TAXATION
JAN 30 MEETING
Ca se #1: W E N C ES L A O P A SC U AL , in h i s o ff ici al c apaci ty as P rov inc ial
Go ve rno r of Ri zal , p et iti o n er - ap p e llan t, vs. T H E S EC R ET AR Y OF
P UBL IC W O RK S A N D C O MMU NI CA T IO N S, ET AL., re spondent s -
ap p el lee s. [ G. R. No . L - 1 0 405. D ecem b e r 2 9, 19 60]
F ACT S: O n Au gus t 3 1, 19 54, pet it ion er We nc es lao Pa sc ual , a s Pr ov in cia l
Gov erno r o f Ri zal , in sti tut ed t hi s a ct ion fo r d ec lara t ory r el ief , wi th
inj un cti on, qu es ti oni ng the va li dit y of th e Rep ub li c A ct No . 9 20, en tit le d
"A n A ct A ppro pri ati ng F un ds for P ubl ic Wor ks ". P as c ual al so qu est io ns
the appr opr iat io n o f P8 5,0 00 "f or t he co nst ruc ti on, r eco nstr uc ti on, rep air ,
ext ens io n a nd impr ov eme n t" of P as ig fee der r oad te r mina ls , wh ic h, at the
time of th e pas sa ge and a ppro val of s ai d Ac t, the af oreme nt ion ed fee der
road s we re " not hi ng but pr oje cte d a nd pl ann ed su bdi vi sio n r oad s, not y et
con stru ct ed, w it hin th e An ton io Su bd iv is ion s itu ate d at Pa si g, Ri za l" .
Al so , t hes e proj ec ted fe ed er ro ads " do not c onn ect a ny gov ernm ent
prope rty or an y impo rta nt prem ise s to the ma in hi gh wa y "; th at the
afore men ti one d An ton io S ubd iv is ion (a s wel l as the lan ds on wh ic h sai d
feed er r oad s wer e t o b e c ons truc ted ) were pr iva te p roper tie s of
resp ond ent J ose C . Z u lu et a, who , a t t he ti me of the pas sag e a nd app rov al
of sai d Ac t, w as a m emb er of the Sen ate of th e Ph il i ppi nes , m ak ing th is
tran sac ti on il le gal an d voi d ab i nit io .
Pe tit io ner pra yed , t here for e, t hat th e con tes ted i tem of Rep ub li c Ac t No.
920 be de cla red nu ll an d v oid ; t hat th e a ll ege d d eed of d ona ti on of the
feed er r oad s in que st ion b e " dec l ar ed un con st itu ti on al and , t here for,
il leg al "; tha t a wr it of i nju n cti on be is su ed en joi ni ng t he Se cre tary o f
Pu bl ic W ork s a nd Co mmu n ica ti ons , t he D ire ctor of th e Bure au of P ubl i c
Wor ks an d Hig hw ay s and Jos e C. Z ul uet a fr om orde ring or al lo wi ng the
con tin u an ce of th e a bo ve - ment ion ed fe eder roa ds pr oje ct, an d f rom
mak ing an d sec uri ng an y new an d f urth er r el eas es on t he afor eme nt ion ed
item of R epu bl ic Act N o. 9 20, and th e d is bur si ng off i cers of th e
Dep artm ent of Pub li c Wor ks and H ig hw ay s fr om mak ing an y f urt h er
paym ent s out of s aid fu nd s pr ov ide d f or in Re pub li c Ac t No. 92 0; and t hat
pend in g f ina l hear in g o n t he m eri ts, a wr it of pre lim i nary in ju nc tio n b e
is sue d e njo in ing t he afor e ment ion ed par tie s r es pon d ent from ma ki ng and
sec uri ng an y n ew an d f urt her r ele as es on the af ore s aid it em of Re pub li c
Ac t No. 92 0 a nd fro m ma ki ng a ny fur ther pa ym ent s o ut o f sai d il leg al ly
appro pri ate d f und s.
Re spo nde nts mo ve d t o d is mis s t he pe tit io n u pon th e groun d t hat
pet iti oner h ad "no l ega l ca pac it y t o s ue ", and th at th e pe ti tio n d id " not
sta te a c au se of act io n" .
LC RUL IN G: A ct ing up on sai d m ot ion s t o d is mi ss , t he lo wer cou rt
rende red th e a fore men tio n ed d ec is ion , t he ap propr ia tio n i n q ue sti on wa s
"c lear ly fo r a pri va te, no t a pu bl ic pur po se. "
Ac cor di ng to sa id pet it ion , res pon d en t Zu lu eta i s t he ow ner of se ver al
parc el s o f re si den ti al la nd si tua ted i n Pa si g, Ri za l, a nd kno wn as th e
An ton io S ubd iv is io n, cer ta in port ion s of wh ic h h ad b een r es erv ed for the
proj ect ed fe eder roa ds af o remen ti one d, wh ic h, adm it ted ly, w ere pri va te
prope rty of s aid re spo nde nt whe n Rep ub li c Ac t No. 920, ap prop ria ti ng
P8 5,0 00. 00 for the " co nstr uct ion , re co ns truc ti on, rep air, ex ten s ion an d
impr ove men t" of sa id roa d s, wa s p as sed b y Con gre s s, as we ll a s whe n i t
wa s a ppro ved b y t he Pr es i dent on J une 20 , 1 953 .
P ETIT IO N ER ’ S AR GU M EN T: The pe tit io n f urth er al le ges th at the
con stru ct io n o f s ai d ro ad s, to be und ert ake n wi th the afor eme nt ion ed
appro pri at ion of P85 ,00 0.0 0, wou ld ha ve the ef fe ct of rel ie vin g
resp ond ent Zu lue ta of the burde n o f con str uct in g h is su bdi vi s i on str eet s
or ro ads at h is ow n e xp en ses , a nd wo ul d "gre atl y en han ce or i ncr ea se the
val ue of the s ubd iv is io n" o f s aid re spo nde nt.
IS S U E: Wh eth er t he app ro pria tio n o f pub li c f und s for a pr iv ate p urpo se
sho uld be a llo we d?
H ELD: N O, the app rop ri a tion of pu bli c fund s fo r a pr ivat e pu rpo se
shall not b e a llo wed . As regar ds the l ega l f ea si bi lit y o f a ppro pri ati ng
pub li c f und s f or a p ubl ic p urpo se, th e pr in ci ple a cc o rdin g t o Rul in g Ca se
Law , is th is: It i s a g ener a l ru le tha t t he le gi sl atur e i s wit hou t p ow er t o
appro pri ate pu bl ic re ven u e for an yt hi ng but a pub li c purp os e. It is th e
ess ent ia l char ac ter of the dire ct ob je ct of the ex pen dit ure wh ic h m ust
deter mi ne it s v al id it y a s ju sti fy ing a ta x, and no t t he magn itu de of th e
int eres t t o be aff ect ed nor the de gree t o w hi ch th e g enera l adv an tag e o f
the com mun it y, and t hus t he p ub li c wel far e, m ay be ult ima te ly ben ef ite d
by the ir p rom oti on. In ci de nta l t o t he pub li c o r t o t he st ate , whi ch re sul ts
from the pro mot io n o f pr iv ate in tere st an d t he pro sp erit y o f p ri vat e
enter pr i se s o r b us ine ss , d oes no t j us tif y the ir aid b y the u se pub li c
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JAN 30 MEETING
mone y. (25 R .L. C. pp . 3 98 - 400; Emp has i s s upp li ed. )
T he r ule i s set for th in C or pus Jur i s Se cun dum in th e fo llo w ing la ngu age :
In a cc orda nc e wi th the ru l e th at the ta xi ng po wer mu st be exer c ise d f or
pub li c p urpo se s o nl y, di sc uss ed su pra se c. 14, mo n ey r ai sed b y t axa ti on
can be ex pen ded on l y f or pub li c p urpo se s a nd not fo r the ad va nta ge of
priv ate i nd iv idu al s. ( 85 C. J. S. pp. 64 5 - 6 46; em pha si s s upp li ed. )
Ex pl ain in g t he r ea son un d erly in g sai d ru le , Corp us J uris Se cun dum
sta tes : Gen era ll y, und er t he e xpr es s or i mpl ie d pr ov is ion s o f t he
con st itu tio n, pub l ic fun ds may be us ed on ly for pu bl i c p urpo se. Th e r igh t
of t he le gi sla tur e t o a ppro pria te fun ds i s c orre lat iv e wi th it s ri gh t t o t ax,
and, un der co n s tit ut ion al prov is io ns aga in st ta xat io n e xce pt for pu bl ic
purpo se s and pro hib it in g t he col le ct ion of a ta x f or o ne p urpo se an d t he
dev oti on the reo f t o a not he r pur pos e, no app ropr iat io n of s tat e f und s can
be m ade for ot her th an for a p ub li c p urpo se .
Hen ce , i t is our co ns ide re d op in ion th at the c irc um st anc es surr oun di ng
thi s cas e suf fi ci ent ly ju st if y p eti ti oner s act io n i n con tes tin g t he
appro pri at ion an d d ona ti o n i n q ues ti on; th at th is ac t ion sh ou ld not ha ve
been d ism is se d b y t he lo w er c ourt ; a nd tha t t he wr it of pr el im inar y
inj un cti on sh oul d hav e b e en m ain ta ine d.
DI S PO S ITI V E P ORT IO N: S C d is mi sse d t he de ci si on of the C ourt of Fi rst
Ins tan ce of R iza l, di s sol vi ng t he wr it of pre lim in ary i nju nct io n, gran ti ng
the app ea l o f t he pet it ion e r.
Ca se #2: P HI LI P PI N E C O MMU NI CA T IO N S S AT ELLI TE C OR P OR ATI ON ,
p etition e r, vs. J OS E L U I S A. AL C UAZ , a s NT C C o m m iss ione r, and
NAT IO N AL T EL E COM MU N IC AT I ON S C OMM IS S IO N, re spondent s. [G. R.
No . 848 18. D ece m be r 18, 1989 .]
* * *R el ate d Doc tri ne & C on cep t were l ift ed from th e I ntern et
R EG AL A DO , J p :
CO NC E PT: In her ent Li mi t ati ons : De leg ati on of Tax a tio n Po wer
DO CT RI NE : T he p ow er of the NT C to f ix ra te s is lim it ed b y the
R EQ UI R EM EN TS of pu bl i c saf et y, pu bl ic int ere st, reas ona bl e fea si bi li ty
and re as ona ble r ate s, wh i ch c onj oi nt ly m ore t han sa tis fy t he r equ irem ent s
of a v al id del ega ti on of le gis la ti ve po wer .
De leg ati on of leg is la ti ve p ower m ay b e su sta in ed on l y upo n the gr oun d th at
some s tan dard for i ts ex er ci se is pro vi ded an d t hat th e l egi sl atur e in mak in g
the del ega ti on has pre s cri bed the ma nner of the e xe rci se of t he de leg ate d
pow er.
B rief Fac ts:
P HIL CO M S AT is eng aged in pr ov id ing ser vi ce s inv ol vi n g
tel eco mmu ni cat io ns. B y or der o f NT C Co mmi ss io ner Al cu az, ch arg ing rat es
for cert ai n spe ci fie d li nes wer e order ed t o be red uc ed b y 15 %. Th e or de r
wa s b ase d fr om E .O . No. 546 wh ic h gr an ted NT C th e po wer to f ix rat es.
FACT S:
 By v irt ue of Re pub li c A c t N o. 55 14, P HI LC OM S A T wa s gra nte d "a
fran chi se t o est ab li sh, con stru ct , mai nta in a nd op erat e in t he
Ph il ipp in es , at su ch p la c es a s th e gr ant ee m ay sel ec t, s tat io n or
sta tio ns a nd a ss oc ia ted equ ipme nt a nd f ac il it ies for in ter nat ion a l
sat el lit e comm un ic ati on s . "
 Si nc e 196 8, t he peti tione r has b een le asi ng its s a telli te ci r cuits t o
comp an ie s li ke P hi li pp in e L ong Di sta nce Te le ph one C omp any a nd
Ph il ipp in e Glo ba l Comm un ica ti ons , I nc .
 The sat el li te ser vi ce s prov ide d b y pet it ion er ena ble s a id in ter nat ion al
carr iers to ser ve t he p ubl ic wi th ind is pen sa bl e comm un ic ati on
serv ic es .
 Und er Se ct io n 5 of Rep u bli c A ct N o. 551 4, pe tit io ner - P HI LC OM S AT
wa s e xem pt fro m t he juri sd ic ti on of the t hen P ub li c Ser vi ce
Com mi ss ion , n ow re spo nd ent NT C.
 Ho we ver, pu rsua nt to E x ecuti ve O rde r No. 1 96 is sued on Jun e 1 7,
1987 , peti tione r was p l aced und e r the ju r isdi c tion, cont ro l and
regu lat ion of resp onde nt NT C, in cludi ng al l i ts fac ilit ies and
se rvi ces and the f ixi ng o f r ates .
