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1 Tax Cases (courtesy of L.

Profugo)
Commissioner of Internal Revenue v. Pineda
21 SCRA 105

Facts:

Manuel Pineda received as one of the heirs of Antonio Pineda the amount of P2,500.00 as
his share in the estate of his father. After the estate proceedings, the BIR assessed the tax
liability of the estate for the year 1945-1948. Pineda contested the assessment and
appealed to the Court of Tax Appeals that proportionate part due to him as an heir. The
CTA reversed the ruling of the Commissioner on the ground that his right to assess and
collect the tax has prescribed. The High Court Affirmed the CTA in respect to the
assessment for income tax for the year 1947 but held the right to asses and collect the taxes
for 1945 and 1946, upon remand to the CTA, the court held Pineda liable for payment of his
corresponding share. The Commissioner appealed contending that Pineda should be held
liable for the payment of all taxes to be due from the estate instead of only for the amount
of taxes corresponding to his share.

Issue:

Whether or not Manuel Pineda is liable to pay all the taxes due on the estate instead of only
his corresponding share

Ruling:

Pineda is liable for the assessment as an heir and as holder-transferee of property
belonging to the estate/taxpayer. As an heir, he is individually answerable for the part of
the tax proportionate to the share he received from the inheritance. His liability, however,
cannot exceed the amount of his share. As a holder of the property belonging to the estate,
Pineda is liable for tax up to the amount of property in his possession. The reason is the
government has a lien on the P2,500.00 received by him from the estate as his share in the
inheritance, for the unpaid taxes for which said estate is liable. Pineda will have a right of
contribution from his heirs.


2 Tax Cases (courtesy of L. Profugo)
Roxas v. Court of Tax Appeals
23 SCRA 276

Facts:

The Roxas children inherited from their parents an agricultural land with an area of 19,000
hectares in Nasugbu, Batangas, a residential house and lot at Malate, Manila and shares of
stocks in different corporations. To manage the same, the children namely; Antonio,
Eduardo and Jose, all surnamed Roxas, formed a corporation called Roxas y Compania.

At the conclusion of the Second World Warm, the government bought the agricultural land
in Nasugbu, Batangas for distribution among the landless tenant-farmers occupying the
same.

When Antonio and Eduardo got married, they lived elsewhere and left Jose in the old house.
In fairness to his brothers, Jose paid to Roxasy Compania rentals in the sum of P8,000.00 a
year.

In 1958, the CIR demanded from the company real estate dealers tax, compromise penalty
and tax for dealers in security for the year 1952. In the same assessment the brothers were
also assessed deficiency income taxes for 1953 and 1955 derived from the sale of Nasugbu
farm lands to the tenants and the disallowance of certain deductions. The Commissioner
considered the partnership ass engaged in business of real estate; hence, 100% of the profit
was taxed. The brothers protested the assessment but said protest was denied. They
brought the case to the CTA whose judgment is under review.

Issues:

1. Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence,
100% taxable?
2. Are the deductions for business expenses and contributions taxable?
3. Is Roxas y Compania liable for the payment of fixed tax on real estate dealers?

Ruling:

1. The act of subdividing a farm land and selling the same to the farmers-occupants on
installment in response to the Governments policy to allocate land to the landless is not
subject to real estate dealers tax. The business activity of the landowner in selling the
land involved an isolated transaction with its peculiar circumstances and not to be
considered as an act of a dealer even though there are hundreds of vendees. The gains
derived are taxable only to the extent of 50%.

The power of taxation is also called the power to destroy. Therefore, it must be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It
must be exercised fairly, equally and uniformly, lest the tax collector kill the hen that
lays the golden eggs

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2. As to representation expenses claimed, they are deductible from gross income as
expenditures incurred in carrying on a trade or business under Section 30(a) of the Tax
Code provided the taxpayer proves that the amount is ordinary and necessary and
incurred in connection with his business. In the case at bar, the evidence does not show
such link between the expenses and the business of Roxas y Compania.

On the claim for deduction of contributions made, only those contributions made to a
government entity under Section 39(h) of the Tax Code and Section 30(h) of the same
law are deductible. Hence, the contributions to the Christmas funds of Pasay City Police,
Pasay City Firemen and Baguio City Police were disallowed on the ground that they
were not for public purpose. The contributions to the FEU for the construction of a
chapel is also disallowed for the said university gives dividends to its stockholders

3. The imposition of a real estate dealers tax for the income received from Jose Roxas as
rental was upheld. Section 194 of the Tax Code in considering as real estate dealres
owners of real estate receiving rentals of at least P3,000.00 a year, does not provide
qualifications as to the person paying the rentals

The decision of the Court of Tax Appeals is modified.


4 Tax Cases (courtesy of L. Profugo)
Vero v. Fernandez
89 SCRA 199

Facts:

There are two orders from the Court of First Instance of Negros Occidental dismissing the
Motion for the Allowance and for an order of payment of taxes by the government in the
intestate estate proceedings of the estate of the late Luis Tongoy. The dismissal is anchored
on the ground that the claim was already barred by the Statute of Non-claims provided for
in the Rule 86, Section 5 of the Rules of Court.

Issue:

Whether or not the period of limitation within which to claim taxes maybe made by the
government on the basis of the governing provision of the Rules of Court or by the NIRC.

Ruling:

Under Section 5, Rule 86 of the Rules of Court, all claims for money against the decedent
arising from contract express of implied, due or not due, funeral cases and expenses for the
last sickness of the decedent must be filed within the time stated in the notice, otherwise,
they are barred forever.

Said section makes no mention of monetary obligations created by law such as taxes which
is of entirely different character from the claims so enumerated. Applying thus the rule
EXPRESSION UNIUS EST ECLUSIO ALTERUIS, it follows that taxes are not among the
claims that have to be file as aforestated.


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Sison v. Ancheta
130 SCRA 654

Facts:

A petition for declartory relief was filed by petitioner assailing the constitutionality of
Section 1 of B.P. 135 which amended Section 21 (a) of the National Internal Revenue Code.
It is alleged that petitioner would be unduly discriminated against by the imposition of
higher tax rates upon his income derived from the exercise of his profession vis--vis those
which are imposed upon fixed income or salaried individual taxpayers.

Issues:

1. Whether or not Section 1 of BP 135 is violative of the due process and equal
protection clauses;
2. Whether or not said section violates the rule on uniformity and equality in taxation.

Ruling:

1. The government in order to meet the increasing social challenge of the time needs more
revenues to perform its vital functions, taxes are the lifeblood of the government, hence,
its prompt and certain availability is of the essence. It is, however, subject to certain
restrictions.

Mere allegation of arbitrariness will not suffice to render the statute invalid considering
that the due process and equal protection clauses are not fixed rules but broad
standards which must be persuasively proved. Equal protection means that laws should
operate uniformly and equally on all persons under similar circumstances, both in
privileged conferred and liabilities imposed.

It is inherent in the power to tax that the state be free to select the subject of taxation
and inequalities which result from the singling out of a particular class for taxation or
exemption infringes no constitutional limitation.

2. The requirement that the rule on taxation should be uniform and equitable is amply
met when the tax operates with the same force and effect in every place where the
subject may be found; and when all taxable articles or kinds of properties of the same
class shall be taxed at the same rate.

What apparently misled petitioner was his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader
tax base on taxable compensation income by eliminating all deductible items and
reducing the applicable tax rates thereon as this classification rests on substantial
distinction that makes real differences, one of which is the susceptibility of
compensation income to the application of generalized rules since practically, salaried
individuals incur no overheard expenses in earning their income. On the other hand,

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there is no uniformity in cost/s expenses necessary to produce their income in the case
of professionals in the practice of their profession and businessmen, hence, it would be
unjust to disregard these disparities by giving them all zero deduction and
discriminately impose on all alike the same tax rates on the basis of their gross income.


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Tio v. Videogram Regulatory Borad
151 SCRA 208

Facts:

A petition was filed by petitioner in his own behalf and purportedly on behalf of the other
videogram operators adversely affected by PD No. 1987 entitled An Act Creating the
Videogram Regulatory Board with broad power to regulate and supervise the videogram
industry. On November 5, 1985, PD No. 1994 amended the National Internal Revenue Code
wherein an annual tax of five pesos was imposed on each processed video-tape cassette
ready for playback, regardless of length. Petitioner attacked the constitutionality of the
decree on the grounds that the imposition of a 30% tax on the fross receipts of the sales
and rentals of videotapes is harsh, oppressive, confiscatory and in restraint of trade, among
others.

Issue:

One of the issues raised in this case is whether or not Section 10 of PD 1987 imposing a
30% tax on gross receipts of the sales and rentals of videotapes is harsh, oppressive, and
confiscatory.

Ruling:

A tax does not cease to be valid merely because it regulate, discourages, or even definitely
deters the activities taxed. The power to impose taxes is so unlimited in force and so
searching in extent that the courts scarcely venture to declare that it is subject ito any
restrictions whatever, except such as rest in the discretion of the authority which exercises
it.

The tax imposed by the decree is not only regulatory but also a revenue measure prompted
by the realization that earnings of videogram establishment of around 600 million per
annum have not been subjected to tax, thereby depriving the government of an additional
source of revenue. Ii is an end-user tax imposed on retailers for every videogram they make
available for public viewing. It is a tax imposed uniformly on all videogram operators.

The levy of the 30% tax is for public purpose. It was imposed primarily to answer the need
for regulations of the video industry, particularly because of the rampant film piracy, the
flagrant violation of intellectual property rights, and the proliferation of pornographic
videotapes. And while it was also an objective of the decree to protect the movie industry,
the tax remains a valid imposition.


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The Commissioner of Internal Revenue v. Algue and the Court of Tax Appeals
158 SCRA 9

Facts:

Private respondent Algue was assessed by the BIR a delinquency income tax on January
14,1965. On January 18, 1965, Algue filed a letter of protest contesting among others the
disallowance of P75,000.00 it claimed as an ordinary business expenses. Thereafter, a
warrant of distraint and levy was presented to Algue which the latter refused to receive
because of the pending protest. It appeared that the BIR had no record of said protest,
hence, Algue furnished the former with a copy of the same. On April 7, 1965, the BIR
informed private respondent that it was not taking any action on the protest. Thus, Algue
appealed in April 23,1965.

