Taxation Law I Cases (Mid-Terms) (1)
PAL VS EDU G.R. No. L-41383, August 15, 1988 164 SCRA 320 FACTS: PAL is engaged in air transportation business under a legislative franchise wherein it is exempt from tax payment. PAL has not been paying motor vehicle registration since1956. The Land Registration Commissioner required all tax exempt entities including PAL to pay motor vehicle registration fees. ISSUE: Whether or not registration fees as to motor vehicles are taxes to which PAL is exempted. HELD: Taxes are for revenue whereas fees are exactions for purposes of regulation and inspection, and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. It is the object of the charge, and not the name, that determines whether a charge is a tax or a fee. The money collected under Motor Vehicle Law is not intended for the expenditures of the MV Office but accrues to the funds for the construction and maintenance of public roads, streets and bridges. As fees are not collected for regulatory purposes as an incident to the enforcement of regulations governing the operation of motor vehicles on public highways but to provide revenue with which the Government is to construct and maintain public highways for everyone’s use, they are veritable taxes, not merely fees. PAL is thus exempt from paying such fees, except for the period between June 27, 1968 to April 9, 1979 where its tax exemption in the franchise was repealed.
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CALTEX v. CIR 208 SCRA 755 GR 92585, 8 May 1992 Facts: In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund (OPSF), excluding that unremitted for 1986 and 188 of the additional tax on petroleum products authorized under Section 8 of PD 1956; and that pending such remittance, all its claims for reimbursement from the OPSF shall be held in abeyance. Caltex requested COA, notwithstanding an early release of its reimbursement certificates from the OPSF, which COA denied. On 31 May 1989, Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the proposal but prohibited Caltex from further offseting remittances and reimbursements for the current and ensuing years. Caltex moved for reconsideration. Issue: Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex’ outstanding claims from said funds? Held: Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state. PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.
(3)
TIO v. VRB GR No. L-75697, June 18, 1987 1
151 SCRA 208 "The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another." FACTS: The petitioner assails the validity of PD 1987 entitled an "Act creating the Videogram Regulatory Board," citing especially Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government. Petitioner contends that aside from its being a rider and not germane to the subject matter thereof, and such imposition was being harsh, confiscatory, oppressive and/or unlawfully restraints trade in violation of the due process clause of the Constitution. ISSUE: Whether or not PD 1987 is a valid exercise of taxing power of the state? HELD: Yes. It is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as those rest in the discretion of the authority which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition. The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another. (4)
MANILA RACE HORSE v. DELA FUENTE G.R. No. L-2947 January 11, 1951 88 PHIL 60 FACTS: This action was instituted for a declaratory relief by the Manila Race Horses Trainers Association, Inc., allege that they are owners of boarding stables for race horses and that their rights as such are affected by Ordinance No. 3065 of the City of Manila enacted and approved on July 1, 1947 by the Municipal Board. They prayed that said ordinance be declared invalid as violative of the Philippine Constitution on the equal protection clause. Thus, it is discriminatory and savors of class legislation. The said ordinance imposes tax on stable owners based on how many race horses they maintain in their stables at the rate of P10.00 per year. In a sense they alleged that the tax imposed should be uniform whether there are horses or no horses are being maintained in the stables. ISSUE: Whether or not E.O. 3065 is a valid tax imposition? HELD: The Court held, In taxing only boarding stables for race horses, we do not believe that the ordinance, makes arbitrary classification. it was said there is equality and uniformity in taxation if all articles or kinds of property of the same class are taxed at the same rate. Applying this criterion to the present case, there would be discrimination if some boarding stables of the same class used for the same number of horses were not taxed or were made to pay less or more than others.
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The judgment is affirmed. (5)
COMMISSIONER OF IR v. CENTRAL LUZON DRUG CORP G.R. No. 148512, June 26, 2006 456 SCRA 414 FACTS: This is a petition for review under Rule 45 of Rules of Court seeking the nullification of CA decision granting respondent’s claim for tax equal to the amount of the 20% that it extended to senior citizens on the latter’s purchases pursuant to Senior Citizens Act. Respondent deducted the total amount of Php219,778 from its gross income for the taxable year 1995 whereby respondent did not pay tax for that year reporting a net loss of Php20,963 in its corporate income tax. In 1996, claiming that the Php219,778 should be applied as a tax credit, respondent claimed for refund in the amount of Php150, 193. ISSUE: Whether or not the 20% discount granted by the respondent to qualified senior citizens may be claimed as tax credit or as deduction from gross sales? RULING: “Tax credit” is explicitly provided for in Sec4 of RA 7432. The discount given to Senior citizens is a tax credit, not a deduction from the gross sales of the establishment concerned. The tax credit that is contemplated under this Act is a form of just compensation, not a remedy for taxes that were erroneously or illegally assessed and collected. In the same vein, prior payment of any tax liability is a pre-condition before a taxable entity can benefit from tax credit. The credit may be availed of upon payment, if any. Where there is no tax liability or where a private establishment reports a net loss for the period, the tax credit can be availed of and carried over to the next taxable year.
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CIR v. BPI G.R. No. 134062, April 17, 2007 521 SCRA 373 FACTS: Sometime in 1988 the CIR sent two notices of assessment to the respondent of their deficiency percentage and documentary stamp taxes for the year 1986 in the total amount of P129,488,656.63. In response, respondent alleged that they were not properly informed of the deficiency in tax assessment made against them by the CIR which violated the rule set forth in NIRC. Whereas in the said law the taxpayer shall be informed in writing of the law and the facts on which the assessment is made otherwise, the assessment shall be void. ISSUE: Whether or not respondent was properly informed of the assessment made by the CIR? HELD: Accordingly, when the assessments were made pursuant to the former Section 270, the only requirement was for the CIR to "notify" or inform the taxpayer of his "findings." Nothing in the old law required a written statement to the taxpayer of the law and facts on which the assessments were based. The Court cannot read into the law what obviously was not intended by Congress. That would be judicial legislation, nothing less. Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax liabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed period. From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature and basis of the assessments, and was given all the opportunity to contest the same but ignored it despite the notice conspicuously written on the assessments which states that "this ASSESSMENT becomes final and unappealable if not protested within 30 days after receipt." Counsel resorted to dilatory tactics and dangerously played with time.
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Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. The petition is hereby GRANTED. (7)
CIR v. PINEDA GR No. L-22734, September 15, 1967 21 SCRA 105 FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in Court so that the estate was divided among and awarded to the heirs. Atty Pineda's share amounted to about P2,500.00. After the estate proceedings were closed, the BIR investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate issued an assessment and charged the full amount to the inheritance due to Atty. Pineda who argued that he is liable only to extent of his proportional share in the inheritance. ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance. HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes assessed. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is liable. By virtue of such lien, the Government has the right to subject the property in Pineda's possession to satisfy the income tax assessment. After such payment, Pineda will have a right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate. All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received; and second, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due. This second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain availability is an imperious need.
(8)
VERA v. FERNANDEZ GR No. L-31364 March 30, 1979 89 SCRA 199 FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and for payment of taxes representing the estate's tax deficiencies in 1963 to 1964 in the intestate proceedings of Luis Tongoy. The administrator opposed arguing that the claim was already barred by the statute of limitation, Section 2 and Section 5 of Rule 86 of the Rules of Court which provides that all claims for money against the decedent, arising from contracts, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in the notice; otherwise they are barred forever. 4
ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of the government for unpaid taxes? HELD: No. The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need. (CIR vs. Pineda, 21 SCRA 105). Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own personal concern. This is the philosophy behind the government's exception, as a general rule, from the operation of the principle of estoppel. (9)
CIR v. CA, CITY TRUST BANKING CORP. GR No. 86785, November 21, 1991 234 SCRA 348 FACTS: Respondent corporation Citytrust filed a refund of overpaid taxes with the BIR by which the latter denied on the ground of prescription. Citytrust filed a petition for review before the CTA. The case was submitted for decision based solely on the pleadings and evidence submitted by the respondent because the CIR could not present any evidence by reason of the repeated failure of the Tax Credit/Refud Division of the BIR to transmit the records of the case, as well as the investigation report thereon, to the Solicitor General. CTA rendered the decision ordering BIR to grant the respondent's request for tax refund amounting to P 13.3 million. ISSUE: Failure of the CIR to present evidence to support the case of the government, should the respondent's claim be granted? HELD: Not yet. It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its agents. In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent and officers. Although the Government may generally be estopped through the affirmative acts of public officers acting within their authority, their neglect or omission of public duties as exemplified in this case will not and should not produce that effect. Nowhere is the afore stated rule more true than in the field of taxation. It is axiomatic that the Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the Government's financial position, especially in the case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy. Thus, it is proper that the case be remanded back to the CTA for further proceedings and reception of evidence.
(10) COMMISSIONER v. ALGUE, INC. GR No. L-28896, February 17, 1988 158 SCRA 9 FACTS: 5
Private respondent corporation Algue, Inc. filed its income tax returns for 1958 and 1959 showing deductions, for promotional fees paid, from their gross income, thus lowering their taxable income. The BIR assessed Algue based on such deductions contending that the claimed deduction is disallowed because it was not an ordinary, reasonable and necessary expense. ISSUE: Should an uncommon business expense be disallowed as a proper deduction in computation of income taxes, corollary to the doctrine that taxes are the lifeblood of the government? HELD: No. Private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed. It is well-settled that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed. (11) CIR v. YMCA GR No. 124043, October 14, 1998 298 SCRA 83 FACTS: Private Respondent YMCA--a non-stock, non-profit institution, which conducts various programs beneficial to the public pursuant to its religious, educational and charitable objectives--leases out a portion of its premises to small shop owners, like restaurants and canteen operators, deriving substantial income for such. Seeing this, the commissioner of internal revenue (CIR) issued an assessment to private respondent for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA opposed arguing that its rental income is not subject to tax, mainly because of the provisions of Section 27 of NIRC which provides that civic league or organizations not organized for profit but operate exclusively for promotion of social welfare and those organized exclusively for pleasure, recreation and other non-profitble businesses shall not be taxed. ISSUE: Is the contention of YMCA tenable? HELD: No. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption "must expressly be granted in a statute stated in a language too clear to be mistaken."
