Tax Digests Batch 1

LAW ON TAXATION: Batch 1 (case 1-66)
CASE 1: GUEVARA, Carlo
the levy of taxes or fees of any kind on an instrumentality of the

national government.
MACTAN CEBU INTERNATIONAL AIRPORT V MARCOS

DOCTRINE: The power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very nature no limits,
so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the
constituency who are to pay it.
Taxation is the rule, exemption therefrom is the exception.
FACTS: Mactan Cebu International Airport Authority (MCIAA) was
created by virtue of RA 6958, mandated to "principally undertake
the economical, efficient and effective control, management and
supervision of the Mactan International Airport in the Province of
Cebu and the Lahug Airport in Cebu City and such other Airports
as may be established in the Province of Cebu.
MCIAA enjoyed the privilege of exemption from payment of realty
taxes in accordance with Sec. 14 of its Charter. Mr. Eustaquio B.
Cesa, OIC of the Office of the Treasurer of Cebu, demanded
payment for realty taxes on several parcels of land belonging
to MCIAA in the total amount of P2,229,078.79. MCIAA objected
to the demand and asserted that it is an instrumentality of the
government performing governmental functions even citing Sec.
133 of the LGC.
Cebu City refused to cancel and set aside MCIAA's realty tax
account, insisting that it is a government-owned corporation
whose tax exemption privilege has been withdrawn under Sec.
193 and 234 of the LGC. As the City of Cebu was about to issue a
warrant of levy against the properties of MCIAA, the latter was
compelled to pay its tax account "under protest" and thereafter
filed a Petition for Declaratory Relief with the RTC. It contended
that the taxing powers of local government units do not extend to
LAW ON TAXATION 1 [ATTY. VOLTAIRE SALUD] || Batch 4, Block 4 (2015)
Petitioner insisted that while it is indeed a a government-owned

corporation, it nonetheless stands on the same footing as an
agency or instrumentality of the national government by the very
nature of its powers and functions. Respondent City, however,
asserted that MACIAA is not an instrumentality of the government
but merely a government-owned corporation performing
proprietary functions As such, all exemptions previously granted to
it were deemed withdrawn by operation of law.
RTC dismissed the petition ruling that the tax exemption provided
for in RA 6958 creating petitioner had been expressly repealed by
the provisions of RA 7160 (New Local Government Code).
MR was denied. Hence, petitioner filed a petition for review under
Rule 45 of the ROC on a pure question of law. Petitioner claims
the exemption provided under Sec. 14 of RA 6958 was not
repealed because being an instrumentality of the National
Government, Sec. 133 of the LGC prohibits local government units
from imposing taxes, fees, or charges of any kind on it.
Respondent City of Cebu points out that the petitioner is a
government-owned corporation, and Section 234 thereof does not
distinguish
between
government-owned
corporation or
government-owned or controlled corporations performing
governmental and purely proprietary functions.
ISSUE: WON the Respondent LGU (City of Cebu) has the power
to levy real property tax from the petitioner MCIAA.
RULING: YES. As a general rule, the power to tax is an incident of
sovereignty and is unlimited in its range, acknowledging in its very
nature no limits, so that security against its abuse is to be found
only in the responsibility of the legislature which imposes the tax
on the constituency who are to pay it.
The power to tax is primarily vested in the Congress; however, in

our jurisdiction, it may be exercised by local legislative bodies, no
longer merely by virtue of a valid delegation as before, but
pursuant to direct authority conferred by Section 5, Article X of the
Constitution. There can be no question that under Section 14 of
R.A. No. 6958 the petitioner is exempt from the payment of realty
taxes imposed by the National Government or any of its political
subdivisions, agencies, and instrumentalities. Nevertheless, since
taxation is the rule and exemption therefrom the exception, the
exemption may thus be withdrawn at the pleasure of the taxing
authority. The only exception to this rule is where the exemption
was granted to private parties based on material consideration of
a mutual nature, which then becomes contractual and is thus
covered by the non-impairment clause of the Constitution.
Section 234 of LGC provides for the exemptions from payment of
real property taxes and withdraws previous exemptions therefrom
granted to natural and juridical persons, including government
owned and controlled corporations, except as provided therein.
These exemptions are based on the ownership, character, and
use of the property.
As a general rule, as laid down in Sec. 133 the taxing powers of
LGUs cannot extend to the levy of "taxes, fees, and charges of
any kind of the National Government, its agencies and
instrumentalties, and local government units"; however, pursuant
to Section 232, provinces, cities, municipalities in the Metropolitan
Manila Area may impose the real property tax except on "real
property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial used thereof has
been granted, for consideration or otherwise, to a taxable person",
as provided in item (a) of the first paragraph of Section 234
effectivity of the LGC, except those granted to local water districts,

cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, and unless
otherwise provided in the LGC. The latter proviso could refer to
Section 234, which enumerates the properties exempt from real
property tax. But the last paragraph of Section 234 further qualifies
the retention of the exemption in so far as the real property taxes
are concerned by limiting the retention only to those enumerated
there-in; all others not included in the enumeration lost the
privilege upon the effectivity of the LGC. Moreover, even as the
real property is owned by the Republic of the Philippines, or any of
its political subdivisions covered by item (a) of the first paragraph
of Section 234, the exemption is withdrawn if the beneficial use of
such property has been granted to taxable person for
consideration or otherwise.
The last paragraph of Sec. 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from real property taxes granted
to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section,
and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax
granted it in Sec. 14 of its charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the
petitioner can seek refuge under any of the exceptions provided in
Sec. 234, but not under Sec. 133, as it now asserts, since, as
shown above, the said section is qualified by Section 232 and 234.
In short, the petitioner can no longer invoke the general rule in
Section 133.
DISPOSITIVE: Respondent WON. Petition is DENIED.
As to tax exemptions or incentives granted to or presently enjoyed

by natural or juridical persons, including GOCCs, Sec. 193 of the
LGC prescribes the general rule that they are withdrawn upon the
CASE 2: PANTORGO
COMMISSIONER OF INTERNAL REVENUE V. AZUCENA
REYES
DOCTRINE: Taxpayers shall be informed in writing of the law and
the facts on which assessment is made, otherwise, the
assessment shall be void. Although taxes are the lifeblood of the
government, their assessment and collection should be made in
accordance with law as any arbitrariness will negate the very
reason for government itself.
FACTS:
1. July 8, 1993- Maria Tancinco (decedent) died, leaving a 1, 292
sq. m. residential lot and an old house located at Dasma Village,
Makati City.
2. Feb. 17, 1997- Certain Raymond Abad (from Revenue District
Office) conducted an investigation on the decedents estate.
3. Feb 12, 1998- BIR issued a preliminary assessment notice
against the estate in the amount of P14, 580, 618.67. Then on
May 1998, the heirs received a final estate tax assessment notice
and a demand letter for the amount of P14, 912, 205.47, inclusive
of surcharge and interest which was dated April 22, 1998.
4. Nov. 1998- CIR issued a preliminary collection letter followed by
a Final Notice Before Seizure then in 1999, Warrant of Distraint
was served upon the estate followed by Notices of Levy on Real
Property and Tax Lien against the estate.
5. Azucena Reyes (one of the heirs) protested the notice of levy.
However, other heirs proposed a compromise settlement of P1M.
So then Reyes proposed to pay 50% on the basic tax due, citing
the heirs inability to pay tax assessment. However, CIR rejected
the offer and demanded payment of P18,034,382.13.
6. Reyes again proposed to pay 100% basic tax due. However,
as the estate failed to pay its tax liability within 2000 deadline, BIR
notified Reyes that the property would be sold at public auction.
7. Reyes filed a protest with the BIR assailing the scheduled

auction sale. She offered to file estate tax return and pay the
correct amount of tax without interest.
8. Without acting on Reyes protest, CIR proceed with the auction
sale.
9. Reyes filed a Petition for Review with Court of Tax Appeals
(CTA). CTA ordered CIR to refrain from auction sale proceeding.
10. During the pendency of the Petition for Review with CTA, BIR
issued Revenue regulation offering certain taxpayers with
delinquent accounts and disputed assessments and opportunity to
compromise tax liability.
11. Reyes filed Motion for Postponement before CTA citing her
pending application for compromise with the BIR. Motion was
granted.
12. CIR averred that an application for compromise of a tax liability
requires the evaluation and approval of either National Evaluation
Board (NEB) or Regional Evaluation Board (REB).
13. CTA= ordered Reyes to pay deficiency estate tax (P19M).
CTA stated that at the time the assessment notice and demand
letter were issued, the heirs knew very well the law and the facts
on which the same were based.
14. CA= in favor of Reyes
Hence, this petition.
ISSUE: WON CIRs assessment against the estate is valid.
RULING: NO. Assessment is not valid. Reyes has not been
informed of the basis of the estate tax liability. The Court cannot
approve an assessment based on estimates that appear to be
arbitrary. Although taxes are the life-blood of the government, their
assessment and collection should be made in accordance with
law as any arbitrariness will negate the very reason for
government itself.
1. Sec. 228 (2) Tax Code is clear and mandatory which provides
that The taxpayers shall be informed in writing of the law and the
facts on which the assessment is made: otherwise, the

assessment shall be void.
2. Reyes was not informed in writing of the law and the facts on
which the assessment of estate taxes had been made. She was
merely notified of the findings by the CIR, who had simply relied
upon the former provisions (Sec. 229) prior to the amendment by
RA 8424 (Tax Reform Act of 1997).
3. RA 8424 had already been amended the provisions of Sec. 229
on protesting an assessment. The old requirement of merely
notifying the taxpayer of the CIRs findings was changed in 1998
to informing the taxpayer of not only the law but also of the facts
otherwise, the assessment would be invalid.
4. During the dates Feb 1998 (preliminary assessment notice was
issued) and April 1998 (final estate tax assessment notice and
demand letter was issued), RA 8424 was already in effect. Thus,
the notice required under the old law was no longer sufficient
under the new law.
5. CIR violated the cardinal rule in administrative law that the
taxpayer be accorded due process. No valid notice was sent. To
proceed with tax collection without first establishing a valid
assessment is violative of the principle of admin investigation:
taxpayers should be able to present their case and adduce
supporting evidence.
6. Failure to comply with Sec. 228 does not only render the
assessment void, but also finds no validation in any provision of
Tax Code.
DISPOSITIVE: Petition denied.
CASE 3: KADJIM
COMMISSIONER VS. ALGUE
FACTS: The Philippine Sugar Estate Development Company
(PSEDC) appointed Algue Inc. as its agent, authorizing it to sell its
land, factories, and oil manufacturing process. The Vegetable Oil
Investment Corporation (VOICP) purchased PSEDC properties.

For the sale, Algue received a commission of P125,000 and it was
from this commission that it paid Guevara, et. al. organizers of the
VOICP, P75,000 in promotional fees. In 1965, Algue received an
assessment from the Commissioner of Internal Revenue in the
amount of P83,183.85 as delinquency income tax for years 1958
amd 1959. Algue filed a protest or request for reconsideration
which was not acted upon by the Bureau of Internal Revenue
(BIR). The counsel for Algue had to accept the warrant of distrant
and levy. Algue, however, filed a petition for review with the
Coourt of Tax Appeals.
ISSUE: Whether the assessment was reasonable.
HELD: Taxes are the lifeblood of the government and so should
be collected without unnecessary hindrance. Every person who is
able to pay must contribute his share in the running of the
government. The Government, for his part, is expected to respond
in the form of tangible and intangible benefits intended to improve
the lives of the people and enhance their moral and material
values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that is an arbitrary method of
exaction by those in the seat of power. Tax collection, however,
should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. For all the awesome
power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate that the law has not been observed.
Herein, the claimed deduction (pursuant to Section 30 [a] [1] of the
Tax Code and Section 70 [1] of Revenue Regulation 2: as to
compensation for personal services) had been legitimately by
Algue Inc. It has further proven that the payment of fees was
reasonable and necessary in light of the efforts exerted by the
payees in inducing investors (in VOICP) to involve themselves in

an experimental enterprise or a business requiring millions of
pesos. The assessment was not reasonable.
CASE 4: FILIO
EMILIO Y. HILADO V. THE COLLECTOR OF INTERNAL
REVENUE
FACTS: Hilado filed his income tax return wherein he claimed the
amount of P12,387.65 as a deductible item from his gross income
pursuant to the Collector of Internal Revenues General Circular
No. V-123, issued pursuant to certain rules laid down by the
Secretary of Finance. Subsequently, the new Secretary of
Finance, through the CIR, issued General Circular No. V-139 that
revoked General Circular No. V-123. The new laid down the rule
states that losses of property which occurred during the period of
World War II from fires, storms, shipwreck or other casualty, or
from robbery, theft, or embezzlement are deductible for income
tax purposes in the year of actual destruction of said property.
As a consequence, the P12,387.65 was disallowed as a deduction
from petitioners gross income for 1951 and the CIR demanded
from him the payment of P3,546 as deficiency income tax for the
year. The petitioner contented that he must be exempted of
P3,546 as deficiency income tax for the year
ISSUE:
1. Whether or not the internal revenue laws ceases during a
conquest and colonization?
2. Whether or not the Secretary of Finance has an authority
to revoke General Circular No. V-123 of his predecessor?
3. Whether or not the retroactive application of General
Circular No. V-123 revoking General Circular No. V-139
impaired the vested rights of the taxpayer?
4. Whether or not the taxpayer is exempted from paying the

P3,546 deficiency income tax?
HELD:
1. No, the internal revenue laws does not cease during a
conquest and colonization.
2. Yes, the Secretary of Finance has the authority to revoke
General Circular No. V-123 of his predecessor.
3. No, the retroactive application of General Circular No. V123 revoking General Circular No. V-139 does not impair
the vested rights of the taxpayer.
4. No, the taxpayer is exempted from paying the P3,546
deficiency income tax.
RATIO:
1.
It is well known that our internal revenue laws are not
political in nature and as such were continued in force during the
period of enemy occupation and in effect were actually enforced
by the occupation government. As a matter of fact, income tax
returns were filed during that period and income tax payment were
effected and considered valid and legal. Such tax laws are
deemed to be the laws of the occupied territory and not of the
occupying enemy. Law once established continues until changed
by some competent legislative power. It is not changed merely by
change of sovereignty. Conquest or colonization is impotent to
bring law to an end; inspite of change of constitution, the law
continues unchanged until the new sovereign by legislative act
creates a change.
2.
The Secretary of Finance is vested with authority to
revoke, repeal or abrogate the acts or previous rulings of his
predecessor in office because the construction of a statute by
those administering it is not binding on their successors if
thereafter the latter become satisfied that a different construction

should be given.
CASE 5: AGUILAR
SISON v ANCHETA
3.
Under Art. 2254 of the Civil Code,
No vested/acquired right can arise from acts/omissions

which are against the law or which infringe upon the rights
of others.
General Circular No. V-123, having been issued on a wrong
construction by the law, cannot give rise to a vested right that can
be invoked by a taxpayer. A vested right cannot spring from a
wrong interpretation. An administrative officer cannot change a
law enacted by Congress. Once a regulation which merely
interprets a statute is determined erroneous, it becomes a
nullity. The Collector of Internal Revenues erroneous
construction of the law does not preclude or stop the Government
from collecting a tax legally due.
4.
In the circumstance, the said amount would at most be a
proper deduction from his 1950 gross income. Furthermore, the
said amount cannot be considered as a business asset which
can be deducted as a loss in contemplation of law because its
collection is not enforceable as a matter of right, but it is
dependent merely upon the generosity and magnanimity of the U.
S. government. As the end of 1945, there was absolutely no law
under which Petitioner could claim compensation for the
destruction of his properties during the battle for the liberation of
the Philippines. Under the Philippine Rehabilitation Act of 1946,
the payments of claims by the War Damage Commission merely
depended upon its discretion to be exercised in the manner it may
see fit, but the non-payment of which cannot give rise to any
enforceable right.
CASE 6: SEMILLA
CIR v. PINEDA
DOCTRINE: The BIR should be given, in instances like the case
at bar, the necessary discretion to avail itself of the most
expeditious way to collect the tax as may be envisioned in the
particular provision of the Tax Code above quoted, because taxes
are the lifeblood of government and their prompt and certain
availability is an imperious need. In this case the suit seeks to
achieve only one objective: payment of the tax. The adjustment of
the respective shares due to the heirs from the inheritance, as
lessened by the tax, is left to await the suit for contribution by the
heir from whom the Government recovered said tax.
FACTS:
1. Atanasio Pineda died, survived by his wife, Felicisima Bagtas,
and 15 children, the eldest is Atty. Manuel B. Pineda. Estate
proceedings were had in Court, so that the estate was divided
among and awarded to the heirs. And the proceedings
terminated on June 8, 1948. Manuel B. Pineda's share
amounted to about P2,500.00.
2. After the estate proceedings were closed, the Bureau of
Internal Revenue investigated the income tax liability of the
estate for the years 1945, 1946, 1947 and 1948 and it found
that the corresponding income tax returns were not filed.
3. The representative of the Collector of Internal Revenue filed
said returns for the estate on the basis of information and data
obtained from the aforesaid estate proceedings and issued an
assessment. Atty. Pineda appealed to the CTA and argued
that he is liable "only that proportionate part or portion
pertaining to him as one of the heirs."
4. CTA: rendered judgment reversing the decision of the

Commissioner on the ground that his right to assess and
collect the tax has prescribed.
5. Commissioner appealed and this Court affirmed the findings of
the Tax Court in respect to the assessment for income tax for
the year 1947 but held that the right to assess and collect the
taxes for 1945 and 1946 has not prescribed.
6. Remanded the case to the Tax Court for further appropriate
proceedings. CTA: rendered judgment holding Manuel B.
Pineda liable for the payment corresponding to his share.
7. Commissioner of Internal Revenue appealed to the SC and
proposed that Atty. Pineda be liable for the payment of all the
taxes found by the Tax Court to be due from the estate.
ISSUE: WON the BIR can collect the full amount of estate taxes
from an heir's inheritance?
discretion to avail itself of the most expeditious way to collect the

tax as may be envisioned in the particular provision of the Tax
Code above quoted, because taxes are the lifeblood of
government and their prompt and certain availability is an
imperious need.
Section 315 of the Tax Code:
If any person, corporation, partnership, joint-account (cuenta en
participacion), association, or insurance company liable to pay the
income tax, neglects or refuses to pay the same after demand, the
amount shall be a lien in favor of the Government of the
Philippines from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with interest,
penalties, and costs that may accrue in addition thereto upon all
property and rights to property belonging to the taxpayer: . . .
CASE 7: CADA
RULING: YES. The Government can require Atty. Pineda to pay

the full amount of the taxes assessed.
The reason is that the Government has a lien on the P2,500.00
received by him from the estate as his share in the inheritance, for
unpaid income taxes for which said estate is liable. By virtue of
such lien, the Government has the right to subject the property in
Pineda's possession to satisfy the income tax assessment. After
such payment, Pineda will have a right of contribution from his coheirs, to achieve an adjustment of the proper share of each heir in
the distributable estate.
All told, the Government has two ways of collecting the tax in
question. One, by going after all the heirs and collecting from each
one of them the amount of the tax proportionate to the inheritance
received; and second, is by subjecting said property of the estate
which is in the hands of an heir or transferee to the payment of the
tax due. This second remedy is the very avenue the Government
took in this case to collect the tax. The Bureau of Internal Revenue
should be given, in instances like the case at bar, the necessary
THE PHILIPPINE GUARANTY CO v. THE COMMISSIONER OF

INTERNAL REVENUE and THE COURT OF TAX APPEALS
DOCTRINE: The power to tax is an attribute of sovereignty. It is a
power emanating from necessity. It is a necessary burden to
preserve the State's sovereignty and a means to give the citizenry
an army to resist an aggression, a navy to defend its shores from
invasion, a corps of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and those which come
within the State's territory, and facilities and protection which a
government is supposed to provide. Considering that the
reinsurance premiums in question were afforded protection by the
government and the recipient foreign reinsurers exercised rights
and privileges guaranteed by our laws, such reinsurance
premiums and reinsurers should share the burden of maintaining
the state.
FACTS: The Philippine Guaranty Co., Inc., a domestic insurance

company, entered into reinsurance contracts, on various dates,
with foreign insurance companies not doing business in the
Philippines. Philippine Guaranty Co., Inc., thereby agreed to cede
to the foreign reinsurers a portion of the premiums on insurance in
consideration for the assumption by the latter of liability on an
equivalent portion of the risks insured. A proportionate amount of
taxes on insurance premiums not recovered from the original
assured were to be paid for by the foreign reinsurers. The foreign
reinsurers further agreed, in consideration for managing or
administering their affairs in the Philippines, to compensate the
Philippine Guaranty Co., Inc., in an amount equal to 5% of the
reinsurance premiums.
Philippine Guaranty Co., Inc., protested the assessment on the
ground that reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines are not subject to withholding
tax. Its protest was denied and brought to the Court of Tax
Appeals. The Court of Tax Appeals rendered judgment ordering
Philippine Guaranty Co., Inc. to pay to the Commissioner of
Internal Revenue the respective sums of P202,192.00 and
P173,153.00 or the total sum of P375,345.00 as withholding
income taxes for the years 1953 and 1954, plus the statutory
delinquency penalties thereon.
ISSUE: WON the reinsurance premiums ceded to foreign
reinsurers not doing business in the Philippines are subject to
withholding tax under Section 53 and 54 of the Tax Code
HELD: YES. The reinsurance premiums ceded to foreign
reinsurers not doing business in the Philippines are subject to
withholding tax under Section 53 and 54 of the Tax Code.
Sec. 54 (Tax Code). Payment of corporation income tax at source.
In the case of foreign corporations subject to taxation under this
Title not engaged in trade or business within the Philippines and
not having any office or place of business therein, there shall be

deducted and withheld at the source in the same manner and
upon the same items as is provided in Section fifty-three a tax
equal to twenty-four per centum thereof, and such tax shall be
returned and paid in the same manner and subject to the same
conditions as provided in that section.
The applicable portion of Section 53 provides:
(b) Nonresident aliens. All persons, corporations and general
copartnerships (compaias colectivas), in what ever capacity
acting, including lessees or mortgagors of real or personal
property, trustees acting in any trust capacity, executors,
administrators, receivers, conservators, fiduciaries, employers,
and all officers and employees of the Government of the
Philippines having the control, receipt, custody, disposal, or
payment of interest, dividends, rents, salaries, wages, premiums,
annuities, compensation, remunerations, emoluments, or other
fixed or determinable annual or periodical gains, profits, and
income of any nonresident alien individual, not engaged in trade or
business within the Philippines and not having any office or place
of business therein, shall (except in the case provided for in
subsection [a] of this section) deduct and withhold from such
annual or periodical gains, profits, and income a tax equal to
twelve per centum thereof: Provided That no deductions or
withholding shall be required in the case of dividends paid by a
foreign corporation unless (1) such corporation is engaged in trade
or business within the Philippines or has an office or place of
business therein, and (2) more than eighty-five per centum of the
gross income of such corporation for the three-year period ending
with the close of its taxable year preceding the declaration of such
dividends (or for such part of such period as the corporation has
been in existence)was derived from sources within the Philippines
as determined under the provisions of section thirty-seven:
Provided, further, That the Collector of Internal Revenue may
authorize such tax to be deducted and withheld from the interest
upon any securities the owners of which are not known to the
withholding agent.
DISPOSITIVE: CIR won. The above-quoted provisions allow no
deduction from the income therein enumerated in determining the
amount to be withheld. According, in computing the withholding
tax due on the reinsurance premium in question, no deduction
shall be recognized. JUDGMENT APPEALED FROM IS HEREBY
AFFIRMED.
CASE 8: PASCUAL
COLLECTOR OF INTERNAL REVENUE VS. YUSECO
DOCTRINE: Taxes being the chief source of revenue for the
Government to keep it running must be paid immediately and
without delay.
FACTS:
1. Yuseco did not file income tax returns for the calendar years
1945 and 1946.
2. Upon coming to the knowledge of the same, the Collector of
Internal Revenue made income tax returns for Yuseco.
3. The Collector (hehe) assessed the same and demanded from
Yuseco the sums representing alleged income taxes and
surcharges for the mentioned years.
4. Yuseco wrote the petitioner inquiring how the amounts were
arrived at. The latter furnished him with the information sought,
at the same time demanding the payment of the same.
5. Yuseco persistently asked for a reinvestigation, which was
likewise denied by the petitioner, repeatedly demanding for the
payment of the sums due.
6. 3 years later, the petitioner Collector issued a warrant of
distraint and levy upon Yusecos properties. It was not
executed. Yuseco sought the withdrawal of the warrant.
7. The petitioner again demanded for payment of the sums due

plus penalties incident to the delinquency. Thereafter, no
further action was taken to collect.
8. 2 years from the last issuance, the petitioner issued another
warrant of distraint and levy on Yusecos properties, this time
for the collection of income tax due for 1946.
9. With the distraint sill in force, Yuseco filed a petition for
prohibition with the Court of Tax Appeals which granted his
petition, enjoining the Collector of Internal Revenue from any
further proceeding to effect by summary methods the
collection of the alleged income taxes assessed against him.
ISSUE: WON it was proper for the Court of Tax Appeals to grant
the petition to enjoin, the same being an independent special civil
action, the petitioner from collecting income taxes due.
RULING: NO. The jurisdiction of the CTA is limited to appeals
from decisions or rulings of the Collector of Internal Revenue,
Commissioner of Customs and Provincial or City Boards of
Assessment Appeals in the proper cases.
Discussion relevant to topic: Taxes being the chief source of
revenue for the Government to keep it running must be paid
immediately and without delay. A taxpayer who feels aggrieved by
the decision or ruling handed down by a revenue officer and
appeals from his decision or ruling to the Court of Tax Appeals
must pay the tax assessed, except that, if in the opinion of the
Court the collection would jeopardize the interest of the
Government and/or the taxpayer, it could suspend the collection
and require the taxpayer either to deposit the amount claimed or
to file a surety bond for not more than double the amount of the
tax assessed.
LAW: No appeal taken to the [CTA] shall suspend the payment,
levy, distraint, and/or sale of any property of the taxpayer for the
satisfaction of his tax liability as provided by existing law;
Provided, however, That when in the opinion of the Court the

collection by the Bureau of Internal Revenue or the Commissioner
of Customs may jeopardize the interest of the Government and/or
the taxpayer the Court at any stage of the proceeding may
suspend the said collection and require the taxpayer either to
deposit the amount claimed or to file a surety bond for not more
than double the amount with the Court. (Sec. 11, Republic No.
1125)
DIPOSITIVE: Judgment under review is annulled and set aside.
Roxas y Compania allowed the farmers to buy the lands for the
same price but by instalment, and contracted to pay its loan from
the proceeds of the yearly amortizations paid by the farmers.
Roxas y Compania derived net gains from said instalment
payments, 50% of which was reported for income tax. However,
the CIR demanded from Roxas, the payment of deficiency income
taxes resulting from the sale of the farmlands and considered the
partnership as engaged in the business of real estate, hence,
100% of the profits derived therefrom was taxed. The brothers
protested the assessment but the same was denied. On appeal
the CTA sustained the assessment.
CASE 9: AGBISIT
ROXAS V. CTA
DOCTRINE: The power of taxation is sometimes called also the
power to destroy. Therefore it should 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 egg.
FACTS: Antonio, Eduardo, and Jose Roxas (petitioners) formed a
partnership called Roxas y Compania to manage the properties
they inherited from their grandparents, which included a 19,000
hectare agricultural land located in Nasugbu, Batangas. The
tenants who have been tilling the said agricultural land expressed
their desire to purchase parcels of land which they actually
occupy. The Government, in consonance with the constitutional
mandate to acquire big landed estates and apportion them among
landless tenants-farmers, persuaded the Roxas brothers to sell
the same. The Roxas brothers agreed to sell 13,500 hectares to
the Government for distribution to actual occupants. However, the
Government did not have funds to cover the purchase price, and
so a special arrangement was made wherein an amount of
P1,500,000 was advanced to Roxas as a loan by the
Rehabilitation Finance Corporation. Under the arrangement,
ISSUE: Whether or not Roxas is liable for the payment of

deficiency income for the sale of the farmlands?
RULING: NO. Roxas y Compania cannot be considered a real
estate dealer for the sale in question, although the farmers paid
Roxas, on instalment basis, for the parcels of land. It should be
borne in mind that the sale of the Nasugbu farm lands to the very
farmers who tilled them for generations was not only in
consonance with, but more in obedience to the request and
pursuant to the policy of our Government to allocate lands to the
landless. It was the bounden duty of the Government to pay the
agreed compensation after it had persuaded Roxas to sell its
haciendas, and to subsequently subdivide them among the
farmers at very reasonable terms and prices. However, the
Government could not comply with its duty for lack of funds.
Obligingly. Roxas shouldered the Governments burden, went out
of its way and sold lands directly to the farmers in the same way
and under the same terms as would have been the case had the
Government done it itself. It does not conform with our sense of
justice in the instant case for the Government to persuade the
taxpayer to lend it a helping hand and later on to penalize him for
duly answering the urgent call.
10
DISPOSITIVE: Roxas won. The amount of deficiency income tax

they had to pay was reduced.
CASE 10: GUEVARA, ARJUNA
TAADA V ANGARA
DOCTRINE: By their inherent nature, treaties really limit or restrict
the absoluteness of sovereignty. In some treaties, the Philippines
has effectively agreed to limit the exercise of its sovereign powers
of taxation, eminent domain and police power for the reciprocal
commitment of the other contracting states in granting the same
privilege and immunities to the Philippines, its officials and
citizens.
FACTS: This is a petition seeking to nullify the Philippine
ratification of the World Trade Organization (WTO) Agreement.
Petitioners question the concurrence of herein respondents acting
in their capacities as Senators via signing the said agreement. The
WTO opens access to foreign markets, especially its major trading
partners, through the reduction of tariffs on its exports, particularly
agricultural and industrial products. Thus, provides new
opportunities for the service sector cost and uncertainty
associated with exporting and more investment in the country.
These are the predicted benefits as reflected in the agreement
and as viewed by the signatory Senators, a free market
espoused by WTO. Petitioners on the other hand viewed the WTO
agreement as one that limits, restricts and impair Philippine
economic sovereignty and legislative power. That the Filipino First
policy of the Constitution was taken for granted as it gives foreign
trading intervention.
ISSUE: WON the provisions of the WTO Agreement and its
annexes limit, restrict, or impair the exercise of legislative power
by Congress.
RULING: NO. The Supreme Court ruled that while sovereignty

has traditionally been deemed absolute and all-encompassing on
the domestic level, it is however subject to restrictions and
limitations voluntarily agreed to by the Philippines, expressly or
impliedly, as a member of the family of nations. Unquestionably,
the Constitution did not envision a hermit-type isolation of the
country from the rest of the world. In its Declaration of Principles
and State Policies, the Constitution adopts the generally accepted
principles of international law as part of the law of the land, and
adheres to the policy of peace, equality, justice, freedom,
cooperation and amity, with all nations. By their inherent nature,
treaties really limit or restrict the absoluteness of sovereignty. By
their voluntary act, nations may surrender some aspects of their
state power in exchange for greater benefits granted by or derived
from a convention or pact. A portion of sovereignty may be waived
without violating the Constitution, based on the rationale that the
Philippines adopts the generally accepted principles of
international law as part of the law of the land and adheres to the
policy of x x x cooperation and amity with all nations.
CASE 11: REYES
LTO v CITY OF BUTUAN
FACTS: Relying on the Constitution and Section 129 and Section
133of the Local Government code, the Sangguniang Panglungsod
of Butuan Passed an Ordinance, which the ordinance provided for,
among other things, the payment of franchise fees for the grant of
the franchise of tricycles-for-hire, fees for the registration of the
vehicle, and fees for the issuance of a permit for the driving
thereof.
LTO explains that one of the functions of the national government
that, indeed, has been transferred to local government units is the
franchising authority over tricycles-for-hire of the Land
11
Transportation Franchising and Regulatory Board ("LTFRB") but

not, it asseverates, the authority of LTO to register all motor
vehicles and to issue to qualified persons of licenses to drive such
vehicles
law could have just said so in Section 447 and 458 of Book III of
the Local Government Code in the same manner that the specific
devolution of LTFRB's power on franchising of tricycles has been
provided. Repeal by implication is not favored.
The RTC ruled in favor of city of Butuan and issuing a permanent

writ of injunction prohibiting LTO from registering tricycles and
issuing licenses to tricycle drivers, the CA sustained the RTC
The power over tricycles granted under Section 458(a)(3)(VI) of

the Local Government Code to LGUs is the power to regulate their
operation and to grant franchises for the operation thereof. The
exclusionary clause contained in the tax provisions of Section
133(1) of the Local Government Code must not be held to have
had the effect of withdrawing the express power of LTO to cause
the registration of all motor vehicles and the issuance of licenses
for the driving thereof. These functions of the LTO are essentially
regulatory in nature, exercised pursuant to the police power of the
State, whose basic objectives are to achieve road safety by
insuring the road worthiness of these motor vehicles and the
competence of drivers prescribed by R. A. 4136. Not insignificant
is the rule that a statute must not be construed in isolation but
must be taken in harmony with the extant body of laws
ISSUE: WON there is a difference between the inherent powers of

the government
HELD: YES. The reliance made by respondents on the broad
taxing power of local government units, specifically under Section
133 of the Local Government Code, is tangential. Police power
and taxation, along with eminent domain, are inherent powers of
sovereignty which the State might share with local government
units by delegation given under a constitutional or a statutory fiat.
All these inherent powers are for a public purpose and legislative
in nature but the similarities just about end there. The basic aim of
police power is public good and welfare.
Taxation, in its case, focuses on the power of government to raise
revenue in order to support its existence and carry out its
legitimate objectives. Although correlative to each other in many
respects, the grant of one does not necessarily carry with it the
grant of the other. The two powers are, by tradition and
jurisprudence, separate and distinct powers, varying in their
respective concepts, character, scopes and limitations.
To construe the tax provisions of Section 133(1) indistinctively
would result in the repeal to that extent of LTO's regulatory power
which evidently has not been intended. If it were otherwise, the
CASE 12: DACARA

