1 TAXATION Commissioner vs. Algue 158 SCRA 9 Facts: The Philippine Sugar Estate Development Company (PSEDC).

Appointed Algue Inc. as its agent. Algue received a commission of 125,000.00 and it was from their commission that it paid organizers of VOICP 75,000.00 in proportional fees. He received an assessment from the CIR. He filed a letter of protest or reconsideration. The CIR contends that the claimed deduction was properly disallowed because it was not an ordinary, reasonable or necessary expense. Issue: Is the CIR correct? Ruling: No. taxes are the lifeblood of the government and should be collected without unnecessary hindrance. Every person who is able to pay must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that is an arbitrary method of exaction by those in the seat of power. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself.

Lorenzo vs. Posadas 64 Phil 353 Facts: Thomas Hanley died in Zamboanga, leaving a will which provided among others that the property given to Matthew Henley will belong to him only after 10 years after Thomas death. Consequently, the CIR assessed inheritance tax against the estate. Lorenzo, the trustee of the estate paid the assessments on protest. He contended that the inheritance tax should have been after 10 years. Issue: is the contention meritorious? Ruling: No. the only benefit on which the taxpayer is entitled is that derived from the enjoyment of the privileges of living in an organized society established and safeguarded by the devotion of taxes to the

2 public purpose. The government promised nothing to the person taxed beyond what maybe anticipated from administration of the laws for the general good. Taxes are essential for the existence of the government. The obligation to pay taxes rest not upon the privileges enjoyed by or the protection afforded to the citizen by the government, but upon the necessity of money fort the support of the estate. For this reason, no one is allowed to object or resist payment of taxes solely because no personal benefit to him can be pointed out as arising from the tax.

Francia vs. IAC 162 SCRA 753 FACTS: Francia was the registered owner of a house and lot in Pasay City. A portion of said property was expropriated by the republic. It appeared that Francia did not pay his real estate taxes from 1963 to 1977. He contended that his tax delinquency had been extinguished by legal compensation since the government owed him 4,116 when a portion of his land was expropriated. ISSUE: can there be off-setting of debts and taxes? RULING: No. there can be no off-setting of taxes original the claims against the claims that the taxpayer may have against the government. Taxes cannot be the subject of compensation. The government and the taxpayer are not mutually creditor and debtors of each other and a claim for each other and a claim for taxes is not such a debt demand, contract or judgement as is allowed to be set-off. Furthermore, the tax was due to the city government. While the expropriation effected by the national government. In fact, the expropriation payment was already deposited with the PNB long before the sale at public auction of his property was conducted. Domingo vs. Garlitos 8 SCRA 443 FACTS: In Domingo vs. Moscoso, the Supreme Court declared at final and executor the order of the court of first instance of Leyte for the payment of estate and inheritance taxes, charges and penalties amounting to 40, 058.55 by the estate of the late Walter Scott Pine. He petition for execution filed by the fiscal, however, was denied by the lower court the court held that the execution is unjustified as the government itself is indebted to the estate for 262,200; and ordered the amount of inheritance taxes be deducted from the governments indebtedness to the estate.

3 Issues: Can there be legal compensation? Ruling: Yes. The fact that the court having jurisdiction of the estate had found that the claim of the estate against the government has been appropriated for the purpose by a corresponding law ( RA 2700) shows that both the claim of the government for inheritance taxes and the claim of the intestate for services regarded have already become overdue and demandable as well as fully liquidated. Compensation, therefore, take place by operation of law, in accordance with the provisions of article 1279 and 1290 of the civil code, and both debts are extinguished to the amount. PAL vs. Edu 164 SCRA 320 Facts: The Philippine airlines is engaged in the air transportation business under a legislative franchise, Act 4271, wherein it is exempt from the payment of taxes. On the strength of an opinion of the secretary of justice, PAL was determined not to have been paying motor vehicle registration fees since 1956. The Land Transportation Commissioner required all tax exempt entities, including PAL, to pay motor vehicle registration fees, PAL protested. Issue: Are motor vehicle registration fees taxes? Ruling: It is possible for an exaction to be both a tax and a regulation. License fees and charges, looked to as a source of revenue as well as a means of regulation. The money collected under the motor vehicle law is not intended for the expenditures of the motor vehicle office but accrue to the funds for the construction and maintenance of the public roads, streets, and bridges. As the fees are not collected for regulatory purpose as an incident to the enforcement of regulational governing operation of motor vehicles on public highways, but to provide revenue with which the government is to construct and maintain public highways for everyones use, they are taxes, not merely fees.

Osmea vs. Orbos 220 SCRA 703 Facts: Petitioner seeks to have Sec.8, paragraph 1 C of PD 1956, as amended by EO 137 declared unconstitutional for being undue and invalid delegation of legislative power to the Energy regulatory Board. Under the assailed law, the ERB is given the authority to impose additional amounts on petroleum products and to impose additional amounts to augment the resources of the fund. He argue

4 that the money collected pursuant to PD 1956 must be treated as a special fund, not as a trust account or a trust fund, and that if a special tax is collected for a special purpose it shall be treated as a special fund to be used only for the purpose indicated. Issue: is there undue delegation of legislative power? Ruling: No. for a valid delegation of power, it is essential that the law delegating the power must be 1. Complete in itself, that it must set forth the policy to be executed by the delegate 2. It must fix the standard limits of which are sufficiently determinate or determined to which the delegate must conform. While the funds may be referred to as taxes, they are enacted in the exercise of the police power of the state. The fund remains subject to the review and accounting of the COA. These measures comply with the constitutional description of a special fund.

Tolentino vs. Secretary of Finance GR 115455 Oct. 30 1995 Facts: The VAT is levied on the sale, barter, or exchanged of the goods and properties as well as on the sale of services. RA7116 seeks to wider the tax base of the existing VAT system and enhance it administration on by amending the NIRC. CRTBA asserts that R.A. 7116 is unconstitutional as it violate the rule that taxes should be uniform and equitable. Issue: is it meritorious? Ruling: No. Equity and uniformity in taxation means that all the taxable articles or kinds of properties of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement, it is enough that the statute or ordinance applies equally to all persons, firms, and corporations placed in a similar situation.

