1.

Chamber of Real Estate and Builders

Associations, Inc., v. The Hon. Executive
ecretar! Alberto Romulo, et al
".R. #o. 1$%&'$. (arch ), *%1%
+acts, Petitioner Chamber of Real Estate and Builders
Associations, Inc. (CREBA), an association of real estate
developers and builders in the Philippines, uestioned the
validit! of "ection #$(E) of the %a& Code 'hich imposes the
minimum corporate income ta& ((CI%) on corporations.
)nder the %a& Code, a corporation can become sub*ect to the
(CI% at the rate of #+ of ,ross income, be,innin, on the -th
ta&able !ear immediatel! follo'in, the !ear in 'hich it
commenced its business operations, 'hen such (CI% is
,reater than the normal corporate income ta&. If the re,ular
income ta& is hi,her than the (CI%, the corporation does not
pa! the (CI%.
CREBA ar,ued, amon, others, that the use of ,ross income as
(CI% base amounts to a confiscation of capital because ,ross
income, unli.e net income, is not reali/ed ,ain.
CREBA also sou,ht to invalidate the provisions of RR 0o. #1
23, as amended, other'ise .no'n as the Consolidated
4ithholdin, %a& Re,ulations, 'hich prescribe the rules and
procedures for the collection of C4% on sales of real properties
classified as ordinar! assets, on the ,rounds that these
re,ulations5
)se ,ross sellin, price (6"P) or fair mar.et value
(7(8) as basis for determinin,
the income ta& on the sale of real estate classified as ordinar!
assets, instead of the entit!s net ta&able income as provided
for under the %a& Code9
(andate the collection of income ta& on a per
transaction basis, contrar! to the %a& Code provision
'hich imposes income ta& on net income at the end of
the ta&able period9
6o a,ainst the due process clause because the
,overnment collects income ta& even 'hen the net
income has not !et been determined9 ,ain is never
assured b! mere receipt of the sellin, price9 and
Contravene the eual protection clause because the
C4% is bein, char,ed upon real estate enterprises, but
not on other business enterprises, more particularl!,
those in the manufacturin, sector, 'hich do business
similar to that of a real estate enterprise.
Issues, (:) Is the imposition of (CI% constitutional; (#) Is the
imposition of C4% on income from sales of real properties
classified as ordinar! assets constitutional;
Held, -:) <es. %he imposition of the (CI% is constitutional.
An income ta& is arbitrar! and confiscator! if it ta&es capital,
because it is income, and not capital, 'hich is sub*ect to
income ta&. =o'ever, (CI% is imposed on ,ross income 'hich
is computed b! deductin, from ,ross sales the capital spent b!
a corporation in the sale of its ,oods, i.e., the cost of ,oods and
other direct e&penses from ,ross sales. Clearl!, the capital is
not bein, ta&ed.
8arious safe,uards 'ere incorporated into the la' imposin,
(CI%.
7irstl!, reco,ni/in, the birth pan,s of businesses and the
realit! of the need to recoup initial ma*or capital e&penditures,
the (CI% is imposed onl! on the -th ta&able !ear immediatel!
follo'in, the !ear in 'hich the corporation commenced its
operations.
"econdl!, the la' allo's the carr!1for'ard of an! e&cess of the
(CI% paid over the normal income ta& 'hich shall be credited
a,ainst the normal income ta& for the three immediatel!
succeedin, !ears.

%hirdl!, since certain businesses ma! be incurrin, ,enuine
repeated losses, the la' authori/es the "ecretar! of 7inance to
suspend the imposition of (CI% if a corporation suffers losses
due to prolon,ed labor dispute, force ma*eure and le,itimate
business reverses.

(#) <es. >espite the imposition of C4% on 6"P or 7(8, the
income ta& base for sales of real propert! classified as ordinar!
assets remains as the entit!s net ta&able income as provided in
the %a& Code, i.e., ,ross income less allo'able costs and
deductions. %he seller shall file its income ta& return and credit
the ta&es 'ithheld b! the 'ithholdin, a,ent1bu!er a,ainst its
ta& due. If the ta& due is ,reater than the ta& 'ithheld, then the
ta&pa!er shall pa! the difference. If, on the other hand, the ta&
due is less than the ta& 'ithheld, the ta&pa!er 'ill be entitled
to a refund or ta& credit.
%he use of the 6"P or 7(8 as basis to determine the C4% is
for purposes of practicalit! and convenience. %he .no'led,e of
the 'ithholdin, a,ent1bu!er is limited to the particular
transaction in 'hich he is a part!. =ence, his basis can onl! be
the 6"P or 7(8 'hich fi,ures are reasonabl! .no'n to him.
Also, the collection of income ta& via the C4% on a per
transaction basis, i.e., upon consummation of the sale, is not
contrar! to the %a& Code 'hich calls for the pa!ment of the net
income at the end of the ta&able period. %he ta&es 'ithheld are
in the nature of advance ta& pa!ments b! a ta&pa!er in order to
cancel its possible future ta& obli,ation. %he! are installments
on the annual ta& 'hich ma! be due at the end of the ta&able
!ear. %he 'ithholdin, a,ent1bu!ers act of collectin, the ta& at
the time of the transaction, b! 'ithholdin, the ta& due from
the income pa!able, is the ver! essence of the 'ithholdin, ta&
method of ta& collection.
?n the alle,ed violation of the eual protection clause, the
ta&in, po'er has the authorit! to ma.e reasonable
classifications for purposes of ta&ation. Ineualities 'hich
result from sin,lin, out a particular class for ta&ation, or
e&emption, infrin,e no constitutional limitation. %he real
estate industr! is, b! itself, a class and can be validl! treated
differentl! from other business enterprises.
4hat distin,uishes the real estate business from other
manufacturin, enterprises, for purposes of the imposition of
the C4%, is not their production processes but the prices of
their ,oods sold and the number of transactions involved. %he
income from the sale of a real propert! is bi,,er and its
freuenc! of transaction limited, ma.in, it less cumbersome
for the parties to compl! 'ith the 'ithholdin, ta& scheme. ?n
the other hand, each manufacturin, enterprise ma! have tens
of thousands of transactions 'ith several thousand customers
ever! month involvin, both minimal and substantial amounts.
*. C.((II.#ER .+ I#TER#A/ RE0E#1E,
petitioner, vs. CEB1 2.RT/A#3 CE(E#T
C.(2A#4 and C.1RT .+ TA5 A22EA/,
respondents.
".R. #o. /6*)%') 3ecember 1', 1)7&
+ACT, B! virtue of a decision of the C%A, as modified on
appeal b! the "upreme Court, the CIR 'as ordered to refund to
Cebu Portland Cement Compan! the amount of P @A2,-B3.23,
representin, overpa!ments of ad valorem ta&es on cement
produced and sold b! it. 4hen respondent moved for a 'rit of
e&ecution, petitioner opposed on the ,round that the private
respondent had an outstandin, sales ta& liabilit! to 'hich the
*ud,ment debt had alread! been credited. In fact, it 'as
stressed, there 'as still a balance o'in, on the sales ta&es in
the amount of P -,$32,#$2.3A plus #3+ surchar,e. %he C%A
,ranted the CIRs motion.
%he CIR claims that the refund should be char,ed a,ainst the
ta& deficienc! of the private respondent on the sales of cement
under "ection :3C of the %a& Code. =is position is that cement
is a manufactured and not a mineral product and therefore not
e&empt from sales ta&es. %he petitioner also denies that the
sales ta& assessments have alread! prescribed because the
prescriptive period should be counted from the filin, of the
sales ta& returns, 'hich had not !et been done b! the private
respondent.
(ean'hile, the private respondent disclaims liabilit! for the
sales ta&es, on the ,round that cement is not a manufactured
product but a mineral product. As such, it 'as e&empted from
sales ta&es. Also, the alle,ed sales ta& deficienc! could not as
!et be enforced a,ainst it because the ta& assessment 'as not
!et final, the same bein, still under protest and still to be
definitel! resolved on the merits. Besides, the assessment had
alread! prescribed, not havin, been made 'ithin the
re,lementar! five1!ear period from the filin, of the ta& returns.
I1E, 4hether or not sales ta& 'as properl! imposed upon
private respondent.
HE/3, <es, because cement has al'a!s been considered a
manufactured product and not a mineral product. %his matter
'as e&tensivel! discussed and cate,oricall! resolved in
Commissioner of Internal Revenue v. Republic Cement
Corporation, decided on Au,ust :B, :23@, statin, that cement
qua cement 'as never considered as a mineral product 'ithin
the meanin, of "ection #-C of the %a& Code, not'ithstandin,
that at least 3B+ of its components are minerals, for the
simple reason that cement is the product of a manufacturing
process and is no lon,er the mineral product contemplated in
the %a& Code (i.e.9 minerals sub*ected to simple treatments)
for the purpose of imposin, the ad valorem ta&.
%he ar,ument that the assessment cannot as !et be enforced
because it is still bein, contested loses si,ht of the ur,enc! of
the need to collect ta&es as Dthe lifeblood of the ,overnment.D
If the pa!ment of ta&es could be postponed b! simpl!
uestionin, their validit!, the machiner! of the state 'ould
,rind to a halt and all ,overnment functions 'ould be
paral!/ed.
8. (unici9alit! of (a:ati v. Court of A99eals
"R ; 7)7)76) 1%<%1<)%
+acts, An e&propriation proceedin, for a piece of land filed b!
the (unicipalit! of (a.ati a,ainst Admiral 7inancial and
Credit Corp resulted 'ith the (unicipalit! havin, to pa! P
A,#2:,CCC.BB less initial pa!ments b! the municipalit!. After
that, private respondent filed a 'rit for e&ecution for the
balance. Re,ional %rial Court ,ranted the motion and directed
the ban. to deliver the said balance. "ubseuent motions for
reconsideration and appeal to the respondent Court of Appeals
b! the municipalit! in order to stop the ,arnishment.
Issues, 4hether or not the court can validl! sub*ect
,overnment accountsEpropert! to ,arnishment. 4hether or
not the the court erred 'ith the decision of assessin, the
hi,her amount as to ho' much the municipalit! is 'illin, to
pa!.
Held, %he court ruled that the (unicipalit! of (a.atiFs
accounts or propert! cannot be held for ,arnishment as
,overnmentFs fund, held for public use, can not be held for
,arnishment. =o'ever, the court still held the (unicipalit!
liable for the assessed value of the land and improvements
because the private respondent should be entitled to *ust
compensation.
=. CIR >v> Al?ue, Inc., @ CTA
".R. #o. /6*77)$ +ebruar! 1&, 1)77
+ACT, Al,ue, Inc., a domestic corporation en,a,ed in
en,ineerin,, construction and other allied activities. Philippine
"u,ar Estate >evelopment Compan! had earlier appointed
Al,ue as its a,ent, authori/in, it to sell its land, factories and
oil manufacturin, process. G%here 'as a sale for 'hichH Al,ue
received as a,ent a commission of P:#C,BBB.BB, and it 'as
from this commission that the P$A,BBB.BB promotional fees
'ere paid to the aforenamed individuals. %he pa!ees dul!
reported their respective shares of the fees in their income ta&
returns and paid the correspondin, ta&es thereon, and there
'as no distribution of dividends 'as involved.
GAl,ue claimed the $A,BBB to be deductible from their ta&, to
'hich the CIR disallo'ed.H
I1E, 4hether or not the Collector of Internal Revenue
correctl! disallo'ed the P$A,BBB.BB deduction claimed b!
private respondent Al,ue as le,itimate business e&penses in its
income ta& returns.
HE/3, 0? I CIR is not correct. %he burden is on the
ta&pa!er to prove the validit! of the claimed deduction. In the
present case, ho'ever, 'e find that the onus has been
dischar,ed satisfactoril!. %he private respondent has proved
that the pa!ment of the fees 'as necessar! and reasonable in
the li,ht of the efforts e&erted b! the pa!ees in inducin,
investors and prominent businessmen to venture in an
e&perimental enterprise and involve themselves in a ne'
business reuirin, millions of pesos. %his 'as no mean feat
and should be, as it 'as, sufficientl! recompensed.
%a&es are the lifeblood of the ,overnment and so should be
collected 'ithout unnecessar! hindrance. ?n the other hand,
such collection should be made in accordance 'ith la' as an!
arbitrariness 'ill ne,ate the ver! reason for ,overnment itself.
It is therefore necessar! to reconcile the apparentl! conflictin,
interests of the authorities and the ta&pa!ers so that the real
purpose of ta&ation, 'hich is the promotion of the common
,ood, ma! be achieved.
It is said that ta&es are 'hat 'e pa! for civili/ation societ!.
4ithout ta&es, the ,overnment 'ould be paral!/ed for lac. of
the motive po'er to activate and operate it. =ence, despite the
natural reluctance to surrender part of oneFs hard earned
income to the ta&in, authorities, ever! person 'ho is able to
must contribute his share in the runnin, of the ,overnment.
%he ,overnment for its part, is e&pected to respond in the form
of tan,ible and intan,ible benefits intended to improve the
lives of the people and enhance their moral and material
values. %his s!mbiotic relationship is the rationale of ta&ation
and should dispel the erroneous notion that it is an arbitrar!
method of e&action b! those in the seat of po'er.
But even as 'e concede the inevitabilit! and indispensabilit! of
ta&ation, it is a reuirement in all democratic re,imes that it be
e&ercised reasonabl! and in accordance 'ith the prescribed
procedure. If it is not, then the ta&pa!er has a ri,ht to
complain and the courts 'ill then come to his succor. 7or all
the a'esome po'er of the ta& collector, he ma! still be stopped
in his trac.s if the ta&pa!er can demonstrate, as it has here,
that the la' has not been observed.
'. B2I +amil! avin?s Ban: v. CA, et al.
"R #o. 1**=7%A A9ril 1*, *%%%
+acts, Petitioner BPI 7amil! "avin,s Ban. had an e&cess
'ithholdin, ta&es for the !ear :232 amountin, to P::#,-2:.2B.
It indicated in its :232 Income %a& Return that it 'ould appl!
the said amount as a ta& credit for the succeedin, ta&able !ear,
:22B. =o'ever because of business losses, petitioner informed
the Bureau of Internal Revenue (BIR) that it 'ould claim the
amount as a ta& refund, instead of appl!in, it as a ta& credit.
4hen no action from the BIR 'as forthcomin,, petitioner filed
its claim 'ith the Court of %a& Appeals.
