G.R. No.

148187

April 16, 2008

PHILEX
MINING
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

CORPORATION, petitioner,

DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision1 of the Court of Appeals in CA-G.R. SP
No. 49385, which affirmed the Decision 2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is
the April 3, 2001 Resolution3 denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an agreement 4 with
Baguio Gold Mining Company ("Baguio Gold") for the former to manage and operate the latters mining
claim, known as the Sto. Nino mine, located in Atok and Tublay, Benguet Province. The parties agreement
was denominated as "Power of Attorney" and provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available to the
MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts
as from time to time may be required by the MANAGERS within the said 3-year period, for use in the
MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS (P11,000,000.00)
shall be deemed, for internal audit purposes, as the owners account in the Sto. Nino PROJECT. Any
part of any income of the PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino
PROJECT, shall be added to such owners account.
5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to the Sto.
Nino PROJECT, in accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash, shall be carried by the Sto.
Nino PROJECT as a special fund to be known as the MANAGERS account.
(b) The total of the MANAGERS account shall not exceed P11,000,000.00, except with prior
approval of the PRINCIPAL; provided, however, that if the compensation of the
MANAGERS as herein provided cannot be paid in cash from the Sto. Nino PROJECT, the
amount not so paid in cash shall be added to the MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT
until termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the desire of the
PRINCIPAL to extend to the MANAGERS the benefit of subsequent appreciation of property,

upon a projected termination of this Agency, the ratio which the MANAGERS account has to
the owners account will be determined, and the corresponding proportion of the entire assets
of the STO. NINO MINE, excluding the claims, shall be transferred to the MANAGERS,
except that such transferred assets shall not include mine development, roads, buildings, and
similar property which will be valueless, or of slight value, to the MANAGERS. The
MANAGERS can, on the other hand, require at their option that property originally
transferred by them to the Sto. Nino PROJECT be re-transferred to them. Until such assets
are transferred to the MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto.
Nino PROJECT before income tax. It is understood that the MANAGERS shall pay income tax on
their compensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino
PROJECT after deduction therefrom of the MANAGERS compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the future,
may incur other obligations in favor of the MANAGERS. This Power of Attorney has been executed
as security for the payment and satisfaction of all such obligations of the PRINCIPAL in favor of the
MANAGERS and as a means to fulfill the same. Therefore, this Agency shall be irrevocable while any
obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the
MANAGERS account. After all obligations of the PRINCIPAL in favor of the MANAGERS have
been paid and satisfied in full, this Agency shall be revocable by the PRINCIPAL upon 36-month
notice to the MANAGERS.
17. Notwithstanding any agreement or understanding between the PRINCIPAL and the MANAGERS
to the contrary, the MANAGERS may withdraw from this Agency by giving 6-month notice to the
PRINCIPAL. The MANAGERS shall not in any manner be held liable to the PRINCIPAL by reason
alone of such withdrawal. Paragraph 5(d) hereof shall be operative in case of the MANAGERS
withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made advances of cash and property in
accordance with paragraph 5 of the agreement. However, the mine suffered continuing losses over the years
which resulted to petitioners withdrawal as manager of the mine on January 28, 1982 and in the eventual
cessation of mine operations on February 20, 1982.6
Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in Payment" 7 wherein
Baguio Gold admitted an indebtedness to petitioner in the amount of P179,394,000.00 and agreed to pay the
same in three segments by first assigning Baguio Golds tangible assets to petitioner, transferring to the latter
Baguio Golds equitable title in its Philodrill assets and finally settling the remaining liability through
properties that Baguio Gold may acquire in the future.

On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in Payment" 8 where
the parties determined that Baguio Golds indebtedness to petitioner actually amounted to P259,137,245.00,
which sum included liabilities of Baguio Gold to other creditors that petitioner had assumed as guarantor.
These liabilities pertained to long-term loans amounting to US$11,000,000.00 contracted by Baguio Gold from
the Bank of America NT & SA and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two
segments by first assigning its tangible assets for P127,838,051.00 and then transferring its equitable title in its
Philodrill assets for P16,302,426.00. The parties then ascertained that Baguio Gold had a remaining
outstanding indebtedness to petitioner in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness of
Baguio Gold by charging P112,136,000.00 to allowances and reserves that were set up in 1981 and
P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its gross income the amount of P112,136,000.00
as "loss on settlement of receivables from Baguio Gold against reserves and allowances." 9 However, the
Bureau of Internal Revenue (BIR) disallowed the amount as deduction for bad debt and assessed petitioner a
deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a bad
debt deduction were satisfied, to wit: (a) there was a valid and existing debt; (b) the debt was ascertained to be
worthless; and (c) it was charged off within the taxable year when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio Gold.
The bad debt deduction represented advances made by petitioner which, pursuant to the management contract,
formed part of Baguio Golds "pecuniary obligations" to petitioner. It also included payments made by
petitioner as guarantor of Baguio Golds long-term loans which legally entitled petitioner to be subrogated to
the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds irreversible losses, it became evident that it would not be
able to recover the advances and payments it had made in behalf of Baguio Gold. For a debt to be considered
worthless, petitioner claimed that it was neither required to institute a judicial action for collection against the
debtor nor to sell or dispose of collateral assets in satisfaction of the debt. It is enough that a taxpayer exerted
diligent efforts to enforce collection and exhausted all reasonable means to collect.
On October 28, 1994, the BIR denied petitioners protest for lack of legal and factual basis. It held that the
alleged debt was not ascertained to be worthless since Baguio Gold remained existing and had not filed a
petition for bankruptcy; and that the deduction did not consist of a valid and subsisting debt considering that,
under the management contract, petitioner was to be paid fifty percent (50%) of the projects net profit. 10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack
of merit. The assessment in question, viz: FAS-1-82-88-003067 for deficiency income tax in the
amount of P62,811,161.39 is hereby AFFIRMED.

ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent

Commissioner of Internal Revenue the amount of P62,811,161.39, plus, 20% delinquency interest due
computed from February 10, 1995, which is the date after the 20-day grace period given by the
respondent within which petitioner has to pay the deficiency amount x x x up to actual date of
payment.
SO ORDERED.11
The CTA rejected petitioners assertion that the advances it made for the Sto. Nino mine were in the nature of a
loan. It instead characterized the advances as petitioners investment in a partnership with Baguio Gold for the
development and exploitation of the Sto. Nino mine. The CTA held that the "Power of Attorney" executed by
petitioner and Baguio Gold was actually a partnership agreement. Since the advanced amount partook of the
nature of an investment, it could not be deducted as a bad debt from petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio Gold
could not be allowed as a bad debt deduction. At the time the payments were made, Baguio Gold was not in
default since its loans were not yet due and demandable. What petitioner did was to pre-pay the loans as
evidenced by the notice sent by Bank of America showing that it was merely demanding payment of the
installment and interests due. Moreover, Citibank imposed and collected a "pre-termination penalty" for the
pre-payment.
The Court of Appeals affirmed the decision of the CTA. 12 Hence, upon denial of its motion for
reconsideration,13petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by Philex in the management of the
Sto. Nino Mine pursuant to the Power of Attorney partook of the nature of an investment rather than a
loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino Mine
indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of Philex and Baguio Gold to form a
partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney and in completely disregarding
the Compromise Agreement and the Amended Compromise Agreement when it construed the nature
of the advances made by Philex.
IV.

The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts writeoff.14
Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should not
only rely on the "Power of Attorney", but also on the subsequent "Compromise with Dation in Payment" and
"Amended Compromise with Dation in Payment" that the parties executed in 1982. These documents,
allegedly evinced the parties intent to treat the advances and payments as a loan and establish a creditor-debtor
relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the instrument that is material in determining
the true nature of the business relationship between petitioner and Baguio Gold. Before resort may be had to
the two compromise agreements, the parties contractual intent must first be discovered from the expressed
language of the primary contract under which the parties business relations were founded. It should be noted
that the compromise agreements were mere collateral documents executed by the parties pursuant to the
termination of their business relationship created under the "Power of Attorney". On the other hand, it is the
latter which established the juridical relation of the parties and defined the parameters of their dealings with
one another.
The execution of the two compromise agreements can hardly be considered as a subsequent or
contemporaneous act that is reflective of the parties true intent. The compromise agreements were executed
eleven years after the "Power of Attorney" and merely laid out a plan or procedure by which petitioner could
recover the advances and payments it made under the "Power of Attorney". The parties entered into the
compromise agreements as a consequence of the dissolution of their business relationship. It did not define that
relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed intended by
the parties. Under a contract of partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves. 15 While a
corporation, like petitioner, cannot generally enter into a contract of partnership unless authorized by law or its
charter, it has been held that it may enter into a joint venture which is akin to a particular partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it
has been generally understood to mean an organization formed for some temporary purpose. x x x It is
in fact hardly distinguishable from the partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a mutual right of control. x x x The main
distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint venture is formed for the execution of
a single transaction, and is thus of a temporary nature. x x x This observation is not entirely accurate
in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific undertaking. x x x It would seem therefore that
under Philippine law, a joint venture is a form of partnership and should be governed by the law of
partnerships. The Supreme Court has however recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into a partnership contract, it may
however engage in a joint venture with others. x x x (Citations omitted) 16

Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties had intended to
create a partnership and establish a common fund for the purpose. They also had a joint interest in the profits
of the business as shown by a 50-50 sharing in the income of the mine.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money, property and
industry to the common fund known as the Sto. Nio mine. 17 In this regard, we note that there is a substantive
equivalence in the respective contributions of the parties to the development and operation of the mine.
Pursuant to paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold were to contribute equally to the
joint venture assets under their respective accounts. Baguio Gold would contribute P11M under its owners
account plus any of its income that is left in the project, in addition to its actual mining claim. Meanwhile,
petitioners contribution would consist of its expertise in the management and operation of mines, as well as
the managers account which is comprised of P11M in funds and property and petitioners "compensation" as
manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a partnership agreement with Baguio Gold
because it did not "bind" itself to contribute money or property to the project; that under paragraph 5 of the
agreement, it was only optional for petitioner to transfer funds or property to the Sto. Nio project "(w)henever
the MANAGERS shall deem it necessary and convenient in connection with the MANAGEMENT of the STO.
NIO MINE."18
The wording of the parties agreement as to petitioners contribution to the common fund does not detract from
the fact that petitioner transferred its funds and property to the project as specified in paragraph 5, thus
rendering effective the other stipulations of the contract, particularly paragraph 5(c) which prohibits petitioner
from withdrawing the advances until termination of the parties business relations. As can be seen, petitioner
became bound by its contributions once the transfers were made. The contributions acquired an obligatory
nature as soon as petitioner had chosen to exercise its option under paragraph 5.
There is no merit to petitioners claim that the prohibition in paragraph 5(c) against withdrawal of advances
should not be taken as an indication that it had entered into a partnership with Baguio Gold; that the stipulation
only showed that what the parties entered into was actually a contract of agency coupled with an interest which
is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due
to an interest of a third party that depends upon it, or the mutual interest of both principal and agent. 19 In this
case, the non-revocation or non-withdrawal under paragraph 5(c) applies to the advances made by petitioner
who is supposedly the agent and not the principal under the contract. Thus, it cannot be inferred from the
stipulation that the parties relation under the agreement is one of agency coupled with an interest and not a
partnership.
Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was one
of agency and not a partnership. Although the said provision states that "this Agency shall be irrevocable while
any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS
account," it does not necessarily follow that the parties entered into an agency contract coupled with an interest
that cannot be withdrawn by Baguio Gold.

It should be stressed that the main object of the "Power of Attorney" was not to confer a power in favor of
petitioner to contract with third persons on behalf of Baguio Gold but to create a business relationship between
petitioner and Baguio Gold, in which the former was to manage and operate the latters mine through the
parties mutual contribution of material resources and industry. The essence of an agency, even one that is
coupled with interest, is the agents ability to represent his principal and bring about business relations between
the latter and third persons.20 Where representation for and in behalf of the principal is merely incidental or
necessary for the proper discharge of ones paramount undertaking under a contract, the latter may not
necessarily be a contract of agency, but some other agreement depending on the ultimate undertaking of the
parties.21
In this case, the totality of the circumstances and the stipulations in the parties agreement indubitably lead to
the conclusion that a partnership was formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made by
petitioner under the agreement. Paragraph 5 (d) thereof provides that upon termination of the parties business
relations, "the ratio which the MANAGERS account has to the owners account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO MINE, excluding the claims" shall be
transferred to petitioner.22As pointed out by the Court of Tax Appeals, petitioner was merely entitled to a
proportionate return of the mines assets upon dissolution of the parties business relations. There was nothing
in the agreement that would require Baguio Gold to make payments of the advances to petitioner as would be
recognized as an item of obligation or "accounts payable" for Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the Sto. Nio
mine upon termination, a provision that is more consistent with a partnership than a creditor-debtor
relationship. It should be pointed out that in a contract of loan, a person who receives a loan or money or any
fungible thing acquires ownership thereof and is bound to pay the creditor an equal amount of the same kind
and quality.23 In this case, however, there was no stipulation for Baguio Gold to actually repay petitioner the
cash and property that it had advanced, but only the return of an amount pegged at a ratio which the managers
account had to the owners account.
In this connection, we find no contractual basis for the execution of the two compromise agreements in which
Baguio Gold recognized a debt in favor of petitioner, which supposedly arose from the termination of their
business relations over the Sto. Nino mine. The "Power of Attorney" clearly provides that petitioner would
only be entitled to the return of a proportionate share of the mine assets to be computed at a ratio that the
managers account had to the owners account. Except to provide a basis for claiming the advances as a bad
debt deduction, there is no reason for Baguio Gold to hold itself liable to petitioner under the compromise
agreements, for any amount over and above the proportion agreed upon in the "Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of
millions of pesos to another corporation with neither security, or collateral, nor a specific deed evidencing the
terms and conditions of such loans. The parties also did not provide a specific maturity date for the advances to
become due and demandable, and the manner of payment was unclear. All these point to the inevitable
conclusion that the advances were not loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is the fact that it would receive 50%
of the net profits as "compensation" under paragraph 12 of the agreement. The entirety of the parties

