02 08 Case Digests Notes Etc.

Classification of Taxes
According to Subject According to According to According to

matter: Burden: Determination of Purpose:
amount:
1. Personal – Levied 1. Direct – Paid 1. Specific Taxes – 1. General – Collected
on individuals or directly by the Fixed amount charged to fund the general
entities based on individual or entity to per unit of an item, such expenses of the
various factors such as the government, such as excise taxes on government.
income, business as income tax. cigarettes.
profits, etc. 2. Special – Levied
2. Indirect – Levied 2. Ad Valorem – Based for a specific purpose,
2. Property – Imposed on goods and on the assessed value of such as road
on property services, transferred an item, such as maintenance or
ownership, including from the producer or property taxes. education.
real estate, vehicles, seller to the
and other tangible consumer, like VAT or
assets. sales tax.
3. Excise/license –
Applied to specific
goods, services, or
activities, often with a
regulatory purpose
beyond revenue
generation.
 Inherent Limitations – The following are the inherent limitations of taxation:
a. Public Purpose – The proceeds of the tax must be used:
i. for the support of the State; or
ii. for some recognized objects of government or directly to promote the welfare of
the community.
Test: 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. [Pascual v. Sec. of Public Works, G.R. No. L-10405
(1960)]
 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. [Tio v.
Videogram, G.R. No. L-75697 (1987)]
 Public use is no longer confined to the traditional notion of use by the public
but held synonymous with public interest, public benefit, public welfare, and
public convenience. (Commissioner of Internal Revenue v. Central Luzon Drug
Corporation, G.R. No. 159647 (2005)]
 It is the purpose which determines the public character of the tax law, not the
number of persons benefited. [Dimaampao, Tax Principles and Remedies
(2015)]
Tests in Determining Public Purpose:

a. Duty Test – Whether the thing to be furthered by the appropriation of public
revenue is something which is the duty of the State as a government to
provide.
b. Promotion of General Welfare Test – Whether the proceeds of the tax will
directly promote the welfare of the community in equal measure.
c. Character of the Direct Object of the Expenditure – 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 interests 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.
[Pascual v. Sec. of Public Works, supra]
b. Inherently Legislative
c. Territorial
d. International Comity
e. Exemption of Government Entities, Agencies, and Instrumentalities
 Inherently Legislative – General Rule: Delegata potestas non potest delegari. (No
delegated powers can be further delegated.)
 The power to tax is exclusively vested in the legislative body and it may not be
re-delegated. Judge Cooley enunciates the doctrine in the following oft-quoted
language: "One of the settled maxims in constitutional law is that the power
conferred upon the legislature to make laws cannot be delegated by that
department to any other body or authority.” [People v. Vera, G.R. No. L-45685
(1937)]
 Stated in another way, taxation may exceptionally be delegated, subject to such
well-settled limitations as:
a. The delegation shall not contravene any constitutional provision or the

inherent limitations of taxation;
b. The delegation is effected either by:
o the Constitution; or
o by validly enacted legislative measures or statute; and
c. The delegated levy power, except when the delegation is by an express
provision of the Constitution itself, should only be in favor of the local
legislative body of the local or municipal government concerned. [VITUG and
ACOSTA]
 For a valid delegation of power, it is essential that the law delegating the power
must be:
1) complete in itself, that is, it must set forth the policy to be executed by the
delegate and,
2) it must fix a standard — limits of which are sufficiently determinate or
determinable — to which the delegate must conform. [Osmena v. Orbos, G.R. No.
99886 (1993)]
 Legislature has the power to determine the:

a.Nature (kind),
b.Object (purpose),
c. Extent (rate),
d.Coverage (subjects) and
e.Situs (place) of taxation.
 Exceptions:
a. Delegation to local governments: This exception is in line with the general
principle that the power to create municipal corporations for purposes of
local self-government carries with it, by necessary implication, the power to
confer the power to tax on such local governments. (1 Cooley 190).
This is logical for after all, municipal corporations are merely
instrumentalities of the state for the better administration of the government
in respect to matters of local concern. [Pepsi-Cola Bottling Co. of the Phil. Inc.
v. Mun. of Tanauan, G.R. No. L-31156 (1976)].
Under the new Constitution, however, LGUs are now expressly given the
power to create its own sources of revenue and to levy taxes, fees and
charges, subject to such guidelines and limitations as the Congress may
provide which must be consistent with the basic policy of local autonomy.
[Sec 5, Art. X 1987 Constitution]
b. Delegation to the President:

1. Tariff powers by Congress under the Flexible Tariff Clause
– The Congress may, by law, authorize the President to fix within specified
limits, and subject to such limitations and restrictions as it may impose,
tariff rates, import and export quotas, tonnage and wharfage dues, and
other duties or imposts within the framework of the national development
program of the Government. [Sec. 28(2), Art. VI, 1987 Constitution]
2. Emergency Powers [Sec. 23(2), Art. VI, 1987 Constitution.

3. To enter into Executive agreements; and
4. To ratify treaties which grant tax exemption subject to Senate concurrence.
c. Delegation to administrative agencies: Limited to the administrative

implementation that calls for some degree of discretionary powers under
sufficient standards expressed by law or implied from the policy and
purposes of the Act.
There are certain aspects of the taxing process that are not legislative
and they may, therefore, be vested in an administrative body. The powers
which are not legislative include:
1. The power to value property for purposes of taxation pursuant to
fixed rules;
2. The power to assess and collect the taxes; and
3. The power to perform any of the innumerable details of computation,
appraisement, and adjustment, and the delegation of such details.
 The exercise of the above powers is really not an exception to the rule as no
delegation of the strictly legislative power to tax is involved.
 The powers which cannot be delegated include:

i. The determination of the subjects to be taxed;
ii. The purpose of the tax, the amount or rate of the tax;
iii. The manner, means, and agencies of collection; and
iv. The prescribing of the necessary rules with respect thereto.
Case #1. Topic: Inherent Limitations – Inherently Legislative

Case Title : Luzon Stevedoring Corporation vs. CTA
Case Number : G.R. No. L-30232
Date of Promulgation : July 29, 1998
Ponente : JUSTICE PARAS
DOCTRINE
This case reinforces the doctrine that the power to tax and grant exemptions is inherently
legislative and cannot be broadly interpreted or extended beyond the clear text of the law.
Tax exemptions must be expressly provided for by the legislature and interpreted strictly
against the taxpayer.
The principle "Delegata potestas non potest delegari" is highlighted, underscoring that any
delegation of legislative power, especially in taxation matters, must be specific and
constrained by the law's provisions. The case illustrates the inherent limitation on taxation
power, emphasizing that only the legislature can define the scope and applicability of tax
exemptions.
WHEREFORE CLAUSE
PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the Court of
Tax Appeals is AFFIRMED. SO ORDERED.
FACTS
 Luzon Stevedoring Corporation (LSC) faced a denial for its tax refund claims by the
Court of Tax Appeals (CTA) in CTA Case No. 1484. The dispute emerged from LSC's
payment under protest of the assessed compensating tax for imported engine parts
and other equipment in 1961 and 1962, used for the repair and maintenance of its
tugboats. LSC argued that these imports should be exempt from compensating tax
under Section 190 of the National Internal Revenue Code, as amended by Republic Act
No. 3176, claiming that tugboats should be considered "cargo vessels" for tax
exemption purposes. The CTA, however, decided against LSC, highlighting that
tugboats do not qualify as cargo vessels under the specified tax exemption provisions.
ISSUE(S)
1. Whether LSC's tugboats qualify as "cargo vessels" for purposes of tax exemption under
Section 190 of the National Internal Revenue Code, as amended.
RULING
 The Supreme Court dismissed the petition and affirmed the decision of the Court of Tax
Appeals, holding that LSC's tugboats do not fall under the definition of "cargo vessels"
eligible for the tax exemption. The Court emphasized that tax exemptions must be
clearly stated and cannot be presumed or implied from ambiguous terms.
PETITIONER’S/PLAINTIFF’S ARGUMENTS
LSC contended that tugboats, when towing barges loaded with cargoes, should be treated
as a single cargo vessel unit, thereby qualifying for tax exemption on imported parts used
for their repair and maintenance.
RESPONDENT’S/DEFENDANT’S ARGUMENTS
The Commissioner of Internal Revenue countered that tugboats are primarily used for
towing and not for transporting cargo or passengers in their own right, thus not fitting the
definition of "cargo vessels" intended for tax exemption.
SUPREME COURT’S RESPONSE TO THE ARGUMENTS
The Supreme Court supported the CTA's position, clarifying that exemptions from taxation
must be explicitly provided for and cannot be extended through broad or loose
interpretations. Tugboats, as defined, do not serve the primary function of cargo or
passenger transportation but are utilized for towing, which does not align with the
legislative intent behind the tax exemption statute.
Additional Notes:
The decision in the case represents the inherent legislative limitation on taxation, where the
authority to tax and grant exemptions lies solely with the legislative body. The ruling
demonstrates the constitutional principle that any exemptions from taxation must be
explicitly and unmistakably provided for in the law, reflecting a strict interpretation in favor
of maintaining the taxation power's scope and integrity. This case serves as a demonstration
to the doctrine that the legislative power to tax cannot be impliedly or loosely delegated or
extended, ensuring that the foundational principles of tax law and the legislature's exclusive
domain over taxation are preserved.
The Cardinal principle of Statutory Construction that where a provision of law speaks
categorically, the need for interpretationis obviated, no plausible pretense being entertained to
justify non-compliance. All that hasto be done is to apply it in every case that falls within its
terms.
National Power Corporation vs. The Province of
Case Title :
Albay
Case Number : G.R. No. 87479
Date of Promulgation : June 4, 1990
Ponente : JUSTICE SARMIENTO
DOCTRINE
The power to tax is inherently legislative and cannot be delegated unless explicitly
authorized by the Constitution or a valid legislative act. The case reaffirms the principle that
tax exemption claims must be clearly established and supported by law, and all doubts
should be resolved in favor of the state's power to tax.
WHEREFORE CLAUSE
WHEREFORE, the petition is DENIED. No costs. The auction sale of the
petitioner'sproperties to answer for real estate taxes accumulated between June 11, 1984
through March10, 1987 is hereby declared valid. SO ORDERED.
FACTS
 The National Power Corporation (NAPOCOR) disputed the Albay provincial
government's authority to levy real property taxes on its facilities in Tiwi, Albay,
accumulated from June 11, 1984, to March 10, 1987. The province initiated an auction
sale for NAPOCOR's properties to settle the tax delinquencies, which NAPOCOR
opposed, citing tax and duty exemption privileges restored by Resolution No. 17-87 of
the Fiscal Incentives Review Board (FIRB) effective March 10, 1987. Despite
NAPOCOR's legal challenges and a temporary restraining order from the Court, the
auction proceeded, with the Province of Albay emerging as the highest bidder. The core
legal battle centered on the validity of NAPOCOR's tax exemptions during the specified
period, against the backdrop of various presidential decrees and executive orders
modifying the corporation's tax privileges.
ISSUE(S)
1. Whether the FIRB's resolutions granting tax exemptions to NAPOCOR were
constitutional and valid.
2. Whether the Albay provincial government could levy and collect real property taxes
from NAPOCOR for the period between June 11, 1984, to March 10, 1987.
RULING
1. The Court ruled that the FIRB, under its enabling statutes, did not possess the authority
to directly grant or restore tax exemptions to NAPOCOR by its own resolutions. The
FIRB was only empowered to recommend tax exemptions, which means that its
resolutions (Nos. 10-85, 1-86, and 17-87) by themselves could not validly exempt
NAPOCOR from real property taxes. Consequently, any tax exemption claimed by
NAPOCOR based solely on FIRB's resolutions, without a clear legislative act confirming
such exemptions for the period between June 11, 1984, and March 10, 1987, was not
upheld.
2. The Court affirmed the provincial government of Albay's authority to levy and collect
real property taxes from NAPOCOR for the specified period. Since NAPOCOR's tax
exemption privileges had effectively been withdrawn with the issuance of Presidential
Decree No. 1931 on June 11, 1984, and were not validly restored until March 10, 1987,
NAPOCOR was liable for real property taxes during this interval. The Court declared the
auction sale of NAPOCOR's properties to settle the tax delinquencies for this period as
valid.
NAPOCOR argued that its tax and duty exemption privileges were restored by FIRB
Resolution No. 17-87 and confirmed by a memorandum from the Executive Secretary,
thereby exempting it from real property taxes.
The Province of Albay contended that the FIRB's issuances were an undue delegation of
legislative power, rendering them null and void, and as such, NAPOCOR was liable for real
property taxes during the disputed period.
The Court determined that the FIRB had only the authority to recommend tax exemptions
and could not grant or restore them on its own. Consequently, NAPOCOR's tax exemptions
were not validly in place from June 11, 1984, to March 10, 1987. The Court also sidestepped
the issue of whether Executive Order No. 93 constituted an unlawful delegation of legislative
power, focusing instead on the specific period in question.
Additional Notes:
This case highlights the inherent legislative nature of the taxation power, emphasizing that
such power cannot be further delegated without clear legislative intent and proper legal
basis. It underscores the principle that the delegation of the power to tax must be explicitly
defined by the Constitution or legislation, adhering to the doctrine that no delegated powers
can be further delegated. The Court's scrutiny of FIRB's resolutions and the legislative
framework governing NAPOCOR's tax exemptions illustrates the careful balance between
ensuring the autonomy of legislative authority in taxation and the necessity of clear, lawful
delegations of such power when permitted.

Pepsi-Cola Bottling Co. of the Philippines, Inc. vs.
Case Title :
City of Butuan, et al.
Date of Promulgation : August 28, 1968
Ponente : CHIEF JUSTICE CONCEPCION
DOCTRINE
The case underscores the principle that taxation must adhere to constitutional and inherent
limitations, including the prohibition against unlawful delegation of legislative power and
the requirements for tax uniformity and equality. Legislative powers, including taxation,
cannot be delegated except under strict conditions where the law is complete in itself and
sets a sufficient standard for the delegate to follow.
WHEREFORE CLAUSE
WHEREFORE, the decision appealed from is hereby reversed, and another one shall
beentered annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing
theCity of Butuan to refund to plaintiff herein the amounts collected from and paid
underprotest by the latter, with interest thereon at the legal rate from the date of
thepromulgation of this decision, in addition to the costs, and defendants herein
are,accordingly, restrained and prohibited permanently from enforcing said Ordinance,
asamended. It is so ordered.
FACTS
 Pepsi-Cola Bottling Company of the Philippines, Inc. (plaintiff) is a corporation
engaged in bottling and selling Pepsi-Cola products, with its operations involving a
warehouse in Butuan City for storage and distribution. The City of Butuan (defendant),
through Municipal Ordinance No. 110, as amended by Ordinance No. 122, imposed a
tax on the plaintiff for each case of Pepsi-Cola sold. The plaintiff paid the taxes under
protest and subsequently filed a complaint to recover the amounts, arguing that the
ordinance was illegal, excessive, and unconstitutional. The lower court dismissed the
complaint, leading to the plaintiff's direct appeal to the Supreme Court.
ISSUE(S)
1. Whether the municipal ordinance imposing a tax on Pepsi-Cola cases sold by the
plaintiff is valid.
2. Whether the ordinance constitutes an illegal delegation of legislative power.
RULING
1. Validity of the Municipal Ordinance: The Supreme Court ruled that the municipal
ordinance (Ordinance No. 110, as amended by Ordinance No. 122) imposed by the City
of Butuan was invalid. The Court found that the tax effectively acted as an import duty,
which the city was not authorized to impose, thus making the ordinance beyond the
city's legal power. Furthermore, the ordinance was deemed discriminatory and violated
the constitutional requirement for tax uniformity and equality, as it unfairly targeted
only those engaged in selling Pepsi-Cola who were considered agents or consignees of
producers or merchants outside the City of Butuan.
2. Illegal Delegation of Legislative Power: On the issue of whether the ordinance

constituted an illegal delegation of legislative power, the Supreme Court implicitly
addressed this by stating that the city's enactment of the ordinance exceeded its
authority. While the decision focused more on the ordinance's nature as an import duty
and its discriminatory application, the underlying principle reinforced was that local
governments, though permitted to levy taxes, must do so within the confines of the law
and the Constitution. The Court's decision emphasizes that the power to tax, being
inherently legislative, cannot be delegated without a clear, complete, and sufficient
statutory basis that defines the policy and standard for such delegation.
The Supreme Court's decision to reverse the lower court's dismissal and to annul the
ordinances underscores the fundamental legal principles governing taxation, including the
prohibition against unlawful delegation of legislative power and the need for taxes to be
uniform, non-discriminatory, and not oppressive.
The plaintiff contended that the ordinance was illegal for being an unauthorized import tax,
constituting double taxation, being excessive, oppressive, confiscatory, unjust,
discriminatory, and based on an unconstitutional delegation of legislative powers.
The defendant justified the ordinance under its authority to impose local taxes for revenue
purposes, presumably aligning with the local government's powers as provided by law.
The Supreme Court refuted the municipality's position by clarifying that while local
governments possess the authority to levy taxes, such power is bounded by constitutional
and inherent limits, including the non-delegation principle and the requirements for tax
uniformity and equity. The Court found the tax discriminatory and an overreach of the city's
taxing authority, constituting an invalid delegation of legislative power.
Additional Notes:
This case illustrates the inherent legislative limitation on the delegation of taxing powers.
The power to tax is fundamentally vested in the legislature and cannot be delegated unless
the delegation is explicit, complete, and provides a sufficient standard for its execution,
ensuring adherence to constitutional mandates. The ruling emphasizes that local
governments, while endowed with the power to create revenue sources, must exercise this
power within the confines of constitutional and inherent limitations, ensuring fairness,
uniformity, and that such taxes do not encroach upon the domain of federal taxation or
violate principles of non-discrimination and equity.

Wenceslao Pascual vs. Secretary of Public Works and
Case Title :
Communications, et al.
Date of Promulgation : December 29, 1960
Ponente : JUSTICE CONCEPCION
DOCTRINE
This case reinforces the principle that public funds must be used for public purposes only,
underscoring the inherent and constitutional limitations on the legislative power to
appropriate funds. The decision highlights the principle that legislative powers, including
taxation and appropriation, cannot be used to benefit private interests over the public good.
WHEREFORE CLAUSE
Wherefore, the decision appealed from is hereby reversed, and the records are remanded
tothe lower court for further proceedings not inconsistent with this decision, with the costs
ofthis instance against respondent Jose C. Zulueta. It is so ordered.
FACTS
 Wenceslao Pascual, as Provincial Governor of Rizal, filed a legal challenge against the
Secretary of Public Works and Communications and others, contesting the legality of a
specific item in Republic Act No. 920, which appropriated P85,000.00 for the
development of feeder roads within a private subdivision owned by Senator Jose C.
Zulueta. Pascual argued that these roads were merely projected within the subdivision
at the time of the act's passage and were not yet constructed, making the
appropriation for their development an illegal use of public funds for a private
purpose. He maintained that this act of appropriating public funds did not serve a
public interest but instead benefited a private individual, thereby violating the
constitutional mandate that public funds should only be used for public purposes.
Pascual sought a court order to declare the appropriation void and to prevent the
continuation of the project funded by this appropriation.
ISSUE(S)
1. Whether the appropriation of public funds for the construction and improvement of
feeder roads within a private subdivision, owned by a member of the Senate,
constitutional.
RULING
The Supreme Court ruled in favor of Pascual, reversing the decision of the lower court and
holding that the appropriation of public funds for private purposes is unconstitutional. The
Court emphasized that the legislature is without power to appropriate public revenues for
anything but a public purpose, and the construction of roads in a private subdivision does
not constitute a public purpose. The appropriation in question was deemed illegal and void
from its inception.
Pascual argued that the appropriation violated the constitutional provision that public
money should only be spent on public projects, not private interests. He contended that the
feeder roads were private at the time the law was passed, making the appropriation for
their development an illegal expenditure of public funds.
The respondents, including Zulueta, argued that the appropriation was legal and that the
legislature had the authority to allocate public funds for such projects. They also contended
that the governor of Rizal had no standing to sue and that the petition did not state a valid
cause of action.
The Supreme Court rejected the respondents' arguments, stating that the appropriation for
private roads in a private subdivision does not serve a public purpose and is therefore
unconstitutional. The Court affirmed that the expenditure of public funds must align with
public interests, not private benefits, and recognized the governor's standing to challenge
the misuse of public funds.
Additional Notes:
The case directly connects to the inherent and constitutional limitations on legislative
power, specifically the principle that the power to tax and spend is inherently legislative and
must serve public purposes. The ruling underscores that such powers cannot be used to
further private interests, reflecting the maxim "Delegata potestas non potest delegari,"
which means that powers granted to the legislature cannot be delegated for purposes
outside their intended public scope. The case illustrates the judiciary's role in enforcing
these limitations, ensuring that legislative actions align with constitutional mandates for the
public good, not private gain.

Case Title : Walter Lutz vs. J. Antonio Araneta
Ponente : JUSTICE REYES, J.B L.,
DOCTRINE
The case demonstrates that the power to tax, while inherently legislative and subject to
constitutional and inherent limitations, can be exercised to serve a regulatory and public
purpose. Taxes may be levied not only for raising revenues but also for regulating industries
critical to the national economy and welfare, provided such measures are reasonable and
serve a clear public interest.
WHEREFORE CLAUSE
The decision appealed from is affi rmed, with costs against appellant. So ordered.
FACTS
 Walter Lutz, acting as the Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, contested the legality of taxes imposed under Commonwealth Act No.
567, also known as the Sugar Adjustment Act, by filing a lawsuit against J. Antonio
Araneta, the then Collector of Internal Revenue. The act, promulgated in 1940, aimed
to stabilize and adjust the benefits derived from the sugar industry due to the
anticipated imposition of export taxes on sugar by the Tydings-McDuffie Act and the
expected loss of its preferential position in the United States market. It increased the
existing tax on sugar production and levied a tax on landowners leasing their land for
sugar cultivation. Lutz sought to recover payments made for the 1948-1949 and 1949-
1950 crop years, arguing that the tax was unconstitutional as it was levied solely for
the support of the sugar industry, which he deemed not a public purpose.
ISSUE(S)
1. Whether the taxes imposed by Commonwealth Act No. 567 for the stabilization and
support of the sugar industry are constitutional under the inherent and constitutional
limitations of the power to tax.
RULING
The Supreme Court affirmed the decision of the Court of First Instance, holding that the tax
imposed by Commonwealth Act No. 567 was constitutional. It determined that the act
served a public purpose within the bounds of the police power of the state, aiming to
stabilize and protect the sugar industry—a significant source of employment, revenue, and
foreign exchange for the country. The Court found that the legislative intent behind the act
was not merely to exercise the taxing power but to regulate and support a vital industry for
the national interest.
Lutz argued that the tax was unconstitutional for being levied for a non-public purpose,
specifically, the support of the sugar industry alone, which he claimed did not justify the
use of the taxing power.
The government contended that the tax was a necessary regulatory measure to stabilize
and support the sugar industry, crucial for the national economy and the general welfare,
thus falling within the ambit of the state's police power.
The Supreme Court rejected Lutz's assumption that the tax was a mere exercise of the taxing
power. It emphasized the regulatory purpose behind the act, aimed at stabilizing and
rehabilitating the sugar industry, which was of public concern. The Court underscored that
the legislature has broad discretion in determining the means to promote public welfare
through its police power, including the imposition of taxes for regulatory purposes.
Additional Notes:
This case exemplifies the principle that the power to tax, inherently vested in the legislature,
cannot be delegated except under strict conditions that do not contravene constitutional
provisions or inherent limitations. However, it also illustrates an exception where, under the
guise of taxation, the legislative body can enact measures for the regulation and support of
industries deemed vital to the public interest and welfare. The decision affirms the
flexibility of legislative power in pursuing economic stabilization and development
objectives, within the bounds of constitutional and inherent limitations on taxation.