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(12) DAVAO GULF LUMBER CORP v. CIR GR No. 117359, July 23, 1998 293 SCRA 77 FACTS: Republic Act No. 1435 entitles miners and forest concessioners to the refund of 25% of the specific taxes paid by the oil companies, which were eventually passed on to the user--the petitioner in this case--in the purchase price of the oil products. Petitioner filed before respondent Commissioner of Internal Revenue (CIR) a claim for refund in the amount representing 25% of the specific taxes actually paid on the above-mentioned fuels and oils that were used by petitioner in its operations. However petitioner asserts that equity and justice demands that the refund should be based on the increased rates of specific taxes which it actually paid, as prescribed in Sections 153 and 156 of the NIRC. Public respondent, on the other hand, contends that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435. ISSUE: Should the petitioner be entitled under Republic Act No. 1435 to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured mineral oils and other oil products, and not on the taxes deemed paid and passed on to them, as end-users, by the oil companies? HELD: No. According to an eminent authority on taxation, "there is no tax exemption solely on the ground of equity." Thus, the tax refund should be based on the taxes deemed paid. Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom. (13) MARCOS II v. CA GR No. 120880, June 5, 1997 293 SCRA 77 FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grant CIR's petition to levy the properties of the late Pres. Marcos to cover the payment of his tax delinquencies during the period of his exile in the US. The Marcos family was assessed by the BIR, and notices were constructively served to the Marcoses, however the assessment were not protested administratively by Mrs. Marcos and the heirs of the late president so that they became final and unappealable after the period for filing of opposition has prescribed. Marcos contends that the properties could not be levied to cover the tax dues because they are still pending probate with the court, and settlement of tax deficiencies could not be had, unless there is an order by the probate court or until the probate proceedings are terminated. ISSUE: Is the contention of Bongbong Marcos correct? HELD: No. The deficiency income tax assessments and estate tax assessment are already final and unappealable -andthe subsequent levy of real properties is a tax remedy resorted to by the government, sanctioned by Section 213 and 218 of the National Internal Revenue Code. This summary tax remedy is distinct and separate from the other tax remedies (such as Judicial Civil actions and Criminal actions), and is not affected or precluded by the pendency of any other tax remedies instituted by the government. The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground 7
that it was required to seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected. On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate court which approves the assessment and collection of the estate tax. (14) REYES v. ALMANZOR GR Nos. L-49839-46, April 26, 1991 196 SCRA 322 FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the Rental Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses were precluded from raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on the schedule of market values, which entailed an increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement averring that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual income derived from their properties. They argued that the income approach should have been used in determining the land values instead of the comparable sales approach which the City Assessor adopted. ISSUE: Is the approach on tax assessment used by the City Assessor reasonable? HELD: No. The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed. Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the same government by the imposition of excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties. (15) PHIL. BANK OF COMMUNICATIONS v. CIR GR No. 112024, January 28, 1999 302 SCRA 250 FACTS: Petitioner PBCom filed its first and second quarter income tax returns, reported profits, and paid income taxes amounting to P5.2M in 1985. However, at the end of the year PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14.1 M, and thus declared no tax payable for the year. In 1988, the bank requested from CIR for a tax credit and tax refunds representing overpayment of taxes. Pending investigation of the respondent CIR, petitioner instituted a Petition for Review before the Court of Tax Appeals (CTA). CTA denied its petition for tax 8
credit and refund for failing to file within the prescriptive period to which the petitioner belies arguing the Revenue Circular No.7-85 issued by the CIR itself states that claim for overpaid taxes are not covered by the two-year prescriptive period mandated under the Tax Code. ISSUE: Is the contention of the petitioner correct? Is the revenue circular a valid exemption to the NIRC? HELD: No. The relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law. Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters. (16) PHIL. GUARANTY CO., INC. v. CIR GR No. L-22074, April 30, 1965 13 SCRA 775 FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts with foreign insurance companies not doing business in the country, thereby ceding to foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The premiums paid by such companies were excluded by the petitioner from its gross income when it filed its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested the assessment on the ground that the premiums are not subject to tax for the premiums did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, and CIR's previous rulings did not require insurance companies to withhold income tax due from foreign companies. ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign insurance companies, which deprives the government from collecting the tax due from them? HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state.
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The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding of tax due on reinsurance premiums may free the taxpayer from the payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not exculpate it from liability to pay such withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents. (17) PHILEX MINING CORP. v. CIR GR No. 125704, August 28, 1998 294 SCRA 687 FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities. ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner? HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence. To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. (18) NORTH CAMARINES LUMBER CO., INC. v. CIR GR No. L-12353, September 30, 1960 109 PHIL 511 FACTS: The petitioner sold more than 2M boardfeet of logs to General Lumber Co. with the agreement that the latter would pay the sales taxes. The CIR, upon consultation officially advised the parties that the bureau interposes no objection so long as the tax due shall be covered by a surety. General Lumber complied, but later failed, with the surety, to pay the tax liabilities, and so the respondent collector required the petitioner to pay thru a letter dated August 30, 1955. Twice did the petitioner filed a request for reconsideration before finally submitting the denied request for appeal before the Court of Tax Appeals. The CTA dismissed the appeal as it was clearly filed out of time. The petitioner had consumed thirty-three days from the receipt of the demand, before filing the appeal. Petitioner argued that in computing the 30-day period in perfecting the appeal the letter of the respondent Collector dated January 30, 1956, denying the second request for reconsideration, should be considered as the final decision contemplated in Section 7, and not the letter of demand dated August 30, 1955. 10
ISSUE: Is the contention of the petitioner tenable? HELD: No. This contention is untenable. We cannot countenance that theory that would make the commencement of the statutory 30-day period solely dependent on the will of the taxpayer and place the latter in a position to put off indefinitely and at his convenience the finality of a tax assessment. Such an absurd procedure would be detrimental to the interest of the Government, for "taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need." (19) LUTZ v. ARANETA GR No. L-7859, December 22, 1955 98 PHIL 148 FACTS: Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate estate of Antionio Ledesma, sought to recover from the CIR the sum of P14,666.40 paid by the estate as taxes, under section 3 of the CA 567 or the Sugar Adjustment Act thereby assailing its constitutionality, for it provided for an increase of the existing tax on the manufacture of sugar, alleging that such enactment is not being levied for a public purpose but solely and exclusively for the aid and support of the sugar industry thus making it void and unconstitutional. The sugar industry situation at the time of the enactment was in an imminent threat of loss and needed to be stabilized by imposition of emergency measures. ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the equal protection clause, the purpose of which is not for the benefit of the general public but for the rehabilitation only of the sugar industry? HELD: Yes. The protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed to fully play, subject only to the test of reasonableness; and it is not contended that the means provided in the law bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power. (20) GOMEZ v. PALOMAR GR No. L-23645, October 29, 1968 25 SCRA 827 FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It did not bear the special anti-TB stamp required by the RA 1635. It was returned to the petitioner. Petitioner now assails the constitutionality of the statute claiming that RA 1635 otherwise known as the Anti-TB Stamp law is violative of the equal protection clause because it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the population and that even among postal patrons the statute discriminatorily grants exemptions. The law in question requires an additional 5 centavo stamp for every mail being posted, and no mail shall be delivered unless bearing the said stamp. ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal protection clause? 11
HELD: No. It is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions. This power has aptly been described as "of wide range and flexibility." Indeed, it is said that in the field of taxation, more than in other areas, the legislature possesses the greatest freedom in classification. The reason for this is that traditionally, classification has been a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden. The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on administrative convenience. Tax exemptions have never been thought of as raising revenues under the equal protection clause. (21) United Airlines vs. Commissioner of Internal Revenue G.R. No. 178788 September 29, 2009 FACTS: International airline, petitioner United Airlines, filed a claim for income tax refund. Petitioner sought to be refunded the erroneously collected income tax from in the amount of P5,028,813.23 on passenger revenue from tickets sold in the Philippines, the uplifts of which did not originate in the Philippines. The airlines ceased operation originating form the Philippines since February 21, 1998. Court of tAx appeals ruled the petitioner is not entitled to a refund because under the NIRC, income tax on GPB also includes gross revenue from carriage of cargoes from the Philippines. And upon assessment by the CTA, it was found out that petitioner deducted items from its cargo revenues which should have entitled the government to an amount of P 31.43 million, which is obviously higher than the amount the petitioner prayed to be refunded. Petitioner argued that the petitioner’s supposed underpayment cannot offset his claim to a refund as established by well-settled jurisprudence. ISSUE: Whether or not petitioner is entitled to a refund? HELD: Petitioner was correct in averring that his claim to a refund cannot be subject to offsetting or, as it claimed the offsetting to be, a legal compensation under Sec. 28(A)(3)(a) “Petitioner’s (similar) tax refund claim assumes that the tax return that it filed was correct. Given, however, the finding of the CTA that petitioner, although not liable under Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under Sec. 28(A)(1), the correctness of the return filed by petitioner is now put in doubt. As such, we(the court) cannot grant the prayer for a refund.” The court held that the petitioner is not entitled to a refund, Having underpaid the GPB tax due on its cargo revenues for 1999, the amount of the former being even much higher (P31.43 million) than the tax refund sought (P5.2 million). (22) G.R. No. 192935 December 7, 2010 LOUIS "BAROK" C. BIRAOGO, Petitioner, vs. THE PHILIPPINE TRUTH COMMISSION OF 2010, Respondent. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 193036 REP. EDCEL C. LAGMAN, REP. RODOLFO B. ALBANO, JR., REP. SIMEON A. DATUMANONG, and REP. ORLANDO B. FUA, SR., Petitioners, 12
