CASE DIGEST: TAXATION I; set 2
that the market stall fees imposed in the disputed City Ordinance No.
1. TIO vs. VRB
151 SCRA 208; GR No. L-75697, June 18, 1987
"The public purpose of a tax may legally exist even if the motive which
impelled the legislature to impose the tax was to favor one industry over
another."
FACTS: The petitioner assails the validity of PD 1987 entitled an "Act
creating the Videogram Regulatory Board," citing especially Section 10
thereof, which imposes a tax of 30% on the gross receipts payable to the
local government. Petitioner contends that aside from its being a rider and
not germane to the subject matter thereof, and such imposition was being
harsh, confiscatory, oppressive and/or unlawfully restraints trade in
violation of the due process clause of the Constitution.
ISSUE: Is PD 1987 a valid exercise of taxing power of the state?
HELD: Yes. It is beyond serious question that a tax does not cease to be
valid merely because it regulates, discourages, or even definitely deters the
activities taxed. The power to impose taxes is one so unlimited in force and
so searching in extent, that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as those rest in the
discretion of the authority which exercises it. In imposing a tax, the
legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation.
The levy of the 30% tax is for a public purpose. It was imposed primarily
to answer the need for regulating the video industry, particularly because
of the rampant film piracy, the flagrant violation of intellectual property
rights, and the proliferation of pornographic video tapes. And while it was
also an objective of the DECREE to protect the movie industry, the tax
remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which
impelled the legislature to impose the tax was to favor one industry over
another.
2. CITY OF BAGUIO vs. DE LEON
25 SCRA 938; GR No. L-24756, October 31, 1968
"There is no double taxation where one tax is imposed by the state and
the other is imposed by the city."
FACTS: The City of Baguio passed an ordinance imposing a license fee on
any person, entity or corporation doing business in the City. The ordinance
sourced its authority from RA No. 329, thereby amending the city charter
empowering it to fix the license fee and regulate businesses, trades and
occupations as may be established or practiced in the City. De Leon was
assessed for P50 annual fee it being shown that he was engaged in
property rental and deriving income therefrom. The latter assailed the
validity of the ordinance arguing that it is ultra vires for there is no statury
authority which expressly grants the City of Baguio to levy such tax, and
that there it imposed double taxation, and violates the requirement of
uniformity.
ISSUE: Are the contentions of the defendant-appellant tenable?
HELD: No. First, RA 329 was enacted amending Section 2553 of the
Revised Administrative Code empowering the City Council not only to
impose a license fee but to levy a tax for purposes of revenue, thus the
ordinance cannot be considered ultra vires for there is more than ample
statury authority for the enactment thereof.
Second, an argument against double taxation may not be invoked where
one tax is imposed by the state and the other is imposed by the city, so
that where, as here, Congress has clearly expressed its intention, the
statute must be sustained even though double taxation results.
And third, violation of uniformity is out of place it being widely
recognized that there is nothing inherently obnoxious in the requirement
that license fees or taxes be exacted with respect to the same occupation,
calling or activity by both the state and the political subdivisions thereof.
3. BAGATSING vs. RAMIREZ
74 SCRA 306; GR No. L-41631, December 17, 1976
"The entrusting of the tax collection to private entities does not destroy the
public purpose of a tax ordinance."
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FACTS: Aside from the issue on publication, private respondent bewails
7522, which regulates public markets and prescribes fees for rentals of
stalls, are diverted to the exclusive private use of the Asiatic Integrated
Corporation since the collection of said fees had been let by the City of
Manila to the said corporation in a "Management and Operating Contract."
ISSUE: Does the delegation of the collection of taxes to a private entity
invalidates a tax ordinance and defeats its public purpose?
HELD: No. The assumption is of course saddled on erroneous premise. The
fees collected do not go direct to the private coffers of the corporation.
Ordinance No. 7522 was not made for the corporation but for the purpose
of raising revenues for the city. That is the object it serves. The entrusting
of the collection of the fees does not destroy the public purpose of the
ordinance. So long as the purpose is public, it does not matter whether the
agency through which the money is dispensed is public or private. The
right to tax depends upon the ultimate use, purpose and object for which
the fund is raised. It is not dependent on the nature or character of the
person or corporation whose intermediate agency is to be used in applying
it. The people may be taxed for a public purpose, although it be under the
direction of an individual or private corporation.
4. PASCUAL vs. SECRETARY OF PUBLIC WORKS
110 PHIL 331; GR No. L-10405, December 29, 1960
"A law appropriating the public revenue is invalid if the public advantage or
benefit, derived from such expenditure, is merely incidental in the
promotion of a particular enterprise."
FACTS: Governor Wenceslao Pascual of Rizal instituted this action for
declaratory relief, with injunction, upon the ground that RA No. 920, which
apropriates funds for public works particularly for the construction and
improvement of Pasig feeder road terminals. Some of the feeder roads,
however, as alleged and as contained in the tracings attached to the
petition, were nothing but projected and planned subdivision roads, not yet
constructed within the Antonio Subdivision, belonging to private
respondent Zulueta, situated at Pasig, Rizal; and which projected feeder
roads do not connect any government property or any important premises
to the main highway. The respondents' contention is that there is public
purpose because people living in the subdivision will directly be benefitted
from the construction of the roads, and the government also gains from
the donation of the land supposed to be occupied by the streets, made by
its owner to the government.
ISSUE: Should incidental gains by the public be considered "public
purpose" for the purpose of justifying an expenditure of the government?
