Digests Taxation Law I Michael Vernon Guerrero Mendiola 2003 Shared under Creative Commons AttributionN onCommercial-ShareAlike 3.

0 Philippines license. Some Rights Reserved.

Table of Contents Commissioner vs. Algue, GR L-28890, 17 February 1988 ......... 1 Luzon Stevedorin g Corp. vs. Court of Tax Appeals, GR L-30232, 29 July 1988 ......... 1 Lutz vs. A raneta, GR L-7859, 22 December 1955 ......... 2 McCollough vs. Maryland, 17 US 31 6 (1819) ......... 2 Panhandle Oil vs. State of Mississippi, 277 US 218 (1928) ... ...... 3 Commissioner vs. Lingayen Gulf Electric, GR L-23771, 4 August 1988 ..... .... 4 National Development Co. vs. Commissioner, GR L-53961, 30 June 1987 ...... ... 4 Domingo vs. Garlitos, GR L-18993, 29 June 1963 ......... 5 Commissioner vs. Itogon-Suyoc Mines, GR L-25299, 29 July 1969 ......... 5 Republic vs. Mambulao L umber, GR L-17725, 28 February 1962 ......... 5 Francia vs. Intermediate Appellat e Court, GR L-67649, 28 June 1988 ......... 6 Caltex Philippines vs. Commission o n Audit (COA), GR 92585, 8 May 1992 ......... 7 Cu Unjieng vs. Patstone, GR 16254 , 21 February 1922 ......... 7 Villegas vs, Hiu Chiong Tsai Pao Ho, GR L-29646, 1 0 November 1978 .........8 Apostolic Prefect of Mountain Province vs. City Treasu rer of Baguio City, GR 47252, 18 April 1941 ......... 8 Philippine Airlines vs. E du, HR L-41383, 15 August 1988 ......... 9 Progressive Development Corporation vs . Quezon City, GR 36081, 24 April 1989 ......... 9 American Mail Line vs. Basilan , GR L-12647, 31 May 1961 ......... 10 Saldana vs. Iloilo, GR L-10470, 26 June 19 58 ......... 10 Compania General de Tobacos de Filipinas vs. Manila, GR L-16619, 29 June 1963 ......... 11 Philippine Acetylene Co. Inc. vs. Commissioner, GR L-19 707, 17 August 1967 ......... 11 Commissioner vs. American Rubber, GR L-19667, 29 November 1966 ......... 12 Commissioner vs. Gotamco, GR L-31092, 27 February 198 7 ......... 12 Pascual vs. Secretary of Public Works and Communications, GR L-104 05, 29 December 1960 ......... 13 Republic vs. Bacolod-Murcia Milling Co., GR L-1 9824-26, 9 July 1999 ......... 13 31st Infantry Post Exchange vs. Posadas, GR 334 03, 4 September 1930 ......... 14 Wells Fargo vs. Collector of Internal Revenue, GR 46720, 28 June 1940 ......... 15 Philippine Match Co. Ltd. vs. Cebu City, GR L -30745, 18 January 1978 ......... 15 Commissioner vs. British Overseas Airways Co rp., GR L-65773-74, 30 April 1987 ......... 16 Commissioner vs. Air India, GR L-7 2443, 29 January 1988 ......... 16 Allied Thread vs. City of Manila, GR L-40296, 21 November 1984 ......... 17 Abra vs. Hernando, GR L-49336, 31 August 1981 ...... ... 17 Association of Custom Brokers vs. Manila, GR L-4376, 22 May 1953 ......... 18 Kapatiran ng mga Naglilingkod sa Pamahalaan vs. Tan, GR L-81311, 30 June 198 8 ......... 18 Sison vs. Ancheta, GR L-59431, 25 July 1984 ......... 19 Juan Luna Subdivision vs. Sarmiento, GR L-3538, 28 May 1952 ......... 19 Shell Co. vs. Vano , GR L-6093, 24 February 1954......... 20 Victorias Milling Co. vs. Municipality of Victorias, GR L-21183, 27 September 1968 ......... 20 Punsalan vs. Manila, GR L-4817, 26 May 1954 ......... 21 Ormoc Sugar vs. Treasurer of Ormoc City, GR L-23 794, 17 February 1968 ......... 21 Pepsi-Cola Bottling Co. vs. City of Butuan, GR L-22814, 28 August 1968 ......... 22 Vera vs. Cuevas, GR L-33693-94, 31 May 1979 ......... 22 American Bible Society vs. Manila, GR L-9637, 30 April 1957 ........ . 23 Cagayan Electric Power & Light Co. vs. Commissioner, GR L-60126, 25 Septemb er 1985 ......... 23 Casanovas vs. Hord, GR L-3473, 22 March 1907 ......... 24 Chu rchill vs. Concepcion, GR 11572, 22 September 1916 ......... 24 Villanueva vs. Il oilo City, GR L-26521, 28 December 1968 ......... 25 Eastern Theatrical Co. vs. A lfonso, GR L-1104, 31 May 1944 ......... 25 Reyes vs. Almanzor, GR 49839-46, 26 A pril 1991 ......... 26 Abra Valley College vs. Aquino, GR L-39086, 15 June 1988 .. ....... 26

Herrera vs. Quezon City Board of Assessment Appeals, GR L-15270, 30 September 19 61 ......... 27 Lladoc vs. Commissioner, GR L-19201, 16 June 1965 ......... 27 Bis hop of Nueva Segovia vs. Provincial Board of Ilocos Norte, GR 27588, 31 December 1927 ......... 28 Commisioner vs. Bishop of Missionery District of the Philippin e Islands, GR L-19445, 31 August 1965 ......... 28 Hodges vs. Iloilo City, GR L-1 8129, 31 January 1963......... 29 Procter and Gamble vs. Jagna, GR L-24265, 28 De cember 1979 ......... 29 Commissioner vs. Lednicky, GR L-18169, 31 July 1964 ..... .... 30 Commissioner vs. Javier, GR 78953, 31 July 1991 ......... 30 Meralco vs. Vera, GR L-29987, 22 October 1975 ......... 31 Commissioner vs. Manila Jockey Clu b, GR L-8755, 23 March 1956 ......... 31 SSS vs. Bacolod City, GR L-35726, 21 Jul y 1982 ......... 32 Nitafan vs. Commissioner, GR L-78780, 23 July 1987 ......... 3 2 Commissioner vs. Robertson, GR L-70116-19, 12 August 1986 ......... 32 Reagan v s. Commissioner, GR L-26379, 27 December 1969 ......... 33 Davao Light and Power vs. Commissioner of Customs, GR L-28739 and L-28902 ......... 33 Surigao Consolid ated Mining vs. Collector, GR L-14878, 26 December 1963 ......... 34 Wonder Mecha nical Engineering vs. Court of Tax Appeals, GR L-22805 and L-27858, 30 June 1975 ......... 35 Visayas Cebu Terminal vs. Commissioner, GR L-19530 and L-19444, 27 February 1965 ......... 35 Lealda Electric vs. Commissioner, GR L-16428, 30 April 1963 ......... 36 Misamis Oriental vs. Cagayan Electric, GR 45355, 12 January 19 90 ......... 36 Hilado vs. Collector, GR L-9408, 31 October 1956 ......... 37 Comm issioner vs. Court of Tax Appeals, GR 44007, 20 March 1991 ......... 37 Maceda vs . Macaraig, GR 88291, 31 May 1991 ......... 38 Commissioner vs. Phoenix Assurance , GR L-19727, 20 May 1965 ......... 39 Commissioner vs. Connel Bros. Co., GR L-27 752-53, 30 August 1971 ......... 39 Commissioner vs. Firemans Fund Insurance, GR L -30644, 9 March 1987 ......... 40 Commissioner vs. Cebu Portland Cement, GR L-290 59, 15 December 1987 ......... 40 Republic vs. Vda. de Fernandez, GR L-9141, 25 S eptember 1956 ......... 41 Tanada vs. Tuvera, GR L-63915, 24 April 1985 ......... 41 Bagatsing vs. Ramirez, GR L-41631, 17 December 1976 ......... 42 Commissioner vs. Burroughs Ltd., GR L-6653, 19 June 1986 ......... 42 Commissioner vs. Mega Ge neral Merchandise, GR L-69136, 30 September 1988 ......... 43 Commissioner vs. Co urt of Tax Appeals, GR 108358, 20 January 1995 ......... 43 Commissioner vs. Cour t of Appeals, GR 119761, 29 August 1996 ......... 44 ABS-CBN Broadcating vs. Cour t of Tax Appeals, GR L-52306, 12 October 1981 ......... 44 In RE Zialcita, AM 906-015-SC, 18 October 1990 ......... 45 Commissioner vs. Court of Appeals, GR 9601 6, 17 October 1991 ......... 45 Borromeo vs. Civil Service Commission, GR 96032, 31 July 1991 ......... 46 Esso Standard Eastern vs. Commissioner, GR 28508-9, 7 J uly 1989 ......... 46 Guagua Electric Light Plant Co. vs. Collector, GR L-23611, 24 April 1967 ......... 47 Republic vs. Limaco and De Guzman Commercial Co., GR L -13081, 31 August 1962 ......... 47 Interprovincial Autobus Co. vs. Collector of Internal Revenue, GR L-6741, 31 January 1956 ......... 48 Tan Guan vs. Court of T ax Appeals, GR L-23676, 27 April 1967 ......... 49 Dayrit vs. Cruz, GR L-39910, 2 6 September 1988 ......... 49 Collector vs. Benipayo, GR L-13656, 31 January 1962 ......... 50 Meralco Securities Corp. vs. Savellano, GR L-36181, 23 October 1982. ........ 50 Commissioner vs. Abad, GR L-19627, 27 June 1968 ......... 51 Commissi oner vs. Procter & Gamble Philippines, GR L-66838, 15 April 1988 ......... 51 Cit y Lumber vs. Domingo, GR L-18611, 30 January 1964 ......... 52 Villamin vs. Court of Tax Appeals, GR L-11536, 31 October 1960 ......... 52 Sy Po vs. Court of Tax Appeals, GR L-81446, 18 August 1988 ......... 53

This collection contains one hundred one (101) cases summarized in this format b y Michael Vernon M. Guerrero (as a sophomore law student) during the First Semes ter, school year 2003-2004 in the Taxation Law I class under Atty. Diogenes Vill arubia at the Arellano University School of Law (AUSL). Compiled as PDF, July 20 11. Berne Guerrero entered AUSL in June 2002 and eventually graduated from AUSL in 2006. He passed the Philippine bar examinations immediately after (April 2007 ). www.berneguerrero.com

Digests (Berne Guerrero) [1] Commissioner vs. Algue GRL-28890, 17 February 1988 First Division, Cruz (J); 4 concur Facts: The Philippine Sugar Estate Development Company (PSEDC) appoint ed Algue Inc. as its agent, authorizing it to sell its land, factories, and oil manufacturing process. The Vegetable Oil Investment Corporation (VOICP) purchase d PSEDC properties. For the sale, Algue received a commission of P125,000 and it was from this commission that it paid Guevara, et. al. organizers of the VOICP, P75,000 in promotional fees. In 1965, Algue received an assessment from the Com missioner of Internal Revenue in the amount of P83,183.85 as delinquency income tax for years 1958 amd 1959. Algue filed a protest or request for reconsideratio n which was not acted upon by the Bureau of Internal Revenue (BIR). The counsel for Algue had to accept the warrant of distrant and levy. Algue, however, filed a petition for review with the Coourt of Tax Appeals. Issue: Whether the assessm ent was reasonable. Held: Taxes are the lifeblood of the government and so shoul d be collected without unnecessary hindrance. Every person who is able to pay mu st contribute his share in the running of the government. The Government, for hi s part, is expected to respond in the form of tangible and intangible benefits i ntended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should disp el the erroneous notion that is an arbitrary method of exaction by those in the seat of power. Tax collection, however, should be made in accordance with law as any arbitrariness will negate the very reason for government itself. For all th e awesome power of the tax collector, he may still be stopped in his tracks if t he taxpayer can demonstrate that the law has not been observed. Herein, the clai med deduction (pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation 2: as to compensation for personal services) had been leg itimately by Algue Inc. It has further proven that the payment of fees was reaso nable and necessary in light of the efforts exerted by the payees in inducing in vestors (in VOICP) to involve themselves in an experimental enterprise or a busi ness requiring millions of pesos. The assessment was not reasonable. [2] Luzon S tevedoring Corp. vs. Court of Tax Appeals GR L-30232, 29 July 1988 Second Divisi on, Paras (J): 4 concur Facts: Luzon Stevedoring Corp. imported various engine p arts and other equipment for tugboat repair and maintenance in 1961 and 1962. It paid the assessed compensation tax under protest. Unable to secure a tax refund from the Commissioner (for the amount of P33,442.13), it filed a petition for r eview with the Court of Tax Appeals (CTA). The CTA denied the petition, as well as the motion for reconsideration filed thereafter. Issue: Whether the corporati on is exempt from the compensation tax. Held: As the power of taxation is a high prerogative of sovereignty, the relinquishment of such is never presumed and an y reduction or dimunition thereof with respect to its mode or its rate, must be strictly Taxation Law I, 2004 ( 1 )

Digests (Berne Guerrero) construed, and the same must be couched in dear and unmistakable terms in order that it may be applied. The corporations tugboats do not fall under the categorie s of passenger or cargo vessels to avail of the exemption from compensation tax in Section 190 of the Tax Code. It may be further noted that the amendment of Se ction 190 of Republic Act 3176 was intended to provide incentives and inducement s to bolster the shipping industry and not the business of stevedoring, in which the corporation is engaged in. Luzon Stevedoring Corp. is not exempt from compe nsating tax under Section 190, and is thus not entitled to refund. [3] Lutz vs. Araneta GR L-7859, 22 December 1955 First Division, Reyes JBL (J): 8 concur Fact s: AWalter Lutz, as Judicial Administrator of the Intestate Estate of Antonio Ja yme Ledesma, sought to recover the sum of P14,6666.40 paid by the estate as taxe s from the Commissioner under Section e of Commonwealth Act 567 (the Sugar Adjus tment Act), 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 pub lic purpose. Issue: Whether the tax is valid in supporting an industry. Held: Th e tax is levied with a regulatory prupose, i.e. to provide means for the rehabil itation and stabilization of the threatened sugar industry. The act is primarily an exercise of police power, and is not a pure exercise of taxing power. As sug ar production is one of the great industries of the Philippines; and that its pr omotion, protection and advancement redounds greatly to the general welfare, the legislature found that the general welfare demanded that the industry should be stabilized, and provided that the distribution of benefits therefrom be readjus ted among its component to enable it to resist the added strain of the increase in tax that it had to sustain. Further, it cannot be said that the devotion of t ax money to experimental stations to seek increase of efficiency in sugar produc tion, utilization of by-products, etc., as well as to the improvement of living and working conditions in sugar mills and plantations, without any part of such money being channeled diectly to private persons, constitute expenditure of tax money for private purposes. The tax is valid. [4] McCollough vs. Maryland 17 US 316 (1819), Marshall (CJ) Facts: The United States Congress incorporated a bank, the Bank of the United States; and established a branch in the State of Marylan d. The State of Maryland, in turn, through its legislature, imposed a tax upon t he bank. Issue: Whether the State of Maryland can tax a federal bank. Held: The Government of the United States, though limited in its powers, is supreme. Its l aws, when made in pursuance of the Constitution, form the supreme law of the lan d, anything in the Constitution or laws of any State, to the contrary, not withst anding. Among the enumerated powers of the government are to lay and collect taxe s; to regulate commerce; to declare and conduct a war; and to raise and support armies and navies. Still, the power of taxation is retained by the States. It is not abridged by the grant of a similar power to the Taxation Law I, 2004 ( 2 )

Digests (Berne Guerrero) Government of the Union. It is to be concurrently exercised by the two governmen ts. Consistently with a fair construction of the Constitutions: the power to tax involves the power to destroy; the power to destroy may defeat and render usele ss the power to create; and there is a plain repugnance in conferring on one gov ernment a power to control the constitutional measures of another, which other, with respect to those very measures, is declared to be supreme over that whcih e xerts the control. Taxation does not necessarily and unavoidably destroy. To car ry it to the excess of destruction would be an abuse, and would banish that conf idence which is essential to all government. Hence, the States have no power to retard, impede, burden, or in any manner control, the operations of the constitu tional laws enacted by Congress to carry into execution the powers vested in the general government. The law passed by the legislature of Maryland, imposing a t ax on the Bank of the United States, is unconstitutional and void. [5] Panhandle Oil vs. State of Mississippi 277 US 218 (1928), Butler (J) Facts: The laws of M ississippi provided that any person engaged in the business of distributor of gas oline, or retail dealer in gasoline, shall pay an excise tax for the privilege o f engaging in such business, except that sold in interstate commerce or puchased outside the state and brought in by the consumer for his own use. Since 1925, Pa nhandle Oil Co. has been engaged in such business. Subsequently, the State sued to recover taxes claimed on account of sales made by the company to the United S tates for the use of its Coast Guard fleet in service in the Gulf of Mexico and its Veterans Hospital at Gulfport. The company defended on the ground that Missis sippi statutes relevant to the case, if construed to impose taxes on such sales, are repugnant to the federal constitution. Issue: Whether Panhandle Oil Co. is liable for the excise tax imposed by the State of Mississippi. Held: The United States is empowered by the Constitution to maintain and operate the fleet and th e hospital. Authorization and laws enacted pursuant to the Constitution are supr eme, and in case of conflict, control state enactments. The States may not burde n or interfere with the exertion of national power, or make it a source of reven ue or take the funds raised or tax the means for for the performance of federal functions. While the State of Mississippi may impose charges upon the company fo r the privilege of carrying trade that is subject to the power of the State, it may not lay any tax upon transactions by which the United States secures the thi ngs desired for its governmental purposes. The necessary operation of the statut es when so construed is directly to retard, impede, and burden the exertion by t he United States of its constitutional powers to operate the fleet and the hospi tal. The exactions demanded infringe upon the right to have the Constitutional i ndependence of the United States, in respect to such purchases, remain untrammel ed. Panhandle Oil Co. is, thus, not liable for the taxes claimed. [ Note: It is not in the main body or decision, but in the dissenting opinion of Justice Holme s that the following doctrine was enunciated: ... (The Court), so often has defea ted the attempt to tax in certain ways, can defeat an attempt to discriminate or otherwise go too far without wholly abolishing the power to tax. The power to t ax is not the power to destroy while this Court sits. The power to fix rates is the power to destroy if unlimited, but this Court while it endeavors to prevent confiscation does not prevent the fixing of rates. A tax is not an unconstitutio nal regulation in every case where an absolute prohibition of sales would be one . ] [6] Taxation Law I, 2004 ( 3 )

Digests (Berne Guerrero) Commissioner vs. Lingayen Gulf Electric GR L-23771, 4 August 1988 En Banc, Sarmi ento (J): 13 concur Facts: Lingayen Gulf Electric Power operates an electric pow er plant serving the municipalities of Lingayen and Binmaley, Pangaisnan, pursua nt to municipal franchise granted it by the respective municipal councils. The f ranchises provided that the grantee shall pay quarterly to the Provincial Treasu ry of Pangasinan 1% of the gross earnings obtained through the privilege for the first 20 years (from 1946), and 2% during the remaining 15 years of the life of the franchise. In 1948, the Philippine President approved the franchise (RA 384 3). In 1955, the BIR assessed and demanded against the company deficiency franch ise taxes and surcharges fro the years 1946 to 1954 applying the franchise tax r ate of 5% on gross receipts from 1948 to 1954. The company asked for a reinvesti gation, which was denied. Issue [1]: Whether the Court can inquire into the wisd om of the Act. Held [1]: The Court does not have the authority to inquire into t he wisdom of the Act. Charters or special laws granted and enacted by the Legisl atur are in the nature of private contracts. They do not contitute a part of the machinery of the general government. They are usually adopted after careful con sideration of the private rights in relation with the resultant benefits of the State. In passing a special charter, the attention of the Legislature is directe d to the facts and circumstances which the act or charter is intended to meet. T he Legislature considers and makes provision for all the circumstance of the par ticular case. The Court ought not to disturb the ruling of the Court of Tax Appe als on the constitutionality of the law in question. Issue [2]: Whether a rate b elow 5% on gross income violate the uniformity of tax clause in the Constitution . Held [2]: A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. Uniformity means that all property belonging to the same class shall be taxed alike. The legislature has the inher ent power not only to select the subjects of taxation but to grant exemptions. T ax exemptions have never been deemed violateve of the equal protection clause. H erein, the 5% franchise tax rate provided in Section 259 of the Tax Code was nev er intended to have a universal application. Section 259 expressly allows the pa yment of taxes at rates lower than 5% when the charter granting the franchise pr ecludes the imposition of a higher tax. RA 3843 did not only fix and specify a f ranchise tax of 2% on its gross receipts, but made it in lieu of any and all tax es, all laws to the contrary notwithstanding. The company, hence, is not liable for deficiency taxes. [7] National Development Co. vs. Commissioner GR L-53961, 30 June 1987 En Banc, Cruz (J): 14 concur Facts: The National Development Co. (N DC) entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of 12 ocean-going vessels. Initial payments were made in c ash and through irrevocable letters of credit. When the vessels were completed a nd delivered to the NDC in Tokyo, the latter remitted to the shipbilders the amo unt of US$ 4,066,580.70 as interest on the balance of the purchase price. No tax was withheld. The Commissioner then held NDC liable on such tax in the total am ount of P5,115,234.74. The Bureau of Internal Revenue served upon the NDC a warr ant of distraint and levy after negotiations failed. Taxation Law I, 2004 ( 4 )

