G.R. No.
143672 April 24, 2003 benefits of the expenditures are received" (Mertens, supra, citing Colonial Ice
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
GENERAL FOODS (PHILS.), INC., respondent.
CORONA, J.:
Petitioner Commissioner of Internal Revenue (Commissioner) assails the resolution 1 of
the Court of Appeals reversing the decision2 of the Court of Tax Appeals which in turn
denied the protest filed by respondent General Foods (Phils.), Inc., regarding the
assessment made against the latter for deficiency taxes.
The records reveal that, on June 14, 1985, respondent corporation, which is engaged
in the manufacture of beverages such as "Tang," "Calumet" and "Kool-Aid," filed its
income tax return for the fiscal year ending February 28, 1985. In said tax return,
respondent corporation claimed as deduction, among other business expenses, the
amount of P9,461,246 for media advertising for "Tang."
On May 31, 1988, the Commissioner disallowed 50% or P4,730,623 of the deduction
claimed by respondent corporation. Consequently, respondent corporation was
assessed deficiency income taxes in the amount of P2,635, 141.42. The latter filed a
motion for reconsideration but the same was denied.
On September 29, 1989, respondent corporation appealed to the Court of Tax Appeals
but the appeal was dismissed:
With such a gargantuan expense for the advertisement of a singular product,
which even excludes "other advertising and promotions" expenses, we are not
prepared to accept that such amount is reasonable "to stimulate the current
sale of merchandise" regardless of Petitioners explanation that such expense
"does not connote unreasonableness considering the grave economic
situation taking place after the Aquino assassination characterized by capital
fight, strong deterioration of the purchasing power of the Philippine peso and
the slacking demand for consumer products" (Petitioners Memorandum, CTA
Records, p. 273). We are not convinced with such an explanation. The
staggering expense led us to believe that such expenditure was incurred "to
create or maintain some form of good will for the taxpayers trade or business
or for the industry or profession of which the taxpayer is a member." The term
"good will" can hardly be said to have any precise signification; it is generally
used to denote the benefit arising from connection and reputation (Words and
Phrases, Vol. 18, p. 556 citing Douhart vs. Loagan, 86 III. App. 294). As held
in the case of Welch vs. Helvering, efforts to establish reputation are akin to
acquisition of capital assets and, therefore, expenses related thereto are not
business expenses but capital expenditures. (Atlas Mining and Development
Corp. vs. Commissioner of Internal Revenue, supra). For sure such
expenditure was meant not only to generate present sales but more for future
and prospective benefits. Hence, "abnormally large expenditures for
advertising are usually to be spread over the period of years during which the
Cream Co., 7 BTA 154).
WHEREFORE, in all the foregoing, and finding no error in the case appealed
from, we hereby RESOLVE to DISMISS the instant petition for lack of merit
and ORDER the Petitioner to pay the respondent Commissioner the assessed
amount of P2,635,141.42 representing its deficiency income tax liability for the
fiscal year ended February 28, 1985."3
Aggrieved, respondent corporation filed a petition for review at the Court of Appeals
which rendered a decision reversing and setting aside the decision of the Court of Tax
Appeals:
Since it has not been sufficiently established that the item it claimed as a
deduction is excessive, the same should be allowed.
WHEREFORE, the petition of petitioner General Foods (Philippines), Inc. is
hereby GRANTED. Accordingly, the Decision, dated 8 February 1994 of
respondent Court of Tax Appeals is REVERSED and SET ASIDE and the
letter, dated 31 May 1988 of respondent Commissioner of Internal Revenue
is CANCELLED.
SO ORDERED.4
Thus, the instant petition, wherein the Commissioner presents for the Courts
consideration a lone issue: whether or not the subject media advertising expense for
"Tang" incurred by respondent corporation was an ordinary and necessary expense
fully deductible under the National Internal Revenue Code (NIRC).
It is a governing principle in taxation that tax exemptions must be construed in
strictissimi juris against the taxpayer and liberally in favor of the taxing authority; 5 and
he who claims an exemption must be able to justify his claim by the clearest grant of
organic or statute law. An exemption from the common burden cannot be permitted to
exist upon vague implications.6
Deductions for income tax purposes partake of the nature of tax exemptions; hence, if
tax exemptions are strictly construed, then deductions must also be strictly construed.
We then proceed to resolve the singular issue in the case at bar. Was the media
advertising expense for "Tang" paid or incurred by respondent corporation for the fiscal
year ending February 28, 1985 "necessary and ordinary," hence, fully deductible under
the NIRC? Or was it a capital expenditure, paid in order to create "goodwill and
reputation" for respondent corporation and/or its products, which should have been
amortized over a reasonable period?
Section 34 (A) (1), formerly Section 29 (a) (1) (A), of the NIRC provides:
(A) Expenses.-
 (1) Ordinary and necessary trade, business or professional expenses.-
(a) In general.- There shall be allowed as deduction from gross
income all ordinary and necessary expenses paid or incurred during
the taxable year in carrying on, or which are directly attributable to,
the development, management, operation and/or conduct of the
trade, business or exercise of a profession.
Simply put, to be deductible from gross income, the subject advertising expense must
comply with the following requisites: (a) the expense must be ordinary and necessary;
(b) it must have been paid or incurred during the taxable year; (c) it must have been
paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must be
supported by receipts, records or other pertinent papers.7
The parties are in agreement that the subject advertising expense was paid or incurred
within the corresponding taxable year and was incurred in carrying on a trade or
business. Hence, it was necessary. However, their views conflict as to whether or not
it was ordinary. To be deductible, an advertising expense should not only be necessary
but also ordinary. These two requirements must be met.
The Commissioner maintains that the subject advertising expense was not ordinary on
the ground that it failed the two conditions set by U.S. jurisprudence: first,
"reasonableness" of the amount incurred and second, the amount incurred must not be
a capital outlay to create "goodwill" for the product and/or private respondents
business. Otherwise, the expense must be considered a capital expenditure to be
spread out over a reasonable time.
We agree.
There is yet to be a clear-cut criteria or fixed test for determining the reasonableness
of an advertising expense. There being no hard and fast rule on the matter, the right to
a deduction depends on a number of factors such as but not limited to: the type and
size of business in which the taxpayer is engaged; the volume and amount of its net
earnings; the nature of the expenditure itself; the intention of the taxpayer and the
general economic conditions. It is the interplay of these, among other factors and
properly weighed, that will yield a proper evaluation.
In the case at bar, the P9,461,246 claimed as media advertising expense for "Tang"
alone was almost one-half of its total claim for "marketing expenses." Aside from that,
respondent-corporation also claimed P2,678,328 as "other advertising and promotions
expense" and another P1,548,614, for consumer promotion.
Furthermore, the subject P9,461,246 media advertising expense for "Tang" was almost
double the amount of respondent corporations P4,640,636 general and administrative
expenses.
We find the subject expense for the advertisement of a single product to be inordinately
large. Therefore, even if it is necessary, it cannot be considered an ordinary expense
deductible under then Section 29 (a) (1) (A) of the NIRC.
Advertising is generally of two kinds: (1) advertising to stimulate the current sale of
merchandise or use of services and (2) advertising designed to stimulate the future sale
of merchandise or use of services. The second type involves expenditures incurred, in
whole or in part, to create or maintain some form of goodwill for the taxpayers trade or
business or for the industry or profession of which the taxpayer is a member. If the
expenditures are for the advertising of the first kind, then, except as to the question of
the reasonableness of amount, there is no doubt such expenditures are deductible as
business expenses. If, however, the expenditures are for advertising of the second
kind, then normally they should be spread out over a reasonable period of time.
We agree with the Court of Tax Appeals that the subject advertising expense was of
the second kind. Not only was the amount staggering; the respondent corporation itself
also admitted, in its letter protest8 to the Commissioner of Internal Revenues
assessment, that the subject media expense was incurred in order to protect
respondent corporations brand franchise, a critical point during the period under
review.
The protection of brand franchise is analogous to the maintenance of goodwill or title
to ones property. This is a capital expenditure which should be spread out over a
reasonable period of time.9
Respondent corporations venture to protect its brand franchise was tantamount to
efforts to establish a reputation. This was akin to the acquisition of capital assets and
therefore expenses related thereto were not to be considered as business expenses
but as capital expenditures.10
True, it is the taxpayers prerogative to determine the amount of advertising expenses
it will incur and where to apply them.11 Said prerogative, however, is subject to certain
considerations. The first relates to the extent to which the expenditures are actually
capital outlays; this necessitates an inquiry into the nature or purpose of such
expenditures.12 The second, which must be applied in harmony with the first, relates to
whether the expenditures are ordinary and necessary. Concomitantly, for an expense
to be considered ordinary, it must be reasonable in amount. The Court of Tax Appeals
ruled that respondent corporation failed to meet the two foregoing limitations.
We find said ruling to be well founded. Respondent corporation incurred the subject
advertising expense in order to protect its brand franchise. We consider this as a capital
outlay since it created goodwill for its business and/or product. The P9,461,246 media
advertising expense for the promotion of a single product, almost one-half of petitioner
corporations entire claim for marketing expenses for that year under review, inclusive
of other advertising and promotion expenses of P2,678,328 and P1,548,614 for
consumer promotion, is doubtlessly unreasonable.
It has been a long standing policy and practice of the Court to respect the conclusions
of quasi-judicial agencies such as the Court of Tax Appeals, a highly specialized body
specifically created for the purpose of reviewing tax cases. The CTA, by the nature of
its functions, is dedicated exclusively to the study and consideration of tax problems. It
has necessarily developed an expertise on the subject. We extend due consideration
to its opinion unless there is an abuse or improvident exercise of authority. 13 Since
there is none in the case at bar, the Court adheres to the findings of the CTA.
Accordingly, we find that the Court of Appeals committed reversible error when it
declared the subject media advertising expense to be deductible as an ordinary and
necessary expense on the ground that "it has not been established that the item being
claimed as deduction is excessive." It is not incumbent upon the taxing authority to
prove that the amount of items being claimed is unreasonable. The burden of proof to
establish the validity of claimed deductions is on the taxpayer. 14 In the present case,
that burden was not discharged satisfactorily.
WHEREFORE, premises considered, the instant petition is GRANTED. The assailed
decision of the Court of Appeals is hereby REVERSED and SET ASIDE. Pursuant to
Sections 248 and 249 of the Tax Code, respondent General Foods (Phils.), Inc. is
hereby ordered to pay its deficiency income tax in the amount of P2,635,141.42, plus
25% surcharge for late payment and 20% annual interest computed from August 25,
1989, the date of the denial of its protest, until the same is fully paid.
SO ORDERED.
[G.R. No. 143672. April 24, 2003] COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
GENERAL FOODS (PHILS.), INC., respondent CORONA, J.:
FACTS: General Foods (Phils.), Inc., which is engaged in the manufacture of beverages such as Tang,
Calumet and Kool-Aid, filed its income tax return for the fiscal year ending February 28, 1985. In said
tax return, it claimed as deduction, among other business expenses, the amount of P9,461,246 for media
advertising for Tang. On May 31, 1988, the Commissioner disallowed 50% or P4,730,623 of the
deduction claimed by respondent corporation and was assessed deficiency income taxes. CTA denied
General Foods protest, saying:
With such a gargantuan expense for the advertisement of a singular product, which even
excludes other advertising and promotions expenses, we are not prepared to accept that such
amount is reasonable to stimulate the current sale of merchandise regardless of Petitioners
explanation that such expense does not connote unreasonableness considering the grave
economic situation taking place after the Aquino assassination characterized by capital fight,
strong deterioration of the purchasing power of the Philippine peso and the slacking demand
for consumer products (Petitioners Memorandum, CTA Records, p. 273).
As held in the case of Welch vs. Helvering, efforts to establish reputation are akin to acquisition of capital
assets and, therefore, expenses related thereto are not business expenses but capital
expenditures. (Atlas Mining and Development Corp. vs. Commissioner of Internal Revenue, supra). For
sure such expenditure was meant not only to generate present sales but more for future and prospective
benefits.
The Court of Appeals rendered a decision reversing and setting aside the decision of the Court of Tax
Appeals: Since it has not been sufficiently established that the item it claimed as a deduction is excessive,
the same should be allowed.
ISSUE: whether or not the subject media advertising expense for Tang incurred by respondent
corporation was an ordinary and necessary expense fully deductible under the National Internal Revenue
Code (NIRC).
HELD: No, it is not necessary and ordinary.
To be deductible from gross income, the subject advertising expense must comply with the following
requisites: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during
the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer;
and (d) it must be supported by receipts, records or other pertinent papers. The parties are in agreement
that the subject advertising expense was paid or incurred within the corresponding taxable year and was
incurred in carrying on a trade or business. Hence, it was necessary. To be deductible, an advertising
expense should not only be necessary but also ordinary. These two requirements must be met.
The Court agreed with the Commissioner that the subject advertising expense was not ordinary on the
ground that it failed the two conditions set by U.S. jurisprudence: first, reasonableness of the amount
incurred and second, the amount incurred must not be a capital outlay to create goodwill for the product
and/or private respondents business. Otherwise, the expense must be considered a capital expenditure
to be spread out over a reasonable time. There is yet to be a clear-cut criteria or fixed test for determining
the reasonableness of an advertising expense. There being no hard and fast rule on the matter, the right
to a deduction depends on a number of factors such as but not limited to: the type and size of business in
which the taxpayer is engaged; the volume and amount of its net earnings; the nature of the expenditure
itself; the intention of the taxpayer and the general economic conditions.
Therefore, even if it is necessary, it cannot be considered an ordinary expense deductible under then
Section 29 (a) (1) (A) of the NIRC.Advertising is generally of two kinds: (1) advertising to stimulate the
current sale of merchandise or use of services and (2) advertising designed to stimulate the future sale of
merchandise or use of services. The second type involves expenditures incurred, in whole or in part, to
create or maintain some form of goodwill for the taxpayers trade or business or for the industry or
profession of which the taxpayer is a member. If the expenditures are for the advertising of the first kind,
then, except as to the question of the reasonableness of amount, there is no doubt such expenditures are
deductible as business expenses. If, however, the expenditures are for advertising of the second kind,
then normally they should be spread out over a reasonable period of time. We agree with the Court of Tax
Appeals that the subject advertising expense was of the second kind. Respondent admitted that the same
was incurred to protect brand franchise, which is analogous to maintaining goodwill or title to ones
property, a capital expenditure.
Accordingly, we find that the Court of Appeals committed reversible error when it declared the subject
media advertising expense to be deductible as an ordinary and necessary expense on the ground that it
has not been established that the item being claimed as deduction is excessive. It is not incumbent upon
the taxing authority to prove that the amount of items being claimed is unreasonable. The burden of proof
to establish the validity of claimed deductions is on the taxpayer. In the present case, that burden was not
discharged satisfactorily.
WHEREFORE, premises considered, the instant petition is GRANTED. The assailed decision of the Court
of Appeals is hereby REVERSED and SET ASIDE. Pursuant to Sections 248 and 249 of the Tax Code,
respondent General Foods (Phils.), Inc. is hereby ordered to pay its deficiency income tax in the amount
of P2,635,141.42, plus 25% surcharge for late payment and 20% annual interest computed from August
25, 1989, the date of the denial of its protest, until the same is fully paid.
 G.R. No. 148191 November 25, 2003 "For the calendar year 1995, [respondent] seasonably filed its Quarterly Percentage
Tax Returns reflecting gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in
COMMISSIONER OF INTERNAL REVENUE, petitioner, the total amount of P1,474,691,693.44 with corresponding gross receipts tax payments
vs. in the sum of P73,734,584.60, broken down as follows:
SOLIDBANK CORPORATION, respondent.
Period Covered Gross Receipts Gross Receipts Tax
DECISION
January to March 1994 P 188,406,061.95 P 9,420,303.10
PANGANIBAN, J.:
April to June 1994 370,913,832.70 18,545,691.63

