G.R. No.

L-31092 February 27, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS, respondents.

NATURE OF THE CASE

This is a petition for review on certiorari filed by the CIR on the decision of CTA reversing the
CIRs decision that respondent is required to pay P 16, 970.40 representing the 3% contractors
tax plus surcharges on its gross receipts from the World Health Organization in the construction
of the latters building.

FACTS OF THE CASE

The World Health Organization as an international organization, enjoys privileges and

immunities which are defined more specifically in the Host Agreement entered into between the
Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of that
Agreement provides, inter alia, that

"the Organization, its assets, income and other properties shall be: (a) exempt from all
direct and indirect taxes. It is understood, however, that the Organization will not claim
exemption from taxes which are, in fact, no more than charges for public utility services;
...

WHO entered into a further agreement with the Govermment of the Republic of the Philippines
on November 26, 1957 when it decided to construct a building to house its own offices, as well
as the other United Nations offices stationed in Manila. This agreement contained the following
provision (Article III, paragraph 2):

The Organization may import into the country materials and fixtures required for the
construction free from all duties and taxes and agrees not to utilize any portion of the
international reserves of the Government.

Article VIII of the above-mentioned agreement referred to the Host Agreement

concluded on July 22, 1951 which granted the Organization exemption from all direct
and indirect taxes.

The contract for the construction of its building was awarded to respondent John Gotamco &
Sons, Inc. (Gotamco for short) on February 10, 1958 for the stipulated price of P370,000.00, but
when the building was completed the price reached a total of P452,544.00

On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco
demanding payment of P 16,970.40, representing the 3% contractor's tax plus surcharges on the
gross receipts it received from the WHO in the construction of the latter's building.
Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which
after trial rendered a decision, in favor of Gotamco and reversed the Commissioner's decision.
The Court of Tax Appeal's decision is now before us for review on certiorari.

PETITIONERS CONTENTION:

1. The Host Agreement is null and void, not having been ratified by the Philippine Senate as
required by the Constitution, as such the WHO is not entitled to tax exemption;
2. Even assuming that the Host Agreement granting tax exemption to the WHO is valid and
enforceable, the 3% contractor's tax assessed on Gotamco is not an "indirect tax" within
its purview;
3. The contractor's tax "is in the nature of an excise tax which is a charge imposed upon the
performance of an act, the enjoyment of a privilege or the engaging in an occupation. . . It
is a tax due primarily and directly on the contractor, not on the owner of the building.
Since this tax has no bearing upon the WHO, it cannot be deemed an indirect taxation
upon it.

RESPONDENTS CONTENTION

1. It is an indirect tax on the WHO because, although it is payable by the petitioner, the
latter can shift its burden on the WHO.

ISSUE:

1. Whether the WHO is exempt from paying taxes since it was not ratified by the Senate as
required by the Constitution
2. Whether respondent John Gotamco & Sons, Inc. should pay the 3% contractor's tax under
Section 191 of the National Internal Revenue Code on the gross receipts it realized from
the construction of the World Health Organization office building in Manila.

RULING: THE APPEALED DECISION IS AFFIRMED.

ISSUE#1

THE WHO IS EXEMPT FROM PAYING TAX BECAUSE THE HOST AGREEMENT IS VALID AND BINDING.

While treaties are required to be ratified by the Senate under the Constitution, less formal types
of international agreements may be entered into by the Chief Executive and become binding
without the concurrence of the legislative body. The Host Agreement comes within the latter
category; it is a valid and binding international agreement even without the concurrence of the
Philippine Senate.

ISSUE #2
The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates
taxes which, although not imposed upon or paid by the Organization directly, form part of the
price paid or to be paid by it. This is made clear in Section 12 of the Host Agreement which
provides:

While the Organization will not, as a general rule, in the case of minor purchases, claim
exemption from excise duties, and from taxes on the sale of movable and immovable
property which form part of the price to be paid, nevertheless, when the Organization is
making important purchases for official use of property on which such duties and taxes
have been charged or are chargeable the Government of the Republic of the Philippines
shall make appropriate administrative arrangements for the remission or return of the
amount of duty or tax. (Emphasis supplied).

The above-quoted provision, although referring only to purchases made by the WHO, elucidates
the clear intention of the Agreement to exempt the WHO from "indirect" taxation.

The 3% contractor's tax would be within this category and should be viewed as a form of an
"indirect tax" On the Organization, as the payment thereof or its inclusion in the bid price would
have meant an increase in the construction cost of the building.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-31092 February 27, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS, respondents.

YAP, J.:

The question involved in this petition is whether respondent John Gotamco & Sons, Inc. should pay the 3% contractor's tax under
Section 191 of the National Internal Revenue Code on the gross receipts it realized from the construction of the World Health
Organization office building in Manila.

The World Health Organization (WHO for short) is an international organization which has a regional office in Manila. As an
international organization, it enjoys privileges and immunities which are defined more specifically in the Host Agreement entered into
between the Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of that Agreement provides, inter
alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes. It is
understood, however, that the Organization will not claim exemption from taxes which are, in fact, no more than charges for public
utility services; . . .

When the WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed in
Manila, it entered into a further agreement with the Govermment of the Republic of the Philippines on November 26, 1957. This
agreement contained the following provision (Article III, paragraph 2):

The Organization may import into the country materials and fixtures required for the construction free from all
duties and taxes and agrees not to utilize any portion of the international reserves of the Government.
Article VIII of the above-mentioned agreement referred to the Host Agreement concluded on July 22, 1951 which granted the
Organization exemption from all direct and indirect taxes.

In inviting bids for the construction of the building, the WHO informed the bidders that the building to be constructed belonged to an
international organization with diplomatic status and thus exempt from the payment of all fees, licenses, and taxes, and that
therefore their bids "must take this into account and should not include items for such taxes, licenses and other payments to
Government agencies."

The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for short) on February 10, 1958 for the
stipulated price of P370,000.00, but when the building was completed the price reached a total of P452,544.00.

Sometime in May 1958, the WHO received an opinion from the Commissioner of the Bureau of Internal Revenue stating that "as the
3% contractor's tax is an indirect tax on the assets and income of the Organization, the gross receipts derived by contractors from
their contracts with the WHO for the construction of its new building, are exempt from tax in accordance with . . . the Host
Agreement." Subsequently, however, on June 3, 1958, the Commissioner of Internal Revenue reversed his opinion and stated that
"as the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, the
same is not covered by . . . the Host Agreement."

On January 2, 1960, the WHO issued a certification state 91 inter alia,:

When the request for bids for the construction of the World Health Organization office building was called for,
contractors were informed that there would be no taxes or fees levied upon them for their work in connection
with the construction of the building as this will be considered an indirect tax to the Organization caused by the
increase of the contractor's bid in order to cover these taxes. This was upheld by the Bureau of Internal
Revenue and it can be stated that the contractors submitted their bids in good faith with the exemption in mind.

The undersigned, therefore, certifies that the bid of John Gotamco & Sons, made under the condition stated
above, should be exempted from any taxes in connection with the construction of the World Health Organization
office building.

On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of P
16,970.40, representing the 3% contractor's tax plus surcharges on the gross receipts it received from the WHO in the construction
of the latter's building.

Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which after trial rendered a decision, in
favor of Gotamco and reversed the Commissioner's decision. The Court of Tax Appeal's decision is now before us for review on
certiorari.

In his first assignment of error, petitioner questions the entitlement of the WHO to tax exemption, contending that the Host
Agreement is null and void, not having been ratified by the Philippine Senate as required by the Constitution. We find no merit in this
contention. While treaties are required to be ratified by the Senate under the Constitution, less formal types of international
agreements may be entered into by the Chief Executive and become binding without the concurrence of the legislative body. 1 The
Host Agreement comes within the latter category; it is a valid and binding international agreement even
without the concurrence of the Philippine Senate.

The privileges and immunities granted to the WHO under the Host Agreement have been recognized by this Court as legally binding
on Philippine authorities. 2

Petitioner maintains that even assuming that the Host Agreement granting tax exemption to the WHO is valid and enforceable, the
3% contractor's tax assessed on Gotamco is not an "indirect tax" within its purview. Petitioner's position is that the contractor's tax
"is in the nature of an excise tax which is a charge imposed upon the performance of an act, the enjoyment of a privilege or the
engaging in an occupation. . . It is a tax due primarily and directly on the contractor, not on the owner of the building. Since this tax
has no bearing upon the WHO, it cannot be deemed an indirect taxation upon it."

We agree with the Court of Tax Appeals in rejecting this contention of the petitioner. Said the respondent court:

In context, direct taxes are those that are demanded from the very person who, it is intended or desired, should
pay them; while indirect taxes are those that are demanded in the first instance from one person in the
expectation and intention that he can shift the burden to someone else. (Pollock vs. Farmers, L & T Co., 1957
US 429, 15 S. Ct. 673, 39 Law. Ed. 759.) The contractor's tax is of course payable by the contractor but in the
last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by
the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on
 the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO. In the last
analysis it is the WHO that will pay the tax indirectly through the contractor and it certainly cannot be said that
'this tax has no bearing upon the World Health Organization.

Petitioner claims that under the authority of the Philippine Acetylene Company versus Commissioner of Internal Revenue, et
al., 3 the 3% contractor's tax fans directly on Gotamco and cannot be shifted to the WHO. The Court ofTax
Appeals, however, held that the said case is not controlling in this case, since the Host Agreement
specifically exempts the WHO from "indirect taxes." We agree. The Philippine Acetylene case involved a
tax on sales of goods which under the law had to be paid by the manufacturer or producer; the fact that
the manufacturer or producer might have added the amount of the tax to the price of the goods did not
make the sales tax "a tax on the purchaser." The Court held that the sales tax must be paid by the
manufacturer or producer even if the sale is made to tax-exempt entities like the National Power
Corporation, an agency of the Philippine Government, and to the Voice of America, an agency of the
United States Government.

The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which, although not imposed
upon or paid by the Organization directly, form part of the price paid or to be paid by it. This is made clear in Section 12 of the Host
Agreement which provides:

While the Organization will not, as a general rule, in the case of minor purchases, claim exemption from excise
duties, and from taxes on the sale of movable and immovable property which form part of the price to be paid,
nevertheless, when the Organization is making important purchases for official use of property on which such
duties and taxes have been charged or are chargeable the Government of the Republic of the Philippines shall
make appropriate administrative arrangements for the remission or return of the amount of duty or
tax. (Emphasis supplied).

The above-quoted provision, although referring only to purchases made by the WHO, elucidates the clear intention of the
Agreement to exempt the WHO from "indirect" taxation.

The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor, Gotamco, from any taxes in
connection with the construction of the WHO office building. The 3% contractor's tax would be within this category and should be
viewed as a form of an "indirect tax" On the Organization, as the payment thereof or its inclusion in the bid price would have meant
an increase in the construction cost of the building.

Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the appealed decision is hereby
affirmed.

SO ORDERED.

Narvasa, Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

 G.R. No. L-4376 May 22, 1953

ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-

appellants,

vs.

THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and
THE CITY MAYOR, all of the City of Manila, respondents-appellees.

NATURE OF THE CASE:

This is a petition for declaratory relief to test the validity of Ordinance No. 3379 entitled
"An Ordinance Levying a Property Tax on All Motor Vehicles Operating Within the City
of Manila" passed by the Municipal Board of the City of Manila on March 24, 1950.

FACTS OF THE CASE:

The Municipal Board of the City of Manila passed the questioned ordinance pursuant to
section 18 (p) of Republic Act No. 409. Said section confers upon the municipal board
the power "to tax motor and other vehicles operating within the City of Manila the
provisions of any existing law to the contrary notwithstanding."

Section 1 thereof provides that the tax should be 1 per cent ad valorem per annum. It
also provides that the proceeds of the tax "shall accrue to the Streets and Bridges
Funds of the City and shall be expended exclusively for the repair, maintenance and
improvement of its streets and bridges."

Herein petitioners are the Association of Customs Brokers, Inc., which is composed of
all brokers and public service operators of motor vehicles in the City of Manila, and G.
Manlapit, Inc., a member of said association, also a public service operator of the trucks
in said City

Challenging the validity of the ordinance the petitioners filed a case in the CFI of Manila.
The Court of First Instance of Manila sustained the validity of the ordinance and
dismissed the petition.

PETITIONERS CONTENTION:

(1) while it levies a so-called property tax it is in reality a license tax which is beyond the
power of the Municipal Board of the City of Manila;

(2) said ordinance offends against the rule of uniformity of taxation; and
(3) it constitutes double taxation.

RESPONDENTS CONTENTION:

-The respondents, represented by the city fiscal, contend on their part that the
challenged ordinance imposes a property tax which is within the power of the City of
Manila to impose under its Revised Charter [Section 18 (p) of Republic Act No. 409],
and that the tax in question does not violate the rule of uniformity of taxation, nor does it
constitute double taxation.

-This power is broad enough to confer upon the City of Manila the power to enact an
ordinance imposing the property tax on motor vehicles operating within the city limits.

ISSUE OF THE CASE:

Whether the tax imposed may be considered as property tax considering the purpose
for which the tax is created.

RULING OF THE COURT:

Under the provision of the Motor Vehicles Law, as amended, (Act No. 3992) no fees
may be exacted or demanded for the operation of any motor vehicle other than those
therein provided, the only exception being that which refers to the property tax which
may be imposed by a municipal corporation. This provision is all-inclusive in that sense
that it applies to all motor vehicles. In this sense, this provision should be construed as
limiting the broad grant of power conferred upon the City of Manila by its Charter to
impose taxes. When section 18 of said Charter provides that the City of Manila can
impose a tax on motor vehicles operating within its limit, it can only refers to property tax
as a different interpretation would make it repugnant to the Motor Vehicle Law.

While as a rule an ad valorem tax is a property tax, the rule should not be taken in its
absolute sense if the nature and purpose of the tax as gathered from the context show
that it is in effect an excise or a license tax.

The character of the tax as a property tax or a license or occupation tax must be
determined by its incidents, and from the natural and legal effect of the language
employed in the act or ordinance, and not by the name by which it is described, or by
the mode adopted in fixing its amount. If it is clearly a property tax, it will be so
regarded, even though nominally and in form it is a license or occupation tax; and, on
the other hand, if the tax is levied upon persons on account of their business, it will be
construed as a license or occupation tax, even though it is graduated according to the
property used in such business, or on the gross receipts of the business.
The ordinance in question falls under the foregoing rules. While it refers to property tax
and it is fixed ad valoremyet we cannot reject the idea that it is merely levied on motor
vehicles operating within the City of Manila with the main purpose of raising funds to be
expended exclusively for the repair, maintenance and improvement of the streets and
bridges in said city. This is precisely what the Motor Vehicle Law (Act No. 3992) intends
to prevent, for the reason that, under said Act, municipal corporation already participate
in the distribution of the proceeds that are raised for the same purpose of repairing,
maintaining and improving bridges and public highway (section 73 of the Motor Vehicle
Law). This prohibition is intended to prevent duplication in the imposition of fees for the
same purpose. It is for this reason that we believe that the ordinance in question merely
imposes a license fee although under the cloak of an ad valorem tax to circumvent the
prohibition above adverted to.

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

Wherefore, reversing the decision appealed from, we hereby declare the ordinance null
and void.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-4376 May 22, 1953

ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-appellants,

vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY MAYOR, all of the City of
Manila, respondents-appellees.

Teotimo A. Roja for appellants.

City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for appellees.

BAUTISTA ANGELO, J.:

This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by the Municipal Board of the City of Manila
on March 24, 1950.

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

The issues having been joined, the Court of First Instance of Manila sustained the validity of the ordinance and dismissed the
petition. Hence this appeal.

The disputed ordinance was passed by the Municipal Board of the City of Manila under the authority conferred by section 18 (p) of
Republic Act No. 409. Said section confers upon the municipal board the power "to tax motor and other vehicles operating within the
City of Manila the provisions of any existing law to the contrary notwithstanding." It is contended that this power is broad enough to
confer upon the City of Manila the power to enact an ordinance imposing the property tax on motor vehicles operating within the city
limits.

In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the Motor Vehicles Law, as amended,
(Act No. 3992) which has a bearing on the power of the municipal corporation to impose tax on motor vehicles operating in any
highway in the Philippines. The pertinent provisions are contained in section 70 (b) which provide in part:

No further fees than those fixed in this Act shall be exacted or demanded by any public highway, bridge or ferry, or for the
exercise of the profession of chauffeur, or for the operation of any motor vehicle by the owner thereof: Provided, however,
That nothing in this Act shall be construed to exempt any motor vehicle from the payment of any lawful and equitable
insular, local or municipal property tax imposed thereupon. . . .

Note that under the above section no fees may be exacted or demanded for the operation of any motor vehicle other than those
therein provided, the only exception being that which refers to the property tax which may be imposed by a municipal corporation.
This provision is all-inclusive in that sense that it applies to all motor vehicles. In this sense, this provision should be construed as
limiting the broad grant of power conferred upon the City of Manila by its Charter to impose taxes. When section 18 of said Charter
provides that the City of Manila can impose a tax on motor vehicles operating within its limit, it can only refers to property tax as a
different interpretation would make it repugnant to the Motor Vehicle Law.

Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance Levying a Property Tax on All Motor
Vehicles Operating Within the City of Manila", and that in its section 1 it provides that the tax should be 1 per cent ad valorem per
annum. It also provides that the proceeds of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be
expended exclusively for the repair, maintenance and improvement of its streets and bridges." Considering the wording used in the
ordinance in the light in the purpose for which the tax is created, can we consider the tax thus imposed as property tax, as claimed
by respondents?

While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule should not be taken in its
absolute sense if the nature and purpose of the tax as gathered from the context show that it is in effect an excise or a license tax.
Thus, it has been held that "If a tax is in its nature an excise, it does not become a property tax because it is proportioned in amount
to the value of the property used in connection with the occupation, privilege or act which is taxed. Every excise necessarily must
finally fall upon and be paid by property and so may be indirectly a tax upon property; but if it is really imposed upon the
performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be considered an excise." (26 R. C. L., 35-
36.) It has also been held that

The character of the tax as a property tax or a license or occupation tax must be determined by its incidents, and from the
natural and legal effect of the language employed in the act or ordinance, and not by the name by which it is described, or
by the mode adopted in fixing its amount. If it is clearly a property tax, it will be so regarded, even though nominally and in
form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons on account of their
business, it will be construed as a license or occupation tax, even though it is graduated according to the property used in
such business, or on the gross receipts of the business. (37 C.J., 172)

The ordinance in question falls under the foregoing rules. While it refers to property tax and it is fixed ad valoremyet we cannot
reject the idea that it is merely levied on motor vehicles operating within the City of Manila with the main purpose of raising funds to
be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. This is precisely what
the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act, municipal corporation already
participate in the distribution of the proceeds that are raised for the same purpose of repairing, maintaining and improving bridges
and public highway (section 73 of the Motor Vehicle Law). This prohibition is intended to prevent duplication in the imposition of fees
for the same purpose. It is for this reason that we believe that the ordinance in question merely imposes a license fee although
under the cloak of an ad valorem tax to circumvent the prohibition above adverted to.

It is also our opinion that the ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the
ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor vehicle
for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila
and one registered in another place but occasionally comes to Manila and uses its streets and public highways. The distinction is
important if we note that the ordinance intends to burden with the tax only those registered in the City of Manila as may be inferred
from the word "operating" used therein. The word "operating" denotes a connotation which is akin to a registration, for under the
Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration fees. There is no pretense that the
ordinance equally applies to motor vehicles who come to Manila for a temporary stay or for short errands, and it cannot be denied
that they contribute in no small degree to the deterioration of the streets and public highway. The fact that they are benefited by their
use they should also be made to share the corresponding burden. And yet such is not the case. This is an inequality which we find
in the ordinance, and which renders it offensive to the Constitution.

Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and void.

Paras, C.J., Bengzon and Tuason, JJ., concur.

Montemayor, Reyes, Jugo and Labrador, JJ., concur in the result.
G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,

vs.

CITY OF ILOILO, defendants-appellants.

Pelaez, Jalandoni and Jamir for plaintiff-appellees.

Assistant City Fiscal Vicente P. Gengos for defendant-appellant.

NATURE OF THE CASE:

Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo
declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal
License Tax On Persons Engaged In The Business Of Operating Tenement Houses," and
ordering the City to refund to the plaintiffs-appellees the sums of collected from them under the
said ordinance.

FACTS OF THE CASE:

On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing
license tax fees on the business of operating tenement houses. The validity and constitutionality
of this ordinance were challenged by the spouses Eusebio Villanueva and Remedies Sian
Villanueva, owners of four tenement houses. The SC, in City of Iloilo vs. Remedios Sian
Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires
because it did not appear that the power to tax owners of tenement houses is among those
granted to the City of Iloilo by its Charter.

On January 15, 1960, thinking that, with the passage of Republic Act 2264 otherwise known as
the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to
that previously declared by this Court as ultra vires the municipal board of Iloilo City enacted
Ordinance 11, series of 1960 entitled AN ORDINANCE IMPOSING MUNICIPAL LICENSE
TAX ON PERSONS ENGAGED IN THE BUSINESS OF OPERATING TENEMENT
HOUSES. RA 2264 or the Local Autonomy act prohibits the levying by the Local Government
Unit of real estate or property tax.

By virtue of the ordinance in question, the appellant City collected from spouses Eusebio
Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and
from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the
years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying real estate
taxes on his property.

The plaintiffs filed a complaint against the respondent city in the Court of First Instance of Iloilo.
On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the
grounds that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the
same is "oppressive and unreasonable," for the reason that it penalizes owners of tenement
houses who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and
(d) it violates the rule of uniformity of taxation.

ISSUES OF THE CASE:

The issues posed in this appeal are:

1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double
taxation?

2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?

3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal
clause?

4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?

Whether the tax in question is a property tax.

PETITIONERS CONTENTION:

The petitioners strongly maintain that it is a "property tax" or "real estate tax,"and not a "tax on
persons engaged in any occupation or business or exercising privileges," or a license tax, or a
privilege tax, or an excise tax.

there is "lack of uniformity" and "relative inequality," because "only the taxpayers of the City of
Iloilo are singled out to pay taxes on their tenement houses, while citizens of other cities, where
their councils do not enact a similar tax ordinance, are permitted to escape such imposition."

RULING OF THE COURT:

THE TAX IN QUESTION IS NOT A REAL ESTATE TAX.

The SC held that the tax in question is not a real estate tax. A real estate tax is a direct tax on the
ownership of lands and buildings or other improvements thereon, not specially exempted,8 and is
payable regardless of whether the property is used or not, although the value may vary in
accordance with such factor. The tax is usually single or indivisible, although the land and
building or improvements erected thereon are assessed separately, except when the land and
building or improvements belong to separate owners. It is a fixed proportion of the assessed
value of the property taxed, and requires, therefore, the intervention of assessors.It is collected or
payable at appointed times, and it constitutes a superior lien on and is enforceable against the
property14 subject to such taxation, and not by imprisonment of the owner.
The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not
a tax on the land on which the tenement houses are erected, although both land and tenement
houses may belong to the same owner. The tax is not a fixed proportion of the assessed value of
the tenement houses, and does not require the intervention of assessors or appraisers. It is not
payable at a designated time or date, and is not enforceable against the tenement houses either by
sale or distraint. Clearly, therefore, the tax in question is not a real estate tax.

It is plain from the context of the ordinance that the intention is to impose a license tax on the
operation of tenement houses, which is a form of business or calling. The ordinance, in both its
title and body, designates the tax imposed as a "municipal license tax" which, by itself, means an
"imposition or exaction on the right to use or dispose of property, to pursue a business,
occupation, or calling, or to exercise a privilege."

The imposition by the ordinance of a license tax on persons engaged in the business of operating
tenement houses finds authority in section 2 of the Local Autonomy Act which provides that
chartered cities have the authority to impose municipal license taxes or fees upon persons
engaged in any occupation or business, or exercising privileges within their respective territories,
and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." .

THE CONTENTION OF THE PETITIONER THAT THE ORDINACE IS ILLEGAL

BECAUSE IT IMPOSES DOUBLE TAXATION IS DEVOID OF MERIT.

While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the
National Internal Revenue Code as real estate dealers, and still taxable under the ordinance in
question, the argument against double taxation may not be invoked. The same tax may be
imposed by the national government as well as by the local government. There is nothing
inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation,
calling or activity by both the State and a political subdivision thereof.

The contention that the plaintiffs-appellees are doubly taxed because they are paying the real
estate taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It
is a well-settled rule that a license tax may be levied upon a business or occupation although the
land or property used in connection therewith is subject to property tax. The State may collect an
ad valorem tax on property used in a calling, and at the same time impose a license tax on that
calling, the imposition of the latter kind of tax being in no sense a double tax.

"In order to constitute double taxation in the objectionable or prohibited sense the same property
must be taxed twice when it should be taxed but once; both taxes must be imposed on the same
property or subject-matter, for the same purpose, by the same State, Government, or taxing
authority, within the same jurisdiction or taxing district, during the same taxing period, and they
must be the same kind or character of tax."23 It has been shown that a real estate tax and the
tenement tax imposed by the ordinance, although imposed by the same taxing authority, are not
of the same kind or character.
There is no constitutional prohibition against double taxation in the Philippines. It is something
not favored, but is permissible, provided some other constitutional requirement is not thereby
violated, such as the requirement that taxes must be uniform."

THE TAX IN QUESTION WAS UNIFORMLY IMPOSED.

This Court has already ruled that tenement houses constitute a distinct class of property. It has
likewise ruled that "taxes are uniform and equal when imposed upon all property of the same
class or character within the taxing authority."

The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay
the taxes imposed by the ordinance in question is no argument at all against uniformity and
equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact
that tenement taxes are not imposed in other cities, for the same rule does not require that taxes
for the same purpose should be imposed in different territorial subdivisions at the same time. So
long as the burden of the tax falls equally and impartially on all owners or operators of tenement
houses similarly classified or situated, equality and uniformity of taxation is accomplished.

ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in question being valid, the
complaint is hereby dismissed. No pronouncement as to costs..

POLL TAX DEFINED

- Poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a
certain class, resident within a specified territory, without regard to their property or the
occupations in which they may be engaged.

