BLOCK 2A 2021 | TAXATION 1 | ATTY.
MONTERO
General Principles Case Digests (Cases 60-78)
60. American Bible Society v. City of Manila (Pamie)
April 30, 1957 | FELIX, J | Taxation of Special Entities - Selling of religious
merchandise
PETITIONER: American Bible Society
RESPONDENTS: City of Manila
SUMMARY: American Bible Society is engaged in the selling of bibles in the
Philippines. The acting City Treasurer inform the Society that they were
operating without a Mayor’s permit and pay license fees, in violation of 2
Ordinances. The Society paid under protest and questioned the legality of the
Ordinances. Issue: Are the Ordinances, requiring mayor’s permit and payment
of license fees, applicable to American Bible Society? - NO.
The National Internal Revenue Code provides, that corporations or associations
organized and operated exclusively for religious, charitable, or educational
purposes shall not be taxed in respect to income received by them.
It may be true that the price asked was in some instances a bit higher than the
actual cost, but this cannot mean that it was engaged in the business of selling
said merchandise for profit. Thus, SC believes that the Ordinances cannot be
applied 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.
DOCTRINE: The municipal ordinances imposing a tax on the sale of bibles
were declared unconstitutional as it would impair the free exercise and
enjoyment of its religious profession and worship, as well as its rights of
dissemination of religious beliefs.
FACTS:
1. American Bible Society is a foreign, non-stock, non-profit, religious,
missionary corporation duly registered and doing business in the
Philippines.
2. It has been selling bibles and gospel portions throughout the Philippines and
translating the same into several Philippine dialects.
3. The acting City Treasurer of the City of Manila informed American Bible
Society that it was conducting the business of general merchandise since
November 1945, without the necessary Mayor's permit and municipal
license, in violation of Ordinance No. 3000 and 2529. It required American
Bible Society to secure the permit and license fees, together with
compromise covering the period from the 4th quarter of 1945 to the 2nd
quarter of 1953.
4. American Bible Society paid under protest and filed a suit to question the
legality of the Ordinances, asking for a refund. It argued that it never made
any profit from the sale of its bibles.
5. City of Manila maintained that the ordinances were enacted by the
Municipal Board by virtue of the power granted to it by the Revised
Administrative Code. Also, it presented testimony that bibles bearing the
price of 70 cents each are sold here at P1.30 each (meaning they profited
from it).
6. The lower court dismissed American Bible Society’s case, denying the
refund.
7. Ordinance No. 3000: "SEC. 1. PERMITS NECESSARY. — It shall be
unlawful for any person or entity to conduct or engage in any of the
businesses […] for which a permit is required for the proper supervision
and enforcement of existing laws without first having obtained a permit
from the mayor and the necessary license from the city treasurer."
ISSUE: Are Ordinances 2529 and 3000, requiring American Bible Society to secure
permits and pay fees, valid and applicable to the business of selling bibles? – NO
RATIO:
1. Article III, Section 1(7) of the Constitution: "No law shall be made
respecting an establishment of religion, or prohibiting the free exercise
thereof, and the free exercise and enjoyment of religious profession and
worship, without discrimination or preference, shall forever be allowed."
a. American Bible Society contends that the Ordinances are
unconstitutional because they provide for religious censorship and
restrain the free exercise and enjoyment of its religious profession.
2. The constitutional guaranty of the free exercise and enjoyment of religious
profession and worship carries with it the right to disseminate religious
information.
a. Any restraint of such right can only be justified on the grounds that
there is a clear and present danger of any substantive evil which
the State has the right to prevent.
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3. In the case of Murdock v. Pennsylvania, it was held that an ordinance beliefs, SC finds that Ordinance No. 3000 is also inapplicable to said
requiring that a license be obtained before a person could solicit orders for business, trade or occupation.
goods cannot be made to apply to members of Jehovah's Witnesses who
went about from door to door distributing literature and soliciting people to
'purchase' certain religious books.
a. The SC held that it could not be said that petitioners there were
engaged in commercial rather than a religious venture. Their
activities could not be described as embraced in the occupation of
selling books and pamphlets.
b. Those who can tax the privilege of engaging in this form of
missionary evangelism can close all its doors to all 'those who do
not have a full purse. Spreading religious beliefs in this ancient and
honorable manner would thus be denied the needy. The power to
impose a license tax on the exercise of these freedoms is indeed as
potent as the power of censorship which this Court has repeatedly
struck down.
4. Furthermore, the National Internal Revenue Code provides, "SEC. 27.
EXEMPTIONS FROM TAX ON CORPORATIONS. — The following
organizations shall not be taxed in respect to income received by them:
Corporations or associations organized and operated exclusively for
religious, charitable, or educational purposes”.
5. In the case at bar the license fee involved is imposed for the distribution and
sale of bibles and other religious literature. It may be true that the price
asked was in some instances a little bit higher than the actual cost of the
same, but this cannot mean that it was engaged in the business of selling
said "merchandise" for profit.
6. For this reason, SC believe that the provisions of Ordinance No. 2529
cannot be applied to American Bible Society.
7. With respect to Ordinance No. 3000, which requires a Mayor's permit
before any person can engage in any of the businesses, trades or
occupations enumerated, SC does not find that it imposes any charge upon
the enjoyment of a right granted by the Constitution, nor tax the exercise of
religious practices.
a. Thus, Ordinance No. 3000 cannot be considered unconstitutional,
even if applied to American Bible Society.
8. But as Ordinance No. 2529 is not applicable to American Bible Society and
the City of Manila is powerless to license or tax the business involved as it
would impair the right to the free exercise and enjoyment of its religious
profession and worship, as well as its rights of dissemination of religious
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61. Commissioner of Internal Revenue vs. Bishop of the Missionary District of
the Philippines (Anne)
1965 | Regala, J. | Taxation of Special Entities
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: Bishop of the Missionary District of the Philippines Island of
the Protestant Episcopal Church in the U.S.A and the Court of Tax Appeals
SUMMARY: Bishop of the Missionary District of the Philippines Islands of the
Protestant, a corporation solde duly registered with SEC, which is in charge of
the administration of the temporalities and the management of the estates in the
Philippines of the Missionary District. This Missionary District is a duly
incorporated and established religious society and owns and operates 3 hospitals,
including St. Luke’s Hospital in QC. In 1957 to 1959, the Missionary District
received various shipments of materials, supplies, equipment and other articles
intended for use in the construction and operation of the new St. Luke’s
Hospital. On these shipments, the CIR collected compensation tax. The
Missionary District filed claims for refund, but was denied by the CIR on the
ground that St. Luke’s Hospital was not a charitable institution and therefore was
not exempt from taxes because it admits pay patients.
The main issue in this case is whether the shipments for St. Luke’s hospital
are tax-exempt? The court held that the shipments are tax exempt. It falls under
the requisites for exemption under the law. As the law does not distinguish or
qualify the enjoyment or the exemption, the admission of pay patients does not
detract from the charitable character of a hospital, if its funds are devoted
exclusively to the maintenance of the institution.
DOCTRINE: A hospital is a charitable institution and therefore exempt from
the payment of compensating tax under RA. 1916. The admission of pay patients
does not detract from the charitable character of a hospital if its funds are
devoted exclusively to the maintenance of the institution as a public charity.
FACTS:
1. Bishop of the Missionary District of the Philippines Islands of the
Protestant, Episcopal Church in the U.S.A. is a corporation sole duly
registered with the Securities and Exchange Commission.
2. On the other hand, the Missionary District of the Philippine Islands of the
Protestant Episcopal Church the U.S.A. (hereinafter referred to as
Missionary District) is a duly incorporated and established religious society
and owns and operates the St. Luke's Hospital in Quezon City, the Brent
Hospital in Zamboanga City and the St. Stephen's High School in Manila.
3. In 1957 to 1959, the Missionary District received various shipments of
materials, supplies, equipment and other articles intended for use in the
construction and operation of the new St. Luke’s Hospital.
4. On these shipments, the Commissioner collected compensation tax. The
Missionary District filed claims for refund, but was denied by the
Commissioner on the ground that St. Luke’s Hospital was not a charitable
institution and therefore was not exempt from taxes because it admits pay
patients.
ISSUES:
1. Whether the shipments for St. Luke’s hospital are tax-exempt? -YES
RATIO:
1. The following requisites must concur in order that a taxpayer
may claim exemption under the law:
(1) the imported articles must have been donated;
(2) the donee must be a duly incorporated or established international
civic organization, religious or charitable society, or institution for civic
religious or charitable purposes; and
(3) the articles so imported must have been donated for the use of the
organization, society or institution or for free distribution and not for barter,
sale or hire.
2. As the law does not distinguish or qualify the enjoyment or the exemption
(as the Secretary of Finance did in Department Order 18, series of 1958),
the admission of pay patients does not detract from the charitable character
of a hospital, if its funds are devoted exclusively to the maintenance of the
institution. Thus, the shipments are tax exempt.
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62. Lladoc vs. Commissioner of Internal Revenue (Rhald) Occidental, and predecessor of herein petitioner, for the construction of a
June 16, 1965 | Pareedes, J. | Limits on Tax Power: Taxation of Special Entities new Catholic Church in the locality. The total amount was actually spent for
the purpose intended
PETITIONER: REV. FR. CASIMIRO LLADOC 2. On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax
RESPONDENTS: THE QUEZON CITY BOARD OF ASSESSMENT return.
APPEALS 3. The respondent Commissioner of Internal Revenue issued as assessment for
donee's gift tax against the Catholic Parish of Victorias, Negros Occidental,
of which petitioner was the priest.
SUMMARY: M.B. Estate Inc., donated Php. 10,000.00 to Fr. Ruiz in
4. The tax amounted to P1,370.00 including surcharges, interest of 1%
Victorias, Negros Occidental for the construction of the Catholic Church.
monthly from May 15, 1958 to June 15, 1960, and the compromise for the
The entire amount was indeed used for said purpose. Sometime after,
late filing of the return.
M.B. Estate filed a tax return. CIR issued an assessment for donee’s gift
5. Petitioner protested.
tax against the Church in Victorias. The one required to pay was the
6. The protest and the motion for reconsideration presented to the
incumbent priest, Fr. Lladoc. CIR and CTA both ruled that the Church be
Commissioner of Internal Revenue were denied.
taxed. ISSUE: (1) Is the tax due proper?; (2) Who shall pay? HELD: (1)
7. In the petition for Review, the Rev. Fr. Casimiro Lladoc, claimed among
Proper; (2) Not Fr. Lladoc but the head of the Diocese.
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
DOCTRINE:
"Catholic Parish Priest of Victorias," and therefore, he should not be liable
(1) Section 22 (3), Art. VI of the Constitution of the Philippines,
for the donee's gift tax.
exempts from taxation cemeteries, churches and personages or
8. It was also asserted that the assessment of the gift tax, even against the
convents, appurtenants thereto, and all lands, buildings, and
Roman Catholic Church, would not be valid, for such would be a clear
improvements used exclusively for religious purposes. The
violation of the provisions of the Constitution.
exemption is only from the payment of taxes assessed on such
9. CTA: Affirmed the judgment of CIR.
properties enumerated, as property taxes, as contra-distinguished
RATIO OF CIR:
from excise taxes
a. The phrase `exempt from taxation' as employed in Section 22(3),
(2) A gift tax is not an assessment on the properties themselves. It
Article VI of the Constitution of the Philippines, should not be
did not rest upon general ownership. Rather it is an excise upon
interpreted to mean exemption from all kinds of taxes.
the use made of the properties and upon the privilege of receiving
b. Statutes exempting charitable and religious property from taxation
them. It is not, therefore a property tax, but an excise tax imposed
should be construed fairly though strictly and in such manner as to
on the transfer of property by way of gift inter vivos, the
give effect to the main intent of the lawmakers.
imposition of which a property used exclusively for religious
purposes, does not constitute an impairment of the Constitution.
ISSUES:
(3) The head of the diocese and not the parish priest is the real party
1. Whether or not petitioner should be liable for the assessed donee's gift
in interest in the imposition of a donee's tax on property donated
tax on the P10,000.00 donated for the construction of the Victorias
to the church for religious purposes.
Parish Church? Yes.
2. If yes, then who should be called upon to pay the gift tax? Not Fr.
Lladoc. BUT the Head of the Diocese as he has substituted Fr. Lladoc.
FACTS:
1. In 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in
RATIO:
cash to Rev. Fr. Crispin Ruiz then parish priest of Victorias, Negros
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ISSUE # 1
1. Section 22(3), Art. VI of the Constitution of the Philippines, exempts from
taxation cemeteries, churches and personages or convents, appurtenant
thereto, and all lands, buildings, and improvements used exclusively for
religious purposes
2. The exemption is only from the payment of taxes assessed on such
properties enumerated, as property taxes, as contra-distinguished from
excise taxes.
3. In the present case, what the Collector assessed was a donee's gift tax; the
assessment was not on the properties themselves. It did not rest upon
general ownership; it was an excise upon the use made of the properties,
upon the exercise of the privilege of receiving the properties.
4. Manifestly, gift tax is not within the exempting provisions of the section
just mentioned.
5. 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, do not constitute an impairment of
the Constitution.
6. As well observed by the learned respondent Court, the phrase "exempt from
taxation," as employed in the Constitution supra should not be interpreted
to mean exemption from all kinds of taxes. And there being no clear,
positive or express grant of such privilege by law, in favor of the petitioner,
the exemption herein must be denied.

ISSUE # 2
1. Petitioner postulates that he should not be liable, because at the time of the
donation he was not the priest of Victorias.
2. This Court, in its Resolution of March 15, 1965, ordered the parties to show
cause why the Head of the Diocese to which the parish of Victorias
pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro
Lladoc, it appearing that the Head of such Diocese is the real party in
interest.
3. The Solicitor General, in representation of the Commissioner of Internal
Revenue, interposed no objection to such a substitution.
4. The Roman Catholic Bishop of Bacolod, manifested that it was submitting
itself to the jurisdiction and orders of this Court and that it was presenting,
by reference, the brief of petitioner Rev. Fr. Casimiro Lladoc, as its own
and for all purposes.
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63. Herrera vs. Quezon City Board of Assessment Appeals (Marian) 2. Back in 1952, the Director of the Bureau of Hospitals authorized the
September 30, 1961 | J. Concepcion | Limits on Tax Power - Consti Limits, Taxation Herreras to establish St. Catherine’s Hospital. The hospital was located at
of Special Entities [Charitable Hospital] Sta. Mesa, QC.
3. In 1953, the Herreras requested to be exempt from payment of real estate
PETITIONER: JOSE V. HERRERA and ESTER OCHANGCO tax on the lot, building, and other improvements on the hospital because it
HERRERA was not for commercial gain but for charity
RESPONDENTS: THE QUEZON CITY BOARD OF ASSESSMENT a. The exemption was granted from 1953-1955
APPEALS 4. However, in 1955, the QC Assessor notified the Herreras that the premises
were reclassified from “exempt” to “taxable” from 1956 onwards
a. Herreras appealed to the QC Board → QC Board affirmed QC
SUMMARY: The Herreras established St. Catherine’s hospital which is
Assessor → Herreras MR-ed but this was denied → Hence this
primarily a charitable hospital but admits paying patients to cover for the
appeal
expenses accumulated for charity patients. The Herreras applied for tax
5. [Some info about St. Catherine’s] The building is used as a surgical &
exemption on their lot, building, and improvements. This was initially
orthopedic hospital consisting of 90% obstetrical cases
granted for years 1953-55 but in 1956 the QC assessor declared that the
a. 32 beds = 20 for charity patients + 12 for paying patients
properties were now taxable. Herreras appealed but the QC Board and the
b. 2 kinds of charity patients:
CTA affirmed the taxability of the properties. The issue is WON St.
i. Out-charity → for consultation only
Catherine’s is exempt from real property tax. The SC held that it is exempt
1. The out-charity patients are given free
because charity is its primary object, and the mere fact that a profit has
consultation and prescription, although
been made will not deprive the hospital of its benevolent character.
sometimes they are furnished with free
medicines which are not costly like aspirin,
DOCTRINE:
sulfatiazole, etc
1987 Constitution: Sec 28. (3) → Property Tax Exemption
ii. Lying-in patients → remain for treatment
“[...], and all lands, buildings, and improvements, actually, directly, and
1. The charity lying-in- patients are given free
exclusively used for religious, charitable, or educational purposes shall be
medical service and medicine although the food
exempt from taxation.” This provision says that Congress may, if it deems
served to the pay-patients is very much better.
fit to do so, impose taxes upon such "profits" of said institutions, but their
iii. *There are no conditions to being a charity patient but
"lands, buildings and improvements" are beyond its taxing power.
these patients usually donate to St. Catherine
Property Tax Exemption not limited to those actually used for charity
c. Pay-patients are required to pay for hospital services ranging from
The exemption in favor of property used exclusively for charitable or
the minimum charge of P5.00 to the maximum of P40.00 for each
educational purposes is "not limited to property actually indispensable"
day of stay in the hospital.
but extends to facilities which are "incidental to and reasonably necessary
i. The income realized from pay-patients is spent for the
for" the accomplishment of said purposes.
improvement of the charity wards
d. The hospital personnel is composed of:
i. three nurses,
FACTS:
ii. two graduate midwives,
1. This is an appeal by Jose & Ester Herrera (Herreras) from the Court of Tax
iii. a resident physician receiving a salary of P170.00 a month
Appeals’ (CTA’s) decision affirming the Board of Assessment Appeals of
iv. Dr. Ester Ochangco Herrera, as directress who does not
Quezon City (QC Board) declaring some properties of the Herreras subject
receive any salary.
to assessment for real estate tax
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
e. The hospital also has a 'St. Catherine's School of Midwifery'
with 200 students paying a tuition P300.00 (good for 1.5 years) +
P50/month of lodging. The students practice at the St. Catherine’s
and St. Mary’s (also owned by Herreras).
i. The school has a separate set of accounting books from
the hospital but the Herreras failed to submit the accounts
of the school
ii. Hospital account records show that St. Catherine has been
operating on a deficit from 1954-56
6. [Miscellaneous Info about Herreras] Herreras also declared that they own
lands and coconut plantations in Quezon Province and other real estate in
Manila City which are for rent. Jose Herrera is a practicing architect.
ISSUE:
The Constitution provides that “all lands, buildings, and improvements, actually,
directly, and exclusively used for religious, charitable, or educational purposes shall
be exempt from taxation.” St. Catherine’s Hospital, although primarily a charitable
hospital, admits paying patients and maintains a school which garners material
profits from its tuition fee. Are the properties of St. Catherine exempt from tax
despite the profit gained from their incidental facilities? → St. Catherine is tax
exempt because the profits from incidental activities offset the expenses needed for
its charitable activities.
RULING:
WHEREFORE, CTA & QC Board’s Decision reversed. St. Catherine Hospital is
exempt from real property tax.
RATIO:
1. CTA decided in that way (not exempt) because:
a. St. Catherine’s has a pay ward for profit
b. Herreras use a portion of the premises as their residence
c. Herreras’ claim that the properties used for school is also used for
hospital (thus exempt kasi for school) fails because of the very fact
that it is used for hospital purposes (not tax exempt c/o of Ratio
1a). The problem here is that they cannot pinpoint exactly which is
exclusive for school use to render it exempt.
2. The SC reverses the CTA because “where rendering charity is its primary
object, and the funds derived from payments made by patients able to pay
are devoted to the benevolent purposes of the institution, the mere fact that
a profit has been made will not deprive the hospital of its benevolent
character”
3. Jurisprudence cited:
Case Main Point
UST Hospital Employees Assoc. v. UST hospital was not made for profit gain. The
Sto. Tomas University Hospital 140 paying beds was maintained to finance the free
wards consisting of 203 beds.
Collector of Internal Revenue vs. St. St. Paul Hospital can not be considered for profit
Paul's Hospital of Iloilo just because its pharmacy charges paying patients
their medicine. This is to offset the cost of
medicines supplied free of charge to charity
patients.
Collector of Internal Revenue vs. The amendment of the original articles of
University of Visayas incorporation of the University of Visayas to
convert it from a non-stock to a stock corporation
in view of a gain of P200,000.00 in property does
not justify the inference that the corporation has
become one for profit since none of its profits
inured to the benefit of any stockholder.
4. 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.
a. Income derived by St. Catherine from paying patients finance the
charity patients which comprise ⅔ of their total lying-in patient
count
b. Existence of garage in the building was essential to the operation
of the school; thus, it did not affect the charitable character of said
hospital and the educational nature of said school.
5. The existence of the school does not affect the exemption to which St.
Catherine's Hospital is entitled under our Constitution. On the contrary, it
furnishes another ground for exemption.
a. CTA was confused by the tuition fee paid by the students (leading
to material profits) which led them to conclude that St. Catherine’s
was a taxable entity
b. The Constitution itself says: "all lands, building and
improvements used exclusively for religious, charitable or
educational purposes shall be exempt from taxation,"
regardless of whether or not material profits are derived from the
operation of the institutions in question
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c. Congress may, if it deems fit to do so, impose taxes upon such
"profits", but said "lands, buildings and improvements" are beyond
its taxing power.