LUTZ VS. ARANETA GR L-7859 December 22, 1955 Reyes, J.: FACTS:

5 Walter Lutz, Judicial Administrator of the intestate estate of Ledesma, sought to recover the sum of Php14, 666.40 paid by the estate as taxes, alleging that such tax is unconstitutional as it levied for the aid and support of the sugar industry exclusively which is in his opinion not a public purpose. ISSUE: Whether or not tax is valid in supporting the sugar industry? RULING: The court ruled that the tax is valid as it served public purpose. The tax provided for in CA 567 is primarily an exercise of police power since sugar is a great source of income for the country and employs thousands of laborers. Hence, it was competent for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain.

APOSTOLIC PREFECT VS CITY TREASURER OF BAGUIO CITY GR 4752 April 18, 1941 Imperial, J.: FACTS: The Apostolic Prefect is a corporation , of religious character, organized under the Philippine laws, and with residence in Baguio. The City imposed a special assessment against properties within its territorial jurisdiction, including those of the Apostolic Prefect, which benefits from its drainage and sewerage system. The Apostolic Prefect contends that its properties should be free of tax being of religious in character. ISSUE: Whether or not Apostolic Prefect, as a religious entity is exempt from the payment of the special assessment. RULING: A special assessment is not a tax; and neither the decree nor the Constitution exempt petitioner from payment of said special assessment. Although it its broad meaning, tax includes both general taxes and special assessment, yet there is a recognized distinction: Assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with special benefits to the property assessed. Petitioner likewise, has proven that the property in

6 question is used exclusively for religious purposes; but that it appears the same is being used to other non-religious purposes. Thus, petitioner is required to pay the special assessment.

CALTEX PHILIPPINES VS CA G.R. 925585 MAY 8, 1992 Davide, J.: FACTS: In 1989, COA sent a letter to Caltex directing it to remit to OPSF its collection of the additional tax on petroleum authorized under PD 1956 and pending such remittance, all of its claims from the OPSF shall be held in abeyance. Petitioner requested COA for the early release of its reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs. COA denied the same. ISSUE: Whether of not petitioner can avail of the right to offset any amount that it may be required under the law to remit to the OPSF against any amount that it may receive by way of reimbursement. RULING: It is a settled rule that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually debtors and creditors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. The oil companies merely acted as agents for the government in the latters collection since taxes are passed unto the end-users, the consuming public.

GARCIA VS. EXECUTIVE SECRETARY 211 SCRA 219 July 3, 1992 Feliciano, J.: FACTS: The President issued an EO which imposed, across the board, including crude oil and other oil products, additional duty ad valorem. The Tariff Commission held public hearings on said EO and submitted a report to the President for consideration and appropriate action. The President, on the other hand issued an EO which levied a special duty of P0.95 per liter of imported crude oil and P1.00 per liter of imported oil products.

7 ISSUE: Whether of not the President may issue an EO which is tantamount to enacting a bill in the nature of revenue-generating measures. RULING: The Court said that although the enactment of appropriation, revenue and tariff bills is within the province of the Legislative, it does not follow that EO in question, assuming they may be characterized as revenue measure are prohibited to the President, that they must be enacted instead by Congress. Section 28 of Article VI of the 1987 Constitution provides: The Congress may, by law authorize the President to fix tariff rates and other duties or imposts The relevant Congressional statute is the Tariff and Customs C ode of the Philippines and Sections 104 and 401, the pertinent provisions thereof.

ESSO STANDARD EASTERN, INC v. COMMISSIONER OF INTERNAL REVENUE G.R. Nos. L-28508-9, July 7, 1989 FACTS: In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from its gross income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum concessions. This claim was disallowed by the Commissioner of Internal Revenue (CIR) on the ground that the expenses should be capitalized and might be written off as a loss only when a "dry hole" should result. Esso then filed an amended return where it asked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells. Also claimed as ordinary and necessary expenses in the same return was the amount of P340, 822.04, representing margin fees it had paid to the Central Bank on its profit remittances to its New York head office. On August 5, 1964, the CIR granted a tax credit of P221, 033.00 only, disallowing the claimed deduction for the margin fees paid on the ground that the margin fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses. Esso appealed to the Court of Tax Appeals (CTA) for the refund of the margin fees it had earlier paid contending that the margin fees were deductible from gross income either as a tax or as an ordinary and necessary business expense. However, Essos appeal was denied. ISSUE: (1) Whether or not the margin fees are taxes. (2) Whether or not the margin fees are necessary and ordinary business expenses. RULING:

8 (1) No. A tax is levied to provide revenue for government operations, while the proceeds of the margin fee are applied to strengthen our country's international reserves. The margin fee was imposed by the State in the exercise of its police power and not the power of taxation. (2) No. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate and helpful in the development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. Since the margin fees in question were incurred for the remittance of funds to Esso's Head Office in New York, which is a separate and distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the development of Esso's business in the Philippines exclusively or were incurred for purposes proper to the conduct of the affairs of Esso's branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the Philippines exclusively.

PROGRESSIVE DEVELOPMENT CORPORATION v. QUEZON CITY G.R. No. L-36081, April 24, 1989 FACTS: On December 24, 1969, the City Council of Quezon City adopted Ordinance No. 7997, otherwise known as the Market Code of Quezon City. Section 3 of said ordinance provides that privately owned and operated public markets shall submit monthly to the Treasurer's Office, a certified list of stallholders showing the amount of stall fees or rentals paid daily by each stallholder, ... and shall pay 10% of the gross receipts from stall rentals to the City, ... , as supervision fee. On July 15, 1972, Progressive Development Corporation (Progressive), owner and operator of a public market known as the "Farmers Market & Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against Quezon City on the ground that the supervision fee or license tax imposed by the above-mentioned ordinance is in reality a tax on income which Quezon City may not impose, the same being expressly prohibited by Republic Act No. 2264, as amended, otherwise known as the Local Autonomy Act. In its Answer, Quezon City, through the City Fiscal, contended that it had authority to enact the questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on income. The lower court ruled that the questioned imposition is not a tax on income, but rather a privilege tax or license fee which local governments, like Quezon City, are empowered to impose and collect. ISSUE: Whether the tax imposed by Quezon City on gross receipts of stall rentals is properly characterized as partaking of the nature of an income tax.