PHIL. MATCH CO. V. CEBU
DOCTRINE: The taxing power of cities, municipalities and
municipal districts may be used (1) "upon any person engaged in
any occupation or business, or exercising any privilege" therein;
(2) for services rendered by those political subdivisions or
rendered in connection with any business, profession or
occupation being conducted therein, and (3) to levy, for public
purposes, just and uniform taxes, licenses or fees.
FACTS: Ordinance No. 279 of Cebu provides that "an ordinance
imposing a quarterly tax on gross sales or receipts of merchants,
12
dealers, importers and manufacturers of any commodity doing

business" in Cebu City. It imposes a sales tax of one percent (1%)
on the gross sales, receipts or value of commodities sold,
bartered, exchanged or manufactured in the city in excess of
P2,000 a quarter.
Section 9 of the ordinance provides that, for purposes of the tax,
"all deliveries of goods or commodities stored in the City of Cebu,
or if not stored are sold" in that city, "shall be considered as sales"
in the city and shall be taxable.
Thus, it would seem that under the tax ordinance sales of matches
consummated outside of the city are taxable as long as the
matches sold are taken from the company's stock stored in Cebu
City.
The Philippine Match Co., Ltd., whose principal office is in Manila,
is engaged in the manufacture of matches, questioned the legality
of the tax collected by the City of Cebu on sales of matches stored
by the company in Cebu City but delivered to customers outside
the city.
The company in its letter to the city treasurer sought the refund of
the sales tax paid for out-of-town deliveries of matches. However,
the city treasurer denied the request. His stand is that under
section 9 of the ordinance all out-of-town deliveries of latches
stored in the city are subject to the sales tax imposed by the
ordinance.
The company filed a complaint for the refund of P12,844.61 as
excess sales tax paid, and that the city treasurer be ordered to
pay damages.
TC: Sustained the tax on the sales of matches booked and paid
for in Cebu City although the matches were shipped directly to
customers outside of the city. The lower court held that the said
sales were consummated in Cebu City because delivery to the

carrier in the city is deemed to be a delivery to the customers
outside of the city.
Trial court also ordered the defendants to refund to the plaintiff the
sum of P8,923.55 as taxes paid out the said out-of-town deliveries
with legal rate of interest from the respective dates of payment.
ISSUE: WON the City of Cebu can tax sales of matches which
were perfected and paid for in Cebu City but the matches were
delivered to customers outside of the City.
RULING: YES. The city can validly tax the sales of matches to
customers outside of the city as long as the orders were booked
and paid for in the company's branch office in the city. Those
matches can be regarded as sold in the city, as contemplated in
the ordinance, because the matches were delivered to the carrier
in Cebu City. Generally, delivery to the carrier is delivery to the
buyer.
The taxing power validly delegated to cities and municipalities is
defined in the Local Autonomy Act, Republic Act No. 2264, which
took effect on June 19, 1959 and which provides:
SEC. 2. Taxation. Any provision of law to the contrary
notwithstanding, all chartered cities, municipalities and municipal
districts shall have authority to impose municipal license taxes or
fees upon persons engaged in any occupation or business, or
exercising privileges in chartered cities,. municipalities or
municipal districts by requiring them to secure licenses at rates
fixed by the municipal board or city council of the city, the
municipal council of the municipality, or the municipal district
council of the municipal district; to collect fees and charges for
services rendered by the city, municipality or municipal district; to
regulate and impose reasonable fees for services rendered in
connection with any business, profession or occupation being
13
conducted within the city, municipality or municipal district and

otherwise to levy for public purposes, just and uniform taxes,
licenses or fees.
Further, the taxing power of cities, municipalities and municipal
districts may be used (1) "upon any person engaged in any
occupation or business, or exercising any privilege" therein; (2) for
services rendered by those political subdivisions or rendered in
connection with any business, profession or occupation being
conducted therein, and (3) to levy, for public purposes, just and
uniform taxes, licenses or fees.
The sales in the instant case were in the city and the matches sold
were stored in the city. The fact that the matches were delivered
to customers, whose places of business were outside of the city,
would not place those sales beyond the city's taxing power. Those
sales formed part of the merchandising business being assigned
on by the company in the city. In essence, they are the same as
sales of matches fully consummated in the city.
DISPOSITIVE: Trial Court affirmed.
CASE 13: CARILLO
MATALIN
COCONUT
MALABANG, LANAO
V.
MUNICIPAL
COUNCIL
OF
DOCTRINE: Tax imposed and collected must at all times be for

public purpose, just and uniform. It must not be excessive or
confiscatory. Otherwise, it would be unconstitutional.
FACTS: Municipal Council of Malabang, Lanao del Sur, invoking
the authority of Section 2 the Local Autonomy Act, enacted
Municipal Ordinance No. 45-46, entitled "AN ORDINANCE
IMPOSING A POLICE INSPECTION FEE OF P.30 PER SACK
OF CASSAVA STARCH PRODUCED AND SHIPPED OUT OF
THE MUNICIPALITY OF MALABANG AND IMPOSING

PENALTIES FOR VIOLATIONS THEREOF." The ordinance made
it unlawful for any person, company or group of persons "to ship
out of the Municipality of Malabang, cassava starch or flour
without paying to the Municipal Treasurer or his authorized
representatives the corresponding fee fixed by (the) ordinance." It
imposed a "police inspection fee" of P.30 per sack of cassava
starch or flour, which shall be paid by the shipper before the same
is transported or shipped outside the municipality. Any person or
company or group of individuals violating the ordinance "is liable
to a fine of not less than P100.00, but not more than P1,000.00,
and to pay Pl.00 for every sack of flour being illegally shipped
outside the municipality, or to suffer imprisonment of 20 days, or
both, in the discretion of the court. This ordinance is now being
questioned as unconstitutional.
ISSUE: WON the Municipal Ordinance is unconstitutional.
HELD: YES. The amount collected under the ordinance in
question partakes of the nature of a tax, although denominated as
"police inspection fee" since its undeniable purpose is to raise
revenue. However, we cannot agree with the trial court's finding
that the tax imposed by the ordinance is a percentage tax on sales
which is beyond the scope of the municipality's authority to levy
under Section 2 of the Local Autonomy Act. Under the said
provision, municipalities and municipal districts are prohibited from
imposing" any percentage tax on sales or other taxes in any form
based thereon. " The tax imposed under the ordinance in question
is not a percentage tax on sales or any other form of tax based on
sales. It is a fixed tax of P.30 per bag of cassava starch or flour
"shipped out" of the municipality. It is not based on sales.
However, the tax imposed under the ordinance can be stricken
down on another ground. According to Section 2 of the
abovementioned Act, the tax levied must be "for public purposes,
just and uniform". As correctly held by the trial court, the so-called
"police inspection fee" levied by the ordinance is "unjust and
14
unreasonable." Said the court a quo:

...The Court finally finds the inspection fee of P0.30 per bag,
imposed by the ordinance in question to be excessive and
confiscatory. It has been shown by the petitioner, Matalin Coconut
Company, Inc., that it is merely realizing a marginal average profit
of P0.40, per bag, of cassava flour starch shipped out from the
Municipality of Malabang because the average production is
P15.60 per bag, including transportation costs, while the prevailing
market price is P16.00 per bag. The further imposition, therefore,
of the tax of P0.30 per bag, by the ordinance in question would
force the petitioner to close or stop its cassava flour starch milling
business considering that it is maintaining a big labor force in its
operation, including a force of security guards to guard its
properties. The ordinance, therefore, has an adverse effect on the
economic growth of the Municipality of Malabang, in particular,
and of the nation, in general, and is contrary to the economic
policy of the government.
DISPOSITIVE: Matalin Coconut won.
CASE 14: MARASIGAN
LUTZ V. ARANETA
DOCTRINE: Taxation may be made the implement of the State's
police power.
FACTS:
1. The present case initiated in the CFI questioning the legality of
the imposition of taxes pursuant to C.A. No. 567 or the Sugar
Adjustment Act. Said law was enacted "to obtain a
readjustment of the benefits derived from the sugar industry by
the component elements thereof" and "to stabilize the sugar
industry so as to prepare it for the eventuality of the loss of its
preferential position in the United States market and the
imposition of the export taxes" thru the Tydings-McDuffy Act.
2. In section 2 of Commonwealth Act 567, it provides for an

increase of the existing tax on the manufacture of sugar, on a
graduated basis, on each picul of sugar manufactured. On the
other hand, section 3 thereof levies on owners or persons in
control of lands devoted to the cultivation of sugar cane and
ceded to others for a consideration, on lease or otherwise
another tax based on the rental and 12% of the assessed
value of the land. Finally, Sec. 6 thereof provides for the
objectives to which the collected tax would be applied
(decrease in production cost, improvement of living conditions
in sugar mills, establishment of sugar stations etc.).
3. Walter Lutz (plaintiff) in his capacity as Judicial Administrator
of the Intestate Estate of Antonio Jayme Ledesma, seeks to
recover from the CIR the sum of P14,666.40 paid by the estate
as taxes, for the crop years 1948-1949 and 1949-1950. He
alleged that such tax is unconstitutional and void, being levied
for the aid and support of the sugar industry exclusively, which
in plaintiff's opinion is not a public purpose for which a tax may
be constitutionally levied. As the action was dismissed by the
CFI, the plaintiffs appealed the case directly to the SC.
4. The basic defect of the plaintiffs position is his assumption
that the tax provided for in Commonwealth Act No. 567 is a
pure exercise of the taxing power.
ISSUE: WON the tax provided for in Commonwealth Act No. 567
is a pure exercise of the power of taxation?
RULING: NO. An analysis of the aforementioned act shows that
the tax was levied with a regulatory purpose, which is to provide
means for the rehabilitation and stabilization of the threatened
sugar industry. It is primarily an exercise of the police power. The
sugar industry is one of the primary sources of the states wealth
as it generates foreign exchange, provides employment and
currency stability. Its protection, promotion and advancement is
therefore imperative. There is no question that the protection and
15
promotion of the sugar industry is a matter of public concern, it

follows that the Legislature may determine within reasonable
bounds what is necessary for its protection promotion. In the case
at bar, the legislative discretion must be allowed fully play, subject
only to the test of reasonableness. The means provided in section
6 of the law is not questioned whether or not they bear no relation
to the objective pursued or are oppressive in character. If objective
and methods are alike constitutionally valid, no reason is seen
why the state may not levy taxes to raise funds for their
prosecution and attainment. Taxation may as a means to
implement the state's police power. It is also inherent in the power
to tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that "inequalities which result from a
singling out of one particular class for taxation, or exemption
infringe no constitutional limitation."
FACTS: At bar is a Petition for Review on Certiorari seeking to

modify NTC Decision and tResolution of the Court of Appeals.
CASE 15: MOLON
(b) The assessment under Section 40 (e) should only have been
on the basis of the par values of private respondents outstanding
capital stock;
NATIONAL TELECOMMUNICATIONS COMMISSION, vs.

HONORABLE COURT OF APPEALS and PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY
DOCTRINE: It bears stressing that it is not the NTC that imposed
such a fee. It is the legislature itself. Since Congress has the
power to exercise the State inherent powers of Police Power,
Eminent Domain and Taxation, the distinction between police
power and the power to tax, which could be significant if the
exercising authority were mere political subdivisions (since
delegation by it to such political subdivisions of one power does
not necessarily include the other), would not be of any moment
when, as in the case under consideration, Congress itself
exercises the power. All that is to be done would be to apply and
enforce the law when sufficiently definitive and not constitutional
infirm.
1988, the National Telecommunications Commission (NTC)

served on the Philippine Long Distance Telephone Company
(PLDT) assessment notices and demands for payment.
In its two letter-protests dated February 23, 1988 and July 14,
1988, and position papers dated November 8, 1990 and March 12,
1991, respectively, the PLDT challenged the aforesaid
assessments, theorizing:
(a) The assessments were being made to raise revenues and
not as mere reimbursements for actual regulatory expenses in
violation of the doctrine in PLDT vs. PSC, 66 SCRA 341 [1975];
(c) Petitioner has no authority to compel private respondents

payment of the assessed fees under Section 40 (f) for the
increase of its authorized capital stock since petitioner did not
render any supervisory or regulatory activity and incurred no
expenses in relation thereto.
On September 29, 1993, the NTC rendered a Decision denying
the protest of PLDT and disposing thus:
FOR ALL THE FOREGOING, finding PLDTs protest to be
without merit, the Commission has no alternative but to uphold the
law and DENIES the protest of PLDT.
On October 22, 1993, PLDT interposed a Motion for
Reconsideration which was denied by NTC in an Order issued
on May 3, 1994.
16
Court of appeals- Modified decision of NTC

The Commission is ordered to recompute its assessments and
demands for payment from petitioner PLDT.
On November 20, 1996, NTC moved for partial reconsideration of
the above mentioned Decision, with respect to the basis of the
assessment under Section 40(e), i.e., par value of the subscribed
capital stock.
CA denied Petitioners motion for reconsideration, hence this
petition.
ISSUE: WHETHER THE COURT OF APPEALS ERRED IN
HOLDING THAT THE COMPUTATION OF SUPERVISION AND
REGULATION FEES UNDER SECTION 40 (F) OF THE PUBLIC
SERVICE ACT SHOULD BE BASED ON THE PAR VALUE OF
THE SUBSCRIBED CAPITAL STOCK.
HELD: YES. simply put, the submission of NTC is that the fee
under Section 40 (e) should be based on the market value of
PLDTs outstanding capital stock inclusive of stock dividends and
premium, and not on the par value of PLDTs capital stock
excluding stock dividends and premium, as contended by PLDT.
Clear is the ruling of this Court in the case of Philippine Long
Distance Telephone Company vs. Public Service Commission, 66
SCRA 341, that the basis for computation of the fee to be charged
by NTC on PLDT, is the capital stock subscribed or paid and
not, alternatively, the property and equipment.
The law in point is clear and categorical. There is no room for
construction. It simply calls for application. To repeat, the fee in
question is based on the capital stock subscribed or paid, nothing
less nothing more.
It bears stressing that it is not the NTC that imposed such a fee. It
is the legislature itself. Since Congress has the power to exercise
the State inherent powers of Police Power, Eminent Domain and
Taxation, the distinction between police power and the power to
tax, which could be significant if the exercising authority were
mere political subdivisions (since delegation by it to such political
subdivisions of one power does not necessarily include the other),
would not be of any moment when, as in the case under
consideration, Congress itself exercises the power. All that is to be
done would be to apply and enforce the law when sufficiently
definitive and not constitutional infirm.
The term capital and other terms used to describe the capital
structure of a corporation are of universal acceptance, and their
usages have long been established in jurisprudence. Briefly,
capital refers to the value of the property or assets of a
corporation.
The capital subscribed is the total amount of the capital that
persons (subscribers or shareholders) have agreed to take and
pay for, which need not necessarily be, and can be more than, the
par value of the shares. In fine, it is the amount that the
corporation receives, inclusive of the premiums if any, in
consideration of the original issuance of the shares.
In the case of stock dividends, it is the amount that the corporation
transfers from its surplus profit account to its capital account. It is
the same amount that can loosely be termed as the trust fund of
the corporation.
The Trust Fund doctrine considers this subscribed capital as a
trust fund for the payment of the debts of the corporation, to which
the creditors may look for satisfaction. Until the liquidation of the
corporation, no part of the subscribed capital may be returned or
released to the stockholder (except in the redemption of
17
redeemable shares) without violating this principle. Thus,

dividends must never impair the subscribed capital; subscription
commitments cannot be condoned or remitted; nor can the
corporation buy its own shares using the subscribed capital as the
consideration therefor.
Dispositive portion: RTC and CA decision set aside and NTC to
compute based on capital stock subscribed or paid and strictly in
accordance with the foregoing disquisition and conclusion.
CASE 16: VILLANUEVA
MANILA MEMORIAL PARK, INC. VS SECRETARY OF THE
DEPARTMENT OF SOCIAL WELFARE
DOCTRINE: Tax measures are but "enforced contributions
exacted on pain of penal sanctions" and "clearly imposed for a
public purpose. In conclusion, we maintain that the correct rule in
determining whether the subject regulatory measure has
amounted to a "taking" under the power of eminent domain is the
one laid down in Alalayan v. National Power Corporation and
followed in Carlos Superdurg Corporation consistent with long
standing principles in police power and eminent domain analysis.
Thus, the deprivation or reduction of profits or income. Gross
sales must be clearly shown to be unreasonable, oppressive or
confiscatory. Under the specific circumstances of this case, such
determination can only be made upon the presentation of
competent proof which petitioners failed to do. A law, which has
been in operation for many years and promotes the welfare of a
group accorded special concern by the Constitution, cannot and
should not be summarily invalidated on a mere allegation that it
reduces the profits or income/gross sales of business
establishments.
FACTS: Petitioners Manila Memorial Park, Inc. and La Funeraria

Paz-Sucat, Inc., domestic corporations engaged in the business of
providing funeral and burial services filed against public
respondents Secretaries of the Department of Social Welfare and
Development (DSWD) and the Department of Finance (DOF). On
April 23, 1992, RA 7432 was passed into law, granting senior
citizens certain privileges. The law pertaining to the case is
presented below:
SECTION 4. Privileges for the Senior Citizens. The senior
citizens shall be entitled to the following:
a) the grant of twenty percent (20%) discount from all
establishments relative to utilization of transportation services,
hotels and similar lodging establishment[s], restaurants and
recreation centers and purchase of medicine anywhere in the
country: Provided, That private establishments may claim the cost
as tax credit;
b) a minimum of twenty percent (20%) discount on admission fees
charged by theaters, cinema houses and concert halls, circuses,
carnivals and other similar places of culture, leisure, and
amusement;
c) exemption from the payment of individual income taxes:
Provided, That their annual taxable income does not exceed the
property level as determined by the National Economic and
Development Authority (NEDA) for that year;
d) exemption from training fees for socioeconomic programs
undertaken by the OSCA as part of its work;
e) free medical and dental services in government
establishment[s] anywhere in the country, subject to guidelines to
be issued by the Department of Health, the Government Service
Insurance System and the Social Security System;
18
f) to the extent practicable and feasible, the continuance of the

same benefits and privileges given by the Government Service
Insurance System (GSIS), Social Security System (SSS) and
PAG-IBIG, as the case may be, as are enjoyed by those in actual
service.
On August 23, 1993, Revenue Regulations (RR) No. 02-94 was
issued to implement RA 7432. Sections 2(i) and 4 of RR No. 02-94
provide:
Sec. 2. DEFINITIONS. For purposes of these regulations: i. Tax
Credit refers to the amount representing the 20% discount
granted to a qualified senior citizen by all establishments relative
to their utilization of transportation services, hotels and similar
lodging establishments, restaurants, drugstores, recreation
centers, theaters, cinema houses, concert halls, circuses,
carnivals and other similar places of culture, leisure and
amusement, which discount shall be deducted by the said
establishments from their gross income for income tax purposes
and from their gross sales for value-added tax or other percentage
tax purposes. x x x x Sec. 4. RECORDING/BOOKKEEPING
REQUIREMENTS FOR PRIVATE ESTABLISHMENTS. Private
establishments, i.e., transport services, hotels and similar lodging
establishments, restaurants, recreation centers, drugstores,
theaters, cinema houses, concert halls, circuses, carnivals and
other similar places of culture[,] leisure and amusement, giving
20% discounts to qualified senior citizens are required to keep
separate and accurate record[s] of sales made to senior citizens,
which shall include the name, identification number, gross
sales/receipts, discounts, dates of transactions and invoice
number for every transaction. The amount of 20% discount shall
be deducted from the gross income for income tax purposes and
from gross sales of the business enterprise concerned for
purposes of the VAT and other percentage taxes.
In Commissioner of Internal Revenue v. Central Luzon Drug

Corporation,5 the Court declared Sections 2(i) and 4 of RR No. 0294 as erroneous because these contravene RA 7432,6 thus:
RA 7432 specifically allows private establishments to claim as tax
credit the amount of discounts they grant. In turn, the
Implementing Rules and Regulations, issued pursuant thereto,
provide the procedures for its availment. To deny such credit,
despite the plain mandate of the law and the regulations carrying
out that mandate, is indefensible. First, the definition given by
petitioner is erroneous. It refers to tax credit as the amount
representing the 20 percent discount that "shall be deducted by
the said establishments from their gross income for income tax
purposes and from their gross sales for value-added tax or other
percentage tax purposes." In ordinary business language, the tax
credit represents the amount of such discount. However, the
manner by which the discount shall be credited against taxes has
not been clarified by the revenue regulations. By ordinary
acceptation, a discount is an "abatement or reduction made from
the gross amount or value of anything." To be more precise, it is in
business parlance "a deduction or lowering of an amount of
money;" or "a reduction from the full amount or value of
something, especially a price." In business there are many kinds
of discount, the most common of which is that affecting the income
statement or financial report upon which the income tax is based.
xxxx
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define
tax credit as the 20 percent discount deductible from gross income
for income tax purposes, or from gross sales for VAT or other
percentage tax purposes. In effect, the tax credit benefit under RA
7432 is related to a sales discount. This contrived definition is
improper, considering that the latter has to be deducted from
gross sales in order to compute the gross income in the income
statement and cannot be deducted again, even for purposes of
19
computing the income tax. When the law says that the cost of the
discount may be claimed as a tax credit, it means that the amount
when claimed shall be treated as a reduction from any tax
liability, plain and simple. The option to avail of the tax credit
benefit depends upon the existence of a tax liability, but to limit the
benefit to a sales discount which is not even identical to the
discount privilege that is granted by law does not define it at all
and serves no useful purpose. The definition must, therefore, be
stricken down.
ISSUE: WON of Section 4 of Republic Act (RA) No. 7432,as
amended by RA 9257, and the implementing rules and regulations
issued by the DSWD and DOF insofar as these allow business
establishments to claim the 20% discount given to senior citizens
as a tax deduction is constitutional.
RULING: YES. The 20% senior citizen discount has not been
shown to be unreasonable, oppressive or confiscatory. On its face,
we find that there are at least two conceivable bases to sustain the
subject regulations validity absent clear and convincing proof that
it is unreasonable, oppressive or confiscatory. Congress may have
legitimately concluded that business establishments have the
capacity to absorb a decrease in profits or income/gross sales due
to the 20% discount without substantially affecting the reasonable
rate of return on their investments considering (1) not all
customers of a business establishment are senior citizens and (2)
the level of its profit margins on goods and services offered to the
general public. Concurrently, Congress may have, likewise,
legitimately concluded that the establishments, which will be
required to extend the 20% discount, have the capacity to revise
their pricing strategy so that whatever reduction in profits or
income/gross sales that they may sustain because of sales to
senior citizens, can be recouped through higher mark-ups or from
other products not subject of discounts. As a result, the discounts
resulting from sales to senior citizens will not be confiscatory or
unduly oppressive.
In turn, this affects the amount of profits or income/gross sales

that a private establishment can derive from senior citizens. In
other words, the subject regulation affects the pricing, and, hence,
the profitability of a private establishment. However, it does not
purport to appropriate or burden specific properties, used in the
operation or conduct of the business of private establishments, for
the use or benefit of the public, or senior citizens for that matter,
but merely regulates the pricing of goods and services relative to,
and the amount of profits or income/gross sales that such private
establishments may derive from, senior citizens. The subject
regulation may be said to be similar to, but with substantial
distinctions from, price control or rate of return on investment
control laws which are traditionally regarded as police power
measures.
These
laws
generally
regulate
public
utilities
or
industries/enterprises imbued with public interest in order to
protect consumers from exorbitant or unreasonable pricing as well
as temper corporate greed by controlling the rate of return on
investment of these corporations considering that they have a
monopoly over the goods or services that they provide to the
general public. The subject regulation differs therefrom in that (1)
the discount does not prevent the establishments from adjusting
the level of prices of their goods and services, and (2) the discount
does not apply to all customers of a given establishment but only
to the class of senior citizens. Nonetheless, to the degree material
to the resolution of this case, the 20% discount may be properly
viewed as belonging to the category of price regulatory measures
which affect the profitability of establishments subjected thereto.
On its face, therefore, the subject regulation is a police power
measure.
DISPOSITIVE: The Supreme Court dismissed the case and ruled
in favour of the respondents. WHEREFORE, the Petition is hereby
DISMISSED for lack of merit. The law is constitutional.
20
Parties:
Petitioner - Commissioner on Internal Revenue
Private Respondent Algue, Inc., a domestic corporation
engaged in engineering, construction and other allied activities
CASE 17: CACHAPERO
FACTS:Private respondent received a letter from the petitioner

assessing it in the total amount of P83,183.85 as delinquency
income taxes for the years 1958 and 1959.
CIR vs ALGUE and the CTA
DOCTRINES:
Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance On the other hand,
such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself.
It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common
good, may be achieved.
Symbiotic Relationship as the Rationale of Taxation: It is
said that taxes are what we pay for civilization society. Without
taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is able to
must contribute his share in the running of the government.
The government for its part, is expected to respond in the
form of tangible and intangible benefits intended to improve
the lives of the people and enhance their moral and material
values. This symbiotic relationship is the rationale of taxation
and should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power.
It is a requirement in all democratic regimes that TAXATION
be exercised reasonably and in accordance with the
prescribed procedure.
On January 18, 1965, Algue filed a letter of protest or request

for reconsideration.
On March 12, 1965, a warrant of distraint and levy was
presented to the private respondent, through its counsel, Atty.
Alberto Guevara, Jr., who refused to receive it on the ground
of the pending protest. A search of the protest in the dockets
of the case proved fruitless. Atty. Guevara produced his file
copy and gave to the BIR agent, who deferred service of the
warrant of distraint.
On April 7, 1965, Atty. Guevara was finally informed that the
BIR was not taking any action on the protest and it was only
then that he accepted the warrant of distraint and levy earlier
sought to be served.
Sixteen days later, on April 23, 1965, Algue filed a petition for
review of the decision of the CIR with the Court of Tax
Appeals.
Procedural Issue: WON the appeal of the private respondent

from the decision of the CIR was made on time and in accordance
with law.
HELD (Procedural Issue):
YES. The above chronology shows that the petition was filed
seasonably. According to RA 1125, the appeal may be made
within 30 days after receipt of the decision or ruling challenged. It
is true that as a rule the warrant of distraint and levy is "proof of
21
the finality of the assessment" and renders hopeless a request for

reconsideration," being "tantamount to an outright denial thereof
and makes the said request deemed rejected." But there is a
special circumstance in the case at bar that prevents application of
this accepted doctrine.
The proven fact is that 4 days after the private respondent
received the petitioner's notice of assessment, it filed its letter of
protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest
could not be located in the office of the petitioner. It was only after
Atty. Guevara gave the BIR a copy of the protest that it was, if at
all, considered by the tax authorities. During the intervening
period, the warrant was premature and could therefore not be
served.
As the CTA correctly noted," the protest filed by private
respondent was not pro forma and was based on strong legal
considerations. It thus had the effect of suspending on January 18,
1965, when it was filed, the reglementary period which started on
the date the assessment was received, viz., January 14, 1965.
The period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection
of the said protest and the warrant was finally served on it. Hence,
when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.
Substantive Issue
The petitioner CIR contends that the claimed deduction of
P75,000.00 was properly disallowed because it was not an
ordinary reasonable or necessary business expense.
CTA agreed with Algue and held that the said amount had
been legitimately paid by the private respondent for actual
services rendered. The payment was in the form of
promotional fees. These were collected by the Payees for
their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase

of the properties of the Philippine Sugar Estate
Development Company.
Parenthetically, it may be observed that the petitioner had
originally claimed these promotional fees to be personal holding
company income but later conformed to the decision of the
respondent court rejecting this assertion. In fact, as the said court
found, the amount was earned through the joint efforts of the
persons among whom it was distributed. It has been established
that the Philippine Sugar Estate Development Company had
earlier appointed Algue as its agent, authorizing it to sell its land,
factories and oil manufacturing process. Pursuant to such
authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara,
Edith, O'Farell, and Pablo Sanchez, worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons
to invest in it. Ultimately, after its incorporation largely through the
promotion of the said persons, this new corporation purchased the
PSEDC properties. For this sale, Algue received as agent a
commission of P126,000.00, and it was from this commission that
the P75,000.00 promotional fees were paid to the aforenamed
individuals.
There is no dispute that the payees duly reported their respective
shares of the fees in their income tax returns and paid the
corresponding taxes thereon. The CTA also found, after
examining the evidence, that no distribution of dividends was
involved.
The petitioner claims that these payments are fictitious because
most of the payees are members of the same family in control of
Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is
not enough substantiation of such payments. In short, the
petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
22
We find that these suspicions were adequately met by the private

respondent when its President, Alberto Guevara, and the
accountant, Cecilia V. de Jesus, testified that the payments were
not made in one lump sum but periodically and in different
amounts as each payee's need arose. It should be remembered
that this was a family corporation where strict business procedures
were not applied and immediate issuance of receipts was not
required. Even so, at the end of the year, when the books were to
be closed, each payee made an accounting of all of the fees
received by him or her, to make up the total of
P75,000.00. Admittedly, everything seemed to be informal. This
arrangement was understandable, however, in view of the close
relationship among the persons in the family corporation.
ISSUE: WON the CIR correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate
business expenses in its income tax returns.
HELD: NO. We agree with the respondent court that the amount
of the promotional fees was not excessive. The total commission
paid by the Philippine Sugar Estate Development Co. to the
private respondent was P125,000.00. After deducting the said
fees, Algue still had a balance of P50,000.00 as clear profit from
the transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it
was the payees who did practically everything, from the formation
of the Vegetable Oil Investment Corporation to the actual
purchase by it of the Sugar Estate properties. This finding of the
respondent court is in accord with the following provision of the
Sec 30 of the Tax Code and Revenue Regulations No. 2,
Section 70 (1).
It is worth noting at this point that most of the payees were not in
the regular employ of Algue nor were they its controlling
stockholders.
The Solicitor General is correct when he says that the burden is

on the taxpayer to prove the validity of the claimed deduction. In
the present case, however, we find that the onus has been
discharged satisfactorily. The private respondent has proved that
the payment of the fees was necessary and reasonable in the light
of the efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise
and involve themselves in a new business requiring millions of
pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
Symbiotic Relationship as the Rationale of Taxation
It is said that taxes are what we pay for civilization society. Without
taxes, the government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the
taxing authorities, every person who is able to must contribute his
share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance
their moral and material values. This symbiotic relationship is the
rationale of taxation and should dispel the erroneous notion that it
is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the awesome
the taxpayer can demonstrate, as it has here, that the law has not
been observed.
We hold that the appeal of the private respondent from the
decision of the petitioner was filed on time with the respondent
23
court in accordance with RA 1125. And we also find that the

claimed deduction by the private respondent was permitted under
the Internal Revenue Code and should therefore not have been
disallowed by the petitioner.
CASE 18: CANALITA
PHILIPPINE AIRLINES, INC. vs. ROMEO EDU AND UBALDO
CARBONELL
DOCTRINE: If the purpose is primarily revenue, or if revenue is,
at least, one of the real and substantial purposes, then the
exaction is properly called a tax
FACTS:
1. The Philippine Airlines (PAL) is a domestic corporation and
engaged in the business of
air transportation under a
legislative franchise, Act. No.4271, as amended by RA Nos.
2360 and 2667. Under its franchise, PAL is exempt from the
payment of taxes.According to an Opinion by the Secretary of
Justice PAL has, since 1956, not been paying motor vehicle
registration fees.
2. 1971- Appellee Land Transportation Commissioner Romeo
Edu, issued a regulation requiring all tax exempt entities,
among them PAL to pay motor vehicle registration fees.
Despite PALs protestations, Commissioner Edu refused to
register appellants motor vehicles unless the amounts
imposed were paid. PAL thus paid under protest.
3. After paying , PAL wrote a letter to Commissioner Edu asking
for a refund of the amounts it paid , invoking the ruling in
Calalang v. Lorenzo where it was held that motor vehuicle
registration fees are in reality taxes from the payment of which
PAL is exmpt by virtue of its legislative franchise.
4. Appelle Edu denied the request for refund, alleging the

decision in Republic v. Philippine Rabbit Bus Lines, Inc. which
states that motor vehicles registration fee is a regulatory
exactions and not revenue measures and thus do not come
within the exemption granted to PAL under its franchise.
5. PAL filed a complaint against Commissioner Edu and National
Treasurer Ubaldo Carbonell before the CFI of Rizal.
6. TRIAL COURT: Dismissed PALs complaint, guided by the
ruling in Republic v. Philippine Rabbit Bus Lines, Inc. which
considered registration fees as regulatory fees imposed as an
incident of police power, and not taxes. From this judgemnet,
PAL appealed to the Court of Appeals which certified the case
to the Supreme Court.
ISSUE: WON Motor Vehicle Registration Fees are considered
taxes?
RULING: YES. Motor Vehicle registration fees were matters
originally governed by the Revised Motor Vehicle Law. Today, the
matter is governed by the Land Transportation Code.
Section 73 of C.A.123 (which amended Sec.73 of Act 3992 and
remained unrevised by RA Nos. 587 and 1603) states:
Section 73. Disposal of moneys collected.Twenty per centum of
the money collected under the provisions of this Act shall accrue
to the road and bridge funds of the different provinces and
chartered cities in proportion to the centum shall during the next
previous year and the remaining eighty per centum shall be
deposited in the Philippine Treasury to create a special fund for
the construction and maintenance of national and provincial roads
and bridges as well as the streets and bridges in the chartered
cities to be alloted by the Secretary of Public Works and
Communications for projects recommended by the Director of
Public Works in the different provinces and chartered cities.
Presently, Sec. 61 of the Land Transportation and Traffic Code
provides:
24
Sec. 61. Disposal of Mortgage. CollectedMonies collected under

the provisions of this Act shall be deposited in a special trust
account in the National Treasury to constitute the Highway Special
Fund, which shall be apportioned and expended in accordance
with the provisions of the" Philippine Highway Act of 1935.
"Provided, however, That the amount necessary to maintain and
equip the Land Transportation Commission but not to exceed
twenty per cent of the total collection during one year, shall be set
aside for the purpose. (As amended by RA 64-67, approved
August 6, 1971).
It appears clear that the legislative intent in the abovementioned
provisions, requiring owners of vehicles to pay for their registration
is mainly to raise funds for the construction and maintenance of
highways and to a much lesser degree, pay for operating
expenses of the administering agency.
The lower court was wrong in interpreting the case of Philippine
Rabbit Bus. It presumed that the use of the term fees in the law
is to be distinguished from other taxes.
Fees may be properly regarded as taxes although they also serve
as an instrument of regulation. If the purpose is primarily revenue,
or if revenue is, at least, one of the real and substantial purposes,
then the exaction is properly called a tax (Umali, Id.) Such is the
case of motor vehicle registration fees. It is clear that the
legislators had in mind a regulatory tax as the law refers to the
imposition on the registration, operation or ownership of a motor
vehicle as a "tax or fee." Though nowhere in the Land
Transportation Code does the law specifically state that the
imposition is a tax, Section 591-593 speaks of "taxes" or fees ...
for the registration or operation or on the ownership of any motor
vehicle, or for the exercise of the profession of chauffeur ..."
making the intent to impose a tax more apparent. Even Rep. Act
5448 cited by the respondents, speak of an "additional" tax,"
where the aw could have referred to an original tax and not one in
addition to the tax already imposed on the registration, operation,
or ownership of a motor vehicle under Rep. Act 41383.
DISPOSITIVE: WHEREFORE, the petition is hereby partially

