Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor General Conrado T.
Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which was certified to Us by
the Court of Appeals on October 6, 1969, as involving only pure questions of law, challenging the power of taxation delegated
to municipalities under the Local Autonomy Act (Republic Act No. 2264, as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint
with preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No.
2264. 1 otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to
declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that, first, both Ordinances
Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates imposed therein are practically the
same, and second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to
the Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the provisions
of said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and collects "from soft
drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the
purpose of computing the taxes due, the person, firm, company or corporation producing soft drinks shall submit to the
Municipal Treasurer a monthly report, of the total number of bottles produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects "on soft drinks
produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due, the person, fun company,
partnership, corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the total
number of gallons produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and upholding the
constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and constitutional; ordering
the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn, elevated the
case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every
independent government, without being expressly conferred by the people. 6 It is a power that is purely legislative and which
the central legislative body cannot delegate either to the executive or judicial department of the government without
infringing upon the theory of separation of powers. The exception, however, lies in the case of municipal corporations, to
which, said theory does not apply. Legislative powers may be delegated to local governments in respect of matters of local
concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the legislative power to create political
corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the
power to tax. 9 Under the New Constitution, local governments are granted the autonomous authority to create their own
sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to create
its sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal, it cannot be said that

Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in local
governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not suffice to
invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not limited 6 the exact measure
of that which is exercised by itself. When it is said that the taxing power may be delegated to municipalities and the like, it is
meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient.
Thus, municipalities may be permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax
for more general purposes. 10 This is not to say though that the constitutional injunction against deprivation of property
without due process of law may be passed over under the guise of the taxing power, except when the taking of the property is
in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is
observed; (3) either the person or property taxed is within the jurisdiction of the government levying the tax; and (4) in the
assessment and collection of certain kinds of taxes notice and opportunity for hearing are provided. 11 Due process is usually
violated where the tax imposed is for a private as distinguished from a public purpose; a tax is imposed on property outside
the State, i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a
tax does not violate the due process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an
injury rather than a benefit to such taxpayer. Due process does not require that the property subject to the tax or the amount
of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount of the tax and the
manner in which it shall be apportioned are generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double
taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local
taxation may not be exercised. 13 The reason is that the State has exclusively reserved the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by our fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of the United States and some states of the Union. 14 Double
taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity 15 or by
the same jurisdiction for the same purpose, 16 but not in a case where one tax is imposed by the State and the other by the city
or municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these two ordinances
cover the same subject matter and impose practically the same tax rate. The thesis proceeds from its assumption that both
ordinances are valid and legally enforceable. This is not so. As earlier quoted, Ordinance No. 23, which was approved on
September 25, 1962, levies or collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for
.every bottle corked, irrespective of the volume contents of the bottle used. When it was discovered that the producer or
manufacturer could increase the volume contents of the bottle and still pay the same tax rate, the Municipality of Tanauan
enacted Ordinance No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01)
on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting
Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of
the latter, even without words to that effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only
seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal
Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said Ordinance No. 27,
series of 1962. The aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by
defendants-appellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are inconsistent with the
provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific tax.
Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is broad enough as
to extend to almost "everything, accepting those which are mentioned therein." As long as the text levied under the authority
of a city or municipal ordinance is not within the exceptions and limitations in the law, the same comes within the ambit of the
general rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in cabisus non excepti 19 The limitation
applies, particularly, to the prohibition against municipalities and municipal districts to impose "any percentage tax or other
taxes in any form based thereon nor impose taxes on articles subject to specific tax except gasoline, under the provisions of the
National Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio
between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for being outside
the power of the municipality to enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature
of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not)
and not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of
determining the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax. 21
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits,
wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and
other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habitforming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced or
manufactured, or an equivalent of 1- centavos per case, 23 cannot be considered unjust and unfair. 24 an increase in the tax
alone would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal corporations are allowed
much discretion in determining the reates of imposable taxes. 25 This is in line with the constutional policy of according the
widest possible autonomy to local governments in matters of local taxation, an aspect that is given expression in the Local Tax
Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an
ordinance as unreasonable. 27 Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the
purpose of the law to further strengthen local autonomy were to be realized. 28

Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners or P2,000.00
with ten but not more than twenty crowners imposed on manufacturers, producers, importers and dealers of soft drinks
and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance No. 41, series of 1968, of defendant
Municipality, 29 appears not to affect the resolution of the validity of Ordinance No. 27. Municipalities are empowered to
impose, not only municipal license taxes upon persons engaged in any business or occupation but also to levy for public
purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within the second power of a
municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, as
amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, re-pealing
Municipal Ordinance No. 23, same series, is hereby declared of valid and legal effect. Costs against petitioner-appellant.
SO ORDERED.
Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muoz Palma, Aquino and Concepcion, Jr., JJ., concur.

Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive character. Insofar as it
shows adherence to tried and tested concepts of the law of municipal taxation, I am only in agreement. If I limit myself to
concurrence in the result, it is primarily because with the article on Local Autonomy found in the present Constitution, I feel a
sense of reluctance in restating doctrines that arose from a different basic premise as to the scope of such power in accordance
with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am unable to share fully what for me are the
nuances and implications that could arise from the approach taken by my brethren. Likewise as to the constitutional aspect of
the thorny question of double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon. 1
1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal corporations. It is therein
specifically provided: "Each local government unit shall have the power to create its own sources of revenue and to levy taxes
subject to such limitations as may be provided by law. 2 That was not the case under the 1935 Charter. The only limitation then
on the authority, plenary in character of the national government, was that while the President of the Philippines was vested
with the power of control over all executive departments, bureaus, or offices, he could only . It exercise general supervision
over all local governments as may be provided by law ... 3 As far as legislative power over local government was concerned, no
restriction whatsoever was placed on the Congress of the Philippines. It would appear therefore that the extent of the taxing
power was solely for the legislative body to decide. It is true that in 1939, there was a statute that enlarged the scope of the
municipal taxing power. 4 Thereafter, in 1959 such competence was further expanded in the Local Autonomy
Act. 5 Nevertheless, as late as December of 1964, five years after its enactment of the Local Autonomy Act, this Court, through
Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the traditional concept in these words: "The rule is
well-settled that municipal corporations, unlike sovereign states, after clothed with no power of taxation; that its charter or a
statute must clearly show an intent to confer that power or the municipal corporation cannot assume and exercise it, and that
any such power granted must be construed strictly, any doubt or ambiguity arising from the terms of the grant to be resolved
against the municipality." 7
Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao, 8 "is an attribute of sovereignty
which municipal corporations do not enjoy." 9 That case left no doubt either as to weakness of a claim "based merely by
inferences, implications and deductions, [as they have no place in the interpretation of the power to tax of a municipal
corporation." 10 As the conclusion reached by the Court finds support in such grant of the municipal taxing power, I concur in
the result. 2. As to any possible infirmity based on an alleged double taxation, I would prefer to rely on the doctrine announced
by this Court in City of Baguio v. De Leon. 11 Thus: "As to why double taxation is not violative of due process, Justice Holmes
made clear in this language: 'The objection to the taxation as double may be laid down on one side. ... The 14th Amendment
[the due process clause) no more forbids double taxation than it does doubling the amount of a tax, short of (confiscation or
proceedings unconstitutional on other grouse With that decision rendered at a time when American sovereignty in the
Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered the coup justice to the bogey
of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as
with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted with
approval this excerpt from a leading American decision: 'Where, as here, Congress has clearly expressed its intention, the
statute must be sustained even though double taxation results. 12
So I would view the issues in this suit and accordingly concur in the result.
Separate Opinions
FERNANDO, J., concurring:
The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive character. Insofar as it
shows adherence to tried and tested concepts of the law of municipal taxation, I am only in agreement. If I limit myself to
concurrence in the result, it is primarily because with the article on Local Autonomy found in the present Constitution, I feel a
sense of reluctance in restating doctrines that arose from a different basic premise as to the scope of such power in accordance
with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am unable to share fully what for me are the

nuances and implications that could arise from the approach taken by my brethren. Likewise as to the constitutional aspect of
the thorny question of double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon. 1
1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal corporations. It is therein
specifically provided: "Each local government unit shall have the power to create its own sources of revenue and to levy taxes
subject to such limitations as may be provided by law. 2 That was not the case under the 1935 Charter. The only limitation then
on the authority, plenary in character of the national government, was that while the President of the Philippines was vested
with the power of control over all executive departments, bureaus, or offices, he could only . It exercise general supervision
over all local governments as may be provided by law ... 3 As far as legislative power over local government was concerned, no
restriction whatsoever was placed on the Congress of the Philippines. It would appear therefore that the extent of the taxing
power was solely for the legislative body to decide. It is true that in 1939, there was a statute that enlarged the scope of the
municipal taxing power. 4 Thereafter, in 1959 such competence was further expanded in the Local Autonomy
Act. 5 Nevertheless, as late as December of 1964, five years after its enactment of the Local Autonomy Act, this Court, through
Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the traditional concept in these words: "The rule is
well-settled that municipal corporations, unlike sovereign states, after clothed with no power of taxation; that its charter or a
statute must clearly show an intent to confer that power or the municipal corporation cannot assume and exercise it, and that
any such power granted must be construed strictly, any doubt or ambiguity arising from the terms of the grant to be resolved
against the municipality." 7
Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao, 8 "is an attribute of sovereignty
which municipal corporations do not enjoy." 9 That case left no doubt either as to weakness of a claim "based merely by
inferences, implications and deductions, [as they have no place in the interpretation of the power to tax of a municipal
corporation." 10 As the conclusion reached by the Court finds support in such grant of the municipal taxing power, I concur in
the result. 2. As to any possible infirmity based on an alleged double taxation, I would prefer to rely on the doctrine announced
by this Court in City of Baguio v. De Leon. 11 Thus: "As to why double taxation is not violative of due process, Justice Holmes
made clear in this language: 'The objection to the taxation as double may be laid down on one side. ... The 14th Amendment
[the due process clause) no more forbids double taxation than it does doubling the amount of a tax, short of (confiscation or
proceedings unconstitutional on other grouse With that decision rendered at a time when American sovereignty in the
Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered the coup justice to the bogey
of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as
with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted with
approval this excerpt from a leading American decision: 'Where, as here, Congress has clearly expressed its intention, the
statute must be sustained even though double taxation results. 12
So I would view the issues in this suit and accordingly concur in the result.
Footnotes
1 "Sec. 2. Taxation. Any provision of law to the contrary notwithstanding, all chartered cities,
municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon
persons engaged in any occupation or business, or exercising private in chartered cities, municipalities and
municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of
the city, the municipal council of the municipality, or the municipal district council of the municipal district to
collect fees and charges for service rendered by the city, municipality or municipal district; to regulate and
impose reasonable for services rendered in connection with any business, profession occupation being
conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just
and uniform taxes, licenses or fees: Provided, That municipalities and municipal districts shall, in no case,
impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles
subject to specific tax, except gasoline, under the provisions of the National Internal Revenue Code: Provided,
however, That no city, municipality or municipal district may levy or impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of any newspaper engaged in the printing and publication of any newspaper,
magazine, review or bulletin appearing at regular interval and having fixed prices for subscription and sale,
and which is not published primarily for the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and
power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits
for the driving thereof;
(i) Customs duties registration, wharfage on wharves owned by the national government, tonnage and all
other kinds of customs fees, charges and dues;
(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax:

(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance
companies; and
(i) Taxes, fees or levies, of any kind, which in effect impose a burden on exports of Philippine finished,
manufactured or processed products and products of Philippine cottage industries.
2 Section 2.
3 Section 3.
4 Section 2.
5 Section 3.
6 Cooley, The Law of Taxation, Vol. 1, Fourth Edition, 149-150.
7 Pepsi-Cola Bottling Co. of the Phil., Inc. vs. City of Butuan, L-22814, August 28, 1968, 24 SCRA 793-96.
8 Rubi v. Prov. Brd. of Mindoro, 39 Phil. 702 (1919).
9 Cooley, ante at 190.
10 Idem at 198-200.
11 Malcolm, Philippine Constitutional Law, 513-14.
12 Cooley ante at 334.
13 See footnote 1.
14 Pepsi-Cola Bottling Co. of the Phil. Inc. vs. City of Butuan, 1, 2S 1 4, August 28, 1968, 24 SCRA 793-96. See
Sec. 22, Art. VI, 1935
Constitution and Sec. 17 (1), Art. VIII, 1973 Constitution.
15 Commissioner of Internal Revenue v. Lednicky L- 18169, July 31, 1964, 11 SCRA 609.
16 SMB, Inc. v. City of Cebu, L-20312, February 26, 1972, 43 SCRA 280.
17 Punzalan v. Mun. Bd of City of Manila, 50 O.G. 2485; manufacturers Life Ins. Co. v. Meer, 89 Phil. 351
(1951).
18 McQuillin. Municipal Corporations, 3rd. Ed., Vol. 6, at 206.-210.
19 Villanueva v. City of Iloilo, L-26521, December 28, 1968, 26 SCRA 585-86; Nin Bay Mining Co. v. Mun. of
Roxas, Palawan, L-20125, July 20, 1965, 14 SCRA 663-64.
20 Arabay, Inc. v. CFI of Zamboanga del Norte, et al., L-27684, September 10, 1975.
21 SMB, Inc. v. City of Cebu, ante, Footnote 16.
22 Shell Co. of P.I. Ltd. v. Vao, 94 Phil. 394-95 (1954); Sections 123-148, NIRC; RA No. 953, Narcotic Drugs
Law, June 20, 1953.
23 Brief, defendants-appellees, at 14. A regular bottle of Pepsi-Cola soft drinks contains 8 oz., or 192 oz. per
case of 24 bottles; a family-size contains 26 oz., or 312 oz. per case of 12 bottles.
24 See Pepsi-Cola Bottling Co. of the Phil., Inc. v. City of Butuan, ante, Footnote 14, where the tax rate is P.10
per case of 24 bottles; City of Bacolod v. Gruet, L-18290, January 31, 1963, 7 SCRA 168-69, where the tax is
P.03 on every case of bottled Coca-Coal.
25 Northern Philippines Tobacco Corp. v. Mun. of Agoo, La Union, L-26447, January 30, 1971, 31 SCRA 308.
26 William Lines, Inc. v. City of Ozamis, L-350048, April 23, 1974, 56 SCRA 593, Second Division, per
Fernando, J.
27 Victorias Milling Co. v. Mun. of Victorias, L-21183, September 27, 1968, 25 SCRa 205.
28 Procter & Gamble Trading Co. v. Mun. of Medina, Misamis Oriental, L-29125, January 31, 1973, 43 SCRA
133-34.
29 Subject of plaintiff-appellant's Motion for Admission and consideration of Essential Newly Dissevered
Evidence, dated April 30, 1969.