SEPARATE OPINIONS:
CONCURRING: Bengzon, C . J ., Padilla, Labrador, Reyes, J.B.L., Paredes and
De Leon, JJ ., concur.
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64. Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte (Sel) collected on the lot, which formerly was the cemetery and on the portion
1927 | Avacena | Taxation of Special Entities where the tower stood, was illegal.
6. Both parties appealed.

ISSUES:
PETITIONER: The Roman Catholic Bishop of Nueva Segovia
1. Whether the entire lot of the church is exempted from tax -- YES
RESPONDENTS: The Provincial Board of Ilocos Norte

RATIO:
SUMMARY: The Roman Catholic Church owns a parcel of land in Ilocos
Norte. One side is where the convent and a vegetable garden is while the other
1. The exemption in favor of the convent in the payment of the land tax refers
side is an old cemetery. As required by the provincial board of ilocos norte, the
to the home of the priest who presides over the church and who has to take
church paid under protest the land tax (1) lot adjoining the convent and (2) the
care of himself in order to discharge his duties.
lot which formerly was the cemetery with the portion where the tower stood. The
2. It therefore must, in this sense, include not only the land actually occupied
Church then filed for a refund. The issue is whether the entire lot of the church is
by the church but also the adjacent ground for the incidental uses.
exempted from land tax and the SC said yes. The exemption in favor of the
3. In regard to the lot which was formerly a cemetery, while it is no longer
convent in the payment of the land tax refers to the home of the priest who
used as such, neither is it used for commercial purposes and, according to
presides over the church. It therefore must, in this sense, include not only the
the evidence, is now being used as a lodging house by the people who
land actually occupied by the church but also the adjacent ground for the
participate in religious festivities. Which constitutes an incidental use in
incidental uses. With regard to the lot which was formerly a cemetery, it is now
religious functions, which also comes within the exemption.
being used as a lodging house by the people who participate in religious
4. Thus, both lots are exempted from land tax and the Provincial Board of
festivities. Which constitutes an incidental use in religious functions, which also
Ilocos Norte is ordered to refund the Church.
comes within the exemption. Thus, both lots are exempted.
DOCTRINE: Tax exemption for the church must include not only the land
actually occupied by the church but also the adjacent ground for the incidental
SEPARATE OPINIONS: Malcom (Dissent)
uses.
1. The Assessment Law exempts from taxation “cemeteries or burial grounds
and all lands, buildings used exclusively for religious purposes but this
FACTS:
exemption shall not extend to property held for investment or which
1. The Roman Catholic Apostolic Church owns of a parcel of land in the
produces income, even though the income be devoted to some one or more
Ilocos Norte (all four sides of which face on public streets).
of the purposes above specified.
2. On the south side is a part of the church yard, the convent and an adjacent
2. The testimony and the inspection disclosed that the lot known as “huerta”
lot used for a vegetable garden. In the center is a remainder of the
was not devoted to religious purposes, and that the old cemetery had long
churchyard and the church. On the northside is an old cemetery with two of
since ceased to be used as such and had been planted to corn.
its walls still standing, and a portion where formerly stood a tower.
3. The test to be applied to the combined law and facts must be the actual use
3. As required by the Province of Ilocos Norte, the Church paid, under protest,
of the property. The property legally exempt from the payment of taxesmust
the land tax on the (1) lot adjoining the convent and (2) the lot which
be devoted to some purpose specified in the law.
formerly was the cemetery with the portion where the tower stood.
4. A “huerta” not needed or used exclusively for religious purposes is thus
4. The Church filed an action for the recovery of the sum paid alleging that the
NOT EXEMPT. A cemetery no longer a cemtery is NOT EXEMPT.
tax is illegal.
5. The lower court absolved the Provincial Board of Ilocos Norte from the
complaint in regard to the lot adjoining the convent and declared that the tax
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65. CIR v. CA and YMCA (MIKA)
Oct. 14, 1998 | Panganiban, J| Taxation of Special Entities, Exemptions
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: CA, and YMCA
SUMMARY: YMCA is a non-stock, non-profit institution. It earned income
by leasing a portion of its premises to restaurant and canteen operators. It also
earned income from parking fees collected from non-members. CIR issued an
assessment stating that YMCA had deficiency income tax. YMCA protested
and filed with the CTA. CTA ruled in favor of YMCA. CIR appealed to CA.
CA eventually ruled in favor of YMCA. CIR filed a petition for review in the
SC. CIR argued that YMCA is not exempt from income taxes, as found in
Sec. 27 of NIRC. (fact #7 for the law) YMCA argued that they are exempt
since their activities are not conducted for profit and as provided in
Constitution.
The issue is WON the rental income of YMCA is taxable and not exempt. SC
ruled that YES it is taxable and not exempted from income tax.
As Sec. 27 provides, income of the exempt organizations, such as YMCA,
from any of their real properties, be subject to the taxed imposed by NIRC. In
the Constitution, tax exemption covers property only.
DOCTRINE:
The income of exempt organizations (such as the YMCA) from any of
their properties, real or personal, be subject to the tax imposed by the
same Code.
The law does not make a distinction. The rental income is taxable
regardless of whence such income is derived and how it is used or
disposed of.
For the YMCA to be granted the exemption it claims under the
aforecited provision (Art. XIV Sec. 4 (3) of the Constitution.), it must
prove with substantial evidence that:
a. it falls under the classification non-stock, non-profit educational
institution; and
b. the income it seeks to be exempted from taxation is used
actually, directly, and exclusively for educational purposes.
FACTS:
1. Private Respondent YMCA is a non-stock, non-profit institution, w/c
conducts various programs and activities that are beneficial to the public,
especially the young people, pursuant to its religious, educational and
charitable objectives.
2. YMCA earned:
1. P676,829.80 – from leasing out a portion of its premises to small
shop owners (restaurants, canteen operators)
2. P44, 259 – from parking fees collected from non-members
3. CIR issued an assessment to YMCA. YMCA had deficiency income tax,
deficiency expanded withholding taxes on rentals and professional fees and
deficiency withholding tax on wages.
4. YMCA protested and filed a petition for review at CTA. CTA ruled in favor
of YMCA.
5. CIR appealed to CA. CA ruled in favor of CIR then reversed the decision
and ruled in favor of YMCA.
6. CIR filed petition for review under Rule 45 with SC.
7. Sec. 27 of NIRC (law found in their arguments):
1. "SEC. 27. Exemptions from tax on corporations. — The following
organizations shall not be taxed under this Title in respect to
income received by them as such —
2. (g) Civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare;
3. (h) Club organized and operated exclusively for pleasure,
recreation, and other non-pro table purposes, no part of the net
income of which inures to the benefit of any private stockholder or
member;
4. Notwithstanding the provisions in the preceding paragraphs, the
income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or from
any of their activities conducted for profit, regardless of the
disposition made of such income, shall be subject to the tax
imposed under this Code.
8. CIR’s contentions:
1. Exemption found in Sec. 27 (now Sec. 26) of NIRC does not apply
to income derived from any of their properties or activities
conducted for profit
2. Rental income derived by a tax-exempt org from the lease of its
properties is NOT exempt from income taxation even if such
income is exclusively used for the accomplishment of its
objectives.
9. YMCA’s contentions:
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
1. Sec. 27 should be "subject to the qualification that the income from
the properties must arise from activities 'conducted for profit
before it may be considered taxable."
2. Invoked Art. VI Sec. 28 (3) of Constitution, as charitable
institutions they are exempt from property and income taxes
3. Also invoked Art. XIV Sec. 4 (3) of the Constitution. Claims that
they are a non-stock, non- profit educational institution whose
revenues are used actually, directly and exclusively for educational
purposes so it is exempt from property and income taxes
ISSUES:
1. WON the rental income of YMCA is taxable and not exempt. – YES.
Taxable and NOT exempted from income tax.
RATIO:
1. Taxes are the lifeblood of the nation, the Court has always applied the
doctrine of strict interpretation in construing tax exemptions.
2. The exemption claimed by the YMCA is expressly disallowed by the very
wording of the last paragraph of then Sec. 27 of the NIRC which mandates
that the income of exempt organizations (such as the YMCA) from any
of their properties, real or personal, be subject to the tax imposed by
the same Code.
3. A reading of said paragraph ineludibly shows that the income from any
property of exempt organizations, as well as that arising from any
activity it conducts for profit, is taxable. The phrase "any of their
activities conducted for profit" does not qualify the word "properties."
This makes income from the property of the organization taxable,
regardless of how that income is used — whether for profit or for lofty
non-profit purposes. (refer to fact #7)
4. SC held that CA committed reversible error, when it allowed, the tax
exemption claimed by YMCA on income it derived from renting out its real
property, on the ground that the said income is not collected for profit is
mere incidental to its operation. The law does not make a distinction. The
rental income is taxable regardless of whence such income is derived
and how it is used or disposed of.
5. SC held that the constitutional provisions cannot be invoked. What is
exempted is not the institution itself. Those exempted from real estate
taxes are lands, buildings and improvements actually, directly and
exclusively used for religious, charitable or educational purposes. Tax
exemption covers property taxes only. The bare allegation alone that it
is a non-stock, non-profit educational institution is insufficient to justify
its exemption from the payment of income tax.
6. Hence, for the YMCA to be granted the exemption it claims under the
aforecited provision (Art. XIV Sec. 4 (3) of the Constitution.), it must
prove with substantial evidence that:
1. it falls under the classification non-stock, non-profit
educational institution; and
2. the income it seeks to be exempted from taxation is used
actually, directly, and exclusively for educational purposes.
7. Court found no evidence that YMCA met the said requisites. Furthermore,
SC does not consider YMCA an educational institution. Also, YMCA did
not submit proof of proportionate amount of the subject income that was
actually, directly and exclusively used for educational purposes.
WHEREFORE, the petition is GRANTED.
DISSENTING OPINION by Bellosillo, J.:
1. A close reading of the last paragraph of Sec. 27 of the NIRC, in relation to
the whole section on tax exemption of the organizations enumerated therein,
shows that the phrase "conducted for profit" in the last paragraph of Sec. 27
qualifies, limits and describes "the income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from
any of their activities" in order to make such income taxable. It is the exception
to Sec. 27 pars. (g) and (h) providing for the tax exemptions of the income of
said organizations. Hence, if such income from property or any other property is
not conducted for profit, then it is not taxable.
2. There is no question that in leasing its facilities to small shop owners and in
operating parking spaces, YMCA does not engage in any profit- making
business. Both the CTA and CA in its resolution categorically found that these
activities conducted on YMCA's property were aimed not only at fulfilling the
needs and requirements of its members as part of YMCA's youth program but,
more importantly, at raising funds to finance the multifarious projects of the
Association.
3. In YMCA v. CIR, SC categorically held YMCA to be an education
institution exclusively devoted to educational and charitable purposes not
operated for profit. It previsouly held that YMCA is an institution used
exclusively for all three purposes (religious, charitable, educational) and is
entitled to be exempted from taxation.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
66. LUNG CENTER OF THE PHILIPPINES v QUEZON CITY
(Jaya)
June 29, 2004 | CALLEJO, SR., J. | Taxation of special entities - Charitable
institutions
PETITIONER: LUNG CENTER OF THE PHILIPPINES,
RESPONDENTS: QUEZON CITY and CONSTANTINO P. ROSAS, in his
capacity as City Assessor of Quezon City
SUMMARY:
Lung Center of the Philippines is the registered owner of a lot in QC. The
hospital was erected in the middle of it but there were certain portions of the lot
which were leased to private entities. When the real property was assessed in
1993, Lung Center claimed for exemption pursuant to Section 28, paragraph 3 of
the 1987 Constitution which exempts charitable institutions from property taxes.
The court ruled that if the real property is used for one or more commercial
purposes, it is deemed to be not exclusively used for the exempted purposes and
is therefore subject to taxation. Hence, the portions of the land which were
leased to private entities as well as those parts of the hospital leased to private
individuals were not exempted from such taxes. Only the portions of the land
occupied by the hospital and portions of the hospital used for its patients,
whether paying or non-paying, were exempted from real property taxes.
DOCTRINE:
What is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property itself
to the purposes for which the charitable institution is organized. It is not the use
of the income from the real property that is determinative of whether the
property is used for tax-exempt purposes.
FACTS:
1. The Lung Center of the Philippines is a non-stock and non-profit entity
established on January 16, 1981 by virtue of Presidential Decree No. 1823.
2. It is the registered owner of a lot in Quezon city where the hospital is
located. A big space at the ground floor is being leased to private parties,
a. for canteen and small store spaces,
b. to medical or professional practitioners who use the same as their
private clinics for their patients whom they charge for their
professional services.
3. Meanwhile the left side of the building is being leased for commercial
purposes to a private enterprise known as the Elliptical Orchids and Garden
Center.
4. In 1993, the hospital was assessed for real property taxes amounting to
P4,554,860. It claimed for exemption based on Section 28, paragraph 3 of
the 1987 Constitution, which exempts charitable institutions from real
property taxes.
5. Lung Center averred that a minimum of 60% of its hospital beds are
exclusively used for charity patients and that the major thrust of its hospital
operation is to serve charity patients.
6. Such claim for exemption was dismissed by the Local Board of Assessment
Appeals of Quezon City (QC-LBAA).
ISSUES:
1. Is the Lung Center a charitable institution? YES
2. Are the portions of real property leased to private entities exempted from
real property taxes? NO
RATIO:
Issue #1
1. The test of a charity and a charitable organization are in law the same. The
test whether an enterprise is charitable or not is:
a. whether it exists to carry out a purpose reorganized in law as
charitable or
b. whether it is maintained for gain, profit, or private advantage.
2. A charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients, whether
out-patient, or confined in the hospital, or receives subsidies from the
government, so long as the money received is devoted or used altogether to
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
the charitable object which it is intended to achieve; and no money inures to 9. Lung Center failed to discharge its burden to prove that the entirety of its
the private benefit of the persons managing or operating the institution. real property is actually, directly and exclusively used for charitable
3. Hence, Lung Center is a charitable institution since it renders medical purposes.
services to the public in general who may be subjects of charity. 10. Thus, the court held
a. That the portions of the land leased to private entities as well as
Issue #2 those parts of the hospital leased to private individuals are not
1. The portions of the hospital’s real property that are leased to private entities exempt from such taxes; and
are not exempt from real property taxes as these are not actually, directly b. That only the portions of the land occupied by the hospital and
and exclusively used for charitable purposes. portions of the hospital used for its patients, whether paying or
2. Section 2 of Presidential Decree No. 1823 which provides for the tax non-paying, are exempt from real property taxes.
exemption of Lung Center says that “the Lung Center, shall be exempt from
income and gift taxes...from the payment of taxes, charges and fees imposed
by the Government or any political subdivision or instrumentality thereof
with respect to equipment purchases made by, or for the Lung Center”.
4. There is nothing in PD 1823 which grants Lung Center any property tax
exemption privileges for its real properties as well as the building
constructed thereon since its enumeration of tax exempt privileges does not
provide for it.
5. Furthermore, while Section 28(3), Article VI of the 1987 Philippine
Constitution provides that “(3) Charitable institutions, churches and
parsonages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly
and exclusively used for religious, charitable or educational purposes shall
be exempt from taxation”, the same provision will not apply in this case
because what is exempted is not the institution itself. What is exempted
from real estate taxes are lands, buildings and improvements actually,
directly and exclusively used for religious, charitable or educational
purposes.
6. Lung Center must have proved that it is
a. a charitable institution; and
b. its real properties are ACTUALLY, DIRECTLY and
EXCLUSIVELY used for charitable purposes.
7. Exclusive is defined as possessed and enjoyed to the exclusion of others;
debarred from participation or enjoyment; and exclusively is defined, in a
manner to exclude; as enjoying a privilege exclusively
8. If real property is used for one or more commercial purposes, it is not
exclusively used for the exempted purposes and is therefore subject to
taxation.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
67. CIR v. St. Luke's Medical Center, Inc. (Cla)
September 26, 2012 | Carpio, J. | Taxation of Special Entities
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: St. Luke’s Medical Center Inc.
SUMMARY:
St. Luke’s is a hospital organized as a non-stock and non-profit corporation. BIR
assessed St. Luke’s deficiency taxes amounting to P76, 063,116.06 comprised of
deficiency income tax, value-added tax, withholding tax on compensation and
expanded withholding tax. The BIR reduced the amount to P63, 935, 351.57
during trial in the First Division of CTA. St. Luke’s filed an administrative
protest with the BIR against the deficiency tax assessments. BIR argued that
Section 27 (B) of the NIRC, which imposes a 10% preferential tax rate on the
income proprietary non-profit hospitals should be applicable to St. Luke’s.
Issue: W/N St. Luke’s is liable for deficiency income tax on 1998 under Section
27 (B) of the NIRC which imposes a preferential tax rate of 10% on the income
of proprietary non-profit hospitals? Yes. The Court finds that St. Luke’s is a
corporation that is not “operated exclusively” for charitable or social welfare
purposes insofar as its revenues from paying patients are concerned.
DOCTRINE:
To be exempt from income taxes, Section 30 (E) of the NIRC requires that a
charitable institution must be "organized and operated exclusively" for charitable
purposes. Likewise, to be exempt from income taxes, Section 30 (G) of the
NIRC requires that the institution be "operated exclusively" for social welfare.
FACTS:
1. St. Luke’s Medical Center, Inc. (St. Luke’s) is a hospital organized as a
non-stock and non-profit corporation.
2. BIR assessed St. Luke’s deficiency taxes amounting to P76, 063,116.06
comprised of deficiency income tax, value-added tax, withholding tax on
compensation and expanded withholding tax. The BIR reduced the amount
to P63, 935, 351.57 during trial in the First Division of CTA.
3. St. Luke’s filed an administrative protest with the BIR against the
deficiency tax assessments. BIR did not act on the protest within the 180
day period under NIRC. St. Luke’s appealed to the CTA.
4. Before the CTA BIR argued that Section 27 (B) of the NIRC, which
imposes a 10% preferential tax rate on the income proprietary non-profit
hospitals should be applicable to St. Luke’s.
5. According to the BIR:
a. Section 27 (B) introduced in 1997 is a new provision intended to
amend the exemption on non-profit hospitals that were previously
categorized as non-stock, non-profit corporations.
b. SECTION 27 (B) prevails over the general exemption on income
tax granted under Section 30 (E) and (G) for non-stock, non-profit
charitable institutions and civic organizations promoting social
welfare.
c. St Luke’s was actually operating for profit in 1998 because 13% of
its revenues came from charitable purposes
d. St. Luke’s board of trustees, officer and employees directly benefit
from its profits and assets. St. Luke;s had total revenues of
P1,730,367,965 or approx. P1.73 billion from patient services
1998.
6. St. Luke’s contended:
a. That the BIR should not consider its total revenues because its free
services to patients was P218,187,498 or 65.20% of its operating
income of P334,642,615.
b. Its income does not inure to the benefit of any individual.
c. It is a non-stock and non-profit institution for charitable and social
welfare purposes under Section 30 (E) and (G) of the NIRC. It
argued that the making of profit does not destroy its income tax
exemption.
7. CTA held that Section 27 (B) of NIRC does not apply to St. Luke’s.
a. The deficiency income tax of P5,496,963.54, ordered by the CTA
En Banc to be paid, arose from the failure of St. Luke's to prove
that part of its income in 1998 came from charitable activities. The
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
CTA cancelled the remainder of the P63,113,952.79 deficiency
assessed by the BIR based on the 10% tax rate under Section 27
(B) of the NIRC, which the CTA En Banc held was not applicable
to St. Luke's.
ISSUES:
1. W/N St. Luke’s is liable for deficiency income tax on 1998 under Section
27 (B) of the NIRC which imposes a preferential tax rate of 10% on the
income of proprietary non-profit hospitals? Yes.
RATIO:
Section 27 (B) of the NIRC of 1997 provides that Proprietary educational
institutions and hospitals which are non-pro􏰅􏰅t shall pay a tax of ten percent (10%)
on their taxable income.
Section 30 provides that the following organizations shall not be taxed:
30 (E) Nonstock corporation or association organized and operated exclusively
for religious, charitable, scienti􏰅c, athletic, or cultural purposes, or for the
rehabilitation of veterans, no part of its net income or asset shall belong to or
inure to the benefit of any member, organizer, officer or any specific person
30 (G) league or organization not organized for pro􏰅t but operated exclusively for
the promotion of social welfare;
The income of whatever kind and character of the foregoing organizations from
any of their properties, real or personal, or from any of their activities conducted
for pro􏰅􏰅fit regardless of the disposition made of such income, shall be subject
to tax imposed under this Code.
1. The Court held that Section 27 (B) of the NIRC does not remove the
income tax exemption of proprietary non-pro􏰅t hospitals under Section 30
(E) and (G). Section 27 (B) on one hand, and Section 30 (E) and (G) on the
other hand, can be construed together without the removal of such tax
exemption.
2. The effect of the introduction of Section 27(B) is to subject the taxable
income of two specific institutions, namely, proprietary non-profit
educational institutions and proprietary non-profit hospitals, among the
institutions covered by Section 30, to the 10% preferential rate under
Section 27(B) instead of the ordinary 30% corporate rate.
3. The only qualifications for hospitals are that they must be proprietary and
non-profit.
4. “Proprietary” means private, following the definition of a “proprietary
educational institution” as “any private school maintained and administered
by private individuals or groups” with a government permit.
5. “Non-profit” means no net income or asset accrues to or benefits any
member or specific person, with all the net income or asset devoted to the
institution’s purposes and all its activities conducted not for profit.
6. “Non-profit” does not necessarily mean “charitable.”
7. In Lung Center v. QC, the Court defined “charity” as a gift to be applied
consistently with existing laws for the benefit of an indefinite number of
persons either by bringing their minds and hearts under the influence of
education or religion, by assisting them to establish themselves in life or by
otherwise lessening the burden of government.”
8. Charitable institutions provide for free goods and services to the public
which would otherwise fall on the shoulders of government. Thus, as a
matter of efficiency, the government forgoes taxes which should have been
spent to address public needs, because certain private entities already
assume a part of the burden.
9. Charitable institutions, however, are not ipso facto are not entitled to a tax
exemption. The requirements for a tax exemption are specified by the law
granting it. The requirements for a tax exemption are strictly construed
against the taxpayer because an exemption restricts the collection of taxes
necessary for the existence of the government.
10. There is no dispute that St. Luke's is organized as a non-stock and non-
pro􏰅fit charitable institution. However, this does not automatically exempt
St. Luke’s from paying taxes.
11. To be exempt from real property taxes, Section 28 (3), Article VI of the
Constitution requires that a charitable institution use the property "actually,
directly and exclusively" for charitable purposes.
12. To be exempt from income taxes, Section 30 (E) of the NIRC requires that a
charitable institution must be "organized and operated exclusively" for
charitable purposes. Likewise, to be exempt from income taxes, Section 30
(G) of the NIRC requires that the institution be "operated exclusively" for
social welfare.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
13. However, the last paragraph of Sec. 30 of NIRC qualifies the words
“organized and operated exclusively”. The paragraph of Sec. 30 of NIRC
provides that

