summary of the case. A case sometimes involves several issues.

Digesting the same would help the

student in separating one issue from another and understanding how the Court resolved the issues in the
case. The student does not need to discuss all the issues decided in the case in his case digest. He only
needs to focus on the relevant issue or theissue related to the subject that he is taking. A case digest may
also serve as a useful study aid for class discussions and exams. A student who has a case digest does not
need to go back to the case in order to remember what he has read.

Format of the Case Digest

I. Caption. This includes the title of the case, the date it was decided, and citation. Include also the
petitioner, respondent, and the ponente.
II. Facts. There is no need to include all the facts. Just include those that are relevant to the subject.
III. Issues. Include only those that are relevant. Issues are usually framed in the form of questions that are
answerable by "yes" or "no," for example, "Is the contract void?" Sometimes, students frame the question
by starting it with the word "whether," for example, "Whether the contract is void" or "Whether or not the
contract is void." The answer to the question has to be answered in the ruling.
IV. Ruling. This usually starts with a "yes" or a "no." This is the answer to the question/s involving
theissue. After the categorical yes/no answer, the reason for the decision will be explained.
V. Concurring and Dissenting Opinions. This part is optional, but it would help to include them because
there are professors who ask for separate opinions in recitations.

Sample Case Digest

DOMINGO VS. COURT OF APPEALS
226 SCRA 572
Petitioner: Roberto Domingo
Respondents: Court of Appeals and Delia Soledad Avera
Ponente: J. Romero
FACTS:

On May 29, 1991, private respondent Delia Soledad A. Domingo filed the petition entitled "Declaration
of Nullity of Marriage and Separation of Property" against Roberto Domingo. The petition, which was
filed before Pasig RTC, alleged the following:
(a) they were married on November 29, 1976;
(b) unknown to her (Delia), he had a previous marriage with Emerina dela Paz on April 25, 1969 which
marriage is valid and still existing;
(c) she came to know of the prior marriage only sometime in 1983 when Emerina sued them for bigamy;
(d) since 1979, she has been working in Saudi Arabia and is only able to stay in the Philippines when she
would avail of the one-month annual vacation leave granted by her employer;
(e) Roberto has been unemployed and completely dependent upon her for support and subsistence;
(f) Her personal properties amounting to P350,000.00 are under the possession of Roberto, who disposed
some of the said properties without her knowledge and consent;
(g) while on her vacation, she discovered that he was cohabiting with another woman.
Petitioner filed a Motion to Dismiss on the ground that the declaration of their marriage, which is void ab
initio, is superfluous and unnecessary. He further suggested that private respondent should have filed an
ordinary civil action for the recovery of the properties alleged to have been acquired by their union.
RTC and CA dismissed the petitioner's motion for lack of merit.
ISSUES:
1) Whether or not a petition for judicial delaration of a void marriage is necessary. (If in the affirmative,
whether the same should be filed only for purpose of remarriage.)
2) Whether or not the petition entitled "Declaration of Nullity of Marriage and Separation of Property" is
the proper remedy of private respondent to recover certain real and personal properties allegedly
belonging to her exclusively.
HELD:
1) Yes. The nullification of a marriage for the purpose of contracting another cannot be accomplished
merely on the basis of the perception of both parties or of one that their union is defective. Were this so,
this inviolable social institution would be reduced to a mockery and would rest on a very shaky
foundation.

On the other hand, the clause "on the basis solely of a final judgment delaring such marriage void" in
Article 40 of the Code denotes that such final judgment declaring the previous marriage void is not only
for purpose of remarriage.
2) Yes. The prayer for declaration of absolute nullity of marriage may be raised together with the other
incident of their marriage such as the separation of their properties. The Family Code has clearly provided
the effects of the declaration of nullity of marriage, one of which is the separation of property according
to the regime of property relations governing them.
Hence, SC denied the instant petition. CA's decision is affirmed.

1. Guerrero v.

Bihis

521 SCRA 394

FACTS:
Felisa Tamio de Buenaventura, mother of petitioner Bella A. Guerreroand respondent Resurreccion A.
Bihis, died. Guerrero filed for probate in the RTC QC. Respondent Bihis opposed her elder sisters
petition on the following grounds: the will was not executed and attested as required bylaw;
its attestation clause and acknowledgment did not comply with therequirements of the law; the signature
of the testatrix was procured by fraud and petitioner and her children procured the will through undue and
improper pressure and influence. Petitioner Guerrero was appointes special administratrix. Respondent
opposed petitioners appointmentbut subsequently withdrew her opposition. The trial court denied the
probate of the will ruling that Article 806 of the Civil Code was not complied with because the will was
acknowledged by the testatrix and the witnesses at the testatrixs residence at No. 40 Kanlaon Street,

Quezon City before Atty. Macario O. Directo who was a commissioned notary public for and in Caloocan
City.
ISSUE:
Did the will acknowledged by the testatrix and the instrumental witnesses before a notary public acting
outside the place of his commission satisfy the requirement under Article 806 of the Civil Code?
HELD:
No. One of the formalities required by law in connection with the execution of a notarial will is that it
must be acknowledged before a notary public by the testator and the witnesses. 6 This formal requirement
is one of the indispensable requisites for the validity of a will. 7 In other words, a notarial will that is not
acknowledged before a notary public by the testator and the instrumental witnesses is void and cannot be
accepted for probate.
The Notarial law provides: SECTION 240.Territorial jurisdiction. The jurisdiction of a notary public in
a province shall be co-extensive with the province. The jurisdiction of a notary public in the City of
Manila shall be co-extensive with said city. No notary shall possess authority to do any notarial act
beyond the limits of his jurisdiction.
The compulsory language of Article 806 of the Civil Code was not complied with and the interdiction of
Article 240 of the Notarial Law was breached. Ineluctably, the acts of the testatrix, her witnesses and
Atty.Directo were all completely void.

2
FIRST DIVISION
DEVELOPMENT BANK OF G.R. No. 172248
THE PHILIPPINES,
Petitioner,
Present:
PUNO, C.J., Chairperson,
CORONA,
- v e r s u s - CARPIO MORALES,*
AZCUNA and
LEONARDO-DE CASTRO, JJ.

ELLA GAGARANI, ISAGANI,

ADRIAN, NATHANIEL, NIEVA,
JONATHAN, DIONESIO,
FLORENCE and JEREMIAS,
all surnamed ASOK,
Respondents. Promulgated:
September 17, 2008
x---------------------------------------------------x
RESOLUTION
CORONA, J.:
This is a petition for review on certiorari [1] of the December 14, 2005 decision[2] and March 28, 2006
resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 64259.
The spouses Dionesio and Matea S. Asok owned several parcels of land. Upon their death on
September 14, 1973 and February 22, 1982, respectively, their eleven children inherited the
properties. One of the lands inherited was a lot covered by Original Certificate of Title (OCT) No. P4272, a free patent issued on July 19, 1967, located at Pagawan, Manticao, Misamis Oriental with an area
of 39,552 sq. m.[4]
Pursuant to the extrajudicial settlement of the estate with quitclaim executed by the spouses children, the
subject property was inherited by Denison Asok (Asok). As a result, OCT No. P-4272 was cancelled and
Transfer Certificate of Title (TCT) No. T-9626 was issued and registered in his name on November 17,
1987.[5]
On August 31, 1989, Asok and his wife, respondent Ella Gagarani Asok, borrowed P100,000
from petitioner Development Bank of the Philippines, a government financial institution created and
operating under EO 81,[6] as amended by RA 8523. They mortgaged the subject lot as collateral to
guarantee payment of the loan. On due date, however, they failed to pay the loan and the mortgage was
extrajudicially foreclosed pursuant to Act 3135. [7] Petitioner emerged as the highest bidder with a bid
of P163,297.[8]

On November 28, 1991, a certificate of sale was issued in favor of petitioner. This was registered on
December 24, 1992.[9] On March 25, 1998, petitioners ownership over the property was consolidated and
TCT No. T-27172 was issued in its name.[10]
Meanwhile, Asok died on October 24, 1993 and was succeeded by his surviving spouse and
children (respondents).[11]
On May 15, 1998, respondents filed a complaint for repurchase against petitioner in the Regional
Trial Court (RTC) of Initao, Misamis Oriental, Branch 44, docketed as Civil Case No. 98-68. On July 3,
1998, they filed an amended complaint on learning that TCT No. T-9626 had been cancelled by TCT No.
T-27172 issued in the name of petitioner. They invoked their right to repurchase the property under Sec.
119 of CA 141, as amended:[12]
Sec. 119. Every conveyance of land acquired under the free patent or homestead
provisions, when proper, shall be subject to repurchase by the applicant, his widow, or
legal heirs, within a period of five years from date of the conveyance.

In a decision dated January 7, 1999, the RTC dismissed the complaint. Reconsideration was
denied on February 3, 1999.[13]It ruled that the one-year period for redemption should be reckoned from
the date of sale, i.e., November 28, 1991. Then the five-year period provided under Sec. 119 of CA 141
should be counted from the expiration of the redemption period, i.e., November 28, 1992. Therefore,
respondents had until November 28, 1997 to exercise their right to repurchase. However, the complaint
was filed on May 15, 1998 which was beyond the prescribed period. [14]
Aggrieved, respondents appealed to the CA. In a decision dated December 14, 2005, the CA reversed and
set aside the RTC decision. Reconsideration was denied in a resolution dated March 28, 2006. It held that
the period of redemption started from the date of registration of the certificate of sale, i.e., December 24,
1992, and not from the date of sale. Thus, respondents had until December 24, 1998 to repurchase the
property and the complaint was seasonably filed. [15]
Hence this petition.

Petitioner raises the following issues: (1) whether Sec. 119 of CA 141 is applicable in this case;
(2) whether respondents are the legal heirs of the patentees and (3) whether the right to repurchase has
already prescribed.
The petition lacks merit.
Petitioner contends that respondents cannot claim the right under Sec. 119 which covers
homesteads and free patents because the free patent issued to Asoks parents had already been cancelled
and a new TCT had in fact been issued to him. Thus, the property mortgaged to it was no longer covered
by a free patent but by a TCT.[16]
This contention deserves scant consideration.
The plain intent of Sec. 119 is to give the homesteader or patentee every chance to preserve and
keep in the family the land that the State has gratuitously given him as a reward for his labor in cleaning,
developing and cultivating it.[17] Hence, the fact that the land had been inherited by the patentees son (and
a new title in his name issued) does not bring it outside the purview of Sec. 119. In fact, the policy behind
the law is fulfilled because the land remains in the family of the patentee. As we explained in Ferrer v.
Mangente:[18]
The applicant for a homestead is to be given all the inducement that the law offers and is
entitled to its full protection. Its blessings, however, do not stop with him. This is
particularly so in this case as the appellee is the son of the deceased. There is no question
then as to his status of being a legal heir. The policy of the law is not difficult to
understand. The incentive for a pioneer to venture into developing virgin land becomes
more attractive if he is assured that his effort will not go for naught should perchance his
life be cut short. This is merely a recognition of how closely bound parents and children
are in a Filipino family. Logic, the sense of fitness and of right, as well as pragmatic
considerations thus call for continued adherence to the policy that not the individual
applicant alone but those so closely related to him as are entitled to legal succession may
take full advantage of the benefits the law confers. [19]
Having ruled that Sec. 119 is applicable to this case, we now go to the next issue: are respondents the
legal heirs contemplated in the provision?

Petitioner argues that respondents are not the legal heirs of the patentees because respondents are
merely their daughter-in-law and grandchildren.
We disagree. In line with the rationale behind Sec. 119, we reject a restricted definition of legal
heirs. It is used in a broad sense and the law makes no distinctions. [20] In Madarcos v. de la Merced,[21] we
held that:
The term legal heirs is used in Section 119 in a generic sense. It is broad enough
to cover any person who is called to the succession either by provision of a will or by
operation of law. Thus, legal heirs include both testate and intestate heirs depending upon
whether succession is by the will of the testator or by law. Legal heirs are not necessarily
compulsory heirs but they may be so if the law reserves a legitime for them.
xxx xxx xxx
Verily, petitioners are legal heirs. Having been decreed under the rules on
intestacy as entitled to succeed to the estate of the Catain spouses due to the absence of
compulsory heirs, they now step into the shoes of the decedents. They should be
considered as among the legal heirs contemplated by Section 119 as entitled to redeem
the homestead.
The above interpretation of "legal heirs" as contra-distinguished from the
restrictive construction given it by the lower court is more in keeping with the salutary
purpose behind the enactment of Section 119 and the jurisprudence laid down on the
matter. Indeed, it is not far-fetched to arrive at a more liberal conclusion if the section is
analyzed in accordance with its purpose xxxx[22]

Respondents inherited the property from Asok, their husband and father, who in turn inherited it
from his parents. Respondent Ella Gagarani Asok, as daughter-in-law of the patentees, can be considered
as among the legal heirs who can repurchase the land in accordance with Salenillas v. CA.[23] In that case,
we allowed the daughter and son-in-law of the patentees to repurchase the property because this would be
more in keeping with the spirit of the law. We have time and again said that between two statutory
interpretations, that which better serves the purpose of the law should prevail. [24] Furthermore, the law
must be liberally construed in order to carry out its purpose. [25]

Finally, petitioner asserts that even if respondents could be considered as being entitled to the
right under Sec. 119, this had already prescribed because the period should be counted from the date of
conveyance which means the date of sale and not the date of registration of the certificate of sale.
This argument lacks merit.
This is far from a novel issue. It was already resolved in Rural Bank of Davao City, Inc. v. CA:[26]
Thus, the rules on redemption in the case of an extrajudicial foreclosure of land
acquired under free patent or homestead statutes may be summarized as follows: xxx If
the land is mortgaged to parties other than rural banks, the mortgagor may redeem the
property within one (1) year from the registration of the certificate of sale pursuant to
Act No. 3135. If he fails to do so, he or his heirs may repurchase the property within five
(5) years from the expiration of the redemption period also pursuant to Section 119 of the
Public Land Act.[27]
There is no dispute that in extrajudicial foreclosures under Act 3135, the debtor or his or her
successors-in-interest may redeem the property within one year. This redemption period should be
reckoned from the date of registration of the certificate of sale. [28] The five-year period fixed in Sec. 119
begins to run from the expiration of the one-year redemption period. [29] Here, the certificate of sale was
registered on December 24, 1992 and the one-year redemption period expired on December 24,
1993.Reckoned from that day, respondents had a five-year period, or until December 24, 1998, to exercise
their right to repurchase under Sec. 119 of CA 141. Consequently, the CA was correct in holding that the
complaint filed on May 15, 1998 was on time.
WHEREFORE, the petition is hereby DENIED. Petitioner Development Bank of the
Philippines is ordered to execute a deed of reconveyance in favor of respondents upon payment by the
latter of the redemption price.
No costs.
SO ORDERED.

3. Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 172087

March 15, 2011

PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR), Petitioner,

vs.
THE BUREAU OF INTERNAL REVENUE (BIR), represented herein by HON. JOSE MARIO
BUAG, in his official capacity as COMMISSIONER OF INTERNAL REVENUE, Public
Respondent,
JOHN DOE and JANE DOE, who are persons acting for, in behalf, or under the authority of
Respondent. Public and Private Respondents.

DECISION
PERALTA, J.:
For resolution of this Court is the Petition for Certiorari and Prohibition1 with prayer for the issuance of a
Temporary Restraining Order and/or Preliminary Injunction, dated April 17, 2006, of petitioner Philippine
Amusement and Gaming Corporation (PAGCOR), seeking the declaration of nullity of Section 1 of
Republic Act (R.A.) No. 9337 insofar as it amends Section 27 (c) of the National Internal Revenue Code
of 1997, by excluding petitioner from exemption from corporate income tax for being repugnant to
Sections 1 and 10 of Article III of the Constitution. Petitioner further seeks to prohibit the implementation
of Bureau of Internal Revenue (BIR) Revenue Regulations No. 16-2005 for being contrary to law.
The undisputed facts follow.
PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A 2 on January 1, 1977.
Simultaneous to its creation, P.D. No. 1067-B3 (supplementing P.D. No. 1067-A) was issued exempting
PAGCOR from the payment of any type of tax, except a franchise tax of five percent (5%) of the gross
revenue.4 Thereafter, on June 2, 1978, P.D. No. 1399 was issued expanding the scope of PAGCORs
exemption.5

To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No. 1869 6 was issued.
Section 13 thereof reads as follows:
Sec. 13. Exemptions. x x x
(1) Customs Duties, taxes and other imposts on importations. All importations of equipment, vehicles,
automobiles, boats, ships, barges, aircraft and such other gambling paraphernalia, including accessories or
related facilities, for the sole and exclusive use of the casinos, the proper and efficient management and
administration thereof and such other clubs, recreation or amusement places to be established under and
by virtue of this Franchise shall be exempt from the payment of duties, taxes and other imposts, including
all kinds of fees, levies, or charges of any kind or nature.
Vessels and/or accessory ferry boats imported or to be imported by any corporation having existing
contractual arrangements with the Corporation, for the sole and exclusive use of the casino or to be used
to service the operations and requirements of the casino, shall likewise be totally exempt from the
payment of all customs duties, taxes and other imposts, including all kinds of fees, levies, assessments or
charges of any kind or nature, whether National or Local.
(2) Income and other taxes. (a) Franchise Holder: No tax of any kind or form, income or
otherwise, as well as fees, charges, or levies of whatever nature, whether National or Local, shall be
assessed and collected under this Franchise from the Corporation; nor shall any form of tax or
charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five percent
(5%)of the gross revenue or earnings derived by the Corporation from its operation under this
Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in
lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied,
established, or collected by any municipal, provincial or national government authority.
(b) Others: The exemption herein granted for earnings derived from the operations conducted under the
franchise, specifically from the payment of any tax, income or otherwise, as well as any form of charges,
fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or
individual(s) with whom the Corporation or operator has any contractual relationship in connection with
the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving
compensation or other remuneration from the Corporation as a result of essential facilities furnished
and/or technical services rendered to the Corporation or operator.
The fee or remuneration of foreign entertainers contracted by the Corporation or operator in pursuance of
this provision shall be free of any tax.
(3) Dividend Income. Notwithstanding any provision of law to the contrary, in the event the Corporation
should declare a cash dividend income corresponding to the participation of the private sector shall, as an
incentive to the beneficiaries, be subject only to a final flat income rate of ten percent (10%) of the
regular income tax rates. The dividend income shall not in such case be considered as part of the
beneficiaries taxable income; provided, however, that such dividend income shall be totally exempted

from income or other form of taxes if invested within six (6) months from the date the dividend income is
received in the following:
(a) operation of the casino(s) or investments in any affiliate activity that will ultimately redound to the
benefit of the Corporation; or any other corporation with whom the Corporation has any existing
arrangements in connection with or related to the operations of the casino(s);
(b) Government bonds, securities, treasury notes, or government debentures; or
(c) BOI-registered or export-oriented corporation(s). 7
PAGCORs tax exemption was removed in June 1984 through P.D. No. 1931, but it was later restored by
Letter of Instruction No. 1430, which was issued in September 1984.
On January 1, 1998, R.A. No. 8424, 8 otherwise known as the National Internal Revenue Code of 1997,
took effect. Section 27 (c) of R.A. No. 8424 provides that government-owned and controlled corporations
(GOCCs) shall pay corporate income tax, except petitioner PAGCOR, the Government Service and
Insurance Corporation, the Social Security System, the Philippine Health Insurance Corporation, and the
Philippine Charity Sweepstakes Office, thus:
(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. The provisions of
existing special general laws to the contrary notwithstanding, all corporations, agencies or
instrumentalities owned and controlled by the Government,except the Government Service and
Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance
Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO), and the Philippine
Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable
income as are imposed by this Section upon corporations or associations engaged in similar business,
industry, or activity.9
With the enactment of R.A. No. 9337 10 on May 24, 2005, certain sections of the National Internal
Revenue Code of 1997 were amended. The particular amendment that is at issue in this case is Section 1
of R.A. No. 9337, which amended Section 27 (c) of the National Internal Revenue Code of 1997 by
excluding PAGCOR from the enumeration of GOCCs that are exempt from payment of corporate income
tax, thus:
(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. The provisions of
existing special general laws to the contrary notwithstanding, all corporations, agencies, or
instrumentalities owned and controlled by the Government,except the Government Service and
Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance
Corporation (PHIC), and the Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of
tax upon their taxable income as are imposed by this Section upon corporations or associations engaged
in similar business, industry, or activity.