REAL ESTATE TAX DEFINED

- A real estate tax is a direct tax on the ownership of lands and buildings or other
improvements thereon, not specially exempted,8 and is payable regardless of whether the
property is used or not, although the value may vary in accordance with such factor. The
tax is usually single or indivisible, although the land and building or improvements
erected thereon are assessed separately, except when the land and building or
improvements belong to separate owners. It is a fixed proportion of the assessed value of
the property taxed, and requires, therefore, the intervention of assessors.It is collected or
payable at appointed times, and it constitutes a superior lien on and is enforceable against
the property14 subject to such taxation, and not by imprisonment of the owner.
- Republic of the Philippines
SUPREME COURT
Manila
- EN BANC
- G.R. No. L-26521 December 28, 1968
- EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,
vs.
CITY OF ILOILO, defendants-appellants.
- Pelaez, Jalandoni and Jamir for plaintiff-appellees.
Assistant City Fiscal Vicente P. Gengos for defendant-appellant.
- CASTRO, J.:
- Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring illegal Ordinance 11,
series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons Engaged In The Business Of
Operating Tenement Houses," and ordering the City to refund to the plaintiffs-appellees the sums of collected from them
under the said ordinance.
- On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: (1)
tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in or dedicated to
business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly
engaged in business in any other streets, P12.00 per apartment. The validity and constitutionality of this ordinance were
challenged by the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses
containing 34 apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695,
March 23, 1959, declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is
one among those clearly and expressly granted to the City of Iloilo by its Charter."
- On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of Republic Act 2264,
otherwise known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that
previously declared by this Court as ultra vires, enacted Ordinance 11, series of 1960, hereunder quoted in full:
- AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF
OPERATING TENEMENT HOUSES
- Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act No. 2264, otherwise
known as the Autonomy Law of Local Government, that:
- Section 1. A municipal license tax is hereby imposed on tenement houses in accordance with the schedule of payment
herein provided.
- Section 2. Tenement house as contemplated in this ordinance shall mean any building or dwelling for renting space
divided into separate apartments or accessorias.
- Section 3. The municipal license tax provided in Section 1 hereof shall be as follows:

I. Tenement houses:

(a) Apartment house made of strong materials P20.00 per door p.a.

(b) Apartment house made of mixed materials P10.00 per door p.a.

II Rooming house of strong materials P10.00 per door p.a.

 Rooming house of mixed materials P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or dedicated to business in the

following streets: J.M. Basa, Iznart, Aldeguer, Guanco and Ledesma from Plazoleto
Gay to Valeria. St. P30.00 per door p.a.

IV. Tenement house partly or wholly engaged in or dedicated to business in any other
street P12.00 per door p.a.

V. Tenement houses at the streets surrounding the super market as soon as said place
is declared commercial P24.00 per door p.a.

- Section 4. All ordinances or parts thereof inconsistent herewith are hereby amended.
- Section 5. Any person found violating this ordinance shall be punished with a fine note exceeding Two Hundred Pesos
(P200.00) or an imprisonment of not more than six (6) months or both at the discretion of the Court.
- Section 6 This ordinance shall take effect upon approval.
ENACTED, January 15, 1960.
- In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses,
aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten
apartments. Each of the appellees' apartments has a door leading to a street and is rented by either a Filipino or Chinese
merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of the owner of the store.
Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon City,
which cities, according to him, do not impose tenement or apartment taxes.
- By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios S.
Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio,
and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been
paying real estate taxes on his property.
- On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively,
against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for
being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of
the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and
that the City be ordered to refund the amounts collected from them under the said ordinance.
- On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds that (a) "Republic
Act 2264 does not empower cities to impose apartment taxes," (b) the same is "oppressive and unreasonable," for the
reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but
treble at that and (d) it violates the rule of uniformity of taxation.
- The issues posed in this appeal are:
- 1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?
- 2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?
- 3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause?
- 4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?
- 1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:
- SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts
shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or
exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licences at rates
fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district
council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal
district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just
and uniform taxes, licenses or fees; Provided, That municipalities and municipal districts shall, in no case, impose any
percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax,
except gasoline, under the provisions of the National Internal Revenue Code;Provided, however, That no city, municipality
or municipal district may levy or impose any of the following:
- (a) Residence tax;
- (b) Documentary stamp tax;
- (c) Taxes on the business of persons engaged in the printing and publication of any newspaper, magazine, review or
bulletin appearing at regular intervals and having fixed prices for for subscription and sale, and which is not published
primarily for the purpose of publishing advertisements;
- (d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and power;
- (e) Taxes on forest products and forest concessions;
- (f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;
- (g) Taxes on income of any kind whatsoever;
- (h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the
driving thereof;
- (i) Customs duties registration, wharfage dues on wharves owned by the national government, tonnage, and all other
kinds of customs fees, charges and duties;
- (j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and
- (k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies.
- A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall provide
otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the effectivity of any
ordinance within one hundred and twenty days after its passage, if, in his opinion, the tax or fee therein levied or imposed
is unjust, excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority the effectivity of
such ordinance shall be suspended.
- In such event, the municipal board or city council in the case of cities and the municipal council or municipal district
council in the case of municipalities or municipal districts may appeal the decision of the Secretary of Finance to the court
during the pendency of which case the tax levied shall be considered as paid under protest.
- It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad taxing authority
which extends to almost "everything, excepting those which are mentioned therein," provided that the tax so levied is "for
public purposes, just and uniform," and does not transgress any constitutional provision or is not repugnant to a controlling
statute.2 Thus, when a tax, levied under the authority of a city or municipal ordinance, is not within the exceptions and
limitations aforementioned, the same comes within the ambit of the general rule, pursuant to the rules of expressio unius
est exclusio alterius, and exceptio firmat regulum in casibus non excepti.
- Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of the Local
Autonomy Act? For this purpose, it is necessary to determine the true nature of the tax. The appellees strongly maintain
that it is a "property tax" or "real estate tax,"3 and not a "tax on persons engaged in any occupation or business or
exercising privileges," or a license tax, or a privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it
as a "municipal license tax on persons engaged in the business of operating tenement houses," while section 1 thereof
states that a "municipal license tax is hereby imposed on tenement houses." It is the phraseology of section 1 on which
 the appellees base their contention that the tax involved is a real estate tax which, according to them, makes the
ordinance ultra vires as it imposes a levy "in excess of the one per centum real estate tax allowable under Sec. 38 of the
Iloilo City Charter, Com. Act 158."5.
- It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax. Obviously, the
appellees confuse the tax with the real estate tax within the meaning of the Assessment Law,6 which, although not
applicable to the City of Iloilo, has counterpart provisions in the Iloilo City Charter. 7 A real estate tax is a direct tax on the
ownership of lands and buildings or other improvements thereon, not specially exempted,8 and is payable regardless of
whether the property is used or not, although the value may vary in accordance with such factor. 9The tax is usually single
or indivisible, although the land and building or improvements erected thereon are assessed separately, except when the
land and building or improvements belong to separate owners.10 It is a fixed proportion11 of the assessed value of the
property taxed, and requires, therefore, the intervention of assessors.12 It is collected or payable at appointed times,13 and
it constitutes a superior lien on and is enforceable against the property14 subject to such taxation, and not by imprisonment
of the owner.
- The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax on the land on
which the tenement houses are erected, although both land and tenement houses may belong to the same owner. The
tax is not a fixed proportion of the assessed value of the tenement houses, and does not require the intervention of
assessors or appraisers. It is not payable at a designated time or date, and is not enforceable against the tenement
houses either by sale or distraint. Clearly, therefore, the tax in question is not a real estate tax.
- "The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court looks less to its words
and more to the context, subject-matter, consequence and effect. Accordingly, what is within the spirit is within the
ordinance although it is not within the letter thereof, while that which is in the letter, although not within the spirit, is not
within the ordinance."15 It is within neither the letter nor the spirit of the ordinance that an additional real estate tax is being
imposed, otherwise the subject-matter would have been not merely tenement houses. On the contrary, it is plain from the
context of the ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a form
of business or calling. The ordinance, in both its title and body, particularly sections 1 and 3 thereof, designates the tax
imposed as a "municipal license tax" which, by itself, means an "imposition or exaction on the right to use or dispose of
property, to pursue a business, occupation, or calling, or to exercise a privilege."16.
- "The character of a tax is not to be fixed by any isolated words that may beemployed in the statute creating it, but such
words must be taken in the connection in which they are used and the true character is to be deduced from the nature and
essence of the subject."17 The subject-matter of the ordinance is tenement houses whose nature and essence are
expressly set forth in section 2 which defines a tenement house as "any building or dwelling for renting space divided into
separate apartments or accessorias." The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695,
March 23, 1959, adopted the definition of a tenement house18 as "any house or building, or portion thereof, which
is rented, leased, or hired out to be occupied, or is occupied, as the home or residence of three families or more living
independently of each other and doing their cooking in the premises or by more than two families upon any floor, so living
and cooking, but having a common right in the halls, stairways, yards, water-closets, or privies, or some of them."
Tenement houses, being necessarily offered for rent or lease by their very nature and essence, therefore constitute
a distinct form of business or calling, similar to the hotel or motel business, or the operation of lodging houses or boarding
houses. This is precisely one of the reasons why this Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva,
et al., supra, declared Ordinance 86 ultra vires, because, although the municipal board of Iloilo City is empowered, under
sec. 21, par. j of its Charter, "to tax, fix the license fee for, and regulate hotels, restaurants, refreshment parlors,
cafes, lodging houses, boarding houses, livery garages, public warehouses, pawnshops, theaters, cinematographs,"
tenement houses, which constitute a different business enterprise,19 are not mentioned in the aforestated section of the
City Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:.
- "And it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted
to the City of Iloilo by its Charter, the exercise of such power cannot be assumed and hence the ordinance in question
is ultra vires insofar as it taxes a tenement house such as those belonging to defendants." .
- The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment tax. Called by
either name, it is not among the exceptions listed in section 2 of the Local Autonomy Act. On the other hand, the
imposition by the ordinance of a license tax on persons engaged in the business of operating tenement houses finds
authority in section 2 of the Local Autonomy Act which provides that chartered cities have the authority to impose
municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges within their
respective territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." .
- 2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that," because "buildings
pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code,
besides the tenement tax under the said ordinance." Obviously, what the trial court refers to as "income taxes" are the
fixed taxes on business and occupation provided for in section 182, Title V, of the National Internal Revenue Code, by
virtue of which persons engaged in "leasing or renting property, whether on their account as principals or as owners of
rental property or properties," are considered "real estate dealers" and are taxed according to the amount of their annual
income.20.
- While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal Revenue
Code as real estate dealers, and still taxable under the ordinance in question, the argument against double taxation may
not be invoked. The same tax may be imposed by the national government as well as by the local government. There is
nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or
activity by both the State and a political subdivision thereof.21.
- The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the
tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-settled rule that a license tax may
be levied upon a business or occupation although the land or property used in connection therewith is subject to property
tax. The State may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on
that calling, the imposition of the latter kind of tax being in no sensea double tax. 22.
- "In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice
when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same
purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the
same taxing period, and they must be the same kind or character of tax."23 It has been shown that a real estate tax and
the tenement tax imposed by the ordinance, although imposed by the sametaxing authority, are not of the same kind or
character.
- At all events, there is no constitutional prohibition against double taxation in the Philippines. 24 It is something not favored,
but is permissible, provided some other constitutional requirement is not thereby violated, such as the requirement that
taxes must be uniform."25.
- 3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only oppressive
because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both, if the owner or owners of the
tenement buildings divided into apartments do not pay the tenement or apartment tax fixed in said ordinance," but also
unconstitutional as it subjects the owners of tenement houses to criminal prosecution for non-payment of an obligation
which is purely sum of money." The lower court apparently had in mind, when it made the above ruling, the provision of
the Constitution that "no person shall be imprisoned for a debt or non-payment of a poll tax."26 It is elementary, however,
that "a tax is not a debt in the sense of an obligation incurred by contract, express or implied, and therefore is not within
the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment for debt, and a statute or
ordinance which punishes the non-payment thereof by fine or imprisonment is not, in conflict with that prohibition." 27 Nor is
the tax in question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a certain
class, resident within a specified territory, without regard to their property or the occupations in which they may be
engaged.28 Therefore, the tax in question is not oppressive in the manner the lower court puts it. On the other hand, the
charter of Iloilo City29 empowers its municipal board to "fix penalties for violations of ordinances, which shall not exceed a
fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment for each offense." In Punsalan,
et al. vs. Mun. Board of Manila, supra, this Court overruled the pronouncement of the lower court declaring illegal and void
 an ordinance imposing an occupation tax on persons exercising various professions in the City of Manilabecause it
imposed a penalty of fine and imprisonment for its violation.30.
- 4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.
- "... because while the owners of the other buildings only pay real estate tax and income taxes the ordinance imposes
aside from these two taxes an apartment or tenement tax. It should be noted that in the assessment of real estate tax all
parts of the building or buildings are included so that the corresponding real estate tax could be properly imposed. If aside
from the real estate tax the owner or owners of the tenement buildings should pay apartment taxes as required in the
ordinance then it will violate the rule of uniformity of taxation.".
- Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity" and "relative
inequality," because "only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses, while
citizens of other cities, where their councils do not enact a similar tax ordinance, are permitted to escape such
imposition." .
- It is our view that both assertions are undeserving of extended attention. This Court has already ruled that tenement
houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon
all property of the same class or character within the taxing authority." 31 The fact, therefore, that the owners of other
classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all
against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that
tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the same purpose should
be imposed in different territorial subdivisions at the same time.32So long as the burden of the tax falls equally and
impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of
taxation is accomplished.33 The plaintiffs-appellees, as owners of tenement houses in the City of Iloilo, have not shown
that the tax burden is not equally or uniformly distributed among them, to overthrow the presumption that tax statutes are
intended to operate uniformly and equally.34.
- 5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere reproduction of
Ordinance 86 of the City of Iloilo which was declared by this Court in L-12695, supra, as ultra vires, the decision in that
case should be accorded the effect of res judicata in the present case or should constitute estoppel by judgment. To
dispose of this contention, it suffices to say that there is no identity of subject-matter in that case andthis case because
the subject-matter in L-12695 was an ordinance which dealt not only with tenement houses but also warehouses, and the
said ordinance was enacted pursuant to the provisions of the City charter, while the ordinance in the case at bar was
enacted pursuant to the provisions of the Local Autonomy Act. There is likewise no identity of cause of action in the two
cases because the main issue in L-12695 was whether the City of Iloilo had the power under its charter to impose the tax
levied by Ordinance 11, series of 1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore
was not available for consideration in the decision in L-12695 which was promulgated on March 23, 1959. Moreover,
under the provisions of section 2 of the Local Autonomy Act, local governments may now tax any taxable subject-matter
or object not included in the enumeration of matters removed from the taxing power of local governments.Prior to the
enactment of the Local Autonomy Act the taxes that could be legally levied by local governments were only those
specifically authorized by law, and their power to tax was construed in strictissimi juris. 35.
- ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the complaint is hereby
dismissed. No pronouncement as to costs..
- Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,Fernando and Capistrano, JJ., concur..
G.R. No. 104151 March 10, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.

COURT OF APPEALS, ATLAS CONSOLIDATED MINING AND DEVELOPMENT

CORPORATION and COURT OF TAX APPEALS, respondents.

G.R No. 105563 March 10, 1995

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,

vs.

COURT OF APPEALS COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX

APPEALS,respondents.

NATURE OF THE CASE

Before us for joint adjudication are two petitions for review on certiorari separately filed by the
Commissioner of Internal Revenue in G.R. No. 104151, and by Atlas Consolidated Mining and
Development Corporation in G.R. No. 105563, which respectively seek the aside of the
judgments of respondent Court of Appeals in CA-G.R. SP No. 25945 promulgated on February
12, 1992 1 and in CA-G.R. SP No. 26087 promulgated on May 22, 1992. 2

FACTS OF THE CASE

Atlas Consolidated Mining and Development Corporation (herein also referred to as ACMDC) is
a domestic corporation which owns and operates a mining concession at Toledo City, Cebu, the
products of which are exported to Japan and other foreign countries.

On April 9, 1980, the Commissioner of Internal Revenue caused the service of an assessment
notice and demand for payment of the amount of P12,391,070.51 representing deficiency ad
valorem percentage and fixed taxes, including increments, for the taxable year 1975 against
ACMDC. The Commissioner had another assessment notice, with a demand for payment of the
amount of P13,531,466.80 representing the 1976 deficiency ad valorem and business taxes with
P5,000.00 compromise penalty, served on ACMDC on September 23, 1980.

ACMDC protested both assessments but the same were denied, hence it filed two separate
petitions for review in the Court of Tax Appeals. The Court of Tax Appeals rendered a
consolidated decision holding, inter alia, that ACMDC was not liable for deficiency ad valorem
taxes on copper and silver for 1975 and 1976 in the respective amounts of P11,276,540.79 and
P12,882,760.80 thereby effectively sustaining the theory of ACMDC that in computing the ad
valorem tax on copper mineral, the refining and smelting charges should be deducted, in addition
to freight and insurance charges, from the London Metal Exchange (LME) price of manufactured
copper.

However, the tax court held ACMDC liable for the amount of P1,572,637.48, exclusive of
interest, consisting of 25% surcharge for late payment of the ad valorem tax and late filing of
notice of removal of silver, gold and pyrite extracted during certain periods, and for alleged
deficiency manufacturer's sales tax and contractor's tax.

Both parties elevated their respective contentions to respondent Court of Appeals in two separate
petitions for review. The petition filed by the Commissioner, which was docketed as CA-G.R. SP
No. 25945, questioned the portion of the judgment of the tax court deleting the ad valorem tax on
copper and silver, while the appeal filed by ACMDC and docketed as CA-G.R. SP No. 26087
assailed that part of the decision ordering it to pay P1,572,637.48 representing alleged deficiency
assessment.

Judgment was rendered by respondent Court of Appeals in CA-G.R. SP No. 25945, dismissing
the petition and affirming the tax court's decision on the manner of computing the ad valorem
tax. Hence, the Commissioner of Internal Revenue filed a petition before. Judgment was likewise
rendered by the same respondent court in CA-G.R. SP No. 26087, modifying the judgment of the
tax court and further reducing the tax liability of ACMDC.

Still not satisfied with the said judgment which had reduced its tax liability to P906,124.49, as a
final recourse ACMDC came to this Court on a petition for review on certiorari claiming that it
is not liable at all for any deficiency tax assessments for 1975 and 1976.

ISSUES OF THE CASE

1. Whether in computing the ad valorem tax on copper, charges for smelting and refining
should also be deducted, in addition to freight and insurance costs, from the price of copper
concentrates.

2. Is the claim of the private respondent, with respect to the contractor's tax, impressed with
merit?

RULING

Issue #1

The ad valorem tax of 2% is imposed on the actual market value of the annual gross output of the
minerals or mineral products extracted or produced from all mineral lands not covered by lease.
In computing the tax, the term "gross output" shall be the actual market value of minerals or
mineral products, or of bullion from each mine or mineral lands operated as a separate entity,
without any deduction for mining, milling, refining, transporting, handling, marketing or any
other expenses. If the minerals or mineral products are sold or consigned abroad by the lessee or
owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be
deducted.

In other words, the assessment shall be based, not upon the cost of production or extraction of
said minerals or mineral products, but on the price which the same before or without
undergoing a process of manufacture would command in the ordinary course of business.

Ad valorem tax is to be computed on the basis of the market value of the mineral in its condition
at the time of such removal and before it undergoes a chemical change through manufacturing
process, as distinguished from a purely physical process which does not necessarily involve the
change or transformation of the raw material into a composite distinct product.

Therefore, the imposable ad valorem tax should be based on the selling price of the quarried
minerals, which is its actual market value, and not on the price of the manufactured product. If
the market value chosen for the reckoning is the value of the manufactured or finished product,
as in the case at bar, then all expenses of processing or manufacturing should be deducted in
order to approximate as closely as is humanly possible the actual market value of the raw mineral
at the mine site.

It was copper ore that was extracted by ACMDC from its mine site which, through a simple
physical process of removing impurities therefrom, was converted into copper concentrate In
turn, this copper concentrate underwent the process of smelting and refining, and the finished
product is called copper cathode or copper wire bar. The copper wire bar is the manufactured
copper. It is not the mineral extracted from the mine site nor can it be considered a mineral
product since it has undergone a manufacturing process.

ISSUE #2

No. It is being held that ACMDC was not a manufacturer subject to the percentage tax imposed
by Section 186 of the tax code. However such conclusion cannot be made with respect to the
contractor's tax being imposed on ACMDC. It cannot validly claim that the leasing out of its
personal properties was merely an isolated transaction. Its book of accounts shows that several
distinct payments were made for the use of its personal properties such as its plane, motor boat
and dump truck. The series of transactions engaged in by ACMDC for the lease of its aforesaid
properties could also be deduced from the fact that during the period there were profits earned
and reported therefor. The allegation of ACMDC that it did not realize any profit from the
leasing out of its said personal properties, since its income therefrom covered only the costs of
operation such as salaries and fuel, is not supported by any documentary or substantial evidence.

Assessments are prima facie presumed correct and made in good faith. Contrary to the theory
of ACMDC, it is the taxpayer and not the BIR who has the duty of proving otherwise. It is an
elementary rule that in the absence of proof of any irregularities in the performance of official
duties, an assessment will not be disturbed. All presumptions are in favor of tax assessments.
Verily, failure to present proof of error in assessments will justify judicial affirmance of said
assessment.

WHEREFORE, the impugned judgment of respondent Court of Appeals in CA-G.R. SP No.

25945, subject of the present petition in G.R. No. 104151 is hereby AFFIRMED; and its assailed
judgment in CA-G.R SP No. 26087 is hereby MODIFIED by exempting Atlas Consolidated
Mining and Development Corporation, petitioner in G.R. No. 105563 of this Court, from the
payment of manufacturer's sales tax, surcharge and interest during the taxable year 1975.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 104151 March 10, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION and COURT OF TAX
APPEALS, respondents.

G.R No. 105563 March 10, 1995

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS,respondents.

REGALADO, J.:

Before us for joint adjudication are two petitions for review on certiorari separately filed by the Commissioner of Internal
Revenue in G.R. No. 104151, and by Atlas Consolidated Mining and Development Corporation in G.R. No. 105563, which
respectively seek the aside of the judgments of respondent Court of Appeals in CA-G.R. SP No. 25945 promulgated on
February 12, 1992 1 and in CA-G.R. SP No. 26087 promulgated on May 22,
1992. 2
Atlas Consolidated Mining and Development Corporation (herein also referred to as ACMDC) is a domestic corporation
which owns and operates a mining concession at Toledo City, Cebu, the products of which are exported to Japan and
other foreign countries. On April 9, 1980, the Commissioner of Internal Revenue (also Commissioner, for brevity), acting
on the basis of the report of the examiners of the Bureau of Internal Revenue (BIR), caused the service of an assessment
notice and demand for payment of the amount of P12,391,070.51 representing deficiency ad valorempercentage and fixed
taxes, including increments, for the taxable year 1975 against ACMDC. 3

Likewise, on the basis. of the BIR examiner's report in another investigation separately conducted, the Commissioner had
another assessment notice, with a demand for payment of the amount of P13,531,466.80 representing the 1976
deficiency ad valorem and business taxes with P5,000.00 compromise penalty, served on ACMDC on September 23,
1980. 4

ACMDC protested both assessments but the. same were denied, hence it filed two separate petitions for review in the
Court of Tax Appeals (also, tax court) where they were docketed as C.T.A. Cases Nos. 3467 and 3825. These two cases,
being substantially identical in most respects except for the taxable periods and the amounts involved, were eventually
consolidated.

On May 31, 1991, the Court of Tax Appeals rendered a consolidated decision holding, inter alia, that ACMDC was not liable
for deficiency ad valorem taxes on copper and silver for 1975 and 1976 in the respective amounts of P11,276,540.79 and
P12,882,760.80 thereby effectively sustaining the theory of ACMDC that in computing the ad valorem tax on copper mineral,
the refining and smelting charges should be deducted, in addition to freight and insurance charges, from the London Metal
Exchange (LME) price of manufactured copper.

However, the tax court held ACMDC liable for the amount of P1,572,637.48, exclusive of interest, consisting of 25%
surcharge for late payment of the ad valorem tax and late filing of notice of removal of silver, gold and pyrite extracted
during certain periods, and for alleged deficiency manufacturer's sales tax and contractor's tax.

The particulars of the reduced amount of said tax obligation is enumerated in detail in the dispositive portion of the
questioned judgment of the tax court, thus:

WHEREFORE, petitioner should and is hereby ORDERED to pay the total amount of the following:

a) P297,900.39 as 25% surcharge on silver extracted during the period November 1,

1974 to December 31, 1975.

b) P161,027.53 as 25% surcharge on silver extracted for the taxable year 1976.

c) P315,027.30 as 25% surcharge on gold extracted during the period November 1,

1974 to December 31, 1975.

d) P260,180.55 as 25% surcharge on gold during the taxable year 1976.

e) P53,585.30 as 25% surcharge on pyrite extracted during the period November 1,

1974 to December 31, 1975.

f) P53,283.69 as 25% surcharge on pyrite extracted during the taxable year 1976.

g) P316,117.53 as deficiency manufacturer's sales tax and surcharge during the

taxable year 1975; plus 14% interest from January 21, 1976 until fully paid as
provided under Section 183 of P.D. No. 69.

h) P23,631.44 as deficiency contractor's tax and surcharge on the lease of personal

property during the taxable year 1975; plus 14% interest from January 21, 1976 until
fully paid as provided under Section 183 of P.D. 69.

i) P91,883.75 as deficiency contractor's tax and surcharge on the lease of personal

property during the taxable year 1976, plus 14% interest from April 21, 1976 until
fully paid as provided under. Section 183 of P.D. No. 69.

With costs against petitioner. 5

As a consequence, both parties elevated their respective contentions to respondent Court of Appeals in two separate
petitions for review. The petition filed by the Commissioner, which was docketed as CA-G.R. SP No. 25945, questioned the
portion of the judgment of the tax court deleting the ad valoremtax on copper and silver, while the appeal filed by ACMDC
and docketed as CA-G.R. SP No. 26087 assailed that part of the decision ordering it to pay P1,572,637.48 representing
alleged deficiency assessment.