9 RULING: No. The tax imposed in the controverted ordinance constitutes, not a tax on income, not a city income tax (as distinguished from the national income tax imposed by the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which Progressive is engaged. While it is true that the amount imposed by the questioned ordinances may be considered in determining whether the exaction is really one for revenue or prohibition, instead of one of regulation under the police power, it nevertheless will be presumed to be reasonable.

VILLEGAS v. HIU CHIONG TSAI PAO HO G.R. No. L-29646, November 10, 1978 FACTS: On February 22, 1968, the Municipal Board of Manila passed City Ordinance No. 6537. The said city ordinance was also signed by then Manila Mayor Antonio J. Villegas (Villegas). Section 1 of the said city ordinance prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind. Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was employed in Manila filed a petition with the CFI of Manila to declare City Ordinance No. 6537 as null and void for being discriminatory and violative of the rule of the uniformity in taxation. The trial court declared City Ordinance No. 6537 null and void. Villegas filed the present petition. ISSUE: Whether or not City Ordinance No. 6537 is a tax or revenue measure. RULING: Yes. The contention that City Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval or disapproval of applications for employment permits and therefore is regulatory in character the second part which requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting

10 P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation.

COMPAIA GENERAL DE TABACOS DE FILIPINAS vs. CITY OF MANILA, ET AL G.R. No. L-16619 June 29, 1963 FACTS: Petitioner filed an action in the CFI Manila to recover from City of Manila(City ) the sum of P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of liquor for the period from the third quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos. 3634, 3301, and 3816. Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should pay the license fees but not the municipal sales taxes; and since it already paid the license fees aforesaid, the sales taxes paid by it amounting to the sum of P15, 208.00 under the three ordinances is an overpayment made by mistake, and therefore refundable. The City contends that for the permit issued to it Tabacalera is subject to pay the license fees prescribed by Ordinance No. 3358, aside from the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816. ISSUE: Whether or not the taxes imposed are valid RULING: Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the business of selling liquor or alcoholic beverages. On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila by virtue of its power to tax dealers for the sale of such merchandise. That Tabacalera is being subjected to double taxation is more apparent than real. As already stated what is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor. On the other hand, what the three ordinances mentioned heretofore impose is a tax for revenue purposes based on the sales made of the same article or merchandise. It is already settled in this connection that both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article, this not being in violation of the rule against double taxation.

JOHN H. OSMEA vs. OSCAR ORBOS et al G.R. No. 99886 March 31, 1993

11 FACTS: October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Subsequently, the OPSF was reclassified into a "trust liability account,". President Corazon C. Aquino promulgated E. O. 137 expanding the grounds for reimbursement to oil companies for possible cost under recovery incurred as a result of the reduction of domestic prices of petroleum products. The petitioner argues inter alia that "the monies collected pursuant to . . P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and not channelled to another government objective." Petitioner further points out that since "a 'special fund' consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it was created." ISSUE: Whether or not the funds collected under PD 1956 is an exercise of the power of taxation RULING: The levy is primarily in the exercise of the police power of the State. While the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on how much to tax." The Court is cited to this requirement by the petitioner on the premise that what is involved here is the power of taxation; but as already discussed, this is not the case. What is here involved is not so much the power of taxation as police power. Although the provision authorizing the ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying out the objectives of the law which are embraced by the police power of the State. It would seem that from the above-quoted ruling, the petition for prohibition should fail.

REPUBLIC OF THE PHILIPPINES vs. BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC., and TALISAY-SILAY MILLING COMPANY G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966 FACTS: Joint appeal by three sugar centrals, respondents herein. from a decision of the Court of First Instance of Manila finding them liable for special assessments under Section 15 of Republic Act No. 632.

12 The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar" authorized to be collected under Sec. 15 of Republic 632 is a special assessment. As such, the proceeds thereof may be devoted only to the specific purpose for which the assessment was authorized; a special assessment being a levy upon property predicated on the doctrine that the property against which it is levied derives some special benefit from the improvement. It is not a tax measure intended to raise revenues for the Government. ISSUE: Is the imposition of special assessment an exercise of the taxing power? RULING: The Court deemed it relevant to discuss its holding in Lutz v. Araneta. For in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, all collections made thereunder "shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law." Analysis of the Act, and particularly Section 6, will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. On the authority of the above case, then, We hold that the special assessment at bar may be considered as similarly as the above, that is, that the levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a special assessment, but, the exercise of the police power for the general welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private citizen may lawfully resist.

VICTORIAS MILLING CO., INC. vs. THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL G.R. No. L-21183 September 27, 1968 FACTS: This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros Occidental. The disputed ordinance imposed license taxes on operators of sugar centrals and sugar refineries. The changes were: with respect to sugar centrals, by increasing the rates of license taxes; and as to sugar refineries, by increasing the rates of license taxes as well as the range of graduated schedule of annual output capacity. For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar refinery located in the Municipality of Victorias comes within these items.

13 Plaintiff filed suit below to ask for judgment declaring Ordinance No. 1, series of 1956, null and void. The plaintiff contends that the ordinance is discriminatory since it singles out plaintiff which is the only operator of a sugar central and a sugar refinery within the jurisdiction of defendant municipality. The trial court rendered its judgment declaring that the ordinance in question refers to license taxes or fees. Both plaintiff and defendant directly appealed to the Supreme Court. ISSUE: Was Ordinance No. 1, series of 1956, passed by defendant's municipal council as a regulatory enactment or as a revenue measure? RULING: The present imposition must be treated as a levy for revenue purposes. A quick glance at the big amount of maximum annual tax set forth in the ordinance, P40, 000. 00 for sugar centrals, and P40, 000.00 for sugar refineries, will readily convince one that the tax is really a revenue tax. And then, we read in the ordinance nothing which would as much as indicate that the tax imposed is merely for police inspection, supervision or regulation. Given the purposes just mentioned, we find no warrant in logic to give our assent to the view that the ordinance in question is solely for regulatory purpose. Plain is the meaning conveyed. The ordinance is for raising money. To say otherwise is to misread the purpose of the ordinance.

WALTER LUTZ vs. J. ANTONIO ARANETA G.R. No. L-7859 December 22, 1955 FACTS: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act. Plaintiff, Walter Lutz seeks to recover from the Collector of Internal Revenue the sum of P14, 666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutionally levied. The action having been dismissed by the Court of First Instance, the plaintiffs appealed the case directly to the Supreme Court. ISSUE: Is the tax provided for in Commonwealth Act No. 567 a pure exercise of the taxing power? RULING:

14 Analysis of the Act, and particularly of section 6 will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. The protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power.