vs. EXECUTIVE SECRETARY PAQUITO N. OCHOA, JR. and DEPARTMENT OF BUDGET AND MANAGEMENT SECRETARY FLORENCIO B. ABAD, Respondents. When the judiciary mediates to allocate constitutional boundaries, it does not assert any superiority over the other departments; it does not in reality nullify or invalidate an act of the legislature, but only asserts the solemn and sacred obligation assigned to it by the Constitution to determine conflicting claims of authority under the Constitution and to establish for the parties in an actual controversy the rights which that instrument secures and guarantees to them. --- Justice Jose P. Laurel FACTS: The genesis of the foregoing cases can be traced to the events prior to the historic May 2010 elections, when then Senator Benigno Simeon Aquino III declared his staunch condemnation of graft and corruption with his slogan, "Kung walang corrupt, walang mahirap." The Filipino people, convinced of his sincerity and of his ability to carry out this noble objective, catapulted the good senator to the presidency. The first case is G.R. No. 192935, a special civil action for prohibition instituted by petitioner Louis Biraogo (Biraogo) in his capacity as a citizen and taxpayer. Biraogo assails Executive Order No. 1 for being violative of the legislative power of Congress under Section 1, Article VI of the Constitution as it usurps the constitutional authority of the legislature to create a public office and to appropriate funds therefor. The second case, G.R. No. 193036, is a special civil action for certiorari and prohibition filed by petitioners Edcel C. Lagman, Rodolfo B. Albano Jr., Simeon A. Datumanong, and Orlando B. Fua, Sr. (petitioners-legislators) as incumbent members of the House of Representatives. Thus, at the dawn of his administration, the President on July 30, 2010, signed Executive Order No. 1 establishing the Philippine Truth Commission of 2010 (Truth Commission). ISSUES: 1. Whether or not the petitioners have the legal standing to file their respective petitions and question Executive Order No. 1; 2. Whether or not Executive Order No. 1 violates the principle of separation of powers by usurping the powers of Congress to create and to appropriate funds for public offices, agencies and commissions; 3. Whether or not Executive Order No. 1 supplants the powers of the Ombudsman and the DOJ; 4. Whether or not Executive Order No. 1 violates the equal protection clause; and 5. Whether or not petitioners are entitled to injunctive relief. HELD: Legal Standing of the Petitioners The Court, however, finds reason in Biraogo’s assertion that the petition covers matters of transcendental importance to justify the exercise of jurisdiction by the Court. There are constitutional issues in the petition which deserve the attention of this Court in view of their seriousness, novelty and weight as precedents. Where the issues are of transcendental and paramount importance not only to the public but also to the Bench and the Bar, they should be resolved for the guidance of all. Undoubtedly, the Filipino people are more than interested to know the status of the President’s first effort to bring about a promised change to the country. The Court takes cognizance of the petition not due to overwhelming political undertones that clothe the issue in the eyes of the public, but because the Court stands firm in its oath to perform its constitutional duty to settle legal controversies with overreaching significance to society. Power of the President to Create the Truth Commission
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The Chief Executive’s power to create the Ad hoc Investigating Committee cannot be doubted. Having been constitutionally granted full control of the Executive Department, to which respondents belong, the President has the obligation to ensure that all executive officials and employees faithfully comply with the law. With AO 298 as mandate, the legality of the investigation is sustained. Such validity is not affected by the fact that the investigating team and the PCAGC had the same composition, or that the former used the offices and facilities of the latter in conducting the inquiry. Power of the Truth Commission to Investigate The distinction between the power to investigate and the power to adjudicate was delineated by the Court in Cariño v. Commission on Human Rights.59 Thus: The legal meaning of "investigate" is essentially the same: "(t)o follow up step by step by patient inquiry or observation. To trace or track; to search into; to examine and inquire into with care and accuracy; to find out by careful inquisition; examination; the taking of evidence; a legal inquiry;" "to inquire; to make an investigation," "investigation" being in turn described as "(a)n administrative function, the exercise of which ordinarily does not require a hearing. 2 Am J2d Adm L Sec. 257; x x an inquiry, judicial or otherwise, for the discovery and collection of facts concerning a certain matter or matters." In the legal sense, "adjudicate" means: "To settle in the exercise of judicial authority. To determine finally. Synonymous with adjudge in its strictest sense;" and "adjudge" means: "To pass on judicially, to decide, settle or decree, or to sentence or condemn. x x. Implies a judicial determination of a fact, and the entry of a judgment." Finally, nowhere in Executive Order No. 1 can it be inferred that the findings of the PTC are to be accorded conclusiveness. Much like its predecessors, the Davide Commission, the Feliciano Commission and the Zenarosa Commission, its findings would, at best, be recommendatory in nature. And being so, the Ombudsman and the DOJ have a wider degree of latitude to decide whether or not to reject the recommendation. These offices, therefore, are not deprived of their mandated duties but will instead be aided by the reports of the PTC for possible indictments for violations of graft laws. Violation of the Equal Protection Clause The petitioners assail Executive Order No. 1 because it is violative of this constitutional safeguard. They contend that it does not apply equally to all members of the same class such that the intent of singling out the "previous administration" as its sole object makes the PTC an "adventure in partisan hostility." Thus, in order to be accorded with validity, the commission must also cover reports of graft and corruption in virtually all administrations previous to that of former President Arroyo. The equal protection clause is aimed at all official state actions, not just those of the legislature. Its inhibitions cover all the departments of the government including the political and executive departments, and extend to all actions of a state denying equal protection of the laws, through whatever agency or whatever guise is taken. Applying these precepts to this case, Executive Order No. 1 should be struck down as violative of the equal protection clause. The clear mandate of the envisioned truth commission is to investigate and find out the truth "concerning the reported cases of graft and corruption during the previous administration"only. The intent to single out the previous administration is plain, patent and manifest. Mention of it has been made in at least three portions of the questioned executive order. Decision The issue that seems to take center stage at present is - whether or not the Supreme Court, in the exercise of its constitutionally mandated power of Judicial Review with respect to recent initiatives of the legislature and the executive department, is exercising undue interference. Is the Highest Tribunal, which is expected to be the protector of the Constitution, itself guilty of violating fundamental tenets like the doctrine of separation of 14
powers? Time and again, this issue has been addressed by the Court, but it seems that the present political situation calls for it to once again explain the legal basis of its action lest it continually be accused of being a hindrance to the nation’s thrust to progress. WHEREFORE, the petitions are GRANTED. Executive Order No. 1 is hereby declared UNCONSTITUTIONAL insofar as it is violative of the equal protection clause of the Constitution. As also prayed for, the respondents are hereby ordered to cease and desist from carrying out the provisions of Executive Order No. 1. SO ORDERED. (23) CITY OF BAGUIO vs. DE LEON GR No. L-24756, October 31, 1968 25 SCRA 938 "There is no double taxation where one tax is imposed by the state and the other is imposed by the city." FACTS: The City of Baguio passed an ordinance imposing a license fee on any person, entity or corporation doing business in the City. The ordinance sourced its authority from RA No. 329, thereby amending the city charter empowering it to fix the license fee and regulate businesses, trades and occupations as may be established or practiced in the City. De Leon was assessed for P50 annual fee it being shown that he was engaged in property rental and deriving income therefrom. The latter assailed the validity of the ordinance arguing that it is ultra vires for there is no statutory authority which expressly grants the City of Baguio to levy such tax, and that there it imposed double taxation, and violates the requirement of uniformity. ISSUE: Are the contentions of the defendant-appellant tenable? HELD: No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code empowering the City Council not only to impose a license fee but to levy a tax for purposes of revenue, thus the ordinance cannot be considered ultra vires for there is more than ample statutory authority for the enactment thereof. Second, an argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city, so that where, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results. And third, violation of uniformity is out of place it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof. (24) Bagatsing v. Ramirez G.R. No. L-41631, December 17, 1976 25 SCRA 938 FACTS: The Municipal Board of Manila enacted Ordinance No. 7522, “An Ordinance Regulating the Operation of Public Markets and Prescribing Fees for the Rentals of Stalls and Providing Penalties for Violation thereof and for other Purposes.” Respondent were seeking the declaration of nullity of the Ordinance for the reason that a) the publication requirement under the Revised Charter of the City of Manila has not been complied with, b) the Market Committee was not given any participation in the enactment, c) Sec. 3(e) of the Anti-Graft and 15
Corrupt Practices Act has been violated, and d) the ordinance would violate P.D. 7 prescribing the collection of fees and charges on livestock and animal products. ISSUE: What law shall govern the publication of tax ordinance enacted by the Municipal Board of Manila, the Revised City Charter or the Local Tax Code. HELD: The fact that one is a special law and the other a general law creates the presumption that the special law is to be considered an exception to the general. The Revised Charter of Manila speaks of “ordinance” in general whereas the Local Tax Code relates to “ordinances levying or imposing taxes, fees or other charges” in particular. In regard therefore, the Local Tax Code controls. (25) PASCUAL vs. SECRETARY OF PUBLIC WORKS GR No. L-10405, December 29, 1960 110 PHIL 331 "A law appropriating the public revenue is invalid if the public advantage or benefit, derived from such expenditure, is merely incidental in the promotion of a particular enterprise." FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with injunction, upon the ground that RA No. 920, which appropriates funds for public works particularly for the construction and improvement of Pasig feeder road terminals. Some of the feeder roads, however, as alleged and as contained in the tracings attached to the petition, were nothing but projected and planned subdivision roads, not yet constructed within the Antonio Subdivision, belonging to private respondent Zulueta, situated at Pasig, Rizal; and which projected feeder roads do not connect any government property or any important premises to the main highway. The respondents' contention is that there is public purpose because people living in the subdivision will directly be benefitted from the construction of the roads, and the government also gains from the donation of the land supposed to be occupied by the streets, made by its owner to the government. ISSUE: Should incidental gains by the public be considered "public purpose" for the purpose of justifying an expenditure of the government? HELD: No. It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose. It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental to the public or to the state, which results from the promotion of private interest and the prosperity of private enterprises or business, does not justify their aid by the use public money. The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public. (26) Pepsi-Cola Bottling Co. vs. City of Butuan GR L-22814, 28 August 1968 24 SCRA 789 Facts: Ordinance 110 was enacted by the City of Butuan imposing a tax of P0.10 per case of 24 bottles of softdrinks or carbonated drinks. The tax was imposed upon dealers engeged in selling softdrinks or 16
carbonated drinks. When Ordinance 110, the tax was imposed upon an agent or consignee of any person, association, partnership, company or corporation engaged in selling softdrinks or carbonated drinks, with “agent or consignee” being particularly defined on the inserted provision Section 3-A. In effect, merchants engaged in the sale of softdrinks, etc. are not subject to the tax unless they are agents or consignees of another dealer who must be one engaged in business outside the City. Pepsi-Cola Bottling Co. filed suit to recover sums paid by it to the city pursuant to the Ordinance, which it claims to be null and void. Issue: Whether the Ordinance is discriminatory. Held: The Ordinance, as amended, is discriminatory since only sales by “agents or consignees” of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales , and even if the same exceeded those made by said agents or consignees of producers or merchants established outside the city, would be exempt from the tax. The classification made in the exercise of the authority to tax, to be valid must be reasonable, which would be satisfied if the classification is based upon substantial distinctions which makes real differences; these are germane to the purpose of legislation or ordinance; the classification applies not only to present conditions but also to future conditions substantially identical to those of the present; and the classification applies equally to all those who belong to the same class. These conditions are not fully met by the ordinance in question. (27) PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. MUNICIPALITY OF TANAUAN GR No. L-31156, February 27, 1976 69 SCRA 460 "Legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the power to tax. FACTS: Plaintiff-appellant Pepsi-Cola commenced a complaint with preliminary injunction to declare Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27 denominated as "municipal production tax" of the Municipality of Tanauan, Leyte, null and void. Ordinance 23 levies and collects from soft drinks producers and manufacturers a tax of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked, and Ordinance 27 levies and collects on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. Aside from the undue delegation of authority, appellant contends that it allows double taxation, and that the subject ordinances are void for they impose percentage or specific tax. ISSUE: Are the contentions of the appellant tenable? HELD: No. On the issue of undue delegation of taxing power, it is settled that the power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government, without being expressly conferred by the people. It is a power that is purely legislative and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing upon the theory of separation of powers. The exception, however, lies in the case of municipal corporations, to which, said theory does not apply. Legislative powers may be delegated to local governments in respect of matters of local concern. By necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the power to tax.
