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22. Hilado v.

Commissioner of Internal Revenue


GR No.. L-9408, October 31, 1956

FACTS:
Emilio Hilado filed his income tax return for 1951 with the treasurer of Bacolod City.
He is claiming a deductible item of P12,837.65 from his gross income under the
General Circular V-123 issued by the Collector of Internal Revenue. Subsequently,
the Secretary of Finance, through the Collector, issued General Circular V-139 which
revoked and declared void Circular V-123. It provided that losses of property which
occurred in World War II from fires, storms, shipwreck or other casualty, or from
robbery, theft, or embezzlement are deductible in the year of actual loss or
destruction of said property. Thereafter, the deductions were disallowed.

ISSUE:
Whether or not Hilado can claim compensation for destruction of his property during
the war under the laws in effectat that time.

HELD:
Philippines Internal Revenue Laws are not political in nature and as such were
continued in force during the periodof enemy occupation and in effect were actually
enforced by the occupation government. Such tax laws are deemed to be laws of the
occupied territory and not of the occupying enemy. As of the end of 1945, there was
no law which Hilado could claim for the destruction of his properties during the battle
for the liberation of the Philippines. Under the Philippine Rehabilitation Act of 1948,
the payment of claims by the War Damage Commission depended upon its
discretions non-payment of which does not give rise to any enforceable right.
Assuming that the loss (deductible item) represents a portion of the 75% of his war
damage claim, the amount would be at most a proper deduction of his 1950 gross
income (not on his1951 gross income) as the last installment and notice of
discontinuation of payment by the War Damage Commission was made in 1950.

23. Sison v. Ancheta


GR no. L-59431, July 25, 1984

FACTS:
Petitioner assailed the validity of Section 1 of Batas Pambansa Blg. 135 which 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. Petitioner as
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 vis--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.
ISSUE:
Whether or not BP 135 Sec 1 is violative of due process and equal protection clause.

HELD:
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. Due process was not
violated.

24. Commissioner of Internal Revenue v. Pineda


GR No. 22734

FACTS:
Estate proceedings were had to settle the estate of Atanasio Pineda. After the estate
proceedings were closed, the BIR found out that the income tax liability of the estate
during the pendency of the estate proceedings were not paid. The Court of Tax
Appeals rendered judgment holding Manuel B. Pineda, the eldest son of the
deceased, liable for the payment corresponding to his share of the estate. The
Commissioner of Internal Revenue has appealed to 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.
ISSUE:
Can the Government require Pineda to pay the full amount of the taxes assessed?
HELD:
Yes. Pineda is liable for the assessment as an heir and as a holder-transferee of
property belonging to the estate/taxpayer. As a holder of property belonging to the
estate, Pineda is liable for the tax up to the amount of the property in his possession.
The reason is that the Government has a lien on what he received from the estate as
his share in the inheritance for unpaid income taxes for which said estate is liable. By
virtue of such lien, the Government has the right to subject the property in Pineda's
possession, 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, to achieve an adjustment of the proper share of each heir in the distributable
estate. 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. The reason why a case suit is filed against
all the heirs for the tax due from the estate 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. 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. This second remedy is the very avenue the Government took in this case
to collect the tax. The BIR should be given the necessary discretion to avail itself of
the most expeditious way to collect the tax because taxes are the lifeblood of
government and their prompt and certain availability is an imperious need. 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.

25. Phil. Guaranty v. Commissioner of Internal Revenue


GR No. L-22074, April 30, 1965

FACTS:
The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered
into reinsurance contracts with foreign insurance companies not doing business in
the country, thereby ceding to foreigner insurers a portion of the premiums on
insurance it has originally underwritten in the Philippines. The premiums paid by such
companies were excluded by the petitioner from its gross income when it filed its
income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on
them. Consequently, the CIR assessed against the petitioner withholding taxes on
the ceded reinsurance premiums to which the latter protested the assessment on the
ground that the premiums are not subject to tax for the premiums did not constitute
income from sources within the Philippines because the foreign reinsurers did not
engage in business in the Philippines, and CIR's previous rulings did not require
insurance companies to withhold income tax due from foreign companies.
ISSUE:
Are insurance companies not required to withhold tax on reinsurance premiums
ceded to foreign insurance companies, which deprives the government from
collecting the tax due from them?
HELD:
No. The power to tax is an attribute of sovereignty. It is a power emanating from
necessity. It is a necessary burden to preserve the State's sovereignty and a means
to give the citizenry an army to resist an aggression, a navy to defend its shores from
invasion, a corps of civil servants to serve, public improvement designed for the
enjoyment of the citizenry and those which come within the State's territory, and
facilities and protection which a government is supposed to provide. Considering that
the reinsurance premiums in question were afforded protection by the government
and the recipient foreign reinsurers exercised rights and privileges guaranteed by our
laws, such reinsurance premiums and reinsurers should share the burden of
maintaining the state.

26. CIR v. Algue, Inc.


L-28896, Feb 17, 1988

FACTS:
The Philippine Sugar Estate Development Company had earlier appointed Algue as
its agent, authorizing it to selli ts land, factories and oil manufacturing process.
Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara,
Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil
Investment Corporation, inducing other persons to invest in it. Ultimately, after its
incorporation largely through the promotion of the said persons, this new corporation
purchased the PSEDC properties. For this sale, Algue received as agent a
commission of P126,000.00,and it was from this commission that the P75,000.00
promotional fees were paid to the a forenamed individuals. 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.
ISSUE:
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.
HELD:
The Supreme Court agrees with the respondent court that the amount of the
promotional fees was not excessive. 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.

27. Tolentino v. Secretary of Finance


GR No. 115455, October 30, 1995

FACTS:
Motions were filed seeking reconsideration of the Supreme Court decision dismissing
the petitions for the declaration of unconstitutionality of R.A. No. 7716, otherwise
known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in
all, have been filed by the several petitioners in these cases.

ISSUE:
Whether or not there is violation of the rule on taxation under Art. VI Sec. 28 (1) of the
Constitution.