TOLENTINO vs. SECRETARY OF FINANCE G.R. No. 115455 October 30, 1995 FACTS: Motions were filed seeking reconsideration of the Supreme Court decision dismissing the petitions for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several petitioners in these cases. ISSUES: 1. Whether or not R.A. No. 7716 did not "originate exclusively" in the House of Representatives as required by Art. VI Sec. 24 of the Constitution. 2. Whether or not R.A. No. 7716 is violative of press freedom and religious freedom under Art. III Secs. 4 and 5 of the Constitution. 3. Whether or not there is violation of the rule on taxation under Art. VI Sec. 28 (1) of the Constitution. 4. Whether or not there is an impairment of obligation of contracts under Art. III Sec. 10 of the Constitution. 5. Whether or not there is violation of the due process clause under Art. III Sec. 1 of the Constitution. RULING: 1. While Art. VI Sec. 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills must "originate exclusively in the House of Representatives," it also adds, "but the Senate may propose or concur with amendments." In the exercise of this power, the Senate may propose an entirely new bill as a substitute measure. 2. Since the law granted the press a privilege, the law could take back the privilege anytime without offense to the Constitution. The VAT is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes.

15 To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution. 3. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." 4. Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority. 5. On the alleged violation of due process, hardship to taxpayers alone is not an adequate justification for adjudicating abstract issues. Otherwise, adjudication would be no different from the giving of advisory opinion that does not really settle legal issues. We are told that it is our duty under Art. VIII, Sec. 1 (2) to decide whenever a claim is made that "there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government." This duty can only arise if an actual case or controversy is before us.

PHILIPPINE ACETYLENE CO., INC. vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS G.R. No. L-19707 August 17, 1967 FACTS: The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. It made various sales of its products to the National Power Corporation and to the Voice of America an agency of the United States Government. The sales to the NPC amounted to P145, 866.70, while those to the VOA amounted to P1,683, on account of which the respondent Commission of Internal Revenue assessed against, and demanded from, the petitioner the payment of P12,910.60 as deficiency sales tax and surcharge, pursuant to the Sec.186 of the National Internal Revenue Code. The petitioner denied liability for the payment of the tax on the ground that both the NPC and the VOA are exempt from taxation. ISSUE: Is the petitioner exempt from paying tax on sales it made to the 1) NPC and the 2) VOA because both entities are exempt from taxation? RULING:

16 1) No. SC holds that the tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or producer and not a tax on the purchaser except probably in a very remote and inconsequential sense. Accordingly its levy on the sales made to tax-exempt entities like the NPC is permissible. 2) No. Only sales made "for exclusive use in the construction, maintenance, operation or defense of the bases," in a word, only sales to the quartermaster, are exempt under Article V from taxation. Sales of goods to any other party even if it be an agency of the United States, such as the VOA, or even to the quartermaster but for a different purpose, are not free from the payment of the tax.

Caltex Philippines, Inc. v. Commission on Audit G.R. No. 92585 May 8, 1992 FACTS: Respondent Commission on Audit (COA) directed petitioner Caltex Philippines, Inc. (CPI) to remit to the Oil Price Stabilization Fund (OPSF) its collection of the additional tax on petroleum products pursuant to P.D. 1956, as well as unremitted collections of the above tax covering the years 1986, 1987 and 1988, with interests and surcharges, and advising it that all its claims for reimbursements from the OPSF shall be held in abeyance pending such remittance. COA further directed petitioner oil company to desist from further offsetting the taxes collected against outstanding claims for 1989 and subsequent periods. Its motion for reconsideration of the eventual decision of the COA on the matter having been denied, CPI imputes that respondent commission erred in preventing the former from exercising the right to offset its remittances against the reimbursement vis--vis the OPSF. ISSUE: Whether or not the amounts due to the OPSF from petitioner may be offset against the latters outstanding claims from said fund?

RULING: No. It is settled that a taxpayer may not offset taxes due from claims that he may have against the Government. Taxes cannot be the subject of compensation because the Government and the taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set off. The Court further ruled that taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the Government. Taxes may be levied for a regulatory purpose such as to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest, a concern which is within the police power of the State to address.

17

LUZON STEVEDORING CORPORATION vs. COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL REVENUE G.R. No. No. L-30232 July 29, 1988 FACTS: Herein petitioner imported various engine parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, it filed a Petition for Review with the Court of Tax Appeals in order to be granted a refund. Petitioner contends that tugboats are included in the term cargo vessels which are exempted from compensating tax under article 190 of the National Internal Revenue Code. He argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former towing the latter for loading and unloading of a vessel in part constitute a single vessel. Accordingly, it concludes that the engines, spare parts and equipment imported by it and used in the repair and maintenance of its tugboats are exempt from compensating tax. On the other hand, respondent contends that "tugboats" are not "Cargo vessel" because they are neither designed nor used for carrying and/or transporting persons or goods by themselves but are mainly employed for towing and pulling purposes. ISSUE: Whether or not tugboats are included in the term cargo vessels which are exempted from compensating tax under article 190 of the National Internal Revenue Code. RULING: No. tugboats are not included in the term cargo vessels which are exempted from compensating tax under article 190 of the National Internal Revenue Code. The Supreme Court explained that under the definition of tugboat, a diesel or steam power vessel designed primarily for moving large ships to and from piers for towing barges and lighters in harbors, rivers and canals. Which clearly do not fall under the categories of passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where a provision of law speaks categorically, the need for interpretation is obviated, no plausible pretence being entertained to justify non-compliance. All that has to be done is to apply it in every case that falls within its terms.

NATIONAL DEVELOPMENT COMPANY vs. COMMISSIONER OF INTERNAL REVENUE G.R. No. No. L-53961 June 30, 1987 FACTS: National Development Company (NDC) is a domestic corporation with principal offices in Manila. It entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of twelve ocean-going vessels.