%he C%A and the CA, ho'ever, denied the claim for ta& refund.
"ince petitioner declared in its :232 Income %a& Return that it
'ould appl! the e&cess 'ithholdin, ta& as a ta& credit for the
follo'in, !ear, the %a& Court held that petitioner 'as
presumed to have done so. %he C%A and the CA ruled that
petitioner failed to overcome this presumption because it did
not present its :22B Return, 'hich 'ould have sho'n that the
amount in dispute 'as not applied as a ta& credit. =ence, the
CA concluded that petitioner 'as not entitled to a ta& refund.
Issue, 4hether or not petitioner is entitled to the refund of
P::#,-2:.2B, representin, e&cess creditable 'ithholdin, ta&
paid for the ta&able !ear :232.
Held, It is undisputed that petitioner had e&cess 'ithholdin,
ta&es for the !ear :232 and 'as thus entitled to a refund
amountin, to P::#,-2:. Pursuant to "ection C2 of the :23C %a&
Code 'hich states that a corporation entitled to a refund ma!
opt either (:) to obtain such refund or (#) to credit said amount
for the succeedin, ta&able !ear.
Petitioner presented evidence to prove its claim that it did not
appl! the amount as a ta& credit.
A cop! of the 7inal Ad*ustment Return for :22B 'as attached
to petitionerFs (otion for Reconsideration filed before the
C%A. A final ad*ustment return sho's 'hether a corporation
incurred a loss or ,ained a profit durin, the ta&able !ear. In
this case, that Return clearl! sho'ed that petitioner incurred
PA#,-3B,:$@ as net loss in :22B. Clearl!, it could not have
applied the amount in dispute as a ta& credit.
%he BIR did not controvert the veracit! of the said return. It
did not even file an opposition to petitionerFs (otion and the
:22B 7inal Ad*ustment Return attached thereto.
Petitioner also calls the attention of this Court, as it had done
before the C%A, to a >ecision rendered b! the %a& Court in
C%A Case 0o. -32$, involvin, its claim for refund for the !ear
:22B. In that case, the %a& Court held that Dpetitioner suffered
a net loss for the ta&able !ear :22B . . . .D Respondent, ho'ever,
ur,es this Court not to ta.e *udicial notice of the said case.
RespondentsF reasonin, underscores the 'ea.ness of their
case. 7or if the! had reall! believed that petitioner is not
entitled to a ta& refund, the! could have easil! proved that it
did not suffer an! loss in :22B. Indeed, it is note'orth! that
respondents opted not to assail the fact appearin, therein J
that petitioner suffered a net loss in :22B J in the same 'a!
that it refused to controvert the same fact established b!
petitionerFs other documentar! e&hibits
%echnicalities and le,alisms, ho'ever e&alted, should not be
misused b! the ,overnment to .eep mone! not belon,in, to it
and thereb! enrich itself at the e&pense of its la'1abidin,
citi/ens. If the "tate e&pects its ta&pa!ers to observe fairness
and honest! in pa!in, their ta&es, so must it appl! the same
standard a,ainst itself in refundin, e&cess pa!ments of such
ta&es. Indeed, the "tate must lead b! its o'n e&ample of honor,
di,nit! and upri,htness.
$. C.((II.#ER .+ I#TER#A/ RE0E#1E
vs.T.B4. HI22I#" C.. /T3., represented b!
"?RIA(?0% "%EA("=IP A6E0CIE" I0C., and
C?)R% ?7 %AK APPEAL"
#-- "CRA @-#9 (a! #C, :22A
+acts5 %o.!o "hippin, a forei,n corporation represented in
the Philippines b! "oriamont "teamship A,encies and o'ns
and operates (E8 6ardenia. 0A")%RA
*
chartered (E8
6ardenia to load :C,ABB metric tons of ra' su,ar in the
Philippines. "oriamont A,enc!,
=
paid the reuired income and
common carrierFs ta&es PA2,A#@.$A and P-$,C:2.BB,
respectivel! (%otal P:B$,:-#.$A). )pon arrivin,, ho'ever, at
6uimaras Port of Iloilo, the vessel found no su,ar for loadin,.
0A")%RA and "oriamont mutuall! a,reed to have the vessel
sail for Mapan 'ithout an! car,o. Claimin, the pre1pa!ment of
income and common carrierFs ta&es as erroneous since no
receipt 'as reali/ed from the charter a,reement, %o.!o
instituted a claim for ta& credit or refund of the sum
P:B$,:-#.$A from CIR. Petitioner failed to act promptl! on the
claim , hence %o.!o filed a petition for revie'
$
before Court of
%a& Appeals. C%A decided for %o.!o and denied (R of CIR.
Issue5 4?0 %o.!o "hippin, Co. Ltd., is entitled to a refund or
ta& credit I 'hether it 'as able to prove that it derived no
receipts from its charter a,reement, and hence is entitled to a
refund of the ta&es it pre1paid to the ,overnment.
Rulin?5 <es. Pursuant to "ection #- (b) (#) of the 0ational
Internal Revenue Code 'hich at that time, a resident forei,n
corporation en,a,ed in the transport of car,o is liable for ta&es
dependin, on the amount of income it derives from sources
'ithin the Philippines. %hus, before such a ta& liabilit! can be
enforced the ta&pa!er must be sho'n to have earned income
sourced from the Philippines.
Indeed, a claim for refund is in the nature of a claim for
e&emption
7
and should be construed in strictissimi
juris a,ainst the ta&pa!er. And %o.!o has the burden of proof
to establish the factual basis of its claim for ta& refund.
But sufficient evidence has alread! been adduced b! %o.!o
provin, that it derived no receipt from its charter a,reement
'ith 0A")%RA 1 (E8 D6ardeniaD arrived in Iloilo on Manuar!
:B, :23: but found no ra' su,ar to load and returned to Mapan
'ithout an! car,o laden on board.
&. C.((II.#ER .+ I#TER#A/ RE0E#1E 0.
(IT1BIHI (ETA/ C.R2.RATI.# -171
CRA *1=C
+acts, Atlas Consolidated (inin, and>evelopment
Corporation, a domestic corporation, entered into a Loan and
"ales Contract 'ith (itsubishi (etal Corporation, a Mapanese
corporation licensed to en,a,e in business in the Philippines. %o
be able to e&tend the loan to Atlas, (itsubishi entered into
another loan a,reement 'ith E&port1Import Ban. (E&imban.),
a financin, institution o'ned, controlled, and financed b! the
Mapanese ,overnment. After ma.in, interest pa!ments to
(itsubishi, 'ith the correspondin, :A+ ta& thereon remitted to
the 6overnment of the Philippines, Altas claimed for ta& credit
'ith the Commissioner of Internal Revenue based on "ection
#2(b)($) (A) of the 0ational Internal Revenue Code, statin, that
since E&imban., and not (itsubishi, is 'here the mone! for the
loan ori,inated from E&imban., then it should be e&empt from
pa!in, ta&es on its loan thereon.
Issue, 4?0 the interest income from the loans e&tended to
Atlas b! (itsubishi is e&cludible from ,ross income ta&ation.
0?. (itsubishi secured the loan from E&imban. in its o'n
independent capacit! as a private entit! and not as a conduit of
E&imban.. %herefore, 'hat the sub*ect of the :A+ 'ithholdin,
ta& is not the interest income paid b! (itsubishi to E&imban.,
but the interest income earned b! (itsubishi from the loan to
Atlas. %hus, it does not come 'ithin the ambit of "ection #2(b)
($)(A), and it is not e&empt from the pa!ment of ta&es.
#otes, 7indin,s of fact of the Court of %a& Appeals are entitled
to the hi,hest respect and can onl! be disturbed on appeal if
the! are not supported b! substantial evidence or if there is a
sho'in, of ,ross error or abuse on the part of the ta& court.
La's ,rantin, e&emption from ta& are construed strictissimi
*uris a,ainst the ta&pa!er and liberall! in favor of the ta&in,
po'er. %a&ation is the rule and e&emption is the e&ception.
7. 2hil Ban: of Communications vs. CIR, et. al.
8%* CRA *=1 Danuar! *7, 1)))
+acts, Petitioner, Philippine Ban. of Communications
(PBCom), a commercial ban.in, corporation dul! or,ani/ed
under Philippine la's, filed its uarterl! income ta& returns
for the first and second uarters of :23A, reported profits, and
paid the total income ta& of PA,B:C,2A-.BB. %he ta&es due 'ere
settled b! appl!in, PBComFs ta& credit memos.
"ubseuentl!, ho'ever, PBCom suffered losses so that 'hen it
filed its Annual Income %a& Returns for the !ear1ended
>ecember @:, :23C, the petitioner li.e'ise reported a net loss
of P:-,:#2,CB#.BB, and thus declared no ta& pa!able for the
!ear.
But durin, these t'o !ears, PBCom earned rental income from
leased properties. %he lessees 'ithheld and remitted to the
BIR 'ithholdin, creditable ta&es of P#3#,$2A.AB in :23A and
P#@-,B$$.C2 in :23C.
"ubseuentl!, Petitioner reuested the Commissioner of
Internal Revenue, amon, others, for a ta& credit of
PA,B:C,2A-.BB representin, the overpa!ment of ta&es in the
first and second uarters of :23A.
%hereafter, on Mul! #A, :233, petitioner filed a claim for refund
of creditable ta&es 'ithheld b! their lessees from propert!
rentals in :23A for P#3#,$2A.AB and in :23C for P#@-,B$$.C2.
Pendin, the investi,ation of the respondent Commissioner of
Internal Revenue, petitioner instituted a Petition for Revie'
on 0ovember :3, :233 before the Court of %a& Appeals (C%A).
%he C%A rendered a decision 'hich, as stated on the outset,
denied the reuest of petitioner for a ta& refund or credit in the
sum amount of PA,#22,$-2.2A, on the ,round that it 'as filed
be!ond the t'o1!ear re,lementar! period provided for b! la'.
%he petitionerFs claim for refund in :23C amountin, to
P#@-,B$$.C2 'as li.e'ise denied on the assumption that it 'as
automaticall! credited b! PBCom a,ainst its ta& pa!ment in
the succeedin, !ear.
I1E, 4hether the Court of Appeals erred in den!in, the
plea for ta& refund or ta& credits on the ,round of prescription
HE/3, 0o. Basic is the principle that Dta&es are the lifeblood
of the nation.D %he primar! purpose is to ,enerate funds for
the "tate to finance the needs of the citi/enr! and to advance
the common 'eal. :@ >ue process of la' under the
Constitution does not reuire *udicial proceedin,s in ta& cases.
%his must necessaril! be so because it is upon ta&ation that the
,overnment chiefl! relies to obtain the means to carr! on its
operations and it is of utmost importance that the modes
adopted to enforce the collection of ta&es levied should be
summar! and interfered 'ith as little as possible.
7rom the same perspective, claims for refund or ta& credit
should be e&ercised 'ithin the time fi&ed b! la' because the
BIR bein, an administrative bod! enforced to collect ta&es, its
functions should not be undul! dela!ed or hampered b!
incidental matters.
"ec. #@B of the 0ational Internal Revenue Code (0IRC) of :2$$
(no' "ec. ##2, 0IRC of :22$) provides for the prescriptive
period for filin, a court proceedin, for the recover! of ta&
erroneousl! or ille,all! collected.
%he rule states that the ta&pa!er ma! file a claim for refund or
credit 'ith the Commissioner of Internal Revenue, 'ithin t'o
(#) !ears after pa!ment of ta&, before an! suit in C%A is
commenced. %he t'o1!ear prescriptive period provided,
should be computed from the time of filin, the Ad*ustment
Return and final pa!ment of the ta& for the !ear.
). ison v. Ancheta
"R #o. /6')=81A *' Dul! 1)7=
+ A C T , Batas Pambansa :@A 'as enacted. "ison, as
ta&pa!er, alle,ed that its provision ("ection :) undul!
discriminated a,ainst him b! the imposition of hi,her rates
upon his income as a professional, that it amounts to class
le,islation, and that it trans,resses a,ainst the eual
protection and due process clauses of the Constitution as 'ell
as the rule reuirin, uniformit! in ta&ation.
I 1 E, 4hether or not BP :@A violates the due process
and eual protection clauses, and the rule on uniformit! in
ta&ation.
H E / 3, %here is a need for proof of such persuasive
character as 'ould lead to a conclusion that there 'as a
violation of the due process and eual protection clauses.
Absent such sho'in,, the presumption of validit! must prevail.
Eualit! and uniformit! in ta&ation means that all ta&able
articles or .inds of propert! of the same class shall be ta&ed at
the same rate. %he ta&in, po'er has the authorit! to ma.e
reasonable and natural classifications for purposes of ta&ation.
4here the differentiation conforms to the practical dictates of
*ustice and euit!, similar to the standards of eual protection,
it is not discriminator! 'ithin the meanin, of the clause and is
therefore uniform. %a&pa!ers ma! be classified into different
cate,ories, such as recipients of compensation income as
a,ainst professionals. Recipients of compensation income are
not entitled to ma.e deductions for income ta& purposes as
there is no practicall! overhead e&pense, 'hile professionals
and businessmen have no uniform costs or e&penses necessar!
to produce their income. %here is ample *ustification to adopt
the ,ross s!stem of income ta&ation to compensation income,
'hile continuin, the s!stem of net income ta&ation as re,ards
professional and business income.
1%. Re!es vs. AlmanEor
1)$ CRA 8**A A9ril *$, 1))1
+ACT, Petitioners M.B.L. Re!es, Edmundo and (ila,ros
Re!es are o'ners of parcels of land situated in %ondo and "ta.
Cru/ >istricts, Cit! of (anila, 'hich are leased and entirel!
occupied as d'ellin, sites b! tenants. "aid tenants 'ere pa!in,
monthl! rentals not e&ceedin, three hundred pesos (P@BB.BB)
in Mul!, :2$:.
?n Mul! :-, :2$:, the 0ational Le,islature enacted Republic
Act 0o. C@A2 prohibitin, for one !ear from its effectivit!, an
increase in monthl! rentals of d'ellin, units or of lands on
'hich anotherFs d'ellin, is located, 'here such rentals do not
e&ceed three hundred pesos (P@BB.BB) a month but allo'in,
an increase in rent b! not more than :B+ thereafter.
?n ?ctober :#, :2$#, Presidential >ecree 0o. #B amended R.A.
