CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
PHILIPPINE AIRLINES, INC., plaintiff-
appellant,  appellee refused to register the appellant's
vs.
ROMEO F. EDU in his capacity as Land
Transportation Commissioner, and
UBALDO CARBONELL, in his capacity as
National Treasurer, defendants-appellants.
G.R. No. L- 41383 August 15, 1988
FACTS:
Overview
This is a petition seeking for the
reversion of the Decision of the lower court
affirming the taxes levied on the petition and
denying the refund of the said taxes.
The antecedents follow:
The disputed registration fees were
imposed by the appellee, Commissioner
Romeo F. Elevate pursuant to Section 8,
Republic Act No. 4136, otherwise known as
the Land Transportation and Traffic Code.
Under its franchise, PAL is exempt from the
payment of taxes.
On the strength of an opinion of
the Secretary of Justice (Op. No. 307, series
of 1956) PAL has, since 1956, not been
paying motor vehicle registration fees.
Sometime in 1971, however, appellee
Commissioner Romeo F. Elevate issued a
regulation requiring all tax exempt entities,
among them PAL to pay motor vehicle
registration fees.
Despite PAL's protestations, the
motor vehicles unless the amounts imposed
under Republic Act 4136 were paid. The
appellant thus paid, under protest, the
amount of P19, 529.75 as registration fees of
its motor vehicles.
Appellee Edu denied the request for
refund basing his action on the decision in
Republic v. Philippine Rabbit Bus Lines, Inc.,
(32 SCRA 211, March 30, 1970) to the effect
that motor vehicle registration fees are
regulatory exceptional and not revenue
measures and, therefore, do not come within
the exemption granted to PAL under its
franchise.
Hence, PAL filed the complaint
against Land Transportation Commissioner
Romeo F. Edu and National Treasurer
Ubaldo. On April 24, 1973, the trial court
rendered a decision dismissing the
appellant's complaint.
PAL appealed to the Court of
Appeals.
ISSUE:
Whether or not the respondent
administrative agency be required to refund
the amounts stated in the complaint of PAL.
RULING:
NO.
The claim for refund is made for
payments given in 1971. We have ruled that
Section 24 of Rep. Act No. 5448 dated June
27, 1968, repealed all earlier tax exemptions
of corporate taxpayers found in legislative
franchises similar to that invoked by PAL in
this case.
An examination of Section 24 of the
Tax Code as amended shows clearly that the
law intended all corporate taxpayers to pay
income tax as provided by the statute. There
can be no doubt as to the power of Congress
to repeal the earlier exemption it granted.
Article XIV, Section 8 of the 1935
Constitution and Article XIV, Section 5 of the
Constitution as amended in 1973 expressly
provide that no franchise shall be granted to
any individual, firm, or corporation except
under the condition that it shall be subject to
amendment, alteration, or repeal by the
legislature when the public interest so
requires. There is no question as to the
public interest involved. The country needs
increased revenues. The repealing clause is
clear and unambiguous. There is a listing of
entities entitled to tax exemption. The
petitioner is not covered by the provision.
Any registration fees collected
between June 27, 1968 and April 9, 1979,
were correctly imposed because the tax
exemption in the franchise of PAL was
repealed during the period. However, an
amended franchise was given to PAL in 1979.
Section 13 of Presidential Decree No. 1590,
now provides:
In consideration of the franchise
and rights hereby granted, the grantee shall
pay to the Philippine Government during the
lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result
in a lower taxes.
27
PAL's current franchise is clear and
specific. It has removed the ambiguity found
in the earlier law. PAL is now exempt from
the payment of any tax, fee, or other charge
on the registration and licensing of motor
vehicles. Such payments are already included
in the basic tax or franchise tax provided in
Subsections (a) and (b) of Section 13, P.D.
1590, and may no longer be exacted.
WHEREFORE, the petition is hereby
partially GRANTED. The prayed for refund of
registration fees paid in 1971 is DENIED.
Important Discussion:
Resolving the issue in the Philippine Rabbit
case, this Court held:
"The registration fee which
defendant-appellee had to pay was
imposed by Section 8 of the
Revised Motor Vehicle Law
(Republic Act No. 587 [1950]). The
Motor Vehicle Act requires the
payment not of a tax but of a
registration fee under the police
power. It is not held liable for a tax
but for a registration fee. It
therefore cannot make use of a
backpay certificate to meet such an
obligation. . The rates thereof were
provided for in its Section 3 which
clearly specifies the" Philippine tax.

The ruling in Calalang v. Lorenzo (supra),
where the Court, on the other hand, held:
For not the name but the object of
the charge determines whether it is
a tax or a fee. Geveia speaking,
taxes are for revenue, whereas fees
are exceptional. 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. Hence, a charge fixed
by statute for the service to be
person,-When by an officer, where
the charge has no relation to the
value of the services performed and
where the amount collected
eventually finds its way into the
treasury of the branch of the
government whose officer or
officers collected the chauffeur, is
not a fee but a tax."(Cooley on
Taxation, Vol. 1, 4th ed., p. 110.)
From the data submitted in the
court below, it appears that the expenditures
of the Motor Vehicle Office are but a small
portion—about 5 per centum—of the total
collections from motor vehicle registration
fees.
The law itself provides that all such
money shall accrue to the funds for the
construction and maintenance of public
roads, streets and bridges. It is thus obvious
that the fees are not collected for regulatory
purposes, that is to say, as an incident to the
enforcement of regulations governing the
operation of motor vehicles on public
highways, for their express object is to
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
provide revenue with which the Government
is to discharge one of its principal functions
—the construction and maintenance of
public highways for everybody's use. They
are veritable taxes, not merely fees.
As a matter of fact, the Revised
Motor Vehicle Law itself now regards those
fees as taxes, for it provides that "no other
taxes or fees than those prescribed in this
Act shall be imposed," thus implying that the
charges therein imposed—though called
fees—are of the category of taxes.
Fees may be properly regarded as
taxes even though they also serve as an
instrument of regulation. It is possible for an
exaction to be both tax arose, regulation.
License fees are changes looked to as a
source of revenue as well as a means of
regulation (Sonzinky v. U.S., 300 U.S. 506).
The fees may properly be regarded as taxes
even though they also serve as an instrument
of regulation. If the purpose is primarily
revenue, or if revenue is at least one of the
real and substantial purposes, then the
exaction is properly called a tax. These
exactions are sometimes called regulatory
taxes.
Indeed, taxation may be made the
implement of the state's police power (Lutz
v. Araneta, 98 Phil. 148). If the purpose is
primarily revenue, or if revenue is, at least,
one of the real and substantial purposes,
then the exaction is properly called a tax.
In view of the foregoing, we rule
that motor vehicle registration fees as at
present exacted pursuant to the Land
Transportation and Traffic Code are actually
taxes intended for additional revenues.
RUFINO R. TAN, petitioner,  Article III, Section 1 — No person
vs.
RAMON R. DEL ROSARIO, JR., as
SECRETARY OF FINANCE & JOSE U. ONG,
as COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 109289 October 3, 1994
FACTS:
Overview
This special civil action for
prohibition challenge the constitutionality of
Republic Act No. 7496, also commonly
known as the Simplified Net Income.
The antecedents follow
Rufino Tan, claiming to be
taxpayers adversely affected by the
continued implementation of the
amendatory legislation, asserted that the
enactment of Republic Act No. 7496 violates
the following provisions of the Constitution:
Article VI, Section 26(1) — Every bill
passed by the Congress shall
embrace only one subject which
shall be expressed in the title
thereof.
Article VI, Section 28(1) — The rule
of taxation shall be uniform and
equitable. The Congress shall evolve
a progressive system of taxation.
27
shall be deprived of . . . property
without due process of law, nor
shall any person be denied the
equal protection of the laws.
He further intimates that Republic
Act No. 7496 desecrates the constitutional
requirement that taxation "shall be uniform
and equitable" in that the law would now
attempt to tax single proprietorships and
professionals differently from the manner it
imposes the tax on corporations and
partnerships.
ISSUE:
Whether or not the Simplified Net
Income Taxation Scheme (SNITS) is
unconstitutional.
RULING:
NO.
Uniformity of taxation, like the
kindred concept of equal protection, merely
requires that all subjects or objects of
taxation, similarly situated, are to be treated
alike both in privileges and liabilities (Juan
Luna Subdivision vs. Sarmiento, 91 Phil. 371 ).
Uniformity does not forfend classification
as long as: (1) the standards that are used
therefor are substantial and not arbitrary,
(2) the categorization is germane to

achieve the legislative purpose, (3) the
law applies, all things being equal, to
both present and future conditions, and
(4) the classification applies equally well
to all those belonging to the same class
(Pepsi Cola vs. City of Butuan, 24 SCRA 3;
Basco vs. PAGCOR, 197 SCRA 52).
What may instead be perceived to
be apparent from the amendatory law is the
legislative intent to increasingly shift the
income tax system towards the schedular
approach in the income taxation of
individual taxpayers and to maintain, by and
large, the present global treatment on
taxable corporations. We certainly do not
view this classification to be arbitrary and
inappropriate.
With the legislature primarily lies
the discretion to determine the nature (kind),
object (purpose), extent (rate), coverage
(subjects) and situs (place) of taxation. This
court cannot freely delve into those matters
which, by constitutional fiat, rightly rest on
legislative judgment. Of course, where a tax
measure becomes so unconscionable and
unjust as to amount to confiscation of
property, courts will not hesitate to strike it
down, for, despite all its plenitude, the power
to tax cannot override constitutional
proscriptions. This stage, however, has not
been demonstrated to have been reached
within any appreciable distance in this
controversy before us.
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
WHEREFORE, the petition is
DISMISSED.
WENCESLAO PASCUAL, in his official
capacity as Provincial Governor of Rizal,
petitioner-appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND
COMMUNICATIONS, ET AL., respondents-
appellees.
G.R. No. L-10405 December 29, 1960
FACTS
Overview
This is a petition seeking for the
reversion of the Decision of the lower court
on dismissing the case questioning the
appropriation of the Congress for the land
acquired from Senator Jose Zulueta alleging
that the said acquisition will only benefit the
former’s property and not for public
purpose.
The antecedents follow
Respondent Zulueta is the owner of
several parcels of residential land situated in
Pasig, Rizal, and known as the Antonio
Subdivision, certain portions of which had
been reserved for the projected feeder roads.
Respondent, then offered to donate said
projected feeder roads to the municipality of
Pasig, Rizal which was accepted by the
council, subject to the condition "that the
donor would submit a plan of the said roads
and agree to change the names of two of
them" but no deed of donation in favor of
the municipality of Pasig was, however,
executed.
In view of the aforementioned project,
Republic Act No. 920, appropriating
P85,000.00 for the "construction,
reconstruction, repair, extension and
improvement" of said roads, was passed by
Congress, and was also approved by the
President on June 20, 1953.
Petitioner, Governor Wenceslao
Pascual, questioned the said appropriation
alleging that the construction of said roads,
to be undertaken with the aforementioned
appropriation of P85,000.00, would have the
effect of relieving respondent Zulueta of the
burden of constructing his subdivision
streets or roads at his own expenses, 1and
would "greatly enhance or increase the value
of the subdivision" of said respondent. He,
further alleged that the Donation made by
the respondent is "absolutely forbidden by
the Constitution" and consequently "illegal",
for Article 1409 of the Civil Code of the
Philippines, declares in existence and void
from the very beginning contracts "whose
cause, objector purpose is contrary to law,
morals . . . or public policy";
The lower court held that the
appropriation in question "should be
upheld" and the case dismissed.
ISSUE
Whether or not there is a legal
feasibility to appropriating public funds for a
public purpose.
27
RULING
YES.
According to Ruling Case Law, is this:
It is a general rule that the
legislature is without power to
appropriate public revenue for
anything but a public purpose. . . . It
is the essential character of the
direct object of the expenditure
which must determine its validity as
justifying a tax, and not the
magnitude of the interest to be
affected nor the degree to which
the general advantage of the
community, and thus the public
welfare, may be ultimately
benefited by their promotion.
Incidental to the public or to the
state, which results from the
promotion of private interest and
the prosperity of private enterprises
or business, does not justify their
aid by the use public money.
The rule is set forth in Corpus Juris
Secundum in the following language:

In accordance with the rule that the
taxing power must be exercised for
public purposes only, discussed
supra sec. 14, money raised by
taxation can be expended only for
public purposes and not for the
advantage of private individuals.
Explaining the reason underlying said rule,
Corpus Juris Secundum states:
Generally, under the express or
implied provisions of the
constitution, public funds may be
used only for public purpose. The
right of the legislature to
appropriate funds is correlative with
its right to tax, and, under
constitutional provisions against
taxation except for public purposes
and prohibiting the collection of a
tax for one purpose and the
devotion thereof to another
purpose, no appropriation of state
funds can be made for other than
for a public purpose.
Hence, it is our considered opinion that the
circumstances surrounding this case
sufficiently justify petitioner’s action in
contesting the appropriation and donation in
question; that this action should not have
been dismissed by the lower court; and that
the writ of preliminary injunction should
have been maintained.
Wherefore, the decision appealed from is
hereby reversed, and the records are
remanded to the lower court for further
proceedings not inconsistent with this
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
decision, with the costs of this instance
against respondent Jose C. Zulueta.
SILVESTER M. PUNSALAN, ET
AL., plaintiffs-appellants, 
vs.
THE MUNICIPAL BOARD OF THE CITY OF
MANILA, ET AL., defendants-appellants.
G.R. No. L-4817 May 26, 1954
FACTS:
Overview
This case is filed in the Court of First Instance
of Manila by lawyers, medical practitioner,
CPA, dental surgeon and pharmacist for
imposing municipal occupation tax on
persons exercising various professions in the
city and penalizes non-payment of the tax
"by a fine of not more than two hundred
pesos or by imprisonment of not more than
six months, or by both such fine and
imprisonment in the discretion of the court."
The antecedents follow
Petitioners are among the
professions affected by the said occupation
tax. The ordinance was enacted pursuant to
paragraph (1) of section 18 of the Revised
Charter of the City of Manila (as amended by
Republic Act No. 409), which empowers the
Municipal Board of said city to impose a
municipal occupation tax, not to exceed P50
per annum, on persons engaged in the
various professions above referred to.
Having already paid their
occupation tax under section 201 of the
National Internal Revenue Code, plaintiffs,
upon being required to pay the additional
tax prescribed in the ordinance, paid the
same under protest and then brought the
present suit for the purpose already stated.
The lower court upheld the validity
of the provision of law authorizing the
enactment of the ordinance but declared the
ordinance itself illegal and void on the
ground that the penalty there in provided for
non-payment of the tax was not legally
authorized.
Both parties raised the issue to the
Court of Appeals in which the petitioners’
contention in substance is that the ordinance
and the law authorizing it constitute class
legislation, are unjust and oppressive, and
authorize what amounts to double taxation.
ISSUE
Whether or not the municipal occupational
tax and the law authorizing it constitute class
legislation and authorize what amounts to
double taxation.
RULING
NO.
27
The Legislature may, in its
discretion, select what occupations shall be
taxed, and in the exercise of that discretion it
may tax all, or it may select for taxation
certain classes and leave the others untaxed.
(Cooley on Taxation, Vol. 4, 4th ed., pp.
3393-3395.) What constitutes exercise or
pursuit of a profession in the city is a matter
of judicial determination. The argument
against double taxation may not be invoked
where one tax is imposed by the state and
the other is imposed by the city (1 Cooley on
Taxation, 4th ed., p. 492), it being widely
recognized that there is nothing inherently
obnoxious in the requirement that license
fees or taxes be exacted with respect to the
same occupation, calling or activity by both
the state and the political subdivisions
thereof. (51 Am. Jur., 341.)
In view of the foregoing, the
judgment appealed from is reversed in so far
as it declares Ordinance No. 3398 of the City
of Manila illegal and void and affirmed in so
far as it holds the validity of the provision of
the Manila charter authorizing it.

MACTAN CEBU INTERNATIONAL AIRPORT
AUTHORITY, petitioner,
vs.
HON. FERDINAND J. MARCOS, in his
capacity as the Presiding Judge
of the Regional Trial Court,
Branch 20, Cebu City, THE CITY
OF CEBU, represented by its
Mayor, HON. TOMAS R. OSMEA,
and EUSTAQUIO B.
CESA, respondents.
G.R. No. 120082. September 11, 1996
FACTS
Petitioner Mactan Cebu
International Airport Authority was created
by virtue of R.A. 6958, mandated to
principally undertake the economical,
efficient, and effective control, management,
and supervision of the Mactan International
Airport and Lahug Airport, and such other
airports as may be established in Cebu.
Since the time of its creation,
petitioner MCIAA enjoyed the privilege of
exemption from payment of realty taxes in
accordance with Section 14 of its charter.
However, on October 11, 1994, Mr. Eustaquio
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
B. Cesa, Officer in Charge, Office of the
Treasurer of the City of Cebu, demanded
payment from realty taxes in the total
amount of P2229078.79. Petitioner objected
to such demand for payment as baseless and
unjustified claiming in its favor the afore
cited Section 14 of R.A. 6958. It was also
asserted that it is an instrumentality of the
government performing governmental
functions, citing Section 133 of the Local
Government Code of 1991.
Section 133. Common limitations
on the Taxing Powers of Local Government
Units.
The exercise of the taxing powers of
the provinces, cities, barangays,
municipalities shall not extend to the levi of
the following:
xxx Taxes, fees or charges of any
kind in the National Government, its
agencies and instrumentalities, and
LGU’s. xxx
Respondent City refused to cancel
and set aside petitioner’s realty tax account,
insisting that the MCIAA is a government-
controlled corporation whose tax exemption
privilege has been withdrawn by virtue of
Sections 193 and 234 of Local Government
Code that took effect on January 1, 1992.
ISSUE
Whether or not the petitioner is a “taxable
person”
RULINGS
YES.
Taxation is the rule and exemption is the
exception. MCIAA’s exemption from payment
of taxes is withdrawn by virtue of Sections
193 and 234 of Local Government Code.
Statutes granting tax exemptions shall be
strictly construed against the taxpayer and
liberally construed in favor of the taxing
authority.
The petitioner cannot claim that it was never
a “taxable person” under its Charter. It was
only exempted from the payment of realty
taxes. The grant of the privilege only in
respect of this tax is conclusive proof of the
legislative intent to make it a taxable person
subject to all taxes, except real property tax.
JOHN H. OSMEÑA, petitioner,  through the taxing power of a State, such
vs.
OSCAR ORBOS, in his capacity as
Executive Secretary; JESUS ESTANISLAO,
in his capacity as Secretary of Finance;
WENCESLAO DELA PAZ, in his capacity as
Head of the Office of Energy Affairs; REX
V. TANTIONGCO, and the ENERGY
REGULATORY BOARD, respondents.
G.R. No. 99886 March 31, 1993
FACTS
Overview
" 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."
27
The antecedents follow
Senator John Osmeña 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
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
Whether or not there is an undue
delegation of the legislative power of
taxation.
RULING

No.
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.
J. CASANOVAS vs JNO. S. HORD
G.R. NO. 3472 MARCH 22, 1907
FACTS
In 1897, the Spanish Government, in
accordance with the provisions of the royal
decree of May 14, 1867, granted J. Casanova
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
certain mines in the province of Ambos
Camarines, of which mines the latter is now
the owner. That these Collector of Internal
Revenue and were by him said to fall within
the provisions of Section 134 of Act 1189
(Internal Revenue Act). The defendant
Commissioner, JNO S. Hord, imposed upon
these properties the tax mentioned in
Section 134, which plaintiff Casanovas paid
under protest.
ISSUE
Whether or not Section 134 of Act
1189 is valid.
RULING
The deed constituted a contract
between the Spanish Government and
Casanovas. The obligation in the contract
was impaired by the enactment of Section
134 of the Internal Revenue Law, thereby
infringing the provisions of Section 5 of the
Act of Congress of July 1 1902. Furthermore,
the section conflicts with Section 60 of the
Act of Congress of July 1, 1902, which
indicate that concessions can be cancelled
only by reason of illegality in the procedure
by which they were obtained, or for failure to
comply with the conditions prescribed as
requisites for their retention in the laws
under which they were granted. There is no
claim in this case that there was any illegality
in the procedure by which these concessions
were obtained, nor is there any claim that
the plaintiff has not complied with the
conditions prescribed in the royal decree of
1867. As to the allegation that the section
violates uniformity of taxation, the Court
found it unnecessary to consider the claim in
view of the result at which the Court has
arrived.
REV. FR. CASIMIRO LLADOC, vs.The
COMMISSIONER OF INTERNAL REVENUE and
The COURT of TAX APPEALS, respondents.
Facts: Sometime in 1957, the M.B.
Estate, Inc., of Bacolod City, donated
P10,000.00 in cash to Rev. Fr. Crispin Ruiz,
then parish priest of Victorias, Negros
Occidental, and predecessor of herein
petitioner, for the construction of a new
Catholic Church in the locality. The total
amount was spent for the purpose intended.
On March 3, 1958, the donor M.B.
Estate, Inc., filed the donor's gift tax return.
Under date of April 29, 1960, the respondent
Commissioner of Internal Revenue issued an
assessment for donee's gift tax against the
Catholic Parish of Victorias, Negros
Occidental, of which petitioner was the
priest. The tax amounted to P1,370.00
including surcharges, interests of 1%
monthly from May 15, 1958 to June 15, 1960,
and the compromise for the late filing of the
return.
Petitioner lodged a protest to the
assessment and requested the withdrawal
thereof. The protest and the motion for
reconsideration presented to the
Commissioner of Internal Revenue were
denied. The petitioner appealed to the Court
of Tax Appeals on November 2, 1960. In the
petition for review, the Rev. Fr. Casimiro 27
Lladoc claimed, among others, that at the
time of the donation, he was not the parish
priest in Victorias; that there is no legal
entity or juridical person known as the
"Catholic Parish Priest of Victorias," and,
therefore, he should not be liable for the
donee's gift tax. It was also asserted that the
assessment of the gift tax, even against the
Roman Catholic Church, would not be valid,
for such would be a clear violation of the
provisions of the Constitution. The court of
tax appeals affirmed the decision of the trial
court exempt for the imposition of penalty.
Issue: Whether or not petitioner
should be liable for the assessed donee's gift
tax on the P10,000.00 donated for the
construction of the Victorias Parish Church.
Yes, (but he is not personally liable
but rather to the Head of the Diocese which
on this case pertains to substitute petitioner).
The Collector assessed was a
donee's gift tax; the assessment was not on
the properties themselves of which the latter
is what is exempt as provided by the
constitution A gift tax is not a property tax,
but an excise tax imposed on the transfer of
property by way of gift inter vivos, the
imposition of which on property used
exclusively for religious purposes, does not
constitute an impairment of the Constitution.