Issues:

1. Whether or not the appeal was made on time and in accordance with law.
2. Whether or not the Collector correctly disallowed the P75,000.00 deduction claimed
by Algue as legitimate business expenses.

Ruling:

1. The appeal was filed on time and in accordance with RA 1125 which provides that the
appeal may be made within 30 dayes from the receipt of the ruling or decision
challenged. While it is true that as a rule a warrant of distraint and levy is proof of the
finality of the assessment and is rantamount to an outright denial of a Motion for
Reconsideration, there is special circumstances in the case at bar which prevents the
application of the doctrine. Algue filed a letter of protest four days after the assessment
was received which was not taken into account by the BIR before the warrant was
issued as the latter did not even have a copy thereof, hence, the warrant was premature
and considering that the protest was not pro forma, it had the effect of suspending on
January 18, the 30-day appeal period which started to run again only on April 7,1965
when Algue was informed by the BIR of its implied rejection of the protest. Thus, when
the appeal was filed on April 23, 1965, only 20 days of the 30 day reglementary period
had been consumed.

2. The amount of P75,000.00 claimed as promotional fees should be allowed as ordinary
and necessary business expenses paid or incurred in carrying on a trade or business
which under the Tax Code include a reasonable allowance for salaries or other
compensation for personal services actually rendered.

Taxes are what we pay for a civilized society. Without taxes, the government would be
paralyzed for lack of motive power to activate and operate it. Hence, every person is
expected to contribute and the government is in turn is expected to respond in the form

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of tangible and intangible benefits to the taxpayer. This symbiotic relationship is the
rationale of taxation.


10 Tax Cases (courtesy of L. Profugo)
Standard oil Company of New York v. Posadas
55 Phil 715

Facts:

The Standard Oil Co. of New York is a foreign corporation duly authorized to do business in
the Philippines. From October to December 1929, it sold and delivered to the Department
of US Army in the Philippines fuel oil and asphalt. It also delivered fuel to the US Navy
under a contract executed in New York. The US Army and US Navy were assessed taxes in
the amount of 1 % of the value of the merchandize paid by the Standard Oil COmpant
who claimed a refund for taxes paid under protest.

Issue:

Whether or not the Philippine Government can impose taxes on sale of merchandise in the
Philippines to the US Army and US Navy.

Ruling:

The US government created 3 agencies in the Philippines to serve the United States the
US Army, US Navy and the government of the Philippine Islands. The tax collected from the
plaintiff is in fact a tax on the US Army and the US Navy in other words, the US
government itself. It would be observed to think that a derivative sovereignty like the
Government of the Philippine Islands could tax the instrumentality of the very government
which brought it into existence.


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Lutz v. Araneta
98 Phil. 149

Facts:

Commonwealth Act No. 567 was enacted in 1940. Section 2 of the said law provides for a
tax on manufacture of sugar on a graduated basis; on each picul of sugar manufactured;
while Section 3 levies on owners or persons in contest of lands devoted to the cultivation of
sugar cane and ceded to others for a consideration on lease or otherwise. Plaintiff Walter
Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seekd to recover the taxes paid by the estate under Section 3 of the Said Act for
crop years 1948-1949 and 1949-1950, alleging that the tax is unconstitutional and void
being levied for the aid and support of the sugar industry exclusively which in plaintiffs
opinion is not for public purpose.

Issue:

Whether or not Commonwealth Act No. 567 otherwise known as the Sugar Adjustment Act
is constitutional.

Ruling:

An analysis of the Act particularly Section 6 thereof shows that the tax is levied with a
regulatory purpose, to provide means for the rehabilitation and stabilization of the sugar
industry, one of the great industries occupying a leading position among our export
products. Its promotion and advancement is, therefore, for the general welfare. That the tax
to be levied should burden the sugar producers themselves can hardly be a ground for
complaint for it appears rational that the tax be obtained precisely for those who are to be
benefitted.

Even from the standpoint that the act is a pure tax measure, it cannot be said that the
devotion of tax money to experimental stations to seek increase of efficiency in sugar
production, utilization of by-products and solutions of allied problems, as well as to the
improvement of living and working conditions of sugar workers without any part of the
money being channeled to private persons constitutes expenditures of tax money for
private purposes.


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Pascual v. Secretary of Public Works
110 Phil 148

Facts:

Respondent Zulueta is the owner of several parcels of residential lot situated in Pasig, Rizal.
Certain portions of which have been reserved for the projected feeder roads which were
provate property when RA 920 was enacted. Respondent at the time of the passage of the
law was a member of the Senate of the Philippines. Petitioner Pascual, as Provincial
Governor prays that the law be declared null and void and the deed of donation of the said
feeder road be declared unconstitutional or illegal. The feeder road do not connect any
government property or any important premises of the main highway

Issue:

Whether or not RA 920 which provides for the repairm extension and improvement of said
roads unconstitutional.

Ruling:

Yes. The land on which the projected feeder roads are to constructed belongs to a private
person. An appropriation made by the Congress for that purpose is null and void and the
donation to the government made over 5 months. After the approval and effectivity of the
act for the purpose of giving a semblance of legality of the appropriation does not cure the
basic defect.

The legislative is without power to appropriate public revenues for anything but public
purpose. Incidental advantage to the public of the statute which results in the promotion of
private interests and the prosperity of private enterprises or business does not justify their
aid by the use of public money.


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Board of Assessment Appeals of Laguna v. Court of Tax Appeal
8 SCRA 224

Facts:

This case is a petition for review of the Court of Tax Appeals decision reversing the Board
of Assessment Appeals of Laguna.

The National Waterworks and Sewerage Authority is a public corporation owned by the
Government of the Philippines as well as properties comprising the waterworks and
sewerage system placed under it. The Cabuyao-Sta. Rosa-Bian Waterworks system was
assessed real estate taxes in the ground that although the properties were owned by the
government, the same are held in a proprietary capacity.

Issue:

Whether or not the water pipes, reservoirs, intake and buildings used by the respondent
NAWASA in the operation of its waterworks system in Sta. Rosa, Cabuyao and Bian are
subject to real estate taxes.

Ruling:

Under the Commonwealth Act No. 470 (Section 3), any property owned by the government,
Republic of the Philippines, provincial, city, municipality/district are exempted from real
estate taxation. It makes no distinction between property held in sovereign capacity and
those possessed in a patrimonial or proprietary capacity, the test is ownership and since
the properties in question are owned by the Republic of the Philippines, they shoul be
exempt from real estate taxes whether possessed by the government as a proprietary
property or governmental capcacity.

Taxes are financial burdens imposed to raise revenues to defray the expenses of the
government; hence, a tax on the property of the government, and paid by it would merely
have the effect of taking money from one pocket and putting it in another pocket.


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Benjamin P. Gomez v. Enrico Palomar
25 SCRA 827

Facts:

Republic Act No. 163 was enacted to help raise funds for the Philippine Tuberculosis
Society. It provides that for the period covering from August 19 to September 30 every
year, no mail matter shall be accepted unless it bears the 5 centavo anti-TB postal stamps.
Petitioner mailed a letter at the post-office in San Fernando, Pampanga which was denied
delivery on the ground that it did not bear the special anti-TB stamp. Thus, petition
questioned the validity of the law.

Issues:

1. Whether or not the statue in question violates the equal protection clause
2. Whether or not the imposition is for public purpose

Ruling:

The equal protection clause guarantee is not violated just because the statute constitute
mail users into a class for the purpose of taxation while leaving untaxed the rest of the
population. It is inherent in the power to tax that the state is free to select the subject of
taxation or exemption. In the case at bar, mail users were segregated as a class because of
ability to pay, enjoyment of a privilege and administrative convenience which are adequate
grounds for the imposition of the tax. The singling out of the Philippine Tuberculosis
Society to the exclusion of other diseases equally a menace to public health was not
violative of the equal protection clause since it is never a requirement that all evils of the
same genus be eradicated or none at all.

Eradication of a dreaded disease is a public purpose and does not mean returning what the
taxpayer pays but rather the privilege of living in an organized society established and
safeguarded by the devotion of taxes for said public purpose.


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Pepsi Cola Bottling Co. of the Philippines v. Municipality of Tanauan, Leyte
69 SCRA 460


Facts:

The Municipality of Tanauan, Leyte enacted two ordinances pursuant to RA 2264 ( Local
Autonomy Act). Ordinance No. 23 levies and collects from soft drink products and
manufacturers within the jurisdiction of the Municpality a tax of 1/16 centavo for every
bottle corked. Ordinance No. 27 on the otherhand, levies a tax of 1 centavo for each gallon
of soft drink. Pepsi Cola assailed the two ordinances on the ground that they are
unconstitutional for being violative of the due process clause and it constitute double
taxation.

Issues:

1. Whether or not the ordinances violate the due process clause of the Constitution.
2. Whether or not there is double taxation.

Ruling:

1. Under the Constitution, local government units are given the power to create their own
source of revenue subject to such limitation as maybe provided by law. Due process
only requires that the tax is for a public purpose; that the same is uniform and
equitable; that the property is within the jurisdiction of the taxing authority; and in the
assessment and collection thereof, notice and opportunity to be heard are afforded to
the taxpayer. Due process is not violated although the tax will result in an injury rather
than a benefit to the taxpayer. Judicial inquiry is not necessary as the amount of the tax
and the manner on which the same shall be apportioned are generally not necessary to
due process.

2. Double taxation is not generally forbidden by the Constitution and becomes obnoxious
only as a violation of the equal protection clause when a taxpayer is taxed twice for the
benefit of the same government by the same taxing power or jurisdiction for the same
purpose over the same subject matter while others who are similarly situated are not so
taxed but not when a tax is imposed by the State and another tax is imposed by the City
or Municipality.



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Bagatsing v. Ramirez
74SCRA 315

Facts:

The Municipal Board of Manila enacted Ordinance No. 7522 prescribing fees for the rentals
of stalls of public markets. The federation of Manila Market Vendors, Inc. filed a case for the
declaration of nullity of the law for the reasons that the publication requirement was not
complied with and that the Market Committee was not given any participation in the
enactment of the ordinance, among others.