 Impl eme nt ing sai d E xe cu tiv e Ord er N o. 1 9 6, re sp onde nt s r equ ire d
pet iti oner to a ppl y fo r the requi si te cert if ic ate o f p ubl ic con ven ie nc e
and nec es si ty co ver ing it s fac il it ies an d t he ser vi ce s i t ren der s, as we ll
as the cor res pon di ng aut h orit y t o char ge rat es the re for. p r c d
 Pe tit io ner co mp lie d. P en di ng hear in g, it a lso a pp lie d for a pro vi si on al
auth ori ty s o t hat i t can c ont inu e t o oper ate a nd m ain tai n the ab ov e
ment ion ed f ac il it ies , pro v ide t he s erv ic es a nd c h arge t here for t he
afore sa id rat es the rei n a p pli ed for.
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JAN 30 MEETING
 On Sep tem ber 1 6, 1 987 , p eti tio ner wa s gra nte d a pr ovi si ona l au th orit y
to c ont in ue o pera ti ng its exi st ing fa ci li tie s, to r end er th e s erv ice s it
wa s th en o ffer in g, a nd t o char ge t he ra te s i t w as th en c harg in g, v al id
for 6 mo nth s.
 Wh en sai d pr ov is ion al au thor ity e xpir ed on M arc h 17, 198 8, it wa s
ext end ed for ano ther s ix ( 6) mo nth s, or up to S ept e mber 16, 19 88.
 T he pro vis iona l au th o ri t y o f p etit io n e r w as fu rth er e xtend ed B UT
NTC di re cted t h e p etiti o n er to ch a rg e m odifi e d r educe d rate s
th rough a redu c tio n o f fifte en p e rcen t (1 5% ) on th e p re sent
autho riz ed ra tes . (ra te s f or pu bl ic s erv ice c omm uni cat ion s)
 Re spo nde nt C omm is si oner or dere d sa id re duc ti on be cau se b ase d from
its on - go ing re vie w of pre s ent ser vi ce rat es, an i ni tia l ev alu at ion of th e
fin anc ia l s tat eme nts of app li can t s ho ws t hat th e re i s mer it in a
R ED U CTIO N i n som e of ap pli ca nt' s rat es , s ub je ct to f urthe r r edu ct ion s,
sho uld t he Co mmi ss io n f i nds (s ic) i n its f urth er ev alu ati on th at more
redu cti on sho uld be e ffe cte d ei ther on t he ba si s of a pro vi s ion al
auth ori zat io n or i n t he fi na l c on sid er a tio n o f t he ca se ." 6
P ET IT IO N ER ’ S CO NT EN T I ON:
 No wher e in t he pro vi si on s of Ex ecu ti ve O rd er No. 546 (th e ena bl ing
act pro vi din g f or t he crea ti on o f re spo nde nt NT C a nd gran tin g its rat e -
fix in g po wer s) nor o f E xec u tive O rd e r No . 196 , pla c i ng pet it ion er un der
the jur isd ic ti on o f re spo nd ent NT C , c an it b e i nferr e d tha t re spo nde nt
NTC is gui ded by a ny sta ndard in t he e xer ci se o f i ts rat e - f ix ing and
adj udi ca tor y p ow ers.
 T hat the o rd e r m an d atin g a red u c tio n o f ce rta in rat es is undu e
d eleg ation no t o f l eg i slati ve b u t o f qua si - ju dicia l po we r to
re spondent NTC , the e xer ci se of w hi ch a ll ege dl y r e quir es an e xpr es s
con ferm ent by th e leg is la ti ve bod y.
IS S U E:
I.
Wh eth er or n ot ther e wa s a v al id de leg ati on of l egi sl ati ve po wer i n
grant in g NTC au thor it y to fix rat es . - Y E S
RUL IN G ( P E RTI N EN T & R EL E V A NT ) :
 F unda men ta l is th e ru le t hat de leg at ion of l eg is lat i ve po wer ma y be
sus ta ine d o nl y u pon t he g round t hat so me st and ard for it s e xer ci se i s
prov ide d and th at th e l egi sl atur e in ma ki ng th e d el ega tio n ha s
pres cri bed th e m ann e r of t he e xer ci se of th e d ele gat ed p ow er.
 There fore , wh en th e adm in istr at ive a gen c y con cer ned (NT C i n the c as e
at bar), e st abl i she s a r ate , i ts a ct mu st bo th be n o n - confis cato ry a n d
must hav e be en es tabl i shed in the m anne r p r esc rib ed by the
legis latu r e ; ot her wi se, i n t he ab se nc e of a f ix ed st and ard, t he
del ega tio n o f p ow er bec o mes un con st itu ti ona l.
 In ca se o f a del egatio n of r ate - fi xing pow e r , the on ly st and ard wh ic h
the le gi sl atur e is re qu ir ed to pre scr ib e for th e gu ida nc e of th e
admi ni str ati ve au thor it y is that the r ate be r eason ab le an d ju st .
 Ho we ver, it ha s b een he l d th at e ve n i n th e a bs en ce o f a n e xpre ss
requ irem ent a s t o re aso na ble nes s, th is st an dard ma y b e i mp lie d . 7
 Pur su ant to Ex ec ut ive O r ders Nos . 546 a nd 196 , r esp ond ent N TC i s
empo wer ed, a mon g o th ers , t o det erm ine a nd pre sc ri be r ates pe rt inent
to the ope rat ion of pub lic se rvi ce com m unic ation s wh ich ne ces sar il y
inc lu de t he po wer to pr o mulg ate ru les an d re gul at ion s i n c onn ec ti on
there w ith .
 Se ct ion 1 5(g) o f E xe cut iv e Or der N o. 54 6: R es pon de nt NT C s h oul d be
gui ded b y the re qui reme nts of pub lic s afety , p u blic int er est an d
re asona ble fe asib ilit y of main ta in ing ef fe cti ve c om pet iti on of pr iv ate
ent iti es i n c omm un ica ti on s a nd bro adc as tin g fac il it i es. ( E.O . No . 5 46
(Cre ati ng M in is try of pub li c Work s a nd a M ini str y o f Trans port at ion an d
Com mun ic ati on s; is su ed b y F. Mar co s d uri ng Mart ia l La w)
 Lik ew is e, in Se ct io n 6(d) : the n at ion al ec ono mi c v ia bil it y o f th e e ntir e
net wor k or c omp one nts of the c ommu ni ca tio ns s yst ems co nte mpl at e d
there in sh ou ld be ma int ain ed at rea sonab le r ates .
 So , re sp ond ent NTC , in th e e xer ci se of i ts rat e - f ix in g p ow er, is l im ite d
by t he r equ irem ent s o f pub li c s afe ty, pu bl ic int eres t, re as ona bl e
fea sib il it y and rea so nab le rate s, wh ic h con jo int ly mo re th an sa ti sf y t h e
requ irem ent s of a v al id de leg ati on of le gi sl ati ve po w er .
Ca se #3: M ER AL CO v L A GU NA
FACT S:
- Cert ai n m uni ci pa lit ie s of t he pr ov in ce of Lag una i ss ued r es olu ti on
throu gh the ir r es pe cti ve m uni ci pal c oun ci l gran tin g f ranc hi se in
fav or o f p et iti oner Ma ni la El ec tri c Com pan y ( ME R AL CO) for th e
sup pl y o f e le ctr ic li ght , h e at a nd po wer w ith in th e c o ncer ned
area s.
- Se pte mber 12 , 1 991 , Rep u bli c A ct No . 7 160 , o ther w i se kno wn a s
the "L oca l Go vern men t Co de o f 1 991 ," w as en act ed to t ak e e ffe ct
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JAN 30 MEETING
on 0 1 Jan uar y 1 992 en jo in ing lo ca l g ov ernm ent un it s t o cre ate
the ir o wn so urc es of re ven ue a nd to le vy ta xe s, fee s and ch arge s,
sub je ct to the l imi tat io ns e xpre ss ed ther ei n, co ns ist e nt wi th the
bas ic po li cy of l oca l aut on omy.
- Pur su ant to th e pr ov is ion s of the C ode , fr an ch ise ta x ord ina nce
wa s e nac ted .
- On the ba si s o f t hi s ordi na nce , re spo nd ent P rov in ci al Trea sure r
sen t a de man d l ett er t o M E RA LC O for the c orre spo n din g t ax
paym ent .
- M ER AL C O p aid th e tax u nder pro tes t. A for ma l c la i m for ref und
wa s t here aft er sen t b y M E R AL CO to the Pro vin c ial T reas urer of
Lag u na cl ai min g t hat th e f ranc hi se ta x i t h ad pa id an d c ont inu ed
to p ay to th e Nat ion al G ov ernme nt pur sua nt to P .D . 551 alr ead y
inc lu ded th e fr an chi se ta x impo se d b y the P rov in ci al Tax
Ordi nan ce .
R ES P O ND E NT’ S C ONT E N T IO N:
Re spo nde nts re li ed on a more r ec ent l a w , i .e. , Rep ubl ic A ct N o. 716 0 or
the Lo cal G ove rnme nt C od e of 19 91, th an the o ld de cree in vo ke d b y
pet iti oner .
P ET IT IO N ER ’ S CO NT EN T I ON:
ME R AL CO as sa il ed the tr i al cour t' s r ul ing co nte nd in g th at the fra nc hi se
tax ord ina nc e is vi ol ati ve of t he non - im pai rme n t cl a use of th e
Con st itu ti on.
T RI AL CO U RT:
Pe tit io ner M ER AL C O f il ed wi th the R egi ona l T r ia l Co urt o f St a. Cru z,
Lagu na, a co mpl ai nt for r e fund .
T he t ria l cou rt d ism i ssed the com pl ai nt. T ru ly, ta x e xem ption s of this
kin d m ay no t be revo ked with o u t im p a i ri n g th e o bl igation s of
co n t ract s. T he se con tra ct ual ta x e xe mpt ion s, ho we v er, a re not to be
con fus ed w ith ta x e xe mpt i ons gra nte d u nder fr anc hi ses . A f ran chi se
p art ake s of the natu re o f a g ran t wh ich is b eyo nd the pu r vie w of the
n o n - im pa ir m ent clau se o f th e C o n s titu ti o n . Wh il e the Co urt ha s
referr ed to tax e xem pti on s co nta ine d in spe c ial fra nc his es as be in g i n the
natur e o f con tra cts an d a part of the i ndu cem ent f or carr yin g o n t he
fran chi se , t he se exe mpt io ns are far from be in g s tri c tly c ontr ac tua l in
natur e.
IS S U E:
W/ N the im pos it io n o f a fr anc hi se tax un der S ec ti on 2.09 of La gun a
Pro vi nc ia l O rdi nan ce N o. 01 - 92 i s vi ola ti ve of the n on - i mpa irme nt cl au se
of t he Co ns tit ut ion an d Se cti on 1 o f Pre si den ti al D ec ree No. 55 1.
H ELD:
NO . Wh ile th e Cou rt has , not too i nfr e que nt ly, re ferr ed t o t ax ex emp ti ons
con tai ned i n s pe ci al fran c his es as be in g i n the na tur e of c ontr ac ts and a
part of the i ndu cem ent f or carr yin g o n t he fra nch is e, the se exe mpt io ns,
nev erth ele s s, are far from bei ng str ic tl y c ont rac tua l i n na ture .
Cont rac tual tax ex em ptio ns, i n the rea l s ense of t he te rm and whe r e
the non - im pai rm ent clau se of the Con stitut ion c a n r ightl y be inv oked ,
ar e tho se ag reed to b y th e tax ing autho rit y in con tra cts, su ch a s
those conta ined in go ve r nm ent bond s o r d ebentu r es, la wfull y e nte red
into by them unde r enab l ing l aws in whi ch th e go ve rnm ent , a cting in
its p ri vat e c apac ity, sh e ds it s c loak of a utho rity and w aiv es its
gove rnm ent al im m uni ty. Trul y, tax e xem pti on s o f t his k ind ma y not be
revo ked w it hou t impa ir ing the ob lig at ion s o f con tra ct s.
Thes e c on trac tua l ta x e xe mpti on s, ho we ver, a re not to be confu sed with
tax e xem pt ions g ranted unde r f ran chis es. A fr an c his e p arta ke s the
natur e o f a gr ant w hi ch is bey ond th e p urv ie w o f t he non - imp airm ent
cla us e o f t he Co nst it ut ion . Ind eed , Ar t ic le XII , Se cti o n 11 , o f t he 198 7
Con st itu ti on, l ike i ts pre cu rsor pro vi si ons i n t he 193 5 an d t he 197 3
Con st itu ti ons , is ex pl ic it t hat no fran ch is e f or t he op erat ion of a pub li c
uti li ty sh al l b e gr ant ed ex c ept und er t he co nd iti on th at suc h pr i vi leg e
sha ll be su bj ect t o am end ment , a lte rat ion or rep ea l by Co ngre ss a s a nd
whe n t he com mon go od so requ ire s.
Ca se No . 4: P E P SI- COL A BOTTL IN G C O. OF TH E P HILI P P IN E S, I N C. vs.
CIT Y OF B UTU A N, ME M B ER S OF T H E MU NI CI P AL BO A RD , T H E CIT Y
MA YO R and T H E CIT Y T R E AS U R ER , all of th e CIT Y OF BUT U AN . 196 8 |
Li wag
4
TAXATION
JAN 30 MEETING
F acts: P la int iff , Pe ps i - Col a Bot tl ing Comp an y is a d om esti c c orp or ation .
