process and the o#ner of the patent has been unable through reasonable efforts to deter%ine the process actually used. ,. .ny Me%ber shall be free to provide that the burden of proof indicated in paragraph ( shall be on the alleged infringer only if the condition referred to in subparagraph =a@ is fulfilled or only if the condition referred to in subparagraph =b@ is fulfilled. ". In the adduction of proof to the contrary, the legiti%ate interests of defendants in protecting their %anufacturing and business secrets shall be ta+en into account.W 4ro% the above, a ;T& Me%ber is re$uired to provide a rule of disputable =note the #ords Uin the absence of proof to the contraryW@ presu%ption that a product sho#n to be identical to one produced #ith the use of a patented process shall be dee%ed to have been obtained by the =illegal@ use of the said patented process, =(@ #here such product obtained by the patented product is ne#, or =,@ #here there is Usubstantial li+elihoodW that the identical product #as %ade #ith the use of the said patented process but the o#ner of the patent could not deter%ine the e*act process used in obtaining such identical product. :ence, the Uburden of proofW conte%plated by .rticle "8 should actually be understood as the duty of the alleged patent infringer to overthro# such presu%ption. 3uch burden, properly understood, actually refers to the Uburden of evidenceW =burden of going for#ard@ placed on the producer of the identical =or fa+e@ product to sho# that his product #as produced #ithout the use of the patented process. The foregoing not#ithstanding, the patent o#ner still has the Uburden of proofW since, regardless of the presu%ption provided under paragraph ( of .rticle "8, such o#ner still has to introduce evidence of the e*istence of the alleged identical product, the fact that it is UidenticalW to the genuine one produced by the patented process and the fact of Une#nessW of the genuine product or the fact of Usubstantial li+elihoodW that the identical product #as %ade by the patented process. The foregoing should really present no proble% in changing the rules of evidence as the present la# on the sub)ect, Republic .ct 0o. ( 5, as a%ended, other#ise +no#n as the Patent Ba#, provides a si%ilar presu%ption in cases of infringe%ent of patented design or utility %odel, thus' U3/C. 7. In3r)n9&;&n(. - Infringe%ent of a design patent or of a patent for utility %odel shall consist in unauthori-ed copying of the patented design or utility %odel for the purpose of trade or industry in the article or product

69
and in the %a+ing, using or selling of the article or product copying the patented design or utility %odel. Identity or substantial identity #ith the patented design or utility %odel shall constitute evidence of copying.W =underscoring supplied@ Moreover, it should be noted that the re$uire%ent of .rticle "8 to provide a disputable presu%ption applies only if =(@ the product obtained by the patented process is 0/; or =,@ there is a substantial li+elihood that the identical product #as %ade by the process and the process o#ner has not been able through reasonable effort to deter%ine the process used. ;here either of these t#o provisos does not obtain, %e%bers shall be free to deter%ine the appropriate %ethod of i%ple%enting the provisions of TRIP3 #ithin their o#n internal syste%s and processes. Fy and large, the argu%ents adduced in connection #ith our disposition of the third issue -- derogation of legislative po#er - #ill apply to this fourth issue also. 3uffice it to say that the reciprocity clause %ore than )ustifies such intrusion, if any actually e*ists. Fesides, .rticle "8 does not contain an unreasonable burden, consistent as it is #ith due process and the concept of adversarial dispute settle%ent inherent in our )udicial syste%. 3o too, since the Philippine is a signatory to %ost international conventions on patents, trade%ar+s and copyrights, the ad)ust%ent in legislation and rules of procedure #ill not be substantial. 4ifth Issue' Conc"rrence Onl% in the WTO -gree(ent and 7ot in Other Doc"(ents Contained in the ,inal -ct Petitioners allege that the 3enate concurrence in the ;T& .gree%ent and its anne*es -- but not in the other docu%ents referred to in the 4inal .ct, na%ely the Ministerial Ceclaration and Cecisions and the 2nderstanding on Co%%it%ents in 4inancial 3ervices -- is defective and insufficient and thus constitutes abuse of discretion. They sub%it that such concurrence in the ;T& .gree%ent alone is fla#ed because it is in effect a re)ection of the 4inal .ct, #hich in turn #as the docu%ent signed by 3ecretary 0avarro, in representation of the Republic upon authority of the President. They contend that the second letter of the President to the 3enate #hich enu%erated #hat constitutes the 4inal .ct should have been the sub)ect of concurrence of the 3enate. U. 3)na2 a/(, so%eti%es called protocol de clture, is an instru%ent #hich records the #inding up of the proceedings of a diplo%atic conference and usually includes a reproduction of the te*ts of treaties, conventions, reco%%endations and other acts agreed upon and signed by the plenipotentiaries attending the conference.W It is not the treaty itself. It is rather a su%%ary of the proceedings of a protracted conference #hich %ay have ta+en place over several years. The te*t of the U4inal .ct /%bodying the Results of the 2ruguay Round of Multilateral Trade 0egotiationsW is contained in )ust one page in Nol. I of the " -volu%e Dr"g"a% !o"nd of #"ltilateral Trade 7egotiations. Fy signing said 4inal .ct, 3ecretary 0avarro as representative of the Republic of the Philippines undertoo+' D=a@ to sub%it, as appropriate, the ;T& .gree%ent for the consideration of their respective co%petent authorities #ith a vie# to see+ing approval of the .gree%ent in accordance #ith their proceduresE and =b@ to adopt the Ministerial Ceclarations and Cecisions.D The assailed 3enate Resolution 0o. 6! e*pressed concurrence in e*actly #hat the 4inal .ct re$uired fro% its signatories, na%ely, concurrence of the 3enate in the ;T& .gree%ent. The Ministerial Ceclarations and Cecisions #ere dee%ed adopted #ithout need for ratification. They #ere approved by the %inisters by virtue of .rticle OON' ( of G.TT #hich provides that representatives of the %e%bers can %eet Uto give effect to those provisions of this .gree%ent #hich invo+e )oint action, and generally #ith a vie# to facilitating the operation and furthering the ob)ectives of this .gree%ent.W The 2nderstanding on Co%%it%ents in 4inancial 3ervices also approved in Marra+esh does not apply to the Philippines. It applies only to those ,! Me%bers #hich Uhave indicated in their respective schedules of co%%it%ents on standstill, eli%ination of %onopoly, e*pansion of operation of e*isting financial service suppliers, te%porary entry of personnel, free transfer and processing of infor%ation, and national treat%ent #ith respect to access to pay%ent, clearing syste%s and refinancing available in the nor%al course of business.W

70
&n the other hand, the ;T& .gree%ent itself e*presses #hat %ultilateral agree%ents are dee%ed included as its integral parts, as follo#s' U.rticle II Scope of the WTO (. The ;T& shall provide the co%%on institutional fra%e#or+ for the conduct of trade relations a%ong its Me%bers in %atters to the agree%ents and associated legal instru%ents included in the .nne*es to this .gree%ent. ,. The .gree%ents and associated legal instru%ents included in .nne*es (, ,, and " =hereinafter referred to as UMultilateral .gree%entsW@ are integral parts of this .gree%ent, binding on all Me%bers. ". The .gree%ents and associated legal instru%ents included in .nne* 8 =hereinafter referred to as UPlurilateral Trade .gree%entsW@ are also part of this .gree%ent for those Me%bers that have accepted the%, and are binding on those Me%bers. The Plurilateral Trade .gree%ents do not create either obligation or rights for Me%bers that have not accepted the%. 8. The General .gree%ent on Tariffs and Trade (668 as specified in anne* (. =hereinafter referred to as UG.TT (668W@ is legally distinct fro% the General .gree%ent on Tariffs and Trade, dated "7 &ctober (68!, anne*ed to the 4inal .ct adopted at the conclusion of the 3econd 3ession of the Preparatory Co%%ittee of the 2nited 0ations Conference on Trade and /%ploy%ent, as subse$uently rectified, a%ended or %odified =hereinafter referred to as UG.TT (68!W@. It should be added that the 3enate #as #ell-a#are of #hat it #as concurring in as sho#n by the %e%bersT deliberation on .ugust ,5, (668. .fter reading the letter of President Ra%os dated .ugust ((, (668, the senators of the Republic %inutely dissected #hat the 3enate #as concurring in, as follo#s' UT:/ C:.IRM.0' 1es. 0o#, the $uestion of the validity of the sub%ission ca%e up in the first day hearing of this Co%%ittee yesterday. ;as the observation %ade by 3enator TaZada that #hat #as sub%itted to the 3enate #as not the agree%ent on establishing the ;orld Trade &rgani-ation by the final act of the 2ruguay Round #hich is not the sa%e as the agree%ent establishing the ;orld Trade &rgani-ationM .nd on that basis, 3enator Tolentino raised a point of order #hich, ho#ever, he agreed to #ithdra# upon understanding that his suggestion for an alternative solution at that ti%e #as acceptable. That suggestion #as to treat the proceedings of the Co%%ittee as being in the nature of briefings for 3enators until the $uestion of the sub%ission could be clarified. .nd so, 3ecretary Ro%ulo, in effect, is the President sub%itting a ne#... is he %a+ing a ne# sub%ission #hich i%proves on the clarity of the first sub%issionM MR. R&M2B&' Mr. Chair%an, to %a+e sure that it is clear cut and there should be no %isunderstanding, it #as his intention to clarify all %atters by giving this letter. T:/ C:.IRM.0' Than+ you. Can this Co%%ittee hear fro% 3enator TaZada and later on 3enator Tolentino since they #ere the ones that raised this $uestion yesterdayM 3enator TaZada, please. 3/0. T.Y.C.' Than+ you, Mr. Chair%an. Fased on #hat 3ecretary Ro%ulo has read, it #ould no# clearly appear that #hat is being sub%itted to the 3enate for ratification is not the 4inal .ct of the 2ruguay Round, but rather the .gree%ent on the ;orld Trade &rgani-ation as #ell as the Ministerial Ceclarations and Cecisions, and the 2nderstanding and Co%%it%ents in 4inancial 3ervices. I a% no# satisfied #ith the #ording of the ne# sub%ission of President Ra%os.

71
3/0. T.Y.C.. . . . of President Ra%os, Mr. Chair%an. T:/ C:.IRM.0. Than+ you, 3enator TaZada. Can #e hear fro% 3enator TolentinoM .nd after hi% 3enator 0eptali Gon-ales and 3enator Bina. 3/0 T&B/0TI0&, Mr. Chair%an, I have not seen the ne# sub%ission actually trans%itted to us but I sa# the draft of his earlier, and I thin+ it no# co%plies #ith the provisions of the Constitution, and #ith the 4inal .ct itself. The Constitution does not re$uire us to ratify the 4inal .ct. It re$uires us to ratify the .gree%ent #hich is no# being sub%itted. The 4inal .ct itself specifies #hat is going to be sub%itted to #ith the govern%ents of the participants. In paragraph , of the 4inal .ct, #e read and I $uote' VFy signing the present 4inal .ct, the representatives agree' =a@ to sub%it as appropriate the ;T& .gree%ent for the consideration of the respective co%petent authorities #ith a vie# to see+ing approval of the .gree%ent in accordance #ith their procedures.T In other #ords, it is not the 4inal .ct that #as agreed to be sub%itted to the govern%ents for ratification or acceptance as #hatever their constitutional procedures %ay provide but it is the ;orld Trade &rgani-ation .gree%ent. .nd if that is the one that is being sub%itted no#, I thin+ it satisfies both the Constitution and the 4inal .ct itself. Than+ you, Mr. Chair%an. T:/ C:.IRM.0. Than+ you, 3enator Tolentino, May I call on 3enator Gon-ales. 3/0. G&05.B/3. Mr. Chair%an, %y vie#s on this %atter are already a %atter of record. .nd they had been ade$uately reflected in the )ournal of yesterdayTs session and I donTt see any need for repeating the sa%e. 0o#, I #ould consider the ne# sub%ission as an act e& a+"dante ca"tela. T:/ C:.IRM.0. Than+ you, 3enator Gon-ales. 3enator Bina, do you #ant to %a+e any co%%ent on thisM 3/0. BI0.. Mr. President, I agree #ith the observation )ust %ade by 3enator Gon-ales out of the abundance of $uestion. Then the ne# sub%ission is, I believe, stating the obvious and therefore I have no further co%%ent to %a+e.W /pilogue In praying for the nullification of the Philippine ratification of the ;T& .gree%ent, petitioners are invo+ing this CourtTs constitutionally i%posed duty Uto deter%ine #hether or not there has been grave abuse of discretion a%ounting to lac+ or e*cess of )urisdictionW on the part of the 3enate in giving its concurrence therein via 3enate Resolution 0o. 6!. Procedurally, a #rit of certiorari grounded on grave abuse of discretion %ay be issued by the Court under Rule 5 of the Rules of Court #hen it is a%ply sho#n that petitioners have no other plain, speedy and ade$uate re%edy in the ordinary course of la#. Fy grave abuse of discretion is %eant such capricious and #hi%sical e*ercise of )udg%ent as is e$uivalent to lac+ of )urisdiction. Mere abuse of discretion is not enough. It %ust be grave abuse of discretion as #hen the po#er is e*ercised in an arbitrary or despotic %anner by reason of passion or personal hostility, and %ust be so patent and so gross as to a%ount to an evasion of a positive duty or to a virtual refusal to perfor% the duty en)oined or to act at all in conte%plation of la#. 4ailure on the part of the petitioner to sho# grave abuse of discretion #ill result in the dis%issal of the petition. In rendering this Cecision, this Court never forgets that the 3enate, #hose act is under revie#, is one of t#o sovereign houses of Congress and is thus entitled to great respect in its actions. It is itself a constitutional body independent and coordinate, and thus its actions are presu%ed regular and done in good faith. 2nless convincing proof and persuasive argu%ents are presented to overthro# such presu%ptions, this Court #ill resolve every doubt in its favor. 2sing the foregoing #ell-accepted definition of grave abuse of discretion and the presu%ption of regularity in the 3enateTs processes, this Court cannot find any cogent reason to i%pute grave abuse