GRANTED. The prayed for refund of registration fees paid in 1971
is DENIED. The Land Transportation Franchising and Regulatory
Board (LTFRB) is enjoined functions-the collecting any tax, fee, or
other charge on the registration and licensing of the petitioner's
motor vehicles from April 9, 1979 as provided in Presidential
Decree No. 1590.
CASE 19: SY
TOLENTINO V. SECRETARY OF FINANCE
DOCTRINE: The VAT is not a license tax. It is not a tax on the
exercise of privilege, much less a constitutional right. It is imposed
on the sale, barter, lease or exchange of goods or properties or
the sale or exchange of services and the lease of properties purely
for revenue purposes. To subject the press to its payment is not to
burden the exercise of its right any more than to make the press
pay income tax or subject it to general regulation is not to violate
its freedom under the Constitution.
FACTS: The case is a consolidation of various suits challenging
the constitutionality of R.A. 7716 otherwise known as the
Expanded Value Added Tax Law.
Among the petitioners is the Philippine Press Institute, which
contends that by removing the exemption of the press from the
VAT while maintaining those granted to others, the law
discriminates against the press. At any rate, it is averred even
nondiscriminatory taxation of constitutionally guaranteed freedom
is unconstitutional.
The PPI says that the discriminatory treatment of the press is
highlighted by the fact that transactions, which are profit oriented,
continue to enjoy exemption under RA 7716. An enumeration of
some of these transactions will suffice to show that by and large
25
this is not so and that the exemptions are granted for a purpose.
As the Solicitor General says, such exemptions are granted, in
some cases, to encourage agricultural production and, in other
cases, for the personal benefit of the end-user rather than profit.
ISSUE:Whether or not a VAT is similar to a license tax?
RULING:NO. The court was speaking in that case of a license tax,
which unlike an ordinary tax, is mainly for regulation. Its imposition
on the press is unconstitutional because it lays a prior restraint on
the exercise of its right. Hence, although its application to others,
such those selling goods, is valid, its application to the press or to
religious groups, in connection with the latters sale of religious
books and pamphlets, is unconstitutional.
The VAT is however, different. It is not a license tax. It is not a tax
on the exercise of privilege, much less a constitutional right. It is
imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of
properties purely for revenue purposes. To subject the press to its
payment is not to burden the exercise of its right any more than to
make the press pay income tax or subject it to general regulation
is not to violate its freedom under the Constitution.
DISPOSITIVE:We have come to the conclusion that the law
suffers from none of the infirmities attributed to it by petitioners
and that its enactment by the other branches of the government
does not constitute a grave abuse of discretion.
preferential position in the United States market and the imposition

of export taxes.
Walter Lutz, in his capacity as judiciala administrator of the
intestate estate of Antonio Ledesma, sought to recover form the
Collector of Internal Revenue the sum of P14,666.40 paid by the
estate as taxes, under section 3 of the Sugar Adjustment Act. He
alleged that the tax imposed is unconstitutional and void, being
levied for the aid and support of the sugar industry exclusively,
which is not a public purpose for which a tax may be
constitutionally levied.
ISSUE: WON the tax imposed is constitutional?
RULING: YES. The act is primarily an exercise of the police
power. It is shown in the Act that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of
the threatened sugar industry.
Sugar production is one of the great industries of our nation, sugar
occupying a leading position among its export products; Its
promotion, protection and advancement, therefore redounds
greatly to the general welfare. Hence it was competent for the
legislature to find that the general welfare demanded that the
sugar industry should be stabilized in turn; and in the wide field of
its police power, the lawmaking body could provide that the
distribution of benefits therefrom be readjusted among its
components to enable it to resist the added strain of the increase
in taxes that it had to sustain
CASE 20: FLORES

LUTZ v ARANETA (as CIR collector)
FACTS: Commonwealth Act No. 567, otherwise known as Sugar
Adjustment Act was promulgated in 1940 to stabilize the sugar
industry so as to prepare it for the eventuality of the loss of its
Further, 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, etc., as well as to the
improvement of living and working conditions in sugar mills and
plantations, without any part of such money being channeled
26
diectly to private persons, constitute expenditure of tax money for

private purposes.
It is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that
inequalities which result from a singling out of one particular class
for taxation or exemption infringe no constitutional limitation.
The funds raised under the Act should be exclusively spent in aid
of the sugar industry, since it is that very enterprise that is being
protected. It may be that other industries are also in need of
similar protection; but the legislature is not required by the
Constitution to adhere to a policy of all or none.
DISPOSITIVE: Tax imposed on sugar is valid. Araneta (CIR
collector) won.
CASE 21: MEDRANO
OSMEA V. ORBOS, 220 SCRA 703
DOCTRINE: While the funds collected may be referred to as
taxes, they are exacted in the exercise of the police power of the
State.
FACTS:
1. On October 10, 1984, PD 1956 was issued, creating a Special
Account in the General Fund, designated as the Oil Price
Stabilization Fund, which is designed to reimburse oil
companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustments
and from increases in the world market prices of crude oil.
2. Subsequently, the OPSF was reclassified into a trust liability
account, in virtue of EO 1024, and ordered released from the
National Treasury to the Ministry of Energy. It also authorized
the investment of the fund in government securities, with the

earnings from such placements accruing to the fund.
3. By the promulgation of EO 137, PD 1956 was amended,
expanding the grounds for reimbursement to oil companies for
possible cost underrecovery incurred as a result of the
reduction of domestic prices of petroleum products, the
amount of underrecovery being left for determination by the
Ministry of Finance.
4. Petitioner John Osmea avers that the Trust Account in the
books of account of the Ministry of Energy (now, Office of
Energy Affairs), created pursuant to Sec. 8, par.1 of PD 1956,
as amended, is contrary to Sec. 29 (3), Art. VI of the
Constitution. He argues that the monies collected pursuant to
PD 1956, as amended, must be treated as a SPECIAL
FUND, not as a TRUST ACCOUNT or a TRUST FUND,
and that if a special tax is collected for specific purpose, the
revenue generated therefrom shall be treated as a special
fund to be used only for the purpose indicated. Petitioner
further points out that since "a 'special fund' consists of monies
collected through the taxing power of a State, such amounts
belong to the State, although the use thereof is limited to the
special purpose/objective for which it was created. It appears
that the challenged posed by petitioner is premised primarily
on the view that the powers granted to Energy Regulatory
Board under PD 1956, as amended, partake of the nature of
the taxation power of the State.
ISSUE: Whether or not the funds collected under PD 1596 is an
exercise of the power of taxation?
RULING: YES. The Courts ruling was based in the case of
Gaston v. Republic Planters Bank, wherein it upheld the legality of
the sugar stabilization fees and explained their nature and
character, viz: The tax collected is not in a pure exercise of the
taxing power. It is levied with a regulatory purpose, to provide a
means for the stabilization of the sugar industry. The levy is
27
primarily in the exercise of the police power of the State. In the

case at bar, the Court held that while the funds collected may be
referred to as taxes, they are exacted in the exercise of the police
power of the State. Moreover, that the OPSF is a special fund is
plain from the special treatment given it by E.O. 137. It is
segregated from the general fund; and while it is placed in what
the law refers to as a "trust liability account," the fund nonetheless
remains subject to the scrutiny and review of the COA. The Court
is satisfied that these measures comply with the constitutional
description of a "special fund." With regard to the alleged undue
delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional
amounts on petroleum products provides a sufficient standard by
which the authority must be exercised. In addition to the general
policy of the law to protect the local consumer by stabilizing and
subsidizing domestic pump rates, Sec 8(c) of P.D. 1956 expressly
authorizes the ERB to impose additional amounts to augment the
resources of the Fund.
CASE 22: MATIAS
CALTEX PHILIPPINES, INC. VS COMMISSION ON AUDIT
DOCTRINE: Taxation is no longer envisioned as a measure
merely to raise revenue to support the existence of the
government, taxes may be levied with a regulatory purpose to
provide means for the rehabilitation and stabilization of a
threatened industry which is affected with public interest as to be
within the police power of the state.
collection, excluding that unremitted for the years 1986 and

1988, of the additional tax on petroleum products authorized
under the aforesaid Section 8 of P.D. No. 1956 which,
amounted to P335,037,649.00 and informing it that, pending
such remittance, all of its claims for reimbursement from the
OPSF shall be held in abeyance.
2. COA sent another letter to petitioner informing it that partial
verification with the OEA showed that the grand total of its
unremitted collections of the above tax is P1,287,668,820.00
3. Directing it to remit the same, with interest and surcharges
thereon, within 60 days from receipt of the letter; advising it
that the COA will hold in abeyance the audit of all its claims for
reimbursement from the OPSF; and directing it to desist from
further offsetting the taxes collected against outstanding
claims in 1989 and subsequent periods.
4. Petitioner requested the COA for an early release of its
reimbursement certificates from the OPSF covering claims
with the Office of Energy Affairs, in support thereof COA
Circular No. 89-299 on the lifting of pre-audit of government
transactions of national government agencies and
government-owned or controlled corporations.
A taxpayer may not offset taxes due from the claims that he may
have against the government.
5. In its Answer, the COA denied petitioner's request for the early
release of the reimbursement certificates from the OPSF and
repeated its earlier directive to petitioner to forward payment of
the latter's unremitted collections to the OPSF to facilitate
COA's audit action on the reimbursement claims.
FACTS:
1. The COA sent a letter to Caltex, hereinafter referred to as
Petitioner, directing the latter to remit to the OPSF its
6. Petitioner, submitted to the COA a proposal for the payment of

the collections and the recovery of claims, since the outright
payment of the sum of P1.287 billion to the OEA as a
28
prerequisite for the processing of said claims against the

OPSF will cause a very serious impairment of its cash
position.
7. The COA, with the Chairman taking no part, handed down
Decision No. 921 accepting the above-stated proposal but
prohibiting petitioner from further offsetting remittances and
reimbursements for the current and ensuing years.
8. Pursuant to this decision, the COA sent a letter to Executive
Director Wenceslao R. De la Paz of the Office of Energy
Affairs
9. Petitioner filed an Omnibus Request for the Reconsideration of
the decision.
10. Petitioner filed with the COA a Supplemental Omnibus
Request for Reconsideration.
11. The COA handed down Decision No. 1171 affirming the
disallowance for recovery of financing charges, inventory
losses, and sales to MARCOPPER and ATLAS, while allowing
the recovery of product sales or those arising from export
sales.
12. Unsatisfied with the decision, petitioner filed the present
petition.
ISSUE:
1. WON Caltex Inc. is entitled to offset.
2. WON the amounts due from Caltex do not arise as a result
of taxation because P.D. 1956, amended, did not create a
source of taxation; it instead established a special fund.
RULING: NO. It is settled that a taxpayer may not offset taxes due
from the claims that he may have against the government. Taxes
cannot be the subject of compensation because the government
and taxpayer are not mutually creditors and debtors of each other
and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
We may even further state that technically, in respect to the taxes
for the OPSF, the oil companies merely act as agents for the
Government in the latter's collection since the taxes are, in reality,
passed unto the end-users the consuming public. In that capacity,
the petitioner, as one of such companies, has the primary
obligation to account for and remit the taxes collected to the
administrator of the OPSF. This duty stems from the fiduciary
relationship between the two; petitioner certainly cannot be
considered merely as a debtor. In respect, therefore, to its
collection for the OPSF vis-a-vis its claims for reimbursement, no
compensation is likewise legally feasible. Firstly, the Government
and the petitioner cannot be said to be mutually debtors and
creditors of each other. Secondly, there is no proof that petitioner's
claim is already due and liquidated.
NO. We find no merit in petitioner's contention that the OPSF
contributions are not for a public purpose because they go to a
special fund of the government. Taxation is no longer envisioned
as a measure merely to raise revenue to support the existence of
the government; taxes may be levied with a regulatory purpose to
provide means for the rehabilitation and stabilization of a
threatened industry which is affected with public interest as to be
within the police power of the state. There can be no doubt that
the oil industry is greatly imbued with public interest as it vitally
affects the general welfare. Any unregulated increase in oil prices
could hurt the lives of a majority of the people and cause
economic crisis of untold proportions. It would have a chain
reaction in terms of, among others, demands for wage increases
and upward spiralling of the cost of basic commodities. The
29
stabilization then of oil prices is of prime concern which the state,

via its police power, may properly address.
DISPOSITIVE: WHEREFORE, in view of the foregoing, judgment
is hereby rendered AFFIRMING the challenged decision of the
Commission on Audit, except that portion thereof disallowing
petitioner's claim for reimbursement of under recovery arising from
sales to the National Power Corporation, which is hereby allowed.
COA won.
CASE 23: MENDOZA
SOUTHERN CROSS
MANUFACTURERS
CEMENT
CORP
CEMENT

CIR V CENTRAL LUZON DRUG CORP
DOCTRINE: Tax credit is explicitly provided for in Sec4 of RA
7432. The discount given to Senior citizens is a tax credit, not a
deduction from the gross sales of the establishment concerned.
The tax credit that is contemplated under this Act is a form of just
compensation, not a remedy for taxes that were erroneously or
illegally assessed and collected. In the same vein, prior payment
of any tax liability is a pre-condition before a taxable entity can
benefit from tax credit. The credit may be availed of upon payment,
if any. Where there is no tax liability or where a private
establishment reports a net loss for the period, the tax credit can
be availed of and carried over to the next taxable year.
FACTS: Respondent Central Luzon Drug Corporation is a
domestic corporation primarily engaged in retailing of medicines
and other pharmaceutical products. It operates under the business
name and style Mercury Drug.
From January to December 1996, respondent granted twenty

(20%) percent sales discount to qualified senior citizens on their
purchases of medicines pursuant to RA 7432. For the said period,
the amount allegedly representing the 20% sales discount granted
by respondent to qualified senior citizens totaled P904,769.00.
Respondent filed its Annual Income Tax Return for taxable year
1996 declaring therein that it incurred net losses from its
operations. Respondent filed with petitioner Commissioner of
Internal Revenue a claim for tax refund/credit in the amount
of P904,769.00 allegedly arising from the 20% sales discount
granted by respondent to qualified senior citizens. Unable to
obtain relief, respondent elevated its claim to the CTA via Petition
for Review.
CTA dismissed the petition stating that if no tax has been paid to
the government, erroneously or illegally, or if no amount is due
and collectible from the taxpayer, tax refund or tax credit is
unavailing. Moreover, whether the recovery of the tax is made by
means of a claim for refund or tax credit, before recovery is
allowed, it must be first established that there was an actual
collection and receipt by the government of the tax sought to be
recovered.
Respondent filed an MR which was granted. The court ordered
petitioner to issue a Tax Credit Certificate in favor of respondent.
Petitioner appealed but the CA affirmed the ruling in toto ordering
petitioner to issue a tax credit certificate in favor of respondent in
the reduced amount of P903,038.39. It reasoned that RA 7432
required neither a tax liability nor a payment of taxes by private
establishments prior to the availment of a tax credit. Moreover,
such credit is not tantamount to an unintended benefit from the
law, but rather a just compensation for the taking of private
property for public use. Hence, a petition was filed with the SC.
30
ISSUE: WON respondent, despite incurring a net loss, may still

claim the 20% sales discount as a tax credit.
same as a sales discount. This benefit cannot and should not be

treated as a tax deduction.
RULING: YES. A tax credit differs from a tax deduction. On the

one hand, a tax credit reduces the tax due, including the income
tax that is determined after applying the corresponding tax rates
to taxable income. A tax deduction, on the other, reduces the
income that is subject to tax in order to arrive at taxable income.
To think of the former as the latter is to avoid, if not entirely
confuse, the issue. A tax credit is used only after the tax has been
computed; a tax deduction, before.
To stress, the effect of a sales discount on the income

statement and income tax return of an establishment covered by
RA
7432
is
different
from
that
resulting
from
the availment or use of its tax credit benefit. While the former is a
deduction before, the latter is a deduction after, the income tax is
computed. As mentioned earlier, a discount is not necessarily
a sales discount, and a tax credit for a simple discount privilege
should not be automatically treated like a sales discount.
Tax liability is required before tax credit can be applied. While a

tax liability is essential to the availment or use of any tax credit,
prior tax payments are not. On the contrary, for the existence or
grant solely of such credit, neither a tax liability nor a prior tax
payment is needed.
The availment of tax credit is voluntary. What Section 4.a of RA

7432 means is that the tax credit benefit is merely permissive, not
imperative. RA 7432 does not give respondent the unfettered right
to avail itself of the credit whenever it pleases. Neither does it
allow our tax administrators to expand or contract the legislative
mandate.
Prior tax payments are not required for tax credit. A tax liability is
certainly important in the availment or use, not the existence or
grant, of a tax credit.
RA 7432 specifically allows private establishments to claim as tax
credit the amount of discounts they grant. To deny such credit,
despite the plain mandate of the law and the regulations carrying
out that mandate, is indefensible.
What RA 7432 grants the senior citizen is a mere discount
privilege. The privilege enjoyed by the senior citizen must be
equivalent to the tax credit benefit enjoyed by the private
establishment granting the discount. To a senior citizen, the
monetary effect of the privilege may be the same as that resulting
from a sales discount. However, to a private establishment, the
effect is different from a simple reduction in price that results from
such discount. In other words, the tax credit benefit is not the
Tax credit benefit is deemed as just compensation. The privilege

enjoyed by senior citizens does not come directly from the State,
but rather from the private establishments concerned. Accordingly,
the tax credit benefit granted to these establishments can be
deemed as their just compensation for private property taken by
the State for public use. As a result of the 20% discount imposed
by RA 7432, respondent becomes entitled to a just compensation.
This term refers not only to the issuance of a tax credit certificate
indicating the correct amount of the discounts given, but also to
the promptness in its release. It is just compensation for income
that is taken away from respondent becomes necessary. It is in
the tax credit that our legislators find support to realize social
justice, and no administrative body can alter that fact.
Furthermore, the intent of our legislators is to treat the sales
discounts as a tax credit, rather than as a deduction from gross
income.
31
RA 7432 is an earlier law not expressly repealed by, and therefore

remains an exception to, the Tax Code which is a later law. When
the former states that a tax credit may be claimed, then the
requirement of prior tax payments under certain provisions of the
latter cannot be made to apply. Neither can the instances of or
references to a tax deduction under the Tax Code be made to
restrict RA 7432. No provision of any revenue regulation can
supplant or modify the acts of Congress.
DISPOSITIVE: Respondent WON. Petition is DENIED.
CASE 25: PANTORGO
CARLOS SUPERDRUG CORP V. DSWD
G.R. 166494. June 29, 2007
DOCTRINE: When the conditions so demand as determined by
the legislature, property rights must bow to the primacy of police
power because property rights, though sheltered by due process,
must yield to general welfare.
FACTS:
1. Carlos Superdrug, Advance drug, City Pharmacy, Botica Dela
Serna, Leyte Serv-Well Drugstore (petitioners) are domestic
corporations and proprietors operating drugstores in the
Philippines.
2. Respondents include DSWD, DOH, DOF, DOJ, DILG which
given tasked to monitor the drugstores compliance with the law;
promulgate IRR for the effective implementation of the law;
prosecute and revoke licenses of erring drugstore establishments.
3. February 26, 2004= R.A. No. 9257(Expanded Senior Citizens
Act of 2003) signed into law by President Gloria MacapagalArroyo and it became effective on March 21, 2004.
3. Oct. 1, 2004= DOH issued AO 177 (Policies and Guidelines to
Implement the Relevant provisions of RA 9257), providing the
grant 20% discount in the purchase of both prescription and nonprescription medicines (branded and generic) from all
establishments dispensing medicines for the exclusive use of
senior citizens.
4. Carlos Superdrug et.al is assailing the constitutionality of Sec. 4
(a) of RA 9257. They assert that Section 4(a) of the law is
unconstitutional because it constitutes deprivation of private
property. Compelling drugstore owners and establishments to
grant the discount will result in a loss of profit and capital because:
a) drugstores impose a mark-up of only 5% to 10% on branded
medicines
b) the law failed to provide a scheme whereby drugstores will be
justly compensated for the discount
ISSUE: WON the State, in promoting the health and welfare of
senior citizens, can impose upon private establishments the
burden of partly subsidizing a government program
RULING: YES.
1. The Senior Citizens Act was enacted primarily to maximize the
contribution of senior citizens to nation-building, and to grant
benefits and privileges to them for their improvement and wellbeing as the State considers them an integral part of our society
hence, the law grants a 20% discount to senior citizens for
medical and dental services, and diagnostic and laboratory fees
and others.
2. The law is a legitimate exercise of police power which, similar to
the power of eminent domain, has general welfare for its object.
Police power has been described as the most essential, insistent
and the least limitable of powers, extending as it does to all the
great public needs. It is the power vested in the legislature by the
constitution to make, ordain, and establish all manner of
wholesome and reasonable laws, statutes, and ordinances, either
with penalties or without, not repugnant to the constitution, as they
shall judge to be for the good and welfare of the commonwealth,
and of the subjects of the same.
32
3. For this reason, when the conditions so demand as determined

by the legislature, property rights must bow to the primacy of
police power because property rights, though sheltered by due
process, must yield to general welfare.
4. While the Constitution protects property rights, petitioners must
accept the realities of business and the State, in the exercise of
police power, can intervene in the operations of a business which
may result in an impairment of property rights in the process.
5. Moreover, the right to property has a social dimension. While
Article XIII of the Constitution provides the precept for the
protection of property, various laws and jurisprudence, particularly
on agrarian reform and the regulation of contracts and public
utilities, continuously serve as a reminder that the right to property
can be relinquished upon the command of the State for the
promotion of public good.
DISPOSITIVE: Petition is dismissed.
CASE 26: KADJIM
carnivals and other similar places of culture, leisure, and

amusement;
c) exemption from the payment of individual income taxes:
Provided, That their annual taxable income does not exceed the
property level as determined by the National Economic and
Development Authority (NEDA) for that year;
d) exemption from training fees for socioeconomic programs
undertaken by the OSCA as part of its work;
e) free medical and dental services in government
establishment[s] anywhere in the country, subject to guidelines to
be issued by the Department of Health, the Government Service
Insurance System and the Social Security System;
f) to the extent practicable and feasible, the continuance of the
same benefits and privileges given by the Government Service
Insurance System (GSIS), Social Security System (SSS) and
PAG-IBIG, as the case may be, as are enjoyed by those in actual
service.
Petitioners Arguments
MANILA MEMORIAL PARK, INC. AND LA FUNERARIA PAZSUCAT, INC., PETITIONERS, -VERSUS- SECRETARY OF THE
DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT
AND THE SECRETARY OF THE DEPARTMENT OF FINANCE
Petitioners emphasize that they are not questioning the 20%

discount granted to senior citizens but are only assailing the
constitutionality of the tax deduction scheme prescribed under RA
9257 and the implementing rules and regulations issued by the
DSWD and the DOF.
FACTS: On April 23, 1992, RA 7432 was passed into law,

granting senior citizens the following privileges: a) the grant of
twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging
establishment[s], restaurants and recreation centers and purchase
of medicine anywhere in the country: Provided, That private
establishments may claim the cost as tax credit;
Petitioners posit that the tax deduction scheme contravenes

Article III, Section 9 of the Constitution, which provides that:
"[p]rivate property shall not be taken for public use without just
compensation."
b) a minimum of twenty percent (20%) discount on admission fees

charged by theaters, cinema houses and concert halls, circuses,
In support of their position, petitioners cite Central Luzon Drug

Corporation,where it was ruled that the 20% discount privilege
constitutes taking of private property for public use which requires
the payment of just compensation,and Carlos Superdrug
Corporation
v.
Department
of
Social
Welfare
and
33
Development,where it was acknowledged that the tax deduction

scheme does not meet the definition of just compensation.
Petitioners likewise seek a reversal of the ruling in Carlos
Superdrug Corporation that the tax deduction scheme adopted by
the government is justified by police power.
They assert that "[a]lthough both police power and the power of
eminent domain have the general welfare for their object, there
are still traditional distinctions between the two"and that "eminent
domain cannot be made less supreme than police power."
Petitioners further claim that the legislature, in amending RA 7432,
relied on an erroneous contemporaneous construction that prior
payment of taxes is required for tax credit.
Petitioners also contend that the tax deduction scheme violates
Article XV, Section 42 and Article XIII, Section 11of the
Constitution because it shifts the States constitutional mandate or
duty of improving the welfare of the elderly to the private sector.
Under the tax deduction scheme, the private sector shoulders
65% of the discount because only 35% of it is actually returned by
the government.
Consequently, the implementation of the tax deduction scheme
prescribed under Section 4 of RA 9257 affects the businesses of
petitioners.
Thus, there exists an actual case or controversy of transcendental
importance which deserves judicious disposition on the merits by
the highest court of the land.
Respondents Arguments
Respondents, on the other hand, question the filing of the instant
Petition directly with the Supreme Court as this disregards the
hierarchy of courts.
They likewise assert that there is no justiciable controversy as
petitioners failed to prove that the tax deduction treatment is not a
"fair and full equivalent of the loss sustained" by them.
As to the constitutionality of RA 9257 and its implementing rules

and regulations, respondents contend that petitioners failed to
overturn its presumption of constitutionality.
More important, respondents maintain that the tax deduction
scheme is a legitimate exercise of the States police power.
ISSUE: WON SECTION 4 OF REPUBLIC ACT NO. 9257 AND X
X X ITS IMPLEMENTING RULES AND REGULATIONS,
INSOFAR AS THEY PROVIDE THAT THE TWENTY PERCENT
(20%) DISCOUNT TO SENIOR CITIZENS MAY BE CLAIMED AS
A TAX DEDUCTION BY THE PRIVATE ESTABLISHMENTS, ARE
INVALID AND UNCONSTITUTIONAL
HELD: The validity of the 20% senior citizen discount and tax
deduction scheme under RA 9257, as an exercise of police power
of the State, has already been settled in Carlos Superdrug
Corporation.
Petitioners posit that the resolution of this case lies in the
determination of whether the legally mandated 20% senior citizen
discount is an exercise of police power or eminent domain. If it is
police power, no just compensation is warranted. But if it is
eminent domain, the tax deduction scheme is unconstitutional
because it is not a peso for peso reimbursement of the 20%
discount given to senior citizens. Thus, it constitutes taking of
private property without payment of just compensation. At the
outset, we note that this question has been settled in Carlos
Superdrug Corporation.
The 20% discount as well as the tax deduction scheme is a valid
exercise of the police power of the State. Police power versus
eminent domain.
34
Police power is the inherent power of the State to regulate or to

restrain the use of liberty and property for public welfare.
The only limitation is that the restriction imposed should be
reasonable, not oppressive.
integral part of this law. As to its nature and effects, the 20%
discount is a regulation affecting the ability of private
establishments to price their products and services relative to a
special class of individuals, senior citizens, for which the
Constitution affords preferential concern.
CASE 27: FILIO
In other words, to be a valid exercise of police power, it must have

a lawful subject or objective and a lawful method of accomplishing
the goal.
Under the police power of the State, "property rights of individuals
may be subjected to restraints and burdens in order to fulfill the
objectives of the government."
The State "may interfere with personal liberty, property, lawful
businesses and occupations to promote the general welfare [as
long as] the interference [is] reasonable and not arbitrary."
Eminent domain, on the other hand, is the inherent power of the
State to take or appropriate private property for public use.
The Constitution, however, requires that private property shall not
be taken without due process of law and the payment of just
compensation.
The 20% discount is intended to improve the welfare of senior
citizens who, at their age, are less likely to be gainfully employed,
more prone to illnesses and other disabilities, and, thus, in need of
subsidy in purchasing basic commodities. It may not be amiss to
mention also that the discount serves to honor senior citizens who
presumably spent the productive years of their lives on
contributing to the development and progress of the nation. This
distinct cultural Filipino practice of honoring the elderly is an
COMMISSIONER OF INTERNAL REVENUE V. ALGUE INC

FACTS: Algue Inc, engaged in an engineering corporation, claims
tax deductions in the amount of P75,000.00 alleging that such
amount are promotional fees, thus, in accord with the provisions of
the Tax Code as being ordinary and necessary business
expenses. The CIR disallowed the deductions because it is not
ordinary and necessary business expenses. On January 18, 1965,
Algue filed a letter of protest or request for reconsideration, which
letter was stamp-received on the same day in the office of the
petitioner. On March 12, 1965, a warrant of distraint and levy was
presented to the private respondent through its counsel, Atty.
Alberto Guevara, Jr., who refused to receive it on the ground of
the pending protest. Atty. Guevara produced his file copy and
gave a photostat to BIR agent Ramon Reyes, who deferred
service of the warrant. On April 7, 1965, Atty. Guevara was finally
informed that the BIR was not taking any action on the protest and
it was only then that he accepted the warrant of distraint and levy
earlier sought to be served. Sixteen days later, which is on April
23, 1965, Algue filed a petition for review of the decision of the
Commissioner of Internal Revenue with the Court of Tax Appeals.
The Commissioner of Internal Revenue alleged that under the law
Algue Inc was not on time to appeal the decision of Commissioner
of Internal Revenue. The Court of Tax Appeals favored Algue Inc.
ISSUE
1. Whether or not the Commissioner of Internal Revenue is
correct in disallowing the tax deduction?
35
2. Whether or not the Algue Inc is on time to appeal the

decision of Commissioner of Internal Revenue?
HELD
1. No, the Commissioner of Internal Revenue is not correct in
disallowing the tax deduction.
2. Yes, Algue Inc is on time to appeal the decision of
Commisioner of Internal Revenue.
Ratio:
1.
The claimed deduction by the private respondent was
permitted under Section 30 the Internal Revenue Code and should
therefore not have been disallowed by the CIR. There is no
dispute that the payees duly reported their respective shares of
the fees in their income tax returns and paid the corresponding
taxes thereon and also there is no distribution of dividends was
involved. The contention of CIR of tax dodge, which is an attempt
to evade a legitimate assessment by involving an imaginary
deduction, was not proven. Rather, these suspicions were
adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified
that the payments were not made in one lump sum but periodically
and in different amounts as each payees need arose. It should be
remembered that this was a family corporation where strict
business procedures were not applied and immediate issuance of
receipts was not required. Even so, when the books were to be
closed at the end of the year each payee made an accounting of
all of the fees received by him or her, to make up the total of
P75,000.00. Admittedly, everything seemed to be informal. This
arrangement was understandable because of the close
relationship among the persons in the family corporation. The
amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co.
to the private respondent (Algue Inc) was P125,000.00. After
deducting the said fees, Algue still had a balance of P50,000.00
as clear profit from the transaction. The amount of P75,000.00
was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically

everything, from the formation of the Vegetable Oil Investment
Corporation to the actual purchase by it of the Sugar Estate
properties.
It is said that taxes are what we pay for civilization society. Without
taxes, the government would be paralyzed for lack of the motive
power to activate and operate it. The government is expected to
respond in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and
material values. This symbiotic relationship is the rationale of
taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power. But
even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the awesome
the taxpayer can demonstrate, as it has here, that the law has not
been observed.
2.
According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of
the decision or ruling challenged.
It is true that as a rule the warrant of distraint and levy is "proof of
the finality of the assessment" and "renders hopeless a request for
reconsideration. It is tantamount to an outright denial thereof and
makes the said request deemed rejected. However, there is a
special circumstance in the case at bar that prevents application of
this accepted doctrine. The proven fact is that four days after the
Algue Inc received the CIRs notice of assessment. Algue Inc filed
its letter of protest. However, such protest court could not be
located in the office of the CIR. It was only after Atty. Guevara
gave the BIR a copy of the protest where it was considered by the
tax authorities. During the intervening period, the warrant was
36
premature and could therefore not be served. As the Court of Tax

Appeals correctly noted, the protest filed by Algue Inc was based
on strong legal considerations. It thus had the effect of suspending
on January 18, 1965, when it was filed, the reglementary period
which started on the date the assessment was received on
January 14, 1965. The period started running again only on April
7, 1965, when the Algue Inc was definitely informed of the implied
rejection of the said protest and the warrant was finally served on
it. Hence, when the appeal was filed on April 23, 1965 which is
only 20 days of the reglementary period had been consumed.
CASE # __: FLORES
CHAVEZ v ONGPIN
The petition seeks to declare the unconstitutional Executive Order

No. 73 which providies for the collction of real property taxes
based on the 1984 real property values.
The petitioner, Francisco I. Chavez, is a taxpayer and an owner of
three parcels of land. He alleging mainly that it will bring
unreasonable increase in real property taxes.
1. that Executive Order No. 73 accelerated the application of
the general revision of assessments to January 1, 1987
thereby mandating an excessive increase in real property
taxes by 100% to 400% on improvements, and up to 100%
on land;
DOCTRINE: Fiscal adequacy, which is one of the characteristics

of a sound tax system, requires that sources of revenues must be
adequate to meet government expenditures and their variations.
2. that any increase in the value of real property brought

about by the revision of real property values and
assessments would necessarily lead to a proportionate
increase in real property taxes;
FACTS: Section 21 of Presidential Decree No. 464 provides that

every five years starting calendar year 1978, there shall be a
provincial or city general revision of real property assessments.
The revised assessment shall be the basis for the computation of
real property taxes for the five succeeding years.
3. that sheer oppression is the result of increasing real

property taxes at a period of time when harsh economic
conditions prevail; and
4. that the increase in the market values of real property as
reflected in the schedule of values was brought about only
by inflation and economic recession.
On the strength of the aforementioned law, the general revision of

assessments was completed in 1984. However, Executive Order
No. 1019 was issued, which deferred the collection of real
property taxes based on the 1984 values to January 1, 1988
instead of January 1, 1985.
The intervenor Realty Owners Association of the Philippines, Inc.