On February 12, 1992, judgment was rendered by respondent Court of Appeals in CA-G.R. SP No. 25945, dismissing the
Hence, the
petition and affirming the tax court's decision on the manner of computing the ad valorem tax. 6
Commissioner of Internal Revenue filed a petition before- us in G.R. No.
104151, raising the sole issue of whether or not, in computing the ad
valorem tax on copper, charges for smelting and refining should also be
deducted, in addition to freight and insurance costs, from the price of
copper concentrates.
On May 22, 1992, judgment was likewise rendered by the same respondent court in CA-G.R. SP No. 26087, modifying the
judgment of the tax court and further reducing the tax liability of ACMDC by deleting therefrom the following items:

(1) the award under paragraph (a) of P297,900.39 as 25% surcharge on silver extracted during the period
November 1, 1974 to December 31, 1975;

(2) the award under paragraph (c) thereof of P315,027.30 as 25% surcharge on gold extracted during the
period November 1, 1974 to December 31, 1975; and

(3) the award under paragraph (e) thereof of P53,585.30 as 24% (sic, 25%) surcharge on pyrite extracted
during the period November 1, 1974 to December 31, 1975. 7

Still not satisfied with the said judgment which had reduced its tax liability to P906,124.49, as a final recourse ACMDC
came to this Court on a petition for review on certiorari in G.R. No. 105563, claiming that it is not liable at all for any
deficiency. tax assessments for 1975 and 1976. In our resolution of September 1, 1993, G.R. No. 104151 was ordered
consolidated with G.R. No. 105563. 8

I. G.R No. 104151

The Commissioner of Internal Revenue claims that the Court of Appeals and the tax court erred in allowing the deduction
of refining and smelting charges from the price of copper concentrates. It is the contention of the Commissioner that the
actual market value of the mineral products should be the gross sales realized from copper concentrates, deducting
therefrom mining, milling, refining, transporting, handling, marketing or any other expenses. He submits that the phrase
"or any other expenses" includes smelting and refining charges and that the law allows deductions for actual cost of
ocean freight and insurance only in instances where the minerals or mineral products are sold or consigned abroad by the
lessees or owner of the mine under C.I.F. terms, hence it is error to allow smelting and refining charges as deductions.

We are not persuaded by his postulation and find the arguments adduced in support thereof untenable.

The pertinent provisions of the National Internal Revenue Code (tax code, for facility) at the time material to this
controversy, read as follows:

Sec. 243. Ad valorem taxes on output of mineral lands not covered by lease. There is hereby imposed
on the actual market value of the annual gross output of the minerals mineral products extracted or
produced from all mineral lands not covered by lease, an ad valorem tax in the amount of two per
centum of the value of the output except gold which shall pay one and one-half per centum.

Before the minerals or mineral products are removed from the mines, the Commissioner of Internal
Revenue or his representatives shall first be notified of such removal on a form prescribed for the
purpose. (As amended by Rep. Act No. 6110.)

Sec. 246. Definitions of the terms "gross output," "minerals" and "mineral products." Disposition of
royalties and ad valorem taxes. The term "gross output" shall be interpreted as the actual market value
of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate
entity without any deduction from mining, milling, refining, transporting, handling, marketing, or any
other expenses: Provided, however, That if the minerals or mineral products are sold or consigned.
abroad by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and
insurance shall be deducted. The output of any group of contiguous mining claim shall not be
subdivided. The word "minerals" shall mean all inorganic substances found in nature whether in solid,
liquid, gaseous, or any intermediate state. The term "mineral products" shall mean things produced by
the lessee, concessionaire or owner of mineral lands, at least eighty per cent of which things must be
minerals extracted by such lessee, concessionaire, or owner of mineral lands. Ten per centum of the
royalties and ad valorem taxes herein provided shall accrue to the municipality and ten per centum to
the province where the-mines are situated, and eighty per centum to the National Treasury. (As
amended by Rep. Acts Nos. 834, 1299, and by Rep. Act No. 1510, approved June 16, 1956)."

To rephrase, under the aforequoted provisions, the ad valorem tax of 2% is imposed on the actual market value of the
annual gross output of the minerals or mineral products extracted or produced from all mineral lands not covered by lease.
In computing the tax, the term "gross output" shall be the actual market value of minerals or mineral products, or of
bullion from each mine or mineral lands operated as a separate entity, without any deduction for mining, milling, refining,
transporting, handling, marketing or any other expenses. If the minerals or mineral products are sold or consigned abroad
by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted.

In other words, the assessment shall be based, not upon the cost of production or extraction of said minerals or mineral
products, but on the price which the same before or without undergoing a process of manufacture would command
in the ordinary course of business. 9

In the instant case, the allowance by the tax court of smelting and refining charges as deductions is not contrary to the
above-mentioned provisions of the tax code which ostensibly prohibit any form of deduction except freight and insurance
charges. A review of the records will show that it was the London Metal Exchange price on wire bar which was used as tax
base by ACMDC for purposes of the 2% ad valorem tax on copper concentrates since there was no available market price
quotation in the commodity exchange or markets of the world for copper concentrates nor was there any market quotation
Hence, the charges for smelting and refining were
locally obtainable. 10
assessed not on the basis of the price of the copper extracted at the
mine site which is prohibited by law, but on the basis of the actual
market value of the manufactured copper which in this case is the price
quoted for copper wire bar by the London Metal Exchange.
The issue of whether the ad valorem tax should be based upon the value of the finished product, or the value upon
extraction of the raw materials or minerals used in the manufacture of said finished products, has been passed upon by us
in several cases wherein we held that the ad valorem tax is to be computed on the basis of the market value of the mineral
in its condition at the time of such removal and before it undergoes a chemical change through manufacturing process, as
distinguished from a purely physical process which does not necessarily involve the change or transformation of the raw
material into a composite distinct product. 11

Thus, in the case of Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, 12 this Court ruled:
. . . ad valorem tax is a tax not on the minerals, but upon the privilege of severing or extracting the same
from the earth, the government's right to exact the said impost springing from the Regalian theory of
State ownership of its natural resources.

. . . While cement is composed of 80% minerals, it is not merely an admixture or blending of raw
materials, as lime, silica, shale and others. It is the result of a definite the crushing of minerals, grinding,
mixing, calcining, cooling, adding of retarder or raw gypsum. In short, before cement reaches its
saleable form, the minerals had already undergone a chemical change through manufacturing process,
This could not have been the state of mineral products' that the law contemplates for purposes of
imposing the ad valorem tax. . . . this tax is imposed on the privilege of extracting or severing the
minerals from the mines. To our minds, therefore the inclusion of the term mineral products is intended
to comprehend cases where the mined or quarried elements may not be usable in its original state
without application of simple treatments . . . which process does not necessarily involve the change or
transformation of the raw materials into a composite, distinct product. . . . While the selling price of
cement may reflect the actual market value of cement, said selling price cannot be taken as the market
value also of the minerals composing the cement. And it was not the cement that was mined, only the
minerals composing the finished product.

This view was subsequently affirmed in the resolution of the Court denying the motion for reconsideration of its aforesaid
decision, 13 reiterated that the pertinent part of which reiterated that
. . . the ad valorem tax in question should be based on the actual market value of the quarried minerals
used in producing cement, . . . the law intended to impose the ad valoremtax upon the market value of
the component mineral products in their original state before processing into cement. . . . the law does
not impose a tax on cement qua cement, but on mineral products at least 80% of which must be
minerals extracted by the lessee, concessionaire or owner of mineral lands.

The Court did not, and could not, rule that cement is a manufactured product subject to sales tax, for
the reason that such liability had never been litigated by the parties. What it did declare is that, while
cement is a mineral product, it is no longer in the state or condition contemplated by the law; hence the
market value of the cement could not be the basis for computing the ad valorem tax, since the ad
valorem tax is a severance tax i.e., a charge upon the privilege of severing or extracting minerals from
 the earth, (Dec. p. 4) and is due and payable upon removal of the mineral product from its bed or mine
(Tax Code s. 245).

Therefore, the imposable ad valorem tax should be based on the selling price of the quarried minerals, which is its actual
market value, and not on the price of the manufactured product. If the market value chosen for the reckoning is the value
of the manufactured. or finished product, as in the case at bar, then all expenses of processing or manufacturing should
be deducted in order to approximate as closely as is humanly possible the actual market value of the raw mineral at the
mine site.

It was copper ore that was extracted by ACMDC from its mine site which, through a simple physical process of removing
impurities therefrom, was converted into copper concentrate In turn, this copper concentrate underwent the process of
smelting and refining, and the finished product is called copper cathode or copper wire bar.

The copper wire bar is the manufactured copper. It is not the mineral extracted from the mine site nor can it be considered
a mineral product since it has undergone a manufacturing process, to wit:

I. The physical process involved in the production of copper concentrate are the following (p. 19, BIR
records; Exh. H, p. 43, Folder I of Exhibits.)

A Mining Process

(1) Blasting The ore body is broken up by blasting.

(2) Loading The ore averaging about 1/2 percent

copper is loaded into ore trucks by electric shovels.

(3) Hauling The trucks of ore are hauled to the mill.

B Milling Process

(1) Crushing The ore is crushed to pieces the size of peanuts.

(2) Grinding The crushed ore is ground to powder form.

(3) Concentrating The mineral bearing particles in the

powdered ore are concentrated.

The ores or rocks, transported by conveyors, are crushed repeatedly by steel balls into size of peanuts,
when they are ground and pulverized. The powder is fed into concentrators where it is mixed with water
and other reagents. This is known in the industry as a flotation phase. The copper-bearing materials
float while the non-copper materials in the rock sink. The material that floats is scooped and dried and
piled. This is known as copper concentrate. The material at the bottom is waste, and is known in the
industry as tailings. In Toledo City, tailings are disposed of through metal pipes from the flotation mills
to the open sea. Copper concentrate of petitioner contains 28-31% copper. The concentrate is loaded in
ocean vessels and shipped to Mitsubishi Metal Corporation mills in Japan, where the smelting, refining
and fabricating processes are done. (Memorandum of petitioner, p. 71, CTA records.)

II. The chemical or manufacturing process in the production of wire bar is as follows: (Exh. 'H', p. 43,
Folder I of exhibits.)

A. Smelting

(1) Drying The copper concentrates (averaging about 30 percent copper) are dried.

1. Flash Furnace The dried concentrate is smelted autogenously and a matte containing 65
percent is produced.
2. Converter The matte is converted to blister copper with a purity of about 99 per cent.

B. Refining
 (1) Casting Wheel Blister copper is treated in an anode furnace where. copper
requiring further treatment is sent to the casting wheel to produce cathode copper.

(2) Electrolytic Refining Anode copper is further refined by electrolytic refining to

produce cathode copper.

C. Fabricating

(1) Rolling Fire refined or electroly-tic copper-and/or brass (a mixture Of copper

and zinc) is made into tubes, sheets, rods and wire.

(2) Extruding Sheet tubes, rods and wire are further fabricated into the copper
articles in everyday use.

The records show that cathodes, with purity of 99.985% are cast or fabricated into various shapes,
depending on their industrial destination. Cathodes are metal sheets of copper 1 meter x 1 meter x 16-
16 millimeter thick and 160 kilograms in weight, although this thickness is not uniform for all the sheets.
Cathodes sheets are not suitable for direct fabrication, hence, are further fabricated into the desired
shape, like wire bar, billets and cakes. (p. 1, deposition, London,) Wire bars are rectangular pieces, 100
millimeter x 100 millimeter x 1.37 meters long and weigh some 125 kilos. They are suited for copper
wires and copper rods. Billets are fabricated into tubes and heavy electric sections. Cakes are in the
form of thick sheets and strips. (pp. 13, 18-21, deposition, Japan, Exhs. "C" & "G", Japan, pp. 1-2,
deposition, London, see pp. 70-72, CTA records.) 14

Significantly, the finding that copper wire bar is a product of a manufacturing process finds support in the definition of a
"manufacturer" in Section 194 (x) of the aforesaid tax code which provides:

"Manufacturer" includes every person who by physical or chemical process alters the exterior texture
or form or inner substance of any raw material or manufactured or partially manufactured product in
such a manner as to prepare it for a special use or uses to which it could not have been put in its
original condition, or who by any such process alters the quality of any such raw material or
manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for
any of the uses of industry, or who by any such process combines any such raw material or
manufactured or partially manufactured products with other materials: or products of the same or
different kinds and in such manner that the finished product of such process or manufacture can be put
to a special use or uses to which such raw material or manufactured or partially manufactured products,
or combines the same to produce such finished products for the purpose of their sale or distribution to
others and not for his own use or consumption.

Moreover, it is also worth noting at this point that the decision of the tax court was based on its previous ruling in the case
of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, 15 dated
January 23, 1981, which we quote with approval:
. . . The controlling law is clear and specific; it should therefore be applied as Since the mineral or
mineral product removed from its bed or mine at Toledo City by petitioner is copper concentrate as
admitted by respondent himself, not copper wire bar, the actual market value of such copper
concentrate in its condition at the time of such removal without any deduction from mining, milling,
refining, transporting, handling, marketing, or any other expenses should be the basis of the 2% ad
valorem tax.

The conclusion reached is rendered clearer when it is taken into consideration that the ad valorem tax
is a severance tax, a charge upon the privilege of severing or extracting minerals from the earth, and is
due and payable upon removal of the mineral product from its bed or mine, the tax being computed on
the basis of the market value of the mineral in its condition at the time of such removal and before its
being substantially changed by chemical or manufacturing (as distinguished from purely physical)
processing. (Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, supra.) Copper wire
bars, as discussed above,, have already undergone chemical or manufacturing processing in Japan,
they are not extracted or produced from the earth by petitioner in its mine site at Toledo City. Since
the ad valorem tax is computed on the basis of the actual market value of the mineral in its condition at
the time of its removal from the earth, which in this case is copper concentrate, there is no basis
therefore for an assertion that such tax should be measured on the basis of the London Metal Exchange
price quotation of the manufactured wire bars without any deduction of smelting and refining charges.
 In resume:

1. The mineral or mineral product of petitioner the extraction or severance from the
soil. of which the ad valorem tax is directed is copper concentrate.

2. The ad valorem tax is computed on the basis of the actual market value of the
copper concentrate in its condition at the time of removal from the earth and before
substantially changed by chemical or manufacturing process without any deduction
milling, refining, from mining, transporting, handling, marketing, or any other
expenses. However, since the copper concentrate is sold abroad by petitioner under
C.I.F. terms, the actual cost of ocean freight and insurance is deductible.

3. There being no market price quotation of copper concentrate locally or in the

commodity exchanges or markets of the world, the London Metal Exchange price
quotation of copper wire bar, which is used by petitioner and Mitsubishi Metal
Corporation as reference to determine the selling price of copper concentrate, may
likewise be employed in this case as reference point in ascertaining the actual
market value of copper concentrate for ad valorem tax purposes. By deducting from
the London Metal Exchange price quotation of copper wire bar all charges and costs
incurred after the copper concentrate has been shipped from Toledo City to the time
the same has been manufactured into wire bar, namely, smelting, electrolytic
refining and fabricating, the remainder represents to a reasonable degree the actual
market value of the copper concentrate in its condition at the time of extraction or
removal from its bed in Toledo City for the purposes of the ad valorem tax.

The Commissioner of Internal Revenue argues that the ruling in the case above stated is not binding, considering that the
incumbent Commissioner of Internal Revenue is not bound by decisions or rulings of his predecessor when he finds that a
different construction of the law should be adopted, invoking therefor the doctrine enunciated in Hilado vs. Collector of
This trenches on specious reasoning. What was
internal Revenue, et a1, 16
involved in the Hilado case was a previous ruling of a former
Commissioner of Internal Revenue. In the case at bar, the Commissioner
based his findings on a previous decision rendered by the Court of Tax
Appeals itself.
The Court of Tax Appeals is not a mere superior administrative agency or tribunal but is a part of the judicial system of the
It was created by Congress pursuant to Republic Act No. 1125,
Philippines. 17
effective June 16, 1954, as a centralized court specializing in tax cases.
It is a regular court vested with exclusive appellate jurisdiction over
cases arising under the National Internal Revenue Code, the Tariff and
Customs Code, and the Assessment Law. 18
Although only the decisions of the Supreme Court establish jurisprudence or doctrines in this jurisdiction, nonetheless
the decisions of subordinate courts have a persuasive effect and may serve as judicial guides. It is even possible that
such a conclusion or pronouncement can be raised to the status of a doctrine if, after it has been subjected to test in the
crucible of analysis and revision the Supreme Court should find that it has merits and qualities sufficient for its
consecration as a rule of jurisprudence. 19

Furthermore, as a matter of practice and principle, the Supreme Court will not set aside the conclusion reached by an
agency such as the Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study
and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an
abuse or improvident exercise of authority on its part. 20

II. G.R. No. 105563

The petition herein raises the following issues for resolution:

 A. Whether or not petitioner is liable for payment, of the 25% surcharge for alleged
late filing of notice of removal/late payment of the ad valorem tax on silver, gold and
pyrite extracted during the taxable year 1976.

B. Whether or not petitioner is liable for payment of the manufacturer' s sales tax and
surcharge during the taxable year 1975, plus interest, on grinding steel balls
borrowed by its competitor; and

C. 'Whether or not petitioner is liable for payment of the contractor's tax and
surcharge on the alleged lease of personal property during the taxable years 1975
and 1976 plus interest. 21

A. Surcharge on Silver, Gold and Pyrite

ACMDC argues that the Court of Appeals erred in holding it liable to pay 25% surcharge on silver, gold and pyrite
extracted by it during tax year 1976.

Sec. 245 of the then tax code states:

Sec. 245. Time and manner of payment of royalties or ad valorem taxes. The royalties or ad
valorem taxes as the case may be, shall be due and payable upon the removal of the mineral products
from the locality where mined. However, the output of the mine may be removed from such locality
without the pre-payment of such royalties or ad valorem taxes if the lessee, owner, or operator shall file
a bond in the form and amount and with such sureties as the Commissioner of Internal Revenue may
require,. conditioned upon the payment of such royalties or ad valorem taxes, in which case it shall be
the duty of every lessee, owner, or operator of a mine to make a true and complete return in duplicate
under oath setting forth the quantity and the actual market value of the output of his mine removed
during each calendar quarter and pay the royalties or ad valorem taxes due thereon within twenty days
after the close of said quarter.

In case the royalties or ad valorem taxes are not paid within the period prescribed above, there shall be
added thereto a surcharge of twenty-five per centum. Where a false or fraudulent return is made, there
shall be added to the royalties or ad valorem taxes a surcharge of fifty per centum of their amount. The
surcharge So, added: shall be collected in the same manner and as part of the royalties or ad
valorem taxes, as the case may be.

Under the aforesaid provision, the payment of the ad valorem tax shall be made upon removal of the mineral products
from the mine site or if payment cannot be made, by filing a bond in the form and amount to be approved by the
Commissioner conditioned upon the payment of the said tax.

In the instant case, the records show that the payment of the ad valorem tax on gold, silver and pyrite was belatedly made.
ACMDC, however, maintains that it should not be required to pay the 25% surcharge because the correct quantity of gold
and silver could be determined only after the copper concentrates had gone through the process of smelting and refining
in Japan while the amount of pyrite cannot be determined until after the flotation process separating the copper mineral
from the waste material was finished.

Prefatorily, it must not be lost sight of that bad faith is ; not essential for the imposition of the 25% surcharge for late
payment of the ad valorem tax. Hence,

MISSING PAGE 19

Q. Now, what do you do with the result of your analysis?

A. These are tabulated and then averaged out to represent one shipment.

Q. Will you tell this Honorable Court whether in that laboratory testing you physically
separate the gold, you physically separate the silver and you physically separate the
copper content of that 40 to 50 kilos?

A. No, no, we analyze this in one sample. This sample is analyzed for gold, silver,
and copper, but there is no recovery made.
 Q. You mean there is no physical separation?

A. No, no physical separation.

Q. So these three minerals copper, gold and silver are in that same powder that
you have tested?

A Yes, it is in the same powder.

Q. Now how do you reflect the results of the testing?

A. You mean in analysis?

Q. In the analysis, yes.

A. Copper is reported in percent.

Q. Percentage?

A. Yes.

Q. How about gold?

A. Gold and silver part is represented as grams per dmt or parts per million.

Q. Based on the results of your data gathered in the laboratory?

A. Yes.

Q. Now where do you submit the results of the laboratory testing?

A When a shipment is made we prepare a certificate of analysis signed by me and

then which (sic) is sent to Manila.

Q. Now, as far as you know in connection with your duty do you know what Manila
what do you say, Manila, ACMDC?

A. Makati.

Q. Makati. What does Makati ACMDC do with your assay report?

A. As far as I know it is used as the basis for the payment of ad valorem tax. 24

The above-quoted testimony accordingly supports these findings of the tax court in its decision in this case:

We see it (sic) that even if the silver and gold cannot as yet be physically separated from the copper
concentrate until the process of smelting and refining was completed, the estimated commercial
quantity of the silver and gold could have been determined in much the same way that petitioner is able
to estimate the commercial quantity of copper during the assay. If, as stated by petitioner, it is able to
estimate the grade of the copper ore, and it has determined the grade not only of the copper but also
those of the gold and silver during the assay (Petitioner's Memorandum, p. 207, Record), ergo, the
estimated commercial quantity of the silver and gold subject to ad valorem tax could have also been
determined and provisionally paid as for copper. 25

The other allegation of ACMDC is that there was no removal of pyrite from the mine site because the pyrite was delivered
to its sister company, Atlas Fertilizer Corporation, whose plant is located inside the mineral concession of ACMDC in
Sangi, Toledo City. ACMDC, however, is already barred by estoppel in pais from putting that matter in issue.
An ad valorem tax on pyrite for the same tax year was already declared and paid by ACMDC. In fact, that payment was
used as the basis for computing the 25% surcharge. It was only when ACMDC was assessed for the 25% surcharge that
said issue was raised by it. Also, the evidence shows that deliveries of pyrite were not exclusively made to its sister
company, Atlas Fertilizer Corporation. There were shipments of pyrite to other companies located outside of its mine site,
in addition to those delivered to its aforesaid sister company. 26

B. Manufacturer's Tax and Contractor's Tax

The manufacturer's tax is imposed under Section 186 of the tax code then in force which provides:

Sec. 186. Percentage tax on sales of other articles. There shall be levied, assessed and collected
once only on every original sale, barter, exchange, or similar transaction either for nominal or valuable
consideration, intended to transfer ownership of, or title to, the articles not enumerated in sections one
hundred and eighty-four-A, one hundred and eighty five, one hundred and eighty-five-A, one hundred
eighty-five-B, and one hundred eighty-six-B, a tax equivalent to seven per centum of the gross selling
price or gross value in money of the articles so sold, bartered, exchanged, or transferred, such tax to be
paid by the manufacturer or producer: Provided, That where the articles subject to tax under this
Section are manufactured out of materials likewise subject to tax under this section and section one
hundred eighty-nine, the total cost of such materials, as duly established, shall be deductible from the
gross selling price or gross value in money of such manufactured articles. (As amended by Rep. Act No.
6110 and by Pres. Decree No. 69.)

On the other hand, the contractor's tax is provided for under Section 191 of the same code, paragraph 17 of which declares
that lessors of personal property shall be subject to a contractor's tax of 3% of the gross receipts.

Sections 186 and 191 fall under Title V of the tax code, entitled "Privilege Taxes on Business and Occupation." These
"privilege taxes on business" are taxes imposed upon the privilege of engaging in business. They are essentially excise
To be held liable for the payment of a privilege tax, the person or
taxes. 27
entity must be engaged in business, as shown by the fact that the
drafters of the tax code had purposely grouped said provisions under
the general heading adverted to above.
"To engage" is to embark on a business or to employ oneself therein. The word "engaged" connotes more than a single
act or a single transaction; it involves some continuity of action. "To engage in business" is uniformly construed as
signifying an employment or occupation which occupies one's time, attention, and labor for the purpose of a livelihood or
profit. The expressions "engage in business," "carrying on business" or "doing business" do not have different meanings,
but separately or connectedly convey the idea of progression, continuity, or sustained activity. "Engaged in business"
means occupied or employed in business; carrying on business" does not mean the performance of a single disconnected
act, but means conducting, prosecuting, and continuing business by performing progressively all the acts normally
incident thereto; while "doing business" conveys the idea of business being done, not from time to time, but all the
time. 28

The foregoing notwithstanding, it has likewise been ruled that one act may be sufficient to constitute carrying on a
business according to the intent with which the act is done. A single sale of liquor by one who intends to continue selling
is sufficient to render him liable for "engaging in or carrying on" the business of a liquor dealer. 29

There may be a business without any sequence of acts, for if an isolated transaction, which if repeated would be a
transaction in a business, is proved to have been undertaken with the intent that it should be the first of several
transactions, that is, with the intent of carrying on a business, then it is a first transaction in an existing business. 30

Thus, where the end sought is to make a profit, the act constitutes "doing- business." This is not without basis. The term
"business," as used in the law imposing a license tax on business, trades, and so forth, ordinarily means business in the
It is thus restricted to
trade or commercial sense only, carried on with a view to profit or livelihood; 31
activities or affairs where profit is the purpose, or livelihood is the
motive. Since the term "business" is being used without any
qualification in our aforesaid tax code, it should therefore be therefore
be construed in its plain and ordinary meaning, restricted to activities
for profit or livelihood. 32
In the case at bar, ACMDC claims exemptions from the payment of manufacturer's tax. It asserts that it is not engaged in
the business of selling grinding steel balls, but it only produces grinding steel balls solely for its own use or consumption,
However, it admits having lent its grinding steel balls to other entities but only in very isolated cases.

After a careful review of the records and on the basis of the legal concept of "engaging in business" hereinbefore
discussed, we are inclined to agree with ACMDC that it should not and cannot be held liable for the payment of the
manufacturer's tax.

First, under the tax code then in force, the 7% manufacturer's sales tax is imposed on the manufacturer for every original
sale, barter, exchange and other similar transaction intended to transfer ownership of articles. As hereinbefore quoted,
and we repeat the same for facility of reference, the term "manufacturer" is defined in the tax code as including "every
person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or
manufactured or partially manufactured product in such manner as to prepare it for a special use or uses to which it could
not have been put in its original condition, or who by any such process alters the quality of any such raw material or
manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for any of the uses of
industry, or who by any such process combines any such raw material or manufactured or partially manufactured
products with other materials or products of the same or of different kinds and in such manner that the finished product of
such process or manufacture can be put to a special use or uses to which such raw materials or manufactured or partially
manufactured products in their original condition could not have been put, and who in addition alters such raw material or
manufactured or partially manufactured products, or combines the same to produce such finished products for the
purpose of their sale or distribution to others and not for his own use or consumption. 33

Thus, a manufacturer, in order to be subjected to the necessity of paying the percentage tax imposed by Section 186 of the
tax code, must be 'engaged' in the sale, barter or exchange of; personal property. Under a statute which imposes a tax on
persons engaged in the sale, barter or exchange of merchandise, a person must be occupied or employed in the sale,
barter or exchange of personal property. A person can hardly be considered as occupied or employed in the sale, barter or
exchange of personal property when he has made one purchase and sale only. 34

Second, it cannot be legally asserted, for purposes of this particular assessment only, that ACMDC was engaged in the
business of selling grinding steel balls on the basis of the isolated transaction entered into by it in 1975. There is no
showing that said transaction was undertaken by ACMDC with a view to gaining profit. therefrom and with the intent of
carrying on a business therein. On the contrary, what is clear for us is that the sale was more of an accommodation to the
other mining companies, and that ACMDC was subsequently replaced by other suppliers shortly thereafter.

