BENEFITS-RECEIVED PRINCIPLE

CIR v Tokyo Shipping

GR L-68252
May 26, 1995

FACTS:
Tokyo Shipping is represented in the Phils by Soriamont Steamship Agency which owns
M/V Gardenia. NASUTRA chartered M/V Gardenia to load raw sugar in the Philippines.
Thus, Soriamont Agency paid the required income and common carrier's taxes based on
the expected gross receipts of the vessel.

However, upon arriving, at Guimaras Port of Iloilo, the vessel found no sugar for loading.
But still, NASUTRA and Soriamont Agency mutually agreed to have the vessel sail for Japan
without any cargo.

Having paid the income and common carrier’s taxes, Tokyo Shipping now demands that
such payment was erroneous since no receipt was realized from the charter agreement. It
is now claiming for tax credit or refund in the CIR. But CIR failed to act promptly on the issue
hence, it was elevated to the Court of Tax Appeals.

Petitioner contested the petition. As special and affirmative defenses, it alleged the follow-
ing: that taxes are presumed to have been collected in accordance with law; that in an action
for refund, the burden of proof is upon the taxpayer to show that taxes are erroneously or
illegally collected, and the taxpayer's failure to sustain said burden is fatal to the action for
refund; and that claims for refund are construed strictly against tax claimants.

ISSUE: WON the private respondent is entitled to a refund or tax credit for amounts repre-
senting pre-payment of income and common carrier's taxes under the National Internal Rev-
enue Code, section 24 (b) (2), as amended.

HELD: Yes, it should be refunded. The tax was paid way back in 1980 and despite the clear
showing that it was erroneously paid, the government succeeded in delaying its refund for
fifteen (15) years. After fifteen (15) long years and the expenses of litigation, the money that
will be finally refunded to the private respondent is just worth a damaged nickel.

Fair deal is expected by our taxpayers from the BIR and the duty demands that BIR should
refund without any unreasonable delay what it has erroneously collected. Our ruling in
Roxas v. Court of Tax Appeals is apropos to recall:

The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden
egg." And, in order to maintain the general public's trust and confidence in the Government
this power must be used justly and not treacherously.

POWER OF JUDICIAL REVIEW IN TAXATION

CIR v. Lingayen Gulf Electric Power Co.
L-23771 (the same as in Others: Constitutional Limitations on the power
of taxation)
Aug. 4, 1968
FACTS:

The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., operates an electric power
plant in the province of Pangasinan, pursuant to the municipal franchise granted it by the
municipal councils. Section 10 of these franchises provide that they shall pay quarterly into
the Provincial Treasury of Pangasinan, 1% of the gross earnings obtained thru this privilege
during the first 20 years and 2% during the remaining 15 years of the life of said franchise.

However, the BIR assessed against and demanded from the private respondent the total
amount of P19,293.41 representing deficiency franchise taxes and surcharges applying the
franchise tax rate of 5% on gross receipts, as prescribed in Section 259 of the National
Internal Revenue Code, instead of the lower rates as provided in the municipal franchises.

Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed, granting
to the private respondent a legislative franchise for the operation of the electric light, heat,
and power system in the same municipalities of Pangasinan. Section 4 thereof provides that
the franchisee shall pay a tax equal to 2% of the gross receipts from electric current sold or
supplied under this franchise. Said tax shall be due and payable quarterly.

ISSUE:

1. Whether or not the 5% franchise tax prescribed in Section 259 of the National Internal
Revenue Code assessed against the private respondent on its gross receipts realized
before the effectivity of R.A- No. 3843 is collectible.

2. Whether or not the respondent taxpayer is liable for the fixed and deficiency percentage
taxes in the amount of P3,025.96 for the period from January 1, 1946 to February 29,
1948, the period before the approval of its municipal franchises.

3. If the above mentioned Section 4 of R.A. No. 3843 is valid, whether or not it could be
given retroactive effect so as to render uncollectible the taxes in question which were
assessed before its enactment.

RULING: No. By virtue of R.A- No. 3843, the private respondent was liable to pay only the
2% franchise tax, effective from the date the original municipal franchise was granted, as
expressed in the law.

Section 259 of the Tax Code expressly allows the payment of taxes at rates lower than 5%
when the charter granting the franchise of a grantee, like the one granted to the private
respondent under Section 4 of R.A. No. 3843, precludes the imposition of a higher tax. R.A.
No. 3843 did not only fix and specify a franchise tax of 2% on its gross receipts, but made it
"in lieu of any and all taxes, all laws to the contrary notwithstanding," thus, leaving no room
for doubt regarding the legislative intent.