Different groups came to this Court via petitions for certiorari and prohibition11 assailing the validity and
constitutionality of R.A. No. 9337, in particular:
1) Section 4, which imposes a 10% Value Added Tax (VAT) on sale of goods and properties; Section 5,
which imposes a 10% VAT on importation of goods; and Section 6, which imposes a 10% VAT on sale of
services and use or lease of properties, all contain a uniform proviso authorizing the President, upon the
recommendation of the Secretary of Finance, to raise the VAT rate to 12%. The said provisions were
alleged to be violative of Section 28 (2), Article VI of the Constitution, which section vests in Congress
the exclusive authority to fix the rate of taxes, and of Section 1, Article III of the Constitution on due
process, as well as of Section 26 (2), Article VI of the Constitution, which section provides for the no
amendment rule upon the last reading of a bill;
2) Sections 8 and 12 were alleged to be violative of Section 1, Article III of the Constitution, or the
guarantee of equal protection of the laws, and Section 28 (1), Article VI of the Constitution; and
3) other technical aspects of the passage of the law, questioning the manner it was passed.
On September 1, 2005, the Court dismissed all the petitions and upheld the constitutionality of R.A. No.
9337.12
On the same date, respondent BIR issued Revenue Regulations (RR) No. 16-2005,13 specifically
identifying PAGCOR as one of the franchisees subject to 10% VAT imposed under Section 108 of the
National Internal Revenue Code of 1997, as amended by R.A. No. 9337. The said revenue regulation, in
part, reads:
Sec. 4. 108-3. Definitions and Specific Rules on Selected Services.
xxxx
(h) x x x
Gross Receipts of all other franchisees, other than those covered by Sec. 119 of the Tax Code, regardless
of how their franchisees may have been granted, shall be subject to the 10% VAT imposed under Sec.108
of the Tax Code. This includes, among others, the Philippine Amusement and Gaming Corporation
(PAGCOR), and its licensees or franchisees.
Hence, the present petition for certiorari.
PAGCOR raises the following issues:
I
WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING
REPUGNANT TO THE EQUAL PROTECTION [CLAUSE] EMBODIED IN SECTION 1, ARTICLE III
OF THE 1987 CONSTITUTION.
II

WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING
REPUGNANT TO THE NON-IMPAIRMENT [CLAUSE] EMBODIED IN SECTION 10, ARTICLE III
OF THE 1987 CONSTITUTION.
III
WHETHER OR NOT RR 16-2005, SECTION 4.108-3, PARAGRAPH (H) IS NULL AND VOID AB
INITIOFOR BEING BEYOND THE SCOPE OF THE BASIC LAW, RA 8424, SECTION 108,
INSOFAR AS THE SAID REGULATION IMPOSED VAT ON THE SERVICES OF THE PETITIONER
AS WELL AS PETITIONERS LICENSEES OR FRANCHISEES WHEN THE BASIC LAW, AS
INTERPRETED BY APPLICABLE JURISPRUDENCE, DOES NOT IMPOSE VAT ON PETITIONER
OR ON PETITIONERS LICENSEES OR FRANCHISEES.14
The BIR, in its Comment15 dated December 29, 2006, counters:
I
SECTION 1 OF R.A. NO. 9337 AND SECTION 13 (2) OF P.D. 1869 ARE BOTH VALID AND
CONSTITUTIONAL PROVISIONS OF LAWS THAT SHOULD BE HARMONIOUSLY CONSTRUED
TOGETHER SO AS TO GIVE EFFECT TO ALL OF THEIR PROVISIONS WHENEVER POSSIBLE.
II
SECTION 1 OF R.A. NO. 9337 IS NOT VIOLATIVE OF SECTION 1 AND SECTION 10, ARTICLE III
OF THE 1987 CONSTITUTION.
III
BIR REVENUE REGULATIONS ARE PRESUMED VALID AND CONSTITUTIONAL UNTIL
STRICKEN DOWN BY LAWFUL AUTHORITIES.
The Office of the Solicitor General (OSG), by way of Manifestation In Lieu of Comment,16 concurred
with the arguments of the petitioner. It added that although the State is free to select the subjects of
taxation and that the inequity resulting from singling out a particular class for taxation or exemption is not
an infringement of the constitutional limitation, a tax law must operate with the same force and effect to
all persons, firms and corporations placed in a similar situation. Furthermore, according to the OSG,
public respondent BIR exceeded its statutory authority when it enacted RR No. 16-2005, because the
latters provisions are contrary to the mandates of P.D. No. 1869 in relation to R.A. No. 9337.
The main issue is whether or not PAGCOR is still exempt from corporate income tax and VAT with the
enactment of R.A. No. 9337.
After a careful study of the positions presented by the parties, this Court finds the petition partly
meritorious.
Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National Internal Revenue Code of
1977, petitioner is no longer exempt from corporate income tax as it has been effectively omitted from the

list of GOCCs that are exempt from it. Petitioner argues that such omission is unconstitutional, as it is
violative of its right to equal protection of the laws under Section 1, Article III of the Constitution:
Sec. 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any
person be denied the equal protection of the laws.
In City of Manila v. Laguio, Jr.,17 this Court expounded the meaning and scope of equal protection, thus:
Equal protection requires that all persons or things similarly situated should be treated alike, both as to
rights conferred and responsibilities imposed. Similar subjects, in other words, should not be treated
differently, so as to give undue favor to some and unjustly discriminate against others. The guarantee
means that no person or class of persons shall be denied the same protection of laws which is enjoyed by
other persons or other classes in like circumstances. The equal protection of the laws is a pledge of the
protection of equal laws. It limits governmental discrimination. The equal protection clause extends to
artificial persons but only insofar as their property is concerned.
xxxx
Legislative bodies are allowed to classify the subjects of legislation. If the classification is reasonable, the
law may operate only on some and not all of the people without violating the equal protection clause. The
classification must, as an indispensable requisite, not be arbitrary. To be valid, it must conform to the
following requirements:
1) It must be based on substantial distinctions.
2) It must be germane to the purposes of the law.
3) It must not be limited to existing conditions only.
4) It must apply equally to all members of the class. 18
It is not contested that before the enactment of R.A. No. 9337, petitioner was one of the five GOCCs
exempted from payment of corporate income tax as shown in R.A. No. 8424, Section 27 (c) of which,
reads:
(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. The provisions of
existing special or general laws to the contrary notwithstanding, all corporations, agencies or
instrumentalities owned and controlled by the Government, except the Government Service and Insurance
Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation
(PHIC), the Philippine Charity Sweepstakes Office (PCSO), and the Philippine Amusement and
Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are imposed
by this Section upon corporations or associations engaged in similar business, industry, or activity. 19
A perusal of the legislative records of the Bicameral Conference Meeting of the Committee on Ways on
Means dated October 27, 1997 would show that the exemption of PAGCOR from the payment of
corporate income tax was due to the acquiescence of the Committee on Ways on Means to the

request of PAGCOR that it be exempt from such tax. 20 The records of the Bicameral Conference
Meeting reveal:
HON. R. DIAZ. The other thing, sir, is we I noticed we imposed a tax on lotto winnings.
CHAIRMAN ENRILE. Wala na, tinanggal na namin yon.
HON. R. DIAZ. Tinanggal na ba natin yon?
CHAIRMAN ENRILE. Oo.
HON. R. DIAZ. Because I was wondering whether we covered the tax on Whether on a universal
basis, we included a tax on cockfighting winnings.
CHAIRMAN ENRILE. No, we removed the
HON. R. DIAZ. I . . . (inaudible) natin yong lotto?
CHAIRMAN ENRILE. Pati PAGCOR tinanggal upon request.
CHAIRMAN JAVIER. Yeah, Philippine Insurance Commission.
CHAIRMAN ENRILE. Philippine Insurance Health, health ba. Yon ang request ng Chairman, I will
accept. (laughter) Pag-Pag-ibig yon, maliliit na sa tao yon.
HON. ROXAS. Mr. Chairman, I wonder if in the revenue gainers if we factored in an amount that would
reflect the VAT and other sales taxes
CHAIRMAN ENRILE. No, were talking of this measure only. We will not (discontinued)
HON. ROXAS. No, no, no, no, from the arising from the exemption. Assuming that when we release
the money into the hands of the public, they will not use that to for wallpaper. They will spend that eh,
Mr. Chairman. So when they spend that
CHAIRMAN ENRILE. Theres a VAT.
HON. ROXAS. There will be a VAT and there will be other sales taxes no. Is there a quantification? Is
there an approximation?
CHAIRMAN JAVIER. Not anything.
HON. ROXAS. So, in effect, we have sterilized that entire seven billion. In effect, it is not circulating in
the economy which is unrealistic.
CHAIRMAN ENRILE. It does, it does, because this is taken and spent by government, somebody
receives it in the form of wages and supplies and other services and other goods. They are not being taken
from the public and stored in a vault.
CHAIRMAN JAVIER. That 7.7 loss because of tax exemption. That will be extra income for the
taxpayers.

HON. ROXAS. Precisely, so they will be spending it.21

The discussion above bears out that under R.A. No. 8424, the exemption of PAGCOR from paying
corporate income tax was not based on a classification showing substantial distinctions which make for
real differences, but to reiterate, the exemption was granted upon the request of PAGCOR that it be
exempt from the payment of corporate income tax.
With the subsequent enactment of R.A. No. 9337, amending R.A. No. 8424, PAGCOR has been excluded
from the enumeration of GOCCs that are exempt from paying corporate income tax. The records of the
Bicameral Conference Meeting dated April 18, 2005, of the Committee on the Disagreeing Provisions of
Senate Bill No. 1950 and House Bill No. 3555, show that it is the legislative intent that PAGCOR be
subject to the payment of corporate income tax, thus:
THE CHAIRMAN (SEN. RECTO). Yes, Osmea, the proponent of the amendment.
SEN. OSMEA. Yeah. Mr. Chairman, one of the reasons why were even considering this VAT bill is we
want to show the world who our creditors, that we are increasing official revenues that go to the national
budget. Unfortunately today, Pagcor is unofficial.
Now, in 2003, I took a quick look this morning, Pagcor had a net income of 9.7 billion after paying some
small taxes that they are subjected to. Of the 9.7 billion, they claim they remitted to national government
seven billion. Pagkatapos, there are other specific remittances like to the Philippine Sports Commission,
etc., as mandated by various laws, and then about 400 million to the Presidents Social Fund. But all in
all, their net profit today should be about 12 billion. Thats why I am questioning this two
billion. Because while essentially they claim that the money goes to government, and I will accept
that just for the sake of argument. It does not pass through the appropriation process. And I think
that at least if we can capture 35 percent or 32 percent through the budgetary process, first, it is
reflected in our official income of government which is applied to the national budget, and secondly,
it goes through what is constitutionally mandated as Congress appropriating and defining where
the money is spent and not through a board of directors that has absolutely no accountability.
REP. PUENTEBELLA. Well, with all due respect, Mr. Chairman, follow up lang.
There is wisdom in the comments of my good friend from Cebu, Senator Osmea.
SEN. OSMEA. And Negros.
REP. PUENTEBELLA. And Negros at the same time ay Kasimanwa. But I would not want to put my
friends from the Department of Finance in a difficult position, but may we know your comments on this
knowing that as Senator Osmea just mentioned, he said, I accept that that a lot of it is going to spending
for basic services, you know, going to most, I think, supposedly a lot or most of it should go to
government spending, social services and the like. What is your comment on this? This is going to affect
a lot of services on the government side.
THE CHAIRMAN (REP. LAPUS). Mr. Chair, Mr. Chair.

SEN. OSMEA. It goes from pocket to the other, Monico.

REP. PUENTEBELLA. I know that. But I wanted to ask them, Mr. Senator, because you may have your
own pre-judgment on this and I dont blame you. I dont blame you. And I know you have your own
research. But will this not affect a lot, the disbursements on social services and other?
REP. LOCSIN. Mr. Chairman. Mr. Chairman, if I can add to that question also. Wouldnt it be easier for
you to explain to, say, foreign creditors, how do you explain to them that if there is a fiscal gap some of
our richest corporations has [been] spared [from] taxation by the government which is one rich source of
revenues. Now, why do you save, why do you spare certain government corporations on that, like Pagcor?
So, would it be easier for you to make an argument if everything was exposed to taxation?
REP. TEVES. Mr. Chair, please.
THE CHAIRMAN (REP. LAPUS). Can we ask the DOF to respond to those before we call Congressman
Teves?
MR. PURISIMA. Thank you, Mr. Chair.
Yes, from definitely improving the collection, it will help us because it will then enter as an official
revenue although when dividends declare it also goes in as other income. (sic)
xxxx
REP. TEVES. Mr. Chairman.
xxxx
THE CHAIRMAN (REP. LAPUS). Congressman Teves.
REP. TEVES. Yeah. Pagcor is controlled under Section 27, that is on income tax. Now, we are
talking here on value-added tax. Do you mean to say we are going to amend it from income tax to
value-added tax, as far as Pagcor is concerned?
THE CHAIRMAN (SEN. RECTO). No. We are just amending that section with regard to the
exemption from income tax of Pagcor.
xxxx
REP. NOGRALES. Mr. Chairman, Mr. Chairman. Mr. Chairman.
THE CHAIRMAN (REP. LAPUS). Congressman Nograles.
REP. NOGRALES. Just a point of inquiry from the Chair. What exactly are the functions of Pagcor that
are VATable? What will we VAT in Pagcor?
THE CHAIRMAN (REP. LAPUS). This is on own income tax. This is Pagcor income tax.
REP. NOGRALES. No, thats why. Anong i-va-Vat natin sa kanya. Sale of what?
xxxx

REP. VILLAFUERTE. Mr. Chairman, my question is, what are we VATing Pagcor with, is it the . . .
REP. NOGRALES. Mr. Chairman, this is a secret agreement or the way they craft their contract, which
basis?
THE CHAIRMAN (SEN. RECTO). Congressman Nograles, the Senate version does not discuss a
VAT on Pagcor but it just takes away their exemption from non-payment of income tax. 22
Taxation is the rule and exemption is the exception. 23 The burden of proof rests upon the party claiming
exemption to prove that it is, in fact, covered by the exemption so claimed. 24 As a rule, tax exemptions are
construed strongly against the claimant. 25 Exemptions must be shown to exist clearly and categorically,
and supported by clear legal provision.26
In this case, PAGCOR failed to prove that it is still exempt from the payment of corporate income tax,
considering that Section 1 of R.A. No. 9337 amended Section 27 (c) of the National Internal Revenue
Code of 1997 by omitting PAGCOR from the exemption. The legislative intent, as shown by the
discussions in the Bicameral Conference Meeting, is to require PAGCOR to pay corporate income tax;
hence, the omission or removal of PAGCOR from exemption from the payment of corporate income tax.
It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius.27 Thus, the express mention of the GOCCs exempted from payment of corporate income tax
excludes all others. Not being excepted, petitioner PAGCOR must be regarded as coming within the
purview of the general rule that GOCCs shall pay corporate income tax, expressed in the maxim: exceptio
firmat regulam in casibus non exceptis.28
PAGCOR cannot find support in the equal protection clause of the Constitution, as the legislative records
of the Bicameral Conference Meeting dated October 27, 1997, of the Committee on Ways and Means,
show that PAGCORs exemption from payment of corporate income tax, as provided in Section 27 (c) of
R.A. No. 8424, or the National Internal Revenue Code of 1997, was not made pursuant to a valid
classification based on substantial distinctions and the other requirements of a reasonable classification by
legislative bodies, so that the law may operate only on some, and not all, without violating the equal
protection clause. The legislative records show that the basis of the grant of exemption to PAGCOR from
corporate income tax was PAGCORs own request to be exempted.
Petitioner further contends that Section 1 (c) of R.A. No. 9337 is null and void ab initio for violating the
non-impairment clause of the Constitution. Petitioner avers that laws form part of, and is read into, the
contract even without the parties expressly saying so. Petitioner states that the private parties/investors
transacting with it considered the tax exemptions, which inure to their benefit, as the main consideration
and inducement for their decision to transact/invest with it. Petitioner argues that the withdrawal of its
exemption from corporate income tax by R.A. No. 9337 has the effect of changing the main consideration
and inducement for the transactions of private parties with it; thus, the amendatory provision is violative
of the non-impairment clause of the Constitution.

Petitioners contention lacks merit.

The non-impairment clause is contained in Section 10, Article III of the Constitution, which provides that
no law impairing the obligation of contracts shall be passed. The non-impairment clause is limited in
application to laws that derogate from prior acts or contracts by enlarging, abridging or in any manner
changing the intention of the parties. 29 There is impairment if a subsequent law changes the terms of a
contract between the parties, imposes new conditions, dispenses with those agreed upon or withdraws
remedies for the enforcement of the rights of the parties. 30
As regards franchises, Section 11, Article XII of the Constitution 31 provides that no franchise or right
shall be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires.32
In Manila Electric Company v. Province of Laguna,33 the Court held that a franchise partakes the
nature of a grant, which is beyond the purview of the non-impairment clause of the
Constitution.34 The pertinent portion of the case states:
While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as
being in the nature of contracts and a part of the inducement for carrying on the franchise, these
exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in
the real sense of the term and where the non-impairment clause of the Constitution can rightly be
invoked, are those agreed to by the taxing authority in contracts, such as those contained in government
bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting
in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax
exemptions of this kind may not be revoked without impairing the obligations of contracts. These
contractual tax exemptions, however, are not to be confused with tax exemptions granted under
franchises. A franchise partakes the nature of a grant which is beyond the purview of the nonimpairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like
its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the
operation of a public utility shall be granted except under the condition that such privilege shall be
subject to amendment, alteration or repeal by Congress as and when the common good so
requires.35
In this case, PAGCOR was granted a franchise to operate and maintain gambling casinos, clubs and other
recreation or amusement places, sports, gaming pools, i.e., basketball, football, lotteries, etc., whether on
land or sea, within the territorial jurisdiction of the Republic of the Philippines. 36 Under Section 11,
Article XII of the Constitution, PAGCORs franchise is subject to amendment, alteration or repeal by
Congress such as the amendment under Section 1 of R.A. No. 9377. Hence, the provision in Section 1 of
R.A. No. 9337, amending Section 27 (c) of R.A. No. 8424 by withdrawing the exemption of PAGCOR
from corporate income tax, which may affect any benefits to PAGCORs transactions with private parties,
is not violative of the non-impairment clause of the Constitution.

Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR to 10%
VAT is invalid for being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that
petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioners
exemption from the payment of corporate income tax, which was already addressed above by this Court.
As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner from VAT pursuant to Section 7 (k)
thereof, which reads:
Sec. 7. Section 109 of the same Code, as amended, is hereby further amended to read as follows:
Section 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following
transactions shall be exempt from the value-added tax:
xxxx
(k) Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws, except Presidential Decree No. 529.37
Petitioner is exempt from the payment of VAT, because PAGCORs charter, P.D. No. 1869, is a special
law that grants petitioner exemption from taxes.
Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337, which
retained Section 108 (B) (3) of R.A. No. 8424, thus:
[R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A. No. 8424), as amended, is hereby further
amended to read as follows:
SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent
to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or
lease of properties: x x x
xxxx
(B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate;
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero percent (0%) rate;
x x x x38
As pointed out by petitioner, although R.A. No. 9337 introduced amendments to Section 108 of R.A. No.
8424 by imposing VAT on other services not previously covered, it did not amend the portion of Section
108 (B) (3) that subjects to zero percent rate services performed by VAT-registered persons to persons or

entities whose exemption under special laws or international agreements to which the Philippines is a
signatory effectively subjects the supply of such services to 0% rate.
Petitioners exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly and
extensively discussed in Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation. 39
Acesite was the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leased a portion of the
hotels premises to PAGCOR. It incurred VAT amounting to P30,152,892.02 from its rental income and
sale of food and beverages to PAGCOR from January 1996 to April 1997. Acesite tried to shift the said
taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR. However, PAGCOR refused to
pay the taxes because of its tax-exempt status. PAGCOR paid only the amount due to Acesite minus VAT
in the sum of P30,152,892.02. Acesite paid VAT in the amount of P30,152,892.02 to the Commissioner of
Internal Revenue, fearing the legal consequences of its non-payment. In May 1998, Acesite sought the
refund of the amount it paid as VAT on the ground that its transaction with PAGCOR was subject to zero
rate as it was rendered to a tax-exempt entity. The Court ruled that PAGCOR and Acesite were both
exempt from paying VAT, thus:
xxxx
PAGCOR is exempt from payment of indirect taxes
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the
payment of taxes. Section 13 of P.D. 1869 pertinently provides:
Sec. 13. Exemptions.
xxxx
(2) Income and other taxes. (a) Franchise Holder: No tax of any kind or form, income or otherwise, as
well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and
collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way
to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or
earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and
payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or
assessments of any kind, nature or description, levied, established or collected by any municipal,
provincial, or national government authority.
(b) Others: The exemptions herein granted for earnings derived from the operations conducted under the
franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges,
fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or
individual(s) with whom the Corporation or operator has any contractual relationship in connection with
the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving
compensation or other remuneration from the Corporation or operator as a result of essential facilities
furnished and/or technical services rendered to the Corporation or operator.

