G.R. No.

L-16619             June 29, 1963

COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee,  vs. CITY OF MANILA, ET AL., defendants-appellants.

FACTS: Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the fixed license
fees prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as a wholesale and retail dealer of general
merchandise, it also paid the sales taxes required by Ordinances Nos. 3634, 3301, and 3816. In the statements of wholesale,
retail, and grocery sales of general merchandise from the third quarter of 1954 to the second quarter of 1957, inclusive,
Tabacalera included its liquor sales of the same period, and it is not denied that of the taxes it paid on all its sales of general
merchandise, the sum of P15,280.00 subject to the action represents the tax corresponding to the liquor sales aforesaid.
Tabacalera wanted a refund in connection with its liquor sales, it should pay the license fees prescribed by Ordinance No. 3358
but not the municipal sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; and since it already paid the license fees
aforesaid, the sales taxes paid by it — amounting to the sum of P15,208.00 — under the three ordinances mentioned
heretofore is an overpayment made by mistake, and therefore refundable.

ISSUE: Whether Tacbalera is subject to double taxation.

HELD: No. Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the business
of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of Manila pursuant to its charter power to
fix license fees on, and regulate, the sale of intoxicating liquors, whether imported or locally manufactured. The license fees
imposed by it are essentially for purposes of regulation, and are justified, considering that the sale of intoxicating liquor is,
potentially at least, harmful to public health and morals, and must be subject to supervision or regulation by the state and by
cities and municipalities authorized to act in the premises. It is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes
on the sales of general merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila
by virtue of its power to tax dealers for the sale of such merchandise. Under Ordinance No. 3634 the word "merchandise" as
employed therein clearly includes liquor. That Tabacalera is being subjected to double taxation is more apparent than real. As
already stated what is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a
calling in which — it is obvious — not anyone or anybody may freely engage, considering that the sale of liquor
indiscriminately may endanger public health and morals. On the other hand, what the three ordinances mentioned heretofore
impose is a tax for revenue purposes based on the sales made of the same article or merchandise. It is already settled in this
connection that both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article,
this not being in violation of the rule against double taxation.
G.R. No. 155650             July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,  vs. COURT OF APPEALS, CITY OF PARAÑAQUE, CITY
MAYOR OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY
TREASURER OF PARAÑAQUE, respondents.

FACTS: Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA)
Complex in Parañ aque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International
Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E.
Marcos. Subsequently, Executive Order Nos. 909 and 298 amended the MIAA Charter.

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined that the
Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA
Charter. Thus, MIAA negotiated with respondent City of Parañ aque to pay the real estate tax imposed by the City. MIAA then
paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañ aque for the taxable years
1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:

TAX
TAXABLE YEAR TAX DUE PENALTY TOTAL
DECLARATION
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Parañ aque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport
Lands and Buildings. The Mayor of the City of Parañ aque threatened to sell at public auction the Airport Lands and Buildings
should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that Section 206
of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC opined that
Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.

On January 2003, the City of Parañ aque posted notices of auction sale at the Barangay Halls of Barangays Vitalez, Sto. Niñ o, and
Tambo, Parañ aque City; in the public market of Barangay La Huerta; and in the main lobby of the Parañ aque City Hall. The City
of Parañ aque published the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general
circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and Buildings to the highest
bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañ aque City.

A day before the public auction, MIAA filed before this Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a
Temporary Restraining Order. On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
immediately. The Court ordered respondents to cease and desist from selling at public auction the Airport Lands and
Buildings. Respondents received the TRO on the same day that the Court issued it. However, respondents received the TRO
only at 1:25 p.m. or three hours after the conclusion of the public auction.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. The MIAA
Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands
and Buildings are devoted to public use and public service, the ownership of these properties remains with the State. The
Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. That
MIAA is 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. To justify the exemption, MIAA invokes the principle that the government cannot tax
itself. MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public
advantage, since in such a case the tax debtor is also the tax creditor.

ISSUE: Whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws. If so exempt,
then the real estate tax assessments issued by the City of Parañ aque, and all proceedings taken pursuant to such assessments,
are void. In such event, the other issues raised in this petition become moot.

HELD: MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.

MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax.
Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in Section
234(e) of the Local Government Code withdrew the real estate tax exemption of government-owned or controlled
corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities
exempt from real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is
not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of
1987 defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. – x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock

corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case
of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)

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. Section 10 of the MIAA Charter9 provides:

SECTION 10. Capital. — The capital of the Authority to be contributed by the National Government shall be increased
from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such other properties, movable
and immovable[,] which may be contributed by the National Government or transferred by it from any of its agencies,
the valuation of which shall be determined jointly with the Department of Budget and Management and the
Commission on Audit on the date of such contribution or transfer after making due allowances for depreciation and
other deductions taking into account the loans and other liabilities of the Authority at the time of the takeover of the
assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the
unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as provided
for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National Government in the
Authority. Thereafter, the Government contribution to the capital of the Authority shall be provided in the General
Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares and x x x
authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not divided into shares of
stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock
corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock
corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will
not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members.
Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury.
This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate
an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled
corporation. What then is the legal status of MIAA within the National Government?
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,12 police authority13 and the levying of fees and charges.14 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"16 will make its operation more "financially viable."17

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. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate
powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government
corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal relationship and status of government entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalitiesand local
government units.(Emphasis and underscoring supplied)

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.

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy
requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential public
services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments
cannot tax national government instrumentalities.

Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "real property owned by the Republic of the
Philippines." Section 234(a) provides:
 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 "taxes, fees or charges of any kind on the National Government, its agencies and instrumentalitiesx 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.
For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a
case, MIAA has granted the beneficial use of such land area for a consideration to a taxable person and therefore such land
area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:

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. 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.29

The the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities
like the MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities. The
taxing powers of local governments do not extend to the national government, its agencies and instrumentalities, "unless
otherwise provided in this Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on the
exception to the exemption from real estate tax of real property owned by the Republic. Local governments have no power to
tax the national government, its agencies and instrumentalities, except as otherwise provided in the Local Government Code
pursuant to the saving clause in Section 133 stating "unless otherwise provided in this Code." This exception — which is an
exception to the exemption of the Republic from real estate tax imposed by local governments — refers to Section 234(a) of
the Code. The exception to the exemption in Section 234(a) subjects real property owned by the Republic, whether titled in the
name of the national government, its agencies or instrumentalities, to real estate tax if the beneficial use of such property is
given to a taxable entity.

Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and
status of government units, agencies and offices within the entire government machinery, MIAA is a government
instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the Local Government Code,
MIAA as a government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind"
by local governments. The only exception is when MIAA leases its real property to a "taxable person" as provided in Section
234(a) of the Local Government Code, in which case the specific real property leased becomes subject to real estate tax. Thus,
only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by
the City of Parañ aque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of
public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports x x x
constructed by the State," which includes public airports and seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and
Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.

We DECLARE the Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real estate tax
imposed by the City of Parañ aque. We declare VOID all the real estate tax assessments, including the final notices of real estate
tax delinquencies, issued by the City of Parañ aque on the Airport Lands and Buildings of the Manila International Airport
Authority, except for the portions that the Manila International Airport Authority has leased to private parties. We also
declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport
Authority.

G.R. No. 108524 November 10, 1994

MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner,  vs. DEPARTMENT OF FINANCE SECRETARY,
COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE DISTRICT OFFICER, BIR MISAMIS
ORIENTAL, respondents.

FACTS: Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members, individually
or collectively, are engaged in the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to the
issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra was
classified as agricultural food product under section 103(b) of the National Internal Revenue Code and, therefore, exempt from
VAT at all stages of production or distribution.

The pertinent provision of the NIRC states:

Sec. 103. Exempt Transactions. — The following shall be exempt from the value-added tax:

(a) Sale of nonfood agricultural, marine and forest products in their original state by the primary producer or
the owner of the land where the same are produced;

(b) Sale or importation in their original state of agricultural and marine food products, livestock and poultry
of a kind generally used as, or yielding or producing foods for human consumption, and breeding stock and
genetic material therefor;

Under Section103(a), the sale of agricultural non-food products in their original state is exempt from VAT only if the sale is
made by the primary producer or owner of the land from which the same are produced. The sale made by any other person or
entity, like a trader or dealer, is not exempt from the tax. On the other hand, under section 103(b) the sale of agricultural food
products in their original state is exempt from VAT at all stages of production or distribution regardless of who the seller is.

On June 11, 1991, respondent Commissioner of Internal Revenue issued the circular in question, classifying copra as an
agricultural non-food product and declaring it "exempt from VAT only if the sale is made by the primary producer pursuant to
Section 103(a) of the Tax Code, as amended." 

ISSUE: The question is whether copra is an agricultural food or non-food product for purposes of this provision of the NIRC.

HELD: In interpreting section103(a) and (b) of the NIRC, the Commissioner of Internal Revenue gave it a strict construction
consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state.
Indeed, even Dr. Kintanar said that his classification of copra as food was based on "the broader definition of food which
includes agricultural commodities and other components used in the manufacture/processing of food."

Also, for the claims of petitioner that RMC No. 47-91 is discriminatory and violative of the equal protection clause of the
Constitution because while coconut farmers and copra producers are exempt, traders and dealers are not, although both sell
copra in its original state. Petitioners add that oil millers do not enjoy tax credit out of the VAT payment of traders and dealers.
The argument has no merit. There is a material or substantial difference between coconut farmers and copra producers, on the
one hand, and copra traders and dealers, on the other. The former  produce and sell copra, the latter merely sell copra. The
Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them
differently.  It is not true that oil millers are exempt from VAT. Pursuant to section 102 of the NIRC, they are subject to 10%
VAT on the sale of services. Under section104 of the Tax Code, they are allowed to credit the input tax on the sale of copra by
traders and dealers, but there is no tax credit if the sale is made directly by the copra producer as the sale is VAT exempt. In
the same manner, copra traders and dealers are allowed to credit the input tax on the sale of copra by other traders and
dealers, but there is no tax credit if the sale is made by the producer.

The RMC No. 47-91 is counterproductive because traders and dealers would be forced to buy copra from coconut farmers who
are exempt from the VAT and that to the extent that prices are reduced the government would lose revenues as the 10% tax
base is correspondingly diminished. This is not so. The sale of agricultural non-food products is exempt from VAT only when
made by the primary producer or owner of the land from which the same is produced, but in the case of agricultural food
products their sale in their original state is exempt at all stages of production or distribution. At any rate, the argument that
the classification of copra as agricultural non-food product is counterproductive is a question of wisdom or policy which
should be addressed to respondent officials and to Congress.

