PARTIES FACTS
Petitioner: First, there was a denial of a motion to dismiss an
Province of Abra action for declaratory relief by private respondent
Roman Catholic Bishop of Bangued desirous of
Respondent: being exempted from a real estate tax followed by
Hon. Judge a summary judgment granting such exemption,
Hernando without even hearing the side of petitioner.
There being a tax assessment made by the
Provincial Assessor on the properties of
respondent Roman Catholic Bishop, petitioner
failed to exhaust the administrative remedies
available under Presidential Decree No. 464
before filing such court action. Further, it was
pointed out to respondent Judge that he failed to
abide by the pertinent provision of such
Presidential Decree which provides as follows:
"No court shall entertain any suit assailing the
validity of a tax assessed under this Code until the
taxpayer, shall have paid, under protest, the tax
assessed against him nor shall any court declare
any tax invalid by reason of irregularities or
informalities in the proceedings of the officers
charged with the assessment or collection of
taxes, or of failure to perform their duties within
this time herein specified for their performance
unless such irregularities, informalities or failure
shall have impaired the substantial rights of the
taxpayer; nor shall any court declare any portion
of the tax assessed under the provisions of this
Code invalid except upon condition that the
taxpayer shall pay the just amount of the tax, as
determined by the court in the pending
proceeding."
When asked to comment, respondent Judge began
with the allegation that there "is no question that
the real properties sought to be taxed by the
Province of Abra are properties of the respondent
Roman Catholic Bishop of Bangued, Inc."
ISSUE/S SC RULING
WON the Province of No, there was no due process. Petitioner Province of Abra is therefore fully justified in invoking the
Abra was given due protection of procedural due process. If there is any case where proof is necessary to demonstrate
process. that there is compliance with the constitutional provision that allows an exemption, this is it.
Instead, respondent Judge accepted at its face the allegation of private respondent. All that was
alleged in the petition for declaratory relief filed by private respondents, after mentioning certain
parcels of land owned by it, are that they are used "actually, directly and exclusively" as sources of
support of the parish priest and his helpers and also of private respondent Bishop. In the motion to
dismiss filed on behalf of petitioner Province of Abra, the objection was based primarily on the lack
of jurisdiction, as the validity of a tax assessment may be questioned before the Local Board of
Assessment Appeals and not with a court. There was also mention of a lack of a cause of action, but
only because, in its view, declaratory relief is not proper, as there had been breach or violation of
the right of government to assess and collect taxes on such property. It clearly appears, therefore,
that in failing to accord a hearing to petitioner Province of Abra and deciding the case immediately
in favor of private respondent, respondent Judge failed to abide by the constitutional command of
procedural due process.
The Court ordered to hear the case first.
NOTA BENE: Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents
appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious,
charitable, or educational purposes shall be exempt from taxation." The present Constitution added
"charitable institutions, mosques, and non-profit cemeteries" and required that for the exemption
of ":lands, buildings, and improvements," they should not only be "exclusively" but also "actually
and "directly" used for religious or charitable purposes. Reliance on past decisions would have
sufficed were the words "actually" as well as "directly" not added. There must be proof therefore of
the actual and direct use of the lands, buildings, and improvements for religious or charitable
purposes to be exempt from taxation.
It has been the constant and uniform holding that exemption from taxation is not favored and is
never presumed, so that if granted it must be strictly construed against the taxpayer. Affirmatively
put, the law frowns on exemption from taxation, hence, an exempting provision should be
construed strictissimi juris."
DIGESTED TAX CASES PART III dennisaranabriljdii 1 | P a g e
 PARTIES FACTS
Parayno v. Petitioner was the owner of a gasoline filling
Jovellanos station in Calasiao, Pangasinan. In 1989, some
residents of Calasiao petitioned the Sangguniang
Bayan (SB) of said municipality for the closure or
transfer of the station to another location. The
matter was referred to the Municipal Engineer,
Chief of Police, Municipal Health Officer and the
Bureau of Fire Protection for investigation. Upon
their advise, the Sangguniang Bayan
recommended to the Mayor the closure or
transfer of location of petitioner's gasoline
station.
Petitioner claimed that her gasoline station was
not covered by Section 44 of the Official Zoning
Code since it was not a "gasoline service station"
but a "gasoline filling station" governed by
Section 21 thereof.
ISSUE/S SC RULING
1) WON, the legal 1) No, it is evident from that the ordinance intended these two terms to be separate and distinct
maxim of ejusdem from each other. Even respondent municipality's counsel admitted this dissimilarity during the
generis did not apply hearing on the application for the issuance of a writ of preliminary prohibitory and mandatory
to her case injunction.
2) WON, the Respondent municipality thus could not find solace in the legal maxim of ejusdem generis which
closure/transfer of her means "of the same kind, class or nature." Under this maxim, where general words follow the
gasoline filling station enumeration of particular classes of persons or things, the general words will apply only to
by respondent persons or things of the same general nature or class as those enumerated. Instead, what applied
municipality was an in this case was the legal maxim expressio unius est exclusio alterius which means that the express
invalid exercise of the mention of one thing implies the exclusion of others. Hence, because of the distinct and definite
latter's police powers. meanings alluded to the two terms by the zoning ordinance, respondents could not insist that
"gasoline service station" under Section 44 necessarily included "gasoline filling station" under
Section 21. Indeed, the activities undertaken in a "gas service station" did not automatically
embrace those in a "gas filling station."
2) No, respondent municipality failed to comply with the due process clause when it passed
Resolution No. 50. While it maintained that the gasoline filling station of petitioner was less than
100 meters from the nearest public school and church, the records do not show that it even
attempted to measure the distance, notwithstanding that such distance was crucial in determining
whether there was an actual violation of Section 44. The different local offices that respondent
municipality tapped to conduct an investigation never conducted such measurement either.
Moreover, petitioner's business could not be considered a nuisance which respondent municipality
could summarily abate in the guise of exercising its police powers. The abatement of a nuisance
without judicial proceedings is possible only if it is a nuisance per se. A gas station is not a
nuisance per se or one affecting the immediate safety of persons and property, hence, it cannot be
closed down or transferred summarily to another location.
DIGESTED TAX CASES PART III dennisaranabriljdii 2 | P a g e
 PARTIES FACTS
Commissioner of On 7 November 2003, petitioner Commissioner
Customs v. of Customs issued CMO 27-2003. Under the
Hypermix Feeds Memorandum, for tariff purposes, wheat was
classified according to the following: (1)
importer or consignee; (2) country of origin; and
(3) port of discharge. The regulation provided an
exclusive list of corporations, ports of discharge,
commodity descriptions and countries of origin.
Depending on these factors, wheat would be
classified either as food grade or feed grade. The
corresponding tariff for food grade wheat was
3%, for feed grade, 7%.
CMO 27-2003 further provided for the proper
procedure for protest or Valuation and
Classification Review Committee (VCRC) cases.
Under this procedure, the release of the articles
that were the subject of protest required the
importer to post a cash bond to cover the tariff
differential.
A month after the issuance of CMO 27-2003, on
19 December 2003, respondent filed a Petition
for Declaratory Relief with the Regional Trial
Court (RTC) of Las Piñas City. It anticipated the
implementation of the regulation on its imported
and perishable Chinese milling wheat in transit
from China.
ISSUE/S SC RULING
WON, CMO 27-2003 No, petitioners failed to follow the publication requirements enumerated by the Revised
was valid. Administrative Code.
CMO 27-3003 is unconstitutional for being violative of the equal protection clause of the
Constitution.
The equal protection clause means that no person or class of persons shall be deprived of the
same protection of laws enjoyed by other persons or other classes in the same place in like
circumstances. Thus, the guarantee of the equal protection of laws is not violated if there is a
reasonable classification. For a classification to be reasonable, it must be shown that (1) it rests
on substantial distinctions; (2) it is germane to the purpose of the law; (3) it is not limited to
existing conditions only; and (4) it applies equally to all members of the same class.
Unfortunately, CMO 27-2003 does not meet these requirements. We do not see how the quality of
wheat is affected by who imports it, where it is discharged, or which country it came from.
Thus, on the one hand, even if other millers excluded from CMO 27-2003 have imported food
grade wheat, the product would still be declared as feed grade wheat, a classification subjecting
them to 7% tariff. On the other hand, even if the importers listed under CMO 27-2003 have
imported feed grade wheat, they would only be made to pay 3% tariff, thus depriving the state of
the taxes due. The regulation, therefore, does not become disadvantageous to respondent only, but
even to the state.
DIGESTED TAX CASES PART III dennisaranabriljdii 3 | P a g e
 PARTIES FACTS
Plaintiff-appellant: Municipal Ordinance No. 4: imposing on any and
ORMOC SUGAR all productions of centrifugal sugar milled at the
COMPANY, INC. Ormoc Sugar Company, Inc., in Ormoc City a
(OSCI) municipal tax equivalent to 1% per export sale to
the USA and other foreign countries.
Defendants-
appellees: Payments were made, under protest.
Treasurer of
Ormoc City, OSCI’s Arguments:
Municipal Board OSCI filed a complaint against the City, its
of Ormoc, Hon. Treasurer, Mun. Board and Mayor, alleging that:
Cornejos, Mayor a. The ordinance was unconstitutional
fore being violative of the equal
protection clause and the rule of
uniformity of taxation, aside from
being an export tax forbidden under
Sec. 2287 of the Revised Admin. Code.
b. The tax is neither a production nor a
license tax which Ormoc is authorized
to impose
c. The tax amounts to a customs duty, fee
or charge in violation of paragraph 1 of
Sec. 2 of RA 2264 because the tax is on
both the sale and export of sugar
Defendants’ Arguments:
a. The tax ordinance was within the city’s
power to enact under the Local
Autonomy Act
b. The ordinance did not violate the said
constitutional limitations
CFI: upheld the constitutionality of the ordinance
and declared the taxing power of defendant not