HELD: No. It is a general rule that the legislature is without power to
appropriate public revenue for anything but a public purpose. It is the
essential character of the direct object of the expenditure which must
determine its validity as justifying a tax, and not the magnitude of the
interest to be affected nor the degree to which the general advantage of
the community, and thus the public welfare, may be ultimately benefited
by their promotion. Incidental to the public or to the state, which results
from the promotion of private interest and the prosperity of private
enterprises or business, does not justify their aid by the use public money.
The test of the constitutionality of a statute requiring the use of public
funds is whether the statute is designed to promote the public interest, as
opposed to the furtherance of the advantage of individuals, although each
advantage to individuals might incidentally serve the public.
5. COMMISSIONER vs. BOAC
149 SCRA 395; GR No. L-65773-74 April 30, 1987
"The source of an income is the property, activity or service that produced
the income. For such source to be considered as coming from the
Philippines, it is sufficient that the income is derived from activity within
the Philippines."
FACTS: Petitioner CIR seeks a review of the CTA's decision setting aside
petitioner's assessment of deficiency income taxes against respondent
British Overseas Airways Corporation (BOAC) for the fiscal years 1959 to
1971. BOAC is a 100% British Government-owned corporation organized
and existing under the laws of the United Kingdom, and is engaged in the
international airline business. During the periods covered by the disputed
assessments, it is admitted that BOAC had no landing rights for traffic
purposes in the Philippines. Consequently, it did not carry passengers
and/or cargo to or from the Philippines, although during the period
covered by the assessments, it maintained a general sales agent in the
Philippines — Wamer Barnes and Company, Ltd., and later Qantas Airways
— which was responsible for selling BOAC tickets covering passengers and
cargoes. The CTA sided with BOAC citing that the proceeds of sales of
BOAC tickets do not constitute BOAC income from Philippine sources since
no service of carriage of passengers or freight was performed by BOAC
within the Philippines and, therefore, said income is not subject to
Philippine income tax. The CTA position was that income from
transportation is income from services so that the place where services are
rendered determines the source.
ISSUE: Are the revenues derived by BOAC from sales of ticket for air
transportation, while having no landing rights here, constitute income of
BOAC from Philippine sources, and accordingly, taxable?
HELD: Yes. The source of an income is the property, activity or service that
produced the income. For the source of income to be considered as
coming from the Philippines, it is sufficient that the income is derived from
activity within the Philippines. In BOAC's case, the sale of tickets in the
Philippines is the activity that produces the income. The tickets exchanged
hands here and payments for fares were also made here in Philippine
currency. The site of the source of payments is the Philippines. The flow of
wealth proceeded from, and occurred within, Philippine territory, enjoying
the protection accorded by the Philippine government. In consideration of
such protection, the flow of wealth should share the burden of supporting
the government.
6. ATLAS CONSOLIDATED MINING DEVT CORP vs. CIR
524 SCRA 73, 103; GR Nos. 141104 & 148763, June 8, 2007
"The taxpayer must justify his claim for tax exemption or refund by the
clearest grant of organic or statute law and should not be permitted to
stand on vague implications."
"Export processing zones (EPZA) are effectively considered as foreign
territory for tax purposes."
FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in
mining, production, and sale of various mineral products, filed claims with
the BIR for refund/credit of input VAT on its purchases of capital goods and
on its zero-rated sales in the taxable quarters of the years 1990 and 1992.
BIR did not immediately act on the matter prompting the petitioner to file
a petition for review before the CTA. The latter denied the claims on the
grounds that for zero-rating to apply, 70% of the company's sales must
consists of exports, that the same were not filed within the 2-year
prescriptive period (the claim for 1992 quarterly returns were judicially
filed only on April 20, 1994), and that petitioner failed to submit substantial
evidence to support its claim for refund/credit.
The petitioner, on the other hand, contends that CTA failed to consider
the following: sales to PASAR and PHILPOS within the EPZA as zero-rated
export sales; the 2-year prescriptive period should be counted from the
date of filing of the last adjustment return which was April 15, 1993, and
not on every end of the applicable quarters; and that the certification of
the independent CPA attesting to the correctness of the contents of the
summary of suppliers’ invoices or receipts examined, evaluated and
audited by said CPA should substantiate its claims.
ISSUE: Did the petitioner corporation sufficiently establish the factual
bases for its applications for refund/credit of input VAT?
HELD: No. Although the Court agreed with the petitioner corporation that
the two-year prescriptive period for the filing of claims for refund/credit of
input VAT must be counted from the date of filing of the quarterly VAT
return, and that sales to PASAR and PHILPOS inside the EPZA are taxed as
exports because these export processing zones are to be managed as a
separate customs territory from the rest of the Philippines, and thus, for
tax purposes, are effectively considered as foreign territory, it still denies
the claims of petitioner corporation for refund of its input VAT on its
purchases of capital goods and effectively zero-rated sales during the
period claimed for not being established and substantiated by appropriate
and sufficient evidence.
Tax refunds are in the nature of tax exemptions. It is regarded as in
derogation of the sovereign authority, and should be construed in
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strictissimi juris against the person or entity claiming the exemption. The
taxpayer who claims for exemption must justify his claim by the clearest
grant of organic or statute law and should not be permitted to stand on
vague implications.
7. BOARD OF ASSESSMENT APPEALS OF LAGUNA vs. CTA, NWSA
8 SCRA 224; GR No. L-18125, May 31, 1963
"A tax on property of the Government, whether national or local, would
merely have the effect of taking money from one pocket to put it in
another pocket."