Under the Tax Code, the earnings of banks from "passive" income are subject to a July to September 1994 481,501,838.98 24,075,091.95
twenty percent final withholding tax (20% FWT). This tax is withheld at source and is
thus not actually and physically received by the banks, because it is paid directly to the October to December 1994 433,869,959.81 21,693,497.98
government by the entities from which the banks derived the income. Apart from the
20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which Total P 1,474,691,693.44 P 73,734,584.60
is imposed by the Tax Code on their gross receipts, including the "passive" income.
"[Respondent] alleges that the total gross receipts in the amount of P1,474,691,693.44
Since the 20% FWT is constructively received by the banks and forms part of their included the sum of P350,807,875.15 representing gross receipts from passive income
gross receipts or earnings, it follows that it is subject to the 5% GRT. After all, the which was already subjected to 20% final withholding tax.
amount withheld is paid to the government on their behalf, in satisfaction of their
withholding taxes. That they do not actually receive the amount does not alter the fact
that it is remitted for their benefit in satisfaction of their tax obligations. "On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA Case
No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue[,]
wherein it was held that the 20% final withholding tax on [a] banks interest income
Stated otherwise, the fact is that if there were no withholding tax system in place in this should not form part of its taxable gross receipts for purposes of computing the gross
country, this 20 percent portion of the "passive" income of banks would actually be paid receipts tax.
to the banks and then remitted by them to the government in payment of their income
tax. The institution of the withholding tax system does not alter the fact that the 20
percent portion of their "passive" income constitutes part of their actual earnings, "On June 19, 1997, on the strength of the aforementioned decision, [respondent] filed
except that it is paid directly to the government on their behalf in satisfaction of the 20 with the Bureau of Internal Revenue [BIR] a letter-request for the refund or issuance of
percent final income tax due on their "passive" incomes. [a] tax credit certificate in the aggregate amount of P3,508,078.75, representing
allegedly overpaid gross receipts tax for the year 1995, computed as follows:
The Case
Gross Receipts Subjected to the Final Tax
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to annul
the July 18, 2000 Decision2 and the May 8, 2001 Resolution3 of the Court of Derived from Passive [Income] P 350,807,875.15
Appeals4 (CA) in CA-GR SP No. 54599. The decretal portion of the assailed Decision
Multiply by Final Tax rate 20%
reads as follows:
20% Final Tax Withheld at Source P 70,161,575.03
"WHEREFORE, we AFFIRM in toto the assailed decision and resolution of the Court
of Tax Appeals."5 Multiply by [Gross Receipts Tax] rate 5%

Overpaid [Gross Receipts Tax] P 3,508,078.75

The challenged Resolution denied petitioners Motion for Reconsideration.