Issue:

The chief question raised is: Whether or not the Revised City Charter (RA 409, as amended)
which requires publication of the ordinance before its enactment and after its approval will
govern the publication of the subject ordinance.

Ruling:

The nexus of the present controversy is the apparent conflict between the Revised City
Charter of Manila and the Local Tax Code on the manner of publishing a tax ordinance. The
Revised City Charter requires publication of the ordinance before and after the approval of
ordinances levying or imposing taxes, fees, or other charges either in a newspaper of
general circulation within the local government jurisdiction or by posting the same in a
conspicuous places in the locality. Section 17 of the Revised Charter of Manila speaks of
ordinances levying or imposing taxes, fees or other charges in particular.

Thus, the Local Tax Code controls in the case at bar. This especially true where the law
containing the particular provision was enacted later as a general provision must give way
to a particular provision.


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National Development Company v. Cebu City
215 SCRA 382

Facts:

Petitioner is a government owned corporation authorized to engage in commercial,
industrial, mining and other enterprises necessary or contributory to economic
development or important to public interest. It operates a subsidiary corporation, NWC.
The latters assets and functions were taken over by the NDC when it was dissolved. In
1939, a 4599 square meter lot was renewed by Proc. No. 430 for warehousing purposes of
the NWC. The City of Cebu assessed and collected from NDC real estate taxes on the land
and the warehouse therein. By the first quarter of 1970, a total of P100,316.31 was paid by
NDC of which only P3,895.06 was under protest. NDC filed a complaint claiming for refund
of the real estate taxes paid on the ground that the land and warehouse standing thereon
belongs to the Republic and therefore, exempt from taxation.

Issue:

Whether or not the land and the warehouse standing thereon are exempt from taxation.

Ruling:

Properties owned by the government and by its agencies which do not have separate and
distinct personalities (unincorporated entities) are exempt from real estate taxes. The test
is thus, ownership and once established, the nature of the use of the property, whether
proprietary or sovereign becomes immaterial. Since in this case, what appears to have been
cede to NDC was merely the administration of the property while the government retains
the ownership thereof, the land is clearly covered by the exemption.

As regards the warehouse, however, which was constructed on the reserved land, a
different rule should apply because exemption of public property from taxation does not
extend to improvements therein made by occupants or claimants at their own expense, and
these are taxable by the state. Consequently, the warehouse constructed on the reserved
land by the NDC should be properly assessed real estate tax as such improvements does
not appear to belong to the Republic.


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Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan
163 SCRA 371

Facts:


This case involves four (4) consolidated petitions filed by petitioners KAPATIRAN, KMU,
Integrated Customs Brokers and Ricardo Valmonte seeking to nullify E.O. No. 273 which
amended certain sections of the National Internal Revenue Code and adopted the Value
Added Tax. It is alleged that VAT is unconstitutional for not being within the powers of the
President to enact, oppressive, discriminatory, regressive, violative of the due process and
equal protection clause of the Constitution and other provisions of the 1987 Constitution.

Issues:

1. Whether or not E.O. No. 273 is oppressive, discriminatory, unjust and regressive in
violation of Art. 6 [28(1)]
2. Whether or not the law unduly discriminate against custom brokers

Ruling:

Petitioners failed to adequately show that the VAT is oppressive, discriminatory or unjust.
Petitioners merely rely upon newspaper articles which are actually hearsay and have no
evidentiary value. As the court sees it, E.O. No. 273 satisfies all the requirements of a valid
tax law. It is uniform. The sales tax adopted om EO 273 is applied similarly on all goods and
services sold to the public, which are not exempt, at the constant rate of 0% or 10%.

The disputed tax is also equitable. It is imposed only on sales of goods or services by
persons engaged in business with an aggregate gross (income) annueal sales exceeding P
200,000.00. Exempt from tax are small corner sari-sari store and sales of farm and marine
products, so that the costs of the basic food and other necessities, spared as they are from
the incidence of VAT, are expected to be relatively lower and within the reach of the
general public.

The Court likewise finds no merit in the contention that E.O. No. 273 more particularly the
new Sec. 103(r) of the NIRC discriminates against customs brokers. The phrase was
inserted to complement the provisions of Sec. 102 of the Code which makes the services of
customs brokers subject to the payment of the VAT and to distinguish custom brokers from
other professionals who are subject to the payment of an occupation tax under the Local
Tax Code.

The distinction of the custom brokers under the Local Tax Code from other professionals
who are subject to occupation tax is based upon material difference in that the activities of
the custom brokers partake more of a business rather than a profession and were
subjected to the percentage tax under Sec. 174 of the NIRC prior to its amendment by E.O.
No. 273. E.O. No. 273 abolished the percentage tax and replaced it with VAT.

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Reyes v. Almanzor
196 SCRA 322

Facts:

Petitioners are owners of land which were leased and occupied as dwelling by the tenants
with monthly rentals not exceeding P200.00. On July 14, 1971, RA 6539 was passed
prohibiting for one year the increase in monthly rentals of land/dwellings whose rental
does not exceed P300.00 but not allowing an increase of not more than 10%, thereafter, the
prohibition was made absolute. Petitioners properties were re-assessed and imposed
higher tax rates using the comparable sales approach instead of the annual income
approach.

Issue:

Whether or not the re-assessment of the properties of the petitioner using the said
approach violates the due process clause of the Constitution.

Ruling:

The re-assessment of the properties in question is harsh, oppressive and confiscatory;
hence, violative of the due process clause. Although under the Real Property Tax Code, for
taxation purposes, the properties must be appraised at their current and fair market value,
by no stretch of the imagination can the market value of the properties covered by P.D. No.
20 be equated with the market value of properties not so covered. The power to tax is an
attribute of sovereignty, but for all its plenitude, the power is not unconfined and is subject
to restrictions affecting as it does property rights.


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Tolentino v. Secretary of Finance
235 SCRA 630

Facts:

R.A. 7116 was enacted seeking to widen the tax base of the of the existing VAT system.
Some provisions of the NIRC were amended. Petitioners assail the validity of the law that it
was not passed nor originated from the House of Representatives. Another issue was that
the Phil. Press Institute and Philippine Bible Society claimed that it violated their rights
under the Bill of Rights insofar as it withdrew the exemption previously granted to mass
print media. The law was claimed to be discriminatory. PBS alleged that it violates the
freedom of religion clause.

Issue:

Whether or not the law was invalid on the ground that it did not originate from the House
of Representatives; that it violates the equal protection clause and freedom of religion
clause of the Constitution.

Ruling:

Petitioners contention that the law did not originated from the House of Representatives
as a requirement of the Constitution is untenable. It is not the law but the Revenue bill
which must originate exclusively from the House of Representatives.

As to the issue of abridgement of the press freedom, the publisher of a newspaper has no
immunity from the application of general laws. He has no special privilege to invade the
rights and liberties of others. The press is taxed on transactions involving printing and
publication which are different from the transaction of broadcast media. Hence, there is
reasonable basis for classification.

Neither was there infringement of religious freedom. The VAT is imposed not for the
exercise of the privilege but for the purpose of defraying the cost of registration.

As to the contention that VAT is regressive, the provision requiring Congress shall evolve a
progressive system of taxation is not mandatory. It seeks to avoid but not to prohibit the
imposition of regressive taxes.


21 Tax Cases (courtesy of L. Profugo)
Easters Theatrical Co. v. Alfonso
83 Phil. 852

Facts:

Twelve corporations engaged in Motion Pictures business initiated proceedings through a
complaint impugning the validity of Ordinance No. 2958 of the City of Manila imposing a
fee on the price of every admission tickets sold by cinematograph theaters, Vaudeville
companies, theatrical show and boxing exhibitions. They alleged that the ordinance is
violative of the following: a.) uniformity and equality of taxation and equal protection
clause of the Consitution; b.) lack of authority to enact the ordinance; c.) inconsistency with
existing revenue and tax laws and d.) being unfair, unjust, oppressive, arbitrary, capricious
and unreasonable. The lower court upheld the validity of the ordinance. Hence, this case.

Issues:

1. Whether or not the ordinance was beyond the City of Manila to enact.
2. Whether or not the ordinance is violative of the principle of equality and uniformity
in taxation.

Ruling:

Plaintiffs argument that the power granted under the Administrative Code to the City of
Manila [Section 2444(m)] is limited to the authority to impose a tax on business with the
exclusion of the power to impose a tax on amusement is based on arbitrary labeling of the
kind of tax authorized by said section. The tax therein cannot be restricted within a smaller
scope than what is authorized by the words used to the extent of excluding what plaintiffs
describe as a tax on amusement. The very fact that Section 2444(m) of the Revise
Administrative Code includes theaters, cinematographs, public billiard tables and other
places of amusement and performance will show conclusively that the power to tax
amusement is expressly involved within the power granted by Section 2444(m) of the
Revise Administrative Code.

The argument that Ordinance No. 2958 violated the principle of equality and uniformity of
taxation enjoined by the Constitution has no merit. The fact that some places of amusement
are taxed while others are not is nor argument at all against the equality and uniformity of
the tax imposition. Equality and uniformity means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate


22 Tax Cases (courtesy of L. Profugo)
Manila Race Horse Trainers Association v. de la Fuente
88 Phil 60

Facts:

The Manila Horses Trainers Association, Inc., a non-stock corporation under Philippine law,
filed a case for declaratory relief praying that Ordinance No. 3065 of Manila be declared
violative of the Philippine Constitution. It is alleged that the same is a tax on horses and
that it is discriminatory and savor class legislation.

Issue:

Whether or not the Ordinance No, 3065 is discriminatory, obnoxious and beyond the
power of the city to enact

Ruling:

The ordinance is a tax on race horses as distinct from boarding stables. The spirit rather
than the letter, of an ordinance determines the construction thereof, and the court looks
less to its words and more to the context, subject matter, consequence and effect.
Accordingly, what is within the spirit is within the ordinance although it is not within the
letter thereof, while that which is in the letter although not within the spirit is not within
the ordinance. The intent to tax or license stables and not horses is clearly manifest.

The use of the number of horses as a method of fixing an equitable and practical
distribution of the burden imposed far from being obnoxious is fair and just.