0o. C@A2 b! ma.in, absolute the prohibition to increase
monthl! rentals belo' P@BB.BB and b! indefinitel! suspendin,
the aforementioned provision of the Civil Code, e&ceptin,
leases 'ith a definite period. Conseuentl!, the Re!eses 'ere
precluded from raisin, the rentals and from e*ectin, the
tenants thereof.
%he Cit! Assessor of (anila assessed the value of the Re!eses
propert! on the schedule of mar.et values dul! revie'ed b! the
"ecretar! of 7inance. %he revision entailed an increase to the
ta& rates and the petitioners averred that the reassessment
imposed upon them ,reatl! e&ceeded the annual income
derived from their properties.
I1E, 4?0 income approach is the method to be used in
the ta& assessment and not the comparable sales approach.
HE/3, %he income approach and not the comparable sales
approach must be used.
NB! no stren,th of the ima,ination can the mar.et value of
properties covered b! P.>. 0o. #B be euated 'ith the mar.et
value of properties not so covered. %he former has naturall! a
much lesser mar.et value in vie' of the rental restrictions.
In the case at bar, not even the factors determinant of the
assessed value of sub*ect properties under the Dcomparable
sales approachD 'ere presented b! the public respondents,
namel!5 (:) that the sale must represent a bonafide armFs
len,th transaction bet'een a 'illin, seller and a 'illin, bu!er
and (#) the propert! must be comparable propert!. 0othin,
can *ustif! or support their vie' as it is of *udicial notice that
for properties covered b! P.>. #B especiall! durin, the time in
uestion, there 'ere hardl! an! 'illin, bu!ers. As a ,eneral
rule, there 'ere no ta.ers so that there can be no reasonable
basis for the conclusion that these properties 'ere comparable
'ith other residential properties not burdened b! P.>. #B.O
11. 2A/ v. ec of +inance
"R #o. 11'7'*A 8% .ctober 1))'
+ A C T , %he 8alue1Added %a& G8A%H is levied on the sale,
barter or e&chan,e of ,oods and properties as 'ell as on the
sale or e&chan,e of services. It is euivalent to :B+ of the ,ross
sellin, price or ,ross value in mone! of ,oods or properties
sold, bartered or e&chan,ed or of the ,ross receipts from the
sale or e&chan,e of services. Republic Act 0o. $$:C see.s to
'iden the ta& base of the e&istin, 8A% s!stem and enhance its
administration b! amendin, the 0ational Internal Revenue
Code.
%hese are various suits for certiorari and prohibition
challen,in, the constitutionalit! of RA $$:C5
In the case at bar, PAL attac.s the formal validit! of Republic
Act 0o. $$:C. PAL contends that it violates Art. 8I, "ection
#CG:H 'hich provides that DEver! bill passed b! Con,ress shall
embrace onl! one sub*ect 'hich shall be e&pressed in the title
thereof.D It is contended that neither =. 0o. :::2$ nor ". 0o.
:C@B provided for removal of e&emption of PAL transactions
from the pa!ment of the 8A% and that this 'as made onl! in
the Conference Committee bill 'hich became Republic Act 0o.
$$:C 'ithout reflectin, this fact in its title.
%he title of Republic Act 0o. $$:C is5
A0 AC% RE"%R)C%)RI06 %=E 8AL)E1A>>E>
%AK G8A%H "<"%E(, 4I>E0I06 I%" %AK BA"E A0>
E0=A0CI06 I%" A>(I0I"%RA%I?0, A0> 7?R
%=E"E P)RP?"E" A(E0>I06 A0> REPEALI06
%=E RELE8A0% PR?8I"I?0" ?7 %=E 0A%I?0AL
I0%ER0AL RE8E0)E C?>E, A" A(E0>E>, A0>
7?R ?%=ER P)RP?"E".
7urthermore, section :B@ of RA $$:C states the follo'in,5
"ection :B@. Exempt Transactions.- %he follo'in, shall be
e&empt from the value1added ta&5
GH %ransactions 'hich are e&empt under special la's, e&cept
those ,ranted under Presidential >ecree 0os. CC, A#2, 2$#,
:-2:, :A2B.
%he effect of the amendment is to remove the e&emption
,ranted to PAL, as far as the 8A% is concerned.
Philippine Airlines GPALH claims that its franchise under P.>.
0o. :A2B 'hich ma.es it liable for a franchise ta& of onl! #+ of
,ross revenues Din lieu of all the other fees and char,es of an!
.ind, nature or description, imposed, levied, established,
assessed or collected b! an! municipal, cit!, provincial, or
national authorit! or ,overnment a,enc!, no' or in the
future,D cannot be amended b! Rep. Act 0o. $$:C as to ma.e it
GPALH liable for a :B+ value1added ta& on revenues, because
"ec. #- of P.>. 0o. :A2B provides that PALFs franchise can onl!
be amended, modified or repealed b! a special la' specificall!
for that purpose.
I 1 E, 4hether or not this amendment of "ection :B@ of
the 0IRC is fairl! embraced in the title of Republic Act 0o.
$$:C, althou,h no mention is made therein of P. >. 0o. :A2B
H E / 3, %he court ruled in in the affirmative. %he title states
that the purpose of the statute is to e&pand the 8A% s!stem,
and one 'a! of doin, this is to 'iden its base b! 'ithdra'in,
some of the e&emptions ,ranted before. %o insist that P. >. 0o.
:A2B be mentioned in the title of the la', in addition to "ection
:B@ of the 0IRC, in 'hich it is specificall! referred to, 'ould be
to insist that the title of a bill should be a complete inde& of its
content.
%he constitutional reuirement that ever! bill passed b!
Con,ress shall embrace onl! one sub*ect 'hich shall be
e&pressed in its title is intended to prevent surprise upon the
members of Con,ress and to inform the people of pendin,
le,islation so that, if the! 'ish to, the! can be heard re,ardin,
it. If, in the case at bar, petitioner did not .no' before that its
e&emption had been 'ithdra'n, it is not because of an! defect
in the title but perhaps for the same reason other statutes,
althou,h published, pass unnoticed until some event someho'
calls attention to their e&istence.
Republic Act 0o. $$:C e&pressl! amends PALFs franchise GP. >.
0o. :A2BH b! specificall! e&ceptin, from the ,rant of
e&emptions from the 8A% PALFs e&emption under P. >. 0o.
:A2B. %his is 'ithin the po'er of Con,ress to do under Art.
KII, "ection :: of the Constitution, 'hich provides that the
,rant of a franchise for the operation of a public utilit! is
sub*ect to amendment, alteration or repeal b! Con,ress 'hen
the common ,ood so reuires.
1*. ART1R. (. T./E#TI#., petitioner, vs. THE
ECRETAR4 .+ +I#A#CE and THE
C.((II.#ER .+ I#TER#A/ RE0E#1E,
respondents. ".R. #o. 11'='' Au?ust *', 1))=
+ACT, =erein various petitioners see. to declare RA $:CC as
unconstitutional as it see.s to 'iden the ta& base of the
e&istin, 8A% s!stem and enhance its administration b!
amendin, the 0ational Internal Revenue Code. %he value1
added ta& (8A%) is levied on the sale, barter or e&chan,e of
,oods and properties as 'ell as on the sale or e&chan,e of
services. It is euivalent to :B+ of the ,ross sellin, price or
,ross value in mone! of ,oods or properties sold, bartered or
e&chan,ed or of the ,ross receipts from the sale or e&chan,e of
services.
CREBA asserts that R.A. 0o. $$:C (:) impairs the obli,ations of
contracts, (#) classifies transactions as covered or e&empt
'ithout reasonable basis and (@) violates the rule that ta&es
should be uniform and euitable and that Con,ress shall
Devolve a pro,ressive s!stem of ta&ation.D
4ith respect to the first contention, it is claimed that the
application of the ta& to e&istin, contracts of the sale of real
propert! b! installment or on deferred pa!ment basis 'ould
result in substantial increases in the monthl! amorti/ations to
be paid because of the :B+ 8A%. %he additional amount, it is
pointed out, is somethin, that the bu!er did not anticipate at
the time he entered into the contract.
It is ne&t pointed out that 'hile "ection - of R.A. 0o. $$:C
e&empts such transactions as the sale of a,ricultural products,
food items, petroleum, and medical and veterinar! services, it
,rants no e&emption on the sale of real propert! 'hich is
euall! essential. %he sale of real propert! for sociali/ed and
lo'1cost housin, is e&empted from the ta&, but CREBA claims
that real estate transactions of Dthe less poor,D i.e., the middle
class, 'ho are euall! homeless, should li.e'ise be e&empted.
7inall!, it is contended, for the reasons alread! noted, that
R.A. 0o. $$:C also violates Art. 8I, "ection #3(:) 'hich
provides that D%he rule of ta&ation shall be uniform and
euitable. %he Con,ress shall evolve a pro,ressive s!stem of
ta&ation.D
I1E, 4hether or not RA $:CC violates the principle of
pro,ressive s!stem of ta&ation.
HE/3, 0o, there is no *ustification for passin, upon the
claims that the la' also violates the rule that ta&ation must be
pro,ressive and that it denies petitionersF ri,ht to due process
and that eual protection of the la's. %he reason for this
different treatment has been co,entl! stated b! an eminent
authorit! on constitutional la' thus5 D4hen freedom of the
mind is imperiled b! la', it is freedom that commands a
momentum of respect9 'hen propert! is imperiled it is the
la'ma.ersF *ud,ment that commands respect. %his dual
standard ma! not precisel! reverse the presumption of
constitutionalit! in civil liberties cases, but obviousl! it does
set up a hierarch! of values 'ithin the due process clause.D
Petitioners contend that as a result of the uniform :B+ 8A%,
the ta& on consumption ,oods of those 'ho are in the hi,her1
income brac.et, 'hich before 'ere ta&ed at a rate hi,her than
:B+, has been reduced, 'hile basic commodities, 'hich before
'ere ta&ed at rates ran,in, from @+ to A+, are no' ta&ed at a
hi,her rate.
Must as vi,orousl! as it is asserted that the la' is re,ressive, the
opposite claim is pressed b! respondents that in fact it
distributes the ta& burden to as man! ,oods and services as
possible particularl! to those 'hich are 'ithin the reach of
hi,her1income ,roups, even as the la' e&empts basic ,oods
and services. It is thus euitable. %he ,oods and properties
sub*ect to the 8A% are those used or consumed b! hi,her1
income ,roups. %hese include real properties held primaril!
for sale to customers or held for lease in the ordinar! course of
business, the ri,ht or privile,e to use industrial, commercial or
scientific euipment, hotels, restaurants and similar places,
tourist buses, and the li.e. ?n the other hand, small business
establishments, 'ith annual ,ross sales of less than PABB,BBB,
are e&empted. %his, accordin, to respondents, removes from
the covera,e of the la' some @B,BBB business establishments.
?n the other hand, an occasional paper of the Center for
Research and Communication cities a 0E>A stud! that the
8A% has minimal impact on inflation and income distribution
and that 'hile additional e&penditure for the lo'est income
class is onl! P@B: or :.-2+ a !ear, that for a famil! earnin,
PABB,BBB a !ear or more is P3,@-B or #.#+.
Lac.in, empirical data on 'hich to base an! conclusion
re,ardin, these ar,uments, an! discussion 'hether the 8A% is
re,ressive in the sense that it 'ill hit the DpoorD and middle1
income ,roup in societ! harder than it 'ill the Drich,D is lar,el!
an academic e&ercise. ?n the other hand, the C)PFs contention
that Con,ressF 'ithdra'al of e&emption of producers
cooperatives, mar.etin, cooperatives, and service
cooperatives, 'hile maintainin, that ,ranted to electric
cooperatives, not onl! ,oes a,ainst the constitutional polic! to
promote cooperatives as instruments of social *ustice (Art. KII,
P :A) but also denies such cooperatives the eual protection of
the la' is actuall! a polic! ar,ument. %he le,islature is not
reuired to adhere to a polic! of Dall or noneD in choosin, the
sub*ect of ta&ation.
==
0or is the contention of the Chamber of Real Estate and
Builders Association (CREBA), petitioner in 6.R. ::A$A-, that
the 8A% 'ill reduce the mar. up of its members b! as much as
3A+ to 2B+ an! more concrete. It is a mere alle,ation. ?n the
other hand, the claim of the Philippine Press Institute,
petitioner in 6.R. 0o. ::AA--, that the 8A% 'ill drive some of
its members out of circulation because their profits from
advertisements 'ill not be enou,h to pa! for their ta& liabilit!,
'hile purportin, to be based on the financial statements of the
ne'spapers in uestion, still falls short of the establishment of
facts b! evidence so necessar! for ad*udicatin, the uestion
'hether the ta& is oppressive and confiscator!.
Indeed, re,ressivit! is not a ne,ative standard for courts to
enforce. 4hat Con,ress is reuired b! the Constitution to do is
to Devolve a pro,ressive s!stem of ta&ation.D %his is a directive
to Con,ress, *ust li.e the directive to it to ,ive priorit! to the
enactment of la's for the enhancement of human di,nit! and
the reduction of social, economic and political ineualities
(Art. KIII, P :), or for the promotion of the ri,ht to Dualit!
educationD (Art. KI8, P :). %hese provisions are put in the
Constitution as moral incentives to le,islation, not as *udiciall!
enforceable ri,hts.
18. ABABA3A v. Ermita -3ele?ation to the
2residentC
=$) CRA 1, e9tember 1, *%%'
+acts, RA 2@@$5 8A% Reform Act enacted on (a! #-, #BBA.
"ec. - (sales of ,oods and properties), "ec. A (importation of
,oods) and "ec. C (services and lease of propert!) of RA 2@@$,
in collective, ,ranted the "ecretar! of 7inance the authorit! to
ascertain5 (a) 'hether b! :#E@:EBA, the 8A% collection as a
percenta,e of the #BB- 6>P e&ceeds #.3+ or (b)the national
,overnment deficit as a percenta,e of the #BB- 6>P e&ceeds
:.A+. If either condition is met, the "ec of 7inance must inform
the President 'ho, in turn, must impose the :#+ 8A% rate
(from :B+) effective Manuar! :, #BBC.
ABAQA>A maintained that Con,ress abandoned its e&clusive
authorit! to fi& ta&es and that RA 2@@$ contained a uniform
proviso authori/in, the President upon recommendation b!
the >?7 "ecretar! to rasie 8A% to :#+.