Case Title : Valentin Tio vs. Videogram Regulatory Board
Ponente : JUSTICE MELENCIO-HERRERA
DOCTRINE
The doctrine pertinent to this case is the inherent legislative nature of the power to tax,
which stipulates that this power cannot be delegated except through constitutional or
statutory provisions under specific conditions. This case illustrates that the delegation of
certain regulatory powers, including the imposition of taxes, to an administrative body
under a legislative act does not constitute an undue delegation if the law is complete in itself
and sets forth a standard for implementation.
WHEREFORE CLAUSE
WHEREFORE, the instant Petition is hereby dismissed. No costs. SO ORDERED.
FACTS
 Valentin Tio, operating under OMI Enterprises, challenged the constitutionality of
Presidential Decree No. 1987, which created the Videogram Regulatory Board (the
BOARD) with broad powers to regulate the videogram industry. The decree, effective
from April 10, 1986, sought to address the adverse effects of unregulated videogram
distribution on the movie industry and government revenues, imposing a 30% tax on
the gross receipts of videogram sales, leases, or dispositions. The petitioner contended
that this tax was a rider not germane to the decree’s subject, harsh, confiscatory,
oppressive, and an unlawful restraint of trade. Moreover, Tio questioned the decree on
grounds of undue delegation of power, being an ex-post facto law, and overregulation
of the video industry.
ISSUE(S)
1. Whether Presidential Decree No. 1987, particularly its 30% tax imposition on
videogram establishments, violates the constitutional principles and inherent
limitations of taxation.
RULING
The Supreme Court dismissed the petition, upholding the constitutionality of Presidential
Decree No. 1987. The Court reasoned that the tax provision was not a rider but related and
necessary for the decree's objective to regulate the videogram industry. The tax was deemed
not harsh, confiscatory, or in restraint of trade, as the power to tax is broad and for a public
purpose. The Court also rejected the claims of undue delegation of legislative power,
violation of the ex-post facto law principle, and overregulation.
Tio argued that the 30% tax was unconstitutional for being a rider, harsh, confiscatory, and
an undue restraint on trade. He also claimed the decree represented an undue delegation of
legislative power, was an ex-post facto law, and excessively regulated the videogram
industry.
The respondents, including the Videogram Regulatory Board and other government
officials, maintained that the decree, including its tax provision, was a necessary regulation
to address the issues plaguing the movie industry and to generate revenue for the
government.
The Supreme Court clarified that the tax provision was integral to the decree’s regulatory
objective and not a rider. It highlighted the broad and discretionary nature of the legislative
power to tax, which includes the authority to regulate industries for the public welfare. The
Court found no undue delegation of legislative power, as the decree provided a sufficient
standard and purpose for the BOARD's regulatory actions. It also held that the decree was
neither an ex-post facto law nor did it overregulate the videogram industry to the point of
being a nuisance.
Additional Notes:
This case underscores the principle that the power to tax, being inherently legislative, can
only be exercised directly by the legislature or delegated under strict conditions that do not
contravene constitutional provisions. The decision illustrates a scenario where the
legislature, through a presidential decree, validly delegates regulatory and taxing powers to
an administrative body within defined parameters, ensuring adherence to the constitutional
and inherent limitations of taxation. The case exemplifies how such delegated powers, when
properly framed within the scope of legislative policy and standards, align with the
constitutional requisites for the delegation of taxing authority.
Case #7. Topic: Classification of Taxes – According to Subject matter, Burden,

Determination of amount, and Purpose
Case Title : Felix Calalang vs. Pablo Lorenzo, et al.
Ponente : JUSTICE REYES, A.
DOCTRINE
The classification of exactions imposed by the government depends on their purpose rather
than their nomenclature. Fees collected primarily for regulatory purposes are limited to
covering the costs of the services rendered, while taxes are imposed for revenue purposes to
fund general government functions.
WHEREFORE CLAUSE
Wherefore, the decision appealed from is affi rmed, but without special pronouncement as
tocosts.
FACTS
 Felix Calalang initiated a lawsuit against the Secretary of Public Works and
Communications and the Chief of the Motor Vehicles Office, seeking to compel them to
accept his motor vehicle registration fees for the year 1953 using a backpay certificate
of indebtedness. The government officials argued that the fees in question were not
taxes and thus could not be settled with the backpay certificate. The trial court,
however, sided with Calalang, prompting an appeal. The crux of the case revolves
around whether motor vehicle registration fees constitute taxes and are thus payable
with a backpay certificate of indebtedness under the Backpay Law.
ISSUE(S)
1. Whether motor vehicle registration fees considered taxes under the Backpay Law,
thereby allowing them to be settled with a backpay certificate of indebtedness
RULING
The Supreme Court affirmed the trial court's decision, ruling that motor vehicle registration
fees are indeed taxes. The decision was grounded on the nature of the fees and their
utilization. The fees, despite being labeled as such, function as taxes since they are not for
regulatory purposes but rather for revenue generation, specifically for the construction and
maintenance of public roads, bridges, and streets.
Calalang argued that motor vehicle registration fees are essentially taxes because they are
used for general revenue purposes rather than solely covering the regulatory costs
associated with vehicle registration.
The government officials contended that the fees in question were purely regulatory
charges and not taxes, hence not eligible for payment through a backpay certificate of
indebtedness.
The Supreme Court clarified that the determination of whether a charge is a tax or a fee is
based on its use and purpose rather than its designation. Since the revenue from the motor
vehicle registration fees significantly exceeds the regulatory costs and is used for public
infrastructure, they are deemed taxes. Furthermore, the law itself hints at these fees being
taxes by restricting the imposition of other taxes or fees for the registration or operation of
motor vehicles.
Additional Notes:
This case distinctly illustrates the classification of taxes according to their subject matter,
burden, determination of amount, and purpose. Motor vehicle registration fees, in this
context, are classified as an excise/license tax since they relate to the ownership and
operation of vehicles—a specific activity or service. They are indirect taxes as the burden is
passed on to vehicle owners. The fees can be seen as ad valorem taxes because they are
determined by the value of the vehicle in some jurisdictions, though the case does not
specify this. Lastly, these are special taxes, earmarked for the construction and maintenance
of public roads and infrastructure. The Supreme Court’s analysis underscores the fluidity
between fees and taxes, highlighting how the purpose and use of the collected money are
paramount in its classification.

Case Title : Philippine Airlines, Inc. vs. Romeo F. Edu,et al.
Case Number : G.R. No. L- 41383
Ponente : JUSTICE GUTIERREZ, JR.,
DOCTRINE
The case establishes that motor vehicle registration fees, while labeled as fees, can function
as taxes if their primary purpose is to raise revenue for the government rather than merely
covering the administrative costs of regulation. This distinction is crucial for entities with
specific tax exemptions.
WHEREFORE CLAUSE
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund
ofregistration fees paid in 1971 is DENIED. The Land Transportation Franchising
andRegulatory Board (LTFRB) is enjoined functions-the collecting any tax, fee, or other
chargeon the registration and licensing of the petitioner's motor vehicles from April 9, 1979
asprovided in Presidential Decree No. 1590. SO ORDERED.
FACTS
 Philippine Airlines, Inc. (PAL), a corporation engaged in air transportation and granted
a legislative franchise exempting it from all taxes except for a two percent tax on gross
revenue, contested the imposition of motor vehicle registration fees by the Land
Transportation Commissioner, Romeo F. Edu. PAL argued that these fees were in reality
taxes from which it was exempt. The fees were mandated by Section 8 of Republic Act
No. 4136, known as the Land Transportation and Traffic Code. Despite PAL's protest
and reliance on a Secretary of Justice opinion exempting it from such fees since 1956,
Edu required payment for vehicle registration, leading PAL to pay under protest and
subsequently demand a refund, invoking the precedent set by Calalang v. Lorenzo,
which classified similar fees as taxes.
ISSUE(S)
1. Whether the motor vehicle registration fees imposed on PAL's vehicles are considered
taxes or regulatory fees, and if these fees fall under PAL's legislative franchise
exemption.
RULING
The Supreme Court ruled that the motor vehicle registration fees, as imposed under the
Land Transportation and Traffic Code, are indeed taxes intended for additional government
revenue. Consequently, based on the nature of PAL's franchise, which was amended to
explicitly exempt it from such taxes, PAL should not be liable for these fees. However, the
Court denied PAL's request for a refund of fees paid in 1971 due to legislative changes that
temporarily repealed PAL's tax exemption.
PAL contended that the motor vehicle registration fees were taxes in disguise, from which it
was exempt by virtue of its legislative franchise that specified exemption from all taxes
except a two percent gross revenue tax.
The respondents argued that the fees were regulatory in nature, essential for the exercise of
the state's police power, and thus were not covered by PAL's tax exemption.
The Supreme Court, analyzing the nature and purpose of the fees, concluded they were
indeed taxes aimed at generating additional revenue for the government. This
interpretation aligned with PAL's legislative franchise exemption, especially after the
franchise was amended to specifically exempt PAL from taxes, fees, or charges on vehicle
registration and licensing.
Additional Notes:
This case intricately connects to the classification of taxes according to their subject matter,
burden, determination of amount, and purpose. Here, the motor vehicle registration fees are
classified under the broader category of property taxes (as they relate to the ownership of
vehicles) and exhibit characteristics of special taxes, given their earmarked purpose for road
construction and maintenance. They are also direct taxes, as they are paid by the vehicle
owner directly to the government, and ad valorem, based on the value of the vehicle
registered. The Supreme Court's analysis and ruling highlight the fine line between
regulatory fees (intended to cover the administrative costs of regulation) and taxes (aimed
at raising revenue for the government), demonstrating how the purpose and use of collected
fees determine their classification. This distinction is pivotal in understanding the tax
obligations of entities like PAL, which enjoy specific tax exemptions, and underscores the
importance of legislative intent in the classification and imposition of taxes and fees.

Esso Standard Eastern, Inc. vs.Commissioner of
Case Title :
Internal Revenue
Case Number : G.R. No. L-28508-9
Ponente : JUSTICE CRUZ,
DOCTRINE
The Supreme Court distinguished between expenses that are deductible as ordinary and
necessary business expenses and those that are not. It emphasized that for an expense to be
deductible, it must be directly connected to the business operations of the entity within the
taxable jurisdiction. The case also differentiated between police power measures and
taxation, clarifying that not all government-imposed fees are taxes.
WHEREFORE CLAUSE
WHEREFORE, the decision of the Court of Tax Appeals denying the petitioner's claims
forrefund of P102,246.00 for 1959 and P434,234.92 for 1960, is AFFIRMED, with costs
againstthe petitioner. SO ORDERED.
FACTS
 Esso Standard Eastern, Inc. (formerly Standard-Vacuum Oil Company) filed a claim for
a refund of overpaid income taxes for the years 1959 and 1960, amounting to
P102,246.00 and P434,234.93, respectively. The overpayment was claimed due to the
disallowance by the Commissioner of Internal Revenue (CIR) of certain business
expenses Esso had deducted from its gross income. These expenses included amounts
spent on drilling and exploration, and margin fees paid to the Central Bank for profit
remittances to its New York head office. The Court of Tax Appeals (CTA) denied Esso's
claims for refunds, agreeing with the CIR that the margin fees paid were not deductible
either as taxes or as ordinary and necessary business expenses. Esso appealed the
CTA's decision, challenging the classification and deductibility of the margin fees.
ISSUE(S)
1. Whether the margin fees paid by Esso to the Central Bank are considered taxes and,
thus, deductible from Esso's gross income.
2. Whether the margin fees can be considered as ordinary and necessary business
expenses and therefore deductible.
RULING
The Supreme Court affirmed the CTA's decision, denying Esso's claims for refunds. It held
that the margin fees were not taxes but were impositions by the State in the exercise of its
police power aimed at regulating the economy and not for revenue generation.
Consequently, these fees could not be considered deductible taxes under the National
Internal Revenue Code. Furthermore, the Court found that the margin fees were not
ordinary and necessary business expenses as they were incurred for the remittance of
profits to the head office in New York, and not for the purpose of Esso's business in the
Philippines.
Esso argued that the margin fees were deductible from gross income either as taxes or as
ordinary and necessary business expenses, asserting that these fees were essential for the
conduct of its business.
The CIR maintained that the margin fees were not taxes but were regulatory fees imposed
for economic policy reasons. Furthermore, the CIR argued that these fees were not ordinary
and necessary business expenses as they did not directly contribute to the business
operations in the Philippines.
The Supreme Court supported the CIR's stance, ruling that the margin fees were not taxes
and were not incurred as part of Esso's ordinary and necessary business operations in the
Philippines. The distinction between police power and taxation was crucial in determining
the non-deductibility of the margin fees.
Additional Notes:
The Esso case highlights the importance of distinguishing between different types of
government impositions - specifically between regulatory fees (police power) and taxes. It
underscores that not all payments to the government are taxes and that the deductibility of
such payments as business expenses depends on their direct relation to the business
operations within the country. This case directly relates to the classification of taxes
according to subject matter (as it discusses what constitutes a tax vs. a regulatory fee),
burden (distinguishing between direct and indirect implications of such fees on the
taxpayer), determination of amount (whether the fee is considered a specific charge or an
ad valorem tax), and purpose (differentiating between general revenue generation and
regulatory objectives).

Case Title : Lozano/Maceda vs. ERB
Case Number : G.R. No. 95203-05 & 95119-21
Ponente : JUSTICE SARMIENTO,
DOCTRINE
The case reiterates the distinction between regulatory measures taken by government
bodies to adjust prices in response to economic conditions and the imposition of taxes. It
highlights the principle that not all monetary charges imposed by the government
constitute taxes. The case also underscores the authority of regulatory bodies to grant
provisional relief without prior hearing as a response to immediate economic conditions,
subject to later review and final decision.
WHEREFORE CLAUSE
WHEREFORE, these petitions are DISMISSED. No costs. SO ORDERED.
FACTS
 Senator Ernesto Maceda, along with Atty. Oliver Lozano, filed petitions against the
Energy Regulatory Board (ERB) and various oil companies including Pilipinas Shell
Petroleum Corporation, Caltex Philippines, and Petron Corporation, seeking to stop the
ERB from implementing an order dated September 21, 1990, that mandated a
provisional increase in the prices of petroleum and petroleum products. The ERB had
granted this provisional increase without prior hearing based on applications from the
oil companies, which cited the need for adjustment due to factors such as exchange
rate adjustments and changes in world market prices of crude oil and petroleum
products. The petitioners argued that the order was issued with grave abuse of
discretion, without proper notice and hearing, and violated the principles of taxation
by essentially imposing a tax without due process.
ISSUE(S)
1. Whether the ERB’s order granting a provisional increase in the prices of petroleum and
petroleum products without prior hearing constitutes a violation of the principles of
due process and taxation.
RULING
The Supreme Court dismissed the petitions, finding no grave abuse of discretion on the part
of the ERB. The Court clarified that the ERB’s authority to grant provisional relief without a
hearing is provided under Section 8 of the law governing the ERB, which allows for such
action to be taken on the basis of supporting papers and without prejudice to a final
decision after a proper hearing. The Court also differentiated between the increase
authorized by the ERB and the imposition of taxes, stating that the funds generated from the
increase were intended for the Oil Price Stabilization Fund (OPSF) and were not an act of
taxation but rather a mechanism to stabilize prices.
The petitioners argued that the ERB’s order was issued without proper notice and hearing,
constituting a violation of due process, and that the provisional increase was tantamount to
taxation without representation.
The ERB and the oil companies contended that the provisional increase was within the
ERB’s authority under the law, necessary due to economic conditions, and not an act of
taxation but a price adjustment mechanism with the proceeds directed to the OPSF.
The Supreme Court clarified that the ERB’s actions were not acts of taxation but were within
its regulatory authority to adjust prices provisionally in response to economic conditions.
The Court distinguished between the authority granted to the ERB and the principles of
taxation, noting that the OPSF serves as a buffer to stabilize domestic prices and is funded
through mechanisms distinct from taxation.
Additional Notes:
The case illustrates the differentiation between regulatory fees or charges and taxes,
specifically in the context of their subject matter, burden, determination of amount, and
purpose. The provisional increase was categorized not as a tax but as a regulatory measure
aimed at stabilizing prices (thus, it does not fall neatly into classifications of personal,
property, or excise/license taxes). The burden of the increase is indirect, as it is passed on to
consumers, similar to indirect taxes. However, its purpose aligns more closely with special
taxes, intended for a specific objective—the stabilization of fuel prices through the OPSF—
although it is not a tax per se. The determination of the amount is somewhat akin to ad
valorem taxes since the increase is based on economic conditions such as exchange rates
and world market prices, but again, it is not a tax but a regulatory adjustment. This case
highlights the complexities of government financial mechanisms and their relation to the
broader principles of taxation.
Classification of Taxes
According to Scope: According to gradation:
1. National – These are imposed by the 1. Progressive – These are taxes where the
national government and include taxes tax rate increases as the taxable base
such as income tax, value-added tax amount increases, making them more
(VAT), excise taxes, and customs burdensome for higher earners. Income tax
duties. National taxes are applied is a common example, aimed at reducing
uniformly across the entire country. income inequality.
2. Local – These are imposed by local 2. Regressive – Taxes that take a larger
government units (LGUs) such as percentage of income from low-income
provinces, cities, municipalities, and earners than from high-income earners.
barangays. Examples include real Sales tax is an example, as it constitutes a
property tax and business taxes. Local larger proportion of the expenditures of
taxes are tailored to the needs and low-income households.
circumstances of the local
communities. 3. Mixed – This category includes taxes that
have characteristics of both progressive and
regressive taxes, depending on certain
conditions or thresholds within the tax
structure.
4. Proportional – Taxes that are applied at

the same rate regardless of the income level
or value of the property. A flat tax rate on all
income earners is an example, where
everyone pays the same percentage of their
income in taxes.
Taxation distinguished from certain exactions: Taxation is distinguished from various
other types of exactions such as tariffs, tolls, license fees, special assessments, debts, and
penalties, each defined by their unique characteristics and purposes:
1. Tariffs are taxes imposed on internationally traded goods, designed to regulate

trade and generate revenue, distinct from broader taxation which applies to a
wide range of enforceable contributions for public purposes.
2. Tolls are payments for the use of another's property, like roads or bridges,
reflecting a charge for a specific service rather than a tax for general government
support.
3. License fees are levied under the police power of the state primarily to regulate
certain activities or businesses, with the amount usually covering the cost of
issuing the license and regulation, differentiating from taxes aimed at revenue
generation.
4. Special assessments are levied specifically on land benefiting from public

improvements, based on the increased value due to those improvements,
contrasting with taxes which have a broader base and purposes.
5. Debts are obligations based on contract, assignable, and may be subject to

compensation or set-off, unlike taxes which are legal obligations to the
government, not based on contract, and generally not assignable or subject to set-
off.
6. Penalties are sanctions imposed for violations of law, intended to punish or

regulate conduct, differing from taxes which are compulsory charges imposed by
the government for the purpose of raising revenue.
Taxes License and Regulatory Fee

Imposed under the taxing power of the state Levied under the police power of the state.
for purposes of revenue.
Forced contributions for the purpose of Exacted primarily to regulate certain
maintaining government functions. businesses or occupations.
Generally unlimited as to amount Should not unreasonably exceed the
expenses of issuing the license and of
supervision.
Imposed on persons, property and the right Imposed only on the right to exercise a
to exercise a privilege. privilege
Failure to pay does not necessarily make the Failure to pay makes the act or business
act or business illegal. illegal.
Penalty for nonpayment: Surcharges; or

Imprisonment (except poll tax).
Case #11. Topic: Taxation distinguished from certain exactions – License Fee
Case Title : Mayor Antonio J. Villegas vs. Hiu ChiongTsai Pao Ho
Date of Promulgation : November 10, 1978
Ponente : JUSTICE FERNANDEZ,
DOCTRINE
The distinction between taxes and license fees is crucial. Taxes are levied for the purpose of
generating revenue for the government, without necessarily conferring any special privilege
upon the payer. In contrast, license fees are charged under the state's police power
primarily to regulate certain activities or professions. A license makes lawful an act that
would otherwise be unlawful, and its cost should roughly correspond to the expenses of
issuing the license and supervising the regulated activity.
WHEREFORE CLAUSE
WHEREFORE, the decision appealed from is hereby affi rmed, without pronouncement as to
costs. SO ORDERED.
FACTS
 The case revolves around the validity of Ordinance No. 6537, enacted by the City of
Manila, which made it mandatory for non-Filipino citizens to secure an employment
permit from the Mayor of Manila to be employed or engage in any business within the
city, with a permit fee of P50.00. Hiu Chiong Tsai Pao Ho, an alien employed in Manila,
challenged the ordinance, claiming it was discriminatory, violated the rule of
uniformity in taxation, and infringed upon the due process and equal protection
clauses of the Constitution. The lower court ruled in favor of Tsai Pao Ho, declaring the
ordinance null and void for being discriminatory and an undue delegation of legislative
power, prompting Mayor Villegas to file a petition for certiorari.
ISSUE(S)
1. Whether Ordinance No. 6537 is a valid exercise of the city's police power to regulate
employment of aliens within its jurisdiction or an invalid imposition of a license fee
disguised as a revenue measure.
RULING
The Supreme Court affirmed the lower court's decision, declaring Ordinance No. 6537 null
and void. The Court found the ordinance to be an invalid exercise of police power,
emphasizing that while the first part of requiring a permit could be seen as regulatory, the
imposition of a P50.00 fee was purely a revenue measure, not justified by the costs of
regulation. The Court also highlighted the ordinance's failure to provide any standard to
guide the Mayor's discretion, making it an arbitrary and discriminatory imposition against
aliens.
Mayor Villegas argued that the ordinance was a valid exercise of the city's police power
aimed at regulating the employment of aliens and not a revenue measure, thus not subject
to the rule of uniformity in taxation.
Tsai Pao Ho contended that the ordinance was discriminatory and constituted an illegal tax
on aliens working in Manila, violating the constitutional principles of uniformity in taxation,
due process, and equal protection.
The Court clarified that while the city could regulate employment under its police power,
the ordinance in question was primarily a revenue-generating measure disguised as a
regulatory fee, violating constitutional guarantees. The Court distinguished between a
legitimate regulatory license fee and a tax, emphasizing that the ordinance failed to meet the
criteria for a valid exercise of police power as it was arbitrary, lacked guiding standards, and
was used as a means to generate revenue rather than regulate.
Additional Notes:
This case illustrates the fine line between regulatory license fees and taxes. While both may
require payments to the government, their purposes and implications differ significantly.
Ordinance No. 6537, by requiring a flat fee from all employed aliens without regard to the
regulatory costs, crossed from regulation into taxation, which necessitates adherence to
constitutional principles such as uniformity and equality. The case underscores the
importance of clear distinctions between taxes and fees for ensuring lawful and fair
government exactions, highlighting that regulatory measures should not be used as a
backdoor means of taxation.
Case #12. Topic: Taxation distinguished from certain exactions – License Fee
Progressive Development Corporation vs.Quezon
Case Title :
City
Date of Promulgation : April 24, 1989
Ponente : JUSTICE FELICIANO,
DOCTRINE
The doctrine established in the case clarifies the distinction between taxation and
regulatory exactions in the form of license fees. It articulates that an exaction imposed by a
local government unit, based on gross receipts from business operations, should be
characterized not as a tax aimed at revenue generation but as a license fee intended for the
regulation of business activities when its primary purpose is to ensure public health, safety,
and welfare. This principle emphasizes that while local governments have the authority to
regulate businesses within their jurisdiction through the imposition of fees, such fees must
bear a reasonable relation to the costs of regulation and oversight, distinguishing them from
taxes which are levied primarily for the purpose of raising revenue for the government's
general expenses. This distinction is vital for determining the legality and appropriateness
of local government impositions on businesses, ensuring that regulatory fees do not
overstep into the domain of unauthorized taxation.
WHEREFORE CLAUSE
ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City,
Branch18, is hereby AFFIRMED and the Court Resolved to DENY the Petition for lack of
merit. SO ORDERED.
FACTS
 The Progressive Development Corporation (PDC) operates the Farmers Market &
Shopping Center, a privately-owned public market in Quezon City. The City Council of
Quezon City passed Ordinance No. 7997 (the Market Code of Quezon City) and its
amendment, Ordinance No. 9236, imposing a supervision fee or license tax on gross
receipts from stall rentals in privately-owned public markets. PDC challenged these
ordinances, arguing that the fee is essentially a tax on income, which the city cannot
impose as per Republic Act No. 2264 (the Local Autonomy Act). PDC had paid the fees
under protest and sought to have the ordinances declared invalid, contending that the
imposition was beyond the city's power and effectively a tax on income, prohibited by
law.
ISSUE(S)
1. Whether the supervision fee imposed by Quezon City on gross receipts of stall rentals in
privately-owned public markets is a tax on income or a license fee for regulation.
RULING
The Supreme Court affirmed the decision of the lower court, holding that the fee imposed is
not a tax on income but a license fee or tax for the regulation of the business. The Court
distinguished between a tax, which is levied for revenue purposes, and a license fee, which
is levied primarily for regulation under the police power of the state. The Court found that
the fee is related to regulatory activities concerning public health and safety, and its
calculation based on gross receipts does not transform it into a tax on income.
PDC argued that the fee is a tax on income, which is explicitly prohibited under the Local
Autonomy Act. They contended that since the fee is derived from capital invested in the
market's construction, it operates as an income tax, beyond the city's authority to impose.
Quezon City, supported by the Solicitor General, argued that the fee is a license tax or fee for
the regulation of the business, within the city's authority to impose for the enjoyment of the
privilege to engage in business.
The Supreme Court clarified that the primary purpose of the imposition determines its
character: if revenue generation is primary, it's a tax; if regulation is primary, it's a license
fee. The Court found that the ordinance aimed at regulating the public market for health and
safety reasons, making the fee a legitimate exercise of police power. The Court emphasized
that the fee's basis on gross receipts was a reasonable method to cover regulatory costs,
directly relating to the volume of business and, consequently, the extent of necessary
regulatory effort.
Additional Notes:
This case exemplifies the distinction between taxes and license fees, highlighting the
principle that the essence of a license fee lies in regulation under the state's police power,
not in revenue generation. It underscores that license fees, unlike taxes, are meant to
regulate activities for the public's health and safety, with their amounts reasonably related
to the cost of regulatory efforts. This distinction is crucial in understanding the legal
boundaries within which local governments can impose fees or taxes, clarifying that while
local governments may have the authority to regulate businesses for public welfare, this
power does not extend to imposing income taxes, which are outside their jurisdiction. The
case thereby reinforces the principle that the character of an exaction by the government is
determined by its primary purpose, serving as a guiding distinction for the legal treatment
and limitations applicable to taxes versus license fees.
Case #13. Topic: Taxation distinguished from certain exactions – Toll