FERNANDO, J.
1 L-24756, October 31, 1968, 25 SCRA 938.
2 Article XI, Section 5 of the present Constitution.
3 Article VII, Section 10 of the 1935 Constitution.
4 Commonwealth Act 472 entitled: "An Act Revising the General Authority of Municipal Councils and
Municipal District Councils to Levy Taxes, Subject to Certain Limitations."
5 Republic Act No. 2264.
6 L-18534, December 24,1964,12 SCRA 611.
7 Ibid, 619. Cf. Cuunjieng v. Potspone, 42 Phil. 818 (1922); De Linan v. Municipal Council of Daet, 44 Phil. 792
(1923); Arquiza Luta v. Municipality of Zamboanga, 50 Phil. 748 (1927; Hercules Lumber Co. v. Zamboanga,
55 Phil. 653 (1931); Yeo Loby v. Zamboanga, 55 Phil. 656 (1931); People v. Carreon, 65 Phil. 588 (1939); Yap
Tak Wing v. Municipal Board, 68 Phil. 511 (1939); Eastern Theatrical Co. v. Alfonso 83 Phil. 852 (1949); De la
Rosa v. City of Baguio, 91 Phil. 720 (I!)52); Medina v. City of Baguio, 91 Phil. 854 (1952); Standard-Vacuum Oil
Co. v. Antigua, 96 Phil. 909 (1955); Municipal Government of Pagsanjan v. Reyes, 98 Phil. 654 (1956), We Wa
Yu v. City of Lipa, Phil. 975 (1956); Municipality of Cotabato v. Santos, 105 Phil. 963 (1959).
8 L-14264, April 30, 1963, 7 SCRA 887.
9 Ibid, 892.
10 Ibid.
11 L-24756, October 31, 1968, 25 SCRA 938.
12 Ibid, 943-944.

FIRST DIVISION
[G.R. No. L-28896. February 17, 1988.]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. ALGUE, INC., and THE COURT OF TAX APPEALS, Respondents.
SYLLABUS
1. TAXATION; NATIONAL INTERNAL REVENUE CODE; DEFICIENCY INCOME TAXES; PERIOD TO APPEAL ASSESSMENT,
SUSPENDED BY FILING OF PROTEST. According to Rep. Act No. 1125, the appeal may be made within thirty days after
receipt of the decision or ruling challenged. It is true that as a rule the warrant of distraint and levy is "proof of the finality of
the assessment" and "renders hopeless a request for reconsideration," being "tantamount to an outright denial thereof and
makes the said request deemed rejected." But there is a special circumstance in the case at bar that prevents application of this
accepted doctrine. The proven fact is that four days after the private respondent received the petitioners notice of assessment,
it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued;
indeed, such protest court not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of
the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature
and could therefore not be served. As the Court of Tax Appeals correctly noted, the protest filed by private respondent was not
pro forma and was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was
filed, the reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period
started running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of
the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of
the reglementary period had been consumed.
2. ID.; ID.; INCOME TAX; DEDUCTION FROM GROSS INCOME; P75,000.00 PROMOTIONAL FEES; FOUND NECESSARY AND
REASONABLE IN CASE AT BAR. We agree with the respondent court that the amount of the promotional fees was not
excessive. The total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was
P125,000.00. After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The
amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees
who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of
the Sugar Estate properties. In the present case, however, we find that the onus has been discharged satisfactorily. The private
respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the
payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in
a new business requiring millions of pesos.
DECISION
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such
collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is
therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by private respondent Algue as legitimate business expenses in its income tax returns. The corollary issue is whether
or not the appeal of the private respondent from the decision of the Collector of Internal Revenue was made on time and in
accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in engineering,
construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as
delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue filed a letter of protest or request for
reconsideration, which letter was stamp-received on the same day in the office of the petitioner. 2 On March 12, 1965, a
warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who
refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case proved fruitless.
Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant.4 On
April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was only then
that he accepted the warrant of distraint and levy earlier sought to be served. 5 Sixteen days later, on April 23, 1965, Algue
filed a petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals. 6
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made
within thirty days after receipt of the decision or ruling challenged. 7 It is true that as a rule the warrant of distraint and levy is
"proof of the finality of the assessment" 8 and "renders hopeless a request for reconsideration," 9 being "tantamount to an
outright denial thereof and makes the said request deemed rejected." 10 But there is a special circumstance in the case at bar
that prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent received the petitioners notice of assessment, it filed its letter of
protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest
court not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was,
if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not
be served.

As the Court of Tax Appeals correctly noted, 11 the protest filed by private respondent was not pro forma and was based on
strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary
period which started on the date the assessment was received, viz., January 14, 1965. The period started running again only on
April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the warrant
was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been
consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary,
reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that
the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the
form of promotional fees. These were collected by the payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development
Company.
Parenthetically, it may be observed that the petitioner had originally claimed these promotional fees to be personal holding
company income 12 but later conformed to the decision of the respondent court rejecting this assertion.13 In fact, as the said
court found, the amount was earned through the joint efforts of the persons among whom it was distributed. It has been
established that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to
sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel
Guevara, Edith OFarell, and Pablo Sanchez worked for the formation of the Vegetable Oil Investment Corporation, inducing
other persons to invest in it. 14 Ultimately, after its incorporation largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties. 15 For this sale, Algue received as agent a commission of P125,000.00, and it
was from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals. 16
There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the
corresponding taxes thereon. 17 The Court of Tax Appeals also found, after examining the evidence, that no distribution of
dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the payees are members of the same family in control
of Algue. It is argued that no indication was made as to how such payments were made, whether by check or in cash, and there
is not enough substantiation of such payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President, Alberto Guevara, and the
accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in different
amounts as each payees need arose. 19 It should be remembered that this was a family corporation where strict business
procedures were not applied and immediate issuance of receipts was not required. Even so, at the end of the year, when the
books were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the total of
P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the
close relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission paid by
the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. 21 After deducting the said fees,
Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.
This finding of the respondent court is in accord with the following provision of the Tax Code:jgc:chanrobles.com.ph
"SEC. 30. Deductions from gross income. In computing net income there shall be allowed as deduction
(a) Expenses:chanrob1es virtual 1aw library
(1) In general. All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or
business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; . . ." 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:jgc:chanrobles.com.ph
"SEC. 70. Compensation for personal services. Among the ordinary and necessary expenses paid or incurred in carrying on
any trade or business may be included a reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is whether they are reasonable and are, in
fact, payments purely for service. This test and its practical application may be further stated and illustrated as
follows:jgc:chanrobles.com.ph
"Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. (a) An
ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a
corporation having few stockholders, practically all of whom draw salaries. If in such a case the salaries are in excess of those
ordinarily paid for similar services, and the excessive payment correspond or bear a close relationship to the stockholdings of
the officers of employees, it would seem likely that the salaries are not paid wholly for services rendered, but the excessive
payments are a distribution of earnings upon the stock. . . ." (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling
stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed deduction.
In the present case, however, we find that the onus has been discharged satisfactorily. The private respondent has proved that
the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors

and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring
millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.
It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of ones hard-earned income
to the taxing authorities, every person who is able to must contribute his share in the running of the government. The
government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should
dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it
be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks
if the taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent
court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was
permitted under the Internal Revenue Code and should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.
Endnotes:

1. Rollo, pp. 28-29.

2. Ibid., pp. 29; 42.
3. Id., p. 29.
4. Respondents Brief, p. 11.
5. Id., p. 29.
6. Id.
7. Sec. 11.
8. Phil. Planters Investment Co. Inc. v. Acting Comm. of Internal Revenue, CTA Case No. 1266, Nov. 11, 1962; Rollo, p. 30.
9. Vicente Hilado v. Comm. of Internal Revenue, CTA Case No. 1256, Oct. 22, 1962; Rollo, p. 30.
10. Ibid.
11. Penned by Associate Judge Estanislao R. Alvarez, concurred by Presiding Judge Ramon M. Umali and Associate Judge
Ramon L. Avancea.
12. Rollo, p. 33.
13. Ibid., pp. 7-8; Petition, pp. 2-3.
14. Id., p. 37.
15. Id.
16. Id.
17 Id.
18. Id.
19. Respondents Brief, pp. 25-32.
20. Ibid., pp. 30-32.
21. Rollo, p. 37.
22. Now Sec. 30, (a) (1) (A), National Internal Revenue Code.
23. Respondents Brief, p. 35.

THIRD DIVISION
THE CITY OF MANILA,LIBERTY M. TOLEDO,
in her capacity as THE TREASURER
OF MANILA and JOSEPHSANTIAGO, in his
capacity as the CHIEF OF THE LICENSE
DIVISION OF CITY OFMANILA,
Petitioners,
- versus -

G.R. No. 181845

Present:
YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

COCA-COLA BOTTLERS PHILIPPINES, INC.,

Respondent.
Promulgated:
August 4, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:

This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Civil Procedure seeking to review
and reverse the Decision[1] dated 18 January 2008 and Resolution[2] dated 18 February 2008 of the Court of Tax Appeals en
banc (CTA en banc) in C.T.A. EB No. 307. In its assailed Decision, the CTA en banc dismissed the Petition for Review of herein
petitioners City of Manila, Liberty M. Toledo (Toledo), and Joseph Santiago (Santiago); and affirmed the Resolutions dated 24
May 2007,[3] 8 June 2007,[4] and 26 July 2007,[5] of the CTA First Division in C.T.A. AC No. 31, which, in turn, dismissed the
Petition for Review of petitioners in said case for being filed out of time. In its questioned Resolution, the CTA en banc denied
the Motion for Reconsideration of petitioners.
Petitioner City of Manila is a public corporation empowered to collect and assess business taxes, revenue fees, and
permit fees, through its officers, petitioners Toledo and Santiago, in their capacities as City Treasurer and Chief of the
Licensing Division, respectively. On the other hand, respondent Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in
the business of manufacturing and selling beverages, and which maintains a sales office in the City of Manila.
The case stemmed from the following facts:
Prior to 25 February 2000, respondent had been paying the City of Manila local business tax only under Section 14 of
Tax Ordinance No. 7794,[6] being expressly exempted from the business tax under Section 21 of the same tax
ordinance. Pertinent provisions of Tax Ordinance No. 7794 provide:
Section 14. Tax on Manufacturers, Assemblers and Other Processors. There is hereby imposed a
graduated tax on manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever
kind or nature, in accordance with any of the following schedule:
xxxx
over P6,500,000.00 up to
P25,000,000.00 - - - - - - - - - - - - - - - - - - - -- P36,000.00 plus 50% of 1%
in excess of P6,500,000.00
xxxx
Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes under the
NIRC. On any of the following businesses and articles of commerce subject to excise, value-added or
percentage taxes under the National Internal Revenue Code hereinafter referred to as NIRC, as amended, a tax
of FIFTY PERCENT (50%) of ONE PERCENT (1%) per annum on the gross sales or receipts of the preceding
calendar year is hereby imposed:
(A)
On persons who sell goods and services in the course of trade or business; and those who
import goods whether for business or otherwise; as provided for in Sections 100 to 103 of the NIRC as

administered and determined by the Bureau of Internal Revenue pursuant to the pertinent provisions of the
said Code.
xxxx
(D)

Excisable goods subject to VAT

(1)
Distilled spirits
(2)
Wines
xxxx
(8)
(9)

Coal and coke

Fermented liquor, brewers wholesale price, excluding the ad valorem tax

xxxx
PROVIDED, that all registered businesses in the City of Manila that are already paying the
aforementioned tax shall be exempted from payment thereof.

Petitioner City of Manila subsequently approved on 25 February 2000, Tax Ordinance No. 7988, [7] amending certain
sections of Tax Ordinance No. 7794, particularly: (1) Section 14, by increasing the tax rates applicable to certain
establishments operating within the territorial jurisdiction of the City of Manila; and (2) Section 21, by deleting
the proviso found therein, which stated that all registered businesses in the City of Manila that are already paying the
aforementioned tax shall be exempted from payment thereof. Petitioner City of Manila approved only after a year, on 22
February 2001, another tax ordinance, Tax Ordinance No. 8011, amending Tax Ordinance No. 7988.
Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null and void in Coca-Cola Bottlers Philippines,
Inc. v. City of Manila[8] (Coca-Cola case) for the following reasons: (1) Tax Ordinance No. 7988 was enacted in contravention of
the provisions of the Local Government Code (LGC) of 1991 and its implementing rules and regulations; and (2) Tax Ordinance
No. 8011 could not cure the defects of Tax Ordinance No. 7988, which did not legally exist.
However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No. 8011 null and void,
petitioner City of Manila assessed respondent on the basis of Section 21 of Tax Ordinance No. 7794, as amended by the
aforementioned tax ordinances, for deficiency local business taxes, penalties, and interest, in the total amount
of P18,583,932.04, for the third and fourth quarters of the year 2000. Respondent filed a protest with petitioner Toledo on the
ground that the said assessment amounted to double taxation, as respondent was taxed twice, i.e., under Sections 14 and 21 of
Tax Ordinance No. 7794, as amended by Tax Ordinances No. 7988 and No. 8011. Petitioner Toledo did not respond to the
protest of respondent.
Consequently, respondent filed with the Regional Trial Court (RTC) of Manila, Branch 47, an action for the cancellation
of the assessment against respondent for business taxes, which was docketed as Civil Case No. 03-107088.
On 14 July 2006, the RTC rendered a Decision[9] dismissing Civil Case No. 03-107088. The RTC ruled that the business
taxes imposed upon the respondent under Sections 14 and 21 of Tax Ordinance No. 7988, as amended, were not of the same
kind or character; therefore, there was no double taxation. The RTC, though, in an Order[10] dated 16 November 2006, granted
the Motion for Reconsideration of respondent, decreed the cancellation and withdrawal of the assessment against the latter,
and barred petitioners from further imposing/assessing local business taxes against respondent under Section 21 of Tax
Ordinance No. 7794, as amended by Tax Ordinance No. 7988 and Tax Ordinance No. 8011. The 16 November 2006 Decision of
the RTC was in conformity with the ruling of this Court in the Coca-Cola case, in which Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 were declared null and void. The Motion for Reconsideration of petitioners was denied by the RTC in an
Order[11] dated 4 April 2007. Petitioners received a copy of the 4 April 2007 Order of the RTC, denying their Motion for
Reconsideration of the 16 November 2006 Order of the same court, on 20 April 2007.
On 4 May 2007, petitioners filed with the CTA a Motion for Extension of Time to File Petition for Review, praying for a
15-day extension or until 20 May 2007 within which to file their Petition. The Motion for Extension of petitioners was
docketed as C.T.A. AC No. 31, raffled to the CTA First Division.

