For Digesting

209 Phil.
579
FERNANDO, C.J.:
The claim of petitioners, which was denied by the then Acting Chairman of
the Commission on Audit, IsmaelMathay, Sr., is based on par. 3, Section 26
of Presidential Decree No. 4. It reads as follows: "Permanent officials and
employees of the Rice and Corn Administration * * * who prefer to retire, if
qualified for retirement, shall be given gratuity equivalent to one month
salary for every year of service but in no case more than twenty-four
months salary, in addition to all other benefits to which they are entitled
under existing laws and regulations."[1]There is no dispute that petitioners
were, prior to their retirement, permanent officials and employees of the
then Rice and Corn Administration abolished under Presidential
Decree No. 4. They being retirable, they exercised the option to do so under
the Optional Retirement Law.[2] They had, therefore, by virtue thereof,
received thegratuity under such law. With the issuance of the aforesaid
Presidential Decree, however, they were led to hope that a claim for
separation gratuity would likewise be justified. Respondent, the then
Acting Chairman of the Commission on Audit was of a different mind. For
him, there was no legal basis for allowing them double gratuity. He
rendered such a decision. In view of such refusal to give due course to their
plea, they filed this petition before this Court.
It is their submission that to deny them separation gratuity "would render
the clause under consideration meaningless as if it is (sic) never written in
the decree. This would be contrary to the rules on statutory construction
and interpretation that every part of the statute should be carried into
effect."[3] The Solicitor General, in his memorandum for respondent,
rejected such an argument. Thus: "It is respectfully submitted that since
the petitioners herein have already retired and were paid the gratuity under
Commonwealth Act No. 186, as amended by Republic Act No. 1616, they are
no longer entitled to the gratuity provided under paragraph 3, Section 26 of
Presidential Decree No. 4."[4] After referring to the gratuity as "a free gift, a
present, or any benefits of pecuniary value bestowed without claim or
demand, or without consideration,"[5] he pointed out that from its very
nature, "there seems to be no apparent reason for granting to the herein
petitioners the gratuity provided for under paragraph 3, Section 26, of
Presidential Decree No. 4, in addition to the gratuity which they have
already received under Commonwealth Act No. 186, as amended by
Republic Act No. 1616. This is so because to assume otherwise would not
only be an act of "over-liberality" on the part of the State but likewise
inconsistent with its policy against double pension or gratuity for the same
service."[6]
To bolster his submission, he cited the ruling in Borromeo v. Government
Service Insurance System:[7] "The gratuity received by petitioner under Act
2589 was obviously in consideration of his services to the government as of
his retirement in December 15, 1949. It is similarly obvious that the
retirement benefits he was found to be entitled to receive under the
provisions of Act 910, as amended, were in consideration of the
same services to the government. Therefore, for petitioner to receive full
benefits under the law, in addition to the gratuity he had already received
under Act 2589, would amount to allowing him to receive double pension
for exactly the same services as consideration. The rule in construing or
applying pension and gratuity laws is that, in the absence ofexpress
provisions to the contrary, they will be so interpreted as to prevent any
person from receiving double compensation."[8] It was further stressed that
the enactment of later legislations after the retirement of a public official "is
not a circumstance of sufficient weight to justify our ignoring the general
policy of the State expressed both in Act 2589 as well as in Act 910 against
double pensions for the same services. To the contrary, the fact that even
after petitioner's retirement under Act 2589 another pension law was
enacted under which he could claim greater benefits affords a greater
reason for the application of the general policy against double pensions,
unless the contrary was expressly and clearly provided in the later
enactment."[9]
This Court, after a careful consideration, arrives at the same
conclusion. There must be a provision, clear and unequivocal, to justify a
double pension. The general language employed in paragraph 3, Section 26
of Presidential Decree No. 4 fails to meet that test. All that it states is that
permanent employees of the Rice and Corn Administration who
are retirable are entitled to gratuity equivalent to one month salary for
every year of service but in no case more than twenty-four months salary in
addition to other benefits to which they are entitled under existing laws and
regulations. To grant double gratuity then is unwarranted. No reliance can
be placed to the use of the term "other benefits" found in the paragraph
relied upon. As clearly stated in the memorandum of the Solicitor General,
they refer to "those receivable by a retiree under the general retirement
laws, like the refund of contributions to the retirement fund and the money
value of the accumulated vacation and sick leaves of said official
employee. The clause 'in addition to all other benefits to which they are
entitled under existing laws and regulations,' was inserted to insure the
payment to the retiree of the refund of the contributions to the retirement
fund and the money value of the accumulated vacation and sick leaves of
said official or employee."[10]
That is all it can plausibly signify. To go further would make it a fruitful
parent of injustice. It would set at naught a state policy dictated by reason
and fairness alike. Petitioners seek to claim the status of an exempt
class. The burden of proof is on them. That they failed to meet, relying as
they do on words hardly indicative of their being accorded a favored
status. To justify such a result, it is imperative that the language employed
be of the clearest and most satisfactory character. The paragraph relied
upon in Section 26 of Presidential Decree No. 4, to repeat, cannot be so
characterized.
One last word. It is to be added that the rule against double compensation
is nothing new. It was so held in Peralta v. Auditor General.[11] While the
question involved is not identical, its ratio decidendi applies to the instant
situation, namely, to allow what petitioners seek "would be a clear
disregard of the prohibition to receive both the compensation and the
pension, annuity, or gratuity."[12] Peralta was cited with approval in a later
case, San Diego v. Auditor General.[13] A recent decision, Chavez v. Auditor
General,[14] puts the matter tersely but emphatically. Thus: "Appeal from a
decision of the Auditor General, in which we reaffirm the Court's doctrine
against the payment to retirees from the government service of double
pension for exactly the same services."[15]We do so again.
WHEREFORE, this petition for certiorari is denied for lack of merit and
the decision of respondent, the then Auditor General, denying due course to
the claim of petitioner for double gratuity affirmed. No costs.
Makasiar, Aquino, Concepcion, Jr., Guerrero, and Escolin, JJ., concur.
Abad Santos, J., did not take part.
De Castro, J., on sick leave.
80 Phil. 848
FERIA, J.:
This is an appeal from the decision of the Court of Industrial Relations
which reversed that of the Tenancy Law Enforcement Division of the
Department of Justice that ordered a 70 per cent and 30 per cent division
in favor of the petitioners hereinafter deducting from the gross produce the
expenses of harvesting and threshing, the palay planted in the haciendas of
the now respondents located in the Municipality of Sta. Barbara,
Pangasinan, during the agricultural year of 1946-1947.
The decision appealed from declares that the participations of the parties in
this case should be governed, not by the provisions of section 3 of Act No.
34 which amended section 8 of Act No. 4054, as decided by the said
Tenancy Division of the Departure nt of Justice, but by an oral, contract
embodying the old customs of tenancy sharing observed by the parties, in
accordance with section 8 of Act No. 4054 which according to the lower
court's theory recognizes the validity of an oral contract. The grounds on
which the Court of Industrial Relations bases its decision is that, although
"the records show that Act No. 4054 had been proclaimed effective in the
Province of Pangasinan in January, 1937, Act No. 53 seems to recognize an
oral contract inspite of section 4, of said Act No. 4054;" and there being an
"oral contract embodying the old customs of tenanoy sharing observed by
the parties prior to 1945-1946 agricultural year," Republic Act No. 34 which
amended Act No. 4054 in force in Pangasinan. since 1937 oan not be
applied to tenancy relation between the parties in this case without
impairing the obligations of contract and infringing the Constitution.
After a mature deliberation, we ere of the opinion, and so hold, that the
decision of the lower court is contrary to law and, therefore, must be
reversed.