Notwithstanding the provisions in the preceding paragraphs, the

income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or from
any of their activities conducted for prfio􏰅􏰅t regardless of the
disposition made of such income, shall be subject to tax imposed
under this Code.

14. In 1998, St. Luke’s had total revenues of P1,730,367,965 from services to
paying patients. It cannot be disputed that a hospital which receives
approximately P1.73 billion from paying patients is not an institution
“operated exclusively” for charitable purposes. Clearly, revenues from
paying patients are income received from “activities conducted for profit.”
Indeed, St. Luke’s admits that it derived profits from its paying patients. St.
Luke’s declared P1,730,367,965 as “Revenues from Services to Patients” in
contrast to its “Free Services” expenditure of P218,187,498.
15. The Court finds that St. Luke’s is a corporation that is not “operated
exclusively” for charitable or social welfare purposes insofar as its revenues
from paying patients are concerned. This ruling is based not only on a strict
interpretation of a provision granting tax exemption, but also on the clear
and plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC
requires that an institution be “operated exclusively” for charitable or social
welfare purposes to be completely exempt from income tax.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
68. CIR v. DLSU (Charlie)
November 9, 2016 | Brion, J. | Constitutional Limitations- Taxation of Special
Entities
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: De La Salle University, Inc.
SUMMARY: In 2004, the BIR issued a Letter of Authority to DLSU to
examine its books of accounts and accounting records. It assessed it for
deficiency income tax on rental earnings from restaurants/canteens and
bookstores; VAT on business income; and documentary stamp tax on
loans and lease contracts. DLSU protested the assessment, relying on Art.
XIV Sec. 4(3) of the Constitution which provides that “All revenues and
assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall be exempt from
taxes and duties...” The CIR argued that DLSU’s rental income is taxable
regardless of how such income is derived, used, or disposed of, based on
Sec. 30 (H) of the Tax Code. The issue is whether DLSU’s income and
revenues proved to have been actually, directly, and exclusively used for
educational purposes are exempt from duties and taxes. The Court held
that the Tax Code does not qualify the constitutionally-granted exemption
to NSNP educational institutions, and it is conditioned only on the actual,
direct and exclusive use of their assets, revenues and income for
educational purposes.
DOCTRINE: When a non-stock, non-profit educational institution proves
that it uses its revenues actually, directly, and exclusively for educational
purposes, it shall be exempted from income tax, VAT, and local business
tax. On the other hand, when it also shows that it uses its assets in the
form of real property for educational purposes, it shall be exempted from
real property tax.
FACTS:
1. Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to DLSU
Letter of Authority (LOA) No. 2794 authorizing its revenue officers to
examine DLSU’s books of accounts and other accounting records for all
internal revenue taxes for Fiscal Year Ending 2003 and Unverified Prior
Years.
2. On Aug. 18, 2004, BIR assessed DLSU the following deficiency taxes:
a. Income tax on rental earnings from restaurants/canteens and
bookstores operating within the campus
b. Value-added tax (VAT) on business income
c. Documentary stamp tax (DST) on loans and lease contracts.
The BIR demanded payment of P17,303,001.12 for taxable years 2001,
2002 and 2003.
3. DLSU protested the assessment, and filed a petition with the CTA Division.
It relied on Art. XIV Sec. 4(3) of the Constitution which provides that
“All revenues and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be
exempt from taxes and duties...”
4. CTA Division partially granted DLSU’s petition for review. The DST
assessment on the loan transactions of DLSU was cancelled, but it was still
ordered to pay deficiency income tax, VAT, and DST on lease contracts
plus 25% surcharge for FYs 2001, 2002 and 2003, totalling around P18M,
as well as 20% delinquency interest.
5. Both the Commissioner and DLSU moved for reconsideration. CTA
Division denied CIR’s MR and held in abeyance DLSU’s MR. CIR
appealed to the CTA En Banc arguing that DLSU’s use of revenues and
assets for non-educational or commercial purposes removed these items
from the exemption coverage under the Constitution.
6. DLSU offered supplemental evidence to the CTA Division to prove that its
rental income was used actually, directly, and exclusively for educational
purposes. CTA Division admitted the additional evidence and reduced the
amount of DLSU’s tax deficiencies to around P5.5M. Dissatisfied with the
partial reduction, DLSU filed a separate petition for review with the CTA
En Banc.
7. CTA En Banc’s rulings:
a. Dismissed CIR’s petition. DLSU was able to prove that a portion
of its rental income was actually, directly, and exclusively used for
educational purposes (it was used to pay the loan it obtained to
build the university’s Physical Education Sports Complex).
b. Partially granted DLSU’s petition and reduced its tax liabilities to
~P2.5M.
c. Both filed a petition with the SC.
8. CIR’s arguments re: tax exemption:
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
a. DLSU’s rental income is taxable regardless of how such income is
derived, used, or disposed of. Art. XIV Sec. 4 (3) must be
harmonized with Sec. 30 (H) of the Tax Code which provides that
the income of whatever kind and character of [a non-stock and
non-profit educational institution] from any of [its] properties, real
or personal, or from any of [its] activities conducted for profit
regardless of the disposition made of such income, shall be subject
to tax.
b. CTA En Banc misapplied the case of CIR v. YMCA, where it was
held that revenues were tax exempt provided that they would be
used for educational purposes. A tax-exempt organization like
DLSU is exempt only from property tax but not from income tax
on the rentals earned from the property. Thus DLSU’s income
from leases is not exempt even if it will be used for educational
purposes.
9. DLSU’s arguments:
a. Art. XIV Sec. 4(3) is clear that all assets and revenues of NSNP
educational institutions used actually, directly, and exclusively for
educational purposes are exempt from taxes and duties.
b. The tax exemption is novel to the 1987 Constitution and Sec. 30
(H) of the Tax Code cannot amend the Constitution. The particular
section is a replica of Sec 26 of the 1977 Tax Code which was
promulgated when the 1973 Constitution was in place. In the 1973
Const. the exemption was only for real property tax, while in the
1987 Const. it applied to all assets and revenues. Therefore Sec. 30
(H) of the Tax Code should be declared without force and effect.
ISSUE:
1. Whether DLSU’s incomes and revenues proved to have been used actually,
directly, and exclusively for educational purposes are exempt from duties
and taxes - YES.
RATIO:
1. The revenues and assets of non-stock, non-profit educational institutions
proved to have been used actually, directly, and exclusively for educational
purposes are exempt from duties and taxes.
2. DLSU rests it case on Article XIV, Section 4 (3) of the 1987 Constitution,
which reads:
All revenues and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be
exempt from taxes and duties. Upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be disposed of in
the manner provided by law.
Proprietary educational institutions, including those cooperatively owned,
may likewise be entitled to such exemptions subject to the limitations
provided by law including restrictions on dividends and provisions for
reinvestment
3. The tax exemption granted to NSNP educational institutions is
conditioned only on the actual, direct and exclusive use of their
revenues and assets for educational purposes. While tax exemptions
may also be granted to proprietary educational institutions, these
exemptions may be subject to limitations imposed by Congress.
4. The Commissioner posits that the 1997 Tax Code qualified the tax
exemption granted to non-stock, non-profit educational institutions such
that the revenues and income they derived from their assets, or from any of
their activities conducted for profit, are taxable even if these revenues and
income are used for educational purposes.
5. The Court held that the Tax Code did not qualify the exemption
constitutionally-granted to NSNP educational institutions. It relied on the
YMCA case doctrine, where it was held that the requisites for availing the
tax exemption under Art. XIV are: (1) the taxpayer is a NSNP educational
institution, and (2) the income is actually, directly, and exclusively used for
educational purposes.
6. The tax exemption granted by the Constitution to NSNP educational
institutions is conditioned only on the actual, direct and exclusive use of
their assets, revenues and income for educational purposes. Unlike
Article VI, Section 28 (3) of the Constitution (pertaining to charitable
institutions, churches, parsonages or convents, mosques, and non-profit
cemeteries), which exempts from tax only the assets, i.e., "all lands,
buildings, and improvements, actually, directly, and exclusively used for
religious, charitable, or educational purposes...," Article XIV, Section 4 (3)
categorically states that "[a]ll revenues and assets... used actually, directly,
and exclusively for educational purposes shall be exempt from taxes and
duties."
7. The text demonstrates the policy of the 1987 Constitution to provide
broader tax privilege to non-stock, non-profit educational institutions as
recognition of their role in assisting the State provide a public good. The tax
exemption was seen as beneficial to students who may otherwise be charged
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
unreasonable tuition fees if not for the tax exemption extended to all 13. However, if the university actually, directly and exclusively uses for
revenues and assets of NSNP educational institutions. educational purposes the revenues earned from the lease of its school
8. Further, a plain reading of the Constitution would show that Article XIV, building, such revenues shall be exempt from taxes and duties. The tax
Section 4 (3) does not require that the revenues and income must have also exemption no longer hinges on the use of the asset from which the revenues
been sourced from educational activities or activities related to the purposes were earned, but on the actual, direct and exclusive use of the revenues for
of an educational institution. The phrase all revenues is unqualified by any educational purposes.
reference to the source of revenues. Thus, so long as the revenues and 14. The tax exemption granted to NSNP educational institutions, unlike
income are used actually, directly and exclusively for educational purposes, proprietary educational institutions, are not subject to limitations
then said revenues and income shall be exempt from taxes and duties. imposed by law. While a NSNP educational institution is classified as a
9. Taxation of revenues vs. the taxation of assets: tax-exempt entity under Section 30 (Exemptions from Tax on Corporations)
a. Revenues consist of the amounts earned from the conduct of of the Tax Code, a proprietary educational institution is covered by Section
business operations. It may refer to the sale of goods, rendition of 27 (Rates of Income Tax on Domestic Corporations).
services, or the return of an investment. Revenue is a component 15. A proprietary educational institution is entitled only to the reduced rate of
of the tax base in income tax, VAT, and local business tax 10% corporate income tax. The reduced rate is applicable only if: (1) the
(LBT). proprietary educational institution is non profit and (2) its gross income
b. Assets are the tangible and intangible properties owned by a from unrelated trade, business or activity does not exceed 50% of its total
person or entity. It may refer to real estate, cash deposit in a bank, gross income.
investment in the stocks of a corporation, inventory of goods, or
any property from which the person or entity may derive income or
use to generate the same. In Philippine taxation, the fair market
value of real property is a component of the tax base in real
property tax (RPT). Also, the landed cost of imported goods is a
component of the tax base in VAT on importation and tariff duties.
10. Thus, when a NSNP educational institution proves that it uses its revenues
actually, directly, and exclusively for educational purposes, it shall be
exempted from income tax, VAT, and LBT. On the other hand, when it also
shows that it uses its assets in the form of real property for educational
purposes, it shall be exempted from RPT.
11. Proving the actual use of the taxable item will result in an exemption, but
the specific tax from which the entity shall be exempted from shall depend
on whether the item is an item of revenue or asset (i.e. if a university leases
a portion of its school building to a bookstore or cafeteria, the leased
portion is not actually, directly and exclusively used for educational
purposes, even if the bookstore or canteen caters only to university students,
faculty and staff).
12. The leased portion of the building may be subject to real property tax, as
held in Abra Valley College case. The lease of a portion of a school building
for commercial purposes, removes such asset from the property tax
exemption granted under the Constitution. The commercial use of the
property is also not incidental to and reasonably necessary for the
accomplishment of the main purpose of a university, which is to educate its
students.
BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
69. Republic Bank v. CTA (YEN) a. Republic Bank again requested a reconsideration of the assessment
2 September 1992| Nocon, J.| Situs of Taxation and Double Taxation in a letter dated 16 May 1973, to whcih the Commissioner denied
in a letter dated 6 May 1974.
3. Republic Bank’s contention: Sec. 249 of the Tax Code is no onger
PETITIONER: Republic Bank enforceable because Sec. 126 of Act 1459, the alleged basis for the
RESPONDENTS: CTA and CIR imposition of the 1% reserve deficiency tax, was repealed by Sec. 90 of RA
337 (the General Banking Act), and by Secs. 100 and 101 of RA 265.
4. On 28 March 173, Republic Bank filed a petrev with the Tax Court,
SUMMARY: Republic Bank was assessed a 1% monthly bank reserve
contesting the assessment for the taxable year 1969. And another similar
deficiency on 1969 and 1970 with 25% surcharge. Both assessments were
petition contesting the assessment for the taxable year 1970.
requested to be reconsidered but both were denied. Republic Bank
a. The two were consolidated and the petitions were dismissed by
contends that Sec. 249 of the Tax Code is no longer enforceable, because
CTA which upheld the validity of the assessments.
Sec. 126 of Act 1459 (the alleged basis for the imposition of the 1%
5. Hence this petrev.
reserve deficiency tax) was repealed by Sec. 90 of the General Banking
a. Republic Bank’s arguments:
Act and by Secs. 100 and 101 of RA 265. Hence, 2 separate petrevs were
i. Sec. 126 has been expressly repealed by Sec. 90 of the
filed with CTA contesting the assessments. These were consolidated and
General Banking Act (express repeal).
the CTA dismissed the petition and upheld the validity of the assessments.
ii. Sec. 49 of the Tax Code can no longer be enforced as the
Unsatisfied, Republic Bank filed a petrev with SC.
basis for which the tax is to be computed because Sec.
126, Act 1459 is no longer in force. The Central Bank
The issue to resolved relevant to the class is w/n there was double taxation
Act’s Secs. 100 101, 105, and 106, provided a whole new
to which the court held no, since one was a penalty, the other a tax.
set of rules in regard to reserve requirements and reserve
deficiencies of banks clearly showing that it was the
DOCTRINE: The Court has upheld the validity of double taxation. The
legislative intent to remove the regulation of the
payment of 1/10 of 1% for incurring reserve deficiencies is a penalty as
operations of banks under the ambit of the Corporation
the primary purpose involved is regulation, while the payment of 1% for
Law and to place them under the purview of the Central