excluded in its charter
ISSUE/S SC RULING
WON the Unconstitutional.
constitutional limits on
the power of taxation The equal protection clause applies only to persons or things identically situated and does not
(EP Clause and rule of bar a reasonable classification of the subject of legislation, and a classification is reasonable
uniformity of taxation) where:
were infringed. (1) It is based on substantial distinctions which make real differences;
(2) These are germane to the purpose of the law;
(3) The classification applies not only to present conditions but also to future conditions
which are substantially identical to those of the present; and
(4) The classification applies only to those who belong to the same class.
Ordinance does not meet them. Why?
For it taxes only centrifugal sugar produced and exported by the OSCI and none other.
OSCI was the only sugar central in the city at the time the ordinance was enacted. The
classification should be in terms applicable to future conditions as well, to be reasonable.
The taxing ordinance should not be singular and exclusive as to exclude any subsequently
established sugar central, of the same class as OSCI, for the coverage of tax. As it is now, even if
alter a similar company is set up, it cannot be subject to the tax because the ordinance expressly
points only OSCI as the entity to be levied upon
Ordinance declared unconstitutional.
DIGESTED TAX CASES PART III dennisaranabriljdii 4 | P a g e
 PARTIES FACTS
MANILA RACE Manila Race Horses Trainers Association, Inc., a
HORSE TRAINERS non-stock corporation duly organized and
ASSOCIATION, existing under and by virtue of the laws of the
INC., v MANUEL Philippines, are owners of boarding stables for
DE LA FUENTE race horses and that their rights as such are
affected by Ordinance No. 3065 (a tax on race
horses as distinct from boarding stables. It is
argued that by section 2 the basis of the license
fees "is the number of race horses kept or
maintained in the boarding stables to be paid by
the maintainers at the rate of P10.00 a year for
each race horse;" that "the fee is increased
correspondingly P10 for each additional race
horse maintained or fed in the stable;" and that
"by the same token, an empty stable for race
horse pays no license fee at all.") of the City of
Manila.
PARTIES FACTS
TIU VS COURT OF “The constitutional rights to equal protection of
APPEALS the law is not violated by an executive order,
issued pursuant to law, granting tax and duty
incentives only to the business and residents
within the "secured area" of the Subic Special
Economic Zone and denying them to those who
live within the Zone but outside such "fenced-in"
territory. The Constitution does not require
absolute equality among residents. It is enough
that all persons under like circumstances or
conditions are given the same privileges and
required to follow the same obligations. In short, a
classification based on valid and reasonable
standards does not violate the equal protection
clause.”
Facts: Congress passed into law RA 7727 “An act
accelerating the conversion of military
reservations into other productive uses, creating
the bases conversion and development authority
for this purpose, providing funds therefor and for
other purposes”.
ISSUE/S SC RULING
WON, said ordinance is Yes, from the context of Ordinance No. 3065, the intent to tax or license stables and not horses is
valid. clearly manifest. The tax is assessed not on the owners of the horses but on the owners of the
stables.
It is also plain from the text of the whole ordinance that the number of horses is used in the
assessment purely as a method of fixing an equitable and practical distribution of the burden
imposed by the measure. Far from being obnoxious, the method is fair and just. It is but fair and
just that for a boarding stable where only one horse is maintained proportionately less amount
should be exacted than for a stable where more horses are kept and from which greater income is
derived.
The ordinance in question is not discriminatory but savors of class legislation. In taxing only
boarding stables for race horses, the ordinance does not make arbitrary classification. It was said
that there is equality and uniformity in taxation if all articles or kinds of property of the same class
are taxed at the same rate. The fact that some places of amusement are not taxed while others,
such as cinematographs, are taxed, is not argument at all against the equality and uniformity of tax
imposition." There would be discrimination if some boarding stables of the same class used for the
same number of horses were not taxed or were made to pay less or more than others.
ISSUE/S SC RULING
WON EO 97-A violates We rule in favor of the constitutionality and validity of the assailed EO. Said Order is not violative
the equal protection of the equal protection clause; neither is it discriminatory. Rather, than we find real and
clause of the substantive distinctions between the circumstances obtaining inside and those outside the Subic
Constitution? Naval Base, thereby justifying a valid and reasonable classification.
(Specifically the issue :The fundamental right of equal protection of the laws is not absolute, but is subject to
of WON the provision reasonable classification. If the groupings are characterized by substantial distinctions that make
of EO 97-A confining real differences, one class may be treated and regulated differently from another. The
the application of RA classification must also be germane to the purpose of the law and must apply to all those
7727 within the belonging to the same class. Explaining the nature of the equal protection guarantee, the Court
secured area and in Ichong v. Hernandez said:
excluding residents of The equal protection of the law clause is against undue favor and individual or class privilege, as
the zone outside the well as hostile discrimination or the oppression of inequality. It is not intended to prohibit
secured area is legislation which is limited either [by] the object to which it is directed or by [the] territory
discriminatory or not) within which it is to operate. It does not demand absolute equality among residents; it merely
requires that all persons shall be treated alike, under like circumstances and conditions both as to
privileges conferred and liabilities enforced. The equal protection clause is not infringed by
legislation which applies only to those persons falling within a specified class, if it applies alike to
all persons within such class, and reasonable. grounds exist for making a distinction between
those who fall within such class and those who do not.
:Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all
members of the same class.
DIGESTED TAX CASES PART III dennisaranabriljdii 5 | P a g e
:Section 12 thereof created the Subic Special
Economic Zone and granted there to special
privileges. President Ramos issued EO 97-A,
specifying the area within which the tax-and-dut-
free privilege was operative:
Sec. 1.1. The Secured Area consisting of the
presently fenced-in former Subic Naval Base shall
be the only completely tax and duty-free area in
the SSEFPZ [Subic Special Economic and Free
Port Zone]..
:The petitioners challenged before this court the
constitutionality of EO 97-A for being violative of
their right to equal protection of laws since only
to the business and residents within the "secured
area" of the Subic Special Econimic Zone are
granted tax and duty incentives and denying
them to those who live within the Zone but
outside such “fenced-in”
:From the above provisions of the law, it can easily be deduced that the real concern of RA 7227
is to convert the lands formerly occupied by the US military bases into economic or industrial
areas. In furtherance of such objective, Congress deemed it necessary to extend economic
incentives to attract and encourage investors, both local and foreign. Among such enticements
are: (1) a separate customs territory within the zone, (2) tax-and-duty-free importation's, (3)
restructured income tax rates on business enterprises within the zone, (4) no foreign exchange
control, (5) liberalized regulations on banking and finance, and (6) the grant of resident status to
certain investors and of working visas to certain foreign executives and workers .
:We believe it was reasonable for the President to have delimited the application of some
incentives to the confines of the former Subic military base. It is this specific area which the
government intends to transform and develop from its status quo ante as an abandoned naval
facility into a self-sustaining industrial and commercial zone, particularly for big foreign and
local investors to use as operational bases for their businesses and industries. Why the seeming
bias for the big investors? Undeniably, they are the ones who can pour huge investments to spur
economic growth in the country and to generate employment opportunities for the Filipinos, the
ultimate goals of the government for such conversion. The classification is, therefore, germane to
the purposes of the law. And as the legal maxim goes, "The intent of a statute is the law.”
:Certainly, there are substantial differences between the big investors who are being lured to
establish and operate their industries in the so-called "secured area" and the present business
operators outside the area. On the one hand, we are talking of billion-peso investments and
thousands of new, jobs. On the other hand, definitely none of such magnitude. In the first, the
economic impact will be national; in the second, only local. Even more important, at this time the
business activities outside the "secured area" are not likely to have any impact in achieving the
purpose of the law, which is to turn the former military base to productive use for the benefit of
the Philippine economy. There is, then, hardly any reasonable basis to extend to them the
benefits and incentives accorded in RA 7227. Additionally, as the Court of Appeals pointed out, it
will be easier to manage and monitor the activities within the "secured area," which is already
fenced off, to prevent "fraudulent importation of merchandise" or smuggling.
:It is well-settled that the equal-protection guarantee does not require territorial uniformity of
laws. As long as there are actual and material differences between territories, there is no
violation of the constitutional clause. And of course, anyone, including the petitioners, possessing
the requisite investment capital can always avail of the same benefits by channeling his or her
resources or business operations into the fenced-off free port zone.
DIGESTED TAX CASES PART III dennisaranabriljdii 6 | P a g e
 PARTIES FACTS ISSUE/S SC RULING
Petitioner: About: Liability of Cagayan Electric for income tax amounting to P74,149.73 for the more than WON Cagayan Yes, but only from January 1 – Aug 3, 1961 when its tax
Cagayan Electric seven-month period of the year 1969 in addition to franchise tax. Electric is exemption was modified by RA 5431.
Power & Light income tax
Co., Inc. Cagayan Electric is the holder of a legislative franchise, RA 3247, under which its payment of exempt.
We hold that Congress could impair petitioner's legislative
3% tax on its gross earnings from the sale of electric current is “in lieu of all taxes and
franchise by making it liable for income tax from which
Respondents: assessments of whatever authority upon privileges, earnings, income, franchise, and poles,
heretofore it was exempted by virtue of the exemption
CIR and CA wires, transformer, and insulators of the grantee, from which taxes and assessments the
provided for in section 3 of its franchise.
grantee is hereby expressly exempted.