The court affirmed insofar as tax
liability is concerned; it is modified, in the
sense that petitioner herein is not personally
liable for the said gift tax, and that the Head
of the Diocese, herein substitute petitioner,
should pay, as he is presently ordered to pay,
the said gift tax.
ROMEO P. GEROCHI vs. DEPARTMENT OF
ENERGY (DOE)
G.R. No. 159796 July 17, 2007
Ponente: NACHURA, J.:
FACTS
Petitioners Romeo P. Gerochi,
Katulong Ng Bayan (KB), and
Environmentalist Consumers Network, Inc.
(ECN) (petitioners), come before this Court in
this original action praying that Section 34 of
Republic Act (RA) 9136, otherwise known as
the Electric Power Industry Reform Act of
2001 (EPIRA), imposing the Universal Charge,
and Rule 18 of the Rules and Regulations
(IRR) which seeks to implement the said
imposition, be declared unconstitutional.
Petitioners also pray that the
Universal Charge imposed upon the
consumers be refunded and that a
preliminary injunction and/or temporary
restraining order (TRO) be issued directing
the respondents to refrain from
implementing, charging, and collecting the
said charge.
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
Congress enacted the EPIRA on
June 8, 2001; on June 26, 2001, it took effect.
On April 5, 2002, respondent National Power
Corporation-Strategic Power Utilities Group
(NPC-SPUG) filed with respondent Energy
Regulatory Commission (ERC) a petition for
the availment from the Universal Charge of
its share for Missionary Electrification. On
May 7, 2002, NPC filed another petition with
ERC, praying that the proposed share from
the Universal Charge for the Environmental
charge be approved for withdrawal from the
Special Trust Fund (STF) managed by
respondent Power Sector Assets and
Liabilities Management Group (PSALM) for
the rehabilitation and management of
watershed areas. On December 20, 2002, the
ERC issued an Order provisionally approving
the computed amount as the share of the
NPC-SPUG from the Universal Charge for
Missionary Electrification and authorizing the
National Transmission Corporation
(TRANSCO) and Distribution Utilities to
collect the same from its end-users on a
monthly basis. On August 13, 2003, NPC-
SPUG filed a Motion for Reconsideration
asking the ERC, among others, to set aside
the Decision. On April 2, 2003, ERC
authorized the NPC to draw up to
P70,000,000.00 from PSALM for its 2003
Watershed Rehabilitation Budget subject to
the availability of funds for the
Environmental Fund component of the
Universal Charge.
On the basis of the said ERC
decisions, respondent Panay Electric
Company, Inc. (PECO) charged petitioner
Romeo P. Gerochi and all other end-users
with the Universal Charge as reflected in
their respective electric bills starting from the
month of July 2003.
Petitioners submit that the assailed provision
of law and its IRR which sought to
implement the same are unconstitutional on
the following grounds:
1) The universal charge provided for
under Sec. 34 of the EPIRA and sought to be
implemented under Sec. 2, Rule 18 of the IRR
of the said law is a tax which is to be
collected from all electric end-users and self-
generating entities. The power to tax is
strictly a legislative function and as such, the
delegation of said power to any executive or
administrative agency like the ERC is
unconstitutional, giving the same unlimited
authority. The assailed provision clearly
provides that the Universal Charge is to be
determined, fixed and approved by the ERC,
hence leaving to the latter complete
discretionary legislative authority.
2) The ERC is also empowered to
approve and determine where the funds
collected should be used.
3) The imposition of the Universal
Charge on all end-users is oppressive and
confiscatory and amounts to taxation
without representation as the consumers
were not given a chance to be heard and
represented.
Respondent PSALM through the
Office of the Government Corporate Counsel
(OGCC) and Respondents Department of
Energy (DOE), ERC, and NPC, through the 27
Office of the Solicitor General (OSG)
contends:
1) Unlike a tax which is imposed to
provide income for public purposes, the
assailed Universal Charge is levied for a
specific regulatory purpose, which is to
ensure the viability of the country's electric
power industry.
2) It is exacted by the State in the
exercise of its inherent police power. On this
premise, PSALM submits that there is no
undue delegation of legislative power to the
ERC since the latter merely exercises a
limited authority or discretion as to the
execution and implementation of the
provisions of the EPIRA.
3) Universal Charge does not possess
the essential characteristics of a tax, that its
imposition would redound to the benefit of
the electric power industry and not to the
public, and that its rate is uniformly levied on
electricity end-users, unlike a tax which is
imposed based on the individual taxpayer's
ability to pay.
4) Imposition of the Universal Charge
is not oppressive and confiscatory since it is
an exercise of the police power of the State
and it complies with the requirements of due
process.

PECO argues that it is duty-bound
to collect and remit the amount pertaining
to the Missionary Electrification and
Environmental Fund components of the
Universal Charge, pursuant to Sec. 34 of the
EPIRA and the Decisions in ERC Case Nos.
2002-194 and 2002-165.Otherwise, PECO
could be held liable under Sec. 46 of the
EPIRA, which imposes fines and penalties for
any violation of its provisions or its IRR.
PHYSICAL THERAPY ORGANIZATION V.
THE MUNICIPALITY OF MANILA
FACTS
The petitioner-appellant, an
association of registered massagists and
licensed operators of massage clinics in the
City of Manila and other parts of the country,
filed an action in the Court of First Instance
of Manila for declaratory judgment regarding
the validity of Municipal Ordinance No. 3659,
promulgated by the Municipal Board and
approved by the City Mayor. To stop the City
from enforcing said ordinance, the petitioner
secured an injunction upon filing of a bond
in the sum of P1,000.00. A hearing was held,
but the parties without introducing any
evidence submitted the case for decision on
the pleadings, although they submitted
written memoranda. Thereafter, the trial
court dismissed the petition and later
dissolved the writ of injunction previously
issued.
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
The petitioner appealed said order
of dismissal directly to this Court.
ISSUE
Whether or not License fees
imposed by the Ordinance against the
massage clinic operators is unreasonable.
HELD
No. the intention of the Manila
Municipal Board in promulgating the
Ordinance in question, much of the
objection of appellant to its legality may be
solved. It would appear to us that the
purpose of the Ordinance is not to regulate
the practice of massage, much less to restrict
the practice of licensed and qualified
massagists of therapeutic massage in the
Philippines. The end sought to be attained in
the Ordinance is to prevent the commission
of immorality and the practice of prostitution
in an establishment masquerading as a
massage clinic where the operators thereof
offer to massage or manipulate superficial
parts of the bodies of customers for hygienic
and aesthetic purposes.
As regards the permit fee of
P100.00, it will be seen that said fee is made
payable not by the masseur or massagist, but
by the operator of a massage clinic who may
not be a massagist himself. Compared to
permit fees required in other operations,
P100.00 may appear to be too large and
rather unreasonable. However, much
discretion is given to municipal corporations
in determining the amount of said fee
without considering it as a tax for revenue
purposes:
The amount of the fee or charge is
properly considered in determining whether
it is a tax or an exercise of the police power.
The amount may be so large as to itself show
that the purpose was to raise revenue and
not to regulate, but in regard to this matter
there is a marked distinction between license
fees imposed upon useful and beneficial
occupations which the sovereign wishes to
regulate but not restrict, and those which are
inimical and dangerous to public health,
morals or safety. In the latter case the fee
may be very large without necessarily being
a tax.
Evidently, the Manila Municipal
Board considered the practice of hygienic
and aesthetic massage not as a useful and
beneficial occupation which will promote
and is conducive to public morals, and
consequently, imposed the said permit fee
for its regulation.
COMPAÑIA GENERAL DE TABACOS DE
FILIPINAS vs. CITY OF MANILA, ET AL.,
Appeal from the decision of the
Court of First Instance of Manila ordering the
City Treasurer of Manila to refund the sum of
P15,280.00 to Compania General de Tabacos
de Filipinas.
Appellee Compania General de
Tabacos de Filipinas — hereinafter referred
to simply as Tabacalera — filed this action in
the Court of First Instance of Manila to
recover from appellants, City of Manila and
its Treasurer, Marcelino Sarmiento — also 27
hereinafter referred to as the City — the sum
of P15,280.00 allegedly overpaid by it as
taxes on its wholesale and retail sales of
liquor for the period from the third quarter
of 1954 to the second quarter of 1957,
inclusive, under Ordinances Nos. 3634, 3301,
and 3816.
Tabacalera's action for refund is
based on the theory that, 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.
The City, on the other hand,
contends that, for the permit issued to it
granting proper authority to "conduct or
engage in the sale of alcoholic beverages, or
liquors" Tabacalera is subject to pay the
license fees prescribed by Ordinance No.
3358, aside from the sales taxes imposed by
Ordinances Nos. 3634, 3301, and 3816; that,
even assuming that Tabacalera is not subject
to the payment of the sales taxes prescribed
by the said three ordinances as regards

itsliquor sales, it is not entitled to the refund
demanded for the following reasons:.
(a) The said amount was paid by the plaintiff
voluntarily and without protest;
(b) If at all the alleged overpayment was
made by mistake, such mistake was one of
law and arose from the plaintiff's neglect of
duty; .
(c) The said amount had been added by the
plaintiff to the selling price of the liquor sold
by it and passed to the consumers; and
(d) The said amount had been already
expended by the defendant City for public
improvements and essential services of the
City government, the benefits of which are
enjoyed, and being enjoyed by the plaintiff.
It appears that in the year 1954, the
City, through its treasurer, addressed a letter
to Messrs. Sycip, Gorres, Velayo and Co., an
accounting firm, expressing the view that
liquor dealers paying the annual wholesale
and retail fixed tax under City Ordinance No.
3358 are not subject to the wholesale and
retail dealers' taxes prescribed by City
Ordinances Nos. 3634, 3301, and 3816. Upon
learning of said opinion, appellee stopped
including its sales of liquor in its quarterly
sworn declarations submitted in accordance
with the aforesaid City Ordinances Nos.
3634, 3301, and 3816, and on December 3,
1957, it addressed a letter to the City
Treasurer demanding refund of the alleged
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
overpayment. As the claim was disallowed,
the present action was instituted.
ISSUE
Whether or not petitioner were
imposed with double taxation which would
render them subject for refund.
HELD
No.
The term "tax" applies — generally
speaking — to all kinds of exactions which
become public funds. Legally speaking,
however, license fee is a legal concept quite
distinct from tax; the former is imposed in
the exercise of police power for purposes of
regulation, while the latter is imposed under
the taxing power for the purpose of raising
revenues (MacQuillin, Municipal
Corporations, Vol. 9, 3rd Edition, p. 26).
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.
Appellee's contention that the City
is repudiating its previous view — expressed
by its Treasurer in a letter addressed to
Messrs. Sycip, Gorres, Velayo & Co. in 1954
— that a liquor dealer who pays the annual
license fee under Ordinance No. 3358 is
exempted from the wholesalers and retailers
taxes under the other three ordinances
mentioned heretofore is of no consequence.
The government is not bound by the errors
or mistakes committed by its officers,
specially on matters of law.
MANILA INTERNATIONAL AIRPORT
AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF
PARAÑAQUE, CITY MAYOR OF
PARAÑAQUE, SANGGUNIANG
PANGLUNGSOD NG PARAÑAQUE, CITY 27
ASSESSOR OF PARAÑAQUE, and CITY
TREASURER OF PARAÑAQUE,
respondents.
FACTS
Petitioner Manila International
Airport Authority (MIAA) operates the Ninoy
Aquino International Airport (NAIA)
As operator of the international
airport, MIAA administers the land,
improvements and equipment within the
NAIA Complex. The MIAA Charter transferred
to MIAA approximately 600 hectares of
land,... The MIAA Charter further provides
that no portion of the land transferred to
MIAA shall be disposed of through sale or
any other mode unless specifically approved
by the President of thePhilippines.
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 Parañaque to pay the real estate tax
imposed by the City. MIAA then paid some
of the real estate tax already due.
MIAA received Final Notices of Real
Estate Tax Delinquency from the City of
Parañaque