"en Pimentel maintained that RA 2@@$ constituted undue
dele,ation of le,islative po'ers and a violation of due process
since the la' 'as ambi,uous and arbitrar!. "ame 'ith Rep.
Escudero.
Pilipinas "hell dealers ar,ued that the 8A% reform 'as
arbitrar!, oppressive and confiscator!.
Respondents countered that the la' 'as complete, that it left
no discretion to the President, and that it merel! char,ed the
President 'ith carr!in, out the rate increase once an! of the
t'o conditions arise.
Issue, 4?0 there 'as undue dele,ation.
Held, 0o dele,ation but mere implementation of the la'.
Constitution allo's as under e&empted dele,ation the
dele,ation of tariffs, customs duties, and other tolls, levies on
,oods imported and e&ported. 8A% is ta& levied on sales of
,oods and services 'hich could not fall under this e&emption.
=ence, its dele,ation if unualified is unconstitutional.
Le,islative po'er is authorit! to ma.e a complete la'. %hus, to
be valid, a la' must be complete in itself, settin, forth therein
the polic! and it must fi& a standard, limits of 'hich are
sufficientl! determinate and determinable.
0o undue dele,ation 'hen con,ress describes 'hat *ob must
be done 'ho must do it and the scope of the authorit! ,iven.
(Edu v Ericta)
"ec of 7inance 'as merel! tas.ed to ascertain the e&istence of
facts. All else 'as laid out. (ainl! ministerial for the "ecretar!
to ascertain the facts and for the president to carr! out the
implementation for the 8A%. %he! 'ere a,ents of the
le,islative dept
1=. CIR and Commissioner of Customs vs. Botelho
hi99in? Cor9. @ "eneral hi99in? Co., Inc.
".R. #os. /6*1$8868= Dune *), 1)$&
+ACT, Reparations Commission of the Philippines sold to
Botelho the vessel D(E" (aria RoselloD for the amount of
PC,$23,333.33. %he former li.e'ise sold to 6eneral "hippin,
the vessel D(E" 6eneral LimD at the price of PC,2A:,CCC.CC.
)pon arrival at the port of (anila, the Bureau of Customs
placed the same under custod! and refused to ,ive due course
Gto applications for re,istrationH, unless the aforementioned
sums of P-3@,-@@ and P-2-,3#- be paid as compensatin, ta&.
%he bu!ers subseuentl! filed 'ith the C%A their respective
petitions for revie'. Pendin, the case, Republic Act 0o. @B$2
amended Republic Act 0o. :$32 J the ?ri,inal Reparations
Act, under 'hich the aforementioned contracts 'ith the
Bu!ers had been e&ecuted J b! e&emptin, bu!ers of
reparations ,oods acuired from the Commission, from
liabilit! for the compensatin, ta&.
Invo.in, Gsection #B of the RA @B$2H, the Bu!ers applied, for
the renovation of their utili/ations contracts 'ith the
Commission, 'hich ,ranted the application, and, then, filed
'ith the %a& Court, their supplemental petitions for revie'.
%he C%A ruled in favor of the bu!ers.
G?n appeal, the CIR and C?C maintain that such proviso
should not be applied retroactivel!H, upon the ,round that a
ta& e&emption must be clear and e&plicit9 that there is no
e&press provision for the retroactivit! of the e&emption,
established b! Republic Act 0o. @B$2, from the compensatin,
ta&9 that the favorable provisions, 'hich are referred to in
section #B thereof, cannot include the e&emption from
compensatin, ta&9 and, that Con,ress could not have intended
an! retroactive e&emption, considerin, that the result thereof
'ould be pre*udicial to the 6overnment.
I1E, 4hether or not the ta& e&emption can be applied
retroactivel!
HE/3, <E". %he inherent 'ea.ness of the last ,round
becomes manifest 'hen 'e consider that, if true, there could
be no ta& e&emption of an! .ind 'hatsoever, even if Con,ress
should 'ish to create one, because ever! such e&emption
implies a 'aiver of the ri,ht to collect 'hat other'ise 'ould be
due to the 6overnment, and, in this sense, is pre*udicial
thereto. It ma! not be amiss to add that no ta& e&emption J
li.e an! other le,al e&emption or e&ception J is ,iven 'ithout
an! reason therefor. In much the same 'a! as other statutor!
commands, its avo'ed purpose is some public benefit or
interest, 'hich the la'1ma.in, bod! considers sufficient to
offset the monetar! loss entitled in the ,rant of the e&emption.
Indeed, section #B of Republic Act 0o. @B$2 e&acts a valuable
consideration for the retroactivit! of its favorable provisions,
namel!, the voluntar! assumption, b! the end1user 'ho
bou,ht reparations ,oods prior to Mune :$, :2C: of Dall the ne'
obli,ations provided for inD said Act.
7urthermore, "ection :- of the La' on Reparations, as
amended, e&empts from the compensatin, ta&, not particular
persons, but persons belon,in, to a particular class. Indeed,
appellants do not assail the constitutionalit! of said section :-,
insofar as it ,rants e&emptions to end1users 'ho, after the
approval of Republic Act 0o. @B$2, on Mune :$, :2C:,
purchased reparations ,oods procured b! the Commission.
7rom the vie'point of Constitutional La', especiall! the eual
protection clause, there is no difference bet'een the ,rant of
e&emption to said end1users, and the e&tension of the ,rant to
those 'hose contracts of purchase and sale mere made before
said date, under Republic Act 0o. :$32.
1'. Tan v. 3el Rosario
".R. #o. 1%)*7). .ctober 8, 1))=
+acts, Petitioners assail RA $-2C, also commonl! .no'n as
the "implified 0et Income %a&ation "cheme (D"0I%D),
amendin, certain provisions of the 0ational Internal Revenue
Code, as violative of the constitutional reuirement that
ta&ation shall be Dshall be uniform and euitable.D %he la'
'ould no' attempt to ta& sin,le proprietorships and
professionals differentl! from the manner it imposes the ta& on
corporations and partnerships.
Petitioner ,ives a fairl! e&tensive discussion on the merits of
the la', illustratin,, in the process, 'hat he believes to be an
imbalance bet'een the ta& liabilities of those covered b! the
amendator! la' and those 'ho are not.
Issue, 4hether or not RA $-2C is violative of the
constitutional reuirement that ta&ation shall be uniform and
euitable.
Held5 Petition denied. )niformit! of ta&ation means that (:)
the standards that are used therefore are substantial and not
arbitrar!, (#) the cate,ori/ation is ,ermane to achieve
le,islative purpose, (@) the la' applies, all thin,s bein, eual,
to both present and future conditions and (-) the classification
applies euall! 'ell to all those belon,in, to the same class.
4ith the le,islature primaril! lies the discretion to determine
the nature (.ind), ob*ect (purpose), e&tent (rate), covera,e
(sub*ects) and situs (place) of ta&ation. %his court cannot freel!
delve into those matters 'hich, b! constitutional fiat, ri,htl!
rest on le,islative *ud,ment. ?f course, 'here a ta& measure
becomes so unconscionable and un*ust as to amount to
confiscation of propert!, courts 'ill not hesitate to stri.e it
do'n, for, despite all its plenitude, the po'er to ta& cannot
override constitutional proscriptions. %his sta,e, ho'ever, has
not been demonstrated to have been reached 'ithin an!
appreciable distance in this controvers! before us.
1$. (ACE3A vs. (ACARAI", DR
**8 CRA *1& Dune 7, 1))8
To9ic, Classification of Taxes Accordin?
to Burden or Incidence -3irect or
IndirectC
+acts, %his matter of indirect ta& e&emption of the private
respondent 0ational Po'er Corporation (0PC) is brou,ht to
this Court a second time. )nfa/ed b! the >ecision 4e
promul,ated on (a! @:, :22: petitioner Ernesto (aceda as.s
this Court to reconsider said >ecision.
A Chronolo,ical revie' of the relevant 0PC la's, speciall! 'ith
respect to its ta& e&emption provisions.
:. ?n 0ovember @, :2@C, Common'ealth Act 0o. :#B5
creatin, the 0ational Po'er Corporation. %he main
source of funds for the 0PC 'as the flotation of bonds
in the capital mar.ets
=
and these bonds...Nissued under
the authorit! of this Act shall be e&empt from the
pa!ment of all ta&es b! the Common'ealth of the
PhilippinesRO
#. ?n Mune #-, :2@3, C.A. 0o. @--, the provision on ta&
e&emption in relation to the issuance of the 0PC bonds
'as neither amended nor deleted.
@. ?n "eptember @B, :2@2, C.A. 0o. -2A, the provision on
ta& e&emption in relation to the issuance of the 0PC
bonds 'as neither amended nor deleted.
-. ?n Mune -, :2-2, Republic Act 0o. @A$, an! such loan
or loans shall be e&empt from ta&es, duties, fees,
imposts, char,es, contributions and restrictions of the
Republic of the Philippines
A. ?n the same date, R.A. 0o. @A3, to facilitate pa!ment of
its indebtedness, the 0ational Po'er Corporation shall
be e&empt from all ta&es.
C. ?n Mul! :B, :2A#, R.A. 0o. 3:@ amended R.A. 0o. @A$.
%he ta& provision as stated in R.A. 0o. @A$, 'as not
amended.
$. ?n Mune #, :2A-, R.A. 0o. 23$ 'as enacted specificall!
to 'ithdra' 0PCFs ta& e&emption for real estate ta&es.
3. ?n "eptember 3, :2AA, R.A. 0o. :@2$, the ta&
e&emption provision related to the pa!ment of this
total indebtedness 'as not amended nor deleted.
2. ?n Mune :@, :2A3, R.A. 0o. #BAA, the ta& provision
related to the repa!ment of loans 'as not amended nor
deleted.
:B. ?n Mune :3, :2CB, R.A. 0o #C-: converted the 0PC
from a public corporation into a stoc. corporation. 0o
ta& e&emption 'as incorporated in said Act.
::. ?n Mune :$, :2C:, R.A. 0o. @B-@. 0o ta& provision 'as
incorporated in said Act.
:#. ?n Mune :$, :2C$, R.A. 0o -32$. 0o ta& provision 'as
incorporated in said Act.
:@. ?n "eptember :B, :2$:, R.A. 0o. C@2A 'as enacted
revisin, the charter of the 0PC. %he bonds issued shall
be e&empt from the pa!ment of all ta&es. As to the
forei,n loans the 0PC 'as authori/ed to contract, shall
also be e&empt from all ta&es,
:-. ?n Manuar! ##, :2$-, P.>. 0o. @3BRshall also
be exempt from all direct and indirect taxes,
:A. ?n 7ebruar! #C, :2$B, P.>. 0o. @2A, no ta& e&emption
provision 'as amended, deleted or added.
:C. ?n Mul! @:, :2$A, P.>. 0o. $A3 'as issued directin, that
P#BB,BBB,BBB.BB 'ould be appropriated annuall! to
cover the unpaid subscription of the 6overnment in the
0PC authori/ed capital stoc., 'hich amount 'ould be
ta.en from ta&es accruin, to the 6eneral 7unds of the
6overnment, proceeds from loans, issuance of bonds,
treasur! bills or notes to be issued
:$. ?n (a! #$, :2$C P.>. 0o. 2@3, declared e&empt from
the pa!ment of all forms of ta&esR
:3. ?n Manuar! @B, :2$C, P.>. 0o. 33# 'as issued
'ithdra'in, the ta& e&emption of 0PC 'ith re,ard to
imports
:2. ?n Mul! @B, :2$$, P.>. ::$$, All units of ,overnment,
includin, ,overnment1o'ned or controlled
corporations, shall pa! income ta&es, customs duties
and other ta&es and fees are imposed under revenues
la's5 provided, that or,ani/ations other'ise e&empted
b! la' from the pa!ment of such ta&esEduties ma! as.
for a subsid! from the 6eneral 7und
#B. ?n Mul! ::, :23-, P.>. 0o. :2@:, all e&emptions from
the pa!ment of duties, ta&es, fees, imposts and other
char,es heretofore ,ranted in favor of ,overnment1
o'ned or controlled corporations includin, their
subsidiaries, are hereb! 'ithdra'n.
#:. ?n >ecember :$, :23C, E.?. 0o. 2@ 'as issued 'ith a
vie' to correct presidential restoration or ,rant of ta&
e&emption to other ,overnment and private entities
'ithout benefit of revie' b! the 7iscal Incentives
Revie' Board, N4=EREA", in addition to those ta&
and dut! e&emption privile,es 'ere restored b! the
7iscal Incentives Revie' Board (7IRB), a number of
affected entities, ,overnment and private, had their ta&
and dut! e&emption privile,es restoredO
Petitioner contends that P.>. 0o. 2@3 repealed the indirect ta&
e&emption of 0PC.
Issue, 4?0 0PC is e&empted to pa! Indirect Income %a&
Held, <es. Classifications or .inds of %a&es5 Accordin, to
Persons 'ho pa! or 'ho bear the burden5
a. >irect %a& J that 'here the person supposed to pa!
the ta& reall! pa!s
it. WITH!T transferrin, the burden
to someone else.
Examples" Individual income tax#
corporate income tax#
transfer taxes $estate tax#
donor%s tax&# residence tax#
immigration tax
b. Indirect %a& J that 'here the ta& is imposed upon
,oods 'E(RE reachin, the consumer
'ho ultimatel! pa!s for it, not as a ta&,
but as a part of the purchase price.
Examples" t)e internal revenue indirect
taxes $specific tax#
percentage taxes# $*+T& and
t)e tariff and customs
indirect taxes $import duties#
special import tax and ot)er
dues&
A chronolo,ical revie' of the 0PC la's 'ill sho' that it has
been the la'ma.erFs intention that the 0PC 'as to be
completel! ta& e&empt from all forms of ta&es J direct and
indirect.
P.>. 0o. @3B added phrase Ddirectl! or indirectl!,D
P.>. 0o. 2@3 amended into Ne&empt from the pa!ment of +,,
(R-. ( ta&esO
President (arcos must have considered all the 0PC statutes
from C.A. 0o. :#B up to P.>. 0o. 2@3.
?ne common theme in all these la's is that the 0PC must be
enable to pa! its indebtedness
'$
'hich, as of P.>. 0o. 2@3, 'as
P:# Billion in total domestic indebtedness, at an! one time,
and )S- Billion in total forei,n loans at an! one time. %he
0PC must be and has to be e&empt from all forms of ta&es if
this ,oal is to be achieved.