The Facts "Without waiting for an action from the [petitioner], [respondent] on the same day filed
[a] petition for review [with the Court of Tax Appeals] in order to toll the running of the
Quoting petitioner, the CA6 summarized the facts of this case as follows: two-year prescriptive period to judicially claim for the refund of [any] overpaid internal
revenue tax[,] pursuant to Section 230 [now 229] of the Tax Code [also National
Internal Revenue Code] x x x.
xxx xxx xxx
"After trial on the merits, the [Court of Tax Appeals], on August 6, 1999, rendered its
decision ordering x x x petitioner to refund in favor of x x x respondent the reduced
amount of P1,555,749.65 as overpaid [gross receipts tax] for the year 1995. The legal
issue x x x was resolved by the [Court of Tax Appeals], with Hon. Amancio Q. Saga
dissenting, on the strength of its earlier pronouncement in x x x Asian Bank Corporation
vs. Commissioner of Internal Revenue x x x, wherein it was held that the 20% [final
withholding tax] on [a] banks interest income should not form part of its taxable gross
receipts for purposes of computing the [gross receipts tax]." 7
Ruling of the CA
The CA held that the 20% FWT on a banks interest income did not form part of the
taxable gross receipts in computing the 5% GRT, because the FWT was not actually
received by the bank but was directly remitted to the government. The appellate court
curtly said that while the Tax Code "does not specifically state any exemption, x x x the
statute must receive a sensible construction such as will give effect to the legislative
intention, and so as to avoid an unjust or absurd conclusion."8
Hence, this appeal.9
Issue
Petitioner raises this lone issue for our consideration:
"Whether or not the 20% final withholding tax on [a] banks interest income forms part
of the taxable gross receipts in computing the 5% gross receipts tax." 10
The Courts Ruling
The Petition is meritorious.
Sole Issue:
Whether the 20% FWT Forms Part
of the Taxable Gross Receipts
Petitioner claims that although the 20% FWT on respondents interest income was not
actually received by respondent because it was remitted directly to the government, the
fact that the amount redounded to the banks benefit makes it part of the taxable gross
receipts in computing the 5% GRT. Respondent, on the other hand, maintains that the
CA correctly ruled otherwise.
We agree with petitioner. In fact, the same issue has been raised recently in China
Banking Corporation v. CA,11where this Court held that the amount of interest income
withheld in payment of the 20% FWT forms part of gross receipts in computing for the
GRT on banks.
The FWT and the GRT:
Two Different Taxes
The 5% GRT is imposed by Section 11912 of the Tax Code,13 which provides:
"SEC. 119. Tax on banks and non-bank financial intermediaries. There shall be
collected a tax on gross receipts derived from sources within the Philippines by all
banks and non-bank financial intermediaries in accordance with the following schedule:
"(a) On interest, commissions and discounts from lending activities as well as income
from financial leasing, on the basis of remaining maturities of instruments from which
such receipts are derived.
Short-term maturity not in excess of two (2) years5%
Medium-term maturity over two (2) years
but not exceeding four (4) years....3%
Long-term maturity:
(i) Over four (4) years but not exceeding
seven (7) years1%
(ii) Over seven (7) years..0%
"(b) On dividends...0%
"(c) On royalties, rentals of property, real or personal, profits from exchange
and all other items treated as gross income under Section 28 14 of this
Code....................................................................5%
Provided, however, That in case the maturity period referred to in paragraph (a) is
shortened thru pretermination, then the maturity period shall be reckoned to end as of
the date of pretermination for purposes of classifying the transaction as short, medium
or long term and the correct rate of tax shall be applied accordingly.
"Nothing in this Code shall preclude the Commissioner from imposing the same tax
herein provided on persons performing similar banking activities."
The 5% GRT15 is included under "Title V. Other Percentage Taxes" of the Tax Code
and is not subject to withholding. The banks and non-bank financial intermediaries
liable therefor shall, under Section 125(a)(1),16 file quarterly returns on the amount of
gross receipts and pay the taxes due thereon within twenty (20)17 days after the end of
each taxable quarter.
The 20% FWT,18 on the other hand, falls under Section 24(e)(1)19 of "Title II. Tax on
Income." It is a tax on passive income, deducted and withheld at source by the payor-
corporation and/or person as withholding agent pursuant to Section 50, 20 and paid in
the same manner and subject to the same conditions as provided for in Section 51.21
A perusal of these provisions clearly shows that two types of taxes are involved in the
present controversy: (1) the GRT, which is a percentage tax; and (2) the FWT, which
is an income tax. As a bank, petitioner is covered by both taxes.
A percentage tax is a national tax measured by a certain percentage of the gross selling
price or gross value in money of goods sold, bartered or imported; or of the gross
receipts or earnings derived by any person engaged in the sale of services. 22 It is not
subject to withholding.
An income tax, on the other hand, is a national tax imposed on the net or the gross
income realized in a taxable year.23 It is subject to withholding.
In a withholding tax system, the payee is the taxpayer, the person on whom the tax is
imposed; the payor, a separate entity, acts as no more than an agent of the government
for the collection of the tax in order to ensure its payment. Obviously, this amount that
is used to settle the tax liability is deemed sourced from the proceeds constitutive of
the tax base.24 These proceeds are either actual or constructive. Both parties herein
agree that there is no actual receipt by the bank of the amount withheld. What needs
to be determined is if there is constructive receipt thereof. Since the payee -- not the
payor -- is the real taxpayer, the rule on constructive receipt can be easily rationalized,
if not made clearly manifest.25
Constructive Receipt
Versus Actual Receipt
Applying Section 7 of Revenue Regulations (RR) No. 17-84,26 petitioner contends that
there is constructive receipt of the interest on deposits and yield on deposit
substitutes.27 Respondent, however, claims that even if there is, it is Section 4(e) of RR
12-8028 that nevertheless governs the situation.
Section 7 of RR 17-84 states:
"SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit
Substitutes.
(a) The interest earned on Philippine Currency bank deposits and yield from
deposit substitutes subjected to the withholding taxes in accordance with
these regulations need not be included in the gross income in computing the
depositors/investors income tax liability in accordance with the provision of
Section 29(b),29(c)30 and (d) of the National Internal Revenue Code, as
amended.
(b) Only interest paid or accrued on bank deposits, or yield from deposit
substitutes declared for purposes of imposing the withholding taxes in
accordance with these regulations shall be allowed as interest expense
deductible for purposes of computing taxable net income of the payor.
(c) If the recipient of the above-mentioned items of income are financial
institutions, the same shall be included as part of the tax base upon which the
gross receipt[s] tax is imposed."
Section 4(e) of RR 12-80, on the other hand, states that the tax rates to be imposed on
the gross receipts of banks, non-bank financial intermediaries, financing companies,
and other non-bank financial intermediaries not performing quasi-banking activities
shall be based on all items of income actually received. This provision reads:
"SEC. 4. x x x x x x x x x
"(e) Gross receipts tax on banks, non-bank financial intermediaries, financing
companies, and other non-bank financial intermediaries not performing quasi-banking
activities. The rates of tax to be imposed on the gross receipts of such financial
institutions shall be based on all items of income actually received. Mere accrual shall
not be considered, but once payment is received on such accrual or in cases of
prepayment, then the amount actually received shall be included in the tax base of such
financial institutions, as provided hereunder x x x."
Respondent argues that the above-quoted provision is plain and clear: since there is
no actual receipt, the FWT is not to be included in the tax base for computing the GRT.
There is supposedly no pecuniary benefit or advantage accruing to the bank from the
FWT, because the income is subjected to a tax burden immediately upon receipt
through the withholding process. Moreover, the earlier RR 12-80 covered matters not
falling under the later RR 17-84.31
We are not persuaded.
By analogy, we apply to the receipt of income the rules on actual and constructive
possession provided in Articles 531 and 532 of our Civil Code.
Under Article 531:32
"Possession is acquired by the material occupation of a thing or the exercise of a right,
or by the fact that it is subject to the action of our will, or by the proper acts and legal
formalities established for acquiring such right."
Article 532 states:
"Possession may be acquired by the same person who is to enjoy it, by his legal
representative, by his agent, or by any person without any power whatever; but in the
last case, the possession shall not be considered as acquired until the person in whose
name the act of possession was executed has ratified the same, without prejudice to
the juridical consequences of negotiorum gestio in a proper case." 33
The last means of acquiring possession under Article 531 refers to juridical acts -- the
acquisition of possession by sufficient title to which the law gives the force of acts of
possession.34 Respondent argues that only items of income actually received should
be included in its gross receipts. It claims that since the amount had already been
withheld at source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right
of possession is through the proper acts and legal formalities established therefor. The
withholding process is one such act. There may not be actual receipt of the income
withheld; however, as provided for in Article 532, possession by any person without
any power whatsoever shall be considered as acquired when ratified by the person in
whose name the act of possession is executed.
In our withholding tax system, possession is acquired by the payor as the withholding
agent of the government, because the taxpayer ratifies the very act of possession for
the government. There is thus constructive receipt. The processes of bookkeeping and
accounting for interest on deposits and yield on deposit substitutes that are subjected
to FWT are indeed -- for legal purposes -- tantamount to delivery, receipt or
remittance.35 Besides, respondent itself admits that its income is subjected to a tax
burden immediately upon "receipt," although it claims that it derives no pecuniary
benefit or advantage through the withholding process. There being constructive receipt
of such income -- part of which is withheld -- RR 17-84 applies, and that income is
included as part of the tax base upon which the GRT is imposed.
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue regulations on interest income constructively
received.
In general, rules and regulations issued by administrative or executive officers pursuant
to the procedure or authority conferred by law upon the administrative agency have the
force and effect, or partake of the nature, of a statute.36The reason is that statutes
express the policies, purposes, objectives, remedies and sanctions intended by the
legislature in general terms. The details and manner of carrying them out are oftentimes
left to the administrative agency entrusted with their enforcement.
In the present case, it is the finance secretary who promulgates the revenue
regulations, upon recommendation of the BIR commissioner. These regulations are the
consequences of a delegated power to issue legal provisions that have the effect of
law.37
A revenue regulation is binding on the courts as long as the procedure fixed for its
promulgation is followed. Even if the courts may not be in agreement with its stated
policy or innate wisdom, it is nonetheless valid, provided that its scope is within the
statutory authority or standard granted by the legislature. 38 Specifically, the regulation
must (1) be germane to the object and purpose of the law; 39 (2) not contradict, but
conform to, the standards the law prescribes;40 and (3) be issued for the sole purpose
of carrying into effect the general provisions of our tax laws. 41
In the present case, there is no question about the regularity in the performance of
official duty. What needs to be determined is whether RR 12-80 has been repealed by
RR 17-84.
A repeal may be express or implied. It is express when there is a declaration in a
regulation -- usually in its repealing clause -- that another regulation, identified by its
number or title, is repealed. All others are implied repeals. 42 An example of the latter is
a general provision that predicates the intended repeal on a substantial conflict
between the existing and the prior regulations.43
As stated in Section 11 of RR 17-84, all regulations, rules, orders or portions thereof
that are inconsistent with the provisions of the said RR are thereby repealed. This
declaration proceeds on the premise that RR 17-84 clearly reveals such an intention
on the part of the Department of Finance. Otherwise, later RRs are to be construed as
a continuation of, and not a substitute for, earlier RRs; and will continue to speak, so
far as the subject matter is the same, from the time of the first promulgation.44
There are two well-settled categories of implied repeals: (1) in case the provisions are
in irreconcilable conflict, the later regulation, to the extent of the conflict, constitutes an
implied repeal of an earlier one; and (2) if the later regulation covers the whole subject
of an earlier one and is clearly intended as a substitute, it will similarly operate as a
repeal of the earlier one.45 There is no implied repeal of an earlier RR by the mere fact
that its subject matter is related to a later RR, which may simply be a cumulation or
continuation of the earlier one.46
Where a part of an earlier regulation embracing the same subject as a later one may
not be enforced without nullifying the pertinent provision of the latter, the earlier
regulation is deemed impliedly amended or modified to the extent of the
repugnancy.47 The unaffected provisions or portions of the earlier regulation remain in
force, while its omitted portions are deemed repealed. 48 An exception therein that is
amended by its subsequent elimination shall now cease to be so and instead be
included within the scope of the general rule.49
Section 4(e) of the earlier RR 12-80 provides that only items of income actually received
shall be included in the tax base for computing the GRT, but Section 7(c) of the later
RR 17-84 makes no such distinction and provides that all interests earned shall be
included. The exception having been eliminated, the clear intent is that the later RR 17-
84 includes the exception within the scope of the general rule.
Repeals by implication are not favored and will not be indulged, unless it is manifest
that the administrative agency intended them. As a regulation is presumed to have
been made with deliberation and full knowledge of all existing rules on the subject, it
may reasonably be concluded that its promulgation was not intended to interfere with
or abrogate any earlier rule relating to the same subject, unless it is either repugnant
to or fully inclusive of the subject matter of an earlier one, or unless the reason for the
earlier one is "beyond peradventure removed." 50 Every effort must be exerted to make
all regulations stand -- and a later rule will not operate as a repeal of an earlier one, if
by any reasonable construction, the two can be reconciled. 51
RR 12-80 imposes the GRT only on all items of income actually received, as opposed
to their mere accrual, while RR 17-84 includes all interest income in computing the
GRT. RR 12-80 is superseded by the later rule, because Section 4(e) thereof is not
restated in RR 17-84. Clearly therefore, as petitioner correctly states, this particular
provision was impliedly repealed when the later regulations took effect. 52
 Reconciling the Two Regulations
Granting that the two regulations can be reconciled, respondents reliance on Section
4(e) of RR 12-80 is misplaced and deceptive. The "accrual" referred to therein should
not be equated with the determination of the amount to be used as tax base in
computing the GRT. Such accrual merely refers to an accounting method that
recognizes income as earned although not received, and expenses as incurred
although not yet paid.
Accrual should not be confused with the concept of constructive possession or receipt
as earlier discussed. Petitioner correctly points out that income that is merely accrued
-- earned, but not yet received -- does not form part of the taxable gross receipts;
income that has been received, albeit constructively, does.53
The word "actually," used confusingly in Section 4(e), will be clearer if removed entirely.
Besides, if actually is that important, accrual should have been eliminated for being a
mere surplusage. The inclusion of accrual stresses the fact that Section 4(e) does not
distinguish between actual and constructive receipt. It merely focuses on the method
of accounting known as the accrual system.
Under this system, income is accrued or earned in the year in which the taxpayers right
thereto becomes fixed and definite, even though it may not be actually received until a
later year; while a deduction for a liability is to be accrued or incurred and taken when
the liability becomes fixed and certain, even though it may not be actually paid until
later.54
Under any system of accounting, no duty or liability to pay an income tax upon a
transaction arises until the taxable year in which the event constituting the condition
precedent occurs.55 The liability to pay a tax may thus arise at a certain time and the
tax paid within another given time.56
In reconciling these two regulations, the earlier one includes in the tax base for GRT all
income, whether actually or constructively received, while the later one includes
specifically interest income. In computing the income tax liability, the only exception
cited in the later regulations is the exclusion from gross income of interest income,
which is already subjected to withholding. This exception, however, refers to a different
tax altogether. To extend mischievously such exception to the GRT will certainly lead
to results not contemplated by the legislators and the administrative body promulgating
the regulations.
Manila Jockey Club
Inapplicable
In Commissioner of Internal Revenue v. Manila Jockey Club, 57 we held that the term
"gross receipts" shall not include money which, although delivered, has been especially
earmarked by law or regulation for some person other than the taxpayer. 58
To begin, we have to nuance the definition of gross receipts59 to determine what it is
exactly. In this regard, we note that US cases have persuasive effect in our jurisdiction,
because Philippine income tax law is patterned after its US counterpart. 60
"[G]ross receipts with respect to any period means the sum of: (a) The total amount
received or accrued during such period from the sale, exchange, or other disposition of
x x x other property of a kind which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary course of its trade or business, and (b)
The gross income, attributable to a trade or business, regularly carried on by the
taxpayer, received or accrued during such period x x x."61
"x x x [B]y gross earnings from operations x x x was intended all operations xxx
including incidental, subordinate, and subsidiary operations, as well as principal
operations."62
"When we speak of the gross earnings of a person or corporation, we mean the entire
earnings or receipts of such person or corporation from the business or operations to
which we refer."63
From these cases, "gross receipts"64 refer to the total, as opposed to the net,
income.65 These are therefore the total receipts before any deduction 66 for the
expenses of management.67 Websters New International Dictionary, in fact, defines
gross as "whole or entire."
Statutes taxing the gross "receipts," "earnings," or "income" of particular corporations
are found in many jurisdictions.68 Tax thereon is generally held to be within the power
of a state to impose; or constitutional, unless it interferes with interstate commerce or
violates the requirement as to uniformity of taxation. 69
Moreover, we have emphasized that the BIR has consistently ruled that "gross receipts"
does not admit of any deduction.70 Following the principle of legislative approval by
reenactment,71 this interpretation has been adopted by the legislature throughout the
various reenactments of then Section 119 of the Tax Code.72
Given that a tax is imposed upon total receipts and not upon net earnings, 73 shall the
income withheld be included in the tax base upon which such tax is imposed? In other
words, shall interest income constructively received still be included in the tax base for
computing the GRT?
We rule in the affirmative.
Manila Jockey Club does not apply to this case. Earmarking is not the same as
withholding. Amounts earmarked do not form part of gross receipts, because, although
delivered or received, these are by law or regulation reserved for some person other
than the taxpayer. On the contrary, amounts withheld form part of gross receipts,
because these are in constructive possession and not subject to any reservation, the
withholding agent being merely a conduit in the collection process.
The Manila Jockey Club had to deliver to the Board on Races, horse owners and
jockeys amounts that never became the property of the race track.74 Unlike these
amounts, the interest income that had been withheld for the government became
property of the financial institutions upon constructive possession thereof. Possession
was indeed acquired, since it was ratified by the financial institutions in whose name
the act of possession had been executed. The money indeed belonged to the
taxpayers; merely holding it in trust was not enough.75
The government subsequently becomes the owner of the money when the financial
institutions pay the FWT to extinguish their obligation to the government. As this Court
has held before, this is the consideration for the transfer of ownership of the FWT from
these institutions to the government.76 It is ownership that determines whether interest
income forms part of taxable gross receipts.77 Being originally owned by these financial