the same violation is a tax for the generation of revenue which is the
Bank Act and the General Banking Act.
primary purpose in this instance.
iii. In case of a reserve deficiency, the violating bank would
be liable at the same time for a tax of 1% a month
payable to the BIR as well as a penalty of 1/10 of% a
day payable to the Central Bank.
FACTS:
1. They argued that the text of the second
1. On 14 September 1971, the CIR assessed Republic Bank the amount of
paragraph of Sec. 249 of the Tax Code indicates
about 1.06M plus 25% surcharge, or a total of about P1.3M as 1% monthly
that the imposition is only a penalty, and not a
bank reserve deficiency tax for taxable year 1969.
tax.
a. 6 October 1971 - Republic Bank requested reconsideration of the
b. But both Republic Bank and CIR agree that:
assessment through a letter but the Commissioner denied it in a
i. The requirements on the maintenance of bank reserves,
letter dated 26 Feb 1973.
preiously found in Sec. 126 of Act 1459 (Corporation
2. On 5 April 1973, the CIR assessed Republic bank the amount of about
Law), remained prescribed, after its repeal in another of
P15M plus 25% surcharge, or a total of about 1.9M, as 1% reserve
other laws, i.e. RA 3374, RA 2655, and RA 265
deficiency tax for taxable year 1970.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
c. CIR’s arguments:
i. Sec.249 of the then Tax Code is deemed to have ipso
facto incorporated by reference the new legislations on
bank reserves after the repeal of Sec.126, Act 1459.
ISSUES:
1. W/N there is double taxation - NO
RULING: Petition DENIED.
RATIO:
1. The second paragraph of Sec. 249 of the Tax Code of 1970, the provision
invoked in making the assessment, provides for the collection upon the
amount of reserve deficiencies incurred by the bank and for the period of
their duration, as provided in Sec. 126 of Act 3610, one per centum per
month. This paragraph was based on Sec. 26 of RA 337 (General Banking
Acts and Secs. 100, 101 and 106 of RA 265 (Central bank Act) - al
providing for the reserve requirements on banking operations.
2. While Sec. 126 of Act 1459 (The Corporation Law) reads: “Whenever the
reserve as defined in the last preceding section of any commercial
banking corporation shall be below the amount required in that section
such commercial banking corporation shall not diminish the amount
of such reserve by making any new loans or discounts, or declare any
dividend out of its profits until the required proportion between the
aggregate amount of its deposits and its reserve has been restored.
Reserve deficiencies shall be penalized at the rate of one per centum
per month upon the amount of the deficiencies and for the periods of
their duration in accordance with the regulation to be issued by the
Bank Commissioner. The penalty assessed shall be collected by the
Collector of Internal Revenue in accordance with the rules, regulations
and procedure to be determined by him. In the case of any
commercial banking corporation whose reserve is continuously deficient
for a period of thirty days, the business of such corporation may be
wound up by the Bank Commissioner in accordance with section
sixteen hundred and thirty-nine of Act numbered twenty seven hundred
and eleven, as amended, known as the Administrative Code.
3. The Court said that they found Republic Bank’s act of quoting out of
context the questioned provision in the Tax Code unfortunate {Refer to
Fact No. 5(a)(iii)(1)}. If Republic Bank were cadid and honest enough, it
would have stated under what title and chapter of the Tax Code the second
paragrah of Sec. 249 falls, i.e. under Title VII - Miscellaneous Taxes. It is
clear from this then, that a tax, and not a penalty was to be collected.
4. As the law stood during the years Republic Bank was assessed for taxes on
reserve deficiencies (1969 & 1970), Republic Bank had to pay twice: the
first, a penalty to the Central Bank by virtue of Sec. 106 for violation of
Secs. 100 and 101 of the Central Bank Act, and the second, a tax to the BIR
for incurring a reserve deficiency.
5. As correctly analyzed by both parties, the new legislations on bank reserves
merely provide the basis for computation of the reserve deficiency of
Republic Bank. Republic Bank argued that it was not the legislative
intention that banks with reserve deficiencies would pay twice since the Tax
Code did not contain such a provision, but SC held that while Republic
Bank may have a point, the wisdom of legislation is not the province of
the Court. It is clear from the statutes then in force that there was no
double taxation involved - one was a penalty and the other was a tax. At
any rate, the SC had upheld the validity of double taxation.
a. The payment of 1/10 of 1% for incurring reserve deficiencies (Sec.
106, Central bank Act) is a penalty as the primary purpose
involved is regltion, while the payment of 1% for the same
violation (Sec. 249(2), NIRC) is a tax for the generation of revenue
which is the primary purpose in this instance.
6. Republic Bank should not complain that it is being asked to pay twice for
incurring reserve deficiencies. It can always avoid this predicamen by not
having reserve deficiencies.
7. Republic Bank’s case is covered by 2 special laws - one a banking law
and the other, a tax law. These two laws should receive such
construction as to make them harmonize with each other and with the
other body of pre-existing laws.
Additional Info:
1. There was a discussion on the proper mathematical computation for the
monthl average of the daily reserve deficiencies. It was held that CIR was
right in following the law.
2. There was also an issue on Republic Bank’s exemption but SC held that the
Letter of Instruction issued by then President Marcos providing for
Republic Bank’s exemption does not apply to the taxable years 1969 and
1970, the years at issue, since the Letter was issued with respect to Republi
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
Bank’s role in the government’s sugar production and procurementprogram
as the financil arm of the sugar industry. This was issued 1983. But even if
this were applicable, one of the impositions was just a penalty, hence, the
LOI does not cover it.
SEPARATE OPINIONS: None
CONCURRING: None
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
70. Procter & Gamble Philippine Manufacturing Corp.
vs. Municipality of Jagna (Jen)
December 28, 1979 | Melencio-Herrera, J | Suits of Taxation and Double
Taxation
PETITIONER: Procter & Gamble Philippine Manufacturing Corp.
RESPONDENT: Municipality of Jagna
SUMMARY:
Municipality of Jagana enacted Ordinance No. 4 which imposed storage
fees on all exportable copra deposited in the bodega within the
Municipality. Procter & Gamble, which is engaged in the manufacture of
soap, edible oil, margarine and other similar products maintains a bodega
where it stores its copra. For 6 years, it paid the Municipality storage fees
in the total sum of 42,265.13. Procter is assailing the validity of the
Ordinance. ISSUES: 1) Whether the Ordinance constitutes double
taxation. - NO. Procter’s payment of storage fees imposed by the
Ordinance in question does not amount to double taxation. A tax on
plaintiff's products is different from a tax on the privilege of storing copra
in a bodega situated within the territorial boundary of defendant
municipality.
DOCTRINE:
For Double taxation to exist, the same property must be taxed twice,
when it should be taxed but once. Double taxation has also been defined
as taxing the same person twice by the same jurisdiction for the same
thing.
FACTS:
1. A direct appeal by Procter & Gamble from the judgement of CFI Manila,
upholding the validity of Ordinance No. 4, Series of 1957, enacted by
defendant Municipality, which imposed "storage fees on all exportable
copra deposited in the bodega within the jurisdiction of the Municipality of
Jagna, Bohol.
2. Procter & Gamble is a domestic corporation with principal offices in
Manila.
3. It is engaged in the manufacture of soap, edible oil, margarine and other
similar products, and for this purpose maintains a "bodega" in defendant
Municipality where it stores copra purchased in the municipality and
therefrom ships the same for its manufacturing and other operations.
4. Municipal Council of Jagna enacted Municipal Ordinance No. 4, Series
of 1957
a. AN ORDINANCE IMPOSING STORAGE FEES OF ALL
EXPORTABLE COPRA DEPOSITED IN THE BODEGA
WITHIN THE JURISDICTION OF THE MUNICIPALITY OF
JAGNA, BOHOL
b. "SECTION 1. Any person, firm or corporation having a deposit of
exportable copra in the bodega, within the jurisdiction of the
Municipality of Jagna, Bohol, shall pay to the Municipal Treasury
a storage fee of TEN (P0.10) CENTAVOS FOR EVERY
HUNDRED (100) kilos;
c. "SECTION 2. All exportable copra deposited in the bodega, is
part of the surveillance and lookout of the Municipal Authorities
5. For a period of six years, from 1958 to 1963, plaintiff paid defendant
Municipality, allegedly under protest, storage fees in the total sum of
P42,265.13
6. Procter filed this suit in CFI Manila, where it prayed:
a. Ordinance No. 4 inapplicable; be pronounced as ultra vires and
void for being beyond the power of Municipality to enact
b. Municipality be ordered to refund.
7. Trial Court
a. Upheld Municipality’s power to enact Ordinance under General
Welfare Clause
b. Procter’s right of action had prescribed under the 5 year period
provided by Art. 1149 of CC.
ISSUE:
1. Whether the Municipality was authorized to impose and collect storage fee
provided in Ordinance No. 4, series of 1957 - YES.
2. Whether the Ordinance constitutes double taxation - NO.
RATIO:
1. Procter’s submission that the Ordinance is inapplicable since:
a. as it is not engaged in the business or trade of storing copra for
others for compensation or profit and that the only copra it stores is
for its exclusive use in connection with its business
b. levy is intended as an "export tax" as it is collected on "exportable
copra", and, therefore, beyond the power of the Municipality to
enact;
c. fee of P0.10 for every 100 kilos of copra stored in the bodega is
excessive, unreasonable and oppressive and is imposed more for
revenue than as a regulatory fee.
2. validity of the Ordinance must be upheld pursuant to the broad
authority conferred upon municipalities by Commonwealth Act No. 472,
which was the prevailing law when the Ordinance was enacted
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
a. "Section 1. A municipal council or municipal district council shall
have the authority to impose municipal license taxes upon persons
engaged in any occupation or business, or exercising privileges in
the municipality or municipal district, by requiring them to secure
licenses at rates fixed by the municipal council, or municipal
district council, and to collect fees and charges for services
rendered by the municipality or municipal district and shall
otherwise have power to levy for public local purposes, and for
school purposes, including teachers' salaries, just and uniform
taxes other than percentage taxes and taxes on specified articles.
3. Under the foregoing provision, a municipality is authorized to impose
three kinds of licenses: (1) a license for regulation of useful occupation or
enterprises; (2) license for restriction or regulation of non-useful
occupations or enterprises; and (3) license for revenue.
4. It is thus unnecessary, to determine whether the subject storage fee is a
tax for revenue purposes or a license fee to reimburse defendant
Municipality for service of supervision because defendant Municipality
is authorized not only to impose a license fee but also to tax for revenue
purposes.
5. storage fee imposed under the questioned Ordinance is actually a
municipal license tax or fee on persons, firms and corporations, like
plaintiff, exercising the privilege of storing copra in a bodega within the
Municipality's territorial jurisdiction. For the term "license tax" has not
acquired a fixed meaning. It is often used indiscriminately to designate
impositions exacted for the exercise of various privileges. In many
instances, it refers to "revenue-raising exactions on privileges or activities."
6. business of buying and selling and storing copra is properly the subject
of regulation within the police power granted to municipalities under
section 2238 of the Revised Administrative Code or the "general
welfare clause".
7. a warehouse used for keeping or storing copra is an establishment likely to
endanger the public safety or likely to give rise to conflagration because the
oil content of the copra when ignited is difficult to put under control by
water and the use of chemicals is necessary to put out the fire. And as the
Ordinance itself states, all exportable copra deposited within the
municipality is "part of the surveillance and lookout of municipal
authorities."
8. Procter’s argument that the imposition of P0.10 per 100 kilos of copra
stored in a bodega within defendant's territory is beyond the cost of
regulation and surveillance is not well taken.
9. Victorias Milling Co. v. Municipality of Victorias
a. The cost of regulation cannot be taken as a gauge, if the
municipality really intended to enact a revenue ordinance. For, 'if
the charge exceeds the expense of issuance of a license and costs
of regulation, it is a tax'. And if it is, and it is validly imposed, 'the
rule that license fees for regulation must bear a reasonable relation
to the expense of the regulation has no application'
10. Municipal corporations are allowed wide discretion in determining the
rates of imposable license fees even in cases of purely police power
measures. In the absence of proof as to municipal conditions and the nature
of the business being taxed as well as other factors relevant to the issue of
arbitrariness or unreasonableness of the questioned rates, Courts will go
slow in writing off an Ordinance.
11. In the case at bar, appellant has not sufficiently shown that the rate
imposed by the questioned Ordinance is oppressive, excessive and
prohibitive.
12. Plaintiff's averment that the Ordinance, even if presumed valid, is
inapplicable to it because it is not engaged in the business or occupation of
buying or selling of copra but is only storing copra in connection with its
main business of manufacturing soap and other similar products, and that to
be compelled to pay the storage fees would amount to double taxation, does
not inspire assent.
13. The question of whether appellant is engaged in that business or not is
irrelevant because the storage fee, as previously mentioned, is an imposition
on the privilege of storing copra in a bodega
14. Section 1 of the Ordinance in question does not state that said persons,
firms or corporations should be engaged in the business or occupation of
buying or selling copra.
15. Procter’s payment of storage fees imposed by the Ordinance in question
does not amount to double taxation.
16. For double taxation to exist, the same property must be taxed twice, when
it should be taxed but once. Double taxation has also been defined as taxing
the same person twice by the same jurisdiction for the same thing.[9]
Surely, a tax on plaintiff's products is different from a tax on the privilege of
storing copra in a bodega situated within the territorial boundary of
defendant municipality.
17. Plaintiff's further contention that the storage fee imposed by the Ordinance
is actually intended to be an export tax, which is expressly prohibited by
section 2287 of the Revised Administrative Code, is without merit.
18. We have held that only where there is a clear showing that what is being
taxed is an export to any foreign country would the prohibition come into
play. When the Ordinance itself speaks of "exportable" copra, the meaning
conveyed is not exclusively export to a foreign country but shipment out of
the municipality. The storage fee impugned is not a tax on export because it
is imposed not only upon copra to be exported but also upon copra sold and
to be used for domestic purposes if stored in any warehouse in the
Municipality and the weight thereof is 100 kilos or more.
19. The action has not yet prescribed since in the case of Municipality of Opon
vs. Caltex Phil., is authority for the view that the period for prescription of
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
actions to recover municipal license taxes is six years under Article 1145(2)
of the Civil Code. Thus, plaintiff's action brought within six years from the
time the right of action first accrued in 1958 has not yet prescribed