Digests (Berne Guerrero) Issue: Whether the NDC is liable for deficiency tax. Held: The Japanese shipbuil ders were liable on the interest remitted to them under Section 37 of the Tax Co de. The NDC is not the one taxed. The imposition of the deficiency taxes on the NDS is a penalty for its failure to withhold the same from the Japanese shipbuil ders. Such liability is imposed by Section 53(c) of the Tax Code. NDC was remiss in the discharge of its obligation of its obligation as the withholding agent o f the government and so should be liable for its omission. [8] Domingo vs. Garli tos GR L-18993, 29 June 1963 En Banc, Labrador (J): 8 concur, 1 concur in result , 1 took no part Facts: InDomingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory the order of the Court of First Instance of Ley te for the payment of estate and inheritance taxes, charges and penalties amount ing to P40,058.55 by the Estate of the late Walter Scott Price. The petition for execution filed by the fiscal, however, was denied by the lower court. The Cour t 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. Issue: Whether a tax and a debt may be compensated. Held: The court having jurisdiction of the Estate had found that the claim of the Estate against the Government has been recognized and an amount of P262,200 has already been appropriated by a corresponding law (RA 2700 ). Under the circumstances, both the claim of the Government for inheritance tax es and the claim of the intestate for services rendered have already become over due and demandable as well as fully liquidated. Compensation, therefore, takes p lace by operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount. [9] Commissioner vs. Itogon-Suyoc Mines GR L-25299, 29 July 1969 En Banc, Fernando (J): 9 concur , 1 took no part Facts: Itogon-Suyoc Mines filed its income tax return for the f iscal year 1959 to 1960. Four months later, it filed an amended income tax retur n, reporting a loss. It thus sought a refund from the Commissioner. When it file d its income tax return on the next year, it deducted an amount representing all eged tax credit for overpayment for the preceding fiscal year. The Commissioner imposed an amount P1,512.83 as 1% monthly interest on the amount of P13,155.20 f rom January to December 1962. The basis for such assessment was allegedly the ab sence of a legal right to deduct said amount before the tax credit or refund is approved by the Commissioner. Issue: Whether the assessment on interest was just ified. Held: The Tax Code provides that interest upon the amount determined as a deficiency shall be assessed and shall be paid upon notice and demand from the Commissioner at the rate therein specified. It made clear, however, in an earlie r provision found in the same section that if in any preceding year, the taxpaye r was entitled to a refund of any amount due as tax, such amount, if not refunde d, may be deducted from the tax to Taxation Law I, 2004 ( 5 )

Digests (Berne Guerrero) be paid. Although the imposition of monthly interest does not constitute penalty but a just compensation to the State for the delay in paying the tax and for th e concomitant use by the taxpayer of funds that rightfully should be in governme nts hands; in light of the overpayment for 1959 and 1960, it cannot be said that the taxpayer was guilty of delay enabling it to utilize the money. The company i s entitled to refund. [10] Republic vs. Mambulao Lumber GR L-17725, 28 February 1962 En Banc, Barrera (J): 10 concur Facts: Mambulao Lumber Company paid the Gov ernment a total of P9,127.50 as reforestation charges. Having found liable for a n aggregate amount of P4,802.37 for forest charges, it contended that since the Republic (Government) has not made use of the reforestation charges for reforest ing the denuded area of the land covered by the companys license, the Republic sh ould refund said amount or, if it cannot be refunded, at least the company shoul d be compensated with what it owed the Republic for reforestation charges. Issue : Whether taxes may be subject of set-off or compensation. Held: Internal revenu e taxes, such as forest charges, cannot be the subject of set-off or compensatio n. A claim for taxes is not such a debt, demand, contract or judgment as is allo wed to be set-off under the statutes of setoff, which are construed uniformly, i n the light of public policy, to exclude the remedy in an action or any indebted ness of the State or municipality to one who is liable to the State or municipal ity for taxes. Neither are they subject of recoupment since they do not arise ou t of the contract or transaction sued on. Taxes are not in the nature of contrac ts between the parties but grow out of a duty to, and are the positive acts of t he government, to the making and enforcing of which, the personal consent of ind ividual taxpayers is not required. [11] Francia vs. Intermediate Appellate Court GR L-67649, 28 June 1988 Third Division, Gutierrez Jr. (J): 4 concur Facts: Eng racio Francia was the registered owner of a house and lot located in Pasay City. A portion of such property was expropriated by the Republic of the Philippines in 1977. It appeared that Francia did not pay his real estate taxes from 1963 to 1977. Thus, his property was sold in a public auction by the City Treasurer of Pasay City. Issue: Whether the expropriation payment may compensate for the real estate taxes due. Held: There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person canot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax annot await the results of a lawsuit agianst the government. Internal revenue taxes cannot be the subject of compensation. The Government and the taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim of taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. Taxation Law I, 2004 ( 6 )

Digests (Berne Guerrero) [ Note: See Republic vs. Mambulao, and Cordero vs. Gonda, as doctrine in said ca ses were merely reiterated. ] [12] Caltex Philippines vs. Commission on Audit (C OA) GR 92585, 8 May 1992 En Banc, Davide (J): 12 concur, 2 took no part Facts: I n 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund (OPSF), excluding that unremitted for 1986 and 188 of the additional tax on petroleum products authorized under Section 8 of PD 19 56; and that pending such remittance, all its claims for reimbursement from the OPSF shall be held in abeyance. Caltex requested COA, notwithstanding an early r elease of its reimbursement certificates from the OPSF, which COA denied. On 31 May 1989, Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the proposal but prohibited Caltex from further offseting remittances and reimbursements for the current and ensuing years. Caltex moved f or reconsideration. Issue: Whether the amounts due from Caltex to the OPSF may b e offsetted against Caltex outstanding claims from said funds. Held: Taxation is no longer envisioned as a measure merely to raise revenue to support the existen ce of government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affe cted with public interest as to be within the police power of the state. PD 1956 , as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer may not offset taxes due from the claims that he may have against th e government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim f or taxes is not such a debt, demand, contract or judgment as is allowed to be se t-off. [13] Cu Unjieng vs. Patstone GR 16254, 21 February 1922 First Division, O strand (J): 4 concur, 1 took no part Facts: G. A. Cu Unjieng desired to erect a warehouse in Azcarraga street was denied a building permit until he shall have m ade provision for the construction of an arcade over the sidewalk in front of th e building, and until he shall have further complied with Section 1 of Ordinance 301 of the City of Manila, i.e. payment of 1/2 of the assessed value of the cit y land. Cuunjieng filed a petition for a writ of mandamus to compel the city eng ineer to issue the permit. Issue: Whether the fee was validly imposed. Held: The allowable amount of license fee or tax depends so much on the special circumsta nces of each particular case. Adjudications, however, appear to recognize 3 clas ses of licenses (license forregulation of useful occupations or enterprises; lic enses for the regulation of non-useful occupations or enterprises; and licenses for revenue only), which should be taken into consideration in determining the r easonableness of the license fee. Herein, in imposing a fee equal to 1/2 of the assessed value of the portion of the sidewalk covered by the arcade, the municip al board exceeded its powers. The construction of buildings is a useful enterpri se and the amount of the license fee should therefore be limited to the cost of licensing, regulating, and surveillance. As it does not appear such cost would m aterially increase through the construction of the arcade, Taxation Law I, 2004 ( 7 )

Digests (Berne Guerrero) the excess fee is clearly imposed for the purpose of revenue. There is nothing i n the charter of the City indicating legislative intent to confer tot the munici pal board to impose a license tax for revenue on the construction of buildings. Although the city can require the construction of arcades in certain circumstanc es, the license fee prescribed by Ordinance 301 is illegal. [14] Villegas vs, Hi u Chiong Tsai Pao Ho GR L-29646, 10 November 1978 En Banc, Fernandez (J): 4 conc ur, 3 concur in result, 1 took no part Facts: The Municipal Board of Manila enac ted Ordinance 6537 requiring aliens (except those employed in the diplomatic and consular missions of foreign countries, in technical assistance programs of the government and another country, and members of religious orders or congregation s) to procure the requisite mayors permit so as to be employed or engage in trade in the City of Manila. The permit fee is P50, and the penalty for the violation of the ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or bo th. Issue: Whether the ordinance imposes a regulatory fee or a tax. Held: The or dinances purpose is clearly to raise money under the guise of regulation by exact ing P50 from aliens who have been cleared for employment. The amount is unreason able and excessive because it fails to consider difference in situation among al iens required to pay it, i.e. being casual, permanent, part-time, rankand-file o r executive. [ The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus deprived of their r ights to life, liberty and property and therefore violates the due process and e qual protection clauses of the Constitution. Further, the ordinance does not lay down any criterion or standard to guide the Mayor in the exercise of his discre tion, thus conferring upon the mayor arbitrary and unrestricted powers. ] [15] A postolic Prefect of Mountain Province vs. City Treasurer of Baguio City GR 47252 , 18 April 1941 En Banc, Imperial (J): 4 concur Facts: The Apostolic Prefect is a corporation sole, of religious character, organized under the Philippine laws, and with residence in Baguio, The City imposed a special assessment against pro perties within its territorial jurisdiction, including those of the Apostolic Pr efect, which benefits from its drainage and sewerage system. The Apostolic Prefe ct contends that its properties should be free of tax. Issue: Whether the Aposto lic Prefect, as a religious entity, is exempt from the payment of the special as sessment. Held: In its broad meaning, tax includes both general taxes and specia l assessment. Yet actually, there is a recognized distinction between them in th at assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with refere nce to special benefits to the property assessed. A special assessment is not, s trictly speaking, a tax; and neither the decree nor the Constitution exempt the Apostolic Prefect from payment of said special assessment. Furthermore, arguendo that exemption may encompass such assessmen, the Apostolic Prefect cannot claim exemption as it Taxation Law I, 2004 ( 8 )

Digests (Berne Guerrero) has not proven the property in question is used exclusively for religious purpos es; but that it appearsthat the same is being used to other non-religious purpos es. Thus, the Apostolic Prefect is required to pay the special assessment. [16] Philippine Airlines vs. Edu HR L-41383, 15 August 1988 En Banc, Gutierrez Jr. (J ): 13 concur Facts: The Philippine Airlines (PAL) is engaged in the air transpor tation business under a legislative franchise, Act 4271, wherein it is exempt fr om the payment of taxes. On the strength of an opinion of the Secretary of Justi ce (Opinion 307 of 1956), PAL was determined to have not been paying motor vehic le registration fees since 1956. The Land Transportation Commissioner required a ll tax exempt entities, including PAL, to pay motor vehicle registration fees. P AL protested. Issue: Whether registration fees as to motor vehicles are taxes to which Philippine Airlines is exempt. Held: Taxes are for revenue, whereas fees are exactions for purposes of regulation and inspection, and are for that reason limited in amount to what is necessary to cover the cost of the services render ed in that connection. It is the object of the charge, and not the name, that de termines whether a charge is a tax or a fee. The money collected under the Motor Vehicle Law is not intended for the expenditures of the Motor Vehicle Office bu t accrues to the funds for the construction and maintenance of public roads, str eets and bridges. As the fees are not collected for regulatory purposes as an in cident to the enforcement of regulations governing the operation of motor vehicl es on public highways, but to provide revenue with which the Government is to co nstruct and maintain public highways for everyones use, they are veritable taxes, not merely fees. PAL is, thus, exempt from paying such fees, except for the per iod between 27 June 1968 to 9 April 1979, where its tax exeption in the franchis e was repealed. [17] Progressive Development Corporation vs. Quezon City GR 3608 1, 24 April 1989 Third Division, Feliciano (J): 4 concur Facts: The City Council of Quezon City adopted Ordinance 7997 (1969) where privately owned and operated public markets to pay 10% of the gross receipts from stall rentals to the City, as supervision fee. Such ordinance was amended by Ordinance 9236 (1972), which imposed a 5% tax on gross receipts on rentals or lease of space in privately-own ed public markets in Quezon City. Progressive Development Corp., owned and opera tor of Farmers Market and Shopping Center, filed a petition for prohibition again st the city on the ground that the supervision fee or license tax imposed is in reality a tax on income the city cannot impose. Issue: Whether the supervision f ee / license tax is a tax on income. Held: The 5% tax imposed in Ordinance 9236 does not constitute a tax on income, nor a city income tax (distinguished from t he national income tax by the Tax Code) within the meaning of Section 2 (g) of t he Local Autonomy Act, but rather a license tax or fee for the regulation of bus iness in which the company is engaged. To be considered a license fee, the impos ition must relate to an occupation or activity that so engages the public intere st in health, morals, safety and development as to require regulations for the p rotection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable Taxation Law I, 2004 ( 9 )

Digests (Berne Guerrero) expenses of the regulation, taking into account not only the costs of direct reg ulation but also its incidental consequences as well. The gross receipts from st all rentals have been used only as a basis for computing the fees or taxes due t o the city to cover the latters administrative expenses. The use of the gross amo unt of stall rentals, as basis for the determination of the collectible amount o f license tax, does not by itself convert or render the license tax into a prohi bited city tax on income. For ordinarily, the higher the amount of stall rentals , the higher the aggregate volume of foodstuffs and related items sold in the pr ivately owned market; and the higher the volume of goods sold in such market, th e greater extent and frequency of inspection and supervision that may be reasona bly required in the interest of the buying public. [18] American Mail Line vs. B asilan GR L-12647, 31 May 1961 En Banc, Dizon (J): 9 concur, 1 took no part Fact s: The City Council of Basilan City enacted Ordinance 180 (1955) imposing upon a foreign vessel engaged in coastwise trade which may anchor within the territori al waters of Basilan City to pay an anchorage fee of half centavo per registered gross ton of the vessle for the first 24 hours, provided that the maximum charg e shall not exceed P75 per day. As the city treasurer assessed and attempted to collect from American Mail Line the anchorage fees, the company filed an action for declaratory relief to have the courts determine the validity of the ordinanc e. Issue: Whether the anchorage fees were for regulatory or revenue purposes. He ld: The fees required are intended for revenue purposes. The fees have no proper or reasonable relation to the cost of issuing the permits and the cost of inspe ction or surveillance; being based upon the tonnage of the vessels. The fees imp osed on the vessels exceed even the harbor fees imposed by the National Governme nt to raise revenues for the Port Works Fund. The City of Basilan was not grante d a blanket authority or power of taxation, but merely given the powers to levy and collect taxes for general and special purposes in accordance with or as prov ided by law. The power to regulate as an exercise of police power does not inclu de the power to impose fees for review purposes. The ordinance was invalid. [19] Saldana vs. Iloilo GR L-10470, 26 June 1958 En Banc, Montemayor (J): 8 concur F acts: In 1946, the City of Iloilo promulgated Ordinance 28, which strictly prohi bits the transport of food supply and labor animals outside Iloilo without first obtaining the necessary license permit from the mayor. Under the ordinance, Ser afin Saldana had been paying, under protest, so-called fees on fish bought in Il oilo and sent to Manila from 16 September to 6 December 1946. Issue: Whether the license fee was validly imposed. Held: A license fee represents the permission co nceded to do an act is in the main purpose of police power, and is not supposed to be imposed for revenue. A property tax, on the other hand, is a tax in the or dinary sense, assessing according to the value of property. Judging from the amo unt of fees fixed in the ordinance, the so-called fees were in reality taxes for city revenue. As such, they are unauthorized by the law or the City Taxation Law I, 2004 ( 10 )

Digests (Berne Guerrero) Charter, and are alson in contravention of Sections 2287 and 2629 of the Revised Administrative Code. The prohibition against taking animals and articles outsid e Iloilo without mayors permit is in restraint of trade and a curtailment of the rights of the owners of said animals and articles to freely sell and of prospect ive purchasers to buy and dispose of them without the city limits in the ordinar y course of commerce and trade. The ordinance is ultra vires and, thus, is null and void. [20] Compania General de Tobacos de Filipinas vs. Manila GR L-16619, 2 9 June 1963 En Banc, Dizon (J): 8 concur, 2 took no part Facts: Compania General de Tabacos de Filipinas (Tabacalera) paid the City of Manila the fixed license fees prescribed by Ordinance 3358 for the years 1954 to 1957. In 1954, City Ordi nance 3634 and 3816 were passed; where the term general merchandise found therein included all articles in Sections 123 to 148 of the Tax Code (thus, also liquor under Sedctions 133 to 135). The Tabacalera paid its wholesalers and retailers tax es. In 1954, the City Treasurer addressed a letter to an accounting firm, expres sing the view that liquor dealers paying the annual wholesale and retail fixed t ax under Ordinance 3358 are not subject to the wholesale aand retail deaklers tax es prescribed by City Ordinances 3634, 3301, and 3816. The Tabacalera, upon lear ning of said stopped including quarterly sworn declaratons required by the latte r ordinances, and in 1957, demanded refunde of the alleged overpayment. The clai m was disallowed. Issue: Whether there is a distinction between Ordinance 3358 a nd Ordinances 3634, 3301 and 3816, to prevent refund to the company. Held: Gener ally, the term tax applies to all kinds of exactions which become public funds. Le gally, however, a license fee is a legal concept quite distinct from tax: the fo rmer is imposed in the exercise of police power for purposes of regulation, whil e the latter is imposed under the taxing power for the purpose of raising revenu es. Ordinance 3358 prescribes municipal license fees for the privilege to engage in the business of selling liquor or alcohol beverages; considering that the sa le of intoxicating liquor is (potentially) harmful to public health and morals, and must be subject to supervision or regulation by the State and by cities and municipalities authorized to act in the premises. On the other hand, Ordinances 3634 , 3301 and 3816 imposed taxes on the sales of general merchandise, wholesal e or retail, and are revenue measures enacted by the Municipal Board of Manila. Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article, without it being in violation of the rule again st double taxation. The contrary view of the Treasurer in its letter is of no co nsequence as the government is not bound by the errors or mistakes committed by its officers, specially on matters of law. The company, thus, is not entitled to refund. [21] Philippine Acetylene Co. Inc. vs. Commissioner GR L-19707, 17 Augu st 1967 En Banc, Castro (J): 7 concur, 2 took no part Facts: Philippine Acetylen e Co. Inc. is engaged in the manufacture and sale of oxygen and acetylene gases. It sold its products to the National Power Corporation (Napocor), an agency of the Philippine Government, and the Voice of America (VOA), an agency of the Unit ed States Government. The Commissioner assessed Taxation Law I, 2004 ( 11 )