This finding is strengthened by the investigation report, dated March 11, 1980, of the B.I.R. Investigation Team itself which
found that

ACMDC has a foundry shop located at Sangi, Toledo City, and manufactures grinding steel balls for use
in its ball mills in pulverizing the minerals before they go to the concentrators, For the grinding steel
balls manufactured by ACMDC and used in its operation, we found it not subject to any business tax.
But there were times in 1975 when other mining companies were short of grinding steel balls and
ACMDC supplied them with these materials manufactured in its foundry shop. According to the
informant, these were merely accommodations and they were replaced by the other suppliers. 35

At most, whatever profit ACMDC may have realized from that single transaction was just incidental to its primordial
purpose of accommodating other mining companies. Well-settled is the rule that anything done as a mere incident to, or
as a necessary consequence of, the principal business is not ordinarily taxed as an independent business in
Where a person or corporation is engaged in a distinct business
itself. 36
and, as a feature thereof, in an activity merely incidental which serves
no other person or business, the incidental and restricted activity is not
considered as intended to be separately taxed. 37
In fine, on this particular aspect, we are consequently of the considered opinion and so hold that ACMDC was not a
manufacturer subject to the percentage tax imposed by Section 186 of the tax code.

The same conclusion; however, cannot be made with respect to the contractor's tax being imposed on ACMDC. It cannot
validly claim that the leasing out of its personal properties was merely an isolated transaction. Its book of accounts shows
that several distinct payments were made for the use of its personal properties such as its plane, motor boat and dump
The series of transactions engaged in by ACMDC for the lease of
truck. 38
its aforesaid properties could also be deduced from the fact that for the
tax years 1975 and 1976 there were profits earned and reported therefor.
It received a rental income of P630,171.56 for tax year 39 and
P2,450,218.62 for tax year 1976. 40
Considering that there was a series of transactions involved, plus the fact that there was an apparent and protracted
intention to profit from such activities, it can be safely concluded that ACMDC was habitually engaged in the leasing out of
its plane, motor boat and dump truck, and is perforce subject to the contractor's tax.

The allegation of ACMDC that it did not realize any profit from the leasing out of its said personal properties, since its
income therefrom covered only the costs of operation such as salaries and fuel, is not supported by any documentary or
substantial evidence. We are not, therefore, convinced by such disavowal.

Assessments are prima facie presumed correct and made in good faith. Contrary to the theory of ACMDC, it is the taxpayer
and not the Bureau of Internal Revenue who has the duty of proving otherwise. It is an elementary rule that in the absence
of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. All presumptions
Verily, failure to present proof of error in
are in favor of tax assessments. 41
assessments will justify judicial affirmance of said assessment. 42
Finally, we deem it opportune to emphasize the oft-repeated rule that tax statutes are to receive a reasonable construction
They should not be construed as to
with a view to carrying out their purposes and intent. 43
permit the taxpayer to easily evade the payment of the tax. 44On this
note, and under the confluence of the weighty. considerations and
authorities earlier discussed, the challenged assessment against
ACMDC for contractor's tax must be upheld.
WHEREFORE, the impugned judgment of respondent Court of Appeals in CA-G.R. SP No. 25945, subject of the present
petition in G.R. No. 104151 is hereby AFFIRMED; and its assailed judgment in CA-G.R SP No. 26087 is hereby MODIFIED by
exempting Atlas Consolidated Mining and Development Corporation, petitioner in G.R. No. 105563 of this Court, from the
payment of manufacturer's sales tax, surcharge and interest during the taxable year 1975.

SO ORDERED.

Narvasa, C.J., Bidin, Puno and Mendoza, JJ., concur.

G.R. No. 76778 June 6, 1990

FRANCISCO I. CHAVEZ, petitioner,

vs.

JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her
capacity as Acting Municipal Treasurer of the Municipality of Las Pias, respondents, REALTY
OWNERS ASSOCIATION OF THE PHILIPPINES, INC., petitioner-intervenor.

NATURE OF THE CASE

The petition seeks to declare unconstitutional Executive Order No. 73 entitled PROVIDING
FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE 1984 REAL
PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21 OF THE REAL
PROPERTY TAX CODE, AS AMENDED.

FACTS OF THE CASE

On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of
Executive Order No. 73 until June 30, 1987.

The petitioner, Francisco I. Chavez, is a taxpayer and an owner of three parcels of land. He
alleges the following: that Executive Order No. 73 accelerated the application of the general
revision of assessments to January 1, 1987 thereby mandating an excessive increase in real
property taxes by 100% to 400% on improvements, and up to 100% on land; that any increase in
the value of real property brought about by the revision of real property values and assessments
would necessarily lead to a proportionate increase in real property taxes.

The intervenor Realty Owners Association of the Philippines, Inc. (ROAP) additionally alleges
the following: that Presidential Decree No. 464 is unconstitutional insofar as it imposes an
additional one percent (1%) tax on all property owners to raise funds for education, as real
property tax is admittedly a local tax for local governments; that the General Revision of
Assessments does not meet the requirements of due process as regards publication, notice of
hearing, opportunity to be heard and insofar as it authorizes "replacement cost" of buildings
(improvements) which is not provided in Presidential Decree No. 464, but only in an
administrative regulation of the Department of Finance; and that the Joint Local
Assessment/Treasury Regulations No. 2-86 2 is even more oppressive and unconstitutional as it
imposes successive increase of 150% over the 1986 tax.

Simply stating the provision of the questioned executive order, within sixty days from the date
of receipt of the, written notice of assessment, any owner who doubts the assessment of his
property, may appeal to the Local Board of Assessment Appeals. In case the, owner or
administrator of the property or the assessor is not satisfied with the decision of the Local Board
of Assessment Appeals, he may, within thirty days from the receipt of the decision, appeal to the
Central Board of Assessment Appeals. The decision of the Central Board of Assessment Appeals
shall become final and executory after the lapse of fifteen days from the date of receipt of the
decision.

The Office of the Solicitor General argues against the petition.

ISSUES OF THE CASE

Whether the questioned E.O. is unconstitutional as it allows unreasonable and excessive increase
in real property tax.

RULINGS OF THE COURT

The petition is not impressed with merit.

Executive Order No. 73 merely directs, in Section 1 thereof, that:

SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors
during the latest general revision of assessments shall take effect beginning January 1, 1987 for
purposes of real property tax collection.

We agree with the Office of the Solicitor General that the attack on Executive Order No. 73 has
no legal basis as the general revision of assessments is a continuing process mandated by Section
21 of Presidential Decree No. 464.

Indeed, the government recognized the financial burden to the taxpayers that will result from an
increase in real property taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985,
deferring the implementation of the increase in real property taxes resulting from the revised real
property assessments, from January 1, 1985 to January 1, 1988.

We agree with the observation of the Office of the Solicitor General that without Executive
Order No. 73, the basis for collection of real property taxes will still be the 1978 revision of
property values. Certainly, to continue collecting real property taxes based on valuations arrived
at several years ago, in disregard of the increases in the value of real properties that have
occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one
of the characteristics of a sound tax system, requires that sources of revenues must be adequate
to meet government expenditures and their variations.

ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.

Republic of the Philippines

SUPREME COURT
Manila
 EN BANC

G.R. No. 76778 June 6, 1990

FRANCISCO I. CHAVEZ, petitioner,

vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her
capacity as Acting Municipal Treasurer of the Municipality of Las Pias, respondents,
REALTY OWNERS ASSOCIATION OF THE PHILIPPINES, INC., petitioner-intervenor.

Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and Oppression
(Bonifacio) for petitioner.

Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners Association.

MEDIALDEA, J.:

The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25,
1986, which We quote in full, as follows (78 O.G. 5861):

EXECUTIVE ORDER No. 73

PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED

ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED FOR UNDER
SECTION 21 OF THE REAL PROPERTY TAX CODE, AS AMENDED

WHEREAS, the collection of real property taxes is still based on the 1978
revision of property values;

WHEREAS, the latest general revision of real property assessments completed

in 1984 has rendered the 1978 revised values obsolete;

WHEREAS, the collection of real property taxes based on the 1984 real property
values was deferred to take effect on January 1, 1988 instead of January 1,
1985, thus depriving the local government units of an additional source of
revenue;

WHEREAS, there is an urgent need for local governments to augment their

financial resources to meet the rising cost of rendering effective services to the
people;

NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do

hereby order:

SECTION 1. Real property values as of December 31, 1984 as determined by

the local assessors during the latest general revision of assessments shall take
effect beginning January 1, 1987 for purposes of real property tax collection.
 SEC. 2. The Minister of Finance shall promulgate the necessary rules and
regulations to implement this Executive Order.

SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed.

SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof
inconsistent with this Executive Order are hereby repealed or modified
accordingly.

SEC. 5. This Executive Order shall take effect immediately.

On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of
Executive Order No. 73 until June 30, 1987.

The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of land. He alleges
the following: that Executive Order No. 73 accelerated the application of the general revision of
assessments to January 1, 1987 thereby mandating an excessive increase in real property taxes by
100% to 400% on improvements, and up to 100% on land; that any increase in the value of real property
brought about by the revision of real property values and assessments would necessarily lead to a
proportionate increase in real property taxes; that sheer oppression is the result of increasing real
property taxes at a period of time when harsh economic conditions prevail; and that the increase in the
market values of real property as reflected in the schedule of values was brought about only by inflation
and economic recession.

The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national
association of owners-lessors, joins Chavez in his petition to declare unconstitutional Executive
Order No. 73, but additionally alleges the following: that Presidential Decree No. 464 is
unconstitutional insofar as it imposes an additional one percent (1%) tax on all property owners
to raise funds for education, as real property tax is admittedly a local tax for local governments;
that the General Revision of Assessments does not meet the requirements of due process as
regards publication, notice of hearing, opportunity to be heard and insofar as it authorizes
"replacement cost" of buildings (improvements) which is not provided in Presidential Decree No.
464, but only in an administrative regulation of the Department of Finance; and that the Joint
Local Assessment/Treasury Regulations No. 2-86 2 is even more oppressive and unconstitutional as
it imposes successive increase of 150% over the 1986 tax.

The Office of the Solicitor General argues against the petition.

The petition is not impressed with merit.

Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73
insofar as the revision of the assessments and the effectivity thereof are concerned. It should be
emphasized that Executive Order No. 73 merely directs, in Section 1 thereof, that:

SECTION 1. Real property values as of December 31, 1984 as determined by

the local assessors during the latest general revision of assessments shall take
effect beginning January 1, 1987 for purposes of real property tax collection.
(emphasis supplied)
The general revision of assessments completed in 1984 is based on Section 21 of Presidential
Decree No. 464 which provides, as follows:

SEC. 21. General Revision of Assessments. Beginning with the assessor shall
make a calendar year 1978, the provincial or city general revision of real property
assessments in the province or city to take effect January 1, 1979, and once
every five years thereafter: Provided; however, That if property values in a
province or city, or in any municipality, have greatly changed since the last
general revision, the provincial or city assesor may, with the approval of the
Secretary of Finance or upon bis direction, undertake a general revision of
assessments in the province or city, or in any municipality before the fifth year
from the effectivity of the last general revision.

Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No.
73 has no legal basis as the general revision of assessments is a continuing process mandated
by Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which
should be challenged as constitutionally infirm. However, Chavez failed to raise any objection
against said decree. It was ROAP which questioned the constitutionality thereof. Furthermore,
Presidential Decree No. 464 furnishes the procedure by which a tax assessment may be
questioned:

SEC. 30. Local Board of Assessment Appeals. Any owner who is not satisfied
with the action of the provincial or city assessor in the assessment of his property
may, within sixty days from the date of receipt by him of the written notice of
assessment as provided in this Code, appeal to the Board of Assessment
Appeals of the province or city, by filing with it a petition under oath using the
form prescribed for the purpose, together with copies of the tax declarations and
such affidavit or documents submitted in support of the appeal.

xxx xxx xxx

SEC. 34. Action by the Local Board of assessment Appeals. The Local Board
of Assessment Appeals shall decide the appeal within one hundred and twenty
days from the date of receipt of such appeal. The decision rendered must be
based on substantial evidence presented at the hearing or at least contained in
the record and disclosed to the parties or such relevant evidence as a
reasonable mind might accept as adequate to support the conclusion.

In the exercise of its appellate jurisdiction, the Board shall have the power to
summon witnesses, administer oaths, conduct ocular inspection, take
depositions, and issue subpoena and subpoenaduces tecum. The proceedings of
the Board shall be conducted solely for the purpose of ascertaining the truth
without-necessarily adhering to technical rules applicable in judicial proceedings.

The Secretary of the Board shall furnish the property owner and the Provincial or
City Assessor with a copy each of the decision of the Board. In case the
provincial or city assessor concurs in the revision or the assessment, it shall be
his duty to notify the property owner of such fact using the form prescribed for the
purpose. The owner or administrator of the property or the assessor who is not
satisfied with the decision of the Board of Assessment Appeals, may, within thirty
 days after receipt of the decision of the local Board, appeal to the Central Board
of Assessment Appeals by filing his appeal under oath with the Secretary of the
proper provincial or city Board of Assessment Appeals using the prescribed form
stating therein the grounds and the reasons for the appeal, and attaching thereto
any evidence pertinent to the case. A copy of the appeal should be also
furnished the Central Board of Assessment Appeals, through its Chairman, by
the appellant.

Within ten (10) days from receipt of the appeal, the Secretary of the Board of
Assessment Appeals concerned shall forward the same and all papers related
thereto, to the Central Board of Assessment Appeals through the Chairman
thereof.

xxx xxx xxx

SEC. 36. Scope of Powers and Functions. The Central Board of Assessment
Appeals shall have jurisdiction over appealed assessment cases decided by the
Local Board of Assessment Appeals. The said Board shall decide cases brought
on appeal within twelve (12) months from the date of receipt, which decision shall
become final and executory after the lapse of fifteen (15) days from the date of
receipt of a copy of the decision by the appellant.

In the exercise of its appellate jurisdiction, the Central Board of Assessment

Appeals, or upon express authority, the Hearing Commissioner, shall have the
power to summon witnesses, administer oaths, take depositions, and
issue subpoenas and subpoenas duces tecum.

The Central Board of assessment Appeals shall adopt and promulgate rules of
procedure relative to the conduct of its business.

Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any
owner who doubts the assessment of his property, may appeal to the Local Board of
Assessment Appeals. In case the, owner or administrator of the property or the assessor is not
satisfied with the decision of the Local Board of Assessment Appeals, he may, within thirty days
from the receipt of the decision, appeal to the Central Board of Assessment Appeals. The
decision of the Central Board of Assessment Appeals shall become final and executory after the
lapse of fifteen days from the date of receipt of the decision.

Chavez argues further that the unreasonable increase in real property taxes brought about by
Executive Order No. 73 amounts to a confiscation of property repugnant to the constitutional
guarantee of due process, invoking the cases of Ermita-Malate Hotel, et al. v. Mayor of
Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849) andSison v. Ancheta, et al. (G.R. No.
59431, July 25, 1984, 130 SCRA 654).

The reliance on these two cases is certainly misplaced because the due process requirement
called for therein applies to the "power to tax." Executive Order No. 73 does not impose new
taxes nor increase taxes.

Indeed, the government recognized the financial burden to the taxpayers that will result from an
increase in real property taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985,
deferring the implementation of the increase in real property taxes resulting from the revised
real property assessments, from January 1, 1985 to January 1, 1988. Section 5 thereof is
quoted herein as follows:

SEC. 5. The increase in real property taxes resulting from the revised real
property assessments as provided for under Section 21 of Presidential Decree
No. 464, as amended by Presidential Decree No. 1621, shall be collected
beginning January 1, 1988 instead of January 1, 1985 in order to enable the
Ministry of Finance and the Ministry of Local Government to establish the new
systems of tax collection and assessment provided herein and in order to
alleviate the condition of the people, including real property owners, as a result of
temporary economic difficulties. (emphasis supplied)

The issuance of Executive Order No. 73 which changed the date of implementation of the
increase in real property taxes from January 1, 1988 to January 1, 1987 and therefore repealed
Executive Order No. 1019, also finds ample justification in its "whereas' clauses, as follows:

WHEREAS, the collection of real property taxes based on the 1984 real property
values was deferred to take effect on January 1, 1988 instead of January 1,
1985, thus depriving the local government units of an additional source of
revenue;

WHEREAS, there is an urgent need for local governments to augment their

financial resources to meet the rising cost of rendering effective services to the
people; (emphasis supplied)

xxx xxx xxx

The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not proper
to be resolved in the present petition. As stated at the outset, the issue here is limited to the
constitutionality of Executive Order No. 73. Intervention is not an independent proceeding, but
an ancillary and supplemental one which, in the nature of things, unless otherwise provided for
by legislation (or Rules of Court), must be in subordination to the main proceeding, and it may
be laid down as a general rule that an intervention is limited to the field of litigation open to the
original parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67 Phil. 279).

We agree with the observation of the Office of the Solicitor General that without Executive Order
No. 73, the basis for collection of real property taxes win still be the 1978 revision of property
values. Certainly, to continue collecting real property taxes based on valuations arrived at
several years ago, in disregard of the increases in the value of real properties that have
occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is
one of the characteristics of a sound tax system, requires that sources of revenues must be
adequate to meet government expenditures and their variations.

ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco,
Bidin, Sarmiento, Cortes and Regalado, JJ., concur.
Padilla, J., took no part.

Grio-Aquino, J., is on leave.

Roxas v. CTA, 23 SCRA 276 (1968)

G.R. No. L-25043 April 26, 1968

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial co-
guardians of JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

Leido, Andrada, Perez and Associates for petitioners.

Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

Facts:

Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary
succession several properties. To manage the above-mentioned properties, said children, namely, Antonio Roxas,
Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania. At the conclusion of the WW2, the
tenants who have all been tilling the lands in Nasugbu for generations expressed their desire to purchase from
Roxas y Cia. the parcels which they actually occupied. For its part, the Government, in consonance with the
constitutional mandate to acquire big landed estates and apportion them among landless tenant-farmers,
persuaded the Roxas brothers to part with their landholdings. Conferences were held with the farmers in the early
part of 1948 and finally the Roxas brothers agree to sell 13,500 hectares to the Government for distribution to
actual occupants for a price of P2,079,048.47 plus P300,000 for survey and distribution expenses. It turned out
however that the Government did not have funds to cover the purchase price, and so a special arrangement was
made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of P1,500,000.00 as loan.
Collateral for such loan were the lands proposed to be sold to the farmers. Under the arrangement, Roxas y Cia.
allowed the farmers to buy the lands for the same price but by installment, and contracted with the Rehabilitation
Finance Corporation to pay its loan from the proceeds of the yearly amortizations paid by the farmers.

The CIR demanded from Roxas y Cia. the payment of deficiency income taxes resulting from the inclusion as
income of Roxas y Cia. of the unreported 50% of the net profits for 1953 and 1955 derived from the sale of the
Nasugbu farmlands to the tenants, and the disallowance of deductions from gross income of various business
expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that Roxas y CIa.
subdivided its Nasugbu farmlands and sold them to the farmers on installment, the Commissioner considered the
partnership as engaged in the business of real estate, hence, 100% of the profits derived there from was taxed.
The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted an appeal in
the CTA which sustained the assessment. Hence, this appeal.

Issue:
I. Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable? And is
Roxas y Cia liable for the payment of deficiency income for the sale of Nasugbu farmlands?

II. Are the deductions for business expenses and contributions deductible?
Ruling:
I. NO. The proposition of the CIR cannot be favorably accepted in this isolated transaction with its peculiar
circumstances inspite of the fact that there were hundreds of vendees. Although they paid for their respective
holdings in installment for the period of 10 years, it would nevertheless make the vendor Roxas y Cia. a real estate
dealer during the 10-year amortization period. It should be borne in mind that the sale of the Nasugbu farmlands
to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the
request and pursuant to the policy of our Government to allocate lands to the landless. It was the bounden duty
of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and
to subsequently subdivide them among the farmers at very reasonable terms and prices. However, the
Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the
Governments burden, went out of its way and sold lands directly to the farmers in the same way and under the
same terms as would have been the case had the Government done it itself. For this magnanimous act, the
municipal council of Nasugbu passed a resolution expressing the peoples gratitude.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to section
34 of the Tax Code, the land sold to the farmers are capital assets, and the gain derived from the sale thereof is
capital gain, taxable only to the extent of 50%.

II. DISALLOWED DEDUCTIONS

Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor of Sergio
Osmena and P28.00 for San Miguel beer given as gifts to various persons. The deduction were claimed as
representation expenses. Representation expenses are deductible from gross income as expenditures incurred in
carrying on a trade or business under Section 30(a) of the Tax Code provided the taxpayer proves that they are
reasonable in amount, ordinary and necessary, and incurred in connection with his business. In the case at bar, the
evidence does not show such link between the expenses and the business of Roxas y Cia. The findings of the Court
of Tax Appeals must therefore be sustained (disallowed deduction).

The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen, and Baguio
City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's neediest families and
Our Lady of Fatima chapel at Far Eastern University.

The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City Police
are not deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas
gifts to the families of the members of said entities. Under Section 39(h), a contribution to a government entity is
deductible when used exclusively for public purposes. For this reason, the disallowance must be sustained. On the
other hand, the contribution to the Manila Police trust fund is an allowable deduction for said trust fund belongs to
the Manila Police, a government entity, intended to be used exclusively for its public functions.

The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the ground
that the Philippines Herald is not a corporation or an association contemplated in Section 30 (h) of the Tax Code. It
should be noted however that the contributions were not made to the Philippines Herald but to a group of civic
spirited citizens organized by the Philippines Herald solely for charitable purposes. There is no question that the
members of this group of citizens do not receive profits, for all the funds they raised were for Manila's neediest
families. Such a group of citizens may be classified as an association organized exclusively for charitable purposes
mentioned in Section 30(h) of the Tax Code.

Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel at the
Far Eastern University on the ground that the said university gives dividends to its stockholders (it should be non-
profit institution. Located within the premises of the university, the chapel in question has not been shown to
belong to the Catholic Church or any religious organization. On the other hand, the lower court found that it
belongs to the Far Eastern University, contributions to which are not deductible under Section 30(h) of the Tax
Code for the reason that the net income of said university injures to the benefit of its stockholders. The
disallowance should be sustained.

Doctrines:

I. Sale of property by landowners to tenants under government policy to allocate lands to the landless
subject not subject to real estate dealers tax.

II. The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the hen that lays the golden egg.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-25043 April 26, 1968

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial co-guardians of
JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

Leido, Andrada, Perez and Associates for petitioners.

Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession the
following properties:

(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas province;

(2) A residential house and lot located at Wright St., Malate, Manila; and

(3) Shares of stocks in different corporations.

To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose Roxas, formed a
partnership called Roxas y Compania.

AGRICULTURAL LANDS

At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu for generations expressed
their desire to purchase from Roxas y Cia. the parcels which they actually occupied. For its part, the Government, in consonance
with the constitutional mandate to acquire big landed estates and apportion them among landless tenants-farmers, persuaded the
Roxas brothers to part with their landholdings. Conferences were held with the farmers in the early part of 1948 and finally the
Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual occupants for a price of P2,079,048.47
plus P300,000.00 for survey and subdivision expenses.

It turned out however that the Government did not have funds to cover the purchase price, and so a special arrangement was made
for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of P1,500,000.00 as loan. Collateral for such loan
were the lands proposed to be sold to the farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for
the same price but by installment, and contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of
the yearly amortizations paid by the farmers.
In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and P29,500.71. Fifty percent of
said net gain was reported for income tax purposes as gain on the sale of capital asset held for more than one year pursuant to
Section 34 of the Tax Code.

RESIDENTIAL HOUSE

During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate, Manila, which they inherited from
their grandparents. After Antonio and Eduardo got married, they resided somewhere else leaving only Jose in the old house. In
fairness to his brothers, Jose paid to Roxas y Cia. rentals for the house in the sum of P8,000.00 a year.

ASSESSMENTS

On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment of real estate dealer's tax for
1952 in the amount of P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities for 1952
plus P10.00 compromise penalty for late payment. The assessment for real estate dealer's tax was based on the fact that Roxas y
Cia. received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of a real
estate who derives a yearly rental income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is
liable to pay the corresponding fixed tax.

The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities against Roxas y Cia., on the
fact that said partnership made profits from the purchase and sale of securities.

In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas Brothers for the years 1953 and
1955, as follows:

1953 1955
Antonio Roxas P7,010.00 P5,813.00
Eduardo Roxas 7,281.00 5,828.00
Jose Roxas 6,323.00 5,588.00

The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported 50% of the net profits for 1953
and 1955 derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from gross income of
various business expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that Roxas y Cia.
subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner considered the partnership as
engaged in the business of real estate, hence, 100% of the profits derived therefrom was taxed.

The following deductions were disallowed:

ROXAS Y CIA.:

1953
Tickets for Banquet in honor of P
S. Osmea 40.00

Gifts of San Miguel beer 28.00

Contributions to

Philippine Air Force Chapel

100.00

Manila Police Trust Fund 150.00

Philippines Herald's fund for Manila's neediest

families
100.00

1955
Contributions to Contribution to
Our Lady of Fatima Chapel, FEU 50.00

ANTONIO ROXAS:
 Contributions to

Pasay City Firemen Christmas Fund

25.00

Pasay City Police Dept. X'mas fund

50.00

1955
Contributions to

Baguio City Police Christmas fund

25.00

Pasay City Firemen Christmas fund

25.00

Pasay City Police Christmas fund

50.00

EDUARDO ROXAS:

1953
Contributions to

Hijas de Jesus' Retiro de Manresa

450.00

Philippines Herald's fund for Manila's neediest

families
100.00

1955
Contributions to Philippines
Herald's fund for Manila's
neediest families 120.00

JOSE ROXAS:

1955
Contributions to Philippines
Herald's fund for Manila's
neediest families 120.00

The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted an appeal in the Court of
Tax Appeals on January 9, 1961. The Tax Court heard the appeal and rendered judgment on July 31, 1965 sustaining the
assessment except the demand for the payment of the fixed tax on dealer of securities and the disallowance of the deductions for
contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa. The Tax Court's judgment reads:

WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners Antonio Roxas, Eduardo Roxas,
and Jose Roxas who are hereby ordered to pay the respondent Commissioner of Internal Revenue the amounts of
P12,808.00, P12,887.00 and P11,857.00, respectively, as deficiency income taxes for the years 1953 and 1955, plus 5%
surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and modified with respect to the
partnership Roxas y Cia. in the sense that it should pay only P150.00, as real estate dealer's tax. With costs against
petitioners.

Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of Internal Revenue did not appeal.

The issues:

(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable?

(2) Are the deductions for business expenses and contributions deductible?

(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers?

The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate dealer because it engaged in
the business of selling real estate. The business activity alluded to was the act of subdividing the Nasugbu farm lands and selling
them to the farmers-occupants on installment. To bolster his stand on the point, he cites one of the purposes of Roxas y Cia. as
contained in its articles of partnership, quoted below:

4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer a ella en el futuro,
alquilandoles por los plazos y demas condiciones, estime convenientes y vendiendo aquellas que a juicio de sus gerentes
no deben conservarse;

The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue cannot be favorably accepted
by Us in this isolated transaction with its peculiar circumstances in spite of the fact that there were hundreds of vendees. Although
they paid for their respective holdings in installment for a period of ten years, it would nevertheless not make the vendor Roxas y Cia.
a real estate dealer during the ten-year amortization period.

It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only
in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the
landless. It was the bounden duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its
haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. However, the Government
could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way
and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government
done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude.

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury
to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays
the golden egg". And, in order to maintain the general public's trust and confidence in the Government this power must be used
justly and not treacherously. It does not conform with Our sense of justice in the instant case for the Government to persuade the
taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax
Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the
extent of 50%.

DISALLOWED DEDUCTIONS

Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor of Sergio Osmena and
P28.00 for San Miguel beer given as gifts to various persons. The deduction were claimed as representation expenses.
Representation expenses are deductible from gross income as expenditures incurred in carrying on a trade or business under
Section 30(a) of the Tax Code provided the taxpayer proves that they are reasonable in amount, ordinary and necessary, and
incurred in connection with his business. In the case at bar, the evidence does not show such link between the expenses and the
business of Roxas y Cia. The findings of the Court of Tax Appeals must therefore be sustained.

The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen, and Baguio City Police
Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's neediest families and Our Lady of Fatima chapel
at Far Eastern University.

The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City Police are not deductible for
the reason that the Christmas funds were not spent for public purposes but as Christmas gifts to the families of the members of said
entities. Under Section 39(h), a contribution to a government entity is deductible when used exclusively for public purposes. For this
reason, the disallowance must be sustained. On the other hand, the contribution to the Manila Police trust fund is an allowable
deduction for said trust fund belongs to the Manila Police, a government entity, intended to be used exclusively for its public
functions.

The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the ground that the Philippines
Herald is not a corporation or an association contemplated in Section 30 (h) of the Tax Code. It should be noted however that the
contributions were not made to the Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald
solely for charitable purposes. There is no question that the members of this group of citizens do not receive profits, for all the funds
they raised were for Manila's neediest families. Such a group of citizens may be classified as an association organized exclusively
for charitable purposes mentioned in Section 30(h) of the Tax Code.

Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel at the Far Eastern
University on the ground that the said university gives dividends to its stockholders. Located within the premises of the university,
the chapel in question has not been shown to belong to the Catholic Church or any religious organization. On the other hand, the
lower court found that it belongs to the Far Eastern University, contributions to which are not deductible under Section 30(h) of the
Tax Code for the reason that the net income of said university injures to the benefit of its stockholders. The disallowance should be
sustained.
Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because although it earned a rental income
of P8,000.00 per annum in 1952, said rental income came from Jose Roxas, one of the partners. Section 194 of the Tax Code, in
considering as real estate dealers owners of real estate receiving rentals of at least P3,000.00 a year, does not provide any
qualification as to the persons paying the rentals. The law, which states: 1wph1.t

. . . "Real estate dealer" includes any person engaged in the business of buying, selling, exchanging, leasing or renting
property on his own account as principal and holding himself out as a full or part-time dealer in real estate or as an owner
of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a
year: . . . (Emphasis supplied) .

is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is sustained. 1wph1.t

To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas. For 1955 they are
liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00, respectively, computed as follows: *

ANTONIO ROXAS

Net income per return P315,476.59

Add: 1/3 share, profits in Roxas y Cia. P 153,249.15

Less amount declared 146,135.46

Amount understated P 7,113.69

Contributions disallowed 115.00

P 7,228.69

Less 1/3 share of contributions amounting to P21,126.06

disallowed from partnership but allowed to partners 7,042.02 186.67

Net income per review P315,663.26

Less: Exemptions 4,200.00

Net taxable income P311,463.26

Tax due 154,169.00

Tax paid 154,060.00

Deficiency P 109.00
==========

EDUARDO ROXAS

P
Net income per return
304,166.92

Add: 1/3 share, profits in Roxas y Cia P 153,249.15

Less profits declared 146,052.58

Amount understated P 7,196.57

Less 1/3 share in contributions amounting to P21,126.06

disallowed from partnership but allowed to partners 7,042.02 155.55

Net income per review P304,322.47

 Less: Exemptions 4,800.00

Net taxable income P299,592.47

Tax Due P147,250.00

Tax paid 147,159.00

Deficiency P91.00
===========

JOSE ROXAS

Net income per return P222,681.76

Add: 1/3 share, profits in Roxas y Cia. P153,429.15

Less amount reported 146,135.46

Amount understated 7,113.69

Less 1/3 share of contributions disallowed from

partnership but allowed as deductions to partners 7,042.02 71.67

Net income per review P222,753.43

Less: Exemption 1,800.00

Net income subject to tax P220,953.43

Tax due P102,763.00

Tax paid 102,714.00

Deficiency P 49.00
===========

WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay the sum of P150.00 as real estate
dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and Jose Roxas are ordered to pay the respective sums of P109.00,
P91.00 and P49.00 as their individual deficiency income tax all corresponding for the year 1955. No costs. So ordered.

Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Zaldivar, J., took no part.
Concepcion, C.J., is on leave.
TANADA V ANGARA

NATURE OF THE CASE

This case is a petition for certiorari, prohibition and mandamus under Rule 65 of the
Rules of Court praying (1) for the nullification, on constitutional grounds, of the
concurrence of the Philippine Senate in the ratification by the President of the
Philippines of the Agreement establishing the World trade Organization and (2) for the
prohibition of its implementation and enforcement through the release and utilization of
public funds, the assignment of public officials and employees, as well as the use of
government properties and resources by respondent-heads of various executive
offices concerned therewith.

Facts:
On April 15, 1994 Rizalino Navarro, the Secretary of Department of Trade and Industry
representing the Government of the Republic of the Philippines, signed the Final Act
Embodying the results of the Uruguay Round of Multilateral Negotiations. By signing
the Final Act he bound the Philippines to submit to its respective competent authorities
the WTO Agreements to seek approval. On December 14, 1994, the Philippine Senate
adopted Resolution No. 97 to ratify the WTO Agreement. This is a petition seeking to
nullify the ratification of the World Trade Organization Agreement.

The WTO opens access to foreign markets, especially its major trading partners
through the reduction of tariffs on its exports, particularly agricultural and industrial
products. Thus, provides new opportunities for the service sector cost and uncertainty
associated with exporting and more investment in the country. These ate the predicted
benefits as reflected in the agreement and as viewd by the signatory senators, a free
market espoused by WTO.

Petitioners question the concurrence of the respondents acting in their capacities as

Senators by signing the said agremment and the constitutionality of the WTO
Agreement as it derogates from the power to tax, which is lodged in the Congress and
violates Sec 19, Article II, providing for the development of a self reliant and
independent national economy, and Section 10 and 12, Article XII, providing for the
Filipino First Policy.

Petitioners Contention:
1st issue: petitioners seeks to nullify an act of the phil senate on the ground
that it contravenes the constitution.

2nd : the letter, spirit and intent of the constitution mandating economic
patriotism are violated by the so-called parity provisions and national
treatment clauses scattered in various parts not only of the WTO
Agreement and its annexes but also in the Ministerial Decisions and
Declarations and in the Understanding and Commitments in Financial
services.

3rd: this undertaking unduly limits, restricts and impairs Philippine

sovereignty, specifically the legislative power vested in the Congress of the
Phil.

4th: petitioner aver that par 1 art 34 of the General Provisions and Basic
Principles of the Agreement on Trade-related aspects of Intellectual
Property Rights (TRIPS) intrude on the power of the SC to promulgate
rules concerning pleading, practice and procedure.

5th: petitioner alleged that the senate concurrence in the WTO Agreement
and its annexes is defective and insufficient and thus constitutes abuse of
discretion. Petitioner submit that the concurrence with the WTO Agreement
alone is flawed because it is in effect a rejection of the Final Act, which in
turn was the document signed by Sec Navaro in representation of the
Republic upo the authority of the president

Respondents contention: grave constitutional issues , expenditures of pubic funds and

serious international commitments of the nation are involved and that the
transcendental public interest requires that the substantive issues be met head on and
decided on the merits.
The charter provisions are not self-executing and merely set out general policies; that
these nationalistic portions of the constitution invoked by petitioners should not be read
in isolation but should be related to other relevant provisions of Art XII particularly sec 1
and 13 thereof; that read properly, the cited WTO clauses do not conflict with the
constitution and that the WTO agreement contains sufficient provisions to protect
developing countries like the Philippines from the harshness of sudden trade
liberalization.
Issues:
(1) Does the petition involve a political question over which this court has no
jurisdiction?
(2) Do the provisions of the WTO agreement and its three annexes contravene Sec
19, Art II, and Sec 10, Art XII of the Philippine Constitution?
(3) Do the provisions of said agreement and its annexes limit, restrict, or impair the
exercise of legislative power by congress?
(4) Do said provisions unduly impair or interfere with the exercise of judicial power by
this court in promulgating rules on evidence?
(5) Was the concurrence of the senate in the WTO Agreement and its annexes
sufficient and/or valid, considering that it did not include the final act, ministerial
declarations and decisions, and the understanding on commitments in financial
services?

Ruling:

On the first issue where an action of the legislative branch is seriously alleged
to have infringed the Constitution, it becomes not only the right but in fact the
duty of the judiciary to settle the dispute.
The question posed is judicial rather than political. The duty (to adjudicate)
remains to assure that the supremacy of the constitution is upheld.

The jurisdiction of this court to adjudicate the matters raised in the petition is clearly set
out in the 1987 constitution:
Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion amounting to lack
r excess of jurisdiction on the part of any branch or instrumentality of the government.

On the second issue (the lis mota, the main issue raised by the
petition)
The provisions of the WTO agreement do not contravene the
Constitution.

Declaration of principles are not self-executing

The principles and state policies enumerated in Art2 and some
sections of Art 12 are not self-executing provisions, the disregard of which
can give rise to a cause of action in the courts. They do not embody
judicilly enforceable constitutional rights but guidelines for legislation. (by
not self-executing means a law should be passed by congress to clearly
define & effectuate such principles)

Economic nationalism should be read with other constitutional mandates to

attain balanced development of economy.
The constitution did not intend to pursue an isolationist policy. While
the constitution does not encourage the unlimited entry of foreign goods
services and investments into the country, it does not prohibit them either.

WTO recognizes need to protect week economies

Decisions in WTO are made on the basis of sovereign equality with
each members vote equal in weight to that of any other. The basic
principles underlying the WTO Agreement recognize the need of
developing countries like the Philippines to share in growth in international
trade commensurate with the needs of their economic development.

Specific WTo provisos protect developing countries.

WTO agreement grants developing countries a more lenient
treatment, giving their domestic industries some protection from the rush of
foreign competition.

Constitution does not rule out foreign competitions. It favors consumers not
industries or enterprises and it is designed to meet future events and
contingencies.

On the third issue:

A portion of sovereignty may be waived without violating the
constitution, based on the rationale that the Philippines adopts the
generally accepted principles of international law as part of the law of
the land and adheres to the policy of . Cooperation and amity with
all nations.

On the fourth issue:

The reciprocity clause more than justifies intrusion, if any actually
exists. Art 34 does not contain an unreasonable burden, consistent as
it is with due process and the concept of adversarial dispute
settlement inherent in our judicial system.
Since the Philippines is a signatory to most international conventions
on patents, trademarks and copyrights, the adjustment in legislation
and rules of procedure will jot be substantial.

On the fifth issue:

The assailed senate resolution no 97 expressed concurrence in exactly
what the final act required from its signatories,(concurrence f the senate in
the WTO Agreement)
The ministerial declarations and decisions were deemed adopted without
need for ratification. The WTO Agreement itself expresses what
multilateral agreements are deemed included as its integral parts.
It should be added that the Senate was well-aware of what it was
concurring in as shown by the members deliberation on August 25, 1994

In praying for the nullification of the Philippine ratification of the WTO

Agreement, petitioners are invoking this Courts constitutionally imposed
duty to determine whether or not there has been grave abuse of discretion
amounting to lack or excess of jurisdiction on the aprt of the senate in
giving its concurrence therein via Senate Reso No.97. this court cannot find
any cogent reason to impute grave abuse of discretion to the Senates
exercise of its power of concurrence in the WTO Agreement granted it by
Sec 21 of Art VII of the Constitution.

Wherefore petition is dismissed for lack of merit.

EN BANC

[G.R. No. 118295. May 2, 1997]

WIGBERTO E. TAADA and ANNA DOMINIQUE COSETENG, as

members of the Philippine Senate and as taxpayers; GREGORIO
ANDOLANA and JOKER ARROYO as members of the House of
Representatives and as taxpayers; NICANOR P. PERLAS and
HORACIO R. MORALES, both as taxpayers; CIVIL LIBERTIES
 UNION, NATIONAL ECONOMIC PROTECTIONISM ASSOCIATION,
CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES,
LIKAS-KAYANG KAUNLARAN FOUNDATION, INC., PHILIPPINE
RURAL RECONSTRUCTION MOVEMENT, DEMOKRATIKONG
KILUSAN NG MAGBUBUKID NG PILIPINAS, INC., and
PHILIPPINE PEASANT INSTITUTE, in representation of various
taxpayers and as non-governmental organizations, petitioners,
vs. EDGARDO ANGARA, ALBERTO ROMULO, LETICIA RAMOS-
SHAHANI, HEHERSON ALVAREZ, AGAPITO AQUINO, RODOLFO
BIAZON, NEPTALI GONZALES, ERNESTO HERRERA, JOSE
LINA, GLORIA MACAPAGAL-ARROYO, ORLANDO MERCADO,
BLAS OPLE, JOHN OSMEA, SANTANINA RASUL, RAMON
REVILLA, RAUL ROCO, FRANCISCO TATAD and FREDDIE
WEBB, in their respective capacities as members of the
Philippine Senate who concurred in the ratification by the
President of the Philippines of the Agreement Establishing the
World Trade Organization; SALVADOR ENRIQUEZ, in his
capacity as Secretary of Budget and Management; CARIDAD
VALDEHUESA, in her capacity as National Treasurer; RIZALINO
NAVARRO, in his capacity as Secretary of Trade and Industry;
ROBERTO SEBASTIAN, in his capacity as Secretary of
Agriculture; ROBERTO DE OCAMPO, in his capacity as
Secretary of Finance; ROBERTO ROMULO, in his capacity as
Secretary of Foreign Affairs; and TEOFISTO T. GUINGONA, in
his capacity as Executive Secretary, respondents.

DECISION
PANGANIBAN, J.:

The emergence on January 1, 1995 of the World Trade Organization,

abetted by the membership thereto of the vast majority of countries has
revolutionized international business and economic relations amongst
states. It has irreversibly propelled the world towards trade liberalization and
economic globalization. Liberalization, globalization, deregulation and
privatization, the third-millennium buzz words, are ushering in a new
borderless world of business by sweeping away as mere historical relics the
heretofore traditional modes of promoting and protecting national economies
like tariffs, export subsidies, import quotas, quantitative restrictions, tax
exemptions and currency controls. Finding market niches and becoming the
best in specific industries in a market-driven and export-oriented global
scenario are replacing age-old beggar-thy-neighbor policies that unilaterally
protect weak and inefficient domestic producers of goods and services. In the
words of Peter Drucker, the well-known management guru, Increased
participation in the world economy has become the key to domestic economic
growth and prosperity.

Brief Historical Background

To hasten worldwide recovery from the devastation wrought by the

Second World War, plans for the establishment of three multilateral
institutions -- inspired by that grand political body, the United Nations -- were
discussed at Dumbarton Oaks and Bretton Woods. The first was the World
Bank (WB) which was to address the rehabilitation and reconstruction of war-
ravaged and later developing countries; the second, the International
Monetary Fund (IMF) which was to deal with currency problems; and the third,
the International Trade Organization (ITO), which was to foster order and
predictability in world trade and to minimize unilateral protectionist policies
that invite challenge, even retaliation, from other states. However, for a variety
of reasons, including its non-ratification by the United States, the ITO, unlike
the IMF and WB, never took off. What remained was only GATT -- the
General Agreement on Tariffs and Trade. GATT was a collection of treaties
governing access to the economies of treaty adherents with no
institutionalized body administering the agreements or dependable system of
dispute settlement.
After half a century and several dizzying rounds of negotiations, principally
the Kennedy Round, the Tokyo Round and the Uruguay Round, the world
finally gave birth to that administering body -- the World Trade Organization --
with the signing of the Final Act in Marrakesh, Morocco and the ratification of
the WTO Agreement by its members. [1]

Like many other developing countries, the Philippines joined WTO as a

founding member with the goal, as articulated by President Fidel V. Ramos in
two letters to the Senate (infra), of improving Philippine access to foreign
markets, especially its major trading partners, through the reduction of tariffs
on its exports, particularly agricultural and industrial products. The
President also saw in the WTO the opening of new opportunities for the
services sector x x x, (the reduction of) costs and uncertainty associated with
exporting x x x, and (the attraction of) more investments into the
country. Although the Chief Executive did not expressly mention it in his
letter, the Philippines - - and this is of special interest to the legal profession - -
will benefit from the WTO system of dispute settlement by judicial adjudication
through the independent WTO settlement bodies called (1) Dispute
Settlement Panels and (2) Appellate Tribunal. Heretofore, trade disputes
were settled mainly through negotiations where solutions were arrived at
frequently on the basis of relative bargaining strengths, and where naturally,
weak and underdeveloped countries were at a disadvantage.

The Petition in Brief

Arguing mainly (1) that the WTO requires the Philippines to place
nationals and products of member-countries on the same footing as Filipinos
and local products and (2) that the WTO intrudes, limits and/or impairs the
constitutional powers of both Congress and the Supreme Court, the instant
petition before this Court assails the WTO Agreement for violating the
mandate of the 1987 Constitution to develop a self-reliant and independent
national economy effectively controlled by Filipinos x x x (to) give preference
to qualified Filipinos (and to) promote the preferential use of Filipino labor,
domestic materials and locally produced goods.
Simply stated, does the Philippine Constitution prohibit Philippine
participation in worldwide trade liberalization and economic
globalization? Does it prescribe Philippine integration into a global economy
that is liberalized, deregulated and privatized? These are the main questions
raised in this petition for certiorari, prohibition and mandamus under Rule 65
of the Rules of Court praying (1) for the nullification, on constitutional grounds,
of the concurrence of the Philippine Senate in the ratification by the President
of the Philippines of the Agreement Establishing the World Trade Organization
(WTO Agreement, for brevity) and (2) for the prohibition of its implementation
and enforcement through the release and utilization of public funds, the
assignment of public officials and employees, as well as the use of
government properties and resources by respondent-heads of various
executive offices concerned therewith. This concurrence is embodied in
Senate Resolution No. 97, dated December 14, 1994.

The Facts

On April 15, 1994, Respondent Rizalino Navarro, then Secretary of

the Department of Trade and Industry (Secretary Navarro, for brevity),
representing the Government of the Republic of the Philippines, signed in
Marrakesh, Morocco, the Final Act Embodying the Results of the Uruguay
Round of Multilateral Negotiations (Final Act, for brevity).
By signing the Final Act, Secretary Navarro on behalf of the Republic of
[2]

the Philippines, agreed:

(a) to submit, as appropriate, the WTO Agreement for the consideration of their
respective competent authorities, with a view to seeking approval of the Agreement in
accordance with their procedures; and

(b) to adopt the Ministerial Declarations and Decisions.

On August 12, 1994, the members of the Philippine Senate received a

letter dated August 11, 1994 from the President of the Philippines, stating [3]

among others that the Uruguay Round Final Act is hereby submitted to the
Senate for its concurrence pursuant to Section 21, Article VII of the
Constitution.
On August 13, 1994, the members of the Philippine Senate received
another letter from the President of the Philippines likewise dated August 11,
[4]

1994, which stated among others that the Uruguay Round Final Act, the
Agreement Establishing the World Trade Organization, the Ministerial
Declarations and Decisions, and the Understanding on Commitments in
Financial Services are hereby submitted to the Senate for its concurrence
pursuant to Section 21, Article VII of the Constitution.
On December 9, 1994, the President of the Philippines certified the
necessity of the immediate adoption of P.S. 1083, a resolution entitled
Concurring in the Ratification of the Agreement Establishing the World Trade
Organization. [5]

On December 14, 1994, the Philippine Senate adopted Resolution No. 97

which Resolved, as it is hereby resolved, that the Senate concur, as it
hereby concurs, in the ratification by the President of the Philippines of the
Agreement Establishing the World Trade Organization. The text of the WTO
[6]

Agreement is written on pages 137 et seq. of Volume I of the 36-

volume Uruguay Round of Multilateral Trade Negotiations and includes
various agreements and associated legal instruments (identified in the said
Agreement as Annexes 1, 2 and 3 thereto and collectively referred to as
Multilateral Trade Agreements, for brevity) as follows:

ANNEX 1

Annex 1A: Multilateral Agreement on Trade in Goods

 General Agreement on Tariffs and Trade 1994

Agreement on Agriculture

Agreement on the Application of Sanitary and

Phytosanitary Measures

Agreement on Textiles and Clothing

Agreement on Technical Barriers to Trade

Agreement on Trade-Related Investment Measures

Agreement on Implementation of Article VI of the General

Agreement on Tariffs and Trade 1994

Agreement on Implementation of Article VII of the General on

Tariffs and Trade 1994

Agreement on Pre-Shipment Inspection

Agreement on Rules of Origin

Agreement on Imports Licensing Procedures

Agreement on Subsidies and Coordinating Measures

Agreement on Safeguards

Annex 1B: General Agreement on Trade in Services and Annexes

Annex 1C: Agreement on Trade-Related Aspects of Intellectual Property Rights

ANNEX 2

Understanding on Rules and Procedures Governing the Settlement

of Disputes

ANNEX 3

Trade Policy Review Mechanism

 On December 16, 1994, the President of the Philippines signed the [7]

Instrument of Ratification, declaring:

NOW THEREFORE, be it known that I, FIDEL V. RAMOS, President of the

Republic of the Philippines, after having seen and considered the aforementioned
Agreement Establishing the World Trade Organization and the agreements and
associated legal instruments included in Annexes one (1), two (2) and three (3) of that
Agreement which are integral parts thereof, signed at Marrakesh, Morocco on 15
April 1994, do hereby ratify and confirm the same and every Article and Clause
thereof.

To emphasize, the WTO Agreement ratified by the President of the

Philippines is composed of the Agreement Proper and the associated legal
instruments included in Annexes one (1), two (2) and three (3) of that
Agreement which are integral parts thereof.
On the other hand, the Final Act signed by Secretary Navarro embodies
not only the WTO Agreement (and its integral annexes aforementioned) but
also (1) the Ministerial Declarations and Decisions and (2) the Understanding
on Commitments in Financial Services. In his Memorandum dated May 13,
1996, the Solicitor General describes these two latter documents as follows:
[8]

The Ministerial Decisions and Declarations are twenty-five declarations and

decisions on a wide range of matters, such as measures in favor of least developed
countries, notification procedures, relationship of WTO with the International
Monetary Fund (IMF), and agreements on technical barriers to trade and on dispute
settlement.

The Understanding on Commitments in Financial Services dwell on, among other

things, standstill or limitations and qualifications of commitments to existing non-
conforming measures, market access, national treatment, and definitions of non-
resident supplier of financial services, commercial presence and new financial service.

On December 29, 1994, the present petition was filed. After careful
deliberation on respondents comment and petitioners reply thereto, the Court
resolved on December 12, 1995, to give due course to the petition, and the
parties thereafter filed their respective memoranda. The Court also requested
the Honorable Lilia R. Bautista, the Philippine Ambassador to the United
Nations stationed in Geneva, Switzerland, to submit a paper, hereafter
referred to as Bautista Paper, for brevity, (1) providing a historical
[9]

background of and (2) summarizing the said agreements.

During the Oral Argument held on August 27, 1996, the Court directed:
(a) the petitioners to submit the (1) Senate Committee Report on the matter in
controversy and (2) the transcript of proceedings/hearings in the Senate; and

(b) the Solicitor General, as counsel for respondents, to file (1) a list of Philippine
treaties signed prior to the Philippine adherence to the WTO Agreement, which
derogate from Philippine sovereignty and (2) copies of the multi-volume WTO
Agreement and other documents mentioned in the Final Act, as soon as possible.

After receipt of the foregoing documents, the Court said it would consider
the case submitted for resolution. In a Compliance dated September 16, 1996,
the Solicitor General submitted a printed copy of the 36-volume Uruguay
Round of Multilateral Trade Negotiations, and in another Compliance dated
October 24, 1996, he listed the various bilateral or multilateral treaties or
international instruments involving derogation of Philippine
sovereignty. Petitioners, on the other hand, submitted their Compliance
dated January 28, 1997, on January 30, 1997.

The Issues

In their Memorandum dated March 11, 1996, petitioners summarized the

issues as follows:

A. Whether the petition presents a political question or is otherwise not justiciable.

B. Whether the petitioner members of the Senate who participated in the

deliberations and voting leading to the concurrence are estopped from
impugning the validity of the Agreement Establishing the World Trade
Organization or of the validity of the concurrence.

C. Whether the provisions of the Agreement Establishing the World Trade

Organization contravene the provisions of Sec. 19, Article II, and Secs. 10 and
12, Article XII, all of the 1987 Philippine Constitution.

D. Whether provisions of the Agreement Establishing the World Trade

Organization unduly limit, restrict and impair Philippine sovereignty
specifically the legislative power which, under Sec. 2, Article VI, 1987
Philippine Constitution is vested in the Congress of the Philippines;

E. Whether provisions of the Agreement Establishing the World Trade

Organization interfere with the exercise of judicial power.
 F. Whether the respondent members of the Senate acted in grave abuse of
discretion amounting to lack or excess of jurisdiction when they voted for
concurrence in the ratification of the constitutionally-infirm Agreement
Establishing the World Trade Organization.

