1. Hilado vs.

Collector of Internal Revenue and Court of Tax Appeals

WRONG CONSTRUCTION OF LAW CANNOT GIVE RISE TO VESTED RIGHTS
EMILIO Y. HILADO, petitioner,
V
THE COLLECTOR OFINTERNAL REVENUE and THE COURT OF TAX APPEALS,
respondents.
No. L-9408. October 31, 1956
BAUTISTA ANGELO, J.:
FACTS:

 Emilio Hilado claimed in his 1951 income tax return the deduction of the sum of
P12,837.65 as a loss consisting in a portion of his war damage claim which had been
duly approved by the Philippine War Damage Commission under the Philippine
Rehabilitation Act of 1946 but which was not paid due to a notice served upon him by
said commission that said part of his claim will not be paid until the United States
Congress should make further appropriation. The petitioner claims that the said amount
represents a “business asset” within the meaning of the said act which he is entitled to
deduct as a loss in his return for 1951.
 Petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein
he claimed the amount of 12k as a deductible item from his gross income pursuant to
General Circular No. V-123 issued by the Collector of the Internal Revenue. This
circular was issued pursuant to certain rules laid down by secretary of Finance.
 An assessment notice demanding the payment of P9, 419 was sent to Petitioner, who
paid the tax in monthly installments, the last payment having been made on January 2,
1953.
 The Secretary of Finance, through the Collector of Internal Revenue, issued General
Circular No. V-139, which not only revoked and declared void his general Circular
No. V- 123 but laid down the rule that losses of property which occurred during the
period of World War II from fires, storms, shipwreck or other casualty, or from robbery,
theft, or embezzlement are deductible in the year of actual loss or destruction of said
property.
 The amount of P12,837.65 was disallowed as a deduction from the gross income of
Petitioner for 1951 and the Collector of Internal Revenue demanded from him the
payment of the sum of P3,546 as deficiency income tax for said year.

ISSUES:
1. Whether the Secretary of Finance has the authority to issue such circular.
2. Whether or not General Circular No. V-139 cannot be given retroactive effect because
that would affect and obliterate the vested right acquired by Petitioner under the previous
circular.
RULING:
1. Yes, The Secretary of Finance is vested with authority to revoke, repeal or abrogate the
acts or previous rulings of his predecessor in office because the construction of a statute
by those administering it is not binding on their successors if thereafter the latter become
satisfied that a different construction should be given. It is true that under the authority of
section 338 of the National Internal Revenue Code the Secretary of Finance, in the
exercise of his administrative powers, caused the issuance of General Circular No. V-
123 as an implementation or interpretative regulation of section 30 of the same Code,
under which the amount of P12,837.65 was allowed to be deducted “in the year the last
installment was received with notice that no further payment would be made until the
United States Congress makes further appropriation therefor”, but such circular was
found later to be wrong and was revoked. Thus, when doubts arose as to the soundness
or validity of such circular, the Secretary of Finance sought the advice of the Secretary of
Justice.

2. NO. General Circular No. V-123, having been issued on a wrong construction of the law,
cannot give rise to a vested right that can be invoked by a taxpayer. The reason is
obvious; a vested right cannot spring from a wrong interpretation. This is too clear to
require elaboration. “It seems too clear for serious argument that an administrative
officer cannot change a law enacted by Congress. A regulation that is merely an
interpretation of the statute when once determined to have been erroneous becomes
nullity. An erroneous construction of the law by the Treasury Department or the collector
of internal revenue does not preclude or estop the government from collecting a tax
which is legally due. Art. 2254. — No vested or acquired right can arise from acts or
omissions which are against the law or which infringe upon the rights of others.
 2. Sison V Ancheta
THE RULE OF UNIFORMITY DOES NOT CALL FOR PERFECT UNIFORMITY OR PERFECT
EQUALITY. REASONABLE AND NATURAL CLASSIFICATIONS ARE ALLOWED.
ANTERO M. SISON, JR., petitioner,
V
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA,
Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO, Deputy Commissioner,
Bureau of Internal Revenue; MANUELALBA, Minister of Budget, FRANCISCO TANTUICO,
Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance,
respondents.
No. L-59431. July 25, 1984.
FERNANDO, C.J.
FACTS:

 Assailed in this petition is the validity of the Section 1 of Batas Pambansa Blg. 135 which
provision further amends the Section 21 of the National Internal Revenue Code of 1977.
 Petitioner as taxpayer alleges that by virtue thereof, “he would be unduly discriminated
against by the imposition of higher rates of tax upon his income arising from the exercise
of his profession vis-a-vis those which are imposed upon fixed income or salaried
individual taxpayers.”
 Also, he characterizes the above section as arbitrary amounting to class legislation,
oppressive and capricious in character.
 Sison is a taxpayer and a professional class. So hindi siya business income owner. He
belongs to a diff class taxpayer and this law is disadvantageous to him. net
Net Income taxation siya dahil prof siya
Dahil daw ang employees ay gross income dapat daw same.
ISSUE:
Whether or not the Section 1 of Batas Pambansa Blg. 135 violates the equal protection
clause of the constitution and the rule requiring uniformity in taxation.

RULING:
NO. The Constitution does not require things which are different in fact or opinion to be
treated in law as though they were the same.
Classification if rational in character is allowable.
 Citing the case of Lutz V. Araneta, it was reiterated that it is inherent in the power to tax
that a state be free to select the subjects of taxation and that ‘inequalities which result from a
singling out of one particular class for taxation, or exemption infringe no constitutional limitation.
On the constitutional provision that “The rule of taxation shall be uniform and equitable,”
the Court held that this requirement is met.
The rule of uniformity does not call for perfect uniformity or perfect equality, because this
is hardly attainable.
“Equality and uniformity in taxation means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation, all that is required is that the tax
“applies equally to all persons, firms and corporations placed in similar situation.
In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the
discernible basis of classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within the class and fixing a set
of reduced tax rates to be applied to all of them.
- In this case kaya allowed yung deductions, bec kailangan nila mag labas ng capital and
thoise capital will be used to pay for rent mga ganun, whereas compared to
compensation hindi nila need mag pa sweldo or mag rent ng office
- The application of the law if there are classes of tax payers the premise is legis in
character and limited to by what the law says
-
 3. Commissioner of Internal Revenue V Pineda
PURSUANT TO THE LIEN CREATED BY SECTION 315 OF THE TAX CODE, TAX MAY BE
COLLECTED BY SUBJECTING SAID PROPERTY OF THE ESTATE WHICH IS IN THE
HANDS OF AN HEIR OR TRANSFEREE TO THE PAYMENT OF THE TAX DUE, THE
ESTATE
COMMISSIONER OF INTERNAL REVENUE v. MANUEL B. PINEDA, as one of the heirs of
deceased ATANASIO PINEDA, RESPONDENT.
G.R. No. L-22734, EN BANC, September 15, 1967
BENGZON, J.P., J.
FACTS:

 Atanasio Pineda was survived by his wife, Felicisma Bagtas and 15 children—Manuel
Pineda, herein respondent, was the eldest.
o Bagtas was appointed administratrix.
o Estate was divided among the heirs—Manuel’s amounted to P2,500.
 After the estate proceedings were closed,
a) BIR investigated the income tax liability of the estate
b) BIR found that the income tax returns were not filed for years 1945, 1946, 1947
and 1948.
c) CIR representative filed returns for the estate.
 Manuel contested and appealed to the Court of Tax Appeals alleging that he was appealing
"only that proportionate part or portion pertaining to him as one of the heirs."
 Court of Tax Appeals: The right to assess and collect the tax has prescribed.
 This Court: Affirmed Tax Court’s findings for year 1947 but such right did n 6ot prescribe
for years 1945 and 1946. The case was remanded to Tax Court.
 Court of Tax Appeals: Holding Manuel liable for the payment corresponding to his
share of the deficiency taxes.
o CIR appealed to SC and proposed to hold Manuel liable for payment of ALL taxes
amounting to P760.28 instead of only for the amount corresponding to his share in the
estate.
ISSUE:
Whether or not Pineda can be held liable for the payment of all the taxes found by the
Tax Court to be due from the estate of his deceased father.

RULING:
YES, as a holder of property belonging to the estate, Pineda is liable for the tax up to the
amount of the property in his possession. 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, pursuant to the last paragraph of Section 315 of the Tax
Code.
By virtue of such lien, the Government has the right to subject the property in Pineda's
possession,
i.e., the P2, 500.00, to satisfy the income tax assessment in the sum of P760.28. 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.

