Doctrine: When the legislature exempted lands and buildings owned by the

government from payment of said taxes, what it intended was a broad and
comprehensive application of such mandate, regardless of whether such
property is devoted to governmental or proprietary purpose.

SOCIAL SECURITY SYSTEM vs. CITY OF BACOLOD and MIGUEL REYNALDO as
City Treasurer of Bacolod City,
G.R. No. L-35726 July 21, 1982
ESCOLIN, J .:
FACTS:
Petitioner Social Security System is a government agency created under Republic Act
No. 1161, whose primary function is to "develop, establish gradually and perfect a social
security system which shall be suitable to the needs of the people throughout the
Philippines, and shall provide protection against the hazards of disability, sickness, old
age, and death. petitioner, maintains the five-storey building SSS Building in Bacolod
City, occupying four parcels of land. said lands and building were assessed for taxation
at P1,744,840.00.
For petitioner's failure to pay the realty taxes for the three (3) years, including penalties,
respondent city sometime levied upon said lands and building; and on April 3, 1970, it
declared said properties forfeited in its favor.
In protest thereto, petitioner addressed a letter to the City Mayor of Bacolod, through
respondent city treasurer, seeking reconsideration of the forfeiture proceedings on the
ground that petitioner, being a government-owned and controlled corporation, is exempt
from payment of real estate taxes. When no action thereon was taken by respondent
city treasurer, petitioner filed an action in the Court of First Instance of Negros
Occidental for nullification of the forfeiture proceedings. the lower court rendered a
decision declaring ... the properties of the Social Security System not exempt from
the payment of real property tax inasmuch as the SSS does not fall under the provisions
of Section 29 of the Charter of the City of Bacolod
ISSUES:
Whether or not the properties of government corporation exercising ministrant or
proprietary function, , are exempt from realty taxes.
HELD:
We hold that under Section 29 of the Charter of the City of Bacolod they are so
exempt. It bears emphasis that the said section does not contain any qualification
whatsoever in providing for the exemption from real estate taxes of "lands and buildings
owned by the Commonwealth or Republic of Philippines." Hence, when the legislature
exempted lands and buildings owned by the government from payment of said taxes,
what it intended was a broad and comprehensive application of such mandate,
regardless of whether such property is devoted to governmental or proprietary purpose.
It is to be noted that Section 3(a) of said statute contains a similarly worded
exemption from the payment of realty taxes of "properties owned by ... the Republic of
the Philippines, any province, city, municipality or municipal district ..." And in "Board of
Assessment Appeals vs. Court of Tax Appeals" , this Court interpreted this provision in
this wise:
... in exempting from taxation 'property owned by the Republic of the Philippines,
any province, city, municipality or municipal district ... said section 3(a) of
Republic Act No. 470 makes no distinction between property held in a sovereign,
governmental or political capacity and those possessed in a private propriety or
patrimonial character. And where the law does not distinguish neither may we,
unless there are facts and circumstances clearly showing that the lawmaker
intended the contrary, but no such facts and circumstances have been brought to
our attention. Indeed, the noun 'property' and the verb 'owned' used in said
section, 3 (a) strongly suggest that the object of exemption is considered
more from the view point of dominion, than from that of domain. Moreover,
taxes are financial burdens imposed for the purpose of raising revenues
with which to defray the cost of the operation of the Government, and a
tax on property of the Government, whether national or local, would
merely have the effect of taking money from one pocket to put it in another
pocket (Cooley on Taxation, Sec. 621, 4th Edition). Hence, it would not
serve, in the final analysis, the main purpose of taxation. What is more, it would
tend to defeat it, on account of the paper work, time and consequently, expenses
it would entail. (The Law on Local Taxation, by Justiniano Y. Castillo, p. 13).
ALSO, Presidential Decree No. 24, which amended the Social Security Act of
1954, has already removed all doubts as to the exemption of the SSS from taxation.
Thus
SEC. 16. Exemption from tax, legal process, and lien. All laws
to the contrary notwithstanding, the SSS and all its assets, all
contributions collected and all accruals thereto and income
therefrom as well as all benefit payments and all papers or
documents which may be required in connection with the
operation or execution of this Act shall be exempt from any tax,
assessment, fee, charge or customs or import duty; and all benefit
payments made by the SSS shall likewise be exempt from all
kinds of taxes, fees or charges, and shall not be liable to
attachment, garnishments, levy or seizure by or under any legal
or equitable process whatsoever, either before or after receipt by
the person or persons entitled thereto, except to pay any debt of
the covered employee to the SSS.