The questioned ordinance is likewise, not discriminatory or savors class legislation. The
fact that the same places of amusement are taxed while others are not is not an argument
against the equality and uniformity of the tax imposition. There would be discrimination if
some boarding stables of the same class used for the same number of horses were not
taxed or were made to pay less or more than others.


23 Tax Cases (courtesy of L. Profugo)
Juan Luna Subdivision, Inc. v. Sarmiento
91 Phil 371

Facts:

Plaintiff is a corporation duly organized under Philippine Laws. In December 194, it issued
to the City Treasurer of Manila a clerk for P2,210.52 as payment of its taxes for the second
quarter of 194. The check was drawn against Philippine Trust Company. Meanwhile, after
the war, Commonwealth Act 703 was passed remitting all taxes due and payable for the
second semester of 1941. On February 20, 1942, the exact amount of tax of plaintiff
corporation was verified to be P341.60, plaintiff claimed the refund but was refused by the
City Treasurer nor the latter was willing to reverse its debt entry against JLS, holding
inapplicable the provision of CA 703

Issue:

Whether or not Commonwealth Act No. 703 was discriminatory and violative of the equal
protection clause of the Consitution.

Ruling:

The remission of taxes due and payable to the exclusion of taxes already collected does not
constitute unfair discrimination for each set of taxes is a class by itself and the law would
be open to attach to class legislation only if taxpayers belonging to the same class are not
treated alike. Taxpayers who have paid their taxes before the liberation and those who had
not are not in equal footing in material need. Those who had been in arrears would satisfy
their obligation in genuine currency while those paid during the Japanese occupation had
been satisfied with Japanese notes many of which were well-nigh worthless. To refund
those taxes with the restored currency would be to unduly enrich many of the payers at a
greater expense to the people at large.


24 Tax Cases (courtesy of L. Profugo)
Association of Customs Brokers, Inc. v. Municipal Board of the City of Manila, et. al.
93 Phil 107

Facts:

The Association of Customs Brokers, Inc. composed of all brokers and public service
operators of motor vehicles in the City of Manila and G. Manlapit, Inc. a member thereof
challenge the validity of Ordinance No. 3379 of the Municipal Board of the City of Manila.
The act levies a property tax on all motor vehicles operating within the city. Petitioners
contend that while it levies a so called property tax, it is in reality a license tax and beyond
the power of the board to enact. Said ordinance also offends the rule of uniformity in
taxation and that it constitutes double taxation.

The Court of First Instance of Manila dismissed the petition and sustained the validity of
the ordinance. Hence, this petition.

Issues:

1. Whether or not the tax imposed by Ordinance No. 3379 is a property tax
2. Whether or not the ordinance infringes the rule on uniformity of taxation.

Ruling:

Under Section 70(b) of the Motor Vehicle Law, no fees maybe exacted or demanded for the
operation of any motor vehicle other than those provided therein, the only exception being
that refers to a property tax which may be imposed by a municipal corporation.

The ordinance while it refers to a property tax was enacted for the purpose of raising funds
to be expended exclusively for the repair, maintenance and improvements of the streets
and bridges in the said city. The nature and purpose of the tax as gathered from its context
show that it is an excise tax or a license tax.

The ordinance also infringes on the rule on uniformity of taxation. It exacts tax upon all
motor vehicles operating within the City of Manila. It does not distinguish between a motor
vehicle for hire and one for private use. Neither does it distinguish between a vehicle
registered in Manila and one registered elsewhere but occasionally comes to Manila and
uses its streets and public highways. The distinction is important because it intends to
burden only that operating in Manila. The fact that all the motor vehicle who come to
Manila contribute to the deterioration of the streets and highways, they should also be
made to share the corresponding burden. Yet this is not the case. There is inequality in the
ordinance.


25 Tax Cases (courtesy of L. Profugo)
Punsalan, et. al. v. Municipal Board of Manila, et. al.
95 Phil 46

Facts:

The City of manila enacted Ordinance No. 398 imposing a municipal occupation tax on all
persons exercising various professionals in the City of Manila and penalizing non-payment
thereof. Petitioners assail the validity of the ordinance on the ground that they were
already paying occupation tax under the NIRC. Furthermore, the professionals in other city
were not similarly taxed; thus, it constitute double taxation and violative of the equal
protection clause.

Issues:

1. Whether or not the ordinance is violative of the equal protection clause of the
Constitution.
2. Whether or not it constitutes double taxation.

Ruling:

In raising the issue of class legislation, plaintiffs claim that while the law authorized the
City of Manila to impose the tax, it was withheld from other chartered cities. This is
justified by the fact that Manila, being the seat of National Government with a population of
and volume of trade many times that of other cities or municipality. Manila, no doubt offers
more lucrative place for the practice of profession. It is but fair that professionals in Manila
be made to pay higher occupation tax than in the province or other cities.


Double taxation, on the other hand, may not be invoked where one is imposed by the State
and the other by the city.


26 Tax Cases (courtesy of L. Profugo)
Llados v. Commissioner of Internal Revenue
G.R. L-19201, June 16, 1965

Facts:

In 1957, M.B. Estate, Inc. of Bacolod City donated P10,000.00 cash to Rev. Fr. Crispin Ruiz,
then parish priest of Victorias, Negros Occidental and predecessor of petitioner for the
construction of a new church. The donors gift tax return was filled by M.B. Estate, Inc. the
donation was assessed a donors gift tax with interest and charges. Petitioner who is the
new parish priest of the place protested the same. It was denied by the Commissioner of
the Internal Revenue. The CTA affirmed the decision.

Issue:

The pivotal issue in this case is whether or not petitioner should be liable for the
construction of the Victorias Parish Church

Ruling:

Under Section 22(3) Article VI of the Constitution, cemeteries, churches and parsonages or
convents appurtenant thereto, and all lands, buildings and improvements used exclusively
for religious purposes are exempt from the payment of property taxes. What the collector
assessed was the donees gift tax not on the property itself. It did not rest upon general
ownership but as an excise upon the use made of the properties, upon the excise of the
privilege of receiving the properties. Manifestly, gift tax is not within the exempting
provision.

Petitioners assertion that he should not be made liable because at the time of the donation,
he was not ye parish priest of Victorias is meritorious. The Head of Diocese, the Roman
Catholic Bishop of Bacolod to which the parish of Victorias pertains, is liable for the
payment of tax.

The decision appealed from is affirmed insofar as tax liability is concerned but modified
insofar as to the person liable for the payment thereof is concerned.



27 Tax Cases (courtesy of L. Profugo)
Ormoc Sugar Co., Inc. v. Treasurer of Ormoc City, et. al.
22 SCRA 603

Facts:

The Municipal Board of Ormoc City passed an ordinance imposing on any and all
production of centrifugal sugar melted at the Ormoc Sugar Company. A municipal tax
equivalent to 1% per export sale to the USA and other foreign countries. Plaintiff paid the
taxes under protest and contested the validity of the ordinance on the ground that is
violative of the equal protection clause of the Constitution.

Issue:

Whether or not the ordinance in question is in violation of the Consitution provision of
equal protection.

Ruling:

A valid classification of subjects of taxation must be made for a tax law to be valid. The
requisites are the following: a) it must be based on substantial distinctions which make
real difference; b) it must be germane to the purpose of the law; c) it must not apply to
existing conditions only but to future conditions identical to those of the present; and d) it
must be applied to all those belonging to the same class.

The questioned ordinance does not meet said conditions. It is applied only to centrifugal
sugar produced and exported by Ormoc Sugar Co. Although at the time of its enactment, the
only sugar company in Ormoc is the plaintiff, the classification is unreasonable for it will
not apply to future conditions as it expressly points only to Ormoc Sugar Co. as the entity
levied upon. The ordinance violates the equal protection clause.


28 Tax Cases (courtesy of L. Profugo)
Pepsi Cola Bottling Co. of the Phil. Inc. v. City of Butuan
24 SCRA789

Facts:

Plaintiff in this case seeks to recover the sums paid by it to the City of Butuan pursuant to
Municipal Ordinance No. 122, series of 1960 which it assails to be null and void on the
following grounds: a) it partakes of the nature of an import tax; b) it amounts to double
taxation; c) it is excessive and confiscatory; d) unjust and discriminatory; and e) RA 2264
upon the authority of which it was enacted is an unconstitutional delegation of legislative
powers. The CFI dismissed the complaint.

Issue:

Whether or not Ordinance No. 110 as amended by Ordinance No. 122 is null and void

Ruling:

The second and last objections (double taxation and undue delegation of legislative power)
are without merit. Double taxation, in general, is not forbidden by our fundamental law.
Likewise, the principle against non-delegation of legislative powers, is subject to one well-
established exception; namely, legislative power may be delegated to local governments
in respect of matters of local concern.

The fifth and fourth objections merit consideration. The tax limits the application of the
ordinance to soft drinks and carbonated drinks brought into the city from outside; hence,
partakes of the nature of an import duty which is beyond defendants authority to impose
by express provision of the law.

Even if the tax would be regarded as a tax on the sale of beverage, it would still be invalid,
as discriminatory, and hence, violative of the uniformity required by the Constitution and
the law; therefore, since only sales by agents or consignee of outside dealers would be
subject to tax. Sales by local dealers, not acting for or on behalf of other merchants
regardless of the volume of their sales, and even if the same exceeded those made by said
agents or consignee of producers or merchants established outside the City of Butuan,
would be exempt from the disputed tax.


29 Tax Cases (courtesy of L. Profugo)
City of Baguio v. de Leon
25 SCRA 938

Facts:

Defendant-appellant Fortunato de Leon assailed the decision of the lower court in
upholding the validity of an ordinance of the City of Baguio imposing a license fee on any
person, firm or entity or corporation doing business in the City of Baguio. He was held
liable as a real estate dealer with a property therein worth more than P10,000.00 but not in
excess of P50,000.00. Appellants appeal is anchored on the ground that the same is beyond
the City of Baguio to enact and violative of the due process clause for being a double
taxation.

Issues:

1. Whether or not the ordinance is beyond the City of Baguio to enact
2. Whether or not the ordinance is violative of due process

Ruling:

Republic Act No. 329 amended the city charter adding to the power of the city the power to
license, the power to tax and to regulate. The city council of Baguio, therefore, has now the
power to tax, license and regulate provided that the subjects affected be one of those
included in the charter. In this sense, the ordinance is not ultra vires.