T he def end an ts are t he C i ty o f Bu tu an , its C ity Ma yor , t he m em be r s o f
its m unic ipa l bo a rd an d its Cit y T r easu r e r . Pep s i- C ola 's war eho use in
the Ci ty o f But uan ser ve s as a sto rag e fo r its p rod ucts (s oft dri nk s) fo r
sale to cu stom e r s i n Bu tua n an d Ag usa n. C it y of But uan ena cted
Or d in an ce 110 wh ich wa s su b seq u en t ly am en ded by Ord in an ce 122 .
Ordi nan ce 1 10 as am end e d, im p o se s a t ax o n an y per son, as soci ation ,
etc., of P0 .10 pe r c as e o f 24 b o tt le s of Pep si - Co la and the pla intiff paid
u n d e r p rote st t he amo unt of P 14k + in 19 60 and 19 61.
xx
tax w as im po sed u pon d eal ers " E NG A G ED I N S E LLI NG " sof t dri nk s o r
carb ona ted dr ink s.
tax i s imp ose d ON L Y u p on " AN Y AG E NT A ND /O R C ON SI G N EE o f a ny
pers on, a ss oc iat io n, par t ners hip , co mpa ny or c orp orat ion E NG A GE D I N
S EL LIN G . . . so ft dri nk s o r car bon ate d d r in ks ."
Def in it ion of t he T erm Con si gne e or A gen t. — For pur po ses of th is
Ordi nan ce , a co ns ign ee or ag ent sh al l m ean an y per son , a sso ci at ion ,
partn ers hi p, co mpa ny or c orpor ati on w ho acts in th e pl ace of anothe r b y
auth ori ty from hi m or one en t ru sted w ith th e bu si nes s o f an oth er or t o
who m i s co ns ign ed or shi p ped no le ss th an 1,0 00 ca ses of ha rd li quor s or
sof t dr in ks ev ery mo nth fo r R E S AL E, e ith er re ta il or who le sa le. "
xx
Pe ps i- C ol a se eks to re co ve r th e su m s p aid b y it t o the C ity of B utu an and
col le cte d b y t he lat ter (p u rsua nt t o i ts Mun ic ip al Or din anc e) whi ch P ep si -
Co la ass ail s a s nul l a n d vo id , an d t o p re ven t its e nfor cem ent .
Pe tit io ner ’s co nte nti on : d i spu ted ord in anc e is nu ll a nd voi d b ec aus e. . .
(1) i t p arta ke s of the na tur e of an im po rt tax ;
(2) i t a mou nt s t o doub le t axati on ;
(3) i t is exc ess ive , opp r e ssiv e an d conf is cato ry ;
(4) i t is h ighl y un just and disc r im in ato ry ; an d
(5) Sec ti on 2 of Re pub li c Ac t No. 226 4, u po n th e au thor ity of wh ic h i t w as
ena cte d, is an uncon stitu tional del egat ion of leg is lativ e po we rs .
*F YI onl y: R E PU BL IC A CT N o. 2 264 = A CT A ME ND IN G T H E LA W S
GO V E RN IN G LO C AL GO V E RNM E NT S B Y I NC R E AS IN G T H EI R
AUT O NOM Y A N D RE O RG AN IZI NG P R O VI NC IAL G O V ER NM E NT S.
MAI N IS S U E: [D E L EG ATI ON TO LO C AL G O VE R NM E NT S]
Wh eth er the t axing po w er gr ant ed t o the Ci ty of B utu an (Loc Gov)
con st itu tes und ue de legat ion of leg isl ati ve powe r s henc e
unconsti tution al ?
H ELD: N O. t he g ene ral pr inc ip le a ga in st d ele gat io n of l egi sl at iv e po wer s,
in co ns equ enc e of t he th eo ry of s epar ati on o f po wer s is s ubj ec t to on e we ll -
est abl is hed ex cep ti on, n a mel y: le gis lati ve po we rs MA Y be de lega ted to
local gov e rnm ent s — t o wh ich s aid t heor y doe s n ot a pp ly in re spe ct of
matt ers of lo ca l con cer n.
____
- jus t in ca se. . . (r ela ted p a ri n s a T axa ti on e s o hav e to i nc lud e t hes e)
IS S U E:
Wh eth er t he pro vi si on r e t ax sta ted on t he Ord ina nc e part ak es of th e n atur e
of a n I M PO RT T A X ?
H EL D: Y E S.- As per t he o r din anc e, m erc han ts e nga g ed i n th e sa le o f s oft
drin ks or c arb ona ted dr in k s, are N OT s ubj ec t to the tax , UN L E S S t he y are
5
TAXATION
JAN 30 MEETING
AG E NT S an d/or CO N SI G N EE S o f A NOT H E R D E A LE R, w ho, in th e ver y
natur e of t hi ng s, mu st b e one en gag ed i n bu si ne s s O UT SI DE th e Ci ty.
Be si des , the t ax w ou ld N O T be a pp li cab le to s uc h ag ent an d/or con si gne e,
if L E S S tha n 1,0 00 c ase s of sof t drin k s are co ns ig ned or s hip pe d to hi m
ever y m ont h. W hen w e c ons ider , al so, th at the t a x " sh al l b e bas ed an d
comp ute d fr om t he CA R G O M AN IF E ST / BI LL O F L A DI NG . . . sho w ing the
numb er of ca se s" — NOT sol d — but “R E C EI V ED ” by t he t axp ay er, t he
int ent ion to l im it the ap pli ca tio n o f t he ord ina nc e to s oft dri nk s and
carb ona ted dri nk s br oug h t in to t he Ci ty f rom OUT SI D E t here of b ec ome s
appar ent . — — —— — — V i ewe d fro m th is a ng le, t h e tax pa rt ake s of the
n atu re of a n i m po rt d u t y, wh i ch is b eyo n d de fe ndant' s autho rit y to
im p o se by exp re ss p ro vi sio n o f la w.
IS S U E: W het her the pro vi sio n re ta x sta ted on th e Ord ina nc e i s h ighl y
u n ju st and d isc r im in at o r y ?
H EL D: Y E S. — E ven , h ow e ver, if th e b urd en in que st ion w ere r egar ded a s
a tax on t he sal e of s aid b ev erag es , it wo ul d sti ll be i nv al id, as
dis cri mi nat ory , a nd hen c e, vio la ti ve of the u nif or mit y re qu ired b y t he
Con st itu ti on a nd t he la w there for , ** * * sin c e onl y sal e s by "ag ents o r
co n sign ees " of OUT S ID E d ea le rs wo u ld b e su bje c t to th e t ax. Sal es b y
lo cal de ale rs , not ac ti n g fo r o r o n b eh alf of othe r m e rcha nts,
R EG AR DL E S S OF T H E V OL U ME o f th ei r s ale s, an d E V E N IF TH E S AM E
E XC E E D E D th ose m a d e b y said a g en ts o r co n sig n ees of p roduc e rs o r
m er chant s esta bli sh ed o u tsid e th e Cit y o f Butu a n, would be E X EM PT
from the d isp ute d t ax .
It is tru e t hat t he un ifo rm i ty e ssen t ial to t h e val id exe rc ise of th e po we r
o f tax ation does n o t r eq u i re id en tity o r equal ity unde r all
ci rcu m s ta nc es, o r n eg a te th e au th o rity to cl a ssify the ob ject s of
tax ati on. T he cl ass ifi catio n m ad e in th e e xe rc ise of thi s autho rit y, to be
valid , m u st, ho we ve r, b e re aso n a b le and th is req ui remen t i s not dee med
sat is fie d u nle ss : (1) it is b ase d up on su b stan t ial di s tinction s w hi ch mak e
real dif fer enc es ; (2) t he s e a re g e rm an e/ u sefu l to the pu rpose of the
leg is lat ion o r o rd in an c e ; (3) th e c la ss if ica ti on app lie s, not onl y t o
p re sent condit ions, b u t , als o , to fu t u r e cond itions subst antia lly
identi cal to tho se of th e pr e sent ; an d (4) th e cla ss if ic ati on ap pli es
equal ly to al l tho se who belong t o the sam e cla ss .
These c onditi ons a re n ot fully m et by the o rd inan c e in q ue sti on. Ind eed ,
if its pur po se wer e mer el y to lev y a bur den up on the sa le o f sof t dr in ks or
carb ona ted be v era ge s, t h ere i s n o rea so n w hy sa l es t here of b y d ea lers
OTH E R T H A N a gen ts or c ons ign ee s o f prod uc ers or merc han ts es tab li sh ed
OUT S ID E the C it y o f Bu tu an sho uld be e xem pt from the ta x.
. . . it a mou nt s to dou bl e t axati on - D E VOI D OF M E RIT . doub le ta xatio n ,
in gen e ral , i s not fo rbidd en by ou r fund am ent al la w.
. . . it i s e xce ssi ve, opp r e ssiv e and confi scato r y - untenabl e . The t ax of
"P 0. 10 per ca se of 2 4 bo tt les " of sof t dri nk s or c arbo nate d dri nk s — i n th e
produ ct ion and s al e of w h ich p la int if f is e nga ged — or l es s tha n P 0.0 042
per bo tt le, is m anif estl y too sm al l to be exc es sive , opp re ssi ve, o r
confis cato ry .
=> W H ER EF O R E , th e de ci sio n ap pea led from is hereb y re ver sed , an d
anot her on e sh al l be en te red annul ling O rd inan ce No. 1 10, a s am end ed
by Ord in anc e 122 , and s en ten cin g the City of Butu an to r efund t o p laint iff
here in the am oun ts c ol lec ted from a nd pa id und er prote st b y t he la tter +
re st rain ed and p rohi bite d perm anent ly f rom enfo rc ing sa id O rdi nanc e ,
as amen de d.
Ca se # 5 : Ma nil a G as Co r p vs CI R
Doct rin e: If an int ere st in prope rty i s t ax ed, th e s it us of eit her th e pr oper ty
or int ere st mu st be fo un d wi th in th e st ate . I f a n i nc ome i s t axe d, t he
reci pi ent ther eof mus t ha v e a dom ic il e w it hin the st ate or the p rop ert y or
bus ine ss out o f wh ic h th e inc ome is sue s mu st b e si t uate d w ith in t he s tat e
so tha t t he in com e m ay be sa id to ha ve a s it us th ere in.
Per so nal pr ope rty m ay be sep arat ed fro m it s ow ner, and he m ay be t axe d
on i ts ac co unt at the pl ac e wher e t he prop ert y i s a lt ho ugh it is no t th e p la ce
of hi s o wn do mi ci le an d e ven t hou gh he is n ot a c it i zen or r es ide nt of t he
sta te wh ic h imp os es th e ta x. But d ebt s ow ing by c orpo ra t ion s ar e
obl iga ti ons of t he d ebt or s, a nd on l y po ss es s va lu e in t he h and s o f th e
cred ito rs.
Facts:
6
TAXATION
JAN 30 MEETING
 Mani la Ga s i s a c orp ora tio n org ani ze d un der t he law s o f th e
Ph il ipp in e Is lan ds . I t oper ate s a g as p lan t in th e C it y o f Man il a and
furn ish es g as ser vi ce t o t he p eop le o f the m etrop ol is a n d
surro und in g m uni ci pa lit ie s .
 As so ci ate d wit h M an ila Gas are th e I sl and s Ga s an d E lec tri c
Com pan y d om ic ile d in Ne w Yor k, Un it ed St ate s, an d th e G ene ral
Fina nce Co mpa ny d omi ci le d in Z ur ic h, Sw it zer lan d. N eit her of the s e
las t m ent io ned cor por ati on s i s r es ide nt in th e Ph il ipp ine s.
 For th e year s 1 930 - 19 32, Man il a G as pa id the fol lo wi ng
tran sac ti on s:
1. Di vi den ds in the su m of P1 ,348 ,84 7.5 0 were pa id to t he I sl and s G as
and E lec tri c Comp an y i n the ca pa cit y o f s toc kho lder s a n d
wi thh old in g i nco me tax e s w ere pai d t o C ol le ct or of Int ern al
Re ven ue ( CI R) tot al li ng P 40,4 60. 03.
2. Inter es t on b ond s i n th e s um of P4 11 , 600 wa s pa id to th e Is la nds
Gas and E lec tri c C omp an y upo n w hi ch wit hho ld ing inc ome t ax e s
were pa id to C IR to ta ll ing P1 2,3 48
3. Inter es t on oth er in deb ted nes s in th e sum o f P1 31, 6 44.9 0 wa s pai d
to th e I sl and s G as and E l ectr ic Co mpa ny and the G enera l F ina nc e
Com pan y r es pec ti ve ly up o n whi ch w it hho ld ing i nc o me tax es w ere
pai d t o CI R t ota ll ing P3, 94 9.34
 So me u nce rta int y e xi st s re gard ing the pl ac e of pa ym ent a nd M an il a
Gas purp ort t o pro ve t ha t the p la ce o f pa yme nt w as th e U nit ed
St ate s a nd S w itz erl and .
 Mani la Ga s a lle ged tha t the in tere st on b ond s an d ot he r
ind ebt edn es s, pai d b y it out si de of the Phi li pp i ne I sl and s to
corp orat io ns not re si din g in the P hi l, we re not , o n t he p art of the
reci pi ent s t here of, in co me from Ph il ip pi ne sour ce s s in ce t he se were
pai d in th e ir re sp ec ti ve do mi ci le s, an d hen ce not s ubj ec t to
Ph il ipp in e inc ome ta x.