institutions as part of their interest income, the FWT should form part of their taxable
gross receipts.
Besides, these amounts withheld are in payment of an income tax liability, which is
different from a percentage tax liability. Commissioner of Internal Revenue v. Tours
Specialists, Inc. aptly held thus:78
"x x x [G]ross receipts subject to tax under the Tax Code do not include monies or
receipts entrusted to the taxpayer which do not belong to them and do not redound to
the taxpayers benefit; and it is not necessary that there must be a law or regulation
which would exempt such monies and receipts within the meaning of gross receipts
under the Tax Code."79
In the construction and interpretation of tax statutes and of statutes in general, the
primary consideration is to ascertain and give effect to the intention of the
legislature.80 We ought to impute to the lawmaking body the intent to obey the
constitutional mandate, as long as its enactments fairly admit of such construction. 81 In
fact, "x x x no tax can be levied without express authority of law, but the statutes are to
receive a reasonable construction with a view to carrying out their purpose and intent." 82
Looking again into Sections 24(e)(1) and 119 of the Tax Code, we find that the first
imposes an income tax; the second, a percentage tax. The legislature clearly intended
two different taxes. The FWT is a tax on passive income, while the GRT is on
business.83 The withholding of one is not equivalent to the payment of the other.
Non-Exemption of FWT from GRT:
Neither Unjust nor Absurd
Taxing the people and their property is essential to the very existence of government.
Certainly, one of the highest attributes of sovereignty is the power of taxation, 84 which
may legitimately be exercised on the objects to which it is applicable to the utmost
extent as the government may choose.85 Being an incident of sovereignty, such power
is coextensive with that to which it is an incident.86 The interest on deposits and yield
on deposit substitutes of financial institutions, on the one hand, and their business as
such, on the other, are the two objects over which the State has chosen to extend its
sovereign power. Those not so chosen are, upon the soundest principles, exempt from
taxation.87
While courts will not enlarge by construction the governments power of
taxation,88 neither will they place upon tax laws so loose a construction as to permit
evasions, merely on the basis of fanciful and insubstantial distinctions. 89When the
legislature imposes a tax on income and another on business, the imposition must be
respected. The Tax Code should be so construed, if need be, as to avoid empty
declarations or possibilities of crafty tax evasion schemes. We have consistently ruled
thus:
"x x x [I]t is upon taxation that the [g]overnment chiefly relies to obtain the means to
carry on its operations, and it is of the utmost importance that the modes adopted to
enforce the collection of the taxes levied should be summary and interfered with as little
as possible. x x x."90
"Any delay in the proceedings of the officers, upon whom the duty is devolved of
collecting the taxes, may derange the operations of government, and thereby cause
serious detriment to the public."91
"No government could exist if all litigants were permitted to delay the collection of its
taxes."92
A taxing act will be construed, and the intent and meaning of the legislature ascertained,
from its language.93 Its clarity and implied intent must exist to uphold the taxes as
against a taxpayer in whose favor doubts will be resolved. 94 No such doubts exist with
respect to the Tax Code, because the income and percentage taxes we have cited
earlier have been imposed in clear and express language for that purpose. 95
This Court has steadfastly adhered to the doctrine that its first and fundamental duty is
the application of the law according to its express terms -- construction and
interpretation being called for only when such literal application is impossible or
inadequate without them.96 In Quijano v. Development Bank of the Philippines, 97 we
stressed as follows:
"No process of interpretation or construction need be resorted to where a provision of
law peremptorily calls for application." 98
A literal application of any part of a statute is to be rejected if it will operate unjustly,
lead to absurd results, or contradict the evident meaning of the statute taken as a
whole.99 Unlike the CA, we find that the literal application of the aforesaid sections of
the Tax Code and its implementing regulations does not operate unjustly or contradict
the evident meaning of the statute taken as a whole. Neither does it lead to absurd
results. Indeed, our courts are not to give words meanings that would lead to absurd or
unreasonable consequences.100 We have repeatedly held thus:
"x x x [S]tatutes should receive a sensible construction, such as will give effect to the
legislative intention and so as to avoid an unjust or an absurd conclusion." 101
"While it is true that the contemporaneous construction placed upon a statute by
executive officers whose duty is to enforce it should be given great weight by the courts,
still if such construction is so erroneous, x x x the same must be declared as null and
void."102
It does not even matter that the CTA, like in China Banking Corporation, 103 relied
erroneously on Manila Jockey Club. Under our tax system, the CTA acts as a highly
specialized body specifically created for the purpose of reviewing tax
cases.104 Because of its recognized expertise, its findings of fact will ordinarily not be
reviewed, absent any showing of gross error or abuse on its part. 105 Such findings are
binding on the Court and, absent strong reasons for us to delve into facts, only
questions of law are open for determination.106
Respondent claims that it is entitled to a refund on the basis of excess GRT payments.
We disagree.
Tax refunds are in the nature of tax exemptions. 107 Such exemptions are strictly
construed against the taxpayer, being highly disfavored 108 and almost said "to be
odious to the law." Hence, those who claim to be exempt from the payment of a
particular tax must do so under clear and unmistakable terms found in the statute. They
must be able to point to some positive provision, not merely a vague implication, 109 of
the law creating that right.110
The right of taxation will not be surrendered, except in words too plain to be
mistaken.1wphi1 The reason is that the State cannot strip itself of this highest attribute
of sovereignty -- its most essential power of taxation -- by vague or ambiguous
language. Since tax refunds are in the nature of tax exemptions, these are deemed to
be "in derogation of sovereign authority and to be construed strictissimi juris against
the person or entity claiming the exemption."111
No less than our 1987 Constitution provides for the mechanism for granting tax
exemptions.112 They certainly cannot be granted by implication or mere administrative
regulation. Thus, when an exemption is claimed, it must indubitably be shown to exist,
for every presumption is against it,113 and a well-founded doubt is fatal to the
claim.114 In the instant case, respondent has not been able to satisfactorily show that
its FWT on interest income is exempt from the GRT. Like China Banking Corporation,
its argument creates a tax exemption where none exists.115
No exemptions are normally allowed when a GRT is imposed. It is precisely designed
to maintain simplicity in the tax collection effort of the government and to assure its
steady source of revenue even during an economic slump. 116
No Double Taxation
We have repeatedly said that the two taxes, subject of this litigation, are different from
each other. The basis of their imposition may be the same, but their natures are
different, thus leading us to a final point. Is there double taxation?
The Court finds none.
Double taxation means taxing the same property twice when it should be taxed only
once; that is, "x x x taxing the same person twice by the same jurisdiction for the same
thing."117 It is obnoxious when the taxpayer is taxed twice, when it should be but
once.118 Otherwise described as "direct duplicate taxation," 119 the two taxes must be
imposed on the same subject matter, for the same purpose, by the same taxing
authority, within the same jurisdiction, during the same taxing period; and they must be
of the same kind or character.120
First, the taxes herein are imposed on two different subject matters. The subject matter
of the FWT is the passive income generated in the form of interest on deposits and
yield on deposit substitutes, while the subject matter of the GRT is the privilege of
engaging in the business of banking.
A tax based on receipts is a tax on business rather than on the property; hence, it is an
excise121 rather than a property tax.122 It is not an income tax, unlike the FWT. In fact,
we have already held that one can be taxed for engaging in business and further taxed
differently for the income derived therefrom.123 Akin to our ruling in Velilla v.
Posadas,124 these two taxes are entirely distinct and are assessed under different
provisions.
Second, although both taxes are national in scope because they are imposed by the
same taxing authority -- the national government under the Tax Code -- and operate
within the same Philippine jurisdiction for the same purpose of raising revenues, the
taxing periods they affect are different. The FWT is deducted and withheld as soon as
the income is earned, and is paid after every calendar quarter in which it is earned. On
the other hand, the GRT is neither deducted nor withheld, but is paid only after every
taxable quarter in which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is an income tax
subject to withholding, while the GRT is a percentage tax not subject to withholding.
In short, there is no double taxation, because there is no taxing twice, by the same
taxing authority, within the same jurisdiction, for the same purpose, in different taxing
periods, some of the property in the territory. 125 Subjecting interest income to a 20%
FWT and including it in the computation of the 5% GRT is clearly not double taxation.
WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the
Court of Appeals are hereby REVERSED and SET ASIDE. No costs.
SO ORDERED.
 G.R. No. 129130 December 9, 2005
FAR EAST BANK AND TRUST COMPANY, Petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE,Respondents.
DECISION
AZCUNA, J.:
This is a Petition for Review on Certiorari assailing the decision of the Court of Appeals
(CA) dated May 7, 1997 in CA-G.R. SP No. 41666.
The CA affirmed in toto the decision of the Court of Tax Appeals (CTA) dated January
24, 1996 and its resolution of July 31, 1996, dismissing petitioner Far East Bank and
Trust Companys claim for refund of excess creditable withholding taxes in the
aggregate amount of Seven Hundred Fifty-Five Thousand Seven Hundred and Fifteen
Pesos (P755,715) allegedly paid and remitted to the Bureau of Internal Revenue (BIR)
sometime in 1990 and 1991.
The antecedent facts are as follows:
Petitioner is a domestic banking corporation duly organized and existing under and by
virtue of Philippine laws. In the early part of 1992, the Cavite Development Bank [CDB],
also a domestic banking corporation, was merged with Petitioner with the latter as its
surviving entity [under] the merger. Petitioner being the surviving entity[, it] acquired all
[the] assets of CDB.
During the period from 1990 to 1991, CDB sold some acquired assets in the course of
which it allegedly withheld the creditable tax from the sales proceeds which amounted
to P755,715.00.
In said years, CDB filed income tax returns which reflected that CDB incurred negative
taxable income or losses for both years. Since there was no tax against which to credit
or offset the taxes withheld by CDB, the result was that CDB, according to petitioner,
had excess creditable withholding tax.
Thus, petitioner, being the surviving entity of the merger, filed this Petition for Review
after its administrative claim for refund was not acted upon.1
In denying petitioners claim, the CA held that the evidence presented by petitioner
consisting of (1) confirmation receipts, payment orders, and official receipts issued by
the Central Bank and the BIR with CDB as the payor; 2 (2) Income Tax Returns for
1990 and 1991 with attached financial statements filed by petitioner with the BIR; 3 and,
(3) a list prepared by the Accounting Department of petitioner purportedly showing the
CDB schedule of creditable withholding tax applied for refund for 1990 and 1991, 4 all
failed to clearly establish that the taxes arising from the sale of its acquired assets
sometime in 1990 and 1991 were properly withheld and remitted to the BIR. The CA
likewise ruled that it was incumbent upon petitioner to present BIR Form No. 1743.1 as
required under Revenue Regulation 6-85 to conclusively prove its right to the refund. It
held that petitioners failure to do so was fatal to its cause.
Hence, this Petition.
Petitioner anchors its arguments on the following grounds:
1. THE DECISION OF MAY 7,1997 WHEREBY RESPONDENT CA DISMISSED
PETITIONERS APPEAL, AND RESPONDENT CTAS DECISION DATED JANUARY
24, 1996 AND RESOLUTION OF JULY 31,1996, ARE NOT BASED ON THE FACTS
AND THE LAW.
2. PETITIONER HAS ADDUCED EVIDENCE A QUO WHICH SUFFICIENTLY AND
SUBSTANTIALLY ESTABLISH[ES] THE FACT THAT THE CREDITABLE
WITHHOLDING TAX ON THE SALE OF ACQUIRED ASSETS WAS WITHHELD AND
THEN REMITTED TO THE BUREAU OF INTERNAL REVENUE; AND,
3. THE DISMISSAL OF THE CLAIM FOR REFUND BEFORE RESPONDENT CTA
ARISES FROM AN UNDULY STRICT APPLICATION OF THE REGULATIONS
WHICH IS NOT WARRANTED IN VIEW OF THE CLEAR PROOFS ADDUCED BY
PETITIONER WHICH ESTABLISH THE BASIS FOR THE RELIEFS SOUGHT.5
Petitioner contends that the confirmation receipts presented by it constitute "competent
and irrefutable proof of the fact that taxes were withheld and remitted to the BIR." 6 It is
admitted that the taxes reflected on the confirmation receipts as well as on the payment
orders and official receipts issued by the BIR were withheld by CDB. Petitioner
maintains that these pertained to the proceeds of the sale of its acquired assets in 1990
and 1991. According to petitioner, CDB took the initiative of paying the withholding tax
accruing thereon notwithstanding the fact that it was the recipient of the income, to
ensure that the correct taxes were remitted to the BIR. Petitioner further argues that
the list prepared by its Accounting Department identifying the persons to whom the
various sales were made and indicating the amount of taxes withheld for each
transaction should have been given more weight by the court a quoas this document,
when taken with the tax withholding forms, indubitably establishes the fact of
withholding and the basis for the claims for refund. 7 Considering, therefore, that
petitioner had adequately established by other evidence the basis for the grant of the
claim for tax refund, petitioner asserts that its failure to submit BIR Form No. 1743.1 is
not fatal to its cause.
The crucial issue in this case turns on a question of fact, that is, whether petitioner
adduced sufficient evidence to prove its entitlement to a refund.
The findings of fact of the CTA, a special court exercising particular expertise on the
subject of tax, are generally regarded as final, binding and conclusive8 upon this Court,
especially if these are substantially similar to the findings of the CA which is normally
the final arbiter of questions of fact.9 The findings shall not be reviewed nor disturbed
on appeal10 unless a party can show that these are not supported by evidence, 11 or
when the judgment is premised on a misapprehension of facts, or when the lower courts
failed to notice certain relevant facts which if considered would justify a different
conclusion.12
Petitioner has not sufficiently presented a case for the application of an exception from
the rule.
Firstly, the CA cannot be faulted for not lending credence to petitioners contention that
it withheld, for its own account, the creditable withholding taxes on the sale of its
acquired assets. In our withholding tax system, possession of the amount that is used
to settle the tax liability is acquired by the payor as the withholding agent of the
government.13 For this reason, the Tax Code imposes, among others, certain
obligations upon the withholding agent to monitor its compliance with this duty. These
include the filing of the quarterly withholding tax returns,14 the submission to the payee,
in respect of his or its receipts during the calendar quarter or year, of a written statement
showing the income or other payments made by the withholding agent during such
quarter or year and the amount of the tax deducted and withheld therefrom, 15 and the
filing with the BIR of a reconciliation statement of quarterly payments and a list of
payees and income payments.16 Codal provisions on withholding tax are mandatory
and must be complied with by the withholding agent. This is significant in that a taxpayer
cannot be compelled to answer for the non-performance by the withholding agent of its
legal duty to withhold unless there is collusion or bad faith. In addition, the former could
not be deemed to have evaded the tax had the withholding agent performed its duty. 17
On the other hand, it is incumbent upon the payee to reflect in his or its own return the
income upon which any creditable tax is required to be withheld at the source. Only
when there is an excess of the amount of tax so withheld over the tax due on the
payees return can a refund become possible.
A taxpayer must thus do two things to be able to successfully make a claim for the tax
refund: (a) declare the income payments it received as part of its gross income and (b)
establish the fact of withholding.18 On this score, the relevant revenue regulation
provides as follows:
Section 10. Claims for tax credit or refund. -- Claims for tax credit or refund of income
tax deducted and withheld on income payments shall be given due course only when
it is shown on the return that the income payment received was declared as part of the
gross income and the fact of withholding is established by a copy of the statement duly
issued by the payor to the payee (BIR Form No. 1743.1) showing the amount paid and
the amount of tax withheld therefrom.19
As mentioned, petitioner relies heavily on the confirmation receipts with the
corresponding official receipts and payment orders to support its case. Standing alone,
however, these documents only establish that CDB withheld certain amounts in 1990
and 1991. It does not follow that the payments reflected in the confirmation receipts
relate to the creditable withholding taxes arising from the sale of the acquired
properties. The claim that CDB had excess creditable withholding taxes can only be
upheld if it were clearly and positively shown that the amounts on the various
confirmation receipts were the amounts withheld by virtue of the sale of the acquired
assets. On this point, the CA correctly pronounced:
The confirmation receipts alone, by themselves, will not suffice to prove that the taxes
reflected in the income tax returns are the same taxes withheld from CDBs income
payments from the sale of its acquired assets. This is because a cursory examination
of the said Confirmation Receipts, Payment Orders and Official Receipts will show that
what are reflected therein are merely the names of the payors and the amount of tax.
The nature of the tax paid, or at the very least, the income payments from which the
taxes paid were withheld are not reflected therein. If these are the only entries that are
found on these proferred documents, We cannot begrudge the Respondent Court from
nurturing veritable doubts on the nature and identity of the taxes withheld, when it
declared, in part, in its Decision (Annex "A" of the Petition) that, It can not well be
said that the amounts paid and remitted to the BIR were for CDBs account and not for
the other possible payees of withholding taxes which CDB may also be liable to remit
as a withholding agent x x x . 20
Petitioner, apparently aware of the foregoing deficiency, offered into evidence a CDB
Schedule of Creditable Withholding Tax for the period 1990 to 1991 21 prepared by
petitioners representative to show that the taxes CDB withheld did, indeed, pertain to
the taxes accruing on the sale of the acquired assets. The CA, however, found the
same to be "self-serving and unverifiable" and therefore "barren of evidentiary
weight."22 We accord this finding on an issue of fact the highest respect and we will not
set it aside lightly.
It bears emphasis that questions on whether certain items of evidence should be
accorded probative value or weight, or rejected as feeble or spurious, or whether the
proofs on one side or the other are clear and convincing and adequate to establish a
proposition in issue, are without doubt questions of fact. This is true regardless of
whether the body of proofs presented by a party, weighed and analyzed in relation to
contrary evidence submitted by the adverse party, may be said to be strong, clear and
convincing. Whether certain documents presented by one side should be accorded full
faith and credit in the face of protests as to their spurious character by the other side;
whether inconsistencies in the body of proofs of a party are of such gravity as to justify
refusing to give said proofs weightall these are issues of fact. Questions like these
are not reviewable by us. As a rule, we confine our review of cases decided by the CA
only to questions of law raised in the petition and therein distinctly set forth. 23 We note
that without the CDB Schedule, no evidence links the Confirmation Receipts, Payment
Orders and Official Receipts to the taxes allegedly withheld by CDB on the sale of the
acquired assets.
As to the annual income tax returns for 1990 and 1991 24 presented by petitioner, we
must stress that the mere admission into the records of these returns does not
automatically make their contents or entries undisputed and binding facts. Mere
allegations by petitioner of the figures in its returns are not a sufficient proof of the
amount of its refund entitlement. They do not even constitute evidence adverse to
respondent, against whom these are being presented. 25
Furthermore, we note that in the proceedings below, respondent Commissioner of
Internal Revenue (CIR) raised the fact that there was a discrepancy in the excess
creditable withholding tax reflected in the returns with the amounts sought to be
refunded by petitioner. Whereas the 1990 and 1991 Income Tax Returns indicated that
CDB had excess creditable withholding tax in the amounts of P535,310 and P357,511,
respectively, the amounts claimed by petitioner as indicated in the CDB Schedule
were P512,940.50 for 1990 and P242,774.50 for 1991.26 The records are bereft of any
explanation for such discrepancy. This further undermines petitioners contentions, and
its reliance on the CDB Schedule.