%he ta& e&emption stood as is J 'ith the e&press mention of
Ddirect and indirectD ta& e&emptions. La'ma.ers 'anted the
0PC to be e&empt from ALL 7?R(" of ta&es J direct and
indirect.
%herefore, that 0PC had been ,ranted ta& e&emption
privile,es for both direct and indirect ta&es under P.>. 0o.
2@3.
%he Court rules and declares that the oil companies 'hich
suppl! bun.er fuel oil to 0PC have to pa! the ta&es imposed
upon said bun.er fuel oil sold to 0PC. B! the ver! nature of
indirect ta&ation, the economic burden of such ta&ation is
e&pected to be passed on throu,h the channels of commerce to
the user or consumer of the ,oods sold. Because, ho'ever, the
0PC has been e&empted from both direct and indirect
ta&ation, the 0PC must be held e&empted from absorbin, the
economic burden of indirect ta&ation
1&. E. TA#3AR3 EATER#, I#C vs.
C.((II.#ER .+ I#TER#A/ RE0E#1E
".R. #os. /6*7'%76), Dul! &, 1)7)
+ACT, In C%A Case 0o. :#A:, Esso "tandard Eastern Inc.
(Esso) deducted from its ,ross income for :2A2, as part of
itsor di nar ! and neces s ar ! bus i nes s e&pens es , t he
amount i t had s pe nt f or dr i l l i n, and e&pl or at i on
of i t s pet r ol eumconcessions. %his claim 'as disallo'ed b!
the Commissioner of Internal Revenue (CIR) on the ,round
that the e&pensesshould be capitali/ed and mi,ht be 'ritten
off as a loss onl! 'hen a Ddr! holeD should result. Esso then
filed an amendedreturn 'here it as.ed for the refund of
P@#@,#$2.BB b! reason of its abandonment as dr! holes of
several of its oil 'ells.Also claimed as ordinar! and
necessar! e&penses in the same return 'as the amount
of P@-B,3##.B-, representin,mar,in fees it had paid to the
Central Ban. on its profit remittances to its 0e' <or. head
office.?n Au,ust A, :2C-, the CIR ,ranted a ta& credit of
P##:,B@@.BB onl!, disallo'in, the claimed deduction for
themar,in fees paid on the ,round that the mar,in fees paid to
the Central Ban. could not be considered ta&es or allo'ed
asdeductible business e&penses.Esso appealed to the Court of
%a& Appeals (C%A) for the refund of the mar,in fees it had
earlier paid contendin,that the mar,in fees 'ere
deductible from ,ross income either as a ta& or as an
ordinar! and necessar! businesse&pense. =o'ever, Essos
appeal 'as denied.
I1E, (:) 4hether or not the mar,in fees are ta&es.(#)
4hether or not the mar,in fees are necessar! and ordinar!
business e&penses.
R1/I#", (:) 0o. A ta& is levied to provide revenue for
,overnment operations, 'hile the proceeds of the mar,in fee
areapplied to stren,then our countr!Fs international reserves.
%he mar,in fee 'as imposed b! the "tate in the e&ercise of
itspolice po'er and not the po'er of ta&ation.(#) 0o.
?rdinaril!, an e&pense 'ill be considered Fnecessar!F 'here the
e&penditure is appropriate and helpful inthe development of
the ta&pa!erFs business. It is Fordinar!F 'hen it connotes a
pa!ment 'hich is normal in relation to thebusiness of the
ta&pa!er and the surroundin, circumstances. "ince the
mar,in fees in uestion 'ere incurred for theremittance
of funds to EssoFs =ead ?ffice in 0e' <or., 'hich is a separate
and distinct income ta&pa!er from the branchin the
Philippines, for its disposal abroad, it can never be said
therefore that the mar,in fees 'ere appropriate and helpfulin
the development of EssoFs business in the Philippines
e&clusivel! or 'ere incurred for purposes proper to the
conductof the affairs of EssoFs branch in the Philippines
e&clusivel! or for the purpose of reali/in, a profit or of
minimi/in, a loss inthe Philippines e&clusivel!.
17. 2R.CTER @ "A(B/E 2HI/I22I#E
(A#1+ACT1RI#" C.R2.RATI.#
vs. THE (1#ICI2A/IT4 .+ DA"#A,
2R.0I#CE .+ B.H./
".R. #o. /6*=*$' 3ecember *7, 1)&)
T.2IC, #ature and amount of license
+ACT, Plaintiff1appellant is a domestic corporation 'ith
principal offices in (anila. lt is a consolidated corporation of
Procter T 6amble %radin, Compan! and Philippine
(anufacturin, Compan!, 'hich later became Procter T
6amble %radin, Compan!, Philippines. It is en,a,ed in the
manufacture of soap, edible oil, mar,arine and other similar
products, and for this purpose maintains a Dbode,aD in
defendant (unicipalit! 'here it stores copra purchased in the
municipalit! and therefrom ships the same for its
manufacturin, and other operations.
?n >ecember :@, :2A$, the (unicipal Council of Ma,na enacted
(unicipal ?rdinance 0o. -, "eries of :2A$ or An ?rdinance
imposin, stora,e fees of all e&portable copra deposited in the
bode,a 'ithin the *urisdlctiBn of the municipalit! of *a,na
bohol. 7or a period of si& !ears, from :2A3 to :2C@, plaintiff
paid defendant (unicipalit!, alle,edl! under protest, stora,e
fees in the total sum of P-#,#CA.:@.
?n (arch @, :2C-, plaintiff filed this suit in the Court of 7irst
Instance of (anila, Branch 8I, 'herein it pra!ed that :)
?rdinance 0o. - be declared inapplicable to it, or in the alter.
native, that it be pronounced ultra1vires and void for bein,
be!ond the po'er of the (unicipalit! to enact9 and #) that
defendant (unicipalit! be ordered to refund to it the amount
of P-#,#CA.:@ 'hich it had paid under protest9 and costs.
%he trial Court upheld its *urisdiction as 'ell as defendant
(unicipalit!Fs po'er to enact the ?rdinance in uestion under
section ##@3 of the Revised Administrative Code, other'ise
.no'n as the ,eneral 'elfare clause.
I1E, 4hether defendant (unicipalit! 'as authori/ed to
impose and collect the stora,e fee provided for in the
challen,ed ?rdinance under the la's then prevailin,.
4hether the imposition of PB.:B per :BB .ilos of copra stored
in a bode,a 'ithin the municipalit! ofMa,nasF territor! is
be!ond the cost of re,ulation and surveillance
HE/3, %he validit! of the ?rdinance must be upheld
pursuant to the broad authorit! conferred upon municipalities
b! Common'ealth Act 0o. -$#, 'hich 'as the prevailin, la'
'hen the ?rdinance 'as enacted.
A municipalit! is authori/ed to impose three .inds of licenses5
(:) a license for re,ulation of useful occupation or enterprises9
(#) license for restriction or re,ulation of non1useful
occupations or enterprises9 and (@) license for revenue. - It is
thus unnecessar!, as plaintiff 'ould have us do, to determine
'hether the sub*ect stora,e fee is a ta& for revenue purposes or
a license fee to reimburse defendant (unicipalit! for service of
supervision because defendant (unicipalit! is authori/ed not
onl! to impose a license fee but also to ta& for revenue
purposes.
%he stora,e fee imposed under the uestion ?rdinance is
actuall! a municipal license ta& or fee on persons, firms and
corporations, li.e plaintiff, e&ercisin, the privile,e of storin,
copra in a bode,a 'ithin the (unicipalit!Fs territorial
*urisdiction. 7or the term Dlicense ta&D has not acuired a fi&ed
meanin,. It is often used indiseriminatel! to desi,nate
impositions e&acted for the e&ercise of various privile,es. In
man! instances, it refers to revenue1raisin, e&actions on
privile,es or activities.
(#) (unicipal corporations are allo'ed 'ide discretion in
determinin, the rates of imposable license fees even in cases of
purel! police po'er measures. In the absence of proof as to
municipal conditions and the nature of the business bein,
ta&ed as 'ell as other factors relevant to the issue of
arbitrariness or unreasonableness of the uestioned rates,
Courts 'ill ,o slo' in 'ritin, off an ?rdinance. In the case at
bar, appellant has not sufficientl! sho'n that the rate imposed
b! the uestioned ?rdinance is oppressive, e&cessive and
prohibitive.
1). "olden Ribbon /umber Co., Inc. v. Cit! of
Butuan
"R #o. /617'8= *= 3ecember 1)$=
+ A C T , 6olden Ribbon Lumber Co., Inc., a dul! or,ani/ed
domestic corporation, operated a lumber mill and lumber !ard
in Butuan Cit!. Pursuant to ?rdinance 0o. A, as amended b!
?rdinance 0os. 2, :B, -$, and -2 of the said cit!, it paid the
ta&es provided therein. Claimin, that said ordinance, as
amended, 'as void, it later brou,ht the present action to have
it so declared9 to recover the amount paid, and to have
appellants permanentl! en*oined from enforcin, said
ordinance as amended.
I 1 E, 4hether or not ?rdinance 0o. A falls 'ithin the
Charter of the Cit! of Butuan.
H E / 3, 0o. %he ta& imposed is and 'as reall! intended to be
on lumber sold and not a ta& on, or, license fee for the privile,e
of operatin, a lumber mill andEor a lumber !ard. It violates RA
##C- as municipal corporations are prohibited from imposin,
char,es of ta&es of such nature.
Appellants claim that the uestioned ta& is one on business or
a privile,e ta& for the operation of a lumber mill or a lumber
!ard is 'ithout merit. %he character or nature of a ta& is
determined b! its operation, practical results and incidents.
0either the ori,inal ordinance in uestion nor the amendator!
ones provide that pa!ment thereof is a condition precedent to
the en*o!ment of such privile,e or that its non1pa!ment 'ould
result in the cancellation of an! previous license ,ranted.
Lastl!, the rule is 'ell1settled that municipal corporations are
clothed 'ith no po'er of ta&ation9 that its charter or a statute
must clearl! sho' an intent to confer that po'er or the
municipal corporation cannot assume and e&ercise it, and that
an! such po'er ,ranted must be construed strictl!, an! doubt
or ambi,uit! arisin, out from the terms of the ,rant to be
resolved a,ainst the municipalit!.
*%. 0ICT.RIA (I//I#" C.. 0 22A
1'8 CRA 81&A Au?ust *&, 1)7&
+ACT, %his is a petition for revie' on certiorari of the
Mul! #$, :23- >ecision of the ?ffice of the Presidential
Assistant 7or Le,al Affairs dismissin, the appeal from the
adverse rulin, of the Philippine Ports Authorit! on the sole
,round that the same 'as filed be!ond the re,lementar!
period.
?n April #3, :23:, the Iloilo Port (ana,er of respondent
Philippine Ports Authorit! (PPA for short) 'rote petitioner
8ictorias (illin, Co., reuirin, it to have its tu,boats and
bar,es under,o harbor formalities and pa! entranceEclearance
fees as 'ell as berthin, fees effective (a! :, :23:. PPA,
li.e'ise, reuirin, petitioner to secure a permit for car,o
handlin, operations at its >a1an Banua 'harf and remit :B+
of its ,ross income for said operations as the ,overnmentFs
share.
8ictorias (illin, Co. maintained that it is e&cept from pa!in,
PPA an! fee or char,e because5 :. %he 'harf and its facilities
are built and installed on its o'n land9 #. Repairs and
maintenance are solel! paid b! it9 @. (aintenance and
dred,in, of the channel are done b! the Compan! personnel9
-. At not time has the ,overnment paid an! centavo for such
activities.
I1E, 4?0 the 8ictorias (illin, Co. claim of e&ception for
PPA fees is meritorious.
HE/3, 0o, the petitioners claim that there is no basis for the
PPA to assess and impose the dues and char,e is devoid of
merit.
As correctl! stated b! the "olicitor 6eneral, the fees and
char,es PPA collects are not for the use of the 'harf that
petitioner o'ns but for the privile,e of navi,atin, in public
'aters, of enterin, and leavin, public harbours and berthin,
on public streams or 'aters.
As to the reuirement to remit :B+ of the handlin, char,es,
"ection CB1(i&) of the Presidential >ecree 0o. 3A$ authori/ed
the PPA D%o lev! dues, rates, or char,es for the use of the
premises, 'or.s, appliances, facilities, or for services provided
b! or belon,in, to the Authorit!, or an! or,ani/ation
concerned 'ith port operations.D %his :B+ ,overnment share
of earnin,s of arrastre and stevedorin, operators is in the
nature of contractual compensation to 'hich a person desirin,
to operate arrastre service must a,ree as a condition to the
,rant of the permit to operate.
*1. CIR v. CA, CTA, Ad(1
"R #o.11'8=)A 17 A9ril 1))&
+ A C T , Private respondent, Ateneo de (anila )niversit!,
is a non1stoc., non1profit educational institution 'ith au&iliar!
units and branches all over the countr!. %he Institute of
Philippine Culture (IPC) is an au&iliar! unit 'ith no le,al
personalit! separate and distinct from private respondent. %he
IPC is a Philippine unit en,a,ed in social science studies of
Philippine societ! and culture. ?ccasionall!, it accepts
sponsorships for its research activities from international
or,ani/ations, private foundations and ,overnment a,encies.
?n 3 Mul! :23@, private respondent received from CIR a
demand letter dated @ Mune :23@, assessin, private respondent
the sum of P:$-,B-@.2$ for alle,ed deficienc! contractors ta&,
and an assessment dated #$ Mune :23@ in the sum of
P:,:-:,3@$ for alle,ed deficienc! income ta&, both for the fiscal
!ear ended @: (arch :2$3. >en!in, said ta& liabilities, private
respondent sent petitioner a letter1protest and subseuentl!
filed 'ith the latter a memorandum contestin, the validit! of
the assessments.
After some time petitioner issued a final decision dated @
Au,ust :233 reducin, the assessment for deficienc!
contractors ta& from P:2@,-$A.AA to P-C,A:C.-:, e&clusive of
surchar,e and interest.
%he lo'er courts ruled in favor of respondent. =ence this
petition.
