POWER OF TAXATION

PASCUAL VS. SECRETARY OF PUBLIC WORKS

"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.

PUNSALAN VS. MUNICIPAL BOARD OF MANILA

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.
ISSUE: Whether or Not the ordinance and law authorizing it constitute class legislation, and
authorize what amounts to double taxation.
HELD: The Legislature may, in its discretion, select what occupations shall be taxed, and in its
discretion may tax all, or select classes of occupation for taxation, and leave others untaxed. It is
not for the courts to judge which cities or municipalities should be empowered to impose
occupation taxes aside from that imposed by the National Government. That matter is within the
domain of political departments. The argument against double taxation may not be invoked if
one tax is imposed by the state and the other is imposed by the city. It is widely recognized that
there is nothing inherently terrible in the requirement that taxes be exacted with respect to the
same occupation by both the state and the political subdivisions thereof. Judgment of the lower
court is reversed with regards to the ordinance and affirmed as to the law authorizing it.

LLADOC VS. COMMISSIONER OF INTERNAL REVENUE

FACTS: Sometime in 1957, M.B. Estate, Inc. donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz,
then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for the
construction of a new Catholic Church in the locality. The total amount was actually spent for the
purpose intended. On March 3, 1958, the donor filed the donor’s gift tax return. Under date of
April 29, 1960, the respondent Commissioner of Internal Revenue issued an assessment for
donee’s gift tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner
was the priest. Petitioner protested the assessment and requested its withdrawal. The protest
and the motion for reconsideration presented to the Commissioner of Internal Revenue were
denied. The petitioner appealed to the CTA on November 2, 1960. In the petition for review, the
Rev. Fr. Casimiro Lladoc claimed that at the time of the donation, he was not the parish priest in
Victorias; that there is no legal entity or juridical person known as the “Catholic Parish Priest of
Victorias,”and, therefore, he should not be liable for the donee’s gift tax. It was also asserted that
the assessment of the gift tax, even against the Roman Catholic Church, would not be valid, for
such would be a clear violation of the provisions of the Constitution. The CTA affirmed the
previous judgment.
ISSUE: Whether or not petitioner should be liable for the assessed donee’s gift tax on the
P10,000.00 donated for the construction of the Victoria’s Parish Church
RULING: Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation
cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings,
and improvements used exclusively for religious purposes. The exemption is only from the
payment of taxes assessed on such properties enumerated, as property taxes, as contra
distinguished from excise taxes. In the present case, what the Collector assessed was a donee’s
gift tax; the assessment was not on the properties themselves. It did not rest upon general
ownership; it was an excise upon the use made of the properties, upon the exercise of the
privilege of receiving the properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax
is not within the exempting provisions of the section just mentioned. A gift tax is not a property
tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the imposition
of which on property used exclusively for religious purposes, does not constitute an impairment
of the Constitution. As well observed by the learned respondent Court, the phrase “exempt from
taxation,”as employed in the Constitution should not be interpreted to mean exemption from all
kinds of taxes. And there being no clear, positive or express grant of such privilege by law, in favor
of petitioner, the exemption herein must be denied. Petitioner herein is not personally liable for
the said gift tax, and that the Head of the Diocese, herein substitute petitioner, should pay, as he
is presently ordered to pay, the said gift tax, it appearing that the Head of such Diocese is the real
party in interest.