CIR v. CA, CTA, AdMU
GR No.115349; 18 April 1997

Funds received fall as gifts or donations are tax-exempt

F A C T S:

Private respondent, Ateneo de Manila University, is a non-stock, non-profit
educational institution with auxiliary units and branches all over the country. The
Institute of Philippine Culture (IPC) is an auxiliary unit with no legal personality separate
and distinct from private respondent. The IPC is a Philippine unit engaged in social
science studies of Philippine society and culture. Occasionally, it accepts sponsorships
for its research activities from international organizations, private foundations and
government agencies.

On 8 July 1983, private respondent received from CIR a demand letter assessing
private respondent the sum of P174,043.97 for alleged deficiency contractors tax, ,
private respondent sent petitioner a letter-protest and subsequently filed with the latter a
memorandum contesting the validity of the assessments.

Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo
de Manila University "falls within the definition" of an independent contractor and "is not
one of those mentioned as excepted" under Section 205 of the Tax Code; hence, it is
properly a subject of the three percent contractor's tax levied by the foregoing provision
of law.

Petitioner states that the "term 'independent contractor' is not specifically defined so as
to delimit the scope thereof, so much so that any person who . . . renders physical and
mental service for a fee, is now indubitably considered an independent contractor liable
to 3% contractor's tax."

The lower courts ruled in favor of respondent.

I S S U E:

Whether or not ADMU IPC falls under the purview of independent contractor
pursuant to Section 205 of the Tax Code and is subject to a 3% contractors tax.

H E LD:

No.

The term "independent contractors" include persons (juridical or natural) not
enumerated above (but not including individuals subject to the occupation tax under
Section 12 of the Local Tax Code) whose activity consists essentially of the sale of
all kinds of services for a fee regardless of whether or not the performance of the
service calls for the exercise or use of the physical or mental faculties of such
contractors or their employees.

Petitioner Commissioner of Internal Revenue erred in applying the principles of tax
exemption without first applying the well-settled doctrine of strict interpretation in the
imposition of taxes. It is obviously both illogical and impractical to determine who are
exempted without first determining who are covered by the aforesaid provision. The
Commissioner should have determined first if private respondent was covered by
Section 205, applying the rule of strict interpretation of laws imposing taxes and other
burdens on the populace, before asking Ateneo to prove its exemption therefrom.

.Ateneos Institute of Philippine Culture never sold its services for a fee to anyone or
was ever engaged in a business apart from and independently of the academic
purposes of the university. Funds received by the Ateneo de Manila University are
technically not a fee. They may however fall as gifts or donations which are tax-
exempt as shown by private respondents compliance with the requirement of Section
123 of the National Internal Revenue Code providing for the exemption of such gifts to
an educational institution.

Therefore, it is clear that the funds received by Ateneos Institute of Philippine Culture
are not given in the concept of a fee or price in exchange for the performance of a
service or delivery of an object. Rather, the amounts are in the nature of an
endowment or donation given by IPCs benefactors solely for the purpose of sponsoring
or funding the research with no strings attached. As found by the two courts below,
such sponsorships are subject to IPCs terms and conditions. No proprietary or
commercial research is done, and IPC retains the ownership of the results of the
research, including the absolute right to publish the same. The copyrights over the
results of the research are owned by Ateneo and, consequently, no portion thereof may
be reproduced without its permission.
]
The amounts given to IPC, therefore, may not be
deemed, it bears stressing, as fees or gross receipts that can be subjected to the three
percent contractors tax.