contractual stipulations simply leads to no other conclusion than that petitioners "compensation" is actually its
share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share in the profits of a
business is prima facie evidence that he is a partner in the business." Petitioner asserts, however, that no such
inference can be drawn against it since its share in the profits of the Sto Nio project was in the nature of
compensation or "wages of an employee", under the exception provided in Article 1769 (4) (b). 24
On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who will be
paid "wages" pursuant to an employer-employee relationship. To begin with, petitioner was the manager of the
project and had put substantial sums into the venture in order to ensure its viability and profitability. By
pegging its compensation to profits, petitioner also stood not to be remunerated in case the mine had no
income. It is hard to believe that petitioner would take the risk of not being paid at all for its services, if it were
truly just an ordinary employee.
Consequently, we find that petitioners "compensation" under paragraph 12 of the agreement actually
constitutes its share in the net profits of the partnership. Indeed, petitioner would not be entitled to an equal
share in the income of the mine if it were just an employee of Baguio Gold. 25 It is not surprising that petitioner
was to receive a 50% share in the net profits, considering that the "Power of Attorney" also provided for an
almost equal contribution of the parties to the St. Nino mine. The "compensation" agreed upon only serves to
reinforce the notion that the parties relations were indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioners advances as investments in a partnership known as
the Sto. Nino mine. The advances were not "debts" of Baguio Gold to petitioner inasmuch as the latter was
under no unconditional obligation to return the same to the former under the "Power of Attorney". As for the
amounts that petitioner paid as guarantor to Baguio Golds creditors, we find no reason to depart from the tax
courts factual finding that Baguio Golds debts were not yet due and demandable at the time that petitioner
paid the same. Verily, petitioner pre-paid Baguio Golds outstanding loans to its bank creditors and this
conclusion is supported by the evidence on record.26
In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions for
income tax purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer,
who must prove by convincing evidence that he is entitled to the deduction claimed. 27 In this case, petitioner
failed to substantiate its assertion that the advances were subsisting debts of Baguio Gold that could be
deducted from its gross income. Consequently, it could not claim the advances as a valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 49385
dated June 30, 2000, which affirmed the decision of the Court of Tax Appeals in C.T.A. Case No. 5200
is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the deficiency tax on its 1982
income in the amount of P62,811,161.31, with 20% delinquency interest computed from February 10, 1995,
which is the due date given for the payment of the deficiency income tax, up to the actual date of payment.
SO ORDERED.

G.R. No. L-22356

July 21, 1967

REPUBLIC
OF
vs.
PEDRO B. PATANAO, defendant-appellee.

THE

PHILIPPINES, plaintiff-appellant,

Office of the Solicitor General Arturo A. Alafriz, Solicitor A. B. Afurong and L. O. Gal-lang for plaintiffappellant.
Tranquilino O. Calo, Jr. for defendant-appellee.

ANGELES, J.:
This is an appeal from an order of the Court of First Instance of Agusan in civil case No. 925, dismissing
plaintiff's complaint so far as concerns the collection of deficiency income taxes for the years 1951, 1953 and
1954 and additional residence taxes for 1951 and 1952, and requiring the defendant to file his answer with
respect to deficiency income tax for 1955 and residence taxes for 1953-1955.
In the complaint filed by the Republic of the Philippines, through the Solicitor General, against Pedro B.
Patanao, it is alleged that defendant was the holder of an ordinary timber license with concession at Esperanza,
Agusan, and as such was engaged in the business of producing logs and lumber for sale during the years 19511955; that defendant failed to file income tax returns for 1953 and 1954, and although he filed income tax
returns for 1951, 1952 and 1955, the same were false and fraudulent because he did not report substantial
income earned by him from his business; that in an examination conducted by the Bureau of Internal Revenue
on defendant's income and expenses for 1951-1955, it was ascertained that the sum of P79,892.75,
representing deficiency; income taxes and additional residence taxes for the aforesaid years, is due from
defendant; that on February 14, 1958, plaintiff, through the Deputy Commissioner of Internal Revenue, sent a
letter of demand with enclosed income tax assessment to the defendant requiring him to pay the said amount;
that notwithstanding repeated demands the defendant refused, failed and neglected to pay said taxes; and that
the assessment for the payment of the taxes in question has become final, executory and demandable, because
it was not contested before the Court of Tax Appeals in accordance with the provisions of section 11 of
Republic Act No. 1125.
Defendant moved to dismiss the complaint on two grounds, namely: (1) that the action is barred by prior
judgment, defendant having been acquitted in criminal cases Nos. 2089 and 2090 of the same court, which
were prosecutions for failure to file income tax returns and for non-payment of income taxes; and (2) that the
action has prescribed.
After considering the motion to dismiss, the opposition thereto and the rejoinder to the opposition, the lower
court entered the order appealed from, holding that the only cause of action left to the plaintiff in its complaint
is the collection of the income tax due for the taxable year 1955 and the residence tax (Class B) for 1953, 1954
and 1955. A motion to reconsider said order was denied, whereupon plaintiff interposed the instant appeal,
which was brought directly to this Court, the questions involved being purely legal.
The conclusion of the trial court, that the present action is barred by prior judgment, is anchored on the
following rationale:
There is no question that the defendant herein has been accused in Criminal Cases Nos. 2089 and
2090 of this Court for not filing his income tax returns and for non-payment of income taxes for the
years 1953 and 1954. In both cases, he was acquitted. The rule in this jurisdiction is that the accused
once acquitted is exempt from both criminal and civil responsibility because when a criminal action is
instituted, civil action arising from the same offense is impliedly instituted unless the offended party
expressly waives the civil action or reserves the right to file it separately. In the criminal cases
abovementioned wherein the defendant was completely exonerated, there was no waiver or
reservation to file a separate civil case so that the failure to obtain conviction on a charge of nonpayment of income taxes is fatal to any civil action to collect the payment of said taxes.
1wph1.t