72
of discretion to the 3enateTs e*ercise of its po#er of concurrence in the ;T& .gree%ent granted it by 3ec. ,( of .rticle NII of the Constitution. It is true, as alleged by petitioners, that broad constitutional principles re$uire the 3tate to develop an independent national econo%y effectively controlled by 4ilipinosE and to protect andPor prefer 4ilipino labor, products, do%estic %aterials and locally produced goods. Fut it is e$ually true that such principles -- #hile serving as )udicial and legislative guides -- are not in the%selves sources of causes of action. Moreover, there are other e$ually funda%ental constitutional principles relied upon by the 3enate #hich %andate the pursuit of a Utrade policy that serves the general #elfare and utili-es all for%s and arrange%ents of e*change on the basis of e$uality and reciprocityW and the pro%otion of industries U#hich are co%petitive in both do%estic and foreign %ar+ets,W thereby )ustifying its acceptance of said treaty. 3o too, the alleged i%pair%ent of sovereignty in the e*ercise of legislative and )udicial po#ers is balanced by the adoption of the generally accepted principles of international la# as part of the la# of the land and the adherence of the Constitution to the policy of cooperation and a%ity #ith all nations. That the 3enate, after deliberation and voting, voluntarily and over#hel%ingly gave its consent to the ;T& .gree%ent thereby %a+ing it Ua part of the la# of the landW is a legiti%ate e*ercise of its sovereign duty and po#er. ;e find no Upatent and grossW arbitrariness or despotis% Uby reason of passion or personal hostilityW in such e*ercise. It is not i%possible to sur%ise that this Court, or at least so%e of its %e%bers, %ay even agree #ith petitioners that it is %ore advantageous to the national interest to stri+e do#n 3enate Resolution 0o. 6!. Fut that is no( a 2&9a2 r&a*on to attribute grave abuse of discretion to the 3enate and to nullify its decision. To do so #ould constitute grave abuse in the e*ercise of our o#n )udicial po#er and duty. Ineludably, #hat the 3enate did #as a valid e*ercise of its authority. .s to #hether such e*ercise #as #ise, beneficial or viable is outside the real% of )udicial in$uiry and revie#. That is a %atter bet#een the elected policy %a+ers and the people. .s to #hether the nation should )oin the #orld#ide %arch to#ard trade liberali-ation and econo%ic globali-ation is a %atter that our people should deter%ine in electing their policy %a+ers. .fter all, the ;T& .gree%ent allo#s #ithdra#al of %e%bership, should this be the political desire of a %e%ber. The e%inent futurist <ohn 0aisbitt, author of the best seller #egatrends, predicts an .sian Renaissance #here Uthe /ast #ill beco%e the do%inant region of the #orld econo%ically, politically and culturally in the ne*t century.W :e refers to the Ufree %ar+etW espoused by ;T& as the UcatalystW in this co%ing .sian ascendancy. There are at present about "( countries including China, Russia and 3audi .rabia negotiating for %e%bership in the ;T&. 0ot#ithstanding ob)ections against possible li%itations on national sovereignty, the ;T& re%ains as the only viable structure for %ultilateral trading and the veritable foru% for the develop%ent of international trade la#. The alternative to ;T& is isolation, stagnation, if not econo%ic self-destruction. Culy enriched #ith original %e%bership, +eenly a#are of the advantages and disadvantages of globali-ation #ith its on-line e*perience, and endo#ed #ith a vision of the future, the Philippines no# straddles the crossroads of an international strategy for econo%ic prosperity and stability in the ne# %illenniu%. Bet the people, through their duly authori-ed elected officers, %a+e their free choice. 1!"R"#OR", the petition is D S# SSED for lac+ of %erit. 3& &RC/R/C. 0arvasa, C.<., Regalado, Cavide, <r., Ro%ero, Fellosillo, Melo, Puno, Gapunan, Mendo-a, 4rancisco, :er%osisi%a, <r., and Torres, <r., <<., concur. Padilla, and Nitug, <<., in the result. In .nne* U.W of her Me%orandu%, dated .ugust 9, (66 , received by this Court on .ugust (,, (66 , Philippine .%bassador to the 2nited 0ations, ;orld Trade &rgani-ation and other international organi-ations Bilia R. Fautista =hereafter referred to as UFautista PaperW@ sub%itted a U8 -year ChronologyW of G.TT as follo#s' U(68! 0& @)r(0 o3 GA . &n "7 &ctober (68!, the General .gree%ent on Tariffs and Trade =G.TT@ #as signed by ," nations at the Palais des 0ations in Geneva. The .gree%ent contained tariff concessions agreed to in the first %ultilateral trade negotiations and a set of rules

73
designed to prevent these concessions fro% being frustrated by restrictive trade %easures. The ," founding contracting parties #ere %e%bers of the Preparatory Co%%ittee established by the 2nited 0ations /cono%ic and 3ocial Council in (68 to draft the charter of the International Trade &rgani-ation =IT&@. The IT& #as envisaged as the final leg of a triad of post-;ar econo%ic agencies =the other t#o #ere the International Monetary 4und and the International Fan+ for Reconstruction - later the ;orld Fan+@. In parallel #ith this tas+, the Co%%ittee %e%bers decided to negotiate tariff concessions a%ong the%selves. 4ro% .pril to &ctober (68!, the participants co%pleted so%e (," negotiations and established ,7 schedules containing the tariff reductions and bindings #hich beca%e an integral part of G.TT. These schedules resulting fro% the first Round covered so%e 85,777 tariff concessions and about H(7 billion in trade. G.TT #as conceived as an interi% %easure that put into effect the co%%ercialpolicy provisions of the IT&. In 0ove%ber, delegations fro% 5 countries %et in :avana, Cuba, to consider the IT& draft as a #hole. .fter long and difficult negotiations, so%e 5" countries signed the 4inal .ct authenticating the te*t of the :avana Charter in March (689. There #as no co%%it%ent, ho#ever, fro% govern%ents to ratification and, in the end, the IT& #as stillborn, leaving G.TT as the only international instru%ent governing the conduct of #orld trade. (689 "n(ry )n(o 3or/&. &n ( <anuary (689, G.TT entered into force. The ," founding %e%bers #ere' .ustralia, Felgiu%, Fra-il, Fur%a, Canada, Ceylon, Chile, China, Cuba, C-echoslova+ia, 4rance, India, Bebanon, Bu*e%burg, 0etherlands, 0e# 5ealand, 0or#ay, Pa+istan, 3outhern Rhodesia, 3yria, 3outh .frica, 2nited Gingdo% and 2nited 3tates. The first 3ession of the contracting parties #as held fro% 4ebruary to March in :avana, Cuba. The secretariat of the Interi% Co%%ission for the IT&, #hich served as the ad hoc secretariat of G.TT, %ove fro% la+e Placid, 0e# 1or+, to Geneva. The Contracting Parties held their second session in Geneva fro% .ugust to 3epte%ber. (686 S&/on5 Roun5 a( Ann&/y. Curing the second Round of trade negotiations, held fro% .pril to .ugust at .nnecy, 4rance, the contracting parties e*change so%e 5,777 tariff concession. .t their third 3ession, they also dealt #ith the accession of ten %ore countries. (657 0)r5 Roun5 A( orBuay. 4ro% 3epte%ber (657 to .pril (65(, the contracting parties e*change so%e 9,!77 tariff concessions in the /nglish to#n, yielding tariff reduction of about ,5 per cent in relation to the (689 level. 4our %ore countries acceded to G.TT. Curing the fifth 3ession of the Contracting Parties, the 2nited 3tates indicated that the IT& Charter #ould not be re-sub%itted to the 23 congressE this, in effect, %eant that IT& #ould not co%e into operation. (65 #our(0 Roun5 a( G&n&4a. The fourth Round #as co%pleted in May and produce so%e H,.5 billion #orth of tariff reductions. .t the beginning of the year, the G.TT co%%ercial policy course for officials of developing countries #as inaugurated.

74
(659 0& !a@&r2&r R&'or(. G.TT published Trends in International Trade in &ctober. Gno#n as the D:aberler ReportD in honour of Professor Gottfried :aberler, the chair%an of the panel of i%%inent econo%ist, it provided initial guidelines for the #or+ of G.TT. The Contracting Parties at their ("th 3essions, attended by Ministers, subse$uently established " co%%ittees in G.TT' Co%%ittee I to convene a further tariff negotiating conferenceE Co%%ittee II To revie# the agricultural policies of %e%ber govern%ents and Co%%ittee III to tac+le the proble%s facing developing countries in their trade. The establish%ent of the /uropean /cono%ic Co%%unity during the previous year also de%anded large scale tariff negotiation under .rticle OOIN of the General .gree%ent. (6 7 0& ,)22on Roun5. The fifth Round opened in 3epte%ber and #as divided into t#o phases' the first #as concerned #ith //C %e%bers states for the creation of a single schedule of concessions for the Co%%unity based on its Co%%on /*ternal TariffE and the second #as a further general round of tariff negotiations. 0a%ed in honor of 23 2nder3ecretary of 3tate Couglas Cillon #ho proposed the negotiations, the Round #as concluded in <uly (6 , and resulted in about 8,877 tariff concessions covering H8.6 billion of trade. (6 ( 0& S0or(- &r; Arran9&;&n( covering cotton te*tiles #as agreed as an e*ception to the G.TT rules. The arrange%ent per%itted the negotiation of $uota restrictions affecting the e*ports of cotton-producing countries. In (6 , the D3hort Ter% D .rrange%ent beco%e the DBong ter%D .rrange%ent, lasting until (6!8 #hen the Multifibre .rrange%ent entered into force. (6 8 0& 6&nn&5y Roun5. Meeting at Ministerial Bevel, a Trade 0egotiations Co%%ittee for%ally opened the Gennedy Round in May. In <une (6 !, the RoundAs 4inal .ct #as signed by so%e 57 participating countries #hich together accounted for !5 per cent of #orld trade. 4or the first ti%e, negotiation departed fro% product-by-product approach used in the previous Rounds to an across-the-board or linear %ethod of cutting tariffs for industrial goods. The #or+ing hypothesis of a 57 per cent target cut in tariff levels #as achieved in %any areas. Concessions covered an esti%ated total value of trade of about H87 billion. 3eparate agree%ents #ere reached on grains, che%ical products and a Code on .nti-Cu%ping. (6 5 A N&A C0a'(&r. The early (6 7s %ar+ed the accession to the General .gree%ent of %any ne#ly-independent developing countries. In 4ebruary, the Contracting Parties, %eeting in a special session, adopted the te*t of Part IN on Trade and Cevelop%ent. The additional chapter to the G.TT re$uired developed countries to accord high priority to the reduction of trade barriers to products of developing countries. . co%%ittee on Trade and Cevelop%ent #as established to oversee the functioning of the ne# G.TT provisions. In the preceding year, G.TT had established the International Trade Center =ITC@ to help developing countries in trade pro%otion and identification of potential %ar+ets. 3ince (6 9, the ITC had been )ointly operated by G.TT and the 20 Conference on Trade and Cevelop%ent =20CT.C@. (6!" 0& oCyo Roun5. The seventh Round #as launched by Ministers in 3epte%ber at the <apanese capital. 3o%e 66 countries participated in negotiating a co%prehensive body of

75
agree%ents covering both tariff and non-tariff %atters. .t the end of the Round in 0ove%ber (6!6, participants e*change tariff reduction and bindings #hich covered %ore than H"77 billion of trade. .s a result of these cuts, the #eighted average tariff on %anufactured goods in the #orldAs nine %a)or Industrial Mar+ets declined fro% !.7 to 8.! per cent. .gree%ents #ere reached in the follo#ing areasE subsidies and countervailing %easures, technical barriers to trade, i%port licensing procedures, govern%ent procure%ent, custo%s valuation, a revised antidu%ping code, trade in bovine %eat, trade in daily products and trade in civil aircraft. The first concrete result of the Round #as the reduction of i%port duties and other trade barriers by industrial countries on tropical products e*ported by developing countries. (6!8 &n ( <anuary (6!8, the .rrange%ent Regarding International Trade in te*tiles, other#ise +no#n as the Mu2()3)@r& Arran9&;&n( =M4.@, entered into force. Its superseded the arrange%ent that had been governing trade in cotton te*tiles since (6 (. The M4. see+s to pro%ote the e*pansion and progressive liberali-ation of trade in te*tile product #hile at the sa%e ti%e avoiding disruptive effects in individual %ar+ets in lines of production. The M4. #as e*tended in (6!9, (69,, (69 , (66( and (66,. M4. %e%bers account for %ost of the #orld e*ports of te*tiles and clothing #hich in (69 a%ounted to 23H(,9 billion. (69, M)n)*(&r)a2 M&&()n9. Meeting for the first ti%e in nearly ten years, the G.TT Ministers in 0ove%ber at Geneva reaffir%ed the validity of G.TT rules for the conduct of international trade and co%%itted the%selves to co%bating protectionist pressures. They also established a #ide-ranging #or+ progra%%e for the G.TT #hich #as to laid do#n the ground #or+ for a ne# Round. (69 0& %ru9uay Roun5. The G.TT Trade Ministers %eeting at Punta del /ste, 2ruguay, launched the eighth Round of Trade 0egotiations on ,7 3epte%ber. The Punta del /ste, declarations, #hile representing a single political underta+ing, #as divided into t#o section. The 4irst covered negotiations on Trade in goods and the second initiated negotiation on trade in services. In the area of trade in goods, the Ministers co%%itted the%selves to a DstandstillD on ne# trade %easures inconsistent #ith their G.TT obligations and to a Drollbac+D progra%%e ai%ed at phasing out e*isting inconsistent %easures. /nvisaged to last four years, negotiations started in early 4ebruary (69! in the follo#ing areas' tariffs, non-tariff %easures, tropical products, natural resource-based products, te*tiles and clothing, agriculture, subsidies, safeguards, trade-related aspects of intellectual property rights including trade in counterfeit goods, in trade- related invest%ent %easures. The #or+ of other groups included a revie# of G.TT articles, the G.TT dispute-settle%ent procedure, the To+yo Round agree%ents, as #ell as functioning of the G.TT syste% as a #hole. (668 DGA 1994D is the updated version of G.TT (68! and ta+es into account the substantive and institutional changes negotiated in the 2ruguay Round. G.TT (668 is an integral part of the ;orld Trade &rgani-ation established on ( <anuary (665. It is agreed that there be a one year transition period during #hich certain G.TT (68! bodies and co%%it%ents #ould coe*ist #ith those of the ;orld Trade &rgani-ation.D