(ROAP), joins Chavez in his petition additionally alleges the
following:
On November 25, 1986, President Corazon Aquino issued

Executive order No. 73. It states that beginning January 1, 1987,
the 1984 assessments shall be the basis of the real property
collection. Thus, it effectively repealed Executive Order No. 1019.
1. It is unconstitutional because it imposes an additional

(1%) tax on all property owners to raise funds for
education, as real property tax is admittedly a local tax for
local governments;
37
CASE 29: SEMILLA

2. that the General Revision of Assessments does not meet
the requirements of due process as regards publication,
notice of hearing, opportunity to be heard and insofar as it
authorizes "replacement cost" of buildings
3. that the Joint Local Assessment/Treasury Regulations No.
2-86 2 is even more oppressive and unconstitutional as it
imposes successive increase of 150% over the 1986 tax.
ISSUE: WON Executive Order no. 73 imposes unreasonable
increase in real property taxes, thus, should be declared
unconstitutional.
RULING: NO. The attack on Executive Order No. 73 has no legal
basis as the general revision of assessments is a continuing
process mandated by Section 21 of Presidential Decree No. 464.
If at all, it is Presidential Decree No. 464 which should be
challenged as constitutionally infirm. However, Chavez failed to
raise any objection against said decree.
Without Executive Order No. 73, the basis for collection of real
property taxes will still be the 1978 revision of property values.
Certainly, to continue collecting real property taxes based on
valuations arrived at several years ago, in disregard of the
increases in the value of real properties that have occurred since
then, is not in consonance with a sound tax system. Fiscal
adequacy, which is one of the characteristics of a sound tax
system, requires that sources of revenues must be adequate to
meet government expenditures and their variations.
CASE 28: AGUILAR
PHILIPPINE GUARANTY CO. INC. v CIR
NPC v CABANATUAN
DOCTRINE: A principal attribute of sovereignty, the exercise of
taxing power derives its source from the very existence of the
state whose social contract with its citizens obliges it to promote
public interest and common good. The theory behind the exercise
of the power to tax emanates from necessity; without taxes,
government cannot fulfill its mandate of promoting the general
welfare and well-being of the people.
FACTS:
- NAPOCOR, the petitioner, is a government-owned and
controlled corporation created under Commonwealth Act
120. It is tasked to undertake the development of
hydroelectric generations of power and the production of
electricity from nuclear, geothermal, and other sources, as
well as, the transmission of electric power on a nationwide
basis.
- For many years now, NAPOCOR sells electric power to the
resident Cabanatuan City, with a gross income of
P107,814,187.96 in 1992. Pursuant to Sec. 37 of
Ordinance No. 165-92, the respondent assessed the
petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the formers gross receipts for
the preceding year.
- Petitioner, whose capital stock was subscribed and wholly
paid by the Philippine Government, refused to pay the tax
assessment. It argued that the respondent has no authority
to impose tax on government entities. Petitioner also
contend that as a non-profit organization, it is exempted
from the payment of all forms of taxes, charges, duties or
fees in accordance with Sec. 13 of RA 6395, as amended.
- The respondent filed a collection suit in the RTC of
Cabanatuan City, demanding that petitioner pay the
38
assessed tax, plus surcharge equivalent to 25% of the

amount of tax and 2% monthly interest. Respondent
alleged that petitioners exemption from local taxes has
been repealed by Sec. 193 of RA 7160 of the LGC.
The trial court issued an order dismissing the case.
CA reversed the decision of the RTC and ordered the
petitioner to pay the city government the tax assessment.
ISSUES:
1. WON NAPOCOR is excluded from the coverage of the
franchise tax simply because its stocks are wholly owned
by the National Government and its charter characterized
is as a non-profit organization?
2. WON NAPOCORs exemption from all forms of taxes
repealed by the provisions of the LGC?
RULING:
1. NO. To stress, a franchise tax is imposed based not on the
ownership but on the exercise by the corporation of a
privilege to do business. The taxable entity is the
corporation which exercises the franchise, and not the
individual stockholders. By virtue of its charter, petitioner
was created as a separate and distinct entity from the
National Government. It can sue and be sued under its
own name, and can exercise all the powers of a
corporation under the Corporation Code. The ownership by
the National Government of its entire capital stock does not
necessarily imply that petitioner is no engaged in business.
Requisites to determine whether the petitioner is covered
by the franchise tax
a. that petitioner has a "franchise" in the sense of a
secondary or special franchise;
b. that it is exercising its rights or privileges under this
franchise within the territory of the respondent city
government.
2. YES. One of the most significant provisions of the LGC is

the removal of the blanket exclusion of instrumentalities
and agencies of the National Government from the
coverage of local taxation. Although as a general rule,
LGUs cannot impose taxes, fees, or charges of any kind
on the National Government, its agencies and
instrumentalities, this rule now admits an exception, i.e.
when specific provisions of the LGC authorize the LGUs to
impose taxes, fees, or charges on the aforementioned
entities. The legislative purpose to withdraw tax privileges
enjoyed under existing laws or charter is clearly manifested
by the language used on Sec. 137 and 193 categorically
withdrawing such exemption subject only to the exceptions
enumerated. Since it would be tedious and impractical to
attempt to enumerate all the existing statutes providing for
special tax exemptions or privileges, the LGC provided for
an express, albeit general, withdrawal of such exemptions
or privileges. No more unequivocal language could have
been used.
Sec. 137. Franchise Tax. - Notwithstanding any exemption
granted by any law or other special law, the province may impose
a tax on businesses enjoying a franchise, at a rate not exceeding
fifty percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction.
Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.
39
Sections 137 and 193 of the LGC, the local government unit may
now impose a local tax at a rate not exceeding 50% of 1% of the
gross annual receipts for the preceding calendar based on the
incoming receipts realized within its territorial jurisdiction.
CASE 30: CADA
(a) WON the inheritance tax accrues at the time of testators death
(b) WON the inheritance tax be computed on the basis of the
value of the estate at the time of the testator's death
(c) WON it is proper to deduct the compensation due to trustees
(d) WON Act No. 3606 is applicable in this case
(e) WON there has been deliquency in the payment of the
inheritance tax
PABLO LORENZO v. JUAN POSADAS, JR.

DOCTRINE:A transmission by inheritance is taxable at the time of
the predecessor's death, notwithstanding the postponement of the
actual possession or enjoyment of the estate by the beneficiary.
The mere fact that the estate of the deceased was placed in trust
did not remove it from the operation of our inheritance tax laws or
exempt it from the payment of the inheritance tax.
FACTS: During the incumbency of the Pablo Lorenzo as trustee of
the estate of Thomas Hanley, Juan Posadas, Jr., then the
Collector of Internal Revenue, alleged that the estate left by the
deceased at the time of his death consisted of realty valued at
P27,920 and personalty valued at P1,465, and allowing a
deduction of P480.81, assessed against the estate an inheritance
tax in the amount of P1,434.24 which, together with the penalties
for deliquency in payment consisting of a 1 per cent monthly
interest from July 1, 1931 to the date of payment and a surcharge
of 25 per cent on the tax, amounted to P2,052.74. Posadas filed a
motion in the testamentary proceedings pending before the CFI
Zamboanga (Special proceedings No. 302) praying that the
trustee, be ordered to pay to the Government the said sum of
P2,052.74. The motion was granted. Lorenzo paid said amount
under protest. Lorenzo brought this action in the CFI Zamboanga
against Posadas for the refund of the amount of P2,052.74. CFI
Zamboanga dismissed the complaint, both parties appealed to this
court.
ISSUES:
HELD:
(a) YES. The accrual of the inheritance tax is upon transmission or
the transfer or devolution of property of a decedent, made
effective by his death. Thomas Hanley having died on May 27,
1922, the inheritance tax accrued as of the date. According to
article 657 of the Civil Code, "the rights to the succession of a
person are transmitted from the moment of his death."
(b) YES. A transmission by inheritance is taxable at the time of
the predecessor's death, notwithstanding the postponement of the
actual possession or enjoyment of the estate by the beneficiary.
SEC. 1544. When tax to be paid. The tax fixed in this article
shall be paid:
(a) In the second and third cases of the next preceding section,
before entrance into possession of the property.
(b) In other cases, within the six months subsequent to the death
of the predecessor; but if judicial testamentary or intestate
proceedings shall be instituted prior to the expiration of said
period, the payment shall be made by the executor or
administrator before delivering to each beneficiary his share.
If the tax is not paid within the time hereinbefore prescribed,
interest at the rate of twelve per centum per annum shall be added
as part of the tax; and to the tax and interest due and unpaid
within ten days after the date of notice and demand thereof by the
collector, there shall be further added a surcharge of twenty-five
per centum.
40
A certified of all letters testamentary or of admisitration shall be

furnished the Collector of Internal Revenue by the Clerk of Court
within thirty days after their issuance.
The instant case does fall under subsection (a), but under
subsection (b), of section 1544 above-quoted, as there is here no
fiduciary heirs, first heirs, legatee or donee. Under the subsection,
the tax should have been paid before the delivery of the properties
in question to P. J. M. Moore as trustee on March 10, 1924.
(c) NO. In the case at bar, the defendant and the trial court
allowed a deduction of only P480.81. This sum represents the
expenses and disbursements of the executors until March 10,
1924, among which were their fees and the proven debts of the
deceased.
There is no statute in the Philippines which requires trustees'
commissions to be deducted in determining the net value of the
estate subject to inheritance tax. No sound reason is given to
support the contention that such expenses should be taken into
consideration in fixing the value of the estate for the purpose of
this tax.
(d) NO. It is well-settled that inheritance taxation is governed by
the statute in force at the time of the death of the decedent. The
defendant Collector of Internal Revenue maintains that certain
provisions of Act No. 3606 are more favorable to the taxpayer than
those of Act No. 3031, that said provisions are penal in nature
and, therefore, should operate retroactively in conformity with the
provisions of article 22 of the Revised Penal Code. Article 22 of
the Revised Penal Code is not applicable to the case at bar, and
in the absence of clear legislative intent, we cannot give Act No.
3606 a retroactive effect.
(e) YES. The mere fact that the estate of the deceased was
placed in trust did not remove it from the operation of our
inheritance tax laws or exempt it from the payment of the

inheritance tax. The delinquency in payment occurred on March
10, 1924, the date when Moore became trustee. The interest due
should be computed from that date.
Demand was made by the Deputy Collector of Internal Revenue
upon Moore in a communication dated October 16, 1931 (Exhibit
29). The date fixed for the payment of the tax and interest was
November 30, 1931. November 30 being an official holiday, the
tenth day fell on December 1, 1931. As the tax and interest due
were not paid on that date, the estate became liable for the
payment of the surcharge.
DISPOSITIVE: The judgment of the lower court is accordingly
modified, with costs against the plaintiff in both instances. plaintiff
is liable only in the sum of P1,191.27 the amount stated in the
counterclaim.
CASE 31: PASCUAL
PROCTOR & GAMBLE PHIL. MFG. CORP. VS.
MUNICIPALITY OF JAGNA, PROVINCE OF BOHOL
THE
DOCTRINE: For double taxation to exist, the same property must

be taxed twice, when it should be taxed but once. Double taxation
has also been defined as taxing the same person twice by the
same jurisdiction for the same thing.
FACTS:
1. Proctor & Gamble is engaged in the manufacture of soap,
edible oil, margarine and other similar products, and for this
purpose maintains a bodega in defendant Municipality where it
stores copra purchased in the same and therefrom ships them
for its manufacturing and other operations.
2. The Municipal Council of Jagna enacted Municipal Ordinance
No. 4, Series of 1957, which required the payment to the
41
Municipal Treasury a storage fee of 10 centavos for every 100

kilos of deposit of exportable copra in the bodega within the
jurisdiction of the Municpality of Jagna.
3. For a period of 6 years, plaintiff paid defendant Municipality,
allegedly under protest, storage fees in the total sum of
P42,265.13.
4. Plaintiff filed a suit in the CFI of Manila praying that the said
ordinance be declared inapplicable to it or that the same be
declared void for being ultra vires, and that the defendant
Municipality be ordered to refund to it the sum it had already
paid.
5. It is plaintiffs submission that the subject Ordinance is
inapplicable to it because it is not engaged in the business of
buying or selling of copra but is only storing the same in
connection with its business of manufacturing, and that to
compel it to pay the said storage fee would amount to double
taxation.
Note: The Ordinance does not state that said persons, firms or
corporations should be engaged in the business of buying or
selling copra.
ISSUE: WON there is double taxation in this case.
FACTS: Veronica Sanchez (plaintiff-appellant) is the owner of a

two-story, four-door accessoria building which she constructed in
1947. The building and land has a total assessed value of
P29,540. Sanchez lives in one of the apartments and is renting the
rest to other persons, from which, in 1949, she derived an income
of P7,540. Sanchez also runs a small dry goods store in Pasay
market, from which she derives an annual income of about
P1,300. In the early part of 1951, the Collector of Internal Revenue
(defendant-appellee) made demand upon Sanchez for the
payment of P163.51 as income tax for the year 1950, and P637 as
real estate dealers tax for the year 1946-1950, plus the sum of
P50 as compromise. Sanchez paid the taxes under protest and
subsequently filed an action with the Court of First Instance of
Manila, on Oct. 16, 1951, against the CIR for the refund of the
taxes paid, claiming that she is not a real estate dealer. Sanchez
further argues that she is already paying real estate taxes on her
property, as well as income tax on the income derived from such
property, so that to further subject its rentals to the real estate
RULING: NO. Plaintiffs payment of storage fees imposed by the

Ordinance does not amount to double taxation. The said storage
fee is an imposition on the privilege of storing copra in a bodega
within the defendant municipality by persons, firms or
corporations; a municipal license tax or fee which refers to
revenue-raising extractions on privileges or activities.
For double taxation to exist, the same property must be taxed
twice, when it should be taxed but once. Double taxation has also
been defined as taxing the same person twice by the same
jurisdiction for the same thing. A tax on plaintiffs products is
different from a tax on the privilege of storing copra in a bodega
situated within the territorial boundary of defendant municipality.
DISPOSITIVE: Validity of Ordiance No. 4, Series of 1957, of

defendant Municipality is sustained.
CASE 32: AGBISIT
SANCHEZ V. CIR
DOCTRINE: It is a well settled rule that license tax may be levied
upon a business or occupation although the land or property used
there in is subject to property tax, and that the state may collect
an ad valorem tax on property used in a calling, and at the same
time impose a license tax on the pursuit of that calling, the
imposition of the latter kind being in no sense a double tax.
42
dealers tax amounts to double taxation. The lower court ruled that
Sanchez is a real estate dealer.
ISSUE: Whether or not the imposition of the real estate dealers
tax in addition to real estate tax and income tax constitutes double
taxation?
RULING: NO. It is a well settled rule that license tax may be
levied upon a business or occupation although the land or
property used there in is subject to property tax, and that the
state may collect an ad valorem tax on property used in a calling,
and at the same time impose a license tax on the pursuit of that
calling, the imposition of the latter kind being in no sense a
double tax.
DISPOSITIVE: CIR won. However, the amount of real estate
dealers tax from 1946-1950 was reduced since the property in
question was constructed only in 1947.
municipal occupation tax on persons exercising various

professions in the city not exceeding Php50 per annum and
penalizes non-payment of the tax in addition occupation tax under
the National Internal Revenue Code. The Ordinance was
approved by the municipal board of the City of Manila on July 25,
1950. After the said professionals paid their occupation tax under
Section 201 of the National Internal Revenue Code, they paid the
tax in the said ordinance under protest and sought to refund the
same in this case. The Court of First Instance upheld the validity
of law authorizing it but nullified the ordinance because penalty in
the said ordinance has no legal basis.
ISSUE: WON the ordinance and law authorizing it constitute class
legislation, and authorize what amounts to double taxation.
DOCTRINE: Double taxation may not be invoked where one tax is

imposed by the state and the other is imposed by the city, it being
widely recognized that there is nothing inherently obnoxious in the
requirement that license fees or taxes be exacted with respect to
the same occupation, calling or activity by both the state and the
political subdivisions thereof.
RULING: YES. The Supreme Court ruled that the Legislature

may, in its discretion, select what occupations shall be taxed, and
in its discretion may tax all, or select classes of occupation for
taxation, and leave others untaxed. It is not for the courts to judge
which cities or municipalities should be empowered to
impose occupation taxes aside from that imposed by the National
Government. That matter is within the domain of political
departments. The argument against double taxation may not be
invoked if one tax is imposed by the state and the other is
imposed by the city. It is widely recognized that there is nothing
inherently terrible in the requirement that taxes be exacted with
respect to the same occupation by both the state and the
political subdivisions thereof. Judgment of the lower court is
reversed with regards to the ordinance and affirmed as to the law
authorizing it.
FACTS:
This case was filed in the CFI of Manila by two lawyers, a medical
practitioner, a CPA, a dental surgeon and a pharmacist. They filed
this case in their and other professional's behalf. They aim to
nullify Ordinance No. 3398 of City of Manila which imposes a
DISSENTING: Former Chief Justice Paras opined that the

payment of occupation tax under the National Internal Revenue
Code and thereby duly licensed to practice their respective
professions throughout the Philippines and yet required to pay
another occupation tax under Ordinance No. 3398 for practicing in

PUNSALAN, ET AL. V MUNICIPAL BOARD OF MANILA, ET
AL.
43
the City of Manila is a glaring example of contradiction. The

license granted by the National Government is in effect withdrawn
by the City in case of non-payment of the tax under the ordinance.
The position of the Former Chief Justice is that a professional who
has paid the occupation tax under the NIRC should be allowed to
practice in Manila even without paying the similar tax imposed by
Ordinance No. 3398. The City cannot give what said professional
already has. The Former Chief Justice did not go so far as to say
the ordinance is invalid; but that only on tax, either under the
Internal Revenue Code or under Ordinance No. 3398, should be
imposed upon a practitioner in Manila.
CASE 34: REYES
COMMISSIONER OF INTERNAL REVENUE VS JOHNSON AND
SONS, INC.
FACTS: Respondent, Johnson and Sons, INC., entered into a
license agreement with SC Johnson and Son, United States of
America (USA), a non-resident foreign corporation based in the
U.S.A. pursuant to which Johnson and Sons, INC. was granted
the right to use the trademark, patents and technology owned by
the latter including the right to manufacture, package and
distribute the products covered by the Agreement and secure
assistance in management, marketing and production from SC
Johnson and Son, U. S. A. The said License Agreement was duly
registered with the Technology Transfer Board of the Bureau of
Patents, Trade Marks and Technology Transfer under Certificate
of Registration.
For the use of the trademark or technology, Johnson and Sons,
INC. was obliged to pay SC Johnson and Son, USA royalties
based on a percentage of net sales and subjected the same to
25% withholding tax on royalty payments which Johnson and
Sons, INC. paid for the period covering July 1992 to May 1993 in
the total amount of P1,603,443.00
On October 29, 1993, Johnson and Sons, INC. filed with the
International Tax Affairs Division (ITAD) of the BIR a claim for
refund of overpaid withholding tax on royalties arguing that, since
the agreement was approved by the Technology Transfer Board,
the preferential tax rate of 10% should apply to the Johnson and
Sons, INC.
Johnson and Sons, INC. submit that royalties paid by the Johnson
and Sons, INC. to SC Johnson and Son, USA is only subject to
10% withholding tax pursuant to the most-favored nation clause of
the RP-US Tax Treaty in relation to the RP-West Germany Tax
Treaty. Thus, Johnson and Sons, INC. claim for the refund
of P963,266.00
The internal Tax affairs ruled against Johnson and Sons, INC.The
CTA ruled against CIR, CIR appealed to the CA and CA affirmed
in toto the devision of CTA
ISSUE: WON Johnson and Sons, USA is entitled to the most
favored nation tax rate of 10% on royalties as provided in the RPus treaty in relation to the re-west Germany tax treaty
HELD: NO. the concessional tax rate of 10 percent provided for in
the RP-Germany Tax Treaty should apply only if the taxes
imposed upon royalties in the RP-US Tax Treaty and in the RPGermany Tax Treaty are paid under similar circumstances. This
would mean that private respondent must prove that the RP-US
Tax Treaty grants similar tax reliefs to residents of the United
States in respect of the taxes imposable upon royalties earned
from sources within the Philippines as those allowed to their
German counterparts under the RP-Germany Tax Treaty.
The RP-US and the RP-West Germany Tax Treaties do not
contain similar provisions on tax crediting. RP-Germany Tax
Treaty expressly allows crediting against German income and
corporation tax of 20% of the gross amount of royalties paid under
the law of the Philippines. On the other hand, RP-US Tax Treaty,
44
which is the counterpart provision with respect to relief for double

taxation, does not provide for similar crediting of 20% of the gross
amount of royalties paid.
Important part for the topic of modes of eliminating double
taxation
In order to eliminate double taxation, a tax treaty resorts to several
methods.
First, it sets out the respective rights to tax of the state of source
or situs and of the state of residence with regard to certain classes
of income or capital. In some cases, an exclusive right to tax is
conferred on one of the contracting states; however, for other
items of income or capital, both states are given the right to tax,
although the amount of tax that may be imposed by the state of
source is limited.
The second method for the elimination of double taxation applies
whenever the state of source is given a full or limited right to tax
together with the state of residence. In this case, the treaties
make it incumbent upon the state of residence to allow relief in
order to avoid double taxation
There are two methods of relief, under the second mode- the
exemption method and the credit method.
In the exemption method, the income or capital which is taxable in
the state of source or situs is exempted in the state of residence,
although in some instances it may be taken into account in
determining the rate of tax applicable to the taxpayers remaining
income or capital.
On the other hand, in the credit method, although the income or
capital which is taxed in the state of source is still taxable in the
state of residence, the tax paid in the former is credited against
the tax levied in the latter. The basic difference between the two
methods is that in the exemption method, the focus is on the
income or capital itself, whereas the credit method focuses upon
the tax
CASE 36: CARILLO

ERICSON TELECOMMUNICATIONS, INC. VS. CITY OF PASIG
DOCTRINE: The imposition of local business tax based on the
taxpayers gross revenue will inevitably result in double taxation
taxing of the same person twice by the same jurisdiction for the
same thing in as much as the taxpayers revenue or inome for a
taxable year will definitely include its gross receipts already
reported during the previous year and for which local business tax
has already been paid.
FACTS: Ericsson was assessed by Pasig with a tax deficiency
based on its gross revenues. Ericsson contended that it should be
based on gross receipts and not on gross revenues. Pasig denied
the protest. Hence, Ericsson filed this case. The RTC declared
Pasig in default due to its failure to include a notice of hearing in
its motion to dismiss. Hence, Ericson was allowed to present
evidence. On appeal, the CA dismissed Ericsons complaint. It
sustained Pasigs claim that the petition file with the RTC should
have been dismissed due to Ericsons failure to show that their
manager for Tax and Legal Affairs and the person who signed the
Verification and Certification for non forum shopping, was duly
authorized by the Board of Directors.
ISSUE: WON the local business tax, as imposed by the City of
Pasig Revenue Code and the Local Government Code of 1991,
should be based on gross revenue.
HELD: NO. The imposition of local business tax based on the
taxpayers gross revenue will inevitably result in double taxation
taxing of the same person twice by the same jurisdiction for the
same thing in as much as the taxpayers revenue or income for
a taxable year will definitely include its gross receipts already
reported during the previous year and for which local business tax
45
has already been paid. Thus, the City of Pasig committed a

palpable error when it assessed Ericsons local business tax on its
gross revenue. The Pasig City Revenue Code and the Local
Government Code provides that it should be computed based on
gross receipts.
DISPOSITIVE: Ericson won.
CASE 37: MARASIGAN
DIAZ V. SECRETARY OF FINANCE
DOCTRINE A tax is imposed under the taxing power of the
government principally for the purpose of raising revenues to fund
public expenditures. Toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs and
expenses incurred in the construction, maintenance and operation
of the tollways, as well as to assure them a reasonable margin of
income. Although toll fees are charged for the use of public
facilities, therefore, they are not government exactions that can be
properly treated as a tax. Taxes may be imposed only by the
government under its sovereign authority, toll fees may be
demanded by either the government or private individuals or
entities, as an attribute of ownership.
FACTS:
1. Petitioners Renato V. Diaz and Aurora Ma. F. Timbol
(petitioners) filed this petition for declaratory relief assailing the
validity of the impending imposition of value-added tax (VAT)
by the Bureau of Internal Revenue (BIR) on the collections of
tollway operators.
2. They argue that they have an interest thereto as users of the
tollways. Petitioners allege that the imposition of VAT on
tollways has long been planned during the Arroyo
administration and that the Aquino administration had revived
the idea unless prohibited judicially. Petitioners further argue
that in enacting the NIRC or National Internal Revenue Code,

the Congress did not intend to include toll fees within the
meaning of sale of services that are subject to VAT and that
a toll fee is a users tax.
3. The Court then issued a TRO enjoining the implementation of
the VAT. The OSG filed the governments comment in which it
avers that the NIRC imposes VAT on all kinds of services of
franchise grantees, including tollway operations, except where
the law provides otherwise. Moreover, that the tollway
operations has been the subject as early as 2003 of BIR
rulings and circulars.
4. The government also contends that the non-inclusion of VAT
in the formula for computing toll rates cannot exempt tollway
operators from VAT and that the imposition of such would
have
very
little
effect
on
motorists
using
the
tollways.Petitioners on the other hand, point out that tollway
operators cannot be regarded as franchise grantees under the
NIRC since they do not hold legislative franchises.
ISSUE: WON the imposition of VAT on tollway operators amounts
to a tax on tax and not a tax on services.
RULING: NO. Tollway fees are not taxes. Indeed, they are not
assessed and collected by the BIR and do not go to the general
coffers of the government. What the government seeks to tax here
are fees collected from tollways that are constructed, maintained,
and operated by private tollway operators at their own expense
under the build, operate, and transfer scheme that the government
has adopted for expressways. Fees paid by the public to tollway
operators for use of the tollways, are not taxes in any sense. A tax
is imposed under the taxing power of the government principally
for the purpose of raising revenues to fund public expenditures.
VAT on tollway operations cannot be deemed a tax on tax due to
the nature of VAT as an indirect tax. In indirect taxation, a
distinction is made between the liability for the tax and burden of
46
the tax. The seller who is liable for the VAT may shift or pass on
the amount of VAT it paid on goods, properties or services to the
buyer. In such a case, what is transferred is not the sellers liability
but merely the burden of the VAT. VAT on tollway operations is
not really a tax on the tollway user, but on the tollway operator.
Under Section 105 of the Code, VAT is imposed on any person
who, in the course of trade or business, sells or renders services
for a fee. In other words, the seller of services, who in this case is
the tollway operator, is the person liable for VAT. For this reason,
VAT on tollway operations cannot be a tax on tax even if toll fees
were deemed as a users tax. VAT is assessed against the
tollway operators gross receipts and not necessarily on the toll
fees. Although the tollway operator may shift the VAT burden to
the tollway user, it will not make the latter directly liable for the
VAT. The shifted VAT burden simply becomes part of the toll fees
that one has to pay in order to use the tollways.
CASE 35: DACARA
VILLANUEVA V. CITY OF ILOILO
DOCTRINE: Taxes are uniform and equal when imposed upon all
property of the same class or character within the taxing authority.
FACTS: The municipal board of Iloilo City enacted Ordinance 86,
imposing license tax fees as follows: (1) tenement house (casa de
vecindad), P25.00 annually; (2) tenement house, partly or wholly
engaged in or dedicated to business in the streets of J.M. Basa,
Iznart and Aldeguer, P24.00 per apartment; (3) tenement house,
partly or wholly engaged in business in any other streets, P12.00
per apartment. The validity and constitutionality of this ordinance
were challenged by the spouses Eusebio Villanueva and
Remedies Sian Villanueva, owners of four tenement houses
containing 34 apartments. The Supreme Court declared the
ordinance ultra vires, "it not appearing that the power to tax
owners of tenement houses is one among those clearly and

expressly granted to the City of Iloilo by its Charter."
On 15 January 1960, however, the municipal board, believing that
it acquired authority to enact an ordinance of the same nature
pursuant to the Local Autonomy Act, enacted Ordinance 11
(series of 1960).
The appellees Eusebio Villanueva and Remedios S. Villanueva
are owners of five tenement houses, aggregately containing 43
apartments, while the other appellees and the same Remedios S.
Villanueva are owners of ten apartments. By virtue of the
ordinance in question, the appellant City collected from spouses
Eusebio Villanueva and Remedios S. Villanueva, for the years
1960-1964, the sum of P5,824.30, and from the appellees Pio
Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for
the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva
has likewise been paying real estate taxes on his property.
The appellees filed a complaint praying that Ordinance 11, series
of 1960, be declared "invalid for being beyond the powers of the
Municipal Council of the City of Iloilo to enact, and unconstitutional
for being violative of the rule as to uniformity of taxation and for
depriving said plaintiffs of the equal protection clause of the
Constitution," and that the City be ordered to refund the amounts
collected from them under the said ordinance.
ISSUES:
1. WON the Ordinance 11 is illegal because it imposes double

taxation.
2. WON the City of Iloilo empowered by the Local Autonomy Act

to impose tenement taxes.
3. WON Ordinance 11 violated the rule of uniformity of taxation.
47
RULING:
1. NO. While it is true that the plaintiffs-appellees are taxable
under the aforesaid provisions of the National Internal
Revenue Code as real estate dealers, and still taxable under
the ordinance in question, the argument against double
taxation may not be invoked. The same tax may be imposed
by the national government as well as by the local
government. There is nothing inherently obnoxious in the
exaction of license fees or taxes with respect to the same
occupation, calling or activity by both the State and a political
subdivision thereof.
2. YES. The contention that the plaintiffs-appellees are doubly
taxed because they are paying the real estate taxes and the
tenement tax imposed by the ordinance in question, is also
devoid of merit. It is a well-settled rule that a license tax may
be levied upon a business or occupation although the land or
property used in connection therewith is subject to property
tax. The State may collect an ad valorem tax on property used
in a calling, and at the same time impose a license tax on that
calling, the imposition of the latter kind of tax being in no
sensea double tax.
3. NO. The Court held that tenement houses constitute a distinct
class of property. It has likewise ruled "taxes are uniform and
equal when imposed upon all property of the same class or
character within the taxing authority." The fact that the owners
of the other classes of buildings in Iloilo are not imposed upon
by the ordinance, or that tenement taxes are imposed in other
cities do not violate the rule of equality and uniformity. The rule
does not require that taxes for the same purpose should be
imposed in different territorial subdivisions at the same time.
So long as the burden of tax falls equally and impartially on all
owners or operators of tenement houses similarly classified or
situated, equality and uniformity is accomplished. The
presumption that tax statutes are intended to operate uniformly
and equally was not overthrown herein.