Plaintiff-appellant assails the ruling as erroneous. Defendant-appellee on his part urges that it should be
maintained.
In applying the principle underlying the civil liability of an offender under the Penal Code to a case involving
the collection of taxes, the court a quo fell into error. The two cases are circumscribed by factual premises
which are diametrically opposed to each either, and are founded on entirely different philosophies. Under the
Penal Code the civil liability is incurred by reason of the offender's criminal act. Stated differently, the criminal
liability gives birth to the civil obligation such that generally, if one is not criminally liable under the Penal
Code, he cannot become civilly liable thereunder. The situation under the income tax law is the exact opposite.
Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business, and not
because of any criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy
his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of
the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. Another reason, of
course, is found in the fact that while section 73 of the National Internal Revenue Code has provided the
imposition of the penalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to make
a return thereof, it failed to provide the collection of said tax in criminal proceedings. The only civil remedies
provided, for the collection of income tax, in Chapters I and II, Title IX of the Code and section 316 thereof,
are distraint of goods, chattels, etc. or by judicial action, which remedies are generally exclusive in the absence
of a contrary intent from the legislator. (People vs. Arnault, G.R. No. L-4288, November 20, 1952; People vs.
Tierra, G.R. Nos. L-17177-17180, December 28, 1964) Considering that the Government cannot seek
satisfaction of the taxpayer's civil liability in a criminal proceeding under the tax law or, otherwise stated, since
the said civil liability is not deemed included in the criminal action, acquittal of the taxpayer in the criminal
proceeding does not necessarily entail exoneration from his liability to pay the taxes. It is error to hold, as the
lower court has held, that the judgment in the criminal cases Nos. 2089 and 2090 bars the action in the present
case. The acquittal in the said criminal cases cannot operate to discharge defendant appellee from the duty of
paying the taxes which the law requires to be paid, since that duty is imposed by statute prior to and
independently of any attempts by the taxpayer to evade payment. Said obligation is not a consequence of the
felonious acts charged in the criminal proceeding, nor is it a mere civil liability arising from crime that could
be wiped out by the judicial declaration of non-existence of the criminal acts charged. (Castro vs. The
Collector of Internal Revenue, G.R. No. L-12174, April 20, 1962).
Regarding prescription of action, the lower court held that the cause of action on the deficiency income tax and
residence tax for 1951 is barred because appellee's income tax return for 1951 was assessed by the Bureau of
Internal Revenue only on February 14, 1958, or beyond the five year period of limitation for assessment as
provided in section 331 of the National Internal Revenue Code. Appellant contends that the applicable law is
section 332 (a) of the same Code under which a proceeding in court for the collection of the tax may be
commenced without assessment at any time within 10 years from the discovery of the falsity, fraud or
omission.
The complaint filed on December 7, 1962, alleges that the fraud in the appellee's income tax return for 1951,
was discovered on February 14, 1958. By filing a motion to dismiss, appellee hypothetically admitted this
allegation as all the other averments in the complaint were so admitted. Hence, section 332 (a) and not section
331 of the National Internal Revenue Code should determine whether or not the cause of action of deficiency
income tax and residence tax for 1951 has prescribed. Applying the provision of section 332 (a), the appellant's
action instituted in court on December 7, 1962 has not prescribed.