HELD:
The Constitution does not really prohibit the imposition of indirect taxes which, like
the VAT, are regressive. What it simply provides is that Congress shall "evolve a
progressive system of taxation."

28. Osmena v. Orbos


GR No. 99886, March 31, 1993

FACTS:
Senator John Osmea assails the constitutionality of paragraph 1c of PD 1956, as
amended by EO 137, empowering the Energy Regulatory Board to approve the
increase of fuel prices or impose additional amounts on petroleum products which
proceeds shall accrue to the Oil Price Stabilization Fund

established for the

reimbursement to ailing oil companies in the event of sudden price increases. The
petitioner avers that the collection on oil products establishments is an undue and
invalid delegation of legislative power to tax. Further, the petitioner points out that
since a 'special fund' consists of monies collected through the taxing power of a
State, such amounts belong to the State, although the use thereof is limited to the
special purpose/objective for which it was created. It thus appears that the challenge
posed by the petitioner is premised primarily on the view that the powers granted to
the ERB under P.D. 1956, as amended, partake of the nature of the taxation power of
the State.
ISSUE:
Is there an undue delegation of the legislative power of taxation?
HELD:
No. It seems clear that while the funds collected may be referred to as taxes, they are
exacted in the exercise of the police power of the State. Moreover, that the OPSF as
a special fund is plain from the special treatment given it by E.O. 137. It is segregated
from the general fund; and while it is placed in what the law refers to as a "trust
liability account," the fund nonetheless remains subject to the scrutiny and review of
the COA. The Court is satisfied that these measures comply with the constitutional
description of a "special fund." With regard to the alleged undue delegation of
legislative power, the Court finds that the provision conferring the authority upon the
ERB to impose additional amounts on petroleum products provides a sufficient
standard by which the authority must be exercised.

29. Caltex v. Commission on Audit


GR No. 92585, May 8, 1992

FACTS:
Respondent Commission on Audit directed petitioner Caltex Philippines, Inc. to remit
to the Oil Price Stabilization Fund its collection of the additional tax on petroleum
products pursuant to P.D. 1956, as well as unremitted collections of the above tax
covering the years 1986, 1987 and 1988, with interests and surcharges, and advising
it that all its claims for reimbursements from the OPSF shall be held in abeyance
pending such remittance. COA further directed petitioner oil company to desist from
further offsetting the taxes collected against outstanding claims for 1989 and
subsequent periods.
Its motion for reconsideration of the eventual decision of the COA on the matter
having been denied, CPI imputes that respondent commission erred in preventing the
former from exercising the right to offset its remittances against the reimbursement
vis--vis the OPSF.
ISSUE:
Whether or not the amounts due to the OPSF from petitioner may be offset against
the latters outstanding claims from said fund?
RULING:
No. It is settled that a taxpayer may not offset taxes due from claims that he may
have against the Government. Taxes cannot be the subject of compensation because
the Government and the taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set off.
The Court further ruled that taxation is no longer envisioned as a measure merely to
raise revenue to support the existence of the Government. Taxes may be levied for a
regulatory purpose such as to provide means for the rehabilitation and stabilization of
a threatened industry which is affected with public interest, a concern which is within
the police power of the State to address.

30. Chavez v. Ongpin


GR No. 76778, June 6, 1990

FACTS:
Section 21 of Presidential Decree No. 464 provides that every five years starting
calendar year 1978, there shall be a provincial or city general revision of real property
assessments. The revised assessment shall be the basis for the computation of real
property taxes for the five succeeding years. On the strength of the aforementioned
law, the general revision of assessments was completed in 1984.

However,

Executive Order No. 1019 was issued, which deferred the collection of real property
taxes based on the 1984 values to January 1, 1988 instead of January 1, 1985. On
November 25, 1986, President Corazon Aquino issued Executive order No. 73. It
states that beginning January 1, 1987, the 1984 assessments shall be the basis of
the real property collection. Thus, it effectively repealed Executive Order No. 1019.
Francisco Chavez, a taxpayer and a land-owner, questioned the constitutionality of
Executive Order No. 73. He alleges that it will bring unreasonable increase in real
property taxes. In fact, according to him, the application of the assailed order will
cause an excessive increase in real property taxes by 100% to 400% on
improvements and up to 100% on land.

ISSUE:
Whether or not Executive Order no. 73 imposes unreasonable increase in real
property taxes, should be declared unconstitutional.

HELD:
The attack on Executive Order No. 73 has no legal basis as the general revision of
assessments is a continuing process mandated by Section 21 of Presidential Decree
No. 464. If at all, it is Presidential Decree No. 464 which should be challenged as
constitutionally infirm. However, Chavez failed to raise any objection against said
decree. Without Executive Order No. 73, the basis for collection of real property taxes

will still be the 1978 revision of property values. Certainly, to continue collecting real
property taxes based on valuations arrived at several years ago, in disregard of the
increases in the value of real properties that have occurred since then, is not in
consonance with a sound tax system. Fiscal adequacy, which is one of the
characteristics of a sound tax system, requires that sources of revenues must be
adequate to meet government expenditures and their variations.

31. Taganito Mining v. Commissioner of Internal Revenue


CTA Case 4702, April 28, 1995

FACTS:
Taganito Mining Corporation is a domestic corporation expressly granted a permit by
the government via an operating contract to explore, develop and utilize mineral
deposits found in a specified portion of a mineral reservation area located in Surigao
del Norte and owned by the government. In exchange, TMC is obliged to pay royalty
to the government over and above other taxes. During July to December 1989, TMC
removed, shipped and sold substantial quantities of Beneficiated Nickel Silicate ore
and Chromite ore and paid excise taxes in the amount of Php 6,277,993.65 in
compliance with Sec.151(3) of the Tax Code.
The 5% excise tax was based on the amount and weight shown in the provisional
invoice issued by TMC. The metallic minerals are then shipped abroad to Japanese
buyers where the minerals were analyzed allegedly by independent surveyors upon
unloading at its port of destination. Analysis abroad would oftentimes reveal a
different

value

for

the

metallic

minerals

from

that

indicated

in

the

temporary/provisional invoice submitted by TMC. Variance is in the market values in


the provisional invoice and that indicated in the final calculation sheet presented by
the buyers. Variances occur in the weight of the shipment or the price of the metallic
minerals per kilogram and sometimes in their metallic content resulting in
discrepancies in the total selling price. It is always the price indicated in the final
invoice that is determinative of the amount that the buyers will eventually pay TMC.
TMC contended that is entitled to a refund because the actual market value that
should be made the basis of the taxes is the amount specified in the independent
surveyor abroad.