G.R. Nos. L-46255, 46256, 46259 and 46277             January 23, 1940
PHILIPPINE TRUST COMPANY, PEOPLES BANK AND TRUST COMPANY, 
THE YOKOHAMA SPECIE BANK, LTD., and THE CHARTERED BANK OF INDIA, AUSTRALIA AND CHINA,plaintiffs-
appellants,  vs. A.L. YATCO, as Collector of Internal Revenue, defendant-appellee.

FACTS: The plaintiffs-appellants had been paying capital and deposit taxes without protest, formerly under section 111 of Act
No. 1189, and later under section 1499 of the Revised Administrative Code of 1917, as amended. The taxes paid under protest
and sought to recovered are as follows:

Philippine Trust Co. .................................................... 1934-1936 P98,308.85

Peoples Bank .............................................................. 1934-1936 188,827.15
Yokohama Specie Bank ............................................ 1935-1936 14,265.10
Chartered Bank ........................................................... 1935-1936 132,903.82

Total .................................................................................................... P434,304.92

ISSUE: Whether section 1499 of the Revised Administrative Code, violates the rule regarding uniformity of taxation, and that it
is discriminatory, and therefore violative of the equal protection clause of the Constitution.

HELD: The provision of the law involved reads:

SEC. 1499. Tax on capital, deposits, and circulation of banks. — Subject to the exemption herein made there shall be
collected from banks the following taxes on capital, deposits, and circulation:

(a) Upon the capital employed by the bank, for each month, one twenty-fourth of one per centrum.

(b) Upon the average amount of deposits of money, subject to payment by check or draft, or represented by
certificates of deposits, or otherwise, whether payable on demand, or on some future day, for each month, one
eighteenth of one per centrum.

(c) Upon the average amount of circulation issued by the bank, including as circulation all notes, and other obligations
calculated or intended to circulate or be used as money, but not including such as may be retained in the vault of the
bank or redeemed and on deposits for said bank, for each month, one-twelfth of one per centrum.

(d) 'Bank' as herein used, includes every incorporated or other bank, and every person, association, or company
having a place of business where credits are opened by the deposit or collection of money or currency subject to be
paid or remitted upon draft, check, or order, or where money is advanced or loaned on stocks, bonds, bullions, bills of
exchange, or promissory notes are received for discount or for sale.

"Capital employed" does not include money borrowed or received from time to time in the usual course of business
from any person not a partner of or interested in such bank; and no tax shall be imposed on the capital employed by
any person whose sole business is lending money on real-state security. (Revised Administrative Code.)

A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found.
Section 1499 of the Revised Administrative Code, as amended, applies uniformly to, and operates on, all banks in the
Philippines without distinction and discrimination, and if the National City Bank of New York is exempted from its operation
because it is a federal instrumentality subject only to the authority of Congress, that alone could have the effect of rendering it
violative of the rule of uniformity. In every well-regulated and enlightened state or government, certain descriptions of
property and also certain institutions are exempt from taxation, but these exemptions have never been regarded as disturbing
the rules of taxation, even where the fundamental law had ordained that it should be uniform. The rule of uniformity does not
call for perfect uniformity or perfect equality, because this is hardly attainable.

It is vaguely argued that section 1499 of the Revised Administrative Code was declared unconstitutional by the Supreme Court
of the United States insofar as the National City Bank of New York was concerned. This is an error. In Posadas v. National City
Bank, 296 U.S. 499, 80 Law. ed. 352, it was held that the National City Bank of New York in the Philippines was established by
virtue of section 25 of the Federal Reserve Act of 1913, which authorized the establishment of branches of national banking
associations in foreign countries or dependencies of the United States," and that the Philippines being a possession and
dependency of the United States, the rule laid down in Domenech v. National City Bank, 294 U.S. 199, 204, 79 Law. ed. 857,
861, 55 S. Ct. 366, that "a dependency may not tax its sovereign," must be considered controlling. There was no declaration,
either express or implied, that section 1499 is unconstitutional and void.

The method of assessment prescribed in section 1502, in relation to section 1499, of the Revised Administrative Code, for
domestic banks while different from that prescribed for foreign banks is permissible. This conclusion flows from the legal
proposition that "a state may impose a different rate of taxation upon a foreign corporation for the privilege of doing business
within the state than it applies to its own corporations upon the franchise which the state grants in creating them."

G.R. No. L-27588 December 31, 1927

THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA, as representative of the Roman Catholic Apostolic
Church, plaintiff-appellant,  vs. THE PROVINCIAL BOARD OF ILOCOS NORTE, ET AL., defendants-appellants.

FACTS: Bishop of Nueva Segovia, possesses and is the owner of a parcel of land in the municipality of San Nicolas, Ilocos Norte,
all four sides of which face on public streets. On the south side is a part of the churchyard, the convent and an adjacent lot used
for a vegetable garden, containing an area off 1,624 square meters, in which there is a stable and a well for the use of the
convent. In the center is the remainder of the churchyard and the church. On the north is an old cemetery with two of its walls
still standing, and a portion where formerly stood a tower, the base of which still be seen, containing a total area of 8,955
square meters.

As required by the defendants, on July 3, 1925 the plaintiff paid, under protest, the land tax on the lot adjoining the convent
and the lot which formerly was the cemetery with the portion where the tower stood.

ISSUE: Whether the land owned by the plaintiff is exempted from tax.

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

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

G.R. No. 147188             September 14, 2004

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE ESTATE OF BENIGNO P. TODA, JR., Represented by Special
Co-administrators Lorna Kapunan and Mario Luza Bautista, respondents.

FACTS: On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding
capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less
than ₱90 million.

On 30 August 1989, Toda purportedly sold the property for ₱100 million to Rafael A. Altonaga, who, in turn, sold the same
property on the same day to Royal Match Inc. (RMI) for ₱200 million. These two transactions were evidenced by Deeds of
Absolute Sale notarized on the same day by the same notary public. For the sale of the property to RMI, Altonaga paid capital
gains tax in the amount of ₱10 million.

On 16 April 1990, CIC filed its corporate annual income tax return for the year 1989, declaring, among other things, its gain
from the sale of real property in the amount of ₱75,728.021. After crediting withholding taxes of ₱254,497.00, it paid
₱26,341,207 for its net taxable income of ₱75,987,725.

On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for ₱12.5 million, as evidenced by a Deed of Sale
of Shares of Stocks. Three and a half years later, or on 16 January 1994, Toda died.

On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an assessment notice and demand letter to the CIC for deficiency
income tax for the year 1989 in the amount of ₱79,099,999.22.

The new CIC asked for a reconsideration, asserting that the assessment should be directed against the old CIC, and not against
the new CIC, which is owned by an entirely different set of stockholders.

In the letter dated 19 October 1995, the Commissioner dismissed the protest, stating that a fraudulent scheme was
deliberately perpetuated by the CIC wholly owned and controlled by Toda by covering up the additional gain of ₱100 million,
which resulted in the change in the income structure of the proceeds of the sale of the two parcels of land and the building
thereon to an individual capital gains, thus evading the higher corporate income tax rate of 35%.

On 15 February 1996, the Estate filed a petition for review with the CTA alleging that the Commissioner erred in holding the
Estate liable for income tax deficiency; that the inference of fraud of the sale of the properties is unreasonable and
unsupported.

The Commissioner argued that the two transactions actually constituted a single sale of the property by CIC to RMI, and that
Altonaga was neither the buyer of the property from CIC nor the seller of the same property to RMI. The additional gain of
₱100 million (the difference between the second simulated sale for ₱200 million and the first simulated sale for ₱100 million)
realized by CIC was taxed at the rate of only 5% purportedly as capital gains tax of Altonaga, instead of at the rate of 35% as
corporate income tax of CIC. The income tax return filed by CIC for 1989 with intent to evade payment of the tax was thus false
or fraudulent. Since such falsity or fraud was discovered by the BIR only on 8 March 1991, the assessment issued on 9 January
1995 was well within the prescriptive period prescribed by Section 223 (a) of the National Internal Revenue Code of 1986,
which provides that tax may be assessed within ten years from the discovery of the falsity or fraud. With the sale being tainted
with fraud, the separate corporate personality of CIC should be disregarded. Toda, being the registered owner of the 99.991%
shares of stock of CIC and the beneficial owner of the remaining 0.009% shares registered in the name of the individual
directors of CIC, should be held liable for the deficiency income tax, especially because the gains realized from the sale were
withdrawn by him as cash advances or paid to him as cash dividends.

In its decision of 3 January 2000, the CTA held that the Commissioner failed to prove that CIC committed fraud to deprive the
government of the taxes due it. It ruled that even assuming that a pre-conceived scheme was adopted by CIC, the same
constituted mere tax avoidance, and not tax evasion.

ISSUE: Whether the case is of tax evasion or tax avoidance.

HELD: Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax
avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good
faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it
usually subjects the taxpayer to further or additional civil or criminal liabilities.

Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by
the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind
which is described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of action or
failure of action which is unlawful.

All these factors are present in the instant case. It is significant to note that as early as 4 May 1989, prior to the purported sale
of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received ₱40 million from RMI, 25and not from Altonaga.
That ₱40 million was debited by RMI and reflected in its trial balance 26 as "other inv. – Cibeles Bldg." Also, as of 31 July 1989,
another ₱40 million was debited and reflected in RMI’s trial balance as "other inv. – Cibeles Bldg." This would show that the
real buyer of the properties was RMI, and not the intermediary Altonaga.
The investigation conducted by the BIR disclosed that Altonaga was a close business associate and one of the many trusted
corporate executives of Toda. This information was revealed by Mr. Boy Prieto, the assistant accountant of CIC and an old
timer in the company. 

The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to
Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud.
Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely petitioner cannot be faulted for wanting to
reduce the tax from 35% to 5%.

Fraud in its general sense, "is deemed to comprise anything calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to
another, or by which an undue and unconscionable advantage is taken of another."

Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the
transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not the 35% corporate
income tax. Altonaga’s sole purpose of acquiring and transferring title of the subject properties on the same day was to create
a tax shelter. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale
to him was merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the
two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability.

The sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes
constitutes one of tax evasion.

Generally, a sale or exchange of assets will have an income tax incidence only when it is consummated.  The incidence of
taxation depends upon the substance of a transaction. The tax consequences arising from gains from a sale of property are not
finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be viewed as a
whole, and each step from the commencement of negotiations to the consummation of the sale is relevant. A sale by one
person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass
title. To permit the true nature of the transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities,
would seriously impair the effective administration of the tax policies of Congress.