Section 4 of Act No. 4054 provides that "the contract on share tenancy in
order to be valid and binding shall be in writing, drawn in triplicate in the
language known to all the parties thereto to be signed or thumbmarked
both by the landlord or his authorized representative and by the tenant
before two witnesses, one to be chosen by each party." But, in view of the
provisions of section 1 of Commonwealth Act No. 53, promulgated on
October 17, 1936, which prescribes that "where a covenant or oontraot
made between the owner of land and a lessee or tenant on share thereof has
not been reduced to writing or has not been set forth in a document written
in a language known to the lessee or tenant, the testimony of such lessee or
tenant "shall be accepted as prima facie evidence on the terms of a
covenant or contract," the lower court concluded that oral contracts are
recognized by law inspite of the provision of section 4 of Act No. 4054
quoted in the preceding paragraph, and therefore the oral contract
embodying the old customs of tenancy sharing observed by the parties in
this case prior to 1945-1946 agricultural year, was valid in Santa Barbara,
Pangasinan, inspite of the provisions of section 4 of Act No. 4054; and that
the effectivity in Pangasinan of Republic Act No. 34, which amended
section 8 of said Act No. 4054 relating to saare basis, started from
November I2, 1946, when the President issued Proclamation No. 14
declaring the provision of Act No. 4054, as amended, to be in full force and
effect throughout the Philippines, and not before.
It is obvious that the conclusions of the lower oourt that (1) the so called
oral contract between the parties in this case was valid and binding upon
the parties during the agricultural year 1946-1947, and (2) that Republic
Act No. 34 amendatory of section 8 and other sections of Act No. 4054
became effective in Pangasinan on November 12, 1946 the date of the
Proclamation, No.14, are erroneous because they are based on incorrect
premises.
(1) The major premise of the first conclusion is not correct. It is elementary
rule that a subsequent general law should not be oonstrued to repeal or
modify a prior special law; and that repeal by implication is not favored,
and therefore the former and subsequent act must if possible, be so
construed as to give effect to both. Hence, Commonwealth Act No. 53 which
refers to "covenant or contract made between the owner of land and a
lessee or tenant on share thereof" in general, and does not mention or make
any reference to Act No. 4054 should be construed to apply to tenancy
contracts on all other agricultural products which may be oral, as well as to
tenancy contract on rice in provinces where Act No. 4054 had not yet then
made effective by Proclamation in which oral tenancy oontraots were valid;
but not in those where said No. 4054 was proclaimed to be effective and,
therefore, oral contracts are not valid and binding. Because, if in the latter
oral contract is not valid and binding, no amount of evidence of whatever
kind can be admitted to prove the legal existence and terms thereof; and
besides it is unconceivable that the Legislature had intended, for it would
be retrogressive, to practically repeal section 4 of Act No. 4054 enacted for
the purpose of preventing serious controversies that may arise as a result of
the conflicting interpretation of verbal contracts and other agreements
affecting rice tenancy between landlords and tenants.
The provisions of Act No. 4054, which provides in its section 4 that an oral
contract or share tenancy is not valid and binding, having been in force in
the province of Pangasinan since January 20, 1937, there could not legally
exists an effective oral contract between the parties embodying the old
customs of tenancy sharing observed by the parties prior to 1945-1946
agricultural year, and therefore the rice sharing tenancy between the parties
must be governed since the year 1937 by the provisions of section 8 of Act
No. 4054 and its amendments.
(2) The major premise of the other conclusion is also incorreot.
Proclamation No. 14 issued by the President of the Philippines dated
November 30, 1946, which declares the provisions of Act No. 4054, as
amended, to be in full force and effect throughout the Philippines, was
obviously intended for territories in the Philippines in which said Act had
not yet been declared in force by Proclamation Prior to said date, and not to
provinces, like Pangasinan, where Act No. 4054 had already been put in
force since January 20, 1937, which Proclamation was never set aside or
suspended. It is therefore clear that Act No. 34, amendatory of said Act No.
4054, became effective ipso facto in Pangasinan since the date of its
passage, September 30, 1946, in which, according to the express provision
of section 4 thereof became effective; because an amendment of a law being
a part of the original which is already in force and effect in a certain
territory, must necessarily become effective therein as a part of the
amended law at the time the amendment takes effect. Section 4 of Republic
Act No. 34 provides that the Act shall take effect immediately, that is, upon
its passage or approval by the President on September 30, 1946; and a
statute which is to take immediate effect is operative from the exact
instance of its becoming law.
Taking into consideration that our Constitution, not only does not place any
limitation on the general legislative power, but ordains Congress to
"regulate the relations between landowner and tenant" (section 6, Article
XIV), and provides that "the promotion of social justice to insure the well-
being and economic security of all the people should be the concern of the
State" (section 5, Article II); that it is a "well settled rule that the history of
a legislation is also important in interpreting the intention of the legislative
body, and therefore courts may refer to messages of the executive to the
legislature (2 Sutherland's Statutory Construction, (3rd ed., Section 5002,
5004, pp. 481-489); that the President in its message to Congress of the
Philippines on August 8, 1946, in recommending the earliest approval of
the proposed amendments to the tenancy lam embodied in Republic Act
No. 34, which "establish the fairest possible contractual basis between the
tenant and landowner," according to the Message, the President said that
"In view of the fact that the planting season of rice is under way and that
the harvest mill take place before the next session of the Congress, I
earnestly request that this matter receives your early attention and that the
proposed amendment be enacted at an early date'1; and that Act No. 34 was
passed by Congress and approved by the President on September 30, 1946
to take effect immediately; it is to be inferred that it was the intention of the
Congress to make it applicable to the harvest of rice during the agricultural
year 1946-1947.
No retrospective effect would be given to said provision of section 8 of the
Act No. 4054, as amended by section 3 of the Republic Act No. 34 relating
to share basis, if applied to the rice harvested during agricultural year 1946-
1947; because said Act No. 34 became effective on September 30, that is
before the esspiration of the agricultural 1946-1947, for "one agricultural
year shall mean the length of time necessary for the preparation of the land
sowing, planting and harvesting a crop" (section 6, Act No. 4054), and the
crop in question had been, according to the conclusion of fact of the lower
court, planted during May and harvested during the months from October
to December, 1946, and even January, 1947. And it is a well established rule
recognized by all authorities without exception, that a retrospective or
retroactive law is that which creates a new obligation, imposes a new duty
or attaches a new disability in respect to a transaction already past; but
that statute is not made retrospective because it draws on antecedent facts
for its operation, or in other words part of the requirements for its action
and application is drawn from a time antedating its passage (See cases cited
in 37 Words and Phrases, pp. 530-533).
But even if to apply Republic Act No. 34 to the tenancy relations in
agricultural year 1946-1947 between the parties would be tantamount to
giving said Act retroactive or retrospective effect, our Constitution does not
in terms prohibit the enactment of retrospective laws which do not impair
the obligations of contract or deprive a person of property without due
process of law, that is, which do not divest rights of property and vested
rights. It is evident that there being no valid or binding oral tenancy
contract, nor a written one for that matter, between parties prior to the date
Act No. 34 became effective, no obligations of contract could be impaired
by the application of said Republic Act No. 34. And no vested right having
been acquired by the parties over the 1946-1947 rice crop under the
provision of section 8 of Act No. 4054, applicable to the division of the crop
in the absence of a contract in writing between the parties, before it was
amended by Republic Act No. 34, no vested right could be affected by the
application of said Act No. 34 to the tenancy share in 1946-1947 rice crop.
In view of all the foregoing, and the fact that the conditions set forth in
section 8 of Act No. 4054, as amended by section 3 of the Republic Act No.