 The So li ci tor - Gen era l an s wer s w it h th e o bse rva ti on tha t th e c it ed
dec is ion s int erpre ted the Inc ome T ax La w be fore it wa s am end ed
by Ac t No . 37 61 to co v er th e in te r est on bon ds and ot he r
obligat ions o r s ecu rit ies p aid " with in o r w ithout t he Ph ilip pine
Islan ds . "
Issu e : W het her the int ere s t on b ond s a nd o the r in deb tedn es s i s c on sid ere d
inc ome w it hin th e Ph il ip pi nes , h enc e sub je ct to In co me Ta x
Held : Yes , th e incom e wa s de riv ed fr om sou rc es within th e Phil ippin e
Islan ds and su bj ect to I nc ome T ax .
The Man il a Ga s C orpor a tio n oper ate s it s bu si ne s s ent ire ly wit hi n the
Ph il ipp in es . I ts ear ni ngs , t heref ore , come fr om lo ca l sour ce s. The p lac e of
mater ia l de li very o f the i nt eres t to the f ore ign c orp or ati ons p ai d o ut of t he
reve nue of th e do me sti c c orpor ati on i s o f no p art ic ul ar mom ent . The pl ace
of pay m ent ev en if conce ded to be outs ide of th e count ry cannot a lte r
the fact that th e in com e was d e riv ed f rom th e P hilipp ines . Th e w ord
"so urc e" co nve ys on ly one ide a, t hat of or ig in, an d th e orig in of th e inco m e
was the Ph ilip pine s .
The C IR wa s jus ti fied in w i thho ld ing in com e ta xe s o n int eres t o n bo nds an d
other ind ebt edn es s pai d to no n - re sid ent corp orat io ns bec ause thi s incom e
was re cei ved f rom sou rc e s w ithin th e P hil ippin e Islan ds a s au thor iz ed
by the In com e Ta x La w.
The a ppro ve d d oct rin e is tha t n o s tat e m ay ta x a nyt hin g n ot wi th in it s
juri sd ic ti on w ith out v io lat in g t he due pr oc es s cl aus e o f t he co nst it ut ion . T he
tax ing po wer of a st ate d oes no t e xt e nd be yon d i t s t erri tori al l imi ts , b ut
wi thi n suc h lim it s it m ay t ax pers on s, prop ert y, in co me, or b us ine ss . I f a n
int eres t in pr ope rty i s t axe d, t he sit us of ei ther th e pr opert y o r i nter es t mu st
be f oun d wi thi n t he st ate .
If an in com e is ta xed , th e reci pi ent ther eof mus t ha v e a dom ic i le w it hin the
sta te or the prop ert y or b usi ne ss o ut o f w hi ch t he i ncom e i ss ue s mu st b e
sit uat ed w ith in th e sta te so tha t t he in co me may b e s aid t o h av e a s it u s
there in . P ers ona l pro pert y ma y be sep arat ed fr om it s o wner and h e ma y be
tax ed on it s ac co unt a t th e pla ce whe re th e pro per t y is alt hou gh it i s no t a
cit iz en or r es ide nt of the s tate w hi ch im pos es th e t ax .
Ca se #6: G. R. No . L - 520 1 9 Au gust 19, 19 88
Pl ainti ff: I LO ILO BOTT L E R S, IN C.
Defe ndant: C IT Y OF IL OI LO
Pone nte: Cor te s, J.
Cas e:
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TAXATION
JAN 30 MEETING
A c omp la int was fi led b y the I lo ilo Bo tt ler s, In c. wi th the CFI o f
Ilo il o pray in g for th e su m of mon ey, wh ic h al leg edl y c ons ti tut ed pa yme nt s
of m uni c ipa l li cen se ta xe s, wh ic h t he co mpa ny pa id u nder pro tes t.
F acts:
 The pl ai nt iff is e nga ge d in the b us ine ss of bo tt lin g so ftdr ink s u nder
the t rad e na me o f Pe ps i C ola and 7 - u p w it h a b ott l in g pl ant si tu ate d
out sid e t he jur is di ct ion of defe nda nt;
 The d efe nda nt en act ed an ord ina nce wh ic h pr ov ide s:
 Se c. 1 - A ny p erso n, f ir m or c orpor at ion en ga g ed in th e
dis tri but io n, m anu fa ctur e or bo ttl in g o f C oc a - C ol a, Pe ps i c ol a,
tru - or ang e, s eve n - up a nd oth er so ft dr in ks wi thi n the
juri sd ic ti on of th e Ci ty of Ilo il o, sh al l p ay a mu ni cip al li ce nse
tax o f te n ( P 0.1 0) ce nt a vos for e ver y ca se o f t wen ty - four
bott le s; PR O VI D ED , H O W E V ER , th at s oft dr in ks s old t o the
pub li c at n ot m ore t han fi ve ( P0. 05) cen ta vos per b ott le s ha l l
pay a tax of o ne and on e hal f ( P0 .01 5) ( cen ta vos) p er c ase o f
twe nt y f our bot tl es.
 Se c. 1. A- F or pur p os es o f thi s Ord in anc e, a ll d el ive ri es an d/or
dis pat ch es em ana tin g or made a t t he pl ant a nd al l go ods or
sto ck s tak en ou t o f the p l ant for d istr ib ut ion , sal e o r ex ch ang e
irre spe ct ive (o f) wh ere i t wou ld ta ke p la ce sh al l be cov ered b y
the oper at ion of th is Or di n anc e;
 Pr ior t o Sep tem ber 196 6, S ant iag o Sy juc o I nc. , o wn ed and oper ate d
a bot tl in g p lan t at Il oi lo Ci ty, do ing bu sin es s u nder t he n ame of 7 -
up B ott li ng Co mpa ny a nd bott le d t he s oft dr in ks of Pe ps i - C ol a a nd
7- up. San tia go S yj uco In c. , c los ed it s Pl ant du e t o f i nan cia l los se s
and so ld the p lan t t o p la in tif f;
 There aft er, pl ain ti ff op erat ed the p lan t b y bot tl ing s of t dr in ks Pep si -
Co la and 7 - u p. Ho we ver , i n J ul y 1 968 , p la int if f c lo s ed t he bot tl ing
pla nt an d tran sfe rred i ts b ott lin g oper at ion s ou ts ide t he jur is di ct ion
of t he C ity of I loi lo ;
 From t he t ime of t he ena ct ment of t he o rdi nan ce , th e 7 - up Bo tt li ng
Com pan y of t he Ph il ipp i nes h ad b een r el igi ou sl y pa yin g th e
defe nda nt m uni c ipa l l ic e nse t ax es due f or b ott le r bec aus e i ts
bott li ng pl ant was t hen s til l si tua ted a t I lo il o Ci ty . But p la int iff
sto ppe d pay in g the m uni cip al l ic en se ta x af ter it tran sferr ed i ts
pla nt out si de the ju ri sdi ct i on o f t he C ity of I loi lo ;
 In Ju ly 1 969 , de fen dan t dema nde d from pla in tif f t he pa yme nt of
muni ci pa l l i cen se ta x u nde r the or din an ce;
 Pl ai nti ff e xp lai ned , in a l ett er, to d efe nda nt t ha t it co ul d not
anym ore be li ab le to p ay the mun ic ip al li ce ns e fe e be cau se it s
bott li ng pl ant wa s n ot an y more in si de th e Ci ty o f I lo i lo. As a re sul t,
defe nda nt di d not a nym o r e pr es s the p la int iff t o pa y the s aid
muni ci pa l li cen se ta x;
 In Ja nuar y 197 2, de fen d ant de man ded fr om pl ai n tif f com pl ian ce
wi th th e s aid ord ina nc e f or 197 2 in vi ew of t he f a ct th at it w as
enga ged in di str ibu tio n of the sof t dri nk s i n Il oi lo C ity . Fur ther , it
dema nde d fr om p la int iff paym ent of ba ck tax es fr om th e t ime it
tran sferr ed it s bot tl ing pl a nt t o M uni c ipa li ty of P av ia , I loi lo ;
 Pl ai nti ff demu rred to t he sai d de man d of de fen dan t rais in g a s it s
juri sd ic ti on t he r ea son th a t it s bot tl ing pl ant i s s it uat ed o uts id e t he
Ci ty of Il oi lo and a s b ott le r co ul d n ot be co ns ider ed as di str ibu to r
under s ai d or di nan ce a lt houg h it se ll s prod uc t d irec tl y to the
con sum er. D ue to th e ins is ten ce of de fen dan t, pl ain ti ff pai d in A pri l
1972 i n t he sum of Php 3,32 9.2 0, und er p rot est and ther eaf ter ,
pay ing de fen dan t e ver y qu arter un der prot es t;
 In J une 197 2, def end ant i nform ed pla in tif f t hat it m ust pa y al l t he
tax es d ue si nce Ju ly 196 8 up to the la st quar ter o f 19 71, o ther w is e
defe nda nt sha ll be c on st rain ed t o ca nc el t he o p era t ion of t he
bus ine ss o f p la int if f. T he pla int if f, so a s n ot to oc ca sio n di srup tio n
of it s bu si ne ss o pera tio n , p la in tif f un der pro te st agree d to t he
paym ent o f t he bac k tax es ;
 Pl ai nti ff doe s no t ma in ta in any com mer cia l e st abl is h ment in Ci ty of
Ilo il o fr om wh ic h it di str ib ute s i ts pro du ct s b ut by m ean s o f a f lee t
of de li ver y tru ck s, pla in tif f di str ibu tes it s pro du cts dire ct ly t o it s
cus tom ers ev en in th e Ci ty of Il oi lo
 Pl ai nti ff a lle ge s t hat i t is alre ady p ay ing t he Na ti on al Go ver nmen t
a per ce nta ge T ax , a s a manu fac tur er’ s sal es ta x on a ll th e sof t
drin ks and is al so pay i ng th e mu ni ci pal l ice ns e ta x to the
muni ci pa li ty o f Pa via , I lo il o ev ery year pl us a mu ni ci pal li cen se ta x
for en gag ing in i ts bu si ne s s to th e mun ic ip al ity o f P a via e ver y ye ar;
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 The cour t re n der ed a d eci si on in fa vor of Il oi lo B ott ler s I nc.
dec lar ing th e Cor pora ti o n no t li abl e und er t he ordi nan ce an d
dire ct ing th e Ci ty of Il oi lo to p ay th e s um of P hp3 , 3 29.2 0.
Issu e : WO N the I lo ilo Bot t lers , Inc . is l iab le un der Il oil o Ci ty ta x Ord ina nc e
wh ich im po se s a mu ni cip al li ce nse ta x on di str ibu tor s o f s oft dr in ks.
Ru li n g: Y es, t he Il oi lo Bo ttl ers In c. i s l iab le u nder the ta x ord ina nc e.Th e
Cour t h as a lw ay s re co gni z ed t hat t he r ig ht to man ufa ctur e imp lie s the ri ght
to se ll /d istr ib ute t he m anu fac ture d pr o duc ts . In or der to det ermi ne whe ther
an e nti ty en gag ed in t he prin ci pa l bu si ne ss of m an ufa ctur ing , is li ke wi se
enga ged i n the s epar ate b usi ne ss of s el li ng, i ts mar ket ing s ys tem or s al e s
opera ti ons m ust b e loo ke d in to. O ne of th e sa le s o p erat ion s pro vid es th at :
“Sa le s tra ns act io ns t hat are en tere d i nto and p erfe cte d at stor es or
ware hou se s m ain ta ine d by t he com pan y an d a n yon e w ho d es ire s to
purc has e suc h pr odu ct s may go to t he sto re or ware hou se an d th ere
purc has e the mer ch and is e. T he st ores a nd wa reh ous es ser ve a s sel li ng
cen ters . Thu s, en ti tie s opera ti ng un der s uch sy stem a re co ns ider ed
enga ged i n t he sep ara te b usi ne ss of se ll in g. ”
In th is ca se, t he comp an y dis tri but ed i ts sof t dr ink s by me an s of a
fle et o f d el iv ery tru ck s w hic h wen t d ire ct ly to cu st omer s i n t he dif fere nt
pla ce s in I lo ilo prov in ce . Sa le s tran sa ct ion s w ith cu stom ers wer e ent ered
int o an d sal es we re p erf ec ted and co ns umma ted b y r oute sa le sme n. Tr uc k
sal es w ere ma de in dep en dent ly o f tr an sa cti on s in the ma in off ic e. The
del iv ery tru ck s were no t u s ed s ol el y f or t he purp os e o f de li ver ing s oft dri nk s
prev iou s ly so ld at Pav ia . T hey se rve d a s se ll ing u nit s . Th ey we re wh at wer e
cal le d, unt il re ce nt ly, "rol l ing s tore s" . T he de li ver y truc ks were t here fore
much t he sa me as t he st or es and ware hou se s und er the se co nd mar ket in g
sy stem . I lo il o Bot tl ers , I n c. t hu s f al ls und er t he se con d c ate gor y a bov e.
T hat is , t he corp ora tio n wa s en gag ed in the s epar ate bus ine ss of se ll in g or
dis tri but in g s oft dr in ks, i n depe nde nt ly of it s b us in es s o f b ott li ng the m.