FACTS: National Waterworks and Sewerage Authority (NWSA), a public
corporation owned by the Government of the Philippines as well as all
property comprising waterworks and sewerage systems placed under it,
took over the Cabuyao-Sta. Rosa-Biñan Waterworks System in 1956. It
was assessed by the Provincial Assessor of Laguna, for purposes of real
estate taxes, on the real properties owned by Cabuyao Waterworks. The
respondent protested claiming it is exempted from the payment of real
estate taxes in view of the nature and kind of said property and functions
and activities of petitioner. The petitioner denied the protest arguing that
such real properties are subject to real estate tax because although said
properties belong to the Republic of the Philippines, the same holds it, not
in its governmental, political or sovereign capacity, but in a private,
proprietary or patrimonial character, which, allegedly, is not covered by the
exemption contained in section 3(a) of Republic Act No. 470.
ISSUE: Are the real properties owned by the respondent public corporation
subject to real estate tax?
HELD: No. Republic Act No. 470 makes no distinction between property
held in a sovereign, governmental or political capacity and those possessed
in a private, proprietary or patrimonial character. And where the law does
not distinguish neither may we, unless there are facts and circumstances
clearly showing that the lawmaker intended the contrary, but no such facts
and circumstances have been brought to our attention. Indeed, the noun
"property" and the verb "owned" used in said section 3(a) strongly suggest
that the object of exemption is considered more from the view point of
dominion, than from that of domain.
Moreover, taxes are financial burdens imposed for the purpose of raising
revenues with which to defray the cost of the operation of the
Government, and a tax on property of the Government, whether national
or local, would merely have the effect of taking money from one pocket to
put it in another pocket. Hence, it would not serve, in the final analysis,
the main purpose of taxation. What is more, it would tend to defeat it, on
account of the paper work, time and consequently, expenses it would
entail.
8. PEPSI-COLA vs. CITY OF BUTUAN
24 SCRA 789; GR No. L-22814, August 28, 1968
"The classification made in the exercise of power to tax, to be valid, must
be reasonable ."
FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it
under protest, to the City of Butuan, and collected by the latter, pursuant
to its Municipal Ordinance No. 110 which plaintiff assails as null and void
because it partakes of the nature of an import tax, amounts to double
taxation, highly unjust and discriminatory, excessive, oppressive and
confiscatory, and constitutes an invlaid delegation of the power to tax. The
ordinance imposes taxes for every case of softdrinks, liquors and other
carbonated beverages, regardless of the volume of sales, shipped to the
agents and/or consignees by outside dealers or any person or company
having its actual business outside the City.
ISSUE: Does the tax ordinance violate the uniformity requirement of
taxation?
HELD: Yes. The tax levied is discriminatory. Even if the burden in question
were regarded as a tax on the sale of said beverages, it would still be
invalid, as discriminatory, and hence, violative of the uniformity required by
the Constitution and the law therefor, since only sales by "agents or
consignees" of outside dealers would be subject to the tax. Sales by local
dealers, not acting for or on behalf of other merchants, regardless of the
volume of their sales, and even if the same exceeded those made by said
agents or consignees of producers or merchants established outside the
City of Butuan, would be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power
of taxation does not require identity or equality under all circumstances, or
negate the authority to classify the objects of taxation. The classification
made in the exercise of this authority, to be valid, must, however, be
reasonable and this requirement is not deemed satisfied unless: (1) it is
based upon substantial distinctions which make real differences; (2) these
are germane to the purpose of the legislation or ordinance; (3) the
classification applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4) the
classification applies equally to all those who belong to the same class.
9. PEPSI-COLA vs. MUNICIPALITY OF TANAUAN
69 SCRA 460; GR No. L-31156, February 27, 1976
"Legislative power to create political corporations for purposes of local self-
government carries with it the power to confer on such local governmental
agencies the power to tax.
FACTS: Plaintiff-appellant Pepsi-Cola commenced a complaint with
preliminary injunction to declare Section 2 of Republic Act No. 2264,
otherwise known as the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23 and
27 denominated as "municipal production tax" of the Municipality of
Tanauan, Leyte, null and void. Ordinance 23 levies and collects from soft
drinks producers and manufacturers a tax of one-sixteenth (1/16) of a
centavo for every bottle of soft drink corked, and Ordinance 27 levies and
collects on soft drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each
gallon (128 fluid ounces, U.S.) of volume capacity. Aside from the undue
delegation of authority, appellant contends that it allows double taxation,
and that the subject ordinances are void for they impose percentage or
specific tax.
ISSUE: Are the contentions of the appellant tenable?
HELD: No. On the issue of undue delegation of taxing power, it is settled
that the power of taxation is an essential and inherent attribute of
sovereignty, belonging as a matter of right to every independent
government, without being expressly conferred by the people. It is a
power that is purely legislative and which the central legislative body
cannot delegate either to the executive or judicial department of the
government without infringing upon the theory of separation of powers.
The exception, however, lies in the case of municipal corporations, to
which, said theory does not apply. Legislative powers may be delegated to
local governments in respect of matters of local concern. By necessary
implication, the legislative power to create political corporations for
purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax.
Also, there is no validity to the assertion that the delegated authority can
be declared unconstitutional on the theory of double taxation. It must be
observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. The
reason is that the State has exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, so that double taxation becomes obnoxious only where
the taxpayer is taxed twice for the benefit of the same governmental 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 or municipality.
On the last issue raised, the ordinances do not partake of the nature of a
percentage tax on sales, or other taxes in any form based thereon. The tax
is levied on the produce (whether sold or not) and not on the sales. The
volume capacity of the taxpayer's production of soft drinks is considered
solely for purposes of determining the tax rate on the products, but there
is not set ratio between the volume of sales and the amount of the tax.