ISSUE:
Whether or not TMC is entitled to refund.

HELD:
No. Tax refund partake of the nature of an exemption, and as such, tax exemption
cannot be allowed unless granted in the most explicit and categorical language.
Taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it.

32. Lutz v. Araneta


GR No. 7859, December 22, 1955

FACTS:
Plaintiff, Walter Lutz 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 such tax is unconstitutional and void,
being levied for the aid and support of the sugar industry exclusively, which in
plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied.
The action having been dismissed by the Court of First Instance, the plaintiffs
appealed the case directly to the Supreme Court.

ISSUE:
Is the tax provided for in Commonwealth Act No. 567 a pure exercise of the taxing
power?

HELD:
Analysis of the Act, and particularly of section 6 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.
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. If objective and methods
are alike constitutionally valid, no reason is seen why the state may not levy taxes to
raise funds for their prosecution and attainment. Taxation may be made the
implement of the state's police power.

33. Tio v. Videogram Regulatory Board


151 SCRA 208

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:
Whether or not PD 1987 is a valid exercise of taxing power of the state?
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. 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.

34. CIR v. Central Luzon Drug Corp


456 SCRA 414

FACTS:
This is a petition for review under Rule 45 of Rules of Court seeking the nullification
of CA decision granting respondents claim for tax equal to the amount of the 20%
that it extended to senior citizens on the latters purchases pursuant to Senior
Citizens Act. Respondent deducted the total amount of Php 219,778 from its gross
income for the taxable year 1995 whereby respondent did not pay tax for that year
reporting a net loss of Php 20,963 in its corporate income tax. In 1996, claiming that
the Php 219,778 should be applied as a tax credit, respondent claimed for refund in
the amount of Php150, 193.
ISSUE:
Whether or not the 20% discount granted by the respondent to qualified senior
citizens may be claimed as tax credit or as deduction from gross sales?
HELD:
Tax credit is explicitly provided for in Sec4 of RA 7432. The discount given to Senior
citizens is a tax credit, not a deduction from the gross sales of the establishment
concerned. The tax credit that is contemplated under this Act is a form of just
compensation, not a remedy for taxes that were erroneously or illegally assessed and
collected. In the same vein, prior payment of any tax liability is a pre-condition before
a taxable entity can benefit from tax credit. The credit may be availed of upon
payment, if any. Where there is no tax liability or where a private establishment
reports a net loss for the period, the tax credit can be availed of and carried over to
the next taxable year.

35. Borja v. Gella


GR No. L-18330, July 31, 1963

FACTS:
Jose de Borja has been delinquent in the payment of his real estate taxes since 1958
and has offered to pay them with two negotiable certificates of indebtedness to which
he is only an assignee. These were rejected by the City treasurers of both Manila and
Pasay cities on the ground of their limited negotiability. Borja brought the question to
the Treasurer of the Philippines who opined that the negotiable certificates cannot be
accepted as payment of real estate taxes inasmuch as the law provides for their
acceptance from their backpay holder only or the original applicant himself, but not
his assignee. Lower court ruled in favor of Borja.
ISSUE:
Whether compensation can take place between Borjas real estate tax liability and
the credit represented by the certificate of indebtedness.
HELD:
No, the debtor insofar as the certificates of indebtedness are concerned is the
Republic of the Philippines, whereas the real estate taxes owed by Borja are due to
the City of Manila and Pasay City, each one of which having a distinct and separate
personality from our Republic. This is contrary to Article 1279 (1) of the Civil Code
which states that each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other.

36. Tan v. Del Rosario


GR No. 109289, October 3, 1994

FACTS:
Petitioner intimates that Republic Act No. 7496 desecrates the constitutional
requirement that taxation shall be uniform and equitable in that the law would now
attempt to tax single proprietorships and professionals differently from the manner it
imposes the tax on corporations and partnerships. Petitioners claim to be taxpayers
adversely affected by the continued implementation of the amendatory legislation.
ISSUE:
Does Republic Act No. 7496 violate the Constitution for imposing taxes that are not
uniform and equitable?
HELD:
The Petition is dismissed. Uniformity of taxation, like the kindred concept of
equal protection, merely requires that all subjects or objects of taxation, similarly
situated, are to be treated alike both in privileges and Uniformity does not forfend
classification as long as: (1) the standards that are used therefor are substantial and
not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3)
the law applies, all things being equal, to both present and future conditions, and (4)
the classification applies equally well to all those belonging to the same class . What
may instead be perceived to be apparent from the amendatory law is the legislative
intent to increasingly shift the income tax system towards the schedular approach in
the income taxation of individual taxpayers and to maintain, by and large, the present
global treatment on taxable corporations. We certainly do not view this classification
to be arbitrary and inappropriate. Having arrived at this conclusion, the plea of
petitioner to have the law declared unconstitutional for being violative of due process
must perforce fail. The due process clause may correctly be invoked only when there
is a clear contravention of inherent or constitutional limitations in the exercise of the
tax power.