There fore , a per so n e nga ged in an y or a ll of the s e a cti vi ti es is
sub je ct t o t he t ax . It i s c lea r from the ord ina nc e t hat th ree t ype s o f a ct iv iti es
are c over ed: (1) dist rib ut ion ; (2) ma nuf ac ture ;
and ( 3) bot tl ing of so ft dri nks .
Disp o sit ion: The a ppe al ed de ci sio n i s R E V ER S E D . The com pla in t is
order ed DI SM I S SE D
Ca se #7: TH E C OLL EC TO R OF I NT E RN AL
R EV E N U E, pet it ion er, vs . DOM IN GO D E LA R A, as a ncill ia ry
adm ini st rato r o f the est a te of H UG O H. MILL E R ( D ecea sed) , and the
CO UR T O F T AX A P P E AL S , re spo nde nt s. [ G. R. No s. L - 945 6 and L - 9 481 .
Janua ry 6, 19 58]
FACT S: H ugo H . M il ler , a n Amer ic an ci ti zen , wa s b orn in S ant a Cruz ,
Ca lif orn ia, U . S. A., i n 1 883 . Mi ll er we nt to the Phi li pp ine s in 190 5, he
bec ame a tea cher an d lat e r on, d iv is ion s uper in ten d e nt o f sch oo ls. U pon
his ret ire men t, Mi ll er a cc e pted an e xec ut ive p os iti on in th e l oc al bra nch
(Ph il ip pin es) of G inn & Co ., b oo k p ubl is her s wi th pri nci pa l o ffi ce s in Ne w
Yor k and B os ton , U. S. A ., up t o t he out bre ak of the Pa ci fi c War . M il ler
nev er h ad an y r e si den ti al hou se in the Ph il ipp ine s, h e on ly s tay ed at the
Mani la H ote l and A rmy an d N av y Cl ub. A t t he ti me o f h is dea th in 19 44,
Mil ler o wne d t he se vera l p roper tie s in Ca li for nia an d sh ares of s to ck in
Ph il ipp in e Corp ora tio ns .
Test ate pro ce edi ng s were ins ti tut ed bef ore the C ourt of Ca li forn ia i n
Sa nta Cr uz C oun ty, w her e in it fou nd tha t M il ler w as a "r es ide nt of the
Cou nt y o f San ta Cr uz, Sta te o f Ca lif orn ia " a t t he tim e of h is dea th in
1944 . Th ere aft er a nc il li ary pro cee din gs w ere fi led b y the e xec uto rs of t he
wi ll be fore th e Cour t o f F ir st Ins tan ce of Ma ni la,
CFI R ULI NG: Adm itt ed to proba te the w i ll of Mi ll er w as prob ate d in the
Ca lif orn ia co urt, al so fo un d th at Mi ll er was a res id en t of San ta Cru z,
Ca lif orn ia, at th e t ime o f h is dea th.
Later on , t he B an k o f Ame rica , Nat io na l Tru st an d S avi ng s As so ci ati on of
Sa n Fra nc is co C al ifor nia , co - e xe cut or n ame d in Mi ll er's w il l, fi le d a n
est ate an d i nhe rit an ce tax retu rn wi th the C ol le ctor , cov eri ng on ly the
shar es of st oc k is sue d b y Ph il ipp in es cor por ati on s, r eport in g a l iab il it y o f
P2 69. 43 for ta xes an d P2 3 0.27 for i nher it anc e t ax es . A fter du e
inv es tig at ion , t he Co ll ec to r as se ss ed est ate an d inh erit anc e t ax es , whi ch
wa s re ce iv ed by the s aid e xec utor on Apr il 3, 19 50. The e st ate of Mi ll er
prote st ed the a sse ss men t of t he li ab il ity fo r e sta te a nd inh erit an ce ta xes ,
inc lu din g p ena lt ie s a nd ot her inc rem ent s a t P7 7,3 00 .92, a s o f J anu ary 16 ,
1954 . Th is a ss es sme nt wa s a ppe ale d b y De Lar a a s An ci ll iar y
Ad min is trat or bef ore the B oard of Tax App ea ls, w hi c h ap pea l wa s lat er
heard an d d ec id ed by the Cour t o f T ax A ppe al s.
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JAN 30 MEETING
P ET IT IO N ER ’ S AR GU M EN T : T he C ol lec tor ma int ai ns tha t u nder th e tax
la ws, re sid en ce and do mi c ile ha ve di ffe ren t me an ing s; tha t t ax la ws on
est ate an d i nhe rit an ce tax es onl y men tio n re s ide nt a nd n on - r es ide nt, an d
no re fer enc e wha ts oev er i s ma de to dom ic il e ex cep t in S ec tio n 93 ( d) o f
the T ax C ode ; t hat Mi ll er duri ng hi s lon g s ta y i n t he P hi lip pi ne s h ad
requ ired a "re si den ce " in t his c oun try , a nd wa s a re s ide nt ther eof at th e
time of h is de ath , a nd con seq uen tl y, hi s i nt ang ib le p erso nal pr oper ti es
sit uat ed her e a s we ll as in the U ni ted S tat es w ere su bje ct to sa id ta xe s.
R ES P O ND E NT’ S A RG UM E NT : T he A nc il lia ry A dmi ni s trato r, ho wev er,
equa ll y mai nta in s t hat fo r est ate an d i nhe rit an ce tax purp os es, t he term
"re sid en ce " i s sy n on ymo u s wit h t he term do mi ci le.
2) NO , the pet itione r ’s cont ention t hat Mil le r i s a re sident of th e
IS S U E S:
1) Wh eth er re sp ond ent ’s arg umen t t hat th e t erm r es id e nce i s
syn on ymo us to dom ic il e a nd is us ed int erc han gea bl y i s corr ect ?
2) Wh eth er p eti ti oner ’s c ont e nti on tha t M il ler i s a res id ent of the
Ph il ipp in es un ti l/a t t he tim e of h is dea th and th ere for e h is
int ang ib le per son al pro per tie s h ere an d i n U S i s su bj ect to ta xe s
is corr ec t?
3) Wh eth er re sp ond ent ’s c on tent io n t hat it s hal l be ent i tle d t o
exem pt ion fro m t he ta x o n the i nta ngi bl e p ers ona l p r opert y fou nd
in the P hi li pp ine s is corr e ct?
H EL D:
1) Y E S, r espon d en t’ s a rg u m en t th at th e te rm r esid en ce i s
synonym o us to d o m i cil e an d i s u s ed in te rch angea bly i s
cor r ect. Thi s i s in ag re e m en t w ith th e Cou rt of T ax Appe als
that at the tim e th at T h e Nati o n al In te rn al Re venu e Co de was
prom u lgate d in 19 39, th i s w as th e p re vai ling con stru ction .
Ca ses w ere ci te d i n sup po rt of th is v ie w, par ti cu larl y tha t o f
Ve li ll a v s. Pos ada s, 62 Ph il. 62 4, wh ere in th is T rib u nal us ed the
term s " res id enc e" an d "do mic il e" in ter cha nge ab ly an d w it hou t
dis ti nct io n, the c ase i nvo l vin g t he app li ca ti on of the term
resi den ce em plo ye d in the in heri tan ce ta x la w a t t he tim e ( se cti on
1536 - 15 48 of th e Rev is ed A dmi ni stra ti ve C ode) , a nd tha t
con seq uen tl y, it w il l be pr esum ed th at in us ing th e t erm re si de nce
or re si den t i n t he mea ni ng as co ns true d a nd in terpr e ted by th e
Cour t. More ov er, the re is r eas on to bel ie ve th at the Leg is lat ure
adop ted th e Am eri can (Fe dera l a nd S tat e) e st ate an d i nher ita nc e
tax s yst em ( se e e .g. R epo rt to th e T ax Co mmi si on of the
Ph il ipp in es , Vo l. II, pa ge s 12 2- 1 24, c it ed in I Da lup a n, Nat io nal
Inter na l Rev en ue Co de An nota ted , p . 4 69 - 470) . I n t h e U ni ted
St ate s, for es tat e t ax pur p ose s, a re s ide nt is co ns id ered one w ho
at t he tim e of hi s d eat h h a d h is dom ic il e in the U nit e d Sta tes , a nd
in Am eri ca n j uri spr ude nce , for pu rpo se s o f e sta te an d ta xa tio n,
"re sid en ce " i s int erpr ete d as sy non ymo us w ith do mi c ile , a nd
that — T he in ci den ce of es tate an d suc ce ss io n h as hi stor ic al ly
been de term in ed by dom ic ile an d sit us an d n ot by th e fa ct of
act ual re si den ce. ( Bo wri ng vs . Bo we r s, (19 28) 24 F 2 d 91 8, at
921, 6 AFT R 749 8, cer t. d en (1 928 ) 2 72 U. S. 60 8).
Phi lipp ines unti l/at the ti m e of h is d eath and the r efor e h is
intangib le pe rson al p rop ert ies he re and in U S is subje ct to
taxes is in co rr ect . We al so agre e wit h the C ourt of Tax App eal s
that at th e t im e o f h is de at h, M il ler ha d h is re sid en ce or d om ic ile
in Sa nta C ruz , Ca lif orn ia. Dur ing hi s co untr y, Mi ll er nev er
acq uire d a h ous e f or r es id ent ial pur po se s f or h e sta y ed at th e
Mani la H ote l and la ter on at t he Ar my an d Nav y Cl u b. Ex ce pt th is
wi fe nev er sta ye d i n t he P hil ip pin es . Th e b ul k o f h is sav in gs and
prope rti es w ere in th e Uni t ed St ate s. To hi s h ome in Ca lif orn ia,
he h ad bee n sen din g sou v enir s, su ch as c arv ing s, c urio s a nd
other s im ila r c ol le cti on s fr om t he P hi lip pi nes a nd the Far Ea st . I n
No vemb er, 19 40, Mi ll er t o ok out a prop ert y i ns uran c e po li cy an d
ind ic ate d t here in hi s addr ess a s Sa nta Cr uz, C al ifo r nia , t hi s a si de
from the fa ct th at Mi lle r, a s a lrea dy s tat ed, ex ec ute d hi s wi ll in
Sa nta Cr uz , Cal if orn ia, w h erei n h e s ta ted th at he wa s " of S ant a
Cru z, Ca li forn ia ". From th e for ego in g, it i s c le ar t ha t a s a no n -
resi den t o f the P hi li pp ine s , th e o nl y p rop erti es of h is es tat e
sub je ct to est ate an d inh e rita nce ta xe s are tho se sh ares of st oc k
is sue d b y Ph il ip pin es co rp orat ion s, va lu ed at P5 1, 90 6.45 . I t is
true, a s s ta ted by th e T ax Cour t, tha t wh ile i t m ay be the ge nera l
rule th at per son al pro pert y , l ik e s har es of st oc k i n t h e Phi li pp ine s,
is ta xab le at the do mi ci le of t h e ow ner (Mi ll er) und er the do ctr in e
of m obi l ia se cuu ntur per so na , ne vert he les s, w hen he dur ing hi s
lif e t ime , ext end ed hi s a ct i vit ie s wi th r es pec t t o h is i ntan gi ble s, so
as to ava il h ims el f o f t he prote ct ion a nd ben efi ts of the la ws of
the P hi lip pi ne s, in su ch a wa y a s t o br in g h is per so n or p rop erty
wi thi n t he r ea ch of the Phi lip pi nes , t he rea son fo r a sin gl e p la ce
of t ax ati on no lo nger ob ta i ns - prot ec tio n, ben ef it, an d po wer o ver
the su bje ct ma tter are no l onger c onf in ed to Ca li forn i a, b ut al so to
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JAN 30 MEETING
the P hi lip pi ne s ( We ll s F a r go Ba nk & U ni on Tr us t Co. vs . Co lle ct or
(1940 ), 70 Ph i l. 325) . I n t he ins tan t cas e, the a ctu al si tu s o f t he
shar es of st oc k is in th e P hil ip pin es , t he cor pora ti on be ing
domi ci le d h ere in: an d b es i des , t he r ig ht to vot e t he c erti fi cat es at
sto ck hol der s' mee ti ngs , t h e ri ght to c ol lec t d iv id end s , an d t he
righ t t o d is po se of the sh a res in cl udi ng the tra ns mi s sio n a nd
acq ui sit io n t here of by su c ces si on, a ll en jo y t he prot ect ion of th e
Ph il ipp in es , s o t hat th e r ig ht t o col le ct the e sta te an d i nher ita nc e
tax es ca nno t b e q ue sti one d ( Wel ls F ar go B ank & Un i on Tr ust C o.
vs. C ol le ctor s upra) . I t is r eco gni ze d t hat th e sta te m ay,
con si ste nt ly w ith du e pr oc ess , imp ose a ta x u pon tra nsf er b y
deat h o f shar es of st oc k in a d ome st ic cor por ati on o wne d b y a
dec e de nt wh ose do mi ci le wa s o uts id e o f t he sta te ( Bur net t vs.
Bro ok s, 288 U . S. 378 ; St a te Com mi ss ion v s. A ldr ic h, (194 2) 316
U. S. 17 4, 86 L. E d. 135 8, 62 AL R 100 8). " ( Br ief for t he Pe tit io ner,
p. 7 9 - 80 ).