Wherefore, the order appealed from is hereby set aside. Let the records of this case be remanded to the court of
origin for further proceedings. No pronouncement as to costs.
G.R. No. L- 41383 August 15, 1988
PHILIPPINE
AIRLINES,
INC., plaintiff-appellant,
vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO CARBONELL,
in his capacity as National Treasurer, defendants-appellants.
Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
This question has been brought before this Court in the past. The parties are, in effect, asking for a reexamination of the latest decision on this issue.
This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a case where
the then Court of First Instance of Rizal dismissed the portion-about complaint for refund of registration fees
paid under protest.
The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate pursuant to
Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and Traffic Code.
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and
engaged in the air transportation business under a legislative franchise, Act No. 42739, as amended by
Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from the payment of taxes. The pertinent
provision of the franchise provides as follows:
Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay
to the National Government during the life of this franchise a tax of two per cent of the gross
revenue or gross earning derived by the grantee from its operations under this franchise. Such
tax shall be due and payable quarterly and shall be in lieu of all taxes of any kind, nature or
description, levied, established or collected by any municipal, provincial or national
automobiles, Provided, that if, after the audit of the accounts of the grantee by the
Commissioner of Internal Revenue, a deficiency tax is shown to be due, the deficiency tax
shall be payable within the ten days from the receipt of the assessment. The grantee shall pay
the tax on its real property in conformity with existing law.
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since 1956, not
been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax
exempt entities, among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts
imposed under Republic Act 4136 were paid. The appellant thus paid, under protest, the amount of P19,529.75
as registration fees of its motor vehicles.
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner Edu
demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212 [1951])
where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is
exempt by virtue of its legislative franchise.
Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit
Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration fees are regulatory
exceptional. and not revenue measures and, therefore, do not come within the exemption granted to PAL?
under its franchise. Hence, PAL filed the complaint against Land Transportation Commissioner Romeo F. Edu
and National Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal, Branch 18 where it was
docketed as Civil Case No. Q-15862.
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity as
National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action. In support of
the motion to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit Bus Lines, Inc.,
(supra) that registration fees of motor vehicles are not taxes, but regulatory fees imposed as an incident of the
exercise of the police power of the state. They contended that while Act 4271 exempts PAL from the payment
of any tax except two per cent on its gross revenue or earnings, it does not exempt the plaintiff from paying
regulatory fees, such as motor vehicle registration fees. The resolution of the motion to dismiss was deferred
by the Court until after trial on the merits.
On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by the later
ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus Lines, Inc., (supra)."
From this judgment, PAL appealed to the Court of Appeals which certified the case to us.
Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL and
Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at bar.
Resolving the issue in the Philippine Rabbit case, this Court held:
"The registration fee which defendant-appellee had to pay was imposed by Section 8 of the
Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks of
"registration fees." The term is repeated four times in the body thereof. Equally so, mention is
made of the "fee for registration." (Ibid., Subsection G) A subsection starts with a categorical
statement "No fees shall be charged." (lbid., Subsection H) The conclusion is difficult to resist
therefore that the Motor Vehicle Act requires the payment not of a tax but of a registration fee
under the police power. Hence the incipient, of the section relied upon by defendant-appellee
under the Back Pay Law, It is not held liable for a tax but for a registration fee. It therefore
cannot make use of a backpay certificate to meet such an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should be dissipated
by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition of additional tax on
privately-owned passenger automobiles, motorcycles and scooters was amended by Republic
Act No. 5470 which is (sic) approved on May 30, 1969.) A special science fund was thereby
created and its title expressly sets forth that a tax on privately-owned passenger automobiles,
motorcycles and scooters was imposed. The rates thereof were provided for in its Section 3
which clearly specifies the" Philippine tax."(Cooley to be paid as distinguished from the
registration fee under the Motor Vehicle Act. There cannot be any clearer expression therefore
of the legislative will, even on the assumption that the earlier legislation could by subdivision
the point be susceptible of the interpretation that a tax rather than a fee was levied. What is
thus most apparent is that where the legislative body relies on its authority to tax it expressly
so states, and where it is enacting a regulatory measure, it is equally exploded (at p. 22,1969
In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand, held:
The charges prescribed by the Revised Motor Vehicle Law for the registration of motor
vehicles are in section 8 of that law called "fees". But the appellation is no impediment to
their being considered taxes if taxes they really are. For not the name but the object of the
charge determines whether it is a tax or a fee. Geveia speaking, taxes are for revenue, whereas
fees are exceptional. for purposes of regulation and inspection and are for that reason limited
in amount to what is necessary to cover the cost of the services rendered in that connection.
Hence, a charge fixed by statute for the service to be person,-When by an officer, where the
charge has no relation to the value of the services performed and where the amount collected
eventually finds its way into the treasury of the branch of the government whose officer or
officers collected the chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p.
110.)
From the data submitted in the court below, it appears that the expenditures of the Motor
Vehicle Office are but a small portionabout 5 per centumof the total collections from
motor vehicle registration fees. And as proof that the money collected is not intended for the
expenditures of that office, the law itself provides that all such money shall accrue to the
funds for the construction and maintenance of public roads, streets and bridges. It is thus
obvious that the fees are not collected for regulatory purposes, that is to say, as an incident to
the enforcement of regulations governing the operation of motor vehicles on public highways,
for their express object is to provide revenue with which the Government is to discharge one
of its principal functionsthe construction and maintenance of public highways for
everybody's use. They are veritable taxes, not merely fees.
As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as taxes, for
it provides that "no other taxes or fees than those prescribed in this Act shall be imposed,"
thus implying that the charges therein imposedthough called feesare of the category of
taxes. The provision is contained in section 70, of subsection (b), of the law, as amended by
section 17 of Republic Act 587, which reads:
Sec. 70(b) No other taxes or fees than those prescribed in this Act shall be
imposed for the registration or operation or on the ownership of any motor

