Republic of the Philippines

SUPREME COURT
Manila

obtained from the aforesaid estate proceedings and issued an

assessment for the following:

EN BANC
G.R. No. L-22734

1. Deficiency income tax

1945
P135.83
1946
436.95
1947
1,206.91
Add: 5% surcharge
1% monthly interest from
November 30, 1953 to April 15,
1957
Compromise for late filing
Compromise for late payment

September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
MANUEL B. PINEDA, as one of the heirs of deceased
ATANASIO PINEDA, respondent.
Office of the Solicitor General for petitioner.
Manuel B. Pineda for and in his own behalf as respondent.

Total amount due

BENGZON, J.P., J.:

2. Additional residence tax for 1945
On May 23, 1945 Atanasio Pineda died, survived by his wife,
Felicisima Bagtas, and 15 children, the eldest of whom is
Manuel B. Pineda, a lawyer. Estate proceedings were had in the
Court of First Instance of Manila (Case No. 71129) wherein the
surviving widow was appointed administratrix. 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.

3. Real Estate dealer's tax for the fourth

quarter of 1946 and the whole year of
1947

720.77
80.00
40.00
P2,707.44
==========
P14.50
===========
P207.50
===========

Manuel B. Pineda, who received the assessment, contested the

same. Subsequently, he appealed to the Court of Tax Appeals
alleging that he was appealing "only that proportionate part or
portion pertaining to him as one of the heirs."

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. Thereupon, the
representative of the Collector of Internal Revenue filed said
returns for the estate on the basis of information and data
TAXATION

P1,779.69
88.98

After hearing the parties, the Court of Tax Appeals rendered

judgment reversing the decision of the Commissioner on the
ground that his right to assess and collect the tax has prescribed.
The 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. For 1945 and 1946
the returns were filed on August 24, 1953; assessments for both
taxable years were made within five years therefrom or on
October 19, 1953; and the action to collect the tax was filed
within five years from the latter date, on August 7, 1957. For
taxable year 1947, however, the return was filed on March 1,
1948; the assessment was made on October 19, 1953, more than
five years from the date the return was filed; hence, the right to
assess income tax for 1947 had prescribed. Accordingly, We
remanded the case to the Tax Court for further appropriate
proceedings.1

the total amount of P760.28 instead of only for the amount of

taxes corresponding to his share in the estate.

In the Tax Court, the parties submitted the case for decision
without additional evidence.

We hold that the Government can require Manuel B. Pineda to

pay the full amount of the taxes assessed.

On November 29, 1963 the Court of Tax Appeals rendered

judgment holding Manuel B. Pineda liable for the payment
corresponding to his share of the following taxes:

Pineda is liable for the assessment as an heir and as a holdertransferee of property belonging to the estate/taxpayer. As an
heir he is individually answerable for the part of the tax
proportionate to the share he received from the inheritance.3 His
liability, however, cannot exceed the amount of his share.4

Manuel B. Pineda opposes the proposition on the ground that as

an heir he is liable for unpaid income tax due the estate only up
to the extent of and in proportion to any share he received. He
relies on Government of the Philippine Islands v. Pamintuan 2
where We held that "after the partition of an estate, heirs and
distributees are liable individually for the payment of all lawful
outstanding claims against the estate in proportion to the amount
or value of the property they have respectively received from the
estate."

Deficiency income tax

1945
1946
Real estate dealer's
fixed tax 4th
quarter of 1946
and whole year of
1947

As a holder of property belonging to the estate, Pineda is liable

for he tax up to the amount of the property in his possession. 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 taxes4a for which said estate is liable, pursuant
to the last paragraph of Section 315 of the Tax Code, which we
quote hereunder:

P135.83
436.95

P187.50

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

The Commissioner of Internal Revenue has appealed to Us and

has proposed to hold Manuel B. Pineda liable for the payment of
all the taxes found by the Tax Court to be due from the estate in
TAXATION

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: . . .

property of the estate which is in the hands of an heir or

transferee to the payment of the tax due, the estate. 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 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.7 And as
afore-stated 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.

By virtue of such lien, the Government has the right to subject

the property in Pineda's possession, i.e., the P2,500.00, to satisfy
the income tax assessment in the sum of P760.28. After such
payment, Pineda will have a right of contribution from his coheirs,5 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. This remedy was adopted in Government
of the Philippine Islands v. Pamintuan, supra. In said case, the
Government filed an action against all the heirs for the collection
of the tax. This action rests on the concept that hereditary
property consists only of that part which remains after the
settlement of all lawful claims against the estate, for the
settlement of which the entire estate is first liable. 6 The reason
why in case suit is filed against all the heirs the tax due from the
estate is levied proportionately against them is to achieve
thereby two results: first, payment of the tax; and second,
adjustment of the shares of each heir in the distributed estate as
lessened by the tax.

WHEREFORE, the decision appealed from is modified. Manuel

B. Pineda is hereby ordered to pay to the Commissioner of
Internal Revenue the sum of P760.28 as deficiency income tax
for 1945 and 1946, and real estate dealer's fixed tax for the
fourth quarter of 1946 and for the whole year 1947, without
prejudice to his right of contribution for his co-heirs. No costs.
So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,
Sanchez, Castro, Angeles and Fernando, JJ., concur.

Another remedy, pursuant to the lien created by Section 315 of

the Tax Code upon all property and rights to property belonging
to the taxpayer for unpaid income tax, is by subjecting said

TAXATION

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO
PINEDA, respondent.
G.R. No. L-22734 September 15, 1967; BENGZON, J.P., J

Facts:
Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15
children, the eldest of whom is Manuel B. Pineda, a lawyer. The estate
was divided among the heirs and Manuel B. Pineda's share

TAXATION

amounted to about P2,500.00. After the estate proceedings were

closed, the BIR 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. The representative of
the Collector of Internal Revenue filed said returns for the estate and
issued an assessment. Manuel B. Pineda, who received the
assessment, contested the same. He appealed to the Court of Tax
Appeals alleging that he was appealing "only that proportionate part or
portion pertaining to him as one of the heirs." The Court of Tax
Appeals rendered judgment holding Manuel B. Pineda liable for the
payment corresponding to his share of the taxes. The Commissioner
of Internal Revenue has appealed to the SC and has proposed to hold
Manuel B. Pineda liable for the payment of all the taxes found by the
Tax Court to be due from the estate instead of only for the amount of
taxes corresponding to his share in the estate. Manuel B. Pineda
opposes the proposition on the ground that as an heir he is liable for
unpaid income tax due the estate only up to the extent of and in
proportion to any share he received.

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.
Another remedy, 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, the
estate. 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 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. And as afore-stated 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.

Issue:
Can BIR collect the full amount of estate taxes from an heir's
inheritance
Ruling:
Yes. The Government can require Atty. Pineda to pay the full amount
of the taxes assessed. Pineda is liable for the assessment as an heir
and as a holder-transferee of property belonging to the
estate/taxpayer. As an heir he is individually answerable for the part of
the tax proportionate to the share he received from the inheritance.
His liability, however, cannot exceed the amount of his share. As a
holder of property belonging to the estate, Pineda is liable for he tax
up to the amount of the property in his possession. 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 a for
which said estate is liable.

TAXATION

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

Government of the late Luis D. Tongoy for deficiency income

taxes in the total sum of P3,254.80 as above stated, covered by
Assessment Notices Nos. 11-50-29-1-11061-21-63 and 11-50291-1 10875-64, to which motion was attached Proof of Claim
(Annex B, Petition, pp. 21-22, Rollo). The Administrator
opposed the motion solely on the ground that the claim was
barred under Section 5, Rule 86 of the Rules of Court (par. 4,
Opposition to Motion for Allowance of Claim, pp. 23-24, Rollo).
Finding the opposition well-founded, the respondent Judge, Jose
F. Fernandez, dismissed the motion for allowance of claim filed
by herein petitioner, Regional Director of the Bureau of Internal
Revenue, in an order dated July 29, 1969 (Annex D, Petition, p.
26, Rollo). On September 18, 1969, a motion for reconsideration
was filed, of the order of July 29, 1969, but was denied in an
Order dated October 7, 1969.

G.R. No. L-31364 March 30, 1979

MISAEL P. VERA, as Commissioner of Internal Revenue,
and JAIME ARANETA, as Regional Director, Revenue
Region No. 14, Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First
Instance of Negros Occidental, Branch V, and FRANCIS A.
TONGOY, Administrator of the Estate of the late LUIS D.
TONGOY respondents.

DE CASTRO, J.:

Hence, this appeal on certiorari, petitioner assigning the

following errors:

Appeal from two orders of the Court of First Instance of Negros

Occidental, Branch V in Special Proceedings No. 7794, entitled:
"Intestate Estate of Luis D. Tongoy," the first dated July 29,
1969 dismissing the Motion for Allowance of Claim and for an
Order of Payment of Taxes by the Government of the Republic
of the Philippines against the Estate of the late Luis D. Tongoy,
for deficiency income taxes for the years 1963 and 1964 of the
decedent in the total amount of P3,254.80, inclusive 5%
surcharge, 1% monthly interest and compromise penalties, and
the second, dated October 7, 1969, denying the Motion for
reconsideration of the Order of dismissal.

1. The lower court erred in holding that the claim for taxes by
the government against the estate of Luis D. Tongoy was filed
beyond the period provided in Section 2, Rule 86 of the Rules of
Court.
2. The lower court erred in holding that the claim for taxes of the
government was already barred under Section 5, Rule 86 of the
Rules of Court.
which raise the sole issue of whether or not the statute of nonclaims Section 5, Rule 86 of the New Rule of Court, bars claim
of the government for unpaid taxes, still within the period of
limitation prescribed in Section 331 and 332 of the National
Internal Revenue Code.

The Motion for allowance of claim and for payment of taxes

dated May 28, 1969 was filed on June 3, 1969 in the
abovementioned special proceedings, (par. 3, Annex A, Petition,
pp. 1920, Rollo). The claim represents the indebtedness to the
TAXATION

Section 5, Rule 86, as invoked by the respondent Administrator

in hid Oppositions to the Motion for Allowance of Claim, etc. of
the petitioners reads as follows:

expressio unius est exclusio alterius, the mention of one thing

implies the exclusion of another thing not mentioned. Thus, if a
statute enumerates the things upon which it is to operate,
everything else must necessarily, and by implication be excluded
from its operation and effect (Crawford, Statutory Construction,
pp. 334-335).

All claims for money against the decedent, arising from

contracts, express or implied, whether the same be due, not due,
or contingent, all claims for funeral expenses and expenses for
the last sickness of the decedent, and judgment for money
against the decedent, must be filed within the time limited in
they notice; otherwise they are barred forever, except that they
may be set forth as counter claims in any action that the executor
or administrator may bring against the claimants. Where the
executor or administrator commence an action, or prosecutes an
action already commenced by the deceased in his lifetime, the
debtor may set forth may answer the claims he has against the
decedents, instead of presenting them independently to the court
has herein provided, and mutual claims may be set off against
each other in such action; and in final judgment is rendered in
favored of the decedent, the amount to determined shall be
considered the true balance against the estate, as though the
claim has been presented directly before the court in the
administration proceedings. Claims not yet due, or contingent
may be approved at their present value.

In the case of Commissioner of Internal Revenue vs. Ilagan

Electric & Ice Plant, et al., G.R. No. L-23081, December 30,
1969, it was held that the assessment, collection and recovery of
taxes, as well as the matter of prescription thereof are governed
by the provisions of the National Internal revenue Code,
particularly Sections 331 and 332 thereof, and not by other
provisions of law. (See also Lim Tio, Dy Heng and Dee Jue vs.
Court of Tax Appeals & Collector of Internal Revenue, G.R. No.
L-10681, March 29, 1958). Even without being specifically
mentioned, the provisions of Section 2 of Rule 86 of the Rules
of Court may reasonably be presumed to have been also in the
mind of the Court as not affecting the aforecited Section of the
National Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was
even more pointedly held that "taxes assessed against the estate
of a deceased person ... need not be submitted to the committee
on claims in the ordinary course of administration. In the
exercise of its control over the administrator, the court may
direct the payment of such taxes upon motion showing that the
taxes have been assessed against the estate." The abolition of the
Committee on Claims does not alter the basic ruling laid down
giving exception to the claim for taxes from being filed as the
other claims mentioned in the Rule should be filed before the
Court. Claims for taxes may be collected even after the
distribution of the decedent's estate among his heirs who shall be

A perusal of the aforequoted provisions shows that it makes no

mention of claims for monetary obligation of the decedent
created by law, such as taxes which is entirely of different
character from the claims expressly enumerated therein, such as:
"all claims for money against the decedent arising from contract,
express or implied, whether the same be due, not due or
contingent, all claim for funeral expenses and expenses for the
last sickness of the decedent and judgment for money against the
decedent." Under the familiar rule of statutory construction of

TAXATION

liable therefor in proportion of their share in the inheritance.

(Government of the Philippines vs. Pamintuan, 55 Phil. 13).

collected even after the distribution of the estate of the decedent

among his heirs (Government of the Philippines vs. Pamintuan,
supra; Pineda vs. CFI of Tayabas,supra Clara Diluangco Palanca
vs. Commissioner of Internal Revenue, G. R. No. L-16661,
January 31, 1962).

The reason for the more liberal treatment of claims for taxes
against a decedent's estate in the form of exception from the
application of the statute of non-claims, is not hard to find. Taxes
are the lifeblood of the Government and their prompt and certain
availability are imperious need. (Commissioner of Internal
Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21
SCRA 105). Upon taxation depends the Government ability to
serve the people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of government
officials entrusted with the collection of taxes should not be
allowed to bring harm or detriment to the people, in the same
manner as private persons may be made to suffer individually on
account of his own negligence, the presumption being that they
take good care of their personal affairs. This should not hold true
to government officials with respect to matters not of their own
personal concern. This is the philosophy behind the
government's exception, as a general rule, from the operation of
the principle of estoppel. (Republic vs. Caballero, L-27437,
September 30, 1977, 79 SCRA 177; Manila Lodge No. 761,
Benevolent and Protective Order of the Elks Inc. vs. Court of
Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs.
Central Bank of the Philippines, L-41480, April 30,1976, 70
SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA
553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110;
Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553;
Republic vs. Philippine Long Distance Telephone Company, L18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of
Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E.
Rodriguez, Inc. vs. Collector of Internal Revenue, L- 23041,
July 31, 1969, 28 SCRA 119.) As already shown, taxes may be

TAXATION

Furthermore, as held in Commissioner of Internal Revenue vs.

Pineda, supra, citing the last paragraph of Section 315 of the Tax
Code payment of income tax shall be a lien in favor of the
Government of the Philippines from the time the assessment was
made by the Commissioner of Internal Revenue until paid with
interests, penalties, etc. By virtue of such lien, this court held
that the property of the estate already in the hands of an heir or
transferee may be subject to the payment of the tax due the
estate. A fortiori before the inheritance has passed to the heirs,
the unpaid taxes due the decedent may be collected, even
without its having been presented under Section 2 of Rule 86 of
the Rules of Court. It may truly be said that until the property of
the estate of the decedent has vested in the heirs, the decedent,
represented by his estate, continues as if he were still alive,
subject to the payment of such taxes as would be collectible
from the estate even after his death. Thus in the case above cited,
the income taxes sought to be collected were due from the estate,
for the three years 1946, 1947 and 1948 following his death in
May, 1945.
Even assuming arguendo that claims for taxes have to be filed
within the time prescribed in Section 2, Rule 86 of the Rules of
Court, the claim in question may be filed even after the
expiration of the time originally fixed therein, as may be gleaned
from the italicized portion of the Rule herein cited which reads:
Section 2. Time within which claims shall be filed. - In the

notice provided in the preceding section, the court shall state the
time for the filing of claims against the estate, which shall not be
more than twelve (12) nor less than six (6) months after the date
of the first publication of the notice. However, at any time before
an order of distribution is entered, on application of a creditor
who has failed to file his claim within the time previously limited
the court may, for cause shown and on such terms as are
equitable, allow such claim to be flied within a time not
exceeding one (1) month. (Emphasis supplied)

SO ORDERED.
Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and
Melencio-Herrera, JJ., concur.

In the instant case, petitioners filed an application (Motion for

Allowance of Claim and for an Order of Payment of Taxes)
which, though filed after the expiration of the time previously
limited but before an order of the distribution is entered, should
have been granted by the respondent court, in the absence of any
valid ground, as none was shown, justifying denial of the
motion, specially considering that it was for allowance Of claim
for taxes due from the estate, which in effect represents a claim
of the people at large, the only reason given for the denial that
the claim was filed out of the previously limited period,
sustaining thereby private respondents' contention, erroneously
as has been demonstrated.
WHEREFORE, the order appealed from is reverse. Since the
Tax Commissioner's assessment in the total amount of P3,254.80
with 5 % surcharge and 1 % monthly interest as provided in the
Tax Code is a final one and the respondent estate's sole defense
of prescription has been herein overruled, the Motion for
Allowance of Claim is herein granted and respondent estate is
ordered to pay and discharge the same, subject only to the
limitation of the interest collectible thereon as provided by the
Tax Code. No pronouncement as to costs.

TAXATION

VERA v. FERNANDEZ
GR No. L-31364 March 30, 1979
89 SCRA 199
FACTS: The BIR filed on July 29, 1969 a motion for allowance
of claim and for payment of taxes representing the estate's tax
deficiencies in 1963 to 1964 in the intestate proceedings of Luis
Tongoy. The administrator opposed arguing that the claim was

already barred by the statute of limitation, Section 2 and Section

5 of Rule 86 of the Rules of Court which provides that all claims
for money against the decedent, arising from contracts, express
or implied, whether the same be due, not due, or contingent, all
claims for funeral expenses and expenses for the last sickness of
the decedent, and judgment for money against the decedent,
must be filed within the time limited in the notice; otherwise
they are barred forever.
ISSUE: Does the statute of non-claims of the Rules of Court bar
the claim of the government for unpaid taxes?
HELD: No. The reason for the more liberal treatment of claims
for taxes against a decedent's estate in the form of exception
from the application of the statute of non-claims, is not hard to
find. Taxes are the lifeblood of the Government and their prompt
and certain availability are imperious need. (CIR vs. Pineda, 21
SCRA 105). Upon taxation depends the Government ability to
serve the people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of government
officials entrusted with the collection of taxes should not be
allowed to bring harm or detriment to the people, in the same
manner as private persons may be made to suffer individually on
account of his own negligence, the presumption being that they
take good care of their personal affairs. This should not hold true
to government officials with respect to matters not of their own
personal concern. This is the philosophy behind the
government's exception, as a general rule, from the operation of
the principle of estoppel.

TAXATION

10

We deal first with the procedural question.