ABRA VALLEY COLLEGE VS. AQUINO

FACTS: Abra Valley College, an educational corporation and institution of higher learning duly
incorporated with the SEC filed a complaint to annul and declare void the “Notice of Seizure” and
the “Notice of Sale” of its lot and building located at Bangued, Abra, for non- payment of real
estate taxes and penalties. Paterno Millare filed through counsel a motion to dismiss the
complaint. The provincial fiscal filed a memorandum for the government wherein they opined
that based on the evidence, the laws applicable, court decisions and jurisprudence, the school
building and the school lot used for educational purposes of the Abra Valley College are
exempted from payment of taxes. Nonetheless, the trial court disagreed because of the use of
the second floor by the Director of the said school for residential purpose. He thus ruled for the
government and rendered the assailed decision.
ISSUE: Whether or not the lot and building in question are used exclusively for educational
purposes
RULING: NO. It must be stressed that while the court allows a more liberal and non-restrictive
interpretation of the phrase “exclusively used for educational purposes” as provided for in the
Article VI, Section 22, Paragraph 3 of the 1935Philippine Constitution, reasonable emphasis has
always been made that exemption extends to facilities which are incidental to and reasonably
necessary for the accomplishment of the main purpose. Otherwise stated, the use of the school
building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence.
Thus, while the use of the second floor of the main building in the case at bar for residential
purposes of the Director and his family, may find justification under the concept of incidental
use, which is complimentary to the main or primary purpose – educational, the lease of the first
floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be
considered incidental to the purposes of education. Under the 1935 Constitution, the trial court
correctly arrived at the conclusion that the school building as well as the lot where it is built,
should be taxed, not because the second floor of the same is being used by the director and his
family for residential purposes, but because the first floor thereof is being used for commercial
purposes. However, since only a portion is used for purposes of commerce, it is only fair that half
of the assessed tax be return to the school involved.

SISON, JR. V. ANCHETA

FACTS: Sison assails the validity of Batas Pambansa Blg. 135 which further amended Section 21
of the National Internal Revenue Code of 1977. The law provides that there’d be a higher tax
impost against income derived from professional income as opposed to regular income earners.
Sison, as a professional businessman, and as taxpayer alleges that by virtue thereof, “he would
be unduly discriminated against by the imposition of higher rates of tax upon his income arising
from the exercise of his profession vis-a-vis those which are imposed upon fixed income or
salaried individual taxpayers.” He characterizes the above section as arbitrary amounting to class
legislation, oppressive, and capricious in character. There is a transgression of both the equal
protection and due process clauses of the Constitution as well as of the rule requiring uniformity
in taxation.
ISSUE: Whether the imposition of a higher tax rate on taxable net income derived from business
or profession than on compensation is constitutionally infirm.
HELD: No. The SC ruled against Sison. The power to tax, an inherent prerogative, has to be availed
of to assure the performance of vital state functions. It is the source of the bulk of public funds.
Taxes, being the lifeblood of the government, their prompt and certain availability is of the
essence. According to the Constitution: “The rule of taxation shall be uniform and equitable.”
However, the rule of uniformity does not call for perfect uniformity or perfect equality, because
this is hardly attainable. Equality and uniformity in taxation means that all taxable articles or kinds
of property of the same class shall be taxed at the same rate. The taxing power has the authority
to make reasonable and natural classifications for purposes of taxation. Where “the
differentiation”” complained of “conforms to the practical dictates of justice and equity” it “is
not discriminatory within the meaning of this clause and is therefore uniform.” There is quite a
similarity then to the standard of equal protection for all that is required is that the tax applies
equally to all persons, firms and corporations placed in similar situation.
What misled Sison is his failure to take into consideration the distinction between a tax rate and
a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all
deductible items and at the same time reducing the applicable tax rate. Taxpayers may be
classified into different categories. In the case of the gross income taxation embodied in BP 135,
the discernible basis of classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within the class and fixing a set
of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation
income are set apart as a class. As there is practically no overhead expense, these taxpayers are
not entitled to make deductions for income tax purposes because they are in the same situation
more or less. On the other hand, in the case of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or expenses necessary to produce their income.
It would not be just then to disregard the disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on the basis of gross income. There is
ample justification then for the Batasang Pambansa to adopt the gross system of income taxation
to compensation income, while continuing the system of net income taxation as regards
professional and business income.