76
The 4inal .ct #as signed by representatives of (,5 entities, na%ely .lgeria, .ngola, .ntigua and Farbuda, .rgentine Republic, .ustralia, Republic of .ustria, 3tate of Fahrain, PeopleTs Republic of Fangladesh, Farbados, The Gingdo% of Felgiu%, Feli-e, Republic of Fenin, Folivia, Fots#ana, Fra-il, Frunei Carussala%, Fur+ina 4aso, Furundi, Ca%eroon, Canada, Central .frican Republic, Chad, Chile, PeopleTs Republic of China, Colo%bia, Congo, Costa Rica, Republic of Cote dTIvoire, Cuba, Cyprus, C-ech Republic, Gingdo% of Cen%ar+, Co%%on#ealth of Co%inica, Co%inican Republic, .rab Republic of /gypt, /l 3alvador, /uropean Co%%unities, Republic of 4i)i, 4inland, 4rench Republic, Gabonese Republic, Ga%bia, 4ederal Republic of Ger%any, Ghana, :ellenic Republic, Grenada, Guate%ala, Republic of Guinea-Fissau, Republic of Guyana, :aiti, :onduras, :ong Gong, :ungary, Iceland, India, Indonesia, Ireland, 3tate of Israel, Italian Republic, <a%aica, <apan, Genya, Gorea, 3tate of Gu#ait, Gingdo% of Besotho, Principality of Biechtenstein, Grand Cuchy of Bu*e%bourg, Macau, Republic of Madagascar, Republic of Mala#i, Malaysia, Republic of Maldives, Republic of Mali, Republic of Malta, Isla%ic Republic of Mauritania, Republic of Mauritius, 2nited Me*ican 3tates, Gingdo% of Morocco, Republic of Mo-a%bi$ue, 2nion of Myan%ar, Republic of 0a%ibia, Gingdo% of the 0etherlands, 0e# 5ealand, 0icaragua, Republic of 0iger, 4ederal Republic of 0igeria, Gingdo% of 0or#ay, Isla%ic Republic of Pa+istan, Paraguay, Peru, Philippines, Poland, Portuguese Republic, 3tate of Qatar, Ro%ania, R#andese Republic, 3aint Gitts and 0evis, 3aint Bucia, 3aint Nincent and the Grenadines, 3enegal, 3ierra Beone, 3ingapore, 3lova+ Republic, 3outh .frica, Gingdo% of 3pain, Ce%ocratic 3ocialist Republic of 3ri Ban+a, Republic of 3urina%, Gingdo% of 3#a-iland, Gingdo% of 3#eden, 3#iss Confederation, 2nited Republic of Tan-ania, Gingdo% of Thailand, Togolese Republic, Republic of Trinidad and Tobago, Tunisia, Tur+ey, 2ganda, 2nited .rab /%irates, 2nited Gingdo% of Great Fritain and 0orthern Ireland, 2nited 3tates of .%erica, /astern Republic of 2ruguay, Nene-uela, Republic of 5aire, Republic of 5a%bia, Republic of 5i%bab#eE see pp. -,5, Nol. (, 2ruguay Round of Multilateral Trade 0egotiations. (( .ugust (668 The :onorable Me%bers 3enate Through 3enate President /dgardo .ngara Manila Badies and Gentle%en' I have the honor to for#ard here#ith an authenticated copy of the 2ruguay Round 4inal .ct signed by Cepart%ent of Trade and Industry 3ecretary Ri-alino 3. 0avarro for the Philippines on (5 .pril (668 in Marra+esh, Morocco. The 2ruguay Round 4inal .ct ai%s to liberali-e and e*pand #orld trade and strengthen the interrelationship bet#een trade and econo%ic policies affecting gro#th and develop%ent. The 4inal .ct #ill i%prove Philippine access to foreign %ar+ets, especially its %a)or trading partners through the reduction of tariffs on its e*ports particularly agricultural and industrial products. These concessions %ay be availed of by the Philippines, only if it is a %e%ber of the ;orld Trade &rgani-ation. Fy G.TT esti%ates, the Philippines can ac$uire additional e*port revenues fro% H,., to H,.! Fillion annually under 2ruguay Round. This #ill be on top of the nor%al increase in e*ports that the Philippines %ay e*perience. The 4inal .ct #ill also open up ne# opportunities for the services sector in such areas as the %ove%ent of personnel, =e.g. professional services and construction services@, cross-border supply =e.g. co%puter-related services@, consu%ption abroad =e.g. touris%, convention services, etc.@ and co%%ercial presence. The clarified and i%proved rules and disciplines on anti-du%ping and countervailing %easures #ill also benefit Philippine e*porters by reducing the costs and uncertainty associated #ith e*porting #hile at the sa%e ti%e providing a %eans for do%estic industries to safeguard the%selves against unfair i%ports. Bi+e#ise, the provision of ade$uate protection for intellectual property rights is e*pected to attract %ore invest%ents into the country and to %a+e

77
it less vulnerable to unilateral actions by its trading partners =e.g. 3ec. "7( of the 2nited 3tatesT &%nibus Trade Ba#@. In vie# of the foregoing, the 2ruguay Round 4inal .ct is hereby sub%itted to the 3enate for its concurrence pursuant to 3ection ,(, .rticle NII of the Constitution. . draft of a proposed Resolution giving its concurrence to the aforesaid .gree%ent is enclosed. Nery truly yours, =3GC.@ 4IC/B N. R.M&3 (( .ugust (668 The :onorable Me%bers 3enate Through 3enate President /dgardo .ngara Manila Badies and Gentle%en' I have the honor to for#ard here#ith an authenticated copy of the 2ruguay Round 4inal .ct signed by Cepart%ent of Trade and Industry 3ecretary Ri-alino 3. 0avarro for the Philippines on (" .pril (668 in Marra+ech =sic@, Morocco. Me%bers of the trade negotiations co%%ittee, #hich included the Philippines, agreed that the .gree%ent /stablishing the ;orld Trade &rgani-ation, the Ministerial Ceclarations and Cecisions, and the 2nderstanding on Co%%it%ents in 4inancial 3ervices e%body the results of their negotiations and for% an integral part of the 2ruguay Round 4inal .ct. The 4inal .ct #ill i%prove Philippine access to foreign %ar+ets, especially its %a)or trading partners through the reduction of tariffs on its e*ports particularly agricultural and industrial products. These concessions %ay be availed of by the Philippines, only if it is a %e%ber of the ;orld Trade &rgani-ation. Fy G.TT esti%ates, the Philippines can ac$uire additional e*port revenues fro% H,., to H,.! Fillion annually under 2ruguay Round. This #ill be on top of the nor%al increase in the e*ports that the Philippines %ay e*perience. The 4inal .ct #ill also open up ne# opportunities for the services sector in such areas as the %ove%ent of personnel, =e.g., professional services and construction services@, cross-border supply =e.g., co%puterrelated services@, consu%ption abroad =e.g., touris%, convention services, etc.@ and co%%ercial presence. The clarified and i%proved rules and disciplines on anti-du%ping and countervailing %easures #ill also benefit Philippine e*porters by reducing the costs and uncertainty associated #ith e*porting #hile at the sa%e ti%e providing a %eans for do%estic industries to safeguard the%selves against unfair i%ports. Bi+e#ise, the provision of ade$uate protection for intellectual property rights is e*pected to attract %ore invest%ents into the country and to %a+e it a less vulnerable to unilateral actions by its trading partners =e.g., 3ec. "7( of the 2nited 3tates &%nibus Trade Ba#@. Fy signing the 2ruguay Round 4inal .ct, the Philippines, through 3ecretary 0avarro, agreed' =a@ To sub%it the .gree%ent /stablishing the ;orld Trade &rgani-ation to the 3enate for its concurrence pursuant to 3ection ,(, .rticle NII of the ConstitutionE and =b@ To adopt the Ministerial Ceclarations and Cecisions. The 2ruguay Round 4inal .ct ai%s to liberali-e and e*pand #orld trade and strengthen the interrelationship bet#een trade and econo%ic policies affecting gro#th and develop%ent.

78
In vie# of the foregoing, the 2ruguay Round 4inal .ct, the .gree%ent /stablishing the ;orld Trade &rgani-ation, the Ministerial Ceclarations and Cecisions, and the 2nderstanding on Co%%it%ents in 4inancial 3ervices, as e%bodied in the 2ruguay Round 4inal .ct and for%ing and integral part thereof are hereby sub%itted to the 3enate for its concurrence pursuant to 3ection ,(, .rticle NII of the Constitution. . draft of a proposed Resolution giving its concurrence to the aforesaid .gree%ent is enclosed. Nery truly yours, =3GC.@ 4IC/B N. R.M&3 Cece%ber 6, (668 :&0. /CG.RC& <. .0G.R. 3enate President 3enate, Manila Cear 3enate President .ngara' Pursuant to the provisions of 3ec. , =,@ .rticle NI of the Constitution, I hereby certify to the necessity of the i%%ediate adoption of P.3. (79", entitled' UC&0C2RRI0G I0 T:/ R.TI4IC.TI&0 &4 T:/ .GR//M/0T /3T.FBI3:I0G T:/ ;&RBC TR.C/ &RG.0I5.TI&0W to %eet a public e%ergency consisting of the need for i%%ediate %e%bership in the ;T& in order to assure the benefits to the Philippine econo%y arising fro% such %e%bership. Nery truly yours, =3GC.@ 4IC/B N. R.M&3 .ttached as .nne* ., PetitionE rollo, p. 5,. P.3. (79" is the forerunner of assailed 3enate Resolution 0o. 6!. It #as prepared by the Co%%ittee of the ;hole on the General .gree%ent on Tariffs and Trade chaired by 3en. Flas 4. &ple and co-chaired by 3en. Gloria Macapagal-.rroyoE see .nne* C, Co%pliance of petitioners dated <anuary ,9, (66!. The Philippines is thus considered an original or founding %e%ber of ;T&, #hich as of <uly , , (66 had (," %e%bers as follo#s' .ntigua and Farbuda, .rgentina, .ustralia, .ustria, Fahrain, Fangladesh, Farbados, Felgiu%, Feli-e, Fenin, Folivia, Fots#ana, Fra-il, Frunei Carussala%, Fur+ina 4aso, Furundi, Ca%eroon, Canada, Central .frican Republic, Chili, Colo%bia, Costa Rica, Cote dTIvoire, Cuba, Cyprus, C-ech Republic, Cen%ar+, C)ibouti, Co%inica, Co%inican Republic, /cuador, /gypt, /l 3alvador, /uropean Co%%unity, 4i)i, 4inland, 4rance, Gabon, Ger%any, Ghana, Greece, Grenada, Guate%ala, Guinea, Guinea Fissau, Guyana, :aiti, :onduras, :ong+ong, :ungary, Iceland, India, Indonesia, Ireland, Israel, Italy, <a%aica, <apan, Genya, Gorea, Gu#ait, Besotho, Biechtenstein, Bu*e%bourg, Macau, Madagascar, Mala#i, Malaysia, Maldives, Mali, Malta, Mauritania, Mauritius, Me*ico, Morocco, Mo-a%bi$ue, Myan%ar, 0a%ibia, 0etherlands -- for the Gingdo% in /urope and for the 0etherlands .ntilles, 0e# 5ealand, 0icaragua, 0igeria, 0or#ay, Pa+istan, Papua 0e# Guinea, Paraguay, Peru, Philippines, Poland, Portugal, Qatar, Ro%ania, R#anda, 3aint Gitts and 0evis, 3aint Bucia, 3aint Nincent K the Grenadines, 3enegal, 3ierra Beone, 3ingapore, 3lova+ Republic, 3lovenia, 3olo%on Islands, 3outh .frica, 3pain, 3ri Ban+a, 3urina%, 3#a-iland, 3#eden, 3#it-erland, Tan-ania, Thailand, Togo, Trinidad and Tobago, Tunisia, Tur+ey, 2ganda, 2nited .rab /%irates, 2nited Gingdo%, 2nited 3tates, 2ruguay, Nene-uela, 5a%bia, and 5i%bab#e. 3ee .nne* ., Fautista Paper, infra. Page E rollo, p. , (. In co%pliance, .%bassador Fautista sub%itted to the Court on .ugust (,, (66 , a Me%orandu% =the UFautista PaperW@ consisting of 5 pages e*cluding anne*es. This is the sa%e docu%ent %entioned in footnote no. (. Me%orandu% for Respondents, p. ("E rollo, p. , 9.

79
Cf. Gilosbayan, Incorporated vs. Morato, ,8 3CR. 587, <uly (!, (665 for a discussion on loc"s standi. 3ee also the Concurring &pinion of Mr. <ustice Nicente N. Mendo-a in Tatad vs. Garcia, <r., ,8" 3CR. 8!", .pril , (665, as #ell as Gilusang Mayo 2no Babor Center vs. Garcia, <r., ,"6 3CR. "9 , 8(8, Cece%ber ,", (668. .$uino, <r. vs. Ponce /nrile, 56 3CR. (9", (6 , 3epte%ber (!, (6!8, cited in Fondoc vs. Pineda, ,7( 3CR. !6,, !65, 3epte%ber , , (66(. Guingona, <r. vs. Gon-ales, ,(6 3CR. ", , ""!, March (, (66". 3ee Tanada and Macapagal vs. Cuenco, et al., (7" Phil. (75( for a discussion on the scope of Upolitical $uestion.W 3ection (, .rticle NIII, =par. ,@. In a privilege speech on May (!, (66", entitled U3upre%e Court -- Potential TyrantMW 3enator .rturo Tolentino concedes that this ne# provision gives the 3upre%e Court a duty Uto intrude into the )urisdiction of the Congress or the President.W I Record of the Constitutional Co%%ission 8" . Cf. Ca-a vs. 3ingson, (97 3CR. 86 , Cece%ber ,(, (696. Me%orandu% for Petitioners, pp. (8-( E rollo, pp. ,78-,7 . Par. 8, .rticle ONI, ;T& .gree%ent, 2ruguay Round of Multilateral Trade 0egotiations, Nol. (, p. (8 . .lso entitled UCeclaration of Principles.W The no%enclature in the (6!" Charter is identical #ith that in the (69!Ts. Philippine Political Ba#, (6 , /d., p. (( . Fernas, The Constit"tion of the Philippines@ - Co((entar%, Nol. II, (699 /d., p. ,. In the very recent case of Manila Prince :otel vs. G3I3, G.R. 0o. (,,(5 , 4ebruary ", (66!, p. 9, it #as held that U. provision #hich lays do#n a general principle, such as those found in .rt. II of the (69! Constitution, is usually not self-e*ecuting.W ,8 3CR. 587, 5 8, <uly (!, (665. 3ee also Tolentino vs. 3ecretary of 4inance, G.R. 0o. ((5855 and consolidated cases, .ugust ,5, (665. (6! 3CR. 5,, 9, May (8, (66(. ,,8 3CR. !6,, 9(!, <uly "7, (66". 3ec. (7, .rticle OII. 3ec. (,, .rticle OII. 3ec. (6, .rt. II. 3ec. (", .rt. OII. G.R. 0o. (,,(5 , 4ebruary ", (66!, pp. ("-(8. 3ec. (, .rt. OII. Fautista Paper, p. (6. Prea%ble, ;T& .gree%ent p. ("!, Nol. (, Dr"g"a% !o"nd of #"ltilateral Trade 7egotiations. 2nderscoring supplied. 3ec. - (6, .rticle II, Constitution. III Records of the Constitutional Co%%ission ,5,. 3ec. (", .rticle OII, Constitution. <ustice Isagani .. Cru-, Philippine Political .a$, (665 /d., p. (", $uoting his o#n article entitled, U. Quintessential ConstitutionW earlier published in the San )eda .a$ *o"rnal, .pril (6!,E underscoring supplied.