Again, on 18 May 2007, petitioners filed, through registered mail, a Second Motion for Extension of Time to File a
Petition for Review, praying for another 10-day extension, or until 30 May 2007, within which to file their Petition.
On 24 May 2007, however, the CTA First Division already issued a Resolution dismissing C.T.A. AC No. 31 for failure of
petitioners to timely file their Petition for Review on 20 May 2007.
Unaware of the 24 May 2007 Resolution of the CTA First Division, petitioners filed their Petition for Review therewith
on30 May 2007 via registered mail. On 8 June 2007, the CTA First Division issued another Resolution, reiterating the dismissal
of the Petition for Review of petitioners.
Petitioners moved for the reconsideration of the foregoing Resolutions dated 24 May 2007 and 8 June 2007, but their
motion was denied by the CTA First Division in a Resolution dated 26 July 2007. The CTA First Division reasoned that the
Petition for Review of petitioners was not only filed out of time -- it also failed to comply with the provisions of Section 4, Rule
5; and Sections 2 and 3, Rule 6, of the Revised Rules of the CTA.
Petitioners thereafter filed a Petition for Review before the CTA en banc, docketed as C.T.A. EB No. 307, arguing that
the CTA First Division erred in dismissing their Petition for Review in C.T.A. AC No. 31 for being filed out of time, without
considering the merits of their Petition.
The CTA en banc rendered its Decision on 18 January 2008, dismissing the Petition for Review of petitioners and
affirming the Resolutions dated 24 May 2007, 8 June 2007, and 26 July 2007 of the CTA First Division. The CTA en
banc similarly denied the Motion for Reconsideration of petitioners in a Resolution dated 18 February 2008.
Hence, the present Petition, where petitioners raise the following issues:
I.
II.

WHETHER OR NOT PETITIONERS SUBSTANTIALLY COMPLIED WITH THE REGLEMENTARY

PERIOD TO TIMELY APPEAL THE CASE FOR REVIEW BEFORE THE [CTA DIVISION].
WHETHER OR NOT THE RULING OF THIS COURT IN THE EARLIER [COCA-COLA CASE] IS
DOCTRINAL AND CONTROLLING IN THE INSTANT CASE.

III.

WHETHER OR NOT PETITIONER CITY OF MANILA CAN STILL ASSESS TAXES UNDER
[SECTIONS] 14 AND 21 OF [TAX ORDINANCE NO. 7794, AS AMENDED].

IV.

WHETHER OR NOT THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX ORDINANCE NO. 7794,
AS AMENDED] CONSTITUTES DOUBLE TAXATION.

Petitioners assert that Section 1, Rule 7[12] of the Revised Rules of the CTA refers to certain provisions of the Rules of
Court, such as Rule 42 of the latter, and makes them applicable to the tax court. Petitioners then cannot be faulted in relying
on the provisions of Section 1, Rule 42[13] of the Rules of Court as regards the period for filing a Petition for Review with the
CTA in division. Section 1, Rule 42 of the Rules of Court provides for a 15-day period, reckoned from receipt of the adverse
decision of the trial court, within which to file a Petition for Review with the Court of Appeals. The same rule allows an
additional 15-day period within which to file such a Petition; and, only for the most compelling reasons, another extension
period not to exceed 15 days. Petitioners received on 20 April 2007 a copy of the 4 April 2007 Order of the RTC, denying their
Motion for Reconsideration of the 16 November 2006 Order of the same court. On 4 May 2007, believing that they only had 15
days to file a Petition for Review with the CTA in division, petitioners moved for a 15-day extension, or until 20 May 2007,
within which to file said Petition. Prior to the lapse of their first extension period, or on 18 May 2007, petitioners again moved
for a 10-day extension, or until 30 May 2007, within which to file their Petition for Review. Thus, when petitioners filed their
Petition for Review with the CTA First Division on 30 May 2007, the same was filed well within the reglementary period for
doing so.
Petitioners argue in the alternative that even assuming that Section 3(a), Rule 8 [14] of the Revised Rules of the CTA
governs the period for filing a Petition for Review with the CTA in division, still, their Petition for Review was filed within the
reglementary period. Petitioners call attention to the fact that prior to the lapse of the 30-day period for filing a Petition for
Review under Section 3(a), Rule 8 of the Revised Rules of the CTA, they had already moved for a 10-day extension, or until 30

May 2007, within which to file their Petition. Petitioners claim that there was sufficient justification in equity for the grant of
the 10-day extension they requested, as the primordial consideration should be the substantive, and not the procedural, aspect
of the case. Moreover, Section 3(a), Rule 8 of the Revised Rules of the CTA, is silent as to whether the 30-day period for filing a
Petition for Review with the CTA in division may be extended or not.
Petitioners also contend that the Coca-Cola case is not determinative of the issues in the present case because the
issue of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 is not the lis mota herein. The Coca-Cola case is not
doctrinal and cannot be considered as the law of the case.
Petitioners further insist that notwithstanding the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance
No. 8011, Tax Ordinance No. 7794 remains a valid piece of local legislation. The nullity of Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 does not effectively bar petitioners from imposing local business taxes upon respondent under Sections
14 and 21 of Tax Ordinance No. 7794, as they were read prior to their being amended by the foregoing null and void tax
ordinances.
Petitioners finally maintain that imposing upon respondent local business taxes under both Sections 14 and 21 of Tax
Ordinance No. 7794 does not constitute direct double taxation. Section 143 of the LGC gives municipal, as well as city
governments, the power to impose business taxes, to wit:
SECTION 143. Tax on Business. The municipality may impose taxes on the following businesses:
(a)
On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever
kind or nature, in accordance with the following schedule:
xxxx
(b)
On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature
in accordance with the following schedule:
xxxx
(c)
On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or
retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (1/2) of the rates
prescribed under subsections (a), (b) and (d) of this Section:
xxxx
Provided, however, That barangays shall have the exclusive power to levy taxes, as provided under
Section 152 hereof, on gross sales or receipts of the preceding calendar year of Fifty thousand pesos
(P50,000.00) or less, in the case of cities, and Thirty thousand pesos (P30,000) or less, in the case of
municipalities.
(e)

On contractors and other independent contractors, in accordance with the following schedule:

xxxx
(f)
On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one
percent (1%) on the gross receipts of the preceding calendar year derived from interest, commissions and
discounts from lending activities, income from financial leasing, dividends, rentals on property and profit
from exchange or sale of property, insurance premium.
(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not
exceeding Fifty pesos (P50.00) per peddler annually.
(h)
On any business, not otherwise specified in the preceding paragraphs, which the sanggunian
concerned may deem proper to tax:Provided, That on any business subject to the excise, value-added or
percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two
percent (2%) of gross sales or receipts of the preceding calendar year.

Section 14 of Tax Ordinance No. 7794 imposes local business tax on manufacturers, etc. of liquors, distilled spirits,
wines, and any other article of commerce, pursuant to Section 143(a) of the LGC. On the other hand, the local business tax
under Section 21 of Tax Ordinance No. 7794 is imposed upon persons selling goods and services in the course of trade or
business, and those importing goods for business or otherwise, who, pursuant to Section 143(h) of the LGC, are subject to
excise tax, value-added tax (VAT), or percentage tax under the National Internal Revenue Code (NIRC). Thus, there can be no

double taxation when respondent is being taxed under both Sections 14 and 21 of Tax Ordinance No. 7794, for under the first,
it is being taxed as a manufacturer; while under the second, it is being taxed as a person selling goods in the course of trade or
business subject to excise, VAT, or percentage tax.
The Court first addresses the issue raised by petitioners concerning the period within which to file with the CTA a
Petition for Review from an adverse decision or ruling of the RTC.
The period to appeal the decision or ruling of the RTC to the CTA via a Petition for Review is specifically governed by
Section 11 of Republic Act No. 9282,[15] and Section 3(a), Rule 8 of the Revised Rules of the CTA.
Section 11 of Republic Act No. 9282 provides:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely affected by a
decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the
Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board
of Assessment Appeals or the Regional Trial Courts may file an Appeal with the CTA withinthirty (30)
days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as
referred to in Section 7(a)(2) herein.
Appeal shall be made by filing a petition for review under a procedure analogous to that
provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30)
days from the receipt of the decision or ruling or in the case of inaction as herein provided, from the
expiration of the period fixed by law to act thereon. x x x. (Emphasis supplied.)

Section 3(a), Rule 8 of the Revised Rules of the CTA states:

SEC 3. Who may appeal; period to file petition. (a) A party adversely affected by a decision, ruling or the
inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal
revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in the exercise of its
original jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a
copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal
Revenue to act on the disputed assessments. x x x. (Emphasis supplied.)

It is crystal clear from the afore-quoted provisions that to appeal an adverse decision or ruling of the RTC to the CTA,
the taxpayer must file a Petition for Review with the CTA within 30 days from receipt of said adverse decision or ruling of
the RTC.
It is also true that the same provisions are silent as to whether such 30-day period can be extended or not. However,
Section 11 of Republic Act No. 9282 does state that the Petition for Review shall be filed with the CTA following the
procedure analogous to Rule 42 of the Revised Rules of Civil Procedure. Section 1, Rule 42[16] of the Revised Rules of Civil
Procedure provides that the Petition for Review of an adverse judgment or final order of the RTC must be filed with the Court
of Appeals within: (1) the original 15-day period from receipt of the judgment or final order to be appealed; (2) an extended
period of 15 days from the lapse of the original period; and (3) only for the most compelling reasons, another extended
period not to exceed 15 days from the lapse of the first extended period.
Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day original period for filing a
Petition for Review with the CTA under Section 11 of Republic Act No. 9282, as implemented by Section 3(a), Rule 8 of the
Revised Rules of the CTA, may be extended for a period of 15 days. No further extension shall be allowed thereafter, except
only for the most compelling reasons, in which case the extended period shall not exceed 15 days.
Even the CTA en banc, in its Decision dated 18 January 2008, recognizes that the 30-day period within which to file the
Petition for Review with the CTA may, indeed, be extended, thus:
Being suppletory to R.A. 9282, the 1997 Rules of Civil Procedure allow an additional period of fifteen
(15) days for the movant to file a Petition for Review, upon Motion, and payment of the full amount of the
docket fees. A further extension of fifteen (15) days may be granted on compelling reasons in accordance
with the provision of Section 1, Rule 42 of the 1997 Rules of Civil Procedure x x x. [17]

In this case, the CTA First Division did indeed err in finding that petitioners failed to file their Petition for Review in
C.T.A. AC No. 31 within the reglementary period.
From 20 April 2007, the date petitioners received a copy of the 4 April 2007 Order of the RTC, denying their Motion
for Reconsideration of the 16 November 2006 Order, petitioners had 30 days, or until 20 May 2007, within which to file their
Petition for Review with the CTA. Hence, the Motion for Extension filed by petitioners on 4 May 2007 grounded on their
belief that the reglementary period for filing their Petition for Review with the CTA was to expire on 5 May 2007, thus,
compelling them to seek an extension of 15 days, or until 20 May 2007, to file said Petition was unnecessary and
superfluous. Even without said Motion for Extension, petitioners could file their Petition for Review until 20 May 2007, as it
was still within the 30-day reglementary period provided for under Section 11 of Republic Act No. 9282; and implemented by
Section 3(a), Rule 8 of the Revised Rules of the CTA.
The Motion for Extension filed by the petitioners on 18 May 2007, prior to the lapse of the 30-day reglementary
period on 20 May 2007, in which they prayed for another extended period of 10 days, or until 30 May 2007, to file their
Petition for Review was, in reality, only the first Motion for Extension of petitioners. The CTA First Division should have
granted the same, as it was sanctioned by the rules of procedure. In fact, petitioners were only praying for a 10-day extension,
five days less than the 15-day extended period allowed by the rules. Thus, when petitioners filed via registered mail their
Petition for Review in C.T.A. AC No. 31 on 30 May 2007, they were able to comply with the reglementary period for filing such
a petition.
Nevertheless, there were other reasons for which the CTA First Division dismissed the Petition for Review of
petitioners in C.T.A. AC No. 31; i.e., petitioners failed to conform to Section 4 of Rule 5, and Section 2 of Rule 6 of the Revised
Rules of the CTA. The Court sustains the CTA First Division in this regard.
Section 4, Rule 5 of the Revised Rules of the CTA requires that:
SEC. 4. Number of copies. The parties shall file eleven signed copies of every paper for cases before the
Court en banc and six signed copies for cases before a Division of the Court in addition to the signed
original copy, except as otherwise directed by the Court. Papers to be filed in more than one case shall
include one additional copy for each additional case. (Emphasis supplied.)

Section 2, Rule 6 of the Revised Rules of the CTA further necessitates that:
SEC. 2. Petition for review; contents. The petition for review shall contain allegations showing the
jurisdiction of the Court, a concise statement of the complete facts and a summary statement of the issues
involved in the case, as well as the reasons relied upon for the review of the challenged decision. The petition
shall be verified and must contain a certification against forum shopping as provided in Section 3, Rule 46 of
the Rules of Court. A clearly legible duplicate original or certified true copy of the decision appealed
from shall be attached to the petition. (Emphasis supplied.)

The aforesaid provisions should be read in conjunction with Section 1, Rule 7 of the Revised Rules of the CTA, which
provides:
SECTION 1. Applicability of the Rules of Court on procedure in the Court of Appeals, exception. The
procedure in the Courten banc or in Divisions in original or in appealed cases shall be the same as those in
petitions for review and appeals before the Court of Appeals pursuant to the applicable provisions of Rules
42, 43, 44, and 46 of the Rules of Court, except as otherwise provided for in these Rules. (Emphasis
supplied.)

As found by the CTA First Division and affirmed by the CTA en banc, the Petition for Review filed by
petitioners viaregistered mail on 30 May 2007 consisted only of one copy and all the attachments thereto, including the
Decision dated 14 July 2006; and that the assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case
No. 03-107088 were mere machine copies. Evidently, petitioners did not comply at all with the requirements set forth under
Section 4, Rule 5; or with Section 2, Rule 6 of the Revised Rules of the CTA. Although the Revised Rules of the CTA do not

provide for the consequence of such non-compliance, Section 3, Rule 42 of the Rules of Court may be applied suppletorily, as
allowed by Section 1, Rule 7 of the Revised Rules of the CTA. Section 3, Rule 42 of the Rules of Court reads:
SEC. 3. Effect of failure to comply with requirements. The failure of the petitioner to comply with
any of the foregoing requirements regarding the payment of the docket and other lawful fees, the deposit for
costs, proof of service of the petition, and the contents of and the documents which should accompany the
petition shall be sufficient ground for the dismissal thereof. (Emphasis supplied.)