Digests (Berne Guerrero) deficiency sales tax and surcharges against the company. The company denied liab ility for the payment of tax on the ground that both Napocor and VOA are exempt from taxes. Issue: Whether Philippine Acetylene Co. is exempt from the tax. Held : Sales tax are paid by the manufacturer or producer who must make a true and co mplete return of the amount of his, her or its gross monthly sales, receipts or earnings or gross value of output actually removed from the factory or mill, war ehouse and to pay the tax due thereon. The tax imposed by Section 186 of the Tax Code is a tax on the manufacturer or producer and not a tax on the purchaser ex cept probably in a very remote and inconsequential sense. Accordingly, its levy on the sales made to tax-exempt entities like the Napocor is permissible. On the other hand, there is nothing in the language of the Military Bases Agreement to warrant the general exemption granted by General Circular V-41 (1947). Thus, th e expansive construction of the tax exemption is void; and the sales to the VOA are subject to the payment of percentage taxes under Section 186 of the Tax Code . Therefore, tax exemption is strictly construed and exemption will nbot be held to be conferred unless the terms under which it is granted clearly and distinct ly show that such was the intention. [22] Commissioner vs. American Rubber GR L19667, 29 November 1966 En Banc, Reyes JBL (J): 8 concur Facts: American Rubber Company sold its rubber products locally and as prescribed by the Commissioners r egulation, the company declared the same for tax purposes in which the Commissio ner accordingly assessed. The company paid under protest the corresponding sales taxes thereon, claiming exemption under Section 188 (b) of the Tax Code, and su bsequently claimed refund. With the Commissioner refusing to do so, the case was brought before the Court of Tax Appeals, which upheld the Commissioners stand th at the company is not entitled to recover the sales tax that had been separately billed to its customers, and paid by the latter. Issue: Whether the company can recover the sales tax paid. Held: The sales tax is by law imposed directly, not on the thing sold, but on the act (sale) of the manufacturer, producer, or impo rter, who is exclusively made liable for its timely payment. Where the tax money paid by the company came from is really no concern of the Government, but solel y a matter between the company and its customers. Once recovered, the company mu st hold the refunded taxes in trust for hte individual purchasers who advanced p ayment thereof, and whose names must appear in company records. Herein, the comp any sales between 24 August 1956 (approval of RA 1612) to 22 June 1957 (when RA 1856 restored the exemption of agricultural products whether in their original fo rm or not) were properly taxed. Such amount corresponding to the period are not r ecoverable. [23] Commissioner vs. Gotamco GR L-31092, 27 February 1987 First Div ision, Yap (J)L 6 concur Facts: The World Trade Organization (WHO) decided to co nstruct a building to house its offices, as well as the other United Nations Off ices in Manila. In inviting bids for the construction of the building, the WHO i nformed the bidders of its tax exemptions. The contract was awarded to John Gota mco and Sons. The Commissioner opined that a 3% contractors tax should be due fro m the contractor. The WHO issued a Taxation Law I, 2004 ( 12 )

Digests (Berne Guerrero) certification that Gotamco should be exempted, but the Commissioner insisted on the tax. Raised in the Court of Tax Appeals, the court ruled in favor of Gotamco . Issue: Whether Gotamco is likewise from the contractors tax in lieu of WHOs exem ption from indirect taxes. Held: Direct taxes are those that are demanded from t he very person who, it is intended or desired, should pay them; while indirect t axes are those that are demanded in the first instance from one person in the ex pectation and intention that he can shift the burden to someone else. Herein, th e contractors tax is payable by the contractor but it is the owner of the buildin g that shoulders the burden of the tax because the same is shifted by the contra ctor to the owner as a matter of self-preservation. Such tax is an indirect tax on the organization, as the payment thereof or its inclusion in the bid price woul d have meant an increase in the construction cost of the building. Hence, the Co ntractees (WHO) exemption from indirect taxes implies that contractor (Gotamco) is exempt from contractors tax. [24] Pascual vs. Secretary of Public Works and Commu nications GR L-10405, 29 December 1960 En Banc, Concepcion (J): 10 concur Facts: RA 920 (Act appropriating funds for public works) was enacted in 1953 containin g an item (Section 1 c[a]) for the construction, reconstruction, repair, extensi on and improvement of Pasig feeder road terminals (the projected and planned sub division roads, which were not yet constructed, within Antonio Subdivision owned by Senator Jose C. Zulueta). Zulueta donated said parcels of land to the Governme nt 5 months after the enactment of RA 920, on the condition that if the Governme nt violates such condition the lands would revert to Zulueta. The provincial gov ernor of Rizal, Wenceslao Pascual, questioned the validity of the donation and t he Constitutionality of the item in RA 920, it being not for a public purpose. I ssue: Whether the item in the appropriation is valid. Held: The right of the leg islature to appropriate funds is correlative with its right to tax, under consti tutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purp ose, no appropriation of state funds can be made for other than a public purpose . The validity of a statute depends upon the powers of Congress at the time of i ts passage or approval, not upon events occupying, or acts performed, subsequent ly thereto, unless the latter consist of an amendment of the organic law, removi ng, with retrospective operation, the constitutional limitation infringed by sai d statute. Herein, inasmuch as the land on which the projected feeder roads were to be constructed belonged to Senator Zulueta at the time RA 920 was passed by Congress, or approved by the President, and the disbursement of said sum became effective on 20 June 1953 pursuant to Section 13 of the Act, the result is that the appropriating sough a private purpose and hence, null and void. [25] Republi c vs. Bacolod-Murcia Milling Co. GR L-19824-26, 9 July 1999 En Banc, Regala (J): 7 concur, 1 took no part Facts: RA 632 created the Philippine Sugar Institute, a semi-public corporation. In 1951, the Institute Taxation Law I, 2004 ( 13 )

Digests (Berne Guerrero) acquired the Insular Sugar Refinery for P3.07 million payable in installments fr om the proceeds of the sugar tax to be collected under RA 632. The operation of the refinery for 1954 to 1957 was disastrous as the Institute suffered tremendou s losses. Contending that the purchase of the refinery with money from the Insti tutes fund was not authorized under RA 632, and that the continued operation of t he refinery is inimical to their interest, Bacolod-Murcia Milling Co., Ma-ao Sug ar Central, Talisay-Silay Milling Co. and the Central Azucarera del Danao refuse d to continue with their contribution to said fund. The trial court found them l iable under RA 632. Issue: Whether the taxpayers may refuse to pay the special a ssessment, allegedly distinct from an ordinary tax which no one can refuse to pa y. Held: The nature of a special assessment similar to the case has been discussed and explained in Lutz vs. Araneta. The special assessment or levy for the Phili ppine Sugar Institute (Philsugin) Fund is not so much an exercise of the power o f taxation, nor the imposition of a special assessment, but the exercise of poli ce power for the general welfare of the entire country. It is, therefore, an exe rcise of a sovereign power which no private citizen may lawfully resist. Section 2a of the Charter authorizing Philsugin to conduct research work for the sugar i ndustry in all its phases, either agricultural or industrial, for the purpose of introducing into the sugar industry such practices or processes that will reduc e the cost of production and achieve greater efficiency in the industry, justifi es the acquisition of the refinery in question. The financial loss resulting fro m the operation thereof is no means an index that the industry did not profit th erefrom, as other gains of a different nature (such as experience) may have been realized. [26] 31st Infantry Post Exchange vs. Posadas GR 33403, 4 September 19 30 En Banc, Malcolm (J): 5 concur Facts: The 31st Infantry Post Exchange is a po st exchange constituted in accordance with Army regulations and the laws of the United States. in the course of its duly authorized business transactions, the E xchange made many purchases of various and diverse commodities, goods, wares and merchandise from various merchants in the Philippines. The Commissioner collect ed a sales tax of 1 1/2 % ofthe gross value of the commodities, etc. from the me rchants who sold said commodities to the Exchange. A formal protest was lodged b y the Exchange. Issue: Whether the Exchange is exempt from the sales tax imposed against its suppliers. Held: Taxes have been collected from merchants who made sales to Army Post Exchanges since 1904 (Act 1189, Section 139). Similar taxes a re paid by those who sell merchandise to the Philippine Government, and by those who do business with the US Army and Navy in the Philippines. Herein, the merch ants who effected the sales to the Post Exchange are the ones who paid the tax; and it is the officers, soldiers, and civilian employees and their familites who are benefited by the post exchange to whom the tax is ultimately shifted. The t ax laid upon the merchants who sell to the Army Post Exchanges does not interfer e with the supremacy of the US Government, nor with the operations of its instru mentalities, such as the US Army, to such extent or in such a manner as to rende r the tax illegal. The tax does not deprive the Army of the power to serve the G overnment as it was intended to serve it, or hinder the efficient exercise of it s power. An Army Post Exchange, although an agency within the US Army, cannot se cure exemption from taxation for merchants who make sales to the Post Exchange. [27] Taxation Law I, 2004 ( 14 )

Digests (Berne Guerrero) Wells Fargo vs. Collector of Internal Revenue GR 46720, 28 June 1940 First Divis ion, Moran (J): 4 concur, 1 concur in result Facts: Birdie Lillian Eye died on 1 6 September 1932, at Los Angeles, California, the place of her alleged last resi dence and domicile. Among the properties she left was her 1/2 conjugal shares of stock in the Benguet Consolidated Mining Co., an anonymous partnership (socieda d anonima), organized under the laws of the Philippines. She left a will duly ad mitted to probate in California where her estate was administered and settled. W ells Fargo bank and Union Trust Co. was duly appointed trustee of the trust by t he said will. The Federal and California States inheritance taxes due thereon hav e been duly paid. The Collector of Internal Revenue in the Philippines, however, sought to subject the shares of stock to inheritance tax, to which Wells Fargo objected. Issue: Whether the shares of stock are subject to Philippine inheritan ce tax considering that the decedent was domiciled in California. Held: Original ly, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax, and such situs is in the domicile of the de cedent at the time of his or her death. But the rule has been relaxed. The maxim mobila sequuntur personam, upon which the rule rests, has been decried as a mere f iction of law having its origin in considerations of general convenience and pub lic policy, and cannot be applied to limit or control teh right of the State to tax property within its jurisdiction and must yield to established fact of legal o wnership, actual presence and control elsewhere, and cannot be applied if to do so whould result in inescapable and patent injustice. The relaxation of the origi nal rule rests on either of two fundamental considerations: (1) upon the recogni tion of the inherent power of each government to tax persons, properties, and ri ghts within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that as to intangibles, a single location in space is ha rdly possible, considering the multiple, distinct relationships which may be ent ered into with respect thereto. Herein, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. The certificates of stock remained in the Philippines up to the time when the deceased died in C alifornia, and they were in possession of one Syrena McKee, secretary of the cor poration, to whom they have been delivered and indorsed in blank. McKee had the legal title to the certificates of stock held in trust for the true owner thereo f. The owner residing in California has extended here her activities with respec t to her intangibles so as to avail hereself of the protection and benefit of Ph ilippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld. [28] Philippine Match Co. Ltd. vs. Cebu City GR L-30745, 18 Jan uary 1978 Second Division, Aquino (J): 3 concur, 1 on leave Facts: Cebu City imp osed a quarterly tax (sales tax of 1%) on gross sales or receipts of merchants, dealers, importers and manufacturers or any commodity doing business in Cebu Cit y, through Ordinance 279. Section 9 of the Ordinance provided that, for the purp ose of the tax, all deliveries of goods or commodities stored in Cebu City, or if not stored are solld in that city sahll be considered as sales in the city and shall be taxable. Philippine Match Co. Ltd., with principal office in Manila, que stioned the legality of the tax collected by the City of Cebu on sales of matche s stored by the company in Cebu City but delivered to customers outside the city . Taxation Law I, 2004 ( 15 )

Digests (Berne Guerrero) Issue: Whether the City of Cebu can tax sales of matches which were perfected an d paid for in Cebu City but where the matches were delivered to customers outsid e the city. Held: The city can validly tax the sales of matches to customers out side of the city as long as the orders were booked and paid for in the companys b ranch office in the city. Those matches can be regarded as sold in the city, as contemplated in the ordinance, because the matches were delvered to the carrier in Cebu City. Generally, delivery to the carrier is delivery to the buyer (Artic le 1523, Civil Code). A different interpretation would defeat the tax ordinance in question or encourage tax evasion through the simple expedient of arranging f or the delivery of the matches at the outskirts of the city though the purchases were effected and paid for in the companys branch office in the city. The munici pal board of the city is empowered to provide for the levy and collection of tax es for general and special purposes in accordance with law. [29] Commissioner vs . British Overseas Airways Corp. GR L-65773-74, 30 April 1987 En Banc, MelencioHerrera (J): 7 concur, 1 took no part Facts: British Overseas Airways Corp. (BOA C) is a 100% Britis Government-owned corporation engaged in international airlin e business and is a member of the Interline Air Transport Association, and thus, it operates air transportation service and sells transportation tickets over th e routes of the other airline members. From 1959 to 1972, BOAC had no landing ri ghts for traffic purposes in the Philippines and thus did not carry passengers a nd/or cargo to or from the Philippines but maintained a general sales agent in t he Philippines -Warner Barnes & Co. Ltd., and later, Qantas Airwayus -- which wa s responsible for selling BOAC tickets covering passengers and cargoes. The Comm issioner of Internal Revenue assessed deficiency income taxes against BOAC. Issu e: Whether the revenue derived by BOAC from ticket sales in the Philippines for air transportation, while having no landing rights in the Philippines, constitut e income of BOAC from Philippine sources, and accordingly, taxable. Held: The so urce of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. Her ein, the sale of tickets in the Philippines is the activity that produced the in come. The tickets exchanged hands here and payments for fares were also made her e in Philippine currency. The situs of the source of payments is the Philippines . The flow of wealth proceeded from, and occured within, Philippine territory, e njoying the protection accorded by the Philippine Government. In consideration o f such protection, the flow of wealth should share the burden of supporting the government. PD 68, in relation to PD 1355, ensures that international airlines a re taxed on their income from Philippine sources. The 2 1/2 %tax on gross billin gs is an income tax. If it had been intended as an excise or percentage tax, it would have been placed under Title V of the Tax Code covering taxes on business. [30] Commissioner vs. Air India GR L-72443, 29 January 1988 First Division, Gan cayco (J): 4 concur Facts: Air India is a foreign corporation and an off-line in ternational carrier not engaged in the business of air transporation in the Phil ippines. Air India sells airplane tickets in the Philippines trhough its general sales agent, Philippine Airlines. Said tickets are serviced by Air India outsid e the Philippines. The Commissioner of Taxation Law I, 2004 ( 16 )

Digests (Berne Guerrero) Internal Revenue assessed against Air India the amount of P142,471.68 representi ng 2.55 income tax on its gross Philippine billngs pursuant to Section 24 (b) (2 ) of the Tax Code, as amended, inclusive of th e50% surcharge and interest for w illful neglect to file a return as provided under Section 72 of the same Code. A ir India appealed to the Court of Tax Appeals. Issue: Whether the revenue derive d by an international air carrier from sles of tickets in the Philippines for ai r transportation, while having no landing rights in the country, constitutes inc ome of said carrier from Philippine sources, and thus taxable under Section 24 ( b) (2) of the Tax Code. Held: Based on the doctrine enunciated in British Overse as Airways Corp., the revenue derived by Air India from the sales of airplane ti ckets, through its agent in the Philippines, must be considered taxable income. As correctly assessed by the Commissioner, such income is subject to a 2.5% tax pursuant to PD 1355, amending section 24 (b) (2) of the Tax Code. [31] Allied Th read vs. City of Manila GR L-40296, 21 November 1984 En Banc, Abad Santos (J): 1 0 concur, 2 took no part Facts: Allied Thread Co. Inc. is engaged in the busines s of manufacturing sewing thread and yarn. It operates its factory and maintains an office in Pasig, Rizal. In order to sell its products in Manila and in other parts of the Philippines, it engaged the services of a sales broker, Ker & Co. Ltd., the latter deriving commissions from every sale made for its principal. Th e City of Manila enacted Ordinance 7516 imposing business taxes based on gross s ales on a graduated basis on manufacturers, importers or producers doing busines s in Manila. Allied Thread and Ker & Co. alleged that said ordinance is invalid for being contrary to Section 54 of PD 426. Issue: Whether Alleid Thread is prop erly taxed in Manila. Held: Ordinance 7516, as amended, imposes a business tax o n manufacturers, importers or producers doing business in Manila. The tax imposi tion is upon the performance of an act, enjoyment of a privilege, or the engagin g in an occupation, and hence is in the nature of an excise tax. The power to le vy an excise upon the perforance of an act or the engaging in an occupation does not depend upon the domicile of the person subject tot he excise, nor upon the physical location of the property and in connection with the act or occupation t axed, but depends upon the place in which the act is performed or occupation eng aged in. Thus, since Allied Thread sells its products in the City of Manila thro ugh its broker, Ker & Co., it cannot escapte the tax liability imposed by Ordina nce 7516, as amended. [32] Abra vs. Hernando GR L-49336, 31 August 1981 Second D ivision, Fernando (J): 3 concur, 1 concur in result, 1 on leave Facts: The provi ncial assessor made a tax assessment on the properties of the Roman Catholic Bis hop of Bangued. The bishop claims tax exemption from real estate tax, through an action for declaratory relief. A summary judgment was made granting the exempti on without hearing the side of the Province of Abra. Issue: Whether the properti es of the Bishop of Bangued are tax-exempt. Taxation Law I, 2004 ( 17 )

Digests (Berne Guerrero) Held: The 1935 and the 1973 Constitutions differ in language as to the exemption of religious property from taxes as tehy should not only be exclusively but also a ctually and directly used for religious purposes. Herein, the judge accepted at its face the allegation of the Bishop instead of demonstrating that there is compli ance with the constitutional provision that allows an exemption. There was an al legation of lack of jurisdiction and of lack of cause of action, which should ha ve compelled the judge to accord a hearing to the province rather than deciding the case immediately in favor of the Bishop. Exemption from taxation is not favo red and is never presumed, so that if granted, it must be strictly construed aga inst the taxpayer. There must be proof of the actual and direct use of the lands , buildings, and improvements for religious (or charitable) purposes to be exemp ted from taxation. The case was remanded to the lower court for a trial on merit s. [33] Association of Custom Brokers vs. Manila GR L-4376, 22 May 1953 En Banc, Bautista-Angelo (J): 3 concur, 4 concur in result Facts: The Association of Cus toms Brokers, which is composed of all brokers and public service operators of m otor vehicles in the City of Manila, challenges the validity of Ordinance 3379 o n the grounds (1) that while it levies a so-called property tax, it is in realit y a license tax which is beyond the power of the Manila Municipal Board; (2) tha t said ordinance offends against the rule on uniformity of taxes; and (3) that i t constitutes double taxation. Issue: Whether the ordinance infringes on the rul e on uniformity of taxes as ordained by the Constitution. Held: While the tax in the Ordinance refers to property tax and it is fixed ad valorem, it is merely l evied on all motor vehicles operating within Manila with the main purpose of rai sing funds to be expended exclusively for the repair, maintenance and improvemen t of the streets and bridges in said city. The ordinance imposes a license fee a lthough under the cloak of an ad valorem tax to circumvent the prohibition in th e Motor Vehicle Law. Further, it does not distinguish between a motor vehicle fo r hire and one which is purely for private use. Neither does it distinguish betw een a motor vehicle registered in Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. The dist inction is necessary if he ordinance intends to burden with tax only those regis tered in Manila as may be inferred from the word operating used therein. There is an inequality in the ordinance which renders it offensive to the Constitution. [ 34] Kapatiran ng mga Naglilingkod sa Pamahalaan vs. Tan GR L-81311, 30 June 1988 En Banc, Padilla (J): 12 concur, 2 on leave Facts: EO 273 was issued by the Pre sident of the Philippines which amended the Revenue Code, adopting the value-add ed tax (VAT) effective 1 January 1988. Four petitions assailed the validity of t he VAT Law fro being beyond the President to enact; for being oppressive, discri minatory, regressive, and violative of the due process and equal protection clau ses, among others, of the Constitution. The Integrated Customs Brokers Associati on particularly contend that it unduly discriminate against customs brokers (Sec tion 103 [r]) as the amended provision of the Tax Code provides that service perf ormed in the exercise of profession or calling (except custom brokers) subject t o occupational tax under the Local Tax Code, and professional services Taxation Law I, 2004 ( 18 )