80
Par. 8, .rticle ONI =Miscellaneous Provisions@, ;T& .gree%ent, p.(8 , Nol. (, Dr"g"a% !o"nd of #"ltilateral Trade 7egotiations. Me%orandu% for the Petitioners, p. ,6E rollo, p. ,(6. 3ec. ,8, .rticle NI, Constitution. 3ubsection =,@, 3ec. ,9, .rticle, NI Constitution. 3ec. ,, .rticle II, Constitution. Cru-, Philippine Political .a$, (665 /d., p. 55. 3alonga and 1ap, op cit "75. 3alonga, op. cit., p. ,9!. Quoted in Paras and Paras, <r., International Ba# and ;orld Politics, (668 /d., p. (!9. 8!-. Reagan vs. Co%%ission of Internal Revenue, "7 3CR. 6 9, 6!", Cece%ber ,!, (6 6. Trebilcoc+ and :o#se. The Regulation of International Trade, p. (8, Bondon, (665, cited on p. 55-5 , Fautista Paper. 2ruguay Round of Multilateral Trade 0egotiations, Nol. "(, p. ,5885. Ite% 5, 3ec. 5, .rticle NIII, Constitution. 2ruguay Round of Multilateral Trade 0egotiations, Nol. "(, p. ,5885. Fautista Paper, p. (". 3ee footnote " of the te*t of this letter. 3alonga and 1ap, op cit., pp. ,96-,67. The full te*t, #ithout the signatures, of the 4inal .ct is as follo#s' U#)na2 A/( ";@o5y)n9 (0& R&*u2(* o3 (0& %ru9uay Roun5 o3 Mu2()2a(&ra2 ra5& N&9o()a()on* (. :aving %et in order to conclude the 2ruguay Round of Multilateral Trade 0egotiations, representatives of the govern%ents and of the /uropean Co%%unities, %e%bers of the Trade 0egotiations Co%%ittee, agree that the .gree%ent /stablishing the ;orld Trade &rgani-ation =referred to in the 4inal .ct as the U;T& .gree%entW@, the Ministerial Ceclarations and Cecisions, and the 2nderstanding on Co%%it%ents in 4inancial 3ervices, as anne*ed hereto, e%body the results of their negotiations and for% an integral part of this 4inal .ct. ,. Fy signing to the present 4inal .ct, the representatives agree. U=a@ to sub%it, as appropriate, the ;T& .gree%ent for the consideration of their respective co%petent authorities #ith a vie# to see+ing approval of the .gree%ent in accordance #ith their proceduresE and =b@ to adopt the Ministerial Ceclarations and Cecisions.W ". The representatives agree on the desirability of acceptance of the ;T& .gree%ent by all participants in the 2ruguay Round of Multilateral Trade 0egotiations =hereinafter referred to as UparticipantsW@ #ith a vie# to its entry into force by ( <anuary (665, or as early as possible thereafter. 0ot later than late (668, Ministers #ill %eet, in accordance #ith the final paragraph of the Punta del /ste Ministerial Ceclarations, to decide on the international i%ple%entation of the results, including the ti%ing of their entry into force. 8. The representatives agree that the ;T& .gree%ent shall be opened for acceptance as a #hole, by signature or other#ise, by all participants pursuant to .rticle OIN thereof. The acceptance and entry into force of a Plurilateral Trade .gree%ent included in .nne* 8 of the ;T& .gree%ent shall be governed by the provisions of that Plurilateral Trade .gree%ent. 5. Fefore accepting the ;T& .gree%ent, participants #hich are not contracting parties to the General .gree%ent on Tariffs and Trade %ust first have concluded negotiations for their accession to the General .gree%ent and beco%e contracting parties thereto. 4or participants #hich are not contracting parties to the general .gree%ent as of the date of the 4inal .ct, the 3chedules are not

81
definitive and shall be subse$uently co%pleted for the purpose of their accession to the General .gree%ent and acceptance of the ;T& .gree%ent. . This 4inal .ct and the Te*ts anne*ed hereto shall be deposited #ith the Cirector-General to the C&0TR.CTI0G P.RTI/3 to the General .gree%ent on Tariffs and Trade #ho shall pro%ptly furnish to each participant a certified copy thereof. C&0/ at Marra+esh this fifteenth day of .pril &ne thousand nine hundred and ninety-four, in a single copy, in the /nglish, 4rench and 3panish languages, each te*t being authentic.D Fautista Paper, p. ( . Fautista Paper, p. ( . 2ruguay Round of Multilateral Trade 0egotiations, Nol. I, pp. ("!-("9. 3ee footnote " for co%plete te*t. Ta+en fro% pp. "-95, URespondentW Me%orandu%. 5arate vs. &legario, G.R. 0o. 67 55, &ctober !, (66 . 3an 3ebastian College vs. Court of .ppeals, (6! 3CR. ("9, (88, May (5, (66(E Co%%issioner of Internal Revenue vs. Court of Ta* .ppeals, (65 3CR. 888, 859 March ,7, (66(E 3i%on vs. Civil 3ervice Co%%ission, ,(5 3CR. 8(7, 0ove%ber 5, (66,E Fusta%ante vs. Co%%issioner on .udit, ,( 3CR. ("8, (" , 0ove%ber ,!, (66,. Paredes vs. Civil 3ervice Co%%ission, (6, 3CR. 98, 68, Cece%ber 8, (667. U3ec. ,(. 0o treaty or international agree%ent shall be valid and effective unless concurred in by at least t#o-thirds of all the Me%bers of the 3enate.W !eaderCs Digest, Cece%ber (66 issue, p. ,9.

82
F&C/G. ;IT:I0 T:/ <2RI3ClCTI70 &4 T:/ M20ICIP.BIT1 &4 <.G0. F&:&B. G.R. No. L-2426. ,&/&;@&r 28, 1979 PROC "R 7 GAM+L" P!ILIPPIN" MAN%#AC %RING CORPORA ION, plaintiff-appellant, vs. !" M%NICIPALI 8 O# JAGNA, PRO$INC" O# +O!OL, defendant-appellee. Pica2o, -gcaoili, Santa%ana, !e%es 6 Ta%ao for appellant. *oel P. Tiangco and *es"s 7. )orro(eo for appellee. Fe it ordained by the Municipal Council of <agna Fohol, that' 3/CTI&0 (. .ny person, fir% or corporation having a deposit of e*portable copra in the bodega, #ithin the )urisdiction of the Municipality of <agna Fohol, shall pay to the Municipal Treasury a storage fee of T/0 =P7.(7@ C/0T.N&3 4&R /N/R1 :20CR/C =(77@ +ilosE 3/CTI&0 ,. .ll e*portable copra deposited in the bodega #ithin the Municipality of <agna Fohol, is part of the surveillance and loo+out of the Municipal .uthoritiesE 3/CTI&0 ". .ny person, fir% or corporation found violating the provision of the preceding section of this &rdinance shall be punished by a fine of not less than T;& :20CR/C =P ,77.77@ P/3&3, nor %ore than 4&2R :20CR/C =P877.77@ P/3&3, or an i%prison%ent of hot less than &0/ M&0T:, nor %ore than T:R// M&0T:3, or both fines and i%prison%ent at the discretion of the court. 3/CTI&0 8. This &rdinance shall ta+e effect on <anuary (, (659. .PPR&N/C Cece%ber (",(65!. =3gd.@ T/&C&R& F. G.B.C.R Municipal Mayor 1 4or a period of si* years, fro% (659 to (6 ", plaintiff paid defendant Municipality, allegedly under protest, storage fees in the total su% of ((8,,, 5.(", bro+en do#n as follo#s' Procter K Ga%ble Trading Co. Procter K Ga%ble Philippine Manufacturing Corp.

M"L"NCIO-!"RR"RA, J.: . direct appeal by plaintiff co%pany fro% the )udg%ent of the Court of 4irst Instance of Manila, Franch NI, upholding the validity of &rdinance 0o. 8, 3eries of (65!, enacted by defendant Municipality, #hich i%posed Dstorage fees on all e*portable copra deposited in the bodega #ithin the )urisdiction of the Municipality of <agna Fohol. Plaintiff-appellant is a do%estic corporation #ith principal offices in Manila. lt is a consolidated corporation of Procter K Ga%ble Trading Co%pany and Philippine Manufacturing Co%pany, #hich later beca%e Procter K Ga%ble Trading Co%pany, Philippines. It is engaged in the %anufacture of soap, edible oil, %argarine and other si%ilar products, and for this purpose %aintains a DbodegaD in defendant Municipality #here it stores copra purchased in the %unicipality and therefro% ships the sa%e for its %anufacturing and other operations. &n Cece%ber (", (65!, the Municipal Council of <agna enacted Municipal &rdinance 0o. 8, 3eries of (65!, $uoted hereinbelo#' .0 &RCI0.0C/ IMP&3I0G 3T&R.G/ 4//3 &4 .BB /OP&RT.FB/ C&PR. C/P&3IT/C I0 T:/

83

(6

5 , 7 ! , . ( " ! , 7 ! . 7 7

SS SS SS SS SS S

8 9 . 7 7 (6 " S S S S S S P " " , 5 ! . ( " T & T . B C B . I M

6. 77

(6 56

SS SS SS SS SS S

P ", 8( 7. 77 P 9, 9 6. 77

(6 7

6 , 6 5 7 . 7 7 ! , 9 " 7 . 7 7 " ,

SS SS SS SS SS S

(6 (

SS SS SS SS SS S

P 8 ,, , 5. ( "
2

(6 ,

P 5, ,!

&n March ", (6 8, plaintiff filed this suit in the Court of 4irst Instance of Manila, Franch NI, #herein it prayed that (@ &rdinance 0o. 8 be declared inapplicable to it, or in the alter. native, that it be pronounced "ltra-vires and void for being beyond the po#er of the Municipality to enactE and ,@

84
that defendant Municipality be ordered to refund to it the a%ount of P8,,, 5.(" #hich it had paid under protestE and costs. 4or its part, defendant Municipality upheld its po#er to enact the &rdinance in $uestionE $uestioned the )urisdiction of the trial Court to ta+e cogni-ance of the action under section 88=h@ of the <udiciary .ct in that it see+s to en)oin the enforce%ent of a Municipal &rdinanceE and pleaded prescription and laches for plaintiffAs failure to ti%ely $uestion the validity of the said &rdinance. .fter the parties had agreed to sub%it the case for )udg%ent on the pleadings, the trial Court upheld its )urisdiction as #ell as defendant MunicipalityAs po#er to enact the &rdinance in $uestion under section ,,"9 of the Revised .d%inistrative Code, other#ise +no#n as the general #elfare clause, and declared that plaintiffAs right of action had prescribed under the 5-year period provided for by .rticle ((86 of the Civil Code. In this appeal, plaintiff interposes the follo#ing .ssign%ents of /rror' I T:/ TRI.B C&2RT /RR/C I0 :&BCI0G T:.T &RCI0.0C/ 0&. 8, 3/RI/3 &4 (65!, /0.CT/C F1 T:/ C/4/0C.0T M20ICIP.BIT1 &4 <.G0. F&:&B, I3 . N.BIC, B/G.B .0C /04&RC/.FB/ &RCI0.0C/ .G.I03T T:/ PB.I0TI44. II T:/ TRI.B C&2RT /RR/C I0 :&BCI0G T:.T P.1M/0T &4 T:/ T.O 20C/R &RCI0.0C/ 0&. 8, 3/RI/3 &4 (65! ;.3 0&T C&0/ 20C/R PR&T/3T. III T:/ TRI.B C&2RT /RR/C I0 :&BCI0G T:.T T:/ .CTI&0 &4 T:/ PB.I0TI44 T& .002B .0C T& C/CB.R/ &RCI0.0C/ 0&. 8, 3/RI/3 &4 (65! &4 T:/ C/4/0C.0T :.3 .BR/.C1 PR/3CRIF/C. IN .0C, 4I0.BB1, T:/ TRI.B C&2RT /RR/C I0 0&T :&BCI0G &RCI0.0C/ 0&. 8. 3/RI/3 &4 (65! 2BTR.-NIR/3 .0C N&IC .0C I0 0&T &RC/RI0G T:/ R/420C &4 T.O/3 P.IC T:/R/20C/R. 3 It is plaintiffAs sub%ission that the sub)ect &rdinance is inapplicable to it as it is not engaged in the business or trade of storing copra for others for co%pensation or profit and that the only copra it stores is for its e*clusive use in connection #ith its business as %anufacturer of soap, edible oil, %argarine and other si%ilar productsE that the levy is intended as an De*port ta*D as it is collected on De*portable copraA , and, therefore, beyond the po#er of the Municipality to enactE and that the fee of P7.(7 for every (77 +ilos of copra stored in the bodega is e*cessive, unreasonable and oppressive and is i%posed %ore for revenue than as a regulatory fee. The %ain $uestion to deter%ine is #hether defendant Municipality #as authori-ed to i%pose and collect the storage fee provided for in the challenged &rdinance under the la#s then prevailing. The validity of the &rdinance %ust be upheld pursuant to the broad authority conferred upon %unicipalities by Co%%on#ealth .ct 0o. 8!,, approved on <une ( , (6"6, #hich #as the prevailing la# #hen the &rdinance #as enacted =Procter K Ga%ble Trading Co. vs. Municipality of Medina, 8" 3CR. ("7 ((6!,?@. 3ection ( thereof reads' 3ection (. . %unicipal council or %unicipal district council shall have the authority to i%pose %unicipal license ta*es upon persons engaged in any occupation or business, or e*ercising privileges in the %unicipality or %unicipal district, by re$uiring the% to secure licenses at rates fi*ed by the %unicipal council, or %unicipal district council, and to collect fees and charges for services rendered by the %unicipality or %unicipal district and