Petitioner Commissioner of Internal Revenue contends that
Private Respondent Ateneo de (anila )niversit! Dfalls 'ithin
the definitionD of an independent contractor and Dis not one of
those mentioned as e&ceptedD9 hence, it is properl! a sub*ect of
the three percent contractorFs ta& levied b! the fore,oin,
provision of la'. Petitioner states that the Dterm Findependent
contractorF is not specificall! defined so as to delimit the scope
thereof, so much so that an! person 'ho . . . renders ph!sical
and mental service for a fee, is no' indubitabl! considered an
independent contractor liable to @+ contractorFs ta&.D
I 1 E, 4hether or not private respondent falls under the
purvie' of independent contractor pursuant to "ection #BA of
the %a& Code and is sub*ect to a @+ contractors ta&.
H E /3, %he petition is unmeritorious.
%he term Finde9endent contractorsF include persons
(*uridical or natural) not enumerated above (but not includin,
individuals sub*ect to the occupation ta& under "ection :# of
the Local %a& Code) 'hose activit! consists essentiall! of the
sale of all .inds of services for a fee re,ardless of 'hether or
not the performance of the service calls for the e&ercise or use
of the ph!sical or mental faculties of such contractors or their
emplo!ees.
Petitioner Commissioner of Internal Revenue erred in
appl!in, the principles of ta& e&emption 'ithout first appl!in,
the 'ell1settled doctrine of strict interpretation in the
imposition of ta&es. It is obviousl! both illo,ical and
impractical to determine 'ho are e&empted 'ithout first
determinin, 'ho are covered b! the aforesaid provision. %he
Commissioner should have determined first if private
respondent 'as covered b! "ection #BA, appl!in, the rule of
strict interpretation of la's imposin, ta&es and other burdens
on the populace, before as.in, Ateneo to prove its e&emption
therefrom.
Inter9retation of Tax /aGs. %he doctrine in the
interpretation of ta& la's is that N(a) statute 'ill not be
construed as imposin, a ta& unless it does so clearl!, e&pressl!,
and unambi,uousl!. . . . (A) ta& cannot be imposed 'ithout
clear and e&press 'ords for that purpose. Accordin,l!, the
,eneral rule of reuirin, adherence to the letter in construin,
statutes applies 'ith peculiar strictness to ta& la's and the
provisions of a ta&in, act are not to be e&tended b!
implication.O In case of doubt, such statutes are to be
construed most stron,l! a,ainst the ,overnment and in favor
of the sub*ects or citi/ens because burdens are not to be
imposed nor presumed to be imposed be!ond 'hat statutes
e&pressl! and clearl! import.
Ateneos Institute of Philippine Culture never sold its services
for a fee to an!one or 'as ever en,a,ed in a business apart
from and independentl! of the academic purposes of the
universit!. 7unds received b! the Ateneo de (anila )niversit!
are technicall! not a fee. %he! ma! ho'ever fall as ,ifts or
donations 'hich are Nta&1e&emptO as sho'n b! private
respondents compliance 'ith the reuirement of "ection :#@
of the 0ational Internal Revenue Code providin, for the
e&emption of such ,ifts to an educational institution.
Transaction of I2C not a contract of sale nor a
contract for a 9iece of Gor:. %he transactions of Ateneos
Institute of Philippine Culture cannot be deemed either as a
contract of sale or a contract for a piece of 'or.. B! the
contract of sale, one of the contractin, parties obli,ates
himself to transfer the o'nership of and to deliver a
determinate thin,, and the other to pa! therefor a price certain
in mone! or its euivalent. In the case of a contract for a piece
of 'or., Nthe contractor binds himself to e&ecute a piece of
'or. for the emplo!er, in consideration of a certain price or
compensation. . . . If the contractor a,rees to produce the 'or.
from materials furnished b! him, he shall deliver the thin,
produced to the emplo!er and transfer dominion over the
thin,. . . .O In the case at bench, it is clear from the evidence on
record that there 'as no sale either of ob*ects or services
because, as adverted to earlier, there 'as no transfer of
o'nership over the research data obtained or the results of
research pro*ects underta.en b! the Institute of Philippine
Culture.
**. C.((II.#ER .+ I#TER#A/ RE0E#1E,
9etitioner, vs. THE H.#. C.1RT .+ A22EA/,
R...H. A1T. 2R.31CT 2HI/I22I#E, I#C.
and THE H.#. C.1RT .+ TA5 A22EA/,
res9ondents. ".R. #o. 1%78'7 Danuar! *%, 1))'
+acts, ?n ## Au,ust :23C, E&ecutive ?rder 0o. -: 'as
promul,ated declarin, a one1time ta& amnest! on unpaid
income ta&es, later amended to include estate and donorFs
ta&es and ta&es on business, for the ta&able !ears :23: to :23A.
Respondent R.?.=. Auto Products Philippines, Inc., availin, of
the amnest!, filed in ?ctober :23C and 0ovember :23C, its %a&
Amnest! Return and "upplemental %a& Amnest! Return 0o.
and paid the correspondin, amnest! ta&es due.
Prior to this availment, petitioner Commissioner of Internal
Revenue, in a communication received b! private respondent
on Au,ust :@, :23C, assessed the latter deficienc! income and
business ta&es for its fiscal !ears :23: and :23# in an a,,re,ate
amount of P:,-:B,:A$.$:. (ean'hile, respondent averred that
since it had been able to avail itself of the ta& amnest!, the
deficienc! ta& notice should forth'ith be cancelled and
'ithdra'n. %his 'as denied b! the CIR Revenue
(emorandum ?rder 0o. -13$, implementin, E&ecutive ?rder
0o. -:, had construed the amnest! covera,e to include onl!
assessments issued b! the Bureau of Internal Revenue after
the promul,ation of the e&ecutive order on Au,ust ## :23C
and not to assessments theretofore made.
?n appeal, %he Court of %a& appeal upheld for the respondent,
'hich 'as further upheld b! the Court of Appeals.
I1E, 4hether or not the the deficienc! assessments 'ere
e&tin,uished b! reason of respondents availment of the ta&
amnest!.
HE/3, <es, as the scope of the amnest! covers the unpaid
income ta&es for the !ears :23: to :23A. If, as the
Commissioner ar,ues, E&ecutive ?rder 0o. -: had not been
intended to include :23:1:23A ta& liabilities alread! assessed
(administrativel!) prior to Au,ust ##, :23C, the la' could have
simpl! so provided in its e&clusionar! clauses. It did not. %he
conclusion is unavoidable, and it is that the e&ecutive order
has been desi,ned to be in the nature of a ,eneral ,rant of ta&
amnest! sub*ect onl! to the cases specificall/ e&cepted b! it.
7urther, the la' provides that, upon full compliance 'ith the
conditions of the ta& amnest! and the rules and re,ulations
issued pursuant to this E&ecutive order, the ta&pa!er shall be
relieved of an! income ta& liabilit! on an! unta&ed income
from Manuar! :, :23: to >ecember @:, :23A, includin,
increments thereto and penalties on account of the non1
pa!ment of the said ta&. Civil, criminal or administrative
liabilit! arisin, from the non1pa!ment of the said ta&, 'hich
are actionable under the 0ational Internal Revenue Code, as
amended, are li.e'ise deemed e&tin,uished.
*8. H43R. RE.1RCE 0. C.1RT .+ TA5
A22EA/ ET A/.
"R 7%*&$A 3ecember *1, 1))%
+ACT =!dro Resources Contractors Corporation entered
into a contract of sale 'ith the 0ational Irri,ation Authorit!
(0IA) for the construction of (a,at River (ultipurpose
Pro*ect in Isabella in Au,ust :2$3. %he contract provided that
=!dro 'ill import parts, construction euipment and tools and
ta&es and duties to be paid b! 0IA. %ools and euipment
arrived durin, :2$3 and :2$2. 0IA rene,ed on the contract.
%herefore causin, the transfer its sale to =!dro in seperate
dates in >ecember C, :23# and (arch #-, :23@. E&ecutive
?rder 3CB too. effect durin, >ecember #:, :23# provided for
@+ ad valorem ta& on importations and it specificall! provided
that it should have no retroactive effect. >urin, the contract of
sale e&ecution, =!dro 'as assessed and paid the said @+ ad
valorem ta& 'orth P #3:,A2: under protest. %he =!dro 'hen
filin, for refund 'ith Customs Commissioner 'ho indorsed
the approval of the refund but 'as denied b! the "ecretar! of
7inance and motion 'as denied b! the Court of %a& Appeals.
I1E 4hether or not should the E&ecutive ?rder 3CB
should have a retroactive effect.
HE/3 %he Court of %a& Appeals erred in appl!in, a
retroactive effect for the E&ecutive ?rder therefore should not
have been sub*ect to the additional @+ ad valorem ta&. In
,eneral ta& la's are not retroactive in nature. 0ot onl! that
E&ecutive ?rder 3CB specificall! provides that it is not
retroactive in nature, but also 'hen the conditional contract of
sale 'as e&ecuted, its had a suspensive condition contemplated
in the Civil Code (Article ::3$) 'here it returned o'nership to
the seller =!dro because 0IA 'as not able to compl! 'ith its
part of the contract, it 'as deemed e&ecuted as if durin, the
constitution of the obli,ation 'hich 'as in :2$3 and not in
:23#.
*=. Central AEucarera 3on 2edro >v> CIR and CTA
".R. #os. /6*8*8$ and /6*8*'= (a! 81,
1)$&
+ACT, Central A/ucarera >on Pedro, a domestic corporation
'ith office at 0asu,bu, Batan,as, had been filin, its income
ta& returns on the Dfiscal !earD basis endin, Au,ust @:, of ever!
!ear.
GIt had been assessed deficienc! ta& plus interest. It paid the
deficienc! ta& but protested on the imposition of the interestH,
claimin, that the imposition of U+ monthl! interest on its
deficienc! ta& for the fiscal !ear :2A- to :2A3, Pursuant to
"ection A: (d) of the Revenue Code, as amended b! Republic
Act 0o. #@-@, is ille,al, because the imposition of interest on
efficienc! income ta& earned prior to the effectivit! of the
amendator! la' (Rep. Act #@-@) Gon :2A2H 'ill be tantamount
to ,ivin, it (Rep. Act 0o. #@-@) retroactive application. GIt
further contends thatH the application of the amended
provision (no' "ec. A:1d of the %a& Code) to the cases at bar
'ould run counter to the constitutional restriction a,ainst the
enactment of e& post facto la's.
I1E, 4hether or not the imposition of the interest, is
unconstitutional
HE/3, 0? I Gthe interest 'as correctl! imposedH. It is to be
noted that the collection of interest in these cases is not penal
in nature, thus J
t)e imposition of . . . interest is but a just
compensation to t)e state for t)e dela/ in
pa/ing t)e tax# and for t)e concomitant use b/
t)e taxpa/er of funds t)at rig)tfull/ s)ould be
in t)e government%s )ands $!... vs. 0oldstein#
123 ( 45d6 7859 Ross vs. !...# 1:2 (ed. .upp.
;;<9 !... vs. =offra/# 37 (ed. 45d6 :22&. T)e
fact t)at t)e interest c)arged is made
proportionate to t)e period of dela/ constitutes
t)e best evidence t)at suc) interest is not penal
but compensator/. $Castro vs. Collector of
Internal Revenue# 0.R. >o. ,-1517:# Resolution
on -otion for Reconsideration# ?ecember 52#
13@5&
and 'e had alread! held that J
T)e doctrine of unconstitutionalit/ raised b/
appellant is based on t)e pro)ibition against ex
post facto laAs. 'ut t)is pro)ibition applies
onl/ to criminal or penal matters# and not to
laAs A)ic) concern civil matters or
proceedings generall/# or A)ic) affect or
regulate civil or private rig)ts $Ex parte
0arland# 12 ,aA Ed.# ;@@9 1@ C.=...# 223-231&.
$Republic vs. asan *da. de (ernandeB# 33
C)il. 3;:# 3;7&.
7inall!, section :@ of the amendator! Republic Act 0o. #@-@
refers onl! to the basic ta& rates, 'hich are made applicable to
income received in :2A2 on'ard, but does not affect the
interest due on deficiencies, 'hich are left to be ,overned b!
section A: (d).
*'. 2e9si6Cola Bottlin? Com9an! of the
2hili99ines, Inc. v. (unici9alit! of Tanauan
".R. #o. /6811'$A +ebruar! *&, 1)&$
+acts, In 7ebruar! :2C@, plaintiff commenced a complaint
see.in, to declare "ection # of R.A. ##C- (Local Autonom!
Act) unconstitutional as an undue dele,ation of ta&in, po'er
and to declare ?rdinance 0os. #@ and #$ issued b! the
(unicipalit! of %anauan, Le!te as null and void.
(unicipal ?rdinance 0o. #@ levies and collects from soft
drin.s producers and manufacturers one1si&teenth (:E:C) of a
centavo for ever! bottle of soft drin. cor.ed. ?n the other
hand, (unicipal ?rdinance 0o. #$ levies and collects on soft
drin.s produced or manufactured 'ithin the territorial
*urisdiction of the municipalit! a ta& of one centavo (PB.B:) on
each ,allon of volume capacit!. %he ta& imposed in both
?rdinances 0os. #@ and #$ is denominated as Dmunicipal
production ta&.O
Issues, (:) Is "ection # of R.A. ##C- an undue dele,ation of
the po'er of ta&ation; (#) >o ?rdinance 0os. #@ and #-
constitute double ta&ation and impose percenta,e or specific
ta&es;
Held, (:) 0?. %he po'er of ta&ation is purel! le,islative and
cannot be dele,ated to the e&ecutive or *udicial department of
the ,overnment 'ithout infrin,in, upon the theor! of
separation of po'ers. But as an e&ception, the theor! does not
appl! to municipal corporations. Le,islative po'ers ma! be
dele,ated to local ,overnments in respect of matters of local
concern. (#) 0?. %he (unicipalit! of %anauan discovered that
manufacturers could increase the volume contents of each
bottle and still pa! the same ta& rate since ta& is imposed on
ever! bottle cor.ed. %o combat this scheme, (unicipal
?rdinance 0o. #$ 'as enacted. As such, it 'as a repeal of
(unicipal ?rdinance 0o. #@. In the stipulation of facts, the
parties admitted that the (unicipal %reasurer 'as enforcin,
(unicipal ?rdinance 0o. #$ onl!. =ence, there 'as no case of
double ta&ation.
*$. C.((II.#ER .+ I#TER#A/ RE0E#1E vs.