RA 5431 amended sec. 24 of Tax Code by making liable for income tax all corporate taxpayers Republic Act No. 5431, in amending section 24 of the Tax
not specifically exempt under par (c) (1) of said section and section 27 of the Tax Code Code by subjecting to income tax all corporate taxpayers
notwithstanding the “provisions of existing special or general laws to the contrary.” Thus, not expressly exempted therein and in section 27 of the
Cagayan Electric and other subject companies were subjected to income tax in addition to Code, had the effect of withdrawing petitioner's exemption
franchise tax. from income tax.

Cag.Elec.’s franchise was amended by RA 6020 authorizing it to furnish electricity to other

The Tax Court acted correctly in holding that the exemption
municipalities. The amendment reenacted the exemption in its original charter or neutralized
was restored by the subsequent enactment on August 4,
the modification made by RA 5431 more than a year before.
1969 of Republic Act No. 6020 which reenacted the said tax
exemption. Hence, the petitioner is liable only for the
CIR required CagElec to pay deficiency income taxs for 1968-1971. CagElec contested, CIR
income tax for the period from January 1 to August 3, 1969
cancelled the assessments for ’70 and ’71 but insisted on those for ’68 and ’69.
when its tax exemption was modified by Republic Act No.
5431.
Tax Court: CagElec liable only for the income tax (Jan1-Aug3, 1969) or before the passage of
RA 6020 which reiterated its tax exemption.

CagElec’s Arguments:
a. Its franchise tax is a commutative tax which already includes the income tax
b. RA 5431 as amended did not amend, alter or repeal its franchise
c. Its franchise is not a contract which can be impaired by an implied repeal
d. Sec 24(d) of the Tax Code should be construed strictly against the Govt.