37. CIR v. Santos


GR No. 119252, August 18, 1997

FACTS:
Guild of Phil. Jewellers questions the constitutionality of certain provisions of the
NIRC and Tariff and Customs Code of the Philippines. It is their contention that
present Tariff and tax structure increases manufacturing costs and render local
jewelry manufacturers uncompetitive against other countries.,

in support of their

position, they submitted what they purported to be an exhaustive study of the tax
rates on jewelry prevailing in other Asian countries, in comparison to tax rates levied
in the country. Judge Santos of RTC Pasig, ruled that the laws in question are
confiscatory and oppressive and declared them inoperative and without force and
effect insofar as petitioners are concerned. Petitioner CIR assailed decision rendered
by respondent judge contending that the latter has no authority to pass judgment
upon the taxation policy of the government. Petitioners also impugn the decision by
asserting that there was no showing that the tax laws on jewelry are confiscatory.
ISSUE:
Whether or not the Regional Trial Court has authority to pass judgment upon taxation
policy of the government.
HELD:
The policy of the courts is to avoid ruling on constitutional questions and to presume
that the acts of the political departments are valid in the absence of a clear and
unmistakable showing to the contrary. This is not to say that RTC has no power
whatsoever to declare a law unconstitutional. But this authority does not extend to
deciding questions which pertain to legislative policy. RTC have the power to declare
the law unconstitutional but this authority does not extend to deciding questions
which pertain to legislative policy. RTC can only look into the validity of a provision,
that is whether or not it has been passed according to the provisions laid down by
law, and thus cannot inquire as to the reasons for its existence.

38. Francia v. Intermediate Appellate Court


GR No. 67649, June 28, 1988

FACTS:
Engracio Francia is the registered owner of a residential lot and a two-story house
located in Pasay City. On October 15, 1977, a 125 square meter portion of Francia's
property was expropriated by the Republic for the sum of P4,116.00. Since 1963 up
to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5,
1977, his property was sold at public auction pursuant the Real Property Tax Code in
order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder
for the property. Francia was not present during the auction sale since he was in
Iligan City at that time helping his uncle ship bananas. On March 3, 1979, Francia
received a notice of hearing In re: Petition for Entry of New Certificate of Title" filed
by Ho Fernandez, seeking the cancellation of TCT and the issuance in his name of a
new certificate of title. Upon verification through his lawyer, Francia discovered that a
Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on
December 11, 1978. The auction sale and the final bill of sale were both annotated at
the back of TCT No. 4739 (37795) by the Register of Deeds. On March 20, 1979,
Francia filed a complaint to annul the auction sale. Thelower court rendered a
decision against his favor. The Intermediate Appellate Court affirmed the decision of
the lower court in toto. Hence, this petition for review.

ISSUE:
Whether or not the contention of Francia that his tax delinquency of P2,400.00 has
been extinguished by legal compensation is correct claiming that the government
owed him P4,116.00 when a portion of his land was expropriated on October 15,
1977.

HELD:
This principal contention of the petitioner has no merit. We have consistently ruled
that there can be no off-setting of taxes against the claims that the taxpayer may
have against the government. A person cannot refuse to pay a tax on the ground that
the government owes him an amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit against the government. A
claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off under the statutes of set-off, which are construed uniformly, in the light of
public policy, to exclude the remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for taxes. Neither are they
a proper subject of recoupment since they do not arise out of the contract or
transaction sued on.

39. Domingo v. Carlitos


GR No. L-18994, June 29, 1963

FACTS:
This is a petition for certiorari and mandamus against respondent judge seeking to
annul certain orders of the court and for an order in this Court to direct respondent to
execute the judgment in favor of the Government against the estate of Walter Scott
Price for internal revenue taxes. It appears that in Melecio R. Domingo vs. Hon.
Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as
final and executory the order for the payment by the estate of the estate and
inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the
Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter
of the Intestate Estate of the Late Walter Scott Price." In order to enforce the claims
against the estate the fiscal presented a petition dated June 21, 1961, to the court
below for the execution of the judgment. The petition was, however, denied by the
court which held that the execution is not justifiable.

ISSUE:
Whether or not the petitioner has the clear right to execute the judgment for taxes
against the estate of the deceased Walter Scott Price.

HELD:
The petition to set aside the above orders of the court below and for the execution of
the claim of the Government against the estate must be denied for lack of merit. The
ordinary procedure by which to settle claims of indebtedness against the estate of a
deceased person, as an inheritance tax, is for the claimant to present a claim before
the probate court so that said court may order the administrator to pay the amount
thereof. Another ground for denying the petition is the fact that the court having
jurisdiction of the estate had found that the claim of the estate against the

Government has been recognized and an amount of P262,200 has already been
appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the
above circumstances, both the claim of the Government for inheritance taxes and the
claim of the intestate for services rendered have already become overdue and
demandable is well as fully liquidated. Compensation, therefore, takes place by
operation of law, in accordance with the provisions of Articles 1279 and 1290 of the
Civil Code, and both debts are extinguished to the concurrent amount. It is clear,
therefore, that the petitioner has no clear right to execute the judgment for taxes
against the estate of the deceased Walter Scott Price.

40. Victorias Milling Co., Inc. v. Municipality of Vicotrias, Negros Occidental


L-24813, September 27, 1968

FACTS:
This case calls into question the validity of Ordinance No. 1, series of 1956, of the
Municipality of Victorias, Negros Occidental.

The disputed ordinance imposed

license taxes on operators of sugar centrals and sugar refineries. The changes were:
with respect to sugar centrals, by increasing the rates of license taxes; and as to
sugar refineries, by increasing the rates of license taxes as well as the range of
graduated schedule of annual output capacity. For, the production of plaintiff Victorias
Milling Co., Inc. in both its sugar central and its sugar refinery located in the
Municipality of Victorias comes within these items. Plaintiff filed suit below to ask for
judgment declaring Ordinance No. 1, series of 1956, null and void. The plaintiff
contends that the ordinance is discriminatory since it singles out plaintiff which is the
only operator of a sugar central and a sugar refinery within the jurisdiction of
defendant municipality. The trial court rendered its judgment declaring that the
ordinance in question refers to license taxes or fees. Both plaintiff and defendant
directly appealed to the Supreme Court.
ISSUE:
Was Ordinance No. 1, series of 1956, passed by defendant's municipal council as a
regulatory enactment or as a revenue measure?
HELD:
The present imposition must be treated as a levy for revenue purposes. A quick
glance at the big amount of maximum annual tax set forth in the ordinance,
P40,000.00 for sugar centrals, and P40,000.00 for sugar refineries, will readily
convince one that the tax is really a revenue tax. And then, we read in the ordinance
nothing which would as much as indicate that the tax imposed is merely for police
inspection, supervision or regulation. Given the purposes just mentioned, we find no
warrant in logic to give our assent to the view that the ordinance in question is solely
for regulatory purpose. Plain is the meaning conveyed. The ordinance is for raising
money. To say otherwise is to misread the purpose of the ordinance.