Petitioner also asserts that the confusion or difficulty in the implementation of Revenue
Memorandum Circular 7-9027 was the reason why CDB took upon itself the task of
withholding the taxes arising from the sale, to ensure accuracy. Assuming this were
true, CDB should have, nevertheless, accomplished the necessary returns to clearly
identify the nature of the payments made and file the same with the BIR. Section 2 of
the circular clearly provides that the amount of withholding tax paid by a corporation to
the BIR during the quarter on sales or exchanges of property and which are creditable
against the corporations tax liability are evidenced by Confirmation/Official Receipts
and covered by BIR Form Nos. 1743W and 1743-B. On the other hand, Revenue
Regulation 6-85 states that BIR Form No. 1743.1 establishes the fact of withholding.
Since no competent evidence was adduced by petitioner, the failure to offer these
returns as evidence of the amount of petitioners entitlement during the trial phase of
this case is fatal to its cause. For its negligence, petitioner "cannot be allowed to seek
refuge in a liberal application of the [r]ules."28 The liberal interpretation and application
of rules apply only in proper cases of demonstrable merit and under justifiable causes
and circumstances.29

We must emphasize that tax refunds, like tax exemptions, are construed strictly against
the taxpayer and liberally in favor of the taxing authority. 30 In the event, petitioner has
not met its burden of proof in establishing the factual basis for its claim for refund and
we find no reason to disturb the ruling of the lower courts.