PARTIES FACTS ISSUE/S SC RULING

Plaintiff-appellant: ABS is a foreign, non-stock, non-profit, (1) WON the This Ordinance is of general application and not particularly directed against institutions like the
American Bible religious, missionary corporation duly ordinances are plaintiff, and it does not contain any provisions whatever prescribing religious censorship nor
Society registered and doing business in the constitutional restraining the free exercise and enjoyment of any religious profession. Section 1 of Ordinance No.
Philippines. and valid 3000 reads as follows:
Defendant- (2) WON the
appellee: City of City of Manila is a mun. corporation with provisions of
SEC. 1. PERMITS NECESSARY. — It shall be unlawful for any person or entity to conduct or engage in
Manila powers under RA 409, Revised Charter of said ordinances
any of the businesses, trades, or occupations enumerated in Section 3 of this Ordinance or other
the City of Manila. are applicable to
businesses, trades, or occupations for which a permit is required for the proper supervision and
the case at bar
enforcement of existing laws and ordinances governing the sanitation, security, and welfare of the
ABS’ agency has been distributing and
public and the health of the employees engaged in the business specified in said section 3
selling bibles and/or gospel portions
throughout the Philippines. City
Treasurer informed ABS that it was

DIGESTED TAX CASES PART III dennisaranabriljdii 7 | P a g e

conducting business of general hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR FROM THE MAYOR AND THE
merchandise without Mayor’s permit and NECESSARY LICENSE FROM THE CITY TREASURER.
municipal license in violation of certain
ordinances; it required ABS to secure the
The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned
corresponding permit and license fees,
in Section 3 of the Ordinance, and the record does not show that a permit is required therefor under
together with compromise (P5821.45)
existing laws and ordinances for the proper supervision and enforcement of their provisions
governing the sanitation, security and welfare of the public and the health of the employees engaged
ABS protested the requirements but still
in the business of the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which
paid to avoid closing of its business. It
reads as follows:
also gave notice that suit would be taken
to question the legality of the ordinances,
under which the said fees were collected. 79. All other businesses, trades or occupations not
mentioned in this Ordinance, except those upon which the
That its parent society is in NY, USA City is not empowered to license or to tax P5.00
That its contiguous real properties
located at Isaac Peral are exempt from
Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax
real estate taxes.
said business, trade or occupation.
That it was never required to pay any
municipal license fee or tax before the
war, nor the ABS in the US pay any The license fees required to be paid quarterly in Section 1 of said Ordinance No. 2529, as amended,
license fee or sales tax for the sale of are not imposed directly upon any religious institution but upon those engaged in any of the
bible therein. business or occupations therein enumerated, such as retail "dealers in general merchandise" which,
it is alleged, cover the business or occupation of selling bibles, books, etc
That it never made any profit from the
sale of its bibles.
Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider
That in order to maintain its operating
concept of taxation and is different from the provisions of Section 2444(m-2) that the former cannot
cost it obtains substantial remittances
be considered as a substantial re-enactment of the provisions of the latter. We have quoted above the
from NY office and voluntary
provisions of section 2444(m-2) of the Revised Administrative Code and We shall now copy
contributions and gifts from certain
hereunder the provisions of Section 18, subdivision (o) of Republic Act No. 409, which reads as
churches in the US and PH.
follows:
ABS’ argument:
 Said ordinances were illegal (o) To tax and fix the license fee on dealers in general merchandise, including importers
and unconstitutional and indentors, except those dealers who may be expressly subject to the payment of some
 The ordinance providing for other municipal tax under the provisions of this section.
taxes based on gross sales or
receipts, on order to be valid Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail
under the new Charter of the dealers. For purposes of the tax on retail dealers, general merchandise shall be classified
City, must first be approved by into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential
the President of the PH commodities, and (4) miscellaneous articles. A separate license shall be prescribed for
each class but where commodities of different classes are sold in the same establishment,
City’s arguments: it shall not be compulsory for the owner to secure more than one license if he pays the
 Ordinances were enacted by higher or highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the
the Mun. Board of the City by license tax as such, as may be provided by ordinance.
virtue of the power granted to

DIGESTED TAX CASES PART III dennisaranabriljdii 8 | P a g e

 it by the Revised Admin. Code, For purposes of this section, the term "General merchandise" shall include poultry and
superseded by RA 409 livestock, agricultural products, fish and other allied products.
(Revised Charter of the City of
Manila).
The only essential difference that We find between these two provisions that may have any bearing
 That Abs; contention that it
on the case at bar, is that, while subsection (m-2) prescribes that the combined total tax of any dealer
never makes any profit from
or manufacturer, or both, enumerated under subsections (m-1) and (m-2), whether dealing in one or
the sale of its bible is
all of the articles mentioned therein,shall not be in excess of P500 per annum, the corresponding
untenable
section 18, subsection (o) of Republic Act No. 409, does not contain any limitation as to the amount
of tax or license fee that the retail dealer has to pay per annum. Hence, and in accordance with the
CFI: dismissed case for lack of merits
weight of the authorities above referred to that maintain that "all rights and liabilities which have
accrued under the original statute are preserved and may be enforced, since the reenactment
CA: certified the case to the SC b/c the
neutralizes the repeal, therefore continuing the law in force without interruption", We hold that the
errors assigned to it involved only
questioned ordinances of the City of Manila are still in force and effect.
questions of law

It is contended however that the fact that the license tax can suppress or control this activity is
unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license tax — a
flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The power to impose a
license tax on the exercise of these freedom is indeed as potent as the power of censorship which this
Court has repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure to
defray the expenses of policing the activities in question. It is in no way apportioned. It is flat license
tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by
the constitutional liberties of press and religion and inevitably tends to suppress their exercise. That
is almost uniformly recognized as the inherent vice and evil of this flat license tax."

Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code,
provides:

SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. — The following organizations

shall not be taxed under this Title in respect to income received by them as such —

(e) Corporations or associations organized and operated exclusively for religious,

charitable, . . . or educational purposes, . . .: Provided, however, That the income of
whatever kind and character from any of its properties, real or personal, or from any
activity conducted for profit, regardless of the disposition made of such income, shall be
liable to the tax imposed under this Code;

Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this
tax and says that such exemption clearly indicates that the act of distributing and selling bibles, etc. is
purely religious and does not fall under the above legal provisions.

It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was
in some instances a little bit higher than the actual cost of the same but this cannot mean that
appellant was engaged in the business or occupation of selling said "merchandise" for profit. For this
reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be