41. Pascual v. Secretary of Public Works and Communications, et al.


GR No. L-10405, December 29, 1960

FACTS:
On August 31, 1954, petitioner Wenceslao Pascual 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 thereof, an item of P85,000.00 "for the construction,
reconstruction, repair, extension and improvement" of Pasig feeder road terminals;
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" which
projected feeder roads "do not connect any government property or any important
premises to the main highway"; Respondents moved to dismiss the petition upon the
ground that petitioner had "no legal capacity to sue", and that the petition did "not
state a cause of action".
ISSUE:
Should appropriation using public funds be made for public purposes only?
HELD:
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.
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 incidentally serve the public.

42. Philippine Guaranty Co. Inc. v. CIR


L-22074, April 30, 1965

FACTS:
The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered
into reinsurance contracts with foreign insurance companies not doing business in
the country, thereby ceding to foreign reinsurers a portion of the premiums on
insurance it has originally underwritten in the Philippines. The premiums paid by such
companies were excluded by the petitioner from its gross income when it filed its
income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on
them. Consequently, the CIR assessed against the petitioner withholding taxes on
the ceded reinsurance premiums to which the latter protested the assessment on the
ground that the premiums are not subject to tax for the premiums did not constitute
income from sources within the Philippines because the foreign reinsurers did not
engage in business in the Philippines, and CIR's previous rulings did not require
insurance companies to withhold income tax due from foreign companies.
ISSUE:
Are insurance companies not required to withhold tax on reinsurance premiums
ceded to foreign insurance companies, which deprives the government from
collecting the tax due from them?
HELD:
No. The power to tax is an attribute of sovereignty. It is a power emanating from
necessity. It is a necessary burden to preserve the State's sovereignty and a means
to give the citizenry an army to resist an aggression, a navy to defend its shores from
invasion, a corps of civil servants to serve, public improvement designed for the
enjoyment of the citizenry and those which come within the State's territory, and
facilities and protection which a government is supposed to provide. Considering that
the reinsurance premiums in question were afforded protection by the government
and the recipient foreign reinsurers exercised rights and privileges guaranteed by our
laws, such reinsurance premiums and reinsurers should share the burden of
maintaining the state. The petitioner's defense of reliance of good faith on rulings of

the CIR requiring no withholding of tax due on reinsurance premiums may free the
taxpayer from the payment of surcharges or penalties imposed for failure to pay the
corresponding withholding tax, but it certainly would not exculpate it from liability to
pay such withholding tax. The Government is not estopped from collecting taxes by
the mistakes or errors of its agents.

43. SSS v. City of Bacolod et al.


GR No. L-35726, July 21, 1982

FACTS:
Social Security System, for operation purposes, maintains a five-storey building in
Bacolod City occupying four parcels of land. Said lands and buildings were assessed
for taxation. Petitioner failed to pay the realty taxes for the years 1968, 1969 and
1970. Consequently, the City of Bacolod levied upon said lands and buildings and
declared them forfeited in its favor. In protest, petitioner wrote the city mayor through
the city treasurer seeking reconsideration of the forfeiture proceeding on the ground
that it is a government-owned and controlled corporation and as such, should be
exempt from payment of real estate taxes. No action was however taken. Thereafter,
petitioner filed an action in court for the nullification of the court proceedings. The
court ruled that the properties of petitioner are not exempt from the payment of real
property tax because these are not one of the exemptions under Section 29 of the
Charter of Bacolod City and there is no other law providing for its exemption.

ISSUE:
Should the subject properties maintained by petitioner SSS be exempt from payment
of real property tax?

HELD:
Yes. Whether a government owned and controlled corporation is performing
governmental or proprietary function is immaterial. Section 29 of the Charter of
Bacolod City does not contain any qualification whatsoever in providing for the
exemption from real estate taxes of "lands and buildings owned by the
Commonwealth or Republic of Philippines." Hence, when the legislature exempted
lands and buildings owned by the government from payment of said taxes, what it

intended was a broad and comprehensive application of such mandate, regardless of


whether such property is devoted to governmental or proprietary purpose.
Further, P.D. 24 has amended the Social Security Act of 1954 expressly exempting
the SSS from payment of any tax thereby removing all doubts as to its exemption.

44. Province of Abra v. Hernando


GR No. L-49336, August 31, 1981

FACTS:
On the face of this certiorari and mandamus petition, it clearly appears that the
actuation of respondent Judge Hernando left much to be desired. There was a denial
of a motion to dismiss an action for declaratory relief by Roman Catholic Bishop of
Bangued desirous of being exempted from a real estate tax followed by a summary
judgment granting such exemption, without even hearing the side of petitioner. It was
the submission of counsel that an action for declaratory relief would be proper only
before a breach or violation of any statute, executive order or regulation. Moreover,
there being a tax assessment made by the Provincial Assessor on the properties of
respondent, petitioner failed to exhaust the administrative remedies available under
PD No. 464 before filing such court action. Respondent Judge alleged that there "is
no question that the real properties sought to be taxed by the Province of Abra are
properties of the respondent Roman Catholic Bishop of Bangued, Inc." The very next
sentence assumed the very point it asked when he categorically stated: "Likewise,
there is no dispute that the properties including their procedure are actually, directly
and exclusively used by the Roman Catholic Bishop of Bangued, Inc. for religious or
charitable purposes." For him then: "The proper remedy of the petitioner is appeal
and not this special civil action."