4) Y E S, r espon d en t’ s co n t e n tio n th at it sha ll be enti tled to
exem pt ion f ro m th e tax o n th e in tan g ible pe rso nal pro pe rty
found in the Ph ilip p in e s is co r r ect. T he An ci ll iar y Ad min is trat or
for p urp ose s of exe mpt io n in vo kes th e p rov is o in S e cti on 122 of
the T ax C ode , wh ich pro vi des as fo ll ow s: . . . " And P rovi ded ,
how ev er, T hat no ta x sha l l be co ll ect ed und er thi s T i tle in re spe ct
of int ang ib le per son al pro pert y (a) i f t he de ced ent a t th e t ime o f
his de ath w as a r es ide nt o f a fore ig n cou ntry w hi ch a t th e t ime o f
his de ath d id not im po se a tran sf er t ax or dea th ta x of a ny
char act er in res pe ct of int ang ibl e p ers ona l prop ert y of cit iz en s o f
the P hi lip pi ne s n ot r es id in g i n t hat co unt ry, or (b) if the la ws of
the fore ig n cou ntry of w hi c h th e d ec ede nt wa s r es ide nt a t t he tun e
of h is de ath a llo w a sim il a r ex emp tio n f rom tra nsf er tax es or
deat h t ax es of ev ery ch ara cter in re spe ct of in ta ngi bl e per so nal
prope rty o wne d b y ci ti zen , of the Phi l ipp ine no t r es id ing in th at
fore ign co un try.
T he An ci ll iar y Ad mi ni stra t or ba se s h i s c la im of ex e mpti on on (a) the
exem pt ion of no n - re si den t s fr om the C al ifor ni a i nhe r ita nce ta xe s wi th
resp ect to i nta ng ibl es , a nd (b) the ex emp ti on by wa y of re du cti on of
P4 ,00 0 fr om the e sta tes of non - res id ent s, und er the Un ite d Sta te s Fe der al
Es tat e T ax La w. S ec tio n 6 of the C al ifor ni a I nher it an ce T ax A ct of 19 3 5,
now ree na cte d a s Se ct ion 1385 1, Ca li for nia R ev enu e and Ta xat io n Cod e,
read s a s f ol lo ws : S EC . 6 . T he f ol lo wi ng exe mpt io n fr o m th e t ax are her eb y
all ow ed: (7) The ta x imp os ed b y thi s act i n re sp ect o f i nta ngi bl e p ers ona l
prope rty s hal l not be pa ya ble if de ce den t i s a re si de nt o f a Sta te or
Territ ory of th e Un ite d St a tes or a f ore ign st ate or c ountr y wh ic h a t t he
time of h is de ath im po sed a l ega cy , s uc ce ss ion of de ath ta x i n r esp ec t o f
int ang ib le per son al pro per ty wi th in the S ta te or Ter ri tory or fore ig n sta te
or c oun try of re sid ent s of the S tat es or T erri tor y or f orei gn sta te or
cou ntry of re si den ce of th e de ce den t a t t he tim e o f his de ath c ont ain ed a
reci pro ca l pr ov is ion un der wh ic h n on - r es ide nts w ere ex empt ed fro m
leg ac y or s uc ces si on ta xe s or de ath ta xe s o f e ver y char act er in res pe ct of
int ang ib le per son al pro per ty prov id in g t he St ate or T errit ory or fore ig n
sta te or c ou ntry of re si den ce of su ch non - r es id ent s a llo we d a s im ilar
exem pt ion to re sid en ts of the S tat e, T erri tor y or fo re ign st ate or co untr y
of re si den ce of s uch de ce dent .
Con si der ing th e St ate of C ali forn ia a s a for eig n cou n try in rel at ion to
sec ti on 122 of Ou r Ta x Co de we be lie ve an d h old , a s d id the Ta x Cour t,
that th e An ci ll iar y Ad mi ni s trato r i s ent it led to e xemp t ion fro m t he tax on
the in tan gib le per so nal pr opert y fou nd in th e Ph il ipp ine s. In cid ent al ly , t hi s
exem pt ion gra nte d t o n on - resi den ts un der the pr ov is ion of S ec ti on 122 of
our T ax Co de, w as to red u ce the bur den of mu lt ip le t axa tio n, wh ic h
other w ise w ou ld su bje ct a dec ede nt' s int ang ib le pe r s ona l pr oper ty to th e
inh erit an ce ta x, bot h i n h i s p la ce of r es ide nc e a nd d omi ci le and th e p la ce
wher e t ho se prop ert ie s ar e fo und . As re gard s the ex empt ion or red uc tio n
of P4 ,00 0 b as ed on the re duc tio n u nde r t he F eder al Tax La w i n t he
amou nt of $2, 000 , we agre e w it h t he T ax Co urt th at t he a mou nt of $2, 000
all ow ed und er the Fed era l E sta te Tax La w is i n t he natur e o f d ed uct io n
and not of an e xem pti on. Be si des , a s the Ta x Cour t obs erve s - - th is
exem pt ion i s a ll ow ed on al l gr os s e st ate of no n - re sid ent s o f t he U n ite d
St ate s, wh o a re not c iti ze ns ther eof , irre spe ct ive of whe ther th ere i s a
corre sp ond ing or s imi lar e xemp ti on from tra ns fer or deat h t ax es of non -
resi den ts of th e Ph il ip pin e s, wh o ar e c it iz en s o f t he Un ite d Sta te s; and
thir dl y, be cau se th is ex em pti on i s al lo we d o n a ll gro ss es tat es of non -
resi den ts irr es pec ti ve of w heth er it in vo lve s tan gib le or int ang ib le, rea l or
pers ona l p rop ert y; so tha t for t he se r ea son s p et it ion er c ann ot cl aim a
reci pro ci ty.
Furth ermor e, in th e Ph il ip pin es, th ere i s a lrea dy a r edu cti on on gro ss
est ate ta x in the am oun t o f P3, 000 un der se ct ion 85 of t he T ax C ode ,
befor e it wa s amen ded , w hic h in part pro vi de s a s fo llo w s: S E C. 85. R ate s
of e st ate ta x . —Th ere sha l l be le vi ed, as se ss ed, c ol le cte d, and pa id upo n
the tran sf er o f t he net e s t ate of ev ery de ced ent , wh ether a res id ent or
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JAN 30 MEETING
non- r es ide nt of the Phi li pp ine s, a t ax eq ual to t he su m of th e f ol lo wi ng
perc ent age s of the va lu e o f th e n et es tat e d eter mi ne d a s pr ov ide d in
sec ti ons 88 an d 8 9: On e p er c entr um of the am oun t by wh ic h t he net
est ate ex ce eds th ree th ou san d p eso s and do es no t exc eed te n t hou sa nd
pes os;
DI S PO S ITI V E P ORT IO N: S C m odi fi ed the ap pea led dec is ion of th e Cou rt
of T a x A ppe al s i s here by aff irme d. We de em it un ne ces sar y to pas s upo n
the oth er p oi nt s ra is ed in t he a ppe al . No co sts .
Ca se #8: C OMM I SS IO N ER OF I NT E RN AL R E V E NU E, pet ition e r, vs .
vs. B RIT I SH B RIT I SH O V E RS E A S A IR W A Y S CO R PO R ATI ON an d
CO UR T OF TA X AP P E A L S O V ER S E A S AI R W AY S C O RP O RAT IO N
an d CO U RT OF TA X A P P EAL S , r esp o n d en ts
F act s: B O AC is a 1 00 % B r it is h Go vern men t - o wne d corp orat io n
organ iz ed a nd ex is ti ng u nder th e la ws o f the Un ite d K ing dom . It i s
enga ged in th e int ern ati ona l air li ne bu si nes s.
BO A C had n o la ndi ng ri ght s for tra fc p urpo se s in th e Ph i lip pi nes ,
and w as n ot gra nte d a Cert ic ate o f pu bl ic c onv eni enc e and
nec es sit y to o pera te i n the Phi li pp ine s by t he Ci vi l Aer ona ut ic s
Bo ard (C A B) , ex cep t for a n ine - mon th per io d, p artl y in 1 961 a nd
part l y i n 196 2, wh en i t wa s gran ted a t emp orar y lan di ng per mit b y
the C A B .
BO A C do no t carr y pas se nger s and /or c argo t o o r fr om the
Ph il ipp in es , alt hou gh du r ing t he per io d co vere d by the a ss es sme nts ,
it ma int ai ned a g ener al sa l es a gen t in th e P hi li ppi nes — W arner
Bar ne s a nd C omp any , Lt d., an d la ter Q ant as Air wa ys — wh ich wa s
resp ons ib le f or se ll ing B OA C ti ck et s co veri ng p as sen gers a nd
carg oes .
CI R a ss es sed BO A C d ef ic i enc y IT c ov erin g in the am ount of
P2 ,49 8,3 58. 56 for the y ea r 195 9 - 1 969 w hi ch wa s p r ote ste d a nd r es ult ed
to n ew a sse ss men t in the amou nt of P 858 ,30 7.7 9.
BO A C pa id thi s ne w a ss es smen t t he n l ater f ile d for r efun d con tes ti ng tha t
the ser vi ce of tra nsp ort ati on is perf orm ed out si de th e Phi li pp ine s do not
con st itu te in com e fr om P hi lip pi ne sou rce " si nc e n o s ervi ce of c arri age of
pas sen ger s or fr eig ht wa s perfo rmed b y BO A C w ith in the Phi li pp ine s and
there for e s ai d i nc ome i s n ot sub je ct to in com e t ax.
CT A ru le d i n f av or o f B OA C h en ce CI R app eal ed to S C .
Iss ue W het her the re ven u e der iv ed by BO A C fr om s ale s o f t ic ke ts in th e
Ph il ipp in es for ai r tr an spo rtat ion w hi le ha vin g n o lan din g ri ght s co nst it ute
inc ome fro m Ph il ipp in es s ourc e
Ru lin g: Y es. Th e abs en ce of igh t oper at ion s to a nd from t he
Ph il ip p in es i s no t det er mina ti ve o f the so urc e o f inc ome or t he
sit us o f in com e tax at ion . Ad mit ted ly , B O AC wa s an of f - l in e
int erna tio na l air li ne at t he tim e per tin ent t o th i s ca se. Th e te st of
tax abi li ty i s th e "s our ce " ; an d the sour ce o f an inc ome is th at
act iv it y . . . wh ic h prod uce d the i nc ome .
The so urc e of an in co m e is th e pro pert y, a ct iv i ty or se rv ice t hat
produ ce d the inc ome . F or th e so urc e of in co me to be con si dere d
as co mi ng fro m th e Ph il ipp ine s, i t is suf ci ent t h at t he i nco me i s
deri ved f rom a ct iv ity wi t hin t he P hi li pp ine s. In BO A C' s ca se , the
sal e of ti ck ets in th e P h il ipp ine s i s the a ct iv it y that pr odu ce s th e
inc ome . T he t ic ket s ex c hang ed han ds h er e an d paym ent s for f are s
were a ls o mad e her e in Phi li pp ine curre nc y. Th e sit us of t he
sour ce of pay men ts i s t he P hi lip pi ne s. The f lo w of wea lt h
proc eed ed fro m, an d o cc urred wit hi n, P hi li pp ine terri tor y, en jo yi ng
the pro te ct ion a cc orde d by th e Ph i lip pi ne gov ern ment . In
con si dera ti on of s uc h pr ote cti on, t he o w of w ea lth s hou ld s har e
the burd en o f sup port in g the g ov ernm ent .
Ca se #9: MA C E DA v MA C AR AI G
This c ase ab out i nd irec t t ax exe mpt io n i s act ua ll y b rough t t o t he S upre m e
Cour t t he se con d t im e. P eti tio ner Ma ced a a sk s t o rec ons id er t he 199 1
dec is ion .
FA CT S: O n No vem ber 3, 1936 , Co mmo nw eal th Ac t No. 1 20 w as e nac ted
crea tin g the N at ion al Po w er Corp orat io n, a pub li c c orpor ati on, ma in ly to
dev elo p h ydr au li c p ow er fr om a ll w ater so urc es in th e P hi lip pi nes . T he m ai n
sour ce o f fun ds f or th e N P C wa s th e fl ota ti on o f bon d s in t he c ap ita l mar ket s
and the se bon ds ... "i ss ued under C A 120 sh al l b e e xe mpt f rom the pa y me nt
of a ll ta xe s b y the C omm o nwe al th of the P hi li pp ine s. "
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 In 19 38 - 1 939 , C A No. 33 4 and C A N o. 4 95 w ere ena cte d. Th e
prov is io n on t ax exe mpt io n in re la ti on to the is su an ce of the N P C
bond s wa s n ei ther am end e d nor de le ted .
 In 194 9, R A No. 3 57 was ena cte d. I t wa s expr es sl y sta ted o n sa id
act tha t "an y s uc h l oan /s sha ll be ex empt fro m t axe s, d ut ies , f ee s ,
impo st s, c harg es , co ntri bu tio ns an d res tri ct ion s of t h e Rep ub li c of
the P hi lip pi ne s.
 On t he sam e da te, R A No. 358 wa s e nac ted ex pre ss ly a uth ori zi n g
the N P C t o i nc ur o ther ty pes of i nde bte dne ss , as ide fro m
ind ebt edn es s i nc urred b y f lot ati on of bon ds . As to th e per ti nen t t a x
exem pt ion pr ov is io n, th e l aw s tat ed th at N P C sh al l b e e xe mpt fr om
all ta xe s.