NOTES:

 The Government has two ways of collecting the tax in question.

a) One, by going after all the heirs and collecting from each one of them the amount of the
tax proportionate to the inheritance received.
 This action rests on the concept that hereditary property consists only of that part
which remains after the settlement of all lawful claims against the estate, for the
settlement of which the entire estate is first liable.
 Reason is to achieve two results: first, payment of the tax; and second,
adjustment of the shares of each heir in the distributed estate as lessened by the
tax.
b) Second, pursuant to the lien created by Section 315 of the Tax Code upon all property
and rights to property belonging to the taxpayer for unpaid income tax, 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, the estate.

The Bureau of 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.
 4. Phil. Guaranty Co., Inc, vs. Commissioner of Int. Rev.
THE POWER TO TAX IS AN ATTRIBUTE OF SOVEREIGNTY. IT IS A POWER EMANATING
FROM NECESSITY.
THE GOVERNMENT IS NOT ESTOPPED FROM COLLECTING TAXES BY THE MISTAKES
OR ERRORS OF ITS AGENTS.
THE PHILIPPINE GUARANTY CO., INC., petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS,
respondents.
No. L-22074. April 30, 1965.
BENGZON, J.P., J.:
FACTS:
 The Philippine Guaranty Co., Inc. (Petitioner), a domestic insurance company, entered
into reinsurance contracts, with foreign insurance companies not doing business in the
Philippines.
 The reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and
by the foreign reinsurers, outside the Philippines, except the contract with Swiss
Reinsurance Company, which was signed by both parties in Switzerland.
 Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to
the foreign reinsurers premiums amounting to P42,466.71 in 1953 and P721,471.85 in
1954.
 Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income
when it filed its income tax returns for 1953 and 1954. Furthermore, it did not withhold or
pay tax on them.
  In 1959, Commissioner of Internal Revenue assessed against Philippine Guaranty Co.,
Inc. withholding tax on the ceded reinsurance premiums with a total amount due and
collectible of P230,673.00 for 1953 and P234,364.00 for 1954.
 Philippine Guaranty Co., Inc. protested the assessment on the ground that reinsurance
premiums ceded to foreign reinsurers not doing business in the Philippines are not
subject to withholding tax.
 Court of Tax Appeal ordered petitioner to pay to the Commissioner of Internal Revenue
withholding income taxes for the years 1953 and 1954, plus the statutory delinquency
penalties thereon.
 Petitioner maintains that the reinsurance premiums in question did not constitute income
from sources within the Philippines because the foreign reinsurers did not engage in
business in the Philippines, nor did they have office here. It further contends that the
reinsurance premiums are not income from sources within the Philippines because they
are not specifically mentioned in Section 37 of the Tax Code.
 Lastly, Petitioner would wish to stress that its reliance in good faith on the rulings of the
Commissioner of Internal Revenue requiring no withholding of the tax due on the
reinsurance premiums in question relieved it of the duty to pay the corresponding
withholding tax thereon.
ISSUE:
1. Whether or not reinsurance premiums in question did not constitute income from
sources within the Philippines because the foreign reinsurers did not engage in business
in the Philippines
2. Whether or not reinsurance premiums are not income from sources within the
Philippines because they are not specifically mentioned in Section 37 of the Tax Code
3. Whether or not Petitioner is relieved of the duty to pay the corresponding withholding tax
thereon.

RULING:
1. NO. All the reinsurance contracts, except that with Swiss Reinsurance Company, were
signed by Philippine Guaranty Co., Inc. in the Philippines and later signed by the foreign
reinsurers abroad. Although the contract between Philippine Guaranty Co., Inc. and
Swiss Reinsurance Company was signed by both parties in Switzerland, the same
specifically provided that its provision shall be construed according to the laws of the
Philippines, thereby manifesting a clear intention of the parties to subject themselves to
Philippine law.