TOLENTINO V. SECRETARY OF FINANCE

FACTS: Petitioners pray for the declaration of unconstitutionality of R.A. No. 7716, otherwise
known as the Expanded Value-Added Tax Law. They assert that R.A. No. 7716 did not “originate
exclusively” in the House of Representatives as required by Art. VI, §24 of the Constitution.
Although they admit that H. No. 11197 was filed in the House of Representatives where it passed
three readings and that afterward it was sent to the Senate where after first reading it was
referred to the Senate Ways and Means Committee, 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) which it approved on May24, 1994. Petitioner Tolentino adds that what the Senate
committee should have done was to amend H. No. 11197 by striking out the text of the bill and
substituting it with the text of S. No. 1630. That way, it is said, “the bill remains a House bill and
the Senate version just becomes the text (only the text) of the House bill.”
ISSUE: Does the filing of a substitute bill (revenue, tariff, tax, bills of local application, etc.) before
the Senate violate Section 24, Article VI of the Constitution?
RULING: While Art. VI, §24 provides 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, ”it also adds, “but the Senate may propose or concur with
amendments.” In the exercise of this power, the Senate may propose an entirely new bill as a
substitute measure. To except from this procedure the amendment of bills which are required to
originate in the House by prescribing that the number of the House bill and its other parts up to
the enacting clause must be preserved although the text of the Senate amendment may be
incorporated in place of the original body of the bill is to insist on a mere technicality. At any
ratethere is no rule prescribing this form. S. No. 1630, as a substitute measure, is therefore as
much an amendment of H. No. 11197 as any which the Senate could have made. The power of
the Senate to propose or concur with amendments is apparently without restriction. It would
seem that by virtue of this power, the Senate can practically re-write a bill required to come from
the House and leave only a trace of the original bill (L. Tañada and F. Carreon, Political Law of the
Philippines247 [1961]).