DISPOSITIVE: The judgment a quo is reversed, and, the
ordinance in question being valid, the complaint is hereby
dismissed.
CASE 38: MOLON
COMMISSSIONER OF INTERNAL REVENUE V. THE ESTATE
OF BENIGNO TODA
FACTS: On 2 March 1989, Cibeles Insurance Corporation (CIC)
authorized Benigno P. Toda, Jr., President and owner of 99.991%
of its issued and outstanding capital stock, to sell the Cibeles
Building and the two parcels of land on which the building stands
for an amount of not less than P90 million. On 30 August 1989,
Toda purportedly sold the property for P100 million to Rafael A.
Altonaga, who, in turn, sold the same property on the same day to
Royal Match Inc. (RMI) for P200 million. These two transactions
were evidenced by Deeds of Absolute Sale notarized on the same
day by the same notary public. For the sale of the property to
Royal Match Inc, Altonaga paid capital gains tax in the amount of
P10 million. On 16 April 1990, Cibeles Insurance Corporation filed
its corporate annual income tax return for the year 1989,
declaring, among other things, its gain from the sale of real
property in the amount of P75,728.021. After crediting withholding
taxes of P254,497.00, it paid P26,341,207 for its net taxable
income of P75,987,725. Benigno Toda sold his entire shares of
stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced
by a Deed of Sale of Shares of Stocks. Three and a half years
later, Benigno P.Toda died.
On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an
assessment notice and demand letter to the Cibeles Insurance
Corporation for deficiency income tax for the year 1989 in the
amount of P79,099,999.22. The new Cibeles Insurance
Corporation asked for a reconsideration, asserting that the
48
assessment should be directed against the old CIC, and not

against the new CIC, which is owned by an entirely different set of
stockholders. Moreover, Benigno Toda had undertaken to hold the
buyer of his stockholdings and the CIC free from all tax liabilities
for the fiscal years 1987-1989. The Court of Tax Appeals favored
the Estate of Toda on the gorunds that the Commissioner of
Internal revenue failed to prove the fraud.
ISSUE:
1. Whether the case at bar constitutes tax evasion or tax
avoidance?
2. Whether or not the period assessment of has prescribed?
3. Whether or not Benigno Toda is not liable on the ground
that the corporation has a separate legal personality?
HELD:
1. The Case at bar constitutes a tax evasion obtained through
fraud.
2. No, the period of assessment has not prescribed.
3. Yes, Benigno Toda is liable and the ground that the
corporation has separate legal personality cannot be
invoked.
RATIO:
1.
Tax avoidance and tax evasion are the two most common
ways used by taxpayers in escaping from taxation. Tax avoidance
is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms
length. Tax evasion, on the other hand, is a scheme used outside
of those lawful means and when availed of, it usually subjects the
taxpayer to further or additional civil or criminal liabilities.
Tax evasion connotes the integration of three factors:
1. the end to be achieved which is the
payment of less than that known by the
taxpayer to be legally due, or the non-
payment of tax when it is shown that a tax is

due;
2. It is evil, bad faith, willfull, deliberate and not
accidental.
3. The course of action or failure of action
which is unlawful.
All these factors are present in the instant case. It is
significant to note prior to the purported sale of the Cibeles
property by Cibeles Insurance Corporation to Altonaga. Cibeles
Insurance Corporation received P40 million from Royal Match Inc.
and not from Altonaga. The 40 million was debited by Royal
Match Inc and reflected in its trial balance as other investment
like the Cibeles Bldg. This would show that the real buyer of the
properties was Royal Match Inc and not the intermediary
Altonaga.
The two sales of the subject properties from Cibeles Insurance
Corporation to Altonaga and then from Altonaga to Royal Match
Inc cannot be considered a legitimate tax planning but it is tainted
with fraud. Fraud in its general sense, is deemed to comprise
anything calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust or
confidence justly reposed, resulting in the damage to another, or
by which an undue and unconscionable advantage is taken of
another.
It is obvious that the objective of the sale to Altonaga was to
reduce the amount of tax to be paid especially that the transfer
from him to Royal Match Inc would then subject the income to only
5% individual capital gains tax, and not the 35% corporate income
tax. Altonagas sole purpose of acquiring and transferring title of
the subject properties on the same day was to create a tax
shelter. Altonaga never controlled the property and did not enjoy
the normal benefits and burdens of ownership. The sale to him
was merely a tax ploy, a sham, and without business purpose and
economic substance.
49
Generally, a sale or exchange of assets will have an income tax

incidence only when it is consummated. The incidence of taxation
depends upon the substance of a transaction. The tax
consequences arising from gains from a sale of property are not
finally to be determined solely by the means employed to transfer
legal title. Rather, the transaction must be viewed as a whole, and
each step from the commencement of negotiations to the
consummation of the sale is relevant. A sale by one person cannot
be transformed for tax purposes into a sale by another by using
the latter as a conduit through which to pass title. To permit the
true nature of the transaction to be disguised by mere formalisms,
which exist solely to alter tax liabilities, would seriously impair the
effective administration of the tax policies of Congress. Therefore,
the sale to Altonaga should be disregarded for income tax
purposes. The two sale transactions should be treated as a single
direct sale by Cibeles Insurance Corporation to Royal Match Inc.
2.
Section 269 of the NIRC of 1986 (now Section 222 of the
Tax Reform Act of 1997) read:
Sec. 269. Exceptions as to period of limitation of
assessment and collection of taxes.-(a) In the case
of a false or fraudulent return with intent to evade
tax or of failure to file a return, the tax may be
assessed, or a proceeding in court after the
collection of such tax may be begun without
assessment, at any time within ten years after the
discovery of the falsity, fraud or omission: Provided,
That in a fraud assessment which has become final
and executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal action for
collection thereof
In cases of (1) fraudulent returns; (2) false returns with intent to
evade tax; and (3) failure to file a return, the period within which to
assess tax is ten years from discovery of the fraud, falsification or
omission. The case at bar is tainted with fraud. The prescriptive
period to assess the correct taxes in case of false returns is ten

years from the discovery of the falsity. The false return was filed
on 15 April 1990, and the falsity thereof was claimed to have been
discovered only on 8 March 1991.The assessment for the 1989
deficiency income tax of CIC was issued on 9 January
1995. Clearly, the issuance of the correct assessment for
deficiency income tax was well within the prescriptive period.
3.
As a general rule, a corporation has a juridical personality
distinct and separate from the persons owning or composing
it. The owners or stockholders of a corporation may not generally
be made to answer for the liabilities of a corporation and vice
versa. However, there certain exception:
a. He assents to the (a) patently unlawful act
of the corporation, (b) bad faith or gross
negligence in directing its affairs, or (c)
conflict of interest, resulting in damages to
the corporation, its stockholders, or other
persons;
b. He consents to the issuance of watered
down stocks or, having knowledge thereof,
does not forthwith file with the corporate
secretary his written objection thereto;
c. He agrees to hold himself personally and
solidarily liable with the corporation; or
d. He is made, by specific provision of law, to
personally answer for his corporate action.
When the late Toda undertook and agreed to hold the BUYER
and Cibeles free from any all income tax liabilities of Cibeles for
the fiscal years 1987, 1988, and 1989, he thereby voluntarily held
himself personally liable therefor. The Estate of Benigno Toda
cannot deny liability for Cibeles Insurance Corporations deficiency
income tax for the year 1989 by invoking the separate corporate
personality of CIC, since its obligation arose from Todas
contractual undertaking, as contained in the Deed of Sale of
Shares of Stock.
50
CASE 39: VILLANUEVA

REPUBLIC VS GONZALES
DOCTRINE: The substantial undeclaration of income in the
income tax returns of the appellant for four consecutive years,
coupled with his intentional overstatement of deductions made the
imposition of the fraud penalty proper.
FACTS: Since 1946, the defendant-appellant, Blas Gonzales, has
been a private concessionaire in the U.S. Military Base at Clark
Field, Angeles City: He was engaged in the manufacture of
furniture and, per agreement with base authorities, supplied them
with his manufactured articles. On March 1, 1947 and March 1,
1948, the appellant filed his income tax returns for the years 1946
and 1947, respectively, with the then Municipal Treasurer of
Angeles, Pampanga. In the return for 1946, he declared a net
income of P9,352.84 and income tax liability of P111.17 while for
the year 1947, he declared as net income the amount of
P16,829.10 and a tax liability therefor in the sum of P1,395.95. In
the above two returns, he declared the sums of P80,459.75 and
P1,707,355.57 as his total sales for the said two years,
respectively, or an aggregate sales of P1,787,848.32 for both
years. Upon investigation, however, the Bureau of Internal
Revenue discovered that for the years 1946 and 1947, the
appellant had been paid a total of P2,199,920.50 for furniture
delivered by him to the base authorities. The appellant do not
deny the above amount which, for the record, was furnished by
the Purchasing Officer of the Clark Field Air Base on the Bureau of
Internal Revenue's representation.
Compared against the sales figure provided by the base
authorities, therefore, the amount of P1,787,848.32 declared by
the appellant as his total sales for the two tax years in question
was short or underdeclared by some P412,072.18. Accordingly,
the appellee considered this last mentioned amount as unreported
item of income of the appellant for 1946. Further investigation into

the appellant's 1946 profit and loss statement disclosed "local
sales," that is, sales to persons other than the United States Army,
in the amount of P124,510.43. As a result, the appellee likewise
considered the said amount as unreported income for the said
year. The full amount of P124,510.43 was considered as taxable
income because the appellant could not produce the books of
account on the same upon which any deduction could be based.
On November 14, 1953, the Bureau of Internal Revenue sent a
letter of demand to the appellant for the above amount as
deficiency income tax, the sum of P300.00 as compromise for his
failure to keep the required journal and ledger, and finally, the sum
of P153.75 as additional residence tax, all for the year 1946. On
March 31, 1954, on request of the appellant, the Bureau of
Internal Revenue reinvestigated the case. At the end of this new
inquest, however, the appellee, thru, the then Collector of Internal
Revenue, insisted on the payment of the original assessment of
P340,179.84. It suggested, though, that if the appellant disagreed
with the said finding he could submit the same for study, review
and decision by the Conference Staff of the Bureau of Internal
Revenue. In due time, the above assessment was heard before
the said body which, subsequently, recommended a reduction of
the same to P249,289.26, as deficiency income tax for the year
1946. After the recommendation was approved by the Bureau, the
corresponding assessment notice for the sum of P249,289.26 as
deficiency income tax and 50% surcharge for the year 1946 and
1% monthly interest and penalty incident to delinquency was
forthwith issued to the appellant.
On May 21, 1957, the above assessment was further revised by
segregating the appellant's tax liability for the two years in
question. Pursuant to a memorandum of the BIR Regional Director
of San Fernando, Pampanga, another demand was made upon
the appellant for the payment of P106,226.75 and P37,849.58 as
51
income taxes due from him for the years 1946 and 1947,
respectively, or a total of P144,076.33.
When the appellant failed to pay the above demand, the appellee
instituted the present suit on April 7, 1960. The appellant filed his
answer on July 7, 1960 and amended it on July 19, 1960.
ISSUE: WON there was a failure on the part of the taxpayer to

declare his true and actual income
RULING: Yes. As rightly argued by the Solicitor General's office,
since fraud is a state of mind, it need not be proved by direct
evidence but may be inferred from the circumstances of the case.
The failure of the appellant to declare for taxation purposes his
true and actual income derived from his furniture business at the
Clark Field Air Base for two consecutive years is an indication of
his fraudulent intent to cheat the Government of its due taxes.
DISPOSITIVE: IN VIEW OF ALL THE FOREGOING, judgment is
hereby rendered affirming in full the decision here appealed from,
with costs against the defendant-appellant.
CASE 40: CACHAPERO
DELPHER
TRADES
CORPORATION,
and
DELPHIN
PACHECO vs. IAC and HYDRO PIPES PHILIPPINES, INC.
G.R. No. L-69259 January 26, 1988
Doctrine in Taxation
DOCTRINE: "The legal right of a taxpayer to decrease the amount
of what otherwise could be his taxes or altogether avoid them, by
means which the law permits, cannot be doubted."
Parties:
Petitioners - petitioner Pachecos (lessor) and Delpher Trades

Corporation (defendant)
Lessee - Construction Components International Inc. (lessee)
Private respondent Hydro Pipes Philippines, Inc. (assignee)
FACTS: Delfin Pacheco and his sister, Pelagia Pacheco, were the
owners of 27,169 sq. m. of real estate in Valenzuela. Said coowners leased to Construction Components International Inc.
(CCII) the same property and providing that during the existence
or after the term of this lease, should the lessors decide to sell the
property leased, it shall first be offered to the lessee who has the
priority to buy the lot.
Lessee CCII assigned its rights and obligations under the contract
of lease in favor of Hydro Pipes Philippines, Inc. with the signed
conformity and consent of lessors.
A deed of exchange was executed between the lessors and
defendant Delpher Trades Corporation whereby the former
conveyed to the latter the leased property together with another
parcel of land for 2,500 shares of stock of defendant corporation
with a total value of P1.5M.
On the ground that it was not given the first option to buy the
leased property pursuant to the proviso in the lease agreement,
respondent Hydro Pipes Philippines, Inc., filed an amended
complaint for reconveyance of the lot in its favour.
Petitioners alleged:
there was actually no transfer of ownership of the subject
parcel of land since the Pachecos remained in control of
the property.
maintain that the Pachecos did not sell the property. They
argue that there was no sale and that they exchanged the
land for shares of stocks in their own corporation. There is
a sale when ownership is transferred for a price certain in
52
money or its equivalent while there is a barter or exchange

when one thing is given in consideration of another thing.
Private respondent Hydro Pipes argues:
maintains that there was actual transfer of ownership
interests over the leased property when the same was
transferred to Delpher Trades Corporation in exchange for
the latter's shares of stock.
Hydro Pipes contended that the deed of exchange was

actually a deed of sale which prejudiced Hydro Pipes right
of first refusal over the leased property included in the
"deed of exchange."
RTC: declared the valid existence of the Hydro Pipes
preferential right to acquire the subject property (right of
first refusal) and ordering the defendants and all persons
deriving rights therefrom to convey the said property to
plaintiff who may offer to acquire the same at the rate of
P14.00 per square meter, more or less, for Lot 1095 whose
area is 27,169 square meters only.
IAC: affirmed the lower court's decision.
Delpher Trades filed a petition for certiorari to review the
appellate court's decision because it allowed Hydro Pipes
to exercise its right of first refusal even if there is no "sale"
or transfer of actual ownership interests by petitioners to
third parties..
We initially denied the petition but upon motion for
reconsideration, we set aside the resolution denying the
petition and gave it due course.
ISSUE: WON the "Deed of Exchange" was meant to be a contract

of sale. NO.
Eduardo Neria, a certified public accountant and son-in-law of the
late Pelagia Pacheco testified that Delpher Trades Corporation is
a family corporation; that the corporation was organized by the
children of the two spouses who owned in common the parcel of

land leased to Hydro Pipes in order to perpetuate their control
over the property through the corporation and to avoid taxes; that
in order to accomplish this end, two pieces of real estate, including
the subject lot, which had been leased to Hydro Pipes, were
transferred to the corporation; that the leased property was
transferred to the corporation by virtue of a deed of exchange of
property; that in exchange for these properties, Pelagia and Delfin
acquired 2,500 unissued no par value shares of stock which are
equivalent to a 55% majority in the corporation; and that at the
time of incorporation, he knew all about the contract of lease of the
lot to Hydro Pipes. In the petitioners' motion for reconsideration,
they refer to this scheme as "estate planning."
HELD: After incorporation, one becomes a stockholder of a
corporation by subscription or by purchasing stock directly from
the corporation or from individual owners thereof. In the case at
bar, in exchange for their properties, the Pachecos acquired 2,500
original unissued no par value shares of stocks of the Delpher
Trades Corporation. Consequently, the Pachecos became
stockholders of the corporation by subscription "The essence of
the stock subscription is an agreement to take and pay for original
unissued shares of a corporation, formed or to be formed." It is
significant that the Pachecos took no par value shares in
exchange for their properties. Moreover, there was no attempt to
state the true or current market value of the real estate. Land
valued at P300.00 a square meter was turned over to the family's
corporation for only P14.00 a square meter.
It is to be stressed that by their ownership of the 2,500 no par
shares of stock, the Pachecos have control of the corporation.
Their equity capital is 55% as against 45% of the other
stockholders, who also belong to the same family group. In effect,
the Delpher Trades Corporation is a business conduit of the
Pachecos. What they really did was to invest their properties and
change the nature of their ownership from unincorporated to
53
incorporated form by organizing Delpher Trades Corporation to

take control of their properties and at the same time save on
inheritance taxes.
The records do not point to anything wrong or objectionable about
this "estate planning" scheme resorted to by the Pachecos. "The
legal right of a taxpayer to decrease the amount of what
otherwise could be his taxes or altogether avoid them, by
means which the law permits, cannot be doubted."
The "Deed of Exchange" of property between the Pachecos and
Delpher Trades Corporation cannot be considered a contract of
sale. There was no transfer of actual ownership interests by the
Pachecos to a third party. The Pacheco family merely changed
their ownership from one form to another. The ownership
remained in the same hands. Hence, the private respondent has
no basis for its claim of a light of first refusal under the lease
contract.
2.
3.
4.
CASE 41: CANALITA

COMMISSIONER OF INTERNAL REVENUE vs. LINCOLN
PHILIPPINE LIFE INSURANCE COMPANY, INC.
DOCTRINE: While tax avoidance schemes and arrangements are
not prohibited, tax laws cannot be circumvented in order to evade
the payment of just taxes. In the case at bar, to claim that the
increase in the amount insured (by virtue of the automatic
increase clause incorporated into the policy at the time of
issuance) should not be included in the computation of the
documentary stamp taxes due on the policy would be a clear
evasion of the law requiring that the tax be computed on the basis
of the amount insured by the policy.
FACTS:
1. Private respondent Lincoln Philippine Life Insurance, Co., Inc.,
in the year 1984 issued a special kind of life insurance policy
known as the Junior Estate Builder Policy,. This kind of policy
5.
6.
7.
8.
has a clause providing for an automatic increase in the amount

of life insurance coverage upon attainment of a certain age by
the insured without the need of issuing a new policy. The
clause was to take effect in 1984.
Documentary Stamp Taxes due on the policy were paid only
on the initial sum assured.
In 1984, private respondent also issued 50,000 shares of stock
dividends with a par value of P100.00 per share or a total par
value of P5,000,000.00. The actual value of said shares,
represented by its book value, was P19,307,500.00.
Documentary stamp taxes were paid based only on the par
value of P5,000,000.00 and not on the book value.
Subsequently, petitioner issued deficiency documentary
stamps tax assessment for the year 1984 in the amounts of (a)
P464,898.75, corresponding to the amount of automatic
increase of the sum assured on the policy issued by
respondent, and (b) P78,991.25 corresponding to the book
value in excess of the par value of the stock dividends. As
seen, these deficiency assessments arose from the clause
providing for an automatic increase.
Private respondent questioned the deficiency assessments
and sought for its cancellation in a petition filed in the Court of
Tax Appeals.
CTA Decision: Ruled in favor of Philippine Life Insurance,
stating that petitioner has no basis on imposing the subject
deficiency tax assessments, BOTH ON THE STOCK
DIVIDENDS AND THE INSURANCE POLICY.
Petitioner then appealed to the Court of Appeals.
CA Decision: AFFIRMED CTA in nullifying the imposition of
the deficiency tax assessment on the insurance policy, but
REVERSED the same in nullifying the imposition of deficiency
tax assessment on the stock dividends. CA ordered private
54
respondent to pay the petitioner the sum representing

documentary stamp tax on stock dividends.
9. A motion for reconsideration having been denied, both the
petitioner and private respondent to the Supreme Court.
Private respondent questioned CAs decision on upholding the
imposition of the deficiency tax on the stock dividends; while
the petitioner questioned CAs decision which invalidated the
deficiency tax assessment on the insurance policy.
10. Petitioner claims that the automatic increase clause in the
subject insurance policy is separate and distinct from the main
agreement and involves another transaction; and that, while
no new policy was issued, the original policy was essentially
re-issued when the additional obligation was assumed upon
the effectivity of this "automatic increase clause" in 1984;
hence, a deficiency assessment based on the additional
insurance not covered in the main policy is proper. The CA,
agreeing in part with the CTA, ruled that the automatic
increase clause and the original insurance policy is only one
transaction; that the said clause is an integral part of the
original policy.
ISSUE: WON the increase in the amount insured, by virtue of the
automatic increase clause incorporated in the policy at the time of
issuance should be included in the computation of the
documentary stamp tax due on the policy, hence justifying the
imposition of the deficiency assessment tax upon the private
respondent?
RULING: YES. Section 49, Title VI of the Insurance Code defines
an insurance policy as the written instrument in which a contract of
insurance is set forth. Section 50 of the same Code provides that
the policy, which is required to be in printed form, may contain any
word, phrase, clause, mark, sign, symbol, signature, number, or
word necessary to complete the contract of insurance. It is thus
clear that any rider, clause, warranty or endorsement pasted or

attached to the policy is considered part of such policy or contract
of insurance. The automatic increase clause, therefore, is an
integral part of the insurance policy, hence, there was no need for
an execution of a separate agreement for the increase in the
coverage that took effect in 1984 when the assured reached a
certain age.
It is clear from Section 173 that the payment of documentary
stamp taxes is done at the time the act is done or transaction had
and the tax base for the computation of documentary stamp taxes
on life insurance policies under Section 183 is the amount fixed in
policy, unless the interest of a person insured is susceptible of
exact pecuniary measurement. The amount fixed in the policy is
the figure written on its face AND whatever increases will take
effect in the future by reason of the "automatic increase clause"
embodied in the policy without the need of another contract.
Therefore, in computing the documentary stamp tax, the increase
in the amount must be included.
In the present case, the additional insurance that took effect in
1984 was an obligation subject to a suspensive obligation, but still
a part of the insurance sold to which private respondent was liable
for the payment of the documentary stamp tax. The deficiency of
documentary stamp tax imposed on private respondent is
definitely not on the amount of the original insurance coverage,
but on the increase of the amount insured upon the effectivity of
the "Junior Estate Builder Policy."
Therefore, the decision of the CA, with regard to nullifying the
deficiency stamp tax assessment petitioner imposed on private
respondent in the amount of P464,898.75 corresponding to the
increase in 1984 of the sum under the policy issued by
respondent, is SET ASIDE.
55
DISPOSITIVE: WHEREFORE, the petition is hereby given DUE

COURSE. The decision of the Court of Appeals is SET ASIDE
insofar as it affirmed the decision of the Court of Tax Appeals
nullifying the deficiency stamp tax assessment petitioner imposed
on private respondent in the amount of P464,898.75
corresponding to the increase in 1984 of the sum under the policy
issued by respondent.
CASE 42: SY
GREENFIELD V. MEER
DOCTRINE: Exemption is an immunity or privilege; it is freedom
from a charge or burden to which others are subjected. If the
amounts of personal and additional exemptions fixed in section 23
are exempt from taxation, they should not be included as part of
net income, which is taxable there is nothing in said section 23 to
justify the contention that the tax on personal exemptions should
first be fixed, and then deducted from the tax on the net income.
FACTS: Since the year 1933, the plaintiff has been continuously
engaged in the embroidery business located in the City of Manila.
In 1935, plaintiff began engaging in buying and selling mining
stocks and securities for his own exclusive account and not for
account of others.
The plaintiff has not been a dealer in securities as defined in
section 84(t) of Commonwealth Act no. 466 and that he has no
established place of business for the purchase and sale of mining
stocks and securities. It was also stated that he was not a member
of any stock exchange.
When the plaintiff filed an income tax return for the calendar year
1939, it showed that he incurred a net loss of P67,307.80 from the
purchase and sales of mining stocks. The plaintiff claims the said
amount as a deduction on his income tax return. However,
defendant disallowed said item of deduction on the ground that

said losses were sustained from the sale of mining stocks and
securities which are capital assets, and that the loss arising from
the sale of the same should be allowed only to the extent of the
gains from such sales.
ISSUE:Whether or not the personal and additional exemptions
granted by section 23 of CA No. 466, should be considered as a
credit against or be deducted from the net income, or whether it is
the tax on such exemptions that should be deducted from the tax
on the total net income?
RULING: NO. Personal exemptions shall be allowed in the nature
of a deduction from the net income, and there is a distinction
between exemption and deduction, the tax due on said
exemptions must be deducted from the tax due on the whole net
income, instead of deducting the total amount of the exemptions
from the net income.
DISPOSITIVE: Decision of the lower court is reversed in so far as
it dismissed his second cause of action.
CASE 43: FLORES
BASCO v PAGCOR
DOCTRINE: The power of local government to "impose taxes and
fees" is always subject to "limitations" which Congress may
provide by law.
FACTS: On July 11, 1983, PAGCOR was created under PD 1869
to enable the Government to regulate and centralize all games of
chance authorized by existing franchise or permitted by law.
Basco and four others (all lawyers) assailed the validity of the law
creating PAGCOR on constitutional grounds among others
56
particularly citing that the PAGCORs charter is against the

constitutional provision on local autonomy.
It is reported that PAGCOR is the third largest source of
government revenue, next to BIR and Customs.
The PAGCOR, was beneficial not just to the Government but to
society in general. It is a reliable source of much needed revenue
for the cash strapped Government. It provided funds for social
impact projects and subjected gambling to "close scrutiny,
regulation, supervision and control of the Government". With the
creation of PAGCOR and the direct intervention of the
Government, the evil practices and corruptions that go with
gambling will be minimized if not totally eradicated. Public welfare,
then, lies at the bottom of the enactment of PD 1896.
Now, Basco et al contend that P.D. 1869 constitutes a waiver of
the right of the City of Manila to impose taxes and legal fees; that
Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the
franchise holder from paying any tax of any kind or form, income
or otherwise, as well as fees, charges or levies of whatever
nature, whether National or Local is violative of the local
autonomy principle.
ISSUE: WON PAGCORs charter violates the principle of local
autonomy.
RULING: NO. Section 5, Article 10 of the 1987 Constitution
provides:
Each local government unit shall have the power to create its own
source of revenue and to levy taxes, fees, and other charges
subject to such guidelines and limitation as the congress may
provide, consistent with the basic policy on local autonomy. Such
taxes, fees and charges shall accrue exclusively to the local
government.
The power of local government to "impose taxes and fees" is

always subject to "limitations" which Congress may provide by
law.
Since PD 1869 remains an "operative" law until "amended,
repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its
"exemption clause" remains as an exception to the exercise of the
power of local governments to impose taxes and fees. It cannot
therefore be violative but rather is consistent with the principle of
local autonomy.
Further, the following reasons were made by the court:
1. The City of Manila, being a mere Municipal corporation has no
inherent right to impose taxes. The Charter or statute must plainly
show an intent to confer that power or the municipality cannot
assume it.
2. The Charter of the City of Manila is subject to control by
Congress. It should be stressed that "municipal corporations are
mere creatures of Congress" which has the power to "create and
abolish municipal corporations" due to its "general legislative
powers". Congress, therefore, has the power of control over Local
governments. And if Congress can grant the City of Manila the
power to tax certain matters, it can also provide for exemptions or
even take back the power.
3. The City of Manila's power to impose license fees on gambling,
has long been revoked and was vested exclusively on the National
Government. Therefore, only the National Government has the
power to issue "licenses or permits" for the operation of gambling
4. Local governments have no power to tax instrumentalities of the
National Government. PAGCOR is a GOCC, with an original
57
charter, PD 1869. All of its shares of stocks are owned by the