ISSUE:
Whether or not the properties of respondent Roman Catholic Bishop should be
exempt from taxation.

HELD:
Respondent Judge would not have erred so grievously had he merely compared the
provisions of the present Constitution with that appearing in the 1935 Charter on the

tax exemption of "lands, buildings, and improvements." There is a marked difference.


Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents
appurtenant thereto, and all lands, buildings, and improvements used exclusively for
religious, charitable, or educational purposes shall be exempt from taxation." The
present Constitution added "charitable institutions, mosques, and non-profit
cemeteries" and required that for the exemption of "lands, buildings, and
improvements," they should not only be "exclusively" but also "actually and "directly"
used for religious or charitable purposes. The Constitution is worded differently. The
change should not be ignored. It must be duly taken into consideration.

45. Sison v. Ancheta


GR No. L-59431, July 25, 1984

FACTS:
Petitioner assailed the validity of Section 1 of Batas Pambansa Blg. 135 which 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.
Petitioner as 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 vis-a-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.


ISSUE:
Whether or not BP 135 Sec 1 is violative of due procee and equal protection clause.
HELD:
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. Due process was not
violated.

46. Ormoc Sugar v. Treasurer of Ormoc City


GR No. L-23794, February 17, 1968

FACTS:
The Municipal Board of Ormoc City passed Ordinance No. 4 imposing on any and all
productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc
City a municipal tax equivalent to one per centum (1%) per export sale to USA and
other foreign countries. Payments for said tax were made, under protest, by Ormoc
Sugar Company, Inc. Ormoc Sugar Company, Inc. filed before the Court of First
Instance of Leyte a complaint against the City of Ormoc as well as its Treasurer,
Municipal Board and Mayor alleging that the ordinance is unconstitutional for being
violative of the equal protection clause and the rule of uniformity of taxation. The
court rendered a decision that upheld the constitutionality of the ordinance.
ISSUE:
Whether or not constitutional limits on the power of taxation, specifically the equal
protection clause and rule of uniformity of taxation, were infringed?
HELD:
Yes. Equal protection clause applies only to persons or things identically situated and
does not bar a reasonable classification of the subject of legislation, and a
classification is reasonable where 1) it is based upon substantial distinctions; 2) these
are germane to the purpose of the law; 3) the classification applies not only to
present conditions, but also to future conditions substantially identical to those
present; and 4) the classification applies only to those who belong to the same class.

A perusal of the requisites shows that the questioned ordinance does not meet them,
for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar
Company, Inc. and none other. The taxing ordinance should not be singular and
exclusive as to exclude any subsequently established sugar central for the coverage
of the tax.

47. American Bible Society v. City of Manila


April 30, 1957

FACTS:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation
duly registered and doing business in the Philippines. The defendant appellee is a
municipal corporation with powers that are to be exercised in conformity with the
provisions of the Revised Charter of the City of Manila. In the course of its ministry,
the Philippine agency of the American Bible Society has been distributing and selling
bibles and/or gospel portions thereof throughout the Philippines and translating the
same into several Philippine dialets. The acting City Treasurer of Manila required the
society to secure the corresponding Mayors permit and municipal license fees,
together with compromise covering the period from the 4th quarter of 1945 to the 2nd
quarter of 1953. The society paid such under protest, and filed suit questioning the
legality of the ordinances under which the fees are being collected.

ISSUE:
Whether or not the municipal ordinances violate the freedom of religious profession
and worship.

HELD:
A tax on the income of one who engages in religious activities is different from a tax
on property used or employed in connection with those activities. It is one thing to
impose a tax on the income or property of a preacher, and another to exact a tax for
him for the privilege of delivering a sermon. The power to tax the exercise of a
privilege is the power to control or suppress its enjoyment. Even if religious groups
and the press are not altogether free from the burdens of the government, the act of
distributing and selling bibles is purely religious and does not fall under Section 27 (e)
of the Tax Code (CA 466). The fact that the price of bibles, etc. are a little higher than

actual cost of the same does not necessarily mean it is already engaged in business
for profit. Ordinance 2529 and 3000 are not applicable to the Society for in doing so it
would impair its free exercise and enjoyment of its religious profession and worship
as well as its rights of dissemination of religious beliefs.

48. Casanovas v. Hord


8 Phil 125, March 22, 1907

FACTS:
In 1897, the Spanish Government, in accordance with the provisions of the royal
decree of 14 may 1867, granted J. Casanovas certain mines in the province of
Ambos Camarines, of which mines the latter is now the owner. That these were
validly perfected mining concessions granted to prior to 11 April 1899 is conceded.
They were so considered by the Collector of Internal Revenue and were by him said
to fall within the provisions of Section 134 of Act 1189 (Internal Revenue Act). The
defendant Commissioner, JNO S. Hord, imposed upon these properties the tax
mentioned in Section 134, which plaintiff Casanovas paid under protest.
ISSUE:
Whether or not Section 134 of Act 1189 is valid.
HELD:
The deed constituted a contract between the Spanish Government and Casanovas.
The obligation in the contract was impaired by the enactment of Section 134 of the
Internal Revenue Law, thereby infringing the provisions of Section 5 of the Act of
Congress of 1 July 1902. Furthermore, the section conflicts with Section 60 of the Act
of Congress of 1 July 1902, which indicate that concessions can be cancelled only by
reason of illegality in the procedure by which they were obtained, or for failure to
comply with the conditions prescribed as requisites for their retention in the laws
under which they were granted. There is no claim in this case that there was any
illegality in the procedure by which these concessions were obtained, nor is there any
claim that the plaintiff has not complied with the conditions prescribed in the royal
decree of 1867. As to the allegation that the section violates uniformity of taxation,
the Court found it unnecessary to consider the claim in view of the result at which the
Court has arrived.