Case Title : City of Ozamiz, et al. vs. Serapio S.Lumapas, et al.
Ponente : JUSTICE ANTONIO,
DOCTRINE
The case clarifies the distinction between taxes and tolls within the context of local
government powers. Taxes are levied as a demand of sovereignty for the support of the
government, with no inherent limit on the amount, provided they are not excessive,
unreasonable, or confiscatory. Tolls, on the other hand, represent a demand of
proprietorship, paid for the use of another's property or a public improvement, with the
amount typically reflecting the cost of construction or maintenance. This case demonstrates
that local governments may impose fees not as a means of taxation but for regulatory
purposes under the guise of police power, provided such exactions are reasonable and
directly related to the regulation of public safety, convenience, or welfare.
WHEREFORE CLAUSE
WHEREFORE, the appealed decision is hereby reversed and Ordinance No. 466, series
of1964 declared valid. No pronouncement as to costs.
FACTS
 The City of Ozamiz enacted Ordinance No. 466, series of 1964, imposing parking fees
on motor vehicles parked in designated areas within the city. Serapio S. Lumapas, an
operator of transportation buses, challenged the ordinance after having paid parking
fees under protest from October 1964 to January 1967, totaling P1,243.00. Lumapas
argued that the ordinance was ultra vires and sought reimbursement. The lower court
ruled in favor of Lumapas, declaring the ordinance null and void and ordering the city
to refund the collected fees. The city, represented by its mayor, municipal board, city
treasurer, and city auditor, appealed the decision, arguing that the ordinance was
within its powers to regulate the use of city streets and property for public welfare and
safety.
ISSUE(S)
1. Whether Ordinance No. 466, imposing parking fees on motor vehicles parked in
designated areas within the City of Ozamiz, is valid and within the city's power to enact.
RULING
The Supreme Court reversed the lower court's decision, declaring Ordinance No. 466 valid.
The Court differentiated between tolls and taxes, clarifying that the fees collected under the
ordinance were in the nature of parking fees, not tolls, and were meant to regulate the use of
the designated parking areas for public safety and convenience. The ordinance was found to
be a proper exercise of the city's police power delegated by its charter and the Local
Government Code, aimed at regulating traffic and not primarily intended for revenue.
The City of Ozamiz argued that the ordinance was a legitimate exercise of its power to
regulate the use of its streets and public spaces for the purpose of public safety,
convenience, and welfare, and not an imposition of a toll or tax. The fees were meant to
cover the costs of managing the parking areas and were within the city's powers as granted
by its charter and the Local Autonomy Law.
Lumapas contended that the ordinance was ultra vires, beyond the city's powers, and
equated the parking fees to tolls for the use of a public street, which would require
presidential approval under the Land Transportation and Traffic Code. He argued that
public streets are for public use and cannot be subjected to fees without specific
authorization.
The Supreme Court clarified that the parking fees imposed by Ordinance No. 466 were not
tolls but regulatory fees within the city's power to levy for the use of designated parking
spaces, which are city property. These fees were intended to regulate traffic and ensure
public safety and convenience, distinguishing them from tolls that are paid for the passage
on a road or bridge. The Court's ruling underscores the principle that local governments
have the authority to impose fees for the regulation of public spaces, provided such fees are
reasonable and serve a public purpose.
Additional Notes:
This case highlights the important distinction between taxation and other forms of
exactions such as tolls. In taxation, the focus is on raising revenue for the support of
government activities, governed by the principles of sovereignty. Tolls, conversely, are tied
to the usage of a facility or property, reflecting a proprietary interaction. The Supreme
Court's ruling in this case reinforces that the imposition of fees by local governments for the
use of public spaces or services, when done for regulatory purposes and not primarily for
revenue generation, falls outside the traditional scope of taxation and more closely aligns
with tolls or fees for services, governed by principles of proprietorship and the cost of
maintenance or provision of the public good in question.
Case #14. Topic: Taxation distinguished from certain exactions – Special Assessment or
Levy
Apostolic Prefect of the MountainProvince vs. El
Case Title :
Tesorero de la Ciudad deBaguio
Ponente : JUSTICE IMPERIAL,
DOCTRINE
This case illustrates the distinction between taxes and special assessments or levies. Taxes
are imposed by the government for general revenue purposes, affecting land and personal
property without direct reference to specific benefits derived by the property or its owner.
On the other hand, special assessments or levies are imposed on landowners specifically
benefited by public improvements, such as drainage and sewage systems, and are meant to
cover the costs of these improvements. The liability under a special assessment is limited to
the land and is based on the benefit received from the public improvement. The Supreme
Court's decision highlights that an exemption from general taxation does not automatically
exempt a property from special assessments, as these are based on the principle of specific
benefit rather than the necessity to contribute to general government revenue.
WHEREFORE CLAUSE
The appealed sentence being found to be in accordance with the law, it is confirmed in all its
parts, with the notes of this request to the appellant. This is how it is ordered.
FACTS
 The Apostolic Prefect of the Mountain Province (Plaintiff) filed a case to recover
P1,019.37 paid under protest for a special contribution on properties in the City of
Baguio for the year 1937, arguing that these properties, being used for religious
purposes, were exempt from taxes, including this special contribution for a drainage
and sewage system under the Constitution and existing laws. The City of Baguio
(Defendant), represented by its Treasurer, collected this amount based on Ordinance
No. 137 and its amendments, which mandated the special contribution for the
amortization of expenses caused by the drainage and sewage system construction. The
plaintiff argued that these properties were exempt from such payments, while the
defendant maintained the legality and applicability of the special contribution.
ISSUE(S)
1. Whether the properties of the Apostolic Prefect of the Mountain Province are exempt
from the special contribution levied by the City of Baguio for the drainage and sewage
system.
RULING
The Supreme Court ruled against the plaintiff, holding that the special contribution levied
was not a tax from which the plaintiff's properties could be exempted. It was determined
that this contribution was specifically collected to amortize the expenses of a public
improvement that benefited the properties within the city, distinguishing it from a general
tax. The Court also noted that the plaintiff failed to prove that the properties in question
were exclusively used for religious purposes, which is a condition for tax exemption under
the Constitution. Therefore, the special contribution was upheld, and the plaintiff's claim
was dismissed.
The petitioner argued that the properties owned by the Apostolic Prefect of the Mountain
Province and used for religious purposes were exempt from the payment of all taxes,
including the special contribution levied by the City of Baguio for the drainage and sewage
system. They contended that this special contribution was, in essence, a tax from which
they should be exempt under both the Constitution and existing laws, as their properties
were dedicated to religious purposes and therefore should not be subject to such exactions.
The respondent maintained that the special contribution imposed by the City of Baguio was
not a tax but a levy collected specifically to amortize the expenses incurred from
constructing a public improvement (drainage and sewage system) that directly benefited
the properties within the city, including those of the petitioner. They argued that such a
contribution falls outside the scope of tax exemptions granted for religious or charitable
purposes, as it is based on the principle of specific benefit rather than the necessity to
contribute to general government revenue.
The Supreme Court clarified the distinction between general taxes and special assessments
or levies, emphasizing that the latter are imposed specifically for public improvements that
directly benefit the property owners and are not considered general taxation from which
the petitioner's properties could be exempt. The Court highlighted that the special
contribution was levied based on the benefits derived from the drainage and sewage
system, and not on the general necessity to support government functions. Consequently,
the Court ruled that the properties in question were not exempt from this special
contribution, as the exemption from taxation provided by the Constitution does not extend
to special assessments or levies based on specific benefits to the properties. This distinction
underscores the principle that special contributions for public improvements are not
covered by general tax exemptions.
Additional Notes:
The case clearly distinguishes between general taxes and special assessments or levies,
emphasizing that properties can be subject to special assessments even if they are exempt
from general taxation. This distinction is crucial in the field of taxation law, as it underscores
the principle that special assessments are not considered taxes in the traditional sense but
are contributions toward specific public improvements from which the property benefits.
The case reinforces the understanding that the power to tax includes the power to levy
special assessments and that exemptions from taxation do not extend to exemptions from
contributions for public improvements that directly benefit the property.
Levy
Victorias Milling Co., Inc. vs. Office of the
Case Title :
Presidential Assistant For Legal Affairs
Ponente : JUSTICE PARAS,
DOCTRINE
This case underscores the principle that taxes and certain exactions by the government,
such as fees for using public utilities or services, are not debts in the conventional sense but
are obligations imposed by law due to the exercise of governmental authority. Unlike private
debts, which are based on contracts and can be subject to negotiation, set-off, or
compensation, tax obligations and similar governmental exactions are mandated by
statutes, are payable in money, and cannot be waived or offset by individual agreements.
WHEREFORE CLAUSE
PREMISES CONSIDERED, the instant petition is hereby DISMISSED. SO ORDERED.
FACTS
 Victorias Milling Co., Inc. (VMC) contested fees imposed by the Philippine Ports
Authority (PPA), arguing it was exempt from such charges since the wharf and its
facilities were privately built, maintained, and used mainly for sugar handling from
district planters. The PPA mandated VMC to undergo harbor formalities and pay fees
effective May 1, 1981, and to secure a permit for cargo handling operations, remitting
10% of its gross income from these operations as the government's share. After VMC's
appeals to the Court of Tax Appeals and the Supreme Court were dismissed for lack of
jurisdiction and improper filing, respectively, an appeal to the Office of the President
was denied due to tardiness. VMC contended that its procedural missteps were in good
faith, assuming older rules of appeal applied, and argued that the PPA lacked authority
to impose fees on its privately maintained wharf.
ISSUE(S)
1. Whether the Philippine Ports Authority's imposition of fees and charges on Victorias
Milling Co., Inc. for the use of its privately maintained wharf and the required remittance
of 10% of gross income from cargo handling operations are valid.
RULING
The Supreme Court dismissed VMC's petition, upholding the PPA's authority to impose fees
and charges. It clarified that the fees were for the privilege of navigating public waters and
using public harbors, not for the use of the private wharf per se. The Court noted that
administrative orders like PPA Administrative Order No. 13-77 have the force of law and are
binding on all entities. Furthermore, the requirement to remit 10% of cargo handling
charges was seen as a contractual compensation for the privilege to operate arrastre
services, a condition VMC must agree to for the permit.
VMC argued that it was exempt from paying fees to the PPA because the wharf was
privately built and maintained, and it used the wharf primarily for its business operations,
not for public service.
The PPA and the Office of the President argued that the fees were legitimately imposed for
the use of public navigable waters and the privilege of conducting port operations, as
authorized by law and PPA regulations.
The Supreme Court clarified that the PPA's charges were for the use of public maritime
services and not for the use of the private wharf itself. It distinguished between private
debts and tax obligations, emphasizing that the latter are imposed by public authority and
are not subject to the same rules as private debts.
Additional Notes:
This case illustrates the distinction between taxation (and similar governmental exactions)
and private debts or obligations. The fees imposed by the PPA are examples of governmental
exactions for the privilege of using public services and facilities, which, like taxes, are not
negotiable, cannot be offset against other obligations, and are mandatory pursuant to the
government's regulatory and sovereign powers. In contrast, private debts are based on
mutual agreements between parties and are subject to different legal treatments, such as
compensation, negotiation, or even non-payment without criminal sanctions. This
distinction emphasizes the unique nature of tax obligations and governmental fees as tools
for public resource management and not merely as contractual debts between parties.
Levy
Case Title : Caltex Phils., Inc. vs. Commission On Audit, et al.
Date of Promulgation : May 8, 1992
Ponente : JUSTICE DAVIDE, JR.,
DOCTRINE
Taxes are not debts in the ordinary sense; they are due by law and not subject to set-off or
compensation against the claims that a taxpayer may have against the government. This
distinction underscores the principle that taxes, being the lifeblood of the government, must
be collected without hindrance to ensure the continuous operation of government
functions.
WHEREFORE CLAUSE
WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the
challenged decision of the Commission on Audit, except that portion thereofdisallowing
petitioner's claim for reimbursement of underrecovery arising fromsales to the National
Power Corporation, which is hereby allowed. With costs against petitioner. SO ORDERED.
FACTS
 Caltex Philippines, Inc. (Caltex) petitioned against the Commission on Audit's (COA)
decision which disallowed its claims for reimbursement from the Oil Price
Stabilization Fund (OPSF). The petition was rooted in the COA's disapproval of claims
for financing charges, underrecoveries from sales to the National Power Corporation,
Atlas Consolidated Mining and Development Corporation (ATLAS), and Marcopper
Mining Corporation (MARCOPPER), and the right to offset remittances against
reimbursements concerning the OPSF. The OPSF was created to minimize the impact of
fluctuating oil prices and exchange rates, funded by taxes on petroleum products.
Caltex argued that certain expenditures were unjustly disallowed by the COA, including
financing charges and underrecoveries from specific sales, claiming these were
supported by existing rules and executive determinations. Furthermore, Caltex
contended that it should be allowed to offset its contributions to the OPSF against its
claims for reimbursement from the same fund, a practice previously permitted by
government agencies.
ISSUE(S)
1. Whether the COA correctly disallowed Caltex's claims for reimbursement and offsetting
of amounts related to the OPSF.
RULING
The Supreme Court affirmed the COA's decision to disallow most of Caltex's claims except
for the claim related to underrecoveries arising from sales to the National Power
Corporation, which was allowed. The Court ruled that financing charges are not recoverable
from the OPSF as they did not result from the reduction of domestic prices of petroleum
products, a requirement for OPSF reimbursements. Claims related to sales to ATLAS and
MARCOPPER were also disallowed, as the LOI cited by Caltex did not cover OPSF imposts
and was never published, thus lacking effect. Regarding the offsetting of obligations, the
Court held that taxes, including OPSF contributions, cannot be subject to compensation with
the claims a taxpayer may have against the government, as taxes are not debts arising from
contract but are due by law.
Caltex argued that its claims for financing charges and underrecoveries were supported by
regulations and executive orders, and that its right to offset its OPSF contributions against
its claims for reimbursement was based on previous practices and should be respected.
The COA and the Solicitor General argued that the claims disallowed were not supported by
law as valid OPSF expenditures and that taxes cannot be offset against claims due to their
distinct nature and purpose.
The Supreme Court responded by delineating the nature of taxes versus ordinary debts or
obligations. It emphasized that taxes, including OPSF contributions, are imposed by law and
not subject to the mutual creditor-debtor relationships characteristic of ordinary
obligations. The Court also highlighted the special nature of taxes as instruments of the
state's authority and the public interest, which cannot be equated with or treated like
ordinary debts that can be offset or compensated.
Additional Notes:
This case vividly illustrates the principle that taxes are distinct from ordinary debts or
obligations, primarily due to their obligatory nature, imposition by law, and the role they
play in financing the functions of the government. Unlike debts, which arise from
contractual agreements and can be offset or compensated, taxes are unilateral duties
imposed on individuals and entities, underscoring the government's authority to require
contributions for public purposes. The inability to offset taxes against claims underscores
the fundamental principle that taxes, as the government's lifeblood, must be collected
efficiently and without obstruction.
Case #18. Topic: Taxation distinguished from certain exactions – Police Inspection fees
Matalin Coconut Co., Inc. vs. Municipal Council of
Case Title :
Malabang
Ponente : JUSTICE YAP,
DOCTRINE
This case illustrates the distinction between taxation and certain exactions like police
inspection fees, highlighting that charges imposed by local government units must reflect
the cost of regulation and inspection to qualify as regulatory fees. When a fee is
disconnected from these costs and is primarily revenue-generating, it is considered a tax.
Such impositions must adhere to the principles of justice, fairness, and cannot be unjust,
excessive, or confiscatory.
WHEREFORE CLAUSE
WHEREFORE, petition is dismissed. The decision of the court a quo is hereby affirmed.
Nocosts. SO ORDERED.
FACTS
 The Municipal Council of Malabang, Lanao del Sur, enacted Ordinance No. 45-46,
leveraging the Local Autonomy Act (Republic Act No. 2264), imposing a "police
inspection fee" of P.30 per sack of cassava starch shipped out of the municipality.
Matalin Coconut Co., Inc. (petitioner) challenged the ordinance as ultra vires (beyond
the powers), unreasonable, oppressive, and confiscatory, seeking its nullification and a
refund of fees paid under protest. Purakan Plantation Company also intervened,
claiming adverse effects due to the ordinance. The trial court ruled in favor of the
petitioners, deeming the ordinance null and void for being unjust, excessive, and
confiscatory, and ordered refunds.
ISSUE(S)
1. Whether the Municipal Council of Malabang, Lanao del Sur, had the authority to enact
the ordinance imposing a police inspection fee on cassava starch shipped out of the
municipality.
2. Whether the police inspection fee imposed by the ordinance is a regulatory fee or a tax,
and if it adheres to principles of justice and fairness.
RULING
The Supreme Court affirmed the trial court's decision, declaring the ordinance null and void.
It was determined that the fee imposed was essentially a tax aimed at raising revenue rather
than covering the costs of inspection and regulation. Moreover, the fee was found to be
unjust, unreasonable, excessive, and potentially confiscatory, adversely affecting the
petitioners' business operations and being contrary to the economic growth policy of the
government.
The petitioner argued that the ordinance was beyond the council's powers, unreasonable,
oppressive, and confiscatory, violating the Local Autonomy Act. They contested the
ordinance's validity and sought refunds for fees paid under protest.
The respondents contended that the municipality had the authority under the Local
Autonomy Act to enact the ordinance and that the action for declaratory relief could not
include the adjudication of a money claim for the refund.
The Supreme Court found that the fee imposed by the ordinance was a tax rather than a
regulatory fee, based on its purpose and effect. The Court emphasized that while local
governments have the power to levy taxes, such taxes must be for public purposes, just, and
uniform. The ordinance failed these criteria, being unjust, excessive, and confiscatory.
Additional Notes:
This case underscores the critical distinction between regulatory fees and taxes within the
framework of local government taxation powers. It highlights that the nature of an exaction,
whether a tax or a regulatory fee, depends significantly on its purpose—whether it is meant
to regulate certain activities or raise revenue. Importantly, it reinforces the principle that
any imposition, to be valid, must adhere to standards of justice and fairness and not be
oppressive to the entities it affects. Through its ruling, the Supreme Court clarifies the
boundaries of local taxation and regulatory powers, ensuring they are exercised within the
confines of justice and for the genuine regulation of activities, not merely as a means to
generate revenue.
Case #19. Topic: Taxation distinguished from certain exactions – Vehicle Registration
Case Title : Philippine Airlines, Inc. vs. Romeo F. Edu, et al.
DOCTRINE
The case distinguishes between taxes and regulatory fees, highlighting that fees can be
considered taxes when their primary purpose is to generate revenue for the government. If
the exaction serves a regulatory purpose with revenue being incidental, it is considered a
fee. However, if revenue generation is a primary or substantial purpose, the exaction is
deemed a tax.
WHEREFORE CLAUSE
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund
ofregistration fees paid in 1971 is DENIED. The Land Transportation Franchising
andRegulatory Board (LTFRB) is enjoined functions-the collecting any tax, fee, or other
chargeon the registration and licensing of the petitioner's motor vehicles from April 9, 1979
asprovided in Presidential Decree No. 1590. SO ORDERED.
FACTS
 Philippine Airlines, Inc. (PAL), engaged in the air transportation business under a
legislative franchise, sought a refund of motor vehicle registration fees paid under
protest, arguing that it was exempt from such fees by virtue of its franchise which
exempts it from all taxes except for a two percent tax on its gross revenue. The fees
were imposed by Romeo F. Edu, the Land Transportation Commissioner, under the
Land Transportation and Traffic Code (Republic Act No. 4136). Despite PAL's protests
and reliance on a Secretary of Justice opinion exempting it from such fees since 1956,
Edu required payment of these fees for vehicle registration, leading PAL to pay
P19,529.75 under protest. PAL's request for a refund was denied by Edu, basing his
action on the decision in Republic vs. Philippine Rabbit Bus Lines, Inc., which held that
motor vehicle registration fees are regulatory and not revenue measures, thus not
covered by PAL's tax exemption.
ISSUE(S)
1. Whether the motor vehicle registration fees imposed on PAL are taxes from which it is
exempt or regulatory fees not covered by its tax exemption.
RULING
The Supreme Court ruled that the motor vehicle registration fees in question are taxes
intended for additional government revenue, thus falling within PAL's legislative exemption.
However, the Court denied the refund for fees paid in 1971 due to the repeal of tax
exemptions for corporate taxpayers like PAL by Section 24 of Republic Act No. 5448, until an
amended franchise granted to PAL in 1979 explicitly exempted it from such fees.
PAL argued that the motor vehicle registration fees are taxes, citing its franchise's provision
exempting it from all taxes except a specified percentage of its gross revenue. It relied on
historical exemptions and judicial interpretations treating similar fees as taxes.
The respondents argued that the fees are regulatory, intended to cover the administrative
costs of vehicle registration and not to raise revenue, thus not subject to PAL's tax
exemption. They cited legal provisions and a Supreme Court decision distinguishing the fees
from taxes.
The Supreme Court concluded that the nature of the motor vehicle registration fees had
evolved from purely regulatory to primarily revenue-generating, thus qualifying them as
taxes from which PAL is exempt. The Court analyzed legislative provisions and historical
context, affirming that where an exaction serves dual purposes of regulation and revenue,
its classification depends on the primary intent of the legislature.
Additional Notes:
This case illustrates the complex nature of certain exactions that serve both regulatory and
revenue-generating purposes. It highlights how the primary purpose of an exaction
determines its classification as a tax or a fee. In the context of vehicle registration, this case
demonstrates that fees imposed can be considered taxes when they are primarily used to
generate revenue for the government, which is significant in understanding the broader
principles of taxation and the specific exemptions that may apply.
Case #20. Topic: Taxation distinguished from certain exactions – Vehicle Registration
Land Transportation Offi ce, etc., et al. vs.City of
Case Title :
Butuan, etc., et al.
Date of Promulgation : January 20, 2000
Ponente : JUSTICE VITUG,
DOCTRINE
The case underscores the distinction between taxation and regulatory exactions,
particularly in the context of vehicle registration fees. While LGUs have been granted certain
powers under the Local Government Code, including the imposition of local taxes, fees, and
charges, the authority to register vehicles and issue drivers' licenses remains a regulatory
function of the LTO, not a revenue-generating power devolved to LGUs.
WHEREFORE CLAUSE
WHEREFORE, the assailed decision which enjoins the Land Transportation Offi ce
fromrequiring the due registration of tricycles and a license for the driving thereof is
REVERSEDand SET ASIDE. No pronouncements on costs. Let copies of this decision be
likewise furnished the Department of Interior and LocalGovernments, the Department of
Public Works and Highways and the Department ofTransportation and Communication. SO
ORDERED.
FACTS
 The City of Butuan, represented by Mayor Democrito D. Plaza II, challenged the
authority of the Land Transportation Office (LTO) to register tricycles and issue
licenses for their operation within its territorial jurisdiction, asserting that such
powers had been devolved to local government units (LGUs) under Republic Act No.
7160, otherwise known as the Local Government Code of 1991. The Regional Trial
Court of Butuan City ruled in favor of the city, prohibiting the LTO from registering
tricycles and issuing licenses for their operation. The Court of Appeals affirmed this
decision, prompting the LTO to elevate the matter to the Supreme Court. The LTO
contended that while the Local Government Code transferred the franchising authority
of the Land Transportation Franchising and Regulatory Board (LTFRB) to LGUs, it did
not devolve the LTO's functions of vehicle registration and driver licensing to them.
ISSUE(S)
1. Whether the power to register tricycles and issue licenses for their operation has been
devolved to LGUs, thereby excluding the LTO from performing these functions within
local government territories.
RULING
The Supreme Court reversed the decisions of the lower courts, holding that the Local
Government Code did not devolve the LTO's authority to register vehicles and issue driver's
licenses to LGUs. It clarified that LGUs have the power to regulate the operation of tricycles-
for-hire and grant franchises for their operation, but not the registration of vehicles and
licensing of drivers, which remain the functions of the LTO.
The LTO argued that the Local Government Code only devolved the franchising authority
over tricycles-for-hire from the LTFRB to the LGUs, not the LTO's functions of vehicle
registration and driver licensing.
The City of Butuan contended that the Local Government Code allowed LGUs to collect
registration fees or charges and issue licenses or permits for the driving of tricycles,
asserting these as part of the devolved powers to LGUs.
The Supreme Court clarified that the Local Government Code and its implementing
guidelines expressly preserved the LTO's regulatory functions concerning vehicle
registration and driver licensing. The Court distinguished between the regulatory nature of
these functions and the local taxing powers granted to LGUs, stating that the imposition of
fees related to vehicle registration and driver licensing by the LTO is primarily regulatory
and not a tax.
Additional Notes:
The case illustrates the distinction between taxation and regulatory fees within the context
of vehicle registration. It highlights that while LGUs possess certain taxing powers, the
authority to impose fees for vehicle registration and driver licensing by the LTO serves a
regulatory purpose aimed at ensuring road safety and the competence of drivers,
distinguishing it from a tax whose primary aim is to raise revenue for the government. This
differentiation is crucial in understanding the limits of local government powers and the
scope of national regulatory authorities.
Case #21. Topic: Interpretation and Construction of Tax Statues and Tax Exemptions
Commissioner of Internal Revenue vs. Court of
Case Title :
Appeals, et al.
Ponente : JUSTICE PANGANIBAN,
DOCTRINE
This case underscores the principle that tax laws are construed strictly against the
government and liberally in favor of the taxpayer. It emphasizes that no person or property
is subject to taxation unless clearly, expressly, and unambiguously within the terms of a
taxing statute. Taxes, being burdens, are not to be presumed beyond what the statute
expressly declares.
WHEREFORE CLAUSE
WHEREFORE, premises considered, the petition is DENIED and the assailed Decision of the
Court of Appeals is hereby AFFIRMED in full. SO ORDERED.
FACTS
 Ateneo de Manila University, through its Institute of Philippine Culture (IPC), engages
in social science studies of Philippine society and culture. Occasionally, it accepts
sponsorships for its research activities from various organizations. The Commissioner
of Internal Revenue assessed Ateneo for deficiency contractor's tax and income tax for
the fiscal year ended March 31, 1978. Ateneo contested these assessments. The Court
of Tax Appeals (CTA) and subsequently the Court of Appeals (CA) ruled in favor of
Ateneo, holding that it was not an independent contractor subject to the 3%
contractor's tax under Section 205 of the National Internal Revenue Code.
ISSUE(S)
1. Whether Ateneo de Manila University, through its IPC, performing research activities
constitutes the work of an independent contractor, thereby subjecting it to the 3%
contractor's tax levied by then Section 205 of the National Internal Revenue Code.
RULING
The Supreme Court denied the petition, affirming the decision of the Court of Appeals. It
held that Ateneo's IPC was not engaged in business or selling its services for a fee as an
independent contractor but was conducting research as part of its educational and
charitable objectives. The funds received by IPC were akin to donations, not fees for
services, and were used directly for research activities consistent with Ateneo's academic
agenda. Thus, Ateneo was not subject to the 3% contractor's tax.
The Commissioner argued that Ateneo, through its IPC, falls under the definition of an
"independent contractor" as it renders services for a fee, thus subject to the 3%
contractor's tax.
Ateneo contended that IPC's research activities were not commercial but were undertaken
as part of its educational and charitable objectives, with sponsorships akin to donations
rather than fees for service.
The Supreme Court clarified that the imposition of taxes requires clear, express, and
unambiguous language within the tax statute. The case demonstrates that activities
undertaken in furtherance of educational and charitable objectives, without a profit motive
and where funds are received more as donations than as fees for services, do not classify an
entity as an independent contractor subject to contractor's tax.
Additional Notes:
This case exemplifies the principles surrounding the interpretation and construction of tax
statutes and tax exemptions. It highlights the necessity for a taxing statute to explicitly and
unambiguously indicate its intent to impose taxes. Furthermore, it reinforces the principle
that tax exemptions, while strictly construed against the taxpayer, do not apply until it is
first established that the taxpayer is within the scope of the tax statute. The Supreme
Court's decision reflects a careful application of these principles, ensuring that educational
and charitable activities undertaken without a profit motive are not unjustly taxed, thus
supporting the broader public policy favoring the promotion of education and social
research.
Marinduque Iron Mines, Inc. vs. Mun.Council of the
Case Title :
Mun. of Hinabangan,Samar, et al.
Ponente : JUSTICE REYES, J.B.L.,
DOCTRINE
The Supreme Court reiterated the principle that tax laws are construed strictly against the
government and liberally in favor of the taxpayer. A statute will not be considered as
imposing a tax unless it does so clearly, expressly, and unambiguously. This is because taxes
are not presumed beyond what the statute expressly and clearly declares.
WHEREFORE CLAUSE
IN VIEW OF THE FOREGOING, the judgment appealed from is affirmed, with costs against
appellants.
FACTS
 The Municipality of Hinabangan, Samar, enacted Ordinance No. 7, Series of 1960,
imposing a municipal license tax on the gross outputs of mines and other businesses
within its jurisdiction. Marinduque Iron Mines Agents, Inc., the only mining operation
within the municipality, challenged the ordinance's validity, arguing it was enacted
without authority and violated the law. The Court of First Instance of Manila found in
favor of Marinduque Iron Mines, declaring the ordinance null and void. The
municipality appealed, contending the ordinance was a valid exercise of its taxing
power under Republic Act No. 2264 and did not constitute double taxation. However,
the Supreme Court found the ordinance to lack clear imposition of a tax and to be in
conflict with restrictions on municipal taxing powers, particularly against taxes based
on sales.
ISSUE(S)
1. Whether Municipal Ordinance No. 7 imposes a valid tax.
2. Whether the ordinance violates the legal restrictions on municipal taxing powers.
RULING
The Supreme Court affirmed the lower court's decision, holding that the ordinance did not
clearly impose a tax and, even if interpreted as imposing one, it contravened statutory
prohibitions against taxes based on sales. The Court emphasized that tax laws must be clear
and unambiguous, as taxation imposes a significant burden on the taxpayer.
Marinduque Iron Mines argued that the ordinance was enacted without authority and
violated the legal prohibition against taxes based on sales, as outlined in Republic Act No.
2264.
The Municipal Council of Hinabangan maintained that the ordinance was a valid exercise of
its delegated taxing powers and did not constitute double taxation.
The Supreme Court held that the ordinance did not clearly impose a tax and was invalid due
to its conflict with statutory limitations on municipal taxing powers, particularly the
prohibition against taxes based on sales. The Court underscored the necessity for tax laws
to be explicit in imposing taxes and observed that the ordinance's lack of clarity and express
terms left taxpayers uncertain about their obligations.
Additional Notes:
This case illustrates the principle that tax laws must be interpreted and constructed with
clarity and precision, favoring the taxpayer in the absence of explicit legislative intent to
impose a tax. It underscores the notion that the burden of taxation cannot be extended
through implication or ambiguity. Moreover, the case reflects the strict approach courts take
towards tax exemptions and the necessity for clear legislative authority to impose taxes,
especially in instances where municipal and local government units seek to expand their
taxing powers. The decision aligns with the principle that exemptions from taxation must be
clearly and categorically established by law, advocating for a careful and restrained
approach to the interpretation of taxing statutes to prevent undue burdens on taxpayers
and ensure fairness and legality in tax imposition.
Commissioner of Internal Revenue vs. SM Prime
Case Title :
Holdings, Inc., et al.
Date of Promulgation : February 26, 2010
Ponente : JUSTICE DEL CASTILLO
DOCTRINE
Tax laws are construed strictly against the government and liberally in favor of the taxpayer.
No person or property is subject to taxation unless within the terms or plain import of a
taxing statute. Taxes are not to be presumed beyond what the statute expressly and clearly
declares.
WHEREFORE CLAUSE
WHEREFORE, the Petition is hereby DENIED. The assailed April 30, 2008 Decision of
theCourt of Tax Appeals En Banc holding that gross receipts derived by respondents from
admission tickets in showing motion pictures, fi lms or movies are not subject to value-
added tax under Section 108 of the National Internal Revenue Code of 1997, as amended,
andits June 24, 2008 Resolution denying the motion for reconsideration are AFFIRMED. SO
ORDERED.
FACTS
 The Commissioner of Internal Revenue (CIR) filed a Petition for Review on Certiorari
against SM Prime Holdings, Inc. and First Asia Realty Development Corporation,
challenging the Court of Tax Appeals' (CTA) decision and resolution which set aside
the Bureau of Internal Revenue's (BIR) deficiency value-added tax (VAT) assessments
on cinema ticket sales. The BIR argued that the gross receipts derived by cinema
operators from ticket sales were subject to VAT, citing that the exhibition of movies
constitutes a sale of service under Section 108 of the National Internal Revenue Code
(NIRC) of 1997. The respondents, however, contended that their operations were
subject to amusement tax under the Local Government Code (LGC) of 1991, not VAT,
and that the legislative intent was never to tax cinema/theater admission tickets under
both the national and local tax regimes.
ISSUE(S)
1. Whether the gross receipts derived by operators or proprietors of cinema/theater
houses from admission tickets are subject to VAT.
RULING
The Supreme Court (SC) denied the petition, affirming the CTA En Banc's decision that gross
receipts from cinema ticket sales are not subject to VAT. The SC clarified that the
enumeration of services subject to VAT in Section 108 of the NIRC is not exhaustive but does
not include cinema/theater operations. It further emphasized the legislative intent to
exempt cinema/theater operators from VAT, as historically, they were subject to amusement
tax, not VAT.
The CIR argued that cinema operations should be considered a sale of service and, unless
exempted by law, are subject to VAT under Section 108 of the NIRC of 1997.
SM Prime Holdings, Inc. and First Asia Realty Development Corporation maintained that
their services were subject to amusement tax under the LGC of 1991, not VAT, and that the
legislative history and intent supported this view.
The Supreme Court highlighted that the law did not explicitly subject cinema/theater
operators to VAT, underlining the principles of strict interpretation against the tax authority
and in favor of the taxpayer. It further noted that the burden of additional taxation could
lead to absurd results, which are contrary to the principles of justice and fairness in
taxation. The SC also invalidated Revenue Memorandum Circular No. 28-2001 for imposing
VAT on cinema ticket sales without clear statutory backing.
Additional Notes:
This case illustrates the principle that tax laws must be interpreted strictly against the
government and in favor of the taxpayer, especially when the tax imposition is not clear and
unequivocal. It underscores the need for clear legislative intent to subject an activity to
taxation and reaffirms the approach that exemptions or lack of tax liability must be clearly
established by the statute. The decision reflects the judicial stance on protecting taxpayers
from undue tax burdens not expressly stated by law, aligning with the principle that tax
statutes are to be construed in a manner that avoids unfair and unjust taxation.
Case Title : National Power Corporation vs. City of Cabanatuan
Ponente : JUSTICE PUNO
DOCTRINE
However, tax exemptions must be clearly and categorically proved by the taxpayer and are
not presumed. The withdrawal of tax exemption privileges under the Local Government
Code is a clear legislative intent to subject entities, including government-owned and
controlled corporations like the NPC, to local taxation unless an exemption is expressly
stated.
WHEREFORE CLAUSE
IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and
Resolutionof the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are
herebyAFFIRMED. SO ORDERED.
FACTS
 The National Power Corporation (NPC), a government-owned and controlled
corporation created under Commonwealth Act No. 120, as amended, is tasked with the
development of hydroelectric power and the production and transmission of
electricity nationwide. NPC sold electric power to the residents of Cabanatuan City,
earning significant gross income. The City of Cabanatuan, pursuant to Ordinance No.
165-92, assessed NPC a franchise tax, which NPC refused to pay on the ground that as
a government entity, it was exempt from all forms of taxes, charges, duties, or fees in
accordance with Section 13 of Republic Act No. 6395, as amended. The City filed a
collection suit, and the trial court dismissed the case favoring NPC's tax exemptions.
However, the Court of Appeals reversed this decision, holding that the Local
Government Code (LGC) of 1991, particularly Sections 137 and 151 in relation to
Section 193, withdrew NPC’s exemption from local taxes.
ISSUE(S)
1. Whether the National Power Corporation's exemption from local taxes, as provided in
its charter and other laws, remains valid despite the provisions of the Local Government
Code of 1991 withdrawing such exemptions.
RULING
The Supreme Court denied NPC’s petition, affirming the Court of Appeals' decision that NPC
is liable to pay franchise tax to the City of Cabanatuan. The Court ruled that the Local
Government Code, specifically Section 193, expressly withdrew tax exemptions previously
enjoyed by government-owned and controlled corporations, except for those expressly
mentioned in the Code. The NPC, not falling within these exceptions, is subject to local
taxation under the Code.
NPC argued that it was exempt from all forms of taxes, duties, and charges based on its
charter (RA 6395, as amended), contending that the City has no authority to impose tax on
government entities and that as a non-profit organization, it is exempted from taxes.
The City of Cabanatuan argued that NPC's exemption from local taxes has been repealed by
Section 193 of the LGC, which withdrew tax exemptions or incentives granted to all persons,
including government-owned or controlled corporations, except for specified exemptions.
The Supreme Court held that the express withdrawal of tax exemptions under the LGC
applies to NPC, emphasizing that tax exemptions must be expressly provided for and cannot
be presumed. The Court underscored the legislative intent to broaden the tax base of local
government units and foster autonomy by empowering them to generate their own sources
of revenue, including the power to tax entities previously enjoying tax exemptions.
Additional Notes:
This case illustrates the principle that in the interpretation and construction of tax statutes,
exemptions are construed strictly against the claimant and must be clearly stated in the law.
The Supreme Court's decision emphasizes that exemptions from taxation are not favored
and must be explicitly provided for within the statutory framework. The ruling
demonstrates how legislative changes, such as the enactment of the Local Government Code,
can alter the tax landscape, highlighting the importance of clear legislative intent in the
application of tax exemptions. The case reinforces the notion that tax laws, including those
concerning exemptions, require precise interpretation to ascertain the legislature's intent
and ensure equitable taxation.
Surigao Electric Co., Inc. vs. Court of Tax Appeals, et
Case Title :
al.
Ponente : JUSTICE CASTRO
DOCTRINE
However, procedural requirements like filing deadlines are jurisdictional and must be
strictly followed to prevent undue delays in tax collection, essential to the government's
functioning.
WHEREFORE CLAUSE
ACCORDINGLY, the decision of the Court of Tax Appeals dated October 1, 1965 is affirmed,
atpetitioner's cost.
FACTS
 Surigao Electric Co., Inc. (petitioner) contested a warrant of distraint and levy issued
for the collection of a deficiency franchise tax plus surcharge from "Mainit Electric,"
claiming it did not operate in Mainit, Surigao. The issue began in November 1961, and
after a series of communications, a revised assessment dated April 29, 1963,
demanded the petitioner to pay P11,533.53 for deficiency franchise tax for April 1,
1956, to June 30, 1959. The petitioner requested a recomputation, which was denied
by the Commissioner of Internal Revenue. An appeal to the Court of Tax Appeals was
dismissed as it was filed beyond the thirty-day appeal period mandated by section 11
of Republic Act 1125.
ISSUE(S)
1. Whether or not the petitioner's appeal to the Court of Tax Appeals was time-barred.
RULING
The Supreme Court affirmed the decision of the Court of Tax Appeals, holding that the
appeal was indeed time-barred. The Court identified the Commissioner's letter dated April
29, 1963, as the definitive determination of the petitioner's tax liability, making it the
decision appealable to the tax court. Thus, the thirty-day period for filing an appeal
commenced from the day the petitioner received this letter (May 8, 1963). The Court
emphasized that tax laws are construed strictly against the government and liberally in
favor of the taxpayer, yet the obligation to comply with procedural timelines is a critical
jurisdictional requirement.
The petitioner argued that the appeal was not time-barred, considering the final
communication from the Commissioner denying the request for a recomputation of the
revised assessment.
The respondents contended that the appeal was indeed time-barred as it was filed beyond
the statutory thirty-day period after receiving the final decision on the tax liability.
The Supreme Court clarified that the final determination of tax liability, as indicated in the
Commissioner's letter dated April 29, 1963, started the clock on the thirty-day appeal
period. The Court highlighted the importance of clear communication from the tax authority
regarding the finality of decisions to prevent taxpayers from indefinitely delaying the
finality of assessments.
Additional Notes:
This case illustrates the principle that while tax laws are to be interpreted liberally in favor
of the taxpayer, this principle does not extend to procedural requirements, which are to be
strictly observed. The rationale is to ensure the efficient collection of taxes, which are vital
for government operations. The case underscores the balance between interpreting tax laws
in a manner that favors the taxpayer and ensuring compliance with procedural norms to
uphold the tax system's integrity and efficiency.
Case Title : Comm. of Internal Revenue vs. Algue, Inc.
Ponente : JUSTICE CASTRO
DOCTRINE
However, procedural requirements like filing deadlines are jurisdictional and must be
strictly followed to prevent undue delays in tax collection, essential to the government's
functioning.
WHEREFORE CLAUSE
ACCORDINGLY, the decision of the Court of Tax Appeals dated October 1, 1965 is affirmed,
atpetitioner's cost.
FACTS
 Surigao Electric Co., Inc. (petitioner) contested a warrant of distraint and levy issued for
the collection of a deficiency franchise tax plus surcharge from "Mainit Electric,"
claiming it did not operate in Mainit, Surigao. The issue began in November 1961, and
after a series of communications, a revised assessment dated April 29, 1963, demanded
the petitioner to pay P11,533.53 for deficiency franchise tax for April 1, 1956, to June
30, 1959. The petitioner requested a recomputation, which was denied by the
Commissioner of Internal Revenue. An appeal to the Court of Tax Appeals was
dismissed as it was filed beyond the thirty-day appeal period mandated by section 11 of
Republic Act 1125.
ISSUE(S)
1. Whether or not the petitioner's appeal to the Court of Tax Appeals was time-barred.
RULING
appeal was indeed time-barred. The Court identified the Commissioner's letter dated April
29, 1963, as the definitive determination of the petitioner's tax liability, making it the
decision appealable to the tax court. Thus, the thirty-day period for filing an appeal
commenced from the day the petitioner received this letter (May 8, 1963). The Court
emphasized that tax laws are construed strictly against the government and liberally in
favor of the taxpayer, yet the obligation to comply with procedural timelines is a critical
jurisdictional requirement.
The petitioner argued that the appeal was not time-barred, considering the final
communication from the Commissioner denying the request for a recomputation of the
revised assessment.
The respondents contended that the appeal was indeed time-barred as it was filed beyond
the statutory thirty-day period after receiving the final decision on the tax liability.
The Supreme Court clarified that the final determination of tax liability, as indicated in the
Commissioner's letter dated April 29, 1963, started the clock on the thirty-day appeal
period. The Court highlighted the importance of clear communication from the tax authority
regarding the finality of decisions to prevent taxpayers from indefinitely delaying the
finality of assessments.
Additional Notes:
This case illustrates the principle that while tax laws are to be interpreted liberally in favor
of the taxpayer, this principle does not extend to procedural requirements, which are to be
strictly observed. The rationale is to ensure the efficient collection of taxes, which are vital
for government operations. The case underscores the balance between interpreting tax laws
in a manner that favors the taxpayer and ensuring compliance with procedural norms to
uphold the tax system's integrity and efficiency.
Case Title : Comm. of Internal Revenue vs. Algue, Inc.
DOCTRINE
The case touches on the principles of strict interpretation against the government and
liberal interpretation in favor of the taxpayer. Tax laws must be clear and explicit to warrant
the imposition of a tax, reflecting the general rule that ambiguities in tax statutes are
resolved in favor of the taxpayer.
WHEREFORE CLAUSE
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto,
without costs. SO ORDERED.
FACTS
 Algue, Inc., a Philippine corporation engaged in engineering, construction, and other
allied activities, was assessed for delinquency income taxes for the years 1958 and 1959
by the Commissioner of Internal Revenue (CIR), totaling P83,183.85. Algue filed a
protest against this assessment, which was initially ignored, leading to the issuance of a
warrant of distraint and levy. The Court of Tax Appeals (CTA) later found that the
protest was valid and had effectively suspended the running of the period for filing an
appeal. Substantively, the issue revolved around Algue's claim of a P75,000.00
deduction for promotional fees as legitimate business expenses, which the CIR
disallowed. The CTA sided with Algue, recognizing the expenses as legitimate and
necessary for the creation of the Vegetable Oil Investment Corporation of the
Philippines and the subsequent acquisition of properties.
ISSUE(S)
1. Whether the disallowance by the CIR of the P75,000.00 deduction claimed by Algue, Inc.
as legitimate business expenses was in accordance with the law, and whether Algue's
appeal was timely and legally filed.
RULING
The Supreme Court affirmed the decision of the CTA, holding that Algue's appeal was filed
within the permissible period and that the deduction of P75,000.00 was allowable under
the law. The Court recognized the payments as legitimate promotional fees necessary for
the company's business operations.
The CIR contended that the deduction was not an ordinary, reasonable, or necessary
business expense and implied that the payments were fictitious, suggesting an attempt to
evade taxes.
Algue argued that the fees were for actual services rendered that were necessary and
reasonable for its business, substantiated by evidence including the testimony of its
President and accountant.
The Supreme Court found Algue's explanation satisfactory, highlighting the informal but
genuine nature of the transactions within a family corporation. It emphasized that the fees
were reasonable given the effort required to start a new business venture and that the
promotional fees were indeed necessary for Algue's operations.
Additional Notes:
This case exemplifies the principle that tax laws are construed strictly against the
government and liberally in favor of the taxpayer. The Supreme Court's decision to affirm
the deduction claimed by Algue underscores the importance of a clear and explicit basis for
tax assessments and deductions in the law. It reinforces the notion that ambiguities in
taxation laws should be resolved in favor of the taxpayer, promoting fairness and equity in
the application of these laws. The case illustrates that while the government has the
authority to collect taxes, such collection must adhere strictly to the provisions of the law,
ensuring that taxpayers are not unduly burdened by unclear or arbitrary tax measures.
Republic of the Philippines, represented by the
Case Title : Philippine Reclamation Authority(PRA) vs. City of
Parañaque
Ponente : JUSTICE MENDOZA,
DOCTRINE
The Supreme Court highlighted the principle of strict interpretation against the government
and liberally in favor of the taxpayer in matters of taxation. It stated that tax laws must
express clear and unambiguous terms for taxation or exemption to apply. This case
reaffirms that government instrumentalities performing essential public services, unless
expressly stated by law, are exempt from local taxes.
WHEREFORE CLAUSE
WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional
TrialCourt, Branch 195, Parañaque City, is REVERSED and SET ASIDE. All reclaimed
properties owned by the Philippine Reclamation Authority are hereby declared EXEMPT
from real estate taxes. All real estate tax assessments, including the final notices of real
estate tax delinquencies, issued by the City of Parañaque on the subject reclaimed
properties; the assailed auction sale, dated April 7, 2003; and the Certifi cates of Sale
subsequently issued bythe Parañaque City Treasurer in favor of the City of Parañaque, are
all declared VOID. SO ORDERED.
FACTS
 The Philippine Reclamation Authority (PRA), formerly known as the Public Estates
Authority, petitioned for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, contesting a decision by the Regional Trial Court of Parañaque City. The
court had declared PRA a government-owned and controlled corporation (GOCC) liable
for real property taxes on several reclaimed lands in Manila Bay within Parañaque City.
These lands, which PRA managed and registered under its name, were levied upon by
the City of Parañaque for delinquent real property taxes for the years 2001 and 2002,
leading to a public auction. PRA argued that it is an instrumentality of the national
government, thus exempt from local taxes, and that the reclaimed lands, being state-
owned, are not subject to real property tax.
ISSUE(S)
1. Whether the Philippine Reclamation Authority, a government instrumentality vested
with corporate powers and managing reclaimed lands, is liable for real property taxes to
the City of Parañaque.
RULING
The Supreme Court ruled in favor of PRA, reversing the lower court's decision. It clarified
that PRA, though vested with corporate powers, is not a GOCC because it is neither
organized as a stock nor a non-stock corporation. Instead, it is an instrumentality of the
national government, performing essential public services and therefore exempt from local
taxation. The Court also emphasized that reclaimed lands managed by PRA remain state
property and part of the public domain, thus exempt from real property taxes.
PRA contended that it is not a GOCC but a government instrumentality, thus exempt from
real property taxes. It argued that the reclaimed lands are part of the public domain,
inherently owned by the state, and should not be taxed.
The City of Parañaque argued that PRA had consistently represented itself as a GOCC and, as
such, should be subject to real property taxes. It maintained that the authorized capital
stock of PRA classifies it as a stock corporation, making it taxable under the Local
Government Code.
The Supreme Court clarified that PRA is not a GOCC but a government instrumentality
exempt from local taxation. It differentiated between GOCCs, which are subject to tax unless
exempted, and government instrumentalities, which are generally not taxable. The Court
applied the principles of strict interpretation of tax statutes against the government and in
favor of the taxpayer, emphasizing that exemptions must be clearly stated and cannot be
presumed.
Additional Notes:
This case exemplifies the principle that tax laws are to be strictly construed against the
government and liberally in favor of the taxpayer. It underscores that for taxation to apply or
for an entity to be deemed taxable, the law must articulate this in clear and unambiguous
terms. Furthermore, it illustrates that exemptions from taxation, particularly for
government instrumentalities and properties of public dominion, are to be interpreted
broadly in favor of non-taxability, reinforcing the doctrine that tax exemptions for entities
performing essential public functions need not be explicitly stated to be effective. This
decision reflects the balance between the need for public entities to fulfill their mandates
without the undue burden of local taxes and the power of local government units to levy
taxes for revenue.
Case #28. Topic: Kinds of Tax Exemption – Contractual Tax Exemption