G. Whether the respondent members of the Senate acted in grave abuse of

discretion amounting to lack or excess of jurisdiction when they concurred
only in the ratification of the Agreement Establishing the World Trade
Organization, and not with the Presidential submission which included the
Final Act, Ministerial Declaration and Decisions, and the Understanding on
Commitments in Financial Services.

On the other hand, the Solicitor General as counsel for respondents

synthesized the several issues raised by petitioners into the following: [10]

1. Whether or not the provisions of the Agreement Establishing the World Trade
Organization and the Agreements and Associated Legal Instruments included in
Annexes one (1), two (2) and three (3) of that agreement cited by petitioners directly
contravene or undermine the letter, spirit and intent of Section 19, Article II and
Sections 10 and 12, Article XII of the 1987 Constitution.

2. Whether or not certain provisions of the Agreement unduly limit, restrict or impair
the exercise of legislative power by Congress.

3. Whether or not certain provisions of the Agreement impair the exercise of judicial
power by this Honorable Court in promulgating the rules of evidence.

4. Whether or not the concurrence of the Senate in the ratification by the President of
the Philippines of the Agreement establishing the World Trade Organization implied
rejection of the treaty embodied in the Final Act.

By raising and arguing only four issues against the seven presented by
petitioners, the Solicitor General has effectively ignored three, namely: (1)
whether the petition presents a political question or is otherwise not
justiciable; (2) whether petitioner-members of the Senate (Wigberto E. Taada
and Anna Dominique Coseteng) are estopped from joining this suit; and (3)
whether the respondent-members of the Senate acted in grave abuse of
discretion when they voted for concurrence in the ratification of the WTO
Agreement. The foregoing notwithstanding, this Court resolved to deal with
these three issues thus:
(1) The political question issue -- being very fundamental and vital, and being a
matter that probes into the very jurisdiction of this Court to hear and decide this case -
- was deliberated upon by the Court and will thus be ruled upon as the first issue;

(2) The matter of estoppel will not be taken up because this defense is waivable and
the respondents have effectively waived it by not pursuing it in any of their pleadings;
in any event, this issue, even if ruled in respondents favor, will not cause the
petitions dismissal as there are petitioners other than the two senators, who are not
vulnerable to the defense of estoppel; and

(3) The issue of alleged grave abuse of discretion on the part of the respondent
senators will be taken up as an integral part of the disposition of the four issues raised
by the Solicitor General.

During its deliberations on the case, the Court noted that the respondents
did not question the locus standi of petitioners. Hence, they are also deemed
to have waived the benefit of such issue. They probably realized that grave
constitutional issues, expenditures of public funds and serious international
commitments of the nation are involved here, and that transcendental public
interest requires that the substantive issues be met head on and decided on
the merits, rather than skirted or deflected by procedural matters. [11]

To recapitulate, the issues that will be ruled upon shortly are:

(1) DOES THE PETITION PRESENT A JUSTICIABLE
CONTROVERSY? OTHERWISE STATED, DOES THE PETITION INVOLVE A
POLITICAL QUESTION OVER WHICH THIS COURT HAS NO JURISDICTION?
(2) DO THE PROVISIONS OF THE WTO AGREEMENT AND ITS THREE ANNEXES
CONTRAVENE SEC. 19, ARTICLE II, AND SECS. 10 AND 12, ARTICLE XII, OF
THE PHILIPPINE CONSTITUTION?
(3) DO THE PROVISIONS OF SAID AGREEMENT AND ITS ANNEXES LIMIT,
RESTRICT, OR IMPAIR THE EXERCISE OF LEGISLATIVE POWER BY
CONGRESS?
(4) DO SAID PROVISIONS UNDULY IMPAIR OR INTERFERE WITH THE EXERCISE
OF JUDICIAL POWER BY THIS COURT IN PROMULGATING RULES ON
EVIDENCE?
(5) WAS THE CONCURRENCE OF THE SENATE IN THE WTO AGREEMENT AND
ITS ANNEXES SUFFICIENT AND/OR VALID, CONSIDERING THAT IT DID NOT
INCLUDE THE FINAL ACT, MINISTERIAL DECLARATIONS AND DECISIONS,
AND THE UNDERSTANDING ON COMMITMENTS IN FINANCIAL SERVICES?

The First Issue: Does the Court Have Jurisdiction Over the
Controversy?
 In seeking to nullify an act of the Philippine Senate on the ground that it
contravenes the Constitution, the petition no doubt raises a justiciable
controversy. Where an action of the legislative branch is seriously alleged to
have infringed the Constitution, it becomes not only the right but in fact the
duty of the judiciary to settle the dispute. The question thus posed is judicial
rather than political. The duty (to adjudicate) remains to assure that the
supremacy of the Constitution is upheld. Once a controversy as to the
[12]

application or interpretation of a constitutional provision is raised before this

Court (as in the instant case), it becomes a legal issue which the Court is
bound by constitutional mandate to decide. [13]

The jurisdiction of this Court to adjudicate the matters raised in the

[14]

petition is clearly set out in the 1987 Constitution, as follows:

[15]

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of any branch or instrumentality of the government.

The foregoing text emphasizes the judicial departments duty and power to
strike down grave abuse of discretion on the part of any branch or
instrumentality of government including Congress. It is an innovation in our
political law. As explained by former Chief Justice Roberto
[16]

Concepcion, the judiciary is the final arbiter on the question of whether or

[17]

not a branch of government or any of its officials has acted without jurisdiction
or in excess of jurisdiction or so capriciously as to constitute an abuse of
discretion amounting to excess of jurisdiction. This is not only a judicial power
but a duty to pass judgment on matters of this nature.
As this Court has repeatedly and firmly emphasized in many cases, it will [18]

not shirk, digress from or abandon its sacred duty and authority to uphold the
Constitution in matters that involve grave abuse of discretion brought before it
in appropriate cases, committed by any officer, agency, instrumentality or
department of the government.
As the petition alleges grave abuse of discretion and as there is no other
plain, speedy or adequate remedy in the ordinary course of law, we have no
hesitation at all in holding that this petition should be given due course and the
vital questions raised therein ruled upon under Rule 65 of the Rules of
Court. Indeed, certiorari, prohibition and mandamus are appropriate remedies
to raise constitutional issues and to review and/or prohibit/nullify, when proper,
acts of legislative and executive officials. On this, we have no equivocation.
 We should stress that, in deciding to take jurisdiction over this petition, this
Court will not review the wisdom of the decision of the President and the
Senate in enlisting the country into the WTO, or pass upon the merits of trade
liberalization as a policy espoused by said international body. Neither will it
rule on the propriety of the governments economic policy of
reducing/removing tariffs, taxes, subsidies, quantitative restrictions, and other
import/trade barriers. Rather, it will only exercise its constitutional duty to
determine whether or not there had been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the Senate in
ratifying the WTO Agreement and its three annexes.

Second Issue: The WTO Agreement and Economic Nationalism

This is the lis mota, the main issue, raised by the petition.
Petitioners vigorously argue that the letter, spirit and intent of the
Constitution mandating economic nationalism are violated by the so-called
parity provisions and national treatment clauses scattered in various parts
not only of the WTO Agreement and its annexes but also in the Ministerial
Decisions and Declarations and in the Understanding on Commitments in
Financial Services.
Specifically, the flagship constitutional provisions referred to are Sec. 19,
Article II, and Secs. 10 and 12, Article XII, of the Constitution, which are
worded as follows:

Article II

DECLARATION OF PRINCIPLES AND STATE POLICIES

xx xx
xx xx

Sec. 19. The State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos.

xx xx
xx xx

Article XII

NATIONAL ECONOMY AND PATRIMONY

 xx xx
xx xx

Sec. 10. x x x. The Congress shall enact measures that will encourage the formation
and operation of enterprises whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national economy and
patrimony, the State shall give preference to qualified Filipinos.

xx xx
xx xx

Sec. 12. The State shall promote the preferential use of Filipino labor, domestic
materials and locally produced goods, and adopt measures that help make them
competitive.

Petitioners aver that these sacred constitutional principles are desecrated

by the following WTO provisions quoted in their memorandum: [19]

a) In the area of investment measures related to trade in goods (TRIMS, for

brevity):

Article 2

National Treatment and Quantitative Restrictions.

1. Without prejudice to other rights and obligations under GATT 1994. no

Member shall apply any TRIM that is inconsistent with the provisions of
Article III or Article XI of GATT 1994.

2. An Illustrative list of TRIMS that are inconsistent with the obligations of

general elimination of quantitative restrictions provided for in paragraph I of
Article XI of GATT 1994 is contained in the Annex to this
Agreement. (Agreement on Trade-Related Investment Measures, Vol. 27,
Uruguay Round, Legal Instruments, p.22121, emphasis supplied).

The Annex referred to reads as follows:

ANNEX

Illustrative List
 1. TRIMS that are inconsistent with the obligation of national treatment
provided for in paragraph 4 of Article III of GATT 1994 include those
which are mandatory or enforceable under domestic law or under
administrative rulings, or compliance with which is necessary to obtain an
advantage, and which require:

(a) the purchase or use by an enterprise of products of domestic origin or

from any domestic source, whether specified in terms of particular
products, in terms of volume or value of products, or in terms of
proportion of volume or value of its local production; or

(b) that an enterprises purchases or use of imported products be limited to an

amount related to the volume or value of local products that it exports.

2. TRIMS that are inconsistent with the obligations of general elimination of

quantitative restrictions provided for in paragraph 1 of Article XI of GATT
1994 include those which are mandatory or enforceable under domestic laws or
under administrative rulings, or compliance with which is necessary to obtain
an advantage, and which restrict:

(a) the importation by an enterprise of products used in or related to the local

production that it exports;

(b) the importation by an enterprise of products used in or related to its local

production by restricting its access to foreign exchange inflows attributable
to the enterprise; or

(c) the exportation or sale for export specified in terms of particular products,
in terms of volume or value of products, or in terms of a preparation of
volume or value of its local production. (Annex to the Agreement on
Trade-Related Investment Measures, Vol. 27, Uruguay Round Legal
Documents, p.22125, emphasis supplied).

The paragraph 4 of Article III of GATT 1994 referred to is quoted as follows:

The products of the territory of any contracting party imported into the territory of any
other contracting party shall be accorded treatment no less favorable than that
accorded to like products of national origin in respect of laws, regulations and
requirements affecting their internal sale, offering for sale, purchase, transportation,
distribution or use. the provisions of this paragraph shall not prevent the application
of differential internal transportation charges which are based exclusively on the
economic operation of the means of transport and not on the nationality of the
product. (Article III, GATT 1947, as amended by the Protocol Modifying Part II,
and Article XXVI of GATT, 14 September 1948, 62 UMTS 82-84 in relation to
paragraph 1(a) of the General Agreement on Tariffs and Trade 1994, Vol. 1, Uruguay
Round, Legal Instruments p.177, emphasis supplied).

b) In the area of trade related aspects of intellectual property rights (TRIPS,

for brevity):

Each Member shall accord to the nationals of other Members treatment no less
favourable than that it accords to its own nationals with regard to the protection of
intellectual property... (par. 1, Article 3, Agreement on Trade-Related Aspect of
Intellectual Property rights, Vol. 31, Uruguay Round, Legal Instruments, p.25432
(emphasis supplied)

(c) In the area of the General Agreement on Trade in Services:

National Treatment

1. In the sectors inscribed in its schedule, and subject to any conditions and
qualifications set out therein, each Member shall accord to services and
service suppliers of any other Member, in respect of all measures affecting
the supply of services, treatment no less favourable than it accords to its
own like services and service suppliers.

2. A Member may meet the requirement of paragraph I by according to

services and service suppliers of any other Member, either formally
identical treatment or formally different treatment to that it accords to its
own like services and service suppliers.

3. Formally identical or formally different treatment shall be considered to be

less favourable if it modifies the conditions of completion in favour of
services or service suppliers of the Member compared to like services or
service suppliers of any other Member. (Article XVII, General Agreement
on Trade in Services, Vol. 28, Uruguay Round Legal Instruments, p.22610
emphasis supplied).

It is petitioners position that the foregoing national treatment and parity

provisions of the WTO Agreement place nationals and products of member
countries on the same footing as Filipinos and local products, in
contravention of the Filipino First policy of the Constitution. They allegedly
render meaningless the phrase effectively controlled by Filipinos. The
constitutional conflict becomes more manifest when viewed in the context of
the clear duty imposed on the Philippines as a WTO member to ensure the
conformity of its laws, regulations and administrative procedures with its
obligations as provided in the annexed agreements. Petitioners further argue
[20]

that these provisions contravene constitutional limitations on the role exports

play in national development and negate the preferential treatment accorded
to Filipino labor, domestic materials and locally produced goods.
On the other hand, respondents through the Solicitor General counter (1)
that such Charter provisions are not self-executing and merely set out
general policies; (2) that these nationalistic portions of the Constitution
invoked by petitioners should not be read in isolation but should be related to
other relevant provisions of Art. XII, particularly Secs. 1 and 13 thereof; (3)
that read properly, the cited WTO clauses do not conflict with the Constitution;
and (4) that the WTO Agreement contains sufficient provisions to protect
developing countries like the Philippines from the harshness of sudden trade
liberalization.
We shall now discuss and rule on these arguments.

Declaration of Principles Not Self-Executing

By its very title, Article II of the Constitution is a declaration of principles

and state policies. The counterpart of this article in the 1935 Constitution is [21]

called the basic political creed of the nation by Dean Vicente Sinco. These [22]

principles in Article II are not intended to be self-executing principles ready for

enforcement through the courts. They are used by the judiciary as aids or as
[23]

guides in the exercise of its power of judicial review, and by the legislature in
its enactment of laws. As held in the leading case of Kilosbayan, Incorporated
vs. Morato, the principles and state policies enumerated in Article II and
[24]

some sections of Article XII are not self-executing provisions, the disregard of
which can give rise to a cause of action in the courts. They do not embody
judicially enforceable constitutional rights but guidelines for legislation.
In the same light, we held in Basco vs. Pagcor that broad constitutional
[25]

principles need legislative enactments to implement them, thus:

On petitioners allegation that P.D. 1869 violates Sections 11 (Personal Dignity) 12

(Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article
XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution,
suffice it to state also that these are merely statements of principles and policies. As
such, they are basically not self-executing, meaning a law should be passed by
Congress to clearly define and effectuate such principles.
In general, therefore, the 1935 provisions were not intended to be self-executing
principles ready for enforcement through the courts. They were rather directives
addressed to the executive and to the legislature. If the executive and the legislature
failed to heed the directives of the article, the available remedy was not judicial but
political. The electorate could express their displeasure with the failure of the
executive and the legislature through the language of the ballot. (Bernas, Vol. II, p.
2).

The reasons for denying a cause of action to an alleged infringement of

broad constitutional principles are sourced from basic considerations of due
process and the lack of judicial authority to wade into the uncharted ocean of
social and economic policy making. Mr. Justice Florentino P. Feliciano in his
concurring opinion in Oposa vs. Factoran, Jr., explained these reasons as
[26]

follows:

My suggestion is simply that petitioners must, before the trial court, show a more
specific legal right -- a right cast in language of a significantly lower order of
generality than Article II (15) of the Constitution -- that is or may be violated by the
actions, or failures to act, imputed to the public respondent by petitioners so that the
trial court can validly render judgment granting all or part of the relief prayed for. To
my mind, the court should be understood as simply saying that such a more specific
legal right or rights may well exist in our corpus of law, considering the general policy
principles found in the Constitution and the existence of the Philippine Environment
Code, and that the trial court should have given petitioners an effective opportunity so
to demonstrate, instead of aborting the proceedings on a motion to dismiss.

It seems to me important that the legal right which is an essential component of a

cause of action be a specific, operable legal right, rather than a constitutional or
statutory policy, for at least two (2) reasons. One is that unless the legal right claimed
to have been violated or disregarded is given specification in operational terms,
defendants may well be unable to defend themselves intelligently and effectively; in
other words, there are due process dimensions to this matter.

The second is a broader-gauge consideration -- where a specific violation of law or

applicable regulation is not alleged or proved, petitioners can be expected to fall back
on the expanded conception of judicial power in the second paragraph of Section 1 of
Article VIII of the Constitution which reads:

Section 1. xxx

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of any branch or instrumentality of the
Government. (Emphases supplied)

When substantive standards as general as the right to a balanced and healthy ecology
and the right to health are combined with remedial standards as broad ranging as a
grave abuse of discretion amounting to lack or excess of jurisdiction, the result will
be, it is respectfully submitted, to propel courts into the uncharted ocean of social and
economic policy making. At least in respect of the vast area of environmental
protection and management, our courts have no claim to special technical competence
and experience and professional qualification. Where no specific, operable norms and
standards are shown to exist, then the policy making departments -- the legislative and
executive departments -- must be given a real and effective opportunity to fashion and
promulgate those norms and standards, and to implement them before the courts
should intervene.

Economic Nationalism Should Be Read with Other Constitutional

Mandates to Attain Balanced Development of Economy

On the other hand, Secs. 10 and 12 of Article XII, apart from merely laying
down general principles relating to the national economy and patrimony,
should be read and understood in relation to the other sections in said article,
especially Secs. 1 and 13 thereof which read:

Section 1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.

The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. x x x
 x x x x x
x xxx

Sec. 13. The State shall pursue a trade policy that serves the general welfare and
utilizes all forms and arrangements of exchange on the basis of equality and
reciprocity.

As pointed out by the Solicitor General, Sec. 1 lays down the basic goals
of national economic development, as follows:
1. A more equitable distribution of opportunities, income and wealth;
2. A sustained increase in the amount of goods and services provided by
the nation for the benefit of the people; and
3. An expanding productivity as the key to raising the quality of life for all
especially the underprivileged.
With these goals in context, the Constitution then ordains the ideals of
economic nationalism (1) by expressing preference in favor of qualified
Filipinos in the grant of rights, privileges and concessions covering the
national economy and patrimony and in the use of Filipino labor, domestic
[27]

materials and locally-produced goods; (2) by mandating the State to adopt

measures that help make them competitive; and (3) by requiring the State to
[28]

develop a self-reliant and independent national economy effectively

controlled by Filipinos. In similar language, the Constitution takes into
[29]

account the realities of the outside world as it requires the pursuit of a trade
policy that serves the general welfare and utilizes all forms and arrangements
of exchange on the basis of equality and reciprocity; and speaks of
[30]

industries which are competitive in both domestic and foreign markets as

well as of the protection of Filipino enterprises against unfair foreign
competition and trade practices.
It is true that in the recent case of Manila Prince Hotel vs. Government
Service Insurance System, et al., this Court held that Sec. 10, second par.,
[31]

Art. XII of the 1987 Constitution is a mandatory, positive command which is

complete in itself and which needs no further guidelines or implementing laws
or rules for its enforcement. From its very words the provision does not
require any legislation to put it in operation. It is per se judicially
enforceable. However, as the constitutional provision itself states, it is
enforceable only in regard to the grants of rights, privileges and concessions
covering national economy and patrimony and not to every aspect of trade
and commerce. It refers to exceptions rather than the rule. The issue here is
not whether this paragraph of Sec. 10 of Art. XII is self-executing or
not. Rather, the issue is whether, as a rule, there are enough balancing
provisions in the Constitution to allow the Senate to ratify the Philippine
concurrence in the WTO Agreement. And we hold that there are.
All told, while the Constitution indeed mandates a bias in favor of Filipino
goods, services, labor and enterprises, at the same time, it recognizes the
need for business exchange with the rest of the world on the bases of equality
and reciprocity and limits protection of Filipino enterprises only against foreign
competition and trade practices that are unfair. In other words, the
[32]

Constitution did not intend to pursue an isolationist policy. It did not shut out
foreign investments, goods and services in the development of the Philippine
economy. While the Constitution does not encourage the unlimited entry of
foreign goods, services and investments into the country, it does not prohibit
them either. In fact, it allows an exchange on the basis of equality and
reciprocity, frowning only on foreign competition that is unfair.

WTO Recognizes Need to Protect Weak Economies

Upon the other hand, respondents maintain that the WTO itself has some
built-in advantages to protect weak and developing economies, which
comprise the vast majority of its members. Unlike in the UN where major
states have permanent seats and veto powers in the Security Council, in the
WTO, decisions are made on the basis of sovereign equality, with each
members vote equal in weight to that of any other. There is no WTO
equivalent of the UN Security Council.

WTO decides by consensus whenever possible, otherwise, decisions of the

Ministerial Conference and the General Council shall be taken by the majority of the
votes cast, except in cases of interpretation of the Agreement or waiver of the
obligation of a member which would require three fourths vote. Amendments would
require two thirds vote in general. Amendments to MFN provisions and the
Amendments provision will require assent of all members. Any member may
withdraw from the Agreement upon the expiration of six months from the date of
notice of withdrawals.[33]

Hence, poor countries can protect their common interests more effectively
through the WTO than through one-on-one negotiations with developed
countries. Within the WTO, developing countries can form powerful blocs to
push their economic agenda more decisively than outside the
Organization. This is not merely a matter of practical alliances but a
negotiating strategy rooted in law. Thus, the basic principles underlying the
WTO Agreement recognize the need of developing countries like the
Philippines to share in the growth in international trade commensurate with
the needs of their economic development. These basic principles are found
in the preamble of the WTO Agreement as follows:
[34]

The Parties to this Agreement,

Recognizing that their relations in the field of trade and economic endeavour should
be conducted with a view to raising standards of living, ensuring full employment and
a large and steadily growing volume of real income and effective demand, and
expanding the production of and trade in goods and services, while allowing for the
optimal use of the worlds resources in accordance with the objective of sustainable
development, seeking both to protect and preserve the environment and to enhance the
means for doing so in a manner consistent with their respective needs and concerns at
different levels of economic development,

Recognizing further that there is need for positive efforts designed to ensure that
developing countries, and especially the least developed among them, secure a share
in the growth in international trade commensurate with the needs of their economic
development,

Being desirous of contributing to these objectives by entering into reciprocal and

mutually advantageous arrangements directed to the substantial reduction of tariffs
and other barriers to trade and to theelimination of discriminatory treatment in
international trade relations,

Resolved, therefore, to develop an integrated, more viable and durable multilateral

trading system encompassing the General Agreement on Tariffs and Trade, the results
of past trade liberalization efforts, and all of the results of the Uruguay Round of
Multilateral Trade Negotiations,

Determined to preserve the basic principles and to further the objectives underlying
this multilateral trading system, x x x. (underscoring supplied.)

Specific WTO Provisos Protect Developing Countries

So too, the Solicitor General points out that pursuant to and consistent
with the foregoing basic principles, the WTO Agreement grants developing
countries a more lenient treatment, giving their domestic industries some
protection from the rush of foreign competition. Thus, with respect to tariffs in
general, preferential treatment is given to developing countries in terms of
the amount of tariff reduction and the period within which the reduction is to be
spread out. Specifically, GATT requires an average tariff reduction rate of
36% for developed countries to be effected within a period of six (6)
years while developing countries -- including the Philippines -- are required to
effect an average tariff reduction of only 24% within ten (10) years.
In respect to domestic subsidy, GATT requires developed countries to
reduce domestic support to agricultural products by 20% over six (6) years, as
compared to only 13% for developing countries to be effected within ten (10)
years.
In regard to export subsidy for agricultural products, GATT requires
developed countries to reduce their budgetary outlays for export subsidy by
36% and export volumes receiving export subsidy by 21% within a period of
six (6) years. For developing countries, however, the reduction rate is
only two-thirds of that prescribed for developed countries and a longerperiod
of ten (10) years within which to effect such reduction.
Moreover, GATT itself has provided built-in protection from unfair foreign
competition and trade practices including anti-dumping measures,
countervailing measures and safeguards against import surges. Where local
businesses are jeopardized by unfair foreign competition, the Philippines can
avail of these measures. There is hardly therefore any basis for the statement
that under the WTO, local industries and enterprises will all be wiped out and
that Filipinos will be deprived of control of the economy. Quite the contrary,
the weaker situations of developing nations like the Philippines have been
taken into account; thus, there would be no basis to say that in joining the
WTO, the respondents have gravely abused their discretion. True, they have
made a bold decision to steer the ship of state into the yet uncharted sea of
economic liberalization. But such decision cannot be set aside on the ground
of grave abuse of discretion, simply because we disagree with it or simply
because we believe only in other economic policies. As earlier stated, the
Court in taking jurisdiction of this case will not pass upon the advantages and
disadvantages of trade liberalization as an economic policy. It will only
perform its constitutional duty of determining whether the Senate committed
grave abuse of discretion.

Constitution Does Not Rule Out Foreign Competition

Furthermore, the constitutional policy of a self-reliant and independent

national economy does not necessarily rule out the entry of foreign
[35]

investments, goods and services. It contemplates neither economic

seclusion nor mendicancy in the international community. As explained by
Constitutional Commissioner Bernardo Villegas, sponsor of this constitutional
policy:

Economic self-reliance is a primary objective of a developing country that is keenly

aware of overdependence on external assistance for even its most basic needs. It does
not mean autarky or economic seclusion; rather, it means avoiding mendicancy in the
international community. Independence refers to the freedom from undue foreign
control of the national economy, especially in such strategic industries as in the
development of natural resources and public utilities.
[36]

The WTO reliance on most favored nation, national treatment, and

trade without discrimination cannot be struck down as unconstitutional as in
fact they are rules of equality and reciprocity that apply to all WTO
members. Aside from envisioning a trade policy based on equality and
reciprocity, the fundamental law encourages industries that are competitive
[37]

in both domestic and foreign markets, thereby demonstrating a clear policy

against a sheltered domestic trade environment, but one in favor of the
gradual development of robust industries that can compete with the best in the
foreign markets. Indeed, Filipino managers and Filipino enterprises have
shown capability and tenacity to compete internationally. And given a free
trade environment, Filipino entrepreneurs and managers in Hongkong
have demonstrated the Filipino capacity to grow and to prosper against the
best offered under a policy of laissez faire.