Republic of the Philippines
SUPREME COURT
Manila

The record shows that on January 14, 1965, the private

respondent, a domestic corporation engaged in engineering,
construction and other allied activities, 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. 1 On
January 18, 1965, Algue flied a letter of protest or request for
reconsideration, which letter was stamp received on the same
day in the office of the petitioner. 2 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. 3 A
search of the protest in the dockets of the case proved fruitless.
Atty. Guevara produced his file copy and gave a photostat to
BIR agent Ramon Reyes, who deferred service of the warrant. 4
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. 5 Sixteen days later, 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. 6

FIRST DIVISION
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS,
respondents.
CRUZ, J.:
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.

The above chronology shows that the petition was filed

seasonably. According to Rep. Act No. 1125, the appeal may be
made within thirty days after receipt of the decision or ruling
challenged. 7 It is true that as a rule the warrant of distraint and
levy is "proof of the finality of the assessment" 8 and renders
hopeless a request for reconsideration," 9being "tantamount to an
outright denial thereof and makes the said request deemed
rejected." 10 But there is a special circumstance in the case at bar
that prevents application of this accepted doctrine.

The main issue in this case is whether or not the Collector of

Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by private respondent Algue as legitimate business
expenses in its income tax returns. The corollary issue is whether
or not the appeal of the private respondent from the decision of
the Collector of Internal Revenue was made on time and in
accordance with law.
TAXATION

11

The proven fact is that four 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.

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 12 but later conformed to the decision of the
respondent court rejecting this assertion.13 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. 14 Ultimately, after its incorporation
largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties. 15 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. 16

As the Court of Tax Appeals correctly noted," 11 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.
Now for the substantive question.

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. 17 The Court of Tax Appeals also
found, after examining the evidence, that no distribution of
dividends was involved. 18

The petitioner contends that the claimed deduction of

P75,000.00 was properly disallowed because it was not an
ordinary reasonable or necessary business expense. The Court of
Tax Appeals had seen it differently. Agreeing with Algue, it 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

TAXATION

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

12

petitioner suggests a tax dodge, an attempt to evade a legitimate

assessment by involving an imaginary deduction.

(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or
business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; ... 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. 19 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.
20
Admittedly, everything seemed to be informal. This
arrangement was understandable, however, in view of the close
relationship among the persons in the family corporation.

and Revenue Regulations No. 2, Section 70 (1), reading as

follows:
SEC. 70. Compensation for personal services.--Among the
ordinary and necessary expenses paid or incurred in carrying on
any trade or business may be included a reasonable allowance
for salaries or other compensation for personal services actually
rendered. The test of deductibility in the case of compensation
payments is whether they are reasonable and are, in fact,
payments purely for service. This test and deductibility in the
case of compensation payments is whether they are reasonable
and are, in fact, payments purely for service. This test and its
practical application may be further stated and illustrated as
follows:

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. 21After 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 Tax Code:

Any amount paid in the form of compensation, but not in fact as

the purchase price of services, is not deductible. (a) An
ostensible salary paid by a corporation may be a distribution of a
dividend on stock. This is likely to occur in the case of a
corporation having few stockholders, Practically all of whom
draw salaries. If in such a case the salaries are in excess of those
ordinarily paid for similar services, and the excessive payment
correspond or bear a close relationship to the stockholdings of
the officers of employees, it would seem likely that the salaries

SEC. 30. Deductions from gross income.--In computing net

income there shall be allowed as deductions

TAXATION

13

are not paid wholly for services rendered, but the excessive
payments are a distribution of earnings upon the stock. . . .
(Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

taxation, it is a requirement in all democratic regimes that it be

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

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. 23

We hold that the appeal of the private respondent from the

decision of the petitioner was filed on time with the respondent
court in accordance with Rep. Act No. 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.

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.

ACCORDINGLY, the appealed decision of the Court of Tax

Appeals is AFFIRMED in toto, without costs.
SO ORDERED.

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.

Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ.,

concur.

But even as we concede the inevitability and indispensability of

TAXATION

14

Commissioner vs. Algue

158 SCRA 9

158 SCRA 9

FACTS: Private respondent corporation Algue Inc. filed its

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

Facts:
The Philippine Sugar Estate Development Company (PSEDC).
Appointed Algue Inc. as its agent. Algue received a commission of
125,000.00 and it was from their commission that it paid organizers
of VOICP 75,000.00 in proportional fees. He received an assessment
from the CIR. He filed a letter of protest or reconsideration. The CIR
contends that the claimed deduction was properly disallowed because
it was not an ordinary, reasonable or necessary expense.

ISSUE: Should an uncommon business expense be disallowed as

a proper deduction in computation of income taxes, corollary to
the doctrine that taxes are the lifeblood of the government?

Issue: Is the CIR correct?

HELD: No. Private respondent has proved that the payment of

the fees was necessary and reasonable in the light of the efforts
exerted by the payees in inducing investors and prominent
businessmen to venture in an xperimental 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.

Ruling:
No. taxes are the lifeblood of the government and 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 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 is
an arbitrary method of exaction by those in the seat of power.

It is well-settled that taxes are the lifeblood of the government

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

On the other hand, such collection should be made in accordance with

law as any arbitrariness will negate the very reason for government
itself.

COMMISSIONER v. ALGUE, INC.

GR No. L-28896, February 17, 1988

TAXATION

15

But even as we concede the inevitability and indispensability of

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

Roberto B. Lugue for private respondent Admiral Finance

Creditors' Consortium, Inc.
R ES OLUTIO N
CORTS, J.:
The present petition for review is an off-shoot of expropriation
proceedings initiated by petitioner Municipality of Makati
against private respondent Admiral Finance Creditors
Consortium, Inc., Home Building System & Realty Corporation
and one Arceli P. Jo, involving a parcel of land and
improvements thereon located at Mayapis St., San Antonio
Village, Makati and registered in the name of Arceli P. Jo under
TCT No. S-5499.

Republic of the Philippines

SUPREME COURT
Manila

It appears that the action for eminent domain was filed on May
20, 1986, docketed as Civil Case No. 13699. Attached to
petitioner's complaint was a certification that a bank account
(Account No. S/A 265-537154-3) had been opened with the
PNB Buendia Branch under petitioner's name containing the
sum of P417,510.00, made pursuant to the provisions of Pres.
Decree No. 42. After due hearing where the parties presented
their respective appraisal reports regarding the value of the
property, respondent RTC judge rendered a decision on June 4,
1987, fixing the appraised value of the property at
P5,291,666.00, and ordering petitioner to pay this amount minus
the advanced payment of P338,160.00 which was earlier
released to private respondent.

THIRD DIVISION
G.R. Nos. 89898-99 October 1, 1990
MUNICIPALITY OF MAKATI, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON.
SALVADOR P. DE GUZMAN, JR., as Judge RTC of Makati,
Branch CXLII ADMIRAL FINANCE CREDITORS
CONSORTIUM, INC., and SHERIFF SILVINO R.
PASTRANA,respondents.

After this decision became final and executory, private

respondent moved for the issuance of a writ of execution. This
motion was granted by respondent RTC judge. After issuance of

Defante & Elegado for petitioner.

TAXATION

16

the writ of execution, a Notice of Garnishment dated January 14,

1988 was served by respondent sheriff Silvino R. Pastrana upon
the manager of the PNB Buendia Branch. However, respondent
sheriff was informed that a "hold code" was placed on the
account of petitioner. As a result of this, private respondent filed
a motion dated January 27, 1988 praying that an order be issued
directing the bank to deliver to respondent sheriff the amount
equivalent to the unpaid balance due under the RTC decision
dated June 4, 1987.

Respondent trial judge subsequently issued an order dated

September 8, 1988 which: (1) approved the compromise
agreement; (2) ordered PNB Buendia Branch to immediately
release to PSB the sum of P4,953,506.45 which corresponds to
the balance of the appraised value of the subject property under
the RTC decision dated June 4, 1987, from the garnished
account of petitioner; and, (3) ordered PSB and private
respondent to execute the necessary deed of conveyance over the
subject property in favor of petitioner. Petitioner's motion to lift
the garnishment was denied.

Petitioner filed a motion to lift the garnishment, on the ground

that the manner of payment of the expropriation amount should
be done in installments which the respondent RTC judge failed
to state in his decision. Private respondent filed its opposition to
the motion.

Petitioner filed a motion for reconsideration, which was duly

opposed by private respondent. On the other hand, for failure of
the manager of the PNB Buendia Branch to comply with the
order dated September 8, 1988, private respondent filed two
succeeding motions to require the bank manager to show cause
why he should not be held in contempt of court. During the
hearings conducted for the above motions, the general manager
of the PNB Buendia Branch, a Mr. Antonio Bautista, informed
the court that he was still waiting for proper authorization from
the PNB head office enabling him to make a disbursement for
the amount so ordered. For its part, petitioner contended that its
funds at the PNB Buendia Branch could neither be garnished nor
levied upon execution, for to do so would result in the
disbursement of public funds without the proper appropriation
required under the law, citing the case of Republic of the
Philippines v. Palacio [G.R. No. L-20322, May 29, 1968, 23
SCRA 899].

Pending resolution of the above motions, petitioner filed on July

20, 1988 a "Manifestation" informing the court that private
respondent was no longer the true and lawful owner of the
subject property because a new title over the property had been
registered in the name of Philippine Savings Bank, Inc. (PSB)
Respondent RTC judge issued an order requiring PSB to make
available the documents pertaining to its transactions over the
subject property, and the PNB Buendia Branch to reveal the
amount in petitioner's account which was garnished by
respondent sheriff. In compliance with this order, PSB filed a
manifestation informing the court that it had consolidated its
ownership over the property as mortgagee/purchaser at an
extrajudicial foreclosure sale held on April 20, 1987. After
several conferences, PSB and private respondent entered into a
compromise agreement whereby they agreed to divide between
themselves the compensation due from the expropriation
proceedings.

TAXATION

Respondent trial judge issued an order dated December 21, 1988

denying petitioner's motion for reconsideration on the ground
that the doctrine enunciated in Republic v. Palacio did not apply
to the case because petitioner's PNB Account No. S/A 265-

17

537154-3 was an account specifically opened for the

expropriation proceedings of the subject property pursuant to
Pres. Decree No. 42. Respondent RTC judge likewise declared
Mr. Antonio Bautista guilty of contempt of court for his
inexcusable refusal to obey the order dated September 8, 1988,
and thus ordered his arrest and detention until his compliance
with the said order.

(1) Account No. S/A 265-537154-3 exclusively for the

expropriation of the subject property, with an outstanding
balance of P99,743.94.

Petitioner and the bank manager of PNB Buendia Branch then

filed separate petitions for certiorari with the Court of Appeals,
which were eventually consolidated. In a decision promulgated
on June 28, 1989, the Court of Appeals dismissed both petitions
for lack of merit, sustained the jurisdiction of respondent RTC
judge over the funds contained in petitioner's PNB Account No.
265-537154-3, and affirmed his authority to levy on such funds.

xxx xxx xxx

(2) Account No. S/A 263-530850-7 for statutory obligations

and other purposes of the municipal government, with a balance
of P170,098,421.72, as of July 12, 1989.

[Petition, pp. 6-7; Rollo, pp. 11-12.]

Because the petitioner has belatedly alleged only in this Court
the existence of two bank accounts, it may fairly be asked
whether the second account was opened only for the purpose of
undermining the legal basis of the assailed orders of respondent
RTC judge and the decision of the Court of Appeals, and
strengthening its reliance on the doctrine that public funds are
exempted from garnishment or execution as enunciated in
Republic v. Palacio [supra.] At any rate, the Court will give
petitioner the benefit of the doubt, and proceed to resolve the
principal issues presented based on the factual circumstances
thus alleged by petitioner.

Its motion for reconsideration having been denied by the Court

of Appeals, petitioner now files the present petition for review
with prayer for preliminary injunction.
On November 20, 1989, the Court resolved to issue a temporary
restraining order enjoining respondent RTC judge, respondent
sheriff, and their representatives, from enforcing and/or carrying
out the RTC order dated December 21, 1988 and the writ of
garnishment issued pursuant thereto. Private respondent then
filed its comment to the petition, while petitioner filed its reply.

Admitting that its PNB Account No. S/A 265-537154-3 was

specifically opened for expropriation proceedings it had initiated
over the subject property, petitioner poses no objection to the
garnishment or the levy under execution of the funds deposited
therein amounting to P99,743.94. However, it is petitioner's
main contention that inasmuch as the assailed orders of
respondent RTC judge involved the net amount of
P4,965,506.45, the funds garnished by respondent sheriff in
excess of P99,743.94, which are public funds earmarked for the

Petitioner not only reiterates the arguments adduced in its

petition before the Court of Appeals, but also alleges for the first
time that it has actually two accounts with the PNB Buendia
Branch, to wit:
xxx xxx xxx

TAXATION

18

municipal government's other statutory obligations, are

exempted from execution without the proper appropriation
required under the law.

refuses, without justifiable reason, to effect payment of a final

money judgment rendered against it, the claimant may avail of
the remedy of mandamus in order to compel the enactment and
approval of the necessary appropriation ordinance, and the
corresponding disbursement of municipal funds therefor
[SeeViuda De Tan Toco v. The Municipal Council of Iloilo,
supra; Baldivia v. Lota, 107 Phil. 1099 (1960); Yuviengco v.
Gonzales, 108 Phil. 247 (1960)].

There is merit in this contention. The funds deposited in the

second PNB Account No. S/A 263-530850-7 are public funds of
the municipal government. In this jurisdiction, well-settled is the
rule that public funds are not subject to levy and execution,
unless otherwise provided for by statute [Republic v. Palacio,
supra.; The Commissioner of Public Highways v. San Diego,
G.R. No. L-30098, February 18, 1970, 31 SCRA 616]. More
particularly, the properties of a municipality, whether real or
personal, which are necessary for public use cannot be attached
and sold at execution sale to satisfy a money judgment against
the municipality. Municipal revenues derived from taxes,
licenses and market fees, and which are intended primarily and
exclusively for the purpose of financing the governmental
activities and functions of the municipality, are exempt from
execution [See Viuda De Tan Toco v. The Municipal Council of
Iloilo, 49 Phil. 52 (1926): The Municipality of Paoay, Ilocos
Norte v. Manaois, 86 Phil. 629 (1950); Municipality of San
Miguel, Bulacan v. Fernandez, G.R. No. 61744, June 25, 1984,
130 SCRA 56]. The foregoing rule finds application in the case
at bar. Absent a showing that the municipal council of Makati
has passed an ordinance appropriating from its public funds an
amount corresponding to the balance due under the RTC
decision dated June 4, 1987, less the sum of P99,743.94
deposited in Account No. S/A 265-537154-3, no levy under
execution may be validly effected on the public funds of
petitioner deposited in Account No. S/A 263-530850-7.

In the case at bar, the validity of the RTC decision dated June 4,
1987 is not disputed by petitioner. No appeal was taken
therefrom. For three years now, petitioner has enjoyed
possession and use of the subject property notwithstanding its
inexcusable failure to comply with its legal obligation to pay just
compensation. Petitioner has benefited from its possession of the
property since the same has been the site of Makati West High
School since the school year 1986-1987. This Court will not
condone petitioner's blatant refusal to settle its legal obligation
arising from expropriation proceedings it had in fact initiated. It
cannot be over-emphasized that, within the context of the State's
inherent power of eminent domain,
. . . [j]ust compensation means not only the correct
determination of the amount to be paid to the owner of the land
but also the payment of the land within a reasonable time from
its taking. Without prompt payment, compensation cannot be
considered "just" for the property owner is made to suffer the
consequence of being immediately deprived of his land while
being made to wait for a decade or more before actually
receiving the amount necessary to cope with his loss
[Cosculluela v. The Honorable Court of Appeals, G.R. No.
77765, August 15, 1988, 164 SCRA 393, 400. See also
Provincial Government of Sorsogon v. Vda. de Villaroya, G.R.

Nevertheless, this is not to say that private respondent and PSB

are left with no legal recourse. Where a municipality fails or

TAXATION

19

No. 64037, August 27, 1987, 153 SCRA 291].

The State's power of eminent domain should be exercised within
the bounds of fair play and justice. In the case at bar, considering
that valuable property has been taken, the compensation to be
paid fixed and the municipality is in full possession and utilizing
the property for public purpose, for three (3) years, the Court
finds that the municipality has had more than reasonable time to
pay full compensation.
WHEREFORE, the Court Resolved to ORDER petitioner
Municipality of Makati to immediately pay Philippine Savings
Bank, Inc. and private respondent the amount of P4,953,506.45.
Petitioner is hereby required to submit to this Court a report of
its compliance with the foregoing order within a non-extendible
period of SIXTY (60) DAYS from the date of receipt of this
resolution.
The order of respondent RTC judge dated December 21, 1988,
which was rendered in Civil Case No. 13699, is SET ASIDE and
the temporary restraining order issued by the Court on
November 20, 1989 is MADE PERMANENT.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

TAXATION

20

Municipality of Makati vs. Court of Appeals

G.R. Nos. 89898-99 October 1, 1990
Facts: Petitioner Municipality of Makati expropriated a portion
of land owned by private respondents, Admiral Finance
Creditors Consortium, Inc. After proceedings, the RTC of
Makati determined the cost of the said land which the petitioner
must pay to the private respondents amounting to P5,291,666.00
minus the advanced payment of P338,160.00. It issued the
corresponding writ of execution accompanied with a writ of
garnishment of funds of the petitioner which was deposited in
PNB. However, such order was opposed by petitioner through a
motion for reconsideration, contending that its funds at the PNB
could neither be garnished nor levied upon execution, for to do
so would result in the disbursement of public funds without the
proper appropriation required under the law, citing the case of
Republic of the Philippines v. Palacio.The RTC dismissed such
motion, which was appealed to the Court of Appeals; the latter
affirmed said dismissal and petitioner now filed this petition for
review.
Issue: Whether or not funds of the Municipality of Makati are
exempt from garnishment and levy upon execution.
Held: It is petitioner's main contention that the orders of
respondent RTC judge involved the net amount of
P4,965,506.45, wherein the funds garnished by respondent

TAXATION

21

sheriff are in excess of P99,743.94, which are public fund and

thereby are exempted from execution without the proper
appropriation required under the law. There is merit in this
contention. In this jurisdiction, well-settled is the rule that public
funds are not subject to levy and execution, unless otherwise
provided for by statute. Municipal revenues derived from taxes,
licenses and market fees, and which are intended primarily and
exclusively for the purpose of financing the governmental
activities and functions of the municipality, are exempt from
execution. Absent a showing that the municipal council of
Makati has passed an ordinance appropriating the said amount
from its public funds deposited in their PNB account, no levy
under execution may be validly effected. However, this court
orders petitioner to pay for the said land which has been in their
use already. This Court will not condone petitioner's blatant
refusal to settle its legal obligation arising from expropriation of
land they are already enjoying. The State's power of eminent
domain should be exercised within the bounds of fair play and
justice.