To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is
proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the sale to Altonaga should
be disregarded for income tax purposes. The two sale transactions should be treated as a single direct sale by CIC to RMI.

Accordingly, the tax liability of CIC is governed by then Section 24 of the NIRC of 1986, as amended (now 27 (A) of the Tax
Reform Act of 1997), which stated as follows:

Sec. 24. Rates of tax on corporations. – (a) Tax on domestic corporations.- A tax is hereby imposed upon the taxable
net income received during each taxable year from all sources by every corporation organized in, or existing under the
laws of the Philippines, and partnerships, no matter how created or organized but not including general professional
partnerships, in accordance with the following:

Twenty-five percent upon the amount by which the taxable net income does not exceed one hundred
thousand pesos; and

Thirty-five percent upon the amount by which the taxable net income exceeds one hundred thousand pesos.

CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. The 5% individual capital gains tax
provided for in Section 34 (h) of the NIRC of 198635 (now 6% under Section 24 (D) (1) of the Tax Reform Act of 1997) is
inapplicable. Hence, the assessment for the deficiency income tax issued by the BIR must be upheld.
G.R. No. L-49336 August 31, 1981

THE PROVINCE OF ABRA, represented by LADISLAO ANCHETA, Provincial Assessor, petitioner, 

vs. HONORABLE HAROLD M. HERNANDO, in his capacity as Presiding Judge of Branch I, Court of First Instance Abra;
THE ROMAN CATHOLIC BISHOP OF BANGUED, INC., represented by Bishop Odilo etspueler and Reverend Felipe
Flores, respondents.

FACTS: A tax assessment was made by the Provincial Assessor on the properties of respondent Roman Catholic Bishop. That
the real properties sought to be taxed by the Province of Abra are properties of the respondent Roman Catholic Bishop of
Bangued, Inc."  That the sad prperty are actually, directly and exclusively used by the Roman Catholic Bishop of Bangued, Inc. for
religious or charitable purposes." 

ISSUE: Whether the Roman Catholic Bishop is exempted from tax.

HELD: The 1935 Constitution on the tax exemption of "lands, buildings, and improvements." There is a marked difference.
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." 

While the 1987 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. 

The Constitution is worded differently. The change should not be ignored. It must be duly taken into consideration. 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.

In Catholic Church v. Hastings to 1966, in Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, 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.
G.R. No. 97787 August 1, 1996

The Anti-Graft League of the Philippines, Inc., represented by REYNALDO L. BAGATSING, in his capacity as Chief
Prosecutor/Investigator, petitioner, vs. Hon. REYNALDO SAN JUAN, Provincial Governor, Hon. JOSE M. BARRETO, SR.,
Provincial Vice-Governor, Hons. ERNESTO ESTRADA, ROMAN REYES, ISIDRO PACIS, LEONISA VERGEL DE DIOS,
REMEDIOS PARALEJAS, TIMOTEO PASCUAL, ALFREDO VILLANUEVA, AMOS REYES, Members of the Provincial Board of
Rizal, Hon. EUTROPIO MIGRIÑO, Presiding Judge, RTC-Pasig, Branch CLI (151), Ortigas & Company Ltd., represented
by ATTY. FRACISCO ORTIGAS, JR., Asian Appraisal Co. Inc., Rizal Provincial Appraisal Assessor, Provincial Auditor and
District Engineer, JESS DOE, STEVE DOE and HECTOR DOE, respondents.

FACTS: On March 20, 1975, the President Ferdinand E. Marcos issued Presidential Decree No. 674, establishing the
Technological Colleges of Rizal. Among other things, it directed the Board to provide funds for the purchase of a site and the
construction of the necessary structures thereon. Acting upon an authority granted by the office of the President, the Province
was able to negotiate with respondent Ortigas & Co., Ltd. for the acquisition of four parcels of land located in Ugong Norte,
Pasig. Three deeds of absolute sale were executed on April 22 and May 9, 1975, whereby Ortigas transferred its ownership
over a total of 192,177 square meters of land to the Province at P110.00 per square meter. The projected construction,
however, never materialized because of the decimation of the Province's resources brought about by the creation of the Metro
Manila Commission (MMC) in 1976.

Twelve years later, with the property lying idle and the Province needing funds to propel its 5-years Comprehensive
Development Program, the then incumbent Board passed Resolution No. 87-205 dated October 15, 1987 authorizing the
Governor to sell the same. The said property was eventually sold to Valley View Realty Development Corporation for P700.00
per square meter or a total of P134,523,900.00, of which 30 million was given as downpayment. On May 10, 1988, after
learning about the sale, Ortigas filed before the Regional Trial Court of Pasig an action for recission of contract plus damages
with preliminary injunction against the Province. The complaint alleged that the Province violated one of the terms of its
contracts with Ortigas by selling the subject lots which were intended to be utilized solely as a site for the construction of the
Rizal Technological Colleges and the Rizal Provincial Hospital.

Meanwhile, the new provincial officials, including herein public respondents, assumed office. On April 21, 1988, the Board
adopted Resolution No. 88-65 which provided for the rescission of the deed of sale between the Province and Valley View on
the ground that the sale price was exceedingly low and, thus, prejudicial to the Province. Valley View then filed a complaint
against the Province for specific performance and damages.

There was a compromise agreement executed by and between the Province and Ortigas on March 20, 1989. Under the said
compromise agreement, the Province agreed to reconvey the four parcels of land to Ortigas at a price of P2,250.00 per square
meter, or a total of P432,398,250.00, payable within two years at an annual interest rate of fourteen percent. This amount is
higher than the market values separately determined by respondents Asian Appraisal, Inc. and the Provincial Appraisal
Committee, which respectively pegged the price of the subject properties at P1,800.00 and P2,200.00 per square meter.
Ortigas made its final payment on March 30, 1991.

On April 1, 1991, petitioner filed the instant petition for certiorari with application for preliminary injunction seeking the
nullification of the March 20, 1989 compromise agreement,

ISSUE: Whether the present action a taxpayer's suit?

HELD: To constitute a taxpayer's suit, two requisites must be met, namely, (1) that public funds are disbursed by a political
subdivision or instrumentality and in doing so, (2) a law is violated or some irregularity is committed, and that the petitioner
is directly affected by the alleged ultra vires act.

In the case at bar, disbursement of public funds was only made in 1975 when the Province bought the lands from Ortigas at
P110.00 per square meter in line with the objectives of P.D. 674. Petitioner never referred to such purchase as an illegal
disbursement of public funds but focused on the alleged fraudulent reconveyance of said property to Ortigas because the price
paid was lower than the prevailing market value of neighboring lots. The first requirement, therefore, which would make this
petition a taxpayer's suit is absent.

Undeniably, as a taxpayer, petitioner would somehow be adversely affected by an illegal use of public money. When, however,
no such unlawful spending has been shown, as in the case at bar, petitioner, even as a taxpayer, cannot question the
transaction validly executed by and between the Province and Ortigas for the simple reason that it is not privy to said contract.
In other words, petitioner has absolutely no cause of action, and consequently no locus standi, in the instant case.
CALTEX PHILIPPINES VS CA

G.R. 925585 MAY 8, 1992

Davide, J.:

FACTS: In 1989, COA sent a letter to Caltex directing it to remit to OPSF its collection of the additional tax on petroleum
authorized under PD 1956 and pending such remittance, all of its claims from the OPSF shall be held in abeyance. Petitioner
requested COA for the early release of its reimbursement certificates from the OPSF covering claims with the Office of Energy
Affairs. COA denied the same.

ISSUE: Whether the petitioner can avail of the right to offset any amount that it may be required under the law to remit to the
OPSF against any amount that it may receive by way of reimbursement.

RULING: It is a settled rule that a taxpayer may not offset taxes due from the claims that he may have against the government.
Taxes cannot be the subject of compensation because the government and taxpayer are not mutually debtors and creditors of
each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

The oil companies merely acted as agents for the government in the latter’s collection since taxes are passed unto the end-
users, the consuming public.
COMMISSIONER OF INTERNAL REVENUE VS. ALGUE INC.
GR No. L-28896 | Feb. 17, 1988

FACTS: Algue Inc. is a domestic corp engaged in engineering, construction and other allied activitie. On Jan. 14, 1965, the corp
received a letter from the CIR regarding its delinquency income taxes from 1958-1959, amtg to P83,183.8. A letter of protest
or reconsideration was filed by Algue Inc on Jan 18. On March 12, a warrant of distraint and levy was presented to Algue Inc.
thru its counsel, Atty. Guevara, who refused to receive it on the ground of the pending protest. Since the protest was not found
on the records, a file copy from the corp was produced and given to BIR Agent Reyes, who deferred service of the warrant. On
April 7, Atty. Guevara was informed that the BIR was not taking any action on the protest and it was only then that he accepted
the warrant of distraint and levy earlier sought to be served. On April 23, Algue filed a petition for review of the decision of the
CIR with the Court of Tax Appeals

CIR contentions: the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or
necessary business expense; payments are fictitious because most of the payees are members of the same family in control of
Algue and that there is not enough substantiation of such payments

CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of promotional fees. These were
collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its
subsequent purchase of the properties of the Philippine Sugar Estate Development Company.

ISSUE: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by Algue as legitimate
business expenses in its income tax returns

RULING: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance, made in
accordance with law.

RA 1125: the appeal may be made within thirty days after receipt of the decision or ruling challenged

During the intervening period, the warrant was premature and could therefore not be served. Originally, CIR claimed that the
75K promotional fees to be personal holding company income, but later on conformed to the decision of CTA. There is no
dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the
corresponding taxes thereon. CTA also found, after examining the evidence, that no distribution of dividends was involved. CIR
suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction. Algue Inc. was a
family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. at
the end of the year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her,
to make up the total of P75,000.00. This arrangement was understandable in view of the close relationship among the persons
in the family corporation. The amount of the promotional fees was not excessive. The total commission paid by the Philippine
Sugar Estate Development Co. to Algue Inc. was P125K. After deducting the said fees, Algue still had a balance of P50,000.00 as
clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of the Sugar Estate properties.

Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - All the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered xxx

· the burden is on the taxpayer to prove the validity of the claimed deduction

In this case, Algue Inc. has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted
by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve
themselves in a new business requiring millions of pesos. Taxes are what we pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance
to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share
in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance their moral and material values. Taxation must be exercised
reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the
courts will then come to his succor

Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in accordance with Rep. Act No. 1125. And we
also find that the claimed deduction by Algue Inc. was permitted under the Internal Revenue Code and should therefore not
have been disallowed by the CIR
CIR V. ALGUE G.R. NO. L-28896 FEBRUARY 17, 1988

Deductions from Gross Income, Lifeblood Doctrine, Benefits-Protection Theory (Symbiotic Relationship Doctrine)

FACTS: The Philippine Sugar Estate Development Company appointed private respondent Algue as its agent, authorizing it to
sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel
Guevara, Edith, O’Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing
other persons to invest in it. Ultimately, after its incorporation largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties. For this sale, Algue received as agent a commission of P126,000.00, and it was
from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.

The CIR contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary
reasonable or necessary business expense.

The CIR claims that these payments are fictitious because most of the payees are members of the same family in control of
Algue, and suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction.

The CTA agreed with Algue, it held that the said amount had been legitimately paid by the private respondent for actual
services rendered, in the form of promotional fees.

ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private
respondent Algue as legitimate business expenses in its income tax returns.

RULING: We agree with the respondent court that the amount of the promotional fees was not excessive. The total
commission paid by the PSEDC to the private respondent was P125,000.00. After deducting the said fees, Algue still had a
balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This
was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the
Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.

This finding of the respondent court is in accord with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.–In computing net income there shall be allowed as deductions —

(a) Expenses:

(1) In general.–All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or
business, including a reasonable allowance for salaries or other compensation for personal services actually rendered;

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.–Among the ordinary and necessary expenses paid or incurred in carrying on any
trade or business may be included a reasonable allowance for salaries or other compensation for personal services actually
rendered.

The test of deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments
purely for service.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s hard earned income
to the taxing authorities, every person who is able to must contribute his share in the running of the government.

The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it
be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks
if the taxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the claimed deduction by the private respondent was permitted under the Internal Revenue Code and should
therefore not have been disallowed by the petitioner.
WALTER LUTZ, as Judicial Administrator of the Intestate of the deceased Antonio Jayme Ledesma, plaintiff-appellant
v. J. ANTONIO ARANETA, as collector of Internal Revenue, defendant-apppelle

G.R No. L-7856. December 22, 1955

FACTS: Appelant in this case Walter Lutz in his capacity as the Judicial Administrator of the intestate of the deceased Antonio
Jayme Ledesma, seeks to recover from the Collector of the Internal Revenue the total sum of fourteen thousand six hundred
sixty six and forty cents (P 14, 666.40) paid by the estate as taxes, under section 3 of Commonwealth Act No. 567, also known
as the Sugar Adjustment Act, for the crop years 1948-1949 and 1949-1950. Commonwealth Act. 567 Section 2 provides for an
increase of the existing tax on the manufacture of sugar on a graduated basis, on each picul of sugar manufacturer; while
section 3 levies on the owners or persons in control of the land devoted tot he cultivation of sugarcane and ceded to others for
consideration, on lease or otherwise - "a tax equivalent to the difference between the money value of the rental or
consideration collected and the amount representing 12 per centum of the assessed value of such land. It was alleged that such
tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's
opinion is not a public purpose for which a tax may be constitutionally levied. The action was dismissed by the CFI thus the
plaintiff appealed directly to the Supreme Court.

ISSUE: Whether or not the tax imposition in the Commonwealth Act No. 567 are unconstitutional.

RULING: Yes, the Supreme Court held that the fact that sugar production is one of the greatest industry of our nation, sugar
occupying a leading position among its export products; that it gives employment to thousands of laborers in the fields and
factories; that it is a great source of the state's wealth, is one of the important source of foreign exchange needed by our
government and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection
and advancement, therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find that
the general welfare demanded that the sugar industry be stabilized in turn; and in the wide field of its police power, the law-
making body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to
resist the added strain of the increase in taxes that it had to sustain.

The subject tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened
sugar industry. In other words, the act is primarily a valid exercise of police power.

-------- --------

FACTS: Commonwealth Act No. 567, otherwise known as Sugar Adjustment Act was promulgated in 1940 “to stabilize the
sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the
imposition of export taxes.” Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes,
under Sec.3 of the Act, alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar
industry exclusively, which in plaintiff’s opinion is not a public purpose for which a tax may be constitutionally levied. The
action has been dismissed by the Court of First Instance.

ISSUE: Whether or not the tax imposed is constitutional.

HELD: Yes. The act is primarily an exercise of the police power. It is shown in the Act that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. It is inherent in the power
to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that “inequalities which result from
a singling out of one particular class for taxation or exemption infringe no constitutional limitation.” The funds raised under
the Act should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It may be
that other industries are also in need of similar protection; but the legislature is not required by the Constitution to adhere to a
policy of “all or none.”
OSMEÑA VS. ORBOS

GR No. 99886, March 31, 1993

" To avoid the taint of unlawful delegation of the power to tax, there must be a standard which implies that the legislature
determines matter of principle and lays down fundamental policy."

FACTS: Senator John Osmeñ a assails the constitutionality of paragraph 1c of PD 1956, as amended by EO 137, empowering the
Energy Regulatory Board (ERB) to approve the increase of fuel prices or impose additional amounts on petroleum products
which proceeds shall accrue to the Oil Price Stabilization Fund (OPSF) established for the reimbursement to ailing oil
companies in the event of sudden price increases. The petitioner avers that the collection on oil products establishments is an
undue and invalid delegation of legislative power to tax. Further, the petitioner points out that since a 'special fund' consists of
monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to
the special purpose/objective for which it was created. It thus appears that the challenge posed by the petitioner is premised
primarily on the view that the powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation
power of the State.

ISSUE: Is there an undue delegation of the legislative power of taxation?

HELD: None. It seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the
police power of the State. Moreover, that the OPSF as a special fund is plain from the special treatment given it by E.O. 137. It is
segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund
nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." With regard to the alleged undue delegation of legislative power, the Court
finds that the provision conferring the authority upon the ERB to impose additional amounts on petroleum products provides
a sufficient standard by which the authority must be exercised. In addition to the general policy of the law to protect the local
consumer by stabilizing and subsidizing domestic pump rates, P.D. 1956 expressly authorizes the ERB to impose additional
amounts to augment the resources of the Fund.

------------ --------------

FACTS: PD 1956 was issued to create the Oil Price Stabilization Fund (OPSF) designed to reimburse oil companies for cost
increases in crude oil resulting from exchange rate fluctuations and from increases in the prices of oil in the world market. It
was later amended by EO 137 which expands the grounds for reimbursement to oil companies for possible cost underrecovery
incurred as a result of the reduction of domestic prices of petroleum products. In 1991, the OPSF incurred a deficit to which
the Energy Regulatory Board (ERB) tried to resolve such problem by issuing an order to increase pump prices of petroleum
and such shall have covered the OPSF deficit within 6 months. Osmena reacted to this by claiming that the OPSF should be
treated as a special fund and not as a trust account/fund because a special tax collected for a specific purpose shall have its
revenue expended for such purposes only and not channeled to another government objective and that PD 1956 is
unconstitutional because it confers invalid delegation to ERB. It thus appears that the challenge posed by the petitioner is
premised primarily on the view that the powers granted to the ERB under PD 1956, partake the nature of the taxation power
of the State.

ISSUES: (1) Whether PD 1956 is a legislation partaking the nature of the taxation power of the State or is it more of police
power; (2) Whether Paragraph 1 PD No. 1956 is unconstitutional for being an undue and invalid delegation of legislative
power, setting no limit on the powers of the ERB

HELD: The fluctuations in world market prices and foreign exchange rates would in a completely free market translate into
corresponding adjustments in domestic prices of oil and petroleum products with sympathetic frequency. But domestic prices
which vary from day to day would result in a chaotic market with unpredictable effects upon the country’s economy. The OPSF
was established to protect local consumers from the adverse consequences that frequent oil price adjustments may have upon
the economy. The OPSF is thus a buffer mechanism through which the domestic consumer prices of oil and petroleum
products are stabilized instead of fluctuating every so often. The establishment and maintenance of the OPSF is well within
that power and responsibility of the government to secure the physical and economic survival—it is within the police power of
the State. The stabilization and subsidy of domestic prices of petroleum products is regarded as public purpose. With regard to
undue delegation of legislative power, the Court finds that the authority conferred upon the ERB to impose additional amounts
on petroleum provides a sufficient standard. PD 1956 expressly authorizes the ERB to impose additional amounts to augment
the resources of the Fund. What is here involved is not so much the power of taxation as police power. Although the provision
authorizing the ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying out the objectives of
the law which are embraced by the police power of the State. Constant fluctuation of the various factors involved in the
determination of the price of oil and petroleum products do not conveniently permit the setting of fixed or rigid parameters in
the law as proposed by the petitioner. As such, the standard as it is expressed, suffices to guide the delegate in the exercise of
the delegated power. The petition is granted only for the nullification of the reimbursement of financing charges (because they
were not incurred as a result of the reduction of domestic prices of petroleum products—hindi to ung issue so ok lng..for
purposes lang ng kung ano ung court decision) but dismissed in all other respects.
TIO VS. VRB

GR No. L-75697, June 18, 1987

"The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor
one industry over another."

FACTS: The petitioner assails the validity of PD 1987 entitled an "Act creating the Videogram Regulatory Board," citing
especially Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government. Petitioner
contends that aside from its being a rider and not germane to the subject matter thereof, and such imposition was being harsh,
confiscatory, oppressive and/or unlawfully restraints trade in violation of the due process clause of the Constitution.

ISSUE: Is PD 1987 a valid exercise of taxing power of the state?

HELD: Yes. It is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even
definitely deters the activities taxed. The power to impose taxes is one so unlimited in force and so searching in extent, that the
courts scarcely venture to declare that it is subject to any restrictions whatever, except such as those rest in the discretion of
the authority which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation. The levy of the 30% tax is for a public purpose. It was imposed primarily
to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the
DECREE to protect the movie industry, the tax remains a valid imposition. The public purpose of a tax may legally exist even if
the motive which impelled the legislature to impose the tax was to favor one industry over another.

----- ------------

TIO VS. VIDEOGRAM REGULATORY BOARD

Citation: 151 SCRA 208; G.R. No. L-75697; June 18, 1987

Ponente: Melencio-Herrera, J.

DOCTRINES:

Validity of law; title of bill – The Constitutional requirement that "every bill shall embrace only one subject which shall be
expressed in the title thereof" is sufficiently complied with if the title be comprehensive enough to include the general purpose
which a statute seeks to achieve. It is not necessary that the title express each and every end that the statute wishes to
accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to the subject matter
expressed in the title, or as long as they are not inconsistent with or foreign to the general subject and title.