Constitution Favors Consumers, Not Industries or Enterprises

The Constitution has not really shown any unbalanced bias in favor of any
business or enterprise, nor does it contain any specific pronouncement that
Filipino companies should be pampered with a total
proscription of foreign competition. On the other hand, respondents clai
m that WTO/GATT aims to make available to the Filipino consumer the best
goods and services obtainable anywhere in the world at the most reasonable
prices. Consequently, the question boils down to whether WTO/GATT will
favor the general welfare of the public at large.
Will adherence to the WTO treaty bring this ideal (of favoring the general
welfare) to reality?
 Will WTO/GATT succeed in promoting the Filipinos general welfare
because it will -- as promised by its promoters -- expand the countrys exports
and generate more employment?
Will it bring more prosperity, employment, purchasing power and quality
products at the most reasonable rates to the Filipino public?
The responses to these questions involve judgment calls by our policy
makers, for which they are answerable to our people during appropriate
electoral exercises. Such questions and the answers thereto are not subject
to judicial pronouncements based on grave abuse of discretion.

Constitution Designed to Meet Future Events and Contingencies

No doubt, the WTO Agreement was not yet in existence when the
Constitution was drafted and ratified in 1987. That does not mean however
that the Charter is necessarily flawed in the sense that its framers might not
have anticipated the advent of a borderless world of business. By the same
token, the United Nations was not yet in existence when the 1935
Constitution became effective. Did that necessarily mean that the then
Constitution might not have contemplated a diminution of the absoluteness of
sovereignty when the Philippines signed the UN Charter, thereby effectively
surrendering part of its control over its foreign relations to the decisions of
various UN organs like the Security Council?
It is not difficult to answer this question. Constitutions are designed to
meet not only the vagaries of contemporary events. They should be
interpreted to cover even future and unknown circumstances. It is to the
credit of its drafters that a Constitution can withstand the assaults of bigots
and infidels but at the same time bend with the refreshing winds of change
necessitated by unfolding events. As one eminent political law writer and
respected jurist explains:
[38]

The Constitution must be quintessential rather than superficial, the root and not the
blossom, the base and framework only of the edifice that is yet to rise. It is but the
core of the dream that must take shape, not in a twinkling by mandate of our delegates,
but slowly in the crucible of Filipino minds and hearts, where it will in time develop
its sinews and gradually gather its strength and finally achieve its substance. In fine,
the Constitution cannot, like the goddess Athena, rise full-grown from the brow of the
Constitutional Convention, nor can it conjure by mere fiat an instant Utopia. It must
grow with the society it seeks to re-structure and march apace with the progress of the
race, drawing from the vicissitudes of history the dynamism and vitality that will keep
it, far from becoming a petrified rule, a pulsing, living law attuned to the heartbeat of
the nation.

Third Issue: The WTO Agreement and Legislative Power

The WTO Agreement provides that (e)ach Member shall ensure the
conformity of its laws, regulations and administrative procedures with its
obligations as provided in the annexed Agreements. Petitioners maintain
[39]

that this undertaking unduly limits, restricts and impairs Philippine sovereignty,
specifically the legislative power which under Sec. 2, Article VI of the 1987
Philippine Constitution is vested in the Congress of the Philippines. It is an
assault on the sovereign powers of the Philippines because this means that
Congress could not pass legislation that will be good for our national interest
and general welfare if such legislation will not conform with the WTO
Agreement, which not only relates to the trade in goods x x x but also to the
flow of investments and money x x x as well as to a whole slew of agreements
on socio-cultural matters x x x. [40]

More specifically, petitioners claim that said WTO proviso derogates from
the power to tax, which is lodged in the Congress. And while the Constitution
[41]

allows Congress to authorize the President to fix tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts, such
authority is subject to specified limits and x x x such limitations and
restrictions as Congress may provide, as in fact it did under Sec. 401 of the
[42]

Tariff and Customs Code.

Sovereignty Limited by International Law and Treaties

This Court notes and appreciates the ferocity and passion by which
petitioners stressed their arguments on this issue. However, while
sovereignty has traditionally been deemed absolute and all-encompassing on
the domestic level, it is however subject to restrictions and limitations
voluntarily agreed to by the Philippines, expressly or impliedly, as a member
of the family of nations. Unquestionably, the Constitution did not envision a
hermit-type isolation of the country from the rest of the world. In its
Declaration of Principles and State Policies, the Constitution adopts the
generally accepted principles of international law as part of the law of the land,
and adheres to the policy of peace, equality, justice, freedom, cooperation and
amity, with all nations." By the doctrine of incorporation, the country is bound
[43]
by generally accepted principles of international law, which are considered to
be automatically part of our own laws. One of the oldest and most
[44]

fundamental rules in international law is pacta sunt servanda -- international

agreements must be performed in good faith. A treaty engagement is not a
mere moral obligation but creates a legally binding obligation on the parties x
x x. A state which has contracted valid international obligations is bound to
make in its legislations such modifications as may be necessary to ensure the
fulfillment of the obligations undertaken.
[45]

By their inherent nature, treaties really limit or restrict the absoluteness of

sovereignty. By their voluntary act, nations may surrender some aspects of
their state power in exchange for greater benefits granted by or derived from a
convention or pact. After all, states, like individuals, live with coequals, and in
pursuit of mutually covenanted objectives and benefits, they also commonly
agree to limit the exercise of their otherwise absolute rights. Thus, treaties
have been used to record agreements between States concerning such
widely diverse matters as, for example, the lease of naval bases, the sale or
cession of territory, the termination of war, the regulation of conduct of
hostilities, the formation of alliances, the regulation of commercial relations,
the settling of claims, the laying down of rules governing conduct in peace and
the establishment of international organizations. The sovereignty of a state
[46]

therefore cannot in fact and in reality be considered absolute. Certain

restrictions enter into the picture: (1) limitations imposed by the very nature of
membership in the family of nations and (2) limitations imposed by treaty
stipulations. As aptly put by John F. Kennedy, Today, no nation can build its
destiny alone. The age of self-sufficient nationalism is over. The age of
interdependence is here. [47]

UN Charter and Other Treaties Limit Sovereignty

Thus, when the Philippines joined the United Nations as one of its 51
charter members, it consented to restrict its sovereign rights under the
concept of sovereignty as auto-limitation.47-A Under Article 2 of the UN
Charter, (a)ll members shall give the United Nations every assistance in any
action it takes in accordance with the present Charter, and shall refrain from
giving assistance to any state against which the United Nations is taking
preventive or enforcement action. Such assistance includes payment of its
corresponding share not merely in administrative expenses but also in
expenditures for the peace-keeping operations of the organization. In its
advisory opinion of July 20, 1961, the International Court of Justice held that
money used by the United Nations Emergency Force in the Middle East and
in the Congo were expenses of the United Nations under Article 17,
paragraph 2, of the UN Charter. Hence, all its members must bear their
corresponding share in such expenses. In this sense, the Philippine
Congress is restricted in its power to appropriate. It is compelled to
appropriate funds whether it agrees with such peace-keeping expenses or
not. So too, under Article 105 of the said Charter, the UN and its
representatives enjoy diplomatic privileges and immunities, thereby limiting
again the exercise of sovereignty of members within their own
territory. Another example: although sovereign equality and domestic
jurisdiction of all members are set forth as underlying principles in the UN
Charter, such provisos are however subject to enforcement measures decided
by the Security Council for the maintenance of international peace and
security under Chapter VII of the Charter. A final example: under Article 103,
(i)n the event of a conflict between the obligations of the Members of the
United Nations under the present Charter and their obligations under any
other international agreement, their obligation under the present charter shall
prevail, thus unquestionably denying the Philippines -- as a member -- the
sovereign power to make a choice as to which of conflicting obligations, if any,
to honor.
Apart from the UN Treaty, the Philippines has entered into many other
international pacts -- both bilateral and multilateral -- that involve limitations
on Philippine sovereignty. These are enumerated by the Solicitor General in
his Compliance dated October 24, 1996, as follows:

(a) Bilateral convention with the United States regarding taxes on income,
where the Philippines agreed, among others, to exempt from tax, income
received in the Philippines by, among others, the Federal Reserve Bank of the
United States, the Export/Import Bank of the United States, the Overseas
Private Investment Corporation of the United States. Likewise, in said
convention, wages, salaries and similar remunerations paid by the United
States to its citizens for labor and personal services performed by them as
employees or officials of the United States are exempt from income tax by the
Philippines.

(b) Bilateral agreement with Belgium, providing, among others, for the avoidance
of double taxation with respect to taxes on income.

(c) Bilateral convention with the Kingdom of Sweden for the avoidance of double
taxation.
(d) Bilateral convention with the French Republic for the avoidance of double
taxation.

(e) Bilateral air transport agreement with Korea where the Philippines agreed to
exempt from all customs duties, inspection fees and other duties or taxes
aircrafts of South Korea and the regular equipment, spare parts and supplies
arriving with said aircrafts.

(f) Bilateral air service agreement with Japan, where the Philippines agreed to
exempt from customs duties, excise taxes, inspection fees and other similar
duties, taxes or charges fuel, lubricating oils, spare parts, regular equipment,
stores on board Japanese aircrafts while on Philippine soil.

(g) Bilateral air service agreement with Belgium where the Philippines granted
Belgian air carriers the same privileges as those granted to Japanese and
Korean air carriers under separate air service agreements.

(h) Bilateral notes with Israel for the abolition of transit and visitor visas where
the Philippines exempted Israeli nationals from the requirement of obtaining
transit or visitor visas for a sojourn in the Philippines not exceeding 59 days.

(I) Bilateral agreement with France exempting French nationals from the
requirement of obtaining transit and visitor visa for a sojourn not exceeding 59
days.

(j) Multilateral Convention on Special Missions, where the Philippines agreed

that premises of Special Missions in the Philippines are inviolable and its
agents can not enter said premises without consent of the Head of Mission
concerned. Special Missions are also exempted from customs duties, taxes
and related charges.

(k) Multilateral Convention on the Law of Treaties. In this convention, the

Philippines agreed to be governed by the Vienna Convention on the Law of
Treaties.

(l) Declaration of the President of the Philippines accepting compulsory

jurisdiction of the International Court of Justice. The International Court of
Justice has jurisdiction in all legal disputes concerning the interpretation of a
treaty, any question of international law, the existence of any fact which, if
established, would constitute a breach of international obligation.
 In the foregoing treaties, the Philippines has effectively agreed to limit the
exercise of its sovereign powers of taxation, eminent domain and police
power. The underlying consideration in this partial surrender of sovereignty is
the reciprocal commitment of the other contracting states in granting the same
privilege and immunities to the Philippines, its officials and its citizens. The
same reciprocity characterizes the Philippine commitments under WTO-GATT.

International treaties, whether relating to nuclear disarmament, human rights, the

environment, the law of the sea, or trade, constrain domestic political sovereignty
through the assumption of external obligations. But unless anarchy in international
relations is preferred as an alternative, in most cases we accept that the benefits of the
reciprocal obligations involved outweigh the costs associated with any loss of political
sovereignty. (T)rade treaties that structure relations by reference to durable, well-
defined substantive norms and objective dispute resolution procedures reduce the risks
of larger countries exploiting raw economic power to bully smaller countries, by
subjecting power relations to some form of legal ordering. In addition, smaller
countries typically stand to gain disproportionately from trade liberalization. This is
due to the simple fact that liberalization will provide access to a larger set of potential
new trading relationship than in case of the larger country gaining enhanced success
to the smaller countrys market. [48]

The point is that, as shown by the foregoing treaties, a portion of

sovereignty may be waived without violating the Constitution, based on the
rationale that the Philippines adopts the generally accepted principles of
international law as part of the law of the land and adheres to the policy of x x
x cooperation and amity with all nations.

Fourth Issue: The WTO Agreement and Judicial Power

Petitioners aver that paragraph 1, Article 34 of the General Provisions and

Basic Principles of the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS) intrudes on the power of the Supreme Court to
[49]

promulgate rules concerning pleading, practice and procedures. [50]

To understand the scope and meaning of Article 34, TRIPS, it will be [51]

fruitful to restate its full text as follows:

Article 34

Process Patents: Burden of Proof

 1. For the purposes of civil proceedings in respect of the infringement of the rights
of the owner referred to in paragraph 1(b) of Article 28, if the subject matter of a
patent is a process for obtaining a product, the judicial authorities shall have the
authority to order the defendant to prove that the process to obtain an identical
product is different from the patented process. Therefore, Members shall provide,
in at least one of the following circumstances, that any identical product when
produced without the consent of the patent owner shall, in the absence of proof to
the contrary, be deemed to have been obtained by the patented process:

(a) if the product obtained by the patented process is new;

(b) if there is a substantial likelihood that the identical product was made by
the process and the owner of the patent has been unable through
reasonable efforts to determine the process actually used.

2. Any Member shall be free to provide that the burden of proof indicated in
paragraph 1 shall be on the alleged infringer only if the condition referred to in
subparagraph (a) is fulfilled or only if the condition referred to in subparagraph
(b) is fulfilled.

3. In the adduction of proof to the contrary, the legitimate interests of defendants

in protecting their manufacturing and business secrets shall be taken into account.

From the above, a WTO Member is required to provide a rule of disputable

(note the words in the absence of proof to the contrary) presumption that a
product shown to be identical to one produced with the use of a patented
process shall be deemed to have been obtained by the (illegal) use of the said
patented process, (1) where such product obtained by the patented product is
new, or (2) where there is substantial likelihood that the identical product
was made with the use of the said patented process but the owner of the
patent could not determine the exact process used in obtaining such identical
product. Hence, the burden of proof contemplated by Article 34 should
actually be understood as the duty of the alleged patent infringer to overthrow
such presumption. Such burden, properly understood, actually refers to the
burden of evidence (burden of going forward) placed on the producer of the
identical (or fake) product to show that his product was produced without the
use of the patented process.
The foregoing notwithstanding, the patent owner still has the burden of
proof since, regardless of the presumption provided under paragraph 1 of
Article 34, such owner still has to introduce evidence of the existence of the
alleged identical product, the fact that it is identical to the genuine one
produced by the patented process and the fact of newness of the genuine
product or the fact of substantial likelihood that the identical product was
made by the patented process.
The foregoing should really present no problem in changing the rules of
evidence as the present law on the subject, Republic Act No. 165, as
amended, otherwise known as the Patent Law, provides a similar presumption
in cases of infringement of patented design or utility model, thus:

SEC. 60. Infringement. - Infringement of a design patent or of a patent for utility

model shall consist in unauthorized copying of the patented design or utility model for
the purpose of trade or industry in the article or product and in the making, using or
selling of the article or product copying the patented design or utility model. Identity
or substantial identity with the patented design or utility model shall constitute
evidence of copying. (underscoring supplied)

Moreover, it should be noted that the requirement of Article 34 to provide a

disputable presumption applies only if (1) the product obtained by the
patented process is NEW or (2) there is a substantial likelihood that the
identical product was made by the process and the process owner has not
been able through reasonable effort to determine the process used. Where
either of these two provisos does not obtain, members shall be free to
determine the appropriate method of implementing the provisions of TRIPS
within their own internal systems and processes.
By and large, the arguments adduced in connection with our disposition of
the third issue -- derogation of legislative power - will apply to this fourth issue
also. Suffice it to say that the reciprocity clause more than justifies such
intrusion, if any actually exists. Besides, Article 34 does not contain an
unreasonable burden, consistent as it is with due process and the concept of
adversarial dispute settlement inherent in our judicial system.
So too, since the Philippine is a signatory to most international
conventions on patents, trademarks and copyrights, the adjustment in
legislation and rules of procedure will not be substantial. [52]

Fifth Issue: Concurrence Only in the WTO Agreement and Not in Other
Documents Contained in the Final Act

Petitioners allege that the Senate concurrence in the WTO Agreement and
its annexes -- but not in the other documents referred to in the Final Act,
namely the Ministerial Declaration and Decisions and the Understanding on
Commitments in Financial Services -- is defective and insufficient and thus
constitutes abuse of discretion. They submit that such concurrence in the
WTO Agreement alone is flawed because it is in effect a rejection of the Final
Act, which in turn was the document signed by Secretary Navarro, in
representation of the Republic upon authority of the President. They contend
that the second letter of the President to the Senate which enumerated what
[53]

constitutes the Final Act should have been the subject of concurrence of the
Senate.
A final act, sometimes called protocol de clture, is an instrument
which records the winding up of the proceedings of a diplomatic conference
and usually includes a reproduction of the texts of treaties, conventions,
recommendations and other acts agreed upon and signed by the
plenipotentiaries attending the conference. It is not the treaty itself. It is
[54]

rather a summary of the proceedings of a protracted conference which may

have taken place over several years. The text of the Final Act Embodying
the Results of the Uruguay Round of Multilateral Trade Negotiations is
contained in just one page in Vol. I of the 36-volume Uruguay Round of
[55]

Multilateral Trade Negotiations. By signing said Final Act, Secretary Navarro

as representative of the Republic of the Philippines undertook:

"(a) to submit, as appropriate, the WTO Agreement for the consideration of their
respective competent authorities with a view to seeking approval of the
Agreement in accordance with their procedures; and

(b) to adopt the Ministerial Declarations and Decisions."

The assailed Senate Resolution No. 97 expressed concurrence in exactly

what the Final Act required from its signatories, namely, concurrence of the
Senate in the WTO Agreement.
The Ministerial Declarations and Decisions were deemed adopted without
need for ratification. They were approved by the ministers by virtue of Article
XXV: 1 of GATT which provides that representatives of the members can
meet to give effect to those provisions of this Agreement which invoke joint
action, and generally with a view to facilitating the operation and furthering the
objectives of this Agreement. [56]

The Understanding on Commitments in Financial Services also approved

in Marrakesh does not apply to the Philippines. It applies only to those 27
Members which have indicated in their respective schedules of commitments
on standstill, elimination of monopoly, expansion of operation of existing
financial service suppliers, temporary entry of personnel, free transfer and
processing of information, and national treatment with respect to access to
payment, clearing systems and refinancing available in the normal course of
business. [57]

On the other hand, the WTO Agreement itself expresses what multilateral
agreements are deemed included as its integral parts, as follows:
[58]

Article II

Scope of the WTO

1. The WTO shall provide the common institutional framework for the conduct of
trade relations among its Members in matters to the agreements and associated
legal instruments included in the Annexes to this Agreement.

2. The Agreements and associated legal instruments included in Annexes 1, 2, and

3 (hereinafter referred to as Multilateral Agreements) are integral parts of this
Agreement, binding on all Members.

3. The Agreements and associated legal instruments included in Annex 4

(hereinafter referred to as Plurilateral Trade Agreements) are also part of this
Agreement for those Members that have accepted them, and are binding on those
Members. The Plurilateral Trade Agreements do not create either obligation or
rights for Members that have not accepted them.

4. The General Agreement on Tariffs and Trade 1994 as specified in annex 1A

(hereinafter referred to as GATT 1994) is legally distinct from the General
Agreement on Tariffs and Trade, dated 30 October 1947, annexed to the Final Act
adopted at the conclusion of the Second Session of the Preparatory Committee of
the United Nations Conference on Trade and Employment, as subsequently
rectified, amended or modified (hereinafter referred to as GATT 1947).

It should be added that the Senate was well-aware of what it was

concurring in as shown by the members deliberation on August 25,
1994. After reading the letter of President Ramos dated August 11,
1994, the senators of the Republic minutely dissected what the Senate
[59]
was
concurring in, as follows: [60]

THE CHAIRMAN: Yes. Now, the question of the validity of the submission came
up in the first day hearing of this Committee yesterday. Was the observation made by
Senator Taada that what was submitted to the Senate was not the agreement on
establishing the World Trade Organization by the final act of the Uruguay Round
which is not the same as the agreement establishing the World Trade
Organization? And on that basis, Senator Tolentino raised a point of order which,
however, he agreed to withdraw upon understanding that his suggestion for an
alternative solution at that time was acceptable. That suggestion was to treat the
proceedings of the Committee as being in the nature of briefings for Senators until the
question of the submission could be clarified.

And so, Secretary Romulo, in effect, is the President submitting a new... is he making
a new submission which improves on the clarity of the first submission?

MR. ROMULO: Mr. Chairman, to make sure that it is clear cut and there should be
no misunderstanding, it was his intention to clarify all matters by giving this letter.

THE CHAIRMAN: Thank you.

Can this Committee hear from Senator Taada and later on Senator Tolentino since
they were the ones that raised this question yesterday?

Senator Taada, please.

SEN. TAADA: Thank you, Mr. Chairman.

Based on what Secretary Romulo has read, it would now clearly appear that what is
being submitted to the Senate for ratification is not the Final Act of the Uruguay
Round, but rather the Agreement on the World Trade Organization as well as the
Ministerial Declarations and Decisions, and the Understanding and Commitments in
Financial Services.

I am now satisfied with the wording of the new submission of President Ramos.

SEN. TAADA. . . . of President Ramos, Mr. Chairman.

THE CHAIRMAN. Thank you, Senator Taada. Can we hear from Senator
Tolentino? And after him Senator Neptali Gonzales and Senator Lina.

SEN TOLENTINO, Mr. Chairman, I have not seen the new submission actually
transmitted to us but I saw the draft of his earlier, and I think it now complies with the
provisions of the Constitution, and with the Final Act itself. The Constitution does
not require us to ratify the Final Act. It requires us to ratify the Agreement which is
now being submitted. The Final Act itself specifies what is going to be submitted to
with the governments of the participants.

In paragraph 2 of the Final Act, we read and I quote:

By signing the present Final Act, the representatives agree: (a) to submit as
appropriate the WTO Agreement for the consideration of the respective competent
authorities with a view to seeking approval of the Agreement in accordance with their
procedures.

In other words, it is not the Final Act that was agreed to be submitted to the
governments for ratification or acceptance as whatever their constitutional procedures
may provide but it is the World Trade Organization Agreement. And if that is the one
that is being submitted now, I think it satisfies both the Constitution and the Final Act
itself.

Thank you, Mr. Chairman.

THE CHAIRMAN. Thank you, Senator Tolentino, May I call on Senator Gonzales.

SEN. GONZALES. Mr. Chairman, my views on this matter are already a matter of
record. And they had been adequately reflected in the journal of yesterdays session
and I dont see any need for repeating the same.

Now, I would consider the new submission as an act ex abudante cautela.

THE CHAIRMAN. Thank you, Senator Gonzales. Senator Lina, do you want to
make any comment on this?

SEN. LINA. Mr. President, I agree with the observation just made by Senator
Gonzales out of the abundance of question. Then the new submission is, I believe,
stating the obvious and therefore I have no further comment to make.

Epilogue

In praying for the nullification of the Philippine ratification of the WTO

Agreement, petitioners are invoking this Courts constitutionally imposed duty
to determine whether or not there has been grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the Senate in giving
its concurrence therein via Senate Resolution No. 97. Procedurally, a writ
of certiorari grounded on grave abuse of discretion may be issued by the
Court under Rule 65 of the Rules of Court when it is amply shown that
petitioners have no other plain, speedy and adequate remedy in the ordinary
course of law.
 By grave abuse of discretion is meant such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction. Mere abuse of
[61]

discretion is not enough. It must be grave abuse of discretion as when the

power is exercised in an arbitrary or despotic manner by reason of passion or
personal hostility, and must be so patent and so gross as to amount to an
evasion of a positive duty or to a virtual refusal to perform the duty enjoined or
to act at all in contemplation of law. Failure on the part of the petitioner to
[62]

show grave abuse of discretion will result in the dismissal of the petition.
[63]

In rendering this Decision, this Court never forgets that the Senate, whose
act is under review, is one of two sovereign houses of Congress and is thus
entitled to great respect in its actions. It is itself a constitutional body
independent and coordinate, and thus its actions are presumed regular and
done in good faith. Unless convincing proof and persuasive arguments are
presented to overthrow such presumptions, this Court will resolve every doubt
in its favor. Using the foregoing well-accepted definition of grave abuse of
discretion and the presumption of regularity in the Senates processes, this
Court cannot find any cogent reason to impute grave abuse of discretion to
the Senates exercise of its power of concurrence in the WTO Agreement
granted it by Sec. 21 of Article VII of the Constitution.
[64]

It is true, as alleged by petitioners, that broad constitutional principles

require the State to develop an independent national economy effectively
controlled by Filipinos; and to protect and/or prefer Filipino labor, products,
domestic materials and locally produced goods. But it is equally true that
such principles -- while serving as judicial and legislative guides -- are not in
themselves sources of causes of action. Moreover, there are other equally
fundamental constitutional principles relied upon by the Senate which
mandate the pursuit of a trade policy that serves the general welfare and
utilizes all forms and arrangements of exchange on the basis of equality and
reciprocity and the promotion of industries which are competitive in both
domestic and foreign markets, thereby justifying its acceptance of said
treaty. So too, the alleged impairment of sovereignty in the exercise of
legislative and judicial powers is balanced by the adoption of the generally
accepted principles of international law as part of the law of the land and the
adherence of the Constitution to the policy of cooperation and amity with all
nations.
That the Senate, after deliberation and voting, voluntarily and
overwhelmingly gave its consent to the WTO Agreement thereby making it a
part of the law of the land is a legitimate exercise of its sovereign duty and
power. We find no patent and gross arbitrariness or despotism by reason of
passion or personal hostility in such exercise. It is not impossible to surmise
that this Court, or at least some of its members, may even agree with
petitioners that it is more advantageous to the national interest to strike down
Senate Resolution No. 97. But that is not a legal reason to attribute grave
abuse of discretion to the Senate and to nullify its decision. To do so would
constitute grave abuse in the exercise of our own judicial power and
duty. Ineludably, what the Senate did was a valid exercise of its authority. As
to whether such exercise was wise, beneficial or viable is outside the realm of
judicial inquiry and review. That is a matter between the elected policy
makers and the people. As to whether the nation should join the worldwide
march toward trade liberalization and economic globalization is a matter that
our people should determine in electing their policy makers. After all, the
WTO Agreement allows withdrawal of membership, should this be the political
desire of a member.
The eminent futurist John Naisbitt, author of the best seller Megatrends,
predicts an Asian Renaissance where the East will become the dominant
[65]

region of the world economically, politically and culturally in the next

century. He refers to the free market espoused by WTO as the catalyst in
this coming Asian ascendancy. There are at present about 31 countries
including China, Russia and Saudi Arabia negotiating for membership in the
WTO. Notwithstanding objections against possible limitations on national
sovereignty, the WTO remains as the only viable structure for multilateral
trading and the veritable forum for the development of international trade
law. The alternative to WTO is isolation, stagnation, if not economic self-
destruction. Duly enriched with original membership, keenly aware of the
advantages and disadvantages of globalization with its on-line experience,
and endowed with a vision of the future, the Philippines now straddles the
crossroads of an international strategy for economic prosperity and stability in
the new millennium. Let the people, through their duly authorized elected
officers, make their free choice.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno,
Kapunan, Mendoza, Francisco, Hermosisima, Jr., and Torres, Jr., JJ., concur.
Padilla, and Vitug, JJ., in the result.
Tan v. del Rosario, 237 SCRA 324 (1994)

G.R. No. 109289 October 3, 1994

RUFINO R. TAN, petitioner,

vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER OF INTERNAL
REVENUE, respondents.