Transaction of IPC not a contract of sale nor a contract for a piece of work. The
transactions of Ateneos Institute of Philippine Culture cannot be deemed either as a
contract of sale or a contract for a piece of work. By the contract of sale, one of the
contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its
equivalent. In the case of a contract for a piece of work, the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain price or
compensation. . . . If the contractor agrees to produce the work from materials furnished
by him, he shall deliver the thing produced to the employer and transfer dominion over
the thing. . . . In the case at bench, it is clear from the evidence on record that there
was no sale either of objects or services because, as adverted to earlier, there was no
transfer of ownership over the research data obtained or the results of research projects
undertaken by the Institute of Philippine Culture

COMMISSIONER OF INTERNAL REVENUE, vs. GENERAL FOODS (INC.,
G.R. No. 143672. April 24, 2003]
CORONA, J .:
FACTS:
This is case of protest regarding the assessment made against the General
Foods Inc., for deficiency taxes.
General Foods is engaged in the manufacture of beverages such as Tang,
Calumet and Kool-Aid, filed its income tax return for the fiscal year ending February
28, 1985. In said tax return, respondent corporation claimed as deduction, among other
business expenses, the amount of P9,461,246 for media advertising for Tang.
Petitioners explanation that such expense does not connote unreasonableness
considering the grave economic situation taking place after the Aquino assassination
characterized by capital fight, strong deterioration of the purchasing power of the
Philippine peso and the slacking demand for consumer products
The CIRr maintains that the subject advertising expense was not ordinary on the ground
that it failed the two conditions set by U.S. jurisprudence: first, reasonableness of the
amount incurred and second, the amount incurred must not be a capital outlay to create
goodwill for the product and/or private respondents business. Otherwise, the expense
must be considered a capital expenditure to be spread out over a reasonable time
ISSUE:
Whether or not the subject media advertising expense for Tang incurred by
respondent corporation was an ordinary and necessary expense fully deductible under
the National Internal Revenue Code?
HELD:
NO.
Section 34 (A) (1), formerly Section 29 (a) (1) (A), of the NIRC provides:
(A) Expenses.-
(1) Ordinary and necessary trade, business or professional expenses.-
(a) In general.- There shall be allowed as deduction from gross income all ordinary
and necessary expenses paid or incurred during the taxable year in carrying on, or
which are directly attributable to, the development, management, operation and/or
conduct of the trade, business or exercise of a profession.
To be deductible, an advertising expense should not only be necessary but also
ordinary. These two requirements must be met.
Advertising is generally of two kinds: (1) advertising to stimulate the current sale of
merchandise or use of services and (2) advertising designed to stimulate the future sale
of merchandise or use of services. The second type involves expenditures incurred, in
whole or in part, to create or maintain some form of goodwill for the taxpayers trade or
business or for the industry or profession of which the taxpayer is a member. If the
expenditures are for the advertising of the first kind, then, except as to the question of
the reasonableness of amount, there is no doubt such expenditures are deductible as
business expenses. If, however, the expenditures are for advertising of the second
kind, then normally they should be spread out over a reasonable period of time.
In the case at bar, the P9,461,246 claimed as media advertising expense for Tang
alone was almost one-half of its total claim for marketing expenses. Aside from that,
respondent-corporation also claimed P2,678,328 as other advertising and promotions
expense and another P1,548,614, for consumer promotion.
Furthermore, the subject P9,461,246 media advertising expense for Tang was almost
double the amount of respondent corporations P4,640,636 general and administrative
expenses.
True, it is the taxpayers prerogative to determine the amount of advertising expenses it
will incur and where to apply them. Said prerogative, however, is subject to certain
considerations. The first relates to the extent to which the expenditures are actually
capital outlays; this necessitates an inquiry into the nature or purpose of such
expenditures. The second, which must be applied in harmony with the first, relates to
whether the expenditures are ordinary and necessary. Concomitantly, for an expense to
be considered ordinary, it must be reasonable in amount. The Court of Tax Appeals
ruled that respondent corporation failed to meet the two foregoing limitations.
We find said ruling to be well founded. Respondent corporation incurred the subject
advertising expense in order to protect its brand franchise. We consider this as a
capital outlay since it created goodwill for its business and/or product. The P9,461,246
media advertising expense for the promotion of a single product, almost one-half of
petitioner corporations entire claim for marketing expenses for that year under review,
inclusive of other advertising and promotion expenses of P2,678,328 and P1,548,614
for consumer promotion, is doubtlessly unreasonable
We find the subject expense for the advertisement of a single product to be inordinately
large. Therefore, even if it is necessary, it cannot be considered an ordinary expense
deductible under then Section 29 (a) (1) (A) of the NIRC.