Taxation; security against oppressive taxation – The power to impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a
sufficient security against erroneous and oppressive taxation.

Taxation as a revenue and regulatory measure – The tax imposed by the DECREE is not only a regulatory but also a revenue
measure prompted by the realization that earnings of videogram establishments of around P600 million per annum have not
been subjected to tax, thereby depriving the Government of an additional source of revenue. . . . The levy of the 30% tax is for a
public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes.
And while it was also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition.

Undue delegation of legislative power – The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct
assistance of other agencies and units of the government and deputize, for a fixed and limited period, the heads or personnel of
such agencies and units to perform enforcement functions for the Board" is not a delegation of the power to legislate but
merely a conferment of authority or discretion as to its execution, enforcement, and implementation. "The true distinction is
between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring
authority or discretion as to its execution to be exercised under and in pursuance of the law. The first cannot be done; to the
latter, no valid objection can be made." Besides, in the very language of the decree, the authority of the BOARD to solicit such
assistance is for a "fixed and limited period" with the deputized agencies concerned being "subject to the direction and control
of the BOARD." That the grant of such authority might be the source of graft and corruption would not stigmatize the DECREE
as unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in law.

FACTS: Valentin Tio is a videogram establishment operator adversely affected by Presidential Decree No. 1987 entitled "An
Act Creating the Videogram Regulatory Board". P.D. No. 1987 provides for the levy of a tax over each cassette sold (Sec. 134)
and a 30% tax on the gross receipts of a videogram establishment, payable to the local government (Sec. 10). The rationale for
this decree is set forth in its preambulatory/whereas clauses to wit:

1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others, videotapes, discs,
cassettes ... have greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp decline in theatrical
attendance by at least forty percent (40%) and a tremendous drop in the collection of [taxes] thereby resulting in substantial
losses estimated at P450 Million annually in government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and
disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the Government of
approximately P180 Million in taxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the movie industry, ...;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire financial condition
of the movie industry ..., but also provide an additional source of revenue for the Government, and at the same time rationalize
the heretofore uncontrolled distribution of videograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and present danger to
the moral and spiritual well-being of the youth [READ: PORN], and impairs the mandate of the Constitution for the State to
support the rearing of the youth for civic efficiency and the development of moral character and promote their physical,
intellectual, and social well-being;

8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people [AGAIN, READ: PORN] and
betraying the national economic recovery program, bold emergency measures must be adopted with dispatch; (emphasis
supplied and certain passages omitted)

ISSUES:

1. Whether or not the imposition of the 30% tax is a rider and the same is not germane to the subject matter of the law.
2. Whether or not there is undue delegation of power and authority; and

HELD:

1. No, the tax is not a rider and is germane to the purpose and subject of the law.

The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the title thereof" is
sufficiently complied with if the title be comprehensive enough to include the general purpose which a statute seeks to
achieve. It is not necessary that the title express each and every end that the statute wishes to accomplish. The requirement is
satisfied if all the parts of the statute are related, and are germane to the subject matter expressed in the title, or as long as
they are not inconsistent with or foreign to the general subject and title.

Reading section 10 of P.D. No. 1987 closely, one can see that the foregoing provision is allied and germane to, and is reasonably
necessary for the accomplishment of, the general object of the law, which is the regulation of the video industry through the
Videogram Regulatory Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general
subject and title. As a tool for regulation it is simply one of the regulatory and control mechanisms scattered throughout the
decree.

Aside from revenue collection, tax laws may also be enacted for the purpose of regulating an activity. At the same time, the
videogram industry is also an untapped source of revenue which the government may validly tax. All of this is evident from
preambulatory clauses nos. 2, 5, 6 and 8, quoted in part above.

The levy of the 30% tax is also for a public purpose. It was imposed primarily to answer the need for regulating the video
industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. And while it was also an objective of the law to protect the movie industry, the tax
remains a valid imposition.

2. No. There was no undue delegation of law making authority.

Petitioner was concerned that Section 11 of P.D. No. 1987 stating that the videogram board (Board) has authority to "solicit
the direct assistance of other agencies and units of the government and deputize, for a fixed and limited period, the heads or
personnel of such agencies and units to perform enforcement functions for the Board" is an undue delegation of legislative
power.

This is not a delegation of the power to legislate but merely a conferment of authority or discretion as to its execution,
enforcement, and implementation. "The true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be exercised under and
in pursuance of the law. The first cannot be done; to the latter, no valid objection can be made." Besides, in the very language of
the decree, the authority of the Board to solicit such assistance is for a "fixed and limited period" with the deputized agencies
concerned being "subject to the direction and control of the Board."

The petition was DISMISSED.

GOMEZ v. PALOMAR

GR No. L-23645, October 29, 1968

25 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It did not bear the special
anti-TB stamp required by the RA 1635. It was returned to the petitioner. Petitioner now assails the constitutionality of the
statute claiming that RA 1635 otherwise known as the Anti-TB Stamp law is violative of the equal protection clause because it
constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the population and that even
among postal patrons the statute discriminatorily grants exemptions. The law in question requires an additional 5 centavo
stamp for every mail being posted, and no mail shall be delivered unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal protection clause?

HELD: No. It is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions.
This power has aptly been described as "of wide range and flexibility." Indeed, it is said that in the field of taxation, more than
in other areas, the legislature possesses the greatest freedom in classification. The reason for this is that traditionally,
classification has been a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution
of the tax burden. The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on
administrative convenience. Tax exemptions have never been thought of as raising revenues under the equal protection
clause.
THE COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. LINGAYEN GULF ELECTRIC POWER CO., INC. and THE
COURT OF TAX APPEALS, respondents.

Angel Sanchez for Lingayen Electric Power Co., Inc.

Ponente: SARMIENTO

FACTS: The respondent taxpayer operates an electric power plant serving the adjoining municipalities of Lingayen and
Binmaley, both in the province of Pangasinan, pursuant to the municipal franchise granted it by their respective municipal
councils, under Resolution Nos. 14 and 25 of June 29 and July 2, 1946, respectively. Bureau of Internal Revenue (BIR) assessed
against and demanded from the private respondent deficiency franchise taxes and surcharges for the years 1946 to 1954
applying the franchise tax rate of 5% on gross receipts from March 1, 1948 to December 31, 1954 as prescribed in Section 259
of the National Internal Revenue Code, instead of the lower rates as provided in the municipal franchises. Respondent submits
that R.A. No. 3843 is unconstitutional insofar as it provides for the payment by the private respondent of a franchise tax of 2%
of its gross receipts, while other taxpayers similarly situated were subject to the 5% franchise tax imposed in Section 259 of
the Tax Code, thereby discriminatory and violative of the rule on uniformity and equality of taxation. Court of tax Appeals
ruled in favor of respondent.

ISSUE: Whether or not Section 4 of R.A. No. 3843, assuming it is valid, could be given retroactive effect so as to render
uncollected taxes in question which were assessed before its enactment.

HELD: YES. Appealed decision was affirmed.

RATIO:

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

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

GR No L-41383, August 15, 1988

FACTS: PAL is engaged in the air transportation business under a legislative franchise (Act 4271), wherein it is exempt from
the payment of taxes. On the strength of an opinion of the Secretary of Justice, PAL was determined to have not been paying
motor vehicle registration fees since 1956. The Land Transportation Commissioner required all tax-exempt entities, including
PAL, to pay motor vehicle registration fees. PAL protested. The trial court dismissed PAL’s complaint. Hence, this petition.

ISSUE: Are motor vehicle registration fees taxes or regulatory taxes?

RULING: They are taxes. Tax are for revenue, whereas fees are exactions for purposes of regulation and inspection, and are for
that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. It is the object
of the charge, and not the name, that determines whether a charge is a tax or a fee. The money collected under the Motor
Vehicle Law is not intended for the expenditures of the Motor Vehicle Law is not intended for the expenditures of the Motor
Vehicles Office but accrues to the funds for the construction and maintenance of public roads, streets and bridges. As the fees
are not collected for regulatory purposes as an incident to the enforcement of regulations governing the operation of motor
vehicles on public highways, but to provide revenue with which the Government is to construct and maintain public highways
for everyone’s use, they are veritable taxes, not merely fees.

PAL is, thus, exempt from paying such fees, except for the period between June 27, 1968 to April 9, 1979, where its tax
exception in the franchise was repealed.
REPUBLIC V. MAMBULAO LUMBER CO.(1962)-BARRERA, J.

Plaintiff-Appellee: Republic of the Philippines

Respondents:Mambulao Lumber Company, Et Al

Concept: Taxes; Taxes Distinguished from Debts

BRIEF FACTS: Mambulao Lumber Company paid the government reforestation charges . After having been found liable for an
aggregate amount of P4,802.37 for forest charges, it contended that since the Republic (Government) has not made use of the
reforestation charges for reforesting the denuded area of the land covered by the company’s license, the Republic should
refund said amount or, if it cannot be refunded, at least the company should be compensated with what the forest charges it
owed. CFI ruled in favor of Mambulao Lumber Company. Hence, this appeal.

Doctrine: Internal Revenue Taxes, such as forest charges, cannot be the subject of set¬off or compensation. It is because taxes
are not in the nature of contracts between the parties but grow out of a duty to, and are positive acts of, the Government, to the
making and enforcing of which, the personal consent of the individual taxpayer is not required.

FACTS: Mambulao Lumber Company paid the Government a total of P 9,127.50 as reforestation charges for the years 1947 to
1956. Section 1 of Republic Act 115 provides that these reforestation charges shall be collected, in addition to the regular
forest charges. Company contends that said sum of 9,127.50, not having been used in the reforestation of the area covered by
its license, the Philippines should refund the amount, or alternatively, the amount may be applied in compensation of P
4,802.37 due from it as forest charges. Court of First Instance of Manila ordered the company to pay the government the sum
of P 4,802.37 with 6% interest thereon from date of the filing of the complaint until fully paid, plus costs. Hence, this appeal.