18 Initial payments were made in cash and through irrevocable letters of credit. Fourteen promissory notes were signed for the balance by the NDC and, as required by the shipbuilders, guaranteed by the Republic of the Philippines. Thereafter, remaining payments and the interests thereon were remitted in due time by the NDC to Tokyo. After the vessels were delivered, the NDC remitted to the shipbuilders in Tokyo the interest on the balance of the purchase price. No tax was withheld. The Commissioner of Internal Revenue held that the interest remitted to the Japanese shipbuilders on the unpaid balance of the purchase price of the vessels acquired by petitioner is subject to income tax under the Tax Code. The petitioner argues that the Japanese shipbuilders were not subject to tax under the Tax Code. Petitioner contends that the interest payments were obligations of the Republic of the Philippines and that the promissory notes of the NDC were government securities exempt from taxation under Section 29(b)[4] of the Tax Code. ISSUE: Whether petitioner should not be held liable due to the undertaking signed by the Secretary of Finance and because the interest payments were obligations of the Republic of the Philippines and that the promissory notes of the NDC were government securities exempt from taxation under Section 29(b)[4] of the Tax Code as alleged by petitioner. RULING: No. Petitioner should be held liable. There is nothing in Section 29(b)[4] of the Tax Code exempting the interests from taxes. Furthermore in the said undertaking, petitioner has not established a clear waiver therein of the right to tax interests. Tax exemptions cannot be merely implied but must be categorically and unmistakably expressed. Any doubt concerning this question must be resolved in favour of the taxing power. It is not the NDC that is being taxed. It was the income of the Japanese shipbuilders and not the Republic of the Philippines that was subject to the tax the NDC did not withhold. In effect, therefore, the imposition of the deficiency taxes on the NDC is a penalty for its failure to withhold the same from the Japanese shipbuilders.

COMMISSIONER OF INTERNAL REVENUE vs. JOHN GOTAMCO & SONS, INC. and THE COURT OF TAXAPPEALS G.R. No. No. L-31092 February 27, 1987 FACTS: The World Health Organization (WHO for short) is an international organization which has a regional office in Manila. An agreement was entered into between the Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of that Agreement provides, inter alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes. The WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed in Manila. A bidding was held for the building construction. The WHO informed

19 the bidders that the building to be constructed belonged to an international organization exempted from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and should not include items for such taxes, licenses and other payments to Government agencies." Thereafter, the construction contract was awarded to John Gotamco & Sons, Inc. (Gotamco for short). Subsequently, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of for the 3% contractor's tax plus surcharges on the gross receipts it received from the WHO in the construction of the latter's building. WHO. The WHO issued a certification that the bid of John Gotamco & Sons, should be exempted from any taxes in connection with the construction of the World Health Organization office building because such can be considered as an indirect tax to WHO. However, The Commissioner of Internal Revenue contends that the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, and thus not covered by the tax exemption agreement ISSUE: Whether or not the said 3% contractors tax imposed upon petitioner is covered by the direct and indirect tax exemption granted to WHO by the government. RULING: Yes. The 3% contractors tax imposed upon petitioner is covered by the direct and indirect tax exemption granted to WHO. Hence, petitioner cannot be held liable for such contractors tax. The Supreme Court explained that direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. While it is true that the contractor's tax is payable by the contractor, However in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax against the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO.

Commissioner of Internal Revenue v. Algue, Inc., and the Court of Tax Appeals G.R. No. L 28896. February 17, 1988 FACTS On January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it a delinquency income tax for the year 1958 and 1959. After four days from its receipt, Algue filed a letter of protest which was stamped and received by the petitioner. Despite the protest, private respondent received a warrant of distraint and levy. Algue refused to receive it on the ground of pending protest until it was finally informed that the BIR was not taking any action on the protest. It therefore filed a petition for review of the decision of the Commissioner of Internal Revenue (CIR) with the Court of Tax Appeals. The CTA ruled in favour of Algue holding that the Php75, 000.00 in dispute shall be considered as deductible

20 from income it being in the form of promotional expense and contrary to petitioners contention that it was not an ordinary and reasonable business expense. ISSUE: Did the Collector of Internal Revenue correctly disallow the deduction claimed by private respondent Algue as legitimate business expense in its Income Tax Return? RULING: We agree with respondent court that the amount of promotional fee was not excessive and was reasonable, hence, allowing the deduction of the disputed amount in the Income Tax Return of private respondent. The finding of respondent court is in accordance with the provision of the Tax Code on deductions from gross income. The solicitor general is correct in saying that the burden to prove the validity of claimed deduction is on the tax payer. The private respondent has proved this. The amount in dispute was necessary and reasonable in the light of the efforts of the respondent corporation to induce investors.

REPUBLIC OF THE PHILIPPINES vs. MAMBULAO LUMBER COMPANY, ET AL G.R. No. L-17725, February 28, 1962 FACTS: There are three causes of action in this case in which the defendants admitted all these three liabilities with an aggregate amount of P4, 802.37. Though such liabilities are admitted it interposed the defence though exhibits that from July 31, 1948 to December 29, 1956, defendant Mambulao Lumber Company paid to the Republic of the Philippines P8,200.52 for 'reforestation charges' and for the period commencing from April 30, 1947 to June 24, 1948, said defendant paid P927.08 to the Republic of the Philippines for 'reforestation charges'. These reforestation were paid to the plaintiff in pursuance of Section 1 of Republic Act 115 which provides that there shall be collected, in addition to the regular forest charges provided under Section 264 of Commonwealth Act 466 known as the National Internal Revenue Code, the amount of P0.50 on each cubic meter of timber... cut out and removed from any public forest for commercial purposes. The total amount of the reforestation charges paid by Mambulao Lumber Company is P9,127.50, and it is the contention of the defendant that since the Republic of the Philippines has not made use of those reforestation charges collected from it for reforesting the denuded area of the land covered by its license, the Republic of the Philippines should refund said amount, or, if it cannot be refunded, at least it should be compensated with what Mambulao Lumber Company owed the Republic of the Philippines for reforestation charges. ISSUE:

21 Whether or not the sum of P9, 127.50 paid by defendant company to plaintiff as reforestation charges from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due and owing from defendant to plaintiff. RULING: The court find defendants claim devoid of any merit. Note that there is nothing in the law which requires that the amount collected as reforestation charges should be used exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and that if not so used; the same should be refunded to him. The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required.