49. Meralco v. Province of Laguna


GR No. 131359, May 5, 1999

FACTS:
Manila Electric Company (MERALCO) was granted a franchise from certain
municipalities of Laguna. On September 13, 1991, Republic Act 7160, otherwise
known as the Local Government Code of 1991 was enacted, enjoining loval
government units to create their own sources of revenue and to levy taxes, fees and
charges, subject to the limitations expressed therein, consistent with the basic policy
of local autonomy. Pursuant to this Code, respondent province enacted a Provincial
Ordinance providing that a tax on business enjoying franchise, at a rate of 50% of
1% of the gross annual receipts... On the basis of such ordinance, the Provincial
Treasurer sent a demand letter to MERALCO for the tax payment. MERALCO paid
under protest. Thereafter, a formal claim for refund was sent by MERALCO to the
Provincial Treasurer claiming that the franchise tax it had paid and continue to pay to
the National Government already includes the franchise tax as provided under
Presidential Decree 551. The claim was denied. MERALCO filed an appeal with the
trial court but was dismissed.

ISSUE:
Whether the imposition of a franchise tax under section 2.09 of the Laguna Provincial
Ordinance No. 01-92 violates the non-impairment clause of the Constitution.

HELD:
No. Although local governments do not have the inherent power to tax, such power
may be delegated to them either by basic law or by statute. This is provided under
Article X of the 1987 Constitution. The rationale for the current rule is to safeguard
the viability and self-sufficiency of local government units by directly granting them
general and broad tax powers.

The Local Government Code of 1991 repealed the Tax Code. It explicitly authorizes
provincial governments, notwithstanding any exemption granted by any law, or other
special laws, xxx (to) impose a tax on business enjoying a franchise.

The phrase,

in lieu of all taxes have to give way to the peremptory language of the Local
Government Code.

50. Villegas v. Hiu Chiong Tsai Pao Hao


GR No. L-29646. November 10, 1978

FACTS:
On February 22, 1968, the Municipal Board of Manila passed City Ordinance No.
6537. The said city ordinance was also signed by then Manila Mayor Antonio J.
Villegas. Section 1 of the said city ordinance prohibits aliens from being employed or
to engage or participate in any position or occupation or business enumerated
therein, whether permanent, temporary or casual, without first securing an
employment permit from the Mayor of Manila and paying the permit fee of P50.00
except persons employed in the diplomatic or consular missions of foreign countries,
or in the technical assistance programs of both the Philippine Government and any
foreign government, and those working in their respective households, and members
of religious orders or congregations, sect or denomination, who are not paid
monetarily or in kind.
Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was employed in Manila, filed a petition
with the CFI of Manila to declare City Ordinance No. 6537 as null and void for being
discriminatory and violative of the rule of the uniformity in taxation. The trial court
declared City Ordinance No. 6537 null and void. Villegas filed the present petition.

ISSUE:
Whether or not City Ordinance No. 6537 is a tax or revenue measure.

HELD:
Yes. The contention that City Ordinance No. 6537 is not a purely tax or revenue
measure because its principal purpose is regulatory in nature has no merit. While it is
true that the first part which requires that the alien shall secure an employment permit
from the Mayor involves the exercise of discretion and judgment in the processing
and approval or disapproval of applications for employment permits and therefore is

regulatory in character the second part which requires the payment of P50.00 as
employee's fee is not regulatory but a revenue measure. There is no logic or
justification in exacting P50.00 from aliens who have been cleared for employment. It
is obvious that the purpose of the ordinance is to raise money under the guise of
regulation.

51. Association of Customs Brokers, Inc. v. Municipal Board of Manila et. al.
GR No. L-4376, May 22, 1953

FACTS:
The Association of Customs Brokers, Inc., which is composed of all brokers and
public service operators of motor vehicles in the City of Manila challenge the validity
Ordinance No. 3379 on the ground that (1) while it levies a so-called property tax it is
in reality a license tax which is beyond the power of the Municipal Board of the City of
Manila; (2) said ordinance offends against the rule of uniformity of taxation; and (3) it
constitutes double taxation.
The respondents contend on their part that the challenged ordinance imposes a
property tax which is within the power of the City of Manila to impose under its
Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question
does not violate the rule of uniformity of taxation, nor does it constitute double
taxation.

ISSUE:
Whether or not the ordinance is null and void.

HELD:
The ordinance infringes the rule of the uniformity of taxation ordained by our
Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating
within the City of Manila. It does not distinguish between a motor vehicle for hire and
one which is purely for private use. Neither does it distinguish between a motor
vehicle registered in the City of Manila and one registered in another place but
occasionally comes to Manila and uses its streets and public highways. This is an
inequality which we find in the ordinance, and which renders it offensive to the
Constitution.

52. Abakada Guro Party List v. Ermita


G.R. No. 168056, October 30, 1995

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

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

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

53. Abra Valley College v. Aquino


June 15, 1988

FACTS:
Petitioner, an educational corporation and institution of higher learning duly
incorporated with the Securities and Exchange Commission in 1948, filed a complaint
to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and
building located at Bangued, Abra, for non-payment of real estate taxes and penalties
amounting to P5,140.31. Said "Notice of Seizure" by respondents Municipal
Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction
of the said taxes thereon.
The parties entered into a stipulation of facts adopted and embodied by the trial court
in its questioned decision. The trial court ruled for the government, holding that the
second floor of the building is being used by the director for residential purposes and
that the ground floor used and rented by Northern Marketing Corporation, a
commercial establishment, and thus the property is not being used exclusively for
educational purposes. Instead of perfecting an appeal, petitioner availed of the
instant petition for review on certiorari with prayer for preliminary injunction before the
Supreme Court, by filing said petition on 17 August 1974.

ISSUE:
Whether or not the lot and building are used exclusively for educational purposes.