TAXATION

Municipality of Makati vs CA 190 SCRA 206

Facts
An expropriation proceeding was filed by the Municipality of
Makati, herein petitioner, against the private property of Arceli
Jo. In compliance to PD 42, the petitioner opened an account
under its name at PNB depositing an amount of P417,510.00.
The court fixed the appraised value of the expropriated property
at P5,291,666.00 and an advanced payment was made in the
amount of P338,160 leaving a balance of P4,953,506. After the
decision becomes final and executory, the private respondent
moved for the issuance of a writ of execution. A notice of
garnishment was thereafter issued by the court to the PNB
account. A manifestation was filed by the petitioner informing
the court that the private respondent was no longer the true
owner of the expropriated property. The court consolidated the
ownership of the property to PSB as a mortgagee/purchaser. The
private respondent and PSB agreed to divide the compensation
due from the expropriation proceeding. The judge ordered PNB
to immediately release to them the sum of P4,953.506
corresponding to the balance of the appraised value of the
expropriated property. The PNB bank manager refused as he is
waiting for the approval of their head office. The Municipality of
Makati contends that its fund with DBP could neither be be

22

garnished or levied upon execution for to do so would result to

the disbursement of public funds without the proper
appropriation required under the law. The lower court denied the
motion for reconsideration of the petitioner ruling that the
account with DBP of the petitioner was an account specifically
opened for the expropriation proceeding. Petitioner filed a
petition for certiorari to the Court of Appeals which affirmed the
lower courts decision. A petition for review with a prayer for
preliminary injunction was filed to the S.C. A temporary
restraining order was issued by the S.C.

rendered against it, the claimant may avail the remedy of

mandamus in order to compel the enactment and approval of the
necessary appropriation ordinance and the corresponding
disbursement of municipal funds for such purpose.

Issue
Whether or not the PNB funds may be levied in the
expropriation proceeding ?

Held
The petitioner belatedly informed the court that there are two
existing accounts with PNB. Account A was the one intended for
the expropriation proceeding and account B is primarily
intended for financing governmental functions and activities.
Because account A has a fund that is insufficient to meet the
remaining amount of its balance for the expropriation
proceeding, it is unlawful to get the remaining balance from
Account B without an ordinance appropriating said funds for
expropriation purpose. Thus the court ruled that account A
maybe levied but not account B. The respondents are without
recourse however should the petitioner refuse to pay its
remaining obligation. Where a municipality refuses without
justifiable reason to effect payment of a final money judgment

TAXATION

Republic of the Philippines

SUPREME COURT
Manila

23

EN BANC

taxpayer alleges that by virtue thereof, "he would be unduly

discriminated against by the imposition of higher rates of tax
upon his income arising from the exercise of his profession visa-vis those which are imposed upon fixed income or salaried
individual taxpayers. 4 He characterizes the above sction as
arbitrary amounting to class legislation, oppressive and
capricious in character 5 For petitioner, therefore, there is a
transgression of both the equal protection and due process
clauses 6 of the Constitution as well as of the rule requiring
uniformity in taxation. 7

G.R. No. L-59431 July 25, 1984

ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of
Internal Revenue; ROMULO VILLA, Deputy
Commissioner, Bureau of Internal Revenue; TOMAS
TOLEDO Deputy Commissioner, Bureau of Internal
Revenue; MANUEL ALBA, Minister of Budget,
FRANCISCO TANTUICO, Chairman, Commissioner on
Audit, and CESAR E. A. VIRATA, Minister of Finance,
respondents.

The Court, in a resolution of January 26, 1982, required

respondents to file an answer within 10 days from notice. Such
an answer, after two extensions were granted the Office of the
Solicitor General, was filed on May 28, 1982. 8 The facts as
alleged were admitted but not the allegations which to their mind
are "mere arguments, opinions or conclusions on the part of the
petitioner, the truth [for them] being those stated [in their]
Special and Affirmative Defenses."9 The answer then affirmed:
"Batas Pambansa Big. 135 is a valid exercise of the State's
power to tax. The authorities and cases cited while correctly
quoted or paraghraph do not support petitioner's stand." 10 The
prayer is for the dismissal of the petition for lack of merit.

Antero Sison for petitioner and for his own behalf.

The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory
relief or prohibition proceeding 1 on the validity of Section I of
Batas Pambansa Blg. 135 depends upon a showing of its
constitutional infirmity. The assailed provision further amends
Section 21 of the National Internal Revenue Code of 1977,
which provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, (c)
royalties, prizes, and other winnings, (d) interest from bank
deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, (e)
dividends and share of individual partner in the net profits of
taxable partnership, (f) adjusted gross income. 2 Petitioner 3as
TAXATION

This Court finds such a plea more than justified. The petition
must be dismissed.
1. It is manifest that the field of state activity has assumed a
much wider scope, The reason was so clearly set forth by retired
Chief Justice Makalintal thus: "The areas which used to be left
to private enterprise and initiative and which the government
was called upon to enter optionally, and only 'because it was
better equipped to administer for the public welfare than is any

24

private individual or group of individuals,' continue to lose their

well-defined boundaries and to be absorbed within activities that
the government must undertake in its sovereign capacity if it is
to meet the increasing social challenges of the times." Hence the
need for more revenues. The power to tax, an inherent
prerogative, has to be availed of to assure the performance of
vital state functions. It is the source of the bulk of public funds.
To praphrase a recent decision, taxes being the lifeblood of the
government, their prompt and certain availability is of the
essence.

fundamental law overrides any legislative or executive, act that

runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision as
petitioner here alleges fails to abide by its command, then this
Court must so declare and adjudge it null. The injury thus is
centered on the question of whether the imposition of a higher
tax rate on taxable net income derived from business or
profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here. does not suffice.
There must be a factual foundation of such unconstitutional
taint. Considering that petitioner here would condemn such a
provision as void or its face, he has not made out a case. This is
merely to adhere to the authoritative doctrine that were the due
process and equal protection clauses are invoked, considering
that they arc not fixed rules but rather broad standards, there is a
need for of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity
must prevail.

2. The power to tax moreover, to borrow from Justice Malcolm,

"is an attribute of sovereignty. It is the strongest of all the
powers of of government." It is, of course, to be admitted that
for all its plenitude 'the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits . Adversely
affecting as it does properly rights, both the due process and
equal protection clauses inay properly be invoked, all petitioner
does, to invalidate in appropriate cases a revenue measure. if it
were otherwise, there would -be truth to the 1803 dictum of
Chief Justice Marshall that "the power to tax involves the power
to destroy." In a separate opinion in Graves v. New York, Justice
Frankfurter, after referring to it as an 1, unfortunate remark
characterized it as "a flourish of rhetoric [attributable to] the
intellectual fashion of the times following] a free use of
absolutes." This is merely to emphasize that it is riot and there
cannot be such a constitutional mandate. Justice Frankfurter
could rightfully conclude: "The web of unreality spun from
Marshall's famous dictum was brushed away by one stroke of
Mr. Justice Holmess pen: 'The power to tax is not the power to
destroy while this Court sits." So it is in the Philippines.

5. It is undoubted that the due process clause may be invoked

where a taxing statute is so arbitrary that it finds no support in
the Constitution. An obvious example is where it can be shown
to amount to the confiscation of property. That would be a clear
abuse of power. It then becomes the duty of this Court to say that
such an arbitrary act amounted to the exercise of an authority not
conferred. That properly calls for the application of the Holmes
dictum. It has also been held that where the assailed tax measure
is beyond the jurisdiction of the state, or is not for a public
purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds.

3. This Court then is left with no choice. The Constitution as the

TAXATION

25

6. Now for equal protection. The applicable standard to avoid

the charge that there is a denial of this constitutional mandate
whether the assailed act is in the exercise of the lice power or the
power of eminent domain is to demonstrated that the
governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit of
hostility, or at the very least, discrimination that finds no support
in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all
persons must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the
liabilities imposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and security
shall be given to every person under circumtances which if not
Identical are analogous. If law be looked upon in terms of
burden or charges, those that fall within a class should be treated
in the same fashion, whatever restrictions cast on some in the
group equally binding on the rest." 20 That same formulation
applies as well to taxation measures. The equal protection clause
is, of course, inspired by the noble concept of approximating the
Ideal of the laws benefits being available to all and the affairs of
men being governed by that serene and impartial uniformity,
which is of the very essence of the Idea of law. There is,
however, wisdom, as well as realism in these words of Justice
Frankfurter: "The equality at which the 'equal protection' clause
aims is not a disembodied equality. The Fourteenth Amendment
enjoins 'the equal protection of the laws,' and laws are not
abstract propositions. They do not relate to abstract units A, B
and C, but are expressions of policy arising out of specific
difficulties, address to the attainment of specific ends by the use
of specific remedies. The Constitution does not require things
which are different in fact or opinion to be treated in law as
though they were the same." 21 Hence the constant reiteration of

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the view that classification if rational in character is allowable.

As a matter of fact, in a leading case of Lutz V. Araneta, 22 this
Court, through Justice J.B.L. Reyes, went so far as to hold "at
any rate, 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.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity.
According to the Constitution: "The rule of taxation shag be
uniform and equitable." 24 This requirement is met according to
Justice Laurel in Philippine Trust Company v. Yatco, 25 decided
in 1940, when the tax "operates with the same force and effect in
every place where the subject may be found. " 26 He likewise
added: "The rule of uniformity does not call for perfect
uniformity or perfect equality, because this is hardly attainable."
27
The problem of classification did not present itself in that case.
It did not arise until nine years later, when the Supreme Court
held: "Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at
the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation, ...
. 28 As clarified by Justice Tuason, where "the differentiation"
complained of "conforms to the practical dictates of justice and
equity" it "is not discriminatory within the meaning of this
clause and is therefore uniform." 29 There is quite a similarity
then to the standard of equal protection for all that is required is
that the tax "applies equally to all persons, firms and
corporations placed in similar situation." 30
8. Further on this point. Apparently, what misled petitioner is his
failure to take into consideration the distinction between a tax

26

rate and a tax base. There is no legal objection to a broader tax

base or taxable income by eliminating all deductible items and at
the same time reducing the applicable tax rate. Taxpayers may
be classified into different categories. To repeat, it. is enough
that the classification must rest upon substantial distinctions that
make real differences. In the case of the gross income taxation
embodied in Batas Pambansa Blg. 135, the, discernible basis of
classification is the susceptibility of the income to the
application of generalized rules removing all deductible items
for all taxpayers within the class and fixing a set of reduced tax
rates to be applied to all of them. Taxpayers who are recipients
of compensation income are set apart as a class. As there is
practically no overhead expense, these taxpayers are e not
entitled to make deductions for income tax purposes because
they are in the same situation more or less. On the other hand, in
the case of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or expenses
necessary to produce their income. It would not be just then to
disregard the disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on the
basis of gross income. There is ample justification then for the
Batasang Pambansa to adopt the gross system of income
taxation to compensation income, while continuing the system
of net income taxation as regards professional and business
income.

classification,
WHEREFORE, the petition is dismissed. Costs against
petitioner.
Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin,
Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur.
Teehankee, J., concurs in the result.
Plana, J., took no part.
Separate Opinions
AQUINO, J., concurring:
I concur in the result. The petitioner has no cause of action for
prohibition.
ABAD SANTOS, J., dissenting:
This is a frivolous suit. While the tax rates for compensation
income are lower than those for net income such circumtance
does not necessarily result in lower tax payments for these
receiving compensation income. In fact, the reverse will most
likely be the case; those who file returns on the basis of net
income will pay less taxes because they claim all sort of
deduction justified or not I vote for dismissal.

9. Nothing can be clearer, therefore, than that the petition is

without merit, considering the (1) lack of factual foundation to
show the arbitrary character of the assailed provision; 31 (2) the
force of controlling doctrines on due process, equal protection,
and uniformity in taxation and (3) the reasonableness of the
distinction between compensation and taxable net income of
professionals and businessman certainly not a suspect

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Sison vs Ancheta
GR No. L-59431, 25 July 1984

27

Facts: Section 1 of BP Blg 135 amended the Tax Code and

petitioner Antero M. Sison, as taxpayer, alleges that "he would
be unduly discriminated against by the imposition of higher rates
of tax upon his income arising from the exercise of his
profession vis-a-vis those which are imposed upon fixed income
or salaried individual taxpayers. He characterizes said provision
as arbitrary amounting to class legislation, oppressive and
capricious in character. It therefore violates both the equal
protection and due process clauses of the Constitution as well
asof the rule requiring uniformity in taxation.

On the matter that the rule of taxation shall be uniform and

equitable - this requirement is met when the tax operates with
the same force and effect in every place where the subject may
be found." Also, :the rule of uniformity does not call for perfect
uniformity or perfect equality, because this is hardly
unattainable." When the problem of classification became of
issue, the Court said: "Equality and uniformity in taxation means
that all taxable articles or kinds of property of the same class
shall be taxed the same rate. The taxing power has the authority
to make reasonable and natural classifications for purposes of
taxation..." As provided by this Court, where "the differentation"
complained of "conforms to the practical dictates of justice and
equity" it "is not discriminatory within the meaning of this
clause and is therefore uniform."

Issue: Whether or not the assailed provision violates the equal

protection and due process clauses of the Constitution while also
violating the rule that taxes must be uniform and equitable.
Held:
The petition is without merit.
On due process - it is undoubted that it may be invoked where a
taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to
amount to the confiscation of property from abuse of power.
Petitioner alleges arbitrariness but his mere allegation does not
suffice and there must be a factual foundation of such
unconsitutional taint.
On equal protection - it suffices that the laws operate equally and
uniformly on all persons under similar circumstances, both in the
privileges conferred and the liabilities imposed.

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28

Issue:
Whether or not Section 1 of BP Blg 135 violates the due process
and equal protection clauses of the Constitution, while also
violating the rule that taxes must be uniform and equitable
Ruling:
1. No. Assuming that said amount represents a portion of the
75% of his war damage claim which was not paid, the same
would not be deductible as a loss in 1951 because, according to
petitioner, the last installment he received from the War Damage
Commission, together with the notice that no further payment
would be made on his claim, was in 1950. In the circumstance,
said amount would at most be a proper deduction from his 1950
gross income. In the second place, 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 is dependent merely upon the generosity
and magnanimity of the U. S. government. As of 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. And 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 lit, but the
non-payment of which cannot give rise to any enforceable right.

ANTERO M. SISON, JR., PETITIONER, VS. RUBEN B.

ANCHETA;
G.R. No. L-59431, July 25, 1984; FERNANDO, C.J.
Facts:
Section 1 of BP Blg 135 amended the Tax Code and petitioner
Antero M. Sison, as taxpayer, alleges that, "he would be unduly
discriminated against by the imposition of higher rates of tax
upon his income arising from the exercise of his profession visa-vis those which are imposed upon fixed income or salaried
individual taxpayers." He characterizes the above section as
arbitrary amounting to class legislation, oppressive and
capricious in character.For petitioner, therefore, there is a
transgression of both the equal protection and due process
clauses of the Constitution as well as of the rule requiring
uniformity in taxation.

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2. Yes. 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

29

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.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. Nos. L-49839-46

April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE
ROO, in their capacities as appointed and Acting Members
of the CENTRAL BOARD OF ASSESSMENT APPEALS;
TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO,
RAUL C. FLORES, in their capacities as appointed and
Acting Members of the BOARD OF ASSESSMENT
APPEALS of Manila; and NICOLAS CATIIL in his capacity
as City Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for
petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the June 10,
1977 decision of the Central Board of Assessment Appeals 1 in
CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo
Reyes, et al. v. Board of Assessment Appeals of Manila and City
Assessor of Manila" which affirmed the March 29, 1976
decision of the Board of Tax Assessment Appeals 2 in BTAA
Cases Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et al. v.
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30

City Assessor of Manila" and "Edmundo Reyes and Milagros

Reyes v. City Assessor of Manila" upholding the classification
and assessments made by the City Assessor of Manila.

reassessments made were "excessive, unwarranted, inequitable,

confiscatory and unconstitutional" considering that the taxes
imposed upon them greatly exceeded the annual income derived
from their properties. They argued that the income approach
should have been used in determining the land values instead of
the comparable sales approach which the City Assessor adopted
(Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals,
however, considered the assessments valid, holding thus:

The facts of the case are as follows:

Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are
owners of parcels of land situated in Tondo and Sta. Cruz
Districts, City of Manila, which are leased and entirely occupied
as dwelling sites by tenants. Said tenants were paying monthly
rentals not exceeding three hundred pesos (P300.00) in July,
1971. On July 14, 1971, the National Legislature enacted
Republic Act No. 6359 prohibiting for one year from its
effectivity, an increase in monthly rentals of dwelling units or of
lands on which another's dwelling is located, where such rentals
do not exceed three hundred pesos (P300.00) a month but
allowing an increase in rent by not more than 10% thereafter.
The said Act also suspended paragraph (1) of Article 1673 of the
Civil Code for two years from its effectivity thereby disallowing
the ejectment of lessees upon the expiration of the usual legal
period of lease. On October 12, 1972, Presidential Decree No.
20 amended R.A. No. 6359 by making absolute the prohibition
to increase monthly rentals below P300.00 and by indefinitely
suspending the aforementioned provision of the Civil Code,
excepting leases with a definite period. Consequently, the
Reyeses, petitioners herein, were precluded from raising the
rentals and from ejecting the tenants. In 1973, respondent City
Assessor of Manila re-classified and reassessed the value of the
subject properties based on the schedule of market values duly
reviewed by the Secretary of Finance. The revision, as expected,
entailed an increase in the corresponding tax rates prompting
petitioners to file a Memorandum of Disagreement with the
Board of Tax Assessment Appeals. They averred that the

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WHEREFORE, and considering that the appellants have failed

to submit concrete evidence which could overcome the
presumptive regularity of the classification and assessments
appear to be in accordance with the base schedule of market
values and of the base schedule of building unit values, as
approved by the Secretary of Finance, the cases should be, as
they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment
Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment
Appeals.1wphi1 They submitted, among others, the summary
of the yearly rentals to show the income derived from the
properties. Respondent City Assessor, on the other hand,
submitted three (3) deeds of sale showing the different market
values of the real property situated in the same vicinity where
the subject properties of petitioners are located. To better
appreciate the locational and physical features of the land, the
Board of Hearing Commissioners conducted an ocular
inspection with the presence of two representatives of the City
Assessor prior to the healing of the case. Neither the owners nor
their authorized representatives were present during the said
ocular inspection despite proper notices served them. It was

31

found that certain parcels of land were below street level and
were affected by the tides (Rollo, pp. 24-25).

assessment of the properties in question. Petitioners maintain

that the "Income Approach" method would have been more
realistic for in disregarding the effect of the restrictions imposed
by P.D. 20 on the market value of the properties affected,
respondent Assessor of the City of Manila unlawfully and
unjustifiably set increased new assessed values at levels so high
and successive that the resulting annual real estate taxes would
admittedly exceed the sum total of the yearly rentals paid or
payable by the dweller tenants under P.D. 20. Hence, petitioners
protested against the levels of the values assigned to their
properties as revised and increased on the ground that they were
arbitrarily excessive, unwarranted, inequitable, confiscatory and
unconstitutional (Rollo, p. 10-A).