.C. D.H#.# A#3 .#, I#C., and C.1RT .+
A22EA/
8%) CRA 7& A Dune *', 1)))
To9ic, 3ouble Taxation
+acts5 "C. M?=0"?0 A0> "?0, I0C., a domestic
corporation or,ani/ed and operatin, under the Philippine
la's, entered into a license a,reement 'ith "C Mohnson and
"on, )nited "tates of America ()"A), a non1resident forei,n
corporation 'as ,ranted the ri,ht to use the trademar.,
patents and technolo,! o'ned b! the latter includin, the ri,ht
to manufacture, pac.a,e and distribute the products. License
A,reement 'as dul! re,istered 'ith the %echnolo,! %ransfer
Board of the Bureau of Patents, %rade (ar.s and %echnolo,!
%ransfer under Certificate of Re,istration 0o. 3BC-. "C.
M?=0"?0 A0> "?0, I0C 'as obli,ed to pa! "C Mohnson and
"on, )"A ro!alties based on a percenta,e of net sales and
sub*ected the same to #A+ 'ithholdin, ta& on ro!alt!
pa!ments 'hich GrespondentH paid from Mul! :22# to (a!
:22@. Respondent filed 'ith the International %a& Affairs
>ivision (I%A>) of the BIR a claim for refund of overpaid
'ithholdin, ta& on ro!alties ar,uin, that "ince the a,reement
'as approved b! the %echnolo,! %ransfer Board, the
preferential ta& rate of :B+ should appl! hence ro!alties paid
b! the GrespondentH to "C Mohnson and "on, )"A is onl!
sub*ect to :B+ 'ithholdin, ta& pursuant to the most1favored
nation clause of the RP1)" %a& %reat!.
%he Commissioner did not act on said claim for refund.
Respondent filed a petition for revie' before the C%A to claim
a refund of the overpaid 'ithholdin, ta& on ro!alt! pa!ments.
C%A decided for Respondent and ordered CIR to issue a ta&
credit certificate in the amount of P2C@,#CC.BB representin,
overpaid 'ithholdin, ta& on ro!alt! pa!ments, be,innin, Mul!,
:22# to (a!, :22@. CIR filed a petition for revie' 'ith CA. CA
upheld C%A.
CIR contends that under RP1)" %a& %reat!, 'hich is .no'n as
the Dmost favored nationD clause, the lo'est rate of the
Philippine ta& at :B+ ma! be imposed on ro!alties derived b! a
resident of the )nited "tates from sources 'ithin the
Philippines onl! if the circumstances of the resident of the
)nited "tates are similar to those of the resident of 4est
6erman!. "ince the RP1)" %a& %reat! contains no Dmatchin,
creditD provision as that provided in RP14est 6erman! %a&
%reat!, the ta& on ro!alties under the RP1)" %a& %reat! is not
paid under similar circumstances as those obtainin, in the RP1
4est 6erman! %a& %reat!. Also petitioner ar,ues that since
".C. MohnsonFs invocation of the Dmost favored nationD clause
is in the nature of a claim for e&emption from the application
of the re,ular ta& rate of #A+ for ro!alties, the provisions of
the treat! must be construed strictl! a,ainst it.
Respondent countered that the Dmost favored nationD clause
under the RP1)" %a& %reat! refers to ro!alties paid under
similar circumstances as those ro!alties sub*ect to ta& in other
treaties9 that the phrase Dpaid under similar circumstancesD
does not refer to pa!ment of the ta& but to the sub*ect matter
of the ta&, that is, ro!alties, because the Dmost favored nationD
clause is intended to allo' the ta&pa!er in one state to avail of
more liberal provisions contained in another ta& treat!
'herein the countr! of residence of such ta&pa!er is also a
part! thereto, sub*ect to the basic condition that the sub*ect
matter of ta&ation in that other ta& treat! is the same as that in
the ori,inal ta& treat! under 'hich the ta&pa!er is liable9 thus,
the RP1)" %a& %reat! spea.s of Dro!alties of the same .ind
paid under similar circumstancesD.
Issue5 4?0 "C Mohnson can refund.
Rulin?5 0?. %he ta& rates on ro!alties and the circumstances
of pa!ment thereof are the same for all the recipients of such
ro!alties and there is no disparit! based on nationalit! in the
circumstances of such pa!ment.
$
?n the other hand, a cursor!
readin, of the various ta& treaties 'ill sho' that there is no
similarit! in the provisions on relief from or avoidance of
double ta&ation
&
as this is a matter of ne,otiation bet'een the
contractin, parties. %his dissimilarit! is true particularl! in the
treaties bet'een the Philippines and the )nited "tates and
bet'een the Philippines and 4est 6erman!.
%he RP1)" %a& %reat! is *ust one of a number of bilateral
treaties 'hich the Philippines has entered into for the
avoidance of double ta&ation.
)
%he purpose of these
international a,reements is to reconcile the national fiscal
le,islations of the contractin, parties in order to help the
ta&pa!er avoid simultaneous ta&ation in t'o different
*urisdictions.
1%
(ore precisel!, the ta& conventions are drafted
'ith a vie' to'ards the elimination of international *uridical
double ta&ation, 'hich is defined as the imposition of
comparable ta&es in t'o or more states on the same ta&pa!er
in respect of the same sub*ect matter and for identical
periods.
11
%he apparent rationale for doin, a'a! 'ith double
ta&ation is of encoura,e the free flo' of ,oods and services and
the movement of capital, technolo,! and persons bet'een
countries, conditions deemed vital in creatin, robust and
d!namic economies.
>ouble ta&ation usuall! ta.es place 'hen a person is resident
of a contractin, state and derives income from, or o'ns capital
in, the other contractin, state and both states impose ta& on
that income or capital. In order to eliminate double ta&ation, a
ta& treat! resorts to several methods. 7irst, it sets out the
respective ri,hts to ta& of the state of source or situs and of the
state of residence 'ith re,ard to certain classes of income or
capital. In some cases, an e&clusive ri,ht to ta& is conferred on
one of the contractin, states9 ho'ever, for other items of
income or capital, both states are ,iven the ri,ht to ta&,
althou,h the amount of ta& that ma! be imposed b! the state of
source is limited.
>ouble ta&ation usuall! ta.es place 'hen a person is resident
of a contractin, state and derives income from, or o'ns capital
in, the other contractin, state and both states impose ta& on
that income or capital. In order to eliminate double ta&ation, a
ta& treat! resorts to several methods. 7irst, it sets out the
respective ri,hts to ta& of the state of source or situs and of the
state of residence 'ith re,ard to certain classes of income or
capital. In some cases, an e&clusive ri,ht to ta& is conferred on
one of the contractin, states9 ho'ever, for other items of
income or capital, both states are ,iven the ri,ht to ta&,
althou,h the amount of ta& that ma! be imposed b! the state of
source is limited. ?n the other hand, in the credit method,
althou,h the income or capital 'hich is ta&ed in the state of
source is still ta&able in the state of residence, the ta& paid in
the former is credited a,ainst the ta& levied in the latter. %he
basic difference bet'een the t'o methods is that in the
e&emption method, the focus is on the income or capital itself,
'hereas the credit method focuses upon the ta&.
1'
%he phrase Dro!alties paid under similar circumstancesD in the
most favored nation clause of the )"1RP %a& %reat!
necessaril! contemplated Dcircumstances that are ta&1relatedD.
In the case at bar, the state of source is the Philippines because
the ro!alties are paid for the ri,ht to use propert! or ri,hts, i.e.
trademar.s, patents and technolo,!, located 'ithin the
Philippines.
1&
%he )nited "tates is the state of residence since
the ta&pa!er, ". C. Mohnson and "on, ). ". A., is based there.
)nder the RP1)" %a& %reat!, the state of residence and the
state of source are both permitted to ta& the ro!alties, 'ith a
restraint on the ta& that ma! be collected b! the state of
source.
the concessional ta& rate of :B percent provided for in the RP1
6erman! %a& %reat! should appl! onl! if the ta&es imposed
upon ro!alties in the RP1)" %a& %reat! and in the RP1
6erman! %a& %reat! are paid under similar circumstances.
%his 'ould mean that private respondent must prove that the
RP1)" %a& %reat! ,rants similar ta& reliefs to residents of the
)nited "tates in respect of the ta&es imposable upon ro!alties
earned from sources 'ithin the Philippines as those allo'ed to
their 6erman counterparts under the RP16erman! %a& %reat!.
%he RP1)" and the RP14est 6erman! %a& %reaties do not
contain similar provisions on ta& creditin,.
If the rates of ta& are lo'ered b! the state of source, in this
case, b! the Philippines, there should be a concomitant
commitment on the part of the state of residence to ,rant some
form of ta& relief, 'hether this be in the form of a ta& credit or
e&emption.
*=
?ther'ise, the ta& 'hich could have been
collected b! the Philippine ,overnment 'ill simpl! be collected
b! another state, defeatin, the ob*ect of the ta& treat! since the
ta& burden imposed upon the investor 'ould remain
unrelieved. If the state of residence does not ,rant some form
of ta& relief to the investor, no benefit 'ould redound to the
Philippines, i.e., increased investment resultin, from a
favorable ta& re,ime, should it impose a lo'er ta& rate on the
ro!alt! earnin,s of the investor, and it 'ould be better to
impose the re,ular rate rather than lose much1needed
revenues to another countr!.
%he entitlement of the :B+ rate b! ).". firms despite the
absence of a matchin, credit (#B+ for ro!alties) 'ould
dero,ate from the desi,n behind the most ,rant eualit! of
international treatment since the ta& burden laid upon the
income of the investor is not the same in the t'o countries.
%he similarit! in the circumstances of pa!ment of ta&es is a
condition for the en*o!ment of most favored nation treatment
precisel! to underscore the need for eualit! of treatment.
Respondent cannot be deemed entitled to the :B percent rate
,ranted under the RP14est 6erman! %a& %reat! for the reason
that there is no pa!ment of ta&es on ro!alties under similar
circumstances in RP1)" treat!.
*&. CIR v Rufino
"R #osH /688$$'6$7A +ebruar! *&, 1)7&
+acts, %his is a petition for revie' on certiorari of the C%A
decision 'hich absolved petitioners from liabilit! for capital
,ains ta& on stoc.s received b! them from Eastern %heatrical,
Inc. %he Rufinos 'ere ma*orit! stoc.holders of Eastern
%heatrical Co., Inc (hereinafter ?ld E%C) 'hich had a
corporate term of #A !ears, 'hich terminated on Manuar! #A,
:2A2, president of 'hich 'as Ernesto Rufino. ?n >ecember 3,
:2A3, the Eastern %heatrical Co, Inc. (hereinafter 0e' E%C,
'ith a corporate term of AB !ears) 'as or,ani/ed, and the
Rufinos 'ere also the ma*orit! stoc.holders of the corporation,
'ith 8icente Rufino as the 6eneral1(ana,er. Both E%Cs 'ere
en,a,ed in the same business.
?ld E%C held a stoc.holders meetin, to mer,e 'ith the 0e'
E%C on >ecember :$, :2A3 to continue its business after the
end of ?ld E%Cs corporate term. %he mer,er 'as authori/ed
b! a board resolution. It 'as e&pressl! declared that the
mer,er 'as necessar! to continue operatin, the Capitol and
L!ric %heaters in (anila even after the e&piration of corporate
e&istence, to preserve both its boo.in, contracts and to uphold
its collective bar,ainin, a,reements. %hrou,h the t'o Rufinos
(Ernesto and 8icente), a >eed of Assi,nment 'as e&ecuted,
'hich conve!ed and transferred all the business, propert!,
assets and ,ood 'ill of the ?ld E%C to the 0e' E%C in
e&chan,e for shares of stoc: of the latter to be issued to
the shareholders at the rate of one stoc: for each stoc:
held in the ?ld E%C. %he >eed 'as to retroact from Manuar! :,
:2A2. 0e' E%Cs Board approved the mer,er and the >eed of
Assi,nment on Manuar! :#, :2A2 and all chan,es dul!
re,istered 'ith the "EC.
%he BIR, after e&amination, declared that the mer,er 'as not
underta.en for a bona fide business purpose but onl! to avoid
liabilit! for the capital gains tax on the e&chan,e of the old for
the ne' shares of stoc.. =e then imposed deficienc!
assessments a,ainst the private respondents, the Rufinos. %he
Rufinos reuested for a reconsideration, 'hich 'as denied.
%herefore, the! elevated their matter to the C%A, 'ho reversed
the *ud,ment of the CIR, sa!in, that the! found that there 'as
Nno ta&able ,ain derived from the e&chan,e of old stoc.s
simpl! for ne' stoc.s for the 0e' CorporationO because it 'as
pursuant to a valid plan of reor,ani/ation. %he CIR raised it to
the "C on petition for revie' on certiorari.
Issue, 4?0 there 'as a valid mer,er and that there 'as no
ta&able ,ain derived therefrom.
Held, <E", the C%A 'as correct in rulin, that there 4A" a
mer,er and that no ta&able ,ain 'as derived. C%A decision is
A77IR(E>.
Rationale,
8alidit! of transfer. In support of its ar,ument that the
Rufinos 'ere tr!in, to avoid the pa!ment of capital
,ains ta&, the CIR said that the 0e' E%C did not
actuall! issue stoc.s in e&chan,e for the properties of
the ?ld E%C. %he increase in capitali/ation onl!
happened in (arch :2A2, or @$ da!s after the ?ld E%C
e&pired. Prior to re,istration, the 0e' E%C could not
have validl! performed the transfer. %he "C ruled that
the retroactivit! of the >eed of Assi,nment cured the
defect and there 'as no impediment.
'ona (ide Business Purpose. %he criterion of the la' is
that the purpose of the mer,er must be for a bona fide
business purpose and not for the purpose of escapin,
ta&es. %he case of Helvering v. 0regor/ stated that a
mere Noperation havin, no business or corporate
purposeJa mere devise 'hich put on the form of a
corporate reor,ani/ation as a dis,uise for concealin, its
real character and the sole ob*ect and accomplishment
of 'hich 'as the consummation of a preconceived
plan, not to reor,ani/e a business but to transfer a
parcel of corporate shares.O 4hen the corporation
created is nothin, more than a contrivance, there is no
le,itimate business purpose. %he Court states that
there is no such furtive intention in this case. In fact,
the 0e' E%C continues to operate the Capitol and L!ric
movie theaters even up to #$ !ears after the mer,er.
%here is as !et no dissolution, so the Rufinos havent
,ained an! benefit !et from the mer,er, 'hich ma.es
them no more liable than the time the mer,er too.
place.