85
shall other#ise have po#er to levy for public local purposes, and for school purposes, including teachersA salaries, )ust and unifor% ta*es other than percentage ta*es and ta*es on specified articles. 2nder the foregoing provision, a %unicipality is authori-ed to i%pose three +inds of licenses' =(@ a license for regulation of useful occupation or enterprisesE =,@ license for restriction or regulation of non-useful occupations or enterprisesE and ="@ license for revenue. 4 It is thus unnecessary, as plaintiff #ould have us do, to deter%ine #hether the sub)ect storage fee is a ta* for revenue purposes or a license fee to rei%burse defendant Municipality for service of supervision because defendant Municipality is authori-ed not only to i%pose a license fee but also to ta* for revenue purposes. The storage fee i%posed under the $uestion &rdinance is actually a %unicipal license ta* or fee on persons, fir%s and corporations, li+e plaintiff, e*ercising the privilege of storing copra in a bodega #ithin the MunicipalityAs territorial )urisdiction. 4or the ter% Dlicense ta*D has not ac$uired a fi*ed %eaning. It is often used indiseri%inately to designate i%positions e*acted for the e*ercise of various privileges. In %any instances, it refers to revenue-raising e*actions on privileges or activities. . 0ot only is the i%position of the storage fee authori-ed by the general grant of authority under section ( of C. 0o. 8!,. 0either is the storage fee in $uestion prohibited nor beyond the po#er of the %unicipal councils and %unicipal district councils to i%pose, as listed in section " of said C. 0o. 8!,. 6 Moreover, the business of buying and selling and storing copra is property the sub)ect of regulation #ithin the police po#er granted to %unicipalities under section ,,"9 of the Revised .d%inistrative Code or the Dgeneral #elfare clauseD, #hich #e $uote hereunder' 3ection ,,"9. General po$er of co"ncil to enact ordinances and (ake reg"lations. I The %unicipal council shall enact such ordinances and %a+e such regulations, not repugnant to la#, as %ay be necessary to carry into effect and discharge the po#ers and duties conferred upon it by la# and such as shall see% necessary and proper to provide for the health and safety, pro%ote the prosperity, i%prove the %orals, peace, good order, co%fort, and convenience of the %unicipality and the inhabitants thereof, and for the protection of property therein. 4or it has been held that a #arehouse used for +eeping or storing copra is an establish%ent li+ely to endanger the public safety or li+ely to give rise to conflagration because the oil content of the copra #hen ignited is difficult to put under control by #ater and the use of che%icals is necessary to put out the fire. 7 .nd as the &rdinance itself states, all e*portable copra deposited #ithin the %unicipality is Dpart of the surveillance and loo+out of %unicipal authorities. PlaintiffAs argu%ent that the i%position of P7.(7 per (77 +ilos of copra stored in a bodega #ithin defendantAs territory is beyond the cost of regulation and surveillance is not #ell ta+en. .s enunciated in the case of 'ictorias #illing Co. vs. #"nicipalit% of 'ictorias, s"pra. The cost of regulation cannot be ta+en as a gauge, if the %unicipality really intended to enact a revenue ordinance. 4or, Aif the charge e*ceeds the e*pense of issuance of a license and costs of regulation, it is a ta*A. .nd if it is, and it is validly i%posed, Athe rule that license fees for regulation %ust bear a reasonable relation to the e*pense of the regulation has no applicationA. Municipal corporations are allo#ed #ide discretion in deter%ining the rates of i%posable license fees even in cases of purely police po#er %easures. In the absence of proof as to %unicipal conditions and the nature of the business being ta*ed as #ell as other factors relevant to the issue of arbitrariness or unreasonableness of the $uestioned rates, Courts #ill go slo# in #riting off an &rdinance. 8 In the case at bar, appellant has not sufficiently sho#n that the rate i%posed by the $uestioned &rdinance is oppressive, e*cessive and prohibitive. PlaintiffAs aver%ent that the &rdinance, even if presu%ed valid, is inapplicable to it because it is not engaged in the business or occupation of

86
buying or selling of copra but is only storing copra in connection #ith its %ain business of %anufacturing soap and other si%ilar products, and that to be co%pelled to pay the storage fees #ould a%ount to double ta*ation, does not inspire assent. The $uestion of #hether appellant is engaged in that business or not is irrelevant because the storage fee, as previously %entioned, is an i%position on the privilege of storing copra in a bodega #ithin defendant %unicipality by persons, fir%s or corporations. 3ection ( of the &rdinance in $uestion does not state that said persons, fir%s or corporations should be engaged in the business or occupation of buying or selling copra. Moreover, by plaintiffAs o#n ad%ission that it is a consolidated corporation #ith its trading co%pany, it #ill be hard to segregate the copra it uses for trading fro% that it utili-es for %anufacturing. Thus, it can be said that plaintiffAs pay%ent of storage fees i%posed by the &rdinance in $uestion does not a%ount to double ta*ation. 4or double ta*ation to e*ist, the sa%e property %ust be ta*ed t#ice, #hen it should be ta*ed but once. Couble ta*ation has also been defined as ta*ing the sa%e person t#ice by the sa%e )urisdiction for the sa%e thing. 9 3urely, a ta* on plaintiffAs products is different fro% a ta* on the privilege of storing copra in a bodega situated #ithin the territorial boundary of defendant %unicipality. PlaintiffAs further contention that the storage fee i%posed by the &rdinance is actually intended to be an e*port ta*, #hich is e*pressly prohibited by section ,,9! of the Revised .d%inistrative Code, is #ithout %erit. 3aid provision reads as follo#s' 3ection ,,9! ... It shall not be in the po#er of the %unicipal council to i%pose a ta* in any for% #hatever upon goods and %erchandise carried into the %unicipality, or out of the sa%e, and any atte%pt to i%pose an i%port or e*port ta* upon such goods in the guise of an unreasonable charge for #harfage use of bridges or other#ise, shall be void. *** *** *** ;e have held that only #here there is a clear sho#ing that #hat is being ta*ed is an e*port to any foreign country #ould the prohibition co%e into play. 10 ;hen the &rdinance itself spea+s of De*portableD copra, the %eaning conveyed is not e*clusively e*port to a foreign country but ship%ent out of the %unicipality. The storage fee i%pugned is not a ta* on e*port because it is i%posed not only upon copra to be e*ported but also upon copra sold and to be used for do%estic purposes if stored in any #arehouse in the Municipality and the #eight thereof is (77 +ilos or %ore.
11

Thus finding the &rdinance in $uestion to be valid, legal and enforceable, #e find it unnecessary to discuss the ascribed error that the Court a 4"o erred in declaring that appellant had not paid the ta*es under protest. :o#ever, #e find %erit in plaintiffAs contention that the lo#er Court erred in ruling that its action has prescribed under .rticle ((86 of the Civil Code, #hich provides for a period of five years for all actions #hose periods are not fi*ed in that Code. The case of #"nicipalit% of Opon vs. Calte& Phil., 12 is authority for the vie# that the period for prescription of actions to recover %unicipal license ta*es is si* years under .rticle ((85=,@ of the Civil Code. Thus, plaintiffAs action brought #ithin si* years fro% the ti%e the right of action first accrued in (659 has not yet prescribed. ;:/R/4&R/, affir%ing the )udg%ent appealed, fro%, #e sustain the validity of &rdinance 0o. 8, 3eries of (65!, of defendant Municipality of <agna Fohol, under the la#s then prevailing. Costs against plaintiff-appellant. 3& &RC/R/C. Teehankee =Chair(an?, #akasiar, ,ernande2, G"errero and De Castro, **., conc"r.

E#oo(no(&*

87
( Pp. !-9, .nne* D.D, Record on .ppeal. , P. 8, Record on .ppeal. " Pp. "-8, Frief for Plaintiff-.ppellant. 8 Nictorias Milling Co., Inc. vs. The Municipality of Nictorias, Province of 0egros &ccidental, ,5 3CR. (6, =(6 9@, citing Cu 2n)ieng vs. Patstone, 8, Phil. 9(9 =(6,,@. 5 Nictorias Milling Co., Inc. vs. Municipality of Nictorias, 0egros &ccidental, s"pra. 2y Matiao K Co., Inc. vs. The City of Cebu, et al., 6" Phil. "77 =(65"@. ! 2y Matiao K Co., Inc. vs. The City of Cebu, et al., s"pra. 9 0orthern Phil. Tobacco Co. vs. Municipality of .goo, "( 3CR. "78, =(6!7@E Nictorias Milling Co. vs. Municipality of Nictorias, supraE 3an Miguel Fre#ery Inc. vs. City of Cebu. 8" 3CR. ,!5. =(6!,@. 6 Nictorias Milling Co. vs. Municipality of Nictorias, s"pra . (7 Procter K Ga%ble Trading Co. vs. Municipality of Medina, s"pra. (( 2y Matiao K Co., Inc. vs. The City of Cebu, et al., s"pra. (, 3CR. !55 =(6 9@, citing Puyat vs. The City of Manila, ! 3CR. 6!7 =(6 "@.

88
Revenue as real estate dealerAs ta*, it appears that the su% of P( "."( thereof corresponds to her inco%e ta* for the year (686 =/*hibit 8@, so that the a%ount of ta* actually involved herein is only P 9!, paid by appellant as real estate dealerAs ta* for the year (68 to (657. ;e notice also that the lo#er Court, in deciding this case, applied the definition of Dreal estate dealerD in section (68 =s@ of the 0ational Internal Revenue Code, as a%ended by Republic .cts 0os. 8, and 599. Republic .ct 0o. 599 too+ effect only on 3epte%ber ,,, (657, #hile the ta* in $uestion #as paid by appellant for the year (68 to (657. :ence, the la# applicable to this case is section (68 =s@ of the Ta* Code before it #as a%ended by Republic .ct 0o. 599, #hich defines real estate dealers as follo#s' DReal estate dealersD includes all persons #ho for their o#n account are engaged in the sale of lands, buildings or interests therein or in leasing real estate. =R. .. 0o. 8,@ Coes appellant fall #ithin the above definitionM ;e are of the opinion that she does. The +ind of nature of the building constructed by herI#hich is a four-door DaccessoriaDIsho#s that it #as fro% the beginning intended for lease as a source of inco%e or profit to the o#nerE and #hile appellant resides in one of the apart%ents, it appears that she al#ays rented the other apart%ents to other persons fro% the ti%e the building #as constructed up to the ti%e of the filing of this case. The case of .rgellies vs. MeerF G. R. 0o. B-"!"7, pro%ulgated on .pril ,5, (65,, cited by appellant in support of her appeal, is not in point. In that case, .rgellies had al#ays resid d outside the Philippines, and his properties in Manila #ere ad%inistered and %anaged by a local real estate co%pany. ;e held that .rgellies could not be considered as engaged in business of letting real estate, because he did not appear to have reinvested the rents received by hi% fro% this country, nor to have ta+en part in the %anage%ent of his local holdings. In the case at bar, ho#ever, it #as appellant #ho had the apart%ent in $uestion constructed, purposely for lease or profit, and she %anages the property herself. ;hile she runs a s%all store in Pasay %ar+et, it is unli+ely and the evidence does not sho#, that she devotes all her personal ti%e and labor to such store, considering its si-e and the fact that she derives little inco%e therefro%. &n the other hand, the #or+ of attending to her leased property and her tenants #ould not ta+e %uch of her ti%e and attention, especially since she lives in the pre%ises

G.R. 0o. B-!5,(

&ctober (9, (655

N/R&0IC. 3.0C:/5, plaintiff-appellant, vs. !" COLL"C OR O# IN "RNAL R"$"N%", defendant-appellee. )en0a(in C. Gatco for appellant. Office of the Solicitor General -(+rocio Padilla and Solicitors Es(eraldo D(ali and !o(an Cansino, *r. for appellee. R"8"S, J.+.L., J.> .ppellant Neronica 3anche- is the o#ner of a t#o-story, four-door DaccessoriaD building at (9( Bibertad 3treet, Pasay City, #hich she constructed in (68!. The building has an assessed value of P,(,587 and the land is assessed at P!,697, or a total value of P,6,587 =/*hibit ,@. ;hile appellant lives in one of the apart%ents, she is renting the rest to other persons. In (686, she derived an inco%e therefro% of P!,587 =/*hibit (@. .ppellant also runs a s%all dry goods store in the Pasay %ar+et, fro% #hich she derives an annual inco%e of about P(,"77 =also /*hibit (@. In the early part of (65(, the Collector of Internal Revenue %ade de%and upon appellant for the pay%ent of P( ".5( as inco%e ta* for the year (657, and P "! as real estate dealerAs ta* for the year (68 to (657, plus the su% of P57 as co%pro%ise =/*hibit 8@. .ppellant paid the ta*es de%anded under protest, and on &ctober ( , (65( filed action in the Court of 4irst Instance of Manila =C. C. 0o. (865!@ against the Collector of Internal Revenue for the refund of the ta*es paid, clai%ing that she is not a real estate dealer. The lo#er Court, after trial, found appellant to be such a dealer, as defined by section (68 =s@ of the 0ational Internal Revenue Code, as a%ended by Republic .ct 0os. 8, and 599, and declared the collection of the ta*es in $uestion legal and in accordance #ith said provision. ;herefore, Neronica 3anche- appealed to this Court. .t the outset, it should be noted that #hile appellant clai%s the refund of the a%ount of P9,5 allegedly paid by her to the Collector of Internal

89
herself. .nd the leasing of her apart%ent appears to be her principal %eans of livelihood, for the inco%e she derives therefro% a%ounts to %ore than five ti%es that #hich she %a+es fro% her store. Considering, therefore, that appellant constructed her four-door DaccesoriaD purposely for rent or profitE that she has been continuously leasing the sa%e to third persons since its construction in (68!E that she %anages her property herselfE and that said leased holding appears to be her %ain source of livelihood, #e conclude that appellant is engaged in the leasing of real estate, and is a real estate dealer as defined by section (68 =s@ of the Internal Revenue Code, as a%ended by Republic .ct 0o. 8,. .ppellant argues that she is already paying real estate ta*es on her property, as #ell as inco%e ta* on the inco%e derive therefro%, so that to further sub)ect its rentals to the Dreal estate dealersA ta*D a%ounts to double ta*ation. This argu%ent has already been re)ected by this Court in the case of People vs. #endaros, et al., B- 6!5, pro%ulgated May ,!, (655, #herein #e held that Dit is a #ell settled rule that license ta* %ay be levied upon a business or occupation although the land or property used there in is sub)ect to property ta*D, and that Dthe state %ay collect an ad valore( ta* on property used in a calling, and at the sa%e ti%e i%pose a license ta* on the pursuit of that callingD, the i%position of the latter +ind of ta* being in no sense a double ta*. The evidence sho#s, ho#ever, that the apart%ent house in $uestion #as constructed only in (68!, #hile the real estate dealerAs ta* de%anded of and paid by appellant #as for the year (68 to (657 =see /*hibit 8@. ;herefore, appellant is entitled to a refund of the ta* paid for the year (68 , a%ounting to P"!.57. ;ith the %odification that the appellee Collector of Internal Revenue is ordered to refund to appellant Neronica 3anche- the a%ount of P"!.57 paid as real estate dealerAs ta* for the year (68 , the decision appealed fro% is, in all other respects, affir%ed. Costs against appellants. 3o ordered. )eng2on, -cting C. *., Padilla, #onte(a%or, !e%es, -., *"go, )a"tista -ngelo, and Concepcion, **., concur. #oo(no(&*
L

6( Phil., (8!.