Digests (Berne Guerrero) performed by registered general professional partnerships are exempt from VAT. I ssue: Whether the E-VAT law discriminates against customs brokers. Held: The phr ase except custom brokers is not meant to discriminate against custom brokers but to avert a potential conflict between Sections 102 and 103 of the Tax Code, as a mended. The distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material di fferences, in that the activities of customs brokers partake more of a business, rather than a profession and were thus subjected to the percentage tax under Se ction 174 of the Tax Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the Association did not protest the classification of customs brokers then, there is no reason why it should pr otest now. [35] Sison vs. Ancheta GR L-59431, 25 July 1984 En Banc, Fernando (J) : 9 concur, 2 concur in result, 1 concur in separate opinion, 1 took no part Fac ts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provisi on (Section 1) unduly discriminated against him by the imposition of higher rate s upon his income as a professional, that it amounts to class legislation, and t hat it transgresses against the equal protection and due process clauses of the Constitution as well as the rule requiring uniformity in taxation. Issue: Whethe r BP 135 violates the due process and equal protection clauses, and the rule on uniformity in taxation. Held: There is a need for proof of such persuasive chara cter as would lead to a conclusion that there was a violation of the due process and equal protection clauses. Absent such showing, the presumption of validity must prevail. Equality and uniformity in taxation means that all taxable article s or kinds of property of the same class shall be taxed at the same rate. The ta xing power has the authority to make reasonable and natural classifications for purposes of taxation. Where the differentitation conforms to the practical dicta tes of justice and equity, similar to the standards of equal protection, it is n ot discriminatory within the meaning of the clause and is therefore uniform. Tax payers may be classified into different categories, such as recipients of compen sation income as against professionals. Recipients of compensation income are no t entitled to make deductions for income tax purposes as there is no practically no overhead expense, while professionals and businessmen have no uniform costs or expenses necessaryh to produce their income. There is ample justification to adopt the gross system of income taxation to compensation income, while continui ng the system of net income taxation as regards professional and business income . [36] Juan Luna Subdivision vs. Sarmiento GR L-3538, 28 May 1952 En Banc, Tuaso n (J): 7 concur Facts: Juan Luna Subdivision is a local corporation which issued a check to the City Treasurer of Manila for amount to be applied to its land ta x for the second semester of 1941. The records of the City Treasurer do not show what was done with the check (It appears that it was deposited with the Philipp ine National Bank [PNB]). After liberation (WWII), the City Treasurer refused to refund the corporations deposit or apply it to such future taxes as might be fou nd due, while the Philippine Trust Co (to which the check was presented) was unw illing to reverse its debit entry against Juan Luna Subd. Said amount is also su bject of another Taxation Law I, 2004 ( 19 )

Digests (Berne Guerrero) disagreement between the corporation and the City Treasure, with the corporation claiming that the wholeamount of the check for the taxes for the last semester of 1941 have been remitted by Commonwealth Act 703 (1945). Issue: Whether the pr ovision allowing the remission covers taxes paid before the enactment of Commonw ealth Act 703, or taxes which were still unpaid. Held: The law is clear that it applies to taxes and penalties due and payable, i.e. taxes owed or owing. The remi ssion of taxes due and payable to the exclusion og taxes already collected does not constitute unfair discrimination. Each set of taxes is a class by itself, an d the law would be open to attack as class legislation only if all taxpayers bel onging to one class were not treated alike. Herein, they are not. The taxpayers who paid their taxes before liberation and those who had not were not on the sam e footing on the need of material relief. Taxpayers who had been in arrears in t heir obligation whould have to satisfy their liability with genuine currency, wh ile the taxes paid during the occupation had been satisfied in Japanese War Note s, many of them at a time when those notes were well-nigh worthless. To refund t hose taxes with restored currency would be unduly enrich many of the payers at a greater expense to the people at large. [37] Shell Co. vs. Vano GR L-6093, 24 F ebruary 1954 En Banc, Padilla (J): 10 concur Facts: The municipal council of Cor dova, Cebu adopted Ordinance 10 (1946) imposing an annual tax of P150 on occupat ion or the exercise of the privilege of installation manager; Ordinance 9 (1947) imposing an annual tax of P40 for local deposits in drums of combustible and in flammable materials and an annual tax of P200 for tin can factories; and Ordinan ce 11 (1948) imposing an annual tax of P150 on tin can factories having a maximu m annual output capacity of 30,000 tin cans. Shell Co., a foreign corporation, f iled suit for the refund of the taxes paid by it, on the ground that the ordinan ces imposing such taxes are ultra vires. Issue: Whether Ordinance 10 is discrimi natory and hostile because there is no other person in the locality who exercise such designation or occupation. Held: The fact that there is no other person in the locality who exercises such a designation or calling does not make the ordina nce discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation named or designated as in stallation manager. [38] Victorias Milling Co. vs. Municipality of Victorias GR L -21183, 27 September 1968 En Banc, Sanchez (J): 9 concur Facts: Ordinance 1 (195 6) was approved by the municipal council of Victorias by way of an amendment to 2 municipal ordinances separately imposing license taxes on operators of sugar c entrals and sugar refineries. The changes were: (1) with respect to sugar centra ls, by increasing the rates of license taxes; and (2) as to sugar refineries, by increasing the rates of license taxes as well as teh range of graduated schedul e of annual output capacity. Victorias Milling questioned the validity of Ordina nce 1 as it, among others, allegedly singled out Victorias Milling Co. since it is the only operator of a sugar central and a sugar refinery within the jurisdic tion of the municipality. Taxation Law I, 2004 ( 20 )

Digests (Berne Guerrero) Issue: Whether Ordinance 1 is discriminatory. Held: The ordinance does not singl e out Victorias as the only object of the ordinance but is made to apply to any sugar central or sugar refinery which may happen to operate in the municipality. The fact that Victorias Milling is actually the sole operator of a sugar centra l and a sugar refinery does not make the ordinance discriminatory. The ordinance is unlike that in Ormoc Sugar Company vs. Municipal Board of Ormoc City, which specifically spelled out Ormoc Sugar as the subject of the taxation, the name of the company herein was never mentioned in the ordinance. [39] Punsalan vs. Mani la GR L-4817, 26 May 1954 En Banc, Reyes (J): 7 concur Facts: Ordinance 3398 was enacted pursuant to paragraph 1 of Section 18 ofthe Revised Charter of the City of Manila, imposing a municipal occupation tax on persons exercising various pr ofessions in the city. Various professionals filed suit to annul the ordinance a nd the provision of law authorizing the enactment of the ordinance, and to call for the refund collected taxes under the ordinance. Issue: Whether the Ordinance violates the equal protection clause. Held: The legislature may, in its discret ion, select what occupation shall be taxed, and in the exercise of that discreti on it may tax all, or it may select for taxation certain classes and leave the o ther untaxed. Manila, as the seat of the National Government and with a populati on and volume of trade many times that of any other Philippine city or municipal ity, offers a more lucrative field for the practice of the professions, so that it is but fair that the professionals in Manila be made to pay a higher occupati on tax than their brethen in the provinces. The ordinance imposes the tax upon e very person exercising or pursuing any of the occupation named in the ordinance, and does not make any distinction between professional having offices in Manila and outsiders who practice their profession therein. What constitutes exercise or p ursuit of a profession in the city is a matter of judicial determination. The Or dinance does not violate the equal protection clause. [40] Ormoc Sugar vs. Treas urer of Ormoc City GR L-23794, 17 February 1968 En Banc, Bangzon JP (J): 9 concu r Facts: In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on any and all productions of centrifuga sugar milled at the Ormoc Sugar Co. In c. in Ormoc City a municpal tax equivalent to 1% per export sale to the United S tates and other foreign countries. The company paid the said tax under protest. It subsequently filed a case seeking to invalidate the ordinance for being uncon stitutional. Issue: Whether the ordinance violates the equal protection clause. Held: The Ordinance taxes only centrifugal sugar produced and exported by the Or moc Sugar Co. Inc. and none other. At the time of the taxing ordinances enacted, the company was the only sugar central in Ormoc City. The classification, to be reasonable, should be in terms applicable to future conditions as well. The taxi ng ordinance should not be singular and exclusive as to exclude any subsequently established sugar Taxation Law I, 2004 ( 21 )

Digests (Berne Guerrero) central, of the same class as the present company, from the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject t o the tax because the ordinance expressly points only to the company as the enti ty to be levied upon. [41] Pepsi-Cola Bottling Co. vs. City of Butuan GR L-22814 , 28 August 1968 En Banc, Concepcion (J): 5 concur Facts: Ordinance 110 was enac ted by the City of Butuan imposing a tax of P0.10 per case of 24 bottles of soft drinks or carbonated drinks. The tax was imposed upon dealers engeged in selling softdrinks or carbonated drinks. When Ordinance 110, the tax was imposed upon a n agent or consignee of any person, association, partnership, company or corpora tion engaged in selling softdrinks or carbonated drinks, with agent or consignee b eing particularly defined on the inserted provision Section 3-A. In effect, merc hants engaged in the sale of softdrinks, etc. are not subject to the tax unless they are agents or consignees of another dealer who must be one engaged in busin ess outside the City. Pepsi-Cola Bottling Co. filed suit to recover sums paid by it to the city pursuant to the Ordinance, which it claims to be null and void. Issue: Whether the Ordinance is discriminatory. Held: The Ordinance, as amended, is discriminatory since only sales by agents or consignees of outside dealers wou ld be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales , and even if the same exceeded those made by said agents or consignees of producers or merchants esta blished outside the city, would be exempt from the tax. The classification made in the exercise of the authority to tax, to be valid must be reasonable, which w ould be satisfied if the classification is based upon substantial distinctions w hich makes real differences; these are germane to the purpose of legislation or ordinance; the classification applies not only to present conditions but also to future conditions substantially identical to those of the present; and the clas sification applies equally to all those who belong to the same class. These cond itions are not fully met by the ordinance in question. [42] Vera vs. Cuevas GR L -33693-94, 31 May 1979 First Division, De Castro (J): 4 concur, 1 took no part F acts: Consolidated Philippines Inc., General Milk Co. (Phil.) Inc., and Milk Ind ustries Inc. are engaged in the manufacture, sale and distribution of filled mil k products throughout the Philippines. The Institute of Evaporated Fulled Milk M anufacturers of the Philippines is a corporation organized to uphold and maintai n the highest standards of local filled milk industries, of which the companies are members. The Commissioner required the companies to withdraw from the market all of their filled milk products which do not bear the inscription required by Section 169 (Inscription to be placed on skimmed milk) of the Tax Code within 1 5 days from receipt of order with explicit warning of prosection for non-complia nce. The companies filed an action for prohibition and injunction. Issue: Whethe r Section 169 of theTax Code can be enforced against the companies. Held: With S ection 141 (specific tax imposed on skimmed milk) and Section 177 (penalty on sa le of skimmed milk without payment of specific tax and legend required in Sectio n 169) repealed by RA 344 and RA 463, respectively; Section 169 has lost its tax purpose, and thus the Commissioner necessary lost his Taxation Law I, 2004 ( 22 )

Digests (Berne Guerrero) authority to enforce the same. Further, Section 169 applies to skimmed milk, whi ch is different to filled milk. Furthermore, Section 169 is only being enforced against the respondent companies nad not against manufacturers, distributors or sellers of condensed skimmed milk such as SIMILAC, SMA, BREMIL, ENFAMIL, and OLA C. Such kind of enforcement amounts to an unconstitutional denial of the equal p rotection of the laws, for the law, if not equally enforced to persons similarly situated, would offend against the Constitution. [43] American Bible Society vs . Manila GR L-9637, 30 April 1957 Second Division, Felix (J): 7 concur, 1 concur in result Facts: In the course of its ministry, the Philippine agency of the Am erican Bible Society has been distributing and selling bibles and/or gospel port ions thereof throughout the Philippines and translating the same into several Ph ilippine dialets. The acting City Treasurer of Manila required the society to se cure the corresponding Mayors permit and municipal license fees, together with co mpromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and filed suit questioning the legali ty of the ordinances under which the fees are being collected. Issue: Whether th e municipal ordinances violate the freedom of religious profession and worship. Held: A tax on the income of one who engages in religious activities is differen t from a tax on property used or employed in connection with those activities. I t is one thing to impose a tax on the income or property of a preacher, and anot her to exact a tax for him for the privilege of delivering a sermon. The power t o tax the exercise of a privilege is the power to control or suppress its enjoym ent. Even if religious groups and the press are not altogether free from the bur dens of the government, the act of distributing and selling bibles is purely rel igious and does not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price of bibles, etc. are a little higher than actual cost of the same does not necessarily mean it is already engaged in business for profit. Ordinan ce 2529 and 3000 are not applicable to the Society. [44] Cagayan Electric Power & Light Co. vs. Commissioner GR L-60126, 25 September 1985 Second Division, Aqui no (J): 5 concur Facts: Cagayan Electric is a holder of a legislative franchise under Republic Act 3247 where payment of 3% tax on gross earnings is in lieu of all taxes and assessments upon privileges, etc. In 1968, RA 5431 amended the fra nchise by making all corporate taxpayers liable for income tax except those indi cated in paragraph (c) (1) of Section 24 of the Tax Code. In 1969, through RA 60 20, its franchise was extended to two other towns and the tax exemption was reen acted. In 1973, the Commissioner required the company to pay deficiency income t axes for 1968 to 1971. Issue: Whether the withdrawal of the franchises tax exempt ion violates the non-impairment clause of the Constitution. Held: Congress could impair the companys legislative franchise by making it liable for income tax. Th e Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires. RA 3247 itself prov ides that the franchise is subject to amendment, etc. by Congress. The enactment of RA 5431 had the effect of withdrawing the companys exemption from income Taxation Law I, 2004 ( 23 )

Digests (Berne Guerrero) tax. The exemption was restored by the enactment of RA 6020. The company is liab le only for the income tax fpr the period of 1 January to 3 August 1969. [45] Ca sanovas vs. Hord GR L-3473, 22 March 1907 First Division, Willard (J): 4 concur, 1 dissents Facts: In 1897, the Spanish Government, in accordance with the provi sions of the royal decree of 14 may 1867, granted J. Casanovas certain mines in the province of Ambos Camarines, of which mines the latter is now the owner. Tha t these were validly perfected mining concessions granted to prior to 11 April 1 899 is conceded. They were so considered by the Collector of Internal Revenue an d were by him said to fall within the provisions of Section 134 of Act 1189 (Int ernal Revenue Act). The Commissioner, JNO S. Hord, imposed upon these properties the tax mentioned in Section 134, which Casanovas paid under protest. Issue: Wh ether Section 134 of Act 1189 is valid. Held: The deed constituted a contract be tween the Spanish Government and Casanovas. The obligation in the contract was i mpaired by the enactment of Section 134 ofthe Internal Revenue La, thereby infri nging the provisions of Section 5 of the Act of Congress of 1 July 1902. Further more, the section conflicts with Section 60 of the Act of Congress of 1 July 190 2, which indicate that concessions can be cancelled only by reason of illegality in the procedure by which they wer obtained, or for failure to comply with the conditions prescribed as requisites for their retention in the laws under which they wer granted. The grounds were not shown or claimed in the case. As to the a llegation that the section violates uniformity of taxation, the Court found it u nnecessary to consider the claim in view of the result at which the Court has ar rived. [46] Churchill vs. Concepcion GR 11572, 22 September 1916 Second Division , Trent (J): 4 concur Facts: Section 100 of Act 2339 (promulgated 1914) imposed an annual tax of P4 per square meter upon electric signs, billboards, and spaces used for posting or displaying temporary signs, and all signs displayed on prem ises not occupied by buildings. The section was amended by Act 2432, reducing th e tax to P2 per square meter. The taxes imposed by Act 2432 were ratified by the US Congress on 4 March 1915. Francis A. Churchill and Stewart Tait, co-partners in Mercantile Advertising Agency, owed a billboard to which they were taxed at P104. The tax was paid under protest. Churchill and Tait instituted the action t o recover the amount. Issue: Whether the statute or tax is void for lack of unif ormity. Held: Uniformity in taxation means that all taxable articles or kinds of property, of the same class, shall be taxed at the same rate. It does not mean that lands, chattels, securities, incomes, occupations, franchises, privileges, necessities, and luxuries shall all be assessed at the same rate. Different arti cles may be taxed at different amounts provided the rate is uniform on the same class everywhere, with all people, at all times. Herein, the Act imposes a tax o f P2 per square meter or a fraction thereof upon every electric sign, billboard, etc., wherever found in the Philippine Islands. The rule of taxation upon such signs is uniform throughout the islands. The rule does not require taxes to be g raded according to the value of the subject(s) upon which they are imposed, espe cially those levied as privilege or occupation taxes. Taxation Law I, 2004 ( 24 )

Digests (Berne Guerrero) [47] Villanueva vs. Iloilo City GR L-26521, 28 December 1968 En Banc, Castro (J) : 8 concur Facts: On 30 September 1946, the Municipal Board of Iloilo City enact ed Ordinance 86 imposing license tax fees upon tenement house (P25); tenemen hou se partly engaged or wholly engaged in and dedicated to business in Baza, Iznart , and Aldeguer Streets (P24 per apartment); and tenement house, padtly or wholly engaged in business in other streets (P12 per apartment). The validity of such ordinance was challenged by Eusebio and Remedios Villanueva, owners of four tene ment houses containing 34 apartments. The Supreme Court held the ordinance to be ultra vires. On 15 January 1960, however, the municipal board, believing that i t acquired authority to enact an ordinance of the same nature pursuant to the Lo cal Autonomy Act, enacted Ordinance 11 (series of 1960), Eusebio and Remedios Vi llaniueva assailed the ordinance anew. Issue: Whether Ordinance 11 violate the r ule of uniformity of taxation. Held: The Court has ruled that tenement houses co nstitute a distinct class of property; and that taxes are uniform and equal when imposed upon all property of the same class or character within the taxing auth ority. The fact that the owners of the other classes of buildings in Iloilo are not imposed upon by the ordinance, or that tenement taxes are imposed in other c ities do not violate the rule of equality and uniformity. The rule does not requ ire that taxes for the same purpose should be imposed in different territorial s ubdivisions at the same time. So long as the burden of tax falls equally and imp artially on all owners or operators of tenement houses similarly classified or s ituated, equality and uniformity is accomplished. The presumption that tax statu tes are intended to operate uniformly and equally was not overthrown herein. [48 ] Eastern Theatrical Co. vs. Alfonso GR L-1104, 31 May 1944 Second Division, Per fecto (J): 5 concur Facts: The municipal board of Manila enacted Ordinance 2958 (series of 1946) imposing a fee on the price of every admission ticket sold by c inematograph theaters, vaudeville companies, theatrical shows and boxing exhibit ions, in addition to fees imposed under Sections 633 and 778 of Ordinance 1600. Eastern Theatrical Co., among others, question the validity of ordinance, on the ground that it is unconstitutional for being contrary to the provisions on unif ormity and equality of taxation and the equal protection of the laws inasmuch as the ordinance does not tax other kinds of amusement, such as race tracks, cockp its, cabarets, concert halls, circuses, and other places of amusement. Issue: Wh ether the ordinance violates the rule on uniformity and equality of taxation. He ld: Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes o f taxation; and the theater companies cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance. The fact that somew places of amusement are not taxed while others, like the ones herein, are taxed is no arg ument at all against the equality and uniformity of the tax imposition. [49] Taxation Law I, 2004 ( 25 )

Digests (Berne Guerrero) Reyes vs. Almanzor GR 49839-46, 26 April 1991 En Banc, Paras (J): 15 concur Fact s: JBL, Edmundo and Milagros Reyes are owners of parcels of land in Manila which are leased and occupied as dwelling sites by tenants. In 1971, RA 6359 was pass ed prohibiting an increase of monthly rentals of dwelling units or of land on wh ich another dwelling is located for one year after effectivity for rentals not e xceeding P300 but allowing an increase of rent thereafter by not more than 10%. The Act also suspended the operation of Article 1673 of the Civil Code (ejectmen t of lessess). PD 20 amended RA 6359 by absolutely prohibiting the increase and indefinitely suspending Article 1673. The Reyeses, thus, were precluded from rai sing the rentals and from ejecting the tenants. In 1973, the City Assessor of Ma nila reclassified and reassessed the value of the properties based on the schedu le of market values duly reviewed by the Secretary of Finance. As it entailed an increase of the corresponding tax rates, the Reyeses filed a memorandum of disa greement with the Board of Tax Assessment Appeals and averring therein that the reassessments were excessive, unwarranted, unequitable, confiscatory and unconst itutional inasmuch as the taxes imposed exceeded the annual income derived from their properties; and that the income approach should have been used in determin ing land values instead of the comparative sales approach which the assessor ado pted. Issue: Whether the reassessment is unequitable. Held: Taxation is equitabl e when its burden falls on those better able to pay. Taxation is progressive whe n its rate goes up depenfing on the resources of the person affected. Taxes are uniform when all taxable articles or kinds of property of the same class are tax ed at the same rate. The taxing power has the authority to make reasonable and n atural classification for purposes of taxation. Laws should operate equally and uniformly, however, on all persons under similar circumstances or that all perso ns mus t be treated in the same manner, the conditiions not being different both in the privileges conferred and liabilities imposed. Finally, under the Real Pr operty Tax Code (PD 464), property must be appraised at its cuurent and fair mar ket value. The market value of the properties covered by PD 20, thus cannot be e quated with the market value of properties not so covered. Shcu property covered by PD 20 has naturally a much lesser market value in view of the rental restric tions. Although taxes are the lifeblood of the government and should be collecte d without unnecessary hindrance, such collection should be made in accordance wi th law as any arbitrariness will negate the very reason for government itself. A s teh Reyeses are burdened by the Rent Freeze Laws (RA 6359 and PD 20), they sho uld not be penalized by the same government by the imposition of excessive taxes they cancan ill afford and would eventually result in the forfeiture of their p roperties, under the principle of social justice. [50] Abra Valley College vs. A quino GR L-39086, 15 June 1988 Second Division, Paras (J): 4 concur Facts: Abra Valley College rents out the ground floor of its college building to Northern Ma rketing Corporation while the second floor thereof is used by the Director of th e College for residential purposes. The municipal and provincial treasurers serv ed upon the College a notice of seizure and later a notice of sale due to the allege d failure of the College to pay real estate taxes and penalties thereon. The sch ool filed suit to annul said notices, claiming that it is tax-exempt. Issue: Whe ther the College is exempt from taxes. Taxation Law I, 2004 ( 26 )