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Also, there is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. The reason is that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law, so that double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the other by the city or municipality. On the last issue raised, the ordinances do not partake of the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax. (28) OSMEÑA vs. ORBOS GR No. 99886, March 31, 1993 220 SCRA 703 " To avoid the taint of unlawful delegation of the power to tax, there must be a standard which implies that the legislature determines matter of principle and lays down fundamental policy." FACTS: Senator John Osmeña assails the constitutionality of paragraph 1c of PD 1956, as amended by EO 137, empowering the Energy Regulatory Board (ERB) to approve the increase of fuel prices or impose additional amounts on petroleum products which proceeds shall accrue to the Oil Price Stabilization Fund (OPSF) established for the reimbursement to ailing oil companies in the event of sudden price increases. The petitioner avers that the collection on oil products establishments is an undue and invalid delegation of legislative power to tax. Further, the petitioner points out that since a 'special fund' consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it was created. It thus appears that the challenge posed by the petitioner is premised primarily on the view that the powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power of the State. ISSUE: Is there an undue delegation of the legislative power of taxation? HELD: None. It seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. Moreover, that the OPSF as a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund." With regard to the alleged undue delegation of legislative power, the Court finds that the provision conferring the authority upon the ERB to impose additional amounts on petroleum products provides a sufficient standard by which the authority must be exercised. In addition to the general policy of the law to protect the local consumer by stabilizing and subsidizing domestic pump rates, P.D. 1956 expressly authorizes the ERB to impose additional amounts to augment the resources of the Fund. (29) Villegas vs, Hiu Chiong Tsai Pao Ho GR L-29646, 10 November 1978 86 SCRA 270 Facts: 18
The Municipal Board of Manila enacted Ordinance 6537 requiring aliens (except those employed in the diplomatic and consular missions of foreign countries, in technical assistance programs of the government and another country, and members of religious orders or congregations) to procure the requisite mayor’s permit so as to be employed or engage in trade in the City of Manila. The permit fee is P50, and the penalty for the violation of the ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or both. Issue: Whether the ordinance imposes a regulatory fee or a tax. Held: The ordinance’s purpose is clearly to raise money under the guise of regulation by exacting P50 from aliens who have been cleared for employment. The amount is unreasonable and excessive because it fails to consider difference in situation among aliens required to pay it, i.e. being casual, permanent, part-time, rankandfile or executive. The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus deprived of their rights to life, liberty and property and therefore violates the due process and equal protection clauses of the Constitution. Further, the ordinance does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion, thus conferring upon the mayor arbitrary and unrestricted powers. (30) Commissioner vs. British Overseas Airways Corp. GR L-65773-74, 30 April 1987 149 SCRA 395 Facts: British Overseas Airways Corp. (BOAC) is a 100% Britis Government-owned corporation engaged in international airline business and is a member of the Interline Air Transport Association, and thus, it operates air transportation service and sells transportation tickets over the routes of the other airline members. From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus did not carry passengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines -Warner Barnes & Co. Ltd., and later, Qantas Airwayus -- which was responsible for selling BOAC tickets covering passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency income taxes against BOAC. Issue: Whether the revenue derived by BOAC from ticket sales in the Philippines for air transportation, while having no landing rights in the Philippines, constitute income of BOAC from Philippine sources, and accordingly, taxable. Held: The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. Herein, the sale of tickets in the Philippines is the activity that produced the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occured within, Philippine territory, enjoying the protection accorded by the Philippine Government. In consideration of such protection, the flow of wealth should share the burden of supporting the government. PD 68, in relation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources. The 2 1/2 %tax on gross billings is an income tax. If it had been intended as an excise or percentage tax, it would have been placed under Title V of the Tax Code covering taxes on business. (31) ATLAS CONSOLIDATED MINING DEVT CORP vs. CIR GR Nos. 141104 & 148763, June 8, 2007 19
524 SCRA 73, 103 "The taxpayer must justify his claim for tax exemption or refund by the clearest grant of organic or statute law and should not be permitted to stand on vague implications." "Export processing zones (EPZA) are effectively considered as foreign territory for tax purposes." FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining, production, and sale of various mineral products, filed claims with the BIR for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales in the taxable quarters of the years 1990 and 1992. BIR did not immediately act on the matter prompting the petitioner to file a petition for review before the CTA. The latter denied the claims on the grounds that for zero-rating to apply, 70% of the company's sales must consists of exports, that the same were not filed within the 2-year prescriptive period (the claim for 1992 quarterly returns were judicially filed only on April 20, 1994), and that petitioner failed to submit substantial evidence to support its claim for refund/credit. The petitioner, on the other hand, contends that CTA failed to consider the following: sales to PASAR and PHILPOS within the EPZA as zero-rated export sales; the 2-year prescriptive period should be counted from the date of filing of the last adjustment return which was April 15, 1993, and not on every end of the applicable quarters; and that the certification of the independent CPA attesting to the correctness of the contents of the summary of suppliers’ invoices or receipts examined, evaluated and audited by said CPA should substantiate its claims. ISSUE: Did the petitioner corporation sufficiently establish the factual bases for its applications for refund/credit of input VAT? HELD: No. Although the Court agreed with the petitioner corporation that the two-year prescriptive period for the filing of claims for refund/credit of input VAT must be counted from the date of filing of the quarterly VAT return, and that sales to PASAR and PHILPOS inside the EPZA are taxed as exports because these export processing zones are to be managed as a separate customs territory from the rest of the Philippines, and thus, for tax purposes, are effectively considered as foreign territory, it still denies the claims of petitioner corporation for refund of its input VAT on its purchases of capital goods and effectively zero-rated sales during the period claimed for not being established and substantiated by appropriate and sufficient evidence. Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority, and should be construed in strictissimi juris against the person or entity claiming the exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant of organic or statute law and should not be permitted to stand on vague implications. (32) THE STANDARD OIL COMPANY OF NEW YORK, plaintiff-appellant, vs. JUAN POSADAS, Jr., Collector of Internal Revenue of the Philippine Islands, defendant-appellee. G.R. No. L-34029 February 26, 1931. 55 Phil 715 FACTS: Standard is a foreign corporation duly authorized to do business in the Philippines. They delivered in the Philippines for the use of US Army, fuel oil and asphalt. Collector of Internal Revenue demanded a tax of one and one-half per cent upon the value of the merchandise by virtue of section 1459 of the Administrative Code and Act No. 3243 of the Philippine Legislature. During the same period Standard delivered fuel to US Navy to be paid in New York , and which contract provided that all internal revenue taxes and charges under 20
the laws of the Philippine Islands were to be assumed and paid by the United States Navy. Collector collected sales tax which was paid by Standard under protest. Standard sue for refund. ISSUE: Whether sales of merchandise made in the Philippines to the United States Army and the United States Navy are subject to the sales tax? HELD: No. It would be absurd to think that a derivative sovereignty like the Government of the Philippine Islands, could tax the instrumentalities of the very Government which brought it into existence. If a sovereign State of the American Union cannot abridge or restrict the activities of the United States Government, much less can a creature of that Government, as the Philippine Government is, do so. (Note the well-considered opinion of Attorney-General Wickersham of June 8, 1912, appearing in 29 Opinions, Attorneys-General, United States, 442.)Judgment reversed, and the record ordered returned to the court of origin for further proceedings, without express finding as to costs in either instance. (33) BOARD OF ASSESSMENT APPEALS OF LAGUNA vs. CTA, NWSA 8 SCRA 224 GR No. L-18125, May 31, 1963 "A tax on property of the Government, whether national or local, would merely have the effect of taking money from one pocket to put it in another pocket." FACTS: National Waterworks and Sewerage Authority (NWSA), a public corporation owned by the Government of the Philippines as well as all property comprising waterworks and sewerage systems placed under it, took over the Cabuyao-Sta. Rosa-Biñan Waterworks System in 1956. It was assessed by the Provincial Assessor of Laguna, for purposes of real estate taxes, on the real properties owned by Cabuyao Waterworks. The respondent protested claiming it is exempted from the payment of real estate taxes in view of the nature and kind of said property and functions and activities of petitioner. The petitioner denied the protest arguing that such real properties are subject to real estate tax because although said properties belong to the Republic of the Philippines, the same holds it, not in its governmental, political or sovereign capacity, but in a private, proprietary or patrimonial character, which, allegedly, is not covered by the exemption contained in section 3(a) of Republic Act No. 470. ISSUE: Are the real properties owned by the respondent public corporation subject to real estate tax? HELD: No. Republic Act No. 470 makes no distinction between property held in a sovereign, governmental or political capacity and those possessed in a private, proprietary or patrimonial character. And where the law does not distinguish neither may we, unless there are facts and circumstances clearly showing that the lawmaker intended the contrary, but no such facts and circumstances have been brought to our attention. Indeed, the noun "property" and the verb "owned" used in said section 3(a) strongly suggest that the object of exemption is considered more from the view point of dominion, than from that of domain. Moreover, taxes are financial burdens imposed for the purpose of raising revenues with which to defray the cost of the operation of the Government, and a tax on property of the Government, whether national or local, would merely have the effect of taking money from one pocket to put it in another pocket. Hence, it would not serve, in the final analysis, the main purpose of taxation. What is more, it would tend to defeat it, on account of the paper work, time and consequently, expenses it would entail. (34) National Development Co vs. Cebu City G.R. No. 51593 November 5, 1992 21
215 SCRA 382 FACTS: National Development Company (NDC) is a GOCC authorized to engage in commercial, industrial, mining, agricultural and other enterprises necessary or contributory to economic development or important to public interest. It also operates subsidiary corporations one of which is National Warehousing Corporation (NWC).On August 10, 1939, the President issued Proclamation No. 430 reserving Block no. 4, Reclamation Area No. 4, of Cebu City for warehousing purposes under the administration of NWC. Subsequently, in 1940, a warehouse with a floor area of 1,940 square meters more or less, was constructed thereon. In 1947, EO 93dissolved NWC with NDC taking over its assets and functions. In 1948, Cebu City assessed and collected from NDC real estate taxes on the land and the warehouse thereon. By the first quarter of 1970, a total of P100,316.31 was paid by NDC 11 of which only P3,895.06 was under protest. NDC asked for a full refund contending that the land and the warehouse belonged to the Republic and therefore exempt from taxation. The CFI ordered Cebu City to refund to NDC the real estate taxes paid by it. ISSUE: WON the NDC is exempt from real estate taxes HELD: No. Ratio: As already adverted to, one of the principal issues before Us is the interpretation of a provision of the Assessment Law, the precursor of the then Real Property Tax Code and the Local Government Code, where" ownership" of the property and not "use" is the test of tax liability. Section, 3 par. (a), of the Assessment Law, on which NDC claims real estate tax exemption, provides Section 3. Property exempt from tax. The exemptions shall be as follows: (a) Property owned by the United States of America, the Commonwealth of the Philippines, any province, city, municipality at municipal district. The same opinion of NDC was passed upon in National Development Co. v. Province of Nueva Ecija where We held that its properties were not comprehended in Sec. 3, par (a), of the Assessment Law. Commonwealth Act No. 182 which created NDC contains no provision exempting it from the payment of reale state tax on properties it may acquire. NDC does not come under classification of municipal or public corporation in the sense that it may sue and be sued in the same manner as any other private corporations, and in this sense, it is an entity different from the government, NPC may be sued without its consent, and is subject to taxation. That plaintiff herein does not exercise sovereign powers and, hence, cannot invoke the exemptions thereof but is an agency for the performance of purely corporate, proprietary or business functions, is apparent from its Organic Act. We find no compelling reason why the foregoing ruling, although referring to lands which would eventually be transferred to private individuals, should not apply equally to this case. NDC cites Board of Assessment Appeals, Province of Laguna v. CTA and National Waterworks and Sewerage Authority (NWSA). In that case, the properties of NWSA, a GOCC, were exempt from real estate tax because Sec. 3, par (c), of R.A. 470 did not distinguish between those possessed by the government in sovereign/governmental/political capacity and those in private proprietary patrimonial character. The conflict between NDC v. Nueva Ecija, supra, and BAA v. CTA and NWSA, is more superficial than real. The NDC decision speaks of properties owned by NDC, while the BAA ruling concerns properties belonging to the Republic In the case at bar, no similar statement appears in the stipulation of facts, hence, ownership of subject properties should first be established. For, while it may be stated that the Republic owns NDC, it does not necessary follow that properties owned by NDC, are also owned by Republic in the same way that stockholders are not ipso facto owners of the properties of their corporation. The Republic may form a corporation with personality and existence distinct from its own. The separate personality allows a GOCC to hold and possess properties in its own name and, thus, permit greater independence and flexibility in its operations. It may, therefore, be stated that tax exemption of property owned by the Republic of the Philippines "refers to properties owned by the Government and by its agencies which do not have separate and distinct personalities (unincorporated entities). 22