On June 10, 1977, the Central Board of Assessment Appeals

rendered its decision, the dispositive portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation
and assessment of the lots covered by Tax Declaration Nos.
(5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is
affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432,
PD-1509, 146 and (1) PD-266, the appealed Decision is
modified by allowing a 20% reduction in their respective market
values and applying therein the assessment level of 30% to
arrive at the corresponding assessed value.

On the other hand, while respondent Board of Tax Assessment

Appeals admits in its decision that the income approach is used
in determining land values in some vicinities, it maintains that
when income is affected by some sort of price control, the same
is rejected in the consideration and study of land values as in the
case of properties affected by the Rent Control Law for they do
not project the true market value in the open market (Rollo, p.
21). Thus, respondents opted instead for the "Comparable Sales
Approach" on the ground that the value estimate of the
properties predicated upon prices paid in actual, market
transactions would be a uniform and a more credible standards
to use especially in case of mass appraisal of properties (Ibid.).
Otherwise stated, public respondents would have this Court
completely ignore the effects of the restrictions of P.D. No. 20
on the market value of properties within its coverage. In any
event, it is unquestionable that both the "Comparable Sales
Approach" and the "Income Approach" are generally acceptable
methods of appraisal for taxation purposes (The Law on Transfer
and Business Taxation by Hector S. De Leon, 1988 Edition).

SO ORDERED. (Decision of the Central Board of Assessment

Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied,
hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE
"COMPARABLE SALES APPROACH" METHOD IN FIXING
THE ASSESSED VALUE OF APPELLANTS' PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax

TAXATION

32

However, it is conceded that the propriety of one as against the

other would of course depend on several factors. Hence, as early
as 1923 in the case of Army & Navy Club, Manila v. Wenceslao
Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that
the assessors, in finding the value of the property, have to
consider all the circumstances and elements of value and must
exercise a prudent discretion in reaching conclusions.

revenue measure. If it were otherwise, there would be truth to

the 1903 dictum of Chief Justice Marshall that "the power to tax
involves the power to destroy." The web or unreality spun from
Marshall's famous dictum was brushed away by one stroke of
Mr. Justice Holmes pen, thus: "The power to tax is not the power
to destroy while this Court sits. So it is in the Philippines "
(Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v.
Commissioner of Internal Revenue, 139 SCRA 439 [1985]).

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then

enforced, the rule of taxation must not only be uniform, but must
also be equitable and progressive.

In the same vein, the due process clause may be invoked where a
taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to
amount to confiscation of property. That would be a clear abuse
of power (Sison v. Ancheta, supra).

Uniformity has been defined as that principle by which all

taxable articles or kinds of property of the same class shall be
taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969
[1916]).

The taxing power has the authority to make a reasonable and

natural classification for purposes of taxation but the
government's act must not be prompted by a spirit of hostility, or
at the very least discrimination that finds no support in reason. It
suffices then that the laws operate equally and uniformly on all
persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different
both in the privileges conferred and the liabilities imposed (Ibid.,
p. 662).

Notably in the 1935 Constitution, there was no mention of the

equitable or progressive aspects of taxation required in the 1973
Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and
determine the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those
better able to pay. Taxation is progressive when its rate goes up
depending on the resources of the person affected (Ibid.).

Finally under the Real Property Tax Code (P.D. 464 as

amended), it is declared that the first Fundamental Principle to
guide the appraisal and assessment of real property for taxation
purposes is that the property must be "appraised at its current
and fair market value."

The power to tax "is an attribute of sovereignty". In fact, it is the

strongest of all the powers of government. But for all its
plenitude the power to tax is not unconfined as there are
restrictions. Adversely effecting as it does property rights, both
the due process and equal protection clauses of the Constitution
may properly be invoked to invalidate in appropriate cases a

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By no strength of the imagination can the market value of

properties covered by P.D. No. 20 be equated with the market

33

value of properties not so covered. The former has naturally a

much lesser market value in view of the rental restrictions.

by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20)
under the principle of social justice should not now be penalized
by the same government by the imposition of excessive taxes
petitioners can ill afford and eventually result in the forfeiture of
their properties.

Ironically, in the case at bar, not even the factors determinant of

the assessed value of subject properties under the "comparable
sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length
transaction between a willing seller and a willing buyer and (2)
the property must be comparable property (Rollo, p. 27).
Nothing can justify or support their view as it is of judicial
notice that for properties covered by P.D. 20 especially during
the time in question, there were hardly any willing buyers. As a
general rule, there were no takers so that there can be no
reasonable basis for the conclusion that these properties were
comparable with other residential properties not burdened by
P.D. 20. Neither can the given circumstances be nonchalantly
dismissed by public respondents as imposed under distressed
conditions clearly implying that the same were merely
temporary in character. At this point in time, the falsity of such
premises cannot be more convincingly demonstrated by the fact
that the law has existed for around twenty (20) years with no end
to it in sight.

By the public respondents' own computation the assessment by

income approach would amount to only P10.00 per sq. meter at
the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b)
the assailed decisions of public respondents are REVERSED and
SET ASIDE; and (e) the respondent Board of Assessment
Appeals of Manila and the City Assessor of Manila are ordered
to make a new assessment by the income approach method to
guarantee a fairer and more realistic basis of computation (Rollo,
p. 71).
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz,
Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Grio-Aquino,
Medialdea, Regalado and Davide, Jr., JJ., concur.

Verily, taxes are the lifeblood of the government and so should

be collected without unnecessary hindrance. However, 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 taxations, which is the promotion of the common
good, may be achieved (Commissioner of Internal Revenue v.
Algue Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands
to reason that petitioners who are burdened by the government

TAXATION

REYES VS. ALMANZOR

GR 43839-46 April 26, 1991 196 SCRA 322
Paras, J.:
FACTS:
34

Petitioner are owners of parcels of land leased to tenants. RA

6359 was enacted prohibiting for one year an increase in
monthly rentals of dwelling units and said Act also disallowed
ejectment of lessees upon the expiration of the usual period of
lease. City assessor of Manila assessed the value of petitioners
property based on the schedule of market values duly reviewed
by the Secretary of Finance. The revision entailed an increase to
the tax rates and petitioners averred that the reassessment
imposed upon them greatly exceeded the annual income derived
from their properties.

comparable.
Taxes are lifeblood of government, however, such collection
should be made in accordance with the law and therefore
necessary to reconcile conflicting interests of the authorities so
that the real purpose of taxation, promotion of the welfare of
common good can be achieved.

ISSUE:
Whether or not income approach is the method to be used in the
tax assessment and not the comparable sales approach.
RULING:
By no stretch of the imagination can the market value of
properties covered by PD 20 be equated with the market value of
properties not so covered. In the case at bar, not even factors
determinant of the assessed value of subject properties under the
comparable sales approach were presented by respondent
namely:

REYES v. ALMANZOR
GR Nos. L-49839-46, April 26, 1991
196 SCRA 322

FACTS: Petitioners JBL Reyes et al. owned a parcel of land in

Tondo which are leased and occupied as dwelling units by
tenants who were paying monthly rentals of not exceeding P300.
Sometimes in 1971 the Rental Freezing Law was passed
prohibiting for one year from its effectivity, an increase in
monthly rentals of dwelling units where rentals do not exceed
three hundred pesos (P300.00), so that the Reyeses were
precluded from raising the rents and from ejecting the tenants. In

1. That the sale must represent a bonafide arms length

transaction between a willing seller and a willing buyer
2. The property must be comparable property.
As a general rule, there were no takers so that there can be no
reasonable basis for the conclusion that these properties are

TAXATION

35

1973, respondent City Assessor of Manila re-classified and

reassessed the value of the subject properties based on the
schedule of market values, which entailed an increase in the
corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement averring that the reassessments
made were "excessive, unwarranted, inequitable, confiscatory
and unconstitutional"considering that the taxes imposed upon
them greatly exceeded the annual income derived from their
properties. They argued that the income approach should have
been used in determining the land values instead of the
comparable sales approach which the City Assessor adopted.
ISSUE: Is the approach on tax assessment used by the City
Assessor reasonable?
HELD: No. The taxing power has the authority to make a
reasonable and natural classification for purposes of taxation but
the government's act must not be prompted by a spirit of
hostility, or at the very least discrimination that finds no support
in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all
persons must be treated in the same manner, the conditions not
being different both in the privileges conferred and the liabilities
imposed.
Consequently, it stands to reason that petitioners who are
burdened by the government by its Rental Freezing Laws (then
R.A. No. 6359 and P.D. 20) under the principle of social justice
should not now be penalized by the same government by the
imposition of excessive taxes petitioners can ill afford and
eventually result in the forfeiture of their properties.

TAXATION

36

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola

Bottling Company of the Philippines, Inc., commenced a
complaint with preliminary injunction before the Court of First
Instance of Leyte for that court to declare Section 2 of Republic
Act No. 2264. 1 otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as
well as to declare Ordinances Nos. 23 and 27, series of 1962, of
the municipality of Tanauan, Leyte, null and void.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

On July 23, 1963, the parties entered into a Stipulation of Facts,

the material portions of which state that, first, both Ordinances
Nos. 23 and 27 embrace or cover the same subject matter and
the production tax rates imposed therein are practically the same,
and second, that on January 17, 1963, the acting Municipal
Treasurer of Tanauan, Leyte, as per his letter addressed to the
Manager of the Pepsi-Cola Bottling Plant in said municipality,
sought to enforce compliance by the latter of the provisions of
said Ordinance No. 27, series of 1962.

G.R. No. L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE
PHILIPPINES, INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE
MUNICIPAL MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was

approved on September 25, 1962, levies and collects "from soft
drinks producers and manufacturers a tai of one-sixteenth (1/16)
of a centavo for every bottle of soft drink corked." 2 For the
purpose of computing the taxes due, the person, firm, company
or corporation producing soft drinks shall submit to the
Municipal Treasurer a monthly report, of the total number of
bottles produced and corked during the month. 3

Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal

Bonifacio R Matol and Assistant Solicitor General Conrado T.
Limcaoco & Solicitor Enrique M. Reyes for appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance
of Leyte in its Civil Case No. 3294, which was certified to Us by
the Court of Appeals on October 6, 1969, as involving only pure
questions of law, challenging the power of taxation delegated to
municipalities under the Local Autonomy Act (Republic Act No.
2264, as amended, June 19, 1959).

TAXATION

On the other hand, Municipal Ordinance No. 27, which was

approved on October 28, 1962, levies and collects "on soft
drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of ONE CENTAVO
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume

37

capacity." 4 For the purpose of computing the taxes due, the

person, fun company, partnership, corporation or plant
producing soft drinks shall submit to the Municipal Treasurer a
monthly report of the total number of gallons produced or
manufactured during the month. 5

sovereignty, belonging as a matter of right to every independent

government, without being expressly conferred by the people. 6
It is a power that is purely legislative and which the central
legislative body cannot delegate either to the executive or
judicial department of the government without infringing upon
the theory of separation of powers. The exception, however, lies
in the case of municipal corporations, to which, said theory does
not apply. Legislative powers may be delegated to local
governments in respect of matters of local concern. 7 This is
sanctioned by immemorial practice. 8 By necessary implication,
the legislative power to create political corporations for purposes
of local self-government carries with it the power to confer on
such local governmental agencies the power to tax. 9 Under the
New Constitution, local governments are granted the
autonomous authority to create their own sources of revenue and
to levy taxes. Section 5, Article XI provides: "Each local
government unit shall have the power to create its sources of
revenue and to levy taxes, subject to such limitations as may be
provided by law." Withal, it cannot be said that Section 2 of
Republic Act No. 2264 emanated from beyond the sphere of the
legislative power to enact and vest in local governments the
power of local taxation.

The tax imposed in both Ordinances Nos. 23 and 27 is

denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte
rendered judgment "dismissing the complaint and upholding the
constitutionality of [Section 2, Republic Act No. 2264] declaring
Ordinance Nos. 23 and 27 legal and constitutional; ordering the
plaintiff to pay the taxes due under the oft the said Ordinances;
and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company
appealed to the Court of Appeals, which, in turn, elevated the
case to Us pursuant to Section 31 of the Judiciary Act of 1948,
as amended.
There are three capital questions raised in this appeal:

The plenary nature of the taxing power thus delegated, contrary

to plaintiff-appellant's pretense, would not suffice to invalidate
the said law as confiscatory and oppressive. In delegating the
authority, the State is not limited 6 the exact measure of that
which is exercised by itself. When it is said that the taxing power
may be delegated to municipalities and the like, it is meant that
there may be delegated such measure of power to impose and
collect taxes as the legislature may deem expedient. Thus,
municipalities may be permitted to tax subjects which for
reasons of public policy the State has not deemed wise to tax for

1. Is Section 2, Republic Act No. 2264 an undue delegation

of power, confiscatory and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation
and impose percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of

TAXATION

38

more general purposes. 10 This is not to say though that the

constitutional injunction against deprivation of property without
due process of law may be passed over under the guise of the
taxing power, except when the taking of the property is in the
lawful exercise of the taxing power, as when (1) the tax is for a
public purpose; (2) the rule on uniformity of taxation is
observed; (3) either the person or property taxed is within the
jurisdiction of the government levying the tax; and (4) in the
assessment and collection of certain kinds of taxes notice and
opportunity for hearing are provided. 11 Due process is usually
violated where the tax imposed is for a private as distinguished
from a public purpose; a tax is imposed on property outside the
State, i.e., extraterritorial taxation; and arbitrary or oppressive
methods are used in assessing and collecting taxes. But, a tax
does not violate the due process clause, as applied to a particular
taxpayer, although the purpose of the tax will result in an injury
rather than a benefit to such taxpayer. Due process does not
require that the property subject to the tax or the amount of tax
to be raised should be determined by judicial inquiry, and a
notice and hearing as to the amount of the tax and the manner in
which it shall be apportioned are generally not necessary to due
process of law. 12

taxation becomes obnoxious only where the taxpayer is taxed

twice for the benefit of the same governmental entity 15 or by the
same jurisdiction for the same purpose, 16 but not in a case where
one tax is imposed by the State and the other by the city or
municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27
constitute double taxation, because these two ordinances cover
the same subject matter and impose practically the same tax rate.
The thesis proceeds from its assumption that both ordinances are
valid and legally enforceable. This is not so. As earlier quoted,
Ordinance No. 23, which was approved on September 25, 1962,
levies or collects from soft drinks producers or manufacturers a
tax of one-sixteen (1/16) of a centavo for .every bottle corked,
irrespective of the volume contents of the bottle used. When it
was discovered that the producer or manufacturer could increase
the volume contents of the bottle and still pay the same tax rate,
the Municipality of Tanauan enacted Ordinance No. 27,
approved on October 28, 1962, imposing a tax of one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. The difference between the two ordinances clearly lies
in the tax rate of the soft drinks produced: in Ordinance No. 23,
it was 1/16 of a centavo for every bottle corked; in Ordinance
No. 27, it is one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity. The intention of the Municipal
Council of Tanauan in enacting Ordinance No. 27 is thus clear: it
was intended as a plain substitute for the prior Ordinance No.
23, and operates as a repeal of the latter, even without words to
that effect. 18 Plaintiff-appellant in its brief admitted that
defendants-appellees are only seeking to enforce Ordinance No.
27, series of 1962. Even the stipulation of facts confirms the fact
that the Acting Municipal Treasurer of Tanauan, Leyte sought t6
compel compliance by the plaintiff-appellant of the provisions of

There is no validity to the assertion that the delegated authority

can be declared unconstitutional on the theory of double
taxation. It must be observed that the delegating authority
specifies the limitations and enumerates the taxes over which
local taxation may not be exercised. 13 The reason is that the
State has exclusively reserved the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of
the United States and some states of the Union. 14 Double

TAXATION

39

said Ordinance No. 27, series of 1962. The aforementioned

admission shows that only Ordinance No. 27, series of 1962 is
being enforced by defendants-appellees. Even the Provincial
Fiscal, counsel for defendants-appellees admits in his brief "that
Section 7 of Ordinance No. 27, series of 1962 clearly repeals
Ordinance No. 23 as the provisions of the latter are inconsistent
with the provisions of the former."

capacity of the taxpayer's production of soft drinks is considered

solely for purposes of determining the tax rate on the products,
but there is not set ratio between the volume of sales and the
amount of the tax. 21
Nor can the tax levied be treated as a specific tax. Specific taxes
are those imposed on specified articles, such as distilled spirits,
wines, fermented liquors, products of tobacco other than cigars
and cigarettes, matches firecrackers, manufactured oils and other
fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic
films, playing cards, saccharine, opium and other habit-forming
drugs. 22 Soft drink is not one of those specified.