"Charters or special laws granted and enacted by the Legislature are in the nature of private
contracts. They do not constitute a part of the machinery of the general government. They
are usually adopted after careful consideration of the private rights in relation with resultant
benefits to the State ... in passing a special charter the attention of the Legislature is directed
to the facts and circumstances which the act or charter is intended to meet. The Legislature
consider (sic) and make (sic) provision for all the circumstances of a particular case." In view
of the foregoing, we find no reason to disturb the respondent court's ruling upholding the
constitutionality of the law in question.

As aforestated, the franchises were approved by the President only on February 24, 1948.
Therefore, before the said date, the private respondent was liable for the payment of per-
centage and fixed taxes as seller of light, heat, and power — which as the petitioner claims,
amounted to P3,025.96. The legislative franchise (R.A. No. 3843) exempted the grantee
from all kinds of taxes other than the 2% tax from the date the original franchise was granted.
The exemption, therefore, did not cover the period before the franchise was granted, i.e.
before February 24, 1948. However, as pointed out by the respondent court in its findings,
during the period covered by the instant case, that is from January 1, 1946 to December 31,
1961, the private respondent paid the amount of P34,184.36, which was very much more
than the amount rightfully due from it. Hence, the private respondent should no longer be
made to pay for the deficiency tax in the amount of P3,025.98 for the period from January
1, 1946 to February 29, 1948.

Given its validity, should the said law be applied retroactively so as to render uncollectible
the taxes in question which were assessed before its enactment? The question of whether
a statute operates retrospectively or only prospectively depends on the legislative intent. In
the instant case, Act No. 3843 provides that "effective ... upon the date the original franchise
was granted, no other tax and/or licenses other than the franchise tax of two per centum on
the gross receipts ... shall be collected, any provision to the contrary notwithstanding." Re-
public Act No. 3843 therefore specifically provided for the retroactive effect of the law.

INHERENT LIMITATIONS
1. PUBLIC PURPOSE

Planter’s Products Inc. v. Fertiphil Corp.

G.R. 166006
march 14, 2008
FACTS:

Petitioner PPI and private respondent Fertiphil are private corporations both engaged in
the importation and distribution of fertilizers, pesticides and agricultural chemicals.

Then President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465
which provided, among others, for the imposition of a capital recovery component (CRC)
on the domestic sale of all grades of fertilizers in the Philippines. The LOI provides:

“The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing for-
mula a capital contribution component of not less than P10 per bag. This capital contribu-
tion shall be collected until adequate capital is raised to make PPI viable. Such capital
contribution shall be applied by Fertilizer and Pesticide Authority (FPA) to all domestic
sales of fertilizers in the Philippines.”

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic
market to the FPA. After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition
of the P10 levy. With the return of democracy, Fertiphil demanded from PPI a refund of the
amounts it paid under LOI No. 1465, but PPI refused to accede to the demand.

ISSUE:
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE FER-
TILIZER SUPPLY AND DISTRIBUTION IN THE COUNTRY, AND FOR BENEFITING A
FOUNDATION CREATED BY LAW TO HOLD IN TRUST FOR MILLIONS OF FARMERS
THEIR STOCK OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION PURSUANT
TO THE EXERCISE OF TAXATION FOR PUBLIC PURPOSES.

RULING:
No, The P10 levy is unconstitutional because it was not for a public purpose. The levy was
imposed to give undue benefit to PPI.

First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company.
Second, the LOI provides that the imposition of the P10 levy was conditional and dependent
upon PPI becoming financially "viable." This suggests that the levy was actually imposed to
benefit PPI. The LOI notably does not fix a maximum amount when PPI is deemed financially
"viable." Worse, the liability of Fertiphil and other domestic sellers of fertilizer to pay the levy
is made indefinite.

Third, the RTC and the CA held that the levies paid under the LOI were directly remitted
and deposited by FPA to Far East Bank and Trust Company, the depositary bank of PPI.
Fourth, the levy was used to pay the corporate debts of PPI.

An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for
a public purpose. They cannot be used for purely private purposes or for the exclusive ben-
efit of private persons. The reason for this is simple. The power to tax exists for the general
welfare; hence, implicit in its power is the limitation that it should be used only for a public
purpose. It would be a robbery for the State to tax its citizens and use the funds generated
for a private purpose. As an old United States case bluntly put it: "To lay with one hand, the
power of the government on the property of the citizen, and with the other to bestow it upon
favored individuals to aid private enterprises and build up private fortunes, is nonetheless a
robbery because it is done under the forms of law and is called taxation.”

The term "public purpose" is not defined. It is an elastic concept that can be hammered to
fit modern standards. Jurisprudence states that "public purpose" should be given a broad
interpretation. It does not only pertain to those purposes which are traditionally viewed as
essentially government functions, such as building roads and delivery of basic services, but
also includes those purposes designed to promote social justice. Thus, public money may
now be used for the relocation of illegal settlers, low-cost housing and urban or agrarian
reform.