Neither is it violative of the due process clause because double taxation as a rule infringe
no Constitutional limitation.


30 Tax Cases (courtesy of L. Profugo)
Villegas v. Hiu Chiong Tsai Pao Ho
86 SCRA 270

Facts:

The City of Manila enacted Ordinance No. 6537 prohibiting aliens from being employed or
to engage or participate in any occupation or business whether temporary, casual or
permanent without first securing an employment permit from the Mayor and paying a
permit fee of P50.00. Private respondent challenge the Constitutionality of the ordinance
on the ground that it violates the due process clause and equal protection clause of the
Constitution.

Issue:

Whether or not Ordinance No. 6537 is valid

Ruling:

The ordinance infringes the due process clause of the Constitution which applies to citizens
and aliens alike. It requires a person before he can be employed to secure a permit from the
Mayor who may withhold or grant the same. It is tantamount to denying him the means of
livelihood. For while the Philippines is not obliged to admit aliens within its territory, once
admitted, he cannot be deprived of his life which includes his means of livelihood without
due process of law.

The P50.00 permit fee is unreasonable and excessive. There is no logic in exacting the
amount from aliens because it violates the equal protection clause. It failed to consider
valid substantial differences among individual aliens.

The ordinance is held invalid.

















31 Tax Cases (courtesy of L. Profugo)
Tan v. Del Rosario
237 SCRA 324

Facts:

Petitioner claims to be a taxpayer adversely affected by R.A. 7496 commonly known as
Simplified Net Income Taxation Scheme (SNIT) amending certain provisions of NIRC and
the validity of Section 06; Revenue Regulations no. 2-93 promulgated pursuant to the said
law. It said that the enactment of RA 7496 violated Section 26(1) and Section 28(1) of
Article VI and Section 1, Article of the new Constitution.

Issue:

Whether or not RA 7496 and Revenue Regulation No. 2-93 are constitutional.

Ruling:

On the contention that RA 7496 is violative of the constitutional provision that the bill
shall embrace only one subject which shall be expressed in the title thereof, the court that
the objective against log-rolling legislative appears to have been sufficiently met. Anything
else would be a requirement which could not have been the intendment of the
constitutional mandate.

Petitioners contention that the law is violative of the equal protection clause for it would
now attempt to tax single proprietorship and professionals differently from the manner it
imposes the tax on corporations and partnerships has no basis. Such system of taxation has
long been prevailing even before the enactment of RA 7496. Uniformity in taxation like the
kindred concept of equal protection merely requires that all subjects of taxation equally
similarly situated are to be treated alike both in privileges and liabilities. Uniformity does
not forefend classifications as long as the standards used are substantial and not arbitrary.

On the ground that the Revenue Regulation No. 2-93 is invalid, the real objection of the
petitioners is focused on the administrative interpretation by public respondent that would
apply SNIT to GPP.

SNIT is not intended or envisioned to cover corporations and partnerships which are
independently subjected to the payment of income tax. Section 6 of the said revenue
regulation did not alter but merely confirmed the tax treatment of individuals and
corporations under the Tax Code.

The questioned statue and regulation are held valid.






32 Tax Cases (courtesy of L. Profugo)
Misamis Oriental Assocation of Cocotraders Inc. v. Secretary of the
Department of Finance
238 SCRA 63

Facts:

Petitioner is a domestic corporation whose members are engaged in the buying and selling
of copra. Prior to the issuance of Revenue Memorandum Circular 47-91, copra was
classified as an agricultural food product and therefore exempt from VAT at all stages of
production or distribution [103(b) of the NIRC]. On June 11, 1991, the Commissioner
issued the questioned circular classifying copra as an agricultural and declaring exempt
from VAT only if the sale is made by the primary producer pursuant to Section 103(a) of
the Tax Code as amended. Hence, the petition for prohibition and injunction seeking to
nullify the questioned circular and enjoin the collection by the respondent revenue officials
of the VAT on the said products.

Issue:

Whether or not the CIR erred in not considering copra as an agricultural food product for
purposes of Section 103 of the NIRC.

Ruling:

In interpreting Section 103(a) and (b) of the NIRC, the CIR gave it a strict construction
consistent with the rule that tax exemption must be strictly construed against the taxpayer
and liberally in favor of the State. Dr. Rintanar of the BFD who classified copra as food,
based the same on broader definition of food which modulates agricultural commodities
and other components in the manufacturing and processing.

The contention that the former commissioner of the BIR classified copra as an agricultural
food product, hence, it must be classified as so is not binding upon his successor.
















33 Tax Cases (courtesy of L. Profugo)
Casanova v. Herd
8 PHIL 125

Facts:

In 1987, the Spanish government granted to herein plaintiff mining concessions in Ambos,
Camarines of which plaintiff is the miner. These were valid mining concessions prior to
April 11, 1989 . They were so considered by the provision of Act No. 1189 (Section 134) of
the Internal Revenue Act. Defendant imposed the tax mentioned in Section 134 which
plaintiff paid under protest on the ground that it is violative of the non-impairment of
obligations and contract clause of the Constitution.

Issue:

Whether or not the statute violates the non-impairment clause as regards the contract
when it levied taxes on the properties of the plaintiff.

Ruling:

Yes. The concession granted by the Government of Spain to the plaintiff constitutes as a
contract between the parties; that Section 134 of the Internal Revenue Act impairs the
obligations of this contract and is therefore void unto them.

























34 Tax Cases (courtesy of L. Profugo)
American Bible Society v. City of Manila
101 SCRA 386

Facts:

Plaintiff is a foreign, non-stock, non-profit religious missionary corporation duly registered
in the Philippines. In the course of its ministry, plaintiffs Philippine agency has been
distributing and selling Bibles and/or gospel portion thereof throughout the Philippines
and translating the same in Philippine dialect. In 1953, the acting city treasurer of Manila
required plaintiff to pay the necessary mayors permit and municipal license pursuant to
Ordinance 3000. Plaintiff protested the requirement but paid to avoid closing of its
business. Plaintiff, thus, filed a complaint praying that Municipal Ordinances Nos. 2529,
3028 and 3364 be declared illegal and unconstitutional and to refund to the plaintiff the
amount it paid under protest.

Issue:

1. Whether or not Ordinances Nos. 3000 as amended and 2529, 3028, and 3364 are
constitutional and valid.
2. Whether the provisions are applicable to the case at bar.

Ruling:

Plaintiff posits that said ordinances are unconstitutional and illegal because it violates the
constitutional provision on freedom of religion and its free exercise. It retains the
enjoyment of its religious profession, to wit: the distribution and sale of Bibles and other
religious literature to the people of the Philippines.

In the case at bar, the price asked for the Bibles and other religious articles was in some
instances a little bit higher than the actual cost of the same, but this cannot mean that the
appellant was engaged in the business of selling such merchandise for profit. For said
reason, the provisions of ordinance no. 2529, as amended cannot be applied to the
appellant, for in so doing, it would impair its free exercise and enjoyment of the right to
religious profession and worship as well as its right to disseminate religious beliefs.

With respect to ordinance no. 3000, it does not seem to impose any charge upon the
enjoyment of a right granted under the constitution nor the exercise of religious practice. It
seem clear, therefore, that the questioned ordinance cannot be considered unconstitutional
even if it applied to plaintiff society. But with regard to ordinance no. 2529 as amended of
the city of Manila is not applicable to the plaintiff-appellant and defendant appellee is
powerless to require a license or to tax the business of plaintiff without violating its
religious freedom. Ordinance No. 3000 as amended is also inapplicable to said business.





35 Tax Cases (courtesy of L. Profugo)
Roman Catholic Church v. Hastings
5 PHIL 701

Facts:

The assessor and collector of the City of Manila imposed a tax upon the residence of the
Roman Catholic Archbishop of Manila. The same was located from 80-100 meters distance
from the Cathedral Church. It is occupies as a residence by the Archbishop who is the head
pastor of all the churches in his diocese, the Cathedral being his special church. Appellant
claimed that it is exempt from taxation by virtue of Section 48 of Act No. 183 of the
Philippine Commission. The claim was denied. Hence, this case.


Issue:

Whether or not the property used as a residence by the Archbishop qualifies as a
parsonage: adjacent to the Church for purposes of tax exemption pursuant to Act no. 183.

Ruling:

The statute should be construed strictly but not unnaturally. The statute should be
construed with due regard to the policy of its true enactment. A fair reading of its terms are
of the broadest sense indicates no intention to exclude from its benefits any place of
worship or any clerical residence used in connection therewith. The word parsonage as
used in the Spanish context is too narrow for it would not include the residence of a
protestant clergyman or a Jewish rabbi. The English word a parsonage must be read, not
in a technical sense but in the broad meaning of a ministerial residence used in connection
with any place of worship of any denomination.


* Dissenting Opinions

1. J. Johnson

It being the theory of the government that all properties shall contribute equally, in
proportion to its value to the support of the government, a law exempting a tax must be
strictly construed. The word adjacent adjoining or contiguous property only.


2. J. Carson

The exemption as to churches, with their adjacent parsonages and convents contained in
Act No. 183, does not extend to parsonage and convents which do not stand on the same
integral lot with their respective churches.



36 Tax Cases (courtesy of L. Profugo)
YMCA v. Collector
33 PHIL 217

Facts:

YMCA of Manila aims to develop the Christian character of its members and help improve
their mental, physical and social condition of young men. It is a religious, charitable and
educational institution combined. YMCA erected a new building to achieve these purposes.
The city of Manila levied a tax thereon contending that the institution is running a business
by providing board and lodging house.


Issue:

Whether or not the building and the grounds of YMCA are subject to taxation.

Ruling:

No. There is no doubt about the correctness of the contention that an institution must
devote itself exclusively to all or other purposes mentioned in the statute before it can be
exempt from taxation, but the statute does not say that it must be devoted solely to only
one of those purposes and still be entitled to exemption. YMCA is an institution exclusively
for religious, educational and charitable purposes, and as such, it is entitled to tax
exemption.

The association realizes no profit. The purpose of maintaining the lodges and boarders is to
keep membership continually within the sphere and influence of the institution and
thereby to prevent the opportunities which vice presents to young men in foreign countries
who lack home or other similar influences.