34, are complied viith in the present case as found by the lower court in its
decision that is, that the tenant owns the work animals and the necessary
implements, that he defrayed the cost of plowing and cultivation, and that
the cost of harvest and threshing were deducted from the gross produce,
the decision appealed from is reversed or set aside, and the decision by the
Tenancy Lava Enforcement Division of the Department of Justice, in so far
as it applies the provisions of said Act No. 34 to the present case, be carried
out, with costs against the respondent. So ordered.
Moran, C. J., Pars, Pablo, Perfecto, Briones, and Padilla, JJ. concur.
DISSENTING
HILADO, J.:
I dissent.
Among the facts stipulated by the parties, as narrated on pages 2-3 of the
decision of the Court of Industrial Relations, is that the rice planting season
of 1946-1947 on the lands involved herein commenced in May and ended in
July. It is therefore obvious that the palay crops in question were planted
during those months of the year 1946. It behooves us, consequently, to
inquire: What was the governing provision of the law at the time as to the
respective shares that should pertain to the tenants and to the landlords?
For it goes without saying that both landlords and tenants must be taken to
have entered into their relation as such, for that agricultural year, in view
of, and pursuant to? those legal provisions.
Section 8 of Act No. 4054 provides:
"SEC. 8. Share basis. In the absence of any written agreement to the
contrary and when the necessary implements and the work animals are
furnished by the tenant; and the expenses for planting, harvesting,
threshing, irrigation and fertilizer, if any, as well as other expenses incident
to the proper cultivation of the land, are borne equally by both the landlord
and tenant, the crop shall be divided equally. The division shall be made in
the same place where ,the crop has been threshed and each party shall
transport his share to his warehouse, unless the contrary is stipulated by
the parties: Provided, however, That when the landlord furnishes the work
animal gratuitously it shall be deemed as a special consideration, and the
tenant shall be obliged to transport the share of the landlord to his
warehouse if it is within the municipality where the land cultivated is
situated."
The above quoted provision, along with the other sections of said Act No.
4054, was proclaimed effective in the province of Pangasinan in January,
1937, as found by the Court of Industrial Relations in its decision appealed
from. Hence, there being no written contract of tenancy between the instant
parties, their shares in the crops under consideration must be determined
pursuant to said section 8, which was in force when they entered into their
relation, when the landlords agreed to let the tenants work their lands ana
the latter to work them for the planting and raising of palay. In effect, the
law, because they themselves did not in writing fix them, fixed their shares
in the crop upon a 50-50 basis when the necessary implements and the
work animals were furnished by the tenants, and the expenses for planting,
harvesting, threshing, irrigation and fertilizer, if any, as well as other
expenses incident to the proper cultivation of the land, were borne equally
by both the landlords and tenants. The Court of Industrial Relations
decided that the crops in question shall be divided pursuant to said section
8, with the requirement (in order to adjust matters exactly to the legal
mandate) that the landlords shall reimburse the tenants for one-half of the
expenses of planting and others incidental to the proper cultivation of the
said lands, the said tenants being the owners of their work animals and
implements, the landlords having supplied only the seeds. In my opinion
this is a correct solution of the problem, with the sole modification that the
tenants should also be required to reimburse the landlords for one-half of
the seeds thus supplied or their reasonable value.
I believe that when enacting Republic Act No. 34, amendatory of Act No.
4054, the Congress, and in issuing his proclamation No. 14 of November 12,
1946, the President, did not intend that said amendatory act or said
proclamation should be applicable to crops already planted pursuant to the
former legal provisions in force at the time of the planting and before the
amendment. Section 4 of Republic Act No. 34 itself clearly evinces the
intention to give it only prospective effect, and neither said act nor said
proclamation contain express terms of retroactivity.
Furthermore, for the law, as in the case of section 8 of Act No. 4054, to tell
the landlord and the tenant that if they do not stipulate to the contrary in
writing their shares in the product shall be equal, as therein defined and
specified, and after both parties have accordingly acted, and when the
planted crops are already bearing fruit and nearing harvest, or being
harvested, to change the sharing basis from 50-50 to 70-30 or the like,
would be to my mind nothing short of a deception practised by the law
upon the prejudiced party. I cannot support such an absurd construction.
No consideration of social justice can possibly justify such an injustice to
the landlord or to the tenant, whoever comes out prejudiced by the ex post
facto change in the law. If the change, as happened through Republic Act
No. 34, was against the landlord, it might well have been that he would not
have agreed to enter into that landlord-tenant relation if the law had been
changed before its creation. And we can also suppose that if such change
had been adverse to the tenant and had been made before the initiation of
the landlord-tenant relation, such tenant might not have entered into it and
invested labor or money thereunder.
The construction in favor of giving the amendment retroactive
effectiveness, on the score of social justice, in the first place would appear
rather to tend toward socialism, and in the second, might tend to the
prejudice of the tenants themselves. I say socialism because it subjects the
landlord's property to use and enjoyment by the tenant upon terms not
voluntarily accepted by the former but arbitrarily imposed by the
government after said landlord had agreed to let his property be worked by
the tenant under terms required or permitted by the law in force at the
time. And I say to the prejudice of the tenant himself, because it is not hard
to see that under such a regime no reasonably prudent landlord would be
inclined to allow his property to be worked by a tenant for fear that at any
time before the actual division of the crop the government may arbitrarily
change his share in the crop from that which was required or permitted
when he delivered his property to be worked by his tenant, without such
landlord being able to foresee or even guess how great the change might
come out to be. For instance, under such a theory the government might
have changed the shares from 50-50 to 90-10 or any other proportion more
onerous to the landlord than 70-30. In such a state of affairs it is easily
comprehensible that tenants would likely be deprived of the very
opportunity to work landlords' lands and find it hard to find lands to work,
with the result that what was thought to be a measure of social justice for
the amelioration of their lot may on the contrary tend to aggravate their
situation.
BENGZON, J.:
I believe, like Mr. Justice Hilado, that the law should not apply to contracts
already existing at the time of its approval. I join his dissent.
TUASON, J.:
I concur in Mr. Justice Hilado's dissenting opinion.
Decision reversed.
128 Phil. 689
CASTRO, J.:
The issue posed in this appeal is whether domestic and resident foreign life
insurance companies are entitled to return only 25 per cent of their income
from dividends under the 1957 amendment of section 24 of the National
Internal Revenue Code, the pertinent provisions of which read as follows:
"SEC. 24. Rate of Tax on Corporation. (A) In general there shall be levied,
assessed, collected, and paid annually upon the total net income received in
the preceding taxable year from all sources by every corporation organized
in, or existing under the laws of the Philippines, no matter how created or
organized, but not including duly registered general copartnership
(compaias colectivas). domestic insurance companies and foreign life
insurance companies doing business in the Philippines, a tax upon such
income equal to the sum of the following:
"Twenty per centum upon the amount by which such total net income does
not exceed one hundred thousand pesos; and
"Twenty-eight per centum upon the amount by which such total net income
exceeds one hundred thousand pesos; and a like tax shall be levied,
assessed, collected and paid annually upon the total net income received in
the preceding taxable year from all sources within the Philippines by every
corporation organized, authorized or existing under the laws of any foreign
country: . . . And Provided, further, That in the case of dividends received
by a domestic or resident foreign corporation from a domestic corporation
liable to tax under this Chapter or from a domestic corporation engaged in
a new and necessary industry, as defined under Republic Act Numbered
Nine hundred and one, only twenty-five per centum thereof shall be
returnable for purposes of the tax imposed by this section.