The Mayor of the City of Parañaque
threatened to sell at public auction the
Airport Lands and Buildings should MIAA fail
to pay the... real estate tax delinquency.
MIAA filed with the Court of
Appeals an original petition for prohibition
and injunction
The petition sought to restrain the
City of Parañaque from imposing real estate
tax on, levying... against, and auctioning for
public sale the Airport Lands and Buildings.
Court of Appeals dismissed the
petition because MIAA filed it beyond the
60-day reglementary period.
Court of Appeals also denied...
motion for reconsideration... the present
petition for review.
MIAA insists that it is... 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.
Respondents invoke Section 193 of
the Local Government Code, which expressly
withdrew the tax exemption privileges of
"government-owned and-controlled
corporations" upon the effectivity of the
Local Government Code.
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
ISSUE
W/N the airport lands buildings of
MIAA are exempt from real estate tax
imposed by the Local Goverments?
W/N Real Property Owned by the
Republic is Not Taxable
RULING
YES to Both
MIAA's Airport Lands and Buildings
are exempt from real estate tax imposed by
local governments
First, MIAA is not a government-
owned or controlled corporation but an
instrumentality of the National Government
and thus exempt from local taxation. Second,
the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt
from real estate tax.
A government-owned or controlled
corporation must be "organized as a stock or
non-stock corporation." MIAA is not
organized as a stock or non-stock
corporation. MIAA is not a stock corporation
because it has no capital stock divided into
shares. MIAA has no stockholders or voting
shares.
MIAA is a government
instrumentality vested with corporate powers
to perform efficiently its governmental
functions. MIAA is like any other government
instrumentality, the only difference is that
MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions
of the Administrative Code defines a
government "instrumentality
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 instrumentalities and local
government units
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."18
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. 27
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
2 .Section 234(a) of the Local
Government Code exempts from real estate
tax any "[r]eal 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 "[t]axes, 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
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
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.
MCCULLOCH V. MARYLAND
17 U.S. 316 (1819)
U.S. SUPREME COURT
FACTS
In 1816, Congress developed the
Second Bank of the United States of America.
The second Bank was to serve the common
purpose of any bank, issuing and receiving
money from citizens. But when the bank
opened a branch in Baltimore, MD,
legislators in Maryland became furious. The
federal government had not asked for
permission to open the bank, and it was
competing with other banks established by
the state. Consequently, the state legislature
of Maryland passed a law ("Incorporate the
subscribers to the Bank of the United
States") taxing all banks in Maryland that
were not chartered by the state. Since the
Second Bank of the United States of America
was the only bank with that situation,
everyone recognized that this was essentially
a direct tax on the Second Bank.
The director of the Second Bank's
Baltimore Branch, James William McCulloch,
refused to pay the tax. As a result, the state
of Maryland sued, taking the case to the
Maryland Court. The Maryland judges upheld
the Maryland law, saying that the
Constitution of the United States did not
grant the federal government the power to
enact a bank. The case then went to the
Supreme Court.
ISSUE
1. Whether or not the Congress have
implied power through the Constitution to
establish a bank.
2. Whether or not the State of
Maryland has the power to tax an institution
created by Congress pursuant to its powers
under the Constitution?
RULING
1. Yes. Congress has power under the
Constitution to incorporate a bank pursuant
to the Necessary and Proper clause (Article I,
section 8).
“The Congress shall have Power To
lay and collect Taxes, Duties, Imposts and
Excises, to pay the Debts and provide for the
common Defence and general Welfare of the
United States; but all Duties, Imposts and
Excises shall be uniform throughout the
United States;”
2. No. The State of Maryland does not
have the power to tax an institution created
by Congress pursuant to its powers under
the Constitution. 27
The Government of the Union,
though limited in its powers, is supreme
within its sphere of action, and its laws, when
made in pursuance of the Constitution, form
the supreme law of the land. There is
nothing in the Constitution which excludes
incidental or implied powers. If the end be
legitimate, and within the scope of the
Constitution, all the means which are
appropriate and plainly adapted to that end,
and which are not prohibited, may be
employed to carry it into effect pursuant to
the Necessary and Proper clause.
The power of establishing a
corporation is not a distinct sovereign power
or end of Government, but only the means of
carrying into effect other powers which are
sovereign. It may be exercised whenever it
becomes an appropriate means of exercising
any of the powers granted to the federal
government under the U.S. Constitution. If a
certain means to carry into effect of any of
the powers expressly given by the
Constitution to the Government of the Union
be an appropriate measure, not prohibited
by the Constitution, the degree of its
necessity is a question of legislative
discretion, not of judicial cognizance.
The Bank of the United States has a
right to establish its branches within any

state. The States have no power, by taxation
or otherwise, to impede or in any manner
control any of the constitutional means
employed by the U.S. government to execute
its powers under the Constitution. This
principle does not extend to property taxes
on the property of the Bank of the United
States, nor to taxes on the proprietary
interest which the citizens of that State may
hold in this institution, in common with other
property of the same description throughout
the State.
This cause came on to be heard, on
the transcript of the record of the Court of
Appeals of the State of Maryland, and was
argued by counsel; on consideration
whereof, it is the opinion of this Court that
the act of the Legislature of Maryland is
contrary to the Constitution of the United
States, and void, and therefore that the said
Court of Appeals of the State of Maryland
erred, in affirming the judgment of the
Baltimore County Court, in which judgment
was rendered against James W. McCulloch;
but that the said Court of Appeals of
Maryland ought to have reversed the said
judgment of the said Baltimore County
Court, and ought to have given judgment for
the said appellant, McCulloch. It is, therefore,
adjudged and ordered that the said
judgment of the said Court of Appeals of the
State of Maryland in this case be, and the
same hereby is, reversed and annulled. And
this Court, proceeding to render such
judgment as the said Court of Appeals
should have rendered, it is further adjudged
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
and ordered that the judgment of the said
Baltimore County Court be reversed and
annulled, and that judgment be entered in
the said Baltimore County Court for the said
James W. McCulloch.
SIGNIFICANCE OF THE CASE
McCulloch v. Maryland not only
emphasized Congresses power to tax and
spend for the general welfare of the public
but demonstrated the discretion of Congress
to make other laws necessary and proper to
carry out their enumerated powers.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-59431July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting
Commissioner, Bureau of Internal
Revenue; ROMULO VILLA, Deputy
Commissioner, Bureau of Internal
Revenue; TOMAS TOLEDO Deputy
Commissioner, Bureau of Internal
Revenue; MANUEL ALBA, Minister of
Budget, FRANCISCO TANTUICO,
Chairman, Commissioner on Audit, and
CESAR E. A. VIRATA, Minister of Finance,
respondents.
Antero Sison for petitioner and for his own
behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
FACTS
Antero M. Sison, Jr. assails the
validity of Batas Pambansa Blg. 135 which
further amended Sec 21 of the National
Internal Revenue Code of 1977. The law
provides that there would be a higher tax
impost against income derived from
professional income as opposed to regular
income earners. Petitioner, as a professional
businessman, and as taxpayer alleges that by
virtue thereof, “He would be unduly
discriminated against by the imposition of
higher rates of tax upon his income arising
from the exercise of his profession vis-a-vis
those which are imposed upon fixed income
or salaried individual taxpayers.” He
characterizes the above section as arbitrary
amounting to class legislation, oppressive
and capricious in character. There is a
transgression of both the equal protection 27
and due process clauses of the Constitution
as well as of the rule requiring uniformity in
taxation.
ISSUE
Whether or not the imposition of a
higher tax rate on taxable net income
derived from business or profession than on
compensation is constitutionally infirm.
HELD
No. The Supreme Court ruled
against Antero M.Sison. The power to tax, an
inherent prerogative, has to be availed of to
assure the performance of vital state
functions. It is the source of the bulk of
public funds. Taxes, being the lifeblood of
the government, their prompt and certain
availability is of the essence. According to
the Constitution: “The rule of taxation shall
be uniform and equitable.” However, the rule
of uniformity does not call for perfect
uniformity or perfect equality, because this is
hardly attainable. Equality and uniformity in
taxation means that all taxable articles or
kinds of property of the same class shall be
taxed at the same rate. The taxing power has
the authority to make reasonable and natural
classifications for purposes of taxation.
Where “the differentiation” complained of
“conforms to the practical dictates of justice

and equity” it “is not discriminatory within
the meaning of this clause and is therefore
uniform.” There is quite a similarity then to
the standard of equal protection for all that
is required is that the tax “applies equally to
all persons, firms and corporations placed in
similar situation.
What misled Petitioner is his failure
to take into consideration the distinction
between a tax rate and a tax base. There is
no legal objection to a broader tax base or
taxable income by eliminating all deductible
items and at the same time reducing the
applicable tax rate.
Taxpayers may be classified into
different categories. In the case of the gross
income taxation embodied in Batas
Pambansa Blg. 135, the discernible basis of
classification is the susceptibility of the
income to the application of generalized
rules removing all deductible items for all
taxpayers within the class and fixing a set of
reduced tax rates to be applied to all of
them.
Taxpayers who are recipients of
compensation income are set apart as a
class. As there is practically no overhead
expense, these taxpayers are not entitled to
make deductions for income tax purposes
because they are in the same situation more
or less. On the other hand, in the case of
professionals in the practice of their calling
and businessmen, there is no uniformity in
the costs or expenses necessary to produce
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
their income. It would not be just then to
disregard the disparities by giving all of
them zero deduction and indiscriminately
impose on all alike the same tax rates on the
basis of gross income. There is ample
justification then for the Batasang Pambansa
to adopt the gross system of income
taxation to compensation income, while
continuing the system of net income
taxation as regards professional and business
income.
Nothing can be clearer, therefore,
than that the petition is without merit,
considering the (1) lack of factual foundation
to show the arbitrary character of the
assailed provision; (2) the force of controlling
doctrines on due process, equal protection,
and uniformity in taxation and (3) the
reasonableness of the distinction between
compensation and taxable net income of
professionals and businessman certainly not
a suspect classification.
WHEREFORE, the petition is
dismissed. Costs against petitioner.
PHILEX MINING CORPORATION,
petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE,
respondent.
G.R. No. 148187
April 28, 2008
Petitioner Philex Mining Corp.
assails the decision of the Court of Appeals
promulgated on April 8, 1996 in CA-G.R. SP
No. 36975[1] affirming the Court of Tax
Appeals decision in CTA Case No. 4872
dated March 16, 1995[2] ordering it to pay
the amount of P110,677,668.52 as excise tax
liability for the period from the 2nd quarter
of 1991 to the 2nd quarter of 1992 plus 20%
annual interest from August 6, 1994 until
fully paid pursuant to Sections 248 and 249
of the Tax Code of 1977.
Factual background:
The facts show that on August 5,
1992, the BIR sent a letter to Philex asking it
to settle its tax liabilities for the 2nd, 3rd and
4th quarter of 1991 as well as the 1st and
2nd quarter of 1992 in the total amount of
P123,821,982.52.
In a letter dated August 20, 1992,[4]
Philex protested the demand for payment of
the tax liabilities stating that it has pending
claims for VAT input credit/refund for the
taxes it paid for the years 1989 to 1991 in the
amount of P119,977,037.02 plus interest. In
reply, the BIR,[6] found no merit in Philexs
position.
Philex raised the issue to the Court
of Tax Appeals on November 6, 1992.[7] In
the course of the proceedings, the BIR issued
a Tax Credit Certificate SN 001795 in the
amount of P13,144,313.88 which effectively
lowered the latters tax obligation of
P110,677,688.52.
Despite the reduction of its tax 27
liabilities, the CTA still ordered Philex to pay
the remaining balance of P110,677,688.52
plus interest elucidating its reason, to wit:
Thus, for legal compensation to
take place, both obligations must be
liquidated and demandable. Liquidated
debts are those where the exact amount has
already been determined (PARAS, Civil Code
of the Philippines, Annotated, Vol. IV, Ninth
Edition, p. 259). Petition for Review is hereby
DENIED for lack of merit and Petitioner is
hereby ORDERED to PAY the Respondent.
Philex appealed the case before the
Court of Appeals. The Court of Appeals
affirmed the Court of Tax Appeals
observation. Philex filed a motion for
reconsideration which was, nevertheless,
denied in a Resolution dated July 11, 1996.
However, a few days after the denial
of its motion for reconsideration, Philex was
able to obtain its VAT input credit/refund not
only for the taxable year 1989 to 1991 but
also for 1992 and 1994.
ISSUES
1. Whether legal compensation can
properly take place between the VAT input
credit/refund and the excise tax liabilities of
Philex Mining Corp.