Dissenting Opinion: J. Carson

The statutory exemptions from taxation should be strictly construed.












37 Tax Cases (courtesy of L. Profugo)
The Roman Catholic Bishop of Nueva Segovia v. Provisional Board of Ilocos Norte
51 PHIL 351

Facts:

The plaintiff is the owner of a parcel of land in San Nicolas, Ilocos Norte all four sides of
which face public streets. Adjacent to the church yard and the convent is a lot containing an
area of 1,624 square meters used as a vegetable garden as well as a stable for the use of the
convent. On the opposite side was an old cemetery used as lodging house by the people
who participate in religious festivities. The provincial board assessed land tax on the lot
adjoining the convent and the lot on where the former cemetery was located. Under the
law, cemeteries, burial grounds and all lands, buildings and improvements used exclusively
for religious purposes are exempt from taxation. Plaintiff paid the tax under protest. It
sought to recover the sum paid alleging that the collection was illegal.


Issue:

Whether or not the lot on which the vegetable garden and the former cemetery are exempt
from taxation.

Ruling:

Yes. The exemption in favor of the convent from the payment of land tax under the
Administrative Code includes not only the land occupied by the Church but also those
adjacent to the ground destined to the ordinary, incidental uses of man.

Likewise, the former cemetery wherein the lot was used as a lodging house for the people
who participate in religious festivities constitute as an incidental use in the religious
functions is also exempt from taxation.

Dissenting Opinion: J. Malcom

The property legally exempt from the payment of the tax must be devoted to some
purposes specified by law. A huerta not needed or used for religious purpose is not tax
exempt. A cemetery or burial ground is thus not exempt.











38 Tax Cases (courtesy of L. Profugo)
Herrera v. QC Board of Assessment Appeal
3 SCRA 186

Facts:

St. Catherine hospital in Quezon City was granted tax exemption from real property tax
effective the years 1953 to 1955. In August 1955 the properties of the said hospital were
classified as taxable. The building involved is principally a hospital with 32 beds, 20 of
which all for charity patients while the remaining 12 beds are for pay-patients. The income
realized from pay-ward is used for the improvement of the charity wards. Petitioners also
operate a school of midwifery granted recognition by the Secretary of Education. The same
is located within the said premises.

Issue:

Whether or not the lot, building and other improvements by St. Catherine Hospital are
exempt from real property tax.

Ruling:

The hospital is exempt from real property tax. The income realized from the payment in
the pay-ward is used for the improvement of the charity-ward. The exemption in favor of
the property used for charitable and educational purposes is not limited to the actual
property and indispensible therefore. It extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said purpose. That St. Catherine is,
therefore, a charitable institution and the fact that it admits pay-patients whose payment
us devoted to the improvement of the charity ward does not bar it from claiming the tax
exemption benefit.

The existence of the school of midwifery does not and cannot affect its exemption under
the law. All lands, buildings and improvements used exclusively for religious, charitable
and educational purposes shall be exempt from taxation pursuant to the constitution
regardless of whether or not material profits are derived from the operation of the
institution in question.













39 Tax Cases (courtesy of L. Profugo)
Abra Valley Colleges v. Aquino
162 SCRA 106

Facts:

Abra Valley Colleges is an educational institution. The second floor of the school building is
occupies by the Director of the college and his family for residential purpose while the
ground floor was leased to a commercial entity. A notice of distraint and seizure was served
upon it for non-payment of real estate taxes and penalties. The case was decided by the
trial court and ruled in favor of the government. Hence, this case.

Issue:

Whether or not the school building is actually, directly and exclusively used for
educational purpose as to be exempt from real property tax.


Ruling:

The test of exemption from taxation is the use of the property for purposes mentioned in
the constitution. Exemption extends to facilities which are incidental to and reasonably
necessary for the accomplishment of the main purpose. Thus, while the use of the second
floor of the main building in the case at bar for the residential purpose of the director and
his family may find justification under the concept of incidental use, the lease of the first
floor to Northern Marketing Corporation cannot be considered incidental to the purpose of
education. Since only a portion is used for purposes of commerce, half the assessed tax
should be returned to the petitioner.




















40 Tax Cases (courtesy of L. Profugo)
Osmena v. Orbos
200 SCRA 203

Facts:

PD 1956 created a special account in the general fund designated as Oil Price Stabilization
Fund (OPSF) designated to reimburse oil companies from the cost increases in crude oil
and imported petroleum products resulting from exchange rate adjustments and increases
in the world market of crude oil. OPSF was later reclassified into a trust liability account
and ordered released from the National treasury to the Ministry of Energy. The decree was
later amended by EO 137 expanding the grounds for reimbursement to include cost under
recovery incurred as a result of the reduction of domestic prices of petroleum products.
Petitioner questions the validity of the law.

Issue:

1. Whether or not the trust account in the book of accounts of the Ministry of Energy
(now Office of Energy Affairs) is violative of Section 29(3) of Article VI of the
Constitution;
2. Whether or not Section 8 paragraph 1cc of PD 1956 is an undue delegation of
legislative power;
3. Whether or not reimbursement to oil companies pursuant to the OPSF contravenes
section 8 paragraph 2(2) of the said law;
4. Whether or not the order dated December 10, 1990 is valid;

Ruling:

1. While the fund collected may be referred to as taxes, they are exacted in the exercise
of police power. Moreover, while OPSF is a special fund from the special treatment
given by EO 137, it is segregated from the general fund and while it is placed from
the general fund to as trust liability account, the fund nevertheless remains subject
to scrutiny and review by COA. The Court is satisfied that these measures comply
with the constitutional description of a special fund.

2. The provisions conferring authority to the ERB to impose additional amounts on
petroleum products provides sufficient standard by which the authority must be
exercised.

3. On the ground that the reimbursement to oil companies paid out if OPSF is illegal,
the Court finds for the petitioner. Reimbursement for cost under recovery from
sales of oil to the NPC is equally permissible like payment of inventory losses.
However, with the enactment of RA 6952 which authorizes the reimbursement of
cost under recovery incurred as result of fuel oil sales to NPC, the doubt of its
propriety was already dispelled.


41 Tax Cases (courtesy of L. Profugo)
4. Anent the overpayment refunds, no substantive discussion has been presented to
show that it is prohibited under PD 1956.

The petition is granted insofar as it prays for the nullification of the reimbursement of
financing charges pursuant to EO 137 and dismissed in all other aspects.










































42 Tax Cases (courtesy of L. Profugo)
Progressive Development Corporation v. QC
172 SCRA 629

Facts:

The City Council of Quezon City enacted Ordinance No. 7997 Series of 169, otherwise
known as the Market Code of Quezon City. It provides for the implementation of the
supervision fee. It was amended by Ordinance No. 9236 Series of 1972 which imposes the
payment of a 5% on gross receipts on rentals or lease of space in privately owned public
market. PDC, owner and operator of Farmers Market and Shopping Center questioned the
validity of the ordinance on the ground that the supervision or license tax imposed is in
reality a tax on income and beyond the power of the city council to enact.

Issue:

Whether or not the tax imposed on gross receipts of stalls rentals partakes the nature of
income tax.

Ruling:

The tax does not come within the meaning of Section 2(g) of the Local Government Act but
a license tax or fee for the government regulation of the business in which the petitioner is
engaged. A license fee is imposed in the exercise of police power primarily for purposes of
regulation while a tax is imposed for the primary purpose of raising revenue. Thus, if the
generating of revenue is the primary purpose and regulation is merely incidental, it is a tax,
but if the primary purpose is regulation, as in this case, the fact that incidental revenue is
obtained does not make it a tax.




















43 Tax Cases (courtesy of L. Profugo)
Collector v. UST / UST v. Collector
104 PHIL 1062

Facts:

Two appeals were interposed by the parties from the decision of the CTA modifying the
decision of CIR collector in the sense that USTs claim for refund was denied on the ground
of prescription. The deficiency assessment of P2,451.04 for percentage tax us contested by
the university on the ground that it overpaid or has a refundable tax with the BIR.

Issue:

1. Whether or not USTs claim was barred by prescription;
2. Whether or not UST was erroneously assessed in the amount collected;

Ruling:

The deficiency assessment of P2,451.04 for the percentage taxes and surcharges is
recognized but the amount is deemed pay by way of recoupment to the extent of such
amount which UST erroneously paid for the period from January 1, 1948 to June 30, 1950.



























44 Tax Cases (courtesy of L. Profugo)
Republic v. Mambulao


Facts:

Mambulao Lumber was assessed for tax liabilities by the government. It admitted the
liabilities in favor of the Republoc. The company is also paying regular forest charges for
the Reforestation Fund. Since the government has not make use of the fund in reforesting
the denuded areas covered by its license, it contends that the amount paid should be
refunded or at least compensated with what Mambulao owed the Republic. The argument
was denied by the government but the court ruled in favor of the respondent.

Issue:

Whether or not taxes payable to the government may be subject to set-off or compensation.

Ruling:

Compensation may not be availed of for the following reasons:

The amount paid by Mambulao as reforestation fee is in the nature of a tax which forms
part of the reforestation of the denuded area irrespective of whether the area belongs to
the licensee or not. It accrues to the government as taxes and may not be compensated
considering that Mambulao and the Republic are not mutual debtors and creditors of each
other in their own right.

A claim for taxes is not such a debt, demand or judgment nor contract as allowed to be set
off under the statutes.



















45 Tax Cases (courtesy of L. Profugo)
Domingo v. Carlitos
8 SCRA 443

Facts:

A petition for execution of judgment to enforce the claims of the government against the
estate of the late Walter Scott Price for the payment of estate and inheritance taxes were
denied by the respondent court holding that the execution is not justifiable for the
government is indebted to the estate.

Issue:

Whether or not the taxes due to the government may be off-set or compensated.

Ruling:

In the earlier case of Mambulao Lumber, the court held that the compensation may not be
availed of. However, the case at bar is different. Compensation may be availed of for the
following reasons:

1. The claim of the estate against the government has been recognized and the amount
had already been appropriated by the passage of RA 2700.
2. Both the claims of the government for inheritance taxes and the estate tax for
services rendered have already become due and demandable as well as fully
liquidated;

Therefore, compensation takes place by operation of law in accordance with Articles 279 &
280 of the New Civil Code and both debts are extinguished even thought the parties are nit
aware of it .


