Section 24 of the Tax Code subjects foreign corporations to tax on their income from
sources within the Philippines. The word “sources” has been interpreted as the activity,
property or service giving rise to the income. The reinsurance premiums were income
created from the undertaking of the foreign reinsurance companies to reinsure Philippine
Guaranty Co., Inc. against liability for loss under original insurances. Such undertaking,
as explained above, took place in the Philippines. These insurance premiums, therefore,
came from sources within the Philippines and, hence, are subject to corporate income
tax.
 Section 24 of the Tax Code does not require a foreign corporation to engage in business
in the Philippines in subjecting its income to tax. It suffices that the activity creating the
income is performed or done in the Philippines. What is controlling, therefore, is not
the place of business but the place of activity that created an income.

2. NO. Section 37 is not an all-inclusive enumeration, for it merely directs that the kinds of
income mentioned therein should be treated as income from sources within the
Philippines.

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 improvements 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.
3. NO. This defense of petitioner may free it 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.
 5. Commissioner of lnternal Revenue vs. Algue, Inc.
TAXES ARE THE LIFEBLOOD OF THE GOVERNMENT AND SO SHOULD BE COLLECTED
WITHOUT UNNECESSARY HINDRANCE. IT IS SAID THAT TAXES ARE WHAT WE PAY
FOR CIVILIZED SOCIETY.
WITHOUT TAXES, THE GOVERNMENT WOULD BE PARALYZED FOR LACK OF THE
MOTIVE POWER TO ACTIVATE AND OPERATE IT.
BUT TAXING SHOULD T BE EXERCISED REASONABLY AND IN ACCORDANCE WITH
THE PRESCRIBED PROCEDURE, OTHERWISE THE TAXPAYER HAS A RIGHT TO
COMPLAIN.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ALGUE, INC., and THE COURT
OF TAX APPEALS, respondents.
No. L-28896. February 17, 1988.
Cruz, J.:
FACTS:
 Private respondent is a domestic corporation engaged in engineering, construction and
other allied activities.
 Respondent received a letter from the petitioner assessing it in the total amount of
P83,183.85 as delinquency income taxes for the... years 1958 and 1959
 Algue filed a letter of protest or request for reconsideration but the BIR did not acted on
it, thereafter, he was forced to accept the warrant of distraint and levy earlier sought to
be served.
  The petitioner (collector) contends that the claimed deduction of P75,000.00 was
properly disallowed because it was not an ordinary, reasonable or necessary business
expense
 The court of tax appeal agreed with the respondent that the Php. 75,000.00. legitimately
paid by the private respondent for actual services rendered. The payment was in the
form of promotional fees. These were collected by the payees for their work in the
creation of the Vegetable Oil Investment Corporation of the Philippines and its
subsequent purchase... of the properties of the Philippine Sugar Estate Development
Company

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

RULING:
NO. The deduction should be allowed.
"SEC. 30. Deductions from gross income. —In computing net income there shall be
allowed as deductions
(a) Expenses:
(1) In general. —All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services rendered
The 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 experimental enterprise and involve themselves in a new
business requiring millions of pesos.
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

NOTE:
This case is under “Life Blood Theory” topic, please see court comment below:
It is said that taxes are what we pay for civilized society. Without taxes, the government
would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one's hard-earned income to the taxing authorities, every
person who is able to must contribute his share in the running of the government. The
government for its part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material values. This
symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is
an arbitrary method of exaction by those in the seat of power.

6. Lorenzo V Posadas
IT IS WELL-SETTLED THAT INHERITANCE TAXATION IS GOVERNED BY THE STATUTE
INFORCE AT THE TIME OF THE DEATH OF THE DECEDENT.
A TAX STATUTE MAY BE MADE RETROACTIVE IN ITS OPERATION.
PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff and
appellant,
V
JUAN POSADAS, JR., Collector of Internal Revenue, defendant and appellant.
LAUREL, J.:

FACTS:

 Thomas Hanley died on May 27, 1922 and leaving a considerable amount of real and
personal properties.
 The court appointed P. J. M. Moore as trustee on Mach 10, 1924.
 Until February 29, 1932 Moore resigned before the execution of condition that the
testator stated in his will: the transmission of the inheritance to Matthew Hanley, nephew
of the deceased, after 10 years upon the testator’s death.
 Moore succeeded by Lorenzo.
  During Lorenzo incumbency, Collector of Internal Revenue herein, defendant collecting
inheritance tax to the estate plus interest and surcharges for non-payment thereof. With
12% per annum and 25% correspondingly as interest rate.
 March 15, 1932 the defendant filed a Motion in the testamentary proceedings praying for
the collection of the said amount (Php 2,052.74) and it was granted.
 And it was paid by the trustee, plaintiff under protest and subsequently filing a refunded
suit before the Court of First Instance of Zamboanga.
 But the latter, dismissed both complaint of the plaintiff and defendant.
 Hence, this APPEAL.