 In 1 952 , R A No . 8 13 wa s ena cte d a men din g R A No . 357 . T he ta x
prov is io n for re pay men t of th es e lo an s, a s sta te d in R. A. No. 357 ,
wa s n ot amen de d.
 In 1 954 , RA N o. 987 w as ena cte d spe ci fi ca ll y t o w ith dra w NP C ' s
tax ex emp ti on for r ea l e st ate ta xes .
 In 19 55 - 1 958 , R A N os . 1397 and 2 055 wer e en act ed, t he t ax
exem pt ion pro vi si on r ela t ed t o th e p aym ent of tot a l i nde bte dne ss
and r epa ym ent of lo an s w as not am end ed nor de let e d.
 In 19 60, R A No . 26 41 c on vert ed th e N P C fro m a pu b li c cor pora ti on
int o a s to ck c orpor at ion . N o t ax ex emp ti on wa s in cor porat ed in sai d
Ac t.
 In 196 0 - 19 67, R A No s. 3043 an d 489 7 wer e en act ed. No ta x
prov is io n w as i ncor por ate d i n s ai d Ac ts .
 In 197 1, R A N o. 639 5 wa s ena cte d r ev is ing th e ch art er o f the N P C.
The b ond s i ss ued sh al l b e ex emp t fr om t he p ay me nt of al l t ax es .
As t o the f ore ign l oan s th e N PC w as a uth ori zed t o con trac t, s hal l
als o b e e xe mpt fro m a ll ta xes ,
 In 1 974 , PD No . 3 80 wa s ena cte d. N PC sh al l a ls o b e ex emp t fr om
all d irec t and in dir ec t t axe s.
 In 1 975 , P D No . 7 58 wa s is su ed dir ec tin g tha t P2 00,0 00, 000 .00
wou ld be a ppro pri ate d ann ual ly to c ov er the u n pa id s ubs cri pt ion of
the G ov ernm ent in t he N P C au thor iz ed c ap ita l s toc k, whi ch a mou n t
wou ld be ta ken fro m t ax e s a ccr uin g t o t he Ge nera l Fund s of the
Gov ernm ent , pr oc eed s fr o m lo ans , is sua nce of bon d s, tr ea sur y b il ls
or no te s t o b e is sue d.
 In 19 76, P D N o. 9 38 de cl a red N P C e xem pt fr om th e paym ent of a ll
form s o f t axe s.
 On the sa me ye ar, P D N o. 8 82 wa s is su ed wi thd r aw ing th e t ax
exem pt ion of N P C wi th reg ard t o imp ort s.
 In19 77, PD 11 77 wa s is su ed sta tin g t hat a ll un it s o f go ver nme nt,
inc lu din g G OC C s, s ha ll pa y in com e ta xe s, cu sto ms d uti es a nd o ther
tax es an d f ees a s imp os ed u nde r re ve nue l aw s: prov ide d, th at
organ iz at ion s o ther w ise ex empt ed b y l aw from the pa ymen t o f su ch
tax es/ dut ie s m ay as k for a su bs idy fr om t he Ge nera l Fund.
 In 19 84, P D No. 1 93 1 wa s is sue d s t at ing tha t al l e x empt ion s fr om
the pay men t o f du ti es, t axe s, fee s, imp os ts and other ch arg es
heret ofo re g ran ted in fa vo r of GO C Cs in cl udi ng the i r su bs idi ari es ,
are h ere by w ith dra wn.
 In 19 86, E O N o. 9 3 wa s i ssu ed wit h a vie w t o co rre ct pr es ide nti al
rest ora t io n or gran t of t ax ex emp tio n to ot her g over nme nt an d
priv ate en ti ti es w ith out be nef it of r ev ie w b y the Fi s cal In ce nti ve s
Re vie w B oard , “W HE R E A S, in ad di tio n t o t ho se tax an d d uty
exem pt ion pr iv il ege s w ere rest ored b y th e F is ca l Inc e nti ve s Re vi ew
Bo ard (F I R B), a nu mber of a ffe cte d ent it ie s, go vern men t a nd
priv ate , h ad th eir ta x a nd dut y e xem pt ion pri v ile ge s rest ored ”.
 Pe tit io ner con ten ds tha t P. D. No . 93 8 re pea led th e in dir ect ta x
exem pt ion of N P C.
IS S U E: Wh eth er o r n ot N P C is ex emp ted to pa y I nd ir ect In c om e Ta x
RUL IN G: Y E S! Cl as si fi cat i ons or K in ds of Ta xe s: ( A c cord ing t o Per so ns w ho
pay or wh o b ear the bu rde n)
a. Dir ect Ta x — th at wh er e th e p ers on sup po sed to pay the ta x r eal l y pa ys
it WIT H OUT t ra ns ferr ing t he b urde n t o som eon e e ls e.
Ex amp le s: I nd iv idu al inc o me ta x, corp orat e i nco m e tax , tr ans fer t ax es
(est ate ta x, do nor' s tax ), r esi den ce ta x, im migr at ion tax
b. Ind ire ct Tax — tha t w here th e tax i s im pos ed upon g ood s B EF OR E
r eac hin g t he co nsu mer wh o ul ti mat el y p ay s f or i t, not as a t ax , bu t a s a p ar t
of t he pur cha se pri ce .
Ex amp le s: th e int erna l r e ven ue in dir ect t axe s ( sp e cif ic t ax, p erc ent age
tax es, ( V AT) and th e t ar iff an d c us tom s ind ire ct tax es (im port du ti es,
spe ci al im port ta x and ot h er du es)
A chro no log ic al r ev ie w of the N PC la w s w il l sho w that it ha s b een the
la wma ker' s int ent io n t hat the N PC w as to be com pl ete ly tax e xemp t fr o m
all for ms of ta xe s — d ire ct and i ndir ec t.
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P. D. N o. 380 ad ded phr as e " dir ect ly or in dir ec tl y,"
P. D. No. 9 38 a men ded i nt o “exe mpt f rom t he pa yme nt of ALL F O RM S O F
tax es ”
Pre si den t M arc os mus t h a ve con si dere d a ll th e N PC sta tut es from C . A. No.
120 up to P .D . No. 93 8.
One comm on t heme in a ll t hes e la ws is t hat t he NP C must be en ab le to pay
its i nd ebt edn es s wh ic h, as of P .D . No. 9 38, wa s P1 2 B il lio n in to ta l dom est ic
ind ebt edn es s, at a ny on e t ime, a nd 4 Bi ll ion U S d oll ars i n tot al f ore ign
loa ns at an y o ne ti me. T h e N P C mus t be and ha s t o be e xem pt from a ll
form s o f t axe s if th is go al is to be ac hie ve d.
T he ta x ex emp ti on s too d as i s — wit h th e ex pre ss ment ion of " dir ec t and
ind ir e ct " ta x exe mpt io ns. Law mak ers w ant ed the N P C to be ex emp t fr om
AL L F ORM S of ta xe s — d i rect an d i nd ire ct.
T here fore , t hat N P C had been gra nte d t ax e xemp ti on pr iv il eg es for bot h
dire ct and i nd irec t t ax es u nder P .D . No. 93 8.
T he Co urt ru les a nd de cl a res th a t the o il c omp an ies w hi ch su pp ly bu nk er
fue l oi l to NP C h ave to p ay th e ta xes imp os ed up o n sai d bu nke r fue l o il
sol d t o N PC . B y t he ver y natur e of ind ire ct ta xa tio n , th e eco nom ic bu rde n
of s uc h t ax ati on is e xpe cte d t o b e pa s sed on thr ough th e cha nne ls of
comm erc e to th e us er or con sum er of th e go ods so ld. Be cau se , ho wev er,
the NP C h as b een e xe mpt e d from b oth dire ct and ind i rect t ax ati on , the N PC
must be he ld e xe mpt ed fr om ab sor bi ng t he eco nom ic burd en o f i nd ire c t
tax ati on.
Ca se #10 : M AC TA N C EB U INT E R NAT IO N AL AI R PO RT AUT H OR IT Y,
p etition e r, vs. H O N. F E R DI NA N D J . M A RC O S, in h is c apac ity as the
P re siding Judg e of th e R eg io n a l T ri al Co u rt, B r an ch 20 , Cebu C ity,
T H E CIT Y OF C EB U, rep r esen t ed b y its Ma yo r, H O N. T OM A S R.
OS M EÑ A, and E U ST AQ UI O B. C E SA , re sp o n d ent s. [G. R. No . 1 200 82.
Sept em be r 11 , 1 996 .]
FACT S: Ma ct an Ce bu Int e rnat ion al A irp ort A uth ori ty (MCI A A) w as cre ate d
by vir tue of R epu bl ic A ct 6 958. Sin ce th e t ime of i ts crea tio n, MC I A A
enj oye d t he pri vi le ge of ex empt ion fr om pay men t o f r eal ty ta xes i n
acc orda n c e wi th Se ct io n 1 4 of i ts Ch arte r. Ho we ver , on 1 1 Oct obe r 1 994 ,
the Of fi ce of the Trea sur er of Ce bu, de man ded for th e pa yme nt of rea lt y
tax es on se ver al par ce ls o f l and be lon gi ng to the pe t iti oner .
P ETIT IO N ER ’ S AR GU M EN T: P et iti one r o bje ct ed to s uch dem an d f or
paym ent a s b as ele ss an d unj ust if ied an d a s sert ed th at it is an
ins trum ent al it y o f t he go ve rnmen t p erfo rmi ng go vern ment al fun ct io ns,
wh ich pu ts l imi tat io ns on t he t ax ing po we rs of lo ca l gov ernm ent un it s.
R ES P O ND E NT’ S A RG UM E NT: T he Ci ty ref us ed to ca nce l a nd se t a si de
pet iti oner ’ s re alt y ta x a cc ount , ins is ti ng tha t t he MC IA A i s a go ver nmen t
con trol le d corp orat io n who se tax e xem pti on pri vi le ge ha s b een w ith dra wn
by vir tue of Sec ti ons 1 93 and 234 of th e L oc al Go ve rnmen t Cod e (L G C),
and not an i nst rume nta l it y of the go ver nme nt but me rely a go vern men t
own ed cor pora ti on perf or ming pr opri et ary fun ct io ns . M CI A A p ai d i ts ta x
acc oun t “u nd er pr ote st ” w hen C ity i s a bou t t o is sue a w arra nt of le vy
aga ins t t he MC I A A’ s pr ope rtie s.
MCI A A fi led a P et iti on of De clar ato ry R e li ef w ith th e RT C con ten din g tha t
the ta xin g p ow er of lo cal g over nme nt uni ts do no t e xt end to the l ev y o f
tax es or f ee s o n a n ins tru ment al it y o f t he nat ion al g over nme nt. It
con ten ds tha t b y the na tur e of i ts po wer s a nd fun ct io ns, it ha s the fo oti ng
of a n a gen cy or in str ume n tal it y o f t he nat ion al go ver nmen t; wh ic h cla im
the C ity re je cts .
TC RUL IN G: D ism is se d t h e pe ti tio n, ci ti ng tha t clo s e rea di ng of the L GC
prov ide s the e xpre ss c anc ell at ion an d wit hdr aw al of tax ex emp ti ons of
Gov ernm ent O wn ed and C ontro ll ed Co rpor at ion s.
IS S U E: Wh eth er t he MC I A A is ex emp ted fr om p ay in g rea lty ta xe s?
H ELD: Y ES , M CI A A i s e x em pted f ro m pa ying r ealt y tax es.
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T ax sta tut es are c on stru e d s tri ctl y aga in st the go ve rnmen t a nd li ber al ly in
fav or o f t he ta xpa yer. But sin ce ta xe s ar e p a i d f or ci vi li zed so ci et y, or a re
the li feb lo od of the na ti on, the l aw fro wn s a ga in st ex empt ion s from
tax ati on and s tat ute s gran tin g t ax ex emp tio ns are th us con str ued
stri ct is si mi jur is ag ai ns t t h e ta xp ayer a nd li bera ll y in fa vor of the ta xi ng
auth ori ty.
A cl aim of e xem pti on from ta x p aym ent s m us t b e cle arly s ho wn and ba se d
on lan gua ge in the l aw to o pl ain to be m ist ak en. Ta x ati on is th e ru le ,
exem pt ion th eref rom i s t h e e xce pt ion . Ho wev er, if t he gr ant ee of th e
exem pt ion i s a po li ti ca l su bdi vi si on or ins trum ent al it y, the rig id ru le of
con stru ct io n d oes no t a pp l y b eca us e t he pra cti ca l e ff ect of th e e xem pt ion
is mere ly to re duc e t he am ount of mo ne y t hat ha s t o be h and le d b y t he
gov ernm ent in th e cour se of its op era tio ns .
F urth er, si nc e t axa ti on is t he ru le an d e xem pt ion th e refrom th e e x cep tio n,
the ex emp tio n m ay be w ith draw n a t t he pl ea sure of t he t ax ing au tho rit y.
T he o nl y e x cep tio n t o t hi s rule i s wher e t he ex emp tio n w as gra nte d t o
priv ate pa rti es ba se d o n m ater ial c on sid erat io n o f a mutu al nat ure , whi ch
then be co mes c ontr ac tua l and is th us co ver ed by th e non - im pair men t
cla us e o f t he Co nst it ut ion .