National Government.
DISPOSITIVE: PAGCOR WON. Petition dismissed for lack of
merit.
CASE 44-1: MATIAS
COMMISSIONER OF INTERNAL REVENUE VS. CA
DOCTRINE: Tax imposed by Tax Code shall not apply to
employee's trust which forms part of a pension, stock bonus or
profit-sharing plan of an employer for the benefit of some or all of
his employees.
FACTS:
1. GCL Retirement Plan is an employees' trust maintained by the
employer, GCL Inc., to provide retirement, pension, disability
and death benefits to its employees. The Plan as submitted
was approved and qualified as exempt from income tax by
Petitioner CIR in accordance with Rep. Act No. 4917.
2. Respondent GCL made investments and earned therefrom
interest income from which was withheld the 15% final
withholding tax imposed by Pres. Decree No. 1959.
3. Respondent GCL filed with Petitioner a claim for refund in the
amounts of P1,312.66 withheld by Anscor Capital and
Investment Corp., and P2,064.15 by Commercial Bank of
Manila.
4. Respondent filed a second claim for refund of the amount of
P7,925.00 withheld by Anscor, stating in both letters that it
disagreed with the collection of the 15% final withholding tax
from the interest income as it is an entity fully exempt from
income tax as provided under Rep. Act No. 4917 in relation to
Section 56 (b) of the Tax Code.
5. The refund requested having been denied, Respondent
elevated the matter to respondent Court of Tax Appeals. The
CTA ruled in favor of GCL, holding that employees' trusts are

exempt from the 15% final withholding tax on interest income
and ordering a refund of the tax withheld.
6. Upon appeal, originally to this Court, but referred to
respondent Court of Appeals, the CA upheld the CTA
Decision.
7. CIRs contention is that the exemption from withholding tax on
interest on bank deposits previously extended by Pres. Decree
No. 1739 if the recipient (individual or corporation) of the
interest income is exempt from income taxation, and the
imposition of the preferential tax rates if the recipient of the
income is enjoying preferential income tax treatment, were
both abolished by Pres. Decree No. 1959. Petitioner thus
submits that the deletion of the exempting and preferential tax
treatment provisions under the old law is a clear manifestation
that the single 15% (now 20%) rate is impossible on all interest
incomes from deposits, deposit substitutes, trust funds and
similar arrangements, regardless of the tax status or character
of the recipients thereof. In short, petitioner's position is that
from 15 October 1984 when Pres. Decree No. 1959 was
promulgated, employees' trusts ceased to be exempt and
thereafter became subject to the final withholding tax.
8. GCL contends that the tax exempt status of the employees'
trusts applies to all kinds of taxes, including the final
withholding tax on interest income. That exemption, according
to GCL, is derived from Section 56(b) and not from Section 21
(d) or 24 (cc) of the Tax Code.
ISSUE: WON the GCL Plan is exempt from the final withholding
tax on interest income from money placements and purchase of
treasury bills required by Pres. Decree No. 1959.
RULING: YES. It is significant to note that the GCL Plan was
qualified as exempt from income tax by the Commissioner of
Internal Revenue in accordance with Rep. Act No. 4917 approved
on 17 June 1967. This law specifically provided:
58
Sec. 1.
Any provision of law to the contrary
notwithstanding, the retirement benefits received
by officials and employees of private firms,
whether individual or corporate, in accordance with
a reasonable private benefit plan maintained by
the employer shall be exempt from all taxes and
shall not be liable to attachment, levy or seizure by
or under any legal or equitable process
whatsoever except to pay a debt of the official or
employee concerned to the private benefit plan or
that arising from liability imposed in a criminal
action
In so far as employees' trusts are concerned, the foregoing
provision should be taken in relation to then Section 56(b) (now
53[b]) of the Tax Code, as amended by Rep. Act No. 1983, which
took effect on 22 June 1957. This provision specifically exempted
employee's trusts from income tax and is repeated hereunder for
emphasis:
Sec. 56. Imposition of Tax.
(a) Application of tax. The taxes imposed by
this Title upon individuals shall apply to the
income of estates or of any kind of property held
in trust.
(b) Exception. The tax imposed by this Title
shall not apply to employee's trust which forms
part of a pension, stock bonus or profit-sharing
plan of an employer for the benefit of some or all
of his employees.
The tax-exemption privilege of employees' trusts, as distinguished
from any other kind of property held in trust, springs from the
foregoing provision. It is unambiguous. Manifest therefrom is that
the tax law has singled out employees' trusts for tax exemption.
The deletion in Pres. Decree No. 1959 of the provisos regarding

tax exemption and preferential tax rates under the old law,
therefore, cannot be deemed to extent to employees' trusts. Said
Decree, being a general law, cannot repeal by implication a
specific provision, Section 56(b) now 53 [b]) in relation to Rep. Act
No. 4917 granting exemption from income tax to employees'
trusts. Rep. Act 1983, which accepted employees' trusts in its
Section 56 (b) was effective on 22 June 1957 while Rep. Act No.
4917 was enacted on 17 June 1967, long before the issuance of
Pres. Decree No. 1959. A subsequent statute, general in
character as to its terms and application, is not to be construed as
repealing a special or specific enactment, unless the legislative
purpose to do so is manifested. This is so even if the provisions of
the latter are sufficiently comprehensive to include what was set
forth in the special act.
All the tax provisions herein treated of come under Title II of the
Tax Code on "Income Tax." Since the final tax and the withholding
thereof are embraced within the title on "Income Tax," it follows
that said trust must be deemed exempt therefrom. Otherwise, the
exception becomes meaningless. There can be no denying either
that the final withholding tax is collected from income in respect of
which employees' trusts are declared exempt. The application of
the withholdings system to interest on bank deposits or yield from
deposit substitutes is essentially to maximize and expedite the
collection of income taxes by requiring its payment at the source.
If an employees' trust like the GCL enjoys a tax-exempt status
from income, we see no logic in withholding a certain percentage
of that income which it is not supposed to pay in the first place.
DISPOSITIVE: WHEREFORE, the Writ of Certiorari prayed for is
DENIED. The judgment of respondent Court of Appeals, affirming
that of the Court of Tax Appeals is UPHELD. No costs.
GCL won.
59
CASE 44: MEDRANO

CIR V. BOTELHO SHIPPING CORPORATION & GENERAL
SHIPPING CO., INC.
DOCTRINE: Tax exemption is granted where the purpose is for
public benefit or interest, which the law-making body considers
sufficient to offset the monetary loss entitled in the grant of
exemption.
FACTS:
1. Sometime in 1960, Reparations Commission of the
Philippines and Botelho Shipping Corporation entered into
a Contract of Conditional Purchase and Sale of
Reparations Goods wherein the former agreed to sell to
Botelho the vessel M/S Maria Rosello, procured from
Japan.
2. Subsequently, the Commission signed a similar contract
with General Shipping Co., Inc. for the sale of M/S
General Lim.
3. Upon arrival at the port of Manila, the buyer filed the
corresponding applications for registration of the vessels,
but, the Bureau of Customs refused to give due course to
said application, unless, compensating taxes be paid.
4. Thus, the buyers filed with CTA their respective petitions
for review against Commissioner of Customs &
Commissioner of Internal Revenue - with urgent motion for
suspension of collection of said tax. Motion was granted.
5. While the cases were pending trial, RA 3079 amended RA
1789 - the Original Reparations Act, under which the
aforementioned contracts with the buyers has been
executed - by exempting buyers of reparations goods
acquired from the Commission, from liability for the
compensating tax.
6. Invoking the said law (particularly Sec. 20 thereof), the

buyers applied for the renovation of their utilization
contracts with the Commission, which granted the
application and then filed with CTA, their supplemental
petitions for review.
7. CTA reversed the decisions of the Commissioners, and
declared said buyers exempt from the compensating tax
sought
to
be
assessed
against
the
vessels
aforementioned.
8. Hence, this appeal by the Government contending that the
Congress could not have intended any retroactive
exemption, considering that the result thereof would be
prejudicial to the Government.
ISSUE: Whether or not the tax exemption can be given retroactive
effect, which in turn, would exempt the buyers of the vessels from
the payment of compensating tax.
RULING: YES. The inherent weakness of the ground becomes
manifest when the court considers that, if true, there could be no
tax exemption of any kind whatsoever, even if Congress should
wish to create one, because every such exemption implies a
waiver of the right to collect what otherwise would be due to the
Government, and in this sense, is prejudicial thereto. In fact, tax
exemptions may and do exist, such as the one prescribed in RA
1789, as amended by RA 3079, which, by way, is clear and
explicit. It may not be amiss to add that no tax exemption is given
without any reason therefor. In much the same way the as other
statutory commands, its avowed purpose is some public benefit or
interest, which the law-making body considers sufficient to offset
the monetary loss entitled in the grant of the exemption. Indeed,
section 20 of Republic Act No. 3079 exacts a valuable
consideration for the retroactivity of its favorable provisions,
namely, the voluntary assumption, by the end-user who bought
reparations goods prior to June 17, 1961 of "all the new
obligations provided for in" said Act.
60
8. Not satisfied with the above decision, petitioner appealed.

DISPOSITIVE: Decision of CTA is affirmed in toto.
CASE 45: MATIAS
COMMISSIONER OF INTERNAL REVENUE VS. GUERRERO
DOCTRINE: For a tax exemption to exist, it must be so
categorically declared in words that admit of no doubt.
FACTS:
1. The Commissioner of Internal Revenue denied the claim for
refund in the sum of P2,441.93 filed by the administrator of the
estate of Paul Gunn, thereafter substituted by the respondent
Guerrero as special administrator under Section 142 of the
NIRC.
2. The Paul Gunn operated an air transportation business under
the business name and style of Philippine Aviation
Development. Gunns estate, as claimed, "Was entitled to the
same rights and privileges as Filipino citizens operating public
utilities including privileges in the matter of taxation."
3. The CIR disagreed, ruling that such partial exemption from the
gasoline tax was not included under the terms of the
Ordinance and that in accordance with the statute.
4. To be entitled to its benefits, there must be a showing that the
United States of which the deceased was a citizen granted a
similar exemption to Filipinos.
5. The refund as already noted was denied.
6. The matter was brought to the Court of Tax Appeals on a
stipulation of facts, no additional evidence being introduced.
7. Viewing the Ordinance differently, it "ordered the petitioner to
refund to the respondent the sum of P2, 441.93 representing
50% of the specific taxes paid on 61,048.19 liters of gasoline
actually used in aviation during the period from October 3,
1956 up to May 31, 1957."
ISSUE:WON Section 142 of the NIRC allowing Filipinos a refund

of 50% of the specific tax paid on aviation oil, could be availed of
by citizens of the United States and all forms of business
enterprises owned or controlled directly by them in view of the
privilege under the Ordinance to operate public utilities in the
same manner as to, and under the same conditions imposed
upon, citizens of the Philippines or corporations or associations
owned or controlled by citizens of the Philippines.
RULING: NO. In Catholic Church vs Hastings and Esso Standard
Eastern, Inc. vs Acting Commissioner of Customs, it has been the
constant and uniform holding that exemption from taxation is not
favoured and is never presumed, if granted, it must be
categorically and unmistakably expressed in terms that admit of
no doubt, yet such exempting provision must be interpreted in
strictissimi juris against the taxpayer and liberally in favour of the
taxing authority.
In Esso Standard Eastern Inc. Justice Sanchez said that
exemption from taxation is not favored, and that exemptions in tax
statutes are never presumed. Which are but statements in
adherence to the ancient rule that exemptions from taxation are
construed in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority. Tested by this precept, we cannot
indulge in expansive construction and write into the law an
exemption not therein set forth. Rather, we go by the reasonable
assumption that where the State has granted in express terms
certain exemptions, those are the exemptions to be considered,
and no more
In the Hastings Case, Justice Moreland said that even though the
complaint in this regard were well founded, it would have little
bearing on the result of the litigation when we take into
consideration the universal rule that he who claims an exemption
61
from his share of the common burden of taxation must justify his
claim by showing that the Legislature intended to exempt him by
words too plain to be mistaken. Justice Street also said in this
case that exemptions from taxation are highly disfavored, so much
so that they may almost be said to be odious to the law. He who
claims an exemption must be able to point to some positive
provision of law creating the right.
The CIRs decision was sustained and the decision of the Court of
Tax Appeals is reversed. To the extent that a refund is allowable,
there is in reality a tax exemption. The rule applied with
undeviating rigidity in the Philippines is that for a tax exemption to
exist, it must be so categorically declared in words that admit of no
doubt. No such language may be found in the Ordinance. It
furnishes no support, whether express or implied, to the claim of
respondent Administrator for a refund.
DISPOSITIVE: WHEREFORE, the decision of the Court of Tax
Appeals is reversed and the case is remanded to it, to grant
respondent Administrator the opportunity of proving whether the
estate could claim the benefits of Section 142 of the National
Internal Revenue Code, allowing refund to citizens of foreign
countries on a showing of reciprocity. With costs.
Case is remanded.
CASE 46: MEDOZA
PHILIPPINE ACETYLENE CO V. CIR
DOCTRINE: It may indeed be that the economic burden of the tax
finally falls on the purchaser; when it does the tax becomes a part
of the price which the purchaser must pay. It does not matter that
an additional amount is billed as tax to the purchaser. The method
of listing the price and the tax separately and defining taxable
gross receipts as the amount received less the amount of the tax
added, merely avoids payment by the seller of a tax on the

amount of the tax. The effect is still the same, namely, that the
purchaser does not pay the tax. He pays or may pay the seller
more for the goods because of the seller's obligation, but that is all
and the amount added because of the tax is paid to get the goods
and for nothing else.
FACTS: The petitioner is a corporation engaged in the
manufacture and sale of oxygen and acetylene gases. During the
period from June 2, 1953 to June 30, 1958, it made various sales
of its products to the National Power Corporation, an agency of
the Philippine Government, and to the Voice of America an
agency of the United States Government. The sales to the NPC
amounted to P145,866.70, while those to the VOA amounted to
P1,683, on account of which the respondent Commission of
Internal Revenue assessed against, and demanded from, the
petitioner the payment of P12,910.60 as deficiency sales tax and
surcharge, pursuant to Sec. 186 and 183 of the NIRC.
Petitioner denied liability for both transactions that these
transactions are exempt from tax liability on the ground that both
the NPC and VOA are tax exempt.
The court of tax appeals held that the transaction between the
petitioner and the NPC is taxable since the tax on the sales of
goods as stated in sec. 186 of the NIRC is a tax on the
manufacturer, not the buyer. As regards the transaction with the
VOA, the tax court held that it is exempt due to the agreement
between the US and the Philippines.
ISSUE:WON petitioner is liable for tax regarding the separate
transactions between the NPC and the VOA
RULING: As regards the NPC, the SC held that the tax imposed
by section 186 of the National Internal Revenue Code is a tax on
the manufacturer or producer and not a tax on the purchaser
62
except probably in a very remote and inconsequential sense.

Accordingly its levy on the sales made to tax-exempt entities like
the NPC is permissible.
Regarding the transaction with the VOA, the decision of the court
of tax appeals has been reversed, the agreement between the US
and the Philippines regarding the exemption on tax regarding the
subject goods were construed too expansively. Goods to be
exempt are only for use of the construction of military bases,
nothing else. This purchase, the court determined , was one which
was not, therefore, it held the transaction between the VOA may
be levied upon.
MACEDA V MACARAIG JR.
DOCTRINE: Taxation is the rule, exemption therefrom is the
exception. The intention of the legislature was for NPC to be
completely exempt from all forms of taxes may it be direct and
indirect.
FACTS: This matter of indirect tax exemption of the private
respondent National Power Corporation (NPC) is brought to the
Court a second time. Petitioner Senator Ernesto Maceda asks the
Court to reconsider the said Decision.
NPC is a public corporation created via CA 120 to undertake the
development of hydraulic power and the production of power from
other sources. RA 358 granted NPC tax and duty exemption
privileges. RA 6395 revised the charter of the NPC, tasking it to
carry out the policy of the national electrification, and provided in
detail NPCs tax exceptions.
The subsequent laws enacted expressly granted NPC exemptions
from all taxes whether direct or indirect. In 1984, however, PD
1931 and EO 93 withdrew all tax exemptions granted to all

GOCCs including the NPC but granted the President and/or the
Secretary of Finance by recommendation of the FIRB the power to
restore certain tax exemptions. Pursuant to the latter law, FIRB
issued a resolution restoring the tax and duty exemption privileges
of the NPC.
Petitioner contends that P.D. No. 938 repealed the indirect tax
exemption of NPC.
ISSUE: WON NPC is exempted to pay indirect income tax.
RULING: YES. A chronological review of the NPC laws will show
that it has been the lawmaker's intention that the NPC was to be
completely tax exempt from all forms of taxes may it be direct and
indirect.
Direct Tax - the where the person supposed to pay the tax really
pays it. WITHOUT transferring the burden to someone else.
Inderect Tax - that where the tax is imposed upon
goods BEFORE reaching the consumer who ultimately pays for it,
not as a tax, but as a part of the purchase price.
The main thrust of the petition is that under the latest amendment
to the NPC charter by PD 938, the exemption of NPC from indirect
taxation was revoked and repealed. The exemption of NPC from
payment of taxes under PD 938 was expressed in general terms
ALL FORMS OF TAXES wherein there is a deletion of the
phrases "directly or indirectly" which is stated under PD 380 that is
repealed and amended by PD 938.
The use of the phrase "all forms" of taxes demonstrate the
intention of the law to give NPC all the tax exemptions it was
granted before. The rationale for this exemption is that being nonprofit public corporation created for the general good and welfare
63
wholly owned by the government of the Republic of the Philippines,

the NPC shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion to
enable the Corporation to pay the indebtedness and obligations
amounting to P12 Billion in total domestic indebtedness, at any
one time, and U$4 Billion in total foreign loans at any one time, as
of PD 938. The NPC must be and has to be exempt from all forms
of taxes if this goal is to be achieved.
The Court rules and declares that the oil companies which supply
bunker fuel oil to NPC have to pay the taxes imposed upon said
bunker fuel oil sold to NPC. By the very nature of indirect taxation,
the economic burden of such taxation is expected to be passed on
through the channels of commerce to the user or consumer of the
goods sold. Because, however, the NPC has been exempted from
both direct and indirect taxation, the NPC must be held exempted
from absorbing the economic burden of indirect taxation.
2. From the said contract, SEA-LAND derived an income for the

taxable year 1984 amounting to P58,006,207.54.
3. During the taxable year, SEA-LAND filed with BIR the corporate
Income Tax Return (ITR) and paid the income tax due of 1.5% as
required in Section 25 (a)(2) of the National Internal Revenue
Code (NIRC) in relation to Article 9 of the RP-US Tax Treaty,
amounting to P870,093.12.
3. Claiming that it paid the income tax by mistake, a written claim
for refund was filed with the BIR. However, before the said claim
for refund could be acted upon by Commissioner of Internal
Revenue (public respondent), Sea-Land filed a petition for review
with the CTA to judicially pursue its claim for refund and to stop
the running of the two-year prescriptive period under the then
Section 243 of the NIRC. 4. CTA denied Sea-Lands claim for
refund of the income tax it paid in 1984.
5. Sea-Land appealed the decision of the CTA to CA.
6. CA- dismissed the appeal and affirmed CTA decision
Hence, this petition.
DISPOSITIVE: Respondent WON.

CASE 48: PANTORGO
SEA-LAND SERVICE, INC. v. CA and CIR
G.R. 122605. April 30, 2001
DOCTRINE: Laws granting exemption from tax are construed
strictly against the taxpayer and liberally in favor of taxing power.
FACTS:
1. Sea-Land Service Incorporated (SEA-LAND), an American
international shipping company licensed by the Securities and
Exchange Commission to do business in the Philippines entered
into a contract with the United States Government to transport
military household goods and effects of U.S. military personnel
assigned to the Subic Naval Base.
ISSUE: WON Sea-Land is exempted from the payment of income

tax on its revenue earned from the transport or shipment of
household goods and effects of US personnel
RULING:
NO. Laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally
in favor of the taxing power. The law does not look with favor
on tax exemptions. The one who would seek such privilege
must justify it by words too plain to be mistaken and too
categorical to be misinterpreted.
1. Under Article XII (4) of the RP-US Military Bases Agreement,
the Philippine Government agreed to exempt from payment of
Philippine income tax the following:
a. nationals of the United States
b. corporations organized under the laws of the United
States
64
c. residents in the United States

in respect of any profit derived under a contract made in
the US with the US Govt in connection with the
construction, maintenance, operation and defense of the
bases.
2. The transport or shipment of household goods and effects of
U.S. military personnel is not included in the term "construction,
maintenance, operation and defense of the bases."
3. The purpose of tax exemption is public benefit or interest, which
the lawmaking body considers sufficient to offset the monetary
loss entailed in the grant of the exemption. Thus, the transport of
household goods and personal effects of U. S. military personnel
would not directly contribute to the defense and security of the
Philippines.
DISPOSITIVE: Petition is denied.
CASE 49: KADJIM
DAVAO GULF LUMBER CORP v. CIR
DOCTRINE: The specific taxes collected on gasoline and fuel
accrue to the Highway Special Fund, which is to be used for the
construction and maintenance of the highway system. But
because the gasoline and fuel purchased by mining and lumber
concessionaires are used within their own compounds and roads,
and their vehicles seldom use the national highways, they do not
directly benefit from the Fund and its use. Hence, the tax refund
gives the mining and the logging companies a measure of relief in
light of their peculiar situation.
FACTS: Petitioner is a licensed forest concessionaire possessing
a Timber License Agreement granted by the Ministry of Natural
Resources (DENR). From July 1, 1980 to January 31, 1982
petitioner purchased, from various oil companies, refined and
manufactured mineral oils as well as motor and diesel fuels, which
it used exclusively for the exploitation and operation of its forest
concession. Said oil companies paid the specific taxes imposedby
the NIRC, on the sale of said products. Being included in the

purchase price of the oil products, the specific taxes paid by the oil
companies were eventually passed on to the user, the petitioner in
this case.
On December 13, 1982, petitioner filed before CIR a claim for
refund, representing 25% of the specific taxes actually paid,
used by petitioner in its operations as forest concessionaire. The
claim was based on Insular Lumber Co. vs. Court of Tax
Appeals and Section 5 of RA 1435 which reads:
Section 5. xxx Provided, however, That whenever any oils
mentioned above are used by miners or forest concessionaires in
their operations, twenty-five per centum of the specific tax paid
thereon shall be refunded by the Collector of Internal Revenue
upon submission of proof of actual use of oils and under similar
conditions enumerated in subparagraphs one and two of section
one hereof, amending section one hundred forty-two of the
Internal Revenue Code xxx
It is an unquestioned fact that petitioner complied with the
procedure for refund, including the submission of proof of the
actual use of the aforementioned oils in its forest concession as
required by the above-quoted law.
On January 20, 1983, petitioner filed at the CTA a petition for
review. On June 21, 1994, the CTA rendered its decision finding
petitioner entitled to a partial refund of specific taxes the latter had
paid.
The CTA ruled that the
1) Claim on purchases of lubricating oil (from July 1, 1980 to
January 19, 1981), and on manufactured oils other than lubricating
oils (from July 1, 1980 to January 4, 1981) had prescribed.
2) Disallowed on the ground that they were not included in the
original claim filed before the CIR were the claims for refund on
purchases of manufactured oils from January 1, 1980 to June 30,
1980 and from February 1, 1982 to June 30, 1982.
65
3) In regard to the other purchases, the CTA granted the claim,

but it computed the refund based on rates deemed paid under RA
1435, and not on the higher rates actually paid by petitioner under
the NIRC.
Insisting that the basis for computing the refund should be the
increased rates prescribed by Sections 153 and 156 of the NIRC,
petitioner elevated the matter to the CA. CA affirmed the CTA.
In the main, the question before us pertains only to the
computation of the tax refund.
Davao: Argues that the refund should be based on the increased
rates of specific taxes which it actually paid, as prescribed in
Sections 153 and 156 of the NIRC.
CIR: Contends that it should be based on specific taxes deemed
paid under Sections 1 and 2 of RA 1435
ISSUES: WON petitioner is entitled under RA 1435 to the refund
of 25% of the amount of specific taxes it actually paid under Sec.
153 and Sec. 156 of the 1977 NIRC?
HELD: No, Since the partial refund authorized under Section 5,
RA 1435, is in the nature of a tax exemption, it must be
construed
strictissimi juris against the grantee. Hence,
petitioners claim of refund on the basis of the specific taxes it
actually paid must expressly be granted in a statute stated in a
language too clear to be mistaken.
RATIO/RULING:
Petitioner Entitled to Refund
At the outset, it must be stressed that petitioner is entitled to a
partial refund under Section 5 of RA 1435, which was enacted to
provide means for increasing the Highway Special Fund.
The specific taxes collected on gasoline and fuel accrue to the
Highway Special Fund, which is to be used for the construction
and maintenance of the highway system. But because the
gasoline and fuel purchased by mining and lumber
concessionaires are used within their own compounds and roads,

and their vehicles seldom use the national highways, they do not
directly benefit from the Fund and its use. Hence, the tax refund
gives the mining and the logging companies a measure of relief in
light of their peculiar situation. When the Highway Special Fund
was abolished in 1985, the reason for the refund likewise ceased
to exist. Since petitioner purchased the subject manufactured
diesel and fuel oils from July 1, 1980 to January 31, 1982 and
submitted the required proof that these were actually used in
operating its forest concession, it is entitled to claim the refund
under Section 5 of RA 1435.
Tax Refund Strictly Construed Against the Grantee
Petitioner claims a refund based on the increased rates under
Sections 153 and 156 of the NIRC. Petitioner argues that the
statutory grant of the refund privilege, specifically the phrase
twenty-five per centum of the specific tax paid thereon shall be
refunded by the CIR, is clear and unambiguous enough to
require construction or qualification thereof. In addition, it cites our
pronouncement in Insular Lumber vs. Court of Tax Appeals:
x x x Section 5 [of RA 1435] makes reference to subparagraphs 1
and 2 of Section 1 only for the purpose of prescribing the
procedure for refund. This express reference cannot be expanded
in scope to include the limitation of the period of refund. If the
limitation of the period of refund of specific taxes paid on oils used
in aviation and agriculture is intended to cover similar taxes paid
on oil used by miners and forest concessionaires, there would
have been no need of dealing with oil used by miners and forest
concessions separately and Section 5 would very well have been
included in Section 1 of Republic Act No. 1435, notwithstanding
the different rate of exemption.
Petitioner then reasons that the express mention of Section 1 of
RA 1435 in Section 5 cannot be expanded to include a limitation
on the tax rates to be applied x x x [otherwise,] Section 5 should
very well have been included in Section 1 x x x.
66
A tax cannot be imposed unless it is supported by the clear and

express language of a statute; on the other hand, once the tax is
unquestionably imposed, [a] claim of exemption from tax
payments must be clearly shown and based on language in the
law too plain to be mistaken. Since the partial refund authorized
under Section 5, RA 1435, is in the nature of a tax exemption, it
must be construed strictissimi juris against the grantee. Hence,
petitioners claim of refund on the basis of the specific taxes it
actually paid must expressly be granted in a statute stated in a
language too clear to be mistaken.
We have carefully scrutinized RA 1435 and the subsequent
pertinent statutes and found no expression of a legislative will
authorizing a refund based on the higher rates claimed by
petitioner. The mere fact that the privilege of refund was included
in Section 5, and not in Section 1, is insufficient to support
petitioners claim. When the law itself does not explicitly provide
that a refund under RA 1435 may be based on higher rates which
were nonexistent at the time of its enactment, this Court cannot
presume otherwise. A legislative lacuna cannot be filled by
judicial fiat.
Finally, petitioner asserts that equity and justice demand that the
computation of the tax refunds be based on actual amounts paid
under Sections 153 and 156 of the NIRC. We
disagree. According to an eminent authority on taxation, there is
no tax exemption solely on the ground of equity.
DISPOSITION: WHEREFORE, the petition is hereby DENIED and
the assailed Decision of the Court of Appeals is AFFIRMED
CASE 50: FILIO
PHILIPPINE LONG DISTANCE TELEPHONE CO AND CITY OF
DAVAO
FACTS: PLDT paid a franchise tax equal to three percent (3%) of
its gross receipts. The franchise tax was paid in lieu of all taxes
on this franchise or earnings thereof pursuant to RA 7082. The

exemption from all taxes on this franchise or earnings thereof
was subsequently withdrawn by RA 7160 (Local Government
Code), which at the same time gave local government units the
power to tax businesses enjoying a franchise on the basis of
income received or earned by them within their territorial
jurisdiction. The Local Government Code took effect on January 1,
1992.
Under section 137 of Local Government Code
SEC. 137. Franchise Tax. Notwithstanding any
exemption granted by any law or other special law,
the province may impose a tax on businesses
enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross
annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within
its territorial jurisdiction.
In the case of a newly started business, the
tax shall not exceed one-twentieth (1/20) of one
percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the
business started to operate, the tax shall be based
on the gross receipts for the preceding calendar
year, or any fraction thereof, as provided herein.
Meantime, the City of Davao enacted Ordinance No. 519,
Series of 1992, which in pertinent part provides: Notwithstanding
any exemption granted by law or other special laws, there is
hereby imposed a tax on businesses enjoying a franchise, a rate
of seventy-five percent (75%) of one percent (1%) of the gross
annual receipts for the preceding calendar year based on the
income receipts realized within the territorial jurisdiction of Davao
City
Subsequently, Congress granted in favor of Globe Mackay
Cable and Radio Corporation (Globe) and Smart Information
Technologies, Inc. (Smart) franchises which contained in leiu of
all taes provisos
67
In 1995, it enacted RA 7925, or the Public

Telecommunication Policy of the Philippines, Sec. 23 of which
provides that
Any advantage, favor, privilege, exemption, or
immunity granted under existing franchises, or may
hereafter be granted, shall ipso facto become part
of
previously
granted
telecommunications
franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises.
The said law took effect on March 16, 1995. In January 1999,
when PLDT applied for a mayors permit to operate its Davao
Metro exchange, it was required to pay the local franchise tax
which then had amounted to P3,681,985.72. PLDT challenged the
power of the city government to collect the local franchise tax and
demanded a refund of what had been paid as a local franchise tax
for the year 1997 and for the first to the third quarters of 1998.
ISSUE:
1. Whether or not by virtue of section RA 7925, Sec. 23,
PLDT is again entitled to the exemption from payment of
the local franchise tax in view of the grant of tax exemption
to Globe and Smart?
2. Whether or not the opinion of Bureau of Local Government
Finance stating that 23 of R.A. No. 7925 amended the
franchise of petitioner and in effect restored its exemptions
from local taxes?
RATIO:
1.
Sec. 137 of Local Government Code does not state that it
covers future exemptions. Tax exemptions are highly disfavored.
The fact is that the term exemption in section 23 is too general.
A cardinal rule in statutory construction is that legislative intent
must be ascertained from a consideration of the statute as a whole
and not merely of a particular provision. In the abstract, a word or
phrase might easily convey a meaning which is different from the
one actually intended. A general provision may actually have a
limited application if read together with other provisions. The law

must be considered itself in its entirety and the proceedings of
both Houses of Congress. R.A. No. 7925 is thus a legislative
enactment designed to set the national policy on
telecommunications and provide the structures to implement it to
keep up with the technological advances in the industry and the
needs of the public. The thrust of the law is to promote gradually
the deregulation of the entry, pricing, and operations of all public
telecommunications entities and thus promote a level playing field
in the telecommunications industry. There is nothing in the
language of Section 23 nor in the proceedings of both the House
of Representatives and the Senate in enacting R.A. No. 7925
which shows that it contemplates the grant of tax exemptions to all
telecommunications entities, including those whose exemptions
had been withdrawn by the LGC.
2.
The Bureau of Local Government Finance (BLGF) is not
an administrative agency whose findings on questions of fact are
given weight and deference in the courts. The Court of Tax
Appeals is a highly specialized court which performs judicial
functions as it was created for the review of tax cases. In contrast,
the BLGF was created merely to provide consultative services and
technical assistance to local governments and the general public
on local taxation, real property assessment, and other related
matters, among others. The question raised by PLTDT is a legal
question regarding the interpretation of section 23 of R.A. No.
7925. Therefore, there is no basis for claiming expertise for the
BLGF as administrative agency. It must be also not that the case
at bar does not concern the regularity of performance of the BLGF
in the exercise of its duties but the correctness of its interpretation
of a provision of law.
68
CASE 51: SEMILLA

LUTZ v ARANETA
DOCTRINE: Tax levied by the challenged statute is for a
regulatory purpose, namely, to provide ways and means for the
rehabilitation and stabilization of the sugar industry. x x x The law
is thus primarily an exercise of the police power of the state and
taxation was merely used to implement the states power
FACTS:
Due to the threat to industry by the imminent imposition of
export taxes upon sugar as provided in the TydingsMcDuffe Act, and the "eventual loss of its preferential
position in the United States market"; the National
Assembly promulgated Commonwealth Act No. 567,
otherwise known as the Sugar Adjustment Act "to obtain a
readjustment of the benefits derived from the sugar industry
by the component elements thereof" and "to stabilize the
sugar industry so as to prepare it for the eventuality of the
loss of its preferential position in the United States market
and the imposition of the export taxes."
Plaintiff Walter Lutz, in his capacity as judicial administrator
of the intestate estate of Antionio Ledesma, sought to
recover from the CIR the sum of P14,666.40 paid by the
estate as taxes, under section 3 of the CA 567 or the Sugar
Adjustment Act thereby assailing its constitutionality, for it
provided for an increase of the existing tax on the
manufacture of sugar, alleging that such enactment is not
being levied for a public purpose but solely and exclusively
for the aid and support of the sugar industry thus making it
void and unconstitutional. The sugar industry situation at
the time of the enactment was in an imminent threat of loss
and needed to be stabilized by imposition of emergency
measures.
The action having been dismissed by the Court of First

Instance, the plaintiff appealed the case directly to the
Supreme Court.
ISSUE: WON the tax imposed is constitutional?