90
brought the present suit for the purpose already stated. The lo#er court upheld the validity of the provision of la# authori-ing the enact%ent of the ordinance but declared the ordinance itself illegal and void on the ground that the penalty there in provided for non-pay%ent of the ta* #as not legally authori-ed. 4ro% this decision both parties appealed to this Court, and the only $uestion they have presented for our deter%ination is #hether this ruling is correct or not, for though the decision is silent on the refund of ta*es paid plaintiffs %a+e no assign%ent of error on this point. To begin #ith defendantsA appeal, #e find that the lo#er court #as in error in saying that the i%position of the penalty provided for in the ordinance #as #ithout the authority of la#. The last paragraph =kk@ of the very section that authori-es the enact%ent of this ta* ordinance =section (9 of the Manila Charter@ in e*press ter%s also e%po#ers the Municipal Foard /to fi& penalties for the violation of ordinances $hich shall not e&ceed to=sic? t$o h"ndred pesos fine or si& (onths/ i(prison(ent, or +oth s"ch fine and i(prison(ent, for a single offense./ :ence, the pronounce%ent belo# that the ordinance in $uestion is illegal and void because it i%poses a penalty not authori-ed by la# is clearly #ithout basis. .s to plaintiffsA appeal, the contention in substance is that this ordinance and the la# authori-ing it constitute class legislation, are un)ust and oppressive, and authori-e #hat a%ounts to double ta*ation. In raising the hue and cry of Dclass legislationD, the burden of plaintiffsA co%plaint is not that the professions to #hich they respectively belong have been singled out for the i%position of this %unicipal occupation ta*E and in any event, the Begislature %ay, in its discretion, select #hat occupations shall be ta*ed, and in the e*ercise of that discretion it %ay ta* all, or it %ay select for ta*ation certain classes and leave the others unta*ed. =Cooley on Ta*ation, Nol. 8, 8th ed., pp. ""6"-""65.@ PlaintiffsA co%plaint is that #hile the la# has authori-ed the City of Manila to i%pose the said ta*, it has #ithheld that authority fro% other chartered cities, not to %ention %unicipalities. ;e do not thin+ it is for the courts to )udge #hat particular cities or %unicipalities should be e%po#ered to i%pose occupation ta*es in addition to those i%posed by the 0ational Govern%ent. That %atter is peculiarly #ithin the do%ain of the political depart%ents and the courts #ould do #ell not to encroach upon it. Moreover, as the seat of the 0ational Govern%ent and #ith a population and volu%e of trade %any ti%es that of

G.R. No. L-4817

May 26, 19.4

SIL$"S "R M. P%NSALAN, " AL., plaintiffs-appellants, vs. !" M%NICIPAL +OAR, O# !" CI 8 O# MANILA, " AL., defendants-appellants. Calanog and -lafri2 for plaintiffs-appellants. Cit% ,iscal E"genio -ngeles and -ssistant ,iscal E"logio S. Serreno for defendants-appellants. R"8"S, J.> This suit #as co%%enced in the Court of 4irst Instance of Manila by t#o la#yers, a %edical practitioner, a public accountant, a dental surgeon and a phar%acist, purportedly Din their o#n behalf and in behalf of other professionals practising in the City of Manila #ho %ay desire to )oin it.D &b)ect of the suit is the annul%ent of &rdinance 0o. ""69 of the City of Manila together #ith the provision of the Manila charter authori-ing it and the refund of ta*es collected under the ordinance but paid under protest. The ordinance in $uestion, #hich #as approved by the %unicipal board of the City of Manila on <uly ,5, (657, i%poses a %unicipal occupation ta* on persons e*ercising various professions in the city and penali-es nonpay%ent of the ta* Dby a fine of not %ore than t#o hundred pesos or by i%prison%ent of not %ore than si* %onths, or by both such fine and i%prison%ent in the discretion of the court.D .%ong the professions ta*ed #ere those to #hich plaintiffs belong. The ordinance #as enacted pursuant to paragraph =(@ of section (9 of the Revised Charter of the City of Manila =as a%ended by Republic .ct 0o. 876@, #hich e%po#ers the Municipal Foard of said city to i%pose a %unicipal occupation ta*, not to e*ceed P57 per ann"(, on persons engaged in the various professions above referred to. :aving already paid their occupation ta* under section ,7( of the 0ational Internal Revenue Code, plaintiffs, upon being re$uired to pay the additional ta* prescribed in the ordinance, paid the sa%e under protest and then

91
any other Philippine city or %unicipality, Manila, no doubt, offers a %ore lucrative field for the practice of the professions, so that it is but fair that the professionals in Manila be %ade to pay a higher occupation ta* than their brethren in the provinces. Plaintiffs brand the ordinance un)ust and oppressive because they say that it creates discri%ination #ithin a class in that #hile professionals #ith offices in Manila have to pay the ta*, outsiders #ho have no offices in the city but practice their profession therein are not sub)ect to the ta*. Plaintiffs %a+e a distinction that is not found in the ordinance. The ordinance i%poses the ta* upon every person De*ercisingD or DpursuingD I in the City of Manila naturally I any one of the occupations na%ed, but does not say that such person %ust have his office in Manila. ;hat constitutes e*ercise or pursuit of a profession in the city is a %atter of )udicial deter%ination. The argu%ent against double ta*ation %ay not be invo+ed #here one ta* is i%posed by the state and the other is i%posed by the city =( Cooley on Ta*ation, 8th ed., p. 86,@, it being #idely recogni-ed that there is nothing inherently obno*ious in the re$uire%ent that license fees or ta*es be e*acted #ith respect to the sa%e occupation, calling or activity by both the state and the political subdivisions thereof. =5( .%. <ur., "8(.@ In vie# of the foregoing, the )udg%ent appealed fro% is reversed in so far as it declares &rdinance 0o. ""69 of the City of Manila illegal and void and affir%ed in so far as it holds the validity of the provision of the Manila charter authori-ing it. ;ith costs against plaintiffs-appellants. Pablo, Feng-on, Monte%ayor, <ugo, Fautista .ngelo, Babrador, and Concepcion, <<., concur. la#yers, a physician, an accountant, a dentist and a phar%acist I had already paid the occupation ta* under section ,7( of the 0ational Internal Revenue Code and are thereby duly licensed to practice their respective professions throughout the PhilippinesE and yet they had been re$uired to pay another occupation ta* under &rdinance 0o. ""69 for practising in the City of Manila. This is a glaring e*a%ple of contradiction I the license granted by the 0ational Govern%ent is in effect #ithdra#n by the City in case of non-pay%ent of the ta* under the ordinance. I fit be argued that the national occupation ta* is collected to allo# the professional residing in Manila to pursue his calling in other places in the Philippines, it should then be e*acted only fro% professionals practising si%ultaneously in and outside of Manila. .t any rate, #e are confronted #ith the follo#ing situation' ;hereas the professionals else#here pay only one occupation ta*, in the City of Manila they have to pay t#o, although all are on e$ual footing insofar as opportunities for earning %oney out of their pursuits are concerned. The state%ent that practice in Manila is %ore lucrative than in the provinces, %ay be true perhaps #ith reference only to a li%ited fe#, but certainly not to the general %ass of practitioners in any field. .gain, provincial residents #ho have occasional or isolated practice in Manila %ay have to pay the city ta*. This obvious discri%ination or lac+ of unifor%ity cannot be brushed aside or )ustified by any trite pronounce%ent that double ta*ation is legiti%ate or that legislation %ay validly affect certain classes. My position is that a professional #ho has paid the occupation ta* under the 0ational Internal Revenue Code should be allo#ed to practice in Manila even #ithout paying the si%ilar ta* i%posed by &rdinance 0o. ""69. The City cannot give #hat said professional already has. I #ould not say that this &rdinance, enacted by the Municipal Foard pursuant to paragraph ( of section (9 of the Revised Charter of Manila, as a%ended by Republic .ct 0o. 876, e%po#ering the Foard to i%pose a %unicipal occupation ta* not to e*ceed P57 per annu%, is invalidE but that only one ta*, either under the Internal Revenue Code or under &rdinance 0o. ""69, should be i%posed upon a practitioner in Manila.

S&'ara(& O')n)on* PARAS, C.J., dissenting' I a% constrained to dissent fro% the decision of the %a)ority upon the ground that the Municipal Foard of Manila cannot outla# #hat Congress of the Philippines has already authori-ed. The plaintiffs-appellants I t#o

92
&n &ctober ,6, (66", >respondent? filed #ith the International Ta* .ffairs Civision =IT.C@ of the FIR a clai% for refund of overpaid #ithholding ta* on royalties arguing that, Vthe antecedent facts attending >respondentTs? case fall s$uarely #ithin the sa%e circu%stances under #hich said MacGeorge and Gillete rulings #ere issued. 3ince the agree%ent #as approved by the Technology Transfer Foard, the preferential ta* rate of (7J should apply to the >respondent?. ;e therefore sub%it that royalties paid by the >respondent? to 3C <ohnson and 3on, 23. is only sub)ect to (7J #ithholding ta* pursuant to the %ost-favored nation clause of the RP-23 Ta* Treaty >.rticle (" Paragraph , =b@ =iii@? in relation to the RP-;est Ger%any Ta* Treaty >.rticle (, =,@ =b@?T =Petition for Revie# >filed #ith the Court of .ppeals?, par. (,@. >RespondentTs? clai% for the refund of P6 ",, .77 #as co%puted as follo#s' Gross MonthP The antecedent facts as found by the Court of Ta* .ppeals are not disputed, to #it' U>Respondent?, a do%estic corporation organi-ed and operating under the Philippine la#s, entered into a license agree%ent #ith 3C <ohnson and 3on, 2nited 3tates of .%erica =23.@, a non-resident foreign corporation based in the 2.3... pursuant to #hich the >respondent? #as granted the right to use the trade%ar+, patents and technology o#ned by the latter including the right to %anufacture, pac+age and distribute the products covered by the .gree%ent and secure assistance in %anage%ent, %ar+eting and production fro% 3C <ohnson and 3on, 2. 3. .. The said Bicense .gree%ent #as duly registered #ith the Technology Transfer Foard of the Fureau of Patents, Trade Mar+s and Technology Transfer under Certificate of Registration 0o. 97 8 =/*h. U.W@. 4or the use of the trade%ar+ or technology, >respondent? #as obliged to pay 3C <ohnson and 3on, 23. royalties based on a percentage of net sales and sub)ected the sa%e to ,5J #ithholding ta* on royalty pay%ents #hich >respondent? paid for the period covering <uly (66, to May (66" in the total a%ount of P(, 7",88".77 =/*hs. UFW to UBW and sub%ar+ings@. 1ear SSSSSS <uly (66, .ugust 3epte%ber &ctober 0ove%ber Cece%ber <an (66" 4ebruary Royalty 4ee SSSSSSS 556,9!9 5 !,6"5 565,65 "8,875 ,7,995 "9",,! 7,,85( 5 5,985 ;ithholding Ta* Paid SSSSSSSSSS ("6,6!7 (8(,698 (89,696 (59, 7( (55,,,( 65,9(6 (!7, "7 (8(,8 ( ,5J ;ithholding Ta* SSSSSSSSSS 55,699 5 ,!68 56,56 ",88( ,,796 " ,",9 9,,85 5 ,595 SSSSSS 9",69, 95,(67 96,"6" 65,( ( 6",("" 5!,86( (7,," 9 98,9!! Falance (7J

>G.R. 0o. (,!(75. <une ,5, (666? C&MMI33I&0/R &4 I0T/R0.B R/N/02/, petitioner, vs. 3.C. <&:03&0 .0C 3&0, I0C., and C&2RT &4 .PP/.B3, respondents. C/CI3I&0 G&05.G.-R/1/3, *.' This is a petition for revie# on certiorari under Rule 85 of the Rules of Court see+ing to set aside the decision of the Court of .ppeals dated 0ove%ber !, (66 in C.-GR 3P 0o. 8797, affir%ing the decision of the Court of Ta* .ppeals in CT. Case 0o. 5(" .

93
March .pril May 58!,,5" 7,9(7 7",7! P ,8,(,!!7 [[[[[[[[ (" ,9(" ( 5,,7" (57,! 6 P(, 75,88" 58,!,5 ,79( 7,"79 P 8,,(!! 9,,799 66,(,, 67,8 ( P6 ",, W resident of the 2nited 3tates fro% sources #ithin the Philippines only if the circu%stances of the resident of the 2nited 3tates are si%ilar to those of the resident of ;est Ger%any. 3ince the RP-23 Ta* Treaty contains no U%atching creditW provision as that provided under .rticle ,8 of the RP;est Ger%any Ta* Treaty, the ta* on royalties under the RP-23 Ta* Treaty is not paid under si%ilar circu%stances as those obtaining in the RP-;est Ger%any Ta* Treaty. /ven assu%ing that the phrase Upaid under si%ilar circu%stancesW refers to the pay%ent of royalties, and not ta*es, as held by the Court of .ppeals, still, the U%ost favored nationW clause cannot be invo+ed for the reason that #hen a ta* treaty conte%plates circu%stances attendant to the pay%ent of a ta*, or royalty re%ittances for that %atter, these %ust necessarily refer to circu%stances that are ta*-related. 4inally, petitioner argues that since 3.C. <ohnsonTs invocation of the U%ost favored nationW clause is in the nature of a clai% for e*e%ption fro% the application of the regular ta* rate of ,5J for royalties, the provisions of the treaty %ust be construed strictly against it. In its Co%%ent, private respondent 3.C. <ohnson avers that the instant petition should be denied =(@ because it contains a defective certification against foru% shopping as re$uired under 3C Circular 0o. ,9-6(, that is, the certification #as not e*ecuted by the petitioner herself but by her counselE and =,@ that the U%ost favored nationW clause under the RP-23 Ta* Treaty refers to royalties paid under si%ilar circu%stances as those royalties sub)ect to ta* in other treatiesE that the phrase Upaid under si%ilar circu%stancesW does not refer to pay%ent of the ta* but to the sub)ect %atter of the ta*, that is, royalties, because the U%ost favored nationW clause is intended to allo# the ta*payer in one state to avail of %ore liberal provisions contained in another ta* treaty #herein the country of residence of such ta*payer is also a party thereto, sub)ect to the basic condition that the sub)ect %atter of ta*ation in that other ta* treaty is the sa%e as that in the original ta* treaty under #hich the ta*payer is liableE thus, the RP-23 Ta* Treaty spea+s of Uroyalties of the sa%e +ind paid under si%ilar circu%stancesW. 3.C. <ohnson also contends that the Co%%issioner is estopped fro% insisting on her interpretation that the phrase Upaid under si%ilar circu%stancesW refers to the %anner in #hich the ta* is paid, for the reason that said interpretation is e%bodied in Revenue Me%orandu% Circular =URMCW@ "6-6, #hich #as already abandoned by the Co%%issionerTs predecessor in (66"E and #as e*pressly revo+ed in FIR Ruling 0o. 75,-65 #hich stated that royalties paid to an .%erican licensor are sub)ect only to (7J #ithholding ta* pursuant to .rt ("=,@=b@=iii@ of the