"(B) Rate of Tax on Life Insurance Companies. There shall be levied,
assessed, collected and paid annually from every insurance company
organized in or existing under the laws of the Philippines, or foreign life
insurance company authorized to carry on business in the Philippines, but
not including purely cooperative companies or associations as defined in
section two hundred and fifty-five of this Code, on the total investment
income received by such company during the preceding taxable year from
interest, dividends and rents from all sources whether from or within the
Philippines, a tax of six and one-half per centum upon such
income: Provided, however, That foreign life insurance companies not
doing business in the Philippines shall, on any investment income received
by them from the Philippines, be subject to tax as any other foreign
corporation. . . ."
The Court of Tax Appeals ruled that life insurance companies should report
in full their income from dividends because, while they are treated in
subsection (B), the proviso regarding dividend exclusion is found in
subsection (A) which treats of corporations in general. The petitioner
appealed to this Court, contending, on the basis of the history of the
proviso, that the benefits of dividend exclusion are available to all domestic
and resident foreign corporations regardless of the business in which they
may be engaged.
We agree with the petitioner.
The petitioner is a domestic life insurance company.
On March 1.8, 1959, it filed an income tax return for 1958 showing the
following data:
"GROSS INCOME
From interest
P5,186.44
................................................
From dividends
57,105.29
............................................
TOTAL GROSS INCOME
P62,202.36
....................
TOTAL DEDUCTIONS
10,317.47
........................
__________
P51,974.89
"Net income
.................................................
"Tax assessable:
Life Insurance Companies

P3,378.00
........................
TOTAL TAX DUE
P3,378.00"
..........................
Later, however, it filed an amended return, as follows:

"GROSS INCOME
From interest
P 5,186.44
............................................
From dividends
15,242.55
........................................
TOTAL GROSS INCOME

P20,186.44
.............
TOTAL DEDUCTIONS
10,317.47
..................
__________
"Net income
P10,111.52
.................................................
__________
"Tax assessable:
Life Insurance Companies
P657.00
.......................
TOTAL TAX DUE
P657.00"
.........................
This was accompanied with a claim for the refund of P2,721 representing
the difference between P3,378, which the petitioner had paid as income tax
under its original return, and P657, which it now averred was the correct
amount due from it The difference is due to the fact that, whereas in its
original income tax return the petitioner reported in full its income from
dividends amounting to P57,105.29,[1] in its amended return it reported
only 25 per cent, or P15,242.55,[2] of the dividends from domestic
corporations.
The claim for refund was filed with the respondent Commissioner of
Internal Revenue but, as he had not been heard from, the petitioner, to
avoid prescription of its action, took the matter to the Court of Tax Appeals,
The Tax Court, with two members voting and another one reserving his
vote, upheld the propriety of the action against the claim of the respondent
that it was filed prematurely. It however denied the claim of the petitioner
for refund on the ground that the proviso allowing the return of only 25 per
cent of the income from dividends is found in subsection (A) of section 24
of the National Internal Revenue Code, while life insurance companies are
dealt with in another subsection, although of the same section, The Tax
Court's ratio decidendi reads:
"As a general rule of statutory construction a proviso is deemed to apply
only to the immediately preceding clause or provision. Where, as in the case
at bar, there is no clear legislative intention to apply it to the subseclause or
provision (Section 24 [B] we are constrained to interpret the proviso as
affecting only the preceding clause or provision, (See Collector, et
al. vs. Servando de los Angeles, et al., 101 Phil., 1026), Consequently, we are
of the opinion that the proviso relative to the returnability of only 25% of
such dividends applies only to corporations organized in or existing under
the laws of the Philippines . . . but not including duly registered
copartnerships (compaias colectivas), domestic life insurance companies
and foreign life insurance companies doing business in the Philippines."
But a purely syntactical approach is hardly a safe guide to the meaning of a
statute. The position of a proviso, for instance, although possessed of
considerable influence, is not necessarily controlling. The proviso may
apply to sections or portions thereof which follow it or even to the entire
statute.[3] Position, after all, cannot override intention, in the ascertainment
of which the legislative history of a statute is extremely more important.[4]
A resort to legislative history should prove particularly helpful in the case of
section 24 of the Code as this section has gone through a miscellany of
amendments, with the result that its basic outlines are now only vaguely
discernible, From a one-paragraph section it has grown into a multi-
paragraph one, with lengthy sentences qualified at every turn by exceptions
and provisos, The readability expert[5] who once complained of a provision
of the U.S. Internal Revenue Code as a "nightmare" of a writing, would be
at a loss for words to describe section 24 of our Code.
The following table shows the changes which section 24 has undergone at
each of the eight different stages of its amendment,
CORPORATE INCOME TAX: A COMPARATIVE TABLE OF
AMENDMENTS[6]
(1) As originally enacted on June 15, 1939:
SEC. 24. Rate of tax on corporations. There shall be levied, assessed,
collected, and paid annually upon the total net income received in the
preceding taxable year from all sources by every corporation organized in,
or existing under the laws of the Philippines, no matter how created or
organized, but not including duly registered general copartnerships
(compaias colectivas), a tax of eight per centum upon such income; and a
like tax shall be levied, assessed, collected, and paid annually upon the total
net income received in the preceding taxable year from all sources within
the Philippines by every corporation organized, authorized, or existing
under the laws of any foreign country: Provided, however, That in the case
of dividends received by a domestic or resident foreign corporation from a
domestic corporation liable to tax under this Chapter, only twenty-five per
centum thereof shall be returnable for purposes of the tax imposed by this
section.
(2) As amended by Republic Act 82, I Laws & Res. 250 (1946):
(compaias colectivas), a tax of TWELVE per centum upon such income;
and a like tax shall be levied, assessed, collected, and paid annually upon
the total net income received in the preceding taxable year from all sources
within the Philippines by every corporation organized authorized, or
existing under the laws of any foreign country: Provided, however, THAT
BUILDING AND LOAN ASSOCIATIONS OPERATING AS SUCH IN
ACCORDANCE WITH SECTIONS ONE HUNDRED SEVENTY-ONE TO
ONE HUNDRED NINETY OF THE CORPORATION LAW, AS AMENDED,
SHALL PAY A TAX OF SIX PER CENTUM ON THEIR TOTAL NET
INCOME: AND PROVIDED, FURTHER, That in the case of dividends
received by a domestic or resident foreign corporation from a domestic
corporation liable to tax under this Chapter, only twenty-five per
section.
(3) As amended by Republic Act 590, 5 Laws & Res. 687 (1950);
SEC. 24. Rate of tax on corporations.[7] There shall be levied, assessed,
(compaias colectivas), a tax [of] SIXTEEN per centum upon such income;
within the Philippines by every corporation organized, authorized, or
existing under the laws of any foreign country: Provided, however, That
Building and Loan Associations operating as such in accordance with
sections one hundred and seventy-one to one hundred and ninety of the
Corporation Law, as amended, shall pay a tax of NINE per centum on their
total net income: And Provided, further, That in the case of dividends
received by a domestic or resident foreign corporation from a domestic
corporation liable to tax under this Chapter, only twenty-five per
section.
(4) As amended by Republic Act 600, 6 Laws & Res. 27 (1951):
(compaias colectivas), a tax UPON SUCH INCOME EQUAL TO THE
SUM OF THE FOLLOWING:
TWENTY PER CENTUM UPON THE AMOUNT BY WHICH SUCH TOTAL
NET INCOME DOES NOT EXCEED ONE HUNDRED THOUSAND
PESOS; AND
TWENTY-EIGHT PER CENTUM UPON THE AMOUNT BY WHICH SUCH
TOTAL NET INCOME EXCEEDS ONE HUNDRED THOUSAND PESOS;
within the Philippines by every corporation organized, authorized, or
existing under the laws of any foreign country: Provided, however, That
Building and Loan Associations operating as such in accordance with
sections one hundred and seventy-one to one hundred and ninety of the
Corporation Law, AS WELL AS PRIVATE EDUCATIONAL
INSTITUTIONS, shall pay a tax of TWELVE per centum, AND TEN PER
CENTUM, RESPECTIVELY, on their total net income: And Provided,
further, That in the case of dividends received by a domestic or resident
foreign corporation from a domestic corporation liable to tax under this
Chapter, only twenty-five per centum thereof shall be returnable for
purposes of the tax imposed by this section.