RESINS, INCORPORATED vs. AUDITOR GENERAL OF THE PHILIPPINES,
G.R. No. L-17888 October 29, 1968
FERNANDO, J .:
FACTS:
Resin seek a refund from respondent Central Bank on the claim that it was
exempt from the margin fee under Republic Act No. 2609 for the importation of urea and
formaldehyde, as separate units, used for the production of synthetic glue of which it
was a manufacturer. Since the specific language of the Act speak of "urea
formaldehyde," and petitioner admittedly did import urea and formaldehyde separately,
its plea could be granted only if we could construe the above provision of law to read
"urea and formaldehyde.
Resin contends, however, that the bill approved in Congress contained the
copulative conjunction 'and' between the terms 'urea' and 'formaldehyde', and that the
members of Congress intended to exempt 'urea' and 'formaldehyde' separately as
essential elements in the manufacture of the synthetic resin glue called 'urea.
fomaldehyde' not the latter as a finished product.
ISSUE:
WON 'urea' and 'formaldehyde' separately as essential elements in the
manufacture of the synthetic resin glue exempt from taxes?
HELD:
NO.
A refund undoubtedly partakes of a nature of an exemption, it cannot be allowed
unless granted in the most explicit and categorical language.
It has been the constant and uniform holding that exemption from taxation is not
favored and is never presumed, so that if granted it must be strictly construed against
the taxpayer. Affirmatively put, the law frowns on exemption from taxation, hence, an
exempting provision should be construed strictissimi juris." Certainly, whatever may be
said of the statutory language found in Republic Act 2609, it would be going too far to
assert that there was such a clear and manifest intention of legislative will as to compel
such a refund.
it is well settled that the enrolled bill which uses the term 'urea formaldehyde'
instead of 'urea and formaldehyde' is conclusive upon the courts as regards the tenor
of the measure passed by Congress and approved by the President ... If there has been
any mistake in the printing of the bill before it was certified by the officers of Congress
and approved by the Executive on which we cannot speculate, without jeopardizing
the principle of separation of powers and undermining one of the cornerstones of our
democratic system the remedy is by amendment or curative legislation, not by
judicial decree.
ALSO, Auditor General, by virtue of HIS function, which is intended to implement
the constitutional mandate that no money can be paid out of the treasury except in the
pursuance of appropriation made by law, must carefully see to it that there is in fact
such statutory enactment, no refund, which likewise represents a diminution of public
funds in the treasury, should be allowed unless the law clearly so provides. The Auditor
General would be sadly remiss in the discharge of his responsibility under the
Constitution if, having the statute before him, he allows such a refund when, under the
terms thereof, it cannot be done. His actuation here cannot be stigmatized as violative
of any legal precept; as a matter of fact, it is precisely in accordance with the
constitutional mandate.