ISSUES:
1. Whether or not inheritance tax accrued upon the death of the testator.
2. Whether or not benefit received-principle in taxation exists in the instant case.

RULING:
1. The accrual of the inheritance tax is distinct from the obligation to pay the same. Section
1536 as amended, of the Administrative Code, imposes the tax upon "every
transmission by virtue of inheritance, devise, bequest, gift, mortis causa, or advance in
anticipation of inheritance, devise, or bequest." The tax therefore is upon
transmission or the transfer or devolution of property of a decedent, made
effective by his death.
It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or
take property by or under a will or the intestacy law, or deed, grant, or gift to become
operative at or after death. According to Article 657 of the Civil Code, "the rights to
the succession of a person are transmitted from the moment of his death."

In other words, the heirs succeed immediately to all of the property of the deceased
ancestor. The property belongs to the heirs at the moment of the death of the
ancestor as completely as if the ancestor had executed and delivered to them a deed
for the same before his death.

2. The delivery of the estate to the trustee was in esse delivery of the same estate to the
cestui que trust, the beneficiary in this case. A trustee is but an instrument or agent for
the cestui que trust.

When Moore accepted the trust and took possession of the trust estate he thereby
admitted that the estate belonged not to him but to his cestui que trust He did not
acquire any beneficial interest in the estate. He took such legal estate only as the proper
execution of the trust required and, his estate ceased upon the fulfillment of the testator's
wishes. The estate then vested absolutely in the beneficiary.
 Testators may provide, as Thomas Hanley has provided, that their estates be not
delivered to their beneficiaries until after the lapse of a certain period of time. In the case
at bar, the period is ten years.

Taxes are essential to the very existence of government. The obligation to pay taxes
rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the
government, but upon the necessity of money for the support of the state. For this
reason, no one is allowed to object to or resist the payment of taxes solely because no
personal benefit to him can be pointed out.

ADDED NOTES:
THEORY AND BASIS OF TAXATION
Benefit-Received Principle
The obligation to pay taxes rest not upon the privileges enjoyed by, or the protection
afforded to, a citizen by the government but upon the necessity of money for the support of the
state.
As it was held by the Supreme Court, no estate to be transferred to the beneficiary upon
the completion of the period provided by the testator if no protection comes from the state.
Hence, payment of corresponding inheritance tax is necessary to support the state.

7. Philippine Airlines, Inc. V Edu

IF THE PURPOSE IS PRIMARILY REVENUE, OR IF REVENUE IS, AT LEAST, ONE OF THE
REAL AND SUBSTANTIAL PURPOSES, THEN THE EXACTION IS PROPERLY CALLED A
TAX.
SUCH IS THE CASE OF MOTOR VEHICLE REGISTRATION FEES WHICH ARE EXACTED
PURSUANT TO THE LAND TRANSPORTATION AND TRAFFIC CODE ARE ACTUALLY
TAXES INTENDED FOR ADDITIONAL REVENUE OF GOVERNMENT FOR THE
CONSTRUCTION AND MAINTENANCE OF HIGHWAYS.
PHILIPPINE AIRLINES, INC., plaintiff-appellant,
vs.
ROMEO F. EDU, in his capacity as Land Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National Treasurer, defendants-appellants.
No. L-41383. August 15, 1988.
Gutierrez, Jr., J.:
FACTS:
  The Philippine Airlines (PAL) is a corporation organized and existing under the laws of
the Philippines and engaged in the air transportation business under a legislative
franchise, Act No. 4271, as amended by Republic Act Nos. 2360 and 2667.
 Under its franchise, PAL is exempt from the payment of taxes. However, sometime in
1971, appellee Commissioner Romeo F. Edu, issued a regulation requiring all tax
exempt entities, among them PAL to pay motor vehicle registration fees pursuant to
Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and
Traffic Code.
 Despite PAL’s protestations, the appellee refused to register the appellant’s motor
vehicles unless the amounts were paid. The appellant thus paid, under protest, the
amount of P19,529.75 as registration fees of its motor vehicles.
 After paying, PAL demanded to Commissioner Edu a refund of the amounts paid but
Appellee Edu denied the request for refund.
 Hence, PAL filed the complaint against Land Transportation Commissioner Romeo F.
Edu and National Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal.
Appellee Edu filed a motion to dismiss alleging that the complaint states no cause of
action.