(5) As amended by Republic Act 1148, 9 Laws & Res. 275(1954):
organized, but not including duly registered general co-partnerships
(compaias colectivas), a tax upon such income equal to the sum of the
following:
Twenty per centum upon the amount by which such total net income does
Twenty-eight per centum upon the amount by which such total net income
assessed, collected, and paid annually upon the total net income received in
the preceding taxable year from all sources within the Philippines by every
corporation organized, authorized, or existing under the laws of any foreign
country: Provided, That Building and Loan Associations operating as such
in accordance with sections one hundred and seventy-one to one hundred
and ninety of the Corporation Law, as amended, as well as private
educational institutions, shall pay a tax of twelve per centum and ten per
centum, respectively, on their total net income. And Provided, further, That
in the case of dividends received by a domestic or resident foreign
corporation from a domestic corporation liable to tax under this Chapter or
FROM A DOMESTIC CORPORATION ENGAGED IN NEW AND
NECESSARY INDUSTRY AS DEFINED UNDER REPUBLIC ACT
NUMBERED NINE HUNDRED AND ONE, only twenty-five per
Section,
(6) As amended by Republic Act 1855, 12 Laws & Res. 354 (1957V
SEC, 24, Rate of Tax on Corporation. (A)[8] IN GENERAL there shall be
levied, (assessed), collected, and paid annually upon the total net income
received in the preceding taxable year from all sources by every corporation
organized, or existing under the laws of the Philippines, no matter how
created or organized, but not including duly registered general co-
partnerships (compaias colectivas), DOMESTIC LIFE INSURANCE
COMPANIES AND FOREIGN LIFE INSURANCE COMPANIES DOING
BUSINESS IN THE PHILIPPINES, a tax upon such income equal to the
sum of the following:
Twenty per centum upon the amount by which such total net income does
Twenty-eight per centum upon the amount by which such total net income
[assessed] collected and paid annually upon the total net income received
in the preceding taxable year from all sources within the Philippines by
every corporation organized, authorized or existing under the laws of any
foreign country: Provided, however, That Building and Loan Associations
operating as such in accordance with sections one hundred and seventy-one
to one hundred and ninety of the Corporation Law, as amended, as well as
private educational institutions, shall pay a tax of twelve per centum and
ten per centum, respectively, on their total net income: And Provided,
further, That in the case of dividends received by a domestic or resident
foreign corporation from a domestic corporation liable to tax under this
Chapter or from a domestic corporation engaged in a new and necessary
industry, as defined under Republic Act Numbered Nine hundred and one,
only twenty-five per centum thereof shall be returnable for purposes of the
tax imposed by this section.[9]
(B) RATE OF TAX ON LIFE INSURANCE COMPANIES. THERE SHALL
BE LEVIED, ASSESSED, COLLECTED AND PAID ANNUALLY FROM
EVERY INSURANCE COMPANY ORGANIZED IN OR EXISTING UNDER
THE LAWS OF THE PHILIPPINES, OR FOREIGN LIFE INSURANCE
COMPANY AUTHORIZED TO CARRY ON BUSINESS IN THE
PHILIPPINES, BUT NOT INCLUDING PURELY COOPERATIVE
COMPANIES OR ASSOCIATIONS AS DEFINED IN SECTION TWO
HUNDRED FIFTY-FIVE OF THIS CODE, ON THE TOTAL INVESTMENT
INCOME RECEIVED BY SUCH COMPANY DURING THE PRECEDING
TAXABLE YEAR FROM INTEREST, DIVIDENDS AND RENTS FROM ALL
SOURCES WHETHER FROM OR WITHOUT THE PHILIPPINES, A TAX
OF SIX AND ONE-HALF PER CENTUM UPON SUCH
INCOME: PROVIDED, HOWEVER, THAT FOREIGN LIFE INSURANCE
COMPANIES NOT DOING BUSINESS IN THE PHILIPPINES SHALL, ON
ANY INVESTMENT INCOME RECEIVED BY THEM FROM THE
PHILIPPINES, BE SUBJECT TO TAX AS ANY OTHER FOREIGN
CORPORATION.
THE TOTAL NET INVESTMENT INCOME OF DOMESTIC LIFE
INSURANCE COMPANIES IS THE GROSS INVESTMENT INCOME
RECEIVED DURING THE TAXABLE YEAR FROM RENTS, DIVIDENDS,
AND INTEREST LESS DEDUCTIONS FOR REAL ESTATE EXPENSES'
DEPRECIATION, INTEREST PAID WITHIN THE TAXABLE YEAR ON
ITS INDEBTEDNESS, EXCEPT ON INDEBTEDNESS INCURRED TO
PURCHASE OR CARRY OBLIGATION THE INTEREST UPON WHICH IS
WHOLLY EXEMPT FROM TAXATION UNDER EXISTING LAWS, AND
SUCH INVESTMENT EXPENSES PAID DURING THE TAXABLE YEAR
AS ARE ORDINARY AND NECESSARY IN THE CONDUCT OF THE
INVESTMENTS: AND THE TOTAL NET INVESTMENT INCOME OF
FOREIGN LIFE INSURANCE COMPANIES DOING BUSINESS IN THE
PHILIPPINES IS THAT PORTION OF THEIR GROSS WORLD
INVESTMENT INCOME WHICH BEARS THE SAME RATIO TO SUCH
INCOME AS THEIR TOTAL PHILIPPINE RESERVE BEARS TO THEIR
TOTAL WORLD RESERVE LESS THAT PORTION OF THEIR TOTAL
WORLD INVESTMENT EXPENSES WHICH BEARS THE SAME RATIO
TO SUCH EXPENSES AS THEIR TOTAL PHILIPPINE INVESTMENT
INCOME BEARS TO THEIR TOTAL WORLD INVESTMENT INCOME.
(7) As amended by Republic Act 2343, 14 Laws & Res, 423 (1959):
SEC. 24. Rate of tax on corporations. (a) TAX ON DOMESTIC
CORPORATIONS. In general there shall be levied, collected, and paid
annually upon the total net income received in the preceding taxable year
from all sources by every corporation organized in, or existing under the
laws of the Philippines, no matter how created or organized, but not
including duly registered general co-partnerships (compaias colectivas),
domestic life insurance companies and foreign life insurance companies
doing business in the Philippines, a tax upon such income equal to the sum
of the following:
TWENTY-TWO per centum upon the amount by which such total net
income does not exceed one hundred thousand pesos; and
THIRTY per centum upon the amount by which such total net income
preceding taxable year from all sources within the Philippines by every
corporation organized, authorized, or existing under the laws of any foreign
country: Provided, however, That building and loan associations operating
as such in accordance with sections one hundred and seventy-one to one
hundred and ninety of the Corporation Law, as amended, as well as private
educational institutions, shall pay a tax of twelve per centum and ten per
centum, respectively, on their total net income: And Provided, further,
That in the case of dividends received by a domestic or resident foreign
corporation from a domestic corporation liable to tax under this Chapter or
from a domestic corporation engaged in a new and necessary industry, as
defined under Republic Act Numbered Nine hundred and one, only twenty-
five per centum thereof shall be returnable for purposes of the tax imposed
by this section.