That brings Us to the question of whether the remaining

Ordinance No. 27 imposes a percentage or a specific tax.
Undoubtedly, the taxing authority conferred on local
governments under Section 2, Republic Act No. 2264, is broad
enough as to extend to almost "everything, accepting those
which are mentioned therein." As long as the text levied under
the authority of a city or municipal ordinance is not within the
exceptions and limitations in the law, the same comes within the
ambit of the general rule, pursuant to the rules of exclucion
attehus and exceptio firmat regulum in cabisus non excepti 19
The limitation applies, particularly, to the prohibition against
municipalities and municipal districts to impose "any percentage
tax or other taxes in any form based thereon nor impose taxes on
articles subject to specific tax except gasoline, under the
provisions of the National Internal Revenue Code." For purposes
of this particular limitation, a municipal ordinance which
prescribes a set ratio between the amount of the tax and the
volume of sale of the taxpayer imposes a sales tax and is null
and void for being outside the power of the municipality to
enact. 20But, the imposition of "a tax of one centavo (P0.01) on
each gallon (128 fluid ounces, U.S.) of volume capacity" on all
soft drinks produced or manufactured under Ordinance No. 27
does not partake of the nature of a percentage tax on sales, or
other taxes in any form based thereon. The tax is levied on the
produce (whether sold or not) and not on the sales. The volume

TAXATION

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.)
of volume capacity on all softdrinks, produced or manufactured,
or an equivalent of 1- centavos per case, 23 cannot be
considered unjust and unfair. 24 an increase in the tax alone
would not support the claim that the tax is oppressive, unjust and
confiscatory. Municipal corporations are allowed much
discretion in determining the reates of imposable taxes. 25 This
is in line with the constutional policy of according the widest
possible autonomy to local governments in matters of local
taxation, an aspect that is given expression in the Local Tax
Code (PD No. 231, July 1, 1973). 26 Unless the amount is so
excessive as to be prohibitive, courts will go slow in writing off
an ordinance as unreasonable. 27 Reluctance should not deter
compliance with an ordinance such as Ordinance No. 27 if the
purpose of the law to further strengthen local autonomy were to
be realized. 28
Finally, the municipal license tax of P1,000.00 per corking
machine with five but not more than ten crowners or P2,000.00
with ten but not more than twenty crowners imposed on

40

manufacturers, producers, importers and dealers of soft drinks

and/or mineral waters under Ordinance No. 54, series of 1964,
as amended by Ordinance No. 41, series of 1968, of defendant
Municipality, 29 appears not to affect the resolution of the
validity of Ordinance No. 27. Municipalities are empowered to
impose, not only municipal license taxes upon persons engaged
in any business or occupation but also to levy for public
purposes, just and uniform taxes. The ordinance in question
(Ordinance No. 27) comes within the second power of a
municipality.

sense of reluctance in restating doctrines that arose from a

different basic premise as to the scope of such power in
accordance with the 1935 Charter. Nonetheless it is well-nigh
unavoidable that I do so as I am unable to share fully what for
me are the nuances and implications that could arise from the
approach taken by my brethren. Likewise as to the constitutional
aspect of the thorny question of double taxation, I would limit
myself to what has been set forth in City of Baguio v. De Leon. 1
1. The present Constitution is quite explicit as to the power of
taxation vested in local and municipal corporations. It is therein
specifically provided: "Each local government unit shall have
the power to create its own sources of revenue and to levy taxes
subject to such limitations as may be provided by law. 2 That was
not the case under the 1935 Charter. The only limitation then on
the authority, plenary in character of the national government,
was that while the President of the Philippines was vested with
the power of control over all executive departments, bureaus, or
offices, he could only . It exercise general supervision over all
local governments as may be provided by law ... 3 As far as
legislative power over local government was concerned, no
restriction whatsoever was placed on the Congress of the
Philippines. It would appear therefore that the extent of the
taxing power was solely for the legislative body to decide. It is
true that in 1939, there was a statute that enlarged the scope of
the municipal taxing power. 4 Thereafter, in 1959 such
competence was further expanded in the Local Autonomy Act. 5
Nevertheless, as late as December of 1964, five years after its
enactment of the Local Autonomy Act, this Court, through
Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan,
6
reaffirmed the traditional concept in these words: "The rule is
well-settled that municipal corporations, unlike sovereign states,
after clothed with no power of taxation; that its charter or a

ACCORDINGLY, the constitutionality of Section 2 of Republic

Act No. 2264, otherwise known as the Local Autonomy Act, as
amended, is hereby upheld and Municipal Ordinance No. 27 of
the Municipality of Tanauan, Leyte, series of 1962, re-pealing
Municipal Ordinance No. 23, same series, is hereby declared of
valid and legal effect. Costs against petitioner-appellant.
SO ORDERED.
Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra,
Muoz Palma, Aquino and Concepcion, Jr., JJ., concur.
Separate Opinions
FERNANDO, J., concurring:
The opinion of the Court penned by Justice Martin is impressed
with a scholarly and comprehensive character. Insofar as it
shows adherence to tried and tested concepts of the law of
municipal taxation, I am only in agreement. If I limit myself to
concurrence in the result, it is primarily because with the article
on Local Autonomy found in the present Constitution, I feel a
TAXATION

41

double taxation results. 12

statute must clearly show an intent to confer that power or the

municipal corporation cannot assume and exercise it, and that
any such power granted must be construed strictly, any doubt or
ambiguity arising from the terms of the grant to be resolved
against the municipality." 7

So I would view the issues in this suit and accordingly concur in

the result.
PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs.
MUNICIPALITY OF TANAUAN
69 SCRA 460 GR No. L-31156, February 27, 1976

Taxation, according to Justice Parades in the earlier case of Tan

v. Municipality of Pagbilao, 8 "is an attribute of sovereignty
which municipal corporations do not enjoy." 9 That case left no
doubt either as to weakness of a claim "based merely by
inferences, implications and deductions, [as they have no place
in the interpretation of the power to tax of a municipal
corporation." 10 As the conclusion reached by the Court finds
support in such grant of the municipal taxing power, I concur in
the result. 2. As to any possible infirmity based on an alleged
double taxation, I would prefer to rely on the doctrine
announced by this Court in City of Baguio v. De Leon. 11 Thus:
"As to why double taxation is not violative of due process,
Justice Holmes made clear in this language: 'The objection to the
taxation as double may be laid down on one side. ... The 14th
Amendment [the due process clause) no more forbids double
taxation than it does doubling the amount of a tax, short of
(confiscation or proceedings unconstitutional on other grouse
With that decision rendered at a time when American
sovereignty in the Philippines was recognized, it possesses more
than just a persuasive effect. To some, it delivered the coup
justice to the bogey of double taxation as a constitutional bar to
the exercise of the taxing power. It would seem though that in
the United States, as with us, its ghost, as noted by an eminent
critic, still stalks the juridical stage. 'In a 1947 decision,
however, we quoted with approval this excerpt from a leading
American decision: 'Where, as here, Congress has clearly
expressed its intention, the statute must be sustained even though

TAXATION

"Legislative power to create political corporations for purposes

of local self-government carries with it the power to confer on
such local governmental agencies the power to tax.
FACTS: Plaintiff-appellant Pepsi-Cola commenced a complaint
with preliminary injunction to declare Section 2 of Republic Act
No. 2264, otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as
well as to declare Ordinances Nos. 23 and 27 denominated as
"municipal production tax" of the Municipality of Tanauan,
Leyte, null and void. Ordinance 23 levies and collects from soft
drinks producers and manufacturers a tax of one-sixteenth (1/16)
of a centavo for every bottle of soft drink corked, and Ordinance
27 levies and collects on soft drinks produced or manufactured
within the territorial jurisdiction of this municipality a tax of
ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.)
of volume capacity. Aside from the undue delegation of
authority, appellant contends that it allows double taxation, and
that the subject ordinances are void for they impose percentage
or specific tax.
ISSUE: Are the contentions of the appellant tenable?
HELD: No. On the issue of undue delegation of taxing power, it
42

is settled that the power of taxation is an essential and inherent

attribute of sovereignty, belonging as a matter of right to every
independent government, without being expressly conferred by
the people. It is a power that is purely legislative and which the
central legislative body cannot delegate either to the executive or
judicial department of the government without infringing upon
the theory of separation of powers. The exception, however, lies
in the case of municipal corporations, to which, said theory does
not apply. Legislative powers may be delegated to local
governments in respect of matters of local concern. By necessary
implication, the legislative power to create political corporations
for purposes of local self-government carries with it the power to
confer on such local governmental agencies the power to tax.

production of soft drinks is considered solely for purposes of

determining the tax rate on the products, but there is not set ratio
between the volume of sales and the amount of the tax.
69 SCRA 460 Taxation Delegation to Local Governments
Double Taxation
Pepsi Cola has a bottling plant in the Municipality of Tanauan,
Leyte. In September 1962, the Municipality approved Ordinance
No. 23 which levies and collects from soft drinks producers and
manufacturers a tai of one-sixteenth (1/16) of a centavo for
every bottle of soft drink corked.
In December 1962, the Municipality also approved Ordinance
No. 27 which levies and collects on soft drinks produced or
manufactured within the territorial jurisdiction of this
municipality a tax of one centavo P0.01) on each gallon of
volume capacity.

Also, there is no validity to the assertion that the delegated

authority can be declared unconstitutional on the theory of
double taxation. It must be observed that the delegating authority
specifies the limitations and enumerates the taxes over which
local taxation may not be exercised. The reason is that the State
has exclusively reserved the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by our
fundamental law, so that double taxation becomes obnoxious
only where the taxpayer is taxed twice for the benefit of the
same governmental entity or by the same jurisdiction for the
same purpose, but not in a case where one tax is imposed by the
State and the other by the city or municipality.

Pepsi Cola assailed the validity of the ordinances as it alleged

that they constitute double taxation in two instances: a) double
taxation because Ordinance No. 27 covers the same subject
matter and impose practically the same tax rate as with
Ordinance No. 23, b) double taxation because the two
ordinances impose percentage or specific taxes.
Pepsi Cola also questions the constitutionality of Republic Act
2264 which allows for the delegation of taxing powers to local
government units; that allowing local governments to tax
companies like Pepsi Cola is confiscatory and oppressive.

On the last issue raised, the ordinances do not partake of the

nature of a percentage tax on sales, or other taxes in any form
based thereon. The tax is levied on the produce (whether sold or
not) and not on the sales. The volume capacity of the taxpayer's

TAXATION

43

merited. It must be observed that the delegating authority

The Municipality assailed the arguments presented by Pepsi

Cola. It argued, among others, that only Ordinance No. 27 is
being enforced and that the latter law is an amendment of
Ordinance No. 23, hence there is no double taxation.

specifies the limitations and enumerates the taxes over which

local taxation may not be exercised. The reason is that the State
has exclusively reserved the same for its own prerogative.

ISSUE: Whether or not there is undue delegation of taxing

powers. Whether or not there is double taxation.

Moreover, double taxation, in general, is not forbidden by our

fundamental law unlike in other jurisdictions. Double taxation

HELD: No. There is no undue delegation. The Constitution

even allows such delegation. Legislative powers may be
delegated to local governments in respect of matters of local
concern. By necessary implication, the legislative power to
create political corporations for purposes of local selfgovernment carries with it the power to confer on such local
governmental agencies the power to tax. Under the New
Constitution, local governments are granted the autonomous
authority to create their own sources of revenue and to levy
taxes. Section 5, Article XI provides: Each local government
unit shall have the power to create its sources of revenue and to
levy taxes, subject to such limitations as may be provided by
law. Withal, it cannot be said that Section 2 of Republic Act No.
2264 emanated from beyond the sphere of the legislative power
to enact and vest in local governments the power of local
taxation.

becomes obnoxious only where the taxpayer is taxed twice for

the benefit of the same governmental entity or by the same
jurisdiction for the same purpose, but not in a case where one tax
is imposed by the State and the other by the city or municipality.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-10405

December 29, 1960

WENCESLAO PASCUAL, in his official capacity as

Provincial Governor of Rizal, petitioner-appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND
COMMUNICATIONS, ET AL., respondents-appellees.

There is no double taxation. The argument of the Municipality is

Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Office of the Asst. Solicitor General Jose G. Bautista and
Solicitor A. A. Torres for appellee.

well taken. Further, Pepsi Colas assertion that the delegation of

taxing power in itself constitutes double taxation cannot be

TAXATION

44

CONCEPCION, J.:

the council, subject to the condition "that the donor would

submit a plan of the said roads and agree to change the names of
two of them"; that no deed of donation in favor of the
municipality of Pasig was, however, executed; that on July 10,
1953, respondent 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; that the municipal
council of Pasig endorsed said letter of respondent Zulueta to the
District Engineer of Rizal, who, up to the present "has not made
any endorsement thereon" that inasmuch as the projected feeder
roads in question were private property at the time of the
passage and approval of Republic Act No. 920, the appropriation
of P85,000.00 therein made, for the construction, reconstruction,
repair, extension and improvement of said projected feeder
roads, was illegal and, therefore, void ab initio"; that said
appropriation of P85,000.00 was made by Congress because its
members were made to believe that the projected feeder roads in
question were "public roads and not private streets of a private
subdivision"'; that, "in order to give a semblance of legality,
when there is absolutely none, to the aforementioned
appropriation", respondents Zulueta executed on December 12,
1953, while he was a member of the Senate of the Philippines,
an alleged deed of donation copy of which is annexed to the
petition of the four (4) parcels of land constituting said
projected feeder roads, in favor of the Government of the
Republic of the Philippines; that said alleged deed of donation
was, on the same date, accepted by the then Executive Secretary;
that being subject to an onerous condition, said donation partook
of the nature of a contract; that, such, said donation violated the
provision of our fundamental law prohibiting members of
Congress from being directly or indirectly financially interested
in any contract with the Government, and, hence, is

Appeal, by petitioner Wenceslao Pascual, from a decision of the

Court of First Instance of Rizal, dismissing the above entitled
case and dissolving the writ of preliminary injunction therein
issued, without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial
Governor of Rizal, instituted this action for declaratory relief,
with injunction, upon the ground that Republic Act No. 920,
entitled "An Act Appropriating Funds for Public Works",
approved on June 20, 1953, contained, in section 1-C (a) thereof,
an item (43[h]) of P85,000.00 "for the construction,
reconstruction, repair, extension and improvement" of Pasig
feeder road terminals (Gen. Roxas Gen. Araneta Gen.
Lucban Gen. Capinpin Gen. Segundo Gen. Delgado
Gen. Malvar Gen. Lim)"; that, at the time of the passage and
approval of said Act, the aforementioned feeder roads were
"nothing but projected and planned subdivision roads, not yet
constructed, . . . within the Antonio Subdivision . . . situated at . .
. Pasig, Rizal" (according to the tracings attached to the petition
as Annexes A and B, near Shaw Boulevard, not far away from
the intersection between the latter and Highway 54), which
projected feeder roads "do not connect any government property
or any important premises to the main highway"; that the
aforementioned Antonio Subdivision (as well as the lands on
which said feeder roads were to be construed) 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; that on May, 1953, respondent Zulueta,
addressed a letter to the Municipal Council of Pasig, Rizal,
offering to donate said projected feeder roads to the municipality
of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by

TAXATION

45

unconstitutional, as well as null and void ab initio, for the

construction of the projected feeder roads in question with
public funds would greatly enhance or increase the value of the
aforementioned subdivision of respondent Zulueta, "aside from
relieving him from the burden of constructing his subdivision
streets or roads at his own expense"; that the construction of said
projected feeder roads was then being undertaken by the Bureau
of Public Highways; and that, unless restrained by the court, the
respondents would continue to execute, comply with, follow and
implement the aforementioned illegal provision of law, "to the
irreparable damage, detriment and prejudice not only to the
petitioner but to the Filipino nation."

petitioner had "no legal capacity to sue", and that the petition did
"not state a cause of action". In support to this motion,
respondent Zulueta alleged that the Provincial Fiscal of Rizal,
not its provincial governor, should represent the Province of
Rizal, pursuant to section 1683 of the Revised Administrative
Code; that said respondent is " not aware of any law which
makes illegal the appropriation of public funds for the
improvements of . . . private property"; and that, the
constitutional provision invoked by petitioner is inapplicable to
the donation in question, the same being a pure act of liberality,
not a contract. The other respondents, in turn, maintained that
petitioner could not assail the appropriation in question because
"there is no actual bona fide case . . . in which the validity of
Republic Act No. 920 is necessarily involved" and petitioner
"has not shown that he has a personal and substantial interest" in
said Act "and that its enforcement has caused or will cause him a
direct injury."

Petitioner prayed, therefore, that the contested item of Republic

Act No. 920 be declared null and void; that the alleged deed of
donation of the feeder roads in question be "declared
unconstitutional and, therefor, illegal"; that a writ of injunction
be issued enjoining the Secretary of Public Works and
Communications, the Director of the Bureau of Public Works
and Highways and Jose C. Zulueta from ordering or allowing the
continuance of the above-mentioned feeder roads project, and
from making and securing any new and further releases on the
aforementioned item of Republic Act No. 920, and the
disbursing officers of the Department of Public Works and
Highways from making any further payments out of said funds
provided for in Republic Act No. 920; and that pending final
hearing on the merits, a writ of preliminary injunction be issued
enjoining the aforementioned parties respondent from making
and securing any new and further releases on the aforesaid item
of Republic Act No. 920 and from making any further payments
out of said illegally appropriated funds.

Acting upon said motions to dismiss, the lower court rendered

the aforementioned decision, dated October 29, 1953, holding
that, since public interest is involved in this case, 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; that, being subject to the following condition:
The within donation is hereby made upon the condition that the
Government of the Republic of the Philippines will use the
parcels of land hereby donated for street purposes only and for

Respondents moved to dismiss the petition upon the ground that

TAXATION

46

no other purposes whatsoever; it being expressly understood that

should the Government of the Republic of the Philippines
violate the condition hereby imposed upon it, the title to the land
hereby donated shall, upon such violation, ipso facto revert to
the DONOR, JOSE C. ZULUETA. (Emphasis supplied.)

Zulueta of the burden of constructing his subdivision streets or

roads at his own expenses, 1and would "greatly enhance or
increase the value of the subdivision" of said respondent. The
lower court held that under these circumstances, the
appropriation in question was "clearly for a private, not a public
purpose."

which is onerous, the donation in question is a contract; that said

donation or contract is "absolutely forbidden by the
Constitution" and consequently "illegal", for Article 1409 of the
Civil Code of the Philippines, declares in existence and void
from the very beginning contracts "whose cause, objector
purpose is contrary to law, morals . . . or public policy"; that the
legality of said donation may not be contested, however, by
petitioner herein, because his "interest are not directly affected"
thereby; and that, accordingly, the appropriation in question
"should be upheld" and the case dismissed.

Respondents do not deny the accuracy of this conclusion, which

is self-evident. 2However, respondent Zulueta contended, in his
motion to dismiss that:
A law passed by Congress and approved by the President can
never be illegal because Congress is the source of all laws . . .
Aside from the fact that movant is not aware of any law which
makes illegal the appropriation of public funds for the
improvement of what we, in the meantime, may assume as
private property . . . (Record on Appeal, p. 33.)