ERNESTO M. MACEDA vs. HON. CATALINO MACARAIG, JR., et al G.R. No. No. 88291 May 31, 1991 and G.R. No. No. 88291 June 8, 1993 FACTS: Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development of hydraulic power and the production of power from other sources. Several laws were enacted granting NPC tax and duty exemption privileges such as taxes, duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities and municipalities "directly or indirectly," on all petroleum products used by NPC in its operation. However P.D. No. 1931 withdrew all tax exemption privileges granted in favour of government-owned or controlled corporations including their subsidiaries but empowered the President and/or the then Minister of Finance, upon recommendation of the FIRB to restore, partially or totally, the exemption withdrawn. BIR ruled that the exemption privilege enjoyed by NPC under said section covers only taxes for which it is directly liable and not on taxes which are only shifted to it. In 1986, BIR Commissioner Tan, Jr. states that all deliveries of petroleum products to NPC are tax exempt, regardless of the period of delivery. Thereafter, the FIRB issued several Resolutions in different occasions restoring the tax and duty exemption privileges of NPC indefinite period due to the restoration of the tax exemption privileges of NPC, NPC applied with the BIR for a "refund of Specific Taxes paid on petroleum products. On August 6, 1987, the Secretary of Justice, Opinion opined that "the power conferred upon Fiscal Incentives Review Board constitute undue delegation of legislative power and, therefore, unconstitutional. However, respondents Finance Secretary and the Executive Secretary declared that "NPC under the provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used for the generation of electricity. Thereafter investigations were made for the refund of the tax payments of the NPC which includes

22 Millions of pesos Tax refund. Petitioner, as member of the Philippine Senate introduced as Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, to conduct a Formal and Extensive Inquiry into the Reported Massive Tax Manipulations and Evasions by Oil Companies, particularly Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the NonExisting Exemption of National Power Corporation (NPC) from Indirect Taxes, Resulting Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the Department of Finance. ISSUE: Whether or not respondent NPC is legally entitled to the questioned tax and duty refunds. RULING: Yes. In G.R. No. No. 88291 the Supreme Court ruled in favour of exempting NPC to the said taxes. Also in G.R. No. No. 88291 the Supreme Court ruled in favour of respondents. NPC under the provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used for the generation of electricity. Presidential Decree No. 938 amended the tax exemption of NPC by simplifying the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings." the NPC electric power rates did not carry the taxes and duties paid on the fuel oil it used. The point is that while these levies were in fact paid to the government, no part thereof was recovered from the sale of electricity produced. As a consequence, as of our most recent information, some P1.55 B in claims represent amounts for which the oil suppliers and NPC are "out-of-pocket. There would have to be specific order to the Bureaus concerned for the resumption of the processing of these claims. CIR vs. PINEDA Estate proceedings were had to settle the estate of Atanasio Pineda. After the estate proceedings were closed, the BIR found out that the income tax liability of the estate during the pendency of the estate proceedings were not paid. The Court of Tax Appeals rendered judgment holding Manuel B. Pineda, the eldest son of the deceased, liable for the payment corresponding to his share of the estate. The Commissioner of Internal Revenue has appealed to SC and has proposed to hold Manuel B. Pineda liable for the payment of all the taxes found by the Tax Court to be due from the estate instead of only for the amount of taxes corresponding to his share in the estate. ISSUE: Can the Government require Pineda to pay the full amount of the taxes assessed? RULING: Yes. Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the estate/taxpayer. As a holder of property belonging to the estate, Pineda is liable for the tax up to the amount of the property in his possession. The reason is that the Government has a lien on what he received from the estate as his share in the inheritance for unpaid income taxes for which said estate is liable. By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e., the P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such

23 payment, Pineda will have a right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate. The Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. The reason why a case suit is filed against all the heirs for the tax due from the estate is to achieve thereby two results: first, payment of the tax; and second, adjustment of the shares of each heir in the distributed estate as lessened by the tax .Another remedy is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due. This second remedy is the very avenue the Government took in this case to collect the tax. The BIR should be given the necessary discretion to avail itself

vs. Commissioner of Internal Revenue, et al.

Philippine Guaranty, Co., Inc. G.R. No. L-22074 September 6, 1965 Bengzon, J.

Doctrine:
Simply because movant was relieved from paying the surcharge for failure to file the necessary returns, it now wants us to absolve it from paying even the tax. This, we cannot do. The non-imposition of the 25% surcharge does not carry with it remission of the tax. Section 200 of the Income Tax Regulations relaxes the application of the stringent provisions of Section 53 of the Tax Code. Accordingly, it grants exemption from tax liability, and in so doing, it lays down steps to be taken by the withholding agent, namely: (1) that he withholds the tax due; (2) that he promptly addresses a query to the Commissioner of Internal Revenue for determination whether or not the income paid to an individual is subject to withholding; and (3) that the Commissioner of Internal Revenue decides that such income is not subject to withholding. Strict observance of said steps is required of a withholding agent before he could be released from liability. Generally, the law frowns upon exemption from taxation, hence, an exempting provision should be construed strictis simi juris. The Income Tax Regulations was issued by the Secretary of Finance upon his authority, "to promulgate all needful rules and regulations of the effective enforcement" of the provisions of the Tax Code. The mission, therefore, of Section 200, quoted above, is to implement Section 53 of the Tax Code for no other purpose than to enforce its provisions effectively.

Facts:
Petitioner Philippine Guaranty Company, Inc. moves for the reconsideration of the Supreme Courts decision holding it liable for the payment of income tax which it should have withheld and remitted to the Bureau of Internal Revenue in the total sum of P375,345.00. The grounds raised in the instant motion all spring from petitioner's view that the Court of Tax Appeals as well as the Supreme Court, found it "innocent of the charges of violating, willfully or negligently, subsection (c) of Section 53 and Section 54 of the National Internal Revenue Code." Hence, it cannot subsequently be held liable for the assessment of P375,345.00 based on said sections. Petitioner argues that it could not be expected to withhold the tax, for as early as August 18, 1953 the Board of Tax Appeals held in the case of Franklin Baker that the reinsurance premiums in question were not subject to withholding. Moreover, it maintains that the Commissioner of Internal Revenue, in reply to the query of its accountants and auditors, issued an opinion subscribing to the ruling in the Franklin Baker case. Further, petitioner contends that as agent of the Government it was released from liability for the

24
tax after it was advised by the Commissioner of Internal Revenue that the reinsurance premiums involved were not subject to withholding, relying on the provisions of the second paragraph of Section 200 of the Income Tax Regulations.