The foregoing discussion does not mean that because NDC, like most GOCC's engages in commercial enterprises all properties of the government and its unincorporated agencies possessed in propriety character are taxable. Similarly, in the case at bar, NDC proceeded on the premise that the BAA ruling declared all properties owned by GOCC's as properties in the name of the Republic, hence, exempt under Sec. 3 of the Assessment Law. (35) Manila International Airport Authority vs. CA GR No. 155650, July 20, 2006, 495 SCRA 591 FACTS: Manila International Airport Authority (MIAA) is the operator of the Ninoy International Airport located at Paranaque City. The Officers of Paranaque City sent notices to MIAA due to real estate tax delinquency. MIAA then settled some of the amount. When MIAA failed to settle the entire amount, the officers of Paranaque city threatened to levy and subject to auction the land and buildings of MIAA, which they did. MIAA sought for a Temporary Restraining Order from the CA but failed to do so within the 60 days reglementary period, so the petition was dismissed. MIAA then sought for the TRO with the Supreme Court a day before the public auction, MIAA was granted with the TRO but unfortunately the TRO was received by the Paranaque City officers 3 hours after the public auction. MIAA claims that although the charter provides that the title of the land and building are with MIAA still the ownership is with the Republic of the Philippines. MIAA also contends that it is an instrumentality of the government and as such exempted from real estate tax. That the land and buildings of MIAA are of public dominion therefore cannot be subjected to levy and auction sale. On the other hand, the officers of Paranaque City claim that MIAA is a government owned and controlled corporation therefore not exempted to real estate tax. ISSUE: Whether or not MIAA is an instrumentality of the government and not a government owned and controlled corporation and as such exempted from tax. Whether or not the land and buildings of MIAA are part of the public dominion and thus cannot be the subject of levy and auction sale. HELD: Under the Local government code, government owned and controlled corporations are notexempted from real estate tax. MIAA is not a government owned and controlled corporation, for to become one MIAA should either be a stock or non stock corporation. MIAA is not a stock corporation for its capital is not divided into shares. It is not a non stock corporation since it has no members. MIAA is an instrumentality of the government vested with corporate powers and government functions. Under the civil code, property may either be under public dominion or private ownership. Those under public dominion are owned by the State and are utilized for public use, public service and for the development of national wealth. The ports included in the public dominion pertain either to seaports or airports. When properties under public dominion cease to be for public use and service, they form part of the patrimonial property of the State. The court held that the land and buildings of MIAA are part of the public dominion. Since the airport is devoted for public use, for the domestic and international travel and transportation. Even if MIAA charge fees, this is for support of its operation and for regulation and does not change the character of the land and buildings of MIAA as part of the public dominion. As part of the public dominion the land and buildings of MIAA are outside the commerce of man. To subject them to levy and public auction is contrary to public policy. Unless the President issues a proclamation withdrawing the airport land and buildings from public use, these properties remain to be of public dominion and are inalienable. As long as the land and buildings are for public use the ownership is with the Republic of the Philippines. (36) PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, petitioner, vs. THE HONORABLE COURT OF APPEALS, THE HONORABLE REGIONAL TRIAL COURT, BRANCH 169, MALABON, METRO MANILA, THE MUNICIPALITY OF NAVOTAS, METRO MANILA, HON. FLORANTE M. BARREDO, in his 23
official capacity as Municipal Treasurer of Navotas, Metro Manila, and HON. NORBERTO E. AZARCON, in his capacity as Chairman of the Public Auction Sale Committee of Navotas, Metro Manila, respondent. G.R. No. 150301 October 2, 2007 534 SCRA 490 FACTS: Municipality of Navotas assessed the real estate taxes allegedly due from petitioner Philippine Fisheries Development Authority (PFDA) for the period 1981-1990 on properties under its jurisdiction, management and operation located inside the Navotas Fishing Port Complex (NFPC). Taxes were not paid despite the demands of the treasures hence they give notice of sale by public auction of the properties of PFDA. Petitioner sought the deferment of sale contending they are exempted from such tax. The matter was referred to the DOF and ordered to conduct an ocular inspection to determine who the actual users of the properties concerned are. Despite the order of DOF Navotas proceeded to publish the notice of sale. PFDA instituted a civil case before the RTC to enjoin the auction sale. RTC ruled in favor of PFDA issuing a writ of preliminary injuction. The writ dissolved when PFDA failed to present clear and convincing evidence that they are exempted from real property tax. Upon appeal CA affirmed the ruling of the RTC, hence this petition. ISSUE: Whether or not petitioner is liable to pay real property tax? HELD: No. Section 234 (a) of the LGC states that real property owned by the Republic of the Philippines or any of its political subdivisions is exempted from payment of the real property tax "except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." Thus, as a rule, petitioner PFDA, being an instrumentality20of the national government, is exempt from real property tax but the exemption does not extend to the portions of the NFPC that were leased to taxable or private persons and entities for their beneficial use. In light of the above, petitioner is only liable to pay the amount of P62,841,947.79 representing the total taxes due as of December 31, 2001 from PFDA-owned properties that were leased, as shown in the Summary of Realty Taxes Due Properties Owned and/or Managed by PFDA as per Realty Tax Order of Payment dated September 16, 2002. (37) COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION,respondents. G.R. No. 119761 August 29, 1996 261 SCRA 236 FACTS: The CIR issued a memorandum circular which set an ad valorem tax of 55% to cigarette products of Fortune Tobacco for being foreign branded cigarette without public notification. Thus, private respondent assails said circular on the basis that it violates their own rule that there should be prior notice and hearing before the circular’s implementation considering that said circular is a quasi-legislative function of CIR. The CTA held that petitioner Commissioner of Internal Revenue failed to observe due process of law in issuing RMC 37-93 as there was no prior notice and hearing, and that RMC 37-93 was in itself discriminatory. ISSUE: Whether or not CIR has violated the due process law of taxation? HELD: A legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. In the same way that laws must have the benefit of public hearing, it is generally required that before a legislative rule is adopted there must be hearing. 24
It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. The Court held that the due process of law of taxation has been violated. (38) Eastern Theatrical Co. vs. Alfonso GR L-1104, 31 May 1944 83 PHIL 852 Facts: The municipal board of Manila enacted Ordinance 2958 (series of 1946) imposing a fee on the price of every admission ticket sold by cinematograph theaters, vaudeville companies, theatrical shows and boxing exhibitions, in addition to fees imposed under Sections 633 and 778 of Ordinance 1600. Eastern Theatrical Co., among others, question the validity of ordinance, on the ground that it is unconstitutional for being contrary to the provisions on uniformity and equality of taxation and the equal protection of the laws inasmuch as the ordinance does not tax other kinds of amusement, such as race tracks, cockpits, cabarets, concert halls, circuses, and other places of amusement. Issue: Whether the ordinance violates the rule on uniformity and equality of taxation? Held: Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; and the theater companies cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance. The fact that some places of amusement are not taxed while others, like the ones herein, are taxed is no argument at all against the equality and uniformity of the tax imposition. (39) SILVESTER PUNSALAN VS. MUNICIPAL BOARD OF MANILA G.R. NO. L-4817, 26 MAY 1954 95 PHIL 46 Facts: Petitioners, who are professionals in the city, assail Ordinance No. 3398 together with the law authorizing it (Section 18 of the Revised Charter of the City of Manila). The ordinance imposes a municipal occupation tax on persons exercising various professions in the city and penalizes non-payment of the same. The law authorizing said ordinance empowers the Municipal Board of the city to impose a municipal occupation tax on persons engaged in various professions. Petitioners, having already paid their occupation tax under section 201 of the National Internal Revenue Code, paid the tax under protest as imposed by Ordinance No. 3398. The lower court declared the ordinance invalid and affirmed the validity of the law authorizing it. Issue: Whether or Not the ordinance and law authorizing it constitute class legislation, and authorize what amounts to double taxation. Held: The Legislature may, in its discretion, select what occupations shall be taxed, and in its discretion may tax all, or select classes of occupation for taxation, and leave others untaxed. It is not for the courts to judge which cities or municipalities should be empowered to impose occupation taxes aside from that imposed by the 25
National Government. That matter is within the domain of political departments. The argument against double taxation may not be invoked if one tax is imposed by the state and the other is imposed by the city. It is widely recognized that there is nothing inherently terrible in the requirement that taxes be exacted with respect to the same occupation by both the state and the political subdivisions thereof. Judgment of the lower court is reversed with regards to the ordinance and affirmed as to the law authorizing it. (40) ANTERO M. SISON, JR., petitioner, vs. RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents. G.R. No. L-59431 July 25, 1984 160 SCRA 654 Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly discriminated against him by the imposition of higher rates upon his income as a professional, that it amounts to class legislation, and that it transgresses against the equal protection and due process clauses of the Constitution as well as the rule requiring uniformity in taxation. Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity in taxation? Held: There is a need for proof of such persuasive character as would lead to a conclusion that there was a violation of the due process and equal protection clauses. Absent such showing, the presumption of validity must prevail. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. Where the differentiation conforms to the practical dictates of justice and equity, similar to the standards of equal protection, it is not discriminatory within the meaning of the clause and is therefore uniform. Taxpayers may be classified into different categories, such as recipients of compensation income as against professionals. Recipients of compensation income are not entitled to make deductions for income tax purposes as there is no practically no overhead expense, while professionals and businessmen have no uniform costs or expenses necessary to produce their income. There is ample justification to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income. (41) Juan Luna Subdivision vs. Sarmiento G.R. No. L-3538 May 28, 1952 91 PHIL 371 FACTS: Juan Luna Subdivision is a local corporation which issued a check to the City Treasurer of Manila for amount to be applied to its land tax for the second semester of 1941. The records of the City Treasurer do not show what was done with the check (It appears that it was deposited with the Philippine National Bank [PNB]). After liberation (WWII), the City Treasurer refused to refund the corporation’s deposit or apply it to such future taxes as might be found due, while the Philippine Trust Co (to which the check was presented)was unwilling to reverse its debit entry against Juan Luna Subd. Said amount is also subject of another. ISSUE: Whether the provision allowing the remission covers taxes paid before the enactment of Commonwealth Act 703, or taxes which were still unpaid? 26
HELD: The law is clear that it applies to “taxes and penalties due and payable,” i.e. taxes owed or owing. The remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. Each set of taxes is a class by itself, and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. Herein, they are not. The taxpayers who paid their taxes before liberation and those who had not were not on the same footing on the need of material relief. Taxpayers who had been in arrears in their obligation should have to satisfy their liability with genuine currency, while the taxes paid during the occupation had been satisfied in Japanese War Notes, many of them at a time when those notes were well-nigh worthless. To refund those taxes with restored currency would be unduly enrich many of the payers at a greater expense to the people at large. (42) Association of Custom Brokers vs. Manila GR L-4376, 22 May 1953 93 PHIL 107 Facts: The Association of Customs Brokers, which is composed of all brokers and public service operators of motor vehicles in the City of Manila, challenges the validity of Ordinance 3379 on the grounds (1) that while it levies a so-called property tax, it is in reality a license tax which is beyond the power of the Manila Municipal Board; (2) that said ordinance offends against the rule on uniformity of taxes; and (3) that it constitutes double taxation.