DIGESTED TAX CASES PART III dennisaranabriljdii 9 | P a g e


PARTIES FACTS
Petitioner: Unconstitutionality of RA 7726 or the E-VAT Law
Arturo M.
Tolentino There are various suits challenging the
constitutionality of RA 7716 on various grounds.
Respondent: Sec. The value-added tax (VAT) is levied on the sale,
of Finance and barter or exchange of goods and properties as
CIR well as on the sale or exchange of services. It is
equivalent to 10% of the gross selling price or
gross value in money of goods or properties sold,
bartered or exchanged or of the gross receipts
from the sale or exchange of services. Republic
ActNo. 7716 seeks to widen the tax base of the
existing VAT system and enhance its
administration by amending the National
Internal Revenue
Code. Among the Petitioners was the Philippine P
ress Institute which claim that R.A.7716 violates
their press freedom and religious liberty, having
removed them from the exemption to pay Value
Added Tax. It is contended by the PPI that by
removing the exemption of the press from the
VAT while maintaining those granted to others,
the law discriminates against the press. At any
rate, it is averred, "even non-discriminatory
taxation of constitutionally guaranteed freedom
applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious
profession and worship as well as its rights of dissemination of religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit
before any person can engage in any of the businesses, trades or occupations enumerated therein,
We do not find that it imposes any charge upon the enjoyment of a right granted by the Constitution,
nor tax the exercise of religious practices.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if
applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not
applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the business of
plaintiff Society involved herein for, as stated before, it would impair plaintiff's right to the free
exercise and enjoyment of its religious profession and worship, as well as its rights of dissemination
of religious beliefs, We find that Ordinance No. 3000, as amended is also inapplicable to said
business, trade or occupation of the plaintiff.
ISSUE/S SC RULING
WON the purpose of On the 1st issue, NO.:
VAT is the same as that
of a license tax
A license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is
unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its
WON R.A. No. 7716 is
application to others, such those selling goods, is valid, its application to the press or to religious groups,
unconstitutional on
suchas the Jehovah’s Witnesses, inconnection with the latter’s sale ofreligious books andpamphlets, is unconstitutional. As
the ground that it
the U.S. Supreme Court put it, ―it is one thing to impose a tax on income or property of a preacher.
violates the contract
Itisquite another thingto exacta taxonhim for deliveringasermon.
clause under Art. III,
The VAT is, however, different.
sec 10 of the Bill of
It is notalicense tax.
Rights.
It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the
sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the
WON RA 7716 is
lease of properties purely for revenue purposes. To subject the press to its payment is not to
procedurally infirm.
burden the exercise of its right any more than to make the press pay income tax or subject it to
general regulation is not to violate its freedom under the Constitution.
On the 2nd issue, NO.
No. The Supreme Court the contention of CREBA, that the imposition of the VAT on the sales and
leases of real estate by virtue of contracts entered into prior to the effectivity of the law would
violate the constitutional provision of non-impairment of contracts, is only slightly less abstract
but nonetheless hypothetical. It is enough to say that the parties to a contract cannot, through the
exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not
DIGESTED TAX CASES PART III dennisaranabriljdii 10 | P a g e
is unconstitutional." PPI argued that the VAT is in
the nature of a license tax.
The Chamber of Real Estate and Builders
Association (CREBA) contends that the
imposition of VAT on sales and leases by virtue of
contracts entered into prior to the effectivity of
the law would violate the constitutional
provision of “non-impairment of contracts.”
Tolentino averred that this revenue bill did not
exclusively originate from the House of
Representatives as required by Section 24,
Article 6 of the Constitution. Even though RA
7716 originated as HB 11197 and that it passed
the 3 readings in the HoR, the same did not
complete the 3 readings in Senate for after the
1st reading it was referred to the Senate Ways &
Means Committee thereafter Senate passed its
own version known as Senate Bill 1630.
Tolentino averred that what Senate could have
done is amend HB 11197 by striking out its text
and substituting it with the text of SB 1630 in
that way “the bill remains a House Bill and the
Senate version just becomes the text (only the
text) of the HB”. (It’s ironic however to note
that Tolentino and co-petitioner Raul Roco even
signed the said Senate Bill.)
only are existing laws read into contracts in order to fix obligations as between parties, but the
reservation of essential attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts against impairment presupposes
the maintenance of a government which retains adequate authority to secure the peace and good
order of society. In truth, the Contract Clause has never been thought as a limitation on the
exercise of the State's power of taxation save only where a tax exemption has been granted for a
valid consideration.
Such is not the case of PAL in G.R. No. 115852, and the Court does not understand it to make this
claim. Rather, its position, as discussed above, is that the removal of its tax exemption cannot be
made by a general, but only by a specific, law.
Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal and
substantive aspects as this has been raised in the various cases before it. To sum up, the Court
holds:
(1) That the procedural requirements of the Constitution have been complied with by Congress
in the enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the enactment of statutes - beyond
those prescribed by the Constitution - have been observed is precluded by the principle of
separation of powers;
(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with
the free exercise of religion, nor deny to any of the parties the right to an education; and
(4) That, in view of the absence of a factual foundation of record, claims that the law is
regressive, oppressive and confiscatory and that it violates vested rights protected under the
Contract Clause are prematurely raised and do not justify the grant of prospective relief by writ
of prohibition.
On the 3rd issue, NO.
By a 9-6 vote, the Supreme Court rejected the challenge, holding that such consolidation was
consistent with the power of the Senate to propose or concur with amendments to the version
originated in the HoR. What the Constitution simply means, according to the 9 justices, is that the
initiative must come from the HoR. Note also that there were several instances before where
Senate passed its own version rather than having the HoR version as far as revenue and other
such bills are concerned. This practice of amendment by substitution has always been accepted.
The proposition of Tolentino concerns a mere matter of form. There is no showing that it would
make a significant difference if Senate were to adopt his over what has been done.
DIGESTED TAX CASES PART III dennisaranabriljdii 11 | P a g e
 PARTIES FACTS
Petitioner: AVCI, offering primary, high school and college courses,
Abra Valley having a population of more than 1000 students, located in
College, Inc. the heart of the town of Bangued, housing elementary
pupils in a two-storey bldg. across the street, housing high
Respondents: school and college students in the main bldg., housing the
Hon. Juan Director with his family in the 2nd floor of the main bldg.,
Aquino, Armin and having an annual gross income of the school reaching
Cariaga, et. al. more than 100,000, is the owner of the lot and buildings
under an OCT. Defendant Mun Treasurer served a Notice of
Seizure on the property of AVCI for the satisfaction of real
property taxes.
Properties of AVCI were sold at public auction and later on
sold to defendant Millare , Cert of Sale issued in the latter’s
favor by the Mun Treasurer.
Supplementary Memorandum: the school building and
school lot used for educational purposes of the Abra Valley
College, Inc., are exempted from the payment of taxes
TC: disagrees b/c of the use of the 2nd floor by the Director
of the school for residential purposes
AVCI’s arguments:
 The primary use of the lot and bldg. for
educational purposes, and not the incidental use