Digests (Berne Guerrero) Held: While the Court allows a more liberal and non-restrictive interpretation o f the phrase exclusively ised for educational purposes, reasonable emphasis has al ways been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. While the seco nd floors use, as residence of the director, is incidental to education; the leas e of the first floor cannot by any stretch of imagination be considered incident al to the purposes of education. The test of exemption from taxation is the use of the property for purposes mentioned in the Constititution. [51] Herrera vs. Q uezon City Board of Assessment Appeals GR L-15270, 30 September 1961 First Divis ion, Concepcion (J): 6 concur Facts: In 1952, the Director of the Bureau of Hosp itals authorized Jose V. Herrera and Ester Ochangco Herrera to establish and ope rate the St. Catherines Hospital. In 1953, the Herreras sent a letter to the Quez on City Assessor requesting exemption from payment of real estate tax on the hos pital, stating that the same was established for charitable and humanitarian pur poses and not for commercial gain. The exemption was granted effective years 195 3 to 1955. In 1955, however, the Assessor reclassified the properties from exempt to taxable effective 1956, as it was ascertained that out 32 beds in the hospital, 12 of which are for pay-patients. A school of midwifery is also operated within the premises of the hospital. Issue: Whether St. Catherines Hospital is exempt f rom reallty tax. Held: The admission of pay-patients does not detract from the c haritable character of a hospital, if all its funds are devoted exclusively to t he maintenance of the institution as a public charity. The exemption in favor of property used exclusively for charitable or educational purpose is not limited to property actually indispensable therefore, but extends to facilities which ar e incidental to and reasonably necessary for the accomplishment of said purpose, such as in the case of hospitals -- a school for training nurses; a nurses home; property used to provide housing facilities for interns, resident doctors, supe rintendents and otehr members of the hospital staff; and recreational facilities for student nurses, interns and residents. Within the purview of the Constituti on, St. Catherines Hospital is a charitable institution exempt from taxation. [52 ] Lladoc vs. Commissioner GR L-19201, 16 June 1965 En Banc, Paredes (J): 9 concu r, 1 took no part Facts: In 1957, the MB Estate Inc. of Bacolod City donated P10 ,000 in cash to the parish priest of Victorias, Negros Occidental; the amount sp ent for the construction of a new Catholic Church in the locality,m as intended. In1958, MB Estate filed the donors gift tax return. In 1960, the Commissioner is sued an assessment for donees gift tax against the parish. The priest lodged a pr otest to the assessment and requested the withdrawal thereof. Issue: Whether the Catholic Parish is tax exempt. Held: The phrase exempt from taxation should not b e interpreted to mean exemption from all kinds of taxes. The exemption is only f rom the payment of taxes assessed on such properties as property taxes as contra distinguished from excise taxes. A donees gift tax is not a property tax but an e xcise tax imposed on the transfer of property by way of gift inter vivos. It doe s not rest upon general ownership, but an excise upon the use made of the proper ties, upon the exercise of the privilege of receiving the properties. The imposi tion of Taxation Law I, 2004 ( 27 )

Digests (Berne Guerrero) such excise tax on property used for religious purpose do not constitute an impa irment of the Constitution. The tax exemption of the parish, thus, does not exte nd to excise taxes. [53] Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte GR 27588, 31 December 1927 En Banc, Avancena (J): 5 concur Facts: The Roma n Catholic Apostolic Church is the owner of a parcel of land in San Nicolas, Ilo cos Norte. On the south side is a part of the Church yard, the convent and an ad jacent lost used for a vegetable garden in which there is a stable and a well fo r the use of the convent. In the center is the remainder of the churchyard and t he Church. On the north side is an old cemetery with its two walls still standin g, and a portion where formerly stood a tower. The provincial board assessed lan d tax on lots comprising the north and south side, which the church paid under p rotest. It filed suit to recover the amount. Issue: Whether the lots are covered by the Churchs tax exemption. Held: The exemption in favor of the convent in the payment of land tax refers to the home of the priest who presides over the chur ch and who has to take care of himself in order to discharge his duties. The exe mption includes not only the land actually occupied by the Church but also the a djacent ground destined to the ordinary incidental uses of man. A vegetable gard en, thus, which belongs to a convent, where its use is limited to the necessity of the priest, comes under the exemption. Further, land used as a lodging house by the people who participate in religious festivities, which constitutes an inc idental use in religious functions, likewise comes within the exemption. It cann ot be taxed according to its former use, i.e. a cemetery. [54] Commisioner vs. B ishop of Missionery District of the Philippine Islands GR L-19445, 31 August 196 5 En Banc, Regala (J): 7 concur, 1 took no part Facts: The Missioner y District of the Philippine Islands, of the Protestant Episcopal Church in the United Stat es, owns and operates the St. Lukes Hospital in Quezon City, the Brent Hospital i n Zamboanga City, and the St. Stephens High School in Manila. In 1957 to 1959, th e Missionary District received various shipments of materials, supplies, equipme nt and other articles intended for use in the construction and operation of the new St. Lukes Hospital. On these shipments, the Commissioner collected compensati on tax. The Missionary District filed claims for refund, but which was denied by the Commissioner on the ground that St. Lukes Hospital was not a charitable inst itution and therefore was not exempt from taxes. Issue: Whether the shipments fo r St. Lukes Hospital are tax-exempt. Held: Under RA 1916, which covers taxes on d onations in any form and all articles imported into the Philippines, requires th at the imported articles ush have been donated, the donee must be a duly incorpo rated or established international civic organization, religious or charitable s ociety or institution for civic, religious or charitable purposes; and the artic les must have been donated for the use of the organization, society or instituti on; or for free distribution and not for sale, barter or hire. As the law does n ot distinguish or qualify the enjoyment or the exemption (as the Secretary of Fi nance did in Departent Order 18, series of 1958), the admission of pay patients does not detract from the charitable character of a hospital, if its funds are d evoted exclusively to the maintenance of the institution. Thus, the shipments ar e tax exempt. Taxation Law I, 2004 ( 28 )

Digests (Berne Guerrero) [55] Hodges vs. Iloilo City GR L-18129, 31 January 1963 En Banc, Bautista Angelo (J): 7 concur, 2 affirm, 1 took no part Facts: In 1960, the Municipal Board of Iloilo enacted Ordinance 33 requiring the payment of a sales tax of 1/2 of 1% of the selling price of any motor vehicle and prohibiting the registration of the sale involving said vehicle in the Motors Vehicle Office of Iloilo unless the ta s has been paid. It also expressly required that the payment of the municipal ta x shall be a requirement for registration and transfer of ownership. CN Hodges, engaged in buying-and-selling of second hand motor vehicles in the city, assaile d the ordinance as invalid for being passed in excessof the authority conferred by law upon the municipal board. Issue: Whether the City of Iloilo is empowered to impose the tax. Held: The City of Iloilo is empowered to impose municipal lic enses, taxes or fees upon any person engaged in any occupation or business, or e xercising any privilege in the City; to regulate and impose reasonable fees for services rendered conducted within the city, and to levy for public purposes jus t and uniform taxes, licenses, or fees. The tax in question is in the form of pe rcentage tax on the proceeds of the sale of a motor vehicle. The prohibition aga inst such tax refer only to municipalities and municipal districts and does not comprehend chartered cities as the City of Iloilo. [56] Procter and Gamble vs. J agna GR L-24265, 28 December 1979 First Division, Melencio Herrera (J): 8 concur Facts: Procter and Gamble Philippines Manufacturing Corp. is a consolidated cor poration of Procter and Gamble Trading Company. It is engaged in the manufacture of soap, edible oil, margarine and otehr similar products; and maintains a bodeg a in the municipality of Jagna, where it stores copra purchased in the municipali ty and therefrom ships the same for its manufacturing and other operations. In 1 954, the Municipal Council enacted Ordinance 4, imposing storage fees of all exp ortable copra deposite in the bodega within the jurisdiction of the municipality of Jagna, Bohol. From 1958 to 1963, the company paid the municipality, allegedl y under protest, storage fees. In 1964, it filed suit, wherein it prayed that th e Ordinance be declared inapplicable to it, and if not, that it be declared ultr a vires and void. Issue: Whether the Ordinance i s void, as it amounts to double taxation. Held: The validity of the Ordinance must be upheld pursuant to the br oad authority conferred upon municipalites by Commonwealth Act 472 (promulgated 1939), which was the prevailing law when the Ordinance is actually a municipal l icense tax or fee on persons, firms and corporations exercising the privilege of storing copra within the municipalitys territorial jurisdiction. Such fees impos ed do not amount to double taxation. For double taxation to exist, the same prop erty must be taxed twice, when it should be taxed but once. A tax on the companys producs is different from the tax on the privilege of storing copra in a bodega situated within the territorial boundary of the municipality. [57] Commissioner vs. Lednicky Taxation Law I, 2004 ( 29 )

Digests (Berne Guerrero) GR L-18169, L-18286, L-21434; 31 July 1964 En Banc, Reyes JBL (J): 8 concur Fact s: Spouses VE and Maria Valero Lednicky are American citizens residing in the Ph ilippines, and have derived all their income from Philippine sources since 1947. In 1955, the spouses filed with the US Internal Revenue agent in Manila their F ederal income tax return for 1947, 1951 to 1954 on income from Philippine source s. From 1956 to 1958, they filed their domesic income tax returns in compliance with local laws. They amended their tax returns in 1959 to include their taxes p aid to the US Federal Government, interests, and exchange and bank charges. They filed their claims for refund. Issue: Whether income tax paid to foreign govern ments can be deducted from the gross income or as a tax credit. Held: The laws in tent is that the right to deduct income taxes paid to foreign government from th e taxpayers gross income is given only as an alternative or substitute to his rig ht to claim a tax credit for sich foreign income taxes; so that unless the alien resident has a right to claim such tax credit if he so chooses, he is precluded from deducting the foreign income taxes from his gross income. The prupose of t he law is to prevent the taxpayer from claiming twice the benefits of his paymen t of foreign taxes, by deduction from gross income and by tax credit. To allow a n alien resident to deduct from his gross income whatever taxes he pays to his o wn government amounts to confer on the latter power to reduce the tax income of the Philippine Government. Such result is incompatible with the status of the Ph ilippines as an independent and sovereign state. Any relief from the alleged dou ble taxation should come from the United States, since its right to burden the t axpayer is solely predicated on the taxpayers citizenship, without contributing t o the production of the wealth that is being taxed. [58] Commissioner vs. Javier GR 78953, 31 July 1991 Second Division, Sarmiento (J): 3 concur, 1took no part Facts: In 1977, Victoria Javier (wife of Melchor), received from the Prudential Bank and Trust Co. US$999,973.70 remitted by her sister, Dolores Ventosa, throug h some banks in the United States, among them Mellon Bank NA. Mellon Bank filed suit to recover the excess amount of US$9999,000 as the remittance of US$ 1 mill ion was a clerical error and should have been US $1,000 only (Compare facts in M ellon Bank vs. Magsino, GR 71479, 18 October 1990). In 1978, Melchor Javier file d his income tax return for 1977showing a gross income of P53,053.38 and a net i ncome of P48,053.38 and stating in the footnote of the return that taxpayer was r ecepient of some money received from abroad which he presumed to be a gift but t urned out to be an error and is now subject of litigation. In 1980, the Commissi oner assessed and demanded from Javier deficiency assessment of P9,287,297.51 fo r 1977. Javier protested such assessment, where the Commissioner in turn imposed a 50% fraud penalty against Javier. Issue: Whether Javier is liable for the 50% fraud penalty. Held: Under the then Section 72 of the Tax Code, a taxpayer who files a false return is liable to pay the fraud penalty of 50% of the tax due fr om him or of the deficiency tax in case payment has been made on the basis of th e return filed before the discovery of the falsity or fraud. The fraud contempla ted by law is actual and not constructive. It must be intentional fraud, consist ing of deception willfully and deliberately done or resorted to in order to indu ce another to give up some legal right. Fraud is never imputed and the courts ne ver sustain findings of fraud upon circumstances which, at most created only sus picion. A fraudulent return is always an attempt to evade a tax, but a merely fa lse return may not be. Herein, there was no actual and intentional fraud Taxation Law I, 2004 ( 30 )

Digests (Berne Guerrero) through willful and deliberate misleading of the government agency concerned (BI R) committed by Javire. Javier did not conceal anything to induce the government to give some legal right and place itself at a disadvantage. Error or mistake o f law is not fraud. As ruled by the Court of Tax Appeals, the 50% surcharge impo sed as fraud penalty in the deficiency assessment should be deleted. [59] Meralc o vs. Vera GR L-29987, 22 October 1975 First Division, Munoz Palma (J): 4 concur , 1 took no part Facts: Meralco is the holder of a franchise to construct, maint ain, and operate an electric light, heat , and power system in the City of Manil a and its suburbs. In 1962 and 1963, Meralco imported and received from abroad c opper wires, transformers, and insulators for use in the operation of its busine ss. The Collector of Customs, as deputy of the Commissioner of Internal Revenue, levied and collected a compensating tax. Meralco claimed for refund for the sai d yeares, but such claims were either not acted upon or denied by the Commission er. Issue: Whether Meralco is exempt from payment of a compensating tax on poles , wires, transformers and insulators imported by it for use in the operation of its electric light, heat, and power system. Held: Meralco is not exempt from pay ing the compensationg tax provided for in Section 190 of the Tax Code, the prupo se of which is to place casual importers, who are not merchants on equal forring with established merchants who pay sales tax on articles imported by them. Meralc os claim for exemption from payment of the compensating tax is not clear or expre ssed, contrary to the rule that exemptions from taxation are highly disfavored in law, and he who claims exemption must be able to justify his claim by the clear est grant of organic or statute law. Tax exemptiion are strictly construed agains t the taxpayer, they being highly disfavored and may almost be said to be odious to the law. When exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim . [60] Commissioner vs. Manila Jockey Club GR L-8755, 23 March 1956 First Divisi on, Bautista Angelo (J): 9 concur Facts: The Manila Jockey Club is the owner of the San Lazaro Hippodrome, which is used for holding horse races either by the c lub itself or by the Philippine Charity Sweepstakes Office (PCSO) or other chari table institutions authorized by law to hold horse races. On 1951 and 1952, the PCSO held benefit races for charitable, relief and civic purposes in which the C lub was paid in the form of rentals, which was included in its declared income t axes in its return for said years. The Club claimed for refund of the sum collec ted by the Commissioner as to the rentals, contending that it is exempt under Se ction 3 of RA 79. Issue: Whether the Club is exempt from income derived from the PCSO races. Held: The exemption does not refer to any income tax that may be im posed on the rentals that may be paid for the use of racing tracks and other par aphernalia. The income earned by the Club herein did not come from the horse rac es held by said club but it came to it as rentals paid for the use of its proper ty. The tax paid for such income cannot be considered as one connected with thos e races within the purview of the exemption clause in RA 79. By its very nature, the law that exempts one from tax must be clearly expressed because the exempti on must be able to justify his claim by the clearest grant of organic or statute law. Taxation Law I, 2004 ( 31 )

Digests (Berne Guerrero) [61] SSS vs. Bacolod City GR L-35726, 21 July 1982 Second Division, Escolin (J): 5 concur Facts: The Social Security System (SSS) is a government agency created under RA 1161. In pursuance of its operations, SSS maintains a number of region al offices, one of which is a 5-storey building occupying 4 parcels of land in B acolod City. Said building and lands were assessed for taxation. For failure to pay the realty taxes thereon, the city levid upon said properties. SSS sought re consideration on the ground that SSS is a government-owned and -controlled corpo ration and is exempt from payment of real estate taxes. Issue: Whether SSS prope rty in Bacolod City is tax-exempt. Held: The distinction whether the governmentowned or controlled corporation exercises ministrant or proprietory function is of no relevance as the exemption does not relate to legal fees but on realty tax es. The Charter of Bacolod City does not contain any qualification whatsoever in providing fro the exemption from real estate taxes of lands and building owned by the Government/ It is axiomatic that when public property is involved, exempt ion is the rule and taxation is the exception. PD 24, amending the Social Securi ty Act of 1954, has already removed all doubts as to the exemption of the SS fro m taxation (Section 16). [62] Nitafan vs. Commissioner GR L-78780, 23 July 1987 Resolution En Banc, Melencio-Herrera (J): 12 concur, 1 on leave Facts: The Chief Justice has previously issued a directive to the Fiscal Management and Budget O ffice to continue to deduct withholding taxes from the salaries of the Justices of the Supreme Court and other members of the judiciary. This was affirmed by th e Supreme Court En Banc on 4 December 1987. RTC judges seek to prohibit or enjoi n the Commissioner of the Internal Revenue and the Financial Officer of the Supr eme Court from making any deduction of withholding taxes from their salaries. Is sue: Whether the salaries of judges are subject to tax. Held: The salaries of me mbers of the Judiciary are subject to the general income tax applied to all taxp ayers. Although such intent was somehoe and inadvertently not clearly set forth in the final text of the 1987 Constitution, the deliberations of the 1986 Consti tutional Commission negate the contention that the intent of the framers is to r evert to the original concept of non-diminution of salaries of judicial officers. Hence, the doctrine in Perfecto v. Meere and Endencia vs. David do not apply any more. Justices and judges are not only the citizens whose income have been reduc ed in accepting service in government and yet subjecte to income tax. Such is tr ue also of Cabinet members and all other employees. [63] Commissioner vs. Robert son GR L-70116-19, 12 August 1986 Second Division, Paras (J): 4 concur Taxation Law I, 2004 ( 32 )