Comm'r of Internal Revenue vs. Court of Tax
Case Title :
Appeals, et al.
Date of Promulgation : March 20, 1991
Ponente : JUSTICE MEDIALDEA,
DOCTRINE
The case highlights the principle of contractual tax exemption, where the legislature may
make valid contracts with corporations regarding taxation. These contracts, once entered
into, can be enforced against the state, illustrating the non-impairment clause of the
Constitution. Franchises, as in this case, partake the nature of a grant and are considered a
form of contractual tax exemption.
WHEREFORE CLAUSE
ACCORDINGLY, the decision of the Court of Tax Appeals is hereby modifi ed, as follows:
1. Republic Act No. 808 is presumed to be an operative act and the decision of
therespondent tax court declaring the same to be unconstitutional is hereby SETASIDE;
2. the provision in the franchise requiring the payment of 5% of gross receipts asfranchise
tax in lieu of any and all taxes is enforceable and operative;
3. the assailed assessment was issued within the period prescribed by law;
4. the assailed assessment is not in the nature of a ruling within the purview ofSection
338-A of the National Internal Revenue Code; and
5. the decision of the respondent tax court declaring the Commissioner'sassessment
cancelled and without any legal force and eff ect is hereby SET ASIDE.A remand of this
case to respondent Court of Tax Appeals is ordered for trial onthe merits to determine
the income tax liability of the private respondentcorresponding to its income beyond
the scope of Republic Act No. 808.
The decision of the Court of Tax Appeals is AFFIRMED in all other respects. SO ORDERED.
FACTS
 Eastern Extension Australasia and China Telegraph Co., Ltd., a foreign corporation
engaged in international telecommunications, was granted a legislative franchise by the
Philippine government, allowing it to operate a submarine telegraph cable connecting
Manila with Hong Kong. This franchise, established under Republic Act No. 808 and
later amended by RA No. 5002, included a tax exemption provision, exempting the
company from all taxes except a franchise tax of 5% on its gross earnings and real
property tax. The Commissioner of Internal Revenue later assessed the company for
deficiency income taxes totaling P21,523,288.37 for the years 1952 to 1971, arguing
that the franchise was inoperative for failing to meet the constitutional requirement of
60% Filipino ownership for public utilities. The Court of Tax Appeals (CTA) reversed the
Commissioner's assessment, leading to this petition for review by the Supreme Court.
ISSUE(S)
1. Whether the tax exemption provision in the legislative franchise of Eastern Extension
Australasia and China Telegraph Co., Ltd. is enforceable and whether the
Commissioner's assessment for deficiency income taxes is valid.
RULING
The Supreme Court modified the CTA's decision, ruling that Republic Act No. 808 is
presumed to be an operative act and its tax exemption provision enforceable. The Court
ordered a remand of the case to the CTA for trial on the merits to determine the income tax
liability of the company corresponding to its income beyond the scope of RA No. 808.
The Commissioner argued that the company's franchise was inoperative due to non-
compliance with the 60% Filipino ownership requirement for public utilities and that the
tax exemption was therefore unenforceable.
Eastern Extension Australasia and China Telegraph Co., Ltd. contended that the tax
exemption was a valid part of its franchise, allowing it exemption from all taxes except for
the specified franchise and real property taxes.
The Supreme Court acknowledged the legislative franchise as a contract between the
sovereign and the corporation, emphasizing that such agreements, including tax
exemptions, are binding and enforceable. The Court clarified that franchises are beyond the
purview of the non-impairment clause of the Constitution, distinguishing them from other
forms of contractual tax exemptions but recognizing their enforceability.
Additional Notes:
This case exemplifies the concept of contractual tax exemption through a legislative
franchise, illustrating how the state can enter into agreements that include tax exemptions.
The Supreme Court's ruling underscores the principle that such exemptions, once granted
as part of a franchise, become a binding contract that cannot be unilaterally altered or
revoked by the state, thereby protecting the interests of the corporation and respecting the
non-impairment clause of the Constitution. This case demonstrates the critical balance
between the state's sovereign power to tax and its ability to enter into binding contracts,
including those granting tax exemptions.