True, petitioners subsequently submitted certified copies of the Decision dated 14 July 2006 and assailed Orders
dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No. 03-107088, but a closer examination of the stamp on
said documents reveals that they were prepared and certified only on 14 August 2007, about two months and a half after the
filing of the Petition for Review by petitioners.
Petitioners never offered an explanation for their non-compliance with Section 4 of Rule 5, and Section 2 of Rule 6 of
the Revised Rules of the CTA. Hence, although the Court had, in previous instances, relaxed the application of rules of
procedure, it cannot do so in this case for lack of any justification.
Even assuming arguendo that the Petition for Review of petitioners in C.T.A. AC No. 31 should have been given due
course by the CTA First Division, it is still dismissible for lack of merit.
Contrary to the assertions of petitioners, the Coca-Cola case is indeed applicable to the instant case. The pivotal issue
raised therein was whether Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void, which this Court
resolved in the affirmative. Tax Ordinance No. 7988 was declared by the Secretary of the Department of Justice (DOJ) as null
and void and without legal effect due to the failure of herein petitioner City of Manila to satisfy the requirement under the law
that said ordinance be published for three consecutive days. Petitioner City of Manila never appealed said declaration of the
DOJ Secretary; thus, it attained finality after the lapse of the period for appeal of the same. The passage of Tax Ordinance No.
8011, amending Tax Ordinance No. 7988, did not cure the defects of the latter, which, in any way, did not legally exist.
By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011 are null and void and without
any legal effect. Therefore, respondent cannot be taxed and assessed under the amendatory laws--Tax Ordinance No. 7988
and Tax Ordinance No. 8011.
Petitioners insist that even with the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011,
respondent could still be made liable for local business taxes under both Sections 14 and 21 of Tax Ordinance No. 7944 as they
were originally read, without the amendment by the null and void tax ordinances.
Emphasis must be given to the fact that prior to the passage of Tax Ordinance No. 7988 and Tax Ordinance No. 8011
bypetitioner City of Manila, petitioners subjected and assessed respondent only for the local business tax under Section 14 of
Tax Ordinance No. 7794, but never under Section 21 of the same. This was due to the clear and unambiguous proviso in
Section 21 of Tax Ordinance No. 7794, which stated that all registered business in the City of Manila that are already paying
the aforementioned tax shall be exempted from payment thereof. The aforementioned tax referred to in said proviso refers
to local business tax. Stated differently, Section 21 of Tax Ordinance No. 7794 exempts from the payment of the local business
tax imposed by said section, businesses that are already paying such tax under other sections of the same tax ordinance. The
saidproviso, however, was deleted from Section 21 of Tax Ordinance No. 7794 by Tax Ordinances No. 7988 and No.
8011. Following this deletion, petitioners began assessing respondent for the local business tax under Section 21 of Tax
Ordinance No. 7794, as amended.
The Court easily infers from the foregoing circumstances that petitioners themselves believed that prior to Tax
Ordinance No. 7988 and Tax Ordinance No. 8011, respondent was exempt from the local business tax under Section 21 of Tax
Ordinance No. 7794. Hence, petitioners had to wait for the deletion of the exempting proviso in Section 21 of Tax Ordinance
No. 7794 by Tax Ordinance No. 7988 and Tax Ordinance No. 8011 before they assessed respondent for the local business tax
under said section. Yet, with the pronouncement by this Court in the Coca-Cola case that Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 were null and void and without legal effect, then Section 21 of Tax Ordinance No. 7794, as it has been

previously worded, with its exempting proviso, is back in effect. Accordingly, respondent should not have been subjected to
the local business tax under Section 21 of Tax Ordinance No. 7794 for the third and fourth quarters of 2000, given its
exemption therefrom since it was already paying the local business tax under Section 14 of the same ordinance.
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their own
detriment. Said exempting proviso was precisely included in said section so as to avoid double taxation.
Double taxation means taxing the same property twice when it should be taxed only once; that is, taxing the same
person twice by the same jurisdiction for the same thing. It is obnoxious when the taxpayer is taxed twice, when it should be
but once. Otherwise described as direct duplicate taxation, the two taxes must be imposed on the same subject matter,
for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and
the taxes must beof the same kind or character.[18]
Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the taxes
under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter the
privilege of doing business in the City of Manila; (2) for the same purpose to make persons conducting business within the
City of Manila contribute to city revenues; (3) by the same taxing authority petitioner City of Manila; (4) within the same
taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year;
and (6) of the same kind or character a local business tax imposed on gross sales or receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No. 7794 is
specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and cities to impose a local
business tax, and to which any local business tax imposed by petitioner City of Manila must conform. It is apparent from a
perusal thereof that when a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled
spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said municipality or city may no
longer subject the same manufacturers, etc. to a business tax under Section 143(h) of the same Code. Section 143(h) may be
imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are not otherwise
specified in preceding paragraphs. In the same way, businesses such as respondents, already subject to a local business
tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer be made liable for
local business tax under Section 21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC].
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is hereby DENIED. No costs.
SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

PRESBITERO J. VELASCO, JR. ANTONIO EDUARDO B. NACHURA

Associate Justice
Associate Justice

DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified
that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

Chief Justice

[1]
[2]
[3]
[4]
[5]
[6]

[7]
[8]
[9]
[10]
[11]
[12]

[13]

[14]

REYNATO S. PUNO

Penned by Associate Justice Juanito C. Castaeda, Jr. with Presiding Justice Ernesto D. Acosta, Associate Justices
Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez, concurring, rollo, pp. 32-44.
Id. at 45-46.
Signed by Presiding Justice Ernesto D. Acosta and Associate Justices Lovell R. Bautista and Caesar A. Casanova, rollo,
pp. 106-107.
Id. at 127-129.
Id. at 130-133.
Otherwise known as Revenue Code of the City of Manila. Tax Ordinance No. 7794, as referred to in this case, is
deemed to have already incorporated the amendments previously introduced to it by Tax Ordinance No. 7807. The
Court no longer highlights the fact of the previous amendment of Tax Ordinance No. 7794 by Tax Ordinance No. 7807,
since it is not an issue in this case, and to avoid confusion with the subsequent amendment of the former by Tax
Ordinances No. 7988 and No. 8011.
Otherwise known as Revised Revenue Code of the City of Manila.
G.R. No. 156252, 27 June 2006, 493 SCRA 279.
Penned by Presiding Judge Augusto T. Gutierrez, rollo, pp. 47-53.
Id. at 89-90.
Id. at 96-97.
SEC. 1. Applicability of the Rules on procedure in the Court of Appeals, exception. The procedure in the Court En
Banc or in Divisions in original and in appealed cases shall be the same as those in petitions for review and appeals
before the Court of Appeals pursuant to the applicable provisions of Rules 42, 43, 44 and 46 of the Rules of Court,
except as otherwise provided for in these Rules.
SEC. 1. How appeal taken; time for filing. A party desiring to appeal from a decision of the Regional Trial Court
rendered in the exercise of its appellate jurisdiction may file a verified petition for review with the Court of Appeals,
paying at the same time to the clerk of said court the corresponding docket and other lawful fees, depositing the
amount of P500.00 for costs, and furnishing the Regional Trial Court and the adverse party with a copy of the
petition. The petition shall be filed and served within fifteen (15) days from notice of the decision sought to be
reviewed or of the denial of petitioners motion for new trial or reconsideration filed in due time after
judgment. Upon proper motion and the payment of the full amount of the docket and other lawful fees and the
deposit for costs before the expiration of the reglementary period, the Court of Appeals may grant an additional
period of fifteen (15) days only within which to file the petition for review. No further extension shall be granted
except for the most compelling reason and in no case to exceed fifteen (15) days.
SEC. 3. Who may appeal; period to file petition. (a) A party adversely affected by a decision, ruling or the inaction of
the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a
decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the
Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by
petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period
fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of the
Commissioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or illegally collected,

[15]

[16]

[17]
[18]

the taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection
of the taxes.
An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of a Collegiate
Court with Special Jurisdiction and Enlarging its Membership, Amending for the Purpose Certain Sections of Republic
Act No. 1125, as amended, Otherwise Known as the Law Creating the Court of Tax Appeals and for Other Purposes.
Section 1. How appeal taken; time for filing. x x x The petition shall be filed and served within fifteen (15) days from
notice of the decision sought to be reviewed or of the denial of petitioners motion for new trial or reconsideration
filed in due time after judgment. Upon proper motion and the payment of the full amount of the docket and other
lawful fees and the deposit for costs before the expiration of the reglementary period, the Court of Appeals may grant
an additional period of fifteen (15) days only within which to file the petition for review. No further extension shall be
granted except for the most compelling reason and in no case to exceed fifteen (15) days.
Rollo, p. 40.
Commissioner of Internal Revenue v. Bank of Commerce, G.R. No. 149636, 8 June 2005, 459 SCRA 638, 655.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-26521

December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,

vs.
CITY OF ILOILO, defendants-appellants.
Pelaez, Jalandoni and Jamir for plaintiff-appellees.
Assistant City Fiscal Vicente P. Gengos for defendant-appellant.
CASTRO, J.:
Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring illegal Ordinance 11,
series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons Engaged In The Business Of Operating
Tenement Houses," and ordering the City to refund to the plaintiffs-appellees the sums of collected from them under the said
ordinance.
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: (1)
tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in or dedicated to business
in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly engaged in
business in any other streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by
the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments.
This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the
ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among those clearly and
expressly granted to the City of Iloilo by its Charter."
On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of Republic Act 2264,
otherwise known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that
previously declared by this Court as ultra vires, enacted Ordinance 11, series of 1960, hereunder quoted in full:
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF OPERATING
TENEMENT HOUSES
Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act No. 2264,
otherwise known as the Autonomy Law of Local Government, that:
Section 1. A municipal license tax is hereby imposed on tenement houses in accordance with the schedule of
payment herein provided.
Section 2. Tenement house as contemplated in this ordinance shall mean any building or dwelling for renting space
divided into separate apartments or accessorias.
Section 3. The municipal license tax provided in Section 1 hereof shall be as follows:
I. Tenement houses:
(a) Apartment house made of strong materials

P20.00 per door p.a.

(b) Apartment house made of mixed materials

P10.00 per door p.a.

II Rooming house of strong materials

P10.00 per door p.a.

Rooming house of mixed materials

P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or dedicated to

business in the following streets: J.M. Basa, Iznart, Aldeguer, Guanco and
Ledesma from Plazoleto Gay to Valeria. St.

P30.00 per door p.a.

IV. Tenement house partly or wholly engaged in or dedicated to

business in any other street

P12.00 per door p.a.

V. Tenement houses at the streets surrounding the super market as soon

as said place is declared commercial

P24.00 per door p.a.

Section 4. All ordinances or parts thereof inconsistent herewith are hereby amended.
Section 5. Any person found violating this ordinance shall be punished with a fine note exceeding Two Hundred
Pesos (P200.00) or an imprisonment of not more than six (6) months or both at the discretion of the Court.
Section 6 This ordinance shall take effect upon approval.
ENACTED, January 15, 1960.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses, aggregately
containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten apartments. Each
of the appellees' apartments has a door leading to a street and is rented by either a Filipino or Chinese merchant. The first
floor is utilized as a store, while the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns,
likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon City, which cities, according to him,
do not impose tenement or apartment taxes.
By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios S.
Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and
Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying real
estate taxes on his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against
the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for being beyond
the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to
uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be
ordered to refund the amounts collected from them under the said ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds that (a) "Republic Act
2264 does not empower cities to impose apartment taxes," (b) the same is "oppressive and unreasonable," for the reason that
it penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and
(d) it violates the rule of uniformity of taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?
1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:
SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal
districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or
business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure
licences at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or
the municipal district council of the municipal district; to collect fees and charges for services rendered by the city,
municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with
any business, profession or occupation being conducted within the city, municipality or municipal district and
otherwise to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and
municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor
impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National Internal Revenue
Code;Provided, however, That no city, municipality or municipal district may levy or impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and publication of any newspaper, magazine, review or
bulletin appearing at regular intervals and having fixed prices for for subscription and sale, and which is not published
primarily for the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the
driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned by the national government, tonnage, and all other
kinds of customs fees, charges and duties;
(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies.
A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall provide
otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the effectivity of any