WHEREFORE, affirming the judgment appealed from, we sustain the validity of

Ordinance No. 4, Series of 1957, of defendant Municipality of Jagna, Bohol, under
the laws then prevailing.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
taxation because Double taxation is NOT forbidden by the Constitution.
Double taxation only becomes unjust when the taxpayer is taxed twice for
the benefit of the same government entity or by the same jurisdiction for
71. Pepsi-Cola Bottling Company v. Municipality of Tanauan (Feli) the same purpose, BUT NOT in a case where one tax is imposed by the
February 27, 1976 | J. Martin | General Principles - Situs of Taxation and Double State and the other by the city/municipality. The imposition of a tax of 1
Taxation centavo per gallon is also NOT percentage tax on sales, because the
volume capacity determines the tax rate (no ratio between volume of sales
and amount of tax). Finally, a Tax of 1 centavo per gallon is NOT unjust
PETITIONER: Pepsi-Cola Bottling Company of the Philippines and unfair because an increase in tax does not make tax oppressive or
RESPONDENTS: Municipality of Tanauan, Leyte unjust. Municipal corporations are allowed discretion in determining the
rates of taxes. This is in line with the constitutional policy of giving
autonomy to local governments with regard to taxation.
SUMMARY:
Pepsi-Cola Bottling Company of the Philippines (Pepsi) filed a complaint
(See Concurring Opinion)
with preliminary injunction before the CFI of Leyte to declare Section 2 of
RA 2264 (Local Autonomy Act) unconstitutional for undue delegation of
DOCTRINE:
taxing authority, as well as to declare Ordinances No. 23 and 27 of the
Municipality of Tanauan, Leyte, void. In Ordinance No. 23, Municipal
Double taxation is NOT forbidden by the Constitution. Double taxation
gov’t collects a tax of 1/16th of a centavo for every bottle of soft drink
only becomes unjust when the taxpayer is taxed twice for the benefit of
corked, while in Ordinance No. 27, Municipal gov’t collects on soft
the same government entity or by the same jurisdiction for the same
drinks produced/manufactured within the territorial jurisdiction of the
purpose, BUT NOT in a case where one tax is imposed by the State and
municipality a tax of 1 centavo on each gallon of volume capacity..Pepsi
the other by the city/municipality.
argued that Ordinances 23 and 27 embrace the same subject matter and the
production tax rates are the same, thus constituting double taxation. The
Municipalities may be permitted to tax subjects which, for reasons of
CFI dismissed the complaint and upheld the constitutionality of Section 2,
public policy, the State has not deemed wise to tax for more general
RA 2264, as well as the two ordinances. It also ordered Pepsi to pay the
purposes.
taxes due. Pepsi appealed to the CA, who elevated the case to the SC.

Municipal corporations are allowed discretion in determining the rates of

The issues are WON Section 2, RA 2264 is an undue delegation of power,
taxes. This is in line with the constitutional policy of giving autonomy to
confiscatory and oppressive, WON Ordinances 23 and 27 constitute
local governments with regard to taxation.
double taxation and impose percentage or specific taxes, and WON
Ordinances 23 and 27 are unjust and unfair. The SC held that Section 2,
RA 2264 is NOT an undue delegation of power because although taxing
powers are purely legislative, legislative powers may be delegated to
LOCAL GOVERNMENTS in respect to matters of local concern. These FACTS:
include the power to confer to local governments the power to tax. 1. Pepsi-Cola Bottling Company of the Philippines (Pepsi) filed a complaint
Municipalities may be permitted to tax subjects which, for reasons of with preliminary injunction before the CFI of Leyte to declare Section 2 of
public policy, the State has not deemed wise to tax for more general RA 2264 (Local Autonomy Act) unconstitutional for undue delegation of
purposes. The ordinances also are not unconstitutional because of double taxing authority, as well as to declare Ordinances No. 23 and 26 of the
Municipality of Tanauan, Leyte, void.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
a. [FOR REFERENCE] Section 2. Any provision of law to the
contrary notwithstanding, all chartered cities, municipalities
and municipal district shall have authority to impose municipal
license taxes or fees upon persons engaged in any occupation or
business, or exercising privileges in chartered cities,
municipalities or municipal districts by requiring them to secure
licenses at rates fixed by the municipal board or city council of
the city, the municipal council of the municipality, or the
municipal district council of the municipal district; to collect
fees and charges for services rendered by the city, municipality
or municipal district; to regulate and impose reasonable fees for
services rendered in connection with any business, profession
or occupation being conducted within the city, municipality or
municipal district and otherwise to levy for public purposes,
just and uniform taxes, licenses or fees : Provided, That
municipalities and municipal districts shall, in no case, impose
any percentage tax on sales or other taxes in any form based
thereon nor imposed taxes on articles subject to specific tax,
except gasoline, under the provisions of the national internal
revenue code: Provided, however, That no city, municipality or
municipal district may levy or impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the
printing and publication of any newspaper, magazine, review or
bulletin appearing at regular intervals and having fixed prices
for subscription and sale, and which is not published primarily
for the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and
other public utilities except electric light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritances, gifts, legacies, and other
acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and
for the issuance of all kinds of licenses or permits for the
driving thereof;
(i) Customs duties registration, wharfage on wharves
owned by the national government, tonnage, and all other kinds
of customs fees, charges and dues;
(j) Taxes of any kind on banks, insurance companies, and
persons paying franchise tax; and
(k) Taxes on premiums paid by owners of property who
obtain insurance directly with foreign insurance companies.
2. Ordinance No. 23: Municipal gov’t collects a tax of 1/16th of a centavo for
every bottle of soft drink corked. For the purpose of computing tax, the
person/company producing the soft drinks will submit to the Treasurer a
monthly report of the total number of bottles produced and corked during
the month.
3. Ordinance No. 27: Municipal gov’t collects on soft drinks
produced/manufactured within the territorial jurisdiction of the municipality
a tax of 1 centavo on each gallon of volume capacity. For the purpose of
computing tax, the person/company producing the soft drinks will submit to
the Treasurer a monthly report of the total number of gallons produced or
manufactured during the month.
4. Pepsi argued that Ordinances 23 and 27 embrace the same subject matter
and the production tax rates are the same, thus constituting double taxation.
It was also stipulated that the Municipal Treasurer sought to enforce
compliance by Pepsi of Ordinance No. 27.
5. The CFI dismissed the complaint and upheld the constitutionality of Section
2, RA 2264, as well as the two ordinances. It also ordered Pepsi to pay the
taxes due. Pepsi appealed to the CA, who elevated the case to the SC.
ISSUES:
1. WON Section 2, RA 2264 is an undue delegation of power, confiscatory
and oppressive - NO
2. WON Ordinances 23 and 27 constitute double taxation and impose
percentage or specific taxes - NO
3. WON Ordinances 23 and 27 are unjust and unfair - NO
RATIO:
Issue #1
1. The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
a. Power that is PURELY LEGISLATIVE, and cannot be delegated
to the executive or judicial department.
2. EXCEPTION: Legislative powers may be delegated to LOCAL
GOVERNMENTS in respect to matters of local concern. These include the
power to confer to local governments the power to tax
a. 1973 Constitution. Art. XI, Sec. 5: “Each local government unit
shall have the power to create its sources of revenue and to levy
taxes, subject to such limitations as may be provided by law.”
b. It cannot be said that Section 2 emanated from beyond the sphere
of legislative power to enact and vest in local governments the
power of taxation.
3. The plenary nature of taxing power does not make RA 2264 confiscatory
and oppressive.
a. Municipalities may be permitted to tax subjects which, for reasons
of public policy, the State has not deemed wise to tax for more
general purposes.
b. Due process can be violated:
i. When the tax imposed is for a private purpose instead of a
public one
ii. When arbitrary or oppressive methods are used in
assessing and collecting taxes.
c. Due process is NOT Violated when then taking of property is in
the lawful exercise of taxing power
i. tax is for a public purpose
ii. rule on uniformity of taxation is observed
iii. either the person or property taxed is within the
jurisdiction of the government
iv. in assessment and collection of certain taxes, notice and
hearing are provided)
d. Due process does not require that the property subject to the tax
should be determined by judicial inquiry, and notice and hearing as
to the amount of tax are not necessary.
Issue #2
1. The delegated authority of local governments to tax is NOT
UNCONSTITUTIONAL because of double taxation.
a. The delegating authority specifies the limitations and enumerates
the taxes over which local taxation may not be exercised.
b. Double taxation is NOT forbidden by the Constitution . Double
taxation only becomes unjust when the taxpayer is taxed twice for
the benefit of the same government entity or by the same
jurisdiction for the same purpose, BUT NOT in a case where one
tax is imposed by the State and the other by the city/municipality.
2. Ordinance No. 27 REPEALED Ordinance No. 23.
a. Legislative intent in enacting Ordinance No. 27 was to replace the
tax rate based on the volume of the contents of the bottle, instead
of the number of bottles corked (because it was discovered that the
manufacturer can increase the volume content of the bottle and still
pay the same tax rate)
b. The stipulation of facts confirms and Pepsi admits that the
Treasurer sought compliance of Ordinance No. 27 only.
3. Ordinance No. 27 DOES NOT impose a percentage/specific tax.
a. The taxing authority conferred to local governments is broad
enough to extend to almost everything, except those mentioned.
b. Limitation applies particularly to the prohibition against
municipalities to impose any percentage tax on sales nor impose
taxes on articles subject to specific tax, except gasoline.
i. Ex. a municipal ordinance that prescribes a ratio between
the amount of tax and the volume of sales imposes a sales
tax and is VOID
c. The imposition of a tax of 1 centavo per gallon is NOT percentage
tax on sales, because the volume capacity determines the tax rate
(no ratio between volume of sales and amount of tax)
d. The tax is also NOT specific tax, because specific taxes are
imposed on specified articles (like distilled spirits, wines, liquors,
tobacco products other than cigars and cigarettes, etc.) and soft
drinks are not part.
Issue #3
1. Tax of 1 centavo per gallon is NOT unjust and unfair.
a. An increase in tax does not make tax oppressive or unjust.
Municipal corporations are allowed discretion in determining the
rates of taxes. This is in line with the constitutional policy of
giving autonomy to local governments with regard to taxation.
b. Unless the amount is so excessive as to be prohibitive, courts will
not immediately rule an ordinance to be unreasonable.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
2. The municipal license tax of P1,000 per corking machine with five but not
more than 10 crowners/P 2,000 with 10 but not more than 20 crowners does
not affect validity of Ordinance No. 27.
a. Municipalities are empowered to impose not only municipal
license taxes upon persons engaged in any business/occupation,
but also to levy for public purposes, just and uniform taxes.

SEPARATE OPINIONS:

J. Fernando, concurring

1. 1935 Constitution: Local governments were NOT allowed the power to tax.
a. President could only exercise general supervision over all local
governments
b. As far as legislative power over local government was concerned,
no restriction was placed. The extent of the taxing power was
solely for the legislative body to decide.
c. Even after the enactment of the Local Autonomy Act, the SC
affirmed in Golden Ribbon Lumber Co. v. City of Butuan that
“municipal corporations are clothed with no power of taxation; that
its charter or a statute must clearly show an intent to confer that
power or the municipal corporation cannot assume and exercise it.
d. Tan v. Municipality of Pagbilao: “Taxation is an attribute of
sovereignty which municipal corporations do not enjoy”
2. City of Baguio v. De Leon (on Double Taxation)
a. Even though American law forbids double taxation, it is only
persuasive in Philippine law. Where Congress has clearly
expressed its intention [to tax], the statute must be sustained even
though double taxation results.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
72. Villanueva v. City of Iloilo (Lex)
December 28, 1968 | Castro, J. | Situs of Taxation and Double Taxation
PETITIONER: Eusebio Villanueva, et. al.
RESPONDENTS: City of Iloilo
SUMMARY: Eusebio Villanueva and Remedios S. Villanueva are owners of
five tenement1 houses, aggregately containing 43 apartments. The municipal
board of Iloilo City enacted Ordinance 11, “An Ordinance Imposing Municipal
License Tax on Persons Engaged in the Business of Operating Tenement
Houses”. Eusebio Villanueva has been paying real estate taxes on his property.
However, by virtue of the ordinance in question, the City collected from spouses
Villanueva, for the years 1960-1964, the sum of P5,824.30 and from the other
appellants the sum of P1,317.00. Thus, Villanueva et. al. filed a complaint
against the City of Iloilo, praying that Ordinance 11 be declared "invalid” for
constituting double taxation. Villanueva et.al contents is that they are doubly
taxed because they are paying the real estate taxes and the tenement tax imposed
by the ordinance in question.
The issue is WON Ordinance 11 is illegal for imposing double taxation. The SC
said that while it is true that they are taxable as real estate dealers (income tax)
and still taxable under the ordinance, the argument against double taxation may
not be invoked. The same tax may be imposed by the national government as
well as by the local government. There is nothing inherently obnoxious in the
exaction of license fees or taxes with respect to the same occupation, calling or
activity by both the State and a political subdivision thereof. It is a well-settled
rule that a license tax may be levied upon a business or occupation although the
land or property used in connection therewith is subject to property tax. In order
to constitute double taxation in the objectionable or prohibited sense the same
property must be taxed twice when it should be taxed but once; both taxes must
be imposed on the same property or subject-matter, for the same purpose, by the
same State, Government, or taxing authority, within the same jurisdiction or
taxing district, during the same taxing period, and they must be the same kind or
character of tax. It has been shown that a real estate tax and the tenement tax
imposed by the ordinance, although imposed by the same taxing authority, are
not of the same kind or character. At all events, there is no constitutional
1 a type of apartment building, esp. one with many small apartments that is in a poor
area
prohibition against double taxation in the Philippines. It is something not
favored, but is permissible, provided some other constitutional requirement is
not thereby violated, such as the requirement that taxes must be uniform.
DOCTRINE: In order to constitute double taxation in the objectionable or
prohibited sense the same property must be taxed twice when it should be
taxed but once; both taxes must be imposed on the same property or
subject-matter, for the same purpose, by the same State, Government, or
taxing authority, within the same jurisdiction or taxing district, during the
same taxing period, and they must be the same kind or character of tax.
FACTS:
1. CFI Iloilo appealed the decision of the CFI of Iloilo which declared illegal
Ordinance 11, series of 1960 which was entitled “An Ordinance Imposing
Municipal License Tax on persons Engaged in the Business of Operating
Tenement Houses.
2. September 30 1946 (before the enactment of the local Autonomy Act), the
municipal board of Iloilo City enacted Ordinance 86, imposing license tax
fees, which was declared by the court in 1959 as invalid as it was ultra
vires, :” it not appearing that the power to tax owners of tenement houses is
one among those clearly and expressly granted to the City of Iloilo by its
charter”
3. January 15, 1960-the municipal board of Iloilo City, believing that with
passage of the Local Autonomy Act, it had acquired the authority or power
to enact an ordinance similar to that previously declare by this Court as ultra
vires, enacted Ordinance 11.
4. A municipal license tax is imposed on tenement houses in accordance with
the schedule of payment:
a. Tenement houses:
i. Apartment house made of strong material-P20/per door
ii. Apartment house made of mixed materials- P10 per door
iii. Rooming house of strong materials- P10 per door
iv. Rooming house of mixed materials- P5 per door
b. Tenement houses partly or wholly engaged in or dedicated to
business in the ff streets: JM basa, Iznart, Aldeguer, Guanco and
Ledesma from Plazoleto Gay to Valeria St- P30 per door
c. Tenement houses partly or wholly engaged in or dedicated to
business in any other street –P12 per door
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
d. Tenement houses at the street surrounding the supermarket as soon
as said place is declared commercial- P24 per door
5. By virtue of the ordinance in question, the appellant City collected form
spouses Villanueva for the years 1960-1964 the sum of P5,824.30 and from
Pio Melliza, Teresita Topacio, and Remedios ViIlanueva for the years
1960-1964 the sum of Php 1,317.00.
6. On July 11, 1962 and April 24, 1964, the plaintffs-appelless filed a
complaint and an amended complaint, against the City of Iloilo praying that
Ordinance 11, series of 1960:
a. Be declared invalid for being beyond the power of the Municipal
Council of the City of Iloilo to enact
b. And unconstitutional for being violative of the rule as to the
uniformity of taxation and for depriving said plaintiffs of the equal
protection clause of the Constitution
c. And that the City be ordered to refund the amounts collected form
them under the said ordinance.
7. CFI: Ordinance is illegal because RA 2264 does not empower cities to
impose apartment taxes, that the same is oppressive and unreasonable, and
it violates uniformity of taxation
8. CA: Reversed the ruling of the CFI
ISSUES:
1. WON Ordinacne 11 constitutes double taxation? NO
2. WON Ordinance 11 violated the rule on uniformity of taxation? NO
RATIO:
I. Ordinance 11 does not constitute double taxation
1. The same tax may be imposed by the national government as well as by the
local government. There is nothing inherently obnoxious in the exaction of
license fees or taxes with respect to eh same occupation, calling or activity
by both the State and a political subdivision thereof.
2. It is a well-settled rule that license tax may be levied upon a business or
occupation although the land or property used in connection therewith is
subject to property tax.
3. The State may collect an ad valorem tax on property used in a calling and at
the same impose a license tax on the calling, the imposition of that latter
kind of tax being in no sense a double tax.
4. In order to constitute double taxation in the objectionable or prohibited
sense, the same property must be:
a. Taxed twice when it should be taxed but once
b. Both taxes must be imposed on the same property or subject-matter
c. For the same purpose
d. By the same State, Government or taxing authority
e. Within the same jurisdiction or taxing district
f. During the same taxing period
g. They must be the same kind of character of tax
5. It has been shown that real estate tax and the tenement tax imposed by the
ordinance, although imposed by the same taxing authroity are not of the
same kind or character.
6. There is no constitutional prohibition against double taxation in the
Philippines
7. It is something not favored, but is permissible, provided some other
constitutional requirement is not thereby violated, such as uniformity of
taxation
II. Ordinance 11 does not violate the rule on uniformity of taxation.
1. This court has already ruled that tenement houses constitute a distinct class
of property
2. It has likewise ruled that taxes are uniform and equal when imposed upon
all property of the same class or character within the taxing authority
3. The fact therefore that the owners of other classes of buildings in the city of
Iloilo do not pay the taxes imposed by the Ordinance in question is no
argument at all against uniformity and equity of the tax imposition
4. Neither is the rule of equality and uniformity violated by the fact that
tenement taxes are not imposed in other cities, for the same rule does not
require that taxes for the same purpose should be imposed in different
territorial subdivisions at the same time
5. So long as the burden of the tax falls equally and impartially on all owners
or operators of tenement houses similarly classified or situated, equality and
uniformity of taxation is accomplished
6. The plaintiffs-appellees, as owners of tenement houses in the City of Iloilo
have not shown that the tax burden is NOT equally or uniformly distributed
among them, to overthrow the presumption that tax statutes are intended to
operate uniformly and equally.\
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
Accordingly, The judgment a quo is reversed and the ordinance in question being
valid, the complaint is hereby dismissed.

SEPARATE OPINIONS:
CONCURRING:
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
73. Compania General de Tabacos de Filipinas vs. City of Manila as taxies on its wholesale and retail sales of liquor from 1954-1957 under 2
June 29, 1963 | Dizon, J. | Situs of Taxation and Double Taxation ordinances.
2. Tabacalera, as a duly licensed first class wholesale and retail liquor dealer,
paid the City the fixed license fees prescribed by Ordinance No. 3358 for
PETITIONER: Compania General de Tabacos de Filipinas 1954-1957, and as a wholesale and retail dealer of general merchandise, it
RESPONDENTS: City of Manila also paid the sales taxes required under Ordinances Nos. 3634, 3301, and
3816.
3. Tabacalera's action for refund is based on the theory that, in
SUMMARY:
connection with its liquor sales, it should pay the license fees prescribed
Tabacalera, a duly licensed first class wholesale and retail liquor dealer,
by Ordinance No. 3358 but not the municipal sales taxes imposed by
paid the City of Manila the license fees for taxable years 1954-1957
Ordinances Nos. 3634, 3301, and 3816; and since it already paid the
pursuant to a City Ordinance. As prescribed by another City Ordinance,
license fees aforesaid, the sales taxes paid by it — amounting to the sum
Tabacalera also paid the City of Manila sales taxes. It appears that in the
of P15,280.00 — under the three ordinances mentioned heretofore is an
year 1954, the City, through its treasurer, addressed a letter to SGV & Co.,
overpayment made by mistake, and therefore refundable. (Basically,
an accounting firm, expressing the view that liquor dealers paying the
isa lang daw ung babayaran dapat ni koya. License fees lang daw).
annual wholesale and retail fixed tax are not subject to the wholesale and
4. But syempre, City of Manila is saying that Tabacalera is subject to pay both
retail dealers' taxes. Upon learning of said opinion, Tabacalera was
the license fees and the sales taxes imposed by the ordinances.
demanding refund of the alleged overpayment. As the claim was
5. That, even assuming that Tabacalera is not subject to the payment of the
disallowed, the present action was instituted.
sales taxes prescribed by the said three ordinances as regards its liquor
sales, it is not entitled to the refund demanded for the following reasons:
ISSUE: WON Tabacalera is entitled to a refund. NO. WON there is
(copy pasted from the origs)
double taxation. NO.
(a) The said amount was paid by the plaintiff voluntarily and
without protest:
Supreme Court held that both a license fee and a tax may be imposed on
(b) If at all the alleged overpayment was made by mistake, such
the same business and occupation and such as not a violation of the rule
mistake was one of law and arose from the plaintiff's neglect of
against double taxation. The impositions are of a different character. The
duty;
first is a license fee for the privilege of engaging in the sale of liquor in the
(c) The said amount had been added by the plaintiff to the selling
exercise of police power while the other is imposed for revenue purposes
price of the liquor sold by it and passed to the consumers; and
based on the sales made.
(d) The said amount had been already expended by the defendant
City for public improvements and essential services of the City
DOCTRINE:
government, the bene ts of which are enjoyed, and being enjoyed,
Both a licensee fee and a tax may be imposed on the same business or
by the plaintiff.
occupation, or for selling the same article this not being a violation of the
ISSUES:
rule against double taxation.
1. WON Tabacalera is entitled to a refund? NO.
2. WON Double Taxation Exists? NO.

FACTS:
RATIO:
1. Compania General de Tabacos de Filipinas (Tabacalera), filed the present
action in the CFI of Manila to recover from City of Manila and its
I. WON Tabacalera is entitled to a refund? NO.
Treasurer, Marcelino Sarmiento, the sum of 15,280 php allegedly overpaid
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
A. NO. The first ordinance is clearly one that prescribes municipal SEPARATE OPINIONS:
license fees for the privilege to engage in the business of selling CONCURRING:
liquor or alcoholic beverages, having been enacted by the
Municipal Board of Manila pursuant to its charter power to fix
license fees on, and regulate, the sale of intoxicating liquors,
whether imported or locally manufactured. (Section 18 [p],
Republic Act 409, as amended). The license fees imposed by it are
essentially for purposes of regulation, and are justified, considering
that the sale of intoxicating liquor is, potentially at least, harmful to
public health and morals, and must be subject to supervision or
regulation by the state and by cities and municipalities authorized
to act in the premises. (MacQuillin, supra, p. 445.)
B. The term "tax" applies — generally speaking — to all kinds of
exactions which become public funds. The term is often loosely
used to include levies for revenue as well as levies for regulatory
purposes. Thus license fees are commonly called taxes. 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
II. WON Double Taxation Exists? NO.
A. On the other hand, it is clear that the second ordinance impose
taxes on the sales of general merchandise, wholesale or retail, and
are revenue measures enacted by the Municipal Board of Manila
by virtue of its power to tax dealers for the sale of such
merchandise. (Section 10 [o], Republic Act No. 409, as amended.).
B. 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 (Bentley Gray Dry
Goods Co., vs. City of Tampa 137)

WHEREFORE, the decision appealed from is reversed, with the result that this case
should be, as it is hereby dismissed, with costs.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
74. BULACAN v. CA (BAM) 4. Republic Cement formally contested but it was denied by the Provincial
27 November 1998 | Romero, J. | Situs and Double Taxation Treasurer. It filed a petition for declaratory relief with the RTC but it was
PETITIONER: Province of Bulacan, Roberto Pagdanganan (Provincial dismissed allegedly due to Republic Cement’s breach of the ordinance.
Governor), Florence Chavez (Provincial Treasurer), and Manuel Siayngco 5. Republic Cement filed a petition for certiorari before the SC and it was
(Provincial Legal Advise) referred to the CA. In the interim, the province issued a warrant of levy for
RESPONDENTS: Court of Appeals and Republic Cement Corporation its unpaid tax liabilities.
6. Republic Cement agreed to pay the taxes under protest. The corporation and
the Province then entered into a join manifestation limiting the issue before
SUMMARY:
the CA to whether the province can impose taxes on those extracted in
The province of Bulacan, based on its ordinance, issued an assessment against
private lands.
Republic Cement Corporation amounting to P 2,524,692.13. The assessment was
7. CA ruled against the province.
for taxes on the extraction of quarry resources on several of its private land.
Republic Corporation then contested the assessment claiming that it was issued
ISSUES:
without authority. The issue is whether the province can levy taxes on quarry
1. Whether the province can levy taxes on on stones, sand, gravel, earth and
resources extracted from private lands.
other quarry resources extracted from private lands. - NO
The SC held that a province has no authority to impose taxes on stones, sand,
RULING: WHEREFORE, premises considered, the instant petition is DISMISSED
gravel, earth and other quarry resources extracted on private land. It is clearly
for lack of merit and the decision of the Court of Appeals is hereby AFFIRMED in
apparent that the National Internal Revenue Code levies a tax on all quarry
toto.
resources, regardless of origin, whether extracted from public or private land.
Section 131 of the LGC prohibits the imposition of excise taxes on articles
RATIO:
enumerated under the NIRC.
DOCTRINE:
1. A province has no authority to impose taxes on stones, sand, gravel, earth
A province may not ordinarily impose taxes on stones, sand, gravel, earth and
and other quarry resources extracted from private lands.
other quarry resources, as the same are already taxed under the NIRC.
FACTS:
2. Under the Local Government Code:
1. The Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance
Sec. 134. Scope of Taxing Powers. - Except as otherwise provided in this
No. 3, known as "An ordinance Enacting the Revenue Code of the Bulacan
Code, the province may levy only the taxes, fees, and charges as provided
Province.”
in this Article.
2. Section 21 of the ordinance levies a 10% tax on the fair market value in the
locality per cubic meter of ordinary stones, sand, gravel, earth and other
Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. - The province
quarry resources, such, but not limited to marble, granite, volcanic cinders,
may levy and collect not more than ten percent (10%) of fair market value
basalt, tuff and rock phosphate, extracted from public lands or from beds
in the locality per cubic meter of ordinary stones, sand, gravel, earth, and
of seas, lakes, rivers, streams, creeks and other public waters within its
other quarry resources, as defined under the National Internal Revenue
territorial jurisdiction.
Code, as amended, extracted from public lands or from the beds of seas,
(NOTE: The ordinance levies it on those extracted from public lands, only
lakes, rivers, streams, creeks, and other public waters within its territorial
the assessment involves extraction from private lands)
jurisdiction.
3. The Provincial Treasurer of Bulacan then provided an assessment to
3. Section 21 of Provincial Ordinance No. 3 is practically only a reproduction
Republic Cement Corporation amounting to P 2,524,692.13 for extracting
of Section 138 of the LGC.
limestone, shale, and silica from its private lands in the province.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
4. Nevertheless, petitioners are still prohibited from imposing taxes on
stones, sand, gravel, earth and other quarry resources extracted from private
lands. The tax imposed by the Province of Bulacan is an excise tax, being a
tax upon the performance, carrying on, or exercise of an activity.
5. Under Section 133 of the LGC, it is prohibited to levy excise taxes on
articles enumerated under the National Internal Revenue Code (NIRC),
as amended, and taxes, fees or charges on petroleum products.
6. Under Sec. 151 of the NIRC, excise taxes of two percent (2%) based on the
actual market value of the gross output thereof at the time of removal, or the
values used by the Bureau of Customs in determining tariff and customs
duties, net of excise tax and value-added tax, in the case of importation, on
all quarry resources, regardless of origin, whether extracted from public
or private lands.
7. It is clearly apparent from the above provision that the National Internal
Revenue Code levies a tax on all quarry resources, regardless of origin,
whether extracted from public or private land. Thus, a province may not
ordinarily impose taxes on stones, sand, gravel, earth and other quarry
resources, as the same are already taxed under the National Internal
Revenue Code.
8. Lastly, the legality of the ordinance was never questioned by the Court of
Appeals. Rather, what the appellate court questioned was petitioners'
assessment of taxes on Republic Cement on the basis of Provincial
Ordinance No. 3, not the ordinance itself.

SEPARATE OPINIONS: None.

 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
75. Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila (Jacky) (as amended by Ordinance Nos. 7988 and 8011). However, it was still taxed
Jul 3, 2013 | CJ Sereno | Situs of Taxation and Double Taxation based on Section 21 of the same code.
2. RTC denied the petition because of the failure of Swedish Match to plead
PETITIONER: Swedish Match Philippines, Inc. the latter’s capacity to sue and to state the authority of Ms. Beleno
RESPONDENTS: Treasurer of the City of Manila (company Finance Manager), who had executed the Verification and
Certification of Non-Forum Shopping.
3. It also denied it on the ground that Section 14 and 21 pertained to taxes of a
SUMMARY:
different nature and, thus the elements of double taxation were wanting in
Swedish Match paid business taxes based on Sec. 14 and Sec. 21 of
this case.
Manila Revenue Code. After, it filed for Refund of business taxes paid
4. CTA affirmed the decision.
under Sec. 21 on the ground of double taxation. RTC and CTA dismissed
5. Swedish Match points out that Section 21 is not in itself invalid, but the
Petition for Refund.
enforcement of this provision would constitute double taxation if business
The SC ruled that payment of tax under Sec. 21 constitutes double
taxes have already been paid under Section 14 of the same revenue code.
taxation in view of tax paid under Sec. 14. Six requisites were satisfied.
6. Swedish Match further argues that since Ordinance Nos. 7988 and 8011
There is indeed double taxation if respondent is subjected to the taxes
have already been declared null and void in Coca-Cola Bottlers Philippines,
under both Sections 14 and 21 of Manila Revenue Code, since these are
Inc. v. City of Manila, all taxes collected and paid on the basis of these
being imposed:
ordinances should be refunded.
1. on the same subject matter – the privilege of doing business in
7. The City also argues that Sections 14 and 21 pertain to two different objects
the City of Manila;
of tax; thus, they are not of the same kind and character so as to constitute
2. for the same purpose – to make persons conducting business
double taxation. “Section 14 is a tax on manufacturers, assemblers and other
within the City of Manila contribute to city revenues;
processors, while Section 21 applies to business subject to excise, value-
3. by the same taxing authority – petitioner City of Manila;
added, or percentage tax. Respondent posits that under Section 21,
4. within the same taxing jurisdiction – within the territorial
petitioner is merely a withholding tax agent of the City of Manila.”
jurisdiction of the City of Manila;
5. for the same taxing periods – per calendar year; and
6. of the same kind or character – a local business tax imposed on
ISSUES:
gross sales or receipts of the business
1. Whether the imposition of tax under Sec. 21 of Manila Revenue Code
Swedish Match gets a refund.
constitutes double taxation in view of the tax collected and paid under
Section 14 of the same code. - YES
DOCTRINE:
Double taxation means taxing the same property twice when it should be
RATIO:
taxed only once; that is, "taxing the same person twice by the same
jurisdiction for the same thing."
1. The imposition of tax under Sec. 21 of Manila Revenue Code constitutes
double taxation in view of the tax collected and paid under Sec. 14 of the
same code.
FACTS:
2. Double taxation means taxing the same property twice when it should be
1. This is a Petition for Refund of Taxes with the RTC of Manila in
taxed only once; that is, "taxing the same person twice by the same
accordance with Section 196 of the Local Government Code (LGC) of
jurisdiction for the same thing." (City of Manila v. Coca-Cola Bottlers
1991. Swedish Match says that it had been religiously paying its taxes
Philippines Inc).
based on Section 14 of Ordinance No. 7794 or the Manila Revenue Code
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
3. Requisites to raise double taxation: Using the aforementioned test, the
Court finds that there is indeed double taxation if respondent is subjected to
the taxes under both Sections 14 and 21 of Manila Revenue Code, since
these are being imposed:
a. on the same subject matter – the privilege of doing business in the
City of Manila;
b. for the same purpose – to make persons conducting business
within the City of Manila contribute to city revenues;
c. by the same taxing authority – petitioner City of Manila;
d. within the same taxing jurisdiction – within the territorial
jurisdiction of the City of Manila;
e. for the same taxing periods – per calendar year; and
f. of the same kind or character – a local business tax imposed on
gross sales or receipts of the business.
4. Based on the foregoing reasons, Swedish Match should not have been
subjected to taxes under Sec. 21 of the Manila Revenue Code for the fourth
quarter of 2001, considering that it had already been paying local business
tax under Sec. 14 of the same ordinance.
5. Hence, payments made under Sec. 21 must be refunded in favor of Swedish
Match Philippines.