2. Whether the BIR has violated the
NIRC which requires the refund of input
taxes within 60 days.
3. Whether the violation by BIR is
sufficient to justify non-payment by Philex.
RULING
1. No, legal compensation cannot take
place. The government and the taxpayer are
not creditors and debtors of each other.
Debts are due to the Government in its
corporate capacity, while taxes are due to
the Government in its sovereign capacity.
2. Yes, the BIR has violated the NIRC.
It took five years for the BIR to grant its claim
for VAT input credit. Obviously, had the BIR
been more diligent and judicious with their
duty, it could have granted the refund. Fair
dealing and nothing less, is expected by the
taxpayer from the BIR in the latter's
discharge of its function.
3. No, despite the lethargic
manner by which the BIR handled Philex’s tax
claim, it is a settled rule that in the
performance of government function, the
State is not bound by the neglect of its
agents and officers. It must be stressed that
the same is not a valid reason for the non-
payment of its tax liabilities.
WHEREFORE, in view of the
foregoing, the instant petition is hereby
DISMISSED. The assailed decision of the
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
Court of Appeals dated April 8, 1996 is
hereby AFFIRMED.
SO ORDERED.
THIRD DIVISION
[G.R. No. 127105. June 25, 1999]
COMMISSIONER OF INTERNAL REVENUE,
petitioner
versus
S.C. JOHNSON AND SON, INC., and
COURT OF APPEALS, respondents
GONZAGA-REYES, J.:
This is a petition for review on
certiorari under Rule 45 of the Rules of Court
seeking to set aside the decision of the Court
of Appeals dated November 7, 1996 in CA-
GR SP No. 40802 affirming the decision of
the Court of Tax Appeals in CTA Case No.
5136.
FACTS
Respondent, a domestic
corporation organized and operating under
the Philippine laws, entered into a license
agreement with SC Johnson and Son, United
States of America (USA), a non-resident
foreign corporation based in the U.S.A.
pursuant to which the [respondent] was
granted the right to use the trademark,
patents and technology owned by the latter
including the right to manufacture, package
and distribute the products covered by the
Agreement and secure assistance in
management, marketing and production
from SC Johnson and Son, U. S. A.
The said License Agreement was
duly registered with the Technology Transfer
Board of the Bureau of Patents, Trade Marks
and Technology Transfer under Certificate of
Registration No. 8064.
For the use of the trademark or
technology, [respondent] was obliged to pay
SC Johnson and Son, USA royalties based on
a percentage of net sales and subjected the
same to 25% withholding tax on royalty
payments which [respondent] paid for the
period covering July 1992 to May 1993 in the
total amount of P1,603,443.00.
On October 29, 1993, [respondent]
filed with the International Tax Affairs
Division (ITAD) of the BIR a claim for refund
of overpaid withholding tax on royalties
arguing that, the antecedent facts attending
[respondents] case fall squarely within the
same circumstances under which said
MacGeorge and Gillete rulings were issued.
Since the agreement was approved by the
Technology Transfer Board, the preferential
tax rate of 10% should apply to the
[respondent]. We therefore submit that
royalties paid by the [respondent] to SC
Johnson and Son, USA is only subject to 10%
withholding tax pursuant to the most-
favored nation clause of the RP-US Tax
Treaty [Article 13 Paragraph 2 (b) (iii)] in
relation to the RP-West Germany Tax Treaty
[Article 12 (2) (b)] (Petition for Review [filed
with the Court of Appeals], par. 12).
[Respondents] claim for the refund of P963,
266.00 was computed.
27
The Commissioner did not act on
said claim for refund. Private respondent S.C.
Johnson & Son, Inc. (S.C. Johnson) then filed
a petition for review before the Court of Tax
Appeals (CTA) where the case was docketed
as CTA Case No. 5136, to claim a refund of
the overpaid withholding tax on royalty
payments from July 1992 to May 1993.
On May 7, 1996, the Court of Tax
Appeals rendered its decision in favor of S.C.
Johnson and ordered the Commissioner of
Internal Revenue to issue a tax credit
certificate in the amount of P963, 266.00
representing overpaid withholding tax on
royalty payments beginning July, 1992 to
May, 1993.
The Commissioner of Internal
Revenue thus filed a petition for review with
the Court of Appeals which rendered the
decision subject of this appeal on November
7, 1996 finding no merit in the petition and
affirming in toto the CTA ruling, thus this
petition.
Petitioner contends that under
Article 13(2) (b) (iii) of the RP-US Tax Treaty,
which is known as the most favored nation
clause, the lowest rate of the Philippine tax
at 10% may be imposed on royalties derived
by a resident of the United States from
sources within the Philippines only if the

circumstances of the resident of the United
States are similar to those of the resident of
West Germany. Petitioner argues that since
S.C. Johnsons invocation of the most favored
nation clause is in the nature of a claim for
exemption from the application of the
regular tax rate of 25% for royalties, the
provisions of the treaty must be construed
strictly against it.
ISSUE
Whether or not the Court of
Appeals erred in ruling that S.C. Johnson and
Son, USA is entitled to the most favored
nation tax rate of 10% on royalties as
provided in the RP – US tax treaty in relation
to the RP – West Germany tax treaty.
RULING
Yes. We accordingly agree with
petitioner that since the RP-US Tax Treaty
does not give a matching tax credit of 20
percent for the taxes paid to the Philippines
on royalties as allowed under the RP-West
Germany Tax Treaty, private respondent
cannot be deemed entitled to the 10 percent
rate granted under the latter treaty for the
reason that there is no payment of taxes on
royalties under similar circumstances.
It bears stress that tax refunds are in
the nature of tax exemptions. As such they
are regarded as in derogation of sovereign
authority and to be construed strictissimi
juris against the person or entity claiming
the exemption. The burden of proof is upon
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
him who claims the exemption in his favor
and he must be able to justify his claim by
the clearest grant of organic or statute law.
Private respondent is claiming for a refund of
the alleged overpayment of tax on royalties;
however, there is nothing on record to
support a claim that the tax on royalties
under the RP-US Tax Treaty is paid under
similar circumstances as the tax on royalties
under the RP-West Germany Tax Treaty.
In the case at bar, the state of
source is the Philippines because the
royalties are paid for the right to use
property or rights, i.e. trademarks, patents
and technology, located within the
Philippines. The United States is the state of
residence since the taxpayer, S. C. Johnson
and Son, U. S. A., is based there. Under the
RP-US Tax Treaty, the state of residence and
the state of source are both permitted to tax
the royalties, with a restraint on the tax that
may be collected by the state of source.
Furthermore, the method employed to give
relief from double taxation is the allowance
of a tax credit to citizens or residents of the
United States (in an appropriate amount
based upon the taxes paid or accrued to the
Philippines) against the United States tax,
but such amount shall not exceed the
limitations provided by United States law for
the taxable year. Under Article 13 thereof,
the Philippines may impose one of three
rates- 25 percent of the gross amount of the
royalties; 15 percent when the royalties are
paid by a corporation registered with the
Philippine Board of Investments and
engaged in preferred areas of activities; or
the lowest rate of Philippine tax that may be
imposed on royalties of the same kind paid
under similar circumstances to a resident of
a third state
WHEREFORE, for all the foregoing,
the instant petition is GRANTED. The
decision dated May 7, 1996 of the Court of
Tax Appeals and the decision dated
November 7, 1996 of the Court of Appeals
are hereby SET ASIDE.
DOUBLE TAXATION
Double taxation usually takes place
when a person is resident of a contracting
state and derives income from, or owns
capital in; the other contracting state and
both states impose tax on that income or
capital. In order to eliminate double taxation,
a tax treaty resorts to several methods.
First, it sets out the respective rights
to tax of the state of source or situs and of
the state of residence with regard to certain
classes of income or capital. In some cases,
an exclusive right to tax is conferred on one
of the contracting states; however, for other
items of income or capital, both states are
given the right to tax, although the amount
of tax that may be imposed by the state of
source is limited.
The second method for the
elimination of double taxation applies
whenever the state of source is given a full or
limited right to tax together with the state of
residence. In this case, the treaties make it
incumbent upon the state of residence to
allow relief in order to avoid double taxation.
There are two methods of relief- the 27
exemption method and the credit method. In
the exemption method, the income or capital
which is taxable in the state of source or
situs is exempted in the state of residence,
although in some instances it may be taken
into account in determining the rate of tax
applicable to the taxpayers remaining
income or capital. On the other hand, in the
credit method, although the income or
capital which is taxed in the state of source is
still taxable in the state of residence, the tax
paid in the former is credited against the tax
levied in the latter. The basic difference
between the two methods is that in the
exemption method, the focus is on the
income or capital itself, whereas the credit
method focuses upon the tax.
CALTEX (PHILIPPINES), INC., petitioner-
appellant,
vs.
COMMISSIONER OF INTERNAL REVENUE,
respondent-appellee.
FACTS
On 9 November 1960, Caltex
(Philippines) Inc., filed in the Tax Court its
petition for review against respondent

Commissioner of Internal Revenue in the
Court of Appeals, alleging, inter alia:
• that it is a domestic corporation
and holder of a petroleum refining
concession under Republic Act No. 387;
• that it is engaged in a productive
enterprise in which it has employed
substantial amounts of capital and labor in
connection with the refining, storage,
handling and distribution of petroleum
products;
• that on several occasions in 1958
and 1959 it imported from abroad various
items of machinery, equipment, accessories,
and spare parts for use of its depots or
installations and in the gasoline service
stations;
• that the Collector of Customs of
Manila levied and collected in the aforesaid
importations the special import tax imposed
by Republic Act No. 1394, and included said
tax in landed costs of the imported
merchandise for the purpose of computing
the compensating tax due thereon under
Section 190 of the National Internal Revenue
Code and for which it (petitioner) paid the
corresponding special import tax and
compensating tax so computed and
imposed;
• that the aforesaid importations
were not subject to special import tax
because Section 6 of Republic Act No. 1394
exempts from said tax "machinery,
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
equipment, accessories and spare parts for
the use of industries;
• that the inclusion and imposition of
said special import tax in the landed costs of
the imported merchandise for purposes of
computing the compensating tax due
thereon was erroneous, and, as a
consequence thereof, it (petitioner) overpaid
compensating taxes in the total sum of
P5,781.68;
• that it (petitioner) filed claims for
refund with respondent Commissioner of
Internal Revenue on the said overpaid
compensating taxes, and until the petition
was filed respondent has failed to refund
said amount, nor has he denied its claims for
refund; and
• that because the two-year
prescriptive period for recovery of internal
revenue taxes illegally or erroneously
collected as provided in Section 306 of the
National Internal Revenue Code will soon
expire, it was constrained to file the instant
petition while awaiting respondent's decision
in its claim for refund to protect its interests.
Petitioner prays that respondent
Commissioner of Internal Revenue be
ordered to refund the total sum of P5,781.68
paid by it as excess compensating taxes.
Although on 27 December 1960
respondent Commissioner of Internal
Revenue answered the petition for review
substantially denying the material
allegations thereof, the facts alleged by
petitioner are uncontroverted.
It was established, however, that
when the petition for review was
commenced in the Tax Court on 9 November
1960, there had been no action yet by the
Collector of Customs of Manila on the
protests of petitioner Caltex, nor has there
been any decision on its claim for refund.
Respondent did not present any
evidence. After the parties filed their
respective memorandums, the case was
submitted for decision.
The lower court dismissed the
petition for review, without prejudice and
petitioner filed a motion to reconsider said
resolution, but the lower court denied it;
hence, the present appeal.
ISSUE
Whether or not exemption o from
or liability for the special import tax is a
matter falling within the jurisdiction of the
Bureau of Customs and not of the Bureau of
Internal Revenue.
RULING
It is first contended by petitioner
that the special import tax imposed by
Republic Act No. 1394 is an internal revenue
tax, and, as such, a claim for refund of taxes
so erroneously or illegally levied and
collected by the Collector of Customs
pursuant to said law should be lodged with
the Commissioner of Internal Revenue and 27
not with the Commissioner of Customs.
Petitioner argues that the Customs head and
his subordinates are merely agents of the
Revenue Commissioner in the collection of
national internal revenue on imported
articles (Section 6, National Internal Revenue
Code) ; and that per Customs regulations,
"protest against the payment of internal
revenue taxes on imported merchandise
shall, if filed with the Collector of Customs,
be transmitted directly to the Collector of
Internal Revenue for action in accordance
with the provisions of the National Internal
Revenue Code" (Par. V, first sentence,
Customs Administrative Order No. 226,
dated December 3, 1957; 54 O.G. 301).
Petitioner's contention is not well-
taken. In the guise of a demand for
reimbursement of compensating taxes,
petitioner's case is actually one for
exemption from the special import tax under
Republic Act No. 1394 and it being
undisputed that the Special Import Tax Law
(Republic Act No. 1394) is one of the laws
administered by the Bureau of Customs, it is
evident that said law should be considered
as customs law, to which the section of
Customs Administrative Order No. 226
(invoked by Caltex) does not apply, since the
section, by its terms, refers only to internal
revenue taxes.