The ?overnments remed!5 %he mer,er merel! deferred
the pa!ment for ta&es until the future, 'hich the ,overnment
ma! assert later on 'hen ,ains are reali/ed and benefits are
distributed amon, the stoc.holders as a result of the mer,er.
%he ta&es are not forfeited but merel! postponed and ma! be
imposed at the proper time later on.
*7. 3E/2HER TRA3E C.R2.RATI.#vs. IAC
".R. #o. /6$)*') Danuar! *$, 1)77
+acts, >elfin Pacheco and sister Pela,ia 'ere the o'ners of a
parcel of land in Polo (no' 8alen/uela). ?n April @, :2$-, the!
leased to Construction Components International Inc. the
propert! and providin, for a ri,ht of first refusal should it
decide to bu! the said propert!.
Construction Components International, Inc. assi,ned its
ri,hts and obli,ations under the contract of lease in favor of
=!dro Pipes Philippines, Inc. 'ith the si,ned conformit! and
consent of >elfin and Pela,ia. In :2$C, a deed of e&chan,e 'as
e&ecuted bet'een lessors >elfin and Pela,ia Pacheco and
defendant >elpher %rades Corporation 'hereb! the Pachecos
conve!ed to the latter the leased propert! to,ether 'ith
another parcel of land also located in (alinta Estate,
8alen/uela for #,ABB shares of stoc. of defendant corporation
'ith a total value of P:.A(.
?n the ,round that it 'as not ,iven the first option to bu! the
leased propert! pursuant to the proviso in the lease a,reement,
respondent =!dro Pipes Philippines, Inc., filed an amended
complaint for reconve!ance of the lot.
Issue, 4?0 the >eed of E&chan,e of the properties e&ecuted
b! the Pachecos and the >elpher %rades Corporation on the
other 'as meant to be a contract of sale 'hich, in effect,
pre*udiced the =!dro PhilFs ri,ht of first refusal over the leased
propert! included in the Ddeed of e&chan,e,D
Held, 0o, b! their o'nership of the #,ABB no par shares of
stoc., the Pachecos have control of the corporation. %heir
euit! capital is AA+ as a,ainst -A+ of the other stoc.holders,
'ho also belon, to the same famil! ,roup. In effect, the
>elpher %rades Corporation is a business conduit of the
Pachecos. 4hat the! reall! did 'as to invest their properties
and chan,e the nature of their o'nership from unincorporated
to incorporated form b! or,ani/in, >elpher %rades
Corporation to ta.e control of their properties and at the same
time save on inheritance ta&es.
%he D>eed of E&chan,eD of propert! bet'een the Pachecos and
>elpher %rades Corporation cannot be considered a contract of
sale. %here 'as no transfer of actual o'nership interests b! the
Pachecos to a third part!. %he Pacheco famil! merel! chan,ed
their o'nership from one form to another. %he o'nership
remained in the same hands. =ence, the private respondent
has no basis for its claim of a li,ht of first refusal
*). CIR v. Toda, Dr.
"R #o. 1=&177A 1= e9tember *%%=
+ A C T , ?n # (arch :232, CIC authori/ed Beni,no P. %oda,
Mr., President and o'ner of 22.22:+ of its outstandin, capital
stoc., to sell the Cibeles Buildin,. ?n @B Au,ust :232, %oda
purportedl! sold the propert! for P:BB million to Rafael A.
Altona,a, 'ho, in turn, sold the same propert! on the same
da! to Ro!al (atch Inc. (R(I) for P#BB million. %hree and a
half !ears later %oda died. ?n #2 (arch :22-, the BIR sent an
assessment notice and demand letter to the CIC for deficienc!
income ta& for the !ear :232. ?n #$ Manuar! :22A, the Estate
of Beni,no P. %oda, Mr., represented b! special co1
administrators Lorna Qapunan and (ario Lu/a Bautista,
received a 0otice of Assessment from the CIR for deficienc!
income ta& for the !ear :232. %he Estate thereafter filed a
letter of protest. %he Commissioner dismissed the protest. ?n
:A 7ebruar! :22C, the Estate filed a petition for revie' 'ith the
C%A. In its decision the C%A held that the Commissioner failed
to prove that CIC committed fraud to deprive the ,overnment
of the ta&es due it. It ruled that even assumin, that a pre1
conceived scheme 'as adopted b! CIC, the same constituted
mere ta& avoidance, and not ta& evasion. =ence, the C%A
declared that the Estate is not liable for deficienc! of income
ta&. %he Commissioner filed a petition for revie' 'ith the
Court of Appeals. %he Court of Appeals affirmed the decision
of the C%A, hence, this recourse.
I 1 E, 4hether or not this is a case of ta& evasion or ta&
avoidance.
H E / 3, %a& evasion connotes the inte,ration of three
factors5 (:) the end to be achieved, i.e. the pa!ment of less than
that .no'n b! the ta&pa!er to be le,all! due, or the non1
pa!ment of ta& 'hen it is sho'n that a ta& is due9 (#) an
accompan!in, state of mind 'hich is described as bein, Nevil,O
in Nbad faith,O N'illfull,O or Ndeliberate and not accidentalO9 and
(@) a course of action or failure of action 'hich is unla'ful. All
these factors are present in the instant case. %he scheme
resorted to b! CIC in ma.in, it appear that there 'ere t'o
sales of the sub*ect properties, i.e. from CIC to Altona,a, and
then from Altona,a to R(I cannot be considered a le,itimate
ta& plannin,. "uch scheme is tainted 'ith fraud. Altona,as
sole purpose of acuirin, and transferrin, title of the sub*ect
properties on the same da! 'as to create a ta& shelter. %he sale
to him 'as merel! a ta& plo!, a sham, and 'ithout business
purpose and economic substance. >oubtless, the e&ecution of
the t'o sales 'as calculated to mislead the BIR 'ith the end in
vie' of reducin, the conseuent income ta& liabilit!.
8%. CIR v. E. ("et1off)
1&* CRA 8$)A A9ril 17, 1)7)
+acts, E""? overpaid its :2A2 income ta& b! P##:, B@@.BB. It 'as
accordin,l! ,ranted a ta& credit. =o'ever, E""?s pa!ment of its
income ta& for :2CB 'as found to be short b!P@C$,22-. "o the
Commissioner demanded pa!ment of the deficienc!, 'ith interest.
E""? paid under protest, includin, the interest as rec.oned b! the
Commissioner. E""?s contention5 %he interest 'as more than that
properl!
due. It should not have been reuired to pa! interest on the total
amount of the deficienc! ta&, P@C$,22-.BB, but onl! on the
amount of P:-C,2C:.BBJrepresentin, the difference bet'een said
deficienc! and E""?s earlier overpa!ment. E""? thus as.ed for a
refund.
CIRs contention5 It denied the claim for refund. Income ta&es are
determined and paid on an annual basis, such determination and
pa!ment are separate and independent transactions9 and a ta& credit
could not be considered until it has been finall! approved and the
ta&pa!er notified. "ince in this case, the ta& credit 'as approved onl!
on Au,ust A, :2C-, it could not be availed of in reduction of E""?s
earlier ta& deficienc! for :2CB9 as of that !ear there 'as no ta& credit
to spea. of. In support of this, the Commissioner invo.es the "ection
A: of the %a& Code5 (d) Interest on deficienc!. J Interest upon the
amount determined as deficienc! shall be assessed at the same time as
the deficienc! and shall be paid upon notice and demand from the
Commissioner of Internal Revenue9 and shall be collected as a part of
the ta&. E""? appealed to the Court of %a& Appeals, 'hich in turn
ordered pa!ment to E""? of its Drefund1claim. =ence, this appeal b!
the Commissioner.
I1E, 4as it proper to appl! E""?s ta& credit in reducin, the total
deficienc! sub*ect to interest;
HE/3, <es, re,ardless of CIRs assertions, the fact is that as earl! as
Mul! :A, :2CB, the 6overnment alread! had in its hands the sum
representin, e&cess pa!ment. =avin, been paid and
received b! mista.e, that sum unuestionabl! belon,ed
to E""?, and the 6overnment had the obli,ation to
return it to E""?. %he obli,ation to return mone!
mista.enl! paid arises from the moment that pa!ment
is made, and not from the time that the pa!ee admits
the obli,ation to reimburse. %he obli,ation of the pa!ee
to reimburse results from the mista.e, not from the
pa!eeFs confession of the mista.e or reco,nition of the
obli,ation to reimburse. In other 'ords, since the
amount of P##:,B@@.BB belon,in, to E""? 'as alread!
in the hands of the 6overnment as of Mul!, :2CB, it 'as
neither le,all! nor lo,icall! possible for E""?
thereafter to be considered a debtor of the
6overnment9 and 'hatever other obli,ation E""?
mi,ht subseuentl! incur in favor of the 6overnment
'ould have to be reduced b! that sum, in respect of
'hich no interest could be char,ed.
0othin, is better settled than that courts are not to ,ive
'ords a meanin, 'hich 'ould lead to absurd or
unreasonable conseuences.O D"tatutes should receive a
sensible construction, such as 'ill ,ive effect to the
le,islative intention and so as to avoid an un*ust or
absurd conclusion.D
81. 3omin?o v. "arlitos
"R #o. /617))8 *) Dune 1)$8
+ A C T , In >omin,o vs. (oscoso (:BC P=IL ::@3),
the "upreme Court declared as final and e&ecutor! the
order of the Court of 7irst Instance of Le!te for the
pa!ment of estate and inheritance ta&es, char,es and
penalties amountin, to P-B,BA3.AA b! the Estate of the
late 4alter "cott Price. %he petition for e&ecution filed
b! the fiscal, ho'ever, 'as denied b! the lo'er court. %he Court held
that the e&ecution is un*ustified as the 6overnment itself is indebted
to the Estate for #C#,#BB9 and ordered the amount of inheritance
ta&es be deducted from the 6overnments indebtedness to the Estate.
I 1 E, 4hether a ta& and a debt ma! be compensated.
H E / 3, %he court havin, *urisdiction of the Estate had found that
the claim of the Estate a,ainst the 6overnment has been reco,ni/ed
and an amount of P#C#,#BB has alread! been appropriated b! a
correspondin, la' (RA #$BB). )nder the circumstances, both the
claim of the 6overnment for inheritance ta&es and the claim of the
intestate for services rendered have alread! become overdue and
demandable as 'ell as full! liuidated. Compensation, therefore, ta.es
place b! operation of la', in accordance 'ith Article :#$2 and :#2B of
the Civil Code, and both debts are e&tin,uished to the concurrent
amount. In other 'ords, the estate and inheritance ta&es are set off, b!
virtue of the ,overnments indebtedness to the estate.
8*. C.((II.#ER .+ I#TER#A/ RE0E#1E 0.
IABE/A C1/T1RA/ C.R2.
-'1' CRA ''$CA +ebruar! 1*, *%%&
%opic5 %he all1events test9 'hen deductions from income ta&es
ma! be claimed
+acts, 4hen the Bureau of Internal Revenue disallo'ed Isabela
Cultural CorporationVs claimed deductions for the !ears :23-1:23C in
their :23C ta&es for e&pense deductions, to 'it5
(:) E&penses for auditin, services for the !ear endin, @:>ecember
:23A9
(#) E&penses for le,al services for the !ears :23- and :23A9 and
(@) E&pense for securit! services for the months of April and (a! :23C.
As such, the former char,ed the latter for deficienc! income ta&es.
Isabela Cultural Corporation contests the assessment.
Issue #o. 1. 7or a ta&pa!er usin, the accrual method,
'hen do the facts present themselves in such a manner
that the ta&pa!er must reco,ni/e income or e&pense;
Rulin?, %he accrual of income and e&pense is
permitted 'hen the all1events test has been met. %his
test reuires5 (:) fi&in, of a ri,ht to income or liabilit! to
pa!9 and (#) the availabilit! of the reasonable accurate
determination of such income or liabilit!. %he test does
not demand that the amount of income or liabilit! be
.no'n absolutel!, onl! that a ta&pa!er has at his
disposal the information necessar! to compute the
amount 'ith reasonable accurac!. %he all1events test is
satisfied 'here computation remains uncertain, if its
basis is unchan,eable9 the test is satisfied 'here a
computation ma! be un.no'n, but is not as much as
un.no'able, 'ithin the ta&able !ear.
Issue #o. *. 4?0 the deductions 'ere properl!
claimed b! Isabela Cultural Corporation.
Rulin?, %he deductions for e&penses for professional
fees consistin, of e&penses for le,al and auditin,
services are 0?% allo'able. =o'ever, the deductions for
e&penses for securit! services 'ere properl! claimed b!
Isabela Cultural Corporation. 7or the le,al and auditin,
services, Isabela Cultural Corporation could have
reasonabl! .no'n the fees of those firms that it hired,
thus satisf!in, the Wall1events test.X As such, per
Revenue Audit (emorandum ?rder 0o. :1#BBB, the!
cannot validl! be deducted from its ,ross income for the
said !ear and 'ere therefore properl! disallo'ed b! the
BIR. As for the securit! services, because the! 'ere
34
incurred in :23C, the! could be properl! claimed as deductions for the
said !ear.
#otes %he reuisites for the deductibilit! of ordinar! and necessar!
trade, business, or professional e&penses, li.e e&penses paid for le,al
and auditin, services, are5
a. %he e&pense must be ordinar! and necessar!9
b. It must have been paid or incurred durin, the ta&able !ear9
c. It must have been paid or incurred in carr!in, on the trade or
business of the ta&pa!er9 and
d. It must be supported b! receipts, records, or other pertinent papers.
Revenue Audit (emorandum ?rder 0o. :1#BBB, provides that under
the accrual method of accountin,, e&penses not bein, claimed as
deductions b! a ta&pa!er in the current !ear 'hen the! are incurred
cannot be claimed as deduction from income for the succeedin, !ear.
%hus, a ta&pa!er 'ho is authori/ed to deduct certain e&penses and
other allo'able deductions for the current !ear but failed to do so
cannot deduct the same for the ne&t !ear.
%he propriet! of an accrual must be *ud,ed b! the facts that a ta&pa!er
.ne', or could reasonabl! be e&pected to have .no'n, at the closin, of
its boo.s for the ta&able !ear. Accrual method of accountin, presents
lar,el! a uestion of fact9 such that the ta&pa!er bears the burden of
proof of establishin, the accrual of an item of income or deduction.
35