At the outset, it should be noted that we are concerned with a

decision granting the aforementioned motions to dismiss, which
as much, are deemed to have admitted hypothetically the
allegations of fact made in the petition of appellant herein.
According to said petition, respondent Zulueta is the owner of
several parcels of residential land situated in Pasig, Rizal, and
known as the Antonio Subdivision, certain portions of which had
been reserved for the projected feeder roads aforementioned,
which, admittedly, were private property of said respondent
when Republic Act No. 920, appropriating P85,000.00 for the
"construction,
reconstruction,
repair,
extension
and
improvement" of said roads, was passed by Congress, as well as
when it was approved by the President on June 20, 1953. The
petition further alleges that the construction of said roads, to be
undertaken with the aforementioned appropriation of
P85,000.00, would have the effect of relieving respondent

TAXATION

The first proposition must be rejected most emphatically, it

being inconsistent with the nature of the Government established
under the Constitution of the Republic of the Philippines and the
system of checks and balances underlying our political structure.
Moreover, it is refuted by the decisions of this Court invalidating
legislative enactments deemed violative of the Constitution or
organic laws. 3
As regards the legal feasibility of appropriating public funds for
a public purpose, the principle according to Ruling Case Law, is
this:
It is a general rule that the legislature is without power to
appropriate public revenue for anything but a public
purpose. . . . It is the essential character of the direct object of

47

the expenditure which must determine its validity as justifying a

tax, and not the magnitude of the interest to be affected nor the
degree to which the general advantage of the community, and
thus the public welfare, may be ultimately benefited by their
promotion. Incidental to the public or to the state, which results
from the promotion of private interest and the prosperity of
private enterprises or business, does not justify their aid by the
use public money. (25 R.L.C. pp. 398-400; Emphasis supplied.)

public funds is whether the statute is designed to promote the

public interest, as opposed to the furtherance of the advantage of
individuals, although each advantage to individuals might
incidentally serve the public. (81 C.J.S. pp. 1147; emphasis
supplied.)
Needless to say, this Court is fully in accord with the foregoing
views which, apart from being patently sound, are a necessary
corollary to our democratic system of government, which, as
such, exists primarily for the promotion of the general welfare.
Besides, reflecting as they do, the established jurisprudence in
the United States, after whose constitutional system ours has
been patterned, said views and jurisprudence are, likewise, part
and parcel of our own constitutional law.lawphil.net

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, discussedsupra sec. 14,
money raised by taxation can be expended only for public
purposes and not for the advantage of private individuals. (85
C.J.S. pp. 645-646; emphasis supplied.)

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. This conclusion
is, presumably, based upon the following premises, namely: (1)
that, if valid, said donation cured the constitutional infirmity of
the aforementioned appropriation; (2) that the latter may not be
annulled without a previous declaration of unconstitutionality of
the said donation; and (3) that the rule set forth in Article 1421
of the Civil Code is absolute, and admits of no exception. We do
not agree with these premises.

Explaining the reason underlying said rule, 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.
xxx

xxx

The validity of a statute depends upon the powers of Congress at

the time of its passage or approval, not upon events occurring, or
acts performed, subsequently thereto, unless the latter consists of
an amendment of the organic law, removing, with retrospective
operation, the constitutional limitation infringed by said statute.
Referring to the P85,000.00 appropriation for the projected

xxx

The test of the constitutionality of a statute requiring the use of

TAXATION

48

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. 4 The donation
to the Government, over five (5) months after the approval and
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.

misapplication of such funds," which may be enjoined at the

request of a taxpayer. 6Although there are some decisions to the
contrary, 7the prevailing view in the United States is stated in the
American Jurisprudence as follows:
In the determination of the degree of interest essential to give the
requisite standing to attack the constitutionality of a statute, the
general rule is that not only persons individually affected, but
alsotaxpayers, have sufficient interest in preventing the illegal
expenditure of moneys raised by taxation and may therefore
question the constitutionality of statutes requiring expenditure of
public moneys. (11 Am. Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the
U.S. in Frothingham vs. Mellon (262 U.S. 447), insofar as
federal laws are concerned, upon the ground that the relationship
of a taxpayer of the U.S. to its Federal Government is different
from that of a taxpayer of a municipal corporation to its
government. Indeed, under the composite system of government
existing in the U.S., the states of the Union are integral part of
the Federation from an international viewpoint, but, each state
enjoys internally a substantial measure of sovereignty, subject to
the limitations imposed by the Federal Constitution. In fact, the
same was made by representatives ofeach state of the Union, not
of the people of the U.S., except insofar as the former
represented the people of the respective States, and the people of
each State has, independently of that of the others, ratified said
Constitution. In other words, the Federal Constitution and the
Federal statutes have become binding upon the people of the
U.S. in consequence of an act of, and, in this sense, through the
respective states of the Union of which they are citizens. The
peculiar nature of the relation between said people and the
Federal Government of the U.S. is reflected in the election of its

Again, Article 1421 of our Civil Code, like many other statutory
enactments, is subject to exceptions. For instance, the creditors
of a party to an illegal contract may, under the conditions set
forth in Article 1177 of said Code, exercise the rights and actions
of the latter, except only those which are inherent in his person,
including therefore, his right to the annulment of said contract,
even though such creditors are not affected by the same, except
indirectly, in the manner indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be
contested only by one who will sustain a direct injury in
consequence of its enforcement. Yet, there are many decisions
nullifying, at the instance of taxpayers, laws providing for the
disbursement of public funds, 5upon the theory that "the
expenditure of public funds by an officer of the State for the
purpose of administering an unconstitutional act constitutes a

TAXATION

49

President, who is chosen directly, not by the people of the U.S.,

but by electors chosen by each State, in such manner as the
legislature thereof may direct (Article II, section 2, of the
Federal Constitution).lawphi1.net

of an appropriation for backpay of members of Congress.

However, in Rodriguez vs. Treasurer of the Philippines and
Barredo vs. Commission on Elections (84 Phil., 368; 45 Off.
Gaz., 4411), we entertained the action of taxpayers impugning
the validity of certain appropriations of public funds, and
invalidated the same. Moreover, the reason that impelled this
Court to take such position in said two (2) cases the
importance of the issues therein raised is present in the case
at bar. Again, like the petitioners in the Rodriguez and Barredo
cases, petitioner herein is not merely a taxpayer. The Province of
Rizal, which he represents officially as its Provincial Governor,
is our most populated political subdivision, 8and, the taxpayers
therein bear a substantial portion of the burden of taxation, in the
Philippines.

The relation between the people of the Philippines and its

taxpayers, on the other hand, and the Republic of the
Philippines, on the other, is not identical to that obtaining
between the people and taxpayers of the U.S. and its Federal
Government. It is closer, from a domestic viewpoint, to that
existing between the people and taxpayers of each state and the
government thereof, except that the authority of the Republic of
the Philippines over the people of the Philippines is more fully
direct than that of the states of the Union, insofar as the simple
and unitarytype of our national government is not subject to
limitations analogous to those imposed by the Federal
Constitution upon the states of the Union, and those imposed
upon the Federal Government in the interest of the Union. For
this reason, the rule recognizing the right of taxpayers to assail
the constitutionality of a legislation appropriating local or state
public funds which has been upheld by the Federal Supreme
Court (Crampton vs.Zabriskie, 101 U.S. 601) has greater
application in the Philippines than that adopted with respect to
acts of Congress of the United States appropriating federal
funds.

Hence, it is our considered opinion that the circumstances

surrounding this case sufficiently justify petitioners action in
contesting the appropriation and donation in question; that this
action should not have been dismissed by the lower court; and
that the writ of preliminary injunction should have been
maintained.
Wherefore, the decision appealed from is hereby 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. Zulueta. It is so ordered.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257),

involving the expropriation of a land by the Province of Tayabas,
two (2) taxpayers thereof were allowed to intervene for the
purpose of contesting the price being paid to the owner thereof,
as unduly exorbitant. It is true that in Custodio vs. President of
the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the
Government was not permitted to question the constitutionality

TAXATION

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador,

Reyes, J.B.L., Barrera, Gutierrez David, Paredes, and Dizon,
JJ., concur.

50

alleged and as contained in the tracings attached to the petition,

were nothing but projected and planned subdivision roads, not
yet constructed within the Antonio Subdivision, belonging to
private respondent Zulueta, situated at Pasig, Rizal; and which
projected feeder roads do not connect any government property
or any important premises to the main highway. The
respondents' contention is that there is public purpose because
people living in the subdivision will directly be benefitted from
the construction of the roads, and the government also gains
from the donation of the land supposed to be occupied by the
streets, made by its owner to the government.
ISSUE: Should incidental gains by the public be considered
"public purpose" for the purpose of justifying an expenditure of
the government?
HELD: No. It is a general rule that the legislature is without
power to appropriate public revenue for anything but a public
purpose. It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax,
and not the magnitude of the interest to be affected nor the
degree to which the general advantage of the community, and
thus the public welfare, may be ultimately benefited by their
promotion. Incidental to the public or to the state, which results
from the promotion of private interest and the prosperity of
private enterprises or business, does not justify their aid by the
use public money.
The test of the constitutionality of a statute requiring the use of
public funds is whether the statute is designed to promote the
public interest, as opposed to the furtherance of the advantage of
individuals, although each advantage to individuals might

PASCUAL vs. SECRETARY OF PUBLIC WORKS

110 PHIL 331
GR No. L-10405, December 29, 1960

"A law appropriating the public revenue is invalid if the public

advantage or benefit, derived from such expenditure, is merely
incidental in the promotion of a particular enterprise."
FACTS: Governor Wenceslao Pascual of Rizal instituted this
action for declaratory relief, with injunction, upon the ground
that RA No. 920, which apropriates funds for public works
particularly for the construction and improvement of Pasig
feeder road terminals. Some of the feeder roads, however, as

TAXATION

51

WALTER LUTZ, as Judicial Administrator of the Intestate

Estate of the deceased Antonio Jayme Ledesma, PlaintiffAppellant, v. J. ANTONIO ARANETA, as the Collector of
Internal Revenue, Defendant-Appellee.

incidentally serve the public.

Ernesto J. Gonzaga for Appellant.

Solicitor General Ambrosio Padilla, First Assistant Solicitor
General Guillermo E. Torres and Solicitor Felicisimo R.
Rosete for Appellee.
SYLLABUS
1. CONSTITUTIONAL LAW; TAXATION; POWER OF
STATE TO LEVY TAX IN AND SUPPORT OF SUGAR
INDUSTRY. As the protection and promotion of the sugar
industry is a matter of public concern the Legislature may
determine within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the legislative
must be allowed full play, subject only to the test of
reasonableness; and it is not contended that the means provided
in section 6 of Commonwealth Act No. 567 bear no relation to
the objective pursued or are oppressive in character. If objective
an 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 be made the
implement. Taxation may be made the implement of the states
police power (Great Atl. & Pac. Tea Co. v. Grosjean, 301 U.S.
412, 81 L. Ed. 1193; U.S. v. Butler, 297 U.S. 1, 80 L. Ed. 477;
MCulloch v. Maryland, 4 Wheat, 316, 4 L. Ed. 579).

FIRST DIVISION
[G.R. No. L-7859. December 22, 1955.]

2. ID.; ID.; POWER OF STATE TO SELECT SUBJECT OF

TAXATION

52

TAXATION. 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 (Carmicheal v. Southern Coal & Coke
Co., 301 U.S. 495, 81 L. Ed. 1245, citing numerous authorities,
at 1251).

basis, on each picul of sugar manufactures; while section 3

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
"a tax equivalent to the difference between the money value of
the rental or consideration collected and the amount representing
12 per centum of the assessed value of such land."cralaw
virtua1aw library

DECISION

According to section 6 of the law

REYES, J. B. L., J.:

SEC. 6. All collections made under this Act shall accrue to a

special fund in the Philippine Treasury, to be known as the
Sugar Adjustment and Stabilization Fund, and shall be paid out
only for any or all of the following purposes or to attain any or
all of the following objectives, as may be provided by law.

This case was initiated in the Court of First Instance of Negros

Occidental to test the legality of the taxes imposed by
Commonwealth Act No. 567, otherwise known as the Sugar
Adjustment Act.

First, to place the sugar industry in a position to maintain itself

despite the gradual loss of the preferential position of the
Philippine sugar in the United States market, and ultimately to
insure its continued existence notwithstanding the loss of that
market and the consequent necessity of meeting competition in
the free markets of the world;

Promulgated in 1940, the law in question opens (section 1) with

a declaration of emergency, due to the threat to our industry by
the imminent imposition of export taxes upon sugar as provided
in the Tydings-McDuffie Act, and the "eventual loss of its
preferential position in the United States market" ; wherefore,
the national policy was expressed "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."

Second, to readjust the benefits derived from the sugar industry

by all of the component elements thereof the mill, the
landowner, the planter of the sugar cane, and the laborers in the
factory and in the field so that all might continue profitably to
engage therein;
Third, to limit the production of sugar to areas more
economically suited to the production thereof; and

In section 2, Commonwealth Act 567 provides for an increase of

the existing tax on the manufacture of sugar, on a graduated

TAXATION

53

such tax is unconstitutional and void, being levied for the aid
and support of the sugar industry exclusively, which in
plaintiffs opinion is not a public purpose for which a tax may be
constitutionally levied. The action having been dismissed by the
Court of First Instance, the plaintiffs appealed the case directly
to this Court (Judiciary Act, section 17).

Fourth, to afford labor employed in the industry a living wage

and to improve their living and working conditions: Provided,
That the President of the Philippines may, until the adjournment
of the next regular session of the National Assembly, make the
necessary disbursements from the fund herein created (1) for the
establishment and operation of sugar experiment station or
stations and the undertaking of researchers (a)to increase the
recoveries of the centrifugal sugar factories with the view of
reducing manufacturing costs, (b) to produce and propagate
higher yielding varieties of sugar cane more adaptable to
different distinct conditions in the Philippines, (c) to lower the
costs of raising sugar cane, (d) to improve the buying quality of
denatured alcohol from molasses for motor fuel, (e) to determine
the possibility of utilizing the other by-products of the industry,
(f) to determine what crop or crops are suitable for rotation and
for the utilization of excess cane lands, and (g) on other
problems the solution of which would help rehabilitated and
stabilize the industry, and (2) for the improvement of living and
working conditions in sugar mills and sugar plantations,
authorizing him to organize the necessary agency or agencies to
take charge of the expenditure and allocation of said funds to
carry out the purpose hereinbefore enumerated, and, likewise,
authorizing the disbursement from the fund herein created of the
necessary amount of amounts needed for salaries, wages,
travelling expenses, equipment, and other sundry expenses or
said agency or agencies."

The basic defect in the plaintiffs position is his assumption that

the tax provided for in Commonwealth Act No. 567 is a pure
exercise of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in full), will show
that the tax is levied with a regulatory purpose, to provide means
for the rehabilitation and stabilization of the threatened sugar
industry. In other words, the act is primarily an exercise of the
police power.
This Court can take judicial notice of the fact that sugar
production in one of the great industries of our nation, sugar
occupying a leading position among its export products; that it
gives employment to thousands of laborers in fields and
factories; that it is a great source of the states wealth, is one of
the important sources of foreign exchange needed by our
government, and is thus pivotal in the plans of a regime
committed to a policy of currency stability. 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 law-making 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 (Sligh v. Kirkwood, 237 U. S. 52, 59 L. Ed. 835;
Johnson v. State ex rel. Marey, 99 Fla. 1311, 128 So 853; Maxcy

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator

of the Intestate Estate of Antonio Jayme Ledesma, seeks to
recover from the Collector of Internal Revenue the sum of
P14,666.40 paid by the estate as taxes, under section 3 of the
Act, for the crop years 1948-1949 and 1949-1950; alleging that

TAXATION

54

Inc. v. Mayo, 103 Fla. 552, 139 So. 121).

repeatedly held that "inequalities which result from a singling

out of one particular class for taxation, or exemption infringe no
constitutional limitation" (Carmichael v. Southern Coal & Coke
Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities,
at p. 1251).

As stated in Johnson v. State ex rel. Marey, with reference to the

citrus industry in Florida
"The protection of a large industry constituting one of the great
sources of the states wealth and therefore directly or indirectly
affecting the welfare of so great a portion of the population of
the State is affected to such an extent by public interests as to be
within the police power of the sovereign." (128 So. 857)

From the point of view we have taken it appears of no moment

that the funds raised under the Sugar Stabilization Act, now in
question, 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." As ruled in Minnesota ex
rel. Pearson v. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if
the law presumably hits the evil where it is most felt, it is not to
be overthrown because there are other instances to which it
might have been applied;" and that the legislative authority,
exerted within its proper field, need not embrace all the evils
within its reach" (N. L. R. B. v. Jones & Laughlin Steel Corp.
301 U. S. 1, 81 L. Ed. 893).

Once it is conceded, as it must, that the protection and

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 and expedient for its
promotion. Here, the legislative discretion must be allowed full
play, subject only to the test of reasonableness; and it is not
contended that the means provided in section 6 of the law (above
quoted) 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 be
levy taxes to raise funds for their prosecution and attainment.
Taxation may be made the implement of the states police power
(Great Atl. & Pac. Tea Co. v. Grosjean, 301 U. S. 412, 81 L. Ed.
1193; U. S. v. Butler, 297 U. S. 1, 80 L. Ed. 477; MCulloch v.
Maryland, 4 Wheat. 318, 4 L. Ed. 579).

Even from the standpoint that the Act is a pure tax measure, it
cannot be said that the devotion of tax money to experimental
stations to seek increase of efficiency in sugar production,
utilization of by- products and solution of allied problems, as
well as to the improvement of living and working conditions in
sugar mills or plantations, without any part of such money being
channeled directly to private persons, constitutes expenditure of
tax money for private purposes, (compare Everson v. Board of
Education, 91 L. Ed. 472, 168 ALR 1392, 1400).

That the tax to be levied should burden the sugar producers

themselves can hardly be a ground of complaint; indeed, it
appears rational that the tax be obtained precisely from those
who are to be benefited from the expenditure of the funds
derived from it. At any rate, it is inherent in the power to tax that
a state be free to select the subjects of taxation, and it has been

TAXATION

The decision appealed from is affirmed, with costs against

appellant. So ordered.

55

preferential position in the United States market and the

Paras, C.J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo,
Labrador and Concepcion, JJ., concur.

imposition of export taxes. Plaintiff, Walter Lutz, in his

capacity as Judicial Administrator of the Intestate Estate of
Antonio Jayme Ledesma, seeks to recover from the Collector of
Internal Revenue the sum of P14,666.40 paid by the estate as
taxes, under Sec.3 of the Act, alleging that such tax is
unconstitutional and void, being levied for the aid and support of
the sugar industry exclusively, which in plaintiffs opinion is not
a public purpose for which a tax may be constitutionally levied.
The action has been dismissed by the Court of First Instance.
Issue: Whether or not the tax imposed is constitutional.
Held: 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

Lutz vs. Araneta [December 22, 1955, (98 Phil 148)]

inequalities which result from a singling out of one particular

Facts: Commonwealth Act No. 567, otherwise known as Sugar

class for taxation or exemption infringe no constitutional

Adjustment Act was promulgated in 1940 to stabilize the sugar

limitation.

industry so as to prepare it for the eventuality of the loss of its

TAXATION

56

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.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-75697 June 18, 1987
VALENTIN TIO doing business under the name and style of
OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF
FINANCE, METRO MANILA COMMISSION, CITY
MAYOR and CITY TREASURER OF MANILA,
respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City
Treasurer.
MELENCIO-HERRERA, J.:

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57

This petition was filed on September 1, 1986 by petitioner on his

own behalf and purportedly on behalf of other videogram
operators adversely affected. It assails the constitutionality of
Presidential Decree No. 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to regulate
and supervise the videogram industry (hereinafter briefly
referred to as the BOARD). The Decree was promulgated on
October 5, 1985 and took effect on April 10, 1986, fifteen (15)
days after completion of its publication in the Official Gazette.

