COMMISSIONER v. ALGUE, INC.

GR No. L-28896, February 17, 1988

FACTS: Private respondent corporation Algue Inc. filed its income tax returns for 1958 and 1959showing deductions,
for promotional fees paid, from their gross income, thus lowering their taxable income. The BIR assessed Algue based
on such deductions contending that the claimed deduction is disallowed because it was not an ordinary, reasonable
and necessary expense.

ISSUE: Should an uncommon business expense be disallowed as a proper deduction in computation of income taxes,
corollary to the doctrine that taxes are the lifeblood of the government?

HELD: No. Private respondent has proved that the payment of the fees was necessary and reasonable in the light of
the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should
be, as it was, sufficiently recompensed.

It is well-settled that taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate
the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may
be achieved.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax
collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not
been observed.

ABAKADA Guro Party List vs. Ermita
G.R. No. 168056 September 1, 2005

FACTS:
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May
27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and
108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and
properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of
services and use or lease of properties. These questioned provisions contain a uniformp ro v is o authorizing the
President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006,
after specified conditions have been satisfied. Petitioners argue that the law is unconstitutional.

ISSUES:
1. Whether or not there is a violation of Article VI, Section 24 of the Constitution.

2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the Constitution.

3. Whether or not there is a violation of the due process and equal protection under Article III Sec. 1 of the
Constitution.

RULING:
1. Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate
was acting within its constitutional power to introduce amendments to the House bill when it included provisions in
Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and franchise taxes.

2. There is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is
constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes
what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is
frequently the only way in which the legislative process can go forward.

3. The power of the State to make reasonable and natural classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts
to be raised, the methods of assessment, valuation and collection, the States power is entitled to presumption of
validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.


Commissioner of Internal Revenue vs. Central Luzon Drug Corporation
G.R. No. 159647 April 15, 2005

FACTS: Respondents operated six drugstores under the business name Mercury Drug. From January to December
1996 respondent granted 20% sales discount to qualified senior citizens on their purchases of medicines pursuant to
RA 7432 for a total of 904,769.

On April 15, 1997, respondent filed its annual Income Tax Return for taxable year 1996 declaring therein net losses.
On Jan. 16, 1998 respondent filed with petitioner a claim for tax refund/credit of 904,769.00 allegedly arising from
the 20% sales discount. Unable to obtain affirmative response from petitioner, respondent elevated its claim to the
Court of Tax Appeals. The court dismissed the same but upon reconsideration, the latter reversed its earlier ruling and
ordered petitioner to issue a Tax Credit Certificate in favor of respondent citing CA GR SP No. 60057 (May 31, 2001,
Central Luzon Drug Corp. vs. CIR) citing that Sec. 229 of RA 7432 deals exclusively with illegally collected or
erroneously paid taxes but that there are other situations which may warrant a tax credit/refund.

CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required neither a tax liability nor a payment of
taxes by private establishments prior to the availment of a tax credit. Moreover, such credit is not tantamount to an
unintended benefit from the law, but rather a just compensation for the taking of private property for public use.

ISSUE: Whether or not respondent despite incurring a net loss, may still claim the 20% sales discount as a tax credit.

RULING: Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a 20% discount on
their purchase of medicine from any private establishment in the country. The latter may then claim the cost of the
discount as a tax credit. Such credit can be claimed even if the establishment operates at a loss.

A tax credit generally refers to an amount that is subtracted directly from ones total tax liability. It is an allowance
against the tax itself or a deduction from what is owed by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of these is tax deduction which is
subtraction from income for tax purposes, or an amount that is allowed by law to reduce income prior to the
application of the tax rate to compute the amount of tax which is due. In other words, whereas a tax credit reduces
the tax due, tax deduction reduces the income subject to tax in order to arrive at the taxable income.

A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax credit can be
applied. Without that liability, any tax credit application will be useless. There will be no reason for deducting the
latter when there is, to begin with, no existing obligation to the government. However, as will be presented shortly,
the existence of a tax credit or its grant by law is not the same as the availment or use of such credit. While the grant
is mandatory, the availment or use is not. If a net loss is reported by, and no other taxes are currently due from, a
business establishment, there will obviously be no tax liability against which any tax credit can be applied. For the
establishment to choose the immediate availment of a tax credit will be premature and impracticable.

Mactan Cebu International Airport Authority (MCIAA) vs. Hon. Ferdinand J.Marcos
GR 120082, September 11, 1996

FACTS: MCIAA was created by virtue of RA 6958. Since the time of its creator, MCIAA enjoyed the privilege of
exemption from payment of realty taxes in accordance with sec. 14 of its charter. On October 11, 1994 however The
treasurer of Cebu city demanded payments for realty taxes on several parcels of lands belonging to the petitioners.
MCIAA objected to such demand for payment as baseless and unjustified, claiming in its favour Sec. 14 of R.A. 6958
which exempt it from payment of realty taxes. Respondent refuse to cancel MCIAAs tax account, insisting that it is
the GOCCs whose tax exemption privilege has been withdrawn by virtue of Sec 193 and 234 of the LGC.
ISSUE: Whether or not the contention meritorious?
RULING: No. Sec 193 LGC prescribe the general rule that they are withdrawn upon the effectivity of the code except
those granted to local water districts, cooperative duly registered under R.A. 6938, non-stock, non-profit hospitals
and educational institutions, and unless otherwise provided in the LGC the latter provision called only refer to Sec 234
which enumerate the properties exempt from real property tax but the last paragraph of sec 234 further qualifies the
retention of the exemption. Only to those enumerated therein. Thus, for petitioner to be exempt must show that the
parcels of land in question any of those enumerated in 234.
COMMISSIONER OF INTERNAL REVENUE v. BURROUGHS LIMITED AND THE COURT OF TAX APPEALS
[G.R. No. L-66653. June 19, 1986

FACTS: March 1979: The branch office of Burroughs Limited, a foreign corporation, applied with the Central Bank for
authority to remit to its parent company abroad, branch profit.

Amount Applied for: Php 7,647,058.00
15% Branch Profit Remittance Tax: Php 1,147,048.70
Amount Actually Remitted: Php 6,499,999.30

On December 24, 1980 Burroughs claims a tax refund/credit of Php 172,058.90. Branch Profit Remittance tax should
be 15% of Amount Actually Remitted. (based on Ruling of Acting Commissioner of Internal Revenue). The CTA granted
a tax credit however, the CIR ruled that Burroughs is no longer entitled to refund because Memorandum Circular No.
8-82 dated 17 March 1982 had revoked and/or repealed the BIR ruling of 21 Jan 1980.

ISSUE: Whether or not Memorandum Circular No. 8-82 (MC 8-82) dated 17 March 1982 can be given retroactive
effect? (NO)

HELD:
1. 21 Jan 1980: BIR ruling by Acting Commissioner of Internal Revenue of NIRC Sec 24 (b)(2):

Tax Base upon which 15% branch profits remittance tax shall be imposed on Branch profits actually remitted
and not on the total branch profits out of which the remittance is to be made.

2. Applicable Ruling is Revenue Ruling of 21 Jan 1980 because Burroughs paid the branch profit remittance tax on 14
Mar 1979. MC No. 8-82 cannot be given retroactive effect in light of Sec 327 of NIRC.

3. The retroactive application of MC No. 8-82 would prejudice Burroughs as it would be deprived of the substantial
amount of 172T++. Burroughs also does not fall under any of the enumerated exceptions where retroactivity would
apply.