[[[[[[[[

[[[[[[[

[[[[[[[

The Co%%issioner did not act on said clai% for refund. Private respondent 3.C. <ohnson K 3on, Inc. =3.C. <ohnson@ then filed a petition for revie# before the Court of Ta* .ppeals =CT.@ #here the case #as doc+eted as CT. Case 0o. 5(" , to clai% a refund of the overpaid #ithholding ta* on royalty pay%ents fro% <uly (66, to May (66". &n May !, (66 , the Court of Ta* .ppeals rendered its decision in favor of 3.C. <ohnson and ordered the Co%%issioner of Internal Revenue to issue a ta* credit certificate in the a%ount of P6 ",, .77 representing overpaid #ithholding ta* on royalty pay%ents beginning <uly, (66, to May, (66". The Co%%issioner of Internal Revenue thus filed a petition for revie# #ith the Court of .ppeals #hich rendered the decision sub)ect of this appeal on 0ove%ber !, (66 finding no %erit in the petition and affir%ing in toto the CT. ruling. This petition for revie# #as filed by the Co%%issioner of Internal Revenue raising the follo#ing issue' T:/ C&2RT &4 .PP/.B3 /RR/C I0 R2BI0G T:.T 3C <&:03&0 .0C 3&0, 23. I3 /0TITB/C T& T:/ UM&3T 4.N&R/C 0.TI&0W T.O R.T/ &4 (7J &0 R&1.BTI/3 .3 PR&NIC/C I0 T:/ RP-23 T.O TR/.T1 I0 R/B.TI&0 T& T:/ RP-;/3T G/RM.01 T.O TR/.T1. Petitioner contends that under .rticle ("=,@ =b@ =iii@ of the RP-23 Ta* Treaty, #hich is +no#n as the U%ost favored nationW clause, the lo#est rate of the Philippine ta* at (7J %ay be i%posed on royalties derived by a

94
RP-23 Ta* Treaty in relation to the RP-;est Ger%any Ta* Treaty. 3aid ruling should be given retroactive effect e*cept if such is pre)udicial to the ta*payer pursuant to 3ection ,8 of the 0ational Internal Revenue Code. Petitioner filed Reply alleging that the fact that the certification against foru% shopping #as signed by petitionerTs counsel is not a fatal defect as to #arrant the dis%issal of this petition since Circular 0o. ,9-6( applies only to original actions and not to appeals, as in the instant case. Moreover, the re$uire%ent that the certification should be signed by petitioner and not by counsel does not apply to petitioner #ho has only the &ffice of the 3olicitor General as statutory counsel. Petitioner reiterates that even if the phrase Upaid under si%ilar circu%stancesW e%bodied in the %ost favored nation clause of the RP-23 Ta* Treaty refers to the pay%ent of royalties and not ta*es, still the presence or absence of a U%atching creditW provision in the said RP-23 Ta* Treaty #ould constitute a %aterial circu%stance to such pay%ent and #ould be deter%inative of the said clauseTs application. ;e address first the ob)ection raised by private respondent that the certification against foru% shopping #as not e*ecuted by the petitioner herself but by her counsel, the &ffice of the 3olicitor General =&.3.G.@ through one of its 3olicitors, .tty. To%as M. 0avarro. 3C Circular 0o. ,9-6( provides' U32F</CT' .CCITI&0.B R/Q2I3IT/3 4&R P/TITI&03 4IB/C ;IT: T:/ 32PR/M/ C&2RT .0C T:/ C&2RT &4 .PP/.B3 T& PR/N/0T 4&R2M 3:&PPI0G &R M2BTIPB/ 4IBI0G &4 P/TITI&03 .0C C&MPB.I0T3 T& ' *** *** *** provisions of the Rules of Court and e*isting circulars, %ust certify under oath to all of the follo#ing facts or underta+ings' =a@ he has not theretofore co%%enced any other action or proceeding involving the sa%e issues in the 3upre%e Court, the Court of .ppeals, or any tribunal or agencyE *** =,@ .ny violation of this revised Circular #ill entail the follo#ing sanctions' =a@ it shall be a cause for the su%%ary dis%issal of the %ultiple petitions or co%plaintsE ***W The circular e*pressly re$uires that a certificate of non-foru% shopping should be attached to petitions filed before this Court and the Court of .ppeals. PetitionerTs allegation that Circular 0o. ,9-6( applies only to original actions and not to appeals as in the instant case is not supported by the te*t nor by the obvious intent of the Circular #hich is to prevent %ultiple petitions that #ill result in the sa%e issue being resolved by different courts. .nent the re$uire%ent that the party, not counsel, %ust certify under oath that he has not co%%enced any other action involving the sa%e issues in this Court or the Court of .ppeals or any other tribunal or agency, #e are inclined to accept petitionerTs sub%ission that since the &3G is the only la#yer for the petitioner, #hich is a govern%ent agency %andated under 3ection "5, Chapter (,, title III, Foo+ IN of the (69! .d%inistrative Code to be represented only by the 3olicitor General, the certification e*ecuted by the &3G in this case constitutes substantial co%pliance #ith Circular 0o. ,9-6(. ;ith respect to the %erits of this petition, the %ain point of contention in this appeal is the interpretation of .rticle (" =,@ =b@ =iii@ of the RP-23 Ta* Treaty regarding the rate of ta* to be i%posed by the Philippines upon royalties received by a non-resident foreign corporation. The provision states insofar as pertinent that(@ Royalties derived by a resident of one of the Contracting 3tates fro% sources #ithin the other Contracting 3tate %ay be ta*ed by both Contracting 3tates. ,@ :o#ever, the ta* i%posed by that Contracting 3tate shall not e*ceed.

The attention of the Court has been called to the filing of %ultiple petitions and co%plaints involving the sa%e issues in the 3upre%e Court, the Court of .ppeals or other tribunals or agencies, #ith the result that said courts, tribunals or agencies have to resolve the sa%e issues. =(@ To avoid the foregoing, in every petition filed #ith the 3upre%e Court or the Court of .ppeals, the petitioner aside fro% co%plying #ith pertinent

95
a@ In the case of the 2nited 3tates, (5 percent of the gross a%ount of the royalties, and b@ In the case of the Philippines, the least of' =i@ ,5 percent of the gross a%ount of the royaltiesE =ii@ (5 percent of the gross a%ount of the royalties, #here the royalties are paid by a corporation registered #ith the Philippine Foard of Invest%ents and engaged in preferred areas of activitiesE and =iii@ the lo$est rate of Philippine ta& that (a% +e i(posed on ro%alties of the sa(e kind paid "nder si(ilar circ"(stances to a resident of a third State. *** *** =italics supplied@ Respondent 3. C. <ohnson and 3on, Inc. clai%s that on the basis of the $uoted provision, it is entitled to the concessional ta* rate of (7 percent on royalties based on .rticle (, =,@ =b@ of the RP-Ger%any Ta* Treaty #hich provides' =,@ :o#ever, such royalties %ay also be ta*ed in the Contracting 3tate in #hich they arise, and according to the la# of that 3tate, but the ta* so charged shall not e*ceed' *** b@ (7 percent of the gross a%ount of royalties arising fro% the use of, or the right to use, any patent, trade%ar+, design or %odel, plan, secret for%ula or process, or fro% the use of or the right to use, industrial, co%%ercial, or scientific e$uip%ent, or for infor%ation concerning industrial, co%%ercial or scientific e*perience. 4or as long as the transfer of technology, under Philippine la#, is sub)ect to approval, the li%itation of the ta* rate %entioned under b@ shall, in the case *** 2nli+e the RP-23 Ta* Treaty, the RP-Ger%any Ta* Treaty allo#s a ta* credit of ,7 percent of the gross a%ount of such royalties against Ger%an inco%e and corporation ta* for the ta*es payable in the Philippines on such royalties #here the ta* rate is reduced to (7 or (5 percent under such treaty. .rticle ,8 of the RP-Ger%any Ta* Treaty states(@ Ta* shall be deter%ined in the case of a resident of the 4ederal Republic of Ger%any as follo#s' *** *** *** of royalties arising in the Republic of the Philippines, only apply if the contract giving rise to such royalties has been approved by the Philippine co%petent authorities.

b@ 3ub)ect to the provisions of Ger%an ta* la# regarding credit for foreign ta*, there shall be allo#ed as a credit against Ger%an inco%e and corporation ta* payable in respect of the follo#ing ite%s of inco%e arising in the Republic of the Philippines, the ta* paid under the la#s of the Philippines in accordance #ith this .gree%ent on' *** *** ***

dd@ royalties, as defined in paragraph " of .rticle (,E *** *** ***

c@ 4or the purpose of the credit referred in subparagraph b@ the Philippine ta* shall be dee%ed to be *** *** ***

cc@ in the case of royalties for #hich the ta* is reduced to (7 or (5 per cent according to paragraph , of .rticle (,, ,7 percent of the gross a%ount of such royalties. *** *** ***

96
.ccording to petitioner, the ta*es upon royalties under the RP-23 Ta* Treaty are not paid under circu%stances si%ilar to those in the RP-;est Ger%any Ta* Treaty since there is no provision for a ,7 percent %atching credit in the for%er convention and private respondent cannot invo+e the concessional ta* rate on the strength of the %ost favored nation clause in the RP-23 Ta* Treaty. PetitionerTs position is e*plained thus' U2nder the foregoing provision of the RP-;est Ger%any Ta* Treaty, the Philippine ta* paid on inco%e fro% sources #ithin the Philippines is allo#ed as a credit against Ger%an inco%e and corporation ta* on the sa%e inco%e. In the case of royalties for #hich the ta* is reduced to (7 or (5 percent according to paragraph , of .rticle (, of the RP-;est Ger%any Ta* Treaty, the credit shall be ,7J of the gross a%ount of such royalty. To illustrate, the royalty inco%e of a Ger%an resident fro% sources #ithin the Philippines arising fro% the use of, or the right to use, any patent, trade %ar+, design or %odel, plan, secret for%ula or process, is ta*ed at (7J of the gross a%ount of said royalty under certain conditions. The rate of (7J is i%posed if credit against the Ger%an inco%e and corporation ta* on said royalty is allo#ed in favor of the Ger%an resident. That %eans the rate of (7J is granted to the Ger%an ta*payer if he is si%ilarly granted a credit against the inco%e and corporation ta* of ;est Ger%any. The clear intent of the V%atching creditT is to soften the i%pact of double ta*ation by different )urisdictions. The RP-23 Ta* Treaty contains no si%ilar V%atching creditT as that provided under the RP-;est Ger%any Ta* Treaty. :ence, the ta* on royalties under the RP-23 Ta* Treaty is not paid under si%ilar circu%stances as those obtaining in the RP-;est Ger%any Ta* Treaty. Therefore, the V%ost favored nationT clause in the RP-;est Ger%any Ta* Treaty cannot be availed of in interpreting the provisions of the RP-23 Ta* Treaty.W The petition is %eritorious. ;e are unable to sustain the position of the Court of Ta* .ppeals, #hich #as upheld by the Court of .ppeals, that the phrase Upaid under si%ilar circu%stances in .rticle (" =,@ =b@, =iii@ of the RP-23 Ta* Treaty should be interpreted to refer to pay%ent of royalty, and not to the pay%ent of the ta*, for the reason that the phrase Upaid under si%ilar circu%stancesW is follo#ed by the phrase Uto a resident of a third stateW. The respondent court held that U;ords are to be understood in the conte*t in #hich they are usedW, and since #hat is paid to a resident of a third state is not a ta* but a royalty Ulogic instructsW that the treaty provision in $uestion should refer to royalties of the sa%e +ind paid under si%ilar circu%stances. The above construction is based principally on synta* or sentence structure but fails to ta+e into account the purpose ani%ating the treaty provisions in point. To begin #ith, #e are not a#are of any la# or rule pertinent to the pay%ent of royalties, and none has been brought to our attention, #hich provides for the pay%ent of royalties under dissi%ilar circu%stances. The ta* rates on royalties and the circu%stances of pay%ent thereof are the sa%e for all the recipients of such royalties and there is no disparity based on nationality in the circu%stances of such pay%ent. &n the other hand, a cursory reading of the various ta* treaties #ill sho# that there is no si%ilarity in the provisions on relief fro% or avoidance of double ta*ation as this is a %atter of negotiation bet#een the contracting parties. .s #ill be sho#n later, this dissi%ilarity is true particularly in the treaties bet#een the Philippines and the 2nited 3tates and bet#een the Philippines and ;est Ger%any. The RP-23 Ta* Treaty is )ust one of a nu%ber of bilateral treaties #hich the Philippines has entered into for the avoidance of double ta*ation. The purpose of these international agree%ents is to reconcile the national fiscal legislations of the contracting parties in order to help the ta*payer avoid si%ultaneous ta*ation in t#o different )urisdictions. More precisely, the ta* conventions are drafted #ith a vie# to#ards the eli%ination of )n(&rna()ona2 Gur)5)/a2 5ou@2& (aHa()on, #hich is defined as the i%position of co%parable ta*es in t#o or %ore states on the sa%e ta*payer in respect of the sa%e sub)ect %atter and for identical periods., citing the Co%%ittee on 4iscal .ffairs of the &rgani-ation for /cono%ic Co-operation and Cevelop%ent =&/CC@.(( The apparent rationale for doing a#ay #ith double ta*ation is to encourage the free flo# of goods and services and the %ove%ent of capital, technology and persons bet#een countries, conditions dee%ed vital in creating robust and dyna%ic econo%ies. 4oreign invest%ents #ill only thrive in a fairly predictable and reasonable international invest%ent cli%ate and the protection against double ta*ation is crucial in creating such a cli%ate.