vehicle, or for the exercise of the profession of chauffeur, by any municipal

corporation, the provisions of any city charter to the contrary
notwithstanding: Provided, however, That any provincial board, city or
municipal council or board, or other competent authority may exact and
collect such reasonable and equitable toll fees for the use of such bridges and
ferries, within their respective jurisdiction, as may be authorized and
approved by the Secretary of Public Works and Communications, and also
for the use of such public roads, as may be authorized by the President of the
Philippines upon the recommendation of the Secretary of Public Works and
Communications, but in none of these cases, shall any toll fee." be charged
or collected until and unless the approved schedule of tolls shall have been
posted levied, in a conspicuous place at such toll station. (at pp. 213-214)
Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law (Act 3992
[19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.
Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land Transportation Code,
(as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Blg. 43, 74 and 398).
Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained unsegregated, by
Rep. Act Nos. 587 and 1603) states:
Section 73. Disposal of moneys collected.Twenty per centum of the money collected under
the provisions of this Act shall accrue to the road and bridge funds of the different provinces
and chartered cities in proportion to the centum shall during the next previous year and the
remaining eighty per centum shall be deposited in the Philippine Treasury to create a special
fund for the construction and maintenance of national and provincial roads and bridges. as
well as the streets and bridges in the chartered cities to be alloted by the Secretary of Public
Works and Communications for projects recommended by the Director of Public Works in the
different provinces and chartered cities. ....
Presently, Sec. 61 of the Land Transportation and Traffic Code provides:
Sec. 61. Disposal of Mortgage. CollectedMonies collected under the provisions of this Act
shall be deposited in a special trust account in the National Treasury to constitute the
Highway Special Fund, which shall be apportioned and expended in accordance with the
provisions of the" Philippine Highway Act of 1935. "Provided, however, That the amount
necessary to maintain and equip the Land Transportation Commission but not to exceed
twenty per cent of the total collection during one year, shall be set aside for the purpose. (As
amended by RA 64-67, approved August 6, 1971).
It appears clear from the above provisions that the legislative intent and purpose behind the law requiring
owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of
highways and to a much lesser degree, pay for the operating expenses of the administering agency. On the
other hand, thePhilippine Rabbit case mentions a presumption arising from the use of the term "fees," which

appears to have been favored by the legislature to distinguish fees from other taxes such as those mentioned in
Section 13 of Rep. Act 4136 which reads:
Sec. 13. Payment of taxes upon registration.No original registration of motor vehicles
subject to payment of taxes, customs s duties or other charges shall be accepted unless proof
of payment of the taxes due thereon has been presented to the Commission.
referring to taxes other than those imposed on the registration, operation or ownership of a motor vehicle (Sec.
59, b, Rep. Act 4136, as amended).
Fees may be properly regarded as taxes even though they also serve as an instrument of regulation, As stated
by a former presiding judge of the Court of Tax Appeals and writer on various aspects of taxpayers
It is possible for an exaction to be both tax arose. regulation. License fees are changes. looked
to as a source of revenue as well as a means of regulation (Sonzinky v. U.S., 300 U.S. 506)
This is true, for example, of automobile license fees. Isabela such case, the fees may properly
be regarded as taxes even though they also serve as an instrument of regulation. If the purpose
is primarily revenue, or if revenue is at least one of the real and substantial purposes, then the
exaction is properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on
Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil.
198.) These exactions are sometimes called regulatory taxes. (See Secs. 4701, 4711, 4741,
4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of 1954, which classify taxes on
tobacco and alcohol as regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13,
citing Cooley on Taxation, 2nd Edition, 591-593).
Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148).
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the
exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle registration fees. The
conclusions become inescapable in view of Section 70(b) of Rep. Act 587 quoted in the Calalang case. The
same provision appears as Section 591-593). in the Land Transportation code. It is patent therefrom that the
legislators had in mind a regulatory tax as the law refers to the imposition on the registration, operation or
ownership of a motor vehicle as a "tax or fee." Though nowhere in Rep. Act 4136 does the law specifically
state that the imposition is a tax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation
or on the ownership of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the
intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an
"additional" tax," where the law could have referred to an original tax and not one in addition to the tax
already imposed on the registration, operation, or ownership of a motor vehicle under Rep. Act 41383. Simply
put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need
not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as the special permit fees for certain
types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec. 11). These are not to be
understood as taxes because such fees are very minimal to be revenue-raising. Thus, they are not mentioned by
Sec. 591-593). of the Code as taxes like the motor vehicle registration fee and chauffers' license fee. Such fees
are to go into the expenditures of the Land Transportation Commission as provided for in the last proviso of
see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for rigidly
purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded in
number and motor vehicles became absolute necessities without which modem life as we know it would stand
still, Congress found the registration of vehicles a very convenient way of raising much needed revenues.
Without changing the earlier deputy. of registration payments as "fees," their nature has become that of "taxes."
In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the Land
Transportation and Traffic Code are actually taxes intended for additional revenues. of government even if one
fifth or less of the amount collected is set aside for the operating expenses of the agency administering the
program.
May the respondent administrative agency be required to refund the amounts stated in the complaint of PAL?
The answer is NO.
The claim for refund is made for payments given in 1971. It is not clear from the records as to what payments
were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448 dated June 27, 1968,
repealed all earlier tax exemptions Of corporate taxpayers found in legislative franchises similar to that
invoked by PAL in this case.
In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July 11,
1985), this Court ruled:
Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio
Communications of the Philippines, Inc., was subject to both the franchise tax and income
tax. In 1964, however, petitioner's franchise was amended by Republic Act No. 41-42). to the
effect that its franchise tax of one and one-half percentum (1-1/2%) of all gross receipts was
provided as "in lieu of any and all taxes of any kind, nature, or description levied, established,
or collected by any authority whatsoever, municipal, provincial, or national from which taxes
the grantee is hereby expressly exempted." The issue raised to this Court now is the validity
of the respondent court's decision which ruled that the exemption under Republic Act No. 4142). was repealed by Section 24 of Republic Act No. 5448 dated June 27, 1968 which reads:
"(d) The provisions of existing special or general laws to the contrary
notwithstanding, all corporate taxpayers not specifically exempt under
Sections 24 (c) (1) of this Code shall pay the rates provided in this section.
All corporations, agencies, or instrumentalities owned or controlled by the
government, including the Government Service Insurance System and the
Social Security System but excluding educational institutions, shall pay such
rate of tax upon their taxable net income as are imposed by this section upon
associations or corporations engaged in a similar business or industry. "
An examination of Section 24 of the Tax Code as amended shows clearly that the law
intended all corporate taxpayers to pay income tax as provided by the statute. There can be no
doubt as to the power of Congress to repeal the earlier exemption it granted. Article XIV,
Section 8 of the 1935 Constitution and Article XIV, Section 5 of the Constitution as amended