Petitioner contends that the above tax exemption refers only to PAGCORs direct tax liability and not to
indirect taxes, like the VAT.
We disagree.
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no
distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is
also exempt from indirect taxes, like VAT, as follows:
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term Corporation or operator refers to
PAGCOR. Although the law does not specifically mention PAGCORs exemption from indirect
taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes
persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the
provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting
tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable
conclusion is that PAGCOR is not liable for the P30, 152,892.02 VAT and neither is Acesite as the latter is
effectively subject to zero percent rate under Sec. 108 B (3), R.A. 8424. (Emphasis supplied.)
Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature
clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the
instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or
services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with
PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect taxes.
The manner of charging VAT does not make PAGCOR liable to said tax.
It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or
leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value.
Verily, the seller or lessor has the option to follow either way in charging its clients and customer. In the
instant case, Acesite followed the latter method, that is, charging an additional 10% of the gross sales and
rentals. Be that as it may, the use of either method, and in particular, the first method, does not denigrate
the fact that PAGCOR is exempt from an indirect tax, like VAT.
VAT exemption extends to Acesite
Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable
for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect
tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now
Sec. 108 [b] [3] of R.A. 8424), which provides:
Section 102. Value-added tax on sale of services. (a) Rate and base of tax There shall be levied,
assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by any person
engaged in the sale of services x x x; Provided, that the following services performed in the Philippines
by VAT registered persons shall be subject to 0%.

xxxx
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero
(0%) rate (emphasis supplied).
The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such
exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from
the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., where the absolute tax
exemption of the World Health Organization (WHO) upon an international agreement was upheld. We
held in said case that the exemption of contractee WHO should be implemented to mean that the entity or
person exempt is the contractor itself who constructed the building owned by contractee WHO, and such
does not violate the rule that tax exemptions are personal because the manifest intention of the agreement
is to exempt the contractor so that no contractors tax may be shifted to the contractee WHO. Thus, the
proviso in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR in
casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to
PAGCOR.40
Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The Commissioner
of Internal Revenue v. Acesite (Philippines) Hotel Corporation was Section 102 (b) of the 1977 Tax Code,
as amended, which section was retained as Section 108 (B) (3) in R.A. No. 8424, 41 it is still applicable to
this case, since the provision relied upon has been retained in R.A. No. 9337. 42
It is settled rule that in case of discrepancy between the basic law and a rule or regulation issued to
implement said law, the basic law prevails, because the said rule or regulation cannot go beyond the terms
and provisions of the basic law.43 RR No. 16-2005, therefore, cannot go beyond the provisions of R.A.
No. 9337. Since PAGCOR is exempt from VAT under R.A. No. 9337, the BIR exceeded its authority in
subjecting PAGCOR to 10% VAT under RR No. 16-2005; hence, the said regulatory provision is hereby
nullified.
WHEREFORE, the petition is PARTLY GRANTED. Section 1 of Republic Act No. 9337, amending
Section 27 (c) of the National Internal Revenue Code of 1997, by excluding petitioner Philippine
Amusement and Gaming Corporation from the enumeration of government-owned and controlled
corporations exempted from corporate income tax is valid and constitutional, while BIR Revenue
Regulations No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being contrary
to the National Internal Revenue Code of 1997, as amended by Republic Act No. 9337.
No costs.
SO ORDERED.
4.Del Rosario v. Ferrer
FACTS:

Spouses Gonzales executed document entitled "Donation Mortis Causa" in favor

o f t h e i r 2 children, Asuncion and Emiliano and their granddaughter, Jarabini (Daughter of predeceased
son,Zoilo) covering 126 sq'm lot and house on it in equal shares'
Although denominated as a donation mortis causa, which in la) is the equivalent of a will,
the deed had no attestation clause and was witnessed by only two persons'. The named
donees,however, signified their acceptance of the donation on the face of the document .
Guadalupe, the donor wife, died in September 1968. A few months later or on December 12, 1968,
Leopoldo, the donor husband, executed a deed of assignme nt of his rights and
interests in subject property to their daughter Asuncion. Leopoldo died in June 1972.
In 1998, Jarabini filed a "petition for the probate of the August 27 1968. Deed of donation
mortis causa" before the RTC. Asuncion opposed the petition, invoking his father Leopoldos assignment
of his rights and interests in the property to her.
After trial, the RTC rendered a decision dated June 20, 2003, finding that the donation
as in fact one made inter vivos, the donors intention being to transfer title ove
r t h e property to the donees during the donors lifetime, given its irrevocability. Consequently,said the
RTC, Leopoldos subsequent assignment of his rights and interest in the property
void since he had nothing to assign. The RTC thus directed the registration of the property in the name
of the property in the name of the donees in equal shares'
CA reversed RTC.
The CA held that jarabini cannot, through her petition for the probate of the deed of donation mortis
causa, collaterally attack Leopoldos deed of assignment in Asuncions favor ' CA held that the
donation, being one given mortis causa, did not comply the requirements of a notarial will, rendering the
same void'
ISSUE/s:
The key issue in this case is whether or not the spouses Leopoldo and Guadalupes
donation to Asuncion, Emiliano, and Jaraini was a donation Mortis causa, as it was
denominated, or in (act a donation inter vivos)
SC:
The document in question in this case was captioned "Donation Mortis Causa" is not controlling' his
Court has held that, if a donation !* its terms is inter vivos, this character is not altered !*the fact that the
donor st*les it mortis causa' +he Court thus said in Austria9Magat that the express "irrevoca!
ilit*" of the donation isthe "distinctive standard that identies the document as a donation inter
vivos'" :ere,the donors plainl* said that it is "our )ill that this Donation Mortis Causa shall !
eirrevoca!le and shall !e respected !* the surviving spouse'" +he intent to ma4e the donationi r r e v o c a ! l e
!ecomes even clearer !* the proviso that a surviving donor shall respect
t h e irrevoca!ilit* of the donation' Conse(uentl*, the donation )as in realit* a donation
inter vivos' +he donors in this case of course reserved the "right, o)nership, possession, andadministrati
on of the propert*" and made the donation operative upon their death' ;ut this

Court has consistentl* held that such reservation reddendum$ in the context o
f a n irrevoca!le donation simpl* means that the donors parted )ith their na4ed title,
maintainingonl* !enecial o)nership of the donated propert* )hile the*
lived' +he three donees signed their acceptance of the donation, )hich acceptance the deedre(uired' +his C
ourt has held that an acceptance clause indicates that the donation is intervivos, since acceptance is a
re(uirement onl* for such 4ind of donations' Donations mortis causa,!eing in the form of a )ill, need not !e
accepted !* the donee during the donor5s lifetime'As ustice ' ;' /' 3e*es said in <uig v' <e=a>orida,
%& in case of dou!t, the conve*ance should!e deemed
a donation inter vivos rather than mortis causa, in order to avoid uncertaint* as tothe o)nership of the
propert* su!0ect of the deed'Since the donation in this case )as one made inter vivos, it )as
immediatel* operativeand nal' +he reason is that such 4ind of donation is deemed perfected from the m
oment thedonor learned of the donee5s acceptance of the donation' +he acceptance ma4es the donee thea !
s o l u t e o ) n e r o f t h e p r o p e r t * d o n a t e d ' G i v e n t h a t t h e d o n a t i o n i n t h i s c a s e ) a s irre
voca!le or one given inter vivos, /eopoldo5s su!se(uent assignment of his rights
andinterests in the propert* to Asuncion should !e regarded as void for, !* then, he had
no morer
i
g
h
t
s
t
o
a
s
s
i
g
n
'
+he trial court cannot !e faulted
for passing upon, in a petition for pro!ate of )hat )as initiall*supposed to !e a donation mortis causa,
the validit* of the document as a donation inter vivosand the nullit* of one of the donor5s
su!se(uent assignment of his rights and interests in the propert*' +he ruling of the trial court is 3E?
S+A+ED'

SECOND DIVISION

JARABINI G. DEL ROSARIO, G.R. No. 187056

Petitioner,
Present:
CARPIO, J., Chairperson,
- versus - PERALTA,
BERSAMIN,*
ABAD, and
PEREZ,** JJ.
ASUNCION G. FERRER, substituted
by her heirs, VICENTE, PILAR,
ANGELITO, FELIXBERTO, JR.,
all surnamed G. FERRER, and Promulgated:

MIGUELA FERRER ALTEZA,

Respondents. September 20, 2010

x --------------------------------------------------------------------------------------- x

DECISION
ABAD, J.:

This case pertains to a gift, otherwise denominated as a donation mortis causa, which in reality is
a donation inter vivos made effective upon its execution by the donors and acceptance thereof by the
donees, and immediately transmitting ownership of the donated property to the latter, thus precluding a
subsequent assignment thereof by one of the donors.

The Facts and the Case

On August 27, 1968 the spouses Leopoldo and Guadalupe Gonzales executed a document entitled
Donation Mortis Causa[1] in favor of their two children, Asuncion and Emiliano, and their granddaughter,
Jarabini (daughter of their predeceased son, Zoilo) covering the spouses 126-square meter lot and the
house on it in Pandacan, Manila[2] in equal shares. The deed of donation reads:

It is our will that this Donation Mortis Causa shall be irrevocable and shall
be respected by the surviving spouse.

It is our will that Jarabini Gonzales-del Rosario and Emiliano Gonzales will
continue to occupy the portions now occupied by them.

It is further our will that this DONATION MORTIS CAUSA shall not in any
way affect any other distribution of other properties belonging to any of us donors
whether testate or intestate and where ever situated.

It is our further will that any one surviving spouse reserves the right,
ownership, possession and administration of this property herein donated and
accepted and this Disposition and Donation shall be operative and effective upon the
death of the DONORS.[3]

Although denominated as a donation mortis causa, which in law is the equivalent of a will, the
deed had no attestation clause and was witnessed by only two persons. The named donees, however,
signified their acceptance of the donation on the face of the document.

Guadalupe, the donor wife, died in September 1968. A few months later or on December 19,
1968, Leopoldo, the donor husband, executed a deed of assignment of his rights and interests in subject
property to their daughter Asuncion. Leopoldo died in June 1972.

In 1998 Jarabini filed a petition for the probate of the August 27, 1968 deed of donation mortis
causa before the Regional Trial Court (RTC) of Manila in Sp. Proc. 98-90589.[4] Asuncion opposed the
petition, invoking his father Leopoldos assignment of his rights and interests in the property to her.

After trial, the RTC rendered a decision dated June 20, 2003, [5]finding that the donation was in
fact one made inter vivos, the donors intention being to transfer title over the property to the donees
during the donors lifetime, given its irrevocability. Consequently, said the RTC, Leopoldos subsequent
assignment of his rights and interest in the property was void since he had nothing to assign. The RTC
thus directed the registration of the property in the name of the donees in equal shares. [6]

On Asuncions appeal to the Court of Appeals (CA), the latter rendered a decision on December
23, 2008,[7] reversing that of the RTC. The CA held that Jarabini cannot, through her petition for the
probate of the deed of donation mortis causa, collaterally attack Leopoldos deed of assignment
in Asuncions favor. The CA further held that, since no proceeding exists for the allowance of what

Jarabini claimed was actually a donation inter vivos, the RTC erred in deciding the case the way it
did. Finally, the CA held that the donation, being one given mortis causa, did not comply with the
requirements of a notarial will, [8] rendering the same void. Following the CAs denial of Jarabinis motion
for reconsideration,[9] she filed the present petition with this Court.

Issue Presented

The key issue in this case is whether or not the spouses Leopoldo and Guadalupes donation to
Asuncion, Emiliano, and Jarabini was a donation mortis causa, as it was denominated, or in fact a
donation inter vivos.

The Courts Ruling

That the document in question in this case was captioned Donation Mortis Causa is not
controlling. This Court has held that, if a donation by its terms is inter vivos, this character is not altered
by the fact that the donor styles it mortis causa.[10]

In Austria-Magat v. Court of Appeals,[11] the Court held thatirrevocability is a quality absolutely

incompatible with the idea of conveyances mortis causa, where revocability is precisely the essence of
the act. A donation mortis causa has the following characteristics:

1. It conveys no title or ownership to the transferee before the death of the

transferor; or, what amounts to the same thing, that the transferor should retain the
ownership (full or naked) and control of the property while alive;

2. That before his death, the transfer should be revocable by the transferor
at will, ad nutum; but revocability may be provided for indirectly by means of a
reserved power in the donor to dispose of the properties conveyed; and

3. That the transfer should be void if the transferor should survive the
transferee.[12] (Underscoring supplied)

The Court thus said in Austria-Magat that the express irrevocability of the donation is the
distinctive standard that identifies the document as a donation inter vivos. Here, the donors plainly said
that it is our will that this Donation Mortis Causa shall be irrevocable and shall be respected by the
surviving spouse. The intent to make the donation irrevocable becomes even clearer by the proviso that a
surviving donor shall respect the irrevocability of the donation.Consequently, the donation was in reality a
donation inter vivos.

The donors in this case of course reserved the right, ownership, possession, and administration of
the property and made the donation operative upon their death. But this Court has consistently held that
such reservation (reddendum) in the context of an irrevocable donation simply means that the donors
parted with their naked title, maintaining only beneficial ownership of the donated property while they
lived.[13]

Notably, the three donees signed their acceptance of the donation, which acceptance the deed
required.[14] This Court has held that an acceptance clause indicates that the donation is inter vivos, since
acceptance is a requirement only for such kind of donations. Donations mortis causa, being in the form of
a will, need not be accepted by the donee during the donors lifetime. [15]

Finally, as Justice J. B. L. Reyes said in Puig v. Peaflorida,[16]in case of doubt, the conveyance
should be deemed a donation inter vivos rather than mortis causa, in order to avoid uncertainty as to the
ownership of the property subject of the deed.

Since the donation in this case was one made inter vivos, it was immediately operative and
final. The reason is that such kind of donation is deemed perfected from the moment the donor learned of
the donees acceptance of the donation. The acceptance makes the donee the absolute owner of the
property donated.[17]

Given that the donation in this case was irrevocable or one given inter vivos, Leopoldos
subsequent assignment of his rights and interests in the property to Asuncion should be regarded as void
for, by then, he had no more rights to assign. He could not give what he no longer had. Nemo dat quod
non habet.[18]

The trial court cannot be faulted for passing upon, in a petition for probate of what was initially
supposed to be a donation mortis causa, the validity of the document as a donation inter vivos and the
nullity of one of the donors subsequent assignment of his rights and interests in the property. The Court
has held before that the rule on probate is not inflexible and absolute. [19] Moreover, in opposing the
petition for probate and in putting the validity of the deed of assignment squarely in issue, Asuncion or
those who substituted her may not now claim that the trial court improperly allowed a collateral attack on
such assignment.

WHEREFORE, the Court GRANTS the petition, SETS ASIDE the assailed December 23, 2008
Decision and March 6, 2009 Resolution of the Court of Appeals in CA-G.R. CV 80549,
andREINSTATES in toto the June 20, 2003 Decision of the Regional Trial Court of Manila, Branch 19,
in Sp. Proc. 98-90589.

SO ORDERED.
5.THIRD DIVISION
G.R. No. 179800
REPUBLIC OF THE PHILIPPINES represented by the COMMISSIONER OF INTERNAL
REVENUE, Petitioner, v.PHILIPPINE AIRLINES, INC. (PAL), Respondent.
DECISION
PERALTA, J.:
Before this Court is a Petition for Review on Certiorari ,1cralaw under Rule 45 of the Revised Rules of
Court, seeking to set aside the August 9, 2007 Decision2cralaw and September 17, 2007

Resolution3cralaw of the Court of Tax Appeals (CTA) En Banc, in E.B. Case No. 273 (CTA Case No.
6962).
The facts, as culled from the record by the CTA En Banc:
[Respondent Philippine Airlines] (PAL) is a corporation duly organized and existing under and by virtue
of the laws of the Republic of the Philippines. It is engaged in the air transportation business with
principal address at the 9th Floor, PAL Center, Legaspi Village, Makati City.
[Petitioner] Commissioner of Internal Revenue [CIR] is the duly authorized government official
empowered, among others, to refund erroneously collected taxes under the 1997 National Internal
Revenue Code (NIRC), as amended, with office address at the BIR National Office Building, Agham
Road, Diliman, Quezon City.
To meet the exigencies of its daily business operations, [respondent] PAL availed [of] the communication
services of the Philippine Long Distance Company (PLDT). For the period January 1, 2002 to December
31, 2002, PAL allegedly paid PLDT the 10% [Overseas Communications Tax] OCT in the amount
of P134,431.95 on its overseas telephone calls.
On February 24, 2004, [respondent] PAL, through its AVP-Financial Planning and Analysis Ma. Stella L.
Diaz, filed with the Commissioner a claim for refund in the amount of P134,431.95 representing the total
amount of 10% OCT paid to PLDT from January to December 2002 citing as legal bases Section 13 of
Presidential Decree (P.D.) No. 15904cralaw and BIR Ruling No. 97-94 dated April 13, 1994.
Due to the Commissioner's inaction on its claim for refund, PAL appealed before the CTA on April 22,
2004. The case was raffled to the Second Division of the CTA. 5cralaw
Respondent PAL argued that since it incurred negative taxable income 6cralaw for fiscal years 2002 and
2003 and opted for zero basic corporate income tax, which was lower than the 2% franchise tax,
respondent PAL had complied with the "in lieu of all other taxes" clause of Presidential Decree (P.D.) No.
1590.7cralaw Thus, it was no longer liable for all other taxes of any kind, nature, or description, including
the 10% OCT, and the erroneous payments thereof entitled it to a refund pursuant to its franchise. 8cralaw
Petitioner CIR disagreed. It maintained that Section 120 of the 1997 NIRC, as amended, imposes 10%
OCT on overseas dispatch, message or conversion originating from the Philippines, which includes PLDT
communication services. It further stated that respondent PAL, in order for it to be not liable for other
taxes, in this case the 10% OCT, should pay the 2% franchise tax, since it did not pay any amount as its
basic corporate income tax.9cralaw
Ruling of CTA Second Division
The CTA Second Division rendered a Decision dated November 13, 2006, and ruled that respondent PAL
was not required to pay the 10% OCT and, therefore, was not entitled to the refund, based on the "in lieu
of all taxes" provision under Sec. 13 of P.D. No. 1590, respondent PAL's franchise.