G.R. No. 109446 October 3, 1994

CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG, MANUELITO O. CABALLES, ELPIDIO
C. JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in his capacity as
COMMISSIONER OF INTERNAL REVENUE, respondents.

Rufino R. Tan for and in his own behalf.

Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446.

VITUG, J.:

Topic: Taxation of general professional partnerships versus ordinary business partnerships

Facts:

These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of
Republic Act No. 7496, also commonly known as the Simplified Net Income Taxation Scheme ("SNIT"), amending
certain provisions of the National Internal Revenue Code and, in G.R. No. 109446, the validity of Section 6,
Revenue Regulations No. 2-93, promulgated by public respondents pursuant to said law.

Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory
legislation.

In G.R. No. 109289, it is asserted that the enactment of Republic Act No. 7496 violates the following provisions of
the Constitution:

Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one
subject which shall be expressed in the title thereof.

Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
 Article III, Section 1 No person shall be deprived of . . . property without due process
of law, nor shall any person be denied the equal protection of the laws.

In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that public respondents
have exceeded their rule-making authority in applying SNIT to general professional partnerships.

The Solicitor General espouses the position taken by public respondents.

The Court has given due course to both petitions. The parties, in compliance with the Court's directive, have filed
their respective memoranda.

G.R. No. 109289

Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a misnomer or,
at least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).

The full text of the title actually reads:

An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and
Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29
of the National Internal Revenue Code, as Amended.

The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code, as now
amended, provide:

Sec. 21. Tax on citizens or residents.

xxx xxx xxx

(f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the
Practice of Profession. A tax is hereby imposed upon the taxable net income as
determined in Section 27 received during each taxable year from all sources, other than
income covered by paragraphs (b), (c), (d) and (e) of this section by every individual
whether
a citizen of the Philippines or an alien residing in the Philippines who is self-employed
or practices his profession herein, determined in accordance with the following
schedule:

Not over P10,000 3%

Over P10,000 P300 + 9% but not over P30,000 of excess over P10,000
Over P30,000 P2,100 + 15% but not over P120,00 of excess over P30,000
Over P120,000 P15,600 + 20% but not over P350,000 of excess over P120,000
Over P350,000 P61,600 + 30% of excess over P350,000

Sec. 29. Deductions from gross income. In computing taxable income subject to tax
under Sections 21(a), 24(a), (b) and (c); and 25 (a)(1), there shall be allowed as
deductions the items specified in paragraphs (a) to (i) of this
section: Provided, however, That in computing taxable income subject to tax under
Section 21 (f) in the case of individuals engaged in business or practice of profession,
only the following direct costs shall be allowed as deductions:
 (a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in activities in the course of or pursuant to
the business or practice of their profession;
(c) Telecommunications, electricity, fuel, light and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and accredited relief organizations for the
rehabilitation of calamity stricken areas declared by the President; and
(g) Interest paid or accrued within a taxable year on loans contracted from accredited
financial institutions which must be proven to have been incurred in connection with the
conduct of a taxpayer's profession, trade or business.

For individuals whose cost of goods sold and direct costs are difficult to determine, a
maximum of forty per cent (40%) of their gross receipts shall be allowed as deductions
to answer for business or professional expenses as the case may be.

On the basis of the above language of the law, it would be difficult to accept petitioner's view that the
amendatory law should be considered as having now adopted a gross income, instead of as having still retained
the net income, taxation scheme. The allowance for deductible items, it is true, may have significantly been
reduced by the questioned law in comparison with that which has prevailed prior to the amendment; limiting,
however, allowable deductions from gross income is neither discordant with, nor opposed to, the net income tax
concept. The fact of the matter is still that various deductions, which are by no means inconsequential, continue
to be well provided under the new law.

Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling legislation
intended to unite the members of the legislature who favor any one of unrelated subjects in support of the whole
act, (b) to avoid surprises or even fraud upon the legislature, and (c) to fairly apprise the people, through such
publications of its proceedings as are usually made, of the subjects of legislation. 1 The above objectives of the
fundamental law appear to us to have been sufficiently met. Anything else would be to require a virtual
compendium of the law which could not have been the intendment of the constitutional mandate.

Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be
uniform and equitable" in that the law would now attempt to tax single proprietorships and professionals
differently from the manner it imposes the tax on corporations and partnerships. The contention clearly forgets,
however, that such a system of income taxation has long been the prevailing rule even prior to Republic Act No.
7496.

Issues:

I. WON RA 7496 violates the Constitutional requirement that taxation shall be uniform and equitable.

II. WON the SNIT applies to partners in general professional partnerships

Ruling:

I. NO. Uniformity of taxation, like the kindred concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities
(Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forefend classification as long as:
(1) the standards that are used therefore are substantial and not arbitrary, (2) the categorization is germane to
achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions,
and (4) the classification applies equally well to all those belonging to the same class (Pepsi Cola vs. City of
Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 52).

What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly
shift the income tax system towards the schedular approach 2 in the income taxation of individual taxpayers and to
maintain, by and large, the present global treatment 3 on taxable corporations. We certainly do not view this
classification to be arbitrary and inappropriate.

Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he believes
to be an imbalance between the tax liabilities of those covered by the amendatory law and those who are not.
With the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate),
coverage (subjects) and situs (place) of taxation. This court cannot freely delve into those matters which, by
constitutional fiat, rightly rest on legislative judgment. Of course, where a tax measure becomes so
unconscionable and unjust as to amount to confiscation of property, courts will not hesitate to strike it down, for,
despite all its plenitude, the power to tax cannot override constitutional proscriptions. This stage, however, has
not been demonstrated to have been reached within any appreciable distance in this controversy before us.

Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being
violative of due process must perforce fail. The due process clause may correctly be invoked only when there is a
clear contravention of inherent or constitutional limitations in the exercise of the tax power. No such transgression
is so evident to us.

II. YES. The Court, first of all, should like to correct the apparent misconception that general
professional partnerships are subject to the payment of income tax or that there is a difference in the tax
treatment between individuals engaged in business or in the practice of their respective professions and partners
in general professional partnerships. The fact of the matter is that a general professional partnership, unlike an
ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the
corporate income tax), is not itself an income taxpayer. The income tax is imposed not on the professional
partnership, which is tax exempt, but on the partners themselves in their individual capacity computed on their
distributive shares of partnership profits. Section 23 of the Tax Code, which has not been amended at all by
Republic Act 7496, is explicit:

Sec. 23. Tax liability of members of general professional partnerships. (a) Persons exercising a
common profession in general partnership shall be liable for income tax only in their individual
capacity, and the share in the net profits of the general professional partnership to which any taxable
partner would be entitled whether distributed or otherwise, shall be returned for taxation and the tax
paid in accordance with the provisions of this Title.

(b) In determining his distributive share in the net income of the partnership, each partner

(1) Shall take into account separately his distributive share of the partnership's income,
gain, loss, deduction, or credit to the extent provided by the pertinent provisions of this
Code, and

(2) Shall be deemed to have elected the itemized deductions, unless he declares his
distributive share of the gross income undiminished by his share of the deductions.

There is, then and now, no distinction in income tax liability between a person who practices his profession alone
or individually and one who does it through partnership (whether registered or not) with others in the exercise of a
common profession. Indeed, outside of the gross compensation income tax and the final tax on passive investment
income, under the present income tax system all individuals deriving income from any source whatsoever are
treated in almost invariably the same manner and under a common set of rules.
Notes:

Simplified Net Income Taxation (SNIT); Republic Act No. 7496 did not adopt a gross income, but have retained the
net income, taxation scheme. - On the basis of the above language of the law, it would be difficult to accept
petitioner's view that the amendatory law should be considered as having now adopted a gross income, instead of
as having still retained the netincome, taxation scheme. The allowance for deductible items, it is true, may have
significantly been reduced by the questioned law in comparison with that which has prevailed prior to the
amendment; limiting, however, allowable deductions from gross income is neither discordant with, nor opposed
to, the net income tax concept. The fact of the matter is still that various deductions, which are by no means
inconsequential, continue to be well provided under the new law.

Uniformity of taxation merely requires that all subjects or objects of taxation, similarly situated, are to be treated
alike both in privileges and liabilities.

The legislative intent is to increasingly shift the income tax system towards the scheduler approach in the income
taxation of individual taxpayers and to maintain, by and large, the present global treatment on taxable
corporations.

Separation of powers; with the LEGISLATURE primarily lies the discretion to determine the nature (kind), object
(purpose), extent (rate), coverage (subjects), and situs (place) of taxation, and the Supreme Court cannot freely
delve into those matters.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 109289 October 3, 1994

RUFINO R. TAN, petitioner,

vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER OF INTERNAL
REVENUE, respondents.

G.R. No. 109446 October 3, 1994

CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG, MANUELITO O. CABALLES, ELPIDIO C.
JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in his capacity as
COMMISSIONER OF INTERNAL REVENUE, respondents.

Rufino R. Tan for and in his own behalf.

Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446.

VITUG, J.:

These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of Republic Act No.
7496, also commonly known as the Simplified Net Income Taxation Scheme ("SNIT"), amending certain provisions of the National
Internal Revenue Code and, in
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public respondents pursuant to said law.

Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory legislation.

In G.R. No. 109289, it is asserted that the enactment of Republic Act

No. 7496 violates the following provisions of the Constitution:

Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one subject which shall be
expressed in the title thereof.

Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.

Article III, Section 1 No person shall be deprived of . . . property without due process of law, nor shall any
person be denied the equal protection of the laws.

In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that public respondents have
exceeded their rule-making authority in applying SNIT to general professional partnerships.

The Solicitor General espouses the position taken by public respondents.

The Court has given due course to both petitions. The parties, in compliance with the Court's directive, have filed their respective
memoranda.

G.R. No. 109289

Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a misnomer or, at least, deficient
for being merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).

The full text of the title actually reads:

An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and Professionals
Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the National Internal Revenue
Code, as Amended.

The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code, as now amended, provide:

Sec. 21. Tax on citizens or residents.

xxx xxx xxx

(f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the Practice of Profession.
A tax is hereby imposed upon the taxable net income as determined in Section 27 received during each
taxable year from all sources, other than income covered by paragraphs (b), (c), (d) and (e) of this section by
every individual whether
a citizen of the Philippines or an alien residing in the Philippines who is self-employed or practices his
profession herein, determined in accordance with the following schedule:

Not over P10,000 3%

Over P10,000 P300 + 9%

but not over P30,000 of excess over P10,000

Over P30,000 P2,100 + 15%

but not over P120,00 of excess over P30,000

Over P120,000 P15,600 + 20%

but not over P350,000 of excess over P120,000
 Over P350,000 P61,600 + 30%
of excess over P350,000

Sec. 29. Deductions from gross income. In computing taxable income subject to tax under Sections 21(a),
24(a), (b) and (c); and 25 (a)(1), there shall be allowed as deductions the items specified in paragraphs (a) to (i)
of this section: Provided, however, That in computing taxable income subject to tax under Section 21 (f) in the
case of individuals engaged in business or practice of profession, only the following direct costs shall be
allowed as deductions:

(a) Raw materials, supplies and direct labor;

(b) Salaries of employees directly engaged in activities in the course of or pursuant to the business or practice
of their profession;

(c) Telecommunications, electricity, fuel, light and water;

(d) Business rentals;

(e) Depreciation;

(f) Contributions made to the Government and accredited relief organizations for the rehabilitation of calamity
stricken areas declared by the President; and

(g) Interest paid or accrued within a taxable year on loans contracted from accredited financial institutions which
must be proven to have been incurred in connection with the conduct of a taxpayer's profession, trade or
business.

For individuals whose cost of goods sold and direct costs are difficult to determine, a maximum of forty per cent
(40%) of their gross receipts shall be allowed as deductions to answer for business or professional expenses as
the case may be.

On the basis of the above language of the law, it would be difficult to accept petitioner's view that the amendatory law should be
considered as having now adopted a gross income, instead of as having still retained the netincome, taxation scheme. The
allowance for deductible items, it is true, may have significantly been reduced by the questioned law in comparison with that which
has prevailed prior to the amendment; limiting, however, allowable deductions from gross income is neither discordant with, nor
opposed to, the net income tax concept. The fact of the matter is still that various deductions, which are by no means
inconsequential, continue to be well provided under the new law.

Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling legislation intended to unite the
members of the legislature who favor any one of unrelated subjects in support of the whole act, (b) to avoid surprises or even fraud
upon the legislature, and (c) to fairly apprise the people, through such publications of its proceedings as are usually made, of the
subjects of legislation. 1 The above objectives of the fundamental law appear to us to have been sufficiently
met. Anything else would be to require a virtual compendium of the law which could not have been the
intendment of the constitutional mandate.

Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be uniform and
equitable" in that the law would now attempt to tax single proprietorships and professionals differently from the manner it imposes
the tax on corporations and partnerships. The contention clearly forgets, however, that such a system of income taxation has long
been the prevailing rule even prior to Republic Act No. 7496.

Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly
situated, are to be treated alike both in privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does
not forfend classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization
is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and
(4) the classification applies equally well to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco
vs. PAGCOR, 197 SCRA 52).

What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift the income tax
system towards the schedular approach 2 in the income taxation of individual taxpayers and to maintain, by and
large, the present global treatment 3 on taxable corporations. We certainly do not view this classification to
be arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he believes to be an
imbalance between the tax liabilities of those covered by the amendatory law and those who are not. With the legislature primarily
lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation.
This court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a
tax measure becomes so unconscionable and unjust as to amount to confiscation of property, courts will not hesitate to strike it
down, for, despite all its plenitude, the power to tax cannot override constitutional proscriptions. This stage, however, has not been
demonstrated to have been reached within any appreciable distance in this controversy before us.

Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative of due process
must perforce fail. The due process clause may correctly be invoked only when there is a clear contravention of inherent or
constitutional limitations in the exercise of the tax power. No such transgression is so evident to us.

G.R. No. 109446

The several propositions advanced by petitioners revolve around the question of whether or not public respondents have exceeded
their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496.

The questioned regulation reads:

Sec. 6. General Professional Partnership The general professional partnership (GPP) and the partners
comprising the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of the partnership, only
the direct costs mentioned in said law are to be deducted from partnership income. Also, the expenses paid or
incurred by partners in their individual capacities in the practice of their profession which are not reimbursed or
paid by the partnership but are not considered as direct cost, are not deductible from his gross income.

The real objection of petitioners is focused on the administrative interpretation of public respondents that would apply SNIT to
partners in general professional partnerships. Petitioners cite the pertinent deliberations in Congress during its enactment of
Republic Act No. 7496, also quoted by the Honorable Hernando B. Perez, minority floor leader of the House of Representatives, in
the latter's privilege speech by way of commenting on the questioned implementing regulation of public respondents following the
effectivity of the law, thusly:

MR. ALBANO, Now Mr. Speaker, I would like to get the correct impression of this bill. Do
we speak here of individuals who are earning, I mean, who earn through business
enterprises and therefore, should file an income tax return?

MR. PEREZ. That is correct, Mr. Speaker. This does not apply to corporations. It applies
only to individuals.

(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours).

Other deliberations support this position, to wit:

MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from Batangas say that this
bill is intended to increase collections as far as individuals are concerned and to make
collection of taxes equitable?

MR. PEREZ. That is correct, Mr. Speaker.

(Id. at 6:40 P.M.; Emphasis ours).

In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version of the SNITS, it is
categorically stated, thus:

This bill, Mr. President, is not applicable to business corporations or to partnerships; it is

only with respect to individuals and professionals. (Emphasis ours)

The Court, first of all, should like to correct the apparent misconception that general professional partnerships are subject to the
payment of income tax or that there is a difference in the tax treatment between individuals engaged in business or in the practice of
their respective professions and partners in general professional partnerships. The fact of the matter is that a general professional
partnership, unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the
corporate income tax), is not itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax
exempt, but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits.
Section 23 of the Tax Code, which has not been amended at all by Republic Act 7496, is explicit:

Sec. 23. Tax liability of members of general professional partnerships. (a) Persons exercising a common
profession in general partnership shall be liable for income tax only in their individual capacity, and the share in
the net profits of the general professional partnership to which any taxable partner would be entitled whether
distributed or otherwise, shall be returned for taxation and the tax paid in accordance with the provisions of this
Title.

(b) In determining his distributive share in the net income of the partnership, each partner

(1) Shall take into account separately his distributive share of the partnership's income,
gain, loss, deduction, or credit to the extent provided by the pertinent provisions of this
Code, and

(2) Shall be deemed to have elected the itemized deductions, unless he declares his
distributive share of the gross income undiminished by his share of the deductions.

There is, then and now, no distinction in income tax liability between a person who practices his profession alone or individually and
one who does it through partnership (whether registered or not) with others in the exercise of a common profession. Indeed, outside
of the gross compensation income tax and the final tax on passive investment income, under the present income tax system all
individuals deriving income from any source whatsoever are treated in almost invariably the same manner and under a common set
of rules.

We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No. 7496 as an entirely
independent, not merely as an amendatory, piece of legislation. The view can easily become myopic, however, when the law is
understood, as it should be, as only forming part of, and subject to, the whole income tax concept and precepts long obtaining under
the National Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all embracing term used in the Tax
Code, and it practically covers all persons who derive taxable income. The law, in levying the tax, adopts the most comprehensive
tax situs of nationality and residence of the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to
income tax liability on their income from all sources) and of the generally accepted and internationally recognized income taxable
base (that can subject non-resident aliens and foreign corporations to income tax on their income from Philippine sources). In the
process, the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3) Estates under Judicial
Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as to income).

Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily, partnerships, no matter how
created or organized, are subject to income tax (and thus alluded to as "taxable partnerships") which, for purposes of the above
categorization, are by law assimilated to be within the context of, and so legally contemplated as, corporations. Except for few
variances, such as in the application of the "constructive receipt rule" in the derivation of income, the income tax approach is alike to
both juridical persons. Obviously, SNIT is not intended or envisioned, as so correctly pointed out in the discussions in Congress
during its deliberations on Republic Act 7496, aforequoted, to cover corporations and partnerships which are independently subject
to the payment of income tax.

"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered as independent taxable
entities for income tax purposes. A general professional partnership is such an example. 4Here, the partners themselves,
not the partnership (although it is still obligated to file an income tax return [mainly for administration and
data]), are liable for the payment of income tax in their individual capacity computed on their respective
and distributive shares of profits. In the determination of the tax liability, a partner does so as
an individual, and there is no choice on the matter. In fine, under the Tax Code on income taxation, the
general professional partnership is deemed to be no more than a mere mechanism or a flow-through
entity in the generation of income by, and the ultimate distribution of such income to, respectively, each of
the individual partners.

Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so modified by
Republic Act
No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on their non-compensation
income. There is no evident intention of the law, either before or after the amendatory legislation, to place in an unequal footing or in
significant variance the income tax treatment of professionals who practice their respective professions individually and of those who
do it through a general professional partnership.

WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.

SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno, Kapunan and Mendoza, JJ.,
concur.

Padilla and Bidin, JJ., are on leave

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

Anero M. Sison for petitioner and for his own behalf.

The Solicitor General for respondents.

Facts:

Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison, as
taxpayer, alleges that "he would be unduly discriminated against by the imposition of higher
rates of tax upon his income arising from the exercise of his profession vis-a-vis those which
are imposed upon fixed income or salaried individual taxpayers. He characterizes said
provision as arbitrary amounting to class legislation, oppressive and capricious in character. It
therefore violates both the equal protection and due process clauses of the Constitution as
well asof the rule requiring uniformity in taxation.

Issue:

Whether or not the assailed provision violates the equal protection and due process
clauses of the Constitution while also violating the rule that taxes must be uniform and
equitable.

Held:
 The petition is without merit. On due process - it is undoubted that it may be invoked
where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious
example is where it can be shown to amount to the confiscation of property from abuse of
power. Petitioner alleges arbitrariness but his mere allegation does not suffice and there
must be a factual foundation of such unconsitutional taint.On equal protection - it suffices
that the laws operate equally and uniformly on all persons under similar circumstances, both
in the privileges conferred and the liabilities imposed.On the matter that the rule of taxation
shall be uniform and equitable - this requirement is met when the tax operates with the same
force and effect in every place where the subject may be found." Also, the rule of uniformity
does not call for perfect uniformity or perfect equality, because this is hardly unattainable."
When the problem of classification became of issue, the Court said: "Equality and uniformity
in taxation means that all taxable articles or kinds of property of the same class shall be
taxed the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation..." As provided by this Court, where "the
differentation" complained of "conforms to the practical dictates of justice and equity" it "is
not discriminatory within the meaning of this clause and is therefore uniform."

Notes:

1. The Constitution sets forth the restrictions to the power to tax. the power to tax
moreover, to borrow from Justice Malcolm, is an attribute of Sovereignty. It is the strongest
of all the powers of government. It is, of course, to be admitted that for all its plenitude,
the power to tax is not unconfined. There are restrictions. The Constitution sets forth such
limits. Adversely affecting as it does property rights, both the due process and equal
protection clauses may properly invoked, as petitioner does, to in invalidate in appropriate
cases a revenue measure.

2. A bare allegation that Batas 135, which sets different income tax schedules for fixed
income earners and business or professional income earners, is arbitrary does not suffice to
invalidate said tax statute. This is merely to adhere to the authoritative doctrine that were
the due process and equal protection clauses are invoked, considering that they are not fixed
rules but rather broad standards, there is a need for proof of such persuasive character as
would lead to such a conclusion. Absent such a showing, the presumption of validity must
prevail.

3. Due process clause may be invoked where a tax statute is so arbitrary as to find no
support in Constitution.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

ANTERO M. SISON, JR., petitioner,

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

Antero Sison for petitioner and for his own behalf.

The Solicitor General for respondents.

FERNANDO, C.J.:

The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the validity of Section I of Batas
Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further amends Section 21 of the National
Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net
income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable
partnership, (f) adjusted gross income. 2 Petitioner3 as taxpayer alleges that by virtue thereof, "he would be unduly
discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of
his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. 4 He
characterizes the above sction as arbitrary amounting to class legislation, oppressive and capricious in
character 5 For petitioner, therefore, there is a transgression of both the equal protection and due process
clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice. Such an answer,
after two extensions were granted the Office of the Solicitor General, was filed on May 28, 1982. 8 The facts as alleged were
admitted but not the allegations which to their mind are "mere arguments, opinions or conclusions on the
part of the petitioner, the truth [for them] being those stated [in their] Special and Affirmative
Defenses." 9The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power
to tax. The authorities and cases cited while correctly quoted or paraghraph do not support petitioner's
stand." 10 The prayer is for the dismissal of the petition for lack of merit.

This Court finds such a plea more than justified. The petition must be dismissed.

1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth by retired Chief
Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and which the government was called
upon to enter optionally, and only 'because it was better equipped to administer for the public welfare than is any private individual
or group of individuals,' continue to lose their well-defined boundaries and to be absorbed within activities that the government must
undertake in its sovereign capacity if it is to meet the increasing social challenges of the times." 11 Hence the need for more revenues.
The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk
of public funds. To praphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain availability is of the
essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of
of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions. The
Constitution sets forth such limits . Adversely affecting as it does properly rights, both the due process and equal protection clauses inay
properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise, there would -be truth to
the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." 14 In a separate opinion in Graves v. New
York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the
intellectual fashion of the times following] a free use of absolutes." 16 This is merely to emphasize that it is riot and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's famous dictum was brushed
away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in the
Philippines.

3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or executive, act that runs
counter to it. In any case therefore where it can be demonstrated that the challenged statutory provision as petitioner here alleges
fails to abide by its command, then this Court must so declare and adjudge it null. The injury thus is centered on the question of
whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is
constitutionally infirm.

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here. does not suffice. There
must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void
or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that were the due process and equal
protection clauses are invoked, considering that they arc not fixed rules but rather broad standards, there is a need for of such
persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. 18

5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of
power. It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not
conferred. That properly calls for the application of the Holmes dictum. It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it
is subject to attack on due process grounds. 19

6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional mandate whether
the assailed act is in the exercise of the lice power or the power of eminent domain is to demonstrated that the governmental act
assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under
similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the
privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal
protection and security shall be given to every person under circumtances which if not Identical are analogous. If law be looked
upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on
some in the group equally binding on the rest." 20 That same formulation applies as well to taxation measures. The
equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of the laws
benefits being available to all and the affairs of men being governed by that serene and impartial
uniformity, which is of the very essence of the Idea of law. There is, however, wisdom, as well as realism
in these words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not a
disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are
not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, address to the attainment of specific ends by the use of specific
remedies. The Constitution does not require things which are different in fact or opinion to be treated in
law as though they were the same." 21 Hence the constant reiteration of the view that classification if
rational in character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court,
through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a
state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which
result from a singling out of one particular class for taxation, or exemption infringe no constitutional
limitation.'" 23

7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation shag be uniform
and equitable." 24 This requirement is met according to Justice Laurel in Philippine Trust Company v.
Yatco, 25 decided in 1940, when the tax "operates with the same force and effect in every place where the
subject may be found. " 26 He likewise added: "The rule of uniformity does not call for perfect uniformity or
perfect equality, because this is hardly attainable." 27 The problem of classification did not present itself in
that case. It did not arise until nine years later, when the Supreme Court held: "Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same
rate. The taxing power has the authority to make reasonable and natural classifications for purposes of
taxation, ... . 28 As clarified by Justice Tuason, where "the differentiation" complained of "conforms to the
practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is
therefore uniform." 29 There is quite a similarity then to the standard of equal protection for all that is
required is that the tax "applies equally to all persons, firms and corporations placed in similar situation." 30
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction between a tax rate
and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the
same time reducing the applicable tax rate. Taxpayers may be classified into different categories. To repeat, it. is enough that the
classification must rest upon substantial distinctions that make real differences. In the case of the gross income taxation embodied
in Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to
all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead
expense, these taxpayers are e not entitled to make deductions for income tax purposes because they are in the same situation
more or less. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity
in the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all of
them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample
justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while
continuing the system of net income taxation as regards professional and business income.

9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual foundation to show the
arbitrary character of the assailed provision; 31 (2) the force of controlling doctrines on due process, equal
protection, and uniformity in taxation and (3) the reasonableness of the distinction between compensation
and taxable net income of professionals and businessman certainly not a suspect classification,

WHEREFORE, the petition is dismissed. Costs against petitioner.

Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur.

Teehankee, J., concurs in the result.

Plana, J., took no part.