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals dated
May 7, 1997 in CA-G.R. SP No. 41666 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
 G.R. No. 129130 December 9, 2005 | FAR EAST BANK AND TRUST
COMPANY, Petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE, Respondents | AZCUNA, J.:
FACTS: Petitioner is a domestic banking corporation duly organized and existing under
and by virtue of Philippine laws. In the early part of 1992, the Cavite Development Bank
[CDB], also a domestic banking corporation, was merged with Petitioner with the latter
as its surviving entity [under] the merger. Petitioner being the surviving entity[, it]
acquired all [the] assets of CDB.
CDB sold some acquired assets in the course of which it allegedly withheld
the creditable tax from the sales proceeds which amounted to P755,715.00
CDB filed income tax returns which reflected that CDB incurred negative
taxable income or losses for both years. Since there was no tax against which
to credit or offset the taxes withheld by CDB, the result was that CDB,
according to petitioner, had excess creditable withholding tax
CA held that the evidence presented by petitioner all failed to clearly establish that the
taxes arising from the sale of its acquired assets sometime in 1990 and 1991 were
properly withheld and remitted to the BIR. The CA likewise ruled that it was incumbent
upon petitioner to present BIR Form No. 1743.1 as required under Revenue Regulation
6-85 to conclusively prove its right to the refund. It held that petitioners failure to do so
was fatal to its cause.
According to petitioner, CDB took the initiative of paying the withholding tax accruing
thereon notwithstanding the fact that it was the recipient of the income, to ensure that
the correct taxes were remitted to the BIR. Petitioner further argues that the list
prepared by its Accounting Department identifying the persons to whom the various
sales were made and indicating the amount of taxes withheld for each transaction
should have been given more weight by the court a quo as this document, when taken
with the tax withholding forms, indubitably establishes the fact of withholding and the
basis for the claims for refund.
- Tax Code imposes, among others, certain obligations upon the withholding
agent to monitor its compliance with this duty
- it is incumbent upon the payee to reflect in his or its own return the income
upon which any creditable tax is required to be withheld at the source. Only
when there is an excess of the amount of tax so withheld over the tax due on
the payees return can a refund become possible.
- The claim that CDB had excess creditable withholding taxes can only be
upheld if it were clearly and positively shown that the amounts on the various
confirmation receipts were the amounts withheld by virtue of the sale of the
acquired assets. On this point, the CA correctly pronounced:
- The confirmation receipts alone, by themselves, will not suffice to prove that
the taxes reflected in the income tax returns are the same taxes withheld from
CDBs income payments from the sale of its acquired assets.
- As a rule, we confine our review of cases decided by the CA only to questions
of law raised in the petition and therein distinctly set forth. We note that without
the CDB Schedule, no evidence links the Confirmation Receipts, Payment
Orders and Official Receipts to the taxes allegedly withheld by CDB on the
sale of the acquired assets.
- Mere allegations by petitioner of the figures in its returns are not a sufficient
proof of the amount of its refund entitlement. They do not even constitute
evidence adverse to respondent, against whom these are being presented.
- We must emphasize that tax refunds, like tax exemptions, are construed
strictly against the taxpayer and liberally in favor of the taxing authority. In the
event, petitioner has not met its burden of proof in establishing the factual
basis for its claim for refund and we find no reason to disturb the ruling of the
lower courts.

ISSUE: whether petitioner adduced sufficient evidence to prove its entitlement to a

refund.