The Second Division granted respondent PAL's claim for a refund of the OCT, albeit in the reduced
amount ofP93,424.67.10cralaw The amounts of P2,424.16 and P38,583.12 were disallowed due to nonverification and prescription, respectively.11cralaw
The Second Division reasoned that since respondent PAL chose to pay the basic corporate income tax for
January to December 2002, and given that for the same period respondent PAL incurred zero tax liability,
it was not required to pay the 2% franchise tax before it could avail itself of the "in lieu of all taxes"
provision under Sec. 13 of P.D. No. 1590.12cralaw It emphasized that the law simply states that PAL, in
order for it to be exempt from taxes, must only choose between two alternatives under Sec. 13 of P.D. No.
1590, namely: (1) the basic corporate income tax or (2) the 2% franchise tax. 13cralawAnd, having chosen
the first option, respondent PAL was under no obligation to pay the 2% franchise tax in order to avail
itself of the exemption.
Petitioner CIR filed a Motion for Partial Reconsideration of the Decision of the CTA Second Division.
However, the same was denied on February 7, 2007. Consequently, petitioner CIR filed a Petition for
Review with the CTA En Banc.
Ruling of the CTA En Banc
The CTA En Banc upheld the Decision of the CTA Second Division and pointed out that since respondent
PAL chose the first option, even if it incurred negative taxable income and consequently did not pay any
income tax, it could still avail itself of the exemption, and could not be held liable for the 10%
OCT.14cralaw The operative act, in order for it to avail itself of exemption from all other taxes under the
"in lieu of all other taxes" clause of its Charter, is actual exercise by respondent PAL of the option to avail
itself either of the basic corporate income tax or the 2% franchise tax, and no actual payment is
required.15cralaw
Hence, the Commissioner of Internal Revenue, through the Office of the Solicitor General, filed before
this Court a Petition for Review on certiorari under Rule 45 of the Rules of Court assailing the CTA En
Banc Decision dated August 9, 2007.
Issue
The sole issue for consideration before this Court, as stated in the present petition, is:
WHETHER OR NOT RESPONDENT IS EXEMPT FROM THE PAYMENT OF THE 10% OVERSEAS
COMMUNICATIONS TAX UNDER ITS FRANCHISE, PD 1590, AND THEREFORE, ENTITLED TO
THE REFUND PRAYED FOR.16cralaw
The Court's Ruling
The petition is without merit.
Sec. 13 of P.D. No. 1590 states that:

In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine
Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in
a lower tax:
(a) The basic corporate income tax based on the grantee's annual net taxable income computed in
accordance with the provisions of the National Internal Revenue Code; or
(b) A franchise tax of two percent (2%) of the gross revenues derived by the grantee from all sources,
without distinction as to transport or nontransport operations; provided, that with respect to international
air-transport service, only the gross passenger, mail, and freight revenues from its outgoing flights shall
be subject to this tax.
The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties,
royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed,
levied, established, assessed, or collected by any municipal, city, provincial, or national authority or
government agency, now or in the future, including but not limited to the following:
xxxx
Petitioner firmly contends that the law uses the mandatory terms "shall pay whichever will result in a
lower tax"; and while these words clearly envision the payment of a lower tax, petitioner asserts that they
mandate payment, nonetheless. Hence, petitioner argues that since respondent PAL has not paid taxes
during the fiscal years subject of the refund, respondent PAL cannot claim exemption from paying other
taxes under the "in lieu of all taxes" provision.
Petitioner's contention does not hold water.
It is worthy to note that the sole issue raised by petitioner in this case has already been settled in a similar
case entitled Commissioner of Internal Revenue v. Philippine Airlines, 17cralaw penned by then Chief
Justice Artemio Panganiban. This was the same case upon which the CTA En Banc Decision was based.
In said case, therein respondent PAL also sought the refund of the amount of P2,241,527.22, which
represented the total amount of 20% final withholding tax withheld by various withholding agent banks
for the period starting March 1995 through February 1997.18cralaw Therein respondent PAL's request for
a refund was also based on the "in lieu of all taxes" provision found under Sec. 13 of P.D. 1590.
Therein petitioner CIR argued that the "in lieu of all other taxes" proviso was a mere incentive that
applied only when therein respondent PAL actually paid something (emphasis supplied), that is, either the
basic corporate income tax or the franchise tax. 19cralaw Because of the zero tax liability of respondent
under the basic corporate income tax system, it was not eligible for exemption from other taxes. 20cralaw
Deciding in favor of therein respondent PAL, this Court enunciated:
A franchise is a legislative grant to operate a public utility. Like those of any other statute, the ambiguous
provisions of a franchise should be construed in accordance with the intent of the legislature. In the

present case, Presidential Decree 1590 granted Philippine Airlines an option to pay the lower of two
alternatives: (a) "the basic corporate income tax based on PAL's annual net taxable income computed in
accordance with the provisions of the National Internal Revenue Code" or (b) "a franchise tax of two
percent of gross revenues." Availment of either of these two alternatives shall exempt the airline from the
payment of "all other taxes," including the 20 percent final withholding tax on bank deposits.
xxxx
A careful reading of Section 13 rebuts the argument of the CIR that the "in lieu of all other taxes" proviso
is a mere incentive that applies only when PAL actually pays something. It is clear that PD 1590 intended
to give respondent the option to avail itself of Subsection (a) or (b) as consideration for its franchise.
Either option excludes the payment of other taxes and dues imposed or collected by the national or the
local government. PAL has the option to choose the alternative that results in lower taxes. It is not the fact
of tax payment that exempts it, but the exercise of its option. (Emphasis and underscoring supplied).
xxxx
The fallacy of the CIR's argument is evident from the fact that the payment of a measly sum of one peso
would suffice to exempt PAL from other taxes, whereas a zero liability arising from its losses would not.
There is no substantial distinction between a zero tax and a one-peso tax liability." 21cralaw
It is clear from the foregoing that this Court had already settled the issue of whether or not there was a
need for the actual payment of tax, either the basic corporate income tax or the 2% franchise tax, before
therein respondent PAL could avail itself of the "in lieu of all other taxes" provision under its Charter.
This Court finds no cogent reason to deviate from the ruling in the said case.
This Court reiterates the pronouncement of the CTA that under the first option of Sec. 13 of P.D. No.
1590, the basis for the tax rate is PAL's annual net taxable income. By basing the tax rate on the annual
net taxable income, P.D. No. 1590 necessarily recognized the situation in which taxable income may
result in a negative amount and, thus, translate into a zero tax liability.22cralaw In this scenario,
respondent PAL operates at a loss and no taxes are due. Consequently, the first option entails a lower tax
liability than the second option.
Lastly, petitioner contends that since P.D. No. 1590 does not provide for an exemption from the payment
of taxes, any claim of exemption from the payment thereof must be strictly construed against the
taxpayer.23cralaw Said position is, however, dispelled by Commissioner of Internal Revenue v. Philippine
Airlines, where this Court ruled:
While the Court recognizes the general rule that the grant of tax exemptions is strictly construed against
the taxpayer and in favor of the taxing power, Section 13 of the franchise of respondent leaves no room
for interpretation. Its franchise exempts it from paying any tax other than the option it chooses: either the
"basic corporate income tax" or the two percent gross revenue tax.
Determining whether this tax exemption is wise or advantageous is outside the realm of judicial power.
This matter is addressed to the sound discretion of the lawmaking department of government. 24cralaw

Given the foregoing, and the fact that the 10% OCT properly falls within the purview of the "all other
taxes" proviso in P.D. No. 1590, this Court holds that respondent PAL is exempt from the 10% OCT and,
therefore, entitled to the refund requested.
WHEREFORE, premises considered, the petition is DENIED. The August 9, 2007 Decision and
September 17, 2007 Resolution of the Court of Tax Appeals En Banc, in E.B. Case No. 273 (CTA Case
No. 6962), are hereby AFFIRMED.
SO ORDERED.
6.SECOND DIVISION
G.R. No. 178090 : February 8, 2010
PANASONIC COMMUNICATIONS IMAGING CORPORATION OF THE PHILIPPINES
(formerly MATSUSHITA BUSINESS MACHINE CORPORATION OF THE
PHILIPPINES), Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
ABAD, J.:
This petition for review puts in issue the May 23, 2007Decision1cralaw of the Court of Tax Appeals
(CTA) en banc in CTA EB 239, entitled " Panasonic Communications Imaging Corporation of the
Philippines v. Commissioner of Internal Revenue ," which affirmed the denial of petitioner's claim for
refund.
The Facts and the Case
Petitioner Panasonic Communications Imaging Corporation of the Philippines (Panasonic) produces and
exports plain paper copiers and their sub-assemblies, parts, and components. It is registered with the
Board of Investments as a preferred pioneer enterprise under the Omnibus Investments Code of 1987. It is
also a registered value-added tax (VAT) enterprise.
From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999, petitioner Panasonic
generated export sales amounting to US$12,819,475.15 and US$11,859,489.78, respectively, for a total of
US$24,678,964.93. Believing that these export sales were zero-rated for VAT under Section 106(A)(2)(a)
(1) of the 1997 National Internal Revenue Code as amended by Republic Act (R.A.) 8424 (1997
NIRC),2cralaw Panasonic paid input VAT of P4,980,254.26 and P4,388,228.14 for the two periods or a
total of P9,368,482.40 attributable to its zero-rated sales.
Claiming that the input VAT it paid remained unutilized or unapplied, on March 12, 1999 and July 20,
1999 petitioner Panasonic filed with the Bureau of Internal Revenue (BIR) two separate applications for
refund or tax credit of what it paid. When the BIR did not act on the same, Panasonic filed on December

16, 1999 a petition for review with the CTA, averring the inaction of the respondent Commissioner of
Internal Revenue (CIR) on its applications.
After trial or on August 22, 2006 the CTA's First Division rendered judgment, 3cralaw denying the petition
for lack of merit. The First Division said that, while petitioner Panasonic's export sales were subject to 0%
VAT under Section 106(A)(2)(a)(1) of the 1997 NIRC, the same did not qualify for zero-rating because
the word "zero-rated" was not printed on Panasonic's export invoices. This omission, said the First
Division, violates the invoicing requirements of Section 4.108-1 of Revenue Regulations (RR) 795.4cralaw
Its motion for reconsideration having been denied, on January 5, 2007 petitioner Panasonic appealed the
First Division's decision to the CTA en banc . On May 23, 2007 the CTA en banc upheld the First
Division's decision and resolution and dismissed the petition. Panasonic filed a motion for reconsideration
of the en banc decision but this was denied. Thus, petitioner filed the present petition in accordance with
R.A. 9282.5cralaw
The Issue Presented
The sole issue presented in this case is whether or not the CTA en banc correctly denied petitioner
Panasonic's claim for refund of the VAT it paid as a zero-rated taxpayer on the ground that its sales
invoices did not state on their faces that its sales were "zero-rated."
The Court's Ruling
The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his
customers. Under the VAT method of taxation, which is invoice-based, an entity can subtract from the
VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports. 6cralaw For
example, when a seller charges VAT on its sale, it issues an invoice to the buyer, indicating the amount of
VAT he charged. For his part, if the buyer is also a seller subjected to the payment of VAT on his sales, he
can use the invoice issued to him by his supplier to get a reduction of his own VAT liability. The
difference in tax shown on invoices passed and invoices received is the tax paid to the government. In
case the tax on invoices received exceeds that on invoices passed, a tax refund may be claimed.
Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes 7cralaw equal to the
input taxes8cralaw that his suppliers passed on to him, no payment is required of him. It is when his
output taxes exceed his input taxes that he has to pay the excess to the BIR. If the input taxes exceed the
output taxes, however, the excess payment shall be carried over to the succeeding quarter or quarters.
Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition
of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer.9cralaw
Zero-rated transactions generally refer to the export sale of goods and services. The tax rate in this case is
set at zero. When applied to the tax base or the selling price of the goods or services sold, such zero rate
results in no tax chargeable against the foreign buyer or customer. But, although the seller in such
transactions charges no output tax, he can claim a refund of the VAT that his suppliers charged him. The

seller thus enjoys automatic zero rating, which allows him to recover the input taxes he paid relating to
the export sales, making him internationally competitive. 10cralaw
For the effective zero rating of such transactions, however, the taxpayer has to be VAT-registered and
must comply with invoicing requirements.11cralaw Interpreting these requirements, respondent CIR ruled
that under Revenue Memorandum Circular (RMC) 42-2003, the taxpayer's failure to comply with
invoicing requirements will result in the disallowance of his claim for refund. RMC 42-2003 provides:
A-13. Failure by the supplier to comply with the invoicing requirements on the documents supporting the
sale of goods and services will result to the disallowance of the claim for input tax by the purchaserclaimant.
If the claim for refund/TCC is based on the existence of zero-rated sales by the taxpayer but it fails to
comply with the invoicing requirements in the issuance of sales invoices (e.g., failure to indicate the TIN),
its claim for tax credit/refund of VAT on its purchases shall be denied considering that the invoice it is
issuing to its customers does not depict its being a VAT-registered taxpayer whose sales are classified as
zero-rated sales. Nonetheless, this treatment is without prejudice to the right of the taxpayer to charge the
input taxes to the appropriate expense account or asset account subject to depreciation, whichever is
applicable. Moreover, the case shall be referred by the processing office to the concerned BIR office for
verification of other tax liabilities of the taxpayer.
Petitioner Panasonic points out, however, that in requiring the printing on its sales invoices of the word
"zero-rated," the Secretary of Finance unduly expanded, amended, and modified by a mere regulation
(Section 4.108-1 of RR 7-95) the letter and spirit of Sections 113 and 237 of the 1997 NIRC, prior to their
amendment by R.A. 9337.12cralaw Panasonic argues that the 1997 NIRC, which applied to its
payments'specifically Sections 113 and 237required the VAT-registered taxpayer's receipts or invoices to
indicate only the following information:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number
(TIN);
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that
such amount includes the value-added tax;
(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the
service; and
(4) The name, business style, if any, address and taxpayer's identification number (TIN) of the purchaser,
customer or client.
Petitioner Panasonic points out that Sections 113 and 237 did not require the inclusion of the word "zerorated" for zero-rated sales covered by its receipts or invoices. The BIR incorporated this requirement only
after the enactment of R.A. 9337 on November 1, 2005, a law that did not yet exist at the time it issued its
invoices.

But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998 to March
1999, the rule that applied was Section 4.108-1 of RR 7-95, otherwise known as the Consolidated ValueAdded Tax Regulations, which the Secretary of Finance issued on December 9, 1995 and took effect on
January 1, 1996. It already required the printing of the word "zero-rated" on the invoices covering zerorated sales. When R.A. 9337 amended the 1997 NIRC on November 1, 2005, it made this particular
revenue regulation a part of the tax code. This conversion from regulation to law did not diminish the
binding force of such regulation with respect to acts committed prior to the enactment of that law.
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance
under Section 245 of the 1977 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax
code and of course its amendments.13cralaw The requirement is reasonable and is in accord with the
efficient collection of VAT from the covered sales of goods and services. As aptly explained by the CTA's
First Division, the appearance of the word "zero-rated" on the face of invoices covering zero-rated sales
prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. If,
absent such word, a successful claim for input VAT is made, the government would be refunding money it
did not collect.14cralaw
Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are subject to 10%
(now 12%) VAT from those sales that are zero-rated. 15cralaw Unable to submit the proper invoices,
petitioner Panasonic has been unable to substantiate its claim for refund.
Petitioner Panasonic's citation of Intel Technology Philippines, Inc. v. Commissioner of Internal
Revenue 16cralaw is misplaced. Quite the contrary, it strengthens the position taken by respondent CIR. In
that case, the CIR denied the claim for tax refund on the ground of the taxpayer's failure to indicate on its
invoices the "BIR authority to print." But Sec. 4.108-1 required only the following to be reflected on the
invoice:
1. The name, taxpayer's identification number (TIN) and address of seller;
2. Date of transaction;
3. Quantity, unit cost and description of merchandise or nature of service;
4. The name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client;
5. The word "zero-rated" imprinted on the invoice covering zero-rated sales; and
6. The invoice value or consideration.
This Court held that, since the "BIR authority to print" is not one of the items required to be indicated on
the invoices or receipts, the BIR erred in denying the claim for refund. Here, however, the ground for
denial of petitioner Panasonic's claim for tax refundthe absence of the word "zero-rated" on its invoicesis
one which is specifically and precisely included in the above enumeration. Consequently, the BIR
correctly denied Panasonic's claim for tax refund.

This Court will not set aside lightly the conclusions reached by the CTA which, by the very nature of its
functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an
expertise on the subject, unless there has been an abuse or improvident exercise of
authority.17cralaw Besides, statutes that grant tax exemptions are construedstrictissimi juris against the
taxpayer and liberally in favor of the taxing authority. Tax refunds in relation to the VAT are in the nature
of such exemptions. The general rule is that claimants of tax refunds bear the burden of proving the
factual basis of their claims. Taxes are the lifeblood of the nation. Therefore, statutes that allow
exemptions are construed strictly against the grantee and liberally in favor of the government. 18cralaw
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioner.
7. SECOND DIVISION
[G.R. NO. 192945 - September 5, 2012]
CITY OF IRIGA, Petitioner, v. CAMARINES SUR III ELECTRIC COOPERATIVE, INC.
(CASURECO III), Respondent.
DECISION
PERLAS-BERNABE, J.:
The Court reiterates that a franchise tax is a tax levied on the exercise by an entity of the rights or
privileges granted to it by the government.1 In the absence of a clear and subsisting legal provision
granting it tax exemption, a franchise holder, though non-profit in nature, may validly be assessed
franchise tax by a local government unit.
Before the Court is a petition filed under Rule 45 of the Revised Rules of Court seeking to set aside the
February 11, 2010 Decision2 and July 12, 2010 Resolution3 of the Court of Appeals (CA), which reversed
the February 7, 2005 Decision of the Regional Trial Court (RTC) of Iriga City, Branch 36 and ruled that
respondent Camarines Sur III Electric Cooperative, Inc. (CASURECO III) is exempt from payment of
local franchise tax.
The Facts
CASURECO III is an electric cooperative duly organized and existing by virtue of Presidential Decree
(PD) 269,4 as amended, and registered with the National Electrification Administration (NEA). It is
engaged in the business of electric power distribution to various end-users and consumers within the City
of Iriga and the municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan of the Province of
Camarines Sur, otherwise known as the "Rinconada area."5rll

Sometime in 2003, petitioner City of Iriga required CASURECO III to submit a report of its gross
receipts for the period 1997-2002 to serve as the basis for the computation of franchise taxes, fees and
other charges.6 The latter complied7 and was subsequently assessed taxes.
On January 7, 2004, petitioner made a final demand on CASURECO III to pay the franchise taxes due for
the period 1998-2003 and real property taxes due for the period 1995-2003. 8 CASURECO III, however,
refused to pay said taxes on the ground that it is an electric cooperative provisionally registered with the
Cooperative Development Authority (CDA),9 and therefore exempt from the payment of local
taxes.10rll
On March 15, 2004, petitioner filed a complaint for collection of local taxes against CASURECO III
before the RTC, citing its power to tax under the Local Government Code (LGC) and the Revenue Code
of Iriga City.11rll
It alleged that as of December 31, 2003, CASURECO IIIs franchise and real property taxes liability,
inclusive of penalties, surcharges and interest, amounted to Seventeen Million Thirty-Seven Thousand
Nine Hundred Thirty-Six Pesos and Eighty-Nine Centavos (P 17,037,936.89) and Nine Hundred Sixteen
Thousand Five Hundred Thirty-Six Pesos and Fifty Centavos (P 916,536.50), respectively.12rll
In its Answer, CASURECO III denied liability for the assessed taxes, asserting that the computation of
the petitioner was erroneous because it included 1) gross receipts from service areas beyond the
latters territorial jurisdiction; 2) taxes that had already prescribed; and 3) taxes during the period
when it was still exempt from local government tax by virtue of its then subsisting registration with the
CDA.13rll
Ruling of the Trial Court
In its Decision dated February 7, 2005, the RTC ruled that the real property taxes due for the years 19951999 had already prescribed in accordance with Section 194 14 of the LGC. However, it found
CASURECO III liable for franchise taxes for the years 2000-2003 based on its gross receipts from Iriga
City and the Rinconada area on the ground that the "situs of taxation is the place where the privilege is
exercised."15 The dispositive portion of the RTC Decision reads:rbl r l l
lbrr
WHEREFORE, in view of the foregoing, defendant is hereby made liable to pay plaintiff real property
taxes and franchise taxes on its receipts, including those from service area covering Nabua, Bato, Baao
and Buhi for the years 2000 up to the present. The realty taxes for the years 1995 and 1999 is hereby
declared prescribed. The City Assessor is hereby directed to make the proper classification of
defendants real property in accordance with Ordinance issued by the City Council.rbl
r l l lbrr
SO ORDERED.16rll
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Only CASURECO III appealed from the RTC Decision, questioning its liability for franchise taxes.
Ruling of the Court of Appeals
In its assailed Decision, the CA found CASURECO III to be a non-profit entity, not falling within the
purview of "businesses enjoying a franchise" pursuant to Section 137 of the LGC. It explained that
CASURECO IIIs non-profit nature is diametrically opposed to the concept of a "business," which, as
defined under Section 131 of the LGC, is a "trade or commercial activity regularly engaged in as a means
of livelihood or with a view to profit." Consequently, it relieved CASURECO III from liability to pay
franchise taxes.
Petitioner moved for reconsideration, which the CA denied in its July 12, 2010 Resolution for being filed
a day late, hence, the instant petition.
Issues Before the Court
Petitioner raises two issues for resolution, which the Court restates as follows: (1) whether or not an
electric cooperative registered under PD 269 but not under RA 6938 17 is liable for the payment of local
franchise taxes; and (2) whether or not the situs of taxation is the place where the franchise holder
exercises its franchise regardless of the place where its services or products are delivered.
CASURECO III, on the other hand, raises the procedural issue that since the motion for reconsideration
of the CA Decision was filed out of time, the same had attained finality.
The Court s Rulingrbl r l l lbrr
The petition is meritorious.
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Before delving into the substantive issues, the Court notes the procedural lapses extant in the present case.
Proper Mode of Appeal from the
Decision of the Regional Trial
Court involving local taxes
RA 9282,18 which took effect on April 23, 2004, expanded the jurisdiction of the Court of Tax Appeals
(CTA) to include, among others, the power to review by appeal decisions, orders or resolutions of the
Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their
original or appellate jurisdiction.19rll
Considering that RA 9282 was already in effect when the RTC rendered its decision on February 7, 2005,
CASURECO III should have filed its appeal, not with the CA, but with the CTA Division in accordance
with the applicable law and the rules of the CTA. Resort to the CA was, therefore, improper, rendering its
decision null and void for want of jurisdiction over the subject matter. A void judgment has no legal or