Cagayan Electric Power & Light Co. vs.Commissioner
Case Title :
of Internal Revenue
Date of Promulgation : September 25, 1985
Ponente : JUSTICE AQUINO,
DOCTRINE
The case illustrates the principle of contractual tax exemption, where the state may enter
into agreements with corporations regarding taxation, which can be enforced against the
state. These exemptions are distinct from those granted under franchises, which are
considered grants and not contracts protected by the non-impairment clause of the
Constitution.
WHEREFORE CLAUSE
WHEREFORE, the judgment of the Tax Court is affi rmed with the modification that
thepetitioner is liable only for the tax proper and that it should not pay the delinquency
penalties. No costs. SO ORDERED.
FACTS
 Cagayan Electric Power & Light Co., Inc. (petitioner) was granted a legislative franchise
under Republic Act No. 3247, which allowed it to pay a 3% tax on its gross earnings
from the sale of electric current in lieu of all other taxes. This exemption was challenged
when Republic Act No. 5431 amended the Tax Code, subjecting all corporate taxpayers,
including those with special exemptions like the petitioner, to income tax. However, the
petitioner's franchise was subsequently amended by Republic Act No. 6020, effectively
reinstating its tax exemption. Despite this, the Commissioner of Internal Revenue
demanded payment of deficiency income taxes for the years 1968 to 1971. The Tax
Court ruled the petitioner was only liable for income tax before the enactment of
Republic Act No. 6020.
ISSUE(S)
1. Whether the petitioner, holding a legislative franchise with a tax exemption clause, is
liable for income tax despite its exemption, and how this relates to contractual tax
exemptions.
RULING
The Supreme Court affirmed the Tax Court's decision, holding the petitioner liable for
income tax only for the period before the reenactment of its tax exemption through Republic
Act No. 6020. It was decided that the Congress could legally modify the petitioner's
franchise to impose income tax, despite the initial exemption.
The petitioner argued that its franchise tax was inclusive of income tax, its franchise was
not amendable by subsequent laws to impose additional taxes, and that its franchise
agreement was a contract which could not be impaired.
The Commissioner contended that the amendment to the Tax Code made by Republic Act
No. 5431, which imposed income tax on previously exempt entities, was applicable to the
petitioner, despite its franchise's exemption clause.
The Supreme Court clarified that legislative franchises are subject to amendment, alteration,
or repeal by Congress when public interest requires. It recognized the distinction between
contractual tax exemptions and those granted under franchises. While the former is
protected under the non-impairment clause, the latter is not, as franchises are grants by the
state which can be modified.
Additional Notes:
This case demonstrates the nuanced difference between contractual tax exemptions and
exemptions granted through legislative franchises. While the petitioner enjoyed a tax
exemption as part of its franchise, this grant was subject to legislative changes, unlike
contractual tax exemptions, which are agreements entered into by the state that cannot be
easily altered. This highlights the principle that franchises, though containing tax
exemptions, do not enjoy the same level of protection as contractual tax exemptions under
the non-impairment clause of the Constitution.

Province of Misamis Oriental vs. Cagayan Electric
Case Title :
Power and Light Company, Inc.
Ponente : JUSTICE GRIÑO-AQUINO
DOCTRINE
The Supreme Court's decision in this case underscores the principle of contractual tax
exemption, where the state may enter into agreements with corporations regarding
taxation, which are protected from impairment under the Constitution. This case illustrates
that tax exemptions stipulated in franchises are considered contractual and are thus
safeguarded by the non-impairment clause, preventing subsequent laws from nullifying
these agreed exemptions.
WHEREFORE CLAUSE
WHEREFORE, the petition for review is denied, and the decision of the Court of
FirstInstance is hereby affirmed in toto. No costs. SO ORDERED.
FACTS
 Cagayan Electric Power and Light Company, Inc. (CEPALCO) was granted a franchise by
the Republic Acts Nos. 3247, 3570, and 6020, allowing it to operate an electric power
system in certain areas in the Philippines. The franchise explicitly provided that
CEPALCO would pay a franchise tax equivalent to three percent of its gross earnings,
which would be "in lieu of all taxes and assessments of whatever authority" on its
privileges, earnings, income, franchise, and operational equipment. However, with the
enactment of the Local Tax Code (P.D. No. 231) and subsequent Provincial Revenue
Ordinance No. 19 by Misamis Oriental, a demand was made for CEPALCO to pay a
provincial franchise tax. CEPALCO paid the tax under protest and appealed, arguing that
its franchise exempted it from such local taxes.
ISSUE(S)
1. Whether or not CEPALCO's franchise, which provides that the payment of a franchise tax
on gross earnings shall be in lieu of all other taxes, exempts it from paying a provincial
franchise tax imposed by the Local Tax Code (P.D. No. 231) and Provincial Revenue
Ordinance No. 19.
RULING
The Supreme Court ruled in favor of CEPALCO, affirming that its franchise explicitly exempts
it from all taxes except the specified franchise tax on its gross earnings. The Court held that
there was no provision in P.D. No. 231 or any other law that expressly or impliedly repealed
this exemption. The Court emphasized that the franchise's "in-lieu-of-all-taxes" clause
provided a clear exemption from additional taxation, aligning with the principle that special
laws (like the franchise acts for CEPALCO) are not overridden by general laws unless
explicitly stated.
The Province of Misamis Oriental argued that the enactment of the Local Tax Code (P.D. No.
231) and the provincial ordinance allowed it to impose a franchise tax on businesses
operating within its jurisdiction, including those holding special franchises like CEPALCO.
CEPALCO maintained that its franchise agreement, which included a specific tax exemption
clause, exempted it from any other taxes, including the provincial franchise tax imposed by
Misamis Oriental.
The Supreme Court refuted the province's arguments, highlighting that specific exemptions
granted in CEPALCO's franchise could not be overridden by subsequent general tax laws
unless such intention was explicitly stated. The Court affirmed that contractual agreements
in franchises, especially those with "in-lieu-of-all-taxes" clauses, are valid and enforceable,
protecting the grantee from additional taxes imposed later.
Additional Notes:
This case perfectly illustrates the concept of contractual tax exemptions, where tax
exemptions granted under a franchise are recognized as contracts between the state and a
corporation. These contracts are protected under the non-impairment clause of the
Constitution, meaning they cannot be easily altered or nullified by subsequent laws. In
CEPALCO's case, the franchise agreement explicitly exempting it from all other taxes stood
as a contract, and the attempt by the local government to impose additional taxes was
deemed a violation of this agreement. This principle ensures that businesses can rely on the
terms of their franchise agreements without fear of future legislative changes affecting their
tax liabilities unexpectedly.

Case Title : Ernesto M. Maceda vs. Catalino Macaraig, Jr., et al.
Ponente : JUSTICE GANCAYCO
DOCTRINE
The case illustrates the principle of contractual tax exemption, where the state can enter
into agreements providing tax exemptions to fulfill specific public purposes. In NPC's case,
the series of legislative and executive actions granting and reaffirming its tax exemption
status serve as a contract to support its mandate of national electrification and power
generation, showcasing a contractual commitment by the state to waive certain tax
revenues for a greater public benefit.
WHEREFORE CLAUSE
WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs. SO
ORDERED.
FACTS
 Ernesto M. Maceda filed a petition against various government officials and
corporations, including the National Power Corporation (NPC), seeking to nullify
decisions, orders, rulings, and resolutions exempting NPC from indirect taxes and duties
on petroleum products used in its operations. The NPC was created to undertake the
development of hydraulic power and produce power from other sources, enjoying tax
and duty exemption privileges under its charter as amended by several laws, most
notably Commonwealth Act No. 120, Republic Act No. 358, and further amendments
through Republic Acts No. 6395 and Presidential Decrees Nos. 380 and 938. These
exemptions were aimed at facilitating NPC's payment of its indebtedness and
supporting its role in national electrification and power generation. The Fiscal
Incentives Review Board (FIRB), through various resolutions, restored NPC's tax and
duty exemption privileges, which were confirmed and approved by the Office of the
President and the Secretary of Finance, based on the premise that NPC's non-profit
character and its mandate to ensure affordable electricity supply justified such
exemptions.
ISSUE(S)
1. Whether the National Power Corporation (NPC) is entitled to exemptions from indirect
taxes on petroleum products used in its operations, and whether such exemptions are
consistent with the principles of contractual tax exemptions.
RULING
The Supreme Court dismissed the petition, affirming the tax and duty exemption privileges
of NPC, including indirect taxes on petroleum products. The Court clarified that the NPC, as
a government instrumentality, was intended to benefit from a comprehensive tax exemption
to fulfill its mandate efficiently. The exemptions were not merely statutory but were also
rooted in the specific provisions of its charter and reinforced by subsequent legislative
amendments and executive actions. These actions demonstrate a contractual nature of tax
exemption, where the state, through its legislative and executive branches, entered into a
form of agreement with NPC, ensuring its operational viability and capacity to provide
electricity at lower costs.
Maceda argued that the exemptions granted to NPC for indirect taxes on petroleum
products were illegal and constituted a form of tax evasion that ultimately benefited the oil
companies rather than serving the public interest.
The respondents, including the NPC and various government officials, contended that the
exemptions were legally grounded in NPC's charter and subsequent amendments, aimed at
ensuring NPC's ability to fulfill its mandate of providing affordable electricity and
supporting national development goals.
The Supreme Court held that the tax exemptions enjoyed by NPC, including those on
indirect taxes for petroleum products, were legally valid and intended to support its non-
profit, public service operations. The Court emphasized that the exemptions were
consistent with the state's policy goals and NPC's charter, reflecting a form of contractual tax
exemption aimed at facilitating NPC's operations for the greater public good.
Additional Notes:
The case of Ernesto M. Maceda vs. Catalino Macaraig, Jr., et al., connects to the concept of
Contractual Tax Exemption by showcasing how the government can enter into agreements
that provide tax exemptions to state entities like the NPC to support their operations and
objectives. The Supreme Court's ruling affirms that such tax exemptions, including those
from indirect taxes, are part of the contractual obligations of the state, which are protected
to ensure that the entities can fulfill their mandates effectively. This principle ensures that
agreements made by the government in its private capacity, offering tax exemptions to fulfill
specific public objectives, are honored and protected against arbitrary revocation,
highlighting the legal foundation for such exemptions in the context of broader
governmental and societal goals.

City Government of San Pablo, Laguna, et al. vs. Hon.
Case Title :
Bienvenido V. Reyes, etc., et al.
Date of Promulgation : March 25, 1999
Ponente : JUSTICE GONZAGA-REYES
DOCTRINE
The case illustrates the principle of contractual tax exemption and its boundaries. The
Supreme Court clarified that while the legislature may enter into valid contracts with
corporations regarding taxation, such contractual tax exemptions should not be confused
with exemptions granted under franchises. A franchise is considered a grant, which is
distinct from a contract wherein the government might agree not to impose taxes. Thus, the
non-impairment clause of the Constitution cannot be invoked to prevent the withdrawal of
tax exemptions granted through franchises when a subsequent law, serving the public
interest and passed in accordance with the State's policy, explicitly provides for such
withdrawal.
WHEREFORE CLAUSE
WHEREFORE, the instant petition is GRANTED. The decision of the Regional Trial Court of
San Pablo City, appealed from is hereby reversed and set aside and the complaint
ofMERALCO is hereby DISMISSED. No pronouncement as to costs. SO ORDERED.
FACTS
 The City Government of San Pablo, Laguna, challenged the decision of the Regional
Trial Court (RTC) which declared the imposition of a franchise tax under their local
ordinance as ineffective and void against the Manila Electric Company (MERALCO).
The basis of the RTC's decision was the claim that such imposition violated specific
Acts and Presidential Decrees granting MERALCO a franchise with a tax equal to two
percent of its gross earnings "in lieu of any and all taxes." MERALCO paid franchise
taxes under protest from 1994 to 1996, amounting to a total of P1,857,711.67, and
subsequently filed an action for the declaration of the local ordinance as null and void
concerning its franchise tax imposition and claimed a refund for the taxes paid.
 The City Government argued that the Local Government Code of 1991 (LGC) expressly
repealed the tax exemption privileges granted to MERALCO by its franchise, allowing
local governments to impose franchise taxes. MERALCO, on the other hand, defended
its position by citing its legislative franchise's provision that its payment of a 2% tax on
gross earnings was "in lieu of all taxes," arguing that this provision granted them an
exemption from further taxation and could not be repealed or altered by the LGC
without violating the non-impairment clause of the Constitution.
ISSUE(S)
1. Whether the imposition of a local franchise tax by the City Government of San Pablo,
Laguna, on MERALCO is valid despite the latter's franchise provision exempting it from
"all taxes" in light of the Local Government Code of 1991.
RULING
The Supreme Court ruled in favor of the City Government of San Pablo, Laguna, reversing
the RTC's decision. The Court held that the Local Government Code of 1991 (LGC) explicitly
withdrew tax exemptions or privileges previously granted to entities like MERALCO, except
for specific exemptions outlined in the Code. The LGC empowered local governments to
impose franchise taxes notwithstanding any exemption granted by any law or other special
law, including those granted to MERALCO under its franchise.
The City Government of San Pablo, Laguna, argued that the Local Government Code of 1991
(LGC) expressly repealed any tax exemption privileges previously granted to entities like
MERALCO, thereby allowing local governments to impose franchise taxes despite any law or
special law granting such exemptions. They maintained that Sections 137 and 193 of the
LGC gave them the authority to levy a franchise tax on businesses enjoying a franchise
within their jurisdiction. The petitioners relied on the general rule that tax exemptions must
be construed strictly against the taxpayer and the legislative intent of the LGC to empower
local governments and enhance their autonomy by broadening their fiscal capabilities.
MERALCO defended its exemption from the local franchise tax by invoking the specific
provisions in its franchise that allowed it to pay a 2% tax on gross earnings "in lieu of all
taxes," arguing that this constituted a contractual agreement protected under the non-
impairment clause of the Constitution. They contended that this exemption was part of the
inducement for accepting the franchise and that the imposition of additional taxes by local
government units would violate this contract and impair their obligations.
The Supreme Court sided with the petitioner, holding that the LGC clearly and expressly
withdrew tax exemption privileges previously granted to entities like MERALCO, except for
those specifically enumerated in the Code. It ruled that the phrase "in lieu of all taxes" in
MERALCO's franchise could not override the explicit provisions of the LGC that empower
local governments to impose taxes. The Court clarified that franchises are subject to
amendment or repeal when public interest so requires, and thus, the non-impairment
clause does not protect MERALCO's tax exemptions from being repealed or modified by
subsequent legislation like the LGC. The Court emphasized the policy of ensuring autonomy
to local governments and the necessity for them to have adequate resources for their
development and the welfare of their communities.
Additional Notes:
This case connects to the concept of contractual tax exemption by differentiating the nature
of tax exemptions granted under franchises from those arising from contractual agreements
where the non-impairment clause could be invoked. It underscores that while the State can
enter into contracts that may include tax exemptions, such exemptions provided in
franchises do not enjoy the same protection under the non-impairment clause because a
franchise is a privilege granted by the State, not a contract. The State, acting through its
legislative power, can modify or repeal tax exemptions in franchises if it deems necessary
for public welfare, as demonstrated by the enactment of the LGC which aimed to enhance
local government autonomy by broadening their taxing powers, including the imposition of
taxes on entities previously enjoying tax exemptions under their franchises.