Disposing of a practically identical
issue raised in another case, this Court,
speaking through Mr. Justice Labrador, held:
It is also contended that the Internal
Revenue Law, especially the provisions
thereof imposing the advance sales tax
under Section 183 (b), does not fall within
the jurisdiction of the Bureau of Customs for
the reason that when the Bureau of Customs
collects the advance sales tax it does so as
deputies of the Collector of Internal
Revenue. It is argued as a consequence
therefrom that the undervaluation of the
onions may not be considered as a violation
of the customs laws or the laws and
regulations enforced by said bureau. There is
no merit in this contention. The law
considers as customs law all laws and
regulations subject to enforcement by the
Bureau of Customs, thus:
"Customs Law" includes not only
the provisions of the Customs Law and
regulations pursuant thereto but all other
laws and regulations which are subject to
enforcement by the Bureau of Customs or
otherwise within its jurisdiction. (Section
1419, last paragraph, Revised Administrative
Code; now, Section 3514, 10th paragraph,
Tariff and Customs Code. (Leuterio vs.
Commissioner of Customs, G.R. No. L-9810,
April 27, 1957; 53 O. G. 6520)
In the absence of any decision or
ruling which may be the subject of an appeal
or petition for review to the Court of Tax
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
Appeals, said court has no case to take
cognizance of (See CNS Estate, Inc. vs.
Commissioner of Customs, G.R. No. L-18773,
January 31, 1964). So that the lower court
correctly dismissed the petition for review of
petitioner for being premature or for not
stating a cause of action.
WHEREFORE, the resolution
appealed from should be, as it is hereby
affirmed. Costs against petitioner-appellant
Caltex (Philippines), Inc.
G.R. NO. L-28896 FEBRUARY 17, 1988
COMMISSIONER OF INTERNAL REVENUE,
PETITIONER,
VS.
ALGUE, INC., AND THE COURT OF TAX
APPEALS, RESPONDENTS.
FACTS
• Algue Inc. is a domestic corp engaged
in engineering, construction and other allied
activities
• On Jan. 14, 1965, the corp received a
letter from the CIR regarding its delinquency
income taxes from 1958-1959, amtg to
P83,183.85
• 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
27
• 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
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
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
G.R. NO. L-43082 JUNE 18, 1937
PABLO LORENZO, AS TRUSTEE OF THE
ESTATE OF THOMAS HANLEY, DECEASED,
PLAINTIFF-APPELLANT,
VS.
JUAN POSADAS, JR., COLLECTOR OF
INTERNAL REVENUE, DEFENDANT-
APPELLANT.
FACTS
On October 4, 1932, the plaintiff
Pablo Lorenzo, in his capacity as trustee of
the estate of Thomas Hanley, deceased,
brought this action in the Court of First 27
Instance of Zamboanga against the
defendant, Juan Posadas, Jr., then the
Collector of Internal Revenue, for the refund
of the amount of P2,052.74, paid by the
plaintiff as inheritance tax on the estate of
the deceased, and for the collection of
interest thereon at the rate of 6% per annum,
computed from September 15, 1932, the
date when the aforesaid tax was paid under
protest. The defendant set up a counterclaim
for P1,191.27 alleged to be interest due on
the tax in question and which was not
included in the original assessment. From the
decision of the Court of First Instance of
Zamboanga dismissing both the plaintiff's
complaint and the defendant's counterclaim,
both parties appealed to this court.
Thomas Hanley died, leaving a will
and considerable amount of real and
personal properties. The said will provided
that: (1) any money left by him be given to
my nephew Matthew Hanley (2) all real
estate owned by him at the time of his death
be not sold or otherwise disposed of for a
period of ten (10) years after his death, and
that the same be handled and managed by
the executors, and proceeds thereof to be
given to his nephew, Matthew Hanley, at
Castlemore, Ballaghaderine, County of
Rosecommon, Ireland, and that he be
directed that the same be used only for the
education of his brother's children and their

descendants (3) ten (10) years after his death
his property be given to the above
mentioned Matthew Hanley to be disposed
of in the way he thinks most advantageous
and (4) he stated that at that time he has one
brother living, named Malachi Hanley, and
that his nephew, Matthew Hanley, is a son of
my said brother, Malachi Hanley. The Court
of First Instance of Zamboanga considered it
proper for the best interests of their estate to
appoint a trustee to administer the real
properties which, under the will, were to pass
to Matthew Hanley ten years after the two
executors named in the will, was, on March 8,
1924, appointed trustee. Moore took his oath
of office and gave bond on March 10, 1924.
He acted as trustee until February 29, 1932,
when he resigned and the plaintiff herein
was appointed in his stead.
10 years after his death, his nephew
Matthew Hanley would become owner of his
properties. Plaintiff Lorenzo was then
appointed as trustee. During plaintiff’s
incumbency as trustee, the defendant
collector of Internal revenue, alleging that
the estate left by the deceased at the time of
his death consisted of realty and personalty,
assessed against the estate an inheritance
tax. The defendant prayed that the trustee be
ordered to pay the Government the
inheritance tax together with the penalties
for delinquency in paying such tax. The
trustee, plaintiff, paid under protest and
however, he demanded that he be refunded
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
for the amount paid. The defendant
overruled plaintiff’s protest and refused to
refund the amount.
ISSUE
Has there been delinquency in the
payment of the inheritance tax?
RULING
YES.
The plaintiff correctly states that the
liability to pay a tax may arise at a certain
time and the tax may be paid within another
given time. As stated by this court, "the mere
failure to pay one's tax does not render one
delinquent until and unless the entire period
has elapsed within which the taxpayer is
authorized by law to make such payment
without being subjected to the payment of
penalties for failure to pay his taxes within
the prescribed period." (U. S. vs. Labadan, 26
Phil., 239.)
The defendant maintains that it was
the duty of the executor to pay the
inheritance tax before the delivery of the
decedent’s property to the trustee. Stated
otherwise, the defendant contends that
delivery to the trustee was delivery to the
cestui que trust, the beneficiary in this case,
within the meaning of the first paragraph of
subsection (b) of section 1544 of the Revised
Administrative Code. This contention is well
taken and is sustained. A trustee is but an
instrument or agent for the cestui que trust
The appointment of Moore as
trustee was made by the trial court in
conformity with the wishes of the testator as
expressed in his will. It is true that the word
“trust” is not mentioned or used in the will
but the intention to create one is clear. No
particular or technical words are required to
create a testamentary trust. The words “trust”
and “trustee”, though apt for the purpose,
are not necessary. In fact, the use of these
two words is not conclusive on the question
that a trust is created. "To create a trust by
will the testator must indicate in the will his
intention so to do by using language
sufficient to separate the legal from the
equitable estate, and with sufficient certainty
designate the beneficiaries, their interest in
the ttrust, the purpose or object of the trust,
and the property or subject matter thereof.
Stated otherwise, to constitute a valid
testamentary trust there must be a
concurrence of three circumstances: (1)
Sufficient words to raise a trust; (2) a definite
subject; (3) a certain or ascertain object;
statutes in some jurisdictions expressly or in
effect so providing." (69 C. J., pp. 705,706.)
There is no doubt that the testator intended
to create a trust. He ordered in his will that
certain of his properties be kept together
undisposed during a fixed period, for a
stated purpose. The probate court certainly
exercised sound judgment in appointment a
trustee to carry into effect the provisions of
the will (see sec. 582, Code of Civil
Procedure).
There is no doubt that the testator
intended to create a trust. He ordered in his
will that certain of his properties be kept
together undisposed during a fixed period, 27
for a stated purpose. The probate court
certainly exercised sound judgment in
appointmening a trustee to carry into effect
the provisions of the will. As the existence of
the trust was already proven, it results that
the estate which plaintiff represents has been
delinquent in the payment of inheritance tax
and, therefore, liable for the payment of
interest and surcharge provided by law in
such cases. The delinquency in payment
occurred on March 10, 1924, the date when
Moore became trustee. On that date trust
estate vested in him. The interest due should
be computed from that date.
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
During the 5 crop years mentioned
in the law, namely 1951-1952, 1952-1953,

1953-1954, 1954-1955 and 1955-1956,
defendant Bacolod-Murcia Milling Co., Inc.,
has paid P267,468.00 but left an unpaid
balance of P216,070.50; defendant Ma-ao
Sugar Central Co., Inc., has paid P117,613.44
but left unpaid balance of P235,800.20;
defendant Talisay-Silay Milling Company has
paid P251,812.43 but left unpaid balance of
P208,193.74; and defendant Central
Azucarera del Danao made a payment of
P49,897.78 but left unpaid balance of
P48,059.77. There is no question regarding
the correctness of the amounts paid and the
amounts that remain unpaid.
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. Contending that the
purchase of the refinery with money from
the Institute’s fund was not authorized under
RA 632, and that the continued operation of
the refinery is inimical to their interest,
Bacolod-Murcia Milling Co., Ma-ao Sugar
Central, Talisay-Silay Milling Co. and the
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
Central Azucarera del Danao refused to
continue with their contribution to said fund.
The trial court found them liable under RA
632.
ISSUE
Whether or not tax payers can
refuse to pay taxes?
RULING
The appellants' refusal to continue
paying the assessment under Republic Act
632 may not rightly be equated with a
taxpayer's refusal to pay his ordinary taxes
precisely because there is a substantial
distinction between a "special assessment"
and an ordinary tax. The purpose of the
former is to finance the improvement of
particular properties, with the benefits of the
improvement accruing or inuring to the
owners thereof who, after all, pay the
assessment. The purpose of an ordinary tax,
on the other hand, is to provide the
Government with revenues needed for the
financing of state affairs. Thus, while the
refusal of a citizen to pay his ordinary taxes
may not indeed be sanctioned because it
would impair government functions, the
same would not hold true in the case of a
refusal to comply with a special assessment.
The nature of a "special assessment" similar
to the case at bar has already been discussed
and explained by this Court in the case of
Lutz vs. Araneta, 98 Phil. 148. For in this Lutz
case, Commonwealth Act 567, otherwise
known as the Sugar Adjustment Act, levies
on owners or persons in control of lands
devoted to the cultivation of sugar cane and
ceded to others for a 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. (Sec. 3).1äwph
The special assessment or levy for
the Philippine Sugar Institute (Philsugin)
Fund is not so much an exercise of the power
of taxation, nor the imposition of a special
assessment, but the exercise of 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. Section 2a of the Charter authorizing
Philsugin to “conduct research work for the
sugar industry in all its phases, either
agricultural or industrial, for the purpose of
introducing into the sugar industry such
practices or processes that will reduce the
cost of production and achieve greater
efficiency in the industry, justifies the
acquisition of the refinery in question. The
financial loss resulting from the operation
thereof is no means an index that the
industry did not profit therefrom, as other
gains of a different nature (such as
experience) may have been realized.
G.R. No. 79307 August 29, 1989
COMMISSIONER OF CUSTOMS, petitioner,
vs.
THE HON. RAMON P. MAKASIAR, RTC
Judge, Branch 35, Manila and THE
DISTILLERS CO. LTD. OF ENGLAND, 27
respondents.
FACTS
On 7 December 1978, the then
Court of First Instance of Manila (CFI-
MANILA) issued Search and Seizure Warrants
in Criminal Cases entitled "People of the
Philippines vs. Howard J. Sosis,, et al.," for
violation of Section 11 (a) and/or 11(e) of
Republic Act No. 3720, * and violation of
Article 188 of the Revised Penal Code
(captioned as "Substituting and altering
trademarks, tradenames, or service marks"),
respectively, and ordering the seizure of the
following:
a) Materials: All whisky, bottles, labels, caps,
cartons, boxes, machinery equipment or
other materials used or intended to be used,
or suitable for use, in connection with
counter-feiting or imitation of Johnnie
Walker Scotch Whisky (Emphasis supplied)
b) Documents: under the control and
possession of Howard J. Sosis, George
Morrison Lonie, Hercules Bottling Co., Lauro
Villanueva, Vicente Velasco, Manuel Esteban
and Eugenio Mauricio
A composite team from the Ministry
of Finance Bureau of Investigation and
Intelligence (BII), the Bureau of Customs and