MCI A A is a “ta xab le per so n” un der it s Ch arter ( RA 6 958), an d wa s o nl y
exem pte d from th e p aym e nt o f re al pro per ty ta xes . The g ran t o f t he
priv il eg e o nl y i n r esp ec t o f th is ta x is co nc lu si ve pro of o f t he le gi sla ti ve
int ent to ma ke it a tax ab le per son su bj ec t t o a ll ta xe s, ex cep t re al
prope rty ta x.
Si nc e Rep ubl i c Ac t 7 160 o r the Lo ca l Go vern men t C ode ( LG C) ex pre ss ly
prov ide s tha t “A ll gen era l and sp ec ial l aw s, ac ts , c it y c hart ers , d ecr ee s
[si c] , e xe cut iv e or der s, pr ocl ama ti ons an d a dm ini str ati ve r egu la ti ons , or
part of par ts the reo f whi ch are in con s ist ent w it h a ny of t he pro vi si ons of
thi s Cod e ar e here by rep e ale d or mo dif ie d a cc ord ing ly. ”
Wi th tha t re pe al ing c lau se in th e L GC , t he ta x e xem pti on prov id ed for in
R A 6 958 ha d b een e xpre s sl y re pea le d b y t he pro vi si ons of th e L GC .
T here fore , M CI A A ha s t o p ay the as se ss ed r ea lty ta x of it s pr op erti es
effe ct iv e a fter J anu ary 1, 1992 un ti l t he pre sen t.
S YL L AB U S ( in c ase m ag t an o n g ):
1. PO LIT IC AL L A W; G O VE RN ME NT ; PO W E R OF T A X ATI O N;
CO N STR U E D. — A s a ge n eral ru le, th e p ow er t o t ax is an i nc ide nt of
sov ere ign ty an d i s unl im it ed in it s ra nge , a ck no wl ed gin g i n its v ery na ture
no lim it s, so th at se cur ity aga ins t its ab us e is to be foun d o n l y in the
resp ons ib il it y o f t he le gi sl ature w hi ch im pos es th e t ax on the co ns tit ue nc y
who are to pa y it . Nev erth ele ss , e ffe ct ive l im ita tio ns ther eon ma y be
impo se d b y the pe opl e t hr ough th eir C on sti tut io n. O ur C on sti tut io n, for
ins tan ce , pr ov ide s tha t t he rul e o f t ax ati on sh al l b e u nif orm and eq uit ab le
and Co ngre ss s ha ll ev ol ve a pr ogr es si ve sy st em o f t axa tio n. S o p ote nt
ind eed i s t he po wer tha t it wa s onc e o pi ned th at "t he po wer to ta x
inv ol ve s t he po wer to de st roy. " Ve ri ly, ta xa tio n is a des truc ti ve po wer
wh ich i nter fere s wi th the p erso nal an d prop ert y ri gh t s o f t he peo ple an d
tak es from th em a p ort ion of t he ir pr oper ty for th e su pport of th e
gov ernm ent . Ac cor din gl y, tax st atu te s m ust be c ons t rued str ic tl y a ga in st
the go vern men t a nd li bera ll y i n f av or o f t he ta xpa yer . But s inc e tax es are
wha t we pa y f or c i vi li zed s oci et y, or ar e t he li fe blo od of the na ti on, th e
la w fr ow ns aga in st ex emp t ion s fr om ta xat ion a nd sta tute s gran ti ng the
exem pt ion s are thu s con st rued str ic ti ss im i j uri s aga i nst th e t axp ay er a nd
lib e ra ll y in fav or of the ta x ing au thor it y. A c lai m o f e xemp ti on from ta x
paym ent s mus t b e cl earl y sho wn an d b ase d o n lan gu age in th e l aw to o
pla in to be mi sta ke n. E ls e wi se st ate d, tax at ion i s t h e ru le, ex emp ti on
there from i s the ex ce pti on . H ow ev er, if the gr a nt ee of t he ex emp tio n is a
pol it ica l sub di vi si on or in s trume nta li ty , t he r ig id rul e of co nstr uc ti on doe s
not app ly be ca use t he pra cti ca l e ffe ct of th e e xem pt ion i s m erel y to
redu ce the am oun t o f m on ey tha t h as to be han dl ed by the go ver nmen t in
the co urse o f i ts op erat io n .
2. I D. , I D. ; I D. ; M A Y B E E X E RC IS E D B Y TH E LO C AL LE GI SL AT I V E
BO DI E S . — Th e p ow er t o t ax is pri mar il y ves ted i n t h e C ongr es s;
how ev er, in our ju ri sdi ct io ns, it ma y be exer c ise d b y lo ca l l eg is lat iv e
bod ies , n o lon ger mere ly b y v irt ue of a va l id de leg at i on a s bef ore, bu t
purs uan t t o d ire ct aut hor it y c onf erre d b y Se ct ion 5, Art ic le X of th e
Con st itu ti on. U nder th e lat ter, the e xer ci se of the po wer ma y b e s ub jec t t o
suc h g ui del in es an d l im ita tio ns as th e Con gre ss ma y pro vid e wh ic h,
how ev er, mus t b e con si st e nt wi th the ba si c p ol ic y of loc al au ton omy . Th e
LG C, ena cte d p urs uan t t o Se ct ion 3, Arti c le X of the Con st itu ti on,
prov ide s for the e xer ci se by lo cal go ver nme nt un its of t he ir p ow er t o t ax ,
the sc ope th ere of or i ts l i mita ti on s, and th e e xem pt i o ns fro m t axa ti on.
Se ct ion 13 3 o f t he LG C pr escr ib es th e c omm on li mit ati ons on th e t ax ing
pow ers of lo ca l gov ernm e nt u ni ts.
3. I D. ; I D .; ID .; E X EM PT I ON FR OM P A YM E NT OF T A X M A Y B E
WIT H DR A W N AT T H E P LE A SU R E OF T H E T A X IN G A UTH O RIT Y;
15
TAXATION
JAN 30 MEETING
E XC E PT IO N. — Ther e can be no que st ion th at un der S ect io n 1 4 o f R. A.
No. 69 58 the pe ti tio ner i s exem pt fro m t he pay men t of re al ty ta xe s
impo se d b y the N ati ona l G over nme nt or a ny of it s po lit ic al su bd iv is ion s,
agen ci es , a nd in stru men ta lit ie s. Ne ver the le ss , s in ce tax ati on is th e r ule
and ex emp tio n t here fro m t he e xc ept io n, the e xemp ti on m ay th us be
wi thdr aw n a t t he pl eas ure of t he ta xin g a uth ori ty . Th e on ly e xce pt ion to
thi s ru le i s wher e t he ex e mpti on wa s gran ted to pr iv ate part ie s bas ed on
mater ia l con si dera ti on of a mu tua l n at ure, w h i ch the n be com es
con trac tua l and i s t hu s c o vere d b y t he no n - im pa irme nt cla im of th e
Con st itu ti on.
4. I D. ; L O CA L GO V E RN M E NT CO D E; S E C. 23 4 PR OV ID E S FO R T H E
E X EM PTI O N F ROM T H E P A YM E NT OF R EA L P RO P E RT Y T A X; B A S I S
T H ER E OF. — S ec tio n 2 34 of t he LG C pro vid es fo r th e e xemp ti on s fr om
paym ent o f re al pro pert y t axe s a nd w ith dra ws pre vi o us exe mpt io ns
there from gr ant ed to nat ur al and jur id ic al per so ns, i ncl ud ing go ver nmen t -
own ed and c ontr ol led c orp orat ion s, ex ce pt as pro vi d ed t here in . Th es e
exem pt ion s are bas ed on t he o wn ers hip , char ac ter, a nd u se of th e
prope rty . Th us : (a ) O wn er shi p Ex emp ti ons . E xem pti ons fro m re al pro pert y
tax es on the ba si s of ow n ersh ip are rea l prop ert ies own ed by : (i ) t he
Rep ub li c, ( ii) a pro vi nce , ( ii i) a c it y, ( iv) a mun ic ip al i ty, (v) a bara nga y ,
(vi) reg is tere d coo pera ti ve s. ( b) char ac ter exe mpt io n s. E xem pte d fr om
real pro pert y ta xes on th e bas is of th eir ch ara cter ar e: ( i) char it abl e
ins ti tut ion s, (i i) h ou se s a n d te mpl es of pra yer l ik e c h urch es, pa rso nag es
or c onv ent s app urte na nt t heret o, mo squ es, an d ( ii i) non - p ro t or re lig io us
ceme ter ie s. ( c) Us age e xe mpti on s. E xem pte d fr om r eal pro pert y tax es on
the ba si s o f t he act ua l, dir ect an d e xc lu si veu se to w hic h t he y ar e d ev ote d
are: (i) al l lan ds , b ui ldi ng s and im pro vem ent s wh ic h are a ct ual l y, dire ct ly
and ex cl us ive l y u sed for r eli gi ous , char it abl e o r e du cat ion al pur po ses ; ( ii)
all ma ch iner ie s a nd eq uip ment ac tu al ly, d ire ctl y and ex cl us ive ly u sed b y
loc al w ater d istr ic ts or by gov ernm ent - ow ned or co nt roll ed cor por ati on s
enga ged i n t he sup pl y and di str ibu ti on of wa ter and / or ge ner ati on and
tran smi ss io n o f e le ctr ic po wer; an d ( ii i) a l l ma ch in er y a nd equ ipm ent u sed
for p ol lut io n con trol a nd e nvir onm ent al pro te cti on. T o he lp pro vi de a
hea lth y e nv iro nmen t in the mid st of th e m oder ni zat io n of th e cou ntr y, al l
mach in ery an d e qui pme nt for p ol lut io n con trol a nd e nvir onm ent al
prote ct ion ma y not be ta xe d b y l oc al go vern men ts . 2 . Ot her E xem pt ion s
Wi thdr aw n. A ll ot her ex em pti ons pre v iou sl y g ran ted t o na tura l or jur idi ca l
pers ons i nc lud in g g ove rn ment - ow ned or co ntro l l ed corp orat io ns are
wi thdr aw n u pon ef fe cti vi ty of the C ode .
5. I D. ; R EP U BL IC OF T H E P HI LI P PI N E S A S DI STI N GU IS H E D F RO M
N AT I ON AL G O V ER NM E NT . — T he te rms " Re pub li c o f th e Ph il ip pin es " a nd
"N ati ona l Go vern men t" are not i nter ch ang eab le. Th e former i s b roa der
and sy non ym ous w it h "Go vern men t o f t he Re pub li c of t he P hi li ppi ne s"
wh ich th e Ad min is tra ti ve C ode of 198 7 d e n es as t he "c orp orat e
gov ernm ent al ent it y thro u gh wh ich th e f un cti on s o f gov ernm ent are
exer ci se d t hrou gho ut the Ph il ipp in es , i nc lud in g, sa v e a s t h e con trar y
appe ars fro m t he co nte xt, the var iou s arm s t hrou gh wh ich po li ti ca l
auth ori ty i s ma de eff ec ti ve in th e Ph il ipp in es, w het he r per tai ni ng to the
auto nom ou s re gio ns , t he p rovi nc ia l, ci ty , m uni ci pa l o r bar ang ay
sub di vi sio ns or oth er form s o f l oc al go v ern men t. " ( S ect ion 2[ 1],
Intro du ctor y Pr ov is ion s, A dmin is tra ti ve Co de of 198 7.) T hes e
"au ton omo us reg ion s, pro v inc ia l, ci ty , m uni ci pa l or b arang ay
sub di vi sio ns " are the po li ti cal s ubd iv is io ns. ( Se cti on 1, Art ic le X , 1 98 7
Con st itu ti on.) O n t he oth e r han d, " Nat io nal G ove rnm ent " re fer s "to th e
ent ire mac hi ner y o f t he ce ntra l g ove rnm ent , a s d is ti ngu ish ed from th e
dif fere nt form s of lo cal go vern men t." ( Se ct ion 2[ 2], I ntrod uc tor y
Pro vi si on s, A dmi ni stra ti ve Co de of 198 7. T he N ati on al Go vern men t t hen
is com po sed of th e t hre e g reat dep artm en ts: th e e xe cut iv e, the le gi sl at ive
and the j udi ci al .
6. I D. ; GO V E RNM E NT; AG E NC Y A S D I STI NG UI S H E D F RO M
IN ST RU ME NT AL IT Y. — A n "a gen cy " of the Go ver nm ent r efe rs to "a ny of
the var iou s un its of th e Go vern men t, in clu di ng a d ep artme nt, bur ea u, o
ce, in str ume nta li ty , or go v ernme nt - o wn ed or con tro ll ed corp orat io n, or a
loc al go ver nmen t o r a di st i nct un it the rei n, " whi le an "in str ume nta li ty "
refer s t o "an y age nc y o f t h e N at ion al Go ver nmen t, n ot int egra ted w it hin
the dep artm ent fr ame wor k , v est ed w ith sp ec ia l f un ct ion s or j uri sd ict io n b y
la w, end ow ed wi th so me if not a ll cor pora te po wer s, admi ni st erin g spe ci al
fund s, an d e njo yi ng op erat ion al aut ono my , u sua ll y, t hroug h a c hart er.
This te rm in clu de s re gu lat ory age nc ie s, char ter ed in sti tut io ns a nd
gov ernm ent - ow ned an d co ntro lle d corp ora tio ns ."
16