HELD:
Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution,
expressly grants exemption from realty taxes for cemeteries, churches and
parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable or educational purposes.
Reasonable emphasis has always been made that the exemption extends to facilities

which are incidental to and reasonably necessary for the accomplishment of the main
purposes. The use of the school building or lot for commercial purposes is neither
contemplated by law, nor by jurisprudence. In the case at bar, the lease of the first
floor of the building to the Northern Marketing Corporation cannot by any stretch of
the imagination be considered incidental to the purpose of education. The test of
exemption from taxation is the use of the property for purposes mentioned in the
Constitution.
The decision of the CFI Abra is affirmed subject to the modification that half of the
assessed tax be returned to the petitioner. The modification is derived from the fact
that the ground floor is being used for commercial purposes and the second floor
being used as incidental to education.

54. Villanueva v. City of Iloilo


G.R. No. L-26521, December 28, 1968

FACTS:
The municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as
follows: 1) tenement house, P25.00anually; 2) tenement house, partly or wholly
engaged in or dedicated to business in the streets of J.M. Basa, Iznart Aldequer,
P24.00 per apartment; 3) tenement house, partly or wholly engaged in business in
any other streets, P12.00 per apartment.

The validity and constitutionality of this ordinance were challenged by the spouses
Villanueva, owners of 4 tenement houses containing 34 apartments.

ISSUE:
Does Ordinance 11 violate the rules of uniformity of taxation?

HELD:
No. This court has ruled that tenement houses constitute a distinct class of property.
It has likewise ruled that taxes are uniform and equal when imposed upon all
properties of the same class or character within the taxing authority. The fact,
therefore, that the owners of other classes of buildings in the City of Iloilo do not pay
the taxes imposed by the ordinance in question is no argument at all against
uniformity and equality of the tax imposition.

54. Delpher Trades Corporation v. Intermediate Appellate Court et. al.


G.R. No. L-69259, January 26, 1988

FACTS:
Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square
meters of real estate in the Municipality of Polo (now Valenzuela), Province of
Bulacan (now Metro Manila). The said co-owners leased to Construction
Components International Inc. the same property and providing that during the
existence or after the term of this lease the lessor should he decide to sell the
property leased shall first offer the same to the lessee and the letter has the priority to
buy under similar conditions. On August 3, 1974, lessee Construction Components
International, Inc. assigned its rights and obligations under the contract of lease in
favor of Hydro Pipes Philippines, Inc. with the conformity and consent of lessors
Delfin Pacheco and Pelagia Pacheco. On January 3, 1976, a deed of exchange was
executed between lessors Delfin and Pelagia Pacheco and defendant Delpher
Trades Corporation whereby the former conveyed to the latter the leased property
together with another parcel of land for 2,500 shares of stock of defendant
corporation with a total value of P1,500,000.00.
On the ground that it was not given the first option to buy the property, respondent
Hydro Pipes Philippines, Inc., a complaint for reconveyance of Lot. No. 1095 in its
favor. The Court of First Instance of Bulacan ruled in favor of the plaintiff. The lower
court's decision was affirmed on appeal by the Intermediate Appellate Court.

ISSUE:
Whether or not the "Deed of Exchange" of the properties executed by the Pachecos
on the one hand and the Delpher Trades Corporation on the other was meant to be a
contract of sale.

HELD:
We rule for the petitioners. In the case at bar, in exchange for their properties, the
Pachecos acquired 2,500 original unissued no par value shares of stocks of the
Delpher Trades Corporation. Consequently, the Pachecos became stockholders of
the corporation by subscription. "The essence of the stock subscription is an
agreement to take and pay for original unissued shares of a corporation, formed or to
be formed." In effect, the Delpher Trades Corporation is a business conduit of the
Pachecos. What they really did was to invest their properties and change the nature
of their ownership from unincorporated to incorporated form by organizing Delpher
Trades Corporation to take control of their properties and at the same time save on
inheritance taxes.
The records do not point to anything wrong or objectionable about this "estate
planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to
decrease the amount of what otherwise could be his taxes or altogether avoid them,
by means which the law permits, cannot be doubted."

56. Commissioner of Internal Revenue vs. Estate of Benigno Toda Jr.


G.R. No. 147188, September 14, 2004

FACTS:
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of
99.991% of its outstanding capital stock, to sell the Cibeles Building. On 30 August
1989, Toda purportedly sold the property for P100 million to Rafael A. Altonaga, who,
in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200
million. Three and a half years later Toda died. On 29 March 1994, the BIR sent an
assessment notice and demand letter to the CIC for deficiency income tax for the
year 1989. On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by
special co-administrators Lorna Kapunan and Mario Luza Bautista, received a Notice
of Assessment from the CIR for deficiency income tax for the year 1989. The Estate
thereafter filed a letter of protest. The Commissioner dismissed the protest. On 15
February 1996, the Estate filed a petition for review with the CTA. In its decision the
CTA held that the Commissioner failed to prove that CIC committed fraud to deprive
the government of the taxes due it. It ruled that even assuming that a pre-conceived
scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax
evasion.

Hence, the CTA declared that the Estate is not liable for deficiency of

income tax. The Commissioner filed a petition for review with the Court of Appeals.
The Court of Appeals affirmed the decision of the CTA. Hence, this recourse to the
SC.

ISSUE:
Whether or not this is a case of tax evasion or tax avoidance.

HELD:
Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e.,
the payment of less than that known by the taxpayer to be legally due, or the non-

payment of tax when it is shown that a tax is due; (2) an accompanying state of mind
which is described as being evil, in bad faith, willfull,or deliberate and not
accidental; and (3) a course of action or failure of action which is unlawful. All these
factors are present in the instant case. The scheme resorted to by CIC in making it
appear that there were two sales of the subject properties, i.e., from CIC to Altonaga,
and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such
scheme is tainted with fraud. Altonagas sole purpose of acquiring and transferring
title of the subject properties on the same day was to create a tax shelter. The sale
to him was merely a tax ploy, a sham, and without business purpose and economic
substance. Doubtless, the execution of the two sales was calculated to mislead the
BIR with the end in view of reducing the consequent income tax liability.