ISSUES:
1. Whether motor vehicle registration fees are taxes.
2. Whether the respondent administrative agency be required to refund the amounts stated
in the complaint of PAL

RULING:
1. YES. Fees may be properly regarded as taxes even though they also serve as an
instrument of regulation. If the purpose is primarily revenue, or if revenue is at least one
of the real and substantial purposes, then the exaction is properly called a tax.

Such is the case of motor vehicle registration fees. The conclusions become
inescapable in view of Section 70(b) of Rep. Act 587 quoted in the Calalang case. The
same provision appears as Section 59(b) in the Land Transportation Code. It is patent
therefrom that the legislators had in mind a regulatory tax as the law refers to the
imposition on the registration, operation or ownership of a motor vehicle as a “tax or fee.”

Thus, we rule that motor vehicle registration fees as at present exacted pursuant to the
Land Transportation and Traffic Code are actually taxes intended for additional revenues
of government even if one fifth or less of the amount collected is set aside for the
operating expenses of the agency administering the program.

2. NO. Any registration fees collected between June 27, 1968 and April 9, 1979, were
correctly imposed because the tax exemption in the franchise of PAL was repealed
during the period.
 However, an amended franchise was given to PAL in 1979. PAL is now exempt from the
payment of any tax, fee, or other charge on the registration and licensing of motor
vehicles. Such payments are already included in the basic tax or franchise tax provided
in Subsections (a) and (b) of Section 13, P.D. 1590 and may no longer be exacted.

8. Tolentino V Secretary of Finance

REPUBLIC ACT NO. 7716, OTHERWISE KNOWN AS THE EXPANDED VALUE-ADDED TAX
LAW IS CONSTITUTIONAL
Tolentino et.al, v. Secretary of Finance
G.R. No. 115455, October 30,1995
MENDOZA, J.;
FACTS:

 The present case involves motions seeking reconsideration of the Court’s decision
dismissing the petitions for the declaration of unconstitutionality of R.A. No. 7716,
otherwise known as the Expanded Value-Added Tax Law. The motions, of which there
are 10 in all, have been filed by the several petitioners.

 The value-added tax (VAT) is levied on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of services. RA 7716 seeks to widen the
 tax base of the existing VAT system and enhance its administration by amending the
National Internal Revenue Code.

Contention of the petitioners:

1. R.A. No. 7716 violates Art. VI, §24 of the Constitution because it does not “originate
exclusively” in the House of Representatives. Although they admit that H. No. 11197 was filed in
the House of Representatives, they complain that the Senate did not pass it on second and third
readings. Instead what the Senate did was to pass its own version (S. No. 1630), and in effect
results to the consolidation of 2 distinct bills. (H. No. 11197 and S. No. 1630) Petitioners
contended that it should have amended the House Bill by striking out the text of the bill and
substituting it with the text of its own bill so that "the bill remains a House bill and the Senate
version just becomes the text (only the text) of the House bill."
2. Senate Bill No. 1630 did not pass 3 readings on separate days as required by the
Constitution because the second and third readings were done on the same day.
3. PAL contends that R.A. No. 7716 violates Art. VI, §26 (1) of the Constitution (one title, one
subject rule) because the amendment of its franchise by the withdrawal of its exemption from
the VAT is not expressed in the title of the law.
4. Petitioner Philippine Press Institute, Inc. (PPI) contends that the law violates their press
freedom, by removing the exemption of the press from the VAT while maintaining those granted
to others. At any rate, it is averred, "even nondiscriminatory taxation of constitutionally
guaranteed freedom is unconstitutional."
5. Lastly, petitioners Chamber of Real Estate and Builders Associations, Invc., (CREBA) asserts
that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered
or exempt without reasonable basis and (3) violates Art. VI, § 28 (1) which provides that taxes
should be uniform and equitable and that Congress shall “evolve a progressive system of
taxation”.
ISSUE:

 Is R.A. No. 7716 otherwise known as the Expanded Value-Added Tax Law
unconstitutional based on the aforementioned contentions of the petitioners?