SEPARATE OPINIONS: NONE

CONCURRING: NONE
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
76. Delpher Trades v. IAC
January 26, 1988 | Gutierrez, Jr., J. | Forms of Escape from Taxation (Liz)
Petitioners: DELPHER TRADES CORPORATION (Delphin)and
DELPHIN PACHECO
Respondents: IAC and HYDRO PIPES PHILIPPINES, INC (Hydro)
Summary:
Delfin Pacheco and Pelagia Pacheco, were the owners of 27,169 square
meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the
Municipality of Polo. Said co-owners leased to Construction Components
International Inc. the same property and providing that during the
existence or after the term of this lease the lessor should he decide to sell
the property leased shall first offer the same to the lessee. Lessee
Construction Components International, Inc. assigned its rights and
obligations under the contract of lease in favor of Hydro Pipes
Philippines, Inc. A deed of exchange was executed between lessors
Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation
whereby the former conveyed to the latter the leased property together
with another parcel of land also located in Malinta Estate, Valenzuela,
Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant
corporation with a total value of P1,500,000.00. Hydro Pipes Philippines,
Inc., filed an amended complaint for reconveyance of Lot. Our issue is
Whether or not the series of transactions that have happened in the case
involves a strategy to escape taxes? YES. In effect, the Delpher Trades
Corporation is a business conduit of the Pachecos. What they really did
was to invest their properties and change the nature of their ownership
from unincorporated to incorporated form by organizing Delpher Trades
Corporation to take control of their properties and at the same time save
on inheritance taxes.
Doctrine:
The records do not point to anything wrong or objectionable about this
“estate planning” scheme resorted to by the Pachecos. The legal right of a
taxpayer to decrease the amount of what otherwise could be his taxes or
altogether avoid them, by means of which the law permits, cannot be
doubted. What they did was merely change the form of their ownership
form unincorporated to incorporated, to take control of their properties
and save on inheritance taxes.
FACTS:
1. In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of
27,169 square meters of real estate Identified as Lot. No. 1095, Malinta
Estate, in the Municipality of Polo (now Valenzuela), Province of Bulacan
(now Metro Manila) which is covered by Transfer Certificate of Title No.
T-4240 of the Bulacan land registry.
2. On April 3, 1974, the said co-owners leased to Construction Components
International Inc. the same property and providing that during the existence
or after the term of this lease the lessor should he decide to sell the property
leased shall first offer the same to the lessee and the letter has the priority to
buy under similar conditions.
3. On August 3, 1974, lessee Construction Components International, Inc.
assigned its rights and obligations under the contract of lease in favor of
Hydro Pipes Philippines, Inc. with the signed conformity and consent of
lessors Delfin Pacheco and Pelagia Pacheco.
4. On January 3, 1976, a deed of exchange was executed between lessors
Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation
whereby the former conveyed to the latter the leased property (TCT No.T-
4240) together with another parcel of land also located in Malinta Estate,
Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of
defendant corporation with a total value of P1,500,000.00.
5. On the ground that it was not given the first option to buy the leased
property pursuant to the proviso in the lease agreement, respondent Hydro
Pipes Philippines, Inc., filed an amended complaint for reconveyance of
Lot. No. 1095 in its favor under conditions similar to those whereby
Delpher Trades Corporation acquired the property from Pelagia Pacheco
and Delphin Pacheco.
ISSUE:
1. Whether or not the series of transactions that have happened in the case involves a
strategy to escape taxes? YES
HELD:
WHEREFORE, the instant petition is hereby GRANTED, The questioned decision
and resolution of the then Intermediate Appellate Court are REVERSED and SET
ASIDE. The amended complaint in Civil Case No. 885-V-79 of the then Court of
First Instance of Bulacan is DISMISSED. No costs.
RATIO:
PETITIONER’S CONTENTION
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1. Eduardo Neria, a certified public accountant and son-in-law of the late
Pelagia Pacheco testified that Delpher Trades Corporation is a family
corporation; that the corporation was organized by the children of the two
spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses
Delfin Pacheco and Pilar Angeles) who owned in common the parcel of
land leased to Hydro Pipes Philippines in order to perpetuate their control
over the property through the corporation and to avoid taxes; that in order to
accomplish this end, two pieces of real estate, including Lot No. 1095
which had been leased to Hydro Pipes Philippines, were transferred to the
corporation; that the leased property was transferred to the corporation by
virtue of a deed of exchange of property; that in exchange for these
properties, Pelagia and Delfin acquired 2,500 unissued no par value shares
of stock which are equivalent to a 55% majority in the corporation because
the other owners only owned 2,000 shares; and that at the time of
incorporation, he knew all about the contract of lease of Lot. No. 1095 to
Hydro Pipes Philippines.
2. In the petitioners' motion for reconsideration, they refer to this scheme as
“estate planning”.
3. Under this factual backdrop, the petitioners contend that there was actually
no transfer of ownership of the subject parcel of land since the Pachecos
remained in control of the property. Thus, the petitioners allege:
"Considering that the beneficial ownership and control of petitioner
corporation remained in the hands of the original co-owners, there was no
transfer of actual ownership interests over the land when the same was
transferred to petitioner corporation in exchange for the latter's shares of
stock. The transfer of ownership, if anything, was merely in form but not in
substance. In reality, petitioner corporation is a mere alter ego or conduit of
the Pacheco co-owners; hence the corporation and the co-owners should be
deemed to be the same, there being in substance and in effect an Identity of
interest.”
4. The petitioners maintain that the Pachecos did not sell the property. They
argue that there was no sale and that they exchanged the land for shares of
stocks in their own corporation. "Hence, such transfer is not within the
letter, or even spirit of the contract. There is a sale when ownership is
transferred for a price certain in money or its equivalent (Art. 1468, Civil
Code) while there is a barter or exchange when one thing is given in
consideration of another thing (Art. 1638, Civil Code)."
RESPONDENT’S CONTENTION
1. On the other hand, the private respondent argues that Delpher Trades
Corporation is a corporate entity separate and distinct from the Pachecos.
Thus, it contends that it cannot be said that Delpher Trades Corporation is
the Pacheco's same alter ego or conduit; that petitioner Delfin Pacheco,
having treated Delpher Trades Corporation as such a separate and distinct
corporate entity, is not a party who may allege that this separate corporate
existence should be disregarded. It maintains that there was actual transfer
of ownership interests over the leased property when the same was
transferred to Delpher Trades Corporation in exchange for the latter's shares
of stock.
RULING OF THE SC:
THE COURT RULED FOR THE PETITIONERS!
1. After incorporation, one becomes a stockholder of a corporation by
subscription or by purchasing stock directly from the corporation or from
individual owners thereof.
2. In the case at bar, in exchange for their properties, the Pachecos acquired
2,500 original unissued no par value shares of stocks of the Delpher Trades
Corporation. Consequently, the Pachecos became stockholders of the
corporation by subscription
3. "The essence of the stock subscription is an agreement to take and pay for
original unissued shares of a corporation, formed or to be formed." It is
significant that the Pachecos took no par value shares in exchange for their
properties.
4. A no-par value share does not purport to represent any stated proportionate
interest in the capital stock measured by value, but only an aliquot part of
the whole number of such shares of the issuing corporation. The holder of
no-par shares may see from the certificate itself that he is only an aliquot
sharer in the assets of the corporation. But this character of proportionate
interest is not hidden beneath a false appearance of a given sum in money,
as in the case of par value shares.
5. The capital stock of a corporation issuing only no-par value shares is not set
forth by a stated amount of money, but instead is expressed to be divided
into a stated number of shares, such as, 1,000 shares. This indicates that a
shareholder of 100 such shares is an aliquot sharer in the assets of the
corporation, no matter what value they may have, to the extent of 100/1,000
or 1/10. Thus, by removing the par value of shares, the attention of persons
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
interested in the financial condition of a corporation is focused upon the
value of assets and the amount of its debts.
6. Moreover, there was no attempt to state the true or current market value of
the real estate. Land valued at P300.00 a square meter was turned over to
the family's corporation for only P14.00 a square meter.
7. It is to be stressed that by their ownership of the 2,500 no par shares of
stock, the Pachecos have control of the corporation. Their equity capital is
55% as against 45% of the other stockholders, who also belong to the same
family group.
8. In effect, the Delpher Trades Corporation is a business conduit of the
Pachecos. What they really did was to invest their properties and change the
nature of their ownership from unincorporated to incorporated form by
organizing Delpher Trades Corporation to take control of their properties
and at the same time save on inheritance taxes.
As explained by Eduardo Neria (CPA):
ATTY. LINSANGAN:
Q: Mr. Neria, from the point of view of taxation, is there any benefit to the spouses
Hernandez and Pacheco in connection with their execution of a deed of exchange on
the properties for no par value shares of the defendant corporation? What are these
benefits to the spouses of this deed of exchange?
A: Continuous control of the property, tax exemption benefits, and other inherent
benefits in a corporation.
Q: What are these advantages to the said spouses from the point of view of taxation
in entering in the deed of exchange?
A: Having fulfilled the conditions in the income tax law, providing for tax free
exchange of property, they were able to execute the deed of exchange free from
income tax and acquire a corporation.
Q: What provision in the income tax law are you referring to?
A: I refer to Section 35 of the National Internal Revenue Code under par. C-sub-par.
(2) Exceptions regarding the provision which I quote: "No gain or loss shall also be
recognized if a person exchanges his property for stock in a corporation of which as
a result of such exchange said person alone or together with others not exceeding
four persons gains control of said corporation."
Q: Did you explain to the spouses this benefit at the time you executed the deed of
exchange?
A: Yes, sir
Q: You also, testified during the last hearing that the decision to have no par value
share in the defendant corporation was for the purpose of flexibility. Can you explain
flexibility in connection with the ownership of the property in question?
A: There is flexibility in using no par value shares as the value is determined by the
board of directors in increasing capitalization. The board can fix the value of the
shares equivalent to the capital requirements of the corporation.
Q: Now also from the point of taxation, is there any flexibility in the holding by the
corporation of the property in question?
A: Yes, since a corporation does not die it can continue to hold on to the property
indefinitely for a period of at least 50 years. On the other hand, if the property is held
by the spouse the property will be tied up in succession proceedings and the
consequential payments of estate and inheritance taxes when an owner dies.
Q: Now what advantage is this continuity in relation to ownership by a particular
person of certain properties in respect to taxation?
A: The property is not subjected to taxes on succession as the corporation does not
die.
Q: So the benefit you are talking about are inheritance taxes?
A: Yes, sir.
9. The records do not point to anything wrong or objectionable about this “estate
planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to
decrease the amount of what otherwise could be his taxes or altogether avoid them,
by means which the law permits, cannot be doubted."
10. The "Deed of Exchange" of property between the Pachecos and Delpher Trades
Corporation cannot be considered a contract of sale. There was no transfer of actual
ownership interests by the Pachecos to a third party. The Pacheco family merely
changed their ownership from one form to another. The ownership remained in the
same hands. Hence, the private respondent has no basis for its claim of a light of first
refusal under the lease contract.
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FACTS:
1. Collector of Internal Revenue Assessed against the petitioner deficiency
sales taxes and surcharges for the year 1949 and the first four months of
1950 in the aggregate sum of P89,123.58
2. This was appealed to the Board of Tax Appeals, hence the case was
transferred to the Courts of Tax Appeals upon its organization in 1954, and
there was affirmed in its decision dated Feb 28, 1952. The matter was
thereafter elevated to this Court for review.
3. The deficiency taxes in question were assessed on importations of textiles
from abroad
4. The goods were withdrawn from Customs by Pan-Asiatic Commercial Co.,
Inc., which paid, in the name of the petitioner, the corresponding advance
sales tax under Section 183(b) of the Internal Revenue Code.
5. The assessment for deficiency, however, was made against the petitioner,
Heng Tong Textiles Co., Inc. (now Philip Manufacturing Corporation) on
77. Heng Tong Textiles Co., Inc. v. CIR (KARA) the ground that it was the real importer of the goods and did not pay the
August 26, 1968 | Makalintal, J. | Forms of Escape from Taxation taxes due on the basis of the gross selling prices thereto.
6. CTA: affirmed assessment based on the finding that Heng Tong was the
importer of the goods from the following:
PETITIONER: Heng Tong Textiles Co., Inc. (before), Philip Manufacturing a. Heng Tong and Pan-Asiatic Commercial were sister corporations
Corporation (now) b. That the commercial documents covering the importations were all
RESPONDENTS: Commissioner of Internal Revenue and Court of Tax in the name of of Heng Tong
Appeals c. That in connection with advance sales tax, Pan-Asiatic wrote Heng
Tong a letter which states that Pan-Asiatic paid the 5% Sales Tax
in compliance with Heng Tong’s Request
SUMMARY: CIR assessed against the petitioner for deficiency sales tax and
d. That there are documentary and testimonial evidence that Pan-
surcharges. The Petitioner argued that he was the importer and that he is not
Asiatic acted merely as an indentor
guilty of fraud as to warrant the imposition of 50% on the deficiency. The
7. Heng Tong:
issue is whether or not there was fraud. An attempt to minimize one’s tax
a. The importation paper were placed in the name of Heng Tong only
does not constitute fraud. Pan-Asiatic and Heng Tong had a private
for the purpose of accommodation, to introduce it to textile
agreement. Heng-Tong shall be the importer and shall only pay at cost.
suppliers abroad
Paying the sales tax on sales of imported articles upon the removal of the
b. Heng Tong was not in financial position to make the peso
goods from Customs by Pan-Asiatic allowed Heng Tong to minimize tax. The
importations in question, valued at over a million pesos, its capital
goods were taxed at cost and not at gross selling price.
was only 30k
DOCTRINE: An attempt to minimize one’s tax does not necessarily
ISSUES:
constitute fraud. A taxpayer may diminish his liability by any means which
1. WON the petitioner was the importer of the goods; and
the law permits.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
2. WON it was guilty of fraud so as to warrant the imposition of a penalty of
50% on the deficiency

RATIO:
1. YES, Heng Tong was the importer. There was a private arrangement
between Heng Tong and Pan-Asiatic
2. NO, there was no fraud. The set-up was an arrangement to minimize the tax
due. Tax was minimized by the advance sales tax (paid upon removal of the
goods from Customs) being credited against the tax on the actual gross
selling price paid by the importer Heng Tong.
a. NIRC Sec. 183 as amended by RA 253 mandates that the sales tax
on sales of imported articles is based is based on the gross selling
price of the goods (they paid the sales tax upon removal of the
goods from Customs)
b. Pan-Asiatic, as indorsee of the goods, withdrew them from
Customs upon payment of the advance sales tax and then executed
a sale to Heng Tong Textiles at cost.
c. The goods were made to appear as having been sold so that Heng
Tong paid no sales tax upon the sale of such goods to the market.
Neither was any sales tax paid on the supposed sales between Pan-
Asiatic to Heng Tong as the sales were made at cost
d. An attempt to minimize one’s tax does not constitute fraud. So far
as the right of government to collect taxes is concerned, the
petitioner was the real importer and hence mus shoulder the tax
burden.
3. The CTA decision is modified, by eliminating therefrom the penalty of 50%
on the amount of deficiency sales tax imposed, and is affirmed in all other
aspects.