Issues:
1. Whether or not the petitioner, having been exempted from payment of the surcharge, is likewise is exempted from paying the tax due. 2. Is the petitioner personally liable under Section 53 (c) of the Tax Code for income tax withheld under Section 54 of the said Code as implemented by the Income Tax Regulations? 3. Is the Secretary of Finance empowered to promulgate the Income Tax Regulations setting forth the conditions for withholding tax liability?

Held:
1. The premise of movants' reasoning cannot be accepted. On the contrary, movant was found to haveviolated Section 53(c) by failing to file the necessary withholding tax return and to pay tax due. Still, finding that movant's violation was due to a reasonable cause namely, reliance on the advice of its auditors and opinion of the Commissioner of Internal Revenue, no surcharge to the tax was imposed. It will be noted that the first half of Section 72 of the Tax Code covers failure to file a return, willingly and/or due to negligence, in which case the surcharge is, 50%. In the second part of the law it covers failure to make and file a return "not due to willful neglect," in which case only 25% surcharge should be added. As a further concession to the taxpayer the above-quoted section provides that if "it is shown that the failure to file it was due to a reasonable cause, no such addition shall be made to the tax." It would, therefore, be incorrect for movant to state that it was found "innocent of the charges of violating, willfully or negligently, sub-section (c) of Section 53 and Section 54. For, precisely, the mere fact that it was exempted from paying the penalty necessarily implies violation of Section 53(c). Violating Section 53(c) is one thing; imposing the penalty for such violation under Section 72 is another. If it is found that the failure to file is due to a reasonable cause, then exemption from surcharge sets in but never exemption from payment of the tax due. Since movant failed to pay the tax due, in the sum of P375,345.00, this Court ordered it to pay the same. Simply because movant was relieved from paying the surcharge for failure to file the necessary returns, it now wants us to absolve it from paying even the tax. This, we cannot do. The non-imposition of the 25% surcharge does not carry with it remission of the tax. 2. Section 53 (c) makes the withholding agent personally liable for the income tax withheld under Section 54. The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. Thus, the withholding agent is constituted the agent of both the Government and the taxpayer. With respect to the collection and/or withholding of the tax, he is the Government's agent. In regard to the filing of the necessary income tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas, the Commissioner of Internal Revenue and his deputies are not made liable by law. Section 200 of the Income Tax Regulations relaxes the application of the stringent provisions of Section 53 of the Tax Code. Accordingly, it grants exemption from tax liability, and in so doing, it lays down steps to be taken by the withholding agent, namely: (1) that he withholds the tax due; (2) that he promptly addresses a query to the Commissioner of Internal Revenue for determination whether or not the income paid to an individual is subject to withholding; and (3) that the Commissioner of Internal Revenue decides that such income is not subject to withholding. Strict observance of said steps is required of a withholding agent before he could be released from liability. Generally, the law frowns upon exemption from taxation, hence, an exempting provision should be construed strictis simi juris. The facts in this case do not support a finding that movant complied with Section 200. For, it has not been shown that it withheld the amount of tax due before it inquired from the Bureau of Internal Revenue as to the taxability of the reinsurance premiums involved. As a matter of fact, the Court of Tax Appeals found that "upon advice of its accountants and auditors,

25
petitioner did not collect and remit to the Commissioner of Internal Revenue the withholding tax." This finding of fact of the lower court, unchallenged as it is, may not be disturbed. 3. It may be illuminating to mention here, however, that the Income Tax Regulations was issued by the Secretary of Finance upon his authority, "to promulgate all needful rules and regulations of the effective enforcement" of the provisions of the Tax Code. The mission, therefore, of Section 200, quoted above, is to implement Section 53 of the Tax Code for no other purpose than to enforce its provisions effectively. It should also be noted, that Section 53 provided for no exemption from the duty to withhold except in the cases of tax-free covenant bonds dividends. The requirement in Section 200 that the withholding agent should first withhold the tax before addressing a query to the Commissioner of Internal Revenue is not without meaning for it is in keeping with the general operation of our tax laws: payment precedes defense. The legislature, in adopting such measures in our tax laws, only wanted to be assured that taxes are paid and collected without delay. For taxes are the lifeblood of government. Also, such measures tend to prevent collusion between the taxpayer and the tax collector. By questioning a tax's legality without first paying it, a taxpayer, in collusion with Bureau of Internal Revenue officials, can unduly delay, if not totally evade, the payment of such tax. WHEREFORE, the motion for reconsideration is denied.

G.R. No. L-24693: Ermita-Malate Hotel & Motel Operators Assoc., Inc vs Mayor of Manila Howard Chan Site Owner Posts: 414 On 13 June 1963, the Manila Municipal Board enacted Ord 4760 and the same was approved by then acting mayor Astorga. Ord 4760 sought to regulate hotels and motels. It classified them into 1st class (taxed at 6k/yr) and 2ndclass (taxed at 4.5k/yr). It also compelled hotels/motels to get the demographics of anyone who checks in to their rooms. It compelled hotels/motels to have wide open spaces so as not to conceal the identity of their patrons. Ermita-Malate impugned the validity of the law averring that such is oppressive, arbitrary and against due process. The lower court as well as the appellate court ruled in favor of Ermita-Malate. ISSUE: Whether or not Ord 4760 is against the due process clause. HELD: The SC ruled in favor of Astorga. There is a presumption that the laws enacted by Congress (in this case Mun Board) is valid. W/o a showing ora strong foundation of invalidity, the presumption stays. As in this case, there was only a stipulation of facts and such cannot prevailover the presumption. Further, the ordinance is a valid exercise o f Police Power. There is no question but that the challenged ordinance was precisely enacted to minimize certain practices hurtful to public morals. This is to minimize prostitution. The increase in taxes not only discourages hotels/motels in doing any business other than legal but also increases the revenue of the lgu concerned. And taxation is a valid exercise of police power as well. The due process contention is likewise untenable, due process has no exact definition but has reason as a standard. In this case, the precise reason why the ordinance was enacted was to curb down prostitution in the city which is reason enough and cannot be defeated by mere singling out of the provisions of the said ordinance alleged to be vague.