1. WHEREAS, the proliferation and unregulated circulation of

videograms including, among others, videotapes, discs, cassettes
or any technical improvement or variation thereof, have greatly
prejudiced the operations of moviehouses and theaters, and have
caused a sharp decline in theatrical attendance by at least forty
percent (40%) and a tremendous drop in the collection of sales,
contractor's specific, amusement and other taxes, thereby
resulting in substantial losses estimated at P450 Million annually
in government revenues;

On November 5, 1985, a month after the promulgation of the

abovementioned decree, Presidential Decree No. 1994 amended
the National Internal Revenue Code providing, inter alia:

2. WHEREAS, videogram(s) establishments collectively earn

around P600 Million per annum from rentals, sales and
disposition of videograms, and such earnings have not been
subjected to tax, thereby depriving the Government of
approximately P180 Million in taxes each year;

SEC. 134. Video Tapes. There shall be collected on each

processed video-tape cassette, ready for playback, regardless of
length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to
sales tax.

3. WHEREAS, the unregulated activities of videogram

establishments have also affected the viability of the movie
industry, particularly the more than 1,200 movie houses and
theaters throughout the country, and occasioned industry-wide
displacement and unemployment due to the shutdown of
numerous moviehouses and theaters;

On October 23, 1986, the Greater Manila Theaters Association,

Integrated Movie Producers, Importers and Distributors
Association of the Philippines, and Philippine Motion Pictures
Producers Association, hereinafter collectively referred to as the
Intervenors, were permitted by the Court to intervene in the case,
over petitioner's opposition, upon the allegations that
intervention was necessary for the complete protection of their
rights and that their "survival and very existence is threatened by
the unregulated proliferation of film piracy." The Intervenors
were thereafter allowed to file their Comment in Intervention.

4. "WHEREAS, in order to ensure national economic recovery,

it is imperative for the Government to create an environment
conducive to growth and development of all business industries,
including the movie industry which has an accumulated
investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram
establishments will not only alleviate the dire financial condition
of the movie industry upon which more than 75,000 families and
500,000 workers depend for their livelihood, but also provide an

The rationale behind the enactment of the DECREE, is set out in

its preambular clauses as follows:

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58

additional source of revenue for the Government, and at the

same time rationalize the heretofore uncontrolled distribution of
videograms;

President of the vast powers conferred upon him by Amendment

No. 6;
4. There is undue delegation of power and authority;

6. WHEREAS, the rampant and unregulated showing of obscene

videogram features constitutes a clear and present danger to the
moral and spiritual well-being of the youth, and impairs the
mandate of the Constitution for the State to support the rearing
of the youth for civic efficiency and the development of moral
character and promote their physical, intellectual, and social
well-being;

5. The Decree is an ex-post facto law; and

6. There is over regulation of the video industry as if it were a
nuisance, which it is not.
We shall consider the foregoing objections in seriatim.

7. WHEREAS, civic-minded citizens and groups have called for

remedial measures to curb these blatant malpractices which have
flaunted our censorship and copyright laws;

1. The Constitutional requirement that "every bill shall embrace

only one subject which shall be expressed in the title thereof" 1
is sufficiently complied with if the title be comprehensive
enough to include the general purpose which a statute seeks to
achieve. It is not necessary that the title express each and every
end that the statute wishes to accomplish. The requirement is
satisfied if all the parts of the statute are related, and are germane
to the subject matter expressed in the title, or as long as they are
not inconsistent with or foreign to the general subject and title.2
An act having a single general subject, indicated in the title, may
contain any number of provisions, no matter how diverse they
may be, so long as they are not inconsistent with or foreign to
the general subject, and may be considered in furtherance of
such subject by providing for the method and means of carrying
out the general object." 3 The rule also is that the constitutional
requirement as to the title of a bill should not be so narrowly
construed as to cripple or impede the power of legislation. 4 It
should be given practical rather than technical construction. 5

8. WHEREAS, in the face of these grave emergencies corroding

the moral values of the people and betraying the national
economic recovery program, bold emergency measures must be
adopted with dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests
on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross
receipts payable to the local government is a RIDER and the
same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in
unlawful restraint of trade in violation of the due process clause
of the Constitution;
3. There is no factual nor legal basis for the exercise by the
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59

Tested by the foregoing criteria, petitioner's contention that the

tax provision of the DECREE is a rider is without merit. That
section reads, inter alia:

covers all its provisions. It is unnecessary to express all those

objectives in the title or that the latter be an index to the body of
the DECREE. 7

Section 10. Tax on Sale, Lease or Disposition of Videograms.

Notwithstanding any provision of law to the contrary, the
province shall collect a tax of thirty percent (30%) of the
purchase price or rental rate, as the case may be, for every sale,
lease or disposition of a videogram containing a reproduction of
any motion picture or audiovisual program. Fifty percent (50%)
of the proceeds of the tax collected shall accrue to the province,
and the other fifty percent (50%) shall acrrue to the municipality
where the tax is collected; PROVIDED, That in Metropolitan
Manila, the tax shall be shared equally by the City/Municipality
and the Metropolitan Manila Commission.

2. Petitioner also submits that the thirty percent (30%) tax

imposed is harsh and oppressive, confiscatory, and in restraint of
trade. However, it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or
even definitely deters the activities taxed. 8 The power to impose
taxes is one so unlimited in force and so searching in extent, that
the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the
authority which exercises it. 9 In imposing a tax, the legislature
acts upon its constituents. This is, in general, a sufficient security
against erroneous and oppressive taxation.

xxx xxx xxx

The tax imposed by the DECREE is not only a regulatory but

also a revenue measure prompted by the realization that earnings
of videogram establishments of around P600 million per annum
have not been subjected to tax, thereby depriving the
Government of an additional source of revenue. It is an end-user
tax, imposed on retailers for every videogram they make
available for public viewing. It is similar to the 30% amusement
tax imposed or borne by the movie industry which the theaterowners pay to the government, but which is passed on to the
entire cost of the admission ticket, thus shifting the tax burden
on the buying or the viewing public. It is a tax that is imposed
uniformly on all videogram operators.

The foregoing provision is allied and germane to, and is

reasonably necessary for the accomplishment of, the general
object of the DECREE, which is the regulation of the video
industry through the Videogram Regulatory Board as expressed
in its title. The tax provision is not inconsistent with, nor foreign
to that general subject and title. As a tool for regulation 6 it is
simply one of the regulatory and control mechanisms scattered
throughout the DECREE. The express purpose of the DECREE
to include taxation of the video industry in order to regulate and
rationalize the heretofore uncontrolled distribution of
videograms is evident from Preambles 2 and 5, supra. Those
preambles explain the motives of the lawmaker in presenting the
measure. The title of the DECREE, which is the creation of the
Videogram Regulatory Board, is comprehensive enough to
include the purposes expressed in its Preamble and reasonably

TAXATION

The levy of the 30% tax is for a public purpose. It was imposed
primarily to answer the need for regulating the video industry,
particularly because of the rampant film piracy, the flagrant
violation of intellectual property rights, and the proliferation of

60

pornographic video tapes. And while it was also an objective of

the DECREE to protect the movie industry, the tax remains a
valid imposition.

values of the people and betraying the national economic

recovery program necessitated bold emergency measures to be
adopted with dispatch. Whatever the reasons "in the judgment"
of the then President, considering that the issue of the validity of
the exercise of legislative power under the said Amendment still
pends resolution in several other cases, we reserve resolution of
the question raised at the proper time.

The public purpose of a tax may legally exist even if the motive
which impelled the legislature to impose the tax was to favor
one industry over another.

4. Neither can it be successfully argued that the DECREE

contains an undue delegation of legislative power. The grant in
Section 11 of the DECREE of authority to the BOARD to
"solicit the direct assistance of other agencies and units of the
government and deputize, for a fixed and limited period, the
heads or personnel of such agencies and units to perform
enforcement functions for the Board" is not a delegation of the
power to legislate but merely a conferment of authority or
discretion as to its execution, enforcement, and implementation.
"The true distinction is between the delegation of power to make
the law, which necessarily involves a discretion as to what it
shall be, and conferring authority or discretion as to its execution
to be exercised under and in pursuance of the law. The first
cannot be done; to the latter, no valid objection can be made." 14
Besides, in the very language of the decree, the authority of the
BOARD to solicit such assistance is for a "fixed and limited
period" with the deputized agencies concerned being "subject to
the direction and control of the BOARD." That the grant of such
authority might be the source of graft and corruption would not
stigmatize the DECREE as unconstitutional. Should the
eventuality occur, the aggrieved parties will not be without
adequate remedy in law.

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
"inequities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional
limitation". Taxation has been made the implement of the state's
police power.
At bottom, the rate of tax is a matter better addressed to the
taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for
the promulgation of the DECREE by the former President under
Amendment No. 6 of the 1973 Constitution providing that
"whenever in the judgment of the President ... , there exists a
grave emergency or a threat or imminence thereof, or whenever
the interim Batasang Pambansa or the regular National
Assembly fails or is unable to act adequately on any matter for
any reason that in his judgment requires immediate action, he
may, in order to meet the exigency, issue the necessary decrees,
orders, or letters of instructions, which shall form part of the law
of the land."
In refutation, the Intervenors and the Solicitor General's Office
aver that the 8th "whereas" clause sufficiently summarizes the
justification in that grave emergencies corroding the moral

TAXATION

5. The DECREE is not violative of the ex post facto principle.

An ex post facto law is, among other categories, one which

61

"alters the legal rules of evidence, and authorizes conviction

upon less or different testimony than the law required at the time
of the commission of the offense." It is petitioner's position that
Section 15 of the DECREE in providing that:

citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL

LIMITATIONS, 639-641). And the "legislature may enact that
when certain facts have been proved that they shall be prima
facie evidence of the existence of the guilt of the accused and
shift the burden of proof provided there be a rational connection
between the facts proved and the ultimate facts presumed so that
the inference of the one from proof of the others is not
unreasonable and arbitrary because of lack of connection
between the two in common experience".

All videogram establishments in the Philippines are hereby

given a period of forty-five (45) days after the effectivity of this
Decree within which to register with and secure a permit from
the BOARD to engage in the videogram business and to register
with the BOARD all their inventories of videograms, including
videotapes, discs, cassettes or other technical improvements or
variations thereof, before they could be sold, leased, or
otherwise disposed of. Thereafter any videogram found in the
possession of any person engaged in the videogram business
without the required proof of registration by the BOARD, shall
be prima facie evidence of violation of the Decree, whether the
possession of such videogram be for private showing and/or
public exhibition.

Applied to the challenged provision, there is no question that

there is a rational connection between the fact proved, which is
non-registration, and the ultimate fact presumed which is
violation of the DECREE, besides the fact that the prima facie
presumption of violation of the DECREE attaches only after a
forty-five-day period counted from its effectivity and is,
therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is
being over-regulated and being eased out of existence as if it
were a nuisance. Being a relatively new industry, the need for its
regulation was apparent. While the underlying objective of the
DECREE is to protect the moribund movie industry, there is no
question that public welfare is at bottom of its enactment,
considering "the unfair competition posed by rampant film
piracy; the erosion of the moral fiber of the viewing public
brought about by the availability of unclassified and unreviewed
video tapes containing pornographic films and films with
brutally violent sequences; and losses in government revenues
due to the drop in theatrical attendance, not to mention the fact
that the activities of video establishments are virtually untaxed
since mere payment of Mayor's permit and municipal license
fees are required to engage in business.

raises immediately a prima facie evidence of violation of the

DECREE when the required proof of registration of any
videogram cannot be presented and thus partakes of the nature of
an ex post facto law.
The argument is untenable. As this Court held in the recent case
of Vallarta vs. Court of Appeals, et al.
... it is now well settled that "there is no constitutional objection
to the passage of a law providing that the presumption of
innocence may be overcome by a contrary presumption founded
upon the experience of human conduct, and enacting what
evidence shall be sufficient to overcome such presumption of
innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59,

TAXATION

62

The enactment of the Decree since April 10, 1986 has not
brought about the "demise" of the video industry. On the
contrary, video establishments are seen to have proliferated in
many places notwithstanding the 30% tax imposed.

No costs.
SO ORDERED.
Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz,
Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento and
Cortes, JJ., concur.

In the last analysis, what petitioner basically questions is the

necessity, wisdom and expediency of the DECREE. These
considerations, however, are primarily and exclusively a matter
of legislative concern.
Only congressional power or competence, not the wisdom of the
action taken, may be the basis for declaring a statute invalid.
This is as it ought to be. The principle of separation of powers
has in the main wisely allocated the respective authority of each
department and confined its jurisdiction to such a sphere. There
would then be intrusion not allowable under the Constitution if
on a matter left to the discretion of a coordinate branch, the
judiciary would substitute its own. If there be adherence to the
rule of law, as there ought to be, the last offender should be
courts of justice, to which rightly litigants submit their
controversy precisely to maintain unimpaired the supremacy of
legal norms and prescriptions. The attack on the validity of the
challenged provision likewise insofar as there may be
objections, even if valid and cogent on its wisdom cannot be
sustained.
In fine, petitioner has not overcome the presumption of validity
which attaches to a challenged statute. We find no clear violation
of the Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.

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63

HELD: Yes. It is beyond serious question that a tax does not

cease to be valid merely because it regulates, discourages, or
even definitely deters the activities taxed. The power to impose
taxes is one so unlimited in force and so searching in extent, that
the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as those rest in the discretion
of the authority which exercises it. In imposing a tax, the
legislature acts upon its constituents. This is, in general, a
sufficient security against erroneous and oppressive taxation.
The levy of the 30% tax is for a public purpose. It was imposed
primarily to answer the need for regulating the video industry,
particularly because of the rampant film piracy, the flagrant
violation of intellectual property rights, and the proliferation of
pornographic video tapes. And while it was also an objective of
the DECREE to protect the movie industry, the tax remains a
valid imposition.

TIO vs. VRB 151 SCRA 208

GR No. L-75697, June 18, 1987
"The public purpose of a tax may legally exist even if the motive
which impelled the legislature to impose the tax was to favor
one industry over another."

The public purpose of a tax may legally exist even if the motive
which impelled the legislature to impose the tax was to favor
one industry over another.

FACTS: The petitioner assails the validity of PD 1987 entitled

an "Act creating the Videogram Regulatory Board," citing
especially Section 10 thereof, which imposes a tax of 30% on
the gross receipts payable to the local government. Petitioner
contends that aside from its being a rider and not germane to the
subject matter thereof, and such imposition was being harsh,
confiscatory, oppressive and/or unlawfully restraints trade in
violation of the due process clause of the Constitution.
ISSUE: Is PD 1987 a valid exercise of taxing power of the
state?

TAXATION

64

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30232 July 29, 1988
LUZON STEVEDORING CORPORATION, petitionerappellant,
vs.
COURT OF TAX APPEALS and the HONORABLE
COMMISSIONER OF INTERNAL REVENUE, respondentsappellees.
H. San Luis & V.L. Simbulan for petitioner-appellant.
PARAS, J.:
This is a petition for review of the October 21, 1968 Decision *
of the Court of Tax Appeals in CTA Case No. 1484, "Luzon
Stevedoring Corporation v. Hon. Ramon Oben, Commissioner,
Bureau of Internal Revenue", denying the various claims for tax
refund; and the February 20, 1969 Resolution of the same court
denying the motion for reconsideration.
Herein petitioner-appellant, in 1961 and 1962, for the repair and
maintenance of its tugboats, imported various engine parts and
other equipment for which it paid, under protest, the assessed
compensating tax. Unable to secure a tax refund from the
Commissioner of Internal Revenue, on January 2, 1964, it filed a
Petition for Review (Rollo, pp. 14-18) with the Court of Tax
Appeals, docketed therein as CTA Case No. 1484, praying
among others, that it be granted the refund of the amount of

Republic of the Philippines

TAXATION

65

P33,442.13. The Court of Tax Appeals, however, in a Decision

dated October 21, 1969 (Ibid., pp. 22-27), denied the various
claims for tax refund. The decretal portion of the said decision
reads:

The lower court erred in not allowing the refund sought by

petitioner-appellant.

WHEREFORE, finding petitioner's various claims for refund

amounting to P33,442.13 without sufficient legal justification,
the said claims have to be, as they are hereby, denied. With costs
against petitioner.

The pivotal issue in this case is whether or not petitioner's

tugboats" can be interpreted to be included in the term "cargo
vessels" for purposes of the tax exemption provided for in
Section 190 of the National Internal Revenue Code, as amended
by Republic Act No. 3176.

The instant petition is without merit.

On January 24, 1969, petitioner-appellant filed a Motion for

Reconsideration (Ibid., pp. 28-34), but the same was denied in a
Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the
instant petition.

Said law provides:

Sec. 190. Compensating tax. ... And Provided further, That
the tax imposed in this section shall not apply to articles to be
used by the importer himself in the manufacture or preparation
of articles subject to specific tax or those for consignment
abroad and are to form part thereof or to articles to be used by
the importer himself as passenger and/or cargo vessel, whether
coastwise or oceangoing, including engines and spare parts of
said vessel. ....

This Court, in a Resolution dated March 13, 1969, gave due

course to the petition (Ibid., p. 40). Petitioner-appellant raised
three (3) assignments of error, to wit:
I
The lower court erred in holding that the petitioner-appellant is
engaged in business as stevedore, the work of unloading and
loading of a vessel in port, contrary to the evidence on record.

Petitioner contends that tugboats are embraced and included in

the term cargo vessel under the tax exemption provisions of
Section 190 of the Revenue Code, as amended by Republic Act.
No. 3176. He argues that in legal contemplation, the tugboat and
a barge loaded with cargoes with the former towing the latter for
loading and unloading of a vessel in part, constitute a single
vessel. Accordingly, it concludes that the engines, spare parts
and equipment imported by it and used in the repair and
maintenance of its tugboats are exempt from compensating tax
(Rollo, p. 23).