Issue: Whether the ordinance infringes on the rule on uniformity of taxes as ordained by the Constitution? Held: While the tax in the Ordinance refers to property tax and it is fixed ad valorem, it is merely levied on all motor vehicles operating within Manila with the main purpose of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. The ordinance imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition in the Motor Vehicle Law. Further, it does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. The distinction is necessary if the ordinance intends to burden with tax only those registered in Manila as may be inferred from the word “operating” used therein. There is an inequality in the ordinance which renders it offensive to the Constitution. (43) Ormoc Sugar vs. Treasurer of Ormoc City GR L-23794, 17 February 1968 22 SCRA 603 Facts: In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on any and all productions of centrifuga sugar milled at the Ormoc Sugar Co. Inc. in Ormoc City a municpal tax equivalent to 1% per export sale to the United States and other foreign countries. The company paid the said tax under protest. It subsequently filed a case seeking to invalidate the ordinance for being unconstitutional. Issue: Whether the ordinance violates the equal protection clause? Held: The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar Co. Inc. and none other. At the time of the taxing ordinance’s enacted, the company was the only sugar central in Ormoc City. The classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central, of the 27
same class as the present company, from the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to the company as the entity to be levied upon. (44) Misamis Oriental Association of Coco Traders, Inc. vs. Department of Finance Secretary G.R. No. 108524. November 10, 1994 238 SCRA 63
Facts: Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members, individually or collectively, are engaged in the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra was classified as agricultural food product under $ 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or distribution. Under Sec. 103(b) of the NIRC, the sale of agricultural food products in their original state is exempt from VAT at all stages of production or distribution. The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed when copra was classified as an agricultural food product under §103(b) of the NIRC. Petitioner challenges RMC No. 47-91 on various grounds. Issues: (1) Whether the BIR is the proper the competent government agency to determine the proper classification of food products. (2) Whether RMC No. 47-91 is discriminatory and violative of the equal protection clause of the Constitution. Held: The court, as to the first issue, ruled in the affirmative. The BIR, as the government agency charged with the implementation and interpretation of the tax laws, is entitled to great respect. In interpreting Section 103 of the NIRC, the Commissioner of Internal Revenue correctly gave it a strict construction consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state. The ruling was made by the Commissioner of Internal Revenue in the exercise of his power under § 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes.” With regard to the second issue, the court ruled in the negative. Petitioner likewise claims that RMC No. 47-91 is violative of the equal protection clause because while coconut farmers and copra producers are exempt, traders and dealers are not, although both sell copra in its original state. Petitioners add that oil millers do not enjoy tax credit out of the VAT payment of traders and dealers. The argument has no merit. There is a material or substantial difference between coconut farmers and copra producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them differently. It is not true that oil millers are exempt from VAT. Pursuant to § 102 of the NIRC, they are subject to 10% VAT on the sale of services. (45) ARTURO M. TOLENTINO VS. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE 1994 Aug 25 G.R. No. 115455 235 SCRA 630 FACTS: The valued-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code. The Chamber of Real Estate and Builders Association (CREBA) contends that the imposition of VAT on sales and 28
leases by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision of “non-impairment of contracts.” ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it violates the constitutional provision of “nonimpairment of contracts.”? RULING: No. The Supreme Court the contention of CREBA, that the imposition of the VAT on the sales and leases of real estate by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision of non-impairment of contracts, is only slightly less abstract but nonetheless hypothetical. It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society. In truth, the Contract Clause has never been thought as a limitation on the exercise of the State's power of taxation save only where a tax exemption has been granted for a valid consideration. Such is not the case of PAL in G.R. No. 115852, and the Court does not understand it to make this claim. Rather, its position, as discussed above, is that the removal of its tax exemption cannot be made by a general, but only by a specific, law. Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal and substantive aspects as this has been raised in the various cases before it. To sum up, the Court holds: (1) That the procedural requirements of the Constitution have been complied with by Congress in the enactment of the statute; (2) That judicial inquiry whether the formal requirements for the enactment of statutes - beyond those prescribed by the Constitution - have been observed is precluded by the principle of separation of powers; (3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free exercise of religion, nor deny to any of the parties the right to an education; and (4) That, in view of the absence of a factual foundation of record, claims that the law is regressive, oppressive and confiscatory and that it violates vested rights protected under the Contract Clause are prematurely raised and do not justify the grant of prospective relief by writ of prohibition. The petitions are DISMISSED. (46) Kapatiran ng mga Naglilingkod sa Pamahalaan vs. Tan GR L-81311, 30 June 1988 163 SCRA 371 Facts: EO 273 was issued by the President of the Philippines which amended the Revenue Code, adopting the valueadded tax (VAT) effective 1 January 1988. Four petitions assailed the validity of the VAT Law from being beyond the President to enact; for being oppressive, discriminatory, regressive, and violative of the due process and equal protection clauses, among others, of the Constitution. The Integrated Customs Brokers Association particularly contend that it unduly discriminate against customs brokers (Section 103 [r]) as the amended provision of the Tax Code provides that “service performed in the exercise of profession or calling (except custom brokers) subject to occupational tax under the Local Tax Code, and professional services performed by registered general professional partnerships are exempt from VAT. Issue: 29
Whether the E-VAT law is violative of the Constitution provision on equal protection clause? Held: The phrase “except custom brokers” is not meant to discriminate against custom brokers but to avert a potential conflict between Sections 102 and 103 of the Tax Code, as amended. The distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers partake more of a business, rather than a profession and were thus subjected to the percentage tax under Section 174 of the Tax Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the Association did not protest the classification of customs brokers then, there is no reason why it should protest now. (47) Casanovas vs. Hord GR L-3473, 22 March 1907 8 PHIL 125 Facts: In 1897, the Spanish Government, in accordance with the provisions of the royal decree of 14 may 1867, granted J. Casanovas certain mines in the province of Ambos Camarines, of which mines the latter is now the owner. That these were validly perfected mining concessions granted to prior to 11 April 1899 is conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall within the provisions of Section 134 of Act 1189 (Internal Revenue Act). The Commissioner, JNO S. Hord, imposed upon these properties the tax mentioned in Section 134, which Casanovas paid under protest.