the Integrated National Police enforced the
search and seizures warrants; and seized and
confiscated the following articles, found in
the premises of the Hercules Bottling Co.,
Inc. The articles seized remained in the
premises of HERCULES guarded and secured
by BII personnel.
On 2 January 1979, the Collector of
Customs for the Port of Manila, after being
informed of the seizure of the subject goods
and upon verification that the same were
imported contrary to law, issued a warrant of
seizure and detention and ordered the
immediate seizure and turnover of the seized
items to its Auction and Cargo Disposal
Division at the Port of Manila.
The CFI-MANILA issued an order
authorizing the transfer and delivery of the
seized articles to the customs warehouse.
Consequently, the City Fiscal of
Manila proceeded with the preliminary
investigation of the criminal cases, where
private respondents, The Distillers Co. Ltd. Of
England, claiming to be the owner and
exclusive manufacturer of Johnnie Walker of
Scotch Whiskey was the private complainant.
The Bureau of Customs also resumed
hearing the seizure and forfeiture
proceedings over the said articles.
In order to stop and enjoin the
Hearing Officer of the Bureau of Customs
from taking further action in the seizure
proceedings of the subject goods, private
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
respondent on 24 September 1982 filed a
petition for prohibition with preliminary
injunction and/or temporary restraining
order alleging that seizure proceedings
would hamper or even jeopardize the
preliminary investigation being conducted
by the fiscal. It must be noted that the
petition was heard not before the CFI-
MANILA which originally issued the search
warrants, but before another sala, that of
respondent judge of the Regional Trial Court,
Branch 35, Manila. Respondent Judge
rendered a decision in favor of the private
respondent and ruled that the Collector of
Customs acted in excess of its jurisdiction in
issuing the warrant of seizure and detention
considering that the subject goods had
already come under the legal custody of the
CFI-MANILA
Respondent judge issued a amended ** specify the proper fora for the
temporary restraining order on 29
September 1982. Subsequently, a writ for
preliminary injunction was issued as well.
Petitioner filed an answer on 12 November
1982. On 20 July 1987, respondent judge
rendered a decision holding that the
Collector of Customs acted in excess of its
jurisdiction in issuing the warrant of seizure
and detention considering that the subject
goods had already come under the legal
custody of the CFI-MANILA. Hence,
petitioner represented by the Solicitor
General, filed the instant petition on 11
August 1987.
ISSUE
Whether or not Respondent judge
may enjoin the Collector of Customs from
continuing with its seizure and forfeiture
proceedings over goods earlier seized by
virtue of search warrants issued by the CFI-
MANILA. (JURISDICTION OF THE TRIAL
COURT)
RULING
No. This Court finds that
respondent-judge has failed to adhere to the
prevailing rule which denies him jurisdiction
to enjoin the Bureau of Customs from taking
further action in the seizure and forfeiture
proceedings over the subject goods.
It is likewise well-settled that the
provisions of the Tariff and Customs Code
and that of Republic Act No. 1125, as
ventilation of any legal objections or issues
raised concerning these proceedings. Actions
of the Collector of Customs are appealable
to the Commissioner of Customs, whose
decisions, in turn, are subject to the exclusive
appellate jurisdiction of the Court of Tax
Appeals. Thereafter, an appeal lies to this
Court through the appropriate petition for
review by writ of certiorari. Undeniably,
regional trial courts do not share these
review powers.
The above rule is anchored upon
the policy of placing no unnecessary
hindrance on the government's drive not
only to prevent smuggling and other frauds
upon customs, but also, and more
importantly, to render effective and efficient
the collection of import and export duties
due the state. For tariff and customs duties 27
are taxes constituting a significant portion of
the public revenue which are the lifeblood
that enables the government to carry out
functions it has been instituted to perform.
In the instant case, the CFI-Manila
was not divested of its jurisdiction over the
subject goods, nor were its processes
interfered with by the Collector of Customs.
It, in fact, authorized the transfer and
delivery of the subject goods from the
premises of HERCULES to the Bureau of
Customs warehouse/bodega at the South
Harbor, Port of Manila thereby entrusting the
Bureau of Customs with the actual
possession and control of the same.
The Court must emphasize at this
point that the instant case does not involve a
conflict of jurisdictions. Proceedings before
the regular courts for criminal prosecutions
against Howard Sosis, et al., and seizure and
forfeiture proceedings for the subject goods
conducted by the Bureau of Customs may be
maintained simultaneously and
independently of each other. For the nature
of the two proceedings are entirely different
such that a resolution in one is not decisive
of the issue in the other. The latter, which is
administrative and civil in nature, is directed
against the res or articles imported and
entails a determination of the legality of its
importation. The former is directed against

those persons who may be held liable for
violating the penal laws in connection with
the importation.
G.R. No. L-7988 January 19, 1916
THE YOUNG MEN'S CHRISTIAN
ASSOCIATION OF MANILA, plaintiff-
appellant,
vs.
THE COLLECTOR OF INTERNAL REVENUE,
defendant-appellee.
The question at issue in this case is
whether or not the building and grounds of
the Young Men's Christian Association of
Manila are subject to taxation, under section
48 of the charter of the city of Manila quoted
in the footnote [syllabus].
The city of Manila, contending that
the property is taxable, assessed it and levied
a tax thereon. It was paid under protest and
this action begun to recover it on the ground
that the property was exempt from taxation
under the charter of the city of Manila. The
decision was for the city and the association
appealed.
FACTS
The Young Men's Christian
Association came to the Philippine with the
army of occupation in 1898. It is an
independent association for Manila was
organized under the direction of the Army
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
and navy departments. The purpose of the
association is to develop the Christian
character and usefulness of its members, to
improve the spiritual, intellectual, social and
physical condition of young men, and to
acquire, hold, mortgage, and dispose of the
necessary lands, buildings and personal
property for the use of said corporation
exclusively for religious, charitable and
educational purposes, and not for
investment or profit.
Speaking generally, the association
claims exemption from taxation on the
ground that it is a religious, charitable and
educational institution combined. That it has
an educational department is not denied. It
is undisputed that the aim of this
department is to furnish, at much less than
cost, instruction in subjects that will greatly
increase the mental efficiency and wage-
earning capacity of young men, prepare
them in special lines of business and offer
them special lines of study. The institution
has also its religious department. In that
department there are, generally speaking,
three main lines of work — Bible study,
religious meetings and special classes. The
atmosphere of the Young Men's Christian
Association is distinctly religious and there is
constant effort on the part of the officials to
create a religious spirit; and to that end there
is continuous pressure to induce members to
attend not only the religious services of the
association but also those of one or another
of the churches of Manila. The institution
also has charitable features. It makes no
profit on any of its activities. The professors
and instructors in all departments serve
without pay and freely give of their time and
ability to further the purposes of the
institution.
Conclusively, it appears that the
association is not exclusively religious or
charitable or educational, it is demonstrated
that it is a happy combination of all three,
giving to its membership the religious
opportunities of the church, the educational
opportunities of the school and the blessings
of charity where needed without the
recipient feeling or even knowing that he is
the object of charity.
ISSUE
Whether or not the building and
grounds of the Young Men's Christian
Association of Manila are subject to taxation,
under Section 48 of the Charter of the City of
Manila.
RULING
NO. The building and grounds of
the Young Men’s Christian Association of
Manila are not subject to taxation.
The Courts said that there are many
decisions holding that institutions of this
character are not exempt from taxation; but,
on investigation, they find that the majority
of them are based on statutes much
narrower than the one under consider and
that in all probability the decisions would
have been otherwise if the court had been
passing on a statute similar to ours. On the
other hand, there are many decisions of the
courts in the United States founded on 27
statutes like the Philippine statute which
hold that associations of this class are
exempt from taxation. They have examined
all of the decisions, both for and against,
with care and deliberation, and we are
convinced that the weight of authority
sustains the positions we take in this case.
There is no doubt about the
correctness of the contention that an
institution must devote itself exclusively to
one or the other of the purpose mentioned
in the statute before it can be exempt from
taxation; but the statute does not say that it
must be devoted exclusively to any one of
the purposes therein mentioned. It may be a
combination of two or three or more of
those purposes and still be entitled to
exempt. The Young Men's Christian
Association of Manila cannot be said to be
an institution used exclusively for religious
purposes, or an institution used exclusively
for charitable purposes, or an institution
devoted exclusively to educational purposes;
but we believe it can be truthfully said that it
is an institution used exclusively for all three
purposes, and that, as such, it is entitled to
be exempted from taxation.
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
The Roman Catholic Apostolic
Church is the owner of a parcel of land in
San Nicolas, Ilocos Norte. On the south side
is a part of the Church yard, the convent and
an adjacent lost used for a vegetable garden
in which there is a stable and a well for the
use of the convent. In the center is the
remainder of the churchyard and the Church.
On the north side is an old cemetery with its
two walls still standing, and a portion where
formerly stood a tower. The provincial board
assessed land tax on lots comprising the
north and southside, which the church paid
under protest. It filed suit to recover the
amount.
ISSUE
Whether the lots are covered by the
Church’s tax exemption.
HELD
The exemption in favor of the
convent in the payment of land tax refers to
the home of the priest who presides over the
church and who has to take care of himself
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
in order to discharge his duties. The
exemption includes not only the land
actually occupied by the Church but also the
adjacent ground destined to the ordinary
incidental uses of man. A vegetable garden,
thus, which belongs to a convent, where its
use is limited to the necessity of the priest,
comes under the exemption. Further, land
used as a lodging house by the people who
participate in religious festivities, which
constitutes an incidental use in religious
functions, likewise comes within the
exemption. It cannot be taxed according to
its former use, i.e. a cemetery.
G.R. No. L-19201 June 16, 1965
REV. FR. CASIMIRO LLADOC, petitioner,
vs.
The COMMISSIONER OF INTERNAL
REVENUE and The COURT of TAX
APPEALS, respondents.
FACTS
Sometime in 1957, M.B. Estate Inc.,
of Bacolod City, donated 10,000.00 pesos in
cash to Fr. Crispin Ruiz, the parish priest of
Victorias, Negros Occidental, and
predecessor of Fr. Lladoc, for the
construction of a new Catholic church in the
locality. The donated amount was spent for in the imposition of the donee's tax on the
such purpose. property donated to the church for religious
purpose.
On March 3, 1958, the donor M.B. 27
Estate filed the donor's gift tax return. Under
date of April 29, 1960. Commissioner of
Internal Revenue issued an assessment for
the donee's gift tax against the Catholic
Parish of Victorias of which petitioner was
the parish priest.
ISSUE
Whether or not the imposition of
gift tax despite the fact the Fr. Lladoc was
not the Parish priest at the time of donation,
Catholic Parish priest of Victorias did not
have juridical personality as the
constitutional exemption for religious
purpose is valid.
G.R. No. L-49336 August 31, 1981
HELD THE PROVINCE OF ABRA, represented by
LADISLAO ANCHETA, Provincial Assessor,
Yes, imposition of the gift tax was petitioner,
valid, under Section 22(3) Article VI of the
Constitution contemplates exemption only vs.
from payment of taxes assessed on such
properties as Property taxes contra HONORABLE HAROLD M. HERNANDO, in
distinguished from Excise taxes The his capacity as Presiding Judge of Branch
imposition of the gift tax on the property I, Court of First Instance Abra; THE
used for religious purpose is not a violation ROMAN CATHOLIC BISHOP OF BANGUED,
of the Constitution. A gift tax is not a INC., represented by Bishop Odilo
property by way of gift inter vivos. etspueler and Reverend Felipe Flores,
respondents.
The head of the Diocese and not
the parish priest is the real party in interest FACTS