PPI V. FERTIPHIL CORPORATION

FACTS: President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which
provided, among others, for the imposition of a capital recovery component (CRC) on the
domestic sale of all grades of fertilizers which resulted in having Fertiphil paying P 10/bag sold to
the Fertilizer and Perticide Authority (FPA). FPA remits its collection to Far East Bank and Trust
Company who applies to the payment of corporate debts of Planters Products Inc. (PPI) After the
Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. Upon return of
democracy, Fertiphil demanded a refund but PPI refused. Fertiphil filed a complaint for collection
and damages against FPA and PPI with the RTC on the ground that LOI No. 1465 is unjust,
unreaonable oppressive, invalid and unlawful resulting to denial of due process of law. FPA
answered that it is a valid exercise of the police power of the state in ensuring the stability of the
fertilizing industry in the country and that Fertiphil did NOT sustain damages since the burden
imposed fell on the ultimate consumers. RTC and CA favored Fertiphil holding that it is an exercise
of the power of taxation ad is as such because it is NOT for public purpose as PPI is a private
corporation.
ISSUE: W/N LOI No. 1465 is an invalid exercise of the power of taxation rather the police power
HELD: Yes. Police power and the power of taxation are inherent powers of the state but distinct
and have different tests for validity. Police power is the power of the state to enact the legislation
that may interfere with personal liberty on property in order to promote general welfare. While,
the power of taxation is the power to levy taxes as to be used for public purpose. The main
purpose of police power is the regulation of a behavior or conduct, while taxation is revenue
generation. The lawful subjects and lawful means tests are used to determine the validity of a
law enacted under the police power. The power of taxation, on the other hand, is circumscribed
by inherent and constitutional limitations.
In this case, it is for purpose of revenue. But it is a robbery for the State to tax the citizen and
use the funds generation for a private purpose. Public purpose does NOT only pertain to those
purpose which are traditionally viewed as essentially governmental function such as building
roads and delivery of basic services, but also includes those purposes designed to promote social
justice. Thus, public money may now be used for the relocation of illegal settlers, low-cost
housing and urban or agrarian reform.
PHIL. BLOOMING MILLS EMPLOYEES V. PHIL. BLOOMING MILLS CO
FACTS: The petitioner Philippine Blooming Mills Employees Organization (PBMEO) is a legitimate
labor union composed of the employees of the respondent Philippine Blooming Mills Co., Inc.,
and petitioners. Benjamin Pagcu and Rodulfo Munsod are officers and members of the petitioner
Union. PBMEO decided to stage a mass demonstration in front of Malacañang in protest to
express their grievances against the alleged abuses of the Pasig Police. After learning about the
planned mass demonstration, Philippine Blooming Mills Inc. called for a meeting with the leaders
of the PBMEO. During the meeting, the planned demonstration was confirmed by the union. But
it was stressed out that the demonstration was not a strike against the company but was in fact
an exercise of the laborers’ inalienable constitutional right to freedom of expression, freedom of
speech, and freedom for the petition for redress of grievances.
The Management informed PBMEO that the demonstration is an inalienable right of the union
guaranteed by the Constitution but emphasized that any demonstration for that matter should
not unduly prejudice the normal operation of the Company. This was followed with a warning of
possible dismissal of workers should they push with the rally as it would constitute to illegal strike
and is a violation under the existing Collective Bargaining Agreement (CBA).
Because the petitioners and their members numbering about 400 proceeded with the
demonstration despite the pleas of the respondent Company that the first shift workers should
not be required to participate in the demonstration and that the workers in the second and third
shifts should be utilized for the demonstration from 6 A.M. to 2 P.M. on March 4, 1969, the
Respondent filed a charge against petitioners and other employees who composed the first shift,
charging them with a “violation for unfair labor practices under Section 4(a)-6 in relation to
Sections 13 and 14, as well as Section 15, all of Republic Act No. 875, and of the CBA providing
for ‘No Strike and No Lockout.’ “. Petitioners thereafter were held guilty by CIR for bargaining in
bad faith, hence this appeal
ISSUE: Whether or Not the petitioner’s right to freedom of speech and to peaceable assemble
violated.
HELD: Yes. While the Bill of Rights also protects property rights, the primacy of human rights over
property rights is recognized. Because these freedoms are “delicate and vulnerable, as well as
supremely precious in our society” and the “threat of sanctions may deter their exercise almost
as potently as the actual application of sanctions,” they “need breathing space to survive,”
permitting government regulation only “with narrow specificity.”
A constitutional or valid infringement of human rights requires a more stringent criterion, namely
existence of a grave and immediate danger of a substantive evil which the State has the right to
prevent. This is not present in the case. It was to the interest herein private respondent firm to
rally to the defense of, and take up the cudgels for, its employees, so that they can report to work
free from harassment, vexation or peril and as consequence perform more efficiently their
respective tasks enhance its productivity as well as profits.
Herein respondent employer did not even offer to intercede for its employees with the local
police. In seeking sanctuary behind their freedom of expression well as their right of assembly
and of the petition against alleged persecution of local officialdom, the employees and laborers
of PBM were fighting for their very survival, utilizing only the weapons afforded them by the
Constitution — the untrammeled enjoyment of their basic human rights. The pretension of their
employer that it would suffer loss or damage by reason of the absence of its employees from 6
o’clock in the morning to 2 o’clock in the afternoon, is a plea for the preservation merely of their
property rights.
The employees’ pathetic situation was a stark reality — abused, harassment and persecuted as
they believed they were by the peace officers of the municipality. As above intimated, the
condition in which the employees found themselves vis-a-vis the local police of Pasig, was a
matter that vitally affected their right to individual existence as well as that of their families.
Material loss can be repaired or adequately compensated. The debasement of the human being
broken in morale and brutalized in spirit-can never be fully evaluated in monetary terms. As
heretofore stated, the primacy of human rights — freedom of expression, of peaceful assembly
and of petition for redress of grievances — over property rights has been sustained. To regard
the demonstration against police officers, not against the employer, as evidence of bad faith in
collective bargaining and hence a violation of the collective bargaining agreement and a cause
for the dismissal from employment of the demonstrating employees, stretches unduly the
compass of the collective bargaining agreement, is “a potent means of inhibiting speech” and
therefore inflicts a moral as well as a mortal wound on the constitutional guarantees of free
expression, of peaceful assembly and of the petition. Circulation is one of the aspects of freedom
of expression. If demonstrators are reduced by one-third, then by that much the circulation of
the Issue raised by the demonstration is diminished. The more participants, the more persons
can be apprised of the purpose of the rally. Moreover, the absence of one-third of their members
will be regarded as a substantial indication of disunity in their ranks which will enervate their
position and abet continued alleged police persecution.
Property and property rights can be lost thru prescription, but human rights are imprescriptible.
If human rights are extinguished by the passage of time, then the Bill of Rights is a useless attempt
to limit the power of government and ceases to be an efficacious shield against the tyranny of
officials, of majorities, of the influential and powerful, and of oligarchs — political, economic or
otherwise.
SIMON V. CHR
FACTS: Petitioner herein is the Mayor of Quezon City, while the Respondents are the officers and
members of the North EDSA Vendors Association, Incorporated. The case all started when a
"Demolition Notice" dated 9 July 1990, gave the respondents a 3-day grace period within which
to vacate their stalls at North EDSA, to give way to the "People's Park". On 12 July 1990, the
Respondents filed a letter-complaint with the CHR against the petitioners. On 23 July 1990, the
CHR issued an Order, directing the petitioners "to desist from demolishing the stalls and shanties
at North EDSA pending resolution of the Vendors’complaint before the Commission" and
ordering said petitioners to appear before the CHR. On 28 July 1990 the petitioners carried out
the demolition of private respondents' stalls, sari-sari stores and carinderia. Thus, the CHR
ordered the disbursement of financial assistance of not more than P200,000.00 in favor of the
private respondents to purchase light housing materials and food under the Commission's
supervision and again directed the petitioners to "desist from further demolition, with the
warning that violation of said order would lead to a citation for contempt and arrest.
ISSUE: Whether or not the CHR has jurisdiction to investigate the alleged violations of the
"business rights" of the private respondents whose stalls were demolished by the petitioners at
the instance and authority given by the Mayor of Quezon City
HELD: No. The order for the demolition of the stalls, sari-sari stores and carinderia of the private
respondents does not fall within the compartment of "human rights violations involving civil and
political rights" intended by the Constitution. In the particular case at hand, there is no cavil that
what are sought to be demolished are the stalls, sari-sari stores and carinderia, as well as
temporary shanties, erected by private respondents on a land which is planned to be developed
into a "People's Park". A right which is claimed to have been violated is one that cannot, in the
first place, even be invoked.