(b) TAX ON FOREIGN CORPORATIONS. (I) NON-RESIDENT
CORPORATIONS. THERE SHALL BE LEVIED, COLLECTED AND PAID
FOR EACH TAXABLE YEAR, IN LIEU OF THE TAX IMPOSED BY THE
PRECEDING PARAGRAPH, UPON THE AMOUNT RECEIVED BY EVERY
FOREIGN CORPORATION NOT ENGAGED IN TRADE OR BUSINESS
WITHIN THE PHILIPPINES, FROM ALL SOURCES WITHIN THE
PHILIPPINES, AS INTEREST, DIVIDENDS, RENTS, SALARIES, WAGES,
PREMIUMS, ANNUITIES, COMPENSATIONS, REMUNERATIONS,
EMOLUMENTS, OR OTHER FIXED OR DETERMINABLE ANNUAL OR
PERIODICAL GAINS, PROFITS, AND INCOME, A TAX EQUAL TO
THIRTY PER CENTUM OF SUCH AMOUNT.
(2) RESIDENT CORPORATIONS. A FOREIGN CORPORATION
ENGAGED IN TRADE OR BUSINESS WITHIN THE PHILIPPINES
(EXCEPT FOREIGN LIFE INSURANCE COMPANIES) SHALL BE
TAXABLE AS PROVIDED IN SECTION (a) OF THIS SECTION.
(c) Rate of tax on life insurance companies. There shall be levied,
assessed,[10] collected and paid annually from every life insurance company
organized in or existing under the laws of the Philippines, or foreign life
insurance company authorized to carry on business in the Philippines but
not including purely cooperative companies or associations as defined in
section two hundred fifty-five of this Code, on the total investment income
received by such company during the preceding taxable year from interest,
dividends, and rents from all sources, whether from or without the
corporation.
The total net investment income of domestic life insurance companies is
the gross investment income received during the taxable year from rents,
dividends, and interest less deductions for real estate expenses,
depreciation, interest paid within the taxable year on its indebtedness,
except on indebtedness incurred to purchase or carry obligation the interest
upon which is wholly exempt from taxation under existing laws, and such
investment expenses paid during the taxable year as are ordinary and
necessary in the conduct of the investments; and the total net investment
income of foreign life insurance companies doing business in the
Philippines is that portion of their gross world investment income which
bears the same ratio to such income as their total Philippine reserve bears
to their total world reserve less that portion of their total world investment
expenses which bear the same ratio to such expenses as their total
Philippine investment income bears to their total world investment income.
(8) As amended by Republic Act 3825, 60 O.G. 780 (1963):
SEC. 24. Rate of tax on corporations. (a) Tax on domestic corporations. In
general there shall be levied, collected, and paid annually upon the total net
income received in the preceding taxable year from all sources by every
corporation organized in, or existing under the laws of the Philippines, no
matter how created or organized, but not including duly registered general
copartnerships (compaias colectivas), domestic life insurance companies
and foreign life insurance companies doing business in the Philippines, a
tax upon such income equal to the sum of the following:
Twenty-two per centum upon the amount by which such total net income
does not exceed one hundred thousand pesos; and
Thirty per centum upon the amount by which such total net income exceeds
one hundred thousand pesos; and a like tax shall be levied, collected, and
paid annually upon the total net income received in the preceding taxable
year from all sources within the Philippines by every corporation organized,
authorized, or existing under the laws of any foreign country: Provided,
however, That building and loan associations operating as such in
accordance with sections one hundred and seventy-one to one hundred and
ninety of the Corporation Law, as amended, as well as private educational
institutions, shall pay a tax of twelve per centum and ten per centum,
respectively, on their total net income: And Provided, further, That in the
case of dividends received by a domestic or resident foreign corporation
from a domestic corporation liable to tax under this Chapter or from a
domestic corporation engaged in a new and necessary industry, as defined
under Republic Act Numbered Nine hundred and one, only twenty-five per
centum, thereof shall be returnable for purposes of the tax imposed by this
section.
(b) Tax on foreign corporations. (I) Non-resident corporations. There shall
be levied, collected, and paid for each taxable year, in lieu of the tax
imposed by the preceding paragraph, upon the amount received by every
foreign corporations not engaged in trade or business within the
Philippines, from all sources within the Philippines, as interest, dividends,
rents, salaries, wages, premiums, annuities, compensations,
remunerations, emoluments, or other fixed or determinable annual or
periodical gains, profits, and income, a tax equal to thirty per centum of
such amount: PROVIDED, HOWEVER, THAT PREMIUMS SHALL NOT
INCLUDE REINSURANCE PREMIUMS.
(2) Resident corporations. A foreign corporation engaged in trade or
business within the Philippines (except foreign life insurance companies)
shall be taxable as provided in subsection (a) of this section.
(c) Rate of tax on life insurance companies. There shall be levied, assessed,
collected and paid annually from every life insurance company organized or
existing under the laws of the Philippines, or foreign life insurance
company authorized to carry on business in the Philippines but not
including purely cooperative companies or associations as defined in
by them from the Philippines be subject to tax as any other foreign
corporation.
upon which is wholly excempt from taxation under existing laws, and such
Philippine investment income bears to their total world investment income,
(9) As amended by Republic Act 3841, 60 O.G. 1095 (1963):
SEC. 24. Rate of tax on corporations. (a) Tax on domestic corporations. In
general there shall be levied, collected, and paid annually upon the total net
income received in the preceding taxable year from all sources of every
corporation organized in, or existing under the laws of the Philippines, no
matter how created or organized, but not including duly registered general
copartnership (compaias colectivas), domestic life insurance companies
and foreign life insurance companies doing business in the Philippines, a
tax upon such income equal to the sum of the following:
Twenty-two per centum upon the amount by which such total net income
does not exceed one hundred thousand pesos; and
Thirty per centum upon the amount by which such total net income exceeds
one hundred thousand pesos; and a like tax shall be levied, collected, and
paid annually upon the total net income received in the preceding taxable
year from all sources within the Philippines by every corporation organized,
authorized, or existing under the laws of any foreign country: Provided,
however, That building and loan associations operating as such in
accordance with sections one hundred and seventy-one to one hundred and
ninety of the Corporation Law, as amended, as well as private educational
institutions, shall pay a tax of twelve per centum, and ten per centum,
respectively, on their total net income: And, Provided, further, That in the
case of dividends received by a domestic or resident foreign corporation
from domestic corporation liable to tax under this Chapter or from a
domestic corporation engaged in a new and necessary industry, as defined
under Republic Act Numbered Nine hundred and one,[12] only twenty-
five per centum thereof shall be returnable for purposes of the tax imposed
by this section.
(b) Tax on foreign corporations. (1) Non-resident corporation. There shall
be levied, collected and paid for each taxable year, in lieu of the tax imposed
by the preceding paragraph, upon the amount received by every foreign
corporation not engaged in trade or business within the Philippines, from
all sources within the Philippines as interest, dividends, rents, salaries,
wages, premiums, annuities, compensations, remunerations, emoluments,
or other fixed or determinable annual or periodical OR CASUAL gains,
profits and income, AND CAPITAL GAINS, a tax equal to thirty per
centum of such amount: Provided, however, That premiums shall not
include reinsurance premiums.
(2) Resident corporations. A foreign corporation engaged in trade or
business within the Philippines (except foreign life insurance companies)
shall be taxable as provided in subsection (a) of this section.
(c) Rate of tax on life insurance companies. There shall be levied, assessed,
collected and paid annually from every life insurance company organized in
or existing under the laws of the Philippines, or foreign life insurance
company authorized to carry on business in the Philippines but not
including purely cooperative companies or associations as defined in
corporation.
upon which is wholly exempt from taxation under existing laws, and such
Philippine investment income bears to their total world investment income.