HELD: The findings of fact of the CTA, a special court exercising particular expertise
on the subject of tax, are generally regarded as final, binding and conclusive upon this
Court, especially if these are substantially similar to the findings of the CA which is
normally the final arbiter of questions of fact. The findings shall not be reviewed nor
disturbed on appeal unless a party can show that these are not supported by evidence,
or when the judgment is premised on a misapprehension of facts, or when the lower
courts failed to notice certain relevant facts which if considered would justify a different
conclusion.
Petitioner has not sufficiently presented a case for the application of an exception from
the rule.
Reasons:
- Possession of the amount that is used to settle the tax liability is acquired by
the payor as the withholding agent of the government.
 G.R. No. 110120 March 16, 1994
LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, HON. MANUEL JN. SERAPIO, Presiding Judge RTC,
Branch 127, Caloocan City, HON. MACARIO A. ASISTIO, JR., City Mayor of
Caloocan and/or THE CITY GOVERNMENT OF CALOOCAN, respondents.
ROMERO, J.:
The clash between the responsibility of the City Government of Caloocan to dispose
off the 350 tons of garbage it collects daily and the growing concern and sensitivity to
a pollution-free environment of the residents of Barangay Camarin, Tala Estate,
Caloocan City where these tons of garbage are dumped everyday is the hub of this
controversy elevated by the protagonists to the Laguna Lake Development Authority
(LLDA) for adjudication.
The instant case stemmed from an earlier petition filed with this Court by Laguna Lake
Development Authority (LLDA for short) docketed as G.R.
No. 107542 against the City Government of Caloocan, et al. In the Resolution of
November 10, 1992, this Court referred G.R. No. 107542 to the Court of Appeals for
appropriate disposition. Docketed therein as CA-G.R. SP
No. 29449, the Court of Appeals, in a decision 1 promulgated on January 29, 1993 ruled
that the LLDA has no power and authority to issue a cease and desist order enjoining
the dumping of garbage in Barangay Camarin, Tala Estate, Caloocan City. The LLDA
now seeks, in this petition, a review of the decision of the Court of Appeals.
The facts, as disclosed in the records, are undisputed.
On March 8, 1991, the Task Force Camarin Dumpsite of Our Lady of Lourdes Parish,
Barangay Camarin, Caloocan City, filed a letter-complaint 2 with the Laguna Lake
Development Authority seeking to stop the operation of the 8.6-hectare open garbage
dumpsite in Tala Estate, Barangay Camarin, Caloocan City due to its harmful effects
on the health of the residents and the possibility of pollution of the water content of the
surrounding area.
On November 15, 1991, the LLDA conducted an on-site investigation, monitoring and
test sampling of the leachate 3that seeps from said dumpsite to the nearby creek which
is a tributary of the Marilao River. The LLDA Legal and Technical personnel found that
the City Government of Caloocan was maintaining an open dumpsite at the Camarin
area without first securing an Environmental Compliance Certificate (ECC) from the
Environmental Management Bureau (EMB) of the Department of Environment and
Natural Resources, as required under Presidential Decree No. 1586, 4 and clearance
from LLDA as required under Republic Act No. 4850, 5 as amended by Presidential
Decree No. 813 and Executive Order No. 927, series of 1983. 6
After a public hearing conducted on December 4, 1991, the LLDA, acting on the
complaint of Task Force Camarin Dumpsite, found that the water collected from the
leachate and the receiving streams could considerably affect the quality, in turn, of the
receiving waters since it indicates the presence of bacteria, other than coliform, which
may have contaminated the sample during collection or handling. 7 On December 5,
1991, the LLDA issued a Cease and Desist Order 8 ordering the City Government of
Caloocan, Metropolitan Manila Authority, their contractors, and other entities, to
completely halt, stop and desist from dumping any form or kind of garbage and other
waste matter at the Camarin dumpsite.
The dumping operation was forthwith stopped by the City Government of Caloocan.
However, sometime in August 1992 the dumping operation was resumed after a
meeting held in July 1992 among the City Government of Caloocan, the representatives
of Task Force Camarin Dumpsite and LLDA at the Office of Environmental
Management Bureau Director Rodrigo U. Fuentes failed to settle the problem.
After an investigation by its team of legal and technical personnel on August 14, 1992,
the LLDA issued another order reiterating the December 5, 1991, order and issued an
Alias Cease and Desist Order enjoining the City Government of Caloocan from
continuing its dumping operations at the Camarin area.
On September 25, 1992, the LLDA, with the assistance of the Philippine National
Police, enforced its Alias Cease and Desist Order by prohibiting the entry of all garbage
dump trucks into the Tala Estate, Camarin area being utilized as a dumpsite.
Pending resolution of its motion for reconsideration earlier filed on September 17, 1992
with the LLDA, the City Government of Caloocan filed with the Regional Trial Court of
Caloocan City an action for the declaration of nullity of the cease and desist order with
prayer for the issuance of writ of injunction, docketed as Civil Case No. C-15598. In its
complaint, the City Government of Caloocan sought to be declared as the sole authority
empowered to promote the health and safety and enhance the right of the people in
Caloocan City to a balanced ecology within its territorial jurisdiction. 9
On September 25, 1992, the Executive Judge of the Regional Trial Court of Caloocan
City issued a temporary restraining order enjoining the LLDA from enforcing its cease
and desist order. Subsequently, the case was raffled to the Regional Trial Court,
Branch 126 of Caloocan which, at the time, was presided over by Judge Manuel Jn.
Serapio of the Regional Trial Court, Branch 127, the pairing judge of the recently-retired
presiding judge.
The LLDA, for its part, filed on October 2, 1992 a motion to dismiss on the ground,
among others, that under Republic Act No. 3931, as amended by Presidential Decree
No. 984, otherwise known as the Pollution Control Law, the cease and desist order
issued by it which is the subject matter of the complaint is reviewable both upon the
law and the facts of the case by the Court of Appeals and not by the Regional Trial
Court. 10
On October 12, 1992 Judge Manuel Jn. Serapio issued an order consolidating Civil
Case No. C-15598 with Civil Case No. C-15580, an earlier case filed by the Task Force
Camarin Dumpsite entitled "Fr. John Moran, et al. vs. Hon. Macario Asistio." The LLDA,
however, maintained during the trial that the foregoing cases, being independent of
each other, should have been treated separately.
On October 16, 1992, Judge Manuel Jn. Serapio, after hearing the motion to dismiss,
issued in the consolidated cases an order 11 denying LLDA's motion to dismiss and
granting the issuance of a writ of preliminary injunction enjoining the LLDA, its agent
and all persons acting for and on its behalf, from enforcing or implementing its cease
and desist order which prevents plaintiff City of Caloocan from dumping garbage at the
Camarin dumpsite during the pendency of this case and/or until further orders of the
court.
On November 5, 1992, the LLDA filed a petition for certiorari, prohibition and injunction
with prayer for restraining order with the Supreme Court, docketed as G.R. No. 107542,
seeking to nullify the aforesaid order dated October 16, 1992 issued by the Regional
Trial Court, Branch 127 of Caloocan City denying its motion to dismiss.
The Court, acting on the petition, issued a Resolution 12 on November 10, 1992
referring the case to the Court of Appeals for proper disposition and at the same time,
without giving due course to the petition, required the respondents to comment on the
petition and file the same with the Court of Appeals within ten (10) days from notice. In
the meantime, the Court issued a temporary restraining order, effective immediately
and continuing until further orders from it, ordering the respondents: (1) Judge Manuel
Jn. Serapio, Presiding Judge, Regional Trial Court, Branch 127, Caloocan City to cease
and desist from exercising jurisdiction over the case for declaration of nullity of the
cease and desist order issued by the Laguna Lake Development Authority (LLDA); and
(2) City Mayor of Caloocan and/or the City Government of Caloocan to cease and desist
from dumping its garbage at the Tala Estate, Barangay Camarin, Caloocan City.
Respondents City Government of Caloocan and Mayor Macario A. Asistio, Jr. filed on
November 12, 1992 a motion for reconsideration and/or to quash/recall the temporary
restraining order and an urgent motion for reconsideration alleging that ". . . in view of
the calamitous situation that would arise if the respondent city government fails to
collect 350 tons of garbage daily for lack of dumpsite (i)t is therefore, imperative that
the issue be resolved with dispatch or with sufficient leeway to allow the respondents
to find alternative solutions to this garbage problem."
On November 17, 1992, the Court issued a Resolution 13 directing the Court of Appeals
to immediately set the case for hearing for the purpose of determining whether or not
the temporary restraining order issued by the Court should be lifted and what
conditions, if any, may be required if it is to be so lifted or whether the restraining order
should be maintained or converted into a preliminary injunction.
The Court of Appeals set the case for hearing on November 27, 1992, at 10:00 in the
morning at the Hearing Room, 3rd Floor, New Building, Court of Appeals. 14 After the
oral argument, a conference was set on December 8, 1992 at 10:00 o'clock in the
morning where the Mayor of Caloocan City, the General Manager of LLDA, the
Secretary of DENR or his duly authorized representative and the Secretary of DILG or
his duly authorized representative were required to appear.
It was agreed at the conference that the LLDA had until December 15, 1992 to finish
its study and review of respondent's technical plan with respect to the dumping of its
garbage and in the event of a rejection of respondent's technical plan or a failure of
settlement, the parties will submit within 10 days from notice their respective
memoranda on the merits of the case, after which the petition shall be deemed
submitted for resolution. 15Notwithstanding such efforts, the parties failed to settle the
dispute.
On April 30, 1993, the Court of Appeals promulgated its decision holding that: (1) the
Regional Trial Court has no jurisdiction on appeal to try, hear and decide the action for
annulment of LLDA's cease and desist order, including the issuance of a temporary
restraining order and preliminary injunction in relation thereto, since appeal therefrom
is within the exclusive and appellate jurisdiction of the Court of Appeals under Section
9, par. (3), of Batas Pambansa Blg. 129; and (2) the Laguna Lake Development
Authority has no power and authority to issue a cease and desist order under its
enabling law, Republic Act No. 4850, as amended by P.D. No. 813 and Executive
Order
No. 927, series of 1983.
The Court of Appeals thus dismissed Civil Case No. 15598 and the preliminary
injunction issued in the said case was set aside; the cease and desist order of LLDA
was likewise set aside and the temporary restraining order enjoining the City Mayor of
Caloocan and/or the City Government of Caloocan to cease and desist from dumping
its garbage at the Tala Estate, Barangay Camarin, Caloocan City was lifted, subject,
however, to the condition that any future dumping of garbage in said area, shall be in
conformity with the procedure and protective works contained in the proposal attached
to the records of this case and found on pages 152-160 of the Rollo, which was thereby
adopted by reference and made an integral part of the decision, until the corresponding
restraining and/or injunctive relief is granted by the proper Court upon LLDA's institution
of the necessary legal proceedings.
Hence, the Laguna Lake Development Authority filed the instant petition for review
on certiorari, now docketed as G.R. No. 110120, with prayer that the temporary
restraining order lifted by the Court of Appeals be re-issued until after final
determination by this Court of the issue on the proper interpretation of the powers and
authority of the LLDA under its enabling law.
On July, 19, 1993, the Court issued a temporary restraining order 16 enjoining the City
Mayor of Caloocan and/or the City Government of Caloocan to cease and desist from
dumping its garbage at the Tala Estate, Barangay Camarin, Caloocan City, effective as
of this date and containing until otherwise ordered by the Court.
It is significant to note that while both parties in this case agree on the need to protect
the environment and to maintain the ecological balance of the surrounding areas of the
Camarin open dumpsite, the question as to which agency can lawfully exercise
jurisdiction over the matter remains highly open to question.
The City Government of Caloocan claims that it is within its power, as a local
government unit, pursuant to the general welfare provision of the Local Government
Code, 17 to determine the effects of the operation of the dumpsite on the ecological
balance and to see that such balance is maintained. On the basis of said contention, it
questioned, from the inception of the dispute before the Regional Trial Court of
Caloocan City, the power and authority of the LLDA to issue a cease and desist order
enjoining the dumping of garbage in the Barangay Camarin over which the City
Government of Caloocan has territorial jurisdiction.
The Court of Appeals sustained the position of the City of Caloocan on the theory that
Section 7 of Presidential Decree No. 984, otherwise known as the Pollution Control
law, authorizing the defunct National Pollution Control Commission to issue an ex-
parte cease and desist order was not incorporated in Presidential Decree No. 813 nor
in Executive Order No. 927, series of
1983. The Court of Appeals ruled that under Section 4, par. (d), of Republic Act No.
4850, as amended, the LLDA is instead required "to institute the necessary legal
proceeding against any person who shall commence to implement or continue
implementation of any project, plan or program within the Laguna de Bay region without
previous clearance from the Authority."
The LLDA now assails, in this partition for review, the abovementioned ruling of the
Court of Appeals, contending that, as an administrative agency which was granted
regulatory and adjudicatory powers and functions by Republic Act No. 4850 and its
amendatory laws, Presidential Decree No. 813 and Executive Order No. 927, series of
1983, it is invested with the power and authority to issue a cease and desist order
pursuant to Section 4 par. (c), (d), (e), (f) and (g) of Executive Order No. 927 series of
1983 which provides, thus:
Sec. 4. Additional Powers and Functions. The authority shall have
the following powers and functions:
xxx xxx xxx
(c) Issue orders or decisions to compel compliance with the
provisions of this Executive Order and its implementing rules and
regulations only after proper notice and hearing.
(d) Make, alter or modify orders requiring the discontinuance of
pollution specifying the conditions and the time within which such
discontinuance must be accomplished.
(e) Issue, renew, or deny permits, under such conditions as it may
determine to be reasonable, for the prevention and abatement of
pollution, for the discharge of sewage, industrial waste, or for the
installation or operation of sewage works and industrial disposal
system or parts thereof.
(f) After due notice and hearing, the Authority may also revoke,
suspend or modify any permit issued under this Order whenever the
same is necessary to prevent or abate pollution.
(g) Deputize in writing or request assistance of appropriate
government agencies or instrumentalities for the purpose of
enforcing this Executive Order and its implementing rules and
regulations and the orders and decisions of the Authority.
The LLDA claims that the appellate court deliberately suppressed and totally
disregarded the above provisions of Executive Order No. 927, series of 1983, which
granted administrative quasi-judicial functions to LLDA on pollution abatement cases.
In light of the relevant environmental protection laws cited which are applicable in this
case, and the corresponding overlapping jurisdiction of government agencies
implementing these laws, the resolution of the issue of whether or not the LLDA has
the authority and power to issue an order which, in its nature and effect was injunctive,
necessarily requires a determination of the threshold question: Does the Laguna Lake
Development Authority, under its Charter and its amendatory laws, have the authority
to entertain the complaint against the dumping of garbage in the open dumpsite in
Barangay Camarin authorized by the City Government of Caloocan which is allegedly
endangering the health, safety, and welfare of the residents therein and the sanitation
and quality of the water in the area brought about by exposure to pollution caused by
such open garbage dumpsite?
The matter of determining whether there is such pollution of the environment that
requires control, if not prohibition, of the operation of a business establishment is
essentially addressed to the Environmental Management Bureau (EMB) of the DENR
which, by virtue of Section 16 of Executive Order No. 192, series of 1987, 18 has
assumed the powers and functions of the defunct National Pollution Control
Commission created under Republic Act No. 3931. Under said Executive Order, a
Pollution Adjudication Board (PAB) under the Office of the DENR Secretary now
assumes the powers and functions of the National Pollution Control Commission with
respect to adjudication of pollution cases. 19
As a general rule, the adjudication of pollution cases generally pertains to the Pollution
Adjudication Board (PAB), except in cases where the special law provides for another
forum. It must be recognized in this regard that the LLDA, as a specialized
administrative agency, is specifically mandated under Republic Act No. 4850 and its
amendatory laws to carry out and make effective the declared national policy 20 of
promoting and accelerating the development and balanced growth of the Laguna Lake
area and the surrounding provinces of Rizal and Laguna and the cities of San Pablo,
Manila, Pasay, Quezon and Caloocan 21 with due regard and adequate provisions for
environmental management and control, preservation of the quality of human life and
ecological systems, and the prevention of undue ecological disturbances, deterioration
and pollution. Under such a broad grant and power and authority, the LLDA, by virtue
of its special charter, obviously has the responsibility to protect the inhabitants of the
Laguna Lake region from the deleterious effects of pollutants emanating from the
discharge of wastes from the surrounding areas. In carrying out the aforementioned
declared policy, the LLDA is mandated, among others, to pass upon and approve or
disapprove all plans, programs, and projects proposed by local government
offices/agencies within the region, public corporations, and private persons or
enterprises where such plans, programs and/or projects are related to those of the
LLDA for the development of the region. 22
In the instant case, when the complainant Task Force Camarin Dumpsite of Our Lady
of Lourdes Parish, Barangay Camarin, Caloocan City, filed its letter-complaint before
the LLDA, the latter's jurisdiction under its charter was validly invoked by complainant
on the basis of its allegation that the open dumpsite project of the City Government of
Caloocan in Barangay Camarin was undertaken without a clearance from the LLDA, as
required under Section 4, par. (d), of Republic Act. No. 4850, as amended by P.D. No.
813 and Executive Order No. 927. While there is also an allegation that the said project
was without an Environmental Compliance Certificate from the Environmental
Management Bureau (EMB) of the DENR, the primary jurisdiction of the LLDA over this
case was recognized by the Environmental Management Bureau of the DENR when
the latter acted as intermediary at the meeting among the representatives of the City
Government of Caloocan, Task Force Camarin Dumpsite and LLDA sometime in July
1992 to discuss the possibility of re-opening the open dumpsite.
Having thus resolved the threshold question, the inquiry then narrows down to the
following issue: Does the LLDA have the power and authority to issue a "cease and
desist" order under Republic Act No. 4850 and its amendatory laws, on the basis of the
facts presented in this case, enjoining the dumping of garbage in Tala Estate, Barangay
Camarin, Caloocan City.
The irresistible answer is in the affirmative.
The cease and desist order issued by the LLDA requiring the City Government of
Caloocan to stop dumping its garbage in the Camarin open dumpsite found by the
LLDA to have been done in violation of Republic Act No. 4850, as amended, and other
relevant environment laws, 23 cannot be stamped as an unauthorized exercise by the
LLDA of injunctive powers. By its express terms, Republic Act No. 4850, as amended
by P.D. No. 813 and Executive Order No. 927, series of 1983, authorizes the LLDA to
"make, alter or modify order requiring the discontinuance or pollution." 24 (Emphasis
supplied) Section 4, par. (d) explicitly authorizes the LLDA to make whatever order may
be necessary in the exercise of its jurisdiction.
To be sure, the LLDA was not expressly conferred the power "to issue and ex-
parte cease and desist order" in a language, as suggested by the City Government of
Caloocan, similar to the express grant to the defunct National Pollution Control
Commission under Section 7 of P.D. No. 984 which, admittedly was not reproduced in
P.D. No. 813 and E.O. No. 927, series of 1983. However, it would be a mistake to draw
therefrom the conclusion that there is a denial of the power to issue the order in
question when the power "to make, alter or modify orders requiring the discontinuance
of pollution" is expressly and clearly bestowed upon the LLDA by Executive Order No.
927, series of 1983.
Assuming arguendo that the authority to issue a "cease and desist order" were not
expressly conferred by law, there is jurisprudence enough to the effect that the rule
granting such authority need not necessarily be express. 25 While it is a fundamental
rule that an administrative agency has only such powers as are expressly granted to it
by law, it is likewise a settled rule that an administrative agency has also such powers
as are necessarily implied in the exercise of its express powers. 26 In the exercise,
therefore, of its express powers under its charter as a regulatory and quasi-judicial body
with respect to pollution cases in the Laguna Lake region, the authority of the LLDA to
issue a "cease and desist order" is, perforce, implied. Otherwise, it may well be reduced
to a "toothless" paper agency.
In this connection, it must be noted that in Pollution Adjudication Board v. Court of
Appeals, et al., 27 the Court ruled that the Pollution Adjudication Board (PAB) has the
power to issue an ex-parte cease and desist order when there is prima facie evidence
of an establishment exceeding the allowable standards set by the anti-pollution laws of
the country. Theponente, Associate Justice Florentino P. Feliciano, declared:
Ex parte cease and desist orders are permitted by law and
regulations in situations like that here presented precisely because
stopping the continuous discharge of pollutive and untreated
effluents into the rivers and other inland waters of the Philippines
cannot be made to wait until protracted litigation over the ultimate
correctness or propriety of such orders has run its full course,
including multiple and sequential appeals such as those which Solar
has taken, which of course may take several years. The relevant
pollution control statute and implementing regulations were enacted
and promulgated in the exercise of that pervasive, sovereign power
to protect the safety, health, and general welfare and comfort of the
public, as well as the protection of plant and animal life, commonly
designated as the police power. It is a constitutional commonplace
that the ordinary requirements of procedural due process yield to the
necessities of protecting vital public interests like those here
involved, through the exercise of police power. . . .
The immediate response to the demands of "the necessities of protecting vital public
interests" gives vitality to the statement on ecology embodied in the Declaration of
Principles and State Policies or the 1987 Constitution. Article II, Section 16 which
provides:
The State shall protect and advance the right of the people to a
balanced and healthful ecology in accord with the rhythm and
harmony of nature.
As a constitutionally guaranteed right of every person, it carries the correlative duty of
non-impairment. This is but in consonance with the declared policy of the state "to
protect and promote the right to health of the people and instill health consciousness
among them." 28 It is to be borne in mind that the Philippines is party to the Universal
Declaration of Human Rights and the Alma Conference Declaration of 1978 which
recognize health as a fundamental human right. 29
The issuance, therefore, of the cease and desist order by the LLDA, as a practical
matter of procedure under the circumstances of the case, is a proper exercise of its
power and authority under its charter and its amendatory laws. Had the cease and
desist order issued by the LLDA been complied with by the City Government of
Caloocan as it did in the first instance, no further legal steps would have been
necessary.
The charter of LLDA, Republic Act No. 4850, as amended, instead of conferring upon
the LLDA the means of directly enforcing such orders, has provided under its Section
4 (d) the power to institute "necessary legal proceeding against any person who shall
commence to implement or continue implementation of any project, plan or program
within the Laguna de Bay region without previous clearance from the LLDA."