10. OSMEÑA vs. ORBOS
220 SCRA 703; GR No. 99886, March 31, 1993
" To avoid the taint of unlawful delegation of the power to tax, there must
be a standard which implies that the legislature determines matter of
principle and lays down fundamental policy."
FACTS: Senator John Osmeña assails the constitutionality of paragraph 1c
of PD 1956, as amended by EO 137, empowering the Energy Regulatory
Board (ERB) to approve the increase of fuel prices or impose additional
3
amounts on petroleum products which proceeds shall accrue to the Oil
Price Stabilization Fund (OPSF) established for the reimbursement to ailing
oil companies in the event of sudden price increases. The petitioner avers
that the collection on oil products establishments is an undue and invalid
delegation of legislative power to tax. Further, the petitioner points out that
since a 'special fund' consists of monies collected through the taxing power
of a State, such amounts belong to the State, although the use thereof is
limited to the special purpose/objective for which it was created. It thus
appears that the challenge posed by the petitioner is premised primarily on
the view that the powers granted to the ERB under P.D. 1956, as
amended, partake of the nature of the taxation power of the State.
ISSUE: Is there an undue delegation of the legislative power of taxation?
HELD: None. It seems clear that while the funds collected may be referred
to as taxes, they are exacted in the exercise of the police power of the
State. Moreover, that the OPSF as a special fund is plain from the special
treatment given it by E.O. 137. It is segregated from the general fund; and
while it is placed in what the law refers to as a "trust liability account," the
fund nonetheless remains subject to the scrutiny and review of the COA.
The Court is satisfied that these measures comply with the constitutional
description of a "special fund." With regard to the alleged undue
delegation of legislative power, the Court finds that the provision conferring
the authority upon the ERB to impose additional amounts on petroleum
products provides a sufficient standard by which the authority must be
exercised. In addition to the general policy of the law to protect the local
consumer by stabilizing and subsidizing domestic pump rates, P.D. 1956
expressly authorizes the ERB to impose additional amounts to augment the
resources of the Fund.
11. VILLEGAS vs. HIU CHIONG
86 SCRA 270; GR No. L-29646, November 10, 1978
"A tax law should be declared invalid if it fails to lay down standards to
guide or limit the actions of the taxing authority."
FACTS: The Municipal Board of Manila enacted Ordinance No. 6537 which
prohibits aliens from being employed or to engage or participate in any
position or occupation or business, without first securing an employment
permit from the Mayor of Manila and paying the permit fee of P50.00. The
respondent challenged the validity of the ordinance upon the contention
that it does not qualify as a valid exercise of the power to tax for, as a
revenue measure imposed on aliens employed in the City of Manila, the
ordinance is discriminatory and violative of the rule of the uniformity in
taxation, and as a police power measure, it makes no distinction between
useful and non-useful occupations, imposing a fixed P50.00 employment
permit, which is out of proportion to the cost of registration and that it fails
to prescribe any standard to guide and/or limit the action of the Mayor,
thus, violating the fundamental principle on delegation of legislative
powers:
ISSUE: Is there a valid exercise of the taxing power of the local
government?
HELD: None. First, the ordinance is not a regulatory or police power
measure; it is but a revenue measure guised in a police power measure.
Second, the P50.00 fee is unreasonable not only because it is excessive
but because it fails to consider valid substantial differences in situation
among individual aliens who are required to pay it. Although the equal
protection clause of the Constitution does not forbid classification, it is
imperative that the classification should be based on real and substantial
differences having a reasonable relation to the subject of the particular
legislation. The same amount of P50.00 is being collected from every
employed alien whether he is casual or permanent, part time or full time or
whether he is a lowly employee or a highly paid executive.
On the illegal delegation part of the argument, Ordinance No. 6537 is
void for it does not lay down any criterion or standard to guide the Mayor
in the exercise of his discretion. It has been held that where an ordinance
of a municipality fails to state any policy or to set up any standard to guide
or limit the mayor's action, expresses no purpose to be attained by
requiring a permit, enumerates no conditions for its grant or refusal, and
entirely lacks standard, thus conferring upon the Mayor arbitrary and
unrestricted power to grant or deny the issuance of permits, such
ordinance is invalid, being an undefined and unlimited delegation of power
to allow or prevent an activity per se lawful.

12. ESSO STANDARD. vs. ACTG COMM. OF CUSTOMS
18 SCRA 488; GR No. L-21841, October 28, 1966
"Exemptions from taxation are construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority."
FACTS: Petitioner, engaged in the industry of processing gasoline, oils etc.,
claims for the refund of special import taxes paid pursuant to the provision
of RA 1394 which imposed a special import tax "on all goods, articles or
products imported or brought into the Philippines." Exempt from this tax,
by express mandate of Section 6 of the same law are "machinery,
equipment, accessories, and spare parts, for the use of industries, miners,
mining enterprises, planters and farmers". Petitioner argued that the
importation it made of gas pumps used by their gasoline station operators
should fall under such exemptions, being directly used in its industry. The
Collector of Customs of Manila rejected the claim, and so as the Court on
Tax Appeals. The CTA noted that the pumps imported were not used in the
processing of gasoline and other oil products but by the gasoline stations,
owned by the petitioner, for pumping out, from underground barrels,
gasoline sold on retail to customers.
ISSUE: Is the contention of the petitioner tenable? Does the subject
imports fall into the exemptions?