thereof, determines an exemption from property
taxes under the Constitution, hence, the seizure
and subsequent sale of the properties are
without legal basis and therefore void.
 The primary use of the school lot and bldg. is the
basic and controlling guide, norm and standard
to determine tax exemption, and not the mere
incidental use thereof.
Aquino, et. al.’s arguments:
 The college lot and bldg. subjected to seizure and
sale to answer for the unpaid tax are used (1) for
the educational purposes of the college; (2) as
the permanent residence of the President and
Director thereof and his family; and (3) for
commercial purposes because the ground floor of
the college bldg. is being use and rented by a
commercial establishment, the Northern Mktg
Corp.
ISSUE/S SC RULING
WON AVCI’s No, because the 1st floor is used for commercial purposes by the Northern Mktg. Corp.
lot and
building are
As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this
used
Court ruled that while it may be true that the YMCA keeps a lodging and a boarding house and
exclusively
maintains a restaurant for its members, still these do not constitute business in the ordinary
for
acceptance of the word, but an institution used exclusively for religious, charitable and
educational
educational purposes, and as such, it is entitled to be exempted from taxation.
purposes,
thus exempt
from realty In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this
tax. Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly
used as a cemetery. It was clarified that the term "used exclusively" considers incidental use also.
Thus, the exemption from payment of land tax in favor of the convent includes, not only the land
actually occupied by the building but also the adjacent garden devoted to the incidental use of
the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of
lodging place, also qualifies for exemption because this constitutes incidental use in religious
functions.
The test of exemption from taxation is the use of the property for purposes mentioned in the
Constitution.
It must be stressed however, that while this Court allows a more liberal and non-restrictive
interpretation of the phrase "exclusively used for educational purposes" as provided for in
Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has
always been made that exemption extends to facilities which are incidental to and reasonably
necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school
building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence.
Thus, while the use of the second floor of the main building in the case at bar for residential
purposes of the Director and his family, may find justification under the concept of incidental
use, which is complimentary to the main or primary purpose—educational, the lease of the first
floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be
considered incidental to the purpose of education.
Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school
building as well as the lot where it is built, should be taxed, not because the second floor of the
same is being used by the Director and his family for residential purposes, but because the first
floor thereof is being used for commercial purposes. However, since only a portion is used for
purposes of commerce, it is only fair that half of the assessed tax be returned to the school
involved.
DIGESTED TAX CASES PART III dennisaranabriljdii 12 | P a g e
 PARTIES FACTS ISSUE/S SC RULING
CITY ASSESSOR : Association of Benevola de WON the special Yes. Chong Hua Hospital Medical Arts Center is an integral part of Chong Hua Hospital. It is undisputed that the
OF CEBU CITY VS Cebu, Inc. is a non-stock, non- assessment level of doctors and medical specialists holding clinics in CHHMAC are those duly accredited by CHH, that is, they are
ASSOCIATION OF profit organization organised 10% should be consultants of the hospital and the ones who can treat CHH’s patients confined in it. This fact alone takes away
BENEVOLA DE under the laws of the Philippines assessed on the CHHMAC from being categorized as “commercial” since a tertiary hospital like CHH is required by law to have a
CEBU, INC. and is the owner of Chong Hua Medical Arts pool of physicians who comprises the required medical departments in various medical fields.
Hospital in Cebu City. building
Respondent constructed the CHH
:Based on these provisions, these physicians holding offices or clinics in CHHMAC, duly appointed or accredited by
Medical Arts centre and a
CHH, precisely fulfill and carry out their roles in the hospital’s services for its patients through the CHHMAC. The
certificate of occupancy was
fact that they are holding office in a separate building, like at CHHMAC, does not take away the essence and nature
issued to the centre with a
of their services vis-à-vis the over-all operation of the hospital and the benefits to the hospital’s patients. Given
classification of “commercial
what the law requires, it is clear that CHHMAC is an integral part of CHH.
clinic”.
:These accredited physicians normally hold offices within the premises of the hospital; in which case there is no
:Petitioner City Assessor assessed
question as to the conduct of their business in the ambit of diagnosis, treatment and/or confinement of
the medical arts building as
patients. This was the case before 1998 and before CHHMAC was built. Verily, their transfer to a more spacious
“commercial” at 35% thus
and, perhaps, convenient place and location for the benefit of the hospital’s patients does not remove them from
respondent filed a letter-petition
being an integral part of the overall operation of the hospital.
asserting that the medical arts is
:Conversely, it would have been different if CHHMAC was also open for non-accredited physicians, that is, any
part of CHH and ought to be
medical practitioner, for then respondent would be running a commercial building for lease only to doctors which
imposed the same special
would indeed subject the CHHMAC to the commercial level of 35% assessment.
assessment level of 10% with
:Moreover, the CHHMAC, being hundred meters away from the CHH main building, does not denigrate from its
that of CHH.
being an integral part of the latter.
:Petitioner contended that the
:Verily, being an integral part of CHH, CHHMAC should be under the same special assessment level of as that of the
Medical arts building is a
former.
separate building from the CHH
:Given our discussion above, the CHHMAC facility, while seemingly not indispensable to the operations of CHH, is
used as commercial clinic/room
definitely incidental to and reasonably necessary for the operations of the hospital.
spaces for renting out to
:For one, as found by the appellate court, the CHHMAC facility is primarily used by the hospital’s accredited
physicians and, thus, classified as
physicians to perform medical check-up, diagnosis, treatment, and care of patients. For another, it also serves as a
commercial. It contended that the
specialized outpatient department of the hospital.
medical specialists charged
:Thus, the importance of CHHMAC in the operation of CHH cannot be over-emphasized nor disputed. Clearly, it
consultation fees for patients and
plays a key role and provides critical support to hospital operations.
that it is built on rented land.
:Finally, respondent’s charge of rentals for the offices and clinics its accredited physicians occupy cannot be
:Respondent contended that the
equated to a commercial venture, which is mainly for profit.
medical arts building is actually,
:Respondent’s explanation on this point is well taken. First, CHHMAC is only for its consultants or accredited
directly and exclusively part of
doctors and medical specialists. Second, the charging of rentals is a practical necessity: (1) to recoup the
CHH and should have a special
investment cost of the building, (2) to cover the rentals for the lot CHHMAC is built on, and (3) to maintain the
assessment level of 10%
CHHMAC building and its facilities. Third, as correctly pointed out by respondent, it pays the proper taxes for its
:The Local boards of assessment
rental income. And, fourth, if there is indeed any net income from the lease income of CHHMAC, such does not
appeals and the central board of
inure to any private or individual person as it will be used for respondent’s other charitable projects..
assessment appeals ruled that
:Given the foregoing arguments, we fail to see any reason why the CHHMAC building should be classified as
the medical arts building ruled
“commercial” and be imposed the commercial level of 35% as it is not operated primarily for profit but as an
that the special assessment level
integral part of CHH. The CHHMAC, with operations being devoted for the benefit of the CHH’s patients, should be
should be 10%. CA affirmed their
accorded the 10% special assessment.
decisions