Digests (Berne Guerrero) Facts: Frank and James Robertson, Robert Cathey, and John Garrison are citizens of the United States, holders of American passports, and admitted as Special Ter mporary Visitors under Section 9 (a) visa of the Philippine Immigration Act of 1 940, and are civilian employees in a US Military Base in the Philippines in conn ection with its construction, maintenance, operation and defense (The Roberstons and Garrison were born in the Philippines). Their incomes are solely derived fr om salaries from the US Government by reason of their employment in the US Bases in the Philippines. The Commissioner of Internal Revenue assessed deficiency in come tax against them from taxable years 1969 to 1972. Issue: Whether Robertson, et. al., are exempted from tax. Held: In order to avail oneself of the tax exem ption under the RP-US Military Bases Agreement (Article XIII, Paragraph a), one must be a national of the United States employed in connection with the construc tion, maintenance, operation or defense, of the bases, residing in the Philippin es by reason of such employment, and the income derived is from the US Governmen t. Said circumstances are all present in the present case. The basic intendment is to exempt all US citizens working in the military bases from the burden of pa ying Philippine Income Tax without distinction as to those born locally or born in their country of origin. Where the law does not distinguish, one must not dis tinguish. Ubi lex non ditinguit nec nos tinguere debemos. [64] Reagan vs. Commis sioner GR L-26379, 27 December 1969 En Banc, Fernando (J): 7 concur, 1 concur in result, 1 took no part Facts: William Reagan imported a tax-free 1960 Cadillac car with accessories valued at US $ 6,443.83, including freight, insurance and o ther charges. After acquiring a permit to sell the car from the base commander o f Clark Air Base, Reagan sold the car to a certain Willie Johnson Jr. of the US Marine Corps stationed in Sangley Point, Cavite for US$ 6,600. Johnson sold the same, on the same day to Fred Meneses, a Filipino. As a result of the transactio n, the Commissioner rendered Reagan liable for income tax in the sum of P2,970. Reagan claimed that he was exempt as the transaction occurred in Clark Air Base, a base outside the Philippines. Issue: Whether Reagan was tax-exempt. Held: The P hilippines, as an independent and sovereign country, exercises its authority ove r its entire domain. Any state may, however, by its consent, express or implied, submit to a restriction of its sovereign rights. It may allow another power to participate in the exercise of jurisdictional right over certain portions of its territory. By doing so, it by no means follows that such areas become impressed with an alien character. The areas retain their status as native soil. Clark Ai r Base is within Philippine territorial jurisdiction to tax, and thus, Reagan wa s liable for the income tax arising from the sale of his automobile in Clark. Th e law does not look with favor on tax exemptions and that he who would seek to b e thus privileged must justify it by words too plain to be mistaken and too cate gorical to be misinterpreted. Reagan has not done so, and cannot do so. [65] Dav ao Light and Power vs. Commissioner of Customs GR L-28739 and L-28902 First Divi sion, Reyes JBL (J): 9 concur Taxation Law I, 2004 ( 33 )

Digests (Berne Guerrero) Facts: Davao Light is a grantee of a legislative franchise to install, operate a nd maintain an electric light, heat and power plant in the city of Davao, for 50 years. On two occasions, it imported electrical supplies, materials and equipme nt for installation in its power plant. The importations arrived in the port of Cebu City, where the Collector imposed custom duties and taxes amounting to P9,9 28. Davao Light paid under protest, claiming it is similarly tax-exempted as the National Power Corporation, which is allegedly posing as competition to Davao L ight in its business. Issue: Whether Davao Light is similarly tax-exempt as Napo cor. Held: Davao Lights purpose in securing a franchise to establish and operate an electric plant and power stations was to engage in a business or profit-makin g venture, while Napocor was specifically created to undertake the development o f hydraulic power nationwide and the production of power from other sources, for use of the government and the general public. In isolated sale of electric powe r to one government-owned plant (National Development Co., in Davao) would not b e enough to classify the Napocor as a competing concern to Davao Lights enterprise. Napocors tax exemption (RA 358) was granted in order to facilitate the liquidati on by said corporation of its liabilities, and the consequential release by the government itself fro its obligation in the transactions entered into by the Pre sident on behalf of Napocor. Davao Light is not entitled to the same exemption p rivileges enjoyed by another operator without an express provision of the law to that effect. Exemption from taxation is never presumed. For tax exemption to be recognized, the grant must be clear and express. It cannot be made to rest on v ague implications. [66] Surigao Consolidated Mining vs. Collector GR L-14878, 26 December 1963 En Banc, Ragala (J): 10 concur Facts: Before the outbreak of the War, the Surigao Consolidated Mining Co. was operating its mining concessions in Mainit, Surigao. Due to the interruption of communications at the outbreak of t he war, the th company lost contact with its mines and never received the produc tion reports for the 4 quarter of 1941. To avoid incurring any tax liability or penalty, it deposited of check payable to and indorsed in favor of the City Trea surer, in payment of ad valorem taxes for the said period. After the war, the co mpany filed its ad valorem tax for the said period pursuant to Commonwealth Act 772. Its return was revised, until eventually the company claimed a refund of P1 7,158.01. The collector of Internal Revenue denied the request for refund. Issue : Whether Surigao Consolidated may recover its tax payment in light of the condo nation made under a subsequent law, RA 81. Held: RA 81, Section 1(d) provided th at all unpaid royalties, ad valorem or specific taxes on all minerals mined from mining claims or concessions existing an din force on 1 January 1942, and which minerals were lost by reason of war, of circumstance arising therefrom are condo ned The provision refers to the condonation of unpaid taxes only. The condonation of a tax liability is equivalent and is in the nature of tax exemption. Being so , it should be sustained only when expressed in explicit terms, and it cannot be extended beyond the plain meaning of those terms. He who claims an exemption fr om his share of the common burden of taxation must justify his claim by showing t hat the Legislature intended to exempt him. The company failed to show any por tion of the law that explicitly provided for a refund of those taxpayers who had paid their taxes on the items. [67] Taxation Law I, 2004 ( 34 )

Digests (Berne Guerrero) Wonder Mechanical Engineering vs. Court of Tax Appeals GR L-22805 and L-27858, 3 0 June 1975 First Division, Esguerra (J): 4 concur Facts: Wonder Mechanical Engi neering Corp. was granted tax exemption privilege under RA 35 in respect to the m anufacture of machines for making cigarette papers, pails, washers, rivets, nail s, candies, chairs, etc. The tax exemption expired on 30 May 1951. In 1953, the c ompany applied with the secretary of Finance for the reinstatement of the exempt ion privilege under the provisions of RA 901, the reinstatement to commence on t he date RA 901 took effect. The company was given a Certificate of Tax Exemption on 7 July 1954, exemption it similarly as in RA 35 until 31 December 1958, with diminishing exemption until 20 June 1955. The Commissioner assessed sales tax o n gross sales of articles manufactured by it, including steel chairs. The compan y appealed to the Court of Tax Appeals. Issue: Whether the company is exempted f rom the tax imposed on the manufacture and sale of articles, such as steel chair s. Held: The company was granted tax exemption in the manufacture and sale of mac hines for making cigarette paper, pails, etc. but not for the manufacture and sal e of articles produced by those machines. The manufacture of steel chairs, jeep parts, and other articles not constituting machines for making certain products would not fall under the classification of new and necessary industries envisioned in RA 35 and 901 as to entitle the company to tax exemption. Exemptions are hig hly disfavored in law and he who claims tax exemption must be able to justify hi s claim or right thereto by the clearest grant of organic or statute law. Tax ex emption must be clearly expressed and cannot be established by implication. [68] Visayas Cebu Terminal vs. Commissioner GR L-19530 and L-19444, 27 February 1965 En Banc, Paredes (J): 8 concur, 2 took no part Facts: Visayan CebuTerminal Co. was appointed the sole manager of the Irrastre Service at the Port of Cebu, afte r a public bidding in 1957, covering import cargoes, including transit import ca rgoes. In 1958, the Bureau of Internal Revenue (Manila) demanded the payment of percentage taxes and penalties due to the Government. Subsequently, however, BIR examiners stated that the company was not subjected of the 3% percentage tax, i t has been paying 28% of the gross receipts to the Bureau of Customs. Issue: Whe ther Visayas Cebu Terminal Co. In c. is exempted from the percentage tax. Held: The company is an arrastre contractor and is covered by Section 191 of the Tax C ode. Section 191 of the Tax Code does not establish any distinction between an a rrastre operator who handles only imported cargo in its arrastre operations , pu rsuant to RA 140, and those handling interisland cargo, so as to exempt the comp any from the percentage tax. It is a well settled rule that he who claim s exemp tion should prove by convincing proofs that he is exempted. The company failed t o present such proofs. Further, the recommendation of the examiners are subject to the review of their superiors, who may countermand or affirm them. The govern ment is never estopped to collect legitimate taxes because of the error committe d by its agents. However, as the company pays 28% of the total monthly gross rec eipts derived from the arrastre service to the Bureau of Customs, to hold the co mpany liable for the payment of percentage tax is unjust and not contemplated by Section 191 of the Tax Code. Taxation Law I, 2004 ( 35 )

Digests (Berne Guerrero) [69] Lealda Electric vs. Commissioner GR L-16428, 30 April 1963 En Banc, Dizon ( J): 8 concur, 1 took no part Facts: In 1915, Julian Locsin Anson was granted a f ranchise to operate an electric light and power plant in Legaspi and Daraga, in Albay province. He sold the franchise, the certificate of public convenience, an d electric plant to Saturnino Benito; who in turn sold the same to Lealda Electr ic (a partnership formed by the Benitos and other parties in 1951). Since 1915, the original grantee and its successors-in-interest paid a franchise tax of 2% o n the gross earnings or receipts from the business under the franchise, until 19 46 when RA 39 amended Section 259 of the Tax Code, increasingly the franchise ta x to 5%. Lealda Electric maintains it is only liable to 2% franchise tax, and no t 5%. Issue: Whether Lealda Electric is exempted from the tax increase in light of its franchise. Held: Lealda Electrics franchise does not specifically state th at the rate of the franchise tax to be paid shall be 2% of its gross earnings or receipts. The intent of the legislature was to impose upon the grantee (and its successors), the obligation to pay the same franchise tax imposed upon other gr antee or franchise holders at the time its franchise (Act2475) was enacted. Leal das charter contains an express provision to the effect that the same may be alte red or repealed by Congress, and does not contain any provision providing that t he franchise tax were required to pay was to be in lieu of all taxes of any kind levied, established, or collected by any authority whatsoever, now or in the fut ure or in lieu of all taxes of every name and nature municipal, provincial or cent ral,,, Tax exemptions are not to be presumed. [70] Misamis Oriental vs. Cagayan E lectric GR 45355, 12 January 1990 First Division, Grino Aquino (J): 4 concur Fac ts: Cagayan Electric Power and light Co, Inc. (CEPALCO) was granted a franchise in 1961 under RA 3247 to install, operate and maintain an electric light, heat a nd power system in Cagayan de Oro and its suburbs. In 1973, the Local Tax Code ( PD 231) was promulgated, where Section 9 thereof providing for a franchise tax. Pursuant thereto, the province of Misamis Oriental enacted Provincial Revenue Or dinance 19, whose Section 12 also provides for a franchise tax. The Provincial T reasurer demanded payment of the provincial franchise tax from CEPALCO. CEPALCO paid under protest. Issue: Whether CEPALCO is exempt from the provincial franchi se tax. Held: Local Tax Regulation 3-75 issued by the Secretary of Finance in 19 76 made it clear that the franchise tax provided in the Local Tax Code may only be imposed on companies with franchise that do not contain the exempting clause, i.e. in-lieu-of-all-taxes-proviso. CEPALCOs franchise i.e. RA 3247, 3571 and 6020 (Section 3 thereof), uniformly provides that in consideration of the franchise an d rights hereby granted, the grantee shall pay a franchise tax equal to 3% of th e gross earnings for electric current sold under the franchise, of which 2% goes to the national Treasury and 1% goes into the treasury of the municipalities of Tagoloan, Opol, Villanueva, Jasaan, and Cagayan de Oro, as the case may be: Pro vided, that the said franchise tax of 3% of the gross earnings shall be in lieu of all taxes and assessments of whatever authority upon privileges, earnings, in come, franchise and poles, wires, transformers, and insulators of the grantee fr om which taxes and assessments the grantee is hereby expressly exempted. Taxation Law I, 2004 ( 36 )

Digests (Berne Guerrero) [71] Hilado vs. Collector GR L-9408, 31 October 1956 En Banc, Bautista Angelo (J ): 8 concur Facts: Facts: Emilio Hilado filed his income tax return for 1951 wit h the treasurer of Bacolod City, claiming a deductible item of P12,837.65 from h is gross income pursuant to General Circular V-123 issued by the Collector of In ternal Revenue. The Secretary of Finance, through the Collector, issued General Circular V139 which revoked and declared void Circular V-123; and laid down the rule[s] that losses of property which occurred in World War II from fires, storm s, shipwreck or other casualty, or from robbery, theft, or embezzlement are dedu ctible in the year of actual loss or destruction of said property. The deduction s were disallowed. Issue: Whether Internal Revenue Laws were enforced during the war and whether Hilado can claim compensation for destruction of his property d uring the war. Held: Philippines Internal Revenue Laws are not political in natu re and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. Such tax laws ar e deemed to be laws of the occupied territory and not of the occupying enemy. As of the end of 1945, there was no law which Hilado could claim for the destructi on of his properties during the battle for the liberation of the Philippines. Un der the Philippine Rehabilitation Act of 1948, the payment of claims by the War Damage Commission depended upon its discretions non-payment of which does not gi ve rise to any enforceable right. Assuming that the loss (deductible item) repre sents a portion of the 75% of his war damage claim, the amount would be at most a proper deduction of his 1950 gross income (not on his 1951 gross income) as th e last installment and notice of discontinuation of payment by the War Damage Co mmission was made in 1950. [72] Commissioner vs. Court of Tax Appeals GR 44007, 20 March 1991 First Division, Medialdea (J): 3 concur, 1 on leave Facts: Facts: Eastern Extension Australasia and China Telegraph Co. ( a foreign corporation) w as given a concession for the construction, operation and maintenance of submari ne telegraph cable from Hong Kong to Manila on 30 March 1898 by a Royal Decree o f the Spanish Government. When the concession expired in 1952, RA 808 was approv ed, giving the company a legislative franchise to land, construct, maintain and o perate a submarine telegraph cable connecting Manila to Hong Kong, and a tax exce ption from the payment of all taxes except a franchise tax of 5% of the gross ea rnings and the tax on its real property. The Commissioner, however, assessed def iciency income tax (inclusive of surcharges, interests and penalties thereon for years 1965-1970) against the company on the belief that the franchise is inoper ative for failure to conform with the constitutional requirement that franchise holders should be organized under Philippine Laws and that 80% of its capital ow ned by Filipinos Issue: Whether the franchise is inoperative, rendering the comp any liable for deficiency income tax. Held: A law is presumed constitutional as it is supposed to have been carefully studied and determined to constitutional b efore it was finally enacted by Congress and approved by the Chief Executive. No constitutional question would be resolved unless the requisites of a judicial i nquiry are present; i.e. the existence of an appropriate case, an interest perso nal and substantial by the party raising the constitutional Taxation Law I, 2004 ( 37 )

Digests (Berne Guerrero) question, the plea that the function be exercised at the earliest opportunity, a nd the necessity that the constitutional question be passed in order to decide t he case. Herein, the last criterion is missing; and accordingly, the Court gives high respect for the acts of the other departments of the government and, as mu ch as possible, avoids deciding the constitutional question. The company duly co mplied with the conditions set forth in the legislative franchise. It has also c omplied with the tax requirement by paying to the Republic a tax of 5% of the gr oss earnings from Philippines operations regularly since its creation. As a legi slative franchise partakes of the nature of a contract; the franchise is the law between the parties and they are bound by the terms thereof. The government age ncy cannot declare the franchise as ineffective and unenforceable merely by statin g that the company failed to comply with the requirements of the general statute s (e.g. Public Service Act and the Corporation law) which are not mentioned in R A 808. Still, a remand of the case to the Court of Tax Appeals is necessary to d etermine the income tax liability of the company corresponding to its income bey ond the scope of RA 808. [73] Maceda vs. Macaraig GR 88291, 31 May 1991 En Banc, Gancayco (J): 6 concur, 2 took no part, 1 dissents Facts: Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of hydrauli c power and the production of power from other sources. RA 358 (1949) granted NA POCOR tax and duty exemption privileges. RA 6395 (1971) revised the charter of t he NAPOCOR, tasking it to carry out the policy of the national electrification, and provided in detail NAPOCORs tax exceptions. PD 380 (1974) specified that NAPO CORs exemption includes all taxes, etc. imposed directly or indirectly. PD 938 inte grated the exemptions in favor of GOCCs including their subsidiaries; however, e mpowering the President or the Minister of Finance, upon recommendation of the F iscal Incentives Review Board (FIRB) to restore, partially or completely, the ex emptions withdrawn or revised. The FIRB issued Resolution 10-85 (7 February 1985 ) restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86 (1January 1986) restored such exemption ind efinitely effective 1 July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24 June 1987) restoring NAPOCORs exemption, which was a pproved by the President on 5 October 1987. Since 1976, oil firms never paid exc ise or specific and ad valorem taxes for petroleum products sold and delivered t o NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their s ales of oil products to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468 .58 million). Only portion thereof, corresponding to Caltex, was approved and re leased by way of a tax credit memo. The claim for refund of taxes paid by PetroP hil, Shell and Caltex amounting to P410.58 million was denied. NAPOCOR moved for reconsideration, starting that all deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery. Issue: Whether NAPOCOR cea se to enjoy exemption from indirect tax when PD 938 stated the exemption in gene ral terms. Held: NAPOCOR is a non-profit public corporation created for the gene ral good and welfare, and wholly owned by the government of the Republic of the Philippines. From the very beginning of the corporations existence, NAPOCOR enjoy ed preferential tax treatment to enable the corporation to pay the indebtness and obligation and effective implementation of the policy enunciated in Section 1 of RA 6395. From the preamble of PD 938, it is evident that the provisions of PD 9 38 were not intended to be strictly construed against NAPOCOR. On the contrary, the law mandates that it should be interpreted liberally so as to enhance the ta x exempt status of NAPOCOR. It is recognized principle that the rule on strict i nterpretation does not Taxation Law I, 2004 ( 38 )

Digests (Berne Guerrero) apply in the case of exemptions in favor of government political subdivision or instrumentality. In the case of property owned by the state or a city or other p ublic corporations, the express exception should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the st ate, since as to such property exception is the rule and taxation the exception. [ 74] Commissioner vs. Phoenix Assurance GR L-19727, 20 May 1965 En Banc, Bengzon JP (J): 10 concur Facts: Phoenix assurance is a foreign insurance corporation or ganized under the laws of Great Britain, licensed to do business in the Philippi nes. Through its head office in London, it entered into worldwide reinsurance tr eaties with various foreign insurance companies. It agreed to cede a portion of premiums received on original insurances underwritten by its head office, subsid iaries, and branch offices around the world, in consideration for assumption by the foreign insurance companies of n equivalent portion of the liability form su ch original insurances. Pursuant to such treaties, the company ceded portions of its premiums it earned from its underwriting business in the Philippines, upon which assessed withholding tax. The company thereafter amended its tax returns ( 1950-1954) excluding reinsurance premium and items of deduction attributable to such premium. The Commissioner assessed deficiency income tax against the compan y. Issue: Whether the Commissioner is justified in the assessment of deficiency tax. Held: The changes and alteration embodied in the amended tax return consist ed of the exclusion of reinsurance premium received from domestic insurance comp anies by the companys head office, reinsurance premium ceded to foreign insurers not doing business in the Philippines and various items of deductions attributab le to such excluded reinsurance premiums, thereby substantially modifying the or iginal return. As amended return is substantially different from the original re turn, the period of limitation of the right to issue the same should be counted from the filing of the amended income tax return. The right of the Commissioner to assess the deficiency tax on the amended return has not prescribed. To hold o therwise would pave the way for taxpayer to evade the payment of taxes simply re porting in their original return heavy losses and amending the same more than 5 years later when the Commissioner has lost his authority to assess the proper ta x there under. The object of the tax code is to impose taxes for the needs of th e government, not to enhance tax avoidance to its prejudice. [75] Commissioner v s. Connel Bros. Co. GR L-27752-53, 30 August 1971; En Banc, Reyes, Jr.(J).: 10 c oncur Facts: The Commissioner disallowed the deductions for bad debts, depreciat ion, and excess in valuation of leasehold improvements by Connel Bros. Co. in it s income tax return for taxable year 1954 and 1955. The Commissioner thus assess ed against the company deficiency taxes or assessments for said years. The Court of Tax Appeals modified the assessment by including the corresponding interest and surcharges pursuant to Section 51 of the Tax Code. Issue: Whether the intere st and surcharges on delinquents tax payments are chargeable. Held: Delinquency indicates non-payment of the correct and collectible tax, and such state of deli nquency exists not from the assessment of the deficiency but from the very time the taxpayer failed to pay the correct Taxation Law I, 2004 ( 39 )