SEPARATE OPINIONS:
CONCURRING:
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78. Commissioner of Internal Revenue vs. Toda
(Billy)
September 14 2004 | Davide JR | Forms of Escape from Taxation
- Tax Evasion
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: The Estate of Benigno Toda JR. Represented by Special CO-
Administrators Lorna Kapunan And Maria Luz Bautista
SUMMARY:
On 2 March 1989, CIC (Cibeles Insurance Corporation) authorized Benigno P.
Toda, Jr., President and owner of 99.991% of its issued and outstanding capital
stock, to sell the Cibeles Building and the 2 parcels of land on which the
building stands for an amount of not less than P90 million. Toda purportedly
sold the property for P100 million to Rafael Altonaga, who, in turn, sold the
same property on the same day to Royal Match Inc. (RMI) for P200 million. For
the sale of the property to RMI, Altonaga paid P10 million in capital gains tax.
Toda then died. On 29 March 1994, the Bureau of Internal Revenue (BIR) sent
an assessment notice and demand letter to the CIC for deficiency income tax for
the year 1989. On 27 January 1995, the Estate of Benigno P. Toda, Jr., received
a Notice of Assessment dated 9 January 1995 from the CIR for deficiency
income tax for the year 1989 in the amount of P79,099,999.22,. The Estate
thereafter filed a letter of protest. The CTA held that the CIR failed to prove that
CIC committed fraud to deprive the government of the taxes due it. The CA
affirmed the decision of the CTA, reasoning that the CTA, being more
advantageously situated and having the necessary expertise in matters of
taxation, is better situated to determine the correctness, propriety, and legality of
the income tax assessments assailed by the Toda Estate.
The Issue in this case is WoN the schemes by Toda and CIC amounted to Tax
Evasion. The court ruled YES.
The execution of the two sales was calculated to mislead the BIR with the end in
view of reducing the consequent income tax liability. it is obvious that the
objective of the sale to Altonaga was to reduce the amount of tax to be paid
especially that the transfer from him to RMI would then subject the income to
only 5% individual capital gains tax, and not the 35% corporate income tax.
Altonagas sole purpose of acquiring and transferring title of the subject
properties on the same day was to create a tax shelter. Altonaga never controlled
the property and did not enjoy the normal benefits and burdens of ownership.
The sale to him was merely a tax ploy. The scheme resorted to by CIC in making
it appear that there were two sales of the subject properties, i.e., from CIC to
Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax
planning. Such scheme is tainted with fraud. the intermediary transaction, i.e.,
the sale of Altonaga, which was prompted more on the mitigation of tax
liabilities than for legitimate business purposes constitutes one of tax evasion.
DOCTRINE: Tax evasion connotes the integration of three factors: (1) the
end to be achieved, i.e., the payment of less than that known by the taxpayer
to be legally due, or the non-payment of tax when it is shown that a tax is
due; (2) an accompanying state of mind which is described as being evil, in
bad faith, willfull,or deliberate and not accidental; and (3) a course of action
or failure of action which is unlawful.
The transaction must be viewed as a whole, and each step from the
commencement of negotiations to the consummation of the sale is relevant.
A sale by one person cannot be transformed for tax purposes into a sale by
another by using the latter as a conduit through which to pass title. To
permit the true nature of the transaction to be disguised by mere
formalisms, which exist solely to alter tax liabilities, would seriously impair
the effective administration of the tax policies of Congress.
FACTS:
1. The case at bar stemmed from a Notice of Assessment sent to CIC by the
Commissioner of Internal Revenue for deficiency income tax arising from an alleged
simulated sale of a 16-storey commercial building known as Cibeles Building,
situated on 2 parcels of land on Ayala Avenue, Makati City.
2. On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and
owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles
Building and the 2 parcels of land on which the building stands for an amount of not
less than P90 million.
3. Toda purportedly sold the property for P100 million to Rafael A. Altonaga,
who, in turn, sold the same property on the same day to Royal Match Inc. (RMI)
for P200 million. (These two were evidenced by Deeds of Absolute Sale notarized
on the same day by the same notary public).
4. For the sale of the property to RMI, Altonaga paid P10 million in capital
gains tax
5. On 16 April 1990, CIC filed its corporate annual income tax returnfor 1989,
declaring its gain from the sale of real property in the amount of P75,728.021. After
crediting withholding taxes of P254,497.00, it paid P26,341,207 for its net taxable
income of P75,987,725.
6. On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T.
Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of Stocks. Three
and a half years later, or on 16 January 1994, Toda died.
7. On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an
assessment notice and demand letter to the CIC for deficiency income tax for the
year 1989 in the amount of P79,099,999.22.
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
8. The new CIC asked for a reconsideration, asserting that the assessment
should be directed against the old CIC, and not against the new CIC, which is owned
by an entirely different set of stockholders; moreover, Toda had undertaken to hold
the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal
years 1987-1989.
9. On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by
special co-administrators Lorna Kapunan and Mario Luza Bautista, received a Notice
of Assessment dated 9 January 1995 from the Commissioner of Internal Revenue for
deficiency income tax for the year 1989 in the amount of P79,099,999.22,
10. The Estate thereafter filed a letter of protest.
11. The Commissioner dismissed the protest, stating that a fraudulent scheme
was deliberately perpetuated by the CIC wholly owned and controlled by Toda by
covering up the additional gain of P100 million, which resulted in the change in the
income structure of the proceeds of the sale of the two parcels of land and the
building thereon to an individual capital gains, thus evading the higher corporate
income tax rate of 35%.
12. On 15 February 1996, the Estate filed a petition for review with the CTA
alleging that the Commissioner erred in holding the Estate liable for income tax
deficiency; that the inference of fraud of the sale of the properties is unreasonable
and unsupported; and that the right of the Commissioner to assess CIC had already
prescribed.
13. The Commissioner argued that the two transactions actually constituted a
single sale of the property by CIC to RMI, and that Altonaga was neither the buyer
of the property from CIC nor the seller of the same property to RMI. The additional
gain of P100 million (the difference between the second simulated sale for P200
million and the first simulated sale for P100 million) realized by CIC was taxed at
the rate of only 5% purportedly as capital gains tax of Altonaga, instead of at the rate
of 35% as corporate income tax of CIC.
14. The income tax return filed by CIC for 1989 with intent to evade payment
of the tax was thus false or fraudulent. Since such falsity was discovered only on 8
March 1991, the assessment issued on 9 January 1995 was within the prescriptive
period prescribed by Section 223 (a) of the National Internal Revenue Code of 1986,
which provides that tax may be assessed within ten years from the discovery of the
falsity or fraud.
15. With the sale tainted with fraud, the separate corporate personality of CIC
should be disregarded. Toda, being the registered owner of the 99.991% shares of
stock of CIC and the beneficial owner of the remaining 0.009% shares registered in
the name of the individual directors of CIC, should be held liable for the deficiency
income tax, especially because the gains realized from the sale were withdrawn by
him as cash advances or paid to him as cash dividends. Since he is already dead, his
estate shall answer for his liability.
16. the CTA held that the Commissioner failed to prove that CIC committed
fraud to deprive the government of the taxes due it. It ruled that even assuming that a
pre-conceived scheme was adopted by CIC, the same constituted mere tax
avoidance, and not tax evasion. There being no proof of fraudulent transaction, the
applicable period for the BIR to assess CIC is that prescribed in Section 203 of the
NIRC of 1986, which is 3 years after the last day prescribed by law for the filing of
the return. Thus, the governments right to assess CIC prescribed on 15 April 1993.
The assessment issued on 9 January 1995 was, therefore, no longer valid. The CTA
also ruled that the mere ownership by Toda of 99.991% of the capital stock of CIC
was not in itself sufficient ground for piercing the separate corporate personality of
CIC. Hence, the CTA declared that the Estate is not liable for deficiency income tax
of P79,099,999.22 and, accordingly, cancelled and set aside the assessment issued by
the Commissioner on 9 January 1995.
17. In its MR, the Commissioner insisted that the sale of the property owned by
CIC was the result of the connivance between Toda and Altonaga. She further
alleged that the latter was a representative, dummy, and a close business associate of
the former, having held his office in a property owned by CIC and derived his salary
from a foreign corporation (Aerobin, Inc.) duly owned by Toda for representation
services rendered. The CTA denied the motion for reconsideration, prompting the
Commissioner to file a petition for review with the Court of Appeals.
18. The Court of Appeals affirmed the decision of the CTA, reasoning that the
CTA, being more advantageously situated and having the necessary expertise in
matters of taxation, is better situated to determine the correctness, propriety, and
legality of the income tax assessments assailed by the Toda Estate.
Unsatisfied with the decision of the Court of Appeals, the Commissioner filed
the present petition invoking the following grounds:
ISSUES:
1. WoN The scheme was for tax evasion - Yes
2. WoN the penalty has prescribed - no
3. WoN The Estate is liable - Yes
HELD;
WHEREFORE, in view of all the foregoing, the petition is hereby
GRANTED. The decision of the Court of Appeals of 31 January 2001 in CA-G.R.
SP No. 57799 is REVERSED and SET ASIDE, and another one is hereby rendered
ordering respondent Estate of Benigno P. Toda Jr. to pay P79,099,999.22 as
deficiency income tax of Cibeles Insurance Corporation for the year 1989, plus legal
interest from 1 May 1994 until the amount is fully paid.
RATIO:
1. The Commissioner insists that the sale by CIC of the Cibeles property was
in connivance with its dummy Rafael Altonaga, who was financially incapable of
purchasing it. She further points out that the documents themselves prove the fact of
fraud in that (1) the two sales were done simultaneously on the same date, 30 August
1989; (2) the Deed of Absolute Sale between Altonaga and RMI was notarized ahead
of the alleged sale between CIC and Altonaga, with the former registered in the
Notarial Register of Jocelyn H. Arreza Pabelana as Doc. 91, Page 20, Book I, Series
of 1989; and the latter, as Doc. No. 92, Page 20, Book I, Series of 1989, of the same
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
Notary Public; (3) as early as 4 May 1989, CIC received P40 million from RMI, and
not from Altonaga. The said amount was debited by RMI in its trial balance as of 30
June 1989 as investment in Cibeles Building. The substantial portion of P40 million
was withdrawn by Toda through the declaration of cash dividends to all its
stockholders.
2. Respondent Estate asserts that the Commissioner failed to present the
income tax return of Altonaga to prove that the latter is financially incapable of
purchasing the Cibeles property.
To resolve the grounds raised by the Commissioner, the following questions are
pertinent:
A. Is this a case of tax evasion
or tax avoidance?
1. Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving device within
the means sanctioned by law. This method should be used by the taxpayer in good
faith and at arms length.
2. Tax evasion, on the other hand, is a scheme used outside of those lawful
means and when availed of, it usually subjects the taxpayer to further or additional
civil or criminal liabilities.
3. Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be legally
due, or the non-payment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being evil, in bad faith,
willfull,or deliberate and not accidental; and (3) a course of action or failure of
action which is unlawful.
4. All the factors for tax evasion are present in this case. It is significant to
note that as early as 4 May 1989, prior to the purported sale of the Cibeles property
by CIC to Altonaga on 30 August 1989, CIC received P40 million from RMI, and
not from Altonaga. That P40 million was debited by RMI and reflected in its trial
balance as other inv. Cibeles Bldg. Also, as of 31 July 1989, another P40 million was
debited and reflected in RMIs trial balance as other inv. Cibeles Bldg. This would
show that the real buyer of the properties was RMI, and not the intermediary
Altonaga.
5. The investigation conducted by the BIR disclosed that Altonaga was a close
business associate and one of the many trusted corporate executives of Toda. This
information was revealed by Mr. Boy Prieto, the assistant accountant of CIC and an
old timer in the company. But Mr. Prieto did not testify on this matter, hence, that
information remains to be hearsay and is thus inadmissible in evidence. It was not
verified either, since the letter-request for investigation of Altonaga was unserved,
6. The scheme resorted to by CIC in making it appear that there were two
sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to
RMI cannot be considered a legitimate tax planning. Such scheme is tainted with
fraud.
7. Fraud in its general sense, is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach of legal or
equitable duty, trust or confidence justly reposed, resulting in the damage to another,
or by which an undue and unconscionable advantage is taken of another.
8. It is obvious that the objective of the sale to Altonaga was to reduce the
amount of tax to be paid especially that the transfer from him to RMI would then
subject the income to only 5% individual capital gains tax, and not the 35%
corporate income tax. Altonagas sole purpose of acquiring and transferring title of
the subject properties on the same day was to create a tax shelter. Altonaga never
controlled the property and did not enjoy the normal benefits and burdens of
ownership. The sale to him was merely a tax ploy, a sham, and without business
purpose and economic substance. The execution of the two sales was calculated to
mislead the BIR with the end in view of reducing the consequent income tax
liability.
9. In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which
was prompted more on the mitigation of tax liabilities than for legitimate business
purposes constitutes one of tax evasion.
10. Generally, a sale or exchange of assets will have an income tax incidence
only when it is consummated.
11. The incidence of taxation depends upon the substance of a transaction. The
tax consequences arising from gains from a sale of property are not finally to be
determined solely by the means employed to transfer legal title.
12. The transaction must be viewed as a whole, and each step from the
commencement of negotiations to the consummation of the sale is relevant. A
sale by one person cannot be transformed for tax purposes into a sale by
another by using the latter as a conduit through which to pass title. To permit
the true nature of the transaction to be disguised by mere formalisms, which
exist solely to alter tax liabilities, would seriously impair the effective
administration of the tax policies of Congress.
13. To allow a taxpayer to deny tax liability on the ground that the sale was
made through another and distinct entity when it is proved that the latter was merely
a conduit is to sanction a circumvention of our tax laws.
14. Hence, the sale to Altonaga should be disregarded for income tax
purposes.The two sale transactions should be treated as a single direct sale by CIC to
RMI.
15. Accordingly, the tax liability of CIC is governed by then Section 24 of the
NIRC of 1986, as amended (now 27 (A) of the Tax Reform Act of 1997), which
stated as follows:
16. Sec. 24. Rates of tax on corporations. (a) Tax on domestic
corporations.- A tax is hereby imposed upon the taxable net income received during
each taxable year from all sources by every corporation organized in, or existing
under the laws of the Philippines, and partnerships, no matter how created or
organized but not including general professional partnerships, in accordance with the
following: 25% upon the amount by which the taxable net income does not exceed
one 100,000 php; and 35% upon the amount by which the taxable net income
exceeds 100,000 php CIC is therefore liable to pay a 35% corporate tax for its
 BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
taxable net income in 1989. The 5% individual capital gains tax provided for in knowingly and voluntarily held himself personally liable for all the tax liabilities of
Section 34 (h) of the NIRC of 1986 (now 6% under Section 24 (D) (1) of the Tax CIC and the buyer for the years 1987, 1988, and 1989.
Reform Act of 1997) is inapplicable. Hence, the assessment for the deficiency 4. When the late Toda undertook and agreed to hold the BUYER and Cibeles
income tax issued by the BIR must be upheld. free from any all income tax liabilities of Cibeles for the fiscal years 1987, 1988, and
1989, he thereby voluntarily held himself personally liable.
B. Has the period of 5. Respondent estate cannot, therefore, deny liability for CICs deficiency
assessment prescribed? income tax for the year 1989 by invoking the separate corporate personality of CIC,
1. No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform since its obligation arose from Todas contractual undertaking, as contained in
Act of 1997) read: Sec. 269. Exceptions as to period of limitation of assessment the Deed of Sale of Shares of Stock.
and collection of taxes.-(a) In the case of a false or fraudulent return with intent to
evade tax or of failure to file a return, the tax may be assessed, or a proceeding in SEPARATE OPINIONS: CONCURRING: NONE
court after the collection of such tax may be begun without assessment, at any time
within ten years after the discovery of the falsity, fraud or omission: Provided, That
in a fraud assessment which has become final and executory, the fact of fraud shall
be judicially taken cognizance of in the civil or criminal action for collection
thereof .
2. In cases of (1) fraudulent returns; (2) false returns with intent to evade tax;
and (3) failure to file a return, the period within which to assess tax is ten years from
discovery of the fraud, falsification or omission, as the case may be.
3. Thus, the BIR was amply informed of the transactions even prior to the
execution of the necessary documents to effect the transfer.
4. As earlier discussed those two transactions were tainted with fraud. And
even assuming arguendo that there was no fraud, we find that the income tax return
filed by CIC for the year 1989 was false. It did not reflect the true or actual amount
gained from the sale of the Cibeles property. Obviously, such was done with intent to
evade or reduce tax liability.
5. The prescriptive period to assess the correct taxes in case of false returns is
10 years from the discovery of the falsity. The false return was filed on 15 April
1990, and the falsity was claimed to have been discovered only on 8 March 199. The
assessment for the 1989 deficiency income tax of CIC was issued on 9 January 1995.
Clearly, the issuance of the correct assessment for deficiency income tax was well
within the prescriptive period.
Is respondent Estate liable
for the 1989 deficiency
income tax of Cibeles
Insurance Corporation?
1. A corporation has a juridical personality distinct and separate from the
persons owning or composing it. Thus, the owners or stockholders of a corporation
may not generally be made to answer for the liabilities of a corporation and vice
versa.
2. There are, however, certain instances in which personal liability may arise.
It has been held in a number of cases that personal liability of a corporate director,
trustee, or officer along, albeit not necessarily, with the corporation may validly
attach
3. When the late Toda sold his shares of stock to Le Hun T. Choa, he