DIGESTED TAX CASES PART III dennisaranabriljdii 13 | P a g e

 PARTIES FACTS
Petitioner: Lung The Petitioner is a non-stock, non-profit
Center of the entity which owns a parcel of land in
Philippines Quezon City. Erected in the middle of the
aforesaid lot is a hospital known as the
Respondent: Lung Center of the Philippines. The
Quezon City and ground floor is being leased to a canteen
Constantino and small store spaces, medical
Paras, City professionals who use the same as their
Assessor private clinics, as well as to other private
parties. The right portion of the lot is
being leased for commercial purposes to
the Elliptical Orchids and Garden
Center. The petitioner accepts paying
and non-paying patients. It also renders
medical services to out-patients, both
paying and non-paying. Aside from its
income from paying patients, LCP
receives annual subsidies from the
government.
Both the land and the hospital bldg. of
LCP were assessed for real property
taxes.
LCP filed for a Claim for Exemption from
real property taxes with the City
Assessor, predicated on its claim that it is
a charitable institution. Request was
denied, and petition filed before the Local
Board of Assessment Appeals of QC for
the reversal of the resolution.
QC-LBAA: held LCP liable for real
property taxes
CBAA: affirmed LBAA’s decision ruling
that LCP was not a charitable institution
and that its real properties were not
actually, directly and exclusively used for
charitable purposes
LCP’s arguments:
 Under sec 28, par 3 of the
Constitution, the property is
exempt from real property
ISSUE/S SC RULING
(1) WON LCP is a On the 1st issue: Yes.
charitable
institution within
To determine whether an enterprise is a charitable institution/entity or not, the elements which
the context of PD
should be considered include the statute creating the enterprise, its corporate purposes, its
1823 and the
constitution and by-laws, the methods of administration, the nature of the actual work performed,
Constitution and RA
the character of the services rendered, the indefiniteness of the beneficiaries, and the use and
7160
occupation of the properties.
(2) WON the real
properties of LCP The test whether an enterprise is charitable or not is whether it exists to carry out a purpose
are exempt from reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage.
RPT
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the
provisions of the decree, is to be administered by the Office of the President of the
Philippines with the Ministry of Health and the Ministry of Human Settlements. It was organized
for the welfare and benefit of the Filipino people principally to help combat the high incidence of
lung and pulmonary diseases in the Philippines.
The purposes for which the petitioner was created are spelled out in its Articles of
Incorporation, thus: xxx
Hence, the medical services of the petitioner are to be rendered to the public in general in any and
all walks of life including those who are poor and the needy without discrimination. After all, any
person, the rich as well as the poor, may fall sick or be injured or wounded and become a subject
of charity.
As a general principle, a charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients, whether out-patient, or
confined in the hospital, or receives subsidies from the government, so long as the money received
is devoted or used altogether to the charitable object which it is intended to achieve; and no
money inures to the private benefit of the persons managing or operating the institution.
The money received by the petitioner becomes a part of the trust fund and must be devoted to
public trust purposes and cannot be diverted to private profit or benefit.
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose
its character as a charitable institution simply because the gift or donation is in the form of
subsidies granted by the government.
In this case, the petitioner adduced substantial evidence that it spent its income, including
the subsidies from the government for 1991 and 1992 for its patients and for the operation of the
hospital. It even incurred a net loss in 1991 and 1992 from its operations.
On the 2nd issue: Some are not exempt.
DIGESTED TAX CASES PART III dennisaranabriljdii 14 | P a g e
 taxes; that a min of 60% of its
hospital beds are exclusively
used for charity patients and
that the major thrust of its
hospital operation is to serve
charity patients.
 That it is a charitable
institution and is exempt from
real property taxes.
Its character as a charitable
institution is not altered by the
fact that it admits paying
patients and renders medical
services to them, leases portions
of the land to private parties,
and rents out portions of the
hospital to private medical
practitioners from which it
derives income to be used for
operational expenses.
That it receives subsidies from
the government attests to its
character as a charitable
institution.
 That the “exclusivity” required
in the Constitution does not
necessarily mean “solely”.
That even if a portion of its real
estate is leased out to private
individuals from whom it
derives income, it does not lose
its character as a charitable
institution, and its exemption
from the payment of real estate
taxes on its real property.
 That it is entitles to realty tax
exemptions b/c its land bldg.
and improvements, are
actually, directly and
exclusively devoted for
charitable purposes.
 That while it is not declared
RPT exempt under its charter,
said exemption may
nevertheless be extended
upon proper application.
Even as we find that the petitioner is a charitable institution, we hold, anent the second
issue, that those portions of its real property that are leased to private entities are not exempt
from real property taxes as these are not actually, directly and exclusively used for charitable
purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The effect of an exemption is
equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly
shown and based on language in the law too plain to be mistaken.
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically
provides that the petitioner shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized
primarily to help combat the high incidence of lung and pulmonary diseases in the Philippines, all
donations, contributions, endowments and equipment and supplies to be imported by authorized
entities or persons and by the Board of Trustees of the Lung Center of the Philippines, Inc., for the
actual use and benefit of the Lung Center, shall be exempt from income and gift taxes, the same
further deductible in full for the purpose of determining the maximum deductible amount under
Section 30, paragraph (h), of the National Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees
imposed by the Government or any political subdivision or instrumentality thereof with respect to
equipment purchases made by, or for the Lung Center.
It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon.
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable or educational
purposes shall be exempt from taxation.[32]
The tax exemption under this constitutional provision covers property taxes only.[33] As Chief
Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: “. . .
what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands,
buildings and improvements actually, directly and exclusively used for religious, charitable or
educational purposes.”
DIGESTED TAX CASES PART III dennisaranabriljdii 15 | P a g e