46 Tax Cases (courtesy of L. Profugo)
Francia v. IAC
162 SCRA 753

Facts:

Engracio is the regiested owner of a lot and two-storey house was built upon it. In 1997, a
portion of his house was expropriated by the Republic for P1,116.00 representing the
estimated amount equivalent to the assessed value of the said portion. Since 1963 up to
1977, Engracio failed to pay his real estate taxes. Hence, his property was sold at a public
auction. Engracio claimed that the sale was null and void, hence, his complaint for the
declaration of its nullity. The same was dismissed by the court. One of Engracios argument
was that his tax delinquency had been extinguished by legal compensation since the
government owed him P4,116.00 when his land was expropriated in 1977. Thus, the tax
obligation had been set-off by operation of law.

Issue:

Whether or not taxes may be subject of compensation as provided for in Article 1287 of the
New Civil Code.

Ruling:

The SC affirmed the order of dismissal since IR taxes cannot be the subject of
compensation. Government and taxpayers are not mutually creditors and debtors of each
other under the New Civil Code. Hence, a claim for taxes is not a debt, demand, contract, or
judgment as is allowed to be set-off.





















47 Tax Cases (courtesy of L. Profugo)
Yutivo Sons Hrdware v. CTA
1 SCRA 160

Facts:

Yutivo is a domestic corporation organized under Philippine laws. Prior to the last world
war, it was engaged in the importation and sale of hardware supplies and equipment. In
1946, it bought a number of cars from GM Overseas Corporation. As importer, GM paid
sales tax prescribed by the tax code on its selling price to Yutivo. In June 1946, Southern
Motors (SM) was organized to engage in the business of selling cars, trucks and spare parts.
SMs incorporators were among the founders of Yutivo. GM withdrew from the Philippines
in 1947 and appointed Yutivo as importer for Visayas and Mindanao. Yutivo continued its
sales to SM paying the sales tax on the basis of the selling price. In 1950, the CIR demanded
from Yutivo tax payment of deficiency sales tax and surcharges. It claimed that the taxable
sales were retail sales by SM to the public and wholesale made by Yutivo to the latter
inasmuch as SM and Yutivo were one and the same corporation, the former being the
subsidiary of the latter. Yutivo was assessed a second time. The Tax Court affirmed the
Collectors view. Reconsideration was denied. Hence, the present petition for review.


Issue:

1. Whether or not SM was organized for purposes of evading tax liability by Yutivo;
2. Whether or not the CT erred in assessing the sales tax against Yutivo for its sale to
SM;

Ruling:

The CTA was not justified in finding that SM was organized for no other purpose but to
defraud the government of its lawful revenues. The intention to minimize tax when used in
the context of fraud must be proved to exist by clear and convincing evidence amounting to
more than preponderance and cannot be justified by mere speculation. This is because
fraud was not presumed. The transaction between Yutivo and SM has always been in the
open, embodied in private and public documents, constantly subject to inspection by tax
authorities.

SM however, is believed to be actually owned by the petitioner. All cash assets of SM were
handled by Yutivo and all cash transactions were actually maintained by Yutivo. Yutivo was
at all times in control of the funds of SM. The latter being a mere instrumentality of Yutivo,
the CTA correctly disregard the technical defense of separate corporate entity in order to
arrive at a true tax liability of Yutivo.






48 Tax Cases (courtesy of L. Profugo)
Ungab v. Cusi
97 SCRA 879

Facts:

Quirico Ungab was notified by the BIR that he failed to report in his income tax return the
income derived from the sale of banana saplings. He was invited to a conference where he
may present objections to the findings of the BIR officer. Upon receipt of the notice, he
wrote the BIR protesting the assessment. The Special Investigation Division found
sufficient proof that the petitioner is guilty of tax evasion for taxable year 1973 and
recommended his prosecution. The State Prosecutor found probable cause and
recommended the filing of information against the petitioner. A motion to quash the
information was files by the petitioner for lack of jurisdiction in view of his pending protest
for assessment.

Issue:

1. Whether or not the filing of the cases were premature on the ground that CIR has
yet to resolve plaintiffs protest;
2. Whether or not the State prosecutor has authority to conduct preliminary
investigation;

Ruling:

The contention of the petitioner was without merit. What is involved in this case is not a
collection of taxes where assessment of the CIR may be reviewed by the CTA, but a criminal
prosecution which is within the jurisdiction of CFI. Besides, it has been ruled that a petition
for reconsideration of an assessment may affect the suspension of the prescriptive period
for the collection of taxes but not the prescriptive period for the prosecution of criminal
action for violation of the law.

As to the second issue, there was no rule violated as the State Prosecutor sought
permission from the City Fiscal who allowed him to conduct the investigation in the Fiscals
Office.













49 Tax Cases (courtesy of L. Profugo)
CIR v. Rufino
148 SCRA 42

Facts:

Respondents were majority stockholder of the defunct Bartero Theatrical Co. Inc. It was
engaged in operating theaters, opera houses and other places of amusement particularly
lyric and capitol theaters. The president of the corporation (old) was Ernesto Rufino. The
respondents were also stockholders of another corporation which was organized for a
term of 50years.The corporation is also engaged in the same type of business as the old
corporation. Its new corporate manager was Vicente Rufino. In a stockholders meeting, the
new corporation was merged with the old corporation. The business of the old corporation,
its assets, good will and liabilities were transferred to the new corporation, which is
exchange would issue and distribute to the shareholders the old corporations one share
for each share held by the them in the said corporation. The deed of assignment was
approved in a special meeting by the stockholders. It was in this transaction that the BIR
declared the merger as not undertaken for bonafide purposes and held the respondents
liable for the capital gains tax on the exchange of the old for the new shares of stock.

Issue:

Whether or not the private respondents may be held liable for the capital gains tax.

Ruling:

The SC held that the CTA did not err in finding that no capital gains tax was derived by the
respondents from the questioned transaction. Hence, they are not liable for the payment of
such.

It was ascertained that the merger was undertaken for a bonafide purpose and not to
escape the burden of taxation. No intention to evade tax payment can be gleamed in the
instant case. The new corporation was not dissolved after the merger so as not to indicate a
scheme for tax evasion. In fact, it continues to do so today after taking over the business of
the old corporation.

The ruling then is that the merger in question involved a pooling of resources aimed at the
continuation of the business and come under the intendment of the NIRC as amended,
exempting from the capital gains tax exchange of property effected under lawful
corporation combinations.








50 Tax Cases (courtesy of L. Profugo)
CIR v. CA
257 SCRA 200

Facts:

On June 1, 1993, the President issued a Memorandum creating a Task Force to investigate
the tax liabilities of manufacturers engaged in tax evasion scheme such as selling products
through dummy marketing corporations to avoid the payment of correct IR tax, to collect
from them any tax liabilities discovered from such investigation and to file the necessary
criminal actions against those who may have violated the Tax Code.

On July 1, 1993, the CIR issued Revenue Regulation No. 37-93 reclassifying best selling
cigarettes bearing the brands of Hope and More and Champion as cigarettes of foreign
brands subject to a higher tax rate. Respondent Fortune Tobacco Corporation questioned
the validity of the reclassification stating it as violative of its right to due process and equal
protection of the law. On August 1993, the BIR assessed against Fortune Tobacco the
amount of P7,685,942,221.66 as deficiency income, ad valorem and VAT for the year 1992
with a request for payment within 30 days from its receipt. Fortune moved for the
reconsideration of the assessments. The CIR filed a complaint against Fortune Tobacco and
its corporate officers with the DOJ. The complaint docketed as I.S. No. 93-508 was referred
to the DOJ Task Force on revenue cases which found sufficient basis to further investigate
the allegations that the Fortune Tobacco through fraudulent means evaded payment of
income, ad valorem and VAT for the year 1992, thus depriving the government of revenue
in the amount of 7.5B. Private respondents were subpoenaed and required to submit
counter affidavits. They filed a motion to dismiss but the same was denied. Hence, the
petition for certiorari and prohibition praying for the dismissal of the complaint or in the
alternative, to suspend the preliminary investigation pending the final determination by
the CIR of Fortunes Motion for reconsideration / reinvestigation of the tax assessment. The
trial court issued a writ of preliminary injunction. Hence this petition.

Issue:

Whether or not the respondent court erred in ruling that the trial court committed no
grave abuse of discretion in issuing the writ of preliminary injunction restraining the
petitioner from continuing with the preliminary investigation of the criminal cases against
the respondents.

Ruling:

The Court shares the view of the trial court and the CA that before one is prosecuted for
wilfull attempt to evade or defeat any tax under Section 253 and 255 of the Tax Code, the
fact that the tax is due must be proved. Unless Fortunes motion for reconsideration is
resolved, the criminal prosecution of private respondents has no leg to stand on. Likewise,
before Fortune et al, could be prosecuted for tax evasion, it must be shown that there was a
wilfull attempt to evade payment of taxes. Fraud cannot be presumed. Considering that

51 Tax Cases (courtesy of L. Profugo)
Fortunes business activity is closely monitored by the BIR, the alleged manipulation of
prices must have been in connivance with BIR officials and employees.

Unlike in Ungab, the wilfull attempt to evade tax was not proven. Since the required
wholesale price of the goods approved by the BIR is presumed to be the actual wholesale
price, there was no fraud committed. Unless and until the BIR has made a final
determination of what is supposed to be the correct taxed, the taxpayer should not be
placed in the crucible of criminal prosecution.

The acts of the State Prosecutor were without or in excess of authority and for the reason
that there was a prejudicial question.

At that stage or preliminary investigation, it is where the complaint and the affidavit and
supporting documents did not show any violation of the Tax Code providing penal
sanctions, the prosecutors should have dismissed the complaint outright because of total
lack of evidence instead of requiring the respondents to submit counter affidavits.