Case Title : Manila Electric Company vs. Province of Laguna.
Ponente : JUSTICE VITUG,
DOCTRINE
The Court differentiated between contractual tax exemptions and tax exemptions granted
under franchises. Contractual tax exemptions are those agreed upon in contracts, such as
government bonds or debentures, where the government acts in its private capacity and
waives its governmental immunity. These are enforceable against the state under the non-
impairment clause of the Constitution. However, tax exemptions granted under franchises
are not considered contractual in the same manner and do not fall under the purview of the
non-impairment clause.
WHEREFORE CLAUSE
WHEREFORE, the instant petition is hereby DISMISSED. No costs. SO ORDERED.
FACTS
 Manila Electric Company (MERALCO) was granted franchises by various municipalities
in the Province of Laguna to supply electric light, heat, and power. Additionally,
MERALCO was granted a franchise by the National Electrification Administration for
the Municipality of Calamba, Laguna. With the enactment of the Local Government
Code of 1991 (Republic Act No. 7160), local government units were empowered to
create their own sources of revenue and to levy taxes, subject to certain limitations.
Pursuant to this Code, the Province of Laguna enacted an ordinance imposing a
franchise tax on businesses enjoying a franchise. MERALCO, having paid the franchise
tax under protest, sought a refund claiming that the tax it paid to the National
Government pursuant to Presidential Decree No. 551 included the franchise tax
imposed by the Provincial Tax Ordinance, and thus, the imposition of an additional tax
was contrary to P.D. 551.
ISSUE(S)
1. Whether the imposition of a franchise tax by the Province of Laguna on MERALCO
violates the non-impairment clause of the Constitution and the provisions of
Presidential Decree No. 551.
RULING
The Supreme Court dismissed MERALCO's petition, upholding the validity, reasonableness,
and enforceability of Laguna Provincial Tax Ordinance No. 01-92. The Court ruled that local
governments have the power to levy taxes, subject to statutory limitations and guidelines, as
provided by the Local Government Code of 1991. The Code authorizes provincial
governments to impose a tax on businesses enjoying a franchise, notwithstanding any
exemption granted by any law or other special law.
MERALCO argued that the imposition of a franchise tax by the Province of Laguna was
violative of the non-impairment clause of the Constitution and P.D. 551, which stipulated
that the franchise tax payable to the National Government would be "in lieu of all taxes" on
the earnings from the generation, distribution, and sale of electric current.
The Province of Laguna, supported by the Local Government Code of 1991, contended that
it had the authority to impose a franchise tax on businesses enjoying a franchise within its
jurisdiction, notwithstanding any exemption granted by any law or other special law.
The Supreme Court emphasized that the Local Government Code of 1991 effectively
withdrew tax exemptions previously granted, allowing local government units to impose
franchise taxes. It clarified that tax exemptions under franchises should not be confused
with contractual tax exemptions, which are protected by the non-impairment clause. The
Court held that the franchise granted to MERALCO did not constitute a contract exempting it
from local taxation, especially under the broad tax powers granted to local government
units by the Constitution and the Local Government Code of 1991.
Additional Notes:
This case illustrates the distinction between contractual tax exemptions, which are
enforceable against the state under the non-impairment clause, and tax exemptions granted
under franchises, which do not enjoy the same protection. It highlights the principle that
while certain tax exemptions may be agreed upon in contracts, making them enforceable
against the state, exemptions granted through legislative acts, such as franchises, do not
carry the same contractual force and are subject to amendment or repeal by subsequent
laws, in this case, the Local Government Code of 1991.
Case #34. Topic: Doctrines in Taxation – Prospectivity

Hydro Resources Contractors Corp. vs. Court of
Case Title :
Appeals
Ponente : JUSTICE PADILLA,
DOCTRINE
This case illuminates the principle of prospectivity in tax laws, which dictates that laws are
formulated to govern future actions rather than to retrospectively alter the legal
implications of past actions. The Supreme Court's decision to dismiss the case without
prejudice, based on the procedural flaw in the original complaint, aligns with the broader
legal principle that individuals and entities should have clarity about their tax obligations
and the consequences of their actions at the time those actions are taken. This principle
protects taxpayers from retrospective changes that could impose unexpected liabilities for
past behavior, ensuring fairness and predictability in the application of tax laws.
WHEREFORE CLAUSE
WHEREFORE, petition is GRANTED, the decision of the Court of Appeals, dated 30
October1987 in CA-G.R. SP. No. 09196 is hereby SET ASIDE, and a new one entered ordering
thecomplaint in Civil Case No. 0093 before the Regional Trial Court of Santiago, Isabela,
Branch XXI, DISMISSED without prejudice. Without pronouncement as to costs. SO
ORDERED.
FACTS
 Hydro Resources Contractors Corporation (Hydro) entered into a contract with the
National Irrigation Administration (NIA) for the construction of the Magat River Multi-
Purpose Project located in Ramon, Isabela. During the project's execution, the
Provincial Government of Isabela and the Municipality of Ramon filed a civil case
against Hydro for the collection of real property taxes over certain properties used in
connection with the construction project. The Regional Trial Court of Echague, Isabela,
initially handled the case and ruled in favor of the plaintiffs, stating that Hydro was
liable for the realty taxes. However, the amount to be paid was to be determined in
subsequent proceedings. The case was then transferred to the Regional Trial Court of
Santiago, Isabela, where Hydro filed motions including one for leave to file a third-
party complaint against NIA for reimbursement. The Court of Appeals later affirmed
the trial court's decision, focusing only on determining the amount of taxes Hydro
owed, dismissing Hydro's third-party complaint against NIA.
ISSUE(S)
1. Whether the order dated August 6, 1983, which found Hydro liable for realty taxes but
deferred the determination of the amount, was final and executory or merely
interlocutory in nature.
RULING
The Supreme Court granted Hydro's petition, ruling that the order dated August 6, 1983,
was interlocutory and not final. The case was dismissed without prejudice due to the initial
complaint's failure to specify the amount of taxes being claimed, which was a crucial detail
for establishing a cause of action under the rules of court. This dismissal underscored the
procedural necessity that a complaint must state the relief sought clearly and unequivocally.
Hydro argued that the Court of Appeals acted without jurisdiction or with grave abuse of
discretion in treating the August 6, 1983, order as final and executory when it merely set the
stage for further proceedings to determine the tax amount owed.
The Provincial Government of Isabela and the Municipality of Ramon maintained that the
order was final regarding Hydro's liability for taxes, with only the amount needing
determination.
The Supreme Court clarified that the order was interlocutory, as it left substantial
proceedings to be conducted, particularly the determination of the tax amount. This
decision emphasizes the procedural requirement for complaints to state all elements of a
cause of action, including the amount of any claim, to provide clear grounds for legal
proceedings and ensure the predictability and fairness of legal outcomes in line with the
principles of prospectivity in tax laws.
Additional Notes:
The case directly relates to the doctrine of prospectivity in taxation laws by highlighting the
importance of clear and prospective legal frameworks that allow taxpayers to understand
their obligations and the consequences of their actions. The Supreme Court's decision
underscores the principle that tax laws and liabilities should be clearly defined and known
to the taxpayers at the time their taxable actions occur, ensuring that retrospective changes
or interpretations do not unjustly penalize individuals or entities for past behavior. This
case reinforces the need for tax laws and rulings to provide stability and predictability,
adhering to the principle that laws are intended to guide future actions rather than to alter
the legal status of past actions retrospectively.
Emilio Y. Hilado vs. The Collector of Internal
Case Title :
Revenue and The Court of Tax Appeals
Date of Promulgation : October 31, 1956
Ponente : JUSTICE BAUTISTA ANGELO,
DOCTRINE
The case illustrates the principle that tax laws and administrative circulars are generally
prospective in their application. However, it also demonstrates an exception to this general
rule, wherein a law or circular can be applied retroactively if it corrects a previous
erroneous interpretation of the law. The Supreme Court held that an administrative circular
based on a wrong interpretation of the law cannot create a vested right for taxpayers to
claim deductions based on such erroneous interpretation. Therefore, the revocation of
General Circular No. V-123 and the issuance of General Circular No. V-139 correcting the
interpretation were deemed appropriate and enforceable against Hilado's 1951 income tax
return.
WHEREFORE CLAUSE
Wherefore, the decision appealed from is affirmed Without pronouncement as to costs.
FACTS
 Emilio Y. Hilado, the petitioner, filed his income tax return for 1951, claiming a
deduction of P12,837.65 from his gross income based on a war damage claim
approved but not paid by the Philippine War Damage Commission under the
Philippine Rehabilitation Act of 1946. The deduction was initially claimed following
General Circular No. V-123 issued by the Collector of Internal Revenue, which allowed
such deductions. However, General Circular No. V-139 was later issued, revoking No. V-
123 and disallowing the deduction for losses not compensated by the War Damage
Commission. Consequently, the Collector of Internal Revenue demanded from Hilado
the payment of P3,546 as deficiency income tax for the year 1951. Hilado's petition for
reconsideration was denied by the Court of Tax Appeals, which affirmed the Collector's
assessment.
ISSUE(S)
1. Whether the deduction claimed by Hilado for the unpaid portion of his war damage
claim is allowable for his 1951 income tax return.
2. Whether General Circular No. V-139, which revoked No. V-123 and disallowed such
deductions, can be applied retroactively to Hilado's case.
RULING
deduction claimed by Hilado for the unpaid portion of his war damage claim is not
allowable. The Court reasoned that the amount could not be considered a "business asset"
deductible as a loss because its collection depended on the discretion of the U.S. government
and was not enforceable as a matter of right. Furthermore, the Court ruled that General
Circular No. V-139, which disallowed the deduction, could be applied retroactively as it
corrected an erroneous interpretation of the law by a previous circular.
The petitioner, Emilio Y. Hilado, argued that the deduction of P12,837.65 for the unpaid
portion of his war damage claim, approved by the Philippine War Damage Commission
under the Philippine Rehabilitation Act of 1946, should be allowed in his 1951 income tax
return. He contended that this amount represented a "business asset" lost due to war
damages and, as such, was deductible. Hilado also challenged the retroactive application of
General Circular No. V-139, which revoked the earlier Circular No. V-123 that had allowed
such deductions, asserting that this retroactive application infringed upon his vested rights
and was contrary to the principle of prospectivity in tax laws.
The respondents, The Collector of Internal Revenue and The Court of Tax Appeals, argued
that the deduction claimed by Hilado was not allowable because the amount represented a
portion of the war damage claim that was not enforceable as a matter of right and depended
on the discretion of the U.S. government. They also defended the retroactive application of
General Circular No. V-139, asserting that it was issued to correct an erroneous
interpretation of the law provided by the earlier circular and that administrative rulings
based on incorrect legal interpretations do not confer vested rights on taxpayers.
The Supreme Court sided with the respondents, holding that the deduction claimed by the
petitioner was not allowable. The Court clarified that the unpaid war damage claim could
not be considered a "business asset" for deduction purposes because its collection was not a
right but depended on the discretion of another government. On the issue of prospectivity,
the Court ruled that General Circular No. V-139 could be applied retroactively to correct the
erroneous interpretation of law under Circular No. V-123. The Court reasoned that tax laws
and administrative rulings are generally prospective but can be applied retroactively to
correct administrative errors or misinterpretations, thereby not creating any vested right
for the taxpayer based on the erroneous interpretation. This stance underscores the
principle that corrections of legal misinterpretations are exceptions to the general rule of
tax law prospectivity, ensuring the equitable and accurate application of tax laws.
Additional Notes:
This case connects to the doctrine of the prospectivity of tax laws by showcasing an instance
where retroactive application of a tax ruling was deemed justifiable. The principle that tax
laws are prospective protects taxpayers from the unexpected effects of new or revised laws
on transactions already completed. Yet, the case underscores an exception where retroactive
application is permitted to correct an administrative error or misinterpretation of tax law,
aligning with the notion that corrective measures to enforce the correct application of tax
laws are not bound by the general rule of prospectivity. This ensures the equitable
administration of tax laws, allowing the state to rectify previous misinterpretations without
creating unfair advantages or liabilities for taxpayers based on incorrect applications of the
law.

Case Title : Pablo Lorenzo vs. Juan Posadas, Jr.
Ponente : JUSTICE LAUREL
DOCTRINE
Tax laws operate prospectively, not retroactively, unless expressly intended by legislation.
This principle ensures fairness and predictability in taxation, preventing taxpayers from
being subject to unforeseen obligations. The accrual of inheritance tax at the decedent's
death underscores the immediacy and certainty in tax obligations, aligning with the general
legal maxim that laws are meant to guide future actions rather than to retrospectively alter
the past.
WHEREFORE CLAUSE
The judgment of the lower court is accordingly modified, with costs against the plaintiff
inboth instances. So ordered.
FACTS
 Pablo Lorenzo, as trustee of the estate of the deceased Thomas Hanley, initiated a legal
action against Juan Posadas, Jr., the then Collector of Internal Revenue, seeking a
refund of P2,052.74 paid as inheritance tax under protest. Hanley's will stipulated that
his estate was not to be sold or disposed of for ten years posthumously, with proceeds
directed to his nephew for specific uses. Upon Hanley's death in 1922, the estate
underwent probate, and eventually, Lorenzo was appointed trustee. The Collector of
Internal Revenue assessed and demanded payment of the inheritance tax, including
penalties for delinquency. Lorenzo paid under protest, arguing that the tax should be
calculated based on the estate's value ten years after Hanley's death and contending
against the penalties imposed for late payment.
ISSUE(S)
1. When is the inheritance tax due, and how should it be calculated?
2. Can deductions for trustees' fees be considered in determining the net estate value for
tax purposes?
3. Are tax laws and their amendments retroactive in their application?
RULING
The Supreme Court held that the inheritance tax accrues at the time of the decedent's death,
and its calculation is based on the value of the estate at that moment. The Court clarified
that deductions for trustees' fees are not allowable in determining the net estate value for
tax purposes under the prevailing tax law. It also emphasized that tax laws are generally
prospective in operation, and any retroactive application requires clear legislative intent,
which was absent in this case.
Lorenzo argued that the estate should not be taxed until ten years after Hanley's death, per
the will's instructions, and that trustees' fees should be deductible. He also contested the
penalties imposed for the tax's delayed payment.
Posadas maintained that the inheritance tax was due upon Hanley's death, based on the
estate's value at that time, without deductions for trustees' fees. He argued for the legality of
the penalties for late payment, asserting that tax laws in effect at the time of death govern
the estate.
The Court rejected Lorenzo's arguments, affirming that inheritance tax is immediately
applicable upon death, calculated based on the estate's value at that time, and without
allowance for trustees' fees as deductions. It held that tax laws are presumptively
prospective and that specific provisions in Act No. 3606, favoring taxpayers, cannot be
retroactively applied without explicit legislative indication.
Additional Notes:
This case exemplifies the principle of prospectivity in tax laws, illustrating how the legal
system prevents the retroactive application of taxation rules unless clearly intended by law.
It underscores the importance of clear legislative intent for retroactivity, protecting
taxpayers from unforeseen fiscal obligations. The ruling also highlights the distinction
between the accrual of tax obligations at death and the nuances in calculating and enforcing
tax liabilities, reflecting on the broader principles of fairness, predictability, and legality in
taxation practices.

Case Title : ABS-CBN Broadcasting Corp. vs. Court ofTax Appeals
Date of Promulgation : October 12, 1981
Ponente : JUSTICE MELENCIO-HERRERA
DOCTRINE
Tax laws and rulings by tax authorities are generally to be applied prospectively, not
retroactively, especially when such retroactive application would be prejudicial to taxpayers.
This principle is grounded in fairness and the need for predictability in tax administration,
ensuring that taxpayers are not subject to unexpected tax liabilities based on actions that
were compliant with the law at the time they were taken.
The case exemplifies the application of this doctrine by holding that a new tax ruling cannot
be applied retroactively to impose additional taxes on a taxpayer who had acted in good
faith under the guidance of previously issued and valid tax circulars.
WHEREFORE CLAUSE
WHEREFORE, the judgment of the Court of Tax Appeals is hereby reversed, and the
questioned assessment set aside. No costs. SO ORDERED.
FACTS
 ABS-CBN Broadcasting Corporation, the petitioner, was involved in a legal dispute with
the Court of Tax Appeals and the Commissioner of Internal Revenue, the respondents,
over deficiency withholding income tax assessments for the years 1965 to 1968. ABS-
CBN engaged in telecasting foreign films for which it paid rentals to foreign
corporations not engaged in trade or business within the Philippines. The petitioner
withheld income tax at the rate of 30% of one-half of the film rentals, in compliance
with the tax law and General Circular No. V-334 issued by the Commissioner of
Internal Revenue in 1961. However, a new Revenue Memorandum Circular No. 4-71
was issued in 1971, revoking the previous circular and mandating that tax should be
based on the gross income without deductions. The Commissioner subsequently
assessed ABS-CBN for deficiency taxes based on this new interpretation, leading to this
legal challenge.
ISSUE(S)
1. Whether the Commissioner of Internal Revenue can retroactively apply Revenue
Memorandum Circular No. 4-71 to assess deficiency withholding income tax against
ABS-CBN for the years 1965 to 1968.
2. Whether the right of the Commissioner to assess the deficiency withholding income tax
for the year 1965 has prescribed.
RULING
The Supreme Court ruled in favor of ABS-CBN, holding that the Commissioner of Internal
Revenue cannot retroactively apply Revenue Memorandum Circular No. 4-71 to assess
deficiency withholding income tax for the years 1965 to 1968. The Court found that
applying the circular retroactively would be prejudicial to ABS-CBN, as it had complied with
the existing rules and regulations at the time of withholding the taxes. The Court also cited
Section 338-A (now Sec. 327) of the Tax Code, which prohibits retroactive application of tax
rulings that would be prejudicial to taxpayers, except under specified conditions that did
not apply in this case.
ABS-CBN argued that it complied in good faith with the existing tax laws and administrative
circulars at the time it withheld and remitted taxes and that it should not be penalized with
a retroactive application of a new circular that imposed a different interpretation of the tax
base.
The Commissioner of Internal Revenue contended that General Circular No. V-334 was
erroneous and lacked legal basis, asserting that the tax should have been based on the gross
income without deductions right from the start.
The Supreme Court emphasized the principle of non-retroactivity of tax laws and rulings,
stating that ABS-CBN should not be prejudiced by the retroactive application of a new
administrative circular that changed the interpretation of the tax law after the fact. The
Court highlighted that ABS-CBN had acted in good faith, relying on the existing circular at
the time, and that principles of justice and fairness precluded the Commissioner from
imposing a new interpretation retroactively.
Additional Notes:
This case underscores the general principle that tax laws and regulations are prospective in
operation to ensure fairness and predictability in tax administration. The principle aims to
protect taxpayers from retroactive measures that could be harsh and oppressive, aligning
with the broader legal maxim that laws are intended to guide future actions rather than to
penalize past behaviors. The Supreme Court's decision in ABS-CBN Broadcasting Corp. vs.
Court of Tax Appeals and the Commissioner of Internal Revenue reinforces the doctrine of
prospectivity in taxation, ensuring that tax laws and administrative rulings are applied in a
manner that does not unfairly prejudice taxpayers for actions taken in reliance on the
existing legal framework at the time.
Case #38. Topic: Doctrines in Taxation – Imprescriptibility

Commissioner of Internal Revenue vs. Ayala
Case Title :
Securities Corporation
Ponente : JUSTICE TEEHANKEE
DOCTRINE
The doctrine of imprescriptibility in taxation, emphasized by this case, holds that the
government's right to assess and collect taxes is without time limits unless expressly limited
by law. This principle underscores the fundamental nature of taxation as a means of raising
revenue for public purposes, where limitations on the government's ability to assess and
collect taxes are not presumed without clear legislative intent.
WHEREFORE CLAUSE
ACCORDINGLY, the Court's decision of April 8, 1976 is set aside and in lieu thereof,
judgment is hereby rendered ordering respondent corporation to pay the assessment in
thesum of P758,687.04 as 25% surtax on its unreasonably accumulated surplus, plus the
5%surcharge and 1% monthly interest thereon, pursuant to section 51 (e) of the
NationalInternal Revenue Code, as amended by R. A. 2343. With Costs.
FACTS
 The Commissioner of Internal Revenue (CIR) contested a decision by the Court of Tax
Appeals (CTA) in favor of Ayala Securities Corporation, regarding an assessment of
P758,687.04 as a 25% surtax and interest for the fiscal year ending September 30,
1955. The CIR's assessment, made on February 21, 1961, was challenged on the
grounds of prescription, arguing it fell outside the five-year prescriptive period
outlined in Section 331 of the National Internal Revenue Code. The CTA and initially
the Supreme Court agreed, canceling the assessment. However, the CIR argued that the
surtax under Section 25 of the Tax Code was not subject to the standard prescriptive
periods since it did not require a return for accumulated surplus, which are often
concealed to avoid taxation.
ISSUE(S)
1. Whether the prescriptive period for the assessment and collection of taxes apply to the
25% surtax on unreasonably accumulated surplus as imposed by Section 25 of the Tax
Code.
RULING
The Supreme Court, upon reconsideration, sided with the CIR, holding that taxes, unless
explicitly prescribed by law, are imprescriptible. It was determined that the 25% surtax on
unreasonably accumulated surplus is not subject to the standard prescriptive periods
because the tax does not necessitate a return by law. Thus, the initial ruling that prescribed
a five-year limit for the assessment was set aside, and Ayala Securities Corporation was
ordered to pay the surtax assessment.
The CIR argued that the surtax imposed by Section 25 of the Tax Code does not fall under
the taxes requiring a return, such as income or sales tax, because there is no legal
requirement for taxpayers to report accumulated surplus. Thus, the standard prescriptive
periods for assessment and collection do not apply.
Ayala Securities contended that the assessment was subject to the five-year prescriptive
period under Section 331 of the Tax Code and, since the assessment was made beyond this
period, it was invalid.
The Supreme Court clarified that the prescriptive periods outlined in Sections 331 and 332
of the Tax Code are applicable only to taxes that require the filing of a return. Since the 25%
surtax on unreasonably accumulated surplus does not require such a return, these
prescriptive periods do not apply. The Court underscored the principle that limitations on
the government's right to tax are not to be assumed without explicit statutory provisions to
that effect.
Additional Notes:
This case reinforces the doctrine of imprescriptibility in taxation, illustrating that the
government’s authority to levy taxes, particularly those not requiring a return, is not
constrained by time unless specifically limited by statute. It highlights the critical distinction
between taxes that are subject to prescriptive periods due to the requirement of a return
and those, like the 25% surtax on unreasonably accumulated surplus, that are not. This
distinction is pivotal in ensuring the government retains its capacity to collect necessary
revenues, supporting the broader principle that the power to tax is an essential attribute of
sovereignty not lightly to be restricted by implied limitations.
Case #39. Topic: Doctrines in Taxation – Imprescriptibility