binding force or efficacy for any purpose or at any place. 20 Hence, the fact that petitioner's motion for
reconsideration from the CA Decision was belatedly filed is inconsequential, because a void and nonexistent decision would never have acquired finality.21rll
The foregoing procedural lapses would have been sufficient to dismiss the instant petition outright and
declare the decision of the RTC final. However, the substantial merits of the case compel us to dispense
with these lapses and instead, exercise the Courts power of judicial review.
CASURECO III is not exempt from
payment of franchise tax
PD 269, which took effect on August 6, 1973, granted electric cooperatives registered with the NEA, like
CASURECO III, several tax privileges, one of which is exemption from the payment of "all national
government, local government and municipal taxes and fees, including franchise, filing, recordation,
license or permit fees or taxes."22rll
On March 10, 1990, Congress enacted into law RA 6938,23 otherwise known as the "Cooperative Code of
the Philippines," and RA 693924 creating the CDA. The latter law vested the power to register
cooperatives solely on the CDA, while the former provides that electric cooperatives registered with the
NEA under PD 269 which opt not to register with the CDA shall not be entitled to the benefits and
privileges under the said law.
On January 1, 1992, the LGC took effect, and Section 193 thereof withdrew tax exemptions or incentives
previously enjoyed by "all persons, whether natural or juridical, including government-owned or
controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions." 25rll
In Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The Secretary, Department of
Interior and Local Government,26 the Court held that the tax privileges granted to electric cooperatives
registered with NEA under PD 269 were validly withdrawn and only those registered with the CDA under
RA 6938 may continue to enjoy the tax privileges under the Cooperative Code.
Therefore, CASURECO III can no longer invoke PD 269 to evade payment of local taxes. Moreover, its
provisional registration with the CDA which granted it exemption for the payment of local taxes was
extended only until May 4, 1992. Thereafter, it can no longer claim any exemption from the payment of
local taxes, including the subject franchise tax.
Indisputably, petitioner has the power to impose local taxes. The power of the local government units to
impose and collect taxes is derived from the Constitution itself which grants them "the power to create its
own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitation as
the Congress may provide."27 This explicit constitutional grant of power to tax is consistent with the basic
policy of local autonomy and decentralization of governance. With this power, local government units
have the fiscal mechanisms to raise the funds needed to deliver basic services to their constituents and
break the culture of dependence on the national government. Thus, consistent with these objectives, the

LGC was enacted granting the local government units, like petitioner, the power to impose and collect
franchise tax, to wit:rbl r l l lbrr
SEC. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%)
of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction. xxx
SEC. 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city, may levy the
taxes, fees, and charges which the province or municipality may impose: Provided, however, That the
taxes, fees and charges levied and collected by highly urbanized and independent component cities shall
accrue to them and distributed in accordance with the provisions of this Code. The rates of taxes that the
city may levy may exceed the maximum rates allowed for the province or municipality by not more than
fifty percent (50%) except the rates of professional and amusement taxes.
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Taking a different tack, CASURECO III maintains that it is exempt from payment of franchise tax
because of its nature as a non-profit cooperative, as contemplated in PD 269, 28 and insists that only
entities engaged in business, and not non-profit entities like itself, are subject to the said franchise
tax.rbl r l l lbrr
The Court is not persuaded.
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In National Power Corporation v. City of Cabanatuan,29 the Court declared that "a franchise tax is a tax
on the privilege of transacting business in the state and exercising corporate franchises granted by the
state."30 It is not levied on the corporation simply for existing as a corporation, upon its property or its
income, but on its exercise of the rights or privileges granted to it by the government. 31 "It is within this
context that the phrase tax on businesses enjoying a franchise in Section 137 of the LGC should be
interpreted and understood."32rll
Thus, to be liable for local franchise tax, the following requisites should concur: (1) that one has a
"franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or
privileges under this franchise within the territory of the pertinent local government unit. 33rll
There is a confluence of these requirements in the case at bar. By virtue of PD 269, NEA granted
CASURECO III a franchise to operate an electric light and power service for a period of fifty (50) years
from June 6, 1979,34 and it is undisputed that CASURECO III operates within Iriga City and the
Rinconada area. It is, therefore, liable to pay franchise tax notwithstanding its non-profit nature.
CASURECO III is liable for
franchise tax on gross receipts

within Iriga City and

Rinconada area
CASURECO III further argued that its liability to pay franchise tax, if any, should be limited to gross
receipts received from the supply of the electricity within the City of Iriga and not those from the
Rinconada area.rbl r l l lbrr
Again, the Court is not convinced.
10
G.R. No. 189999

June 27, 2012

ANGELES UNIVERSITY FOUNDATION, Petitioner,

vs.
CITY OF ANGELES, JULIET G. QUINSAAT, in her capacity as Treasurer of Angeles City and
ENGR. DONATO N. DIZON, in his capacity as Acting Angeles City Building Official, Respondents.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, which seeks to reverse and set aside the Decision 1 dated July 28, 2009 and Resolution2 dated
October 12, 2009 of the Court of Appeals (CA) in CA-G.R. CV No. 90591. The CA reversed the
Decision3 dated September 21, 2007 of the Regional Trial Court of Angeles City, Branch 57 in Civil Case
No. 12995 declaring petitioner exempt from the payment of building permit and other fees and ordering
respondents to refund the same with interest at the legal rate.
The factual antecedents:
Petitioner Angeles University Foundation (AUF) is an educational institution established on May 25,
1962 and was converted into a non-stock, non-profit education foundation under the provisions of
Republic Act (R.A.) No. 60554on December 4, 1975.
Sometime in August 2005, petitioner filed with the Office of the City Building Official an application for
a building permit for the construction of an 11-storey building of the Angeles University Foundation
Medical Center in its main campus located at MacArthur Highway, Angeles City, Pampanga. Said office
issued a Building Permit Fee Assessment in the amount of P126,839.20. An Order of Payment was also
issued by the City Planning and Development Office, Zoning Administration Unit requiring petitioner to
pay the sum of P238,741.64 as Locational Clearance Fee. 5
In separate letters dated November 15, 2005 addressed to respondents City Treasurer Juliet G. Quinsaat
and Acting City Building Official Donato N. Dizon, petitioner claimed that it is exempt from the payment
of the building permit and locational clearance fees, citing legal opinions rendered by the Department of

Justice (DOJ). Petitioner also reminded the respondents that they have previously issued building permits
acknowledging such exemption from payment of building permit fees on the construction of petitioners
4-storey AUF Information Technology Center building and the AUF Professional Schools building on
July 27, 2000 and March 15, 2004, respectively.6
Respondent City Treasurer referred the matter to the Bureau of Local Government Finance (BLGF) of the
Department of Finance, which in turn endorsed the query to the DOJ. Then Justice Secretary Raul M.
Gonzalez, in his letter-reply dated December 6, 2005, cited previous issuances of his office (Opinion No.
157, s. 1981 and Opinion No. 147, s. 1982) declaring petitioner to be exempt from the payment of
building permit fees. Under the 1st Indorsement dated January 6, 2006, BLGF reiterated the aforesaid
opinion of the DOJ stating further that "xxx the Department of Finance, thru this Bureau, has no authority
to review the resolution or the decision of the DOJ." 7
Petitioner wrote the respondents reiterating its request to reverse the disputed assessments and invoking
the DOJ legal opinions which have been affirmed by Secretary Gonzalez. Despite petitioners plea,
however, respondents refused to issue the building permits for the construction of the AUF Medical
Center in the main campus and renovation of a school building located at Marisol Village. Petitioner then
appealed the matter to City Mayor Carmelo F. Lazatin but no written response was received by petitioner. 8
Consequently, petitioner paid under protest9 the following:
Medical Center (new construction)

Building Permit and Electrical Fee

P 217,475.20

Locational Clearance Fee

283,741.64

Fire Code Fee

144,690.00
Total - P 645,906.84

School Building (renovation)

Building Permit and Electrical Fee

P 37,857.20

Locational Clearance Fee

6,000.57

Fire Code Fee

5,967.74
Total - P 49,825.51

Petitioner likewise paid the following sums as required by the City Assessors Office:
Real Property Tax Basic Fee
SEF
Locational Clearance Fee

P 86,531.10
43,274.54
1,125.00
Total P130,930.6410
[GRAND TOTAL - P 826,662.99]

By reason of the above payments, petitioner was issued the corresponding Building Permit, Wiring
Permit, Electrical Permit and Sanitary Building Permit. On June 9, 2006, petitioner formally requested the
respondents to refund the fees it paid under protest. Under letters dated June 15, 2006 and August 7, 2006,
respondent City Treasurer denied the claim for refund. 11
On August 31, 2006, petitioner filed a Complaint12 before the trial court seeking the refund of
P826,662.99 plus interest at the rate of 12% per annum, and also praying for the award of attorneys fees
in the amount of P300,000.00 and litigation expenses.
In its Answer,13 respondents asserted that the claim of petitioner cannot be granted because its structures
are not among those mentioned in Sec. 209 of the National Building Code as exempted from the building
permit fee. Respondents argued that R.A. No. 6055 should be considered repealed on the basis of Sec.
2104 of the National Building Code. Since the disputed assessments are regulatory in nature, they are not
taxes from which petitioner is exempt. As to the real property taxes imposed on petitioners property
located in Marisol Village, respondents pointed out that said premises will be used as a school dormitory
which cannot be considered as a use exclusively for educational activities.
Petitioner countered that the subject building permit are being collected on the basis of Art. 244 of
theImplementing Rules and Regulations of the Local Government Code, which impositions are really
taxes considering that they are provided under the chapter on "Local Government Taxation" in reference
to the "revenue raising power" of local government units (LGUs). Moreover, petitioner contended that, as
held in Philippine Airlines, Inc. v. Edu,14 fees may be regarded as taxes depending on the purpose of its
exaction. In any case, petitioner pointed out that the Local Government Code of 1991 provides in Sec.
193 that non-stock and non-profit educational institutions like petitioner retained the tax exemptions or
incentives which have been granted to them. Under Sec. 8 of R.A. No. 6055 and applicable jurisprudence
and DOJ rulings, petitioner is clearly exempt from the payment of building permit fees. 15
On September 21, 2007, the trial court rendered judgment in favor of the petitioner and against the
respondents. The dispositive portion of the trial courts decision 16 reads:

WHEREFORE, premises considered, judgment is rendered as follows:

a. Plaintiff is exempt from the payment of building permit and other fees Ordering the Defendants
to refund the total amount of Eight Hundred Twenty Six Thousand Six Hundred Sixty Two Pesos
and 99/100 Centavos (P826,662.99) plus legal interest thereon at the rate of twelve percent (12%)
per annum commencing on the date of extra-judicial demand or June 14, 2006, until the aforesaid
amount is fully paid.
b. Finding the Defendants liable for attorneys fees in the amount of Seventy Thousand Pesos
(Php70,000.00), plus litigation expenses.
c. Ordering the Defendants to pay the costs of the suit.
SO ORDERED.17
Respondents appealed to the CA which reversed the trial court, holding that while petitioner is a tax-free
entity, it is not exempt from the payment of regulatory fees. The CA noted that under R.A. No. 6055,
petitioner was granted exemption only from income tax derived from its educational activities and real
property used exclusively for educational purposes. Regardless of the repealing clause in the National
Building Code, the CA held that petitioner is still not exempt because a building permit cannot be
considered as the other "charges" mentioned in Sec. 8 of R.A. No. 6055 which refers to impositions in the
nature of tax, import duties, assessments and other collections for revenue purposes, following the
ejusdem generisrule. The CA further stated that petitioner has not shown that the fees collected were
excessive and more than the cost of surveillance, inspection and regulation. And while petitioner may be
exempt from the payment of real property tax, petitioner in this case merely alleged that "the subject
property is to be used actually, directly and exclusively for educational purposes," declaring merely that
such premises is intended to house the sports and other facilities of the university but by reason of the
occupancy of informal settlers on the area, it cannot yet utilize the same for its intended use. Thus, the CA
concluded that petitioner is not entitled to the refund of building permit and related fees, as well as real
property tax it paid under protest.
Petitioner filed a motion for reconsideration which was denied by the CA.
Hence, this petition raising the following grounds:
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND DECIDED A QUESTION OF
SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW AND THE APPLICABLE DECISIONS
OF THE HONORABLE COURT AND HAS DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS NECESSITATING THE HONORABLE COURTS
EXERCISE OF ITS POWER OF SUPERVISION CONSIDERING THAT:
I. IN REVERSING THE TRIAL COURTS DECISION DATED 21 SEPTEMBER 2007, THE COURT
OF APPEALS EFFECTIVELY WITHDREW THE PRIVILEGE OF EXEMPTION GRANTED TO
NON-STOCK, NON-PROFIT EDUCATIONAL FOUNDATIONS BY VIRTUE OF RA 6055 WHICH
WITHDRAWAL IS BEYOND THE AUTHORITY OF THE COURT OF APPEALS TO DO.

A. INDEED, RA 6055 REMAINS VALID AND IS IN FULL FORCE AND EFFECT. HENCE,
THE COURT OF APPEALS ERRED WHEN IT RULED IN THE QUESTIONED DECISION
THAT NON-STOCK, NON-PROFIT EDUCATIONAL FOUNDATIONS ARE NOT EXEMPT.
B. THE COURT OF APPEALS APPLICATION OF THE PRINCIPLE OF EJUSDEM
GENERIS IN RULING IN THE QUESTIONED DECISION THAT THE TERM "OTHER
CHARGES IMPOSED BY THE GOVERNMENT" UNDER SECTION 8 OF RA 6055 DOES
NOT INCLUDE BUILDING PERMIT AND OTHER RELATED FEES AND/OR CHARGES IS
BASED ON ITS ERRONEOUS AND UNWARRANTED ASSUMPTION THAT THE TAXES,
IMPORT DUTIES AND ASSESSMENTS AS PART OF THE PRIVILEGE OF EXEMPTION
GRANTED TO NON-STOCK, NON-PROFIT EDUCATIONAL FOUNDATIONS ARE
LIMITED TO COLLECTIONS FOR REVENUE PURPOSES.
C. EVEN ASSUMING THAT THE BUILDING PERMIT AND OTHER RELATED FEES
AND/OR CHARGES ARE NOT INCLUDED IN THE TERM "OTHER CHARGES IMPOSED
BY THE GOVERNMENT" UNDER SECTION 8 OF RA 6055, ITS IMPOSITION IS
GENERALLY A TAX MEASURE AND THEREFORE, STILL COVERED UNDER THE
PRIVILEGE OF EXEMPTION.
II. THE COURT OF APPEALS DENIAL OF PETITIONER AUFS EXEMPTION FROM REAL
PROPERTY TAXES CONTAINED IN ITS QUESTIONED DECISION AND QUESTIONED
RESOLUTION IS CONTRARY TO APPLICABLE LAW AND JURISPRUDENCE.18
Petitioner stresses that the tax exemption granted to educational stock corporations which have converted
into non-profit foundations was broadened to include any other charges imposed by the Government as
one of the incentives for such conversion. These incentives necessarily included exemption from payment
of building permit and related fees as otherwise there would have been no incentives for educational
foundations if the privilege were only limited to exemption from taxation, which is already provided
under the Constitution.
Petitioner further contends that this Court has consistently held in several cases that the primary purpose
of the exaction determines its nature. Thus, a charge of a fixed sum which bears no relation to the cost of
inspection and which is payable into the general revenue of the state is a tax rather than an exercise of the
police power. The standard set by law in the determination of the amount that may be imposed as license
fees is such that is commensurate with the cost of regulation, inspection and licensing. But in this case,
the amount representing the building permit and related fees and/or charges is such an exorbitant amount
as to warrant a valid imposition; such amount exceeds the probable cost of regulation. Even with the
alleged criteria submitted by the respondents (e.g., character of occupancy or use of building/structure,
cost of construction, floor area and height), and the construction by petitioner of an 11-storey building,
the costs of inspection will not amount to P645,906.84, presumably for the salary of inspectors or
employees, the expenses of transportation for inspection and the preparation and reproduction of
documents. Petitioner thus concludes that the disputed fees are substantially and mainly for purposes of
revenue rather than regulation, so that even these fees cannot be deemed "charges" mentioned in Sec. 8 of
R.A. No. 6055, they should properly be treated as tax from which petitioner is exempt.

In their Comment, respondents maintain that petitioner is not exempt from the payment of building permit
and related fees since the only exemptions provided in the National Building Code are public buildings
and traditional indigenous family dwellings. Inclusio unius est exclusio alterius. Because the law did not
include petitioners buildings from those structures exempt from the payment of building permit fee, it is
therefore subject to the regulatory fees imposed under the National Building Code.
Respondents assert that the CA correctly distinguished a building permit fee from those "other charges"
mentioned in Sec. 8 of R.A. No. 6055. As stated by petitioner itself, charges refer to pecuniary liability, as
rents, and fees against persons or property. Respondents point out that a building permit is classified
under the term "fee." A fee is generally imposed to cover the cost of regulation as activity or privilege and
is essentially derived from the exercise of police power; on the other hand, impositions for services
rendered by the local government units or for conveniences furnished, are referred to as "service charges".
Respondents also disagreed with petitioners contention that the fees imposed and collected are exorbitant
and exceeded the probable expenses of regulation. These fees are based on computations and assessments
made by the responsible officials of the City Engineers Office in accordance with the Schedule of Fees
and criteria provided in the National Building Code. The bases of assessment cited by petitioner (e.g.
salary of employees, expenses of transportation and preparation and reproduction of documents) refer to
charges and fees on business and occupation under Sec. 147 of the Local Government Code, which do not
apply to building permit fees. The parameters set by the National Building Code can be considered as
complying with the reasonable cost of regulation in the assessment and collection of building permit fees.
Respondents likewise contend that the presumption of regularity in the performance of official duty
applies in this case. Petitioner should have presented evidence to prove its allegations that the amounts
collected are exorbitant or unreasonable.
For resolution are the following issues: (1) whether petitioner is exempt from the payment of building
permit and related fees imposed under the National Building Code; and (2) whether the parcel of land
owned by petitioner which has been assessed for real property tax is likewise exempt.
R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which converted to nonstock, non-profit educational foundations. Section 8 of said law provides:
SECTION 8. The Foundation shall be exempt from the payment of all taxes, import duties, assessments,
and other charges imposed by the Government onall income derived from or property, real or personal,
used exclusively for the educational activities of the Foundation.(Emphasis supplied.)
On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting the National Building
Code of the Philippines. The said Code requires every person, firm or corporation, including any agency
or instrumentality of the government to obtain a building permit for any construction, alteration or repair
of any building or structure.19Building permit refers to "a document issued by the Building Official x x x
to an owner/applicant to proceed with the construction, installation, addition, alteration, renovation,
conversion, repair, moving, demolition or other work activity of a specific project/building/structure or
portions thereof after the accompanying principal plans, specifications and other pertinent documents
with the duly notarized application are found satisfactory and substantially conforming with the National