CONCURRING & DISSENTING OPINIONS: J. Bellosillo

Justice Bellosillo concurred with the majority opinion that the trial court committed no
grave abuse of discretion in issuing the assailed injunction writ. However, he was
constrained to dissent insofar as it finds that there was selective prosecution in charging
private respondents. According to him, in resolving the fundamental issue, it cannot be
avoided balancing on the scale the power of the state to tax and its inherent right to
prosecute perceived transgressors of the law on one side and the constitutional rights of
the citizens to due process of law and the equal protection clause on the other. Obviously,
the scales tilt in favor of the individual, for a citizens right is amply protected by the Bill of
Rights. Thus, while taxes are the lifeblood of the government, the power to tax has its limits
inspite of all its plenitude.

DISSENTING OPINION: J. PADILLA

Settled is the rule that the fiscal cannot be prohibited from conducting and finishing his
preliminary investigation. The respondents petition before the trial court was clearly
premature since the case did not fall within any of the exceptions when prohibition lies to
stop the preliminary investigation. The decision of the majority clearly constitutes an
untenable usurpation of the primary duty and function of the prosecutors to conduct the
preliminary investigation of a criminal offense and the powers of the secretary of Justice to
review the resolution of said prosecutors.








52 Tax Cases (courtesy of L. Profugo)
Commissioner v. Pascor Realty & Development Corporation
389 SCRA 402

Facts:

An examination of the accounts of the respondents resulted to a finding of deficiency taxes
for the years 1986 and 1987. The CIR filed a criminal case for alleged tax evasion against
the respondents. The respondents filed a request for reinvestigation but was denied on the
ground that there was no formal assessment issued to them.

Issue:

Is assessment necessary before a criminal case may be filed before the court?

Ruling:

No, pursuant to Section 222 of the NIRC, the same is not necessary. Moreover, a criminal
action is independent from a civil case. The CIR has the discretion either to file the actions
simultaneously or to resort to only one. A criminal case is filed not to demand payment but
to penalize the taxpayer for violation of the Tax Code.



























53 Tax Cases (courtesy of L. Profugo)
CIR v. Norton Harrison
11 SCRA 714

Facts:

Norton acted as a distributor of concrete blocks manufactured by Jackbuilt. During the
existence of the distribution agreement, Norton purchased Jackbuilt. Due to this
acquisition, the CIR assessed Norton of defiency taxes making as basis thereof the sale of
Norton to the public. It was contended that the acquisition of Jackbuilt was to evade taxes.

Issue:

Whether or not Norton used Jackbuilt as a shield to evade payment.

Ruling:

Yes. In maintaining two corporatioms, Norton was able to save taxes. Norton merely
accepted from the public the order for the purchase of hollow blocks Jackbuilt delivered the
blocks directly to the buyer. There was no instance when the hollow block was delivered
to Norton. Therefore, the selling price of the blocks should be used as a basis of the taxes
and not the price given to Norton. The assessment for the deficiency of the sales tax was
proper.

























54 Tax Cases (courtesy of L. Profugo)
CIR v. Esso Standard Eastern Inc.
18 SCRA 488

Facts:

Esso overpaid the government the amount of P221,033.00 when it paid its income tax in
1959. It was granted tax credit by the CIR in 1964. His 1960 income tax payment was found
short of P364,994.00. Esso paid under protest. It claimed that it should not have been made
to pay interest on the amount assessed as deficiency tax in full but only the amount of
P146.91 representing the difference between the said deficiency and Essos overpayment.
Esso thus claimed for a refund.

Issue:

Whether or not Esso is entitled to refund.

Ruling:

As held by the CTA, the government had already in its hand the amount of P221,033.00
representing the excess oayment. Having been paid and received the amount by mistake,
the Commissioner had acknowledged the same belonging to Esso. The obligation to return
the money mistakenly paid arises from the moment that payment is made and not from the
time the payee admits the obligation to reimburse. Since the amount of P221,033.00 is
already in the hands of the government as of 1960, it neither logically nor legally possible
for Esso thereafter to be considered a debtor of the government in the said amount.
Whatever obligation Esso might subsequently incur in favor of the government would have
to be reduced by that sum in respect of which no interest could be charged.




















55 Tax Cases (courtesy of L. Profugo)
CIR v. P.J. Kieser Co. Ltd.
65 SCRA 142

Facts:

Respondent is a domestic limited partnership while International Construction
Corporation is a domestic corporation existing under Philippine laws. They entered into a
joint venture with Gavino T. Unchian for the construction of Mactan Airfield in Mactan
Island. During the period of construction, they purchased motor gasoline, kerosene,
lubricating and/or motor oil and diesel from Caltex Philippines. For these products, Caltex
paid specific taxes. The amount paid was in turn included in the prices of the petroleum
products paid by the respondents to Caltex. Respondents claimed for a tax refund of the
sale and specific tax paid. The Tax Court rendered a judgment deducting from the amount
claimed the specific tax of P908.40 and P2,297.74 for being barred by prescription. The
Commissioner appealed.

Issue:

Whether or not the petroleum products concerned were exempt from payment of specific
tax.

Ruling:

The matrix of the imputation is whether the petroleum products in question are materials
or supplies purchased in connection with the construction of Mactan Airfield; which
materials and supplies required solely for such project as to be exempt from taxation
pursuant to the mutual license agreement between the Philippines and the US. For the
terms materials and supplies refer to something going into or consumed in the
performance of work such as mortar, cement, sand, bricks and lumber or nails, glass,
hardware and a thousand other things that might be meant to which all necessary to the
completed erection of a building or structure. Thus, examined, the petroleum products
purchased to maintain the machineries and equipment cannot be categorized as materials:
and supplies since they do not go into or consumed in the construction of the building. It,
therefore, results that the tax credit to respondents cannot be upheld.













56 Tax Cases (courtesy of L. Profugo)
Manila Electric Corporation v. Vera
67 SCRA 353

Facts:

MERALCO is a holder of a franchise to construct, maintain and operate electric light, heat
and power system in the City of Manila and its suburbs. In 1962 and 1963, MERALCO
imported and received from abroad copper wires, transformers and insulators for use in
the operation of its business. The Collector of Customs as deputy Commissioner of Internal
Revenue collected compensating taxes from the petitioner. A claim for tax refund was
presented to the CIR but no action was taken thereon. Hence, the 2 appeals raising the
same issue.

Issue:

Whether or not MERALCO is exempted from paying the compensating tax provided for in
Sec. 190 of NIRC.

Ruling:

Petitioners contention that its right to exemption is supported by the plain and
unambiguous terms of paragraph 9 of the franchise is without basis. What the provision
exempts the petitioner from is the payment of property tax on its poles, wires,
transformers, and insulators, it does not exempt it from payment of taxes like the one in
question which by necessity or consequence alone, fall upon the property. The phrase all
taxes and assessments of whatever nature and by whatsoever authority is not so broad
and sweeping as petitioner would like to impress because there is an immediately
succeeding phrase which limits the scope of exemption to taxed and assessments upon the
privilege earnings, income, franchise and poles, wires, transformers and insulators of the
grantee. The last clause of paragraph 9 merely reaffirms with regards to wires, poles,
transformers, and insulators.

It is a well-settled doctrine in taxation that a compensating tax is not a property tax but is
an excise tax. Generally stated, an excise tax is one that is imposed on the performance of
an act, the engaging in an occupation or the enjoyment of a right or privilege. The
compensating tax imposed upon MERALCO is an impost on its use of imported articles and
is not in the nature of direct tax on the articles themselves the latter falling within the
exemption.









57 Tax Cases (courtesy of L. Profugo)

Caltex Philippines Inc v. COA
208 SCRA 726

Facts:

Caltex was requested by COA to remit to the OPSF its collection pursuant to Section 8 of PD
1956 excluding that for the years 1986 and 1988 an amount of P335,037,649.00 and
informing that it shall hold in abeyance Caltexs claim for reimbursement from the OPSF
pending such remittance. On March 9, COA reiterated its directive for the remittance of the
tax collection by Caltex. On May 3, 1989, petitioner requested the early release of its
reimbursement certification from the OPSF covering the claims form June 1987 to March
1989 involving COA circular no. 89-299 lifting the pre-audit of government transactions of
national government agencies and government owned corporations. Caltex proposed,
among others, the delivery to the Office of Energy Affairs the amount of P1.287B as
payment to OPSF, similaryly the OEA shall deliver the same amount in cash reimbursement
from OPSF. COA accepted the proposal but prohibited Caltex from further offsetting
remittances and reimbursement for the current years. It also disallowed the claim for
recovery of financing charges, product sales, inventory losses, sales to Atlas Manufacturing
and sales to NPC. Caltex filed a supplemental request for reconsideration and was partially
granted but denied the claim for reimbursement for recovery of financing charges, product
sales, inventory losses, sales to NPC, Atlas and Marcopper. Caltex filed the instant petition
assigning as error the disallowance by COA and in preventing it from exercising its legal
right to offset its remittance against its reimbursement vis--vis the OPSF.

Issue:

Whether or not COA erred in disallowing (a) recovery of financing charges, (b)
reimbursement for under recovery arising from sale to NPC; (c) denying claims for
reimbursement on sales to Atlas and Marcopper; (d) preventing Caltex right to offset
remittance against its remittances; and (e) disallowing claims still pending resolution by
the OEA and DOF.


Ruling:

The audit power of the Auditor General under the 1935 and COA under the 1975
Constitution authorized them to disallow illegal expenditures of funds or uses of funds and
property. The present constitution retains the same power and authority and further
strengthened it by the definition of the COAs general jurisdiction I Sec. 26 of the Govt
Auditing Code. Indeed, when the framers of the last two constitutions conferred upon COA
a mote active role and invested it with a broader and more extensive powers, they did not
intend merely to make COA a toothless tiger but rather envisioned a dynamic, effective,
efficient and independent watchdog of the government.


58 Tax Cases (courtesy of L. Profugo)
The recovery of financing charges and under recovery do not fall under the provision of
Section 8 of PD 1956 hence, properly disallowed.

Anent the claims arising from sale to NPC, the court finds for the petitioner NPC. Therefore,
matters of prescription, assessments, recovery and collection of taxes should be governed
by the Tax Code and not the other provisions of law; and need not even be submitted in the
estate proceedings of a deceased taxpayer as the court in the exercise of its control over the
estates administration may direct the payment of taxed upon motion showing that they
have been assessed against the estate. This is because taxes are the lifeblood of the
government and their prompt and certain availability is an imperious need.





































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