ordinance within one hundred and twenty days after its passage, if, in his opinion, the tax or fee therein levied or
imposed is unjust, excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority the
effectivity of such ordinance shall be suspended.
In such event, the municipal board or city council in the case of cities and the municipal council or municipal district
council in the case of municipalities or municipal districts may appeal the decision of the Secretary of Finance to the
court during the pendency of which case the tax levied shall be considered as paid under protest.
It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad taxing authority
which extends to almost "everything, excepting those which are mentioned therein," provided that the tax so levied is "for
public purposes, just and uniform," and does not transgress any constitutional provision or is not repugnant to a controlling
statute.2 Thus, when a tax, levied under the authority of a city or municipal ordinance, is not within the exceptions and
limitations aforementioned, the same comes within the ambit of the general rule, pursuant to the rules of expressio unius est
exclusio alterius, and exceptio firmat regulum in casibus non excepti.
Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of the Local
Autonomy Act? For this purpose, it is necessary to determine the true nature of the tax. The appellees strongly maintain that it
is a "property tax" or "real estate tax,"3 and not a "tax on persons engaged in any occupation or business or exercising
privileges," or a license tax, or a privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a
"municipal license tax on persons engaged in the business of operating tenement houses," while section 1 thereof states that a
"municipal license tax is hereby imposed on tenement houses." It is the phraseology of section 1 on which the appellees base
their contention that the tax involved is a real estate tax which, according to them, makes the ordinance ultra vires as it
imposes a levy "in excess of the one per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act
158."5.
It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax. Obviously, the appellees
confuse the tax with the real estate tax within the meaning of the Assessment Law, 6 which, although not applicable to the City
of Iloilo, has counterpart provisions in the Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of lands and
buildings or other improvements thereon, not specially exempted,8 and is payable regardless of whether the property is used
or not, although the value may vary in accordance with such factor.9The tax is usually single or indivisible, although the land
and building or improvements erected thereon are assessed separately, except when the land and building or improvements
belong to separate owners.10 It is a fixed proportion11 of the assessed value of the property taxed, and requires, therefore, the
intervention of assessors.12 It is collected or payable at appointed times,13 and it constitutes a superior lien on and is
enforceable against the property14 subject to such taxation, and not by imprisonment of the owner.
The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax on the land on which
the tenement houses are erected, although both land and tenement houses may belong to the same owner. The tax is not a
fixed proportion of the assessed value of the tenement houses, and does not require the intervention of assessors or
appraisers. It is not payable at a designated time or date, and is not enforceable against the tenement houses either by sale or
distraint. Clearly, therefore, the tax in question is not a real estate tax.
"The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court looks less to its words
and more to the context, subject-matter, consequence and effect. Accordingly, what is within the spirit is within the ordinance
although it is not within the letter thereof, while that which is in the letter, although not within the spirit, is not within the
ordinance."15 It is within neither the letter nor the spirit of the ordinance that an additional real estate tax is being imposed,
otherwise the subject-matter would have been not merely tenement houses. On the contrary, it is plain from the context of the
ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a form of business or
calling. The ordinance, in both its title and body, particularly sections 1 and 3 thereof, designates the tax imposed as a
"municipal license tax" which, by itself, means an "imposition or exaction on the right to use or dispose of property, to pursue a
business, occupation, or calling, or to exercise a privilege." 16.
"The character of a tax is not to be fixed by any isolated words that may beemployed in the statute creating it, but such
words must be taken in the connection in which they are used and the true character is to be deduced from the nature
and essence of the subject."17 The subject-matter of the ordinance is tenement houses whose nature and essence are
expressly set forth in section 2 which defines a tenement house as "any building or dwelling for renting space divided
into separate apartments or accessorias." The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L12695, March 23, 1959, adopted the definition of a tenement house18 as "any house or building, or portion thereof,
which is rented, leased, or hired out to be occupied, or is occupied, as the home or residence of three families or more
living independently of each other and doing their cooking in the premises or by more than two families upon any
floor, so living and cooking, but having a common right in the halls, stairways, yards, water-closets, or privies, or some
of them." Tenement houses, being necessarily offered for rent or lease by their very nature and essence, therefore
constitute a distinct form of business or calling, similar to the hotel or motel business, or the operation of lodging
houses or boarding houses. This is precisely one of the reasons why this Court, in the said case of City of Iloilo vs.
Remedios Sian Villanueva, et al., supra, declared Ordinance 86 ultra vires, because, although the municipal board of
Iloilo City is empowered, under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and regulate hotels,
restaurants, refreshment parlors, cafes, lodging houses, boarding houses, livery garages, public warehouses,
pawnshops, theaters, cinematographs," tenement houses, which constitute a different business enterprise,19 are not
mentioned in the aforestated section of the City Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:.
"And it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly
granted to the City of Iloilo by its Charter, the exercise of such power cannot be assumed and hence the ordinance in
question is ultra vires insofar as it taxes a tenement house such as those belonging to defendants." .
The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment tax. Called by either
name, it is not among the exceptions listed in section 2 of the Local Autonomy Act. On the other hand, the imposition by the
ordinance of a license tax on persons engaged in the business of operating tenement houses finds authority in section 2 of the
Local Autonomy Act which provides that chartered cities have the authority to impose municipal license taxes or fees upon

persons engaged in any occupation or business, or exercising privileges within their respective territories, and "otherwise to
levy for public purposes, just and uniform taxes, licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that," because "buildings pay
real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides
the tenement tax under the said ordinance." Obviously, what the trial court refers to as "income taxes" are the fixed taxes on
business and occupation provided for in section 182, Title V, of the National Internal Revenue Code, by virtue of which persons
engaged in "leasing or renting property, whether on their account as principals or as owners of rental property or properties,"
are considered "real estate dealers" and are taxed according to the amount of their annual income.20.
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal Revenue Code
as real estate dealers, and still taxable under the ordinance in question, the argument against double taxation may not be
invoked. The same tax may be imposed by the national government as well as by the local government. There is nothing
inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the
State and a political subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the tenement
tax imposed by the ordinance in question, is also devoid of merit. It is a well-settled rule that a license tax may be levied upon a
business or occupation although the land or property used in connection therewith is subject to property tax. The State may
collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on that calling, the imposition
of the latter kind of tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice
when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same
purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the
same taxing period, and they must be the same kind or character of tax."23 It has been shown that a real estate tax and
the tenement tax imposed by the ordinance, although imposed by the sametaxing authority, are not of the same kind
or character.
At all events, there is no constitutional prohibition against double taxation in the Philippines.24 It is something not favored, but
is permissible, provided some other constitutional requirement is not thereby violated, such as the requirement that taxes
must be uniform."25.
3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only oppressive because it
"carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both, if the owner or owners of the tenement
buildings divided into apartments do not pay the tenement or apartment tax fixed in said ordinance," but also unconstitutional
as it subjects the owners of tenement houses to criminal prosecution for non-payment of an obligation which is purely sum of
money." The lower court apparently had in mind, when it made the above ruling, the provision of the Constitution that "no
person shall be imprisoned for a debt or non-payment of a poll tax."26 It is elementary, however, that "a tax is not a debt in the
sense of an obligation incurred by contract, express or implied, and therefore is not within the meaning of constitutional or
statutory provisions abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the nonpayment thereof by fine or imprisonment is not, in conflict with that prohibition."27 Nor is the tax in question a poll tax, for the
latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class, resident within a specified territory,
without regard to their property or the occupations in which they may be engaged.28 Therefore, the tax in question is not
oppressive in the manner the lower court puts it. On the other hand, the charter of Iloilo City 29 empowers its municipal board
to "fix penalties for violations of ordinances, which shall not exceed a fine of two hundred pesos or six months' imprisonment,
or both such fine and imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court overruled
the pronouncement of the lower court declaring illegal and void an ordinance imposing an occupation tax on persons
exercising various professions in the City of Manilabecause it imposed a penalty of fine and imprisonment for its violation.30.
4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.
"... because while the owners of the other buildings only pay real estate tax and income taxes the ordinance imposes
aside from these two taxes an apartment or tenement tax. It should be noted that in the assessment of real estate tax
all parts of the building or buildings are included so that the corresponding real estate tax could be properly imposed.
If aside from the real estate tax the owner or owners of the tenement buildings should pay apartment taxes as
required in the ordinance then it will violate the rule of uniformity of taxation.".
Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity" and "relative
inequality," because "only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses, while
citizens of other cities, where their councils do not enact a similar tax ordinance, are permitted to escape such imposition." .
It is our view that both assertions are undeserving of extended attention. This Court has already ruled that tenement houses
constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon all property
of the same class or character within the taxing authority." 31 The fact, therefore, that the owners of other classes of buildings in
the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and
equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare not
imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different
territorial subdivisions at the same time.32So long as the burden of the tax falls equally and impartially on all owners or
operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished. 33 The
plaintiffs-appellees, as owners of tenement houses in the City of Iloilo, have not shown that the tax burden is not equally or
uniformly distributed among them, to overthrow the presumption that tax statutes are intended to operate uniformly and
equally.34.
5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere reproduction of
Ordinance 86 of the City of Iloilo which was declared by this Court in L-12695, supra, as ultra vires, the decision in that case
should be accorded the effect of res judicata in the present case or should constitute estoppel by judgment. To dispose of this

contention, it suffices to say that there is no identity of subject-matter in that case andthis case because the subject-matter in
L-12695 was an ordinance which dealt not only with tenement houses but also warehouses, and the said ordinance was
enacted pursuant to the provisions of the City charter, while the ordinance in the case at bar was enacted pursuant to the
provisions of the Local Autonomy Act. There is likewise no identity of cause of action in the two cases because the main issue
in L-12695 was whether the City of Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of
1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore was not available for consideration in
the decision in L-12695 which was promulgated on March 23, 1959. Moreover, under the provisions of section 2 of the Local
Autonomy Act, local governments may now tax any taxable subject-matter or object not included in the enumeration of
matters removed from the taxing power of local governments.Prior to the enactment of the Local Autonomy Act the taxes that
could be legally levied by local governments were only those specifically authorized by law, and their power to tax was
construed in strictissimi juris. 35.
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the complaint is hereby dismissed.
No pronouncement as to costs..
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,Fernando and Capistrano, JJ., concur..

Footnotes
The record discloses that the delay caused in the lower court was due to the loss of the original record while the
same was in the possession of the late Judge Perfecto Querubin. The record was later reconstituted under Judge
Ramon Blanco..
1

Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, L-20125, July 20, 1965, per Concepcion, J.: .
"Neither the plaintiff nor the lower court maintains that the subject matter of the ordinance in question
comes under any of the foregoing exceptions. Hence, under the rule - "expressio unius est exclusio alterius",
the ordinance should be deemed to come within the purview of the general rule. Indeed, the sponsor of the
bill, which upon its passage became Republic Act No. 2264, explicitly informed the House of Representatives
when he urged the same to approve it, that, under its provisions, local governments would be "able to do
everything, excepting those things which are mentioned therein." ..." .
C.N. Hodges vs. The Mun. Board of the City of Iloilo, et al., L-18276, Jan. 12, 1967, per Castro, J.: .
"... Heretofore, we have announced the doctrine that the grant of the power to tax to chartered cities under
section 2 of the Local Autonomy Act is sufficiently plenary to cover "everything, excepting those which are
mentioned therein," subject only to the limitation that the tax so levied is for "public purposes, just and
uniform" (Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, G.R. No. L-20125, July 20, 1965). There is no
showing, and we do not believe it is possible to show, that the tax levied, called by any name - percentage tax
or sales tax - comes under any of the specific exceptions listed in Section 2 of the Local Autonomy Act. Not
being excepted, it must be regarded as coming within the purview of the general rule. As the maxim goes,
"Exceptio firmat regulum in casibus non excepti." Since its public purpose, justness and uniformity of
application are not disputed, the tax so levied must be sustained as valid." (Re: Ordinance imposing a tax on
sales or real estate property situated in the City of Iloilo, of 1/2% of 1% of the contract price or
consideration.).
Ormoc Sugar Co., Inc. vs. Mun. Board of Ormoc City, et al., L-24322, July 21, 1967, per Fernando, J.: .
"In a number of decisions starting from City of Bacolod v. Gruet, L-18290, Jan. 31, 1963, to Hodges vs. Mun.
Board, L-18276, Jan. 12, 1967, such broad taxing authority has been implemented and vitalized by this Court.
"... The question before this Court is one of power. From and after June 19, 1959, when the Local Autonomy
Act was enacted, the sphere of autonomy of a chartered city in the enactment of taxing measures has been
considerably enlarged.
"... In the absence of a clear and specific showing that there was a transgression of a constitutional provision
or repugnancy to a controlling statute, an objection of such a generalized character deserves but scant
sympathy from this Court. Considering the indubitable policy expressly set forth in the Local Autonomy Act,
the invocation of such a talismanic formula as "restraint of trade" without more no longer suffices, assuming
it ever did, to nullify a taxing ordinance, otherwise valid." [Re: Ordinance imposing tax on all productions of
centrifugal sugar (B-sugar) locally sold or sold within the Phil., at P.20 per picul, etc.].

"Taxes on property are taxes assessed on all property or on all property of a certain class located within a certain
territory on a specified date in proportion to its value, or in accordance with some other reasonable method of
apportionment, the obligation to pay which is absolute and unavoidable and it is not based upon any voluntary action
of the person assessed. A property tax is ordinarily measured by the amount of property owned by the taxpayer on a
given day, and not on the total amount owned by him during the year. It is ordinarily assessed at stated periods
determined in advance, and collected at appointed times, and its payment is usually enforced by sale of the property
taxed, and, occassionally, by imprisonment of the person assessed." (51 Am. Jur. 57) .
3

"A "real estate tax" is a tax in rem against realty without personal liability therefor on part of owner thereof,
and a judgment recovered in proceedings for enforcement of real estate tax is one in rem against the realty

without personal liability against the owner." (36 Words and Phrases, 286, citing Land O'Lakes Dairy Co. vs.
Wadena County, 39 N. W. 2d. 164, 171, 229 Minn. 263).
"The term "license tax" or "license fee" implies an imposition or exaction on the right to use or dispose of a property,
to pursue a business, occupation, or calling, or to exercise a privilege." (33 Am. Jur. 325-v26) .
4

"The term "excise tax" is synonymous with "privilege tax", and the two are often used interchangeably, and
whether a tax is characterized in the statute imposing it as a privilege tax or an excise tax is merely a choice of
synonymous words, for an excise tax is a privilege tax." (51 Am. Jur. 62, citing Bank of Commerce & T. Co. vs.
Senter, 149 Tenn. 569, 260 SW 144) .
"Thus, it is said that an excise tax is a charge imposed upon the performance of an act, the enjoyment of a
privilege, or the engaging in an occupation." (51 Am. Jur. 61) .
"SEC. 38. Annual tax and penalties. Extension and remission of the tax. -- An annual tax of one per centum on the
assessed value of all real estate in the city subject to taxation shall be levied by the city treasurer..." .
5

Commonwealth Act No. 470 -- "SECTION 1. Title of this Act. - This Act shall be known as the Assessment Law. `.
`SEC. 2. Incidence of real property tax. -- Except in chartered cities, there shall be levied, assessed, and
collected an annual ad valorem tax on real property, including land, buildings, machinery and other
improvements not hereinafter specially exempted.".

Com. Act 158, sections 28 to 53.

Com. Act 158, sec. 29.

51 Am. Jur. 53: "An ad valorem property tax is invariably based upon ownership of property, and is payable
regardless of whether the property is used or not, although of course the value may vary in accordance with such
factor." .
9

"Real estate, for purposes of taxation, includes all land within the district by which the tax is levied, and all rights
and interests in such land, and all buildings and other structures affixed to the land, even though as between the
landlord and the tenant they are the property of the tenant and may be removed by him at the termination of the
lease." (51 Am. Jur. 438) Sec. 31 of Com. Act 158 provides: "When it shall appear that there are separate owners of the
land and the improvements thereon, a separate assessment of the property of each shall be made." .
10

Sec. 38 of Com. Act 158 provides: "An annual tax of one per centum on the assessed value of all real estate in the city
subject to taxation shall be levied by the city treasurer." .
11

12

Secs. 28 to 34, Com. Act 158.

Sec. 38 of Com. Act 158 provides: "All taxes on real estate for any year shall be due and payable on the first day of
January and from this date such taxes together with all penalties accruing thereto shall constitute a lien on the
property subject to such taxation." .
13

Sec. 38 of Com. Act 158 provides: "Such lien shall be superior to all other liens, mortgages or incumbrances of any
kind whatsoever, and shall be enforceable against the property whether in the possession of the delinquent or any
subsequent owner, and can only be removed by the payment of the tax and penalty.".
14

15

62 C.J.S. 845; Manila Race Horse Trainers Assn. vs. De la Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60.

16

51 Am. Jur. 59-60; 33 Am. Jur. 325-326..

17

51 Am. Jur. 56, citing Eyre v. Jacob, 14 Gratt (Va.) 422; 73 Am. Dec. 367.

18

Webster's New International Dictionary, 2nd Ed., p. 2601.