Building Code of the Philippines x x x and its Implementing Rules and Regulations (IRR)." 20 Building
permit fees refers to the basic permit fee and other charges imposed under theNational Building Code.
Exempted from the payment of building permit fees are: (1) public buildings and (2) traditional
indigenous family dwellings.21 Not being expressly included in the enumeration of structures to which the
building permit fees do not apply, petitioners claim for exemption rests solely on its interpretation of the
term "other charges imposed by the National Government" in the tax exemption clause of R.A. No. 6055.
A "charge" is broadly defined as the "price of, or rate for, something," while the word "fee" pertains to a
"charge fixed by law for services of public officers or for use of a privilege under control of
government."22 As used in the Local Government Code of 1991 (R.A. No. 7160), charges refers to
pecuniary liability, as rents or fees against persons or property, while fee means a charge fixed by law or
ordinance for the regulation or inspection of a business or activity.23
That "charges" in its ordinary meaning appears to be a general term which could cover a specific "fee"
does not support petitioners position that building permit fees are among those "other charges" from
which it was expressly exempted. Note that the "other charges" mentioned in Sec. 8 of R.A. No. 6055 is
qualified by the words "imposed by the Government on all x x x property used exclusively for the
educational activities of the foundation." Building permit fees are not impositions on property but on the
activity subject of government regulation. While it may be argued that the fees relate to particular
properties, i.e., buildings and structures, they are actually imposed on certain activities the owner may
conduct either to build such structures or to repair, alter, renovate or demolish the same. This is evident
from the following provisions of the National Building Code:
Section 102. Declaration of Policy
It is hereby declared to be the policy of the State to safeguard life, health, property, and public welfare,
consistent with theprinciples of sound environmental management and control; and tothis end, make it the
purpose of this Code to provide for allbuildings and structures, a framework of minimum standards and
requirements to regulate and control their location, site, design quality of materials, construction, use,
occupancy, and maintenance.
Section 103. Scope and Application
(a) The provisions of this Code shall apply to the design,location, sitting, construction, alteration,
repair,conversion, use, occupancy, maintenance, moving, demolitionof, and addition to public and private
buildings andstructures, except traditional indigenous family dwellingsas defined herein.
xxxx
Section 301. Building Permits
No person, firm or corporation, including any agency orinstrumentality of the government shall erect,
construct, alter, repair, move, convert or demolish any building or structure or causethe same to be done

without first obtaining a building permittherefor from the Building Official assigned in the place where
thesubject building is located or the building work is to be done. (Italics supplied.)
That a building permit fee is a regulatory imposition is highlighted by the fact that in processing an
application for a building permit, the Building Official shall see to it that the applicant satisfies and
conforms with approved standard requirements on zoning and land use, lines and grades, structural
design, sanitary and sewerage, environmental health, electrical and mechanical safety as well as with
other rules and regulations implementing the National Building Code. 24 Thus, ancillary permits such as
electrical permit, sanitary permit and zoning clearance must also be secured and the corresponding fees
paid before a building permit may be issued. And as can be gleaned from the implementing rules and
regulations of the National Building Code, clearances from various government authorities exercising and
enforcing regulatory functions affecting buildings/structures, like local government units, may be further
required before a building permit may be issued. 25
Since building permit fees are not charges on property, they are not impositions from which petitioner is
exempt.
As to petitioners argument that the building permit fees collected by respondents are in reality taxes
because the primary purpose is to raise revenues for the local government unit, the same does not hold
water.
A charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held
to be a tax rather than an exercise of the police power.26 In this case, the Secretary of Public Works and
Highways who is mandated to prescribe and fix the amount of fees and other charges that the Building
Official shall collect in connection with the performance of regulatory functions, 27 has promulgated and
issued the Implementing Rules and Regulations28 which provide for the bases of assessment of such fees,
as follows:
1. Character of occupancy or use of building
2. Cost of construction " 10,000/sq.m (A,B,C,D,E,G,H,I), 8,000 (F), 6,000 (J)
3. Floor area
4. Height
Petitioner failed to demonstrate that the above bases of assessment were arbitrarily determined or
unrelated to the activity being regulated. Neither has petitioner adduced evidence to show that the rates of
building permit fees imposed and collected by the respondents were unreasonable or in excess of the cost
of regulation and inspection.
In Chevron Philippines, Inc. v. Bases Conversion Development Authority,29 this Court explained:
In distinguishing tax and regulation as a form of police power, the determining factor is the purpose of the
implemented measure. If the purpose is primarily to raise revenue, then it will be deemed a tax even

though the measure results in some form of regulation. On the other hand, if the purpose is primarily to
regulate, then it is deemed a regulation and an exercise of the police power of the state, even though
incidentally, revenue is generated. Thus, in Gerochi v. Department of Energy, the Court stated:
"The conservative and pivotal distinction between these two (2) powers rests in the purpose for which the
charge is made. 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."30 (Emphasis supplied.)
Concededly, in the case of building permit fees imposed by the National Government under the National
Building Code, revenue is incidentally generated for the benefit of local government units. Thus:
Section 208. Fees
Every Building Official shall keep a permanent record and accurate account of all fees and other charges
fixed and authorized by the Secretary to be collected and received under this Code.
Subject to existing budgetary, accounting and auditing rules and regulations, the Building Official is
hereby authorized to retain not more than twenty percent of his collection for the operating expenses of
his office.
The remaining eighty percent shall be deposited with the provincial, city or municipal treasurer and shall
accrue to the General Fund of the province, city or municipality concerned.
Petitioners reliance on Sec. 193 of the Local Government Code of 1991 is likewise misplaced. Said
provision states:
SECTION 193. Withdrawal of Tax Exemption Privileges. -- Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code. (Emphasis supplied.)
Considering that exemption from payment of regulatory fees was not among those "incentives" granted to
petitioner under R.A. No. 6055, there is no such incentive that is retained under the Local Government
Code of 1991. Consequently, no reversible error was committed by the CA in ruling that petitioner is
liable to pay the subject building permit and related fees.
Now, on petitioners claim that it is exempted from the payment of real property tax assessed against its
real property presently occupied by informal settlers.
Section 28(3), Article VI of the 1987 Constitution provides:
xxxx

(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly and exclusively used for
religious, charitable or educational purposes shall be exempt from taxation.
x x x x (Emphasis supplied.)
Section 234(b) of the Local Government Code of 1991 implements the foregoing constitutional provision
by declaring that -SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the
real property tax:
xxxx
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or
religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used
for religious, charitable or educational purposes;
x x x x (Emphasis supplied.)
In Lung Center of the Philippines v. Quezon City,31 this Court held that only portions of the hospital
actually, directly and exclusively used for charitable purposes are exempt from real property taxes, while
those portions leased to private entities and individuals are not exempt from such taxes. We explained the
condition for the tax exemption privilege of charitable and educational institutions, as follows:
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption,
the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution;
and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable
purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from
participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege
exclusively." 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. The words "dominant use" or "principal use" cannot be
substituted for the words "used exclusively" without doing violence to the Constitutions and the law.
Solely is synonymous with exclusively.1wphi1
What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and
immediate and actual application of the property itself to the purposes for which the charitable institution
is organized. It is not the use of the income from the real property that is determinative of whether the
property is used for tax-exempt purposes.32 (Emphasis and underscoring supplied.)
Petitioner failed to discharge its burden to prove that its real property is actually, directly and exclusively
used for educational purposes. While there is no allegation or proof that petitioner leases the land to its
present occupants, still there is no compliance with the constitutional and statutory requirement that said
real property is actually, directly and exclusively used for educational purposes. The respondents correctly
assessed the land for real property taxes for the taxable period during which the land is not being devoted

solely to petitioners educational activities. Accordingly, the CA did not err in ruling that petitioner is
likewise not entitled to a refund of the real property tax it paid under protest.
WHEREFORE, the petition is DENIED. The Decision dated July 28, 2009 and Resolution dated October
12, 2009 of the Court of Appeals in CA-G.R. CV No. 90591 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
11
LUNG CENTER OF THE PHILIPPINES VS QUEZON CITY
Posted by kaye lee on 5:15 PM
G.R. No. 144104, June 29, 2004 [Constitutional Law - Article VI: Legislative Department; Taxation ]
FACTS:
Petitioner is a non-stock, non-profit entity established by virtue of PD No. 1823, seeks exemption from
real property taxes when the City Assessor issued Tax Declarations for the land and the hospital building.
Petitioner predicted on its claim that it is a charitable institution. The request was denied, and a petition
hereafter filed before the Local Board of Assessment Appeals of Quezon City (QC-LBAA) for reversal of
the resolution of the City Assessor. Petitioner alleged that as a charitable institution, is exempted from real
property taxes under Sec 28(3) Art VI of the Constitution. QC-LBAA dismissed the petition and the
decision was likewise affirmed on appeal by the Central Board of Assessment Appeals of Quezon City.
The Court of Appeals affirmed the judgment of the CBAA.
ISSUE:
1. Whether or not petitioner is a charitable institution within the context of PD 1823 and the 1973 and
1987 Constitution and Section 234(b) of RA 7160.
2. Whether or not petitioner is exempted from real property taxes.
RULING:
1. Yes. The Court hold that the petitioner is a charitable institution within the context of the 1973 and
1987 Constitution. Under PD 1823, the petitioner is a non-profit and non-stock corporation which, subject
to the provisions of the decree, is to be administered by the Office of the President with the Ministry of
Health and the Ministry of Human Settlements. The purpose for which it was created was to render
medical services to the public in general including those who are poor and also the rich, and become a
subject of charity. Under PD 1823, petitioner is entitled to receive donations, even if the gift or donation
is in the form of subsidies granted by the government.
2. Partly No. Under PD 1823, the lung center does not enjoy any property tax exemption privileges for its
real properties as well as the building constructed thereon.

The property tax exemption under Sec. 28(3), Art. VI of the Constitution of the property taxes only. This
provision was implanted by Sec.243 (b) of RA 7160.which provides that in order to be entitled to the
exemption, the lung center must be able to prove that: it is a charitable institution and; its real properties
are actually, directly and exclusively used for charitable purpose. Accordingly, the portions occupied by
the hospital used for its patients are exempt from real property taxes while those leased to private entities
are not exempt from such taxes.
EN BANC
[G.R. No. 144104. June 29, 2004]
LUNG CENTER OF THE PHILIPPINES, petitioner, vs. QUEZON CITY and CONSTANTINO P.
ROSAS, in his capacity as City Assessor of Quezon City, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision[1] dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the
decision of the Central Board of Assessment Appeals holding that the lot owned by the petitioner and its
hospital building constructed thereon are subject to assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established
on January 16, 1981 by virtue of Presidential Decree No. 1823. [2] It is the registered owner of a parcel of
land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue
corner Elliptical Road, Central District, Quezon City. The lot has an area of 121,463 square meters and is
covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon
City. Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of
the Philippines. A big space at the ground floor 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 for
their patients whom they charge for their professional services. Almost one-half of the entire area on the
left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at
the corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private
enterprise known as the Elliptical Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. It also renders medical services to outpatients, both paying and non-paying.Aside from its income from paying patients, the petitioner receives
annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real
property taxes in the amount ofP4,554,860 by the City Assessor of Quezon City. [3] Accordingly, Tax
Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and the

hospital building, respectively.[4] On August 25, 1993, the petitioner filed a Claim for Exemption [5] from
real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The
petitioners request was denied, and a petition was, thereafter, filed before the Local Board of Assessment
Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the resolution of the City
Assessor. The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property
is exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are exclusively
used for charity patients and that the major thrust of its hospital operation is to serve charity patients. The
petitioner contends that it is a charitable institution and, as such, is exempt from real property taxes. The
QC-LBAA rendered judgment dismissing the petition and holding the petitioner liable for real property
taxes.[6]
The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of Assessment
Appeals of Quezon City (CBAA, for brevity) [7] which ruled that the petitioner was not a charitable
institution and that its real properties were not actually, directly and exclusively used for charitable
purposes; hence, it was not entitled to real property tax exemption under the constitution and the law. The
petitioner sought relief from the Court of Appeals, which rendered judgment affirming the decision of the
CBAA.[8]
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO
REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND
IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY
AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT
UNDER ITS CHARTER, PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE
EXTENDED UPON PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of
the 1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact that it
admits paying patients and renders medical services to them, leases portions of the land to private parties,
and rents out portions of the hospital to private medical practitioners from which it derives income to be
used for operational expenses. The petitioner points out that for the years 1995 to 1999, 100% of its outpatients were charity patients and of the hospitals 282-bed capacity, 60% thereof, or 170 beds, is allotted
to charity patients. It asserts that the fact that it receives subsidies from the government attests to its
character as a charitable institution. It contends that the exclusivity required in the Constitution does not
necessarily mean solely. Hence, even if a portion of its real estate is leased out to private individuals from
whom it derives income, it does not lose its character as a charitable institution, and its exemption from
the payment of real estate taxes on its real property. The petitioner cited our ruling in Herrera v. QCBAA[9] to bolster its pose. The petitioner further contends that even if P.D. No. 1823 does not exempt it
from the payment of real estate taxes, it is not precluded from seeking tax exemption under the 1987
Constitution.

In their comment on the petition, the respondents aver that the petitioner is not a charitable
entity. The petitioners real property is not exempt from the payment of real estate taxes under P.D. No.
1823 and even under the 1987 Constitution because it failed to prove that it is a charitable institution and
that the said property is actually, directly and exclusively used for charitable purposes. The respondents
noted that in a newspaper report, it appears that graft charges were filed with the Sandiganbayan against
the director of the petitioner, its administrative officer, and Zenaida Rivera, the proprietress of the
Elliptical Orchids and Garden Center, for entering into a lease contract over 7,663.13 square meters of the
property in 1990 for only P20,000 a month, when the monthly rental should be P357,000 a month as
determined by the Commission on Audit; and that instead of complying with the directive of the COA for
the cancellation of the contract for being grossly prejudicial to the government, the petitioner renewed the
same on March 13, 1995 for a monthly rental of only P24,000. They assert that the petitioner uses the
subsidies granted by the government for charity patients and uses the rest of its income from the property
for the benefit of paying patients, among other purposes. They aver that the petitioner failed to adduce
substantial evidence that 100% of its out-patients and 170 beds in the hospital are reserved for indigent
patients. The respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service. That
before a patient is admitted for treatment in the Center, first impression is that it is pay-patient and
required to pay a certain amount as deposit. That even if a patient is living below the poverty line, he is
charged with high hospital bills. And, without these bills being first settled, the poor patient cannot be
allowed to leave the hospital or be discharged without first paying the hospital bills or issue a promissory
note guaranteed and indorsed by an influential agency or person known only to the Center; that even the
remains of deceased poor patients suffered the same fate. Moreover, before a patient is admitted for
treatment as free or charity patient, one must undergo a series of interviews and must submit all the
requirements needed by the Center, usually accompanied by endorsement by an influential agency or
person known only to the Center. These facts were heard and admitted by the Petitioner LCP during the
hearings before the Honorable QC-BAA and Honorable CBAA. These are the reasons of indigent
patients, instead of seeking treatment with the Center, they prefer to be treated at the Quezon
Institute. Can such practice by the Center be called charitable? [10]
The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable institution within
the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of
Republic Act No. 7160; and (b) whether the real properties of the petitioner are exempt from real property
taxes.
The Courts Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973
and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity 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, the

character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of
the properties.[11]
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing
laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under
the influence of education or religion, by assisting them to establish themselves in life or otherwise
lessening the burden of government. [12] It may be applied to almost anything that tend to promote the
well-doing and well-being of social man. It embraces the improvement and promotion of the happiness of
man.[13] The word charitable is not restricted to relief of the poor or sick. [14] The test of a charity and a
charitable organization are in law the same. The test whether an enterprise is charitable or not is whether
it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit,
or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the
provisions of the decree, is to be administered by the Office of the President of the Philippines with the
Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and benefit of
the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in
the Philippines. The raison detre for the creation of the petitioner is stated in the decree, viz:
Whereas, for decades, respiratory diseases have been a priority concern, having been the leading cause of
illness and death in the Philippines, comprising more than 45% of the total annual deaths from all causes,
thus, exacting a tremendous toll on human resources, which ailments are likely to increase and degenerate
into serious lung diseases on account of unabated pollution, industrialization and unchecked cigarette
smoking in the country;
Whereas, the more common lung diseases are, to a great extent, preventable, and curable with early and
adequate medical care, immunization and through prompt and intensive prevention and health education
programs;
Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies and efforts at
preventing, treating and rehabilitating people affected by lung diseases, and to undertake research and
training on the cure and prevention of lung diseases, through a Lung Center which will house and nurture
the above and related activities and provide tertiary-level care for more difficult and problematical cases;
Whereas, to achieve this purpose, the Government intends to provide material and financial support
towards the establishment and maintenance of a LungCenter for the welfare and benefit of the Filipino
people.[15]
The purposes for which the petitioner was created are spelled out in its Articles of Incorporation,
thus:
SECOND: That the purposes for which such corporation is formed are as follows:
1. To construct, establish, equip, maintain, administer and conduct an integrated medical institution which
shall specialize in the treatment, care, rehabilitation and/or relief of lung and allied diseases in line with

the concern of the government to assist and provide material and financial support in the establishment
and maintenance of a lung center primarily to benefit the people of the Philippines and in pursuance of
the policy of the State to secure the well-being of the people by providing them specialized health and
medical services and by minimizing the incidence of lung diseases in the country and elsewhere.
2. To promote the noble undertaking of scientific research related to the prevention of lung or pulmonary
ailments and the care of lung patients, including the holding of a series of relevant congresses,
conventions, seminars and conferences;
3. To stimulate and, whenever possible, underwrite scientific researches on the biological, demographic,
social, economic, eugenic and physiological aspects of lung or pulmonary diseases and their control; and
to collect and publish the findings of such research for public consumption;
4. To facilitate the dissemination of ideas and public acceptance of information on lung consciousness or
awareness, and the development of fact-finding, information and reporting facilities for and in aid of the
general purposes or objects aforesaid, especially in human lung requirements, general health and physical
fitness, and other relevant or related fields;
5. To encourage the training of physicians, nurses, health officers, social workers and medical and
technical personnel in the practical and scientific implementation of services to lung patients;
6. To assist universities and research institutions in their studies about lung diseases, to encourage
advanced training in matters of the lung and related fields and to support educational programs of value to
general health;
7. To encourage the formation of other organizations on the national, provincial and/or city and local
levels; and to coordinate their various efforts and activities for the purpose of achieving a more effective
programmatic approach on the common problems relative to the objectives enumerated herein;
8. To seek and obtain assistance in any form from both international and local foundations and
organizations; and to administer grants and funds that may be given to the organization;
9. To extend, whenever possible and expedient, medical services to the public and, in general, to promote
and protect the health of the masses of our people, which has long been recognized as an economic asset
and a social blessing;
10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of the people in
any and all walks of life, including those who are poor and needy, all without regard to or discrimination,
because of race, creed, color or political belief of the persons helped; and to enable them to obtain
treatment when such disorders occur;
11. To participate, as circumstances may warrant, in any activity designed and carried on to promote the
general health of the community;

12. To acquire and/or borrow funds and to own all funds or equipment, educational materials and supplies
by purchase, donation, or otherwise and to dispose of and distribute the same in such manner, and, on
such basis as the Center shall, from time to time, deem proper and best, under the particular
circumstances, to serve its general and non-profit purposes and objectives;
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of properties, whether
real or personal, for purposes herein mentioned; and
14. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the
powers herein set forth and to do every other act and thing incidental thereto or connected therewith. [16]
Hence, the medical services of the petitioner are to be rendered to the public in general in any and all
walks of life including those who are poor and the needy without discrimination. After all, any person, the
rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity. [17]
As a general principle, a charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients, whether out-patient, or confined in the
hospital, or receives subsidies from the government, so long as the money received is devoted or used
altogether to the charitable object which it is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution. [18] In Congregational Sunday School, etc. v.
Board of Review,[19] the State Supreme Court of Illinois held, thus:
[A]n institution does not lose its charitable character, and consequent exemption from taxation, by reason
of the fact that those recipients of its benefits who are able to pay are required to do so, where no profit is
made by the institution and the amounts so received are applied in furthering its charitable purposes, and
those benefits are refused to none on account of inability to pay therefor. The fundamental ground upon
which all exemptions in favor of charitable institutions are based is the benefit conferred upon the public
by them, and a consequent relief, to some extent, of the burden upon the state to care for and advance the
interests of its citizens.[20]
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of
South Dakota v. Baker:[21]
[T]he fact that paying patients are taken, the profits derived from attendance upon these patients being
exclusively devoted to the maintenance of the charity, seems rather to enhance the usefulness of the
institution to the poor; for it is a matter of common observation amongst those who have gone about at all
amongst the suffering classes, that the deserving poor can with difficulty be persuaded to enter an asylum
of any kind confined to the reception of objects of charity; and that their honest pride is much less
wounded by being placed in an institution in which paying patients are also received. The fact of
receiving money from some of the patients does not, we think, at all impair the character of the charity, so
long as the money thus received is devoted altogether to the charitable object which the institution is
intended to further.[22]
The money received by the petitioner becomes a part of the trust fund and must be devoted to public
trust purposes and cannot be diverted to private profit or benefit. [23]

Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its
character as a charitable institution simply because the gift or donation is in the form of subsidies granted
by the government. As held by the State Supreme Court of Utah inYorgason v. County Board of
Equalization of Salt Lake County:[24]
Second, the government subsidy payments are provided to the project. Thus, those payments are like a
gift or donation of any other kind except they come from the government. In both Intermountain Health
Care and the present case, the crux is the presence or absence of material reciprocity. It is entirely
irrelevant to this analysis that the government, rather than a private benefactor, chose to make up the
deficit resulting from the exchange between St. Marks Tower and the tenants by making a contribution to
the landlord, just as it would have been irrelevant in Intermountain Health Care if the patients income
supplements had come from private individuals rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the government
rather than private charitable contributions does not dictate the denial of a charitable exemption if the
facts otherwise support such an exemption, as they do here. [25]
In this case, the petitioner adduced substantial evidence that it spent its income, including the
subsidies from the government for 1991 and 1992 for its patients and for the operation of the hospital. It
even incurred a net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that
those portions of its real property that are leased to private entities are not exempt from real property
taxes as these are not actually, directly and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is
the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption
from tax payments must be clearly shown and based on language in the law too plain to be mistaken.
[26]
As held in Salvation Army v. Hoehn:[27]
An intention on the part of the legislature to grant an exemption from the taxing power of the state will
never be implied from language which will admit of any other reasonable construction. Such an intention
must be expressed in clear and unmistakable terms, or must appear by necessary implication from the
language used, for it is a well settled principle that, when a special privilege or exemption is claimed
under a statute, charter or act of incorporation, it is to be construed strictly against the property owner and
in favor of the public. This principle applies with peculiar force to a claim of exemption from taxation . [28]
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that
the petitioner shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized
primarily to help combat the high incidence of lung and pulmonary diseases in the Philippines, all
donations, contributions, endowments and equipment and supplies to be imported by authorized entities
or persons and by the Board of Trustees of the Lung Center of the Philippines, Inc., for the actual use and

benefit of the Lung Center, shall be exempt from income and gift taxes, the same further deductible in full
for the purpose of determining the maximum deductible amount under Section 30, paragraph (h), of the
National Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees imposed
by the Government or any political subdivision or instrumentality thereof with respect to equipment
purchases made by, or for the Lung Center.[29]
It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon. If the intentions were
otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2:
It is a settled rule of statutory construction that the express mention of one person, thing, or consequence
implies the exclusion of all others. The rule is expressed in the familiar maxim, expressio unius est
exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of the
rule is principle that what is expressed puts an end to that which is implied. Expressium facit cessare
tacitum. Thus, where a statute, by its terms, is expressly limited to certain matters, it may not, by
interpretation or construction, be extended to other matters.
...
The rule of expressio unius est exclusio alterius and its variations are canons of restrictive
interpretation. They are based on the rules of logic and the natural workings of the human mind. They are
predicated upon ones own voluntary act and not upon that of others. They proceed from the premise that
the legislature would not have made specified enumeration in a statute had the intention been not to
restrict its meaning and confine its terms to those expressly mentioned. [30]
The exemption must not be so enlarged by construction since the reasonable presumption is that the
State has granted in express terms all it intended to grant at all, and that unless the privilege is limited to
the very terms of the statute the favor would be intended beyond what was meant. [31]
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly and exclusively used for
religious, charitable or educational purposes shall be exempt from taxation. [32]
The tax exemption under this constitutional provision covers property taxes only.[33] As Chief Justice
Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: . . . what is
exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or educational purposes. [34]

Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No.
7160 (otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the
real property tax:
...
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or
religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used
for religious, charitable or educational purposes. [35]
We note that under the 1935 Constitution, ... all lands, buildings, and improvements used exclusively
for charitable purposes shall be exempt from taxation. [36] However, under the 1973 and the present
Constitutions, for lands, buildings, and improvements of the charitable institution to be considered
exempt, the same should not only be exclusively used for charitable purposes; it is required that such
property be used actually and directly for such purposes. [37]
In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our
ruling in Herrera v. Quezon City Board of Assessment Appeals which was promulgated on September 30,
1961 before the 1973 and 1987 Constitutions took effect. [38] As this Court held in Province of Abra v.
Hernando:[39]
Under the 1935 Constitution: Cemeteries, churches, and parsonages or convents appurtenant thereto, and
all lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes
shall be exempt from taxation. The present Constitution added charitable institutions, mosques, and nonprofit cemeteries and required that for the exemption of lands, buildings, and improvements, they should
not only be exclusively but also actually and directly used for religious or charitable purposes. The
Constitution is worded differently. The change should not be ignored. It must be duly taken into
consideration. Reliance on past decisions would have sufficed were the words actually as well as directly
not added. There must be proof therefore of the actual and direct use of the lands, buildings, and
improvements for religious or charitable purposes to be exempt from taxation.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable
institution; and (b) its real properties are ACTUALLY, DIRECTLY andEXCLUSIVELY used for
charitable purposes. Exclusive is defined as possessed and enjoyed to the exclusion of others; debarred
from participation or enjoyment; and exclusively is defined, in a manner to exclude; as enjoying a
privilege exclusively.[40] 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. [41] The words dominant use or principal use
cannot be substituted for the words used exclusively without doing violence to the Constitutions and the
law.[42] Solely is synonymous with exclusively.[43]
What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct
and immediate and actual application of the property itself to the purposes for which the charitable

institution is organized. It is not the use of the income from the real property that is determinative of
whether the property is used for tax-exempt purposes. [44]
The petitioner failed to discharge its burden to prove that the entirety of its real property is actually,
directly and exclusively used for charitable purposes. While portions of the hospital are used for the
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 for their clinics and a canteen. Further, a
portion of the land is being leased to a private individual for her business enterprise under the business
name Elliptical Orchids and Garden Center. Indeed, the petitioners evidence shows that it
collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees.
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of
the hospital leased to private individuals are not exempt from such taxes. [45] On the other hand, the
portions of the land occupied by the hospital and portions of the hospital used for its patients, whether
paying or non-paying, are exempt from real property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent
Quezon City Assessor is hereby DIRECTED to determine, after due hearing, the precise portions of the
land and the area thereof which are leased to private persons, and to compute the real property taxes due
thereon as provided for by law.
SO ORDERED.
12
SECOND DIVISION
G.R. No. 183553 : November 12, 2012
DIAGEO PHILIPPINES, INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE,Respondent.
DECISION
PERLAS-BERNABE, J.:
Before the Court is a Petition for Review under Rule 45 of the Rules of Court assailing the Decision 1 of the
Court of Tax Appeals (CTA) En Banc dated July 2, 2008 in CTA EB No. 260.
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The petition seeks the proper interpretation of Section 130(D) 2 of the National Internal Revenue Code of
1997 (Tax Code), particularly, on the question of who may claim the refund or tax credit of excise taxes paid
on goods actually exported.
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The Factual Antecedents

Petitioner Diageo Philippines, Inc. (Diageo) is a domestic corporation organized and existing under the laws
of the Republic of Philippines and is primarily engaged in the business of importing, exporting,
manufacturing, marketing, distributing, buying and selling, by wholesale, all kinds of beverages and liquors

and in dealing in any material, article, or thing required in connection with or incidental to its principal
business.3 It is registered with the Bureau of Internal Revenue (BIR) as an excise tax taxpayer, with Tax
Identification No. 000-161-879-000.4
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For the periodNovember 1, 2003 to December 31, 2004, Diageo purchased raw alcohol from its supplier for
use in the manufacture of its beverage and liquor products. The supplier imported the raw alcohol and paid
the related excise taxes thereon before the same were sold to the petitioner.5 The purchase price for the raw
alcohol included, among others, the excise taxes paid by the supplierin the total amount of
P12,007,528.83.6
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Subsequently, Diageo exported its locally manufactured liquor products to Japan, Taiwan, Turkey and
Thailand and received the corresponding foreign currency proceeds of such export sales. 7
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Within two (2) years from the time the supplier paid the subject excise taxes, Diageo filed with the BIR
Large Taxpayers Audit and Investigation Division II applications for tax refund/issuance of tax credit
certificates corresponding to the excise taxes which its supplier paid but passed on to it as part of the
purchase price of the subject raw alcohol invoking Section 130(D) of the Tax Code.
However, due to the failure of the respondent Commissioner of Internal Revenue (CIR) to act upon Diageos
claims, the latter was constrained to timely file a petition for review before the CTA. 8
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On December 27, 2005, the CIR filed its Answer assailing Diageos lack of legal personality to institute the
claim for refund because it was not the one that paid the alleged excise taxes but its supplier.9 Subsequently,
the CIR filed a motion to dismiss reiterating the same issue. 10
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The Ruling of the Court of Tax Appeals

On July 20, 2006, the CTA Second Division issued a Resolution 11dismissing the petition on the ground that
Diageo is not the real party in interest to file the claim for refund. Citing Philippine Acetylene Co., Inc. v.
Commissioner of Internal Revenue,12 the CTA Second Division ruled that although an excise tax is an
indirect tax which can be passed on to the purchaser of goods, the liability therefor still remains with the
manufacturer or seller, hence, the right to claim refund is only available to it. 13 Diageo filed a motion for
reconsideration which was subsequently denied in the Resolution dated January 8, 2007. 14
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On February 13, 2007, Diageo filed a petition for review 15 which the CTAEn Bancin its Decision dated July 2,
2008dismissed,thereby affirming the ruling of the CTA Second Division. 16
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Citing Rule 3, Section 2,17 of the Rules of Court, the CTA En Banc held that the right to a refund or tax credit
of the excise taxes under Section 130(D) of the Tax Code is available only to persons enumerated in
Sections 130(A)(1)18 and (2)19 of the same Code because they are the ones primarily and legally liable to
pay such taxes. As Diageo failed to prove that it had actually paid the claimed excise taxes as manufacturerexporter, the CTA En Banc likewise did not find it as the proper party to claim a refund.Hence, the instant
petition.
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Diageo claims to be a real party in interest entitled to recover the subject refund or tax credit because it
stands to be benefited or injured by the judgment in this suit. 20 It contends that the tax privilege under
Section 130(D) applies to every exporter provided the conditions therein set forth are complied with,
namely, (1) the goods are exported either in their original state or as ingredients or part of any
manufactured goods or products; (2) the exporter submits proof of exportation; and (3) the exporter
likewise submits proof of receipt of the corresponding foreign exchange payment. 21It argues that Section
130(D) does not limit the grant of the tax privilege to manufacturers/producers-exporters only but to every
exporter of locally manufactured/produced goods subject only to the conditions aforementioned. 22
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The Issue
The sole issue to be resolved is whether Diageo has the legal personality to file aclaim for refund or tax
credit for the excise taxes paid by its supplier on the raw alcohol it purchased and used in the manufacture
of its exported goods.
Ruling of the Court
The petition is without merit.
Excise taxes partake of the nature of indirect taxes.
Diageo bases its claim for refund on Section 130 of the Tax Code which reads:
Section 130.Filing of Return and Payment of Excise Tax on Domestic Products. xxx
(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax.(1) Persons Liable to File a Return. Every person liable to pay excise tax imposed under this Title shall file a
separate return for each place of production setting forth, among others, the description and quantity or
volume of products to be removed, the applicable tax base and the amount of tax due thereon; Provided
however, That in the case of indigenous petroleum, natural gas or liquefied natural gas, the excise tax shall
be paid by the first buyer, purchaser or transferee for local sale, barter or transfer, while the excise tax on
exported products shall be paid by the owner, lessee, concessionaire or operator of the mining claim.Should
domestic products be removed from the place of production without the payment of the tax, the owner or
person having possession thereof shall be liable for the tax due thereon.
xxx
(D) Credit for Excise tax on Goods Actually Exported.- When goods locally produced or manufactured are
removed and actually exported without returning to the Philippines, whether so exported in their original
state or as ingredients or parts of any manufactured goods or products, any excise tax paid thereon shall be
credited or refunded upon submission of the proof of actual exportation and upon receipt of the
corresponding foreign exchange payment: Provided, That the excise tax on mineral products, except coal
and coke, imposed under Section 151 shall not be creditable or refundable even if the mineral products are
actually exported.
A reading of the foregoing provision, however, reveals that contrary to the position of Diageo, the right to
claim a refund or be credited with the excise taxes belongs to its supplier. The phrase "any excise tax paid
thereon shall be credited or refunded" requires that the claimant be the same person who paid the excise
tax. In Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, the Court has categorically
declared that "[t]he proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer,
the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof
to another."23
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Excise taxes imposed under Title VI of the Tax Code are taxes on property 24 which are imposed on "goods
manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition
and to things imported."25 Though excise taxes are paid by the manufacturer or producer before removal of
domestic products from the place of production26 or by the owner or importer before the release of imported
articles from the customshouse,27 the same partake of the nature of indirect taxes when it is passed on to
the subsequent purchaser.
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Indirect taxesare defined asthose wherein the liability for the payment of the tax falls on one person but the
burden thereof can be shifted to another person. When the seller passes on the tax to his buyer, he, in
effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or
services rendered.28
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Accordingly, when the excise taxes paid by the supplier were passed on to Diageo, what was shifted is not
the tax per se but anadditional cost of the goods sold. Thus, the supplier remains the statutory taxpayer
even if Diageo, the purchaser, actually shoulders the burden of tax.
The statutory taxpayer is the proper
party to claim refund of indirect
taxes.
As defined in Section 22(N) of the Tax Code, a taxpayer means any person subject to tax. He is, therefore,
the person legally liable to file a return and pay the tax as provided for in Section 130(A). As such, he is the
person entitled to claim a refund.
Relevant isSection 204(C) of the Tax Code which provides:

chanroblesvirtuallawlibrary

Section 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes.- The
Commissioner may xxx
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refined their value
upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files
in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the
tax or penalty: Provided, however, that a return filed showing an overpayment shall be considered as a
written claim for credit or refund. (Emphasis supplied)
Pursuant to the foregoing, the person entitled to claim a tax refund is the statutory taxpayer or the person
liable for or subject to tax.29 In the present case, it is not disputed that the supplier of Diageo imported the
subject raw alcohol, hence, it was the one directly liable and obligated to file a return and pay the excise
taxes under the Tax Code before the goods or products are removed from the customs house. It is,
therefore, the statutory taxpayer as contemplated by law and remains to be so, even if it shifts the burden
of tax to Diageo. Consequently, the right to claim a refund, if legally allowed, belongs to it and cannot be
transferred to another, in this case Diageo, without any clear provision of law allowing the same.
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Unlike the law on Value Added Tax which allows the subsequent purchaser under the tax credit method to
refund or credit input taxes passed on to it by a supplier,30 no provision for excise taxes exists granting nonstatutory taxpayer like Diageo to claim a refund or credit. It should also be stressed that when the excise
taxes were included in the purchase price of the goods sold to Diageo, the same was no longer in the nature
of a tax but already formed part of the cost of the goods.
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Finally, statutes granting tax exemptions are construed stricissimi juris against the taxpayer and liberally in
favor of the taxing authority. A claim of tax exemption must be clearly shown and based on language in law
too plain to be mistaken.31 Unfortunately, Diageo failed to meet the burden of proof that it is covered by the
exemption granted under Section 130(D) of the Tax Code.
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In sum, Diageo, not being the party statutorily liable to pay excise taxes and having failed to prove that it is
covered by the exemption granted under Section 130(D) of the Tax Code, is not the proper party to claim a
refund or credit of the excise taxes paid on the ingredients of its exported locally produced liquor.
WHIEREFORE, the petition is DENIED and the assailed CTA En Banc Decision in CTA EB No. 260 dated July 2,
2008 is AFFIRMED.
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SO ORDERED.

13
FIRST DIVISION
G.R. No. 169103

March 16, 2011

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
MANILA BANKERS' LIFE INSURANCE CORPORATION, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari1 filed by the Commissioner of Internal Revenue (CIR) of
the April 29, 2005 Decision2 and July 27, 2005 Resolution3 of the Court of Appeals in CA-G.R. SP
No. 70600, which upheld the April 4, 2002 Decision4 of the Court of Tax Appeals (CTA) in CTA Case
No. 6189.
The facts as found by the CTA and Court of Appeals are undisputed.
Respondent Manila Bankers Life Insurance Corporation is a duly organized domestic corporation
primarily engaged in the life insurance business.5
On May 28, 1999, petitioner Commissioner of Internal Revenue issued Letter of Authority No.
0000207056authorizing a special team of Revenue Officers to examine the books of accounts and
other accounting records of respondent for taxable year "1997 & unverified prior years." 7
On December 14, 1999, based on the findings of the Revenue Officers, the petitioner issued a
Preliminary Assessment Notice8 against the respondent for its deficiency internal revenue taxes for
the year 1997. The respondent agreed to all the assessments issued against it except to the amount
of P2,351,680.90 representing deficiency documentary stamp taxes on its policy premiums and
penalties. 9
Thus, on January 4, 2000, the petitioner issued against the respondent a Formal Letter of
Demand10 with the corresponding Assessment Notices attached, 11 one of which was Assessment
Notice No. ST-DST2-97-0054-200012 pertaining to the documentary stamp taxes due on
respondents policy premiums:

Documentary Stamp Tax on Policy Premiums

Assessment No. ST-DST2-97-0054-2000
Tax Due

3,954,955.00

Less: Tax Paid

2,308,505.74

Tax Deficiency

1,646,449.26

Add: 20% Int./a

680,231.64

Recommended Compromise
Penalty-Late Payment

_____ 25,000.00

Total Amount Due

2,351,680.9013

The tax deficiency was computed by including the increases in the life insurance coverage or the
sum assured by some of respondents life insurance plans14:
ISSUED
ORDINARY
GROUP

TOTAL

GRAND TOTAL/TAX BASE

TAX RATE

INCREASED

P648,127,000.00

P 74,755,000.00

114,936,000.00

744,164,000.00

P763,063,000.00

P 818,919,000.00

P1,581,982,000.00
P0.50/200.00

TAX DUE

P 3,954,955.00

LESS: TAX PAID

P 2,308,505.74

DEFICIENCY DST - BASIC

P 1,646,499.26

- 20% INTEREST
- SURCHARGE

TOTAL ASSESSMENT

680,231.64
25,000.00

P 2,351,680.9015

The amount of P818,919,000.00 comprises the increases in the sum assured for the respondents
ordinary insurance the "Money Plus Plan" (P74,755,000.00), and group insurance
(P744,164,000.00).16
On February 3, 2000, the respondent filed its Letter of Protest17 with the Bureau of Internal Revenue
(BIR) contesting the assessment for deficiency documentary stamp tax on its insurance policy
premiums. Despite submission of documents on April 3, 2000,18 as required by the BIR in its March
20, 200019 letter, the respondents Protest was not acted upon by the BIR within the 180-day period
given to it by Section 228 of the 1997 National Internal Revenue Code (NIRC) within which to rule on
the protest. Hence, on October 26, 2000, the respondent filed a Petition for Review with the CTA for
the cancellation of Assessment Notice No. ST-DST2-97-0054-2000. The respondent invoked the
CTAs March 30, 1993 ruling in the similar case of Lincoln Philippine Life Insurance Company, Inc.
(now Jardine-CMA Life Insurance Company, Inc.) v. Commissioner of Internal Revenue, 20 wherein
the CTA held that the tax base to be used in computing the documentary stamp tax is the value at
the time the instrument is issued because the documentary stamp tax is levied and paid only once,
which is at the time the taxable document is issued.
On April 4, 2002, the CTA granted the respondents Petition with the dispositive portion as follows:
WHEREFORE, in the light of all the foregoing, respondent Commissioner of Internal Revenue is
hereby ORDERED to CANCEL and WITHDRAW Assessment Notice No. ST-DST2-97-0054-2000
dated January 4, 2000 in the amount of P2,351,680.90 representing deficiency documentary stamp
taxes for the taxable year 1997.21
The CTA, applying the Tax Code Provisions then in force, held that:
[T]he documentary stamp tax on life insurance policies is imposed only once based on the amount
insured at the time of actual issuance of such policies. The documentary stamp tax which is in the
nature of an excise tax is imposed on the document as originally issued. Therefore, any subsequent
increase in the insurance coverage resulting from policies which have been subjected to the
documentary stamp tax at the time of their issuance, is no longer subject to the documentary stamp
tax.22
Aggrieved by the decision, the petitioner went to the Court of Appeals on a Petition for
Review23 docketed as CA-G.R. SP No. 70600 on the ground that:

THE TAX COURT ERRED IN RULING THAT INCREASES IN THE COVERAGE OR THE SUM
ASSURED BY AN EXISTING INSURANCE POLICY IS NOT SUBJECT TO THE DOCUMENTARY
STAMP TAX. (DST).24
On April 29, 2005, the Court of Appeals sustained the cancellation of Assessment Notice No. STDST2-97-0054-2000 in its Decision, the decretal portion of which reads:
WHEREFORE, all considered and finding no merit in the herein appeal, judgment is hereby
rendered upholding the April 4, 2002, CTA Decision in CTA Case No. 6189 entitled "Manila Bankers
Life Insurance Corporation, Petitioner, versus Commissioner of Internal Revenue, Respondent. 25
The Court of Appeals, in upholding the decision of the CTA, said that the subject of the documentary
stamp tax is the issuance of the instrument representing the creation, change or cessation of a legal
relationship.26 It further held that because the legal status or nature of the relationship embodied in
the document has no bearing at all on the tax, the fulfillment of suspensive conditions incorporated in
the respondents policies, as claimed by the petitioner, would still not give rise to new documentary
stamp tax payments.27
The petitioner asked for reconsideration of the above Decision and cited this Courts March 19, 2002
Decision in Commissioner of Internal Revenue v. Lincoln Philippine Life Insurance Company,
Inc.,28 the very same case the respondent invoked before the CTA. The petitioner argued that in
Lincoln, this Court reversed both the CTA and the Court of Appeals and sustained the validity of the
deficiency documentary stamp tax imposed on the increase in the sum insured even though no new
policy was issued because the increase, by reason of the "Automatic Increase Clause," was already
definite at the time the policy was issued.
On July 27, 2005, the Court of Appeals sustained its ruling, and stated that the Lincoln Case was not
applicable because the increase in the sum assured in Lincolns insurance policy was definite and
determinable at the time such policy was issued as the automatic increase clause, which allowed for
the increase, formed an integral part of the policy; whereas in the respondents case, "the tax base
of the disputed deficiency assessment was not [a] definite or determinable increase in the sum
assured."29
The petitioner is now before us praying for the nullification of the Court of Appeals April 29, 2005
Decision and July 27, 2005 Resolution and to have the assessment for deficiency documentary
stamp tax on respondents policy premiums, plus 25% surcharge for late payment and 20% annual
interest, sustained30 on the following arguments:
A.
THE APPLICABLE PROVISIONS OF THE NIRC AT THE TIME THE ASSESSMENT FOR
DEFICIENCY DOCUMENTARY STAMP TAX WAS ISSUED PROVIDE THAT DOCUMENTARY
STAMP TAX IS COLLECTIBLE NOT ONLY ON THE ORIGINAL POLICY BUT ALSO UPON
RENEWAL OR CONTINUANCE THEREOF.
B.