Digests (Berne Guerrero) amount due from him. Herein, the delinquency taxes became due and the assessment therefore were made before the amendment of Section 51 on 2 June 1959; and thus , the companys liability should be determined pursuant to the old Section (e) of the Tax code. Under the old Section, a delinquent tax payer would have to pay, i n addition to the unpaid tax, a 5% surcharge thereon computed from the time the tax became due, plus interest on the whole unpaid amount at the rate of 1% a mon th. Under RA 2343, the delinquent taxpayer shall pay at the rate of 6% per annum computed from the date prescribed for payment of the income tax up to the asses sment of the delinquency tax, but which shall not exceed the amount correspondin g to a period of 3 years. Section 13 of the amendatory act shoes that there is n o intent to make RA 2343 retroactive. [76] Commissioner vs. Firemans Fund Insuran ce GR L-30644, 9 March 1987 Second Division, Paras (J): 5 concur, 1 on leave Fac ts: Firemans Funds Insurance is a resident foreign insurance corporation organize d under the laws of the United States, authorized and duly licensed to do busine ss in the Philippines. From 1952-1958, the company entered into various insuranc e contracts involving causality, fire and marine risks, for which the correspond ing insurance policies were issued. From 1952-1956, documentary stamps were boug ht and affixed to the corresponding pages of the policy register, instead of on the insurance policies issued. The Commissioner assessed and demanded from the c ompany the payment of documentary stamps for the years 1952-1958, plus compromis e penalties. Issue: Whether the affixture of documentary stamp on pages other th an those authorized by law is tantamount to failure to pay the same. Held: Altho ugh the documentary stamps were affixed to papers other than those authorized by law, it is not tantamount to failure to pay the same as the company purchased a nd paid the documentary stamps corresponding to the various insurance policies. Sections 210, 232, 221, 237 and 239 of the Tax Code have the overriding purpose to collect taxes, and the steps involving documentary taxes (purchase, affixture , and cancellation) are but a means to that end. Although the insurance policies with the corresponding documentary stamps affixed are the best evidence to prov e payment of said documentary stamp tax, it does not preclude the admissibility of other proofs which are uncontradicted and considerable weight. Still, wheneve r the interpretation of statute levying taxes or duties are in doubt, such statu tes are to be construed most strongly against the government and in favor of the subjects or citizens, because burdens are not to be imposed, nor presumed to be imposed beyond what statutes expressly and clearly import. There is no justific ation for the government which has already realized the revenue, which is the ob ject of the imposition of the subject stamp tax, to require payment of the same tax for the same documents. [77] Commissioner vs. Cebu Portland Cement GR L-2905 9, 15 December 1987 First Division, Cruz (J): 4 concur Facts: By virtue of a dec ision of the Court of Tax Appeals, modified by the Supreme Court, the Commission er was ordered to refund overpayments of ad valorem taxes on cement produced and sold by the company after October 1957. The company moved for a writ of executi on, which was opposed by the Commissioner on the ground that the company had an outstanding sales tax liability to which the judgment debt had already been cred ited. The Court of Tax Appeals held that the alleged sales tax liability was sti ll being questioned and therefore cannot be set-off against the refund. Taxation Law I, 2004 ( 40 )

Digests (Berne Guerrero) Issue: Whether the assessment of sales tax liability may be enforced, i.e. to se t off against the refund. Held: The argument, that the assessment cannot as yet be enforced because it is still being contested, loss sight of the urgency of th e need to collect taxes as the life blood of the government. If the payment of tax es could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed. To require the Commissioner to actually refund to the company the amount of the ju dgment debt. Which he will later have the right to distrait for payment of its s ales tax liability, is an idle ritual. [78] Republic vs. Vda. de Fernandez GR L9141, 25 September 1956 En Banc, Labrador (J): 7 concur Facts: Olimpio Fernandez and his wife Angelina Oasan had a net worth of P8, 000 on 8 December 1941. Duri ng the Japanese occupation, the spouses acquired several real properties. At the time of the husbands death in 1945, he had a net worth of P31,489. The Collector of Internal Revenue assessed a war profits tax (RA 55) on the estate of the dec eased at P7, 614.00, which was administrative refused to pay. The validity of RA 55 was questioned, as well as the validity and the legality of the assessment. Issue: Whether the War Profits tax Law may be retroactively applied without viol ating the Constitution (especially the provision on ex-post facto laws). Held: T he prohibition against the ex facto laws applies only to criminal or penal matte rs, and not to laws which concern civil matters or proceedings generally, or whi ch affect or regulate civil or private right. Ex post facto is confined to laws respecting criminal punishments, and had no relation whatever to retrospective l egislation of any other description. Retrospective laws, when not of a criminal nature, do not come in conflict with the Constitution, unless obnoxious to its p rovisions on other grounds than their respective character. The law may not be c onsidered harsh and oppressive because of the force of its impact fell on those who had amassed wealth or increased their wealth during the war, but did not tou ch the less fortunate. The policy followed is the same as that which underlies t he Income Tax Law, imposing the burden upon those who have and relieving those w ho have not. [79] Tanada vs. Tuvera GR L-63915, 24 April 1985 En Banc, Escolin ( J): 1 concur, 2 concur with reservation, 1 on leave, 1 took no part Facts: Invok ing the peoples right to be informed on matters of public concern as well as the principle that laws to be valid and enforceable must be published in the Officia l Gazette or otherwise effectively promulgated, Taada, et.al. seek a writ of mand amus to compel public officials to publish presidential decrees, letters of inst ructions, general orders, proclamation, executive orders, letter of implementati on and administrative orders. Issue: Whether the unpublished laws have binding f orce and effect. Held: The publication in the Official Gazette is required to gi ve the general public adequate notice of the various laws which are to regulate their actins and conduct as citizens. Publication is necessary to apprise the Taxation Law I, 2004 ( 41 )

Digests (Berne Guerrero) public of the contents of regulations and make penalties binding on the person a ffected thereby. The publication of all presidential issuances of a public nature or of general applicability is a mandated by law, and is a requirement of due proc ess. Presidential decrees that provide for fines, forfeitures or penalties for t heir violation or otherwise impose a burden on the people, such as tax and reven ue measures fall within this category. Before a person may be bound by law, he m ust be first be officially and specifically informed of its contents. When not p ublished, such shall have no force and effect. However, the implementation/enfor cement of the presidential decrees prior to their publication in the Gazette is an operative facts, which may have consequences which cannot be justly ignored. (Note: The aspect of operative facts was dropped in subsequent resolution.) [80] B agatsing vs. Ramirez GR L-41631, 17 December 1976 En Banc, Martin (J): 7 concur, 1 concur with qualification, 1 reserved vote Facts: In 1974, the Municipal Boar d of Manila enacted Ordinance 7522, regulating the operation of public markets a nd prescribing fees for the rentals of stalls and providing penalties for violat ion thereof. The Federation of Manila Market Vendors Inc. assailed the validity of the ordinance, alleging among others the non-compliance to the publication re quirement under the Revised Charter of the City of Manila. Issue: Whether the pu blication requirement was complied with. Held: The Revised Charter of the City o f Manila is a special act since it relates only to the City of Manila, whereas t he Local Tax Code id a general law because it applies universally to all local g overnments. Section 17 of the Charter speaks of ordinance in general. Whereas, Sec tion 43 of the Local Tax Code relates to ordinances levying or imposing taxes, fe es or other charges in particular. While the Charter requires publication, before the enactment of the ordinance and after approval thereof, in two daily newspap ers of the general circulation in the city, the Local Tax Code only prescribes f or publication widely circulated within the jurisdiction of the local government or by posting the ordinance in the local legislative hall or premises and in tw o other conspicuous places within the territorial jurisdiction of the local gove rnment. Being a general law with a special provision applicable in the case, the Local Tax Code prevails. [81] Commissioner vs. Burroughs Ltd. GR L-6653, 19 Jun e 1986 Second Division, Paras (J): 4 concur Facts: Burroughs Ltd is a foreign co rporation authorized to engage in business in the Philippines. Its branch office in Makati applied with the Central Bank for authority to remit to its parent co mpany abroad, branch profits. It paid 15% branch profit remittance tax. The bran ch, however, later claimed for a refund or credit contending that the branch pro fit remittance tax pursuant to a BIR ruling of 21 January 1980. The Court of Tax Appeals granted the companys petition. The Commissioner filed a petition for cer tiorari, claiming Memorandum Circular 8-82 (17 March 1982) should apply. Issue: Whether the Memorandum Circular 8-82 should be retroactively applied. Held: Reve nue Ruling of 21 January 1980 remains to apply in the case as the company paid t he tax on 14 March 1979. Memorandum Circular 8-82 cannot be given retroactive ef fect in the light of Section 327 (nonTaxation Law I, 2004 ( 42 )

Digests (Berne Guerrero) retroactively of rulings) of the tax code. The retroactive application of the Ci rcular would deprive the company the substantial amount of P172,058.90. The miss tates or omits material facts from his return or I any document required of him by the BIR, or where the facts subsequently gathered by the BIR are materially d ifferent from the facts on which the ruling is based, or where the taxpayer acte d in bad faith to allow the retroactive application of the circular. [82] Commis sioner vs. Mega General Merchandise GR L-69136, 30 September 1988 Facts: Prior t o the promulgation of PD 392, all importations of paraffin wax, irrespective of kind and nature, were subject to 7% advance sales tax on landed costs plus 25% m arkup (Section 183[b] in relation to Section 186 of the Tax Code. With the promu lgation of PD 392, effective 18 February 1974, all importation of paraffin wax w ere subject to the specific tax imposed under Section 142 (i) of the Tax Code, i nstead of the former 7% sales tax. When the issue whether imported crude paraffin wax was subject to the specific tax was brought to the BIR for clarification, th en Commissioner Vera ruled that only wax used as high pressure lubricant and mic ro-crystalline is subject to specific tax, while the rest are subject to the sal es tax. Thus, Mega General Merchandise filed claims for tax refund or tax credit . Acting Commissioner Plana denied the claims in 28 January 1977. On 11 January 1978, however, Plana granted the corporations claim for refund or credit pertaini ng to the importation made 18 April 1975. The Corporation protested the tax asse ssment of 8 May 1978, which was denied by the Commissioner. Issue: Whether the 1 1 January 1978 grant (letter) revoked the ruling dated 28 January 1977. Held: Th e letter dated 11 January 1978 did not in any way revoke the ruling dated 28 Jan uary 1977, which ruling applied the specific tax to was without distinction. The reason Plana removed in 1978 the companys liability for specific tax was because he wanted to revoke his ruling of 28 January 1977 but because the tax referred to an importation made before 28 January 1977 (i.e. 18 April 1975), which was st ill covered by the ruling of Commissioner Vera (ruling of 14 May 1975). [83] Com missioner vs. Court of Tax Appeals GR 108358, 20 January 1995 Third Division, Vi tug (J): 4 concur Facts: On 22 August 1986, Executive Order 41 was promulgated d eclaring a one-time tax amnesty on unpaid income taxes, later amended to include estate and donors taxes and taxes on business for the taxable years 1981 to 1998 5. Availing itself of the amnesty, ROH Autoparts Philippines Inc. filed its Tax Amnesty Return and paid the corresponding amnesty taxes due. The Company request ed that the deficiency tax notice (13 August 1986) be cancelled and withdrawn as it has availed of the tax amnesty. The Commissioner denied the request, constru ing that the amnesty coverage include only assessments issued by the BIR after t he promulgation of EO41 and not to assessments theretofore made. Issue: Whether the assessment can withstand effects of tax amnesty. Held: A tax amnesty, being a general pardon or intentional overlooking by the state its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or t ax law, partakes of an absolute forgiveness or waiver by the government itself o f its right to collect what otherwise would be due it, and in this sense, prejud icial thereto, to give tax evaders, who wish to relent and are willing to reform a chance to for Taxation Law I, 2004 ( 43 )

Digests (Berne Guerrero) so and thereby become a part of the new society with a clean slate. Section 4 of EO 41 enumerated, in no uncertain terms, taxpayers who may not avail to the amn esty granted. The company does not fall under any of the exceptions. The added e xception urged by the Commissioner based on Revenue Memorandum Order 4-87, furth er restricting the scope of the amnesty, work against the raison detre of EO 41 a nd clearly amounts to an alt of administrative legislation contrary to the manda te of the law which the regulation ought to implement. The rule in the order tha t only assessments issued after 21 August 1986 shall be abated is beyond the con templation of the law. [84] Commissioner vs. Court of Appeals GR 119761, 29 Augu st 1996 First Division, Vitug (J): 2 concur Facts: Fortune Tobacco is engaged in the manufacture of different brands of cigarettes, specifically Champion, Hope4, an d More (which are foreign brands listed in the World Tobacco Directory as belongin g to foreign companies. Fortune Tobacco, however, changed names of Hope to Luxury an d More to Premium More thereby removing said brands from the foreign brand category. Proof was also made/ submitted to the BIR that Champion was an original Fortune T obacco Corp. register and thus a local brand. RA 7654 was enacted on 10 June 199 3, levying a P5 minimum tax on locally manufactured cigarettes taxed at 55% or e xportation of which is not authorized by contract, and P2 minimum tax per pack o n other locally manufactured cigarette. The BIR sent the Company a month later a copy Revenue Memorandum Circular 37-93 declaring Hope, More and Champion as foreign b rands, and thus subjecting them to 55% as valorem tax, a review of RMC 37-93 was denied. Issue: Whether the brands may be placed within the scope of the amendat ory law (RA 7654) and subject then to an increased, through RMC 37-93. Held: Pri or to the issuance of RMC 37-93, the brands were in the category of locally manu factured cigarettes not bearing foreign brands, subject to 45% ad valorem tax. W ithout RMC 37-93, the enactment of RA7654 would not have new tax rate consequenc es on the companys products. In issuing RMC 37-93, the BIR legislated under its q uasi-legislative authority and not simply interpreted the law. When an administr ative rule goes beyond merely providing for the means that can facilitate or ren der least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed. It behooves the agency to accord at leas t to those directly affected a chance to be heard, and thereby be duly informed, before that new issuance is given the force and effect of law. [85] ABS-CBN Bro adcating vs. Court of Tax Appeals GR L-52306, 12 October 1981 First Division, Me lencio Herrrera (J): 4 concur Facts: In implementing Section 4(b) of the Tax Cod e, the Commissioner issued General Circular V-334. Pursuant thereto, ABS-CBN Bro adcasting Corp. dutifully withheld and turned over to the BIR 30% of of the film rentals paid by it to foreign corporations not engaged in trade or business in the Philippines. The last year that the company withheld taxes pursuant to the C ircular was in 1968. On 27 June 1908, RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30% to 35% and revising the tax basis from such amount referring to rents, etc. to gross income. In 1971, the Commissioner issued a letter of assessment and demand for deficiency withholding income tax for year s 1965 to 1968. The company requested for reconsideration; where the Commissione r did not act upon. Taxation Law I, 2004 ( 44 )

Digests (Berne Guerrero) Issue: Whether Revenue Memorandum Circular 4-71, revoking General Circular V-334 , may be retroactively applied. Held: Rulings or circulars promulgated by the Co mmissioner have no retroactive application where to so apply them would be preju dicial to taxpayers. Herein ,the prejudice the company of the retroactive applic ation of Memorandum Circular 4-71 is beyond question. The company was no longer in a position to withhold taxes due from foreign corporations because it had alr eady remitted all film rentals and had no longer control over them when the new circular was issued. Insofar as the enumerated exceptions are concerned, the com pany does not fall under any of them. [86] In RE Zialcita AM 90-6-015-SC, 18 Oct ober 1990 En Banc, Gutierrez Jr. (J): 13 concur, 1 on leave Facts: Amounts were claimed by Atty. Bernardo F. Zialcity on the occasion of his retirement. On 23 A ugust 1990, a resolution was issued by the Court En Banc stating that the termin al leave pay of Atty. Zialcita received by virtue of his compulsory retirement c an never be considered a part of his salary subject to the payment of income tax but falls under the phrase other benefits received by retiring employees and wor kers, within the meaning of Section 1 of PD 220 and is thus exempt from the payme nt of income tax. That the money value of his accrued leave credits is not part of his salary is buttessed by Section 3 of PD 985, which it makes it clear that the actual service is the period of time for which pay has been received, exclud ing the period covered by terminal leave. The Commissioner filed a motion for re consideration. Issue: Whether terminal leave pay is exempt from tax; as well as other amounts claimed herein. Held: Applying Section 12 (c) of Commonwealth Act 186, as incorporated into RA 660, and Section 28 (c) of the former law, the amou nt received by Atty. Zialcita as a result of the converson of unused leave credi ts, commonly known as terminal leave, is applied for by an officer or employee w ho retires, resigns, or is separated from the service through no fault of his ow n. Since the terminal leave is applied for after the severance of the employment , terminal pay is no longer compensation for services rendered. It cannot be vie wed as salary. Further, the terminal leave pay may also be considered as a retir ement gratuity, which is also another exclusion from gross income as provided fo r in Section 28 (b), 7 (f) of the Tax Code. The 23 August Resolution (AM 90-6-01 5-SC), however, specifically applies only to employees of the Judiciary who reti re, resign or are separated through no fault of their own. The resolution cannot be made to apply to otehr government employees, absent an actual case or contro versy, as that would be in principle an advisory opinion. [87] Commissioner vs. Court of Appeals GR 96016, 17 October 1991 Second Division, Padilla (J): 2 concu r, 1 on leave Facts: Efren Castaneda retired from government service as Revenue Atrtache in the Philippine Embassy in London, England on 10 December 1982 under the provisiions of Section 12 (c) of Commonwealth Act 186, as amended. Upon reti rement, he received, among other benefits, terminal leave pay from which the Com missioner withheld P12,557.13, allegedly representing income tax thereon. Castan eda claimed for a Taxation Law I, 2004 ( 45 )

Digests (Berne Guerrero) refund. Issue: Whether terminal leave pay is subject to withholding income tax. Held: Terminal Leave Pay received by a government official or employee is not su bject to withholding income tax. In the exercise of sound personnel policy, the Government encourages unused leaves to be accumulated. The Government recognizes that retirement pay for public servants is less than generous, if not meager or scrimpy. Terminal leave payments are given thus not only at the same time but a lso foor the same policy considerations governing retirement benefits. Not being part of the gross salary or income of a government official or employee but a r etirement benefit, terminal leave pay is not subject to income tax. [88] Borrome o vs. Civil Service Commission GR 96032, 31 July 1991 En Banc, Gutierrez Jr. (J) : 15 concur Facts: Jesus N. Borromeo was the Chairman of the Civil Service Commi ssion until his retirement on 1 April 1986. In 1988, he wrote the Commission on Audit requesting an opinion whether the money value of the terminal leave of ret ired Constitutional Commission members should include the allowances received at the time of retirement. Borromeo requested for the payment ofterminal leave dif ferential representing the unpaid Cost of Living Allowance (COLA) and Representa tion and Transportation Allownace (RATA) amounting to P111,229.04. The Departmen t of Budget and Management denied the request. Issue: Whether the terminal leave pay of the former CSC Chairman should be computed on the basis of the highest m onthly salary plus COLA and RATA, or solely on the basis of highest monthly sala ry without said allowances. Held: An application for terminal leave is an applic ation for a commutation of leave credits and not a commutation of salary as the offi cer or employee has already severed his conncection with his employer and is no longer working. The cash value of his accumulated leave credits should not be tr eated as compensation for services rendered at that time. Inasmuch as terminal l eave payments are given not only at teh same time but also for the same policy c onsiderations governing retirement benefits, the payments therefore should inclu de COLA and RATA. Section 286 of the Revised Administrative Code is not applicab le. It cannot be construed as limiting the basis of the computation of terminal leave pay to monthly salary only. [89] Esso Standard Eastern vs. Commissioner GR 28508-9, 7 July 1989 First Division, Cruz (J): 4 concur Facts: ESSO deducted fr om its gross income for 1959, as part of its ordinary and necessary business exp enses, the amount it had spent for drilling and exploration of its petroleum con scessions. The Commissioner disallowed the claim on the ground that the expenses should be capitalized and might be written off as a loss only when a dry hole sho uld result. Hence, ESSO filed an amended return where it asked for the refund of P323,270 by reason of its abandonment, as dry holes, of several of its oil well s. It also claimed as ordinary and necessary expenses in the same return amount representing margin fees it had paid to the Central Bank on its profit remittanc es to its New York Office. Issue: Whether the margin fees may be considered ordi nary and necessary expenses when paid. Taxation Law I, 2004 ( 46 )