Case Title : Collector vs. Bisaya Land Transport
Case Number : G.R. No. L-12100 and L-11812
Ponente : JUSTICE CONCEPCION,
DOCTRINE
The Supreme Court, in its decision, implicitly reinforced the doctrine of the
imprescriptibility of taxes, stating that unless otherwise provided by law, taxes are generally
imprescriptible. This means that the government can assess and collect taxes without a time
limit unless a specific prescription period is stated by law.
WHEREFORE CLAUSE
Besides, the company was engaged in business as a public utility operation and such
services as it may have rendered to the armed forces were merely incidental to said
business. Neither is it exempt from common carrier's percentage tax by reason of such
service to the armed forces, because the party being taxed is not said organization, but the
company.
FACTS
 Between June 1945 and January 15, 1957, Bisaya Land Transportation Co., Inc.
(hereinafter referred to as the "Company") acquired equipment from the United States
Commercial Co. for its bus operations without paying the necessary taxes. Upon
investigation by revenue agents, it was discovered that the Company failed to declare
its gross receipts from its transportation business for the years 1946 to 1951 for tax
purposes. Furthermore, from 1945 to 1952, the Company issued freight receipts
without affixing the required documentary stamps. Additionally, a deficiency in
additional residence tax was identified. After communications between the Company
and the Collector of Internal Revenue, an assessment was made demanding a total of
P4,949.91 covering compensating tax, common carrier's percentage tax, documentary
stamp tax, and additional residence tax. The Company sought review from the Court of
Tax Appeals, which upheld the assessment partially, finding some claims barred by the
statute of limitations.
ISSUE(S)
1. Whether the claims for compensating tax and residence tax prescribed.
2. Whether the purchased equipment and materials from U.S. Government agencies are
subject to compensating tax, documentary stamp tax, and common carrier's percentage
tax.
RULING
The Court of Tax Appeals upheld the assessment for the deficiency in common carrier's
percentage tax for 1946 and the first quarter of 1947, and the additional residence tax for
1947, stating that collection for these was barred by the statute of limitations. However, it
rejected the Company's contention that the period of prescription for compensating tax and
residence tax had already lapsed and that the taxes in question were not chargeable.
The Company argued that the claims for compensating tax and residence tax had prescribed
and that the equipment and materials purchased were not subject to taxes, as they were
acquired for purposes related to the war effort and not for business.
The Collector of Internal Revenue maintained that the assessments were valid and that the
taxes were rightfully charged as per the National Internal Revenue Code.
The Supreme Court found the Company's arguments without merit, stating that the income
tax returns did not provide a basis for the prescription of the compensating tax and that the
purchases made were subject to tax regardless of the purpose, as they were used in a
business operation. It affirmed the Court of Tax Appeals' decision on the partial upholding
of the assessment based on the statute of limitations for certain taxes but rejected the
argument of prescription for others.
Additional Notes:
This case connects with the doctrine of imprescriptibility in taxation by illustrating that
taxes, by their nature, are due unless specific legal provisions set a limit on the time within
which the government can enforce collection. The Supreme Court's decision emphasizes
that the principle of prescription must be clearly established and cannot be presumed. It
also highlights that exceptions to this principle, such as the statute of limitations for certain
tax collections, must be explicitly stated and strictly interpreted. This case exemplifies how
the law balances the government's authority to collect taxes with protections against
indefinite claims, ensuring fairness and legal certainty for both the taxpayer and the state.
Case #40. Topic: Doctrines in Taxation – Double Taxation – Requisites for double taxation
Case Title : Eusebio Villanueva, et al., vs. City of Iloilo
Ponente : JUSTICE CASTRO,
DOCTRINE
The Supreme Court's decision in Villanueva vs. City of Iloilo clarifies the concept of double
taxation and its acceptability under Philippine law. It distinguishes between direct duplicate
taxation, which is generally considered unconstitutional, and indirect duplicate taxation,
which occurs when the elements for direct duplicate taxation are not present.
The ruling demonstrates that as long as a tax does not meet the strict criteria for double
taxation and adheres to constitutional requirements of uniformity and equality, it is
permissible. This case highlights that the imposition of different types of taxes (e.g., a
license tax on business operations and a real estate tax on property) on the same entity
does not necessarily constitute prohibited double taxation.
WHEREFORE CLAUSE
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid,
the complaint is hereby dismissed. No pronouncement as to costs..
FACTS
 The City of Iloilo enacted Ordinance 11, series of 1960, imposing a municipal license
tax on those engaged in operating tenement houses. Eusebio Villanueva and other
plaintiffs, owners of various tenement houses in Iloilo City, challenged the legality of
this ordinance. The ordinance was enacted under the belief that the Local Autonomy
Act (Republic Act 2264) empowered the municipal board to levy such a tax. The
plaintiffs argued that this constituted double taxation and was oppressive,
unreasonable, and violative of the rule of uniformity of taxation. The Court of First
Instance of Iloilo ruled in favor of the plaintiffs, declaring the ordinance illegal and
ordering the City of Iloilo to refund the collected taxes. The City of Iloilo appealed the
decision.
ISSUE(S)
1. Whether Ordinance 11, series of 1960, of the City of Iloilo, which imposes a municipal
license tax on persons engaged in the business of operating tenement houses, illegal on
the grounds of double taxation and violation of the constitutional rule on uniformity of
taxation.
RULING
The Supreme Court reversed the decision of the lower court, holding that the ordinance was
valid. The Court clarified that the tax imposed by the ordinance did not constitute double
taxation in the strict sense, as the requirements for such were not met. It explained that
double taxation means taxing the same property or subject matter twice for the same
purpose, by the same taxing authority, within the same jurisdiction or taxing district, during
the same taxing period, and in the same kind or character of tax. The Court found that the
tax was a license tax for operating tenement houses, not a property tax, and thus did not tax
the same subject matter as the real estate tax already imposed on the properties.
The petitioners, led by Eusebio Villanueva, argued that Ordinance 11, series of 1960,
enacted by the City of Iloilo, constituted double taxation, which they deemed illegal and
oppressive. They contended that the ordinance, by imposing a municipal license tax on
persons engaged in the business of operating tenement houses, unfairly targeted them for
an additional tax burden on top of the real estate tax already paid on the same properties.
They further argued that this violated the principle of uniformity of taxation, as it
discriminated against tenement house operators compared to other property owners who
were not subject to this specific tax.
The respondent, the City of Iloilo, defended the legality of Ordinance 11, arguing that it was
within their power to levy such a tax under the Local Autonomy Act (Republic Act 2264).
The City posited that the ordinance did not result in double taxation, as it imposed a license
tax on the business of operating tenement houses, which is distinct from the property tax
imposed on the value of the real estate. They maintained that the tax was aimed at
regulating the operation of tenement houses within the city and was a valid exercise of their
authority to generate revenue for local government operations.
The Supreme Court sided with the respondent, City of Iloilo, holding that Ordinance 11 did
not constitute double taxation in the prohibited sense. The Court clarified that double
taxation, in its objectionable form, requires the same property or subject matter to be taxed
twice by the same jurisdiction for the same purpose during the same taxing period, which
was not the case here. The Court distinguished between the municipal license tax on the
operation of tenement houses and the real estate tax on property, noting that these taxes
applied to different bases and served different purposes. The Supreme Court thus found
that the ordinance was a legitimate exercise of the city's taxing powers under the Local
Autonomy Act, emphasizing that the Local Autonomy Act endowed local governments with
broad taxing authority, provided such taxes were for public purposes, just, and uniform, and
did not infringe upon constitutional prohibitions against double taxation.
Additional Notes:
The case illustrates the principles surrounding double taxation, particularly highlighting the
distinction between direct and indirect double taxation. The Supreme Court's analysis
underscores that for double taxation to be considered objectionable, it must involve taxing
the same property or subject matter twice, for the same purpose, by the same jurisdiction,
within the same taxing period, and of the same kind or character of tax. The ruling confirms
that the Local Autonomy Act grants local governments broad taxing powers, provided such
taxes do not violate constitutional prohibitions against double taxation in its strict sense or
any other constitutional requirements. This case exemplifies how taxation law operates
within the framework of the principles of double taxation, demonstrating the legal
justifications for certain tax impositions even when they might appear, at first glance, to
burden taxpayers multiple times for similar or related tax bases.
Commissioner of Internal Revenues vs. V.E.
Case Title :
Lednicky, et al.
Case Number : G.R. No. L-18169, L-18262 & L-21434
Ponente : JUSTICE REYES, J.B.L.,
DOCTRINE
The doctrine established pertains to the prevention of double taxation and the
interpretation of tax deductions and credits for foreign taxes paid. Double taxation, in the
context of international tax law, refers to the imposition of comparable taxes in two or more
jurisdictions on the same taxpayer for the same subject matter and identical periods. The
decision underscores that double taxation in its broader sense is not inherently
unconstitutional or illegal and may occur when international aspects are involved.
WHEREFORE CLAUSE
IN VIEW OF THE FOREGOING, the decisions of the Court of Tax Appeals are reversed, and,
the disallowance of the refunds claimed by the respondents Lednicky is affi rmed, with
costsagainst said respondents-appellees.
FACTS
 The Lednickys, a married couple of American citizenship residing in the Philippines,
faced a legal dispute with the Commissioner of Internal Revenues over the
deductibility of U.S. income taxes from their Philippine gross income. For the taxable
years in question, all their income was sourced within the Philippines. Upon filing their
Philippine income tax returns for the years 1955, 1956, and 1957, they sought to
deduct the amounts paid to the United States government as federal income tax. The
amended returns requested refunds based on these deductions. The Commissioner of
Internal Revenues, denying these claims, led to the elevation of the cases to the
Supreme Court, which consolidated them due to the similarity of parties and issues
involved.
ISSUE(S)
1. Whether U.S. citizens residing in the Philippines, earning income entirely from
Philippine sources, can deduct U.S. federal income taxes paid from their Philippine gross
income under Section 30 (C-1) of the Philippine Internal Revenue Code, and whether
this scenario constitutes double taxation in either its strict or broad sense.
RULING
The Supreme Court reversed the decisions of the Court of Tax Appeals, holding that the
Lednickys could not deduct the U.S. federal income taxes from their Philippine gross income.
The Court reasoned that the right to such a deduction is an alternative to claiming a tax
credit for foreign taxes paid, not a concurrent option. Since all income was derived from
Philippine sources and the Lednickys did not qualify for a foreign tax credit, they were
precluded from deducting these foreign taxes from their gross income.
The Commissioner argued that allowing the deduction of U.S. taxes paid would enable the
taxpayers to benefit twice from the same payment, which the law aims to prevent. The legal
framework was interpreted to offer the deduction as an alternative to a tax credit, intended
only for those who could not avail themselves of the latter.
The Lednickys contended that not allowing the deduction would subject them to double
taxation, taxing the same income in both the U.S. and the Philippines, which they deemed
unfair and punitive given their residency and source of income.
The Supreme Court clarified that the law intended to prevent a scenario where a taxpayer
could claim both a deduction and a credit for the same foreign taxes paid, which would
amount to an undue advantage. It emphasized that double taxation, in this case, does not
constitute an injustice as it involves two separate sovereign entities, each with its own right
to tax. The Court also highlighted that relief from double taxation should appropriately
come from the jurisdiction imposing the additional tax burden, not the one where the
income was earned and primarily taxed.
Additional Notes:
This case illustrates the principles surrounding double taxation, particularly in the context
of international taxation and the mechanisms in place to mitigate its effects, such as tax
treaties and the provisions for tax credits and deductions. The Supreme Court's decision
aligns with the understanding that double taxation, while not favored, is not prohibited
under Philippine law unless it violates another constitutional principle. The case clarifies
that the absence of a double benefit in the form of both a tax deduction and a tax credit for
the same foreign tax payment does not equate to prohibited double taxation under the strict
sense, which requires the same tax imposed by the same jurisdiction for the same period on
the same subject matter.
Pepsi-Cola Bottling Company of thePhilippines vs.
Case Title :
Mun. of Tanauan, Leyte
Ponente : JUSTICE MARTIN,
DOCTRINE
This case touches on the doctrine of double taxation, particularly highlighting that double
taxation, by itself, is not prohibited by Philippine law unless it violates some other
constitutional provision. It distinguishes between direct duplicate taxation, which is taxing
the same property by the same jurisdiction for the same purpose twice, and is generally
seen as unconstitutional, and indirect duplicate taxation, which may happen under different
jurisdictions or for different purposes and is not per se unconstitutional.
WHEREFORE CLAUSE
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise
knownas the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance
No. 27 ofthe Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance
No. 23,same series, is hereby declared of valid and legal eff ect. Costs against petitioner-
appellant. SO ORDERED.
FACTS
 The Pepsi-Cola Bottling Company of the Philippines initiated a legal challenge against
the Municipality of Tanauan, Leyte, questioning the power of local governments to
impose taxes. This challenge was rooted in two municipal ordinances, Nos. 23 and 27
of 1962, which levied taxes on the production of soft drinks. Ordinance No. 23 imposed
a tax per bottle corked, while Ordinance No. 27 imposed a tax per gallon of soft drink
produced. The company argued that these ordinances were an undue delegation of
taxing authority, constituted double taxation, and were confiscatory and oppressive.
The lower court upheld the ordinances, prompting the company to appeal.
ISSUE(S)
1. Is the delegation of the power to tax under Section 2 of Republic Act No. 2264 to
municipalities constitutional?
2. Do Ordinances Nos. 23 and 27 constitute double taxation?
3. Are the ordinances unjust and unfair?
RULING
The Supreme Court upheld the constitutionality of Section 2 of Republic Act No. 2264,
affirming the power of local governments to levy taxes. It declared Municipal Ordinance No.
27 valid, effectively repealing Ordinance No. 23, and ruled that the ordinances did not
constitute double taxation nor were they unjust and unfair.
The Pepsi-Cola Bottling Company argued that the delegated power of taxation was an undue
delegation, the ordinances constituted double taxation, and were confiscatory, oppressive,
and thus unconstitutional.
The Municipality of Tanauan, supported by the fiscal's office, argued that the Local
Autonomy Act legally delegated the power to tax to local governments and that the
ordinances did not constitute double taxation nor were they unjust or unfair.
The Supreme Court clarified that the power of taxation is inherent in sovereignty and can be
delegated to local governments for local concerns. It further explained that double taxation
is not inherently unconstitutional in the Philippines and that the ordinances in question did
not constitute double taxation as they did not tax the same property twice for the same
purpose by the same jurisdiction. The Court also found that the tax imposed was not
confiscatory or oppressive.
Additional Notes:
The case illustrates the principles surrounding double taxation, particularly emphasizing
that double taxation, in the broader sense, is not automatically unconstitutional in the
Philippines. The case demonstrates that for taxation to be considered oppressive or
confiscatory double taxation, it must meet the strict criteria outlined in jurisprudence,
which include taxing the same property, by the same jurisdiction, for the same purpose,
within the same territory or taxing district, during the same taxing period, and of the same
kind or character of tax. This case, by upholding the ordinances and rejecting the claim of
double taxation, reaffirms the principle that not all forms of double taxation are forbidden,
so long as they do not violate other constitutional mandates such as due process and equal
protection.
Case #43. Topic: Power to Tax is the Power to Destroy

Case Title : McCulloch vs. Maryland
Case Number : 17 U.S. 316
Date of Promulgation : 1819
Ponente : U.S. Supreme Court
DOCTRINE
This case established two key principles: (1) the federal government possesses implied
powers necessary to implement its enumerated powers, under the Necessary and Proper
Clause, and (2) states cannot enact legislation that interferes with federal operations,
encapsulated in the doctrine that "the power to tax involves the power to destroy."
WHEREFORE CLAUSE
Every penalty aforesaid to be recovered by indictment or action of debt in the county court
of the county where the offence shall be committed, one-half to the informer and the other
half to the use of the State." "And be it enacted that this act shall be in full force and effect
from and after the first day of May next. "
FACTS
 In 1816, Congress passed an act to incorporate the Bank of the United States,
establishing its main operation in Philadelphia, Pennsylvania. Subsequently, in 1817, a
branch of this bank was set up in Baltimore, Maryland, without specific authorization
from the State of Maryland, operating under the federal charter. Maryland enacted a
law in 1818 imposing a tax on all banks operating within its jurisdiction that were not
chartered by the state legislature. This law targeted the Bank of the United States'
Baltimore branch, requiring it to issue bank notes only on specially stamped paper, the
cost of which included a significant tax payable to the state. The Bank refused to
comply with this state tax, leading to a legal challenge by Maryland to enforce the tax
statute against James McCulloch, the cashier of the Baltimore branch.
ISSUE(S)
1. Whether the State of Maryland had the constitutional authority to tax the Bank of the
United States, thereby challenging the federal government's ability to establish and
operate a national bank free from state interference.
RULING
The U.S. Supreme Court ruled in favor of McCulloch, holding that Congress had the
constitutional authority to create the Bank of the United States and that Maryland's taxation
of the bank was unconstitutional. The Court reasoned that the federal laws pursuant to the
Constitution are supreme and cannot be interfered with by state legislation.
Maryland argued that as a sovereign state, it had the power to tax all businesses within its
borders, including branches of the Bank of the United States, as a means of exercising its
authority and protecting its financial interests.
McCulloch, representing the federal bank, contended that the federal government's powers
to establish a national bank were supreme and could not be subjected to state taxation, as
this would undermine federal authority and the constitutional principle of federal
supremacy.
The Supreme Court sided with the respondent, emphasizing that while states have
significant taxation powers, these powers cannot be used to impede federal operations or
legislation enacted under the Constitution. The Court highlighted the importance of
federalism and the distribution of power between state and federal governments.
Additional Notes:
The McCulloch v. Maryland case directly connects to the principle that "the power to tax is
the power to destroy" by demonstrating how state taxation can potentially undermine
federal authority and operations if not checked. The Court recognized that allowing
Maryland to tax the federal bank could set a precedent for other states, thereby threatening
the existence and functionality of federal institutions. This case illustrates the delicate
balance between the need for revenue through taxation and the protection of federal
operations from state interference. It underscores the principle that while taxation is a vital
tool for government revenue, it must not be used in a manner that destroys or unduly
burdens federal entities, highlighting the broader caution against using taxation power to
inhibit or destroy economic activity and innovation.

Case Title : Panhandle Oil Co. vs. Mississippi ex Rel. Knox
Case Number : 277 U.S. 218, 220
Ponente : JUSTICE BUTLER
DOCTRINE
This case highlights the principle that while states have the power to impose taxes, this
power does not extend to taxing the federal government or its instrumentalities. Taxation
that interferes with federal operations is unconstitutional, reflecting the doctrine that "The
Power to Tax is the Power to Destroy" by potentially impeding the federal government's
ability to function effectively.
WHEREFORE CLAUSE
Petitioner is not liable for the taxes claimed. Judgment reversed.
FACTS
 The State of Mississippi imposed an excise tax on the sale of gasoline, which was
initially set at one cent per gallon in 1922 and subsequently increased to three cents in
1924 and four cents in 1926. Panhandle Oil Company, engaged in the business of
distributing gasoline, made sales to the United States for the use of its Coast Guard
fleet and Veterans' Hospital. The state sought to collect taxes from Panhandle Oil
Company for these sales, arguing that the tax was a valid privilege tax measured by the
number of gallons sold, and not a direct tax on the federal government's
instrumentalities. Panhandle Oil Company contested this, claiming that the tax, if
applied to sales made to the federal government, was unconstitutional as it infringed
upon the federal government's supremacy and its constitutional powers.
ISSUE(S)
1. Whether the imposition of a state excise tax on gasoline sales to the federal government
is constitutional, particularly considering the doctrine that "The Power to Tax is the
Power to Destroy."
RULING
The Supreme Court reversed the state's decision, holding that Mississippi's tax on gasoline
sales to the federal government was unconstitutional. It was determined that such a tax
directly impedes and burdens the federal government's constitutional powers and
functions, violating the principle that the states may not tax the means used by the federal
government to perform its functions.
Panhandle Oil Co. argued that the tax on sales to the federal government was
unconstitutional as it placed a direct burden on federal operations, effectively taxing the
federal government itself, which is protected against state taxation under the supremacy
clause of the Constitution.
The State of Mississippi argued that the tax was a legitimate exercise of its power to levy
taxes for the privilege of engaging in business within the state, and it was applied uniformly
to all gasoline sales, regardless of the purchaser.
The Supreme Court emphasized that while states have broad powers to tax, these powers
do not extend to taxing the federal government. The court reasoned that the tax, by being
imposed on sales to the federal government, effectively made the federal government bear a
tax burden, thereby impeding its constitutional functions. This was deemed
unconstitutional as it threatened the federal government's independence and sovereignty.
Additional Notes:
This case serves as a pivotal example of the principle that "The Power to Tax is the Power to
Destroy." It illustrates the significant impact taxation can have, especially when it potentially
interferes with the federal government's operations. The decision underscores the necessity
of applying the power to tax judiciously, ensuring that it does not destroy or unduly burden
the very entities it is meant to regulate. By protecting federal functions from state taxation,
the Supreme Court reinforced the delicate balance between raising revenue and preserving
the federal government's ability to serve the public effectively, embodying the caution that
taxation, while a tool for revenue, should not be used destructively against constitutional
principles and operations.