Clearly, said provision was designed to invest the LLDA with sufficiently broad powers
in the regulation of all projects initiated in the Laguna Lake region, whether by the
government or the private sector, insofar as the implementation of these projects is
concerned. It was meant to deal with cases which might possibly arise where decisions
or orders issued pursuant to the exercise of such broad powers may not be obeyed,
resulting in the thwarting of its laudabe objective. To meet such contingencies, then the
writs of mandamus and injunction which are beyond the power of the LLDA to issue,
may be sought from the proper courts.

Insofar as the implementation of relevant anti-pollution laws in the Laguna Lake region
and its surrounding provinces, cities and towns are concerned, the Court will not dwell
further on the related issues raised which are more appropriately addressed to an
administrative agency with the special knowledge and expertise of the LLDA.

WHEREFORE, the petition is GRANTED. The temporary restraining order issued by

the Court on July 19, 1993 enjoining the City Mayor of Caloocan and/or the City
Government of Caloocan from dumping their garbage at the Tala Estate, Barangay
Camarin, Caloocan City is hereby made permanent.

SO ORDERED.
 Held:
1. Sec.4(k) of the charter of the LLDA, RA 4850, the provisions of PD 813,and Sec.2 of
EO No.927, specifically provide that the LLDA shall have exclusive jurisdiction to issue
Laguna Lake Development Authority vs. Court of Appeals
permits for the use of all surface water for any projects or activities in or affecting the
said region. On the other hand, RA 7160 has granted to the municipalities the exclusive
G.R.No. 120865-71
authority to grant fishery privileges on municipal waters. The provisions of RA 7160
December 7, 1995
do not necessarily repeal the laws creating the LLDA and granting the latter water
rights authority over Laguna de Bay and the lake region.
Facts:
The Laguna Lake Development Authority (LLDA) was created through RA No. 4850 in
Where there is a conflict between a general law and a special statute, latter
order to execute the policy towards environmental protection and sustainable
should prevail since it evinces the legislative intent more clearly than the general
development so as to accelerate the development and balanced growth of the Laguna
statute. The special law is to be taken as an exception to the general law in the
Lake area and the surrounding provinces and towns.
absence of special circumstances forcing a contrary conclusion. Implied repeals are
not favored and, as much as possible, effect must be given to all enactments of the
PD No. 813 amended certain sections of RA 4850 since water quality studies have
legislature. A special law cannot be repealed, amended or altered by a subsequent
shown that the lake will deteriorate further if steps are not taken to check the same.
general law by mere implication.
EO 927 further defined and enlarged the functions and powers of the LLDA and
enumerated the towns, cities and provinces encompassed by the term Laguna de Bay
The power of LGUs to issue fishing privileges was granted for revenue purposes. On
Region.
the other hand, the power of the LLDA to grant permits for fishpens, fish cages, and
other aqua-culture structures is for the purpose of effectively regulating & monitoring
Upon implementation of RA 7160 (Local Government Code of 1991), the municipalities
activities in the Laguna de Bay region and for lake control and management. It partakes
assumed exclusive jurisdiction & authority to issue fishing privileges within their
of the nature of police power which is the most pervasive, least limitable and most
municipal waters since Sec.149 thereof provides: Municipal corporations shall have
demanding of all state powers including the power of taxation. Accordingly, the
the authority to grant fishery privileges in the municipal waters and impose rental fees
charter of the LLDA which embodies a valid exercise of police power should prevail
or charges therefore
over the LGC of 1991 on matters affecting Laguna de Bay.
2. The LLDA has express powers as a regulatory and quasi-judicial body in respect to
Big fishpen operators took advantage of the occasion to establish fishpens & fish cages
pollution cases with authority to issue a cease and desist order and on matters
to the consternation of the LLDA.
affecting the construction of illegal fishpens, fish cages and other aqua-culture
structures in Laguna de Bay.
The implementation of separate independent policies in fish cages & fish pen operation
and the indiscriminate grant of fishpen permits by the lakeshore municipalities have
saturated the lake with fishpens, thereby aggravating the current environmental Sec.149 of RA 7160 has not repealed the provisions of the charter of the LLDA, RA
problems and ecological stress of Laguna Lake. 4850, as amended. Thus, the LLDA has the exclusive jurisdiction to issue permits for
enjoyment of fishery privileges in Laguna de Bay to the exclusion of municipalities
The LLDA then served notice to the general public that (1) fishpens, cages & other situated therein and the authority to exercise such powers as are by its charter vested
aqua-culture structures unregistered with the LLDA as of March 31, 1993 are declared on it.
illegal; (2) those declared illegal shall be subject to demolition by the Presidential Task
Force for Illegal Fishpen and Illegal Fishing; and (3) owners of those declared illegal
shall be criminally charged with violation of Sec.39-A of RA 4850 as amended by PD
813.

A month later, the LLDA sent notices advising the owners of the illegally constructed
fishpens, fishcages and other aqua-culture structures advising them to dismantle their
respective structures otherwise demolition shall be effected.

Issues:
1.Which agency of the government the LLDA or the towns and municipalities
comprising the region should exercise jurisdiction over the Laguna lake and its
environs insofar as the issuance of permits for fishery privileges is concerned?
2. Whether the LLDA is a quasi-judicial agency?