It will thus be seen that dividend exclusion has always been a dominant
feature of corporate income tax. It is a device for reducing extra or double
taxation of distributed earnings. Since a corporation cannot deduct from its
gross income the amount of dividends distributed to its corporation-
shareholders during the taxable year, any distributed earnings are
necessarily taxed twice: initially at the corporate level when they are
included in the corporation's taxable income, and again, at the corporation-
shareholder level when they are received as dividend. Thus, without
exclusion the successive taxation of the dividend as it passes from
corporation to corporation would result in repeated taxation of the same
income and would leave very little for the ultimate individual shareholder.
At the same time the decision to tax a part (e.g., 25 per cent) of such
dividends reflects the policy of discouraging complicated corporate
structures as well as corporate divisions in the form of parent-subsidiary
arrangements adopted to achieve a lower effective corporate income tax
rate.[14]
Until 1957 there had been no question that the proviso on dividend
exclusion applied to all domestic and resident foreign life insurance
companies. The question arose when, by virtue of Republic Act 1855 (1957),
the original provisions of section 24, with slight modifications, were made
sub-section (A), while a new sub-section (B), entitled "Rate of Tax on Life
Insurance Companies," was added. The result is that the proviso on
dividend exclusion now appears to qualify only a part of section 24, making
it doubtful whether after 1957 the income from dividends of domestic and
resident foreign life insurance companies still enjoys exemption, although,
as noted in passing,[15] the proviso continues to speak of "the tax imposed
by this section" (not sub-section).
However, a review of the circumstances which prompted the amendment of
section 24 in 1957 shows no intention to withdraw from life insurance
companies the exemption which theretofore had been enjoyed by them
along with non-life insurance companies. To be sure, the 1957 amendment
was intended for a two-fold purpose: first, to change the tax base from
premium income to investment income, and, second, to lower the tax on
life insurance companies, in order to encourage their growth as well as their
investment in the development of the national economy.
Prior to 1957, life insurance companies were required, for income tax
purposes, to include premium receipts in gross income. It became generally
recognized, however, that the inclusion of premium receipts in the gross
taxable income of life insurance companies was unsound because premium
receipts do not constitute income in the sense of gain or profit. They are
really savings deposits of the individual policyholders, a large portion of
which goes directly to reserve funds required by law for the payment of
their claims for death benefits, cash surrender values and maturity values.
Therefore, to tax an insurance company on account of these "deposits" or
"savings" is actually to tax the policyholder for being provident. What
constitutes true income for a life insurance company is rather its
investment income from interest, dividends and rents.[16]
Besides, the premiums which a life insurance company receives are already
subject to a tax of 3 per cent under section 255 of the Code. To require their
inclusion in gross income for purposes of section 24 is to subject them to
double taxation.[17]
The rate of tax was lowered in recognition of the fact that a life insurance
company derives profit from its investment income only to the extent that
such income exceeds the rate of interest at which the reserve must be
maintained.[18]
In sum, as the then Congressman Ferdinand Marcos described the bill
which became Republic Act 1855, "It is a bill which places [life] insurance
companies in the same class as other companies. And the rate is lower than
in ordinary companies because it is six and one half per cent."[19]
If the purpose of the 1957 amendment was to place life insurance
companies at par with other companies by taxing them on their true
income, then the legislature could not have intended to withdraw from
them a privilege which they had then been enjoying in common with non-
life insurance companies. Indeed, by no rule of logic can the decision to
exclude premium receipts from gross income be considered a decision to
include all of dividend income in gross income.
Nor could it have been the intention of the legislature to discriminate
against domestic life insurance companies in favor of resident foreign
corporations engaged in other business. And yet this is just the implication
of the interpretation urged on us by the respondents. For, indeed, to
require life insurance companies to report in full their income from
dividends would be not only to treat them differently from other
companies, contrary to the first aim of the amendment, but also to impose
on them a tax burden heavier than that imposed on resident foreign
companies not engaged in life insurance. Thus, following the interpretation
of the respondents, a resident foreign corporation with an income of
P100,000 from dividends would be required to return only 25 per cent of it,
or P25,000, the tax on which would be P5,000 (20% under Republic Act
1855). In contrast, a domestic life insurance company, required to report all
its income from dividends, would have to pay a tax of P6,500 (6-), or
P1,500 more, despite the fact that the rate of tax on it is much lower. lt
seems rather clear that these discriminatory and lop-sided results could not
have been intended by Congress.
That Congress intended to accord preferential tax treatment to domestic
and resident foreign life insurance companies is abundantly clear not only
from the history of the 1957 amendment but also from the Comparative
Table (supra) which shows that while the rate of tax on corporations in
general has been raised, that on domestic and resident foreign life
insurance companies has remained at 6- per cent the lowest among those
imposed on various types of corporations.
The truth is that section 24 has undergone amendments through a process
which, in Cardozo's phrase,[20] is no more intellectual than the use of paste
pot and scissors. Consequently, reliance cannot be placed on its
grammatical construction in order to arrive at its meaning. As the
Comparative Table shows, after the amendment of section 24 in 1957, sub-
section (A) thereof did not have a title, compared to sub-section (B),
entitled "Rate of Tax on Life Insurance Companies" which was added. It
took another amendment in 1959 to correct the deficiency, only to commit
another error. Thus while the word "assessed" was deleted from sub-section
(a) in consequence of the adoption of the "pay-as-you-file" system, the
same word has remained in sub-section (c) even to this date. Again, within
the same year, 1963, section 24 was amended twice but in the process more
errors were committed. For while Republic Act 3841 was passed ostensibly
to add certain words overlooked in the amendment of the section by
Republic Act 3825, the proviso on reinsurance Premium (which was the
reason for the enactment of Republic Act 3825) was inadvertently omitted
in the text of section 24 (b)(1).
The reference to domestic and resident foreign life insurance companies in
the excepting clause of sub-section (a) is even more awkward because the
exception relates to the coverage of the entire section 24 and not simply to a
subsection thereof. Thus, registered general copartnerships are excepted
from the coverage of section 24 because they are not subject to tax as an
entity. By express provision of section 26 of the Code persons doing
business as a general copartnership duly registered in the mercantile
registry are subject to income tax "only in their individual capacity." On the
other hand, by including domestic and resident foreign life insurance
companies in the excepting clause it was never the intention to exempt
them from the payment of corporate income tax, which is the subject of
section 24 as a whole. Furthermore, the exclusion of registered general
copartnerships from the coverage of section 24 is justified because by
statutory definition they are not anyway considered "corporations." On the
other hand, life insurance companies are deemed "corporations" for
purposes of the Code.[21]
Thus, the haphazard amendment of section 24 by several legislative acts -
as a result of which the proviso on dividend exclusion is now found in sub-
section (a) makes reliance on its grammatical construction highly unsafe
and unsound in arriving at its meaning.[22] Since nothing in the history of
the 1957 amendment or in the rationale of dividend exclusion indicates the
contrary, we hold that domestic and resident foreign life insurance
companies are entitled to the benefits of dividend exclusion, the position of
the proviso allowing it notwithstanding.
Accordingly, the decision appealed from is reversed, and the respondent
Commissioner of Internal Revenue is ordered to refund to the petitioner
company the amount of P2,721 as excess income tax for 1958. No
pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Bengzon, J.P., Zaldivar, Sanchez,
Angeles and Fernando, JJ., concur.
Decision appealed from is reversed.
[1]Thebreak down is as
follows:
Hongkong, Shanghai
P 518,57
Bank ............
Chartered Bank
427 .12
............................
Credit Corp. of the Phil.
700.00
................
Phil, Long Distance Tel,
3,375,00
Co. ..........
San Miguel Brewery
15,379.20
......................
Lombard Insurance Co.
342.40
.................
Bank of P. I.
2,880.00
..................................
Goodrich International
25,000.00
....................
Bacnotan Cement
4,832,00
...........................