in 1973 expressly provide that no franchise shall be granted to any individual, firm, or
corporation except under the condition that it shall be subject to amendment, alteration, or
repeal by the legislature when the public interest so requires. There is no question as to the
public interest involved. The country needs increased revenues. The repealing clause is clear
and unambiguous. There is a listing of entities entitled to tax exemption. The petitioner is not
covered by the provision. Considering the foregoing, the Court Resolved to DENY the
petition for lack of merit. The decision of the respondent court is affirmed.
Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed because the
tax exemption in the franchise of PAL was repealed during the period. However, an amended franchise was
given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now provides:
In consideration of the franchise and rights hereby granted, the grantee shall pay to the
Philippine Government during the lifetime of this franchise whichever of subsections (a) and
(b) hereunder will result in a lower taxes.)
(a) The basic corporate income tax based on the grantee's annual net taxable
income computed in accordance with the provisions of the Internal Revenue
Code; or
(b) A franchise tax of two per cent (2%) of the gross revenues. derived by
the grantees from all specific. without distinction as to transport or
nontransport corporations; provided that with respect to international
airtransport service, only the gross passengers, mail, and freight revenues.
from its outgoing flights shall be subject to this law.
The tax paid by the grantee under either of the above alternatives shall be in lieu of all other
taxes, duties, royalties, registration, license and other fees and charges of any kind, nature or
description imposed, levied, established, assessed, or collected by any municipal, city,
provincial, or national authority or government, agency, now or in the future, including but
not limited to the following:
xxx xxx xxx
(5) All taxes, fees and other charges on the registration, license, acquisition, and transfer of
airtransport equipment, motor vehicles, and all other personal or real property of the
gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).
PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law. PAL is now
exempt from the payment of any tax, fee, or other charge on the registration and licensing of motor vehicles.
Such payments are already included in the basic tax or franchise tax provided in Subsections (a) and (b) of
Section 13, P.D. 1590, and may no longer be exacted.
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees paid in
1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is enjoined functions-

the collecting any tax, fee, or other charge on the registration and licensing of the petitioner's motor vehicles
from April 9, 1979 as provided in Presidential Decree No. 1590.
SO ORDERED.

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.:
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.
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:
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.
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.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
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;
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;
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;

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 additional
source of revenue for the Government, and at the same time rationalize the heretofore
uncontrolled distribution of videograms;
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;
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;
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 President of the vast powers
conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
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.
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

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
title.2

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:
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.
xxx xxx xxx
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 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
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. 10
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 theater-owners 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 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. 11
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". 12 Taxation has been made the implement
of the state's police power. 13

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 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.
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.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories,
one which "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:

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.
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. 15
... 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, 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". 16
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. 17
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.

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. 18
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.
No costs.
SO ORDERED.