RULING:
NO, the Supreme Court upheld the constitutionality of R.A No. 7716.

 First Contention: The E-VAT law did not violate Art. VI, §24 of the Constitution. It is
provided that all appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills must "originate exclusively in the
House of Representatives. However it also provides that the Senate may propose or
concur with amendments, hence in the exercise of this power, the Senate may propose
an entirely new bill as a substitute measure.
To begin with, it is not the law but the revenue bill which is required by the Constitution to
originate exclusively in the House of Representatives. What the Constitution provides that that
the initiative for filing revenue, tariff or tax bills, bills authorizing an increase of the public debt,
private bills and bills of local application must come from the House of Representatives on the
theory that, elected as they are from the districts, the members of the House can be expected to
be more sensitive to the local needs and problems. The Constitution neither prohibits the filing
in the Senate of a substitute bill in anticipation of its receipt of the bill from the House, so long as
action by the Senate as a body is withheld pending receipt of the House bill.

 Second Contention: The reading of the bill on 3 separate days was dispensed because
the president certified it as urgency and for its immediate enactment.

Art. VI, §26 (2) of the present Constitution provides that no bill passed by either House shall
become a law unless it has passed three readings on separate days except when the President
certifies to the necessity of its immediate enactment to meet a public calamity or emergency.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to
inform the members of Congress of what they must vote on and (2) to give them notice that a
measure is progressing through the enacting process, thus enabling them and others interested
in the measure to prepare their positions with reference to it.
In this case, the President had earlier certified it as urgent and for immediate enactment
because it was the one which at that time was being considered by the Congress. As a result of
this presidential certification, it dispensed with the requirement not only of printing, but also of
the reading of the bill on 3 separate days.

 Third Contention: It did not violate Art. VI, §26 (1) of the Constitution which provides
that "Every bill passed by Congress shall embrace only one subject which shall be
expressed in the title thereof." (One Title, One Subject Rule). The title of the statute in
controversy clearly states that its purpose is to expand the Value Added Tax System

The purpose of the rule is to prevent surprise upon Congress members of the contents and aim
of such bill, and to inform the public of such bill pending legislation.
In this case, the Court said that the title of the statute in controversy clearly states that its
purpose is to expand the Value Added Tax System and the Congress thereby clearly expresses
its intention to amend any provision of the NIRC which stands in the way of accomplishing the
purpose of the law. In the case of PAL, it did not know of their situation not because of any
defect in title but because it might have not noticed the publication until some event calls
attention to its existence.

 Fourth Contention: E-VAT Law does not violate the press freedom of the petitioners.

As a general proposition, the press is not exempt from the taxing power of the State and that
what the constitutional guarantee of free press prohibits are laws which single out the press or
target a group belonging to the press for special treatment or which in any way discriminate
against the press on the basis of the content of the publication, and R.A. No. 7716 is none of
these.
It would suffice to say that since the law granted the press a privilege, the law could take back
the privilege anytime without offense to the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the exercise of its sovereign prerogative. Indeed,
in withdrawing the exemption, the law merely subjects the press to the same tax burden to
which other businesses have long ago been subject.

 Last Contention: E-VAT Law did not violate the Constitutional provisions regarding due
process, equal protection, contract clauses and the rule on taxation.

The contention of CREBA that the imposition of the VAT on the sales and leases of real estate
by virtue of contracts entered into prior to the effectivity of the law would violate the
constitutional provision of non-impairment of contracts, is only slightly less abstract but
nonetheless hypothetical. It is enough to say that the parties to a contract cannot, through the
exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not
only are existing laws read into contracts in order to fix obligations as between parties, but the
reservation of essential attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts against impairment presupposes
the maintenance of a government which retains adequate authority to secure the peace and
good order of society. In truth, the Contract Clause has never been thought as a limitation on
the exercise of the State's power of taxation save only where a tax exemption has been granted
for a valid consideration.
Lastly, equality and uniformity of taxation mean that all taxable articles or kinds of property of
the same class be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. To satisfy this requirement, it is
enough that the statute or ordinance applies equally to all persons, firms, and corporations
placed in similar situation. Furthermore, the Constitution does not really prohibit the imposition
of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress
shall “evolve a progressive system of taxation.” The constitutional provision has been
interpreted to mean simply that “direct taxes are . . . to be preferred [and] as much as possible,
indirect taxes should be minimized.” The mandate to Congress is not to prescribe, but to evolve,
a progressive tax system.