Issue: Whether Section 134 of Act 1189 is violative of the Constitutional prohibition against impairment of obligations and contracts? Held: The deed constituted a contract between the Spanish Government and Casanovas. The obligation in the contract was impaired by the enactment of Section 134 of the Internal Revenue La, thereby infringing the provisions of Section 5 of the Act of Congress of 1 July 1902. Furthermore, the section conflicts with Section 60 of the Act of Congress of 1 July 1902, which indicate that concessions can be cancelled only by reason of illegality in the procedure by which they were obtained, or for failure to comply with the conditions prescribed as requisites for their retention in the laws under which they were granted. The grounds were not shown or claimed in the case. As to the allegation that the section violates uniformity of taxation, the Court found it unnecessary to consider the claim in view of the result at which the Court has arrived. (48) Cagayan Electric Power & Light Co. vs. Commissioner GR L-60126, 25 September 1985 138 SCRA 629 Facts: Cagayan Electric is a holder of a legislative franchise under Republic Act 3247 where payment of 3% tax on gross earnings is in lieu of all taxes and assessments upon privileges, etc. In 1968, RA 5431 amended the franchise by making all corporate taxpayers liable for income tax except those indicated in paragraph (c) (1) of Section 24 of the Tax Code. In 1969, through RA 6020, its franchise was extended to two other towns and the tax exemption was reenacted. In 1973, the Commissioner required the company to pay deficiency income taxes for 1968 to 1971. Issue: Whether the withdrawal of the franchise’s tax exemption violates the non-impairment clause of the Constitution? Held:
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Congress could impair the company’s legislative franchise by making it liable for income tax. The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires. RA 3247 itself provides that the franchise is subject to amendment, etc. by Congress. The enactment of RA 5431 had the effect of withdrawing the company’s exemption from income tax. The exemption was restored by the enactment of RA 6020. The company is liable only for the income tax for the period of 1 January to 3 August 1969. (49) ABAKADA Guro Party List vs. Ermita G.R. No. 168056 September 1, 2005 FACTS: Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain a uniform proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have been satisfied. Petitioners argue that the law is unconstitutional. ISSUES: 1. Whether or not there is a violation of Article VI, Section 24 of the Constitution. 2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the Constitution. 3. Whether or not there is a violation of the due process and equal protection under Article III Sec. 1 of the Constitution. RULING: 1. Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and franchise taxes. 2. There is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process can go forward. 3. The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State’s power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination, or arbitrariness. (50) Abra Valley College vs. Aquino GR L-39086, 15 June 1988 162 SCRA 106 Facts: Abra Valley College rents out the ground floor of its college building to Northern Marketing Corporation while the second floor thereof is used by the Director of the College for residential purposes. The municipal and provincial treasurers served upon the College a “notice of seizure” and later a “notice of sale” due to the alleged failure of the College to pay real estate taxes and penalties thereon. The school filed suit to annul said notices, claiming that it is tax-exempt. 31
Issue: Whether or not the tax imposition on the College is violative of the Constitutional prohibition against taxation of religious, charitable, and educational entities? Held: While the Court allows a more liberal and non-restrictive interpretation of the phrase “exclusively used for educational purposes,” reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. While the second floor’s use, as residence of the director, is incidental to education; the lease of the first floor cannot by any stretch of imagination be considered incidental to the purposes of education. The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. (51) Lladoc vs. Commissioner GR L-19201, 16 June 1965 Facts: In 1957, the MB Estate Inc. of Bacolod City donated P10,000 in cash to the parish priest of Victorias, Negros Occidental; the amount spent for the construction of a new Catholic Church in the locality, as intended. In1958, MB Estate filed the donor’s gift tax return. In 1960, the Commissioner issued an assessment for donee’s gift tax against the parish. The priest lodged a protest to the assessment and requested the withdrawal thereof. Issue: Whether or not the tax imposition is violative of the Constitutional prohibition against taxation of religious, charitable, and educational entities? Held: The phrase “exempt from taxation” should not be interpreted to mean exemption from all kinds of taxes. The exemption is only from the payment of taxes assessed on such properties as property taxes as contradistinguished from excise taxes. A donee’s gift tax is not a property tax but an excise tax imposed on the transfer of property by way of gift inter vivos. It does not rest upon general ownership, but an excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties. The imposition of such excise tax on property used for religious purpose do not constitute an impairment of the Constitution. The tax exemption of the parish, thus, does not extend to excise taxes. (52) LUNG CENTER VS. QUEZON CITY GR 144104 June29, 2004 433 SCRA 119 Facts: Lung Center of the Philippines is a non-stock and non-profit entity established by virtue of PD No. 1823. It is the registered owner of the land on which the Lung Center of the Philippines Hospital is erected. A big space in the ground floor of the hospital is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics. Also, a big portion on the right side of the hospital is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center. When the City Assessor of Quezon City assessed both its land and hospital building for real property taxes, the Lung Center of the Philippines filed a claim for exemption on its averment that it is a charitable institution with a minimum of 60% of its hospital beds exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity patients. The claim for exemption was denied, prompting a petition for the reversal of the resolution of the City Assessor with the Local Board of Assessment Appeals of Quezon City, which denied the same. On appeal, the Central Board of Assessment Appeals of Quezon City affirmed the local board’s decision, finding that Lung Center of the Philippines is not a charitable institution and that its properties were not actually, directly and exclusively used for charitable purposes. Hence, the present petition for review with averments that the Lung Center of the Philippines is a charitable institution under Section
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28(3), Article VI of the Constitution, notwithstanding that it accepts paying patients and rents out portions of the hospital building to private individuals and enterprises. Issue: Is the Lung Center of the Philippines a charitable institution within the context of the Constitution, and therefore, exempt from real property tax? Held: The Lung Center of the Philippines is a charitable institution. To determine whether an enterprise is a charitable institution or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, that character of the services rendered, the indefiniteness of the beneficiaries and the use and occupation of the properties. However, under the Constitution, in order to be entitled to exemption from real property tax, there must be clear and unequivocal proof that (1) it is a charitable institution and (2)its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. While portions of the hospital are used for treatment of patients and the dispensation of medical services to them, whether paying or non-paying, other portions thereof are being leased to private individuals and enterprises. Exclusive is defined as possessed and enjoyed to the exclusion of others, debarred from participation or enjoyment. If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. (53) ESSO STANDARD EASTERN, INC. vs. ACTING COMMISSIONER OF CUSTOMS 18 SCRA 488 GR No. L-21841, October 28, 1966 "Exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority." FACTS: Petitioner, engaged in the industry of processing gasoline, oils etc., claims for the refund of special import taxes paid pursuant to the provision of RA 1394 which imposed a special import tax "on all goods, articles or products imported or brought into the Philippines." Exempt from this tax, by express mandate of Section 6 of the same law are "machinery, equipment, accessories, and spare parts, for the use of industries, miners, mining enterprises, planters and farmers". Petitioner argued that the importation it made of gas pumps used by their gasoline station operators should fall under such exemptions, being directly used in its industry. The Collector of Customs of Manila rejected the claim, and so as the Court on Tax Appeals. The CTA noted that the pumps imported were not used in the processing of gasoline and other oil products but by the gasoline stations, owned by the petitioner, for pumping out, from underground barrels, gasoline sold on retail to customers. ISSUE: Is the contention of the petitioner tenable? Does the subject imports fall into the exemptions? HELD: No. The contention runs smack against the familiar rules that exemption from taxation is not favored, and that exemptions in tax statutes are never presumed. Which are but statements in adherence to the ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tested by this precept, we cannot indulge in expansive construction and write into the law an exemption not therein set forth. Rather, we go by the reasonable assumption that where the State has granted in express terms certain exemptions, those are the exemptions to be considered, and no more. Since the law states that, to be tax-exempt, equipment and spare parts should be "for the use of industries", the 33
coverage herein should not be enlarged to include equipment and spare parts for use in dispensing gasoline at retail. (54) G.R. No. L-7988 January 19, 1916 THE YOUNG MEN'S CHRISTIAN ASSOCIATION OF MANILA, plaintiff-appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee. FACTS: The question at issue in this case is whether or not the building and grounds of the Young Men's Christian Association of Manila are subject to taxation, under section 48 of the charter of the city of Manila. The city of Manila, contending that the property is taxable, assessed it and levied a tax thereon. It was paid under protest and this action begun to recover it on the ground that the property was exempt from taxation under the charter of the city of Manila. The decision was for the city and the association appealed. The purposes of this association shall be exclusively religious, charitable and educational, in developing the Christian character and usefulness of its members and in improving the spiritual, mental, social and physical condition of young men. To develop the Christian character and usefulness of its members, to improve the spiritual, intellectual, social and physical condition of young men, and to acquire, hold, mortgage, and dispose of the necessary lands, buildings and personal property for the use of said corporation exclusively for religious, charitable and educational purposes, and not for investment or profit. ISSUE: Whether or not the imposed tax on YMCA is violative of the Constitutional prohibition against taxation on religious, charitable and educational entities? HELD: There is no doubt about the correctness of the contention that an institution must devote itself exclusively to one or the other of the purpose mentioned in the statute before it can be exempt from taxation; but the statute does not say that it must be devoted exclusively to any one of the purposes therein mentioned. It may be a combination of two or three or more of those purposes and still be entitled to exempt. The Young Men's Christian Association of Manila cannot be said to be an institution used exclusively for religious purposes, or an institution used exclusively for charitable purposes, or an institution devoted exclusively to educational purposes; but we believe it can be truthfully said that it is an institution used exclusively for all three purposes, and that, as such, it is entitled to be exempted from taxation. (55) Victorias Milling Co. vs. Municipality of Victorias GR L-21183, 27 September 1968 Facts: Ordinance 1 (1956) was approved by the municipal council of Victorias by way of an amendment to 2 municipal ordinances separately imposing license taxes on operators of sugar centrals and sugar refineries. The changes were: (1) with respect to sugar centrals, by increasing the rates of license taxes; and (2) as to sugar refineries, by increasing the rates of license taxes as well as teh range of graduated schedule of annual output capacity. Victorias Milling questioned the validity of Ordinance 1 as it, among others, allegedly singled out Victorias Milling Co. since it is the only operator of a sugar central and a sugar refinery within the jurisdiction of the municipality. Issue: Whether Ordinance 1 is discriminatory? Held: The ordinance does not single out Victorias as the only object of the ordinance but is made to apply to any sugar central or sugar refinery which may happen to operate in the municipality. The fact that Victorias 34