HELD: No. The contention runs smack against the familiar rules that
exemption from taxation is not favored, and that exemptions in tax
statutes are never presumed. Which are but statements in adherence to
the ancient rule that exemptions from taxation are construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority.
Tested by this precept, we cannot indulge in expansive construction and
write into the law an exemption not therein set forth. Rather, we go by the
reasonable assumption that where the State has granted in express terms
certain exemptions, those are the exemptions to be considered, and no
more. Since the law states that, to be tax-exempt, equipment and spare
parts should be "for the use of industries", the coverage herein should not
be enlarged to include equipment and spare parts for use in dispensing
gasoline at retail.
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CASE DIGESTS; TAXATION I; set 1
1. CIR v. PINEDA
GR No. L-22734, September 15, 1967; 21 SCRA 105
FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and
15 children, the eldest of whom is Atty. Manuel Pineda. Estate proceedings
were had in Court so that the estate was divided among and awarded to
the heirs. Atty Pineda's share amounted to about P2,500.00. After the
estate proceedings were closed, the BIR investigated the income tax
liability of the estate for the years 1945, 1946, 1947 and 1948 and it found
that the corresponding income tax returns were not filed. Thereupon, the
representative of the Collector of Internal Revenue filed said returns for
the estate issued an assessment and charged the full amount to the
inheritance due to Atty. Pineda who argued that he is liable only to extent
of his proportional share in the inheritance.
ISSUE: Can BIR collect the full amount of estate taxes from an heir's
inheritance.
HELD: Yes. The Government can require Atty. Pineda to pay the full
amount of the taxes assessed.
The reason is that the Government has a lien on the P2,500.00 received by
him from the estate as his share in the inheritance, for unpaid income
taxes for which said estate is liable. By virtue of such lien, the Government
has the right to subject the property in Pineda's possession to satisfy the
income tax assessment. After such payment, Pineda will have a right of
contribution from his co-heirs, to achieve an adjustment of the proper
share of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question.
One, by going after all the heirs and collecting from each one of them the
amount of the tax proportionate to the inheritance received; and second, is
by subjecting said property of the estate which is in the hands of an heir or
transferee to the payment of the tax due. This second remedy is the very
avenue the Government took in this case to collect the tax. The Bureau of
4
Internal Revenue should be given, in instances like the case at bar, the
necessary discretion to avail itself of the most expeditious way to collect
the tax as may be envisioned in the particular provision of the Tax Code
above quoted, because taxes are the lifeblood of government and their
prompt and certain availability is an imperious need.
2. VERA v. FERNANDEZ
GR No. L-31364 March 30, 1979; 89 SCRA 199
FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and
for payment of taxes representing the estate's tax deficiencies in 1963 to
1964 in the intestate proceedings of Luis Tongoy. The administrator
opposed arguing that the claim was already barred by the statute of
limitation, Section 2 and Section 5 of Rule 86 of the Rules of Court which
provides that all claims for money against the decedent, arising from
contracts, express or implied, whether the same be due, not due, or
contingent, all claims for funeral expenses and expenses for the last
sickness of the decedent, and judgment for money against the decedent,
must be filed within the time limited in the notice; otherwise they are
barred forever.
ISSUE: Does the statute of non-claims of the Rules of Court bar the claim
of the government for unpaid taxes?
HELD: No. The reason for the more liberal treatment of claims for taxes
against a decedent's estate in the form of exception from the application of
the statute of non-claims, is not hard to find. Taxes are the lifeblood of the
Government and their prompt and certain availability are imperious need.
(CIR vs. Pineda, 21 SCRA 105). Upon taxation depends the Government
ability to serve the people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of government officials
entrusted with the collection of taxes should not be allowed to bring harm
or detriment to the people, in the same manner as private persons may be
made to suffer individually on account of his own negligence, the
presumption being that they take good care of their personal affairs. This
should not hold true to government officials with respect to matters not of
their own personal concern. This is the philosophy behind the
government's exception, as a general rule, from the operation of the
principle of estoppel.
3. CIR v. CA, CITY TRUST BANKING CORP.
GR No. 86785, November 21, 1991; 234 SCRA 348
FACTS: Respondent corporation Citytrust filed a refund of overpaid taxes
with the BIR by which the latter denied on the ground of prescription.
Citytrust filed a petition for review before the CTA. The case was submitted
for decision based solely on the pleadings and evidence submitted by the
respondent because the CIR could not present any evidence by reason of
the repeated failure of the Tax Credit/Refud Division of the BIR to transmit
the records of the case, as well as the investigation report thereon, to the
Solicitor General. CTA rendered the decision ordering BIR to grant the
respondent's request for tax refund amounting to P 13.3 million.
ISSUE: Failure of the CIR to present evidence to support the case of the
government, should the respondent's claim be granted?
HELD: Not yet. It is a long and firmly settled rule of law that the
Government is not bound by the errors committed by its agents. In the
performance of its governmental functions, the State cannot be estopped
by the neglect of its agent and officers. Although the Government may
generally be estopped through the affirmative acts of public officers acting
within their authority, their neglect or omission of public duties as
exemplified in this case will not and should not produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. It
is axiomatic that the Government cannot and must not be estopped
particularly in matters involving taxes. Taxes are the lifeblood of the nation
through which the government agencies continue to operate and with
which the State effects its functions for the welfare of its constituents. The
errors of certain administrative officers should never be allowed to
jeopardize the Government's financial position, especially in the case at bar
where the amount involves millions of pesos the collection whereof, if
justified, stands to be prejudiced just because of bureaucratic lethargy.
Thus, it is proper that the case be remanded back to the CTA for further
proceedings and reception of evidence.