City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959: "As may be seen from the definition of
each establishment hereunder quoted, a tenement house is different from hotel, lodging house, or boarding house.
These are different business enterprises. They have been established for different purposes.
19

20

National Internal Revenue Code: .

"SEC. 182. Fixed taxes. -- On business ...; (3) Other fixed taxes. -- The following fixed taxes shall be collected as
follows, the amount stated being for the whole year, when not otherwise specified: .
XXX

XXX

XXX

"(s) Stockbrokers, dealers in securities, real estate brokers, real estate dealers, commercial brokers, customs
brokers, and immigration brokers, one hundred and fifty pesos: Provided, however, That in the case of real
estate dealers, the annual fixed tax to be collected shall be as follows: .

"One hundred and fifty pesos, if the annual income from buying, selling, exchanging, leasing, or renting
property (whether on their own account as principals or as owners of rental property or properties) is four
thousand pesos or more but not exceeding ten thousand pesos; .
"Three hundred pesos, if such annual income exceeds ten thousand pesos but does not exceed thirty thousand
pesos; and .
"Five hundred pesos, if such annual income exceeds thirty thousand pesos."
Punsalan, et al. vs. Mun. Board of the City of Manila, et al., L-4817, May 26, 1954, 95 Phil. 46, per Reyes, J.: In this
case the Supreme Court upheld the validity of Ordinance 3398 of the City of Manila, approved on July 25, 1950,
imposing a municipal occupation tax on persons exercising various professions (lawyers, medical practitioners, public
accountants, dental surgeons, pharmacists, etc.), in the city and penalizes non-payment of the tax by a fine of not more
than P200.00 or by imprisonment of not more than 6 months, or by both such fine and imprisonment in the discretion
of the court, although section 201 [now sec. 182(B)] of the National Internal Revenue Code requires the payment of
taxes on occupation or professional taxes. Said Justice Reyes: "The argument against double taxation may not be
invoked where one tax is imposed by the state and the other is imposed by the city (1 Cooley on Taxation, 4th ed., p.
492), it being widely recognized that there is nothing obnoxious in the requirement thatlicense fees or taxes be
exacted with respect to the same occupation, calling or activity by both the state and the political subdivision thereof.
(51 Am. Jur., 341.)" .
21

A month after the promulgation of the above decision, Congress passed Rep. Act 1166, approved on June 18,
1954, providing as follows: "Any provisions of existing laws, city charters and ordinances, executive orders
and regulations, or parts thereof, to the contrary notwithstanding, every professional legally authorized to
practice his profession, who has paid the corresponding annual privilege tax on professions required by Sec.
182 of the NIRC, Com. Act No. 466,shall be entitled to practice the profession for which he has been duly
qualified under the law, in all parts of the Philippines without being subject to any other tax, charge, license or
fee for the practice of such profession; Provided, however, That they have paid to the office concerned the
registration fees required in their respective professions." .
People vs. Santiago Mendaros, et al., L-6975, May 27, 1955, 97 Phil. 958-959, per Bautista Angelo, J. Appeal from the
decision of the CFI of Zambales. Defendants-appellees were convicted by the JP Court of Palauig, Zambales, and
sentenced to pay a fine of P5.00, for failure to pay the occupation tax imposed by a municipal ordinance on owners of
fishponds on lands of private ownership. The Supreme Court, in sustaining the validity of the ordinance, held:.
22

"The ground on which the trial court declared the municipal ordinance invalid would seem to be that, since
the land on which the fishpond is situated is already subject to land tax, it would be unfair and discriminatory
to levy another tax on the owner of the fishpond because that would amount to double taxation. This view is
erroneous because it is a well-settled rule that a license tax may be levied upon a business or occupation
although the land or property used therein is subject to property tax. It was also held that "the state may
collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on the
pursuit of that calling." The imposition of this kind of tax is in no sense called a double tax." .
Veronica Sanchez vs. The Collector of Internal Revenue, L-7521, Oct. 18, 1955, 97 Phil. 687, per Reyes, J.B.L., J.
"Considering that appellant constructed her four-door "accessoria" purposely for rent or profit; that she has
been continuously leasing the same to third persons since its construction in 1947; that she manages her
property herself; and that said leased holding appears to be her main source of livelihood, she is engaged in
the leasing of real estate, and is a real estate dealer as defined in section 194(s) [now, Sec. 182(A)(3)(s)] of
the Internal Revenue Code, as amended by Rep. Act No. 42.
"Appellant argues that she is already paying real estate taxes on her property, as well as income tax on the
income derived therefrom, so that to further subject its rentals to the "real estate dealers" tax amounts to
double taxation. This argument has already been rejected by this Court in the case of People vs. Mendaros et
al., L-6975, promulgated May 27, 1955, wherein we held that it is a well-settled rule that license tax may be
levied upon a business or occupation although the land or property used therein is subject to property tax,
and that"the state may collect an ad valorem tax on property used in a calling, and at the same time impose a
license tax on the pursuit of that calling", the imposition of the latter kind of tax being in no sense a double
tax." ".
23

84 C.J.S. 131-132.

Manufacturers' Life Insurance Co. vs. Meer, L-2910, June 29, 1951; City of Manila vs. Interisland Gas Service, L-8799,
Aug 31, 1956; Commissioner of Internal Revenue vs. Hawaiian-Philippine Co., L-16315, May 30, 1964; Pepsi-Cola
Bottling Co. of the Philippines vs. City of Butuan, et al., L-22814, Aug. 28, 1968.
24

Pepsi-Cola Bottling Co. vs. City of Butuan, supra: .

"The second and last objections are manifestly devoid of merit. Indeed -- independently of whether or not the
tax in question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to
double taxation, on which we need not and do not express any opinion -- double taxation, in general, is not
forbidden by our fundamental law. We have not adopted, as part thereof, the injunction against double
taxation found in the Constitution of the United States and some States of the Union. Then, again, the general
principle against delegation of legislative powers, in consequence of the theory of separation of powers is
subject to one well-established exception, namely; legislative powers may be delegated to local governments to which said theory does not apply - in respect of matters of local concern." .

84 C.J.S. 133-134; "Double taxation, although not favored, is permissible in the absence of express or implied
constitutional prohibition.
25

"Double taxation should not be permitted unless the legislature has authority to impose it. However, since the
taxing power is exclusively a legislative function, and since, except as it is limited or restrained by
constitutional provisions, it is absolute and unlimited, it is generally held that there is nothing, in the abscence
of any express or implied constitutional prohibition against double taxation, to prevent the imposition of
more than one tax on property within the jurisdiction, as the power to tax twice is as ample as the power to
tax once. In such case whether or not there should be double taxation is a matter within the discretion of the
legislature.
"In some states where double taxation is not expressly prohibited, it is held that double taxation is
permissible, or not invalid or unconstitutional, or necessarily unlawful, provided some other constitutional
requirement is not thereby violated, as a requirement that taxes must be equal and uniform." .
The Constitution of the Philippines, Art. VI, sec. 22 (1) provides: "The rule of taxation shall be uniform." .
26

Art. III, sec. 1, par. 12, Constitution.

51 Am. Jur. 860-861, citing Cousins v. State, 50 Ala. 113, 20 Am. Rep. 290; Rosenbloom v. State, 64 Neb. 342, 89 NW
1053, 57 LRA 922; Voelkel v. Cincinnati, 112 Ohio St. 374, 147 NE 754, 40 ALR 73 (holding the provisions of an
ordinance making the non-payment of an excise tax levied in pursuance of such ordinance a misdemeanor punishable
by fine not in violation of the constitutional prohibition against the imprisonment of any person for "debt in a civil
action, or mesne or final process"); Ex parte Mann, 39 Tex. Crim. Rep. 491, 46 SW 828,73 Am. St. Rep. 961.
27

26 R.C.L. 25-26: "It is generally considered that a tax is not a debt, and that the municipality to which the tax is
payable is not a creditor of the person assessed. A debt is a sum of money due by certain and express
agreement. It originates in, and is founded upon, contract express or implied. Taxes, on the other hand, do not
rest upon contract, express or implied. They are obligations imposed upon citizens to pay the expenses of
government. They are forced contributions, and in no way dependent upon the will or contract, express or
implied, of the persons taxed." .
51 Am. Jur. 66-67; "Capitation or poll taxes are taxes of a fixed amount upon all persons, or upon all the persons of a
certain class, resident within a specified territory, without regard to their property or the occupations in which they
may be engaged. Taxes of a specified amount upon each person performing a certain act or engaging in a certain
business or profession are not, however, poll taxes." .
28

Com. Act No. 158 (An Act Establishing a Form of Government for the City of Iloilo), section 21: "Except as otherwise
provided by law, and subject to the conditions and limitations thereof, the Municipal Board shall have the following
legislative powers: .
29

"(aa) ... and to fix penalties for the violation of ordinances which shall not exceed a fine of two hundred pesos
or six months' imprisonment, or both such fine and imprisonment, for each offense." .
"To begin with the defendants' appeal, we find that the lower court was in error in saying that the imposition of the
penalty provided for in the ordinance was without the authority of law. The last paragraph (kk) of the very section
that authorizes the enactment of the ordinance (section 18 of the Manila Charter) in express terms also empowers the
Municipal Board to "fix penalties for the violation of ordinances which not exceed to [sic] two hundred pesos fine or
six months' imprisonment, or both such fine and imprisonment, for a single offense." Hence, the pronouncement
below that the ordinance in question is illegal and void because it imposes a penalty not authorized by law is clearly
without legal basis." .
30

51 Am. Jur. 203, citing Re Page, 60 Kan. 842, 59 P 478, 47 LRA 68: "Taxes are uniform and equal when imposed
upon all property of the same character within the taxing authority." Manila Race Horse Trainers Assn., Inc. vs. De la
Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60: "In the case of Eastern Theatrical Co., Inc. vs. Alfonso, [L-1104, May 31,
1949], 46 O.G. Supp. to No. 11, p. 303, it was said that there is equality and uniformity in taxation if all articles or kinds
of property of the same class are taxed at the same rate. Thus, it was held in that case, that "the fact that some places
of amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies, theatrical shows,
and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is no argument at all against
equality and uniformity of the tax imposition." Applying this criterion to the present case, there would be
discrimination if some boarding stables of the class used for the same number of horses were not taxed or were made
to pay less or more than others." Tan Kim Kee vs. Court of Tax Appeals, et al., L-18080, April 22, 1963, per Reyes, J.B.L.,
J.: "The rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only
demands uniformity within the particular class.".
31

Am. Jur. 203: "153. Uniformity of Operation Throughout Tax Unit. One requirement with respect to taxation
imposed by provisions relating to equality and uniformity, which has been introduced into some state constitutions in
express language, is that taxation must be uniform throughout the political unit by or with respect to which the tax is
levied. This means, for example, that a tax for a state purpose must be uniform and equal throughout the state, a tax
for a county purpose must be uniform and equal throughout the county, anda tax for a city, village, or township
purpose must be uniform and equal throughout the city, village, or township. It does not mean, however, that the
taxes levied by or with respect to the various political subdivisions or taxing districts of the state must be at the same
rate, or, as one court has graphically put it, that a man in one county shall pay the same rate of taxation for all
purposes that is paid by a man in an adjoining county. Nor does the rule require that taxes for the same purposes shall
be imposed in different territorial subdivisions at the same time. It has also been said in this connection that the
omission to tax any particular individual who may be liable does not render the whole tax illegal or void."
32

84 C.J.S. 77: "Equality in taxation is accomplished when the burden of the tax falls equally and impartially on all the
persons and property subject to it [State ex rel. Haggart v. Nichols, 265 N.W. 859, 66 N.D. 355], so that no higher rate
or greater levy in proportion to value is imposed on one person or species of property than on others similarly
situated or of like character."
33

84 C.J.S. 79: "The rule of uniformity in taxation applies to property of like kind and character and similarly
situated, and a tax, in order to be uniform, must operate alike on all persons, things, or property, similarly
situated. So the requirement is complied with when the tax is levied equally and uniformly on all subjects of
the same class and kind and is violated if particular kinds, species or items of property are selected to bear
the whole burden of the tax, while others, which should be equally subjected to it, are left untaxed."
84 C.J.S. 81: "There is a presumption the at tax statutes are intended to operate uniformly and equally [Alaska
Consol. Canneries v. Territory of Alaska, C.C.A. Alaska, 16 F. 2d. 256], and a liberal construction will be indulged in
order to accomplish fair and equal taxation of all property within the state."
34

Medina vs. City of Baguio, L-4060, Aug. 29, 1952; Wa Wa Yu vs. City of Lipa, L-9167, Sept. 27, 1956; Saldana vs. City
of Iloilo, 55 O.G. 10267, and the cases cited therein.
35

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 147188

September 14, 2004

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
THE ESTATE OF BENIGNO P. TODA, JR., Represented by Special Co-administrators Lorna Kapunan and Mario Luza
Bautista, respondents.
DECISION
DAVIDE, JR., C.J.:
This Court is called upon to determine in this case whether the tax planning scheme adopted by a corporation constitutes tax
evasion that would justify an assessment of deficiency income tax.
The petitioner seeks the reversal of the Decision1 of the Court of Appeals of 31 January 2001 in CA-G.R. SP No. 57799 affirming
the 3 January 2000 Decision2 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5328, 3 which held that the respondent Estate
of Benigno P. Toda, Jr. is not liable for the deficiency income tax of Cibeles Insurance Corporation (CIC) in the amount
of P79,099,999.22 for the year 1989, and ordered the cancellation and setting aside of the assessment issued by Commissioner
of Internal Revenue Liwayway Vinzons-Chato on 9 January 1995.
The case at bar stemmed from a Notice of Assessment sent to CIC by the Commissioner of Internal Revenue for deficiency
income tax arising from an alleged simulated sale of a 16-storey commercial building known as Cibeles Building, situated on
two parcels of land on Ayala Avenue, Makati City.
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding capital
stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90
million.4
On 30 August 1989, Toda purportedly sold the property for P100 million to Rafael A. Altonaga, who, in turn, sold the same
property on the same day to Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced by Deeds of
Absolute Sale notarized on the same day by the same notary public. 5
For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10 million.6
On 16 April 1990, CIC filed its corporate annual income tax return7 for the year 1989, declaring, among other things, its gain
from the sale of real property in the amount of P75,728.021. After crediting withholding taxes ofP254,497.00, it
paid P26,341,2078 for its net taxable income of P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced by a Deed of Sale
of Shares of Stocks.9 Three and a half years later, or on 16 January 1994, Toda died.
On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an assessment notice 10 and demand letter to the CIC for
deficiency income tax for the year 1989 in the amount of P79,099,999.22.
The new CIC asked for a reconsideration, asserting that the assessment should be directed against the old CIC, and not against
the new CIC, which is owned by an entirely different set of stockholders; moreover, Toda had undertaken to hold the buyer of
his stockholdings and the CIC free from all tax liabilities for the fiscal years 1987-1989.11
On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special co-administrators Lorna Kapunan and Mario
Luza Bautista, received a Notice of Assessment12 dated 9 January 1995 from the Commissioner of Internal Revenue for
deficiency income tax for the year 1989 in the amount of P79,099,999.22, computed as follows:
Income Tax 1989
Net Income per return