City’s arguments:
 LCP is not a charitable entity
b/c its real property is not
exempt from the payment of
real taxes under PD 1823 and
even under the Constitution
b/c it failed to prove that it is a
charitable institution and that
the property is actually,
directly and exclusively used
for charitable purposes.
 LCP uses the subsidies granted
by the govt for charity patients
and uses the rest of its income
from the property for the
benefit of paying the patients,
among other purposes.
 LCP failed to adduce
substantial evidence that
100% of its out-patients and
170 beds in the hospital are
reserved for indigent patients.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. “Exclusive” is
defined as possessed and enjoyed to the exclusion of others; debarred from participation or
enjoyment; and “exclusively” is defined, “in a manner to exclude; as enjoying a privilege
exclusively.”[40] If real property is used for one or more commercial purposes, it is not exclusively
used for the exempted purposes but is subject to taxation.[41] The words “dominant use” or
“principal use” cannot be substituted for the words “used exclusively” without doing violence to
the Constitutions and the law.[42] Solely is synonymous with exclusively.
What is meant by actual, direct and exclusive use of the property for charitable purposes is
the direct and immediate and actual application of the property itself to the purposes for which
the charitable institution is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.[44]
The petitioner failed to discharge its burden to prove that the entirety of its real property is
actually, directly and exclusively used for charitable purposes. While portions of the hospital are
used for the treatment of patients and the dispensation of medical services to them, whether
paying or non-paying, other portions thereof are being leased to private individuals for their
clinics and a canteen. Further, a portion of the land is being leased to a private individual for her
business enterprise under the business name “Elliptical Orchids and Garden Center.” Indeed, the
petitioner’s evidence shows that it collected P1,136,483.45 as rentals in 1991 and P1,679,999.28
for 1992 from the said lessees.
Accordingly, we hold that the portions of the land leased to private entities as well as those
parts of the hospital leased to private individuals are not exempt from such taxes. [45] On the other
hand, the portions of the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property taxes.
DIGESTED TAX CASES PART III dennisaranabriljdii 16 | P a g e
 PARTIES FACTS
MIAA VS CA MIAA operates the NAIA and as its operator,
MIAA administers the land, improvements and
equipment within the NAIA Complex. The MIAA
charter transferred to MIAA land, including
runways and buildings. Its charter further
provides that no portion of the land transferred
to MIAA shall be disposed of through sale and
any other mode unless specifically approved by
the president.
:The Office of the Government Corporate Counsel
opined that the Local Government Code
withdrew the exemption from real estate tax
granted to MIAA. MIAA paid some of the real
estate tax already due.
:MIAA received final notices of real estate tax
delinquency from the city of paranaque for the
taxable years of 1992-2001.
:City of Paranque issued notices of levy and
warrants of levy on airport lands and buildings
and even threatened to sell at public auction the
airport lands and buildings should MIAA fail to
pay the real estate tax delinquency.
:The OGCC opined that section 21 of the MIAA
charter is the proof that MIAA is exempt from
real estate tax.
:MIAA filed with CA to restrain the city of prance
form imposing real estate tax and levying and
auctioning for public sale the airport lands and
buildings. But CA dismissed the petitioner.
:Meanwhile, the city of paranaque posted notices
of auction sale. A day before the public auction,
MIAA filed a restraining order to which the court
issued.
:MIAA points out that it cannot lick ownership
over these properties since the real owner of the
airport lands and buildings is the republic of the
Philippines. The MIAA charter mandates MIAA to
devote the airport lands and buildings for the
benefit of the general public. And since the
airport lands and buildings are devoted to public
use and public service, the ownership remains
with the state thus inalienable are not subject to
real estate tax by local governemnts.
:MIAA also points out that Section 21 of the MIAA
charter specifically exempts MIAA from the
payment of real estate tax.MIAA insists that it is
ISSUE/S SC RULING
WON the airport lands We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
and buildings of MIAA governments.
are exempt from real :First, MIAA is not a government-owned or controlled corporation but an instrumentality of the
estate tax under National Government and thus exempt from local taxation. Second, the real properties of MIAA
existing laws. are owned by the Republic of the Philippines and thus exempt from real estate tax.
:A government-owned or controlled corporation must be "organized as a stock or non-stock
corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or
voting shares.
:MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is
that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows: SEC. 2. General Terms
Defined. –– x x x x (10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x
:When the law vests in a government instrumentality corporate powers, the instrumentality does
not become a corporation. Unless the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality exercising not only governmental but
also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police
authority and the levying of fees and charges. At the same time, MIAA exercises "all the powers of a
corporation under the Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order.
:Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with
the department framework. The MIAA Charter expressly states that transforming MIAA into a
"separate and autonomous body" will make its operation more "financially viable.”
:Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a government-owned or controlled corporation.
:Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While the
1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide.”
:When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed and
there must be clear language in the law imposing the tax. Any doubt whether a person, article or
activity is taxable is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
:Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality.
DIGESTED TAX CASES PART III dennisaranabriljdii 17 | P a g e
also exempt from real estate tax under Section
234 of the Local Government Code because the
Airport Lands and Buildings are owned by the
Republic.
:Respondents invoke Sec 193 of the local
government code which expressly withdrew the
tax exemption privileges of the GOCC. An
international airport is not among the exceptions
mentioned in Section 193 of the Local
Government Code. Thus, respondents assert that
MIAA cannot claim that the Airport Lands and
Buildings are exempt from real estate tax.
:No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code,
like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by
the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and
Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA
Airport Lands and Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.
:The Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal fees
and other charges from the public does not remove the character of the Airport Lands and
Buildings as properties for public use. The operation by the government of a tollway does not
change the character of the road as one for public use. Someone must pay for the maintenance of
the road, either the public indirectly through the taxes they pay the government, or only those
among the public who actually use the road through the toll fees they pay upon using the road. The
tollway system is even a more efficient and equitable manner of taxing the public for the
maintenance of public roads.
:The charging of fees to the public does not determine the character of the property whether it is of
public dominion or not. Article 420 of the Civil Code defines property of public dominion as one
"intended for public use." Even if the government collects toll fees, the road is still "intended for
public use" if anyone can use the road under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed
restrictions and other conditions for the use of the road do not affect the public character of the
road.
:SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the
real property tax: (a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person
:This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing "[t]axes, fees or charges of any kind on the National Government,
its agencies and instrumentalities x x x." The real properties owned by the Republic are titled
either in the name of the Republic itself or in the name of agencies or instrumentalities of the
National Government. The Administrative Code allows real property owned by the Republic to be
titled in the name of agencies or instrumentalities of the national government. Such real properties
remain owned by the Republic and continue to be exempt from real estate tax.
:The Republic may grant the beneficial use of its real property to an agency or instrumentality of
the national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement
does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states
that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof
has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus,
even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and
Buildings, such fact does not make these real properties subject to real estate tax.
:However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax
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 PARTIES FACTS
JOHN HAY : RA 7727 “Bases conversion and development act of
PEOPLE’S 1992” was enacted which sought to accelerate the
ALTERNATIVE conversion in to alternative productive uses of the
COALITION former military bases, namely, the clark and subic
military reservations as well as their extensions
including the john hay station in baguio city
:RA 7727 likewise created the Subic Special Economic
[and free port] zone which was granted incentives
ranging for tax and duty-free importations, exemption of
businesses therein from local and national taxes, to other
hallmarks of a liberalized financial and business climate.
:Bases Conversion development authority (BCDA)
executed a joint venture agreement with TUNTEX and
ASIAWORD to put up a joint venture company known as
the Baguio International Development and management
corporation which would lease areas within the camp
john hay and poor point for the purpose of turning such
places into principal tourist and recreation spots.
:President ramos issues proclamation 420 which
established a Special Economic Zone on portion of camp
john hay thereby extending the economic incentives
similar to those enjoyed by Subic SEZ (there was tax
exemption within the john hay SEZ)
:Petitioners argue that nowhere in R. A. No. 7227 is there
a grant of tax exemption to SEZs yet to be established in
base areas, unlike the grant under Section 12 thereof of
tax exemption and investment incentives to the therein
established Subic SEZ. The grant of tax exemption to the
John Hay SEZ, petitioners conclude, thus contravenes
Article VI, Section 28 (4) of the Constitution which
provides that “No law granting any tax exemption shall
be passed without the concurrence of a majority of all the
members of Congress.”
ISSUE/S SC RULING
: It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ which was granted by
Congress with tax exemption, investment incentives and the like. There is no express extension of
the aforesaid benefits to other SEZs still to be created at the time via presidential proclamation.
:While the grant of economic incentives may be essential to the creation and success of SEZs, free
trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The incentives
under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the
John Hay SEZ finds no support therein. Neither does the same grant of privileges to the John Hay
SEZ find support in the other laws specified under Section 3 of Proclamation No. 420, which laws
were already extant before the issuance of the proclamation or the enactment of R.A. No. 7227.
:More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the
legislature, unless limited by a provision of the state constitution, that has full power to exempt any
person or corporation or class of property from taxation, its power to exempt being as broad as its
power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions,
or local governments may pass ordinances on exemption only from local taxes.
:The challenged grant of tax exemption would circumvent the Constitution’s imposition that a law
granting any tax exemption must have the concurrence of a majority of all the members of
Congress. In the same vein, the other kinds of privileges extended to the John Hay SEZ are by
tradition and usage for Congress to legislate upon.
:Contrary to public respondents’ suggestions, the claimed statutory exemption of the John Hay SEZ
from taxation should be manifest and unmistakable from the language of the law on which it is
based; it must be expressly granted in a statute stated in a language too clear to be mistaken. Tax
exemption cannot be implied as it must be categorically and unmistakably expressed.
:If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and
incentives given to the Subic SEZ, it would have so expressly provided in the R.A. No. 7227.
:This Court then declares that the grant by Proclamation No. 420 of tax exemption and other
privileges to the John Hay SEZ is void for being violative of the Constitution. This renders it
unnecessary to still dwell on petitioners’ claim that the same grant violates the equal protection
guarantee.
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