9. Osmena V Orbos
MONEY NAMED AS A TAX BUT ACTUALLY COLLECTED IN THE EXERCISE OF POLICE
POWER MAY BE PLACED IN A SPECIAL TRUST ACCOUNT — HENCE, IT SEEMS CLEAR
THAT WHILE THE FUNDS REFERRED TO AS TAXES, THEY ARE EXACTED IN THE
EXERCISE OF THE POLICE POWER OF THE STATE.
JOHN H. OSMEÑA, petitioner,
vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity
as Secretary of Finance; WENCESLAO DELAPAZ, in his capacity as Head of the Office of
Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORYBOARD, respondents.
 G.R. No. 99886, March 31, 1993
Narvasa, C.J.:
FACTS:

 President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General
Fund, designated as the Oil Price Stabilization Fund (OPSF). The same was designated
to reimburse oil companies for cost increases in crude oil and imported petroleum
products resulting from exchange rate adjustments and from increases in the world
market prices.
 The OPSF was reclassified into a “trust liability account” and ordered released from the
National Treasury to the Ministry of Energy.
 President Corazon C. Aquino promulgated E.O. 137, amending P.D. 1956, expanding
the grounds fro reimbursement to oil companies for possible cost underrecovery incurred
as a result of the reduction of domestic prices of petroleum products.
 The petition alleges that the status of the OPSF showed a “Terminal Fund Balance
deficit” of some ₱12.877 billion. To abate the worsening deficit, the Energy Regulatory
Board issued an Order approving the increase in pump prices of petroleum products.
 The respondents are poised to accept, process and pay claims not authorized under
P.D. 1956.
 The petition further avers that the creation of the trust fund violates Sec. 29(3), Art. 6 of
the Constitution.

ISSUE:
Whether the creation of trust fund violates Sec. 29(3), Art. 6 of the Constitution.

RULING:
NO.
The Court ruled that while the funds collected may be referred to as taxes, they are
exacted un the exercise of the police power of the State. Moreover, that the OPSF is 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.”
 10. Caltex V COA
A TAXPAYER MAY NOT OFFSET TAXES DUE FROM THE CLAIMS THAT HE MAY HAVE
AGAINST THE GOVERNMENT.
CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLECOMMISSIONER BARTOLOME
C. FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.
G.R. No. 92585. May 8, 1992.
DAVIDE, JR., J.:
FACTS:

 The petitioner, Caltex, received a letter from COA in 1989 ordering it to remit its
collection to the Oil Price Stabilization Funds (OPSF) but not including those that are
unremitted from the 1986 and 1988 imposed on the additional taxes on the petroleum
products that were authorized under PD1956 to which has a grant total of
P1,287,668,820
 While the remittance is still pending, all the claims the petitioner for reimbursement shall
be held in abeyance. However, on a proposal conveyed by Caltex to COA, such
recovery of claims was then allowed by the latter but was then prohibited from offsetting
remittances and reimbursements for the coming years.
 Caltex then contends that the denial of such reimbursements would be unjust citing on
the other hand that: Amounts due do not arise as a result of taxation since PD 1956 did
not create a source of taxation, it instead established a special fund. But then COA
responds that taxes do not arise from contracts and that they do not depend upon the
will of the taxpayer but rather by law.

ISSUE:
Whether Caltex is entitled to offsetting.

RULING:
NO. The court ruled that the source of OPSF is taxation hence taxes claimed cannot be
made as a subject against the government as the taxpayer and the government are not on a
debtor and and a creditor relationship. Hence, taxpayers cannot make taxes as an off-set.
Taxes are made for a regulatory purpose such as to provide for the public interest
specifically for the means of the threatened industry for its stabilization and rehabilitation within
the police power of the state.
Thus, the court also ruled that the decision made by COA is affirmed except that the
claim of Caltex for the reimbursement of under recovery arising from sales to the National
Power Corporation is then hereby allowed.