Commissioner of Internal Revenue v. San Roque
Case Title :
Power Corp.
Case Number : G.R. No. 187485, 196113, & 197156
Ponente : JUSTICE CARPIO,
DOCTRINE
The power to tax includes the power to destroy if not exercised judiciously. The taxation
system, particularly the VAT system, is designed not to stifle economic activity but to
generate revenue for the government in a fair, equal, and uniform manner. Taxpayers must
adhere strictly to procedural requirements for tax refunds or credits to ensure the proper
functioning of the tax system without causing undue harm to economic entities.
WHEREFORE CLAUSE
WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of
InternalRevenue in G.R. No. 187485 to DENY the P483,797,599.65 tax refund or credit claim
of SanRoque Power Corporation; (2) GRANTS the petition of Taganito Mining Corporation in
G.R.No. 196113 for a tax refund or credit of P8,365,664.38; and (3) DENIES the petition of
PhilexMining Corporation in G.R. No. 197156 for a tax refund or credit of P23,956,732.44.
SO ORDERED.
FACTS
 In these consolidated cases, the Supreme Court dealt with petitions relating to claims
for tax refunds or credits by San Roque Power Corporation, Taganito Mining
Corporation, and Philex Mining Corporation under the National Internal Revenue Code
(NIRC), as amended. San Roque Power Corporation sought a refund or issuance of a
tax credit certificate for unutilized input Value-Added Tax (VAT) for the taxable year
2001, amounting to P483,797,599.65, which the Court of Tax Appeals (CTA) initially
denied due to lack of compliance with certain requirements. However, upon motion for
reconsideration, the CTA Second Division partially granted the claim. Taganito Mining
Corporation's claim for a tax refund or credit of P8,365,664.38 for input VAT for the
taxable year 2005 was initially granted by the CTA but was later reversed by the CTA
En Banc, dismissing the claim for being prematurely filed. Philex Mining Corporation
sought a refund or tax credit of P23,956,732.44 for input VAT for the taxable year
2005, which was denied by the CTA due to prescription.
ISSUE(S)
1. Whether the taxpayers' failure to comply with the 120+30 day mandatory periods for
filing tax refund or credit claims under the VAT system renders their petitions with the
CTA void due to prematurity or late filing.
RULING
The Supreme Court ruled that strict compliance with the 120+30 day mandatory and
jurisdictional periods is necessary for tax refund or credit claims under the VAT system to
prosper. The Court denied San Roque's claim due to the premature filing of the petition
without waiting for the 120-day period to lapse. Taganito's claim was granted because it
could invoke BIR Ruling No. DA-489-03, which misled taxpayers into filing their judicial
claims prematurely. Philex's claim was denied due to the very late filing of the judicial claim,
which was beyond the 30-day period following the expiration of the 120-day period.
The Commissioner of Internal Revenue argued that the taxpayers failed to comply with the
mandatory and jurisdictional periods for filing tax refund or credit claims, rendering their
claims void.
The taxpayers contended that their claims for tax refunds or credits were valid and
complied with the law, citing various reasons including reliance on BIR rulings and
interpretations.
The Supreme Court emphasized the importance of strict compliance with the statutory
requirements for tax refunds or credits. The Court clarified that the procedural rules are
designed to ensure that the power to tax is exercised judiciously and does not destroy
legitimate economic activities.
Additional Notes:
This case illustrates the delicate balance between the government's need to collect revenue
through taxation and the potential negative impact excessive or improperly imposed taxes
can have on businesses. By enforcing strict compliance with the procedural requirements
for tax refunds or credits, the Supreme Court underscores the principle that while the
government has the power to tax, this power must be exercised with caution and fairness to
avoid unduly harming or destroying economic entities. The ruling demonstrates the Court's
awareness of the potential for taxation to discourage or even obliterate businesses if not
applied judiciously, aligning with the concept that "The Power to Tax is the Power to
Destroy" must be used wisely to support, rather than hinder, economic growth and fairness.
Case #46. Topic: Escape from Taxation – Tax evasion vs. Avoidance – Requisites for tax
evasion
Commissioner of Internal Revenue vs. Vicente A.
Case Title :
Rufi no
Case Number : G.R. No. L-33665-68
DOCTRINE
The case illustrates the distinction between tax avoidance, which is legally planning one's
affairs to minimize tax liabilities, and tax evasion, which involves illegal means to reduce tax
obligations. The Supreme Court underscored that a merger or consolidation undertaken for
a bona fide business purpose and not solely for the purpose of escaping taxation falls within
the ambit of lawful tax avoidance.
WHEREFORE CLAUSE
WHEREFORE, the decision of the Court of Tax Appeals is affirmed in full, without any
pronouncement as to costs. SO ORDERED.
FACTS
 The case revolves around the merger between the defunct Eastern Theatrical Co., Inc.
(Old Corporation) and another corporation with the same name but newly organized
(New Corporation). The Old Corporation, nearing the end of its corporate life, decided
to merge with the New Corporation by transferring its business, assets, and liabilities
in exchange for the New Corporation's stock, distributed to the Old Corporation's
shareholders. This transaction was scrutinized by the Bureau of Internal Revenue
(BIR), which argued that the merger was a scheme to avoid capital gains tax on the
exchange of old for new shares of stock. The Court of Tax Appeals (CTA) sided with the
respondents (Rufino and others), holding that the merger was valid and exempt from
capital gains tax since it was done pursuant to a plan of reorganization.
ISSUE(S)
1. Whether the merger between the Old Corporation and the New Corporation was a bona
fide business transaction exempt from capital gains tax or a scheme to evade taxation.
RULING
The Supreme Court affirmed the CTA's decision, holding that the merger was a bona fide
business transaction intended to continue the business of the Old Corporation, which was
nearing the end of its corporate life. The transaction was found to be exempt from capital
gains tax as it was done in accordance with a plan of reorganization.
The Commissioner of Internal Revenue argued that the merger was not undertaken for a
legitimate business purpose but was merely a scheme to avoid liability for capital gains tax.
The respondents maintained that the merger was a genuine business strategy aimed at
ensuring the continuation of the Old Corporation’s business through the New Corporation,
fulfilling all legal requirements for a tax-exempt reorganization.
The Supreme Court responded by analyzing the intention behind the merger, the steps
taken to execute it, and the subsequent actions of the involved parties. It found that the
merger was indeed aimed at continuing the business operations of the Old Corporation and
not at evading taxes. The Court emphasized that the law intends to encourage genuine
business consolidations and expansions by exempting them from certain taxes, provided
they are not solely aimed at reducing tax liabilities.
Additional Notes:
This case exemplifies the fine line between tax evasion and tax avoidance. While tax evasion
involves illegal practices to reduce tax liabilities and is punishable by law, tax avoidance is
the use of legal methods to minimize taxes payable. The Supreme Court's ruling highlighted
that the merger, conducted with a bona fide business purpose and in compliance with the
tax code's provisions for reorganizations, constituted legitimate tax avoidance rather than
evasion. This distinction is crucial in understanding the legal landscape of taxation,
emphasizing that while taxpayers have the right to minimize their tax burden, it must be
done within the bounds of the law.
evasion
Delpher Trades Corporation, et al. vs. Intermediate
Case Title :
Appellate Court, et al.
DOCTRINE
The Court distinguished between tax avoidance, which involves legally permissible actions
to reduce or avoid tax liabilities, and tax evasion, which entails illegal or fraudulent means
to escape taxes. The case illustrates that transforming property ownership through
corporate structuring for the purpose of estate planning and tax avoidance is permissible
under the law, provided it does not involve deceit or fraud.
WHEREFORE CLAUSE
WHEREFORE, the instant petition is hereby GRANTED, The questioned decision
andresolution of the then Intermediate Appellate Court are REVERSED and SET ASIDE.
Theamended complaint in Civil Case No. 885-V-79 of the then Court of First Instance of
Bulacanis DISMISSED. No costs. SO ORDERED.
FACTS
 Delphin Pacheco and Pelagia Pacheco, co-owners of a parcel of land, executed a deed of
exchange with Delpher Trades Corporation, transferring the said land in exchange for
2,500 shares of stock in the corporation. This transaction was challenged by Hydro
Pipes Philippines, Inc., which claimed a right of first refusal under a previous lease
agreement with the Pachecos. The lower courts ruled in favor of Hydro Pipes,
recognizing the deed of exchange as a sale that violated Hydro Pipes' right of first
refusal. The Pachecos and Delpher Trades Corporation contested this decision, arguing
that the exchange was part of an estate planning strategy, aiming to maintain control
over the property within the family while avoiding taxes.
ISSUE(S)
1. Whether the deed of exchange between the Pachecos and Delpher Trades Corporation
constitutes a sale that violates Hydro Pipes Philippines, Inc.'s right of first refusal, or if it
can be considered a legitimate method of tax avoidance.
RULING
The Supreme Court ruled in favor of the petitioners, Delpher Trades Corporation and the
Pachecos, reversing the lower courts' decisions. The Court found that the deed of exchange
was not a sale but a strategic move to transform the ownership from unincorporated to
incorporated form, with the primary intent of maintaining control over the property and
avoiding tax liabilities. This action was deemed a legitimate form of tax avoidance rather
than evasion.
The petitioners argued that the deed of exchange was part of an estate planning scheme
aimed at preserving family control over the property and avoiding taxes, without
transferring actual ownership interests to a third party. They claimed that this did not
constitute a sale but rather a legitimate practice of tax avoidance.
Hydro Pipes Philippines, Inc. argued that the deed of exchange effectively transferred
ownership to Delpher Trades Corporation, a separate legal entity, thus violating their right
of first refusal as stipulated in the previous lease agreement.
The Supreme Court sided with the petitioners, noting that the corporate structure was used
as a legitimate means of estate planning and tax avoidance. The Court emphasized the
difference between tax avoidance (legal) and tax evasion (illegal), supporting the former as
a permissible action under the law. The Court highlighted that there was no fraudulent
intent or action taken by the petitioners to escape tax liabilities, but rather a lawful
maneuver within the bounds of tax legislation.
Additional Notes:
This case underscores the distinction between tax avoidance, a legal strategy employed to
minimize tax liabilities, and tax evasion, an illegal act to escape paying taxes. The Supreme
Court's ruling demonstrates that employing corporate structures for estate planning and to
maintain control over properties, while also legally minimizing tax obligations, is a form of
tax avoidance. This practice is recognized and permitted under the law as it does not entail
deceit, fraud, or the denial of tax dues. The Pachecos' method of transferring their property
to a corporation they control, in exchange for shares, was strategically designed to keep the
property within the family, avoiding the higher taxes that might come with direct
inheritance or sale, without violating tax laws. This case illustrates a lawful path for
taxpayers to navigate the complexities of tax obligations while ensuring compliance with
legal requirements and obligations.
evasion
Commissioner of Internal Revenue vs. The Estate of
Case Title :
Benigno P. Toda, Jr.
Date of Promulgation : September 14, 2004
Ponente : CHIEF JUSTICE DAVIDE, JR.,
DOCTRINE
This case exemplifies the distinction between tax avoidance, a legal means of reducing tax
liabilities, and tax evasion, an illegal act to escape tax obligations. Tax evasion involves
deliberate actions by taxpayers to pay less than what is legally due, characterized by an
intent to evade, a fraudulent scheme, and the unlawful course of action.
WHEREFORE CLAUSE
WHEREFORE, in view of all the foregoing, the petition is hereby GRANTED. The decision
ofthe Court of Appeals of 31 January 2001 in CA-G.R. SP No. 57799 is REVERSED and SET
ASIDE, and another one is hereby rendered ordering respondent Estate of Benigno P. Toda
Jr. to pay P79,099,999.22 as deficiency income tax of Cibeles Insurance Corporation for the
year 1989, plus legal interest from 1 May 1994 until the amount is fully paid. Costs against
respondent.
SO ORDERED.
FACTS
 The case revolves around a tax planning scheme involving the sale of a 16-storey
commercial building, the Cibeles Building, located in Makati City. The Cibeles
Insurance Corporation (CIC), owned predominantly by Benigno P. Toda, Jr., decided to
sell this property. Initially, the property was sold to Rafael A. Altonaga for PHP 100
million, who on the same day sold it to Royal Match Inc. (RMI) for PHP 200 million.
These transactions were structured in such a way that Altonaga paid capital gains tax
for the sale to RMI, supposedly reducing the tax liability from a corporate income tax
rate of 35% to a capital gains tax rate of 5%. However, the Bureau of Internal Revenue
(BIR) viewed this transaction as a scheme to evade the proper tax liability, leading to a
deficiency income tax assessment against the Estate of Benigno P. Toda, Jr., following
his death, for the amount of PHP 79,099,999.22 for the year 1989.
ISSUE(S)
1. Whether the tax planning scheme adopted constitutes tax evasion or tax avoidance.
2. Whether the respondent Estate can be held liable for the deficiency income tax of CIC
for the year 1989.
RULING
The Supreme Court ruled in favor of the Commissioner of Internal Revenue, reversing the
decision of the Court of Appeals. The Court identified the scheme as tax evasion, not tax
avoidance, as it involved deliberate actions to pay less than what was legally due through a
simulated sale of property, which lacked business purpose and substance, aiming solely to
reduce tax liability. Furthermore, the Court upheld that the Estate of Benigno P. Toda, Jr. is
liable for the deficiency tax since Toda had personally undertaken to hold the buyer of his
shares and CIC free from any tax liabilities for the fiscal years 1987-1989, thereby binding
his estate to this obligation.
The Commissioner argued that the transactions were structured deliberately to evade
higher corporate income taxes by making it appear as two separate sales, thereby reducing
the tax liability to a lower capital gains tax rate.
The Estate contended that the transactions were part of a legal tax planning strategy aimed
at reducing tax liabilities and that the assessment against the Estate had prescribed.
The Supreme Court highlighted the fraudulent nature of the transactions, designed to
mislead the BIR and reduce tax liabilities unlawfully. The Court also dismissed the argument
regarding the prescription, emphasizing Toda's personal undertaking that made his estate
liable for the tax deficiencies.
Additional Notes:
This case distinctly illustrates the thin line between tax avoidance and tax evasion,
emphasizing the legal repercussions of crossing from legal tax minimization strategies into
fraudulent schemes intended to escape tax obligations. It underscores that while taxpayers
are entitled to arrange their affairs to minimize taxes, they must not engage in deceitful
practices to evade their rightful tax liabilities. The Court's ruling reinforces the principle
that tax evasion, characterized by fraudulent intent and unlawful actions to reduce tax
payments, is punishable, distinguishing it sharply from the legally permissible practice of
tax avoidance.
evasion
Case Title : People vs. Kintanar
Ponente : JUSTICE
DOCTRINE
The doctrine of "willful blindness" establishes that a taxpayer's intentional refusal to verify
the contents of their ITR and other documents shows a deliberate effort to avoid knowing
their tax obligations. This doctrine implies that ignorance of the law or reliance on another
person for tax matters is not a defense against liability for tax evasion.
WHEREFORE CLAUSE
The Supreme Court recently introduced the "Doctrine of Willful Blindness" in a landmark
tax evasion case decided inyear 2012. Under this doctrine, the taxpayer’s deliberate refusal
or avoidance to verify the contents of his or her ITR andother documents constitutes "willful
blindness" on his or her part. It is by reason of this doctrine that taxpayers cannotsimply
invoke reliance on mere representations of their accountants or authorized representatives
in order to avoidliability for failure to pay the correct taxes
FACTS
 Gloria Kintanar was charged with failing to file her income tax returns (ITR) for the
year 2000, violating Section 255 of the 1997 National Internal Revenue Code (NIRC),
as amended. Kintanar, an experienced businesswoman, claimed she did not actively
participate in filing her joint ITR with her husband because she entrusted this duty to
him, who then hired an accountant for their tax responsibilities. Despite receiving
several notices and a subpoena from the Bureau of Internal Revenue (BIR), Kintanar
and her husband only filed an unsupported protest letter. The Court of Tax Appeals
(CTA) found her neglect tantamount to “deliberate ignorance” or “conscious
avoidance,” showing a clear lack of concern on her part to fulfill her tax obligations.
This stance was sustained by the Supreme Court (SC) in 2012.
ISSUE(S)
1. Whether or not the doctrine of "willful blindness" applies to a taxpayer's deliberate
avoidance of verifying the contents of their ITR, constituting tax evasion.
RULING
The Supreme Court affirmed the CTA's decision, applying the "willful blindness" doctrine. It
ruled that taxpayers cannot escape liability by claiming reliance on representations made by
their accountants or authorized representatives. Kintanar’s failure to ensure the accurate
filing of her ITRs, despite her business experience and the receipt of several BIR notices,
constituted deliberate ignorance. The court highlighted that a taxpayer’s deliberate
avoidance of verifying the contents of their ITR constitutes "willful blindness," making them
liable for failing to pay the correct taxes.
Kintanar argued that her reliance on her husband and their accountant for the filing and
payment of their taxes absolved her of responsibility for the errors in their ITRs.
The BIR argued that Kintanar, as an experienced businesswoman, had a natural
presumption of knowing her tax obligations and that her failure to verify the accuracy and
filing of her ITRs constituted willful blindness to her tax responsibilities.
The Supreme Court rejected Kintanar's defense, stating that taxpayers are responsible for
ensuring their tax obligations are met and cannot claim ignorance or reliance on others as
an excuse. The court emphasized that the willful failure to verify ITR contents, despite being
aware of the obligation, constitutes tax evasion under the doctrine of "willful blindness."
Additional Notes:
The case of People v. Gloria Kintanar illustrates the thin line between tax avoidance, which is
legal, and tax evasion, which is not. Tax avoidance involves planning finances within the law
to minimize tax liabilities, while tax evasion involves illegal practices like deliberately failing
to file tax returns. The "willful blindness" doctrine serves as a crucial principle in
distinguishing between the two, highlighting that ignoring one's tax obligations, under the
guise of reliance on others, does not absolve a taxpayer from liability but rather constitutes
an act of tax evasion. This case underscores that while taxpayers can employ legal means to
reduce their taxes, crossing into deliberate ignorance or fraudulent means to escape tax
obligations is punishable by law.
evasion
Judy Anne L. Santos vs. People of the Philippines &
Case Title :
Bureau of Internal Revenue
Ponente : JUSTICE CHICO-NAZARIO
DOCTRINE
The doctrine relevant to this case revolves around the principles distinguishing tax evasion
from tax avoidance. Tax evasion involves illegal or fraudulent means to reduce or eliminate
tax liability and is punishable by law. It requires a deliberate act by the taxpayer to
misreport income, overstate deductions, or fail to file tax returns. Tax avoidance, on the
other hand, involves legally permissible actions to minimize tax liabilities without deceit.
This case underlines the critical difference between the two, emphasizing the legality and
intent behind tax-related actions.
WHEREFORE CLAUSE
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED. Costs
against petitioner. SO ORDERED.
FACTS
 Judy Anne L. Santos was charged by the Bureau of Internal Revenue (BIR) for
substantially underdeclaring her income for the taxable year 2002, which was
considered a prima facie evidence of a false or fraudulent return under the National
Internal Revenue Code (NIRC), punishable under its provisions. The BIR's initial
findings suggested that Santos declared an income of PHP 8,033,332.70 solely from
ABS-CBN, whereas documents indicated she earned at least PHP 14,796,234.70 from
various sources, including movies and product endorsements. This discrepancy led to
an estimated tax liability of PHP 1,718,925.52, including penalties, indicating a
substantial underdeclaration of over 84% of her declared income. Santos sought to
quash the information filed against her, arguing the facts alleged did not constitute an
offense, among other grounds. The Court of Tax Appeals (CTA) First Division denied
her motion, leading Santos to file a motion for extension of time to file a petition for
review with the CTA en banc, which was also denied on the basis that a resolution
denying a motion to quash is interlocutory and not appealable.
ISSUE(S)
1. Whether a resolution of a CTA Division denying a motion to quash is a proper subject of
an appeal to the CTA en banc under Section 11 of Republic Act No. 9282, amending
Section 18 of Republic Act No. 1125.
2. Whether the petitioner's actions constituted tax evasion.
RULING
The Supreme Court denied the petition for review, holding that the CTA en banc correctly
denied Santos's motion for extension of time to file a petition for review. The Court clarified
that the denial of a motion to quash is an interlocutory order and not immediately
appealable. The Court emphasized that resolutions denying motions to quash can only be
reviewed through an appeal from the judgment after trial, not through an intermediate
appeal to the CTA en banc. The Court found no merit in Santos's assertion that she was left
without remedy, as the proper course of action after denial of a motion to quash is to go to
trial and, if necessary, appeal after an adverse decision.
Santos argued that the BIR's charge for underdeclaring her income was unwarranted, and
she sought to quash the information on several grounds, including that the facts did not
constitute an offense and that the CTA lacked jurisdiction.
The BIR, represented by the People of the Philippines, maintained that Santos substantially
underdeclared her income, resulting in a significant tax liability, which justified the charges
filed against her under the NIRC.
The Supreme Court supported the CTA's decision, emphasizing that an interlocutory order
such as the denial of a motion to quash is not appealable. The Court clarified that the proper
procedure is to proceed to trial and, if necessary, appeal after a final judgment. This
approach aligns with the principles of tax law enforcement, ensuring that taxpayers cannot
evade their obligations through premature appeals.
Additional Notes:
This case exemplifies the fine line between tax evasion and tax avoidance. Santos's
substantial underdeclaration of income, as argued by the BIR, falls into the realm of tax
evasion—where the taxpayer employs unlawful means to reduce tax liability. The Supreme
Court's decision underscores the seriousness with which the legal system treats attempts to
evade taxes, distinguishing them from legal tax avoidance strategies. It highlights the
necessity for taxpayers to adhere to lawful practices in managing tax liabilities and the legal
repercussions of attempting to circumvent tax obligations through deceitful means.
Case #51. Topic: Doctrine of Equitable Recoupment

Collector of Internal Revenue vs. University of Santo
Case Title :
Tomas and the Court of Tax Appeals
Ponente : JUSTICE MONTEMAYOR,
DOCTRINE
The doctrine of equitable recoupment, which allows for the offset of a taxpayer’s barred
refund claim against a current tax assessment, and vice versa, was rejected in this case. The
Court underscored that this doctrine is not recognized in the Philippines due to the
potential negative impact on the government's financial administration and the principle
that taxes are due to the government in its sovereign capacity, not as an ordinary creditor.
WHEREFORE CLAUSE
Respondent is thus ordered to desist from further collecting said deficiency assessment
FACTS
 Between January 1, 1948, and June 30, 1950, the University of Santo Tomas (UST) paid
a total of Php13,590.03 in taxes from its printing and binding jobs, believing these to
be due as a 2% tax on its gross receipts for the services rendered to the public and
various departments within the University. However, UST later sought a refund of
Php8,293.31 from the Collector of Internal Revenue (CIR), arguing that the payments
made by other departments for printing and binding should not legally count as
taxable gross receipts and that certain publications (THOMASIAN and VERITAS
annuals) were exempt from taxes under specific provisions of the Tax Code.
 The CIR denied UST’s refund claim and additionally assessed a deficiency tax and
surcharge amounting to Php2,451.04 for undeclared receipts. The Court of Tax
Appeals (CTA) partially modified this decision, recognizing UST’s right to a refund but
only to the extent that the amount could be set off against the deficiency tax assessed,
invoking the doctrine of equitable recoupment. The Supreme Court was then tasked
with reviewing the applicability of this doctrine.
ISSUE(S)
1. Whether the CTA erred in applying the doctrine of equitable recoupment to allow for
the offsetting of UST’s barred refund claim against its current tax liability.
RULING
The Supreme Court held that the doctrine of equitable recoupment does not apply in the
Philippine jurisdiction. It emphasized that taxes cannot be subject to compensation or set-
off against each other as this could adversely affect the government's revenue system and
that the government and taxpayer are not mutual creditors. The Court further noted that the
application of the doctrine could encourage laxity in the timely collection of taxes by the
government and in the prompt filing of refund claims by taxpayers.
The CIR argued against the applicability of the doctrine of equitable recoupment,
contending that allowing such a practice would undermine the timely and efficient
collection of taxes, and is not supported by the tax code.
UST argued for the application of the doctrine to mitigate what it viewed as an unfair loss of
their right to a refund due to prescription, against a tax liability that the government had
delayed in collecting.
The Supreme Court sided with the CIR, stating that equitable recoupment is not a doctrine
recognized within Philippine tax law. It emphasized the importance of statutory deadlines
for tax collection and refunds, noting that allowing for set-offs could encourage negligence
on both the part of the taxpayer and the tax collector. Moreover, the Court highlighted the
fundamental distinction between a tax and a debt, underscoring that the former is owed to
the government in its sovereign capacity.
Additional Notes:
This case directly addresses the doctrine of equitable recoupment by explicitly rejecting its
applicability in the Philippine legal system. The Court's decision reflects a commitment to
maintaining the integrity and efficiency of the tax collection system, emphasizing timely
compliance with tax obligations and the filing of refund claims. It also clarifies the legal
stance that taxes are distinct from ordinary debts and cannot be compensated or set off
against each other, preserving the government's sovereign capacity to levy and collect taxes
without hindrance.
Case #52. Topic: Set-off Taxes

Case Title : Melecio R. Domingo vs. Lorenzo C.Garlitos, et al.
Ponente : JUSTICE LABRADOR,
DOCTRINE
The case affirms the exception to the general rule against the compensation of taxes, which
is that taxes cannot typically be set off against debts because they are not mutual debts
between creditor and debtor in the usual sense. However, if the government's claim and the
taxpayer's claim are both recognized, due, demandable, and fully liquidated, compensation
can occur by operation of law, extinguishing both debts to the concurrent amount.
WHEREFORE CLAUSE
The petition is, therefore, dismissed, without costs.
FACTS
 In this case, the Commissioner of Internal Revenue, Melecio R. Domingo, sought to
collect estate and inheritance taxes from the estate of Walter Scott Price, amounting to
P40,058.55. A previous Supreme Court decision (G.R. No. L-14674) had already
ordered the estate to pay these taxes. However, when the Commissioner attempted to
execute this judgment, the Court of First Instance of Leyte, presided by Judge Lorenzo
C. Garlitos, denied the petition for execution. The court found that the government
owed the estate P262,200, stemming from a contract for services rendered by the
deceased. The court then ordered that the tax amount be deducted from what the
government owed the estate, effectively setting off the estate's tax liability against the
government's debt to the estate.
ISSUE(S)
2. Whether taxes owed by an estate be set off against debts owed to the estate by the
government.
RULING
The Supreme Court dismissed the petition for certiorari and mandamus filed by the
Commissioner of Internal Revenue, affirming the lower court's decision to offset the
government's debt to the estate against the estate's tax liability. This decision was based on
the recognition that when both the government's claim for taxes and the estate's claim for
services rendered are recognized, due, demandable, and fully liquidated, compensation
occurs by operation of law, thus extinguishing both debts to the extent they coincide.
The Commissioner of Internal Revenue argued for the execution of the judgment against the
estate for the payment of estate and inheritance taxes, contending that taxes due should be
paid without delay.
The estate, represented by its administratrix, argued against the immediate execution of the
tax judgment, highlighting the government's larger debt to the estate, and suggested that
the tax amount be deducted from this debt.
The Supreme Court dismissed the petition for certiorari and mandamus, upholding the
lower court's decision to offset the government's debt to the estate against the estate's tax
liability.
Additional Notes:
This case illustrates an exception to the general principle that taxes cannot be subject to
compensation or set-off. Specifically, it demonstrates that when both the government and
the taxpayer have recognized, due, and liquidated claims against each other, set-off can
legally occur. This exception is particularly relevant in situations where the government
itself has an acknowledged and appropriated debt to the taxpayer, allowing for the mutual
extinguishment of obligations to the extent of their concurrence. This serves as a unique
instance where the rigid principles of tax collection meet the flexible realities of mutual
obligations, providing a legal foundation for the resolution of such disputes through
compensation, as outlined in the Civil Code.

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Classification of Taxes

According to Subject According to According to According to

Tests in Determining Public Purpose:

a. The delegation shall not contravene any constitutional provision or the

 Legislature has the power to determine the:

b. Delegation to the President:

2. Emergency Powers [Sec. 23(2), Art. VI, 1987 Constitution.

c. Delegation to administrative agencies: Limited to the administrative

 The powers which cannot be delegated include:

Case #1. Topic: Inherent Limitations – Inherently Legislative

Case #3. Topic: Inherent Limitations – Inherently Legislative

2. Illegal Delegation of Legislative Power: On the issue of whether the ordinance

Case #4. Topic: Inherent Limitations – Inherently Legislative

Case #5. Topic: Inherent Limitations – Inherently Legislative

Case #6. Topic: Inherent Limitations – Inherently Legislative

Case #7. Topic: Classification of Taxes – According to Subject matter, Burden,

Case #8. Topic: Classification of Taxes – According to Subject matter, Burden,

Case #9. Topic: Classification of Taxes – According to Subject matter, Burden,

Case #10. Topic: Classification of Taxes – According to Subject matter, Burden,

4. Proportional – Taxes that are applied at

1. Tariffs are taxes imposed on internationally traded goods, designed to regulate

4. Special assessments are levied specifically on land benefiting from public

5. Debts are obligations based on contract, assignable, and may be subject to

6. Penalties are sanctions imposed for violations of law, intended to punish or

Taxes License and Regulatory Fee

Penalty for nonpayment: Surcharges; or

Case #13. Topic: Taxation distinguished from certain exactions – Toll

Case #28. Topic: Kinds of Tax Exemption – Contractual Tax Exemption

Case #29. Topic: Kinds of Tax Exemption – Contractual Tax Exemption

Case #30. Topic: Kinds of Tax Exemption – Contractual Tax Exemption

Case #31. Topic: Kinds of Tax Exemption – Contractual Tax Exemption

Case #32. Topic: Kinds of Tax Exemption – Contractual Tax Exemption

Case #33. Topic: Kinds of Tax Exemption – Contractual Tax Exemption

Case #34. Topic: Doctrines in Taxation – Prospectivity

Case #36. Topic: Doctrines in Taxation – Prospectivity

Case #37. Topic: Doctrines in Taxation – Prospectivity

Case #38. Topic: Doctrines in Taxation – Imprescriptibility

Case #39. Topic: Doctrines in Taxation – Imprescriptibility

Case #43. Topic: Power to Tax is the Power to Destroy

Case #44. Topic: Power to Tax is the Power to Destroy

Case #45. Topic: Power to Tax is the Power to Destroy

Case #51. Topic: Doctrine of Equitable Recoupment

Case #52. Topic: Set-off Taxes

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