97
Couble ta*ation usually ta+es place #hen a person is resident of a contracting state and derives inco%e fro%, or o#ns capital in, the other contracting state and both states i%pose ta* on that inco%e or capital. In order to eli%inate double ta*ation, a ta* treaty resorts to several %ethods. 4irst, it sets out the respective rights to ta* of the state of source or situs and of the state of residence #ith regard to certain classes of inco%e or capital. In so%e cases, an e*clusive right to ta* is conferred on one of the contracting statesE ho#ever, for other ite%s of inco%e or capital, both states are given the right to ta*, although the a%ount of ta* that %ay be i%posed by the state of source is li%ited. The second %ethod for the eli%ination of double ta*ation applies #henever the state of source is given a full or li%ited right to ta* together #ith the state of residence. In this case, the treaties %a+e it incu%bent upon the state of residence to allo# relief in order to avoid double ta*ation. There are t#o %ethods of relief- the e*e%ption %ethod and the credit %ethod. In the e*e%ption %ethod, the inco%e or capital #hich is ta*able in the state of source or situs is e*e%pted in the state of residence, although in so%e instances it %ay be ta+en into account in deter%ining the rate of ta* applicable to the ta*payerTs re%aining inco%e or capital. &n the other hand, in the credit %ethod, although the inco%e or capital #hich is ta*ed in the state of source is still ta*able in the state of residence, the ta* paid in the for%er is credited against the ta* levied in the latter. The basic difference bet#een the t#o %ethods is that in the e*e%ption %ethod, the focus is on the inco%e or capital itself, #hereas the credit %ethod focuses upon the ta*. In negotiating ta* treaties, the underlying rationale for reducing the ta* rate is that the Philippines #ill give up a part of the ta* in the e*pectation that the ta* given up for this particular invest%ent is not ta*ed by the other country. Thus the petitioner correctly opined that the phrase Uroyalties paid under si%ilar circu%stancesW in the %ost favored nation clause of the 23RP Ta* Treaty necessarily conte%plated Ucircu%stances that are ta*relatedW. In the case at bar, the state of source is the Philippines because the royalties are paid for the right to use property or rights, i.e. trade%ar+s, patents and technology, located #ithin the Philippines. The 2nited 3tates is the state of residence since the ta*payer, 3. C. <ohnson and 3on, 2. 3. .., is based there. 2nder the RP-23 Ta* Treaty, the state of residence and the state of source are both per%itted to ta* the royalties, #ith a restraint on the ta* that %ay be collected by the state of source. 4urther%ore, the %ethod e%ployed to give relief fro% double ta*ation is the allo#ance of a ta* credit to citi-ens or residents of the 2nited 3tates =in an appropriate a%ount based upon the ta*es paid or accrued to the Philippines@ against the 2nited 3tates ta*, but such a%ount shall not e*ceed the li%itations provided by 2nited 3tates la# for the ta*able year. 2nder .rticle (" thereof, the Philippines %ay i%pose one of three rates- ,5 percent of the gross a%ount of the royaltiesE (5 percent #hen the royalties are paid by a corporation registered #ith the Philippine Foard of Invest%ents and engaged in preferred areas of activitiesE or the lo#est rate of Philippine ta* that %ay be i%posed on royalties of the sa%e +ind paid under si%ilar circu%stances to a resident of a third state. Given the purpose underlying ta* treaties and the rationale for the %ost favored nation clause, the concessional ta* rate of (7 percent provided for in the RP-Ger%any Ta* Treaty should apply only if the ta*es i%posed upon royalties in the RP-23 Ta* Treaty and in the RP-Ger%any Ta* Treaty are paid under si%ilar circu%stances. This #ould %ean that private respondent %ust prove that the RP-23 Ta* Treaty grants si%ilar ta* reliefs to residents of the 2nited 3tates in respect of the ta*es i%posable upon royalties earned fro% sources #ithin the Philippines as those allo#ed to their Ger%an counterparts under the RP-Ger%any Ta* Treaty. The RP-23 and the RP-;est Ger%any Ta* Treaties do not contain si%ilar provisions on ta* crediting. .rticle ,8 of the RP-Ger%any Ta* Treaty, s"pra, e*pressly allo#s crediting against Ger%an inco%e and corporation ta* of ,7J of the gross a%ount of royalties paid under the la# of the Philippines. &n the other hand, .rticle ," of the RP-23 Ta* Treaty, #hich is the counterpart provision #ith respect to relief for double ta*ation, does not provide for si%ilar crediting of ,7J of the gross a%ount of royalties paid. 3aid .rticle ," reads' U.rticle ," Relief fro% double ta*ation Couble ta*ation of inco%e shall be avoided in the follo#ing %anner'

98
(@ In accordance #ith the provisions and sub)ect to the li%itations of the la# of the 2nited 3tates =as it %ay be a%ended fro% ti%e to ti%e #ithout changing the general principle thereof@, the 2nited 3tates shall allo# to a citi-en or resident of the 2nited 3tates as a credit against the 2nited 3tates ta* the appropriate a%ount of ta*es paid or accrued to the Philippines and, in the case of a 2nited 3tates corporation o#ning at least (7 percent of the voting stoc+ of a Philippine corporation fro% #hich it receives dividends in any ta*able year, shall allo# credit for the appropriate a%ount of ta*es paid or accrued to the Philippines by the Philippine corporation paying such dividends #ith respect to the profits out of #hich such dividends are paid. 3uch appropriate a%ount shall be based upon the a%ount of ta* paid or accrued to the Philippines, but the credit shall not e*ceed the li%itations =for the purpose of li%iting the credit to the 2nited 3tates ta* on inco%e fro% sources #ithin the Philippines or on inco%e fro% sources outside the 2nited 3tates@ provided by 2nited 3tates la# for the ta*able year. ***W. The reason for construing the phrase Upaid under si%ilar circu%stancesW as used in .rticle (" =,@ =b@ =iii@ of the RP-23 Ta* Treaty as referring to ta*es is anchored upon a logical reading of the te*t in the light of the funda%ental purpose of such treaty #hich is to grant an incentive to the foreign investor by lo#ering the ta* and at the sa%e ti%e crediting against the do%estic ta* abroad a figure higher than #hat #as collected in the Philippines. In one case, the 3upre%e Court pointed out that la#s are not )ust %ere co%positions, but have ends to be achieved and that the general purpose is a %ore i%portant aid to the %eaning of a la# than any rule #hich gra%%ar %ay lay do#n. It is the duty of the courts to loo+ to the ob)ect to be acco%plished, the evils to be re%edied, or the purpose to be subserved, and should give the la# a reasonable or liberal construction #hich #ill best effectuate its purpose. The Nienna Convention on the Ba# of Treaties states that a treaty shall be interpreted in good faith in accordance #ith the ordinary %eaning to be given to the ter%s of the treaty in their conte*t and in the light of its ob)ect and purpose. .s stated earlier, the ulti%ate reason for avoiding double ta*ation is to encourage foreign investors to invest in the Philippines - a crucial econo%ic goal for developing countries. The goal of double ta*ation conventions #ould be th#arted if such treaties did not provide for effective %easures to %ini%i-e, if not co%pletely eli%inate, the ta* burden laid upon the inco%e or capital of the investor. Thus, if the rates of ta* are lo#ered by the state of source, in this case, by the Philippines, there should be a conco%itant co%%it%ent on the part of the state of residence to grant so%e for% of ta* relief, #hether this be in the for% of a ta* credit or e*e%ption. &ther#ise, the ta* #hich could have been collected by the Philippine govern%ent #ill si%ply be collected by another state, defeating the ob)ect of the ta* treaty since the ta* burden i%posed upon the investor #ould re%ain unrelieved. If the state of residence does not grant so%e for% of ta* relief to the investor, no benefit #ould redound to the Philippines, i.e., increased invest%ent resulting fro% a favorable ta* regi%e, should it i%pose a lo#er ta* rate on the royalty earnings of the investor, and it #ould be better to i%pose the regular rate rather than lose %uch-needed revenues to another country. .t the sa%e ti%e, the intention behind the adoption of the provision on Urelief fro% double ta*ationW in the t#o ta* treaties in $uestion should be considered in light of the purpose behind the %ost favored nation clause. The purpose of a %ost favored nation clause is to grant to the contracting party treat%ent not less favorable than that #hich has been or %ay be granted to the U%ost favoredW a%ong other countries. The %ost favored nation clause is intended to establish the principle of e$uality of international treat%ent by providing that the citi-ens or sub)ects of the contracting nations %ay en)oy the privileges accorded by either party to those of the %ost favored nation. The essence of the principle is to allo# the ta*payer in one state to avail of %ore liberal provisions granted in another ta* treaty to #hich the country of residence of such ta*payer is also a party provided that the sub)ect %atter of ta*ation, in this case royalty inco%e, is the sa%e as that in the ta* treaty under #hich the ta*payer is liable. Foth .rticle (" of the RP-23 Ta* Treaty and .rticle (, =,@ =b@ of the RP-;est Ger%any Ta* Treaty, above-$uoted, spea+s of ta* on royalties for the use of trade%ar+, patent, and technology. The entitle%ent of the (7J rate by 2.3. fir%s despite the absence of a %atching credit =,7J for royalties@ #ould derogate fro% the design behind the %ost favored nation clause to grant e$uality of international treat%ent since the ta* burden laid upon the inco%e of the investor is not the sa%e in the t#o countries. The si%ilarity in the circu%stances of pay%ent of ta*es is a condition for the en)oy%ent of %ost favored nation treat%ent precisely to underscore the need for e$uality of treat%ent.

99
;e accordingly agree #ith petitioner that since the RP-23 Ta* Treaty does not give a %atching ta* credit of ,7 percent for the ta*es paid to the Philippines on royalties as allo#ed under the RP-;est Ger%any Ta* Treaty, private respondent cannot be dee%ed entitled to the (7 percent rate granted under the latter treaty for the reason that there is no pay%ent of ta*es on royalties under si%ilar circu%stances. It bears stress that ta* refunds are in the nature of ta* e*e%ptions. .s such they are regarded as in derogation of sovereign authority and to be construed strictissi(i 0"ris against the person or entity clai%ing the e*e%ption. The burden of proof is upon hi% #ho clai%s the e*e%ption in his favor and he %ust be able to )ustify his clai% by the clearest grant of organic or statute la#. Private respondent is clai%ing for a refund of the alleged overpay%ent of ta* on royaltiesE ho#ever, there is nothing on record to support a clai% that the ta* on royalties under the RP-23 Ta* Treaty is paid under si%ilar circu%stances as the ta* on royalties under the RP-;est Ger%any Ta* Treaty. 1!"R"#OR", for all the foregoing, the instant petition is GR.0T/C. The decision dated May !, (66 of the Court of Ta* .ppeals and the decision dated 0ove%ber !, (66 of the Court of .ppeals are hereby 3/T .3IC/. 3& &RC/R/C. Nitug, Panganiban, and Purisi%a <<., concur. Ro%ero =Chair%an@, <., abroad, on official business leave. Petition, pp. "-5E !ollo, pp. (7-(,.( !ollo, p. !., Penned by <ustice :ilarion B. .$uino, concurred in by <ustices <ainal C. Rasul, Chair%an, and :ector B. :ofileZa." Reiterated under Me%orandu% Circular 0o. (5, dated May (!, (66,.8 Petition, pp. (7-((E !ollo, pp. (!-(9.5 3ee /. .. /. &rtuoste, Ta* Treaty Rates' . 3u%%ary, Phil. Revenue <ournal, vol. "8, 0o., March-.pril (66!. .rticle ,8 RP-.ustralia, .rticle ," RP-Felgiu%, .rticle ," RP-Fra-il, .rticle ,, RP-Canada, .rticle ," RP-Cen%ar+, .rticle ,,, RP-4inland, .rticle ," RP-4rance, .rticle ,8, RP-Ger%any, .rticle ,8, RP-India, 3ection "( RP-Indonesia, .rticle ,, RP-Italy, .rticle ," RP-<apan, .rticle ," RP-3outh Gorea, .rticle ,, RP-Malaysia, .rticle ,, RP 0etherland, .rticle ," RP-0e# 5ealand, .rticle ," RP-Pa+istan, 3ection ,6 RP3ingapore, .rticle ," RP-3pain, .rticle (9 RP-3#eden, .rticle ," RPThailand, .rticle ,( RP-2nited Gingdo%, .rticle ," RP-23.! 3ee Toledo, International .spects of Ta*ation, Proceedings of the /leventh .nnual Institute on Ta* Ba# =(6! @ \ p. (6.9 .s of <une ,6, (66!, the follo#ing countries have entered into ta* treaties #ith the Philippines for the avoidance of double ta*ation' Cen%ar+, 3ingapore, Canada, 4rance, 2nited Gingdo%, Pa+istan, .ustralia, <apan, Felgiu%, 0e# 5ealand, 4inland, Indonesia, .ustria, 2nited 3tates of .%erica, Thailand, Ger%any, Malaysia, Gorea, 3#eden, Italy, 0etherlands, Fra-il, 3pain, India, and Israel.6 P. Fa+er, Couble Ta*ation Conventions and International Ta* Ba# =(668@, .(7 +id, (( +id.(, +id.(" +id, !7.(8 +id, !7-!,.(5 T. Toledo, +id, \ p. (9-(6.

100
UTa+e the case of a hundred pesos dividend to be re%itted to, let us say a stoc+holder of 2nited 3tates of .%erica. The hundred peso dividend, if you apply the #ithholding ta* assu%ing that there is no sparing credit, #e ta*ed "5J. 3o, out of P(77.77, you are ta*ed P"5.77. The Philippines under this la# is #illing to ta* hi% only at P(5.77 so his net dividends is P95.77. If the 2nited 3tates #ill ta* the full P95.77, there is no reason #hy #e should reduce our ta*. If #e collected fro% hi% P"5.77 ta* out of the P(77.77 dividend, then his net dividend is only P 5.77. 3o, instead of transferring the collections fro% the Philippines Treasury to the 2.3. Treasury, #e %ight )ust as #ell retainer ta* because #e need these revenues. This is al#ays true #hen it co%es to a developing country such as ours entering into a treaty #ith developed country li+e 2. 3, #hat do #e do in ta* treatiesM &ne or t#o things. 4irst, #e give consideration to invest%ents especially #here the investor controls either (7J of the voting shares of the co%pany in the Philippines or ,5J of its capital. ;hen the invest%ent e*ceeds this proportion ITve )ust %entioned, #e reduce the rate of ta* fro% (5 to (7J on condition that on the ta* credit provision in the sa%e treaty #e as+ed the developed country to credit this investor #ith the ta* actually at a higher rate and #as paid in the Philippines. In other #ords, there #ould be so%e incentives on the part of the foreigners to invest in the Philippines because the rates of ta* are lo#ered and at the sa%e ti%e they are credited against the do%estic ta* abroad a figure higher than #hat #as collected in the Philippines. ***W( 2nder .rticle 8 ="@ of the RP-23 Ta* Treaty, royalties for the use of, or the right to use, property or rights shall be treated as inco%e fro% sources #ithin a Contracting 3tate only to the e*tent that such royalties are for the use of, or the right use, such property or rights #ithin that Contracting 3tate.(! RP-23 Ta* Treaty, .rticle (".(9 (6 d, .rticle ,".(6 Bite* /%ployees .ssociation vs. /duvala, !6 3CR. 99, 3epte%ber ,,, (6!!.,7 Paras, vs. Co%%ission on /lections, G. R. 0o. (,"( 6, 0ove%ber 8, (66 E 3an Miguel Corporation /%ployees 2nion-PTG;& vs. Confesor, G. R. 0o. (((, ,, 3epte%ber (6, (66 E .gu)itas vs. Court of .ppeals, G. R. 0o. (7 5 7, .ugust ,", (66 E 3a)onas vs. Court of .ppeals, G. R. 0o. (7,"!!, <uly 5, (66 E /scribano vs. .vila, 95 3CR. ,85, 3epte%ber (,, (6!9E :o%es Ins. Co. vs. /astern 3hipping Bines, (," 3CR. 8,8, <uly ,7, (69".,( Nienna Convention on the Ba# of Treaties, .rticle "(.,, Toledo, s"pra, at p. (!.," +id, (6.,8 3alonga, 1ap, Public International Ba#, ,55.,5 Flac+Ts Ba# Cictionary 5th ed., 6("., Co%%issioner of Internal Revenue vs. To+yo 3hipping Co., Btd., ,88 3CR. "",E Province of Tarlac vs. .lcantara, ,( 3CR. !67E Magsaysay Bines, Inc. vs. Court of .ppeals, , 7 3CR. 5(".,! ;onder Mechanical /ngineering Corporation vs. CT., 8 3CR. 555.,9