P75,987,725.00

Add: Additional gain on sale of real property taxable under

ordinary corporate income but were substituted with
individual capital gains(P200M 100M)
Total Net Taxable Income per investigation
Tax Due thereof at 35%

100,000,000.00
P175,987,725.00

P 61,595,703.75

Less: Payment already made

1. Per return

P26,595,704.00

2. Thru Capital Gains Tax made

by R.A. Altonaga

10,000,000.00

36,595,704.00

Balance of tax due

P 24,999,999.75
Add: 50% Surcharge

12,499,999.88

25% Surcharge

6,249,999.94

Total

P 43,749,999.57

Add: Interest 20% from

4/16/90-4/30/94 (.808)
TOTAL AMT. DUE & COLLECTIBLE

35,349,999.65
P 79,099,999.22
==============

The Estate thereafter filed a letter of protest.13

In the letter dated 19 October 1995,14 the Commissioner dismissed the protest, stating that a fraudulent scheme was
deliberately perpetuated by the CIC wholly owned and controlled by Toda by covering up the additional gain of P100 million,
which resulted in the change in the income structure of the proceeds of the sale of the two parcels of land and the building
thereon to an individual capital gains, thus evading the higher corporate income tax rate of 35%.
On 15 February 1996, the Estate filed a petition for review15 with the CTA alleging that the Commissioner erred in holding the
Estate liable for income tax deficiency; that the inference of fraud of the sale of the properties is unreasonable and
unsupported; and that the right of the Commissioner to assess CIC had already prescribed.
In his Answer16 and Amended Answer,17 the Commissioner argued that the two transactions actually constituted a single sale
of the property by CIC to RMI, and that Altonaga was neither the buyer of the property from CIC nor the seller of the same
property to RMI. The additional gain of P100 million (the difference between the second simulated sale for P200 million and
the first simulated sale for P100 million) realized by CIC was taxed at the rate of only 5% purportedly as capital gains tax of
Altonaga, instead of at the rate of 35% as corporate income tax of CIC. The income tax return filed by CIC for 1989 with intent
to evade payment of the tax was thus false or fraudulent. Since such falsity or fraud was discovered by the BIR only on 8 March
1991, the assessment issued on 9 January 1995 was well within the prescriptive period prescribed by Section 223 (a) of the
National Internal Revenue Code of 1986, which provides that tax may be assessed within ten years from the discovery of the
falsity or fraud. With the sale being tainted with fraud, the separate corporate personality of CIC should be disregarded. Toda,
being the registered owner of the 99.991% shares of stock of CIC and the beneficial owner of the remaining 0.009% shares
registered in the name of the individual directors of CIC, should be held liable for the deficiency income tax, especially because
the gains realized from the sale were withdrawn by him as cash advances or paid to him as cash dividends. Since he is already
dead, his estate shall answer for his liability.
In its decision18 of 3 January 2000, the CTA held that the Commissioner failed to prove that CIC committed fraud to deprive the
government of the taxes due it. It ruled that even assuming that a pre-conceived scheme was adopted by CIC, the same
constituted mere tax avoidance, and not tax evasion. There being no proof of fraudulent transaction, the applicable period for
the BIR to assess CIC is that prescribed in Section 203 of the NIRC of 1986, which is three years after the last day prescribed by
law for the filing of the return. Thus, the governments right to assess CIC prescribed on 15 April 1993. The assessment issued
on 9 January 1995 was, therefore, no longer valid. The CTA also ruled that the mere ownership by Toda of 99.991% of the
capital stock of CIC was not in itself sufficient ground for piercing the separate corporate personality of CIC. Hence, the CTA
declared that the Estate is not liable for deficiency income tax of P79,099,999.22 and, accordingly, cancelled and set aside the
assessment issued by the Commissioner on 9 January 1995.
In its motion for reconsideration,19 the Commissioner insisted that the sale of the property owned by CIC was the result of the
connivance between Toda and Altonaga. She further alleged that the latter was a representative, dummy, and a close business
associate of the former, having held his office in a property owned by CIC and derived his salary from a foreign corporation
(Aerobin, Inc.) duly owned by Toda for representation services rendered. The CTA denied 20 the motion for reconsideration,
prompting the Commissioner to file a petition for review 21 with the Court of Appeals.
In its challenged Decision of 31 January 2001, the Court of Appeals affirmed the decision of the CTA, reasoning that the CTA,
being more advantageously situated and having the necessary expertise in matters of taxation, is "better situated to determine
the correctness, propriety, and legality of the income tax assessments assailed by the Toda Estate." 22
Unsatisfied with the decision of the Court of Appeals, the Commissioner filed the present petition invoking the following
grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT COMMITTED NO FRAUD WITH INTENT TO
EVADE THE TAX ON THE SALE OF THE PROPERTIES OF CIBELES INSURANCE CORPORATION.
II. THE COURT OF APPEALS ERRED IN NOT DISREGARDING THE SEPARATE CORPORATE PERSONALITY OF CIBELES
INSURANCE CORPORATION.
III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF PETITIONER TO ASSESS RESPONDENT FOR
DEFICIENCY INCOME TAX FOR THE YEAR 1989 HAD PRESCRIBED.
The Commissioner reiterates her arguments in her previous pleadings and insists that the sale by CIC of the Cibeles property
was in connivance with its dummy Rafael Altonaga, who was financially incapable of purchasing it. She further points out that
the documents themselves prove the fact of fraud in that (1) the two sales were done simultaneously on the same date, 30
August 1989; (2) the Deed of Absolute Sale between Altonaga and RMI was notarized ahead of the alleged sale between CIC
and Altonaga, with the former registered in the Notarial Register of Jocelyn H. Arreza Pabelana as Doc. 91, Page 20, Book I,

Series of 1989; and the latter, as Doc. No. 92, Page 20, Book I, Series of 1989, of the same Notary Public; (3) as early as 4 May
1989, CIC received P40 million from RMI, and not from Altonaga. The said amount was debited by RMI in its trial balance as of
30 June 1989 as investment in Cibeles Building. The substantial portion of P40 million was withdrawn by Toda through the
declaration of cash dividends to all its stockholders.
For its part, respondent Estate asserts that the Commissioner failed to present the income tax return of Altonaga to prove that
the latter is financially incapable of purchasing the Cibeles property.
To resolve the grounds raised by the Commissioner, the following questions are pertinent:
1. Is this a case of tax evasion or tax avoidance?
2. Has the period for assessment of deficiency income tax for the year 1989 prescribed? and
3. Can respondent Estate be held liable for the deficiency income tax of CIC for the year 1989, if any?
We shall discuss these questions in seriatim.
Is this a case of tax evasion or tax avoidance?
Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is
the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at
arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities. 23
Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by
the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind
which is described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of action or
failure of action which is unlawful.24
All these factors are present in the instant case. It is significant to note that as early as 4 May 1989, prior to the purported sale
of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received P40 million from RMI,25 and not from Altonaga.
That P40 million was debited by RMI and reflected in its trial balance26 as "other inv. Cibeles Bldg." Also, as of 31 July 1989,
another P40 million was debited and reflected in RMIs trial balance as "other inv. Cibeles Bldg." This would show that the
real buyer of the properties was RMI, and not the intermediary Altonaga.lavvphi1.net
The investigation conducted by the BIR disclosed that Altonaga was a close business associate and one of the many trusted
corporate executives of Toda. This information was revealed by Mr. Boy Prieto, the assistant accountant of CIC and an old
timer in the company.27 But Mr. Prieto did not testify on this matter, hence, that information remains to be hearsay and is thus
inadmissible in evidence. It was not verified either, since the letter-request for investigation of Altonaga was
unserved,28 Altonaga having left for the United States of America in January 1990. Nevertheless, that Altonaga was a mere
conduit finds support in the admission of respondent Estate that the sale to him was part of the tax planning scheme of CIC.
That admission is borne by the records. In its Memorandum, respondent Estate declared:
Petitioner, however, claims there was a "change of structure" of the proceeds of sale. Admitted one hundred percent.
But isnt this precisely the definition of tax planning? Change the structure of the funds and pay a lower tax. Precisely,
Sec. 40 (2) of the Tax Code exists, allowing tax free transfers of property for stock, changing the structure of the
property and the tax to be paid. As long as it is done legally, changing the structure of a transaction to achieve a lower
tax is not against the law. It is absolutely allowed.
Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely petitioner [sic] cannot be faulted
for wanting to reduce the tax from 35% to 5%.29 [Underscoring supplied].
The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to
Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud.
Fraud in its general sense, "is deemed to comprise anything calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to
another, or by which an undue and unconscionable advantage is taken of another."30
Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the
transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not the 35% corporate
income tax. Altonagas sole purpose of acquiring and transferring title of the subject properties on the same day was to create
a tax shelter. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale
to him was merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the
two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability.lavvphi1.net
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax
liabilities than for legitimate business purposes constitutes one of tax evasion. 31
Generally, a sale or exchange of assets will have an income tax incidence only when it is consummated. 32 The incidence of
taxation depends upon the substance of a transaction. The tax consequences arising from gains from a sale of property are not
finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be viewed as a
whole, and each step from the commencement of negotiations to the consummation of the sale is relevant. A sale by one
person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass

title. To permit the true nature of the transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities,
would seriously impair the effective administration of the tax policies of Congress.33
To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is
proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the sale to Altonaga should
be disregarded for income tax purposes.34 The two sale transactions should be treated as a single direct sale by CIC to RMI.
Accordingly, the tax liability of CIC is governed by then Section 24 of the NIRC of 1986, as amended (now 27 (A) of the Tax
Reform Act of 1997), which stated as follows:
Sec. 24. Rates of tax on corporations. (a) Tax on domestic corporations.- A tax is hereby imposed upon the taxable
net income received during each taxable year from all sources by every corporation organized in, or existing under
the laws of the Philippines, and partnerships, no matter how created or organized but not including general
professional partnerships, in accordance with the following:
Twenty-five percent upon the amount by which the taxable net income does not exceed one hundred
thousand pesos; and
Thirty-five percent upon the amount by which the taxable net income exceeds one hundred thousand pesos.
CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. The 5% individual capital gains tax
provided for in Section 34 (h) of the NIRC of 198635 (now 6% under Section 24 (D) (1) of the Tax Reform Act of 1997) is
inapplicable. Hence, the assessment for the deficiency income tax issued by the BIR must be upheld.
Has the period of assessment prescribed?
No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997) read:
Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.-(a) In the case of a false or
fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in
court after the collection of such tax may be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and
executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for collection thereof
.
Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to file a return, the
period within which to assess tax is ten years from discovery of the fraud, falsification or omission, as the case may be.
It is true that in a query dated 24 August 1989, Altonaga, through his counsel, asked the Opinion of the BIR on the tax
consequence of the two sale transactions.36 Thus, the BIR was amply informed of the transactions even prior to the execution
of the necessary documents to effect the transfer. Subsequently, the two sales were openly made with the execution of public
documents and the declaration of taxes for 1989. However, these circumstances do not negate the existence of fraud. As earlier
discussed those two transactions were tainted with fraud. And even assuming arguendo that there was no fraud, we find that
the income tax return filed by CIC for the year 1989 was false. It did not reflect the true or actual amount gained from the sale
of the Cibeles property. Obviously, such was done with intent to evade or reduce tax liability.
As stated above, the prescriptive period to assess the correct taxes in case of false returns is ten years from the discovery of
the falsity. The false return was filed on 15 April 1990, and the falsity thereof was claimed to have been discovered only on 8
March 1991.37 The assessment for the 1989 deficiency income tax of CIC was issued on 9 January 1995. Clearly, the issuance of
the correct assessment for deficiency income tax was well within the prescriptive period.
Is respondent Estate liable for the 1989 deficiency income tax of Cibeles Insurance Corporation?
A corporation has a juridical personality distinct and separate from the persons owning or composing it. Thus, the owners or
stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and vice versa. There
are, however, certain instances in which personal liability may arise. It has been held in a number of cases that personal
liability of a corporate director, trustee, or officer along, albeit not necessarily, with the corporation may validly attach when:
1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence in directing its
affairs, or (c) conflict of interest, resulting in damages to the corporation, its stockholders, or other persons;
2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by specific provision of law, to personally answer for his corporate action.38
It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly and voluntarily held himself
personally liable for all the tax liabilities of CIC and the buyer for the years 1987, 1988, and 1989. Paragraph g of the Deed of
Sale of Shares of Stocks specifically provides:
g. Except for transactions occurring in the ordinary course of business, Cibeles has no liabilities or obligations,
contingent or otherwise, for taxes, sums of money or insurance claims other than those reported in its audited
financial statement as of December 31, 1989, attached hereto as "Annex B" and made a part hereof. The business of

Cibeles has at all times been conducted in full compliance with all applicable laws, rules and regulations. SELLER
undertakes and agrees to hold the BUYER and Cibeles free from any and all income tax liabilities of Cibeles for
the fiscal years 1987, 1988 and 1989.39 [Underscoring Supplied].
When the late Toda undertook and agreed "to hold the BUYER and Cibeles free from any all income tax liabilities of Cibeles for
the fiscal years 1987, 1988, and 1989," he thereby voluntarily held himself personally liable therefor. Respondent estate
cannot, therefore, deny liability for CICs deficiency income tax for the year 1989 by invoking the separate corporate
personality of CIC, since its obligation arose from Todas contractual undertaking, as contained in the Deed of Sale of Shares of
Stock.
WHEREFORE, in view of all the foregoing, the petition is hereby GRANTED. The decision of the Court of Appeals of 31 January
2001 in CA-G.R. SP No. 57799 is REVERSED and SET ASIDE, and another one is hereby rendered ordering respondent Estate
of Benigno P. Toda Jr. to pay P79,099,999.22 as deficiency income tax of Cibeles Insurance Corporation for the year 1989, plus
legal interest from 1 May 1994 until the amount is fully paid.
Costs against respondent.
SO ORDERED.
Quisumbing, Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
Item No. 135
Agenda OF 13 September 2004
FIRST DIVISION
FOR

CONCURRENCE

G.R. No. 147188

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
THE ESTATE OF BENIGNO P. TODA, JR., Represented by Special Co-administrators Lorna Kapunan and Mario Luza
Bautista, respondents.
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X
COUNSEL FOR THE PETITIONER:
ATTY. ALBERT C. ARPON
Bureau of Internal Revenue
Rms. 703, BIR Bldg.
1104 Diliman, Quezon City
COURT OF TAX APPEALS
Quezon Avenue
1100 Quezon City
COUNSEL FOR THE RESPONDENTS:
ATTY. JOSE MARIO C. BUAG
BUAG & ASSOCIATES
Suite 17-E, 17th Flr., Strata 100 Bldg.
Emerald Ave., Ortigas Center
1605 Pasig City
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X
Court of Appeals - Decision of 31 January 2001
Per Associate Justice Rodrigo V. Cosico,
with Associate Justices Ramon A.
Barcelona and Alicia J. Santos
concurring.
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X
(Please return to the Office of Chief Justice HILARIO G. DAVIDE, JR.)
Footnotes
Rollo, 22-31. Per Associate Justice Rodrigo V. Cosico, with Associate Justices Ramon A. Barcelona and Alicia J. Santos
concurring.
1

Id., 32-41; CTA Records, 524-533. Per Presiding Judge Ernesto D. Acosta, with Associate Judges Ramon O. De Veyra
and Amancio Q. Saga concurring.
2

Entitled "The Estate of Benigno P. Toda, Jr., represented by Special Co-Administrators Lorna Patajo-Kapunan and
Mario Luza Bautista versus Commissioner of Internal Revenue."
3

CA Rollo, 73.