ISSUES: Whether the sum Mambulao Lumber Company paid as reforestation charges may be set off or applied to the payment
of forest charges it owes the government-NO

RATIO:

1. NO. Set-off or compensation is not proper.

The amount paid by a licensee as reforestation charges is in the nature of a tax which forms part of the Forestation Fund,
payable by him irrespective of whether the area covered by his license is reforested or not. Said fund, as the law expressly
provides, shall be expended in carrying out the purposes provided for thereunder, namely, the reforestation or afforestation,
among others, of denuded areas needing reforestation or afforestation. Law does not require that the amount collected as
reforestation charges should be used exclusively for the reforestation of the area covered by the license of a licensee or
concessionaire, and that if not so used, the same shall be refunded to him. The licensee's area may or may not be reforested at
all, depending on whether the investigation thereof by the Director of Forestry shows that said area needs reforestation.
Republic of the Philippines and the Mambulao Lumber Company are not creditors and debtors of each other, because
compensation refers to mutual debts. The weight of authority is to the effect that internal revenue taxes, such as the forest
charges in question is not subject to set-off or compensation. Taxes are not in the nature of contracts between the parties but
grow out of a duty to, and are positive acts of the government, to the making and enforcing of which, the personal consent of
the individual taxpayers is not required.
FRANCIA V INTERMEDIATE APPELLATE COURT GR NO L-67649, JUNE 28, 1988

FACTS: Engracio Francia was the registered owner of a house and lot located in Pasay City. A portion of such property was
expropriated by the Republic of the Philippines in 1977. It appeared that Francia did not pay his real estate taxes from 1963 to
1977. Thus, his property was sold in a public auction by the City Treasurer of Pasay City. Francia filed a complaint to annual
the auction sale. The lower court dismissed the complaint and the Intermediate Appellate Court affirmed the decision of the
lower court in toto. Hence, this petition for review. Francia contends that his tax delinquency of P 2,400 has been extinguished
by legal compensation. He claims that the government owed him P 4,116 when a portion of his land was expropriated on
October 15, 1977.

ISSUE: May the expropriation payment compensate for the real estate taxes due?

RULING: No. There can be no offsetting of taxes against the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax
being collected. The collection of a tax cannot await the results of a lawsuit against the government. Internal revenue taxes
cannot be the subject of compensation. The Government and the taxpayer are not mutually creditors and debtors of each other
under Article 1278 of the Civil Code and a claim of taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off.

Moreover, the amount of P4,116 paid by the national government for the 125 square meter portion of his lot was deposited
with the Philippine National Bank long before the sale at public auction of his remaining property. It would have been an easy
matter to withdraw P 2,400 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction.
Thus, the petition for review is dismissed. The taxes assessed are the obligations of the taxpayer arising from law, while the
money judgment against the government is an obligation arising from contract, whether express or implied.

----------- --------------

ENGRACIO FRANCIA VS. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ

G.R. No. L-67649 June 28, 1988

162 SCRA 753

FACTS: Engracio Francia is the registered owner of a residential lot, 328 square meters, and a two-story house built upon it
situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. On October 15, 1977, a 125 square meter
portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the
estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to
pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction pursuant to Section 73 of
Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho
Fernandez was the highest bidder for the property. On March 20, 1979, Francia filed a complaint to annul the auction sale. He
later amended his complaint on January 24, 1980. The petitioner seeks to set aside the auction sale of his property which took
place on December 5, 1977, and to allow him to recover a 203 square meter lot which was sold at public auction to Ho
Fernandez and ordered titled in the latter's name. He further averred that his tax delinquency of P2,400.00 has been
extinguished by legal compensation since the government owed him P4, 116.00 when a portion of his land was expropriated.
The lower court rendered a decision in favor Fernandez which was affirmed by the Intermediate Appellate Court . Hence, this
petition for review.

ISSUE: Whether or not the tax delinquency of Francia has been extinguished by legal compensation.

RULING: There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are
reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not
satisfy the requirements provided by Article 1279, to wit: (1) that each one of the obligors be bound principally and that he be
at the same time a principal creditor of the other; (2) that the two debts be due. The Court had consistently ruled that there
can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to
pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit against the government. In addition, a taxpayer cannot refuse to pay his
tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy.
There are also other factors which compelled the Court to rule against the petitioner. The tax was due to the city government
while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national
government for the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at
public auction of his remaining property. Notice of the deposit dated September 28, 1977 was received by the petitioner on
September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but
he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax
obligation thus aborting the sale at public auction.
PHILEX MINING VS. CIR

GR 125704, August 28, 1998

FACTS: Philex Mining Corporation assails the decision of the court of appeals which affirmed the decision of the court of tax
appeals ordering philex to pay its excise tax liability philex refused to pay and contended it has pending claims for vat input
credit or refund against the government which should be made compensate or set-off its tax liability.

ISSUE: can tax be subject for set-off?

RULING: No. tax cannot be the subject for compensation for simple reason that the government and the tax payer are not
mutual creditors and debtors of each other. Debts are due in the government in its’ corporate capacity while taxes are due to
the government in its’ sovereign capacity. A tax payer cannot refuse to pay his taxes when they fall due simply because he has
a claim against the government that the collection of the tax is contingent on the result of the law suit it filed against the
government.
G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL
CO., INC., and TALISAY-SILAY MILLING COMPANY, defendants-appellants.

FACTS: Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short, a semi-public corporation
created for the following purposes and objectives:

From the evidence presented, on which there is no controversy, it was disclosed that on September 3, 1951, the Philippine
Sugar Institute, known as the PHILSUGIN for short, acquired the Insular Sugar Refinery for a total consideration of
P3,070,909.60 payable, in accordance with the deed of sale in 3 installments from the process of the sugar tax to be collected,
under Republic Act 632. The evidence further discloses that the operation of the Insular Sugar Refinery for the years, 1954,
1955, 1956 and 1957 was disastrous in the sense that PHILSUGIN incurred tremendous losses as shown by an examination of
the statements of income and expenses.

Contending that the purchase of the Insular Sugar Refinery with money from the Philsugin Fund was not authorized by
Republic Act 632 and that the continued operation of the said refinery was inimical to their interests, the appellants refused to
continue with their contributions to the said fund. They maintained that their obligation to contribute or pay to the said Fund
subsists only to the limit and extent that they are benefited by such contributions since Republic Act 632 is not a revenue
measure but an Act which establishes a "Special assessments."

The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar" authorized to be collected under Sec. 15
of Republic 632 is a special assessment. As such, the proceeds thereof may be devoted only to the specific purpose for which
the assessment was authorized, a special assessment being a levy upon property predicated on the doctrine that the property
against which it is levied derives some special benefit from the improvement. It is not a tax measure intended to raise
revenues for the Government. Consequently, once it has been determined that no benefit accrues or inures to the property
owners paying the assessment, or that the proceeds from the said assessment are being misapplied to the prejudice of those
against whom it has been levied, then the authority to insist on the payment of the said assessment ceases.

ISSUE: whether Philsugin had any power of taxation

HELD: No,Once it is conceded, as it must that the protection and promotion of the sugar industry is a matter of public concern,
it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for
its promotion. Here, the legislative discretion must be allowed full play, subject only to the test of reasonableness; and it is not
contended that the means provided in Section 6 of the law (above quoted) bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy
taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power. On
the authority of the above case, then, We hold that the special assessment at bar may be considered as similarly as the above,
that is, that the levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a special
assessment, but, the exercise of the police power for the general welfare of the entire country. It is, therefore, an exercise of a
sovereign power which no private citizen may lawfully resist.
G.R. No. 33403 September 4, 1930

THIRTY-FIRST INFANTRY POST EXCHANGE and FIRST LIEUTENANT DAVID L. HARDEE, THIRTY-FIRST INFANTRY,
UNITED STATES ARMY, plaintiffs, vs. JUAN POSADAS, JR., Collector of Internal Revenue, Philippine Islands, defendant.

Facts: The plaintiff, Thirty-first Infantry Post Exchange, a post exchange in accordance with the Army Regulations (of which
the court may take judicial notice) and the laws of the United States, with its place of business in the Cuartel de Españ a in the
City of Manila, P. I.

In the course of its duly authorized business transactions, the said plaintiff Exchange, under the direction of the said plaintiff
David L. Hardee, as Exchange Officer, during the period of several years last past, made many purchases of various and divers
commodities, goods, wares, and merchandise from various and divers merchants in the Philippine Islands, and is continuing to
do so, and like purchases by the said plaintiff Exchange from merchants in the Philippine Islands are intended and
contemplated as necessary in the conduct of its duly authorized business. Following many and divers of the aforesaid
purchases by the said plaintiff Exchange, the defendant, Juan Posadas, Jr., Collector of Internal Revenue of the Philippine
Islands, and his predecessors in that office, have collected from the merchants who made the sales of the commodities, goods,
wares, and merchandise to the plaintiff Exchange, taxes at the rate of one and one-half per centum on the gross value in money
of the commodities, goods, wares, and merchandise, sold by them to the plaintiff Exchange, and based on the actual prices at
which the sales were made, and the average amount of money per annum for several years last past demanded and collected
by the defendant and his predecessors in office as such taxes on the aforesaid sales to the plaintiff Exchange has been several
thousand pesos, averaging more than two thousand pesos per annum since January 1, 1927.

ISSUE: whether or not the Exchange is exempt from the sales of tax imposed against its suppliers.

HELD: While "post exchanges" and "ship's stores" are institutions within the Army and Navy of the United States, and are
recognized by Acts of Congress, and are under the control of the Army and Navy, and are organized for the convenience and
assistance of the soldiers and sailors, we are not inclined to believe that goods sold to the soldiers and sailors of the Army and
Navy, even though they be sold through said exchanges by the intervention of officers of the Army and Navy, are goods sold
directly to the United States Army or Navy for actual use or issue by the Army or Navy. They are goods sold for the use and
benefit of the post exchanges, etc., and not for the actual use or issue by the Army or Navy. We do not believe that the
exemption provided for in the above-quoted section applies to goods sold to the United States Army and Navy to be resold to
the individuals of said organization. The money used for the purchase of merchandise sold through the post exchanges, etc., is
not supplied by, nor for, the United States Army and Navy. Neither does the money received in the resale of such merchandise
through the post exchanges, etc., become a part of the general funds of the Army and Navy. In our opinion, the sale of
merchandise through the post exchanges to the individuals of the United States Army and Navy are not goods sold and
delivered directly to the United States Army or Navy for the actual use or issue by the Army or Navy and are therefore, not
exempt from the payment of the internal revenue tax imposed by the law. The plaintiffs in this case are the Thirty-first
Infantry Post Exchange and the Exchange Officer of that Exchange. But the stipulation of facts concedes that it is the merchants
who effect the sales to the Post Exchange who pay the tax. And it is the officers, soldiers, and civilian employees and their
families who are benefited by the post exchange to whom the tax is ultimately shifted. The foregoing might be sufficient to
dispose of the case. The court ruled that an Army Post Exchange, although an agency within the United States Army, cannot
secure exemption from taxation for merchants who make sales to the Post Exchange. The question must, therefore, be
answered in the affirmative. The plaintiffs have not made out a case
G.R. No. 81311 June 30, 1988

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q.