RULING: YES. The act is primarily an exercise of the police
power. It is shown in the Act that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of
the threatened sugar industry.
It is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that
inequalities which result from a singling out of one particular class
for taxation or exemption infringe no constitutional limitation.
The funds raised under the Act should be exclusively spent in aid
of the sugar industry, since it is that very enterprise that is being
protected. It may be that other industries are also in need of
similar protection; but the legislature is not required by the
Constitution to adhere to a policy of all or none.
CASE 55-1: MENDOZA
PEPSI BOTTLING CO. V. CITY OF BUTUAN
DOCTRINE: It is true that the uniformity essential to the valid
exercise of the power of taxation does not require identity or
equality under all circumstances, or negate the authority to classify
the objects of taxation. The classification made in the exercise of
this authority, to be valid, must, however, be reasonable and this
requirement is not deemed satisfied unless: (1) it is based upon
substantial distinctions which make real differences; (2) these are
germane to the purpose of the legislation or ordinance; (3) the
classification applies, not only to present conditions, but, also, to
future conditions substantially identical to those of the present;
69
and (4) the classification applies equally all those who belong to
the same class.
The ordinance was declared void for violating the principle of

equality.
FACTS: Plaintiff, Pepsi-Cola Bottling Company of the Philippines,

is a domestic corporation with offices and principal place of
business in Quezon City. The defendants are the City of Butuan,
its City Mayor, the members of its municipal board and its City
Treasurer. Plaintiff seeks to recover the sums paid by it to the
City of Butuan hereinafter referred to as the City and collected
by the latter, pursuant to its Municipal Ordinance No. 110, as
amended by Municipal Ordinance No. 122, both series of 1960,
which plaintiff assails as null and void, and to prevent the
enforcement of said ordinance.
CASE 52: CADA
ISSUES:WON the tax imposed upon the goods are of the nature
of an import tax, and WON the ordinance is void due to violation of
the equality clause in the Constitution.
RULING: Regarding the issue as whether or not it is in the nature
of an import tax, the court held I n the affirmative, clarifying from
the intent of the ordinance its true purpose, that the tax "shall be
based and computed from the cargo manifest or bill of lading ...
showing the number of cases" not sold but "received" by the
taxpayer, the intention to limit the application of the ordinance to
soft drinks and carbonated drinks brought into the City from
outside thereof becomes apparent. Viewed from this angle, the tax
partakes of the nature of an import duty, which is beyond
defendant's authority to impose by express provision of law.
As regards the issue of violation of the equality clause of the
Constitution, the Court held that the ordinance indeed violated it
because it was discriminatory as against agents of these
beverages, exempting local dealers who are not agents whom
also do trade with the said beverage.
WENCESLAO PASCUAL v. THE SECRETARY OF PUBLIC

WORKS AND COMMUNICATIONS, ET AL.,
DOCTRINE: Corpus Juris Secundum states: Generally, under the
express or implied provisions of the constitution, public funds may
be used only for public purpose. The right of the legislature to
appropriate funds is correlative with its right to tax, and, under
constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose
and the devotion thereof to another purpose, no appropriation of
state funds can be made for other than for a public purpose.
FACTS: Wenceslao Pascual, as Provincial Governor of Rizal,
instituted this action for declaratory relief, with injunction, praying
that the contested item of Republic Act No. 920 be declared null
and void.
The aforementioned Antonio Subdivision were private properties
of respondent Jose C. Zulueta, who, at the time of the passage
and approval of said Act, was a member of the Senate of the
Philippines. Zulueta, addressed a letter to the Municipal Council of
Pasig, Rizal, offering to donate said projected feeder roads to the
municipality of Pasig, Rizal, however, no deed of donation in favor
of the municipality of Pasig was executed. Zulueta wrote another
letter to said council, calling attention to the approval of Republic
Act. No. 920, and the sum of P85,000.00 appropriated therein for
the construction of the projected feeder roads in question.
Zulueta executed on December 12, 1953, while he was a member
of the Senate of the Philippines, an alleged deed of donation
constituting said projected feeder roads, in favor of the
Government of the Republic of the Philippines.
70
The lower court held that the Provincial Governor of Rizal and the
provincial fiscal thereof who represents him therein, "have the
requisite personalities" to question the constitutionality of the
disputed item of Republic Act No. 920; that "the legislature is
without power appropriate public revenues for anything but a
public purpose", that the instructions and improvement of the
feeder roads in question, if such roads where private property,
would not be a public purpose. This notwithstanding, the lower
court felt constrained to uphold the appropriation in question, upon
the ground that petitioner may not contest the legality of the
donation above referred to because the same does not affect him
directly.
effectivity of said Act, made, according to the petition, for the

purpose of giving a "semblance of legality", or legalizing, the
appropriation in question, did not cure its aforementioned basic
defect. Consequently, a judicial nullification of said donation need
not precede the declaration of unconstitutionality of said
appropriation.
DISPOSITIVE: Pascual won. Decision appealed from is reversed,
and the records are remanded to the lower court for further
proceedings not inconsistent with this decision, with the costs of
this instance against respondent Jose C. Zulu
CASE 53: MEDRANO
ISSUE: WON the appropriation amounting to P85,000.000 were

for a public purpose.
COMMISSIONER OF INTERNAL REVENUE VS. CENTRAL

LUZON DRUG CORP.
HELD: NO. The said appropriation sought a private purpose,

hence null and void. The rule is set forth in Corpus Juris
Secundum in the following language: In accordance with the rule
that the taxing power must be exercised for public purposes only,
discussed supra sec. 14, money raised by taxation can be
expended only for public purposes and not for the advantage of
private individuals.
DOCTRINE: The concept of public use is no longer confined to

the traditional notion of use by the public, but held synonymous
with public interest, public benefit, public welfare, and public
convenience.
Tax measures are but enforced contributions exacted on pain of

penal sanctions and clearly imposed for a public purpose. x x x
[However,] social justice cannot be invoked to trample on the
rights of property owners who under our Constitution and laws are
also entitled to protection. The social justice consecrated in our
[C]onstitution [is] not intended to take away rights from a person
and give them to another who is not entitled thereto. For this
reason, a just compensation for income that is taken away from
respondent becomes necessary.
Referring to the P85,000.00 appropriation for the projected feeder

roads in question, the legality thereof depended upon whether
said roads were public or private property when the bill, which,
latter on, became Republic Act 920, was passed by Congress, or,
when said bill was approved by the President and the
disbursement of said sum became effective, or on June 20, 1953
(see section 13 of said Act). Inasmuch as the land on which the
projected feeder roads were to be constructed belonged then to
respondent Zulueta, the result is that said appropriation sought a
private purpose, and hence, was null and void. The donation to
the Government, over five (5) months after the approval and
FACTS:
1. Central Luzon Drug Corp. (Mercury Drug) is a domestic
corporation primarily engaged in retailing of medicines and
other pharmaceutical products.
71
2. From January to December 1996, respondent granted 20%

sales discount to qualified senior citizens on their
purchases of medicines pursuant to R.A. 7432 and its
IRRs. For the said period, the amount allegedly
representing the 20% sales discount granted by
respondent
to
qualified
senior
citizens
totaled P904,769.00.
3. On April 15, 1997, respondent filed its Annual Income Tax
Return for taxable year 1996 declaring therein that it
incurred net losses from its operations.
4. Thereafter, respondent filed with petitioner a claim for tax
refund/credit in the amount aforestated.
5. Unable to obtain affirmative response from petitioner,
respondent elevated its claim to the CTA which dismissed
the same.
6. The petition was eventually granted by the CA, and the
petitioner was ordered to issue a Tax Credit Certificate in
favor of respondent.
ISSUE: WON respondent is entitled to the refund.
RULING: Yes. Be it stressed that the privilege enjoyed by senior
citizens does not come directly from the State, but rather from the
private establishments concerned. Accordingly, the tax credit
benefit granted to these establishments can be deemed as
their just compensation for private property taken by the State for
public use.
The concept of public use is no longer confined to the traditional
notion of use by the public, but held synonymous with public
interest, public benefit, public welfare, and public convenience.
The discount privilege to which our senior citizens are entitled is
actually a benefit enjoyed by the general public to which these
citizens belong. The discounts given would have entered the
coffers and formed part of the gross sales of the private
establishments concerned, were it not for RA 7432. The
permanent reduction in their total revenues is a forced subsidy

corresponding to the taking of private property for public use or
benefit.
As a result of the 20% discount imposed by RA 7432, respondent
becomes entitled to a just compensation. This term refers not only
to the issuance of a tax credit certificate indicating the correct
amount of the discounts given, but also to the promptness in its
release. Equivalent to the payment of property taken by the State,
such issuance -- when not done within a reasonable time from the
grant of the discounts -- cannot be considered as just
compensation. In effect, respondent is made to suffer the
consequences of being immediately deprived of its revenues while
awaiting actual receipt, through the certificate, of the equivalent
amount it needs to cope with the reduction in its revenues.
Besides, the taxation power can also be used as an implement for
the exercise of the power of eminent domain. Tax measures are
but enforced contributions exacted on pain of penal sanctions
and clearly imposed for a public purpose. In recent years, the
power to tax has indeed become a most effective tool to realize
social justice, public welfare, and the equitable distribution of
wealth.
While it is a declared commitment under Section 1 of RA 7432,
social justice cannot be invoked to trample on the rights of
property owners who under our Constitution and laws are also
entitled to protection. The social justice consecrated in our
[C]onstitution [is] not intended to take away rights from a person
and give them to another who is not entitled thereto. For this
reason, a just compensation for income that is taken away from
respondent becomes necessary. It is in the tax credit that our
legislators find support to realize social justice, and no
administrative body can alter that fact.
72
DISPOSITIVE: Petiton is denied. The assailed decision and

resolution of the CA is affirmed.
CASE 54: AGBISIT
providing for the creation of NTC and granting its rate-fixing

powers, nor of E.O. 196, placing PHILCOMSAT under the
jurisdiction of NTC, can it be inferred that NTC is guided by any
standard in the exercise of its rate-fixing and adjudicatory powers.
PHIL. COMM. SATELLITE CORP. V. ALCUAZ
ISSUE: Whether or not there is an undue delegation of power?
DOCTRINE: In case of a delegation of rate-fixing power, the only

standard which the legislature is required to prescribe for the
guidance of administrative authority is that the rate be reasonable
and just.
HELD: NO. NTC, in the exercise of its rate-fixing power, is limited

by the requirements of public safety, public interest, reasonable
feasibility and reasonable rates, which conjointly more than satisfy
the requirements of a valid delegation of legislative power.
Fundamental is the rule that delegation of legislative power may
be sustained only upon the ground that some standard for its
exercise is provided and that the legislature in making the
delegation has prescribed the manner of the exercise of delegated
power. Therefore, when the administrative agency concerned,
respondent NTC, in this case, establishes a rate, its act must both
be non-confiscatory and must have been established in the
manner prescribed by the legislature; otherwise, in the absence of
a fixed standard, the delegation of power becomes
unconstitutional. In case of a delegation of rate-fixing power, the
only standard which the legislature is required to prescribe for the
guidance of administrative authority is that the rate be reasonable
and just. However, it has been held that even in the absence of an
express requirement as to reasonableness, this standard may be
implied.
FACTS: Philippine Communications Satellite Corporation

(PHILCOMSAT), by virtue of R.A. 5514, was granted a franchise
to establish, construct, maintain and operate in the Philippines, at
such places as the grantee may select, station or stations and
associated equipment facilities for international satellite
communications. It was also granted the authority to construct
and operate such ground facilities as needed to deliver
telecommunications services from the communications satellite
system and ground terminal or terminals. Under Sec. 5 of the
same law, PHILCOMSAT was exempt from the jurisdiction of the
NTC. However, pursuant to E.O. 196, PHILCOMSAT was placed
under the jurisdiction, control and regulation of NTC.
PHILCOMSAT then filed, with NTC, an application for authority to
continue operating and maintaining its facilities, to continue
providing the international satellite communications services, and
to charge the current rates. PHILCOMSAT was granted
provisional authority to continue operating its facilities, to render
services, and to charge the rates it was charging. Upon the
expiration of said provisional authority, it was extended for another
6 months, however, NTC directed PHILCOMSAT to reduce its
current rates by 15%, based in the formers power to fix the rates
on E.O. 546. PHILCOMSAT assails the said order of the NTC,
arguing that there was undue delegation of legislative power.
PHILCOMSAT asserts that nowhere in the provisions of E.O. 546,
DISPOSITIVE: Phil. Comm. Satellite Corp. won. (There is no

undue delegation of power to the NTC, however, there was a
violation of due process due to lack of notice and hearing.)
73

MERALCO V PROVINCE OF LAGUNA
DOCTRINE: Under the current Constitution, where there is neither
a grant nor a prohibition to the local government by statute, the tax
power must be deemed to exist although Congress may provide
statutory limitations and guidelines. Nevertheless, the fundamental
law did not intend the delegation to be absolute and unconditional;
the constitutional objective obviously is to ensure that, while the
local government units are being strengthened and made more
autonomous, the legislature must still see to it that (a) the taxpayer
will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have
its fair share of available resources; (c) the resources of the
national government will not be unduly disturbed; and (d) local
taxation will be fair, uniform, and just.
FACTS: MERALCO was granted franchise for the supply of
electric light, heat, and power by certain municipalities of the
Province of Laguna and the National Electrification Administration.
Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, was enacted to take effect on 01
January 1992 enjoining local government units to create their own
sources of revenue and to levy taxes, fees and charges, subject to
the limitations expressed therein, consistent with the basic policy
of local autonomy. Pursuant to the provisions of the Code,
respondent province enacted Laguna Provincial Ordinance
providing for franchise tax at a rate of 50% of 1% of the gross
annual receipts. Provincial Treasurer, then sent a demand letter to
MERALCO for the corresponding tax payment. Petitioner
MERALCO paid the tax under protest. A formal claim for refund
was thereafter sent by MERALCO to the Provincial Treasurer of
Laguna claiming that the franchise tax it had paid and continued to
pay to the National Government pursuant to P.D. 551 already
included the franchise tax imposed by the Provincial Tax
Ordinance. MERALCO contended that the imposition of a

franchise tax under Section 2.09 of Laguna Provincial Ordinance
No. 01-92, insofar as it concerned MERALCO, contravened the
provisions of Section 1 of P.D. 551 which provides Any provision
of law or local ordinance to the contrary notwithstanding, the
franchise tax payable by all grantees of franchises to generate,
distribute and sell electric current for light, heat and power shall be
two per cent (2%) of their gross receipts received from the sale of
electric current and from transactions incident to the generation,
distribution and sale of electric current Such franchise tax shall
be payable to the Commissioner of Internal Revenue or his duly
authorized representative. The claim for refund of petitioner was
denied in a letter signed by the Governor. In denying the claim,
respondents relied on a more recent law, i.e., Republic Act No.
7160 or the Local Government Code of 1991, than the old decree
invoked by petitioner. Petitioner MERALCO filed with the RTC a
complaint for refund against the Province of Laguna RTC
dismissed the complaint holding that the power to tax exercised by
the province of Laguna was valid.
ISSUE: WON there was a valid exercise of power to tax based on
R.A. 7160.
RULING: YES. Prefatorily, it might be well to recall that local
governments do not have the inherent power to tax except to the
extent that such power might be delegated to them either by the
basic law or by statute. Presently, under Article X of the 1987
Constitution, a general delegation of that power has been given in
favor of local government units. Under the regime of the 1935
Constitution no similar delegation of tax powers was provided, and
local government units instead derived their tax powers under a
limited statutory authority. Whereas, then, the delegation of tax
powers granted at that time by statute to local governments was
confined and defined (outside of which the power was deemed
withheld), the present constitutional rule (starting with the 1973
Constitution), however, would broadly confer such tax powers
74
subject only to specific exceptions that the law might prescribe.

Under the now prevailing Constitution, where there is neither a
grant nor a prohibition by statute, the tax power must be deemed
to exist although Congress may provide statutory limitations and
guidelines. The basic rationale for the current rule is to safeguard
the viability and self-sufficiency of local government units by
directly granting them general and broad tax powers.
Nevertheless, the fundamental law did not intend the delegation to
be absolute and unconditional; the constitutional objective
obviously is to ensure that, while the local government units are
being strengthened and made more autonomous, the legislature
must still see to it that (a) the taxpayer will not be over-burdened
or saddled with multiple and unreasonable impositions; (b) each
local government unit will have its fair share of available
resources; (c) the resources of the national government will not be
unduly disturbed; and (d) local taxation will be fair, uniform, and
just. The 1991 Code explicitly authorizes provincial governments,
notwithstanding any exemption granted by any law or other
special law, x x x (to) impose a tax on businesses enjoying a
franchise. Indicative of the legislative intent to carry out the
Constitutional mandate of vesting broad tax powers to local
government units, the Local Government Code has effectively
withdrawn under Section 193 thereof, tax exemptions or incentives
theretofore enjoyed by certain entities. The Code, in addition,
contains a general repealing clause in its Section 534 which states
that All general and special laws, acts, city charters, decrees,
executive orders, proclamations and administrative regulations, or
part or parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified
accordingly.
CASE 56: REYES

SMITH, BEL & CO VS COMMISSIONER ON INTERNAL
REVENUE (CIR)
FACTS: August 1963 to August 1965 the petitioner imported 119
cases of "Chatteau Gay" wine which it declared as "still wine"
under Section 134(b) of the Tax Code and paid thereon the
specific tax of P1.00 per liter of volume capacity. To determine the
correct amount of the specific tax due on the petitioner's
importation, the Commissioner of Internal Revenue ordered it
tested and analyzed in the Bureau of Internal Revenue Laboratory
Center. The analyst who conducted the laboratory test reported
that Chatteau Gay "is a delicate table wine, with an alcohol
content of 9.5% by volume and concluded that it should be
classified as "sparkling wine."
On the basis of the analyst's report and recommendation, the
Commissioner assessed the petitioner a deficiency specific tax on
the 119 cases of imported Chatteau Gay in the sum of P11,713.90
under Section 134(a) of the Tax Code which imposes a specific
tax of P12.00 per liter of volume capacity on sparkling wines.
The petitioner does not dispute the mathematical correctness of
the Commissioner's assessment, but contends that the
assessment is unconstitutional because Section 134(a) of the Tax
Code under which it was issued lays down an insufficient and
hazy standard by which the policy and purpose of the law may be
ascertained and as well gives the Commissioner blanket authority
to decide what is or is not the meaning of "sparkling wines." The
argument is thus advanced that there is here an abdication of
legislative power violative of the established doctrine, delegata
75
potestas non potest delegate, and the due process clause of the
Constitution
ISSUE: Whether or not there was an abdication of legislative
power in violation of the established doctrine, delegate potestas
non potest delegate
HELD: NO. The purpose of Section 134 of the Tax code is to
impose a specific tax on wines and imitation wines. The first
clause of Section 134 states so in plain language. The sole object
of the sub-enumeration that follows is in turn unmistakably to
prescribe the amount of the tax specifically to be paid for each
type of wine and/or imitation wine so classified and described. The
section therefore clearly and indubitably discloses the legislative
will, leaving to the officers charged with implementation and
execution thereof no more than the administrative function of
determining whether a particular kind of wine or imitation wine falls
in one class or another.
Section 134 of the Tax Code provides:
Specific tax on wines. On wines and imitation wines there shall
be collected, per liter of volume capacity, the following taxes:
(a) Sparkling wines, regardless of proof, twelve pesos.
(b) Still wines containing fourteen per centum of alcohol or less,
except those produced from casuy and duhat, one peso.
(c) Still wines containing more than fourteen per centum of
alcohol, two pesos.
Imitation wines containing more than twenty-five per centum of
alcohol shall be taxed as distilled spirits.
CASE 57: DACARA

CITY GOVT OF QUEZON CITY V. BAYANTEL
DOCTRINES: The power to tax is primarily vested in the
Congress; however, in our jurisdiction, it may be exercised by
local legislative bodies, no longer merely be virtue of a valid
delegation as before, but pursuant to direct authority conferred by
Section 5, Article X of the Constitution. Under the latter, the
exercise of the power may be subject to such guidelines and
limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.
The grant of taxing powers to LGUs under the Constitution and the
LGC does not affect the power of Congress to grant exemptions to
certain persons, pursuant to a declared national policy.
FACTS: Bayantel is a legislative franchise holder under Republic
Act No. 3259 to establish and operate radio stations for domestic
telecommunications, radiophone, broadcasting and telecasting
located at Quezon City.
Thereafter, Congress enacted Rep. Act No. 7633, amending
Bayantels original franchise. It provided that the same, its
successors or assigns shall be liable to pay the same taxes on
their real estate, buildings and personal property, exclusive of this
franchise, as other persons or corporations are now or hereafter
may be required by law to pay. In addition thereto, the grantee, its
successors or assigns shall pay a franchise tax equivalent to three
percent (3%) of all gross receipts of the telephone or other
telecommunications businesses transacted under this franchise by
the grantee, its successors or assigns and the said percentage
shall be in lieu of all taxes on this franchise or earnings thereof.
It is undisputed that within the territorial boundary of Quezon City,
76
Bayantel owned several real properties on which it maintained

various telecommunications facilities.
The City Assessor issued new tax declarations for Bayantels real
properties in Quezon City. Bayantel wrote the office of the City
Assessor seeking the exclusion of its real properties in the city
from the roll of taxable real properties. With its request having
been denied, Bayantel interposed an appeal with the Local Board
of Assessment Appeals (LBAA). And, evidently on its firm belief of
its exempt status, Bayantel did not pay the real property taxes
assessed against it by the Quezon City government.
In 1993, the government of Quezon City, pursuant to the taxing
power vested on local government units by Section 5, Article X of
the 1987 Constitution, in relation to Section 232 of the LGC,
enacted City Ordinance No. SP-91, S-93, otherwise known as the
Quezon City Revenue Code (QCRC), imposing, under Section 5
thereof, a real property tax on all real properties in Quezon City,
and, reiterating in its Section 6, the withdrawal of exemption from
real property tax under Section 234 of the LGC. Furthermore,
much like the LGC, the QCRC, under its Section 230, withdrew tax
exemption privileges in general.
On account thereof, the Quezon City Treasurer sent out notices of
delinquency, followed by the issuance of several warrants of levy
against Bayantels properties preparatory to their sale at a public
auction.
Threatened with the imminent loss of its properties, Bayantel
immediately withdrew its appeal with the LBAA and instead filed
with the RTC of Quezon City a petition for prohibition with an
urgent application for a temporary restraining order (TRO) and/or
writ of preliminary injunction.
RTC: Ruled in favor of respondent and declared that the
properties of Bayantel in QC are exempt from real estate taxation.
Also, the trial court denied petitioner's motion for reconsideration.

ISSUE: WON the Bayantels real properties in Quezon City are,
under its franchise, exempt from real property tax.
RULING: YES. The power to tax is primarily vested in the
Congress; however, in our jurisdiction, it may be exercised by
local legislative bodies, no longer merely be virtue of a valid
delegation as before, but pursuant to direct authority conferred by
Section 5, Article X of the Constitution. Under the latter, the
exercise of the power may be subject to such guidelines and
limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.
A clash between the inherent taxing power of the legislature,
which necessarily includes the power to exempt, and the local
governments delegated power to tax under the aegis of the 1987
Constitution must be ruled in favor of the former. The grant of
taxing powers to LGUs under the Constitution and the LGC does
not affect the power of Congress to grant exemptions to certain
persons, pursuant to a declared national policy. The legal effect of
the constitutional grant to local governments simply means that in
interpreting
statutory
provisions
on
municipal
taxing
powers, doubts must be resolved in favor of municipal
corporations.
The legislative intent expressed in the phrase exclusive of this
franchise cannot be construed other than distinguishing between
two (2) sets of properties, be they real or personal, owned by the
franchisee, namely, (a) those actually, directly and exclusively
used in its radio or telecommunications business, and (b) those
properties which are not so used. It is worthy to note that the
properties subject of the present controversy are only those which
are admittedly falling under the first category.
Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly
77
aware that the LGC has already withdrawn Bayantels former

exemption from realty taxes, Congress opted to pass Rep. Act No.
7633 using, under Section 11 thereof, exactly the same defining
phrase "exclusive of this franchise" which was the basis for
Bayantels exemption from realty taxes prior to the LGC. In plain
language, Section 11 of Rep. Act No. 7633 states that "the
grantee, its successors or assigns shall be liable to pay the same
taxes on their real estate, buildings and personal property,
exclusive of this franchise, as other persons or corporations are
now or hereafter may be required by law to pay." The Court views
this subsequent piece of legislation as an express and real
intention on the part of Congress to once again remove from the
LGCs delegated taxing power, all of the franchisees (Bayantels)
properties that are actually, directly and exclusively used in the
pursuit of its franchise.
sale of goods and properties, Section 5 imposes a 10% VAT on

importation of goods, and Section 6 imposes a 10% VAT on sale
of services and use or lease of properties. These questioned
provisions also authorize the President, upon recommendation of
the Secretary of Finance, to raise the VAT rate to 12%. ABAKADA
GURO Party List argue that the law is unconstitutional.
DISPOSITIVE: Bayantel won.
RULINGS: 1. NO. Since there is no question that the revenue bill

exclusively originated in the House of Representatives, the Senate
was acting within its constitutional power to introduce
amendments to the House bill when it included provisions in
Senate Bill No. 1950 amending corporate income taxes,
percentage, and excise and franchise taxes.
CASE 58: CARILLO

ABAKADA GURO PARTY LIST VS. ERMITA
ISSUES: 1. Whether or not there is a violation of Article VI,

Section 24 of the Constitution.
2. WON there is undue delegation of legislative power in violation
of Article VI Sec 28(2) of the Constitution.
3. WON there is a violation of the due process and equal
protection under Article III Sec. 1 of the Constitution.
DOCTRINE: The power of the State to make reasonable and

natural classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind
of property, the rates to be levied, or the amounts to be raised, the
methods of assessment, valuation and collection, the States
power is entitled to presumption of validity. As a rule, the judiciary
will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.
2. NONE. There is no undue delegation of legislative power but

only of the discretion as to the execution of a law. This is
constitutionally permissible. Congress does not abdicate its
functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the only way
in which the legislative process can go forward.
FACTS: Before R.A. No. 9337 took effect, petitioners ABAKADA

GURO Party List, et al., filed a petition for prohibition questioning
the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the National
Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on
3. NONE. The power of the State to make reasonable and natural

classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind
of property, the rates to be levied, or the amounts to be raised, the
methods of assessment, valuation and collection, the States
78
power is entitled to presumption of validity. As a rule, the judiciary

will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.
DISPOSITIVE: Ermita won
CASE 59: MARASIGAN
MANILA GAS
REVENUE
CORP.
V.
COLLECTOR
OF
INTERNAL
DOCTRINE: The taxing power of a state does not extend beyond

its territorial limits, but within such it may tax persons, property,
income, or business. If an interest in property is taxed, the situs of
either the property or interest must be found within the state. If an
income is taxed, the recipient thereof must have a domicile within
the state or the property or business out of which the income
issues must be situated within the state so that the income may be
said to have a situs therein. Personal property may be separated
from its owner, and he may be taxed on its account at the place
where the property is although it is not the place of his own
domicile and even though he is not a citizen or resident of the
state which imposes the tax. But debts owing by corporations are
obligations of the debtors, and only possess value in the hands of
the creditors.
FACTS:
1. Plaintiff is a corporation organized under the laws of the
Philippines, operating a gas plant in the Manila and furnishes
gas service to the people and surrounding municipalities by
virtue of a franchise granted to it by the Philippine
Government. Associated with the plaintiff are the Islands Gas
and Electric Company domiciled in New York, United States,
and the General Finance Company domiciled in Zurich,
Switzerland. Neither is a resident of the Philippines.
2. For the years 1930, 1931, and 1932, dividends in the sum of
P1,348,847.50 were paid by the plaintiff to the Islands Gas
and Electric Company in the capacity of stockholders upon
which withholding income taxes were paid to the defendant
totalling P40,460.03. For the same years, interest on bonds in
the sum of P411,600 was paid by the plaintiff to the Islands
Gas and Electric Company upon which withholding income
taxes were paid to the defendant totalling P12,348. Finally for
the stated time period, interest on other indebtedness in the
sum of P131,644,90 was paid by the plaintiff to the Islands
Gas and Electric Company and the General Finance Company
respectively upon which withholding income taxes were paid to
the defendant totalling P3,949.34.
3. Appellant first contends that the dividends paid by it to its
stockholders, the Islands Gas and Electric Company , were
not subject to tax because to impose a tax thereon would be to
do so on the plaintiff corporation, in violation of the terms of its
franchise and would, moreover, be oppressive and inequitable.
This argument is predicated on the constitutional provision that
no law impairing the obligation of contracts shall be enacted.
ISSUE: WON the interest on bonds and other indebtedness of the
plaintiff corporation, paid by it outside of the Philippine Islands to
corporations not residing therein, were income from Philippine
sources, and hence not subject to Philippine income tax.
RULING: YES.The Manila Gas Corporation operates its business
entirely within the Philippines. Its earnings, therefore come from
local sources. The place of material delivery of the interest to the
foreign corporations paid out of the revenue of the domestic
corporation is of no particular moment. The place of payment even
if conceded to be outside of the country cannot alter the fact that
the income was derived from the Philippines. The word "source"
conveys only one idea,that of origin, and the origin of the income
was the Philippines.
79
CASE 60: MOLON

VEGETABLE OIL CORPORATION vs. WENCESLAO TRINIDAD
DOCTRINE: A shipment is a shipment no matter what its purpose
may be and the only requisite for the collection of the tax upon it
is, that the consignor or shipper must be a merchant.
A shipment is a shipment no matter what its purpose may be and
the only requisite for the collection of the tax upon it is that the
consignor or shipper must be a merchant. It would, indeed, be
unreasonable to require the tax collector to postpone the collection
of the tax on a shipment until he could ascertain what had
ultimately been done with the goods shipped.
FACTS: This action is brought to recover back merchants'
percentage taxes to the amount of P19,975.70 levied on
consignments under section 1459 of Act No. 2711 and paid by the
plaintiff under protest.
PLAINTIFF IS MURPHY WHO IS ALSO THE CONSIGNEE.
The pertinent portions of the section mentioned, which went into
effect on October 1, 1917, reads as follows:
All merchants not herein specifically exempted shall pay a tax of
one per centum on the gross value in money of the commodities,
goods, wares, and merchandise sold..
"Merchant," as here used, means a person engaged in the sale,
barter, or exchange of personal property of whatever character.
Except as specially provided, the term includes manufacturers
who sell articles of their own production and commission
merchants having establishments of their own for the keeping and
disposal of goods of which sales or exchanges are effected, but

does not include merchandise brokers.
The case was submitted to the Court of First Instance upon the
following agreed statement of facts:
The parties hereto have agreed, and do agree, that the following
facts shall be considered as having been proven in the above
cause:
The plaintiff is a foreign corporation, duly licensed to transact
business in the Philippine Islands and having its principal
place of business therein in the City of Manila. Defendant is
the duly appointed and acting Collector of Internal Revenue of
the Philippine Islands.
(2) Defendant, under the alleged authority of section 1459 of Act
No. 2711, demanded of plaintiff a tax of one per centum (1%) of
the value of the shipments of copra on several occassions.
Plaintiff, on these several occasions paid to avoid penalties and
forfeitures for non-payment, paid to defendant the sum demanded
by the same under written protest, which protest defendant
overruled.
COURT OF FIRST INSTANCE: Upon the facts so stated the CFI
rendered judgment in favor of the plaintiff for the recovery of the
full amount of the tax paid and the case is now before us upon
appeal by the defendant from that judgment.
ISSUE: WON the Respondent can Impose tax on foreign
merchants?
RULING: YES. If the tax were one on sales, we would readily
agree that the sales, in order to be taxable in the Philippine
Islands, must be consummated there; the Philippine
Government cannot, of course, collect privilege taxes on sales
80
taking place in foreign countries no matter whether the vendor is a