REPUBLIC V. SANDIGANBAYAN

FACTS: President Cory Aquino issued EO No. 1 after the EDSA revolution xEO 1 created the
Presidential Commission on Good Governance (PCGG) to recover all ill- gotten wealth of Marcos
and his cronies. The PCGG then created the AFP Anti-graft Boad to investigate corrupt AFP
Personnel. The AFP Board investigated the unexplained wealth of Josephus Ramas xRamas was
the Commanding General of the Philippine Army during the time of former President Ferdinand
Marcos. Pursuant to said investigation, the constabulary raiding team served a search and seizure
warrant on Dimaano’s premises. xThe search warrant wasfor “Illegal Possession of Firearms and
Ammunition”but the team confiscated firearms and ammunition, along with items not included
in the warrant such as monies of P2.8M and $50,000, jewelry and land titles. The AFP Board then
recommended that Ramas be prosecuted before the Sandiganbayan xThe case was for violation
of RA 3019, otherwise known as the Anti-Graft and Corrupt Practices Act and RA 1379, otherwise
known as the Act for the Forfeiture of Unlawfully Acquired Property. Accordingly, the Solicitor
General, in behalf of the Republic of the Philippines filed a complaint against Ramas and Dimaano
before the Sandiganbayan. Sandiganbayan dismissed the case for lack of merit xThe grounds for
the dismissal were: (1) the PCGG has no jurisdiction to investigate the private respondents and
(2) the search and seizure conducted was illegal..Petitioner appealed before the SC arguing that
the search was conducted during a revolutionary government bound by no constitutional
limitation. During the interregnum, the exclusionary right from illegal seizure granted to the
respondents by the Bill of Rights was inoperative.
ISSUE: W/N the properties confiscated fromDimaano’s house were illegally seized and therefore
inadmissible as evidence.
HELD: Although the Bill of Rights was inoperative during the interregnum, as the de jure
government, the Philippine revolutionary government was still bound by treaty obligations under
the ICCPR (International Covenant on Civil and Political Rights) and the Universal Declaration of
Human Rights. The revolutionary government had the duty to insure that“no one shall be
subjected to arbitrary or unlawful interference with his property.”Although it is not intend as a
legally binding document, the court has interpreted the Declaration as a part of the generally
accepted principles of international law and binding on the State.