4. COMMISSIONER v. ALGUE, INC.
GR No. L-28896, February 17, 1988; 158 SCRA 9
FACTS: Privaterespondent corporation Algue Ince filed its income tax
returns for 1958 and 1959showing deductions, for promotional fees paid,
from their gross income, thus lowering their taxable income. The BIR
assessed Algue based on such deductions contending that the claimed
deduction is disallowed because it was not an ordinary, reasonable and
necessary expense.
ISSUE: Should an uncommon business expense be disallowed as a proper
deduction in computation of income taxes, corollary to the doctrine that
taxes are the lifeblood of the government?
HELD: No. Private respondent has proved that the payment of the fees
was necessary and reasonable in the light of the efforts exerted by the
payees in inducing investors and prominent businessmen to venture in an
xperimental enterprise and involve themselves in a new business requiring
millions of pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
It is well-settled that taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance On the other hand,
such collection should be made in accordance with law as any arbitrariness
will negate the very reason for government itself. It is therefore necessary
to reconcile the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of
the common good, may be achieved.
But even as we concede the inevitability and indispensability of taxation,
it is a requirement in all democratic regimes that it be exercised reasonably
and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate, as it has here, that
the law has not been observed.
5. CIR v. YMCA
GR No. 124043, October 14, 1998; 298 SCRA 83
FACTS: Private Respondent YMCA--a non-stock, non-profit institution,
which conducts various programs beneficial to the public pursuant to its
religious, educational and charitable objectives--leases out a portion of its
premises to small shop owners, like restaurants and canteen operators,
deriving substantial income for such. Seeing this, the commissioner of
internal revenue (CIR) issued an assessment to private respondent for
deficiency income tax, deficiency expanded withholding taxes on rentals
and professional fees and deficiency withholding tax on wages. YMCA
opposed arguing that its rental income is not subject to tax, mainly
because of the provisions of Section 27 of NIRC which provides that civic
league or organizations not organized for profit but operate exclusively for
promotion of social welfare and those organized exclusively for pleasure,
recreation and other non-profitble businesses shall not be taxed.
ISSUE: Is the contention of YMCA tenable?
HELD: No. Because taxes are the lifeblood of the nation, the Court has
always applied the doctrine of strict in interpretation in construing tax
exemptions. Furthermore, a claim of statutory exemption from taxation
should be manifest and unmistakable from the language of the law on
which it is based. Thus, the claimed exemption "must expressly be granted
in a statute stated in a language too clear to be mistaken."
6.DAVAO GULF LUMBER CORP v. CIR
GR No. 117359, July 23, 1998; 293 SCRA 77
FACTS: Republic Act No. 1435 entitles miners and forest concessioners to
the refund of 25% of the specific taxes paid by the oil companies, which
were eventually passed on to the user--the petitioner in this case--in the
purchase price of the oil products. Petitioner filed before respondent
Commissioner of Internal Revenue (CIR) a claim for refund in the amount
representing 25% of the specific taxes actually paid on the above-
mentioned fuels and oils that were used by petitioner in its operations.
However petitioner asserts that equity and justice demands that the refund
should be based on the increased rates of specific taxes which it actually
paid, as prescribed in Sections 153 and 156 of the NIRC. Public
5
respondent, on the other hand, contends that it should be based on
specific taxes deemed paid under Sections 1 and 2 of RA 1435.
ISSUE: Should the petitioner be entitled under Republic Act No. 1435 to
the refund of 25% of the amount of specific taxes it actually paid on
various refined and manufactured mineral oils and other oil products, and
not on the taxes deemed paid and passed on to them, as end-users, by
the oil companies?
HELD: No. According to an eminent authority on taxation, "there is no tax
exemption solely on the ground of equity." Thus, the tax refund should be
based on the taxes deemed paid. Because taxes are the lifeblood of the
nation, statutes that allow exemptions are construed strictly against the
grantee and liberally in favor of the government. Otherwise stated, any
exemption from the payment of a tax must be clearly stated in the
language of the law; it cannot be merely implied therefrom.
7. MARCOS II v. CA
GR No. 120880, June 5, 1997; 293 SCRA 77
FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court
of Appeals to grant CIR's petition to levy the properties of the late Pres.
Marcos to cover the payment of his tax delinquencies during the period of
his exile in the US. The Marcos family was assessed by the BIR, and
notices were constructively served to the Marcoses, however the
assessment were not protested administratively by Mrs. Marcos and the
heirs of the late president so that they became final and unappealable
after the period for filing of opposition has prescribed. Marcos contends
that the properties could not be levied to cover the tax dues because they
are still pending probate with the court, and settlement of tax deficiencies
could not be had, unless there is an order by the probate court or until the
probate proceedings are terminated.
ISSUE: Is the contention of Bongbong Marcos correct?
HELD: No. The deficiency income tax assessments and estate tax
assessment are already final and unappealable -and-the subsequent levy
of real properties is a tax remedy resorted to by the government,
sanctioned by Section 213 and 218 of the National Internal Revenue Code.
This summary tax remedy is distinct and separate from the other tax
remedies (such as Judicial Civil actions and Criminal actions), and is not
affected or precluded by the pendency of any other tax remedies instituted
by the government.
The approval of the court, sitting in probate, or as a settlement tribunal
over the deceased is not a mandatory requirement in the collection of
estate taxes. It cannot therefore be argued that the Tax Bureau erred in
proceeding with the levying and sale of the properties allegedly owned by
the late President, on the ground that it was required to seek first the
probate court's sanction. There is nothing in the Tax Code, and in the
pertinent remedial laws that implies the necessity of the probate or estate
settlement court's approval of the state's claim for estate taxes, before the
same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or
settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent's estate to deliver any distributive share to
any party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid.