Philippine merchant or whether he is a foreign one. Neither can
the Government impose such taxes on consignments from one
foreign port to another.
But, with the approval of Congress, it may legally levy taxes on
consignments from Philippine ports. That is what has been done in
the present instance. It has imposed the tax on local transactions;
it does not seek to tax transactions carried out abroad.
But when a foreign merchant, as the word "merchant" is defined
in our statutes, comes to our shores and enters into transactions
upon which a tax is laid, the Government can, and does, place him
on an equality with domestic merchants and requires him to pay
the same privilege taxes.
It is not disputed that the Legislature has the power to define the
class of persons who must pay certain local taxes; in fact, the
appellee's argument rests precisely on such a statutory definition.
Neither can it be questioned that the Government may impose
taxes on local business transacted by foreigners. In the absence
of words of limitation or exemption in the statute, why must we
then assume that, in defining the word "merchants," the class of
persons required to pay consignment taxes, the definition applies
only to domestic and not to foreign merchants?
Perhaps it will be argued that a statutory definition is only of local
application and is of no legal effect beyond the boundaries of the
country in which the statute is enacted. That is true, but has
nothing to do with the present case.
We are not here applying the definition in relation to the collection
of a foreign tax; we are considering it in connection with the tax on
a local transaction.
To hold that only persons who engage in sales, barter or
exchange in the Philippine Islands are to pay the tax on
consignments would place the local merchants at a serious

disadvantage in competition with the foreign merchants, and
would defeat the very evident purpose of the tax.
The language of the statute is perfectly clear and places the
burden of the tax on all merchants alike. Are we then justified in
exempting some of the merchants by reading non-existent
provisions into the statute which would defeat its unmistakable
intent and seriously handicap the local merchants, in some cases,
perhaps, driving them out of business? We submit that to do so
would violate every canon of statutory construction and would
clearly amount to unwarranted judicial legislation.
DISPOSITIVE PORTION:
It would, indeed, be unreasonable to require the tax collector to
postpone the collection of the tax on a shipment until he could
ascertain what had ultimately been done with the goods shipped.
For the reasons stated, the judgment appealed from is hereby
reversed and the defendant is absolved from the complaint,
without costs. So ordered.
JOHNS, J., dissenting:
The statute then says that the word "Merchant" ... includes
manufacturers who sell articles of their own production and
commission merchants having establishments of their own for the
keeping and disposal of goods of which sales or exchanges are
effected, but does not include merchandise brokers."
There is no claim or pretense that the plaintiff ever sold any
articles of its own production within the Philippine Islands, or that it
is a commission merchant within the Philippine Islands. But the
majority opinion says that it is a merchant and a manufacturer in
the United States, and because it buys copra within the Philippine
81
Islands and consigns it to itself, it follows that it is and has been a

merchant within the Philippine Islands.
The statute having defined the meaning of the word "merchant,"
this court has no legal right to enlarge upon the definition or give it
to any other or different meaning than the statute itself gives. Yet,
that is what the majority opinion does. It would have been a very
easy matter for the Legislature, in defining the word "merchant," to
have said that any person who buys copra or tobacco or hemp in
the Philippine Islands to be consigned abroad is a merchant within
the meaning of the act. The Legislature did not say that, but in
legal effect that is what the majority opinion has said.
A statute ought not to be construed for or against the interests of
resident merchants or anyone else.
The majority opinion says:
To hold that only persons who engage in sales, barter or
exchange in the Philippine Islands are to pay the tax on
consignments would place the local merchants at a serious
disadvantage in competition with the foreign merchants, and
would defeat the very evident purpose of the tax.
CASE 61: VILLANUEVA
WELLS FARGO BANK VS COLLECTOR
DOCTRINE: As a rule, intangibles follow the person (mobilia
sequuntur personam). Hence, intangibles are taxable in the place
where their owner may be domiciled. However, Section 104 of the
NIRC provides that if the shares have attained business situs here
in the Philippines, then said shares are taxable here even if the
owner of said shares are domiciled abroad.
Consolidated Mining Company, a corporation organized and

existing under Philippine laws.
The Collector of Internal Revenue sought to assess and collect
estate tax on the said shares. Wells Fargo Banks & Union Trust
Company, the trustee of the estate of the decedent Eye, objected
to said assessment. Wells Fargo averred that said shares were
already subjected to inheritance tax in California and hence
cannot be taxed again in the Philippines (note at that time the
Philippines was still under the Commonwealth and were not yet
totally independent from the US).
ISSUE:
WON the shares are subject to estate tax in the
Philippines.
RULING: YES. The Supreme Court ruled that even though the
Philippines was considered a US territory at that time, it is still a
separate jurisdiction from the US in several aspects particularly
taxation. Hence, the Philippines has the power to tax said shares.
The situs of taxation is here in the Philippines because the situs of
the shares of stock concerned is here in the Philippines because
of the fact that the said shares were issued here by a corporation
organized and existing under the laws of the Philippines which is
also domiciled here. Further, (and this is the deeper reason), when
Eye was alive, she actually delivered the title to said shares to the
resident secretary of the corporation here in the Philippines hence
the shares never left the Philippines. Accordingly, the jurisdiction
of the Philippine Government to tax must be upheld.
DISPOSITIVE: Judgment is AFFIRMED, with costs against
petitioner-appellant.
FACTS: On September 1932, Birdie Lillian Eye died in Los

Angeles, California, USA which was also her place of domicile.
She left various properties. Among those properties include some
intangibles consisting of 70,000 shares in the Benguet
82
CASE 62: CACHAPERO

ILOILO BOTTLERS, INC. vs. CITY OF ILOILO
DOCTRINE: This Court has always recognized that the right to
manufacture implies the right to sell/distribute the manufactured
products. Hence, for tax purposes, a manufacturer does not
necessarily become engaged in the separate business of selling
simply because it sells the products it manufactures. In certain
cases, however, a manufacturer may also be considered as
engaged in the separate business of selling its products.
FACTS: That plaintiff Iloilo Bottlers, Inc. is engaged in the
business of bottling softdrinks under the trade name of Pepsi Cola
And 7-up and selling the same to its customers, with a bottling
plant situated at Barrio Ungca Municipality of Pavia, Iloilo and
which is outside the jurisdiction of defendant Iloilo City.
Defendant enacted an ordinance on January 11, 1960 known as
Ordinance No. 5, Series of 1960, as amended, which provides:
Section l. Any person, firm or corporation engaged in
the distribution, manufacture or bottling of coca-cola, pepsi
cola, tru-orange, seven-up and other soft drinks within the
jurisdiction of the City of Iloilo, shall pay a municipal license
tax of ten (P0.10) centavos for every case of twenty-four
bottles; PROVIDED, HOWEVER, that softdrinks sold to the
public at not more than five (P0.05) centavos per bottle
shall pay a tax of one and one half (P0.015) (centavos) per
case of twenty four bottles.
Section 1-AFor purposes of this Ordinance, all
deliveries and/or dispatches emanating or made at the
plant and all goods or stocks taken out of the plant for
distribution, sale or exchange irrespective (of) where it
would take place shall be covered by the operation of this
Ordinance.
Since the plaintiff transferred its plant to Barrio Ungca Municipality

of Pavia, Iloilo which is outside the jurisdiction of the City of Iloilo,
it stopped paying the municipal license tax. Defendant demanded
from the plaintiff compliance with the said ordinance for 1972 in
view of the fact that it was engaged in distribution of the softdrinks
in the City of Iloilo, and it further demanded from the plaintiff
payment of back taxes from the time it transferred its bottling plant
to the Municipality of Pavia, Iloilo. Plaintiff demurred to the said
demand of the defendant raising as its jurisdiction the reason that
its bottling plant is situated outside the City of Iloilo and as bottler
could not be considered as distributor under the said ordinance
although it sells its product directly to the consumer, but due to
insistence of the defendant, the plaintiff paid the first quarter
payment of the municipal licence tax in the sum of P3,329.20,
under protest, and thereafter has been paying defendant every
quarter under protest. Defendant informed the plaintiff that it must
pay all the taxes due since July, 1968 up to the last quarter of
1971, otherwise it shall be constrained to cancel the operation of
the business of the plaintiff, and because of this threat, and so as
not to occasion disruption of its business operation, the plaintiff
under protest agreed to the payment of the back taxes, on
staggered basis, which was acceded to by the defendant;
Plaintiff
does not maintain any store or commercial establishment
in the City of Iloilo from which it distributes its products, but
by means of a fleet of delivery trucks, plaintiff distributes its
products from its bottling plant at Barrio Ungca Municipality
of Pavia, Iloilo, directly to its customers in the different
towns of the Province of Iloilo as well as the City of Iloilo.
is already paying the National Government a percentage
Tax of 71/t, as manufacturer's sales tax on all the
softdrinks it manufactures.
83
and is also paying the municipal license tax to the

municipality of Pavia, Iloilo in the amount of P l0,000.00
every year,
plus a municipal license tax for engaging in its
business to the municipality of Pavia in its amount of
P2,000.00 every year.
filed a complaint with the CFI Iloilo praying for the recovery
of the sum of P3,329.20, which amount allegedly
constituted payments of municipal license taxes under
Ordinance No. 5 series of 1960, as amended, that the
company paid under protest.
Court A Quo
Rendered a decision in favor of Iloilo Bottlers, Inc. declaring the
Corporation not liable under the ordinance and directing the City of
Iloilo to pay
1) the sum of' P3,329.20.
2) the amounts paid by the company after the filing of the
complaint.
The tax ordinance imposes a tax on persons, firms, and
corporations engaged in the business of:
1) distribution of soft-drinks
2) manufacture of soft-drinks, and
3) bottling of softdrinks within the territorial jurisdiction of the City
of Iloilo.
There is no question that after it transferred its plant to Pavia, Iloilo
province, Iloilo Bottlers, Inc. no longer manufactured/bottled its
softdrinks within Iloilo City. Thus, it cannot be taxed as one falling
under the second or the third type of business.
ISSUE: WON Iloilo Bottlers, Inc. is liable under the tax ordinance.
YES.
Whether the company may be considered engaged in the
distribution of softdrinks in Iloilo City, even after it had
transferred its bottling plant to Pavia, so as to be within the

purview of the ordinance. YES.
RULES
This Court has always recognized that the right to manufacture
implies the right to sell/distribute the manufactured products.
Hence, for tax purposes, a manufacturer does not necessarily
become engaged in the separate business of selling simply
because it sells the products it manufactures. In certain cases,
however, a manufacturer may also be considered as engaged in
the separate business of selling its products.
HELD: In the case at bar, the company distributed its softdrinks by
means of a fleet of delivery trucks which went directly to
customers in the different places in lloilo province. Sales
transactions with customers were entered into and sales were
perfected and consummated by route salesmen. Truck sales were
made independently of transactions in the main office. The
delivery trucks were not used solely for the purpose of delivering
softdrinks previously sold at Pavia. They served as selling units.
They were what were called, until recently, "rolling stores". The
delivery trucks were therefore much the same as the stores and
warehouses under the second marketing system. Iloilo Bottlers,
Inc. thus falls under the second category above. That is, the
corporation was engaged in the separate business of selling or
distributing soft-drinks, independently of its business of bottling
them.
The tax imposed under Ordinance No. 5 is an excise tax. It is a
tax on the privilege of distributing, manufacturing or bottling
softdrinks. Being an excise tax, it can be levied by the taxing
authority only when the acts, privileges or businesses are done or
performed within the jurisdiction of said authority. Specifically, the
situs of the act of distributing, bottling or manufacturing softdrinks
must be within city limits, before an entity engaged in any of the
activities may be taxed in Iloilo City.
84
As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo

City. Thus, We have no option but to declare the company liable
under the tax ordinance.
CASE 63: CANALITA
CIR vs. BRITISH OVERSEAS AIRWAYS CORPORATION and
COURT OF TAX APPEALS
DOCTRINE: For the source of income to be considered as coming
from the Philippines, it is sufficient that the income is derived from
activity within the Philippines. In BOAC's case, the sale of tickets
in the Philippines is the activity that produces the income. The
tickets exchanged hands here and payments for fares were also
made here in Philippine currency. The site of the source of
payments is the Philippines. The flow of wealth proceeded from,
and occurred within, Philippine territory, enjoying the protection
accorded by the Philippine government. In consideration of such
protection, the flow of wealth should share the burden of
supporting the government.
FACTS:
1. BOAC is a 100% British Government-owned Corporation
organized and existing under the laws of the United Kingdom.
As such it operates air transportation service and sells
transportation tickets over the routes of the other airline
members.
2. During the periods covered by the herein disputed tax
assessments, BOAC had still no landing rights for traffic
purposes in the Philippines. However, during the said period
as well, BOAC maintained a general sales agent in the
Philippines which were Warber Barnes and Company, Ltd.,
and later Qantas Airways which were responsible for selling
BOAC tickets covering passengers and cargoes.
3. In the first case (GR No. 65773), petitioner CIR assessed

BOAC the aggregate amount of P2,498,358.56 for deficiency
income taxes covering the years 1958 to 1963. This was
protested by BOAC. Subsequent investigation resulted in the
issuance of a new assessment, dated 16 January 1970 for the
years 1959 to 1967 in the amount of P858,307.79. BOAC paid
this new assessment under protest.
4. October 7, 1970 - BOAC filed a claim for refund of the amount
of P858,307.79, which claim was denied by the CIR on 16
February 1972. But before said denial, BOAC had already filed
a petition for review with the Tax Court on 27 January 1972,
assailing the assessment and praying for the refund of the
amount paid.
5. In the second case (GR No. 65774), BOAC was assessed
deficiency income taxes, interests, and penalty for the fiscal
years 1968-1969 to 1970-1971 in the aggregate amount of
P549,327.43, and the additional amounts of P1,000.00 and
P1,800.00 as compromise penalties for violation of Section 46
(requiring the filing of corporation returns) penalized under
Section 74 of the National Internal Revenue Code (NIRC).
6. BOAC requested that the assessment be countermanded and
set aside. In a letter, dated 16 February 1972, however, the
CIR not only denied the BOAC request for refund in the First
Case but also re-issued in the Second Case the deficiency
income tax assessment for P534,132.08 for the years 1969 to
1970-71 plus P1,000.00 as compromise penalty under Section
74 of the Tax Code. BOAC's request for reconsideration was
denied by the CIR on 24 August 1973. This case was tried
jointly with the first case.
7. CTA Decision: Reversed the CIR. It held that the proceeds of
sales of BOAC passage tickets in the Philippines by Warner
Barnes and Company, Ltd., and later by Qantas Airways,
85
during the period in question, do not constitute BOAC income

from Philippine sources "since no service of carriage of
passengers or freight was performed by BOAC within the
Philippines" and, therefore, said income is not subject to
Philippine income tax. The CTA position was that income from
transportation is income from services so that the place where
services are rendered determines the source. Hence this
petition for review.
ISSUE: WON the revenue derived by private respondent British
Overseas Airways Corporation (BOAC) from sales of tickets in the
Philippines for air transportation, while having no landing rights
here, constitute income of BOAC from Philippine sources, and,
accordingly, taxable
RULING: YES. In answering the issue, it is important to determine
first if BOAC is a resident foreign corporation or a nonresident
foreign corporation. If it is a foreign resident corporation, it is
taxable. What then is a foreign resident corporation? Under
Section 20 of the 1977 Tax Code, the term resident foreign
corporation is engaged in trade or business within the Philippines
or having an office or place of business therein.
It was held that BOAC is a resident foreign corporation. There is
no specific criterion as to what constitutes "doing" or "engaging in"
or "transacting" business. The term implies a continuity of
commercial dealings and arrangements, and contemplates, to that
extent, the performance of acts or works or the exercise of some
of the functions normally incident to, and in progressive
prosecution of commercial gain or for the purpose and object of
the business organization. In order that a foreign corporation may
be regarded as doing business within a State, there must be
continuity of conduct and intention to establish a continuous
business, such as the appointment of a local agent, and not one of
a temporary character.
BOAC, during the periods covered by the subject - assessments,
maintained a general sales agent (Warner and later on, Qantas
Airways) in the Philippines, That general sales agent, from 1959 to

1971, "was engaged in (1) selling and issuing tickets; (2) breaking
down the whole trip into series of trips each trip in the series
corresponding to a different airline company; (3) receiving the fare
from the whole trip; and (4) consequently allocating to the various
airline companies on the basis of their participation in the services
rendered through the mode of interline settlement as prescribed
by Article VI of the Resolution No. 850 of the IATA Agreement.
The regular sale of tickets, its main activity, is the very lifeblood of
the airline business, the generation of sales being the paramount
objective. There should be no doubt then that BOAC was
"engaged in" business in the Philippines through a local agent
during the period covered by the assessments.
As to the issue on whether or not the income on the sales ticket of
BOAC came from Philippine sources, hence taxable, Sec.24 of the
Tax Code provides:
Sec. 24. Rates of tax on corporations.
(b) Tax on foreign corporations.
(2) Resident corporations. A corporation organized, authorized, or
existing under the laws of any foreign country, except a foreign fife
insurance company, engaged in trade or business within the
Philippines, shall be taxable as provided in subsection (a) of this
section upon the total net income received in the preceding
taxable year from all sources within the Philippines. (Emphasis
supplied)The test of taxability is the "source", and the source of an
income is that activity ... which produced the income. This activity
is the selling of the tickets in the Philippines. Since the activity was
made in the Philippines, it is considered as taxable under the tax
laws of the Philippines.
DISPOSITIVE: WHEREFORE, the appealed joint Decision of the
Court of Tax Appeals is hereby SET ASIDE. Private respondent,
the British Overseas Airways Corporation (BOAC), is hereby
ordered to pay the amount of P534,132.08 as deficiency income
tax for the fiscal years 1968-69 to 1970-71 plus 5% surcharge,
and 1% monthly interest from April 16, 1972 for a period not to
exceed three (3) years in accordance with the Tax Code. The
86
BOAC claim for refund in the amount of P858,307.79 is hereby

denied. Without costs.
Philippine Corporations were included. However, the Collector

included the totality of the estate of Miller in the assessment of
estate and inheritance taxes.
CASE 64: SY
COLLECTOR OF INTERNAL REVENUE V. DE LARA, ET AL
DOCTRINE: For estate and inheritance tax purposes, the term
residence is synonymous with the term domicile. The two terms
may be used interchangeably without distinction.
FACTS:
1. Hugo H. Miller was an American citizen born in Santa Cruz,
California who came to the Philippines in 1905.
2. He served as a teacher and as a division superintendent in the
public school system. After his retirement, he accepted an
executive position in the local branch of Ginn & Co., a book
publisher with its principal offices in New York and Boston but he
was stationed in the Philippines as the companys representative
in the country and also in China and Japan.
3. He did not maintain a residence in the Philippines. He lived at
the Manila Hotel where his wife from the U.S. would also stay
when she comes to visit him.
4. When his wife died, he transferred to the Army and Navy Club
at the outbreak of the Pacific War. Miller also executed his will
stating that he was of Santa Cruz, California.
5. Miller then joined the Board of Censors of the US Navy. During
the war, he was taken as a prisoner by the Japanese forces in
Leyte and then he was transferred to Catbalogan where he was
reported to have been executed.
6. At the time of Millers death, he owned properties located in the
United States, shares of stocks in the US, accounts receivables
from various persons in the US and shares of stocks in the
Philippine corporations.
7. Testate proceedings were instituted where an estate and
inheritance tax covering only the shares of stock issued by
ISSUE:Whether or not the testate of Miller is subjected to estate

and inheritance taxes in the Philippines?
RULING:NO. The only properties of his estate and inheritance
taxes are those shares of stock issued by Philippine corporations,
valued at P51,906.45. it is true, as stated by the Tax Court, that
while it may be the general rule that personal property, like shares
of stock in the Philippines is taxable at the domicile of the owner
under the doctrine of mobilia secuuntur persona, nevertheless,
when he during his lifetime, extended his activities with respect to
his intangibles, so as to avail himself of the protection and benefits
of the laws of the Philippines, in such a way as to bring his person
or property within the reach of the Philippines, the reason for a
single place of taxation no longer obtains- protection, benefit, and
power over the subject matter are no longer confined to California
but also to the Philippines.
DISPOSITIVE: The appealed decision of the Court of Tax Appeals
is affirmed
CASE 65: FLORES
TANADA v ANGARA
DOCTRINE: Section 12, Article II: The Philippines adoptes the
generally accepted principles of international law las part of the
law of the land and adheres to the policy of peace, equality,
justice, freedom, cooperation and amity with all nations.
International comity: Philippine tax laws cannot applt to the
property of foreign governments.
87
FACTS: On April 15, 1994 Rizalino Navarro, the Secretary of DTI

representing the Philippine Government, signed the Final Act
Embodying the results of the Uruguay Round of Multilateral
Negotiations. By signing the Final Act he bound the Philippines to
submits to its respective competent authorities the WTO (World
Trade Organization) Agreements to seek approval.
On December 14, 1994, the Philippine Senate adopted Res No.
97 to ratify the WTO Agreement.
This is a petition seeking to nullify the ratification of the WTO
Agreement
The WTO opens access to foreign markets, especially its major
trading partners, through the reduction of tariffs on its exports,
particularly agricultural and industrial products. Thus, provides
new oppoetunities for the service sector cost and uncertainty
associated with exporting and more investment in the country.
These are the predicted benefits as reflected in the agreement
and as viewed by the signatory Senators, a free market espoused
by the WTO.
Petitioners question the concurrence of the respondents acting in
their capacities as Senators by signing the said agreement and
the constitutionality of the WTO agreement as it derogates from
the power to tax, which is lodged in the Congress and violates
Section 19, Article II, providing for the development of a self-reliant
and independent national economy, and Sections 10 and 12,
Article XII, providing for the Filipino first policy.
ISSUE: WON the provisions of the WTO Agreement and its three
annexs violates Section 19, Article II, and Sections 10 and 12
Article XII of the Constitution?
RULING: NO. By its very title, Article II of the Constitution is a
declaration of principles and state policies. These policies, are not
intended to be self-executing principles ready for enforcement

through the courts. They are used by the judiciary as aids or as
guides in the exercise of its power of judicial review, and by the
legislature in its enactment of laws. They do not embody judicially
enforceable constitutional rights but guidelines for legislation.
There was no contravention of the Constitution since Art. II or the
Declaration of Principles and State Policies is not self-executory,
and Secs. 10 and 12, Art. XII, apart from merely laying down
general principles relating to the national economy and patrimony,
should be read and understood in relation to the other sections in
said article, especially Secs. 1 and 13 thereof which read:
Sec. 1. The goals of the national economy are a more equitable
distribution of opportunities, income, and wealth; a sustained
increase in the amount of goods and services produced by the
nation for the benefit of the people; and an expanding productivity
as the key to raising the quality of life for all especially the
underprivileged.
The State shall promote industrialization and full employment
based on sound agricultural development and agrarian reform,
through industries that make full and efficient use of human and
natural resources, and which are competitive in both domestic and
foreign markets. However, the State shall protect Filipino
enterprises against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all
regions of the country shall be given optimum opportunity to
develop. . . .
xxx xxx xxx
Sec. 13. The State shall pursue a trade policy that serves the
general welfare and utilizes all forms and arrangements of
exchange on the basis of equality and reciprocity.
88
ISSUE: WON NPC is exempted to pay indirect income tax.

The Court further stated that the WTO comes with safeguards to
protect weaker economies and that the Constitution does not rule
out foreign competition.
DISPOSITIVE: Petition was denied.
RULING: YES. A chronological review of the NPC laws will show

that it has been the lawmaker's intention that the NPC was to be
completely tax exempt from all forms of taxes may it be direct and
indirect.
Direct Tax - the where the person supposed to pay the tax really
pays it. WITHOUT transferring the burden to someone else.
MACEDA V MACARAIG JR.

FACTS:
This matter of indirect tax exemption of the private respondent
National Power Corporation (NPC) is brought to the Court a
second time. Petitioner Senator Ernesto Maceda asks the Court to
reconsider the said Decision.
NPC is a public corporation created via CA 120 to undertake the
development of hydraulic power and the production of power from
other sources. RA 358 granted NPC tax and duty exemption
privileges. RA 6395 revised the charter of the NPC, tasking it to
carry out the policy of the national electrification, and provided in
detail NPCs tax exceptions.
The subsequent laws enacted expressly granted NPC exemptions
from all taxes whether direct or indirect. In 1984, however, PD
1931 and EO 93 withdrew all tax exemptions granted to all
GOCCs including the NPC but granted the President and/or the
Secretary of Finance by recommendation of the FIRB the power to
restore certain tax exemptions. Pursuant to the latter law, FIRB
issued a resolution restoring the tax and duty exemption privileges
of the NPC.
Petitioner contends that P.D. No. 938 repealed the indirect tax
exemption of NPC.
Inderect Tax - that where the tax is imposed upon

goods BEFORE reaching the consumer who ultimately pays for it,
not as a tax, but as a part of the purchase price.
The main thrust of the petition is that under the latest amendment
to the NPC charter by PD 938, the exemption of NPC from indirect
taxation was revoked and repealed. The exemption of NPC from
payment of taxes under PD 938 was expressed in general terms
ALL FORMS OF TAXES wherein there is a deletion of the
phrases "directly or indirectly" which is stated under PD 380 that is
repealed and amended by PD 938.
The use of the phrase "all forms" of taxes demonstrate the
intention of the law to give NPC all the tax exemptions it was
granted before. The rationale for this exemption is that being nonprofit public corporation created for the general good and welfare
wholly owned by the government of the Republic of the Philippines,
the NPC shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion to
enable the Corporation to pay the indebtedness and obligations
amounting to P12 Billion in total domestic indebtedness, at any
one time, and U$4 Billion in total foreign loans at any one time, as
of PD 938. The NPC must be and has to be exempt from all forms
of taxes if this goal is to be achieved.
89
The Court rules and declares that the oil companies which supply
bunker fuel oil to NPC have to pay the taxes imposed upon said
bunker fuel oil sold to NPC. By the very nature of indirect taxation,
the economic burden of such taxation is expected to be passed on
through the channels of commerce to the user or consumer of the
goods sold. Because, however, the NPC has been exempted from
both direct and indirect taxation, the NPC must be held exempted
from absorbing the economic burden of indirect taxation.
DISPOSITIVE: Respondent WON.
CASE 66-1: MEDRANO
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY V.
MARCOS
DOCTRINE: Taxation is the rule, exemption therefrom is the
exception. Thus, the exemption may be withdrawn at the pleasure
of the taxing authority. The only exception to this rule is where the
exemption was granted to private parties based on material
consideration of a mutual nature, which then becomes contractual
and is thus covered by the non-impairment clause of the
Constitution.
FACTS:
1. Petitioner Mactan Cebu International Airport Authority
(MCIAA) was created by virtue of RA 6958, mandated to
principally undertake the economical, efficient and effective
control, management and supervision of the Mactan
International Airport in Cebu & the Lahug Airport, and such
other airports as may be established in Cebu.
2. Since time of its creation, MCIAA enjoyed the privilege of
exemption from payment of realty taxes in accordance with
Section 14 of its charter.
3. However, Mr. Cesa, officer-in-charge, Office of the

Treasurer in Cebu City, demanded payment for realty
taxes on several parcels of land belonging to MCIAA.
4. MCIAA objected claiming in its favor Sec. 14 of RA 6968
which exempts it from payment of realty taxes. It asserted
that it is an instrumentality of the government performing
government functions, citing Sec. 133 of the Local
Government Code which puts limitations on the taxing
powers of local government units.
a. Sec. 133 provides that the exercise of the taxing
powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of (o)
Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities,
and local government units.
5. Respondent City of Cebu refused to cancel and set aside
MCIAAs realty tax account, insisting that MCIAA is a
government-controlled corporation whose tax exemption
privilege has been withdrawn by virtue of Sections 193 &
234 of the Local Government Code.
a. Sec 193 provides that tax exemptions or
incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including
government-owned or controlled corporation,
except local water districts, cooperatives duly
registered under RA 6938, non-stock & non-profit
hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.
b. Sec 234, last paragraph, provides Except as
provided herein, any exemption from payment of
real property tax previously granted to, or presently
enjoyed by, all persons, whether natural or juridical,
including all government-owned or controlled
corporations are hereby withdrawn upon the
effectivity of this Code.
90
6. As the City of Cebu was about to issue a warrant of levy

against the properties of MCIAA, the latter was compelled
to pay its tax account under protest and thereafter, filed a
Petition for Declaratory Relief with RTC. MCIAA contended
that the taxing powers of local government units do not
extend to the levy of taxes or fees of any kind on an
instrumentality of the national government. It insisted that
while it is indeed a government-owned corporation, it
nonetheless stands on the same footing as an agency or
instrumentality of the national government by the very
nature of its powers and functions.
7. Trial Court dismissed the petition ruling that MCIAA has to
pay the assessed realty tax of its properties.
8. Motion for Reconsideration having been denied, MCIAA
filed petition for review.
ISSUE: Whether or not MCIAA is exempted from payment of
taxes.
RULING: NO. The Court held that taxation is the rule, exemption
therefrom is the exception. Thus, the exemption may be withdrawn
at the pleasure of the taxing authority. The only exception to this
rule is where the exemption was granted to private parties based
on material consideration of a mutual nature, which then becomes
contractual and is thus covered by the non-impairment clause of
the Constitution.
Reading together Sections 133, 232, and 234 of the LGC, the
Court concluded that as a general rule, as laid down in Section
133, the taxing powers of local government units cannot extend to
the levy of, inter alia, taxes, fees and charges of any kind on the
National Government, its agencies and instrumentalities, and local
government units; however, pursuant to Section 232, provinces,
cities, and municipalities in the Metropolitan Manila Area may
impose the real property tax except on,inter alia, real property
owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been

granted, for consideration or otherwise, to a taxable person, as
provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed
by natural or juridical persons, including government-owned and
controlled corporations, Section 193 of the LGC prescribes the
general rule, viz., they are withdrawn upon the effectivity of the
LGC, except those granted to local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, and unless otherwise
provided in the LGC. The latter proviso could refer to Section 234
which enumerates the properties exempt from real property
tax. But the last paragraph of Section 234 further qualifies the
retention of the exemption insofar as real property taxes are
concerned by limiting the retention only to those enumerated
therein; all others not included in the enumeration lost the privilege
upon the effectivity of the LGC. Moreover, even as to real
property owned by the Republic of the Philippines or any of its
political subdivisions covered by item (a) of the first paragraph of
Section 234, the exemption is withdrawn if the beneficial use of
such property has been granted to a taxable person for
consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew,
upon the effectivity of the LGC, exemptions from payment of real
property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided
in the said section, and the petitioner is, undoubtedly, a
government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its Charter,
R.A. No. 6958, has been withdrawn. Any claim to the contrary can
only be justified if the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not under Section 133,
since, the said section is qualified by Sections 232 and 234.
91
DISPOSITIVE: Instant petition is denied. MCIAA is not exempted

from the payment of realty tax.
------- end of batch 1--------
92

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LAW ON TAXATION: Batch 1 (case 1-66)

CASE 1: GUEVARA, Carlo

the levy of taxes or fees of any kind on an instrumentality of the

MACTAN CEBU INTERNATIONAL AIRPORT V MARCOS

LAW ON TAXATION 1 [ATTY. VOLTAIRE SALUD] || Batch 4, Block 4 (2015)

Petitioner insisted that while it is indeed a a government-owned

The power to tax is primarily vested in the Congress; however, in

effectivity of the LGC, except those granted to local water districts,

As to tax exemptions or incentives granted to or presently enjoyed

LAW ON TAXATION: Batch 1 (case 1-66)

LAW ON TAXATION 1 [ATTY. VOLTAIRE SALUD] || Batch 4, Block 4 (2015)

7. Reyes filed a protest with the BIR assailing the scheduled

facts on which the assessment is made: otherwise, the

Investment Corporation (VOICP) purchased PSEDC properties.

LAW ON TAXATION: Batch 1 (case 1-66)

payees in inducing investors (in VOICP) to involve themselves in

LAW ON TAXATION 1 [ATTY. VOLTAIRE SALUD] || Batch 4, Block 4 (2015)

4. Whether or not the taxpayer is exempted from paying the

thereafter the latter become satisfied that a different construction

Under Art. 2254 of the Civil Code,

No vested/acquired right can arise from acts/omissions

LAW ON TAXATION: Batch 1 (case 1-66)

4. CTA: rendered judgment reversing the decision of the

discretion to avail itself of the most expeditious way to collect the

RULING: YES. The Government can require Atty. Pineda to pay

LAW ON TAXATION 1 [ATTY. VOLTAIRE SALUD] || Batch 4, Block 4 (2015)

THE PHILIPPINE GUARANTY CO v. THE COMMISSIONER OF

FACTS: The Philippine Guaranty Co., Inc., a domestic insurance

not having any office or place of business therein, there shall be

LAW ON TAXATION: Batch 1 (case 1-66)

LAW ON TAXATION 1 [ATTY. VOLTAIRE SALUD] || Batch 4, Block 4 (2015)

7. The petitioner again demanded for payment of the sums due

Provided, however, That when in the opinion of the Court the

ISSUE: Whether or not Roxas is liable for the payment of

LAW ON TAXATION: Batch 1 (case 1-66)

DISPOSITIVE: Roxas won. The amount of deficiency income tax

LAW ON TAXATION 1 [ATTY. VOLTAIRE SALUD] || Batch 4, Block 4 (2015)

RULING: NO. The Supreme Court ruled that while sovereignty

Transportation Franchising and Regulatory Board ("LTFRB") but

The RTC ruled in favor of city of Butuan and issuing a permanent

The power over tricycles granted under Section 458(a)(3)(VI) of

ISSUE: WON there is a difference between the inherent powers of

CASE 12: DACARA

LAW ON TAXATION: Batch 1 (case 1-66)

dealers, importers and manufacturers of any commodity doing

LAW ON TAXATION 1 [ATTY. VOLTAIRE SALUD] || Batch 4, Block 4 (2015)

sales were consummated in Cebu City because delivery to the

conducted within the city, municipality or municipal district and

DOCTRINE: Tax imposed and collected must at all times be for

THE MUNICIPALITY OF MALABANG AND IMPOSING

LAW ON TAXATION: Batch 1 (case 1-66)

unreasonable." Said the court a quo:

LAW ON TAXATION 1 [ATTY. VOLTAIRE SALUD] || Batch 4, Block 4 (2015)

2. In section 2 of Commonwealth Act 567, it provides for an

promotion of the sugar industry is a matter of public concern, it

FACTS: At bar is a Petition for Review on Certiorari seeking to

CASE 15: MOLON

NATIONAL TELECOMMUNICATIONS COMMISSION, vs.

1988, the National Telecommunications Commission (NTC)

(c) Petitioner has no authority to compel private respondents

LAW ON TAXATION: Batch 1 (case 1-66)

Court of appeals- Modified decision of NTC

LAW ON TAXATION 1 [ATTY. VOLTAIRE SALUD] || Batch 4, Block 4 (2015)

redeemable shares) without violating this principle. Thus,