QUADRA, and MARIO C. VILLANUEVA, petitioners, vs. HON. BIENVENIDO TAN, as Commissioner of Internal Revenue,
respondent.

G.R. No. 81820 June 30, 1988

KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated labor federations and alliances, petitioners, vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE, and SECRETARY
OF BUDGET, respondents.

Executive Order No. 273 (EO 273, for short), issued by the President of the Philippines on 25 July 1987, to take effect on 1
January 1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax
(VAT, for short), for being unconstitutional in that its enactment is not alledgedly within the powers of the President.

EO 273 that it is principally aimed to rationalize the system of taxing goods and services; simplify tax administration; and
make the tax system more equitable, to enable the country to attain economic recovery.

The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed out by the
Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was essentially a single stage value added tax
system computed under the "cost subtraction method" or "cost deduction method" and was imposed only on original sale,
barter or exchange of articles by manufacturers, producers, or importers. Subsequent sales of such articles were not subject to
sales tax. However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale, which was
reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were
imposed not only on the second sale, but on every subsequent sale, as well. EO 273 merely increased the VAT on every sale to
10%, unless zero-rated or exempt.

Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no authority to issue EO 273 on
25 July 1987.

ISSUE: wheter or not EO 23 is unconstitutional

HELD: No, The contention is without merit.

The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in grave abuse of discretion
amounting to lack or excess of jurisdiction.

Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by
reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by
this framers and other government agencies involved in its implementation, even under the past administration. As the
Solicitor General correctly sated. "The signing of E.O. 273 was merely the last stage in the exercise of her legislative powers.
The legislative process started long before the signing when the data were gathered, proposals were weighed and the final
wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to
speak, on the Congress, two days before it convened." 3

Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the provisions of
Art. VI, sec. 28(1) of the 1987 Constitution, which states:

Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their conclusions. They
have failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper
articles which are actually hearsay and have evidentiary value. To justify the nullification of a law. there must be a clear and
unequivocal breach of the Constitution, not a doubtful and argumentative implication. 4

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court, in City of Baguio vs. De Leon, 5
said:

... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court, stated: "A tax is considered
uniform when it operates with the same force and effect in every place where the subject may be found."

Service performed in the exercise of profession or calling (except customs brokers) subject to the occupation tax under the
Local Tax Code, and professional services performed by registered general professional partnerships; The phrase "except
customs brokers" is not meant to discriminate against customs brokers. It was inserted in Sec. 103(r) to complement the
provisions of Sec. 102 of the Code, which makes the services of customs brokers subject to the payment of the VAT and to
distinguish customs brokers from other professionals who are subject to the payment of an occupation tax under the Local Tax
Code. Pertinent provisions of Sec. 102 read:

Sec. 102. Value-added tax on sale of services. — There shall be levied, assessed and collected, a value-added tax equivalent to
10% percent of gross receipts derived by any person engaged in the sale of services. The phrase sale of services" means the
performance of all kinds of services for others for a fee, remuneration or consideration, including those performed or rendered
by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of personal
property; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking
goods for others; and similar services regardless of whether or not the performance thereof call for the exercise or use of the
physical or mental faculties: ...

With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a potential conflict between the two
sections, (Secs. 102 and 103), insofar as customs brokers are concerned, is averted.

At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax under the
Local Tax Code is based upon material differences, in that the activities of customs brokers (like those of stock, real estate and
immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax
under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax
and replaced it with the VAT. If the petitioner Association did not protest the classification of customs brokers then, the Court
sees no reason why it should protest now.
G.R. No. L-45355 January 12, 1990

THE PROVINCE OF MISAMIS ORIENTAL, represented by its PROVINCIAL TREASURER, petitioner, vs. CAGAYAN
ELECTRIC POWER AND LIGHT COMPANY, INC. (CEPALCO), respondent.

Cagayan Electric Power and Light Company, Inc. (CEPALCO for short) was granted a franchise on June 17, 1961 under
Republic Act No. 3247 to install, operate and maintain an electric light, heat and power system in the City of Cagayan de Oro
and its suburb

On June 28, 1973, the Local Tax Code (P.D. No. 231) was promulgated, Section 9 of which provides: Sec. 9. Franchise Tax.—Any
provision of special laws to the contrary notwithstanding, the province may impose a tax on businesses enjoying franchise,
based on the gross receipts realized within its territorial jurisdiction, at the rate of not exceeding one-half of one per cent of
the gross annual receipts for the preceding calendar year.

Pursuant thereto, the Province of Misamis Oriental (herein petitioner) enacted Provincial Revenue Ordinance No. 19, whose
Section 12 reads: Sec. 12. Franchise Tax.—There shall be levied, collected and paid on businesses enjoying franchise tax of
one-half of one per cent of their gross annual receipts for the preceding calendar year realized within the territorial
jurisdiction of the province of Misamis Oriental. The Provincial Treasurer of Misamis Oriental demanded payment of the
provincial franchise tax from CEPALCO. The company refused to pay, alleging that it is exempt from all taxes except the
franchise tax required by R.A. No. 6020. Nevertheless, in view of the opinion rendered by the Provincial Fiscal, upon
CEPALCO's request, upholding the legality of the Revenue Ordinance, CEPALCO paid under protest on May 27, 1974 the sum of
P 4,276.28 and appealed the fiscal's ruling to the Secretary of Justice who

ISSUE: Whether or not CEPALCOis exempt from the provincial franchise tax.

HELD: Yes. There is no provision in P.D. No. 231 expressly or impliedly amending or repealing Section 3 of R.A. No. 6020. The
perceived repugnancy between the two statutes should be very clear before the Court may hold that the prior one has been
repealed by the later, since there is no express provision to that effect. The rule is that a special and local statute applicable to a
particular case is not repealed by a later statute which is general in its terms, provisions and application even if the terms of
the general act are broad enough to include the cases in the special law unless there is manifest intent to repeal or alter the
special law..

The franchise of respondent CEPALCO expressly exempts it from payment of "all taxes of whatever authority" except the three
per centum (3%) tax on its gross earnings.

Local Tax Regulation No. 3-75 issued by the Secretary of Finance on June 26, 1976, has made it crystal clear that the franchise
tax provided in the Local Tax Code (P.D. No. 231, Sec. 9) may only be imposed on companies with franchises that do not
contain the exempting clause. Thus it provides:

The franchise tax imposed under local tax ordinance pursuant to Section 9 of the Local Tax Code, as amended, shall be
collected from businesses holding franchise but not from business establishments whose franchise contain the "in-lieu-of-all-
taxes-proviso".
[G.R. Nos. 62554-55. September 2, 1992.]

REPUBLIC BANK, Petitioner, v. COURT OF TAX APPEALS AND THE COMMISSIONER OF INTERNAL REVENUE,
Respondents.

Asisteo S. San Agustin for Petitioner.

1. TAXATION; DOUBLE TAXATION DEFINED; NOT PRESENT WHEN ONE IS A PENALTY AND THE OTHER IS A TAX; CASE AT
BAR. — The wisdom of this is not the province of the Court. It is clear from the statutes then in force that there was no double
taxation involved — one was a penalty and the other was a tax. At any rate, We have upheld the validity of double taxation.
(Double taxation: when the same person is taxed by the same jurisdiction for the same purpose. [San Miguel Brewery, Inc. v.
City of Cebu 43 SCRA 275, 280]) The payment of 1/10 of 1% for incurring reserve deficiencies (Section 106, Central Bank Act)
is a penalty as the primary purpose involved is regulation, while the payment of 1% for the same violation (Second Paragraph,
Section 249, NIRC) is a tax for the generation of revenue which is the primary purpose in this instance. Petitioner should not
complain that it is being asked to pay twice for incurring reserve deficiencies. It can always avoid this predicament by not
having reserve deficiencies. Petitioner’s case is covered by two special laws — one a banking law and the other, a tax law.
These two laws should receive such construction as to make them harmonize with each other and with the other body of pre-
existing laws. (Commissioner of Customs v. Esso Standard Eastern, Inc., 66 SCRA 113, 120)

2. ID.; RESERVE DEFICIENCY TAX; QUESTION ON THE COMPUTATION MUST BE RAISED AT THE EARLIEST STAGE. —
Corollary issue raised by petitioner bank, is the question on how the respondent Commissioner computed reserve deficiency
taxes considering that Sec. 249, NIRC, speaks of computation of what it calls penalty on a per month basis while the Central
Bank Act provides for the computation of the penalty on a per day basis. It claims that respondent Commissioner never
informed them of the details of these assessments, considering the same involve complex and tedious computations. It is too
late in the day for petitioner to raise this matter for Us to resolve. The grounds alleged by the petitioner in its motion for
reconsideration of the Commissioner’s assessments are the very same grounds raised in these petitions. Petitioner did not ask
the Commissioner to explain how it arrived in computing these reserve deficiency taxes. Neither did petitioner raise this
question before the Court of Tax Appeals.

3. ID.; ID.; LETTER OF INSTRUCTION NO. 1330; CONDONATION OF PENALTIES AND OTHER SANCTIONS; COVERAGE; NOT
APPLICABLE IN CASE AT BAR. — petitioner bank in its brief mentions that in Letter of Instruction No. 1330 issued by
President Marcos on June 6, 1983, the Central Bank was ordered to assist petitioner by way of full condonation of all penalties
and other sanctions of whatever kind, nature and description, as of the date they become due, on its legal reserve deficiencies.
Consequently, petitioner insists that it is now exempted from what it claims are the penalties imposed by the second
paragraph of Section 249, NIRC. A careful study of said LOI reveals that it was issued with respect to petitioner bank’s
(thereafter renamed Republic Planters Bank) role in the government’s sugar production and procurement program as the
financial arm of the sugar industry when the Philippine Sugar Commission (PHILSUCOM), created by virtue of P.D. 388 1974),
bought the petitioner bank from the Roman family. The petition at bar involves the assessments for the years 1969 and 1970.
This LOI definitely does not cover the years 1969 and 1970 as it was issued only on June 6, 1983 and covers the period when
PHILSUCOM bought the then ailing Republic Bank from the Roman family and renamed it the Philippine Planters Bank to be
used as its financial conduit for the sugar industry. Therefore, even on the thesis that the payment made (Second paragraph,
Section 249, NIRC) is a penalty, this "penalty" for 1969 and 1970 can not be condoned as said LOI does not cover it.