This provision disproves the petitioner's contention that it is the probate
court which approves the assessment and collection of the estate tax.
8. REYES v. ALMANZOR
GR Nos. L-49839-46, April 26, 1991; 196 SCRA 322
FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which
are leased and occupied as dwelling units by tenants who were paying
monthly rentals of not exceeding P300. Sometimes in 1971 the Rental
Freezing Law was passed prohibiting for one year from its effectivity, an
increase in monthly rentals of dwelling units where rentals do not exceed
three hundred pesos (P300.00), so that the Reyeses were precluded from
raising the rents and from ejecting the tenants. In 1973, respondent City
Assessor of Manila re-classified and reassessed the value of the subject
properties based on the schedule of market values, which entailed an
increase in the corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement averring that the reassessments made were
"excessive, unwarranted, inequitable, confiscatory and unconstitutional"
considering that the taxes imposed upon them greatly exceeded the
annual income derived from their properties. They argued that the income
approach should have been used in determining the land values instead of
the comparable sales approach which the City Assessor adopted.
ISSUE: Is the approach on tax assessment used by the City Assessor
reasonable?
HELD: No. The taxing power has the authority to make a reasonable and
natural classification for purposes of taxation but the government's act
must not be prompted by a spirit of hostility, or at the very least
discrimination that finds no support in reason. It suffices then that the laws
operate equally and uniformly on all persons under similar circumstances
or that all persons must be treated in the same manner, the conditions not
being different both in the privileges conferred and the liabilities imposed.
Consequently, it stands to reason that petitioners who are burdened by
the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D.
20) under the principle of social justice should not now be penalized by the
same government by the imposition of excessive taxes petitioners can ill
afford and eventually result in the forfeiture of their properties.
9. PHIL. BANK OF COMMUNICATIONS v. CIR
GR No. 112024, January 28, 1999; 302 SCRA 250
FACTS: Petitioner PBCom filed its first and second quarter income tax
returns, reported profits, and paid income taxes amounting to P5.2M in
1985. However, at the end of the year PBCom suffered losses so that when
it filed its Annual Income Tax Returns for the year-ended December 31,
1986, the petitioner likewise reported a net loss of P14.1 M, and thus
declared no tax payable for the year. In 1988, the bank requested from
CIR for a tax credit and tax refunds representing overpayment of taxes.
Pending investigation of the respondent CIR, petitioner instituted a Petition
for Review before the Court of Tax Appeals (CTA). CTA denied its petition
for tax credit and refund for failing to file within the prescriptive period to
which the petitioner belies arguing the Revenue Circular No.7-85 issued by
the CIR itself states that claim for overpaid taxes are not covered by the
two-year prescriptive period mandated under the Tax Code.
ISSUE: Is the contention of the petitioner correct? Is the revenue circular a
valid exemption to the NIRC?
HELD: No. The relaxation of revenue regulations by RMC 7-85 is not
warranted as it disregards the two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The
primary purpose is to generate funds for the State to finance the needs of
the citizenry and to advance the common weal. Due process of law under
the Constitution does not require judicial proceedings in tax cases. This
must necessarily be so because it is upon taxation that the government
chiefly relies to obtain the means to carry on its operations and it is of
utmost importance that the modes adopted to enforce the collection of
taxes levied should be summary and interfered with as little as possible.
From the same perspective, claims for refund or tax credit should be
exercised within the time fixed by law because the BIR being an
administrative body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
10. PHIL. GUARANTY CO., INC. v. CIR
GR No. L-22074, April 30, 1965; 13 SCRA 775
FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance
company, entered into reinsurance contracts with foreign insurance
companies not doing business in the country, thereby ceding to foreign
reinsurers a portion of the premiums on insurance it has originally
underwritten in the Philippines. The premiums paid by such companies
were excluded by the petitioner from its gross income when it file its
income tax returns for 1953 and 1954. Furthermore, it did not withhold or
pay tax on them. Consequently, the CIR assessed against the petitioner
withholding taxes on the ceded reinsurance premiums to which the latter
protested the assessment on the ground that the premiums are not subject
to tax for the premiums did not constitute income from sources within the
Philippines because the foreign reinsurers did not engage in business in the
Philippines, and CIR's previous rulings did not require insurance companies
to withhold income tax due from foreign companies.
6
ISSUE: Are insurance companies not required to withhold tax on
reinsurance premiums ceded to foreign insurance companies, which
deprives the government from collecting the tax due from them?
HELD: No. The power to tax is an attribute of sovereignty. It is a power
emanating from necessity. It is a necessary burden to preserve the State's
sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of civil
servants to serve, public improvement designed for the enjoyment of the
citizenry and those which come within the State's territory, and facilities
and protection which a government is supposed to provide. Considering
that the reinsurance premiums in question were afforded protection by the
government and the recipient foreign reinsurers exercised rights and
privileges guaranteed by our laws, such reinsurance premiums and
reinsurers should share the burden of maintaining the state.
The petitioner's defense of reliance of good faith on rulings of the CIR
requiring no withholding of tax due on reinsurance premiums may free the
taxpayer from the payment of surcharges or penalties imposed for failure
to pay the corresponding withholding tax, but it certainly would not
exculpate it from liability to pay such withholding tax. The Government is
not estopped from collecting taxes by the mistakes or errors of its agents.