Digests (Berne Guerrero) Held: For an item to be deductible as a business expense, the expense must ebe o rdinary and necessary; it must be paid or incurred within the taxable year; and it must be paid or incurred in carrying on a trade or business. In addition, the taxpayrer must substantially prove by evidence or records teh deductions claime d under law, otherwise, the same will be disallowed. There has been no attempt t o define ordinary and necessary with precision. However, as guiding principle in t he proper adjudication of conflicting claims, an expenses is considered necessar y where the expenditure is appropriate and helpdul in the development of the tax payers business. It is ordinary when it connotes a payment which is normal in rel ation to the business of the taxpayer and the surrounding circumstances. Assumin g that the expenditure is ordinary and necessary in the operation of the taxpaye rs business; the expenditure, to be an allowable deduction as a business expense, must be determined from the nature of the expenditure itself, and on the extent and permanency of the work accomplished by the expenditure. Herein, ESSO has no t shown that the remittance to the head office of part of its profits was made i n furtherance of its own trade or business. The petitioner merely presumed that all corporate expenses are necessary and appropriate in the absence of a showing that they are illegal or ultra vires; which is erroneous. Claims for deductions are a matter of legislative grace and do not turn on mere equitable considerati ons. [90] Guagua Electric Light Plant Co. vs. Collector GR L-23611, 24 April 196 7 En Banc, Bengzon JP (J): 8 concur Facts: Guagua Electric Light Plant Co. is a grantee of municipal franchises by the municpal councils of Guagua and Sexmoan, Pampanga. It reported a gross income of P1,133,003.44 for 1947 go 1956 and paid thereon a franchise tax of P56,664.97 computed at 5% in accordance with Section 259 of the Tax Code. Believing that it should pay a lower franchise tax as provi ded by its franchises, it filed a claim for refund on 25 March 1957 for overpaym ent. The Commissioner denied the refund of franchise tax for the period prior to the 4th quarter of 1951 on the ground that the right to refund has prescribed. The Commissioner allowed the refund of P16,593.87. Later however, due to the hol ding in Hoa Hin Co. vs. David, the Commissioner assessed against the company def iciency franchise tax subject to a 25% surcharge, and thereby including the amou nt previously allowed by the Commissioner to be refunded. Issue: Whether the tax refunded erroneously should be imposed against the company, or if the right to re cover has prescribed. Held: Guagua Electric would be paying the same deficiency tax for the period of 1 January to 30 November 1956 if it is required to pay P16 ,593.87 in addition to the sum of P19,938.12, the difference between the tax com puted at 5% pursuant to Section 259 of the Tax Code and the franchise tax paid a t 1% and 2% under the franchise. Further, by insisting on the payment of P16,593 .87 (September 1951 to November 1956), the Commissioner is trying to collect the same deficiency tax where the right to assess the same, according to him, has b een lost by prescription. The demand on the taxpayer to pay the sum of P16,593.8 7 is in effecct an assessment of deficiency franchise tax. The right to assess, thus, and to collect is governed by Section 331 of the Tax Code rather than by A rticle 1145 of the Civil Code, as a special law prevails over a general law. Gua gua Electric is absolved from the payment of P16,593.87. [91] Republic vs. Limac o and De Guzman Commercial Co. GR L-13081, 31 August 1962 En Banc, Paredes (J): 8 concur, 2 took no part Taxation Law I, 2004 ( 47 )

Digests (Berne Guerrero) Facts: In 1946, Limaco & De Guzman Co. was engaged in the importation of cigaret tes. To guarantee payment of revenue taxes, the company and the Visayan Surety a nd Insurance Corp.. as surety, executed 2 importer bonds. On 27 June 1946, the c ompany filed with the Bureau of Customs entry papers covering shipment of 2 mill ion Spud cigarettes it had imported from New York. the specific tax due thereon am ounted to P6,000. The company, through its agent/broker J. O. Hiponia, paid the Bureau of Customs the tax with P1000 in cash and P5,000 in a PNB Check on 15 Jul y 1946. The cigarettes were released to the company but the check bounced. On 17 June 1948, the Collector of Internal Revenue demanded the payment of the defici ency specific tax. The amount remained unpaid. On 15 April 1951, the company req uested that action be deferred as it intends to settle the matter amicably with the BIR. The Republic filed a complaint for the forfeiture of the bonds, and the payment of the sum of P5,000 plus interest. The company invoked the defense of estoppel and prescription. Issue: Whether the action has prescribed. Held: Under Section 332 (c) of the Tax Code, the collection of the tax by summary method or by judicial action shall be effected within 5 years after the assessment of the tax. To assess means to impose a tax; to charge with a tax; to declare a tax to be payable; to apportion a tax to be paid or contributed; to fix a rate, to fix or settle a sum to be paid by way of tax; to set, fix or charge a certain sum t o each taxpayer; to settle, determine or fix the amount of tax to be paid. Herei n, the assessment was made on 17 June 1948 (when a letter of demand for the amou nt of the rubber check was sent to the company) and not on 15 Jne 1946 (the date of payment). Even assuming that the latter date is the date of assessment, the action is still not barred by the statute of limitations as teh statute was susp ended when the company acknowledged the debt in writing in April 1951, and reque sted the deferment of the judicial action to be taken by the Government towards the collection of the obligation, so that the company could make representations with the COllector to settle the matter amicably. Prescription has not set in. [92] Interprovincial Autobus Co. vs. Collector of Internal Revenue GR L-6741, 31 January 1956 First Division, Labrador (J): 8 concur Facts: Interprovincial Auto bus Co. is a common carrier engaged in transporting passengers and freight by me ans of TPU buses in Misamis Occidental and Northern Zamboanga. The company was n ot able to preserve the receipt stubs from 1936 to 1938 but was able to preserve those for 1939 and 1940. The provincial revenue agent for Misamis Occidental as certained the number of receipts by referring to the conductors daily report for the said period 1936 to 1938. From there, the tax assessed amounted to P7,776.24 , which was collected from the companys deposit in Philippine National Bank. The company demanded the refund of the said amount, but which was denied. Issue: Whe ther the freight receipts were actually issued for more than P5 each, to warrant the assessed tax of P7,776.24. Held: Receipts must have been issued for valuabl e cargo to insure against the loss of which, unlike cargo handcarried by townfol ks and farmers where the latter avoid to secure receipts thereto. Such finding b y the revenue agent was not controverted. In actions fro the recovery of taxes a ssessed and collected, the taxpayer has the burden of proving that the assessmen t is illegal as all presumptions are in favor of the correctness of tax assessme nts. The good faith of tax assessors and the validity of their actions are presu med. As such rule, on the burden of proof, has not been complied with, the actio n for recovery must be denied. Taxation Law I, 2004 ( 48 )

Digests (Berne Guerrero) [93] Tan Guan vs. Court of Tax Appeals GR L-23676, 27 April 1967 En Banc, Bengzo n JP (J): 8 concur Facts: In 1947, Tan Guan and Sia Lin, Chinamen, organized and registered the Philippine Surplus Company, a general partnership. A general par tnership is exempt from income tax although it is required to file an income tax return. Profits, whether distributed or not, are considered income of the partn ers. Acting upon a confidential report, however, that the company posted fictiti ous expesnes in its books to avoid taxes, the BIR investigated in 1954 the books of the partnership and discovered that the expenses were not covered by receipt s, that the names of payees were erased, and that the payees did not report the sums in question in their income tax. The BIR disallowed expense deductions for the year 1948 amounting to P206,380 for being fictitious. Said sum was treated a s income of the individual partners, and thus, the BIR assessed P50,956.57 as de ficiency income tax against Tan Guan. Tan Guan appealed. Issue: Whether the dedu ction claimed by the company as business income should be allowed, and thus abso lve Tan Guan of the assessed tax liability. Held: The Commissioners finding on th e facts constituting fraud, proven, and found established by the Court of Tax Ap peals, was not rebutted by the taxpayer. Tan Guan did not present any evidence t o disprove the findings that the expenses are fictitious; considering that the i nvestigation on Tan Guans liability was made prior to the expiration of the 5-yea r period to preserve and keep receipts as set fgorth in Section 337 of the Tax C ode. As the determination of the Commissioner is presumed correct, it behooves t he taxpayers to rebut such presumption. For failure to overcome the burden, Tan Guan or the company cannot claim the expenses as deduction from gross income. [9 4] Dayrit vs. Cruz GR L-39910, 26 September 1988 First Division, Gancayco (J): 3 concur, 1 took no part Facts: Cecilia Teodoro Dayrit, Toribia Teodoro Castaneda , Prudencio Teodor, Francisco Teodoro and Josefina Teodoro Tiongson are legitima te children and heirs of the deceased spouses Marta and Toribio Teodoro who died intestate on 1 July 1965 and 30 August 1965. The heirs separately filed estate and inheritance tax returns for the estates of the spouses with the BIR. In 1972 , the BIR issued deficiency estate and inheritance tax assessments for P1,662,07 2,34 and P1,747,790.94 respectively for the Estate of Dona Marta and P1,542,293. 01 amd P518,458.72, respectively for the Estate of Don Toribio. The heirs asked for reconsideration as the assessment was allegedly contrary to law and not supp orted by sufficient evidence. In a tax return dated 31 March 1973, Dayrit declar ed an additional amount of P3,655,595.78 as part of the estates of the Teodoro s pouses. The BIR issued tax payment acceptance orders, as the heirs and estate ha ve paid a total of P285,046.88. In 1974, the Commissioner filed a motion for all owance of claim against the estates, and for an order of payment of taxes before the trial court, praying that Dayrit be ordered to pay the BIR the sum of P6,47 0,391.91 plus surcharges and interest. Dayrit filed oppositions contending that the taxes have been settled according to the provisions of PD 23, as amended by PD 67. Issue: Whether the assessment is final, executory, and demandable. Held: The act of the Commissioner, in filing an action for allowance of the claim for estate and inheritance taxes, may be construed as a denial of the taxpayers reque st for reconsideration. From the date of receipt of Taxation Law I, 2004 ( 49 )

Digests (Berne Guerrero) the copy of the Commissioners letter for collection of taxes, the taxpayers must contest and dispute the same, and upon denial thereof, they have a period of 30 days to appeal the case to the Court of Tax Appeals. Tax assessment made by tax examiners are presumed correct and made in good faith. A taxpayer has to prove o therwise. Failure of the taxpayers to appeal to the Court of Tax Appeals in due time made the assessments fina, executory and demandable. [95] Collector vs. Ben ipayo GR L-13656, 31 January 1962 En Banc, Dizon (J): 8 concur, 1 took no part F acts: Alberto Benipayo is the owner of the Lucena Theater in Lucena, Quezon. In 1953, the internal revenue agent investigated Benipayos tax liability for the per iod of August 1952 to September 1953. The examiner recommended a deficiency tax assessment in the sum of P11,193.45 inclusive of 25% surcharge plus a suggested compromise penalty of P900.00 based on the conclusion that Benipayo sold 2 tax-f ree 20c ticlets fraudulently in order to avoid payment of amusement tax prescrib ed by Section 260 of the Tax Code (based on a reverse ratio of adult to children ; 3:1 in 1949 to 1951, and 1:3 for period in question; and average attendance fo r the past years). Benipayo protested, claiming that the findings of the examine rs are mrere presumptions and conclusions, devoid of findings of fact of alleged fraudulent practices by him. Issue: Whether there is evidence in the record to show Benipayo committed the alleged act to cheat or defraud the Government. Held : An assessment fixes and determines the tax liability of a taxpayer. In order t o stand the test of judicial scrutiny, the assessment must be based on actual fa cts. The presumption of correctness of assessment, being a mere presumption, can not be made to rest on another presumption, no matter how reasonable or logical such may be; i.e. that the circumstances in 1952 and 1953 are presumed to be the same as those existing in 1949 to 1951, and July 1955. There are no substantial facts to support the assessment in question. Neither was there any proof of the fraud allegedly committed. Fraud is a serious charge, and to be sustained, it m ust also be supported by clear and convincing proof. [96] Meralco Securities Cor p. vs. Savellano GR L-36181, 23 October 1982 First Division, Teehankee (J): 4 co ncur, 1 took no part Facts: In 1967, the late Juan G. Maniago submitted to the C ommissioner confidential denunciation against the Meralco Securities Corp. for t ax evasion for not having paid income tax on 25% of the dividends it received fr om the Manila Electric Co. for years 1962 to 1966. The Commissioner caused the i nvestigation of the denunciation and found that no deficiency corporate tax was due from Meralco Securities. Maniago was informed of the findings. The Secretary of Finance sustained the Commissioners action. Maniago filed a petition for mand amus against the Commissioner so as to compel it to impose the alleged deficienc y tax assessment against Meralco Securities and to award him the corresponding i nformers award. Issue: Whether the Commissioner may be compelled to impose the al leged deficiency tax assessment. Held: Mandamus only lies to enforce the perform ance of a ministerial act or duty and not to control the performance of discreti onary power. Mandamus may not be made against teh Commissioner to compel him to impose a tax assessment not found by him to be due or proper, for that would be tantamount to a usurpation of Taxation Law I, 2004 ( 50 )

Digests (Berne Guerrero) executive functions. Purely administrative and discretionary functions may not b e interfered with by the Courts. The discretionary power vested in the proper ex ecutive official, in the absence of arbitrariness or grave abuse so as to go bey onf the statutory authority, is not subject to the contrary judgment or control of others. [97] Commissioner vs. Abad GR L-19627, 27 June 1968 En Banc, Castro ( J): 8 concur Facts: Armando Abad (Republic Alcohol Distillery) is a manufacturer and seller of denatured alcohol. On 14 August 1958, he applied for the denatura tion of 33,000 gauge liters of rectified alcohol. On 21 August 1958, a denaturin g committee from the BIR supervised the denaturation of the alcohol in Abads ware house in Caloocan, Rizal .The alcohol was certified to be denatured by the Commi ttee. Domestic alcohol, when denatured and used for industrial purposes, is exem pt from payment of specific tax. In a surprise inspection on 25 August 1958, how ever, the BIR inspectors found that the alcohol has not been completely denature d and still may be used for compounding liquors. The team also discovered that o nly 10,480 gauge liters were left. Abad was made liable for specific tax. Issue: Whether the government is estopped by mistakes of its agents. Held: The BIR den aturing committed remissed in its performance of its duties as it certified the alcohol to be denatured, where it was found in a subsequent examination that it is not completely denatured. It is a settled rule in the performance of its gove rnmental functions, the State cannot be estopped by the neglect or omission of i ts agents. For if otherwise held, it would be easy for manufacturers to evade li ability on the pretext that some government official has certified to the qualit y of their products (and possibly the tax exemption resulting therefrom) and tha t they have every right to rely on this certificate. Abad was ordered to pay P19 ,402.20 as specific tax, with interest thereon from the date of last sale. [98] Commissioner vs. Procter & Gamble Philippines GR L-66838, 15 April 1988 Second D ivision, Paras (J) Facts: Procter and Gamble Philippines is a wholly owned subsi diary of Procter and Gamble USA (PMCUSA), a non-resident foreign corporation in the Philippines, not engaged in trade and business therein. PMCUSA is the sole s hareholder of PMC Philippines and is entitled to receive income from PMC Philipp ines in the form of dividends, if not rents or royalties. For the taxable years 1974 and 1975, PMC Philippines filed its income tax return and also declared div idends in favor of PMC-USA. In 1977, PMC Philippines, invoking the tax-sparing p rovision of Section 24 (b) as the withholding agent of the Philippine Government with respect to dividend taxes paid by PMC-USA, filed a claim for the refund of 20 percentage point portion of the 35 percentage whole tax paid with the Commis sioner of Internal Revenue. Issue: Whether PMC Philippines is entitled to the 15 % preferential tax rate on dividends declared and remitted to its parent corpora tion. Held: The issue raised is one made for the first time before the Supreme C ourt. Under the same underlying principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower court cannot be generally raised for the first time on appeal. Nonetheless, it is axiomatic that the state can Taxation Law I, 2004 ( 51 )

Digests (Berne Guerrero) never be allowed to jeopardize the governments financial position. The submission of the Commissioner that PMC Philippines is but a withholding agent of the gove rnment and therefore cannot claim reimbursement of alleged overpaid taxes, is co mpletely meritorious. The real party in interest is PMC-USA, which should prove that it is entitled under the US Tax Code to a US Foreign Tax Credit equivalent to at least 20 percentage points spared or waived as otherwise considered or dee med paid by the Government. Herein, the claimant failed to show or justify the t ax return of the disputed 15% as it failed to show the actual amount credited by the US Government against the income tax due from PMC-USA on the dividends rece ived from PMC Philippines; to present the income tax return of PMC-USA for 1975 when the dividends were received; and to submit duly authenticated document show ing that the US government credited teh 20% tax deemed paid in the Philippines. [99] City Lumber vs. Domingo GR L-18611, 30 January 1964 En Banc, Labrador (J): 8 concur, 2 took no part Facts: The Commissioner assessed on an additional incom e against City Lunber Inc., representing minor deductions from alleged expenses on undisclosed sales of plywood, nails, and GI sheets amounting to P7,902.07 and on a cash credit balance of P7,896.80. The company claims that the plywood and the GI sheets were actually lost in a fire occuring in the city and thatthe cred it cash balance is a loan secured by it. It appears that the regional director r eviewing the case reduced the assessment from P5,028.00 to P176. Still, the comp any alleged that the assessment is violative of Memorandum Order V-634 (of 3 Jul y 1956), issued by the Commissioner, granting Regional Directors authority to cl ose tax cases involving deficiency assessments not exceeding P10,000 in taxes an d penalties. Issue: Whether the assessment violates Memorandum Order V-634. Held : The order in question was applicable only to subordinace officers of the BIR a nd could not bind the Commissioner himself, who has been entrusted by law to mak e final assessments. The Commissioner cannot delegate this power to make a final assessment to his subordinate. Delegatus nor potest delegare; i.e. the peroson to whom an office or duty is delegated cannot lawfully devolve the duty on anoth er. [100] Villamin vs. Court of Tax Appeals GR L-11536, 31 October 1960 Second D ivision, Bautista Angelo (J): 7 concur, 1 concur in result Facts: An assessment was issued by the Provincial Revenue agent of Oriental Mindoro against Tomas B. Villamin. In 1955, Villamin requested reconsideration of the assessment, but whi ch was denied by the Collector of Internal Revenue, through the Acting Chief of the Assessment Department on 7 June 1955. Issue: Whether the letter signed by th e Acting Chief of the Assessment Department is the decision contemplated by law. Held: The issue is of no moment considering that Memorandum Order V-603 (15 Mar ch 1956) of the Bureau of Internal Revenue, which authorizes said official (Acti ng Chief of Assessment Department) to sign letters of demand involving assessmen t in behald of the Collector of Internal Revenue. Moreover, the subsequent lette rs signed by the Collector affirming and upholding the correctness of the assess ment made by his Assessment Taxation Law I, 2004 ( 52 )

Digests (Berne Guerrero) Department constitutes evident proof that the official who signed the letter of 7 June 1955 was duly authorized to do so. [101] Sy Po vs. Court of Tax Appeals G R L-81446, 18 August 1988 Second Division, Sarmiento (J): 3 concur Facts: Bonifa cio Sy Po is the widow of the late Po Bien Sing, (who died on 7 September 1980). In the taxable years 1964 to 1972, the deceased Po Bien Sing was the sole propr ietor of Silver Cup Wine Factory (Talisay, Cebu), and was engaged in the busines s of manufacture and sale of compounded liquors, using alcohol and other ingredi ents as raw materials. On the basis of a denunciation against Silver Cup, the Se cretary of Finance directed the Finance-BIR-NBI team to investigate. Silver Cup was required to produce accounting records and other related documents for the e xamination of the team. Po Bien Sing failed to do so. This prompted the team to enter the factory bodega of Silver Cup and seize different brands, consisting of 1,555 cases of alcohol products. On the basis of the teams report of investigati on, the Commissioner assessed Po Bien Sing deficiency income tax for 1966 to 197 0 in thhe amount of P7,154,685.16 and for deficiency specific tax for 2 January 1964 to 19 January 1972 in the amount of P5,595,003.68. Po Bien Sing protested t he assessment. Issue: Whether the assessment have valid and legal bases. Held: S ection 16 (b) of the National Internal Revenue Code of 1977 is specific and clea r. The rule on the best evidence obtainable applies when a tax report required by law for the purpose of assessment is not available or when the tax report is inc omplete or fraudulent. Herein, the persistent failure of Po Bien Sing and Bonifa cia Sy Po to present their books of accounts for examination for the taxable yea rs involved left the Commissioner no other legal option except to resort to the power conferred upon him under Section 16 of the Tax Code. Taxation Law I, 2004 ( 53 )