Milling is actually the sole operator of a sugar central and a sugar refinery does not make the ordinance discriminatory. The ordinance is unlike that in Ormoc Sugar Company vs. Municipal Board of Ormoc City, which specifically spelled out Ormoc Sugar as the subject of the taxation, the name of the company herein was never mentioned in the ordinance. (56) CITY OF ILOILO, plaintiff-appellee, vs. REMEDIOS SIAN VILLANUEVA and EUSEBIO VILLANUEVA, defendants-appellants. G.R. No. L-12695 March 23, 1959 FACTS: Spouses Villanueva owned a four apartment houses (TENEMENT HOUSE).Each apartment is occupied by one family and the food for each is cooked therein. The Municipal Board of Iloilo city enacted Ordinance No.86 which provides to collect from owners of Tenement houses an annual License tax fee. Defendant spouses contends that the ordinance under which the tax is sought to be collected infringes the powers granted to the city by its Charter and that said ordinance is violative of the constitutional provisions requiring uniformity of taxation upon the theory that it is oppressive, unreasonable and discriminatory. Because of the issue of constitutionality raised, the case was elevated to the Court of First Instance of Iloilo. It is however claimed that even if the fees exacted in the ordinance be considered as taxes for purposes of revenue still their exaction may be justified because the same comes within the power granted to the city by its Charter. And in that advocacy the city invokes section 21, paragraph j, of the Charter, which gives the city the power "To tax, fix the license fee for, and regulate hotels, restaurants, refreshment parlors, cafes, lodging houses, boarding houses, livery garages, public warehouses, pawnshops, theaters, cinematographs." The city claims that a tenement house can be considered as one belonging to the group of hotels, lodging houses, or boarding houses therein enumerated. ISSUE: Whether or not said ordinance is violative of the constitutional provisions requiring uniformity of taxation upon the theory that it is oppressive, unreasonable and discriminatory? HELD: It is well-settled that a municipal corporation, unlike a sovereign state, is clothed with no inherent power of taxation. "The charter or statute must plainly show an intent to confer that power or the municipality cannot assume it. And the power when granted is to be construed strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power must be resolved against the municipality. Inferences, implications, deductions — all these — have no place in the interpretation of the taxing power of a municipal corporation. And it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter, the exercise of such power cannot be assumed and hence the ordinance in question is ultra vires insofar as its taxes a tenement house such as those belonging to defendants. (57) Progressive Development Corporation vs. Quezon City GR 36081, 24 April 1989 Facts: The City Council of Quezon City adopted Ordinance 7997 (1969) where privately owned and operated public markets to pay 10% of the gross receipts from stall rentals to the City, as supervision fee. Such ordinance was amended by Ordinance 9236 (1972), which imposed a 5% tax on gross receipts on rentals or lease of space in privately-owned public markets in Quezon City. Progressive Development Corp., owned and operator of Farmer’s Market and Shopping Center, filed a petition for prohibition against the city on the ground that the supervision fee or license tax imposed is in reality a tax on income the city cannot impose. Issue: Whether the supervision fee / license tax is a tax on income? 35
Held: The 5% tax imposed in Ordinance 9236 does not constitute a tax on income, nor a city income tax (distinguished from the national income tax by the Tax Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of business in which the company is engaged. To be considered a license fee, the imposition must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulations for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of the regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well. The gross receipts from stall rentals have been used only as a basis for computing the fees or taxes due to the city to cover the latter’s administrative expenses. The use of the gross amount of stall rentals, as basis for the determination of the collectible amount of license tax, does not by itself convert or render the license tax into a prohibited city tax on income. For ordinarily, the higher the amount of stall rentals, the higher the aggregate volume of foodstuffs and related items sold in the privately owned market; and the higher the volume of goods sold in such market, the greater extent and frequency of inspection and supervision that may be reasonably required in the interest of the buying public. (58) ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS NETWORK, INC. (ECN), Petitioners, vs. DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION (ERC), NATIONAL POWER CORPORATION (NPC), POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT GROUP (PSALM Corp.), STRATEGIC POWER UTILITIES GROUP (SPUG), and PANAY ELECTRIC COMPANY INC. (PECO), Respondents. G.R. No. 159796 July 17, 2007 Facts: RA 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), which sought to impose a universal charge on all end-users of electricity for the purpose of funding NAPOCOR’s projects, was enacted and took effect in 2001. Petitioners contest the constitutionality of the EPIRA, stating that the imposition of the universal charge on all end-users is oppressive and confiscatory and amounts to taxation without representation for not giving the consumers a chance to be heard and be represented. Issue: Whether or not the universal charge is a tax? Held: NO. The assailed universal charge is not a tax, but an exaction in the exercise of the State’s police power. That public welfare is promoted may be gleaned from Sec. 2 of the EPIRA, which enumerates the policies of the State regarding electrification. Moreover, the Special Trust Fund feature of the universal charge reasonably serves and assures the attainment and perpetuity of the purposes for which the universal charge is imposed (e.g. to ensure the viability of the country’s electric power industry), further boosting the position that the same is an exaction primarily in pursuit of the State’s police objectives If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised does not make the imposition a tax. The taxing power may be used as an implement of police power. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. (59) Francia vs. Intermediate Appellate Court GR L-67649, 28 June 1988
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Facts: Engracio Francia was the registered owner of a house and lot located in Pasay City. A portion of such property was expropriated by the Republic of the Philippines in 1977. It appeared that Francia did not pay his real estate taxes from 1963 to 1977. Thus, his property was sold in a public auction by the City Treasurer of Pasay City. Issue: Whether the expropriation payment may compensate for the real estate taxes due? Held: There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. Internal revenue taxes cannot be the subject of compensation. The Government and the taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim of taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. (60) Domingo vs. Garlitos GR L-18993, 29 June 1963 Facts: In Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory the order of the Court of First Instance of Leyte for the payment of estate and inheritance taxes, charges and penalties amounting to P40,058.55 by the Estate of the late Walter Scott Price. The petition for execution filed by the fiscal, however, was denied by the lower court. The Court held that the execution is unjustified as the Government itself is indebted to the Estate for 262,200; and ordered the amount of inheritance taxes be deducted from the Government’s indebtedness to the Estate. Issue: Whether a tax and a debt may be compensated? Held: The court having jurisdiction of the Estate had found that the claim of the Estate against the Government has been recognized and an amount of P262,200 has already been appropriated by a corresponding law (RA 2700). Under the circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount. (61) PHILEX MINING CORP. v. CIR GR No. 125704, August 28, 1998 294 SCRA 687 FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities. ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner? HELD:
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No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence. To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. (62) Roxas y Cia vs CTA 23 SCRA 276 Facts: Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession several properties. To manage the above-mentioned roperties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania.At the conclusion of the WW2, the tenants who have all been tilling the lands in Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually occupied. For its part, the Government, in consonance with the constitutional mandate to acquire big landed estates and apportion them among landless tenantsfarmers, persuaded the Roxas brothers to part with their landholdings. Conferences were held with the farmers in the early part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual occupants for a priceof P2,079,048.47 plus P300,000.00 for survey and subdivision expenses. It turned out however that theGovernment did not have funds to cover the purchase price, and so a special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of P1,500,000.00 as loan.Collateral for such loan were the lands proposed to be sold to the farmers. Under the arrangement, Roxasy Cia. allowed the farmers to buy the lands for the same price but by installment, and contracted with theRehabilitation Finance Corporation to pay its loan from the proceeds of the yearly amortizations paid bythe farmers. The CIR demanded from Roxas y Cia the payment of deficiency income taxes resulting from theinclusion as income of Roxas y Cia. of the unreported 50% of the net profits for 1953 and 1955 derivedfrom the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from grossincome of various business expenses and contributions claimed by Roxas y Cia. and the Roxas brothers.For the reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers oninstallment, the Commissioner considered the partnership as engaged in the business of real estate, hence,100% of the profits derived therefrom was taxed. The Roxas brothers protested the assessment but in as much as said protest was denied, they instituted an appeal in the CTA which sustained the assessment. Hence, this appeal. Issue: Is Roxas y Cia. liable for the payment of deficiency income for the sale of Nasugbu farmlands? Ruling: NO. The proposition of the CIR cannot be favorably accepted in this isolated transaction with its peculiar circumstances in spite of the fact that there were hundreds of vendees. Although they paid for their respective holdings in installment for a period of 10 years, it would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization period. It should be borne in mind thatthe sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only inconsonance with, but more in obedience to the request and pursuant to the policy of our Government 38
toallocate lands to the landless. It was the bounden duty of the Government to pay the agreed compensationafter it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among thefarmers at very reasonable terms and prices. However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way and soldlands directly to the farmers in the same way and under the same terms as would have been the case hadthe Government done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude.In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant toSection 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from thesale thereof is capital gain, taxable only to the extent of 50%. (63) CIR vs. Estate of Benigno Toda; Tax Evasion G.R. No. 147188. September 14, 2004 Facts: Cebiles Insurance Corporation authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90 million. Toda purportedly sold the property for P100 million to Rafael A. Altonaga. However, Altonaga in turn, sold the same property on the same day to Royal Match Inc. for P200 million. These two transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public. For the sale of the property to Royal Dutch, Altonaga paid capital gains tax [6%] in the amount of P10 million. Issue: Whether or not the scheme employed by Cibelis Insurance Company constitutes tax evasion. Ruling: Yes! The scheme, explained the Court, resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud. Fraud in its general sense, “is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another.” It is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not the 35% corporate income tax. Altonaga’s sole purpose of acquiring and transferring title of the subject properties on the same day was to create a tax shelter. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale to him was merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability. In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion. Generally, a sale or exchange of assets will have an income tax incidence only when it is consummated. The incidence of taxation depends upon the substance of a transaction. The tax consequences arising from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be viewed as a whole, and each step from the commencement of negotiations to the consummation of the sale is relevant. A sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title. To permit the true nature of the transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress. To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. 39
Hence, the sale to Altonaga should be disregarded for income tax purposes. The two sale transactions should be treated as a single direct sale by CIC to RMI. (64) CIR vs. PASCOR REALTY & DEV’T CORP et. al. GR No. 128315, June 29, 1999 Facts: The CIR authorized certain BIR officers to examine the books of accounts and other accounting records of Pascor Realty and Development Corp. (PRDC) for 1986, 1987 and 1988. The examination resulted in recommendation for the issuance of an assessment of P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively. On March 1, 1995, Commissioner filed a criminal complaint for tax evasion against PRDC, its president and treasurer before the DOJ. Private respondents filed immediately an urgent request for reconsideration on reinvestigation disputing the tax assessment and tax liability. On March 23, 1995, private respondents received a subpoena from the DOJ in connection with the criminal complaint. In a letter dated, May 17, 1995, the Commissioner denied private respondent’s request for reconsideration (reinvestigation on the ground that no formal assessment has been issued which the latter elevated to the CTA on a petition for review. The Commissioner’s motion to dismiss on the ground of the CTA’s lack of jurisdiction inasmuch as no formal assessment was issued against private respondent was denied by CTA and ordered the Commissioner to file an answer but did not instead filed a petition with the CA alleging grave abuse of discretion and lack of jurisdiction on the part of CTA for considering the affidavit/report of the revenue officers and the endorsement of said report as assessment which may be appealed to the CTA. The CA sustained the CTA decision and dismissed the petition. Issues: 1. Whether or not the criminal complaint for tax evasion can be construed as an assessment. 2. Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted. Held: The filing of the criminal complaint with the DOJ cannot be construed as a formal assessment. Neither the Tax Code nor the revenue regulations governing the protest assessments provide a specific definition or form of an assessment. An assessment must be sent to and received by the taxpayer, and must demand payment of the taxes described therein within a specific period. The revenue officer’s affidavit merely contained a computation of respondent’s tax liability. It did not state a demand or period for payment. It was addressed to the Secretary of Justice not to the taxpayer. They joint affidavit was meant to support the criminal complaint for tax evasion; it was not meant to be a notice of tax due and a demand to private respondents for the payment thereof. The fact that the complaint was sent to the DOJ, and not to private respondent, shows that commissioner intended to file a criminal complaint for tax evasion, not to issue an assessment. An assessment is not necessary before criminal charges can be filed. A criminal charge need not only be supported by a prima facie showing of failure to file a required return. The CIR had, in such tax evasion cases, discretion on whether to issue an assessment, or to file a criminal case against the taxpayer, or to do both.
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