11. PHILEX MINING CORP. v. CIR
GR No. 125704, August 28, 1998; 294 SCRA 687
FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of
Appeals affirming the Court of Tax Appeals decision ordering it to pay the
amount of P110.7 M as excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from
1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of
1977. Philex protested the demand for payment of the tax liabilities stating
that it has pending claims for VAT input credit/refund for the taxes it paid
for the years 1989 to 1991 in the amount of P120 M plus interest.
Therefore these claims for tax credit/refund should be applied against the
tax liabilities.
ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis
claims of tax refund of the petitioner?
HELD: No. Philex's claim is an outright disregard of the basic principle in
tax law that taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. Evidently, to countenance
Philex's whimsical reason would render ineffective our tax collection
system. Too simplistic, it finds no support in law or in jurisprudence.
To be sure, Philex cannot be allowed to refuse the payment of its tax
liabilities on the ground that it has a pending tax claim for refund or credit
against the government which has not yet been granted.Taxes cannot be
subject to compensation for the simple reason that the government and
the taxpayer are not creditors and debtors of each other. There is a
material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the
Government in its sovereign capacity. xxx There can be no off-setting of
taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being
collected. The collection of a tax cannot await the results of a lawsuit
against the government.
12. NORTH CAMARINES LUMBER CO., INC. v. CIR
GR No. L-12353, September 30, 1960; 109 PHIL 511
FACTS: The petitioner sold more than 2M boardfeet of logs to General
Lumber Co. with the agreement that the latter would pay the sales taxes.
The CIR, upon consultation officially advised the parties that the bureau
interposes no objection so long as the tax due shall be covered by a surety.
General Lumber complied, but later failed, with the surety, to pay the tax
liabilities, and so the respondent collector required the petitioner to pay
thru a letter dated August 30, 1955. Twice did the petitioner filed a request
for reconsideration before finally submitting the denied request for appeal
before the Court of Tax Appeals. The CTA dismissed the appeal as it was
clearly filed out of time. The petitioner had consumed thirty-three days
from the receipt of the demand, before filing the appeal. Petitioner argued
that in computing the 30-day period in perfecting the appeal the letter of
the respondent Collector dated January 30, 1956, denying the second
request for reconsideration, should be considered as the final decision
contemplated in Section 7, and not the letter of demand dated August 30,
1955.
ISSUE: Is the contention of the petitioner tenable?
HELD: No. This contention is untenable. We cannot countenance that
theory that would make the commencement of the statutory 30-day period
solely dependent on the will of the taxpayer and place the latter in a
position to put off indefinitely and at his convenience the finality of a tax
assessment. Such an absurd procedure would be detrimental to the
interest of the Government, for "taxes are the lifeblood of the government,
and their prompt and certain availability is an imperious need."
15. PUNSALAN v. MUN. BOARD OF CITY OF MANILA
GR No. L-23645, October 29, 1968; 95 PHIL 46
FACTS: The plaintiffs--two lawyers, medical practitioner, a dental surgeon,
a CPA, and a pharmacist--sought the annulment of Ordinance No.3398 of
the City of Manila which imposes a municipal occupation tax on persons
exercising various professions in the city and penalizes non-payment of the
tax, contending in substance that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what
amounts to double taxation. The burden of plaintiffs' complaint is not that
the professions to which they respectively belong have been singled out
for the imposition of this municipal occupation tax, but that while the law
has authorized the City of Manila to impose the said tax, it has withheld
that authority from other chartered cities, not to mention municipalities.

13. LUTZ v. ARANETA ISSUE: Does the law constitute a class legislation? Is it for the Court to
GR No. L-7859, December 22, 1955; 98 PHIL 148 determine which political unit should impose taxes and which should not?

FACTS: Plaintiff Walter Lutz, in his capacity as judicial administrator of the
intestate estate of Antionio Ledesma, sought to recover from the CIR the
sum of P14,666.40 paid by the estate as taxes, under section 3 of the CA
567 or the Sugar Adjustment Act thereby assailing its constitutionality, for
it provided for an increase of the existing tax on the manufacture of sugar,
alleging that such enactment is not being levied for a public purpose but
solely and exclusively for the aid and support of the sugar industry thus
making it void and unconstitutional. The sugar industry situation at the
time of the enactment was in an imminent threat of loss and needed to be
stabilized by imposition of emergency measures.
HELD: No. It is not for the courts to judge what particular cities or
municipalities should be empowered to impose occupation taxes in addition
to those imposed by the National Government. That matter is peculiarly
within the domain of the political departments and the courts would do
well not to encroach upon it. Moreover, as the seat of the National
Government and with a population and volume of trade many times that of
any other Philippine city or municipality, Manila, no doubt, offers a more
lucrative field for the practice of the professions, so that it is but fair that
the professionals in Manila be made to pay a higher occupation tax than
their brethren in the provinces.

ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the

equal protection clause, the purpose of which is not for the benefit of the
general public but for the rehabilitation only of the sugar industry?

HELD: Yes. The protection and promotion of the sugar industry is a matter
of public concern, it follows that the Legislature may determine within
reasonable bounds what is necessary for its protection and expedient for
its promotion. Here, the legislative discretion must be allowed to fully play,
subject only to the test of reasonableness; and it is not contended that the
means provided in the law bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally
valid, no reason is seen why the state may not levy taxes to raise funds for
their prosecution and attainment. Taxation may be made the implement of
the state's police power.

14. GOMEZ v. PALOMAR

GR No. L-23645, October 29, 1968; 25 SCRA 827

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

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly

violative of the equal protection clause?

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