While the categories of what may constitute a public purpose are continually expanding in
light of the expansion of government functions, the inherent requirement that taxes can only
be exacted for a public purpose still stands. Public purpose is the heart of a tax law. When
a tax law is only a mask to exact funds from the public when its true intent is to give undue
benefit and advantage to a private enterprise, that law will not satisfy the requirement of
"public purpose.”

OTHERS: LIMITATIONS UPON THE POWER OF TAXATION

The Roman Catholic Bishop of Nueva Segovia v. Provincial Board of
Ilocos Norte
51 Phil 352
FACTS:

The plaintiff, the Roman Catholic Apostolic Church, represented by the Bishop of Nueva
Segovia, possesses and is the owner of a parcel of land in the municipality of San Nicolas,
Ilocos Norte, all four sides of which face on public streets. On the south side is a part of the
churchyard, the convent and an adjacent lot used for a vegetable garden, in which there is
a stable and a well for the use of the convent. In the center is the remainder of the churchyard
and the church. On the north is an old cemetery with two of its walls still standing, and a
portion where formerly stood a tower, the base of which still be seen.

As required by the defendants, the plaintiff paid, under protest, the land tax on the lot ad-
joining the convent and the lot which formerly was the cemetery with the portion where the
tower stood.

The plaintiff filed this action for the recovery of the sum paid by to the defendants by way of
land tax, alleging that the collection of this tax is illegal.

ISSUE: WON the land tax imposed on the church is illegal

RULING: The exemption in favor of the convent in the payment of the land tax (sec. 344 [c]
Administrative Code) refers to the home of the parties who presides over the church and
who has to take care of himself in order to discharge his duties. In therefore must, in the
sense, include not only the land actually occupied by the church, but also the adjacent
ground destined to the ordinary incidental uses of man. Except in large cities where the
density of the population and the development of commerce require the use of larger tracts
of land for buildings, a vegetable garden belongs to a house and, in the case of a convent,
it use is limited to the necessities of the priest, which comes under the exemption.

In regard to the lot which formerly was the cemetery, while it is no longer used as such,
neither is it used for commercial purposes and, according to the evidence, is now being used
as a lodging house by the people who participate in religious festivities, which constitutes
an incidental use in religious functions, which also comes within the exemption.

CIR v. Lingayen Gulf Electric Power Co.

L-23771 (the same case as in Benefits-Received principle case)
FACTS:

The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., operates an electric power
plant serving the adjoining municipalities of Lingayen and Binmaley, both in the province of
Pangasinan, pursuant to the municipal franchise granted it by the municipal councils. Sec-
tion 10 of these franchises provide that they shall pay quarterly into the Provincial Treasury
of Pangasinan, 1% of the gross earnings obtained thru this privilege during the first 20 years
and 2% during the remaining 15 years of the life of said franchise.

However, the BIR assessed against and demanded from the private respondent the total
amount of P19,293.41 representing deficiency franchise taxes and surcharges applying the
franchise tax rate of 5% on gross receipts, as prescribed in Section 259 of the National
Internal Revenue Code, instead of the lower rates as provided in the municipal franchises.

Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed, granting
to the private respondent a legislative franchise for the operation of the electric light, heat,
and power system in the same municipalities of Pangasinan. Section 4 thereof provides that
the franchisee shall pay a tax equal to 2% of the gross receipts from electric current sold or
supplied under this franchise. Said tax shall be due and payable quarterly.

ISSUE:

Whether or not Section 4 of R.A. No. 3843 is unconstitutional for being violative of the "uni-
formity and equality of taxation" clause of the Constitution.

If the above mentioned Section 4 of R.A. No. 3843 is valid, whether or not it could be given
retroactive effect so as to render uncollectible the taxes in question which were assessed
before its enactment.

RULING: No, the law does not violate the rule on uniformity. A tax is uniform when it oper-
ates with the same force and effect in every place where the subject of it is found. Uniformity
means that all property belonging to the same class shall be taxed alike The Legislature has
the inherent power not only to select the subjects of taxation but to grant exemptions. Tax
exemptions have never been deemed violative of the equal protection clause. It is true that
the private respondents municipal franchises were obtained under Act No. 667 of the Phil-
ippine Commission, but these original franchises have been replaced by a new legislative
franchise, i.e. R.A. No. 3843.

The benefits of the tax reduction provided by law (Act No. 3636 as amended by C.A. No.
132 and R.A. No. 3843) apply to the respondent's power plant and others circumscribed
within this class. R.A-No. 3843 merely transferred the petitioner's power plant from that class
provided for in Act No. 667, as amended, to which it belonged until the approval of R.A- No.
3843, and placed it within the class falling under Act No. 3636, as amended. Thus, it only
effected the transfer of a taxable property from one class to another.