CA Rollo, 74-78; 88-92.

Exh. "E," CTA Records, 306.

Exh. "L," CTA Records, 340.

Exh. "M," "M-1," "N" and "N-1," CTA Records, 316-317.

Exh. "P," CTA Records, 357-365.

10

BIR Records, 448-449.

11

Id., 446-447.

12

Id., 474-475.

13

Exh. "H," CTA Records, 314-315.

14

Exh. "G," CTA Records, 311-312.

15

CTA Records, 1-15.

16

CTA Records, 104-111.

17

Id., 121-128.

18

CTA Records 535-540.

19

Id., 534, 539.

20

Id., 550; CA Rollo, 32.

21

CA Rollo, 7-20.

22

Rollo, 30.

23

Jose C. Vitug and Ernesto D. Acosta, Tax Law and Jurisprudence 44 (2nd ed., 2000) (hereafter Vitug).

24

De Leon, Fundamentals of Taxation 53 (1988 ed.), citing Batter, Fraud under Federal Tax Law 15 (1953 ed.).

25

Exh. "3," CTA Records, 476.

26

Exh. "6," CTA Records, 470.

27

Exh. "1," CTA Records, 461.

28

CTA Records, 466.

29

Respondents Memorandum, 4-5; Rollo, 78-79.

30

Commissioner of Internal Revenue v. Court of Appeals, 327 Phil. 1, 33 (1996).

See Commissioner of Internal Revenue v. Norton Harrison Co., 120 Phil. 684, 691 (1964); Commissioner of Internal
Revenue v. Rufino, G.R. No. L-33665-68, 27 February 1987, 148 SCRA 42.
31

32

Vitug, 138.

33

Commissioner v. Court Holding Co., 324 U.S. 334 (1945) .

See Gregory v. Helvering, 293 U.S. 465 (1935); Frank Lyon Co. v. United States, 435 U.S. 561 (1978); Commissioner
of Internal Revenue v. Court of Appeals, 361 Phil. 103, 126 (1999) citing Asmussen v. CIR, 36 B.T.A. (F) 878; See also
Neff v. U.S., 301 F2d 330; Cohen v. U.S., 192 F Supp 216; Herman v. Comm., 283 F2d 227; Kessner v. Comm., 248 F2d
943; Comm. V. Pope, 239 F2d 881; U.S. v. Fewel, 255 F2d 396.
34

35

Sec. 34. Capital gains and loses.

...

(h) The provisions of paragraph (b) of this section to the contrary notwithstanding, sales, exchanges or other
dispositions of real property classified as capital assets, including pacto-de-retro sales and other forms of
conditional sale, by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the
gross selling price or the fair market value prevailing at the time of sale, whichever is higher.
36

Exh. "A," CTA Records, 296.

37

Exh. "2," CTA Records, 464.

Atrium Management Corporation v. Court of Appeals, G.R. Nos. 109491 and 121794, 28 February 2001, 353 SCRA
23, 31, citing FCY Construction Group Inc. v. Court of Appeals, G.R. No. 123358, 1 February 2000, 324 SCRA 270.
38

39

CTA Records, 200-201.

**
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-30554 February 28, 1983
PLARIDEL SURETY & INSURANCE COMPANY, petitioner,
vs.
ARTEX DEVELOPMENT COMPANY, INC., and HON. JESUS P. MORFE, Presiding Judge, Branch XIII, Court of First Instance
of Manila, respondents.
Bonifacio L. Hilario and Arturo Topacio, Jr., for petitioner.
Norberto Quisumbing for respondents.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the orders of the respondent judge dismissing the complaint in Civil Case No.
73904 and denying a motion for reconsideration of the dismissal order. The petitioner filed with the Court of First Instance of
Manila a complaint for a sum of money against respondent Artex Development Co. Inc., wherein it prayed that judgment be
rendered in its favor as follows:
a) Ordering the respondent (defendant) Artex Development Co. Inc. to pay plaintiff the sum of P20,570.24,
plus interest thereon at the rate of 12% per annum computed monthly and automatically accumulated to the
outstanding capital and shall bear the same interests as said capital until fully paid;
b) Ordering the defendant to pay plaintiff, the sum equivalent to 15% per centum of the amount due as and
for attorneys fees; and
c) For costs of suit.
The action was brought by the petitioner to recover from the respondent company P20,570.24 worth of renewal premiums
and costs of documentary stamps on various surety bonds posted by petitioner Plaridel Surety and Insurance Co., in behalf of
respondent Artex Development Co. Inc., as principal in favor of the Republic of the Philippines through the Bureau of Customs
and the Board of Industries.
These surety bonds were posted pursuant to Republic Act No. 4086 and its implementing Rules and Regulations No. 1-64
particularly paragraph 9, which provides:
Par. 9. Withdrawal Under Bond. Persons or firms who or which have pending applications for tax exemption
privileges under the Act and whose imported raw materials, chemicals, dyestuffs and spare parts are actually
within the Bureau of Customs jurisdiction, may withdraw such raw materials chemicals, dyestuffs and spare
parts from the customs house upon the posting of a bond equivalent to the customs duties and taxes due
thereon in accordance with the rules and regulations of the Department of Finance and the Bureau of
Customs.
Consequently, the respondent withdrew from the Bureau of Customs' custody shipments of imported raw materials,
chemicals, dyestuffs and spare parts which were then subject to customs duties, special import taxes, sales and/or
compensating taxes because the respondent's applications for tax exemption of these items were not then approved by the
Board of Industries.
In consideration of the obligation assumed by the petitioner, the private respondent agreed to pay the premiums and cost of
documentary stamps due thereon as per stipulations contained in the separate agreement of counter-guaranty:
(a) PREMIUM To pay to the Surety Company at its principal offices in the sum of ... in advance as premiums
of same for each period of (12) mos. beginning March 1965 or fraction thereof, to be computed from this date
until said bonds and its renewals, extensions or substitutions be cancelled in full by the person or entity
guaranteed thereby, or by a court of competent jurisdiction.
It is an admitted fact that the premiums due and costs of documentary stamps for the first year duration of the undertaking
under these surety bonds, which was from March 1965 to March 1966, were paid in accordance with the agreements of
counter-guaranty.
On December 19, 1966, respondent Artex Development Co. Inc., was granted tax exemption by the Board of Industries (BOI
Certificate No. 22). Thereafter, the respondent stopped paying premiums and costs of documentary stamps to the petitioner.
On September 11, 1968, the private respondent filed its motion to dismiss petitioner's complaint on the ground that it states
no cause of action and/or that the claim or demand setforth therein has been extinguished. The petitioner filed its opposition
to the motion to dismiss followed by the respondent's filing its reply to the opposition.

Acting on the motion to dismiss, the respondent judge issued one of the assailed orders which reads as follows:
After careful consideration of defendant's motion to dismiss, dated 9 September, 1968, plaintiff's opposition
thereto, dated September 12, 1968, and movant's closing written arguments (Reply to Opposition, dated 20
September 1968), this Court finds said motion to dismiss to be well taken.
WHEREFORE, said motion to dismiss, dated 9 September, 1968 is hereby granted, and plaintiff's action or
complaint is hereby dismissed, without pronouncement as to costs.
The respondent judge later issued the other assailed order denying petitioner's motion for reconsideration.
The private respondent contents that the grant of tax exemption by the Board of Industries on December 19, 1966 rendered
null and void and extinguished the surety bonds and agreement of counter guaranty. It argues that guaranty and suretyship
are accessory to and dependent upon the principal obligation guaranteed or secured by them and cannot exist without a valid
obligation. Therefore, as a necessary consequence, the obligation of defendant to pay premiums and cost of documentary
stamps allegedly due on the extinguished agreements of counter guaranty has likewise been rendered of no force and effect.
Petitioner, on the other hand, maintains that, granting arguendo that the grant of tax exemption in favor of respondent
corporation had the effect of releasing the surety bonds involved, still the petitioner had the valid and subsisting right to claim
unpaid renewal premiums and costs of documentary stamps that had accrued in its favor prior to the grant of tax exemptions.
Petitioner maintains that it had renewed the surety bonds in March 1966, more or less eight months before the application for
tax exemption was granted by the Board of Industries.
With respect to accrued premiums and costs of documentary stamps on renewals of the surety bonds made after the grant of
tax exemptions to the respondent corporation, the petitioner maintains that the surety bonds which were renewed
subsequent thereto should continue in full force and effect until the Chairman of the Board of Industries shall order their
cancellation.
Petitioner submits that the mere grant of tax exemptions would not discharge the surety bonds because it is possible that the
grantee may have violated some of the terms and conditions imposed by the Board of Industries in connection with authority
granted to it to withdraw the items from customs' custody under bond.
We agree with the private respondents. We note that Condition No. 2 of the original surety bonds reads:
2. That in case the application (of respondent Artex Development Co. Inc. for tax exemption) is approved by
the Board of Industries. then this bond shall be null and void and of no force and effect.
The petitioner could not possibly be liable for any violation under the original surety bonds which were already void and of no
force and effect. Suretyship cannot exist without a valid obligation, (Municipality of Gasan v. Marasigan, et al., 63 Phil. 510). As
stated in Visayan Surety and Insurance corporation v. Laperal (69 Phil. 688):
Segun el articulo 1822 del Codigo Civil la fianza es un contrato accesorio y la responsabilidad que contrae el
fiador es subsidiaria.Por ella el fiador se obliga a pagar o a cumplir por un tercero, solamente en el caso de no
hacerlo este. Explicando la naturaleza y efectos de la fianza Manresa en sus comentarios al Codigo Civil, Tomo
XII, paginas 137, 138 y 140, dice:
Dos son las acepciones que en el tecnicismo juridico tiene la palabra fianza uno, lato, amplio
y extenso que comprende, dentro de sus terminos todos los contratos de garantia; y otro
restringido y estricto, que es lo que constituye la fianza propiamente dicha. En ambos
sentidos, denota el aseguramiento por medios subsidiarios de una obligacion principal, que
es la caracteristica de su esencia pues sin dicha obligacion principal no se concibe la
existencia de la fianza, y por eso es siempre un contrato accesorio, dependiente de otro para
cuya seguridad se constituye.
En este concepto puede definirse la fianza, diciendo que es un contrato mediante el cual uno de los
contratantes da su garantia personal para asegurar el cumplimento de una obligacion contraida por otra
distinta persona, comprometiendose a cumplirla por ella, si esta no lo hiciere en el tiempo y en la forma en
que se obligo a Ilevarla a efecto.
Recordando las indicaciones consignadas en la introduccion al presente titulo, facil es precisar la naturaleza y
aun la extension de la fianza en el concepto en que ha de ser objects de nuestro estudio. En cuanto a la
primera, tres son los caracteres que la distinguen y diferencian determinando la razon de su especialidad,
drivada del objeto mismo de dicho contrato. Esos caracteres, son: 1 , la cualidad accesoria y subsidiara de la
obligacion contraida 2 , la condicion unilateral de la misma y 3, la circumstancia de haber ser el fiador
persona distinta del principal obligado.
Es accesoria la obligacion contraida, porque careceria de objeto sin otro principal cuyo cumplimiento asegure
y garantice, hasta el punto de que sin esta no se concibe su existencia. Ha de vivir pues, unida a la convencion
a que debe su nacimiento y no puede asumir los caracteres de una obligacion principal, independiente y con
vida propia ...
Insofar as the complaint seeks recovery of the payment for one year renewed premiums and costs of documentary stamps
from March 1966 to March 1967, petitioner cannot recover for the simple reason that private respondent had already paid
them in advance. Petitioner never disputed the payment made by private respondent. Consequently, whatever obligation of
private respondent to remit premiums and costs of documentary stamps from March 1966 to March 1967 had already been
extinguished.

As to the alleged obligation to remit the premiums for the period March 1967 to March 1969, the purported renewals were
without any consideration at all Petitioner incurred no risk from the time respondent's tax exemption application was
approved. Any renewals were void from the beginning because the cause or object of said renewals did not exist at the time of
the purported transaction (Arts, 1409, 1352, and 1353, Civil Code).
The lower court correctly ruled that "upon approval of defendant's (respondent's) application for tax exemption on December
19, 1966, any purported renewal of the original bond after that was, therefore, without consideration and will not warrant the
collection of premiums and the payment of cost of documentary stamps."
We also see no need for a formal release of the surety bonds by the Board of Industries or the Bureau of Customs. By express
stipulation of the parties themselves, the surety bonds became null and void upon the grant of tax exemption.
The complaint was correctly dismissed by the respondent judge.
WHEREFORE, the petition for review on certiorari is dismissed for lack of merit. The questioned orders of the respondent
judge are affirmed. Costs against the petitioner.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and Relova, JJ., concur.