II
The lower court erred in not holding that the business in which
petitioner-appellant is engaged, is part and parcel of the shipping
industry.
III

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66

On the other hand, respondents-appellees counter that petitionerappellant's "tugboats" are not "Cargo vessel" because they are
neither designed nor used for carrying and/or transporting
persons or goods by themselves but are mainly employed for
towing and pulling purposes. As such, it cannot be claimed that
the tugboats in question are used in carrying and transporting
passengers or cargoes as a common carrier by water, either
coastwise or oceangoing and, therefore, not within the purview
of Section 190 of the Tax Code, as amended by Republic Act
No. 3176 (Brief for Respondents-Appellees, pp. 45).

provisions of Republic Act No. 3176 limit tax exemption from

the compensating tax to imported items to be used by the
importer himself as operator of passenger and/or cargo vessel
(Ibid., p. 25).
As quoted in the decision of the Court of Tax Appeals, a tugboat
is defined as follows:
A tugboat is a strongly built, powerful steam or power vessel,
used for towing and, now, also used for attendance on vessel.
(Webster New International Dictionary, 2nd Ed.)

This Court has laid down the rule that "as the power of taxation
is a high prerogative of sovereignty, the relinquishment is never
presumed and any reduction or dimunition thereof with respect
to its mode or its rate, must be strictly construed, and the same
must be coached in clear and unmistakable terms in order that it
may be applied." (84 C.J.S. pp. 659-800), More specifically
stated, the general rule is that any claim for exemption from the
tax statute should be strictly construed against the taxpayer
(Acting Commissioner of Customs v. Manila Electric Co. et al.,
69 SCRA 469 [1977] and Commissioner of Internal Revenue v.
P.J. Kiener Co. Ltd., et al., 65 SCRA 142 [1975]).

A tugboat is a diesel or steam power vessel designed primarily

for moving large ships to and from piers for towing barges and
lighters in harbors, rivers and canals. (Encyclopedia
International Grolier, Vol. 18, p. 256).
A tug is a steam vessel built for towing, synonymous with
tugboat. (Bouvier's Law Dictionary.) (Rollo, p. 24).
Under the foregoing definitions, petitioner's tugboats clearly do
not fall under the categories of passenger and/or cargo vessels.
Thus, it is a cardinal principle of statutory construction that
where a provision of law speaks categorically, the need for
interpretation is obviated, no plausible pretense being
entertained to justify non-compliance. All that has to be done is
to apply it in every case that falls within its terms (Allied
Brokerage Corp. v. Commissioner of Customs, L-27641, 40
SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270
[1970]).

As correctly analyzed by the Court of Tax Appeals, in order that

the importations in question may be declared exempt from the
compensating tax, it is indispensable that the requirements of the
amendatory law be complied with, namely: (1) the engines and
spare parts must be used by the importer himself as a passenger
and/or cargo, vessel; and (2) the said passenger and/or cargo
vessel must be used in coastwise or oceangoing navigation
(Decision, CTA Case No. 1484; Rollo, p. 24).

And, even if construction and interpretation of the law is insisted

upon, following another fundamental rule that statutes are to be

As pointed out by the Court of Tax Appeals, the amendatory

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67

construed in the light of purposes to be achieved and the evils

sought to be remedied (People v. Purisima etc., et al., L-4205066, 86 SCRA 544 [1978], it will be noted that the legislature in
amending Section 190 of the Tax Code by Republic Act 3176, as
appearing in the records, intended to provide incentives and
inducements to bolster the shipping industry and not the
business of stevedoring, as manifested in the sponsorship speech
of Senator Gil Puyat (Rollo, p. 26).

there has been an abuse or improvident exercise of authority

(Reyes v. Commissioner of Internal Revenue, 24 SCRA 199
[1981]), which is not present in the instant case.

On analysis of petitioner-appellant's transactions, the Court of

Tax Appeals found that no evidence was adduced by petitionerappellant that tugboats are passenger and/or cargo vessels used
in the shipping industry as an independent business. On the
contrary, petitioner-appellant's own evidence supports the view
that it is engaged as a stevedore, that is, the work of unloading
and loading of a vessel in port; and towing of barges containing
cargoes is a part of petitioner's undertaking as a stevedore. In
fact, even its trade name is indicative that its sole and principal
business is stevedoring and lighterage, taxed under Section 191
of the National Internal Revenue Code as a contractor, and not
an entity which transports passengers or freight for hire which is
taxed under Section 192 of the same Code as a common carrier
by water (Decision, CTA Case No. 1484; Rollo, p. 25).

Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

PREMISES CONSIDERED, the instant petition is DISMISSED

and the decision of the Court of Tax Appeals is AFFIRMED.
SO ORDERED.

Luzon Stevedoring Corp v Court of Tax Appeals GR No L30232, July 29, 1988
FACTS:
Luzon Stevedoring Corp imported various engine parts and other
equipment for tugboat repair and maintenance in 1961 and 1962.
It paid the assessed compensation tax under protest. Unable to
secure a tax refund from the Commissioner for the amount of
P33,442.13, it filed a petition for review with the Court of Tax
Appeals. The CTA denied the petition as well as the motion for
reconsideration filed thereafter. Hence, this petition.

Under the circumstances, there appears to be no plausible reason

to disturb the findings and conclusion of the Court of Tax
Appeals.

ISSUE:
Is the Corporation exempt from compensation tax?

As a matter of principle, this Court will not set aside the

conclusion reached by an agency such as the Court of Tax
Appeals, which is, by the very nature of its function, dedicated
exclusively to the study and consideration of tax problems and
has necessarily developed an expertise on the subject unless

TAXATION

RULING:
No. As the power of taxation is a high prerogative of
sovereignty, the relinquishment of such is never presumed and
any reduction or diminution thereof with respect to its mode or

68

its rate, must be strictly construed, and the same must be

couched in clear and unmistakable terms in order that it may be
applied. The corporations tugboats do not fall under the
categories of passenger or cargo vessels to avail of the
exemption from compensation tax in Section 190 of the Tax
Code. It may be further noted that the amendment of Section 190
of Republic Act of 3176 was intended to provide incentives and
inducements to bolster the shipping industry and not in the
business of stevedoring, in which the corporation is engaged in.

LEGAL AFFAIRS and PHILIPPINE PORTS

AUTHORITY,respondents.
PARAS, J.:
This is a petition for review on certiorari of the July 27, 1984
Decision of the Office of the Presidential Assistant For Legal
Affairs dismissing the appeal from the adverse ruling of the
Philippine Ports Authority on the sole ground that the same was
filed beyond the reglementary period.

Thus, Luzon Stevedoring Corp is not exempt from compensation

tax under Section 190, and is thus not entitled to refund.

On April 28, 1981, the Iloilo Port Manager of respondent

Philippine Ports Authority (PPA for short) wrote petitioner
Victorias Milling Co., requiring it to have its tugboats and barges
undergo harbor formalities and pay entrance/clearance fees as
well as berthing fees effective May 1, 1981. PPA, likewise,
requiring petitioner to secure a permit for cargo handling
operations at its Da-an Banua wharf and remit 10% of its gross
income for said operations as the government's share.
To these demands, petitioner sent two (2) letters, both dated June
2, 1981, wherein it maintained that it is exempt from paying PPA
any fee or charge because: (1) the wharf and an its facilities were
built and installed in its land; (2) repair and maintenance thereof
were and solely paid by it; (3) even the dredging and
maintenance of the Malijao River Channel from Guimaras Strait
up to said private wharf are being done by petitioner's equipment
and personnel; and (4) at no time has the government ever spent
a single centavo for such activities. Petitioner further added that
the wharf was being used mainly to handle sugar purchased from
district planters pursuant to existing milling agreements.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 73705 August 27, 1987
VICTORIAS MILLING CO., INC., petitioner,
vs.
OFFICE OF THE PRESIDENTIAL ASSISTANT FOR

TAXATION

In reply, on November 3, 1981, PPA Iloilo sent petitioner a

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memorandum of PPA's Executive Officer, Maximo Dumlao,

which justified the PPA's demands. Further request for
reconsideration was denied on January 14, 1982.

filed a motion on July 1, 1986 praying that it be granted leave to

file a reply to respondents' Comment, and an extension of time
up to June 30, 1986 within which to file the same. (Ibid., p. 62).

On March 29, 1982, petitioner served notice to PPA that it is

appealing the case to the Court of Tax Appeals; and accordingly,
on March 31, 1982, petitioner filed a Petition for Review with
the said Court, entitled "Victorias Milling Co., Inc. v. Philippine
Ports Authority," and docketed therein as CTA Case No. 3466.

On July 18, 1986, petitioner filed its reply to respondents'

Comment (Ibid., pp. 68-76).
The Second Division of this Court, in a Resolution dated August
25, 1986, resolved to give due course to the petition and to
require the parties to file their respective simultaneous
memoranda (Ibid., p. 78).

On January 10, 1984, the Court of Tax Appeals dismissed

petitioner's action on the ground that it has no jurisdiction. It
recommended that the appeal be addressed to the Office of the
President.

On October 8, 1986, the Solicitor General filed a Manifestation

and Rejoinder, stating, among others, that respondents are
adopting in toto their Comment of June 3, 1986 as their
memorandum; with the clarification that the assailed PPA
Administrative Order No. 13-77 was duly published in full in the
nationwide circulated newspaper, "The Times Journal", on
November 9,1977 (ibid., pp. 79-81).

On January 23, 1984, petitioner filed a Petition for Review with

this Court, docketed as G.R. No. 66381, but the same was denied
in a Resolution dated February 29, 1984.
On April 2, 1984, petitioner filed an appeal with the Office of
the President, but in a Decision dated July 27, 1984 (Record, p.
22), the same was denied on the sole ground that it was filed
beyond the reglementary period. A motion for Reconsideration
was filed, but in an Order dated December 16, 1985, the same
was denied (ibid., pp. 3-21): Hence, the instant petition.

The sole legal issue raised by the petitioner is

WHETHER OR NOT THE 30-DAY PERIOD FOR APPEAL
UNIDER SECTION 131 OF PPA ADMINISTRATIVE ORDER
NO. 13-77 WAS TOLLED BY THE PENDENCY OF THE
PETITIONS FILED FIRST WITH THE COURT OF TAX
APPEALS, AND THEN WITH THIS HONORABLE
TRIBUNAL.

The Second Division of this Court, in a Resolution dated June 2,

1986, resolved to require the respondents to comment (ibid., p.
45); and in compliance therewith, the Solicitor General filed his
Comment on June 4, 1986 (Ibid., pp. 50-59).

The instant petition is devoid of merit.

In a Resolution of July 2, 1986, petitioner was required to file a

reply (Ibid., p. 61) but before receipt of said resolution, the latter
TAXATION

Petitioner, in holding that the recourse first to the Court of Tax

Appeals and then to this Court tolled the period to appeal,
70

submits that it was guided, in good faith, by considerations

which lead to the assumption that procedural rules of appeal then
enforced still hold true. It contends that when Republic Act No.
1125 (creating the Court of Tax Appeals) was passed in 1955,
PPA was not yet in existence; and under the said law, the Court
of Tax Appeals had exclusive appellate jurisdiction over appeals
from decisions of the Commissioner of Customs regarding,
among others, customs duties, fees and other money charges
imposed by the Bureau under the Tariff and Customs Code. On
the other hand, neither in Presidential Decree No. 505, creating
the PPA on July 11, 1974 nor in Presidential Decree No. 857,
revising its charter (said decrees, among others, merely
transferred to the PPA the powers of the Bureau of Customs to
impose and collect customs duties, fees and other money charges
concerning the use of ports and facilities thereat) is there any
provision governing appeals from decisions of the PPA on such
matters, so that it is but reasonable to seek recourse with the
Court of Tax Appeals. Petitioner, likewise, contends that an
analysis of Presidential Decree No. 857, shows that the PPA is
vested merely with corporate powers and duties (Sec. 6), which
do not and can not include the power to legislate on procedural
matters, much less to effectively take away from the Court of
Tax Appeals the latter's appellate jurisdiction.

a. The corporate duties of the Authority shall be:

xxx xxx xxx
(III) To prescribe rules and regulations, procedures, and
guidelines governing the establishment, construction,
maintenance, and operation of all other ports, including private
ports in the country.
xxx xxx xxx
Pursuant to the aforequoted provision, PPA enacted
Administrative Order No. 13-77 precisely to govern, among
others, appeals from PPA decisions. It is now finally settled that
administrative rules and regulations issued in accordance with
law, like PPA Administrative Order No. 13-77, have the force
and effect of law (Valerio vs. Secretary of Agriculture and
Natural Resources, 7 SCRA 719; Antique Sawmills, Inc. vs.
Zayco, et al., 17 SCRA 316; and Macailing vs. Andrada, 31
SCRA 126), and are binding on all persons dealing with that
body.
As to petitioner's contention that Administrative Order No. 1377, specifically its Section 131, only provides for appeal when
the decision is adverse to the government, worth mentioning is
the observation of the Solicitor General that petitioner misleads
the Court. Said Section 131 provides

These contentions are untenable for while it is true that neither

Presidential Decree No. 505 nor Presidential Decree No. 857
provides for the remedy of appeal to the Office of the President,
nevertheless, Presidential Decree No. 857 empowers the PPA to
promulgate such rules as would aid it in accomplishing its
purpose. Section 6 of the said Decree provides

Sec. 131. Supervisory Authority of General Manager and PPA

Board. If in any case involving assessment of port charges,
the Port Manager/OIC renders a decision adverse to the
government, such decision shall automatically be elevated to,
and reviewed by, the General Manager of the authority; and if

Sec. 6. Corporate Powers and Duties

TAXATION

71

the Port Manager's decision would be affirmed by the General

Manager, such decision shall be subject to further affirmation by
the PPA Board before it shall become effective; Provided,
however, that if within thirty (30) days from receipt of the record
of the case by the General Manager, no decision is rendered, the
decision
under
review
shall
become
final
and
executory;Provided further, that any party aggrieved by the
decision of the General Manager as affirmed by the PPA Board
may appeal said decision to the Office of the President within
thirty (30) days from receipt of a copy thereof. (Emphasis
supplied).

privilege and may be exercised only in the manner and in

accordance with the provision of law (United CMC Textile
Workers Union vs. Clave, 137 SCRA 346, citing the cases of
Bello vs. Fernando, 4 SCRA 138; Aguila vs. Navarro, 55 Phil.
898; and Santiago vs. Valenzuela, 78 Phil. 397).
Furthermore, even if petitioner's appeal were to be given due
course, the result would still be the same as it does not present a
substantially meritorious case against the PPA.
Petitioner maintains and submits that there is no basis for the
PPA to assess and impose the dues and charges it is collecting
since the wharf is private, constructed and maintained at no
expense to the government, and that it exists primarily so that its
tugboats and barges may ferry the sugarcane of its Panay
planters.

From a cursory reading of the aforequoted provision, it is

evident that the above contention has no basis.
As to petitioner's allegation that to its recollection there had been
no prior publication of said PPA Administrative Order No. 1377, the Solicitor General correctly pointed out that said
Administrative Order was duly published in full in the
nationwide newspaper, "The Times Journal", on November
9,1977.

As correctly stated by the Solicitor General, the fees and charges

PPA collects are not for the use of the wharf that petitioner owns
but for the privilege of navigating in public waters, of entering
and leaving public harbors and berthing on public streams or
waters. (Rollo, pp. 056-057).

Moreover, it must be stated that as correctly observed by the

Solicitor General, the facts of this case show that petitioner's
failure to appeal to the Office of the President on time stems
entirely from its own negligence and not from a purported
ignorance of the proper procedural steps to take. Petitioner had
been aware of the rules governing PPA procedures. In fact, as
embodied in the December 16, 1985 Order of the Office of the
President, petitioner even assailed the PPA's rule making powers
at the hearing before the Court of Tax Appeals.

In Compaia General de Tabacos de Filipinas vs. Actg.

Commissioner of Customs (23 SCRA 600), this Court laid down
the rule that berthing charges against a vessel are collectible
regardless of the fact that mooring or berthing is made from a
private pier or wharf. This is because the government maintains
bodies of water in navigable condition and it is to support its
operations in this regard that dues and charges are imposed for
the use of piers and wharves regardless of their ownership.

It is axiomatic that the right to appeal is merely a statutory

As to the requirement to remit 10% of the handling charges,

TAXATION

72

Section 6B-(ix) of the Presidential Decree No. 857 authorized

the PPA "To levy dues, rates, or charges for the use of the
premises, works, appliances, facilities, or for services provided
by or belonging to the Authority, or any organization concerned
with port operations." This 10% government share of earnings of
arrastre and stevedoring operators is in the nature of contractual
compensation to which a person desiring to operate arrastre
service must agree as a condition to the grant of the permit to
operate.

from paying PPA any fee or charge because: 1. The wharf and its
facilities are built and installed on its own land; 2. Repairs and
maintenance are solely paid by it; 3. Maintenance and dredging of the
channel are done by the Company personnel;4. At not time has the
government paid any centavo for such activities.

PREMISES CONSIDERED, the instant petition is hereby

DISMISSED.

HELD:

ISSUE:
WON the Victorias Milling Co. claim of exception for PPA fees is
meritorious.

No, the petitioners claim that there is no basis for the PPA to assess
and impose the dues and charge is devoid of merit. As correctly stated
by the Solicitor General, the fees and charges PPA collects are not for
the use of the wharf that petitioner owns but for the privilege of
navigating in public waters, of entering and leaving public harbours
and berthing on public streams or waters. As to the requirement to
remit 10% of the handling charges,Section 6B-(ix) of the Presidential
Decree No. 857 authorized the PPA "To levy dues, rates, or charges
for the use of the premises, works, appliances, facilities, or for
services provided by or belonging to the Authority, or any organization
concerned with port operations." This 10% government shareof
earnings of arrastre and stevedoring operators is in the nature of
contractual compensation to which a person desiring to operate
arrastre service must agree as a condition to the grant of the permit to
operate.

SO ORDERED.
Teehankee, C.J., Narvasa and Gancayco, JJ., concur.
Cruz, J., concur in the result.
VICTORIAS MILLING CO. V PPA 153 SCRA 317; August 27, 1987
FACTS:
This is a petition for review on certiorari of theJuly 27, 1984 Decision
of the Office of the Presidential Assistant For Legal Affairs dismissing
the appeal from the adverse ruling of the Philippine Ports Authority on
the sole ground that the same was filed beyond the reglementary
period.On April 28, 1981, the Iloilo Port Manager of respondent
Philippine Ports Authority (PPA for short) wrote petitioner Victorias
Milling Co., requiring it to have its tug boats and barges undergo
harbor formalities and pay entrance/clearance fees as well as
berthing fees effective May 1, 1981. PPA,likewise, requiring petitioner
to secure a permit for cargo handling operations at its Da-an Banua
wharf and remit 10%of its gross income for said operations as the
government's share. Victorias Milling Co. maintained that it is except

TAXATION

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TAXATION

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