26

G.R. No. L-24693: Ermita-Malate Hotel & Motel Operators Assoc., Inc vs Mayor of Manila Howard Chan Site Owner Posts: 414 On 13 June 1963, the Manila Municipal Board enacted Ord 4760 and the same was approved by then acting mayor Astorga. Ord 4760 sought to regulate hotels and motels. It classified them into 1st class (taxed at 6k/yr) and 2ndclass (taxed at 4.5k/yr). It also compelled hotels/motels to get the demographics of anyone who checks in to their rooms. It compelled hotels/motels to have wide open spaces so as not to conceal the identity of their patrons. Ermita-Malate impugned the validity of the law averring that such is oppressive, arbitrary and against due process. The lower court as well as the appellate court ruled in favorof Ermita-Malate. ISSUE: Whether or not Ord 4760 is against the due process clause. HELD: The SC ruled in favor of Astorga. There is a presumption that the laws enacted by Congress (in this case Mun Board) is valid. W/o a showing ora strong foundation of invalidity, the presumption stays. As in this case, there was only a stipulation of facts and such cannot prevailover the presumption. Further, the ordinance is a valid exercise o f Police Power. There is no question but that the challenged ordinance was precisely enacted to minimize certain practices hurtful to public morals. This is to minimize prostitution. The increase in taxes not only discourages hotels/motels in doing any business other than legal but also increases the revenue of the lgu concerned. And taxation is a valid exercise of police power as well. The due process contention is likewise untenable, due process has no exact definition but has reason as a standard. In this case, the precise reason why the ordinance was enacted was to curb down prostitution in the city which is reason enough and cannot be defeated by mere singling out of the provisions of the said ordinance alleged to be vague.

Arturo Tolentino vs Secretary of Finance

Political Law Origination of Revenue Bills EVAT Amendment by Substitution
Tolentino et al is questioning the constitutionality of RA 7716 otherwise known as the Expanded Value Added Tax (EVAT) Law. Tolentino averred that this revenue bill did not exclusively originate from the House of Representatives as required by Section 24, Article 6 of the Constitution. Even though RA 7716 originated as HB 11197 and that it passed the 3 readings in the HoR, the same did not complete the 3 readings in Senate for after the 1st reading it was referred to the Senate Ways & Means Committee thereafter Senate

27

passed its own version known as Senate Bill 1630. Tolentino averred that what Senate could have done is amend HB 11197 by striking out its text and substituting it w/ the text of SB 1630 in that way the bill remains a House Bill and the Senate version just becomes the text (only the text) of the HB. Tolentino and co-petitioner Roco [however] even signed the said Senate Bill. ISSUE: Whether or not EVAT originated in the HoR. HELD: By a 9-6 vote, the SC rejected the challenge, holding that such consolidation was consistent with the power of the Senate to propose or concur with amendments to the version originated in the HoR. What the Constitution simply means, according to the 9 justices, is that the initiative must come from the HoR. Note also that there were several instances before where Senate passed its own version rather than having the HoR version as far as revenue and other such bills are concerned. This practice of amendment by substitution has always been accepted. The proposition of Tolentino concerns a mere matter of form. There is no showing that it would make a significant difference if Senate were to adopt his over what has been done.

Esso Standard Eastern Inc. vs. CIR (G.R. Nos. L-28508-9, July 7, 1989) Post under case digests, Taxation at Saturday, March 10, 2012 Posted by Schizophrenic Mind Facts: In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from its gross income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum concessions. This claim was disallowed by the Commissioner of Internal Revenue (CIR) on the ground that the expenses should be capitalized and might be written off as a loss only when a "dry hole" should result. Esso then filed an amended return where it asked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells. Also claimed as ordinary and necessary expenses in the same return was the amount of P340,822.04, representing margin fees it had paid to the Central Bank on its profit remittances to its New York head office. On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the claimed deduction for the margin fees paid on the ground that the margin fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses.

28 Esso appealed to the Court of Tax Appeals (CTA) for the refund of the margin fees it had earlier paid contending that the margin fees were deductible from gross income either as a tax or as an ordinary and necessary business expense. However, Essos appeal was denied. Issues: (1) Whether or not the margin fees are taxes. (2) Whether or not the margin fees are necessary and ordinary business expenses. Held: (1) No. A tax is levied to provide revenue for government operations, while the proceeds of the margin fee are applied to strengthen our country's international reserves. The margin fee was imposed by the State in the exercise of its police power and not the power of taxation. (2) No. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate and helpful in the development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. Since the margin fees in question were incurred for the remittance of funds to Esso's Head Office in New York, which is a separate and distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the development of Esso's business in the Philippines exclusively or were incurred for purposes proper to the conduct of the affairs of Esso's branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the Philippines exclusively. If at all, the margin fees were incurred for purposes proper to the conduct of the corporate affairs of Esso in New York, but certainly not in the Philippines.

Tio vs Videogram
Political Law Delegation of Power Administrative Bodies Tio is a videogram operator who assailed the constitutionality of PD 1987 entitled An Act Creating the Videogram Regulatory Board with broad powers to regulate and supervise the videogram industry. The PD was also reinforced by PD1994 which amended the National Internal Revenue Code. The amendment provides that there shall be collected on each processed video -tape cassette, ready for playback, regardless of length, an annual tax of five pesos; Provided, That locallymanufactured or imported blank video tapes shall be subject to sales tax. The said law was brought about by the need to regulate the sale of videograms as it has adverse effects to the movie industry. The proliferation of videograms has significantly lessen the revenue being acquired from the movie industry, and that such loss may be recovered if videograms are to be taxed.

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Tio countered that there is no factual nor legal basis for the exercise by the President of the vast powers conferred upon him by the Amendment and that there is an undue delegation of legislative power to the President. ISSUE: Whether or not there is an undue delegation of power. HELD: It cannot be successfully argued that the PD contains an undue delegation of legislative power. The grant in Sec 11 of the PD of authority to the Board to solicit the direct assistance of other agencies and units of the government and deputize, for a fixed and limited period, the heads or personnel of such agencies and units to perform enforcement functions for the Board is not a delegation of the power to legislate but merely a conferment of authority or discretion as to its execution, enforcement, and implementation. The true distinction is between the delegation of power to make the law, which necessarily involves discretion as to what it shall be, and conferring authority or discretion as to its execution to be exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be made. Besides, in the very language of the decree, the authority of the Board to solicit such assistance is for a fixed and limited period with the deputized agencies concerned being subject to the direction and control of the Board. That the grant of such authority might be the source of graft and corruption would not stigmatize the PD as unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in law.

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