Catholic Bishop of Bangued desiRES
of being exempted from a real estate tax
followed by a summary judgment granting
such exemption, without even hearing the
side of petitioner. In the rather vigorous
language of the Acting Provincial Fiscal, as
counsel for petitioner, respondent Judge
"virtually ignored the pertinent provisions of
the Rules of Court; ... wantonly violated the
rights of petitioner to due process, by giving
due course to the petition of private
respondent for declaratory relief, and
thereafter without allowing petitioner to
answer and without any hearing, adjudged
the case; all in total disregard of basic laws
of procedure and basic provisions of due
process in the constitution, thereby
indicating a failure to grasp and understand
the law, which goes into the competence of
the Honorable Presiding Judge."
ISSUE
Whether the properties of the
Roman Catholic Bishop of Bangued are tax
exempt.
RULING
Exemption from taxation is not
favored and is never presumed, so that if
granted it must be strictly construed against
the taxpayer. Affirmatively put, the law
frowns on exemption from taxation, hence,
an exempting provision should be construed
strictissimi juris. Herein, the judge accepted
at its face the allegation of Bishop – that the
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
certain parcels of land owned by it, are used
"actually, directly and exclusively" as sources
of support of the parish priest and his
helpers and also of the Bishop – instead of
demonstrating that there is compliance with
the constitutional provision that allows an
exemption. There was an allegation of lack of
jurisdiction (contesting that the validity of
the assessment may be questioned before
the Local Board of Assessment Appeals and
not the court), and of lack of cause of action
(contesting that declaratory relief is not
proper, as there had been breach or violation
of the right of government to assess and
collect taxes on such property), which should
have compel the judge to accord a hearing
to the petitioner rather than deciding the
case immediately in favor of the Bishop.
G.R. No. L-39086 June 15, 1988
ABRA VALLEY COLLEGE, INC., represented
by PEDRO V. BORGONIA, petitioner,
vs.
HON. JUAN P. AQUINO, Judge, Court of
First Instance, Abra; ARMIN M. CARIAGA,
Provincial Treasurer, Abra; GASPAR V.
BOSQUE, Municipal Treasurer, Bangued,
Abra; HEIRS OF PATERNO MILLARE,
respondents.
FACTS
Abra Valley College rents out the
ground floor of its college building to
Northern Marketing Corporation while the
second floor thereof is used by the Director
of the College for residential purposes. On 6
July 1972, the Municipal and Provincial
treasurers (Gaspar Bosque and Armin
Cariaga, respectively) and issued a Notice of
Seizure upon the petitioner for the college
lot and building (OCT Q-83) for the
satisfaction of said taxes thereon. The
treasurers served upon the College a Notice
of Sale on 8 July 1972, the sale being held on
the same day. Dr. Paterno Millare, then
municipal mayor of Bangued, Abra, offered
the highest bid of P 6,000 on public auction
involving the sale of the college lot and
building. The certificate of sale was
correspondingly issued to him. The College
filed a complaint on 10 July 1972 in the court
a quo to annul and declare void the "Notice
of Seizure" and the "Notice of Sale" of its lot
and building located at Bangued, Abra, for
non-payment of real estate taxes and
penalties amounting to P5,140.31. The trial
court ruled for the government, holding that
the property is not being used “exclusively”
for educational purposes. Instead of
perfecting an appeal, the College availed of
the petition for review on certiorari with
prayer for preliminary injunction before the
Supreme Court, by filing said petition on 17
August 1974.
ISSUE
Whether the College is exempt
from realty taxes
HELD
No. The test of exemption from
taxation is the use of the property for
purposes mentioned in the Constitution.
While the Court allows a more liberal and 27
non-restrictive interpretation of the phrase
"exclusively used for educational purposes,"
reasonable emphasis has always been made
that exemption extends to facilities which are
incidental to and reasonably necessary for
the accomplishment of the main purposes.
The use of the school building or lot for
commercial purposes is neither
contemplated by law, nor by jurisprudence.
Herein, the lease of the first floor of the
building to the Northern Marketing
Corporation cannot by any stretch of the
imagination be considered incidental to the
purpose of education.
G.R. NO. L-9637 APRIL 30, 1957
AMERICAN BIBLE SOCIETY, PLAINTIFF-
APPELLANT,
VS.
CITY OF MANILA, DEFENDANT-APPELLEE
FACTS
In the course of its ministry,
American Bible Society's Philippine agency
has been distributing and selling bibles
and/or gospel portions thereof (since 1898,
but except during the Japanese occupation)
throughout the Philippines and translating
the same into several Philippine dialects. On
29 May 1953, the acting City Treasurer of the

City of Manila informed the Society that it
was conducting the business of general
merchandise since November 1945, without
providing itself with the necessary Mayor's
permit and municipal license, in violation of
Ordinance 3000, as amended, and
Ordinances 2529, 3028 and 3364, and
required the Society to secure, within 3 days,
the corresponding permit and license fees,
together with compromise covering the
period from the 4th quarter of 1945 to the
2nd quarter of 1953, in the total sum of
P5,821.45. On 24 October 1953, the Society
paid to the City Treasurer under protest the
said permit and license fees, giving at the
same time notice to the City Treasurer that
suit would be taken in court to question the
legality of the ordinances under which the
said fees were being collected, which was
done on the same date by filing the
complaint that gave rise to this action. After
hearing, the lower court dismissed the
complaint for lack of merit. The Society
appealed to the Court of Appeals, which in
turn certified the case to the Supreme Court
for the reason that the errors assigned
involved only questions of law.
ISSUE
Whether the Society is required to
secure municipal permit to allow it to sell
and distribute bibles and religious literature,
and to pay taxes from the sales thereof.
HELD
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
No. Section 27 (e) of
Commonwealth Act 466 (NIRC) exempts
corporations or associations organized and
operated exclusively for religious, charitable,
or educational purposes, Provided however,
That the income of whatever kind and
character from any of its properties, real or
personal, or from any activity conducted for
profit, regardless of the disposition made of
such income, shall be liable to the tax
imposed under the Code. Herein, the act of
distributing and selling bibles, etc. is purely
religious and cannot be made liable for taxes
or fees therein. Further, Ordinance 2529, as
amended, cannot be applied to the Society,
for in doing so it would impair its free
exercise and enjoyment of its religious
profession and worship as well as its rights
of dissemination of religious beliefs. The fact
that the price of the bibles and other
religious pamphlets are little higher than the
actual cost of the same does not necessarily
mean that it is already engaged in the
business or occupation of selling said
“merchandise” for profit. Furthermore,
Ordinance 3000 of the City of Manila is of
general application and it does not contain
any provisions whatsoever prescribing
religious censorship nor restraining the free
exercise and enjoyment of any religious
profession. The ordinance is not applicable
to the Society, as its business, trade or
occupation is not particularly mentioned in
Section 3 of the Ordinance, and the record
does not show that a permit is required
therefor under existing laws and ordinances
for the proper supervision and enforcement
of their provisions governing the sanitation,
security and welfare of the public and the
health of the employees engaged in the
business of the Society.
G.R. NO. L-15270 SEPTEMBER 30, 1961
JOSE V. HERRERA AND ESTER OCHANGCO
HERRERA, PETITIONERS,
VS.
THE QUEZON CITY BOARD OF
ASSESSMENT APPEALS, RESPONDENT.
FACTS
Herein petitioners, Jose V. Herrera
and Dr. Ester Ochangco Herrera, an architect
and directress of St. Catherine’s Hospital
receiving no salary, respectively, were
authorized by the Director of the Bureau of
Hospitals to establish and operate the St.
Catherine's Hospital, located at 58 D. Tuazon,
Sta. Mesa Heights, Quezon City on July 24,
1952. It is mainly a surgical and orthopedic
hospital with emphasis on obstetrical cases.
On or about January 3, 1953, the petitioners
sent a letter to the Quezon City Assessor
requesting exemption from payment of real
estate tax on the lot, building and other
improvements comprising the hospital
stating that the same was established for
charitable and humanitarian purposes and
not for commercial gain. After an inspection
of the premises, the exemption from real
property taxes was granted effective the
years 1953, 1954 and 1955. On August 10,
1955, the petitioners received a notification
from the Quezon City Assessor that the
properties were re-classified from exempt to
taxable. 27
The said hospital has 32 beds in
total for which 20 beds are used for charity
patients and only 12 for pay patients to
compensate for the hospital expenses.
Petitioners also operate within the premises
of the hospital the St. Catherine's School of
Midwifery which was granted government
recognition by the Secretary of Education on
February 1, 1955. This school has an
enrollment of about two hundred students.
The students are charged a matriculation fee
of P300.00 for 1-½ years, plus P50.00 a
month for board and lodging, which includes
transportation to the St. Mary's Hospital for
students’ practice which is also owned by the
petitioners.
The Court of Tax Appeals ruled on
the ground that St. Catherine’s Hospital has a
pay ward for pay patients, who are charged
for the use of private rooms, operating
rooms, etc., like other hospitals operated for
profits. The petitioners also occupy a portion
for their residence. With respect to
petitioners' claim for exemption based upon
the operation of the school of midwifery, the
Court conceded that the proposition might
be proper if the property used for the school
of midwifery were separate and distinct from
the hospital. The portions of the building
used for classrooms of the school of
midwifery have not been shown to be

exclusively for school purposes rather have a
dual use, as a classroom and for hospital use,
the latter not being a purpose that renders
the property tax exempt. The building and
lot in question is used as a hospital, part as
residence of the petitioners, part as garage,
part as dormitory and part as school, and
that the portion dedicated to educational
and charitable purposes cannot be identified
from those destined to other uses; and the
building is itself an indivisible unit of
property. Hence, this petition
ISSUE
Whether or not the lot, building
and other improvements occupied by the St.
Catherine Hospital are exempt from the real
property tax and whether or not the said
properties are used exclusively for charitable
or educational purposes
RULING
The exemption in favor of property
used exclusively for charitable or educational
purposes is not limited to property actually
indispensable but extends to facilities which
are “incidental to and reasonably necessary
for" the accomplishment of said purposes,
such as, in the case of hospitals, a school for
training nurses, a nurses' home, property use
to provide housing facilities for interns,
resident doctors, superintendents, and other
members of the hospital staff, and
recreational facilities for student nurses,
interns and residents such as athletic fields,
CONSTITUTIONAL LAW 2: TAXATION CASE DIGESTS
including a farm used for the inmates of the
institution (Cooley on Taxation, Vol. 2, p.
1430).
It should be noted, however, that,
according to the statement of facts made, of
the thirty-two (32) beds in the hospital,
twenty (20) are for charity-patients and that
the income realized from pay patients is
spent for improvement of the charity wards.
Petitioner Dr. Ester Ochangco Herrera, as
directress of said hospital does not even
receive any salary although its resident
physician gets a monthly salary of P170.00. It
is well settled that the admission of pay
patients does not detract from the charitable
character of a hospital, if all its funds are
devoted exclusively to the maintenance of
the institution as a public charity.
The said residence of the
petitioners, the garage, dormitory, and
classroom which are also used for hospital
purposes were incidentals to the operation
of the hospital and of said school, did not
affect the charitable character of said
hospital and the educational nature of said
school. St. Catherine's Hospital is a charitable
institution, and the fact that it admits pay
patients does not bar it from claiming that it
is devoted exclusively to benevolent
purposes, it being admitted that the income
derived from pay-patients is devoted to the
improvement of the charity wards, which
represent almost two-thirds (2/3) of the bed
capacity of the hospital, aside from out
charity patients who come only for
consultation. Therefore, the lot, building and
other improvements occupied by St.
Catherine’s Hospital are exempted from
taxation.
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
The Roman Catholic Apostolic
Church, represented by the Bishop of Nueva
Segovia, possesses and is the owner of a
parcel of land in the municipality of San
Nicolas, Ilocos Norte, all four sides of which
face on public streets. On the south side is a
part of the churchyard, the convent and an
adjacent lot used for a vegetable garden,
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, which is being used as
lodging house by the people who participate
in religious activities.
On July 3, 1925, the defendants
ordered the petitioners to pay the land tax
on the lot adjoining the convent and the lot
which formerly was the cemetery with the 27
potion where the tower stood.
ISSUE
Whether or not the petitioners are
subject for refund of the sum paid to the
defendants by way of land tax?
RULING
Yes. According to Sec. 344 of the
Administrative Code which 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 is exempted
in the payment of land tax. It include not
only the land actually occupied by the
church, but also the adjacent ground
destined to the ordinary incidental uses of
man, in this case the vegetable garden which
is limited to the necessities of the priest. As
for the lot which formerly was the cemetery
and now lodging house by participants in
religious activities, it is not used for
commercial purposes but constitutes as
incidental use in religious function, which
comes under the exemption.