FACTS: Petitioner Republic Bank appeals the decision of public respondent Court of Tax Appeals dated September 30, 1982
dismissing its Petition for Review, thereby affirming public respondent Commissioner of Internal Revenue’s assessment for
petitioner’s reserve deficiency taxes inclusive of 25% surcharge for the taxable years 1969 and 1970 in the amounts of
P1,325,768.82 and P1,953,132.67, respectively. "On 14 September 1971, respondent Commissioner assessed petitioner the
amount of P1,060,615.06, plus 25% surcharge in the amount of P265,153.76, or a total of P1,325,768.82, as 1% monthly bank
reserve deficiency tax for taxable year 1969. "On 5 April 1973, respondent Commissioner assessed petitioner the amount of
P1,562,506.14, plus 25% surcharge in the amount of P390,626.53, or a total of P1,953,132.67, as 1% monthly bank reserve
deficiency tax for taxable year 1970. Petitioner contends that Section 249 of the Tax Code is no longer enforceable, because
Section 126 of Act 1459, which was allegedly the basis for the imposition of the 1% reserve deficiency tax, was repealed by
Section 90 of Republic Act 337, the General Banking Act, and by Sections 100 and 101 of Republic Act 265. On 28 March 1973,
petitioner filed a petition for review with the Tax Court, contesting the assessment for the taxable year 1970.

ISSUE: whether or not Section 249 of the Tax Code is no longer enforceable

HELD: No, "Sec. 249. Tax on Banks "There shall be collected upon the amount of reserve deficiencies incurred by the bank, and
for the period of their duration, as provided in section one hundred twenty-six of Act numbered one thousand four hundred
and fifty-nine, as amended by Act Numbered Three thousand six hundred and ten, one per centum per month, . . . (As amended
by Rep. Act No. 6110)"
Clearly, the law states a tax is to be collected. As the law stood during the years the petitioner was assessed for taxes on
reserve deficiencies (1969 & 1970), petitioner had to pay twice — the first, a penalty, to the Central Bank by virtue of Section
106 for violation of Secs. 100 and 101. All of the Central Bank Act and the second, a tax, to the Bureau of Internal Revenue for
incurring a reserve deficiency. As correctly analyzed by the petitioner and public respondents, the new legislations on bank
reserves merely provided the basis for computation of the reserve deficiency of petitioner bank. Petitioner submits that it was
not the legislative intention that banks with reserve deficiencies would pay twice as the Tax Code (CA 466, as amended by P.D.
69) enacted on January 1, 1973 did not contain said questioned provision.

While petitioner might have a point, the wisdom of this legislation is not the province of the Court. 11 It is clear from the
statutes then in force that there was no double taxation involved — one was a penalty and the other was a tax. At any rate, We
have upheld the validity of double taxation. 12 The payment of 1/10 of 1% for incurring reserve deficiencies (Section 106,
Central Bank Act) is a penalty as the primary purpose involved is regulation, 13 while the payment of 1% for the same
violation (Second Paragraph, Section 249, NIRC) is a tax for the generation of revenue which is the primary purpose in this
instance. 14 Petitioner should not complain that it is being asked to pay twice for incurring reserve deficiencies. It can always
avoid this predicament by not having reserve deficiencies. Petitioner’s case is covered by two special laws — one a banking
law and the other, a tax law. These two laws should receive such construction as to make them harmonize with each other and
with the other body of pre-existing laws.
G.R. No. 115349 April 18, 1997

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE COURT OF APPEALS, THE COURT OF TAX APPEALS and
ATENEO DE MANILA UNIVERSITY, respondents.

Private respondent is a non-stock, non-profit educational institution with auxiliary units and branches all over the Philippines.
One such auxiliary unit is the Institute of Philippine Culture (IPC), which has no legal personality separate and distinct from
that of private respondent. The IPC is a Philippine unit engaged in social science studies of Philippine society and culture.
Occasionally, it accepts sponsorships for its research activities from international organizations, private foundations and
government agencies.

On July 8, 1983, private respondent received from petitioner Commissioner of Internal Revenue a demand letter dated June 3,
1983, assessing private respondent the sum of P174,043.97 for alleged deficiency contractor's tax, and an assessment dated
June 27, 1983 in the sum of P1,141,837 for alleged deficiency income tax, both for the fiscal year ended March 31, 1978.
Denying said tax liabilities, private respondent sent petitioner a letter-protest and subsequently filed with the latter a
memorandum contesting the validity of the assessments.

On March 17, 1988, petitioner rendered a letter-decision canceling the assessment for deficiency income tax but modifying the
assessment for deficiency contractor's tax by increasing the amount due to P193,475.55. Unsatisfied, private respondent
requested for a reconsideration or reinvestigation of the modified assessment. At the same time, it filed in the respondent
court a petition for review of the said letter-decision of the petitioner. While the petition was pending before the respondent
court, petitioner issued a final decision dated August 3, 1988 reducing the assessment for deficiency contractor's tax from
P193,475.55 to P46,516.41, exclusive of surcharge

ISSUE: Whether or not private respondent— performing the work of an independent contractor and, thus, subject to the three
percent contractor's tax levied by then Section 205 of the National Internal Revenue Code.

HELD: No, To fall under its coverage, Section 205 of the National Internal Revenue Code requires that the independent
contractor be engaged in the business of selling its services. Hence, to impose the three percent contractor's tax on Ateneo's
Institute of Philippine Culture, it should be sufficiently proven that the private respondent is indeed selling its services for a
fee in pursuit of an independent business. And it is only after private respondent has been found clearly to be subject to the
provisions of Sec. 205 that the question of exemption therefrom would arise. Only after such coverage is shown does the rule
of construction — that tax exemptions are to be strictly construed against the taxpayer — come into play, contrary to
petitioner's position. This is the main line of reasoning of the Court of Tax Appeals in its decision, 10 which was affirmed by the
CA.

In theory, the Commissioner of Internal Revenue may be correct. However, the records do not show that Ateneo's IPC in fact
contracted to sell its research services for a fee. Clearly then, as found by the Court of Appeals and the Court of Tax Appeals,
petitioner's theory is inapplicable to the established factual milieu obtaining in the instant case.

Therefore, it is clear that the funds received by Ateneo's Institute of Philippine Culture are not given in the concept of a fee or
price in exchange for the performance of a service or delivery of an object. Rather, the amounts are in the nature of an
endowment or donation given by IPC's benefactors solely for the purpose of sponsoring or funding the research with no
strings attached. As found by the two courts below, such sponsorships are subject to IPC's terms and conditions. No
proprietary or commercial research is done, and IPC retains the ownership of the results of the research, including the
absolute right to publish the same. The copyrights over the results of the research are owned by Ateneo and, consequently, no
portion thereof may be reproduced without its permission. 15 The amounts given to IPC, therefore, may not be deemed, it
bears stressing as fees or gross receipts that can be subjected to the three percent contractor's tax.
G.R. No. L-52306 October 12, 1981

ABS-CBN BROADCASTING CORPORATION, petitioner, vs. COURT OF TAX APPEALS and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.

Petitioner corporation was engaged in the business of telecasting local as well as foreign films acquired from foreign
corporations not engaged in trade or business within the Philippines. for which petitioner paid rentals after withholding
income tax of 30%of one-half of the film rentals.

On April 12, 1961, in implementation of the aforequoted provision, the Commissioner of Internal Revenue issued General
Circular No. V-334

Pursuant to the foregoing, petitioner dutifully withheld and turned over to the Bureau of Internal Revenue the amount of 30%
of one-half of the film rentals paid by it to foreign corporations not engaged in trade or business within the Philippines. The
last year that petitioner withheld taxes pursuant to the foregoing Circular was in 1968.

On June 27, 1968, Republic Act No. 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30 % to 35 %
and revising the tax basis from "such amount" referring to rents, etc. to "gross income,"

On February 8, 1971, the Commissioner of Internal Revenue issued Revenue Memorandum Circular No. 4-71, revoking General
Circular No. V-334, and holding that the latter was "erroneous for lack of legal basis," because "the tax therein prescribed
should be based on gross income without deduction whatever," thus:

In view thereof, General Circular No. V-334, dated April 12, 1961, is hereby revoked and henceforth, local films distributors
and exhibitors shall deduct and withhold 35% of the entire amount payable by them to non-resident foreign corporations, as
film rental or royalty, or whatever such payment may be denominated, without any deduction whatever, pursuant to Section
24 (b), and pay the withheld taxes in accordance with Section 54 of the Tax Code.

All rulings inconsistent with this Circular is likewise revoked.

On the basis of this new Circular, respondent Commissioner of Internal Revenue issued against petitioner a letter of
assessment and demand dated April 15, 1971, but allegedly released by it and received by petitioner on April 12, 1971,
requiring them to pay deficiency withholding income tax on the remitted film rentals for the years 1965 through 1968 and film
royalty as of the end of 1968 in the total amount of P525,897.06 On May 5, 1971, petitioner requested for a reconsideration
and withdrawal of the assessment. However, without acting thereon, respondent, on April 6, 1976, issued a warrant of
distraint and levy over petitioner's personal as well as real properties. The petitioner then filed its Petition for Review with the
Court of Tax Appeals whose Decision, dated November 29, 1979, is, in turn, the subject of this review. The Tax Court held:

ISSUE: Whether or not respondent can apply General Circular No. 4-71 retroactively and issue a deficiency assessment against
petitioner in the amount of P 525,897.06 as deficiency withholding income tax for the years 1965, 1966, 1967 and 1968.

HELD: No

Sec. 338-A. Non-retroactivity of rulings. — Any revocation, modification, or reversal of and of the rules and regulations
promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner of
Internal Revenue shall not be given retroactive application if the relocation, modification, or reversal will be prejudicial to the
taxpayers, except in the following cases: (a) where the taxpayer deliberately mis-states or omits material facts from his return
or any document required of him by the Bureau of Internal Revenue: (b) where the facts subsequently gathered by the Bureau
of Internal Revenue are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad
faith. (italics for emphasis)

It is clear from the foregoing that rulings or circulars promulgated by the Commissioner of Internal Revenue have no
retroactive application where to so apply them would be prejudicial to taxpayers. The prejudice to petitioner of the retroactive
application of Memorandum Circular No. 4-71 is beyond question. It was issued only in 1971, or three years after 1968, the
last year that petitioner had withheld taxes under General Circular No. V-334. The assessment and demand on petitioner to
pay deficiency withholding income tax was also made three years after 1968 for a period of time commencing in 1965.
Petitioner was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film
rentals and no longer had any control over them when the new Circular was issued. And in so far as the enumerated
exceptions are concerned, admittedly, petitioner does not fall under any of them.