THE AMOUNT INSURED BY THE POLICY AT THE TIME OF ITS ISSUANCE NECESSARILY
INCLUDED THE ADDITIONAL SUM AS A RESULT OF THE EXERCISE OF THE OPTION UNDER
THE "GUARANTEED CONTINUITY" CLAUSE IN RESPONDENTS INSURANCE POLICIES.
C.
THE "GUARANTEED CONTINUITY" CLAUSE OFFERS TO THE INSURED AN OPTION TO AVAIL
OF THE RIGHT TO RENEW OR CONTINUE THE POLICY. IF AND WHEN THE INSURED AVAILS
OF SUCH OPTION AND SUCH GUARANTEED CONTINUITY CLAUSE TAKES EFFECT, THE
INSURER IS LIABLE FOR DEFICIENCY DOCUMENTARY STAMP TAX CORRESPONDING TO
THE INCREASE OF THE INSURANCE COVERAGE.
D.
SECTION 198 OF THE 1997 NIRC CLEARLY STATES THAT THE DOCUMENTARY STAMP TAX IS
IMPOSABLE UPON RENEWAL OR CONTINUANCE OF ANY POLICY OF INSURANCE OR THE
RENEWAL OR CONTINUANCE OF ANY CONTRACT BY ALTERING OR OTHERWISE, AT THE
SAME RATE AS THAT IMPOSED ON THE ORIGINAL INSTRUMENT.31
As can be gleaned from the facts, the deficiency documentary stamp tax was assessed on the
increases in the life insurance coverage of two kinds of policies: the "Money Plus Plan," which is an
ordinary term life insurance policy; and the group life insurance policy. The increases in the coverage
of the life insurance policies were brought about by the premium payments made subsequent to the
issuance of the policies. The Money Plus Plan is a 20-year term ordinary life insurance plan with a
"Guaranteed Continuity Clause" which allowed the policy holder to continue the policy after the 20year term subject to certain conditions. Under the plan, the policy holders paid their premiums in five
separate periods, with the premium payments, after the first period premiums, to be made only upon
reaching a certain age. The succeeding premium payments translated to increases in the sum
assured. Thus, the petitioner believed that since the documentary stamp tax was affixed on the
policy based only on the first period premiums, then the succeeding premium payments should
likewise be subject to documentary stamp tax. In the case of respondents group insurance, the
deficiency documentary stamp tax was imposed on the premiums for the additional members to
already existing and effective master policies. The petitioner concluded that any additional member
to the group of employees, who were already insured under the existing mother policy, should
similarly be subjected to documentary stamp tax.32
The resolution of this case hinges on the validity of the imposition of documentary stamp tax on
increases in the coverage or sum assured by existing life insurance policies, even without the
issuance of new policies.
In view of the fact that the assessment for deficiency documentary stamp tax covered the taxable
year 1997, the relevant and applicable legal provisions are those found in the 1977 National Internal
Revenue Code (Tax Code) as amended,33 to wit:
Section 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers.
Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments,

sales and transfers of the obligation, right or property incident thereto, there shall be levied, collected
and paid for, and in respect of the transaction so had or accomplished, the corresponding
documentary stamp taxes prescribed in the following sections of this Title, by the person making,
signing, issuing, accepting, or transferring the same wherever the document is made, signed,
issued, accepted, or transferred when the obligation or right arises from Philippine sources or the
property is situated in the Philippines, and the same time such act is done or transaction had:
Provided, That whenever one party to the taxable document enjoys exemption from the tax herein
imposed, the other party who is not exempt shall be the one directly liable for the tax. 34
Section 183. Stamp Tax on Life Insurance Policies. On all policies of insurance or other
instruments by whatever name the same may be called, whereby any insurance shall be made or
renewed upon any life or lives, there shall be collected a documentary stamp tax of fifty centavos on
each two hundred pesos or fractional part thereof, of the amount insured by any such
policy.35(Emphases ours.)
Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident
thereto.36 It is in the nature of an excise tax because it is imposed upon the privilege, opportunity or
facility offered at exchanges for the transaction of the business. It is an excise upon the facilities
used in the transaction of the business distinct and separate from the business itself. 37
To elucidate, documentary stamp tax is levied on the exercise of certain privileges granted by law for
the creation, revision, or termination of specific legal relationships through the execution of specific
instruments. Examples of these privileges, the exercise of which are subject to documentary stamp
tax, are leases of lands, mortgages, pledges, trusts and conveyances of real property. Documentary
stamp tax is thus imposed on the exercise of these privileges through the execution of specific
instruments, independently of the legal status of the transactions giving rise thereto. The
documentary stamp tax must be paid upon the issuance of these instruments, without regard to
whether the contracts which gave rise to them are rescissible, void, voidable, or unenforceable. 38
Accordingly, the documentary stamp tax on insurance policies, though imposed on the document
itself, is actually levied on the privilege to conduct insurance business. Under Section 173, the
documentary stamp tax becomes due and payable at the time the insurance policy is issued, with
the tax based on the amount insured by the policy as provided for in Section 183.
Documentary Stamp Tax
on the "Money Plus Plan"
The petitioner would have us reverse both the CTA and the Court of Appeals based on our decision
in Commissioner of Internal Revenue v. Lincoln Philippine Life Insurance Company, Inc. 39
The Lincoln case has been invoked by both parties in different stages of this case. The respondent
relied on the CTAs ruling in the Lincoln case when it elevated its protest there; and when we
reversed the CTAs ruling therein, the petitioner called the Court of Appeals attention to it, and
prayed for a decision upholding the assessment for deficiency documentary stamp tax just like in the
Lincoln case.

It is therefore necessary to briefly discuss the Lincoln case to determine its applicability, if any, to the
case now before us. Prior to 1984, Lincoln Philippine Life Insurance Company, Inc. (Lincoln) had
been issuing its "Junior Estate Builder Policy," a special kind of life insurance policy because of a
clause which provided for an automatic increase in the amount of life insurance coverage upon
attainment of a certain age by the insured without the need of a new policy. As Lincoln paid
documentary stamp taxes only on the initial sum assured, the CIR issued a deficiency documentary
stamp tax assessment for the year 1984, the year the clause took effect. Both the CTA and the Court
of Appeals found no basis for the deficiency assessment. As discussed above, however, this Court
reversed both lower courts and sustained the CIRs assessment.
This Court ruled that the increase in the sum assured brought about by the "automatic increase"
clause incorporated in Lincolns Junior Estate Builder Policy was still subject to documentary stamp
tax, notwithstanding that no new policy was issued, because the date of the effectivity of the
increase, as well as its amount, were already definite and determinable at the time the policy was
issued. As such, the tax base under Section 183, which is "the amount fixed in the policy," is "the
figure written on its face and whatever increases will take effect in the future by reason of the
automatic increase clause." 40 This Court added that the automatic increase clause was "in the
nature of a conditional obligation under Article 1181, 41 by which the increase of the insurance
coverage shall depend upon the happening of the event which constitutes the obligation." 42
Since the Lincoln case, wherein the then CIRs arguments for the BIR are very similar to the
petitioners arguments herein, was decided in favor of the BIR, the petitioner is now relying on our
ruling therein to support his position in this case. Although the two cases are similar in many ways,
they must be distinguished by the nature of the respective "clauses" in the life insurance policies
involved, where we note a major difference. In Lincoln, the relevant clause is the "Automatic
Increase Clause" which provided for the automatic increase in the amount of life insurance coverage
upon the attainment of a certain age by the insured, without any need for another contract. In the
case at bar, the clause in contention is the "Guaranteed Continuity Clause" in respondents Money
Plus Plan, which reads:
GUARANTEED CONTINUITY
We guarantee the continuity of this Policy until the Expiry Date stated in the Schedule provided that
the effective premium is consecutively paid when due or within the 31-day Grace Period.
We shall not have the right to change premiums on your Policy during the 20-year Policy term.
At the end of each twenty-year period, and provided that you have not attained age 55, you may
renew your Policy for a further twenty-year period. To renew, you must submit proof of insurability
acceptable to MBLIC and pay the premium due based on attained age according to the rates
prevailing at the time of renewal.43
A simple reading of respondents guaranteed continuity clause will show that it is significantly
different from the "automatic increase clause" in Lincoln. The only things guaranteed in the
respondents continuity clause were: the continuity of the policy until the stated expiry date as long
as the premiums were paid within the allowed time; the non-change in premiums for the duration of

the 20-year policy term; and the option to continue such policy after the 20-year period, subject to
certain requirements. In fact, even the continuity of the policy after its term was not guaranteed as
the decision to renew it belonged to the insured, subject to certain conditions. Any increase in the
sum assured, as a result of the clause, had to survive a new agreement between the respondent
and the insured. The increase in the life insurance coverage was only corollary to the new premium
rate imposed based upon the insureds age at the time the continuity clause was availed of. It was
not automatic, was never guaranteed, and was certainly neither definite nor determinable at the time
the policy was issued.
Therefore, the increases in the sum assured brought about by the guaranteed continuity clause
cannot be subject to documentary stamp tax under Section 183 as insurance made upon the lives of
the insured.
However, it is clear from the text of the guaranteed continuity clause that what the respondent was
actually offering in its Money Plus Plan was the option to renew the policy, after the expiration of its
original term. Consequently, the acceptance of this offer would give rise to the renewal of the original
policy.
The petitioner avers that these life insurance policy renewals make the respondent liable for
deficiency documentary stamp tax under Section 198.
Section 198 of the old Tax Code reads:
Section 198. Stamp Tax on Assignments and Renewals of Certain Instruments. Upon each
and every assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or
continuance of any agreement, contract, charter, or any evidence of obligation or indebtedness by
altering or otherwise, there shall be levied, collected and paid a documentary stamp tax, at the same
rate as that imposed on the original instrument.44
Section 198 speaks of assignments and renewals. In the case of insurance policies, this section
applies only when such policy was assigned or transferred. The provision which specifically applies
to renewals of life insurance policies is Section 183:
Section 183. Stamp Tax on Life Insurance Policies. On all policies of insurance or other
instruments by whatever name the same may be called, whereby any insurance shall be made or
renewed upon any life or lives, there shall be collected a documentary stamp tax of fifty centavos on
each two hundred pesos or fractional part thereof, of the amount insured by any such policy.
(Emphasis ours.)
Section 183 is a substantial reproduction of the earlier documentary stamp tax provision, Section
1449(j) of the Administrative Code of 1917. Regulations No. 26, or The Revised Documentary Stamp
Tax Regulations,45provided the implementing rules to the provisions on documentary stamp tax
under the Administrative Code of 1917. Section 54 of the Regulations, in reference to what is now
Section 183, explicitly stated that the documentary stamp tax imposed under that section is also
collectible upon renewals of life insurance policies, viz:

Section 54. Tax also due on renewals. The tax under this section is collectible not only on the
original policy or contract of insurance but also upon the renewal of the policy or contract of
insurance.
To argue that there was no new legal relationship created by the availment of the guaranteed
continuity clause would mean that any option to renew, integrated in the original agreement or
contract, would not in reality be a renewal but only a discharge of a pre-existing obligation. The truth
of the matter is that the guaranteed continuity clause only gave the insured the right to renew his life
insurance policy which had a fixed term of twenty years. And although the policy would still continue
with essentially the same terms and conditions, the fact is, its maturity date, coverage, and premium
rate would have changed. We cannot agree with the CTA in its holding that "the renewal, is in effect
treated as an increase in the sum assured since no new insurance policy was issued." 46 The renewal
was not meant to restore the original terms of an old agreement, but instead it was meant to extend
the life of an existing agreement, with some of the contracts terms modified. This renewal was still
subject to the acceptance and to the conditions of both the insured and the respondent. This is
entirely different from a simple mutual agreement between the insurer and the insured, to increase
the coverage of an existing and effective life insurance policy.
It is clear that the availment of the option in the guaranteed continuity clause will effectively renew
the Money Plus Plan policy, which is indisputably subject to the imposition of documentary stamp tax
under Section 183 as an insurance renewed upon the life of the insured.
Documentary Stamp Tax
on Group Life Insurance
The petitioner is also asking this Court to sustain his deficiency documentary stamp tax assessment
on the additional premiums earned by the respondent in its group life insurance policies.
This Court, in Pineda v. Court of Appeals47 has had the chance to discuss the concept of "group
insurance," to wit:
In its original and most common form, group insurance provides life or health insurance coverage for
the employees of one employer.
The coverage terms for group insurance are usually stated in a master agreement or policy that is
issued by the insurer to a representative of the group or to an administrator of the insurance
program, such as an employer. The employer acts as a functionary in the collection and payment of
premiums and in performing related duties. Likewise falling within the ambit of administration of a
group policy is the disbursement of insurance payments by the employer to the employees. Most
policies, such as the one in this case, require an employee to pay a portion of the premium, which
the employer deducts from wages while the remainder is paid by the employer. This is known as a
contributory plan as compared to a non-contributory plan where the premiums are solely paid by the
employer.
Although the employer may be the titular or named insured, the insurance is actually related to the
life and health of the employee. Indeed, the employee is in the position of a real party to the master

policy, and even in a non-contributory plan, the payment by the employer of the entire premium is a
part of the total compensation paid for the services of the employee. Put differently, the labor of the
employees is the true source of the benefits, which are a form of additional compensation to
them.48 (Emphasis ours.)
When a group insurance plan is taken out, a group master policy is issued with the coverage and
premium rate based on the number of the members covered at that time. In the case of a company
group insurance plan, the premiums paid on the issuance of the master policy cover only those
employees enrolled at the time such master policy was issued. When the employer hires additional
employees during the life of the policy, the additional employees may be covered by the same group
insurance already taken out without any need for the issuance of a new policy.
The respondent claims that since the additional premiums represented the additional members of
the same existing group insurance policy, then under our tax laws, no additional documentary stamp
tax should be imposed since the appropriate documentary stamp tax had already been paid upon
the issuance of the master policy. The respondent asserts that since the documentary stamp tax, by
its nature, is paid at the time of the issuance of the policy, "then there can be no other imposition on
the same, regardless of any change in the number of employees covered by the existing group
insurance."49
To resolve this issue, it would be instructive to take another look at Section 183: On all policies of
insurance or other instruments by whatever name the same may be called, whereby any insurance
shall be made or renewed upon any life or lives.
The phrase "other instruments" as also found in the earlier version of Section 183, i.e., Section
1449(j) of the Administrative Code of 1917, was explained in Regulations No. 26, to wit:
Section 52. "Other instruments" defined. The term "other instruments" includes any instrument by
whatever name the same is called whereby insurance is made or renewed, i.e., by which the
relationship of insurer and insured is created or evidenced, whether it be a letter of acceptance,
cablegrams, letters, binders, covering notes, or memoranda. (Emphasis ours.)
Whenever a master policy admits of another member, another life is insured and covered. This
means that the respondent, by approving the addition of another member to its existing master
policy, is once more exercising its privilege to conduct the business of insurance, because it is yet
again insuring a life. It does not matter that it did not issue another policy to effect this change, the
fact remains that insurance on another life is made and the relationship of insurer and insured is
created between the respondent and the additional member of that master policy. In the
respondents case, its group insurance plan is embodied in a contract which includes not only the
master policy, but all documents subsequently attached to the master policy.50 Among these
documents are the Enrollment Cards accomplished by the employees when they applied for
membership in the group insurance plan. The Enrollment Card of a new employee, once registered
in the Schedule of Benefits and attached to the master policy, becomes evidence of such employees
membership in the group insurance plan, and his right to receive the benefits therein. Everytime the
respondent registers and attaches an Enrollment Card to an existing master policy, it exercises its

privilege to conduct its business of insurance and this is patently subject to documentary stamp tax
as insurance made upon a life under Section 183.
The respondent would like this Court to ignore the petitioners argument that renewals of insurance
policies are also subject to documentary stamp tax for being raised for the first time. This Court was
faced with the same dilemma in Commissioner of Internal Revenue v. Procter & Gamble Philippine
Manufacturing Corporation,51 when the petitioner also raised an issue therein for the first time in the
Supreme Court. In addressing the procedural lapse, we said:
As clearly ruled by Us "To allow a litigant to assume a different posture when he comes before the
court and challenges the position he had accepted at the administrative level," would be to sanction
a procedure whereby the Court - which is supposed to review administrative determinations - would
not review, but determine and decide for the first time, a question not raised at the administrative
forum. Thus it is well settled that under the same underlying principle of prior exhaustion of
administrative remedies, on the judicial level, issues not raised in the lower court cannot generally be
raised for the first time on appeal. x x x.52
However, in the same case, we also held that:
Nonetheless it is axiomatic that the State can never be in estoppel, and this is particularly true in
matters involving taxation. The errors of certain administrative officers should never be allowed to
jeopardize the government's financial position.53 (Emphasis ours.)
Along with police power and eminent domain, taxation is one of the three basic and necessary
attributes of sovereignty.54 Taxes are the lifeblood of the government and their prompt and certain
availability is an imperious need. It is through taxes that government agencies are able to operate
and with which the State executes its functions for the welfare of its constituents. 55 It is for this
reason that we cannot let the petitioners oversight bar the governments rightful claim.
1avvphi1

This Court would like to make it clear that the assessment for deficiency documentary stamp tax is
being upheld not because the additional premium payments or an agreement to change the sum
assured during the effectivity of an insurance plan are subject to documentary stamp tax, but
because documentary stamp tax is levied on every document which establishes that insurance was
made or renewed upon a life.
WHEREFORE, the petition is GRANTED. The April 29, 2005 Decision and the July 27, 2005
Resolution of the Court of Appeals in CA-G.R. SP No. 70600 are hereby SET ASIDE. Respondent
Manila Bankers Life Insurance Corp. is hereby ordered to pay petitioner Commissioner of Internal
Revenue the deficiency documentary stamp tax in the amount of P1,646,449.26, plus the
delinquency penalties of 25% surcharge on the amount due and 20% annual interest from January
5, 2000 until fully paid.
SO ORDERED.