Acceptance & Investment
3,651.00
Corp. .....
_________
P57,105.29
_________
[2]Thecomputation is as
follows:
Foreign:
Hongkong, Shanghai
Bank ............. P 518.27
Chartered Bank
427.12
.............................
Lombard Insurance Co.
................. 342.40 P1,288.09
_________
Local:
Credit Corp. of the Phil.

.................. 700.00
Phil. Long Distance Tel.
3,375.00
Co. ............
San Miguel Brewery
15,379.20
.......................
Bank of P.I.
................................... 2,880.00
Goodrich International
.................... 25,000.00
Bacnotan Cement
........................... 4,832.63
Acceptance & Investment
3,651.00
Corp. .....
25% of
P 55.817.83 P13.954.46
...........................................
_________
P15,242.55
_________
[3] E. Crawford, The Construction of Statutes, sec. 297, 606-607 (1940).
I. J. Mertens, The Law of Federal Income Taxation, sec. 3.26 at 59 (3 ed.

[4]
1962 [hereinafter cited as Martens].

[5] R. Flesch, The Art of Readability 112 (1948).
Material deleted by subsequent amendment is shown in brackets while
[6]
that added or substituted is indicated by entire words in capital letters.

The tax late increases in Republic Act 600, while originally applicable
[7]
only to income received from January 1, 1951 to December 31, 1953 (sec. 3),
were successively extended up to December 1957 by Republic Acts 868,
1056 and 1291 until they were made permanent by Republic Act 1505.
[8] Note that sub-section (A) has no title.
Note that the proviso still speaks of "the tax imposed in this section"
[9]
despite the fact that it appears to qualify only sub-section (A). The
phraseology has been retained in subsequent amendments of section 24.
[10] Note the failure to delete the word "assessed" from sub-section (c).
Note the failure to delete the word "assessed" even in subsequent
[11]
amendments.
The tax exemption granted by Republic Act 901 expired on December 31,
[12]
1962. Sec 1.
The proviso "Provided, however, That premiums shall not include
[13]
reinsurance premiums," which was inserted in section 24(b)(l) by Republic

Act 3825 is not in the text of section 24 as amended by Republic Act 3841,
but the omission appears to be due to oversight as the purpose of the latest
amendment was to include capital gains (and not reinsurance premiums
also) in gross income of foreign non-resident corporations.
See Harvaid Law School, World Tax Series: Taxation in the United
[14]
States sees. 9/2.3-2.4, at 618-620 (1963).

[15] Supra, note 9.
See Explanatory Note, H.R, 5816, 3d Cong., 3d Sess., 3 Cong, Rec. 2716
[16]
(1956); see also Tax Note, 43 A.B.A.J. 542 (1957),

These were the same arguments that led to the 1921 amendment of the U.S.
Internal Revenue Code. As Mertens writes:
"The inclusion of premium receipts in the gross taxable income of life
insurance companies was recognized as 'one of the faultiest parts of the
income tax act.'
"From the policyholders' point of view, life insurance constitutes a
combination of insurance and investment; and therefore life insurance
premiums, unlike premiums paid for other forms of insurance, constitutes
in large part, contributions to capital.
"In recommending a new basis for the taxation of life insurance companies,
a Treasury Department official stated to the Senate Finance Committee in
1921:
'It has been suggested and I think it is obviously sound that the only true
basis of income of a life insurance company is its investment income -
interest, dividends, and rents which it receives. The premium payments it
gets are a good deal like a bank deposit. When it takes them over it creates
an obligation such as the obligation of a bank to return a deposit when it is
called for,'
"Since 1921, life insurance companies have been taxed upon their
investment income from interest, dividends and rents (and since 1955,
royalties) less deductions designed to exempt from the tax that part of this
income which the companies must apply to their policy obligations and less
deductions for taxes, expenses and depreciation incidental to their
investments and investment income. .. ."'8 Mertens, supra, note 4, sec.
44.01, at 3-5 (2d ed. 1957).
436 Phil. 341
THIRD DIVISION
[ A.M. No. MTJ-00-1323, August 22, 2002 ]
JUDGE PEDRO B. CABATINGAN SR. (RET.), COMPLAINANT, VS.

JUDGE CELSO A. ARCUENO, MCTC, CATAINGAN, MASBATE,
RESPONDENT.
DECISION
PANGANIBAN, J.:
Ignorance of the law excuses no one -- certainly not a judge -- from
compliance therewith. This is particularly true in cases where the law is so
elementary that to be unaware of it or to ignore it constitutes gross
ignorance, which is administratively sanctionable.
Statement of the Case
A sworn Administrative Complaint[1] filed by Judge Pedro B. Cabatingan Sr.
(ret.) charges Judge Celso A. Arcueno of the Municipal Circuit Trial Court
of Cataingan, Masbate, with gross ignorance of the law.
The Facts
The facts are summarized by the Office of the Court Administrator (OCA) in
its Memorandum[2] dated September 25, 2001, as follows:
"Complainant, who is the counsel for the accused [Benito Bucado[3] ] xxx,
narrates that a complaint for Illegal Fishing was filed in respondent's court
for preliminary investigation and was docketed as Criminal Case No. 4877-
PVC. Finding a prima facie case against all the accused, respondent issued a
warrant of arrest fixing the bail bond at P50,000 for each of them. Benito
Bucado, one of the accused, posted a property bond. Respondent, however,
in violation of Section 17, rule 114 of the rules of Court, allegedly refused to
accept the bail bond upon the contention that he no longer ha[d]
jurisdiction over the case inasmuch as the records were already forwarded
to the Office of the Assistant provincial Prosecutor for review.
"When required to comment, respondent Judge Celso A. Arcueno, denied
the charges. He narrates that the aforementioned criminal case was filed in
his court for preliminary investigation. Finding the existence of probable
cause, he issued a warrant of arrest with the recommended bail of
P50,000.00 for each of the accused. Upon the arrest of the accused, he
issued an Order dated September 15, 1998 requiring them to submit their
counter-affidavits and that of their witnesses within ten (10) days from
receipt thereof. However, the accused failed to submit their counter-
affidavits. They also failed to post bail for their temporary liberty.
After the lapse of the ten (10) day period as provided in Section 3 (f) of Rule
112, Rules of [C]ourt, respondent, finding the existence of probable cause
against the accused, issued a resolution dated 13 October 1998 forwarding
the entire records of the case to the RTC, Branch 49, Cataingan, Masbate
thru the Assistant Provincial Prosecutor, for review. On 15 October 1998,
the Office of the Assistant Provincial prosecutor received the records of the
subject criminal case. On 4 November 1998, while the case was being
reviewed by the Office of the Assistant Provincial Prosecutor, complainant
presented the bail bond of the accused Benito y Ferrer for respondent's
approval.
"Respondent claims that he initially refused to approve the property bond
because he believed that he had already lost jurisdiction over the case. Also,
the tax declaration of the property being put up as a bond was not attached
to the bail bond form to show proof of ownership thereof by the bondsman.
However, on 20 November 1998, he approved said bail bond and
consequently ordered the release of accused Bucado.
"On 18 September 2000, the Third Division of this Court resolved to
DOCKET the complaint as an administrative matter and to require the
parties to MANIFEST to the Court within twenty (20) days from notice,
whether they [were] submitting the case on the basis of the
pleadings/records already filed and submitted.
"In compliance with the aforementioned resolution, respondent Judge filed
a Manifestation with Motion to Dismiss dated 30 October 2000. On 17
January 2001, the Court resolved to NOTE the respondent's Manifestation
with Motion to Dismiss and to consider as WAIVED the filing of
Manifestation by complainant for his failure to submit the same within the
period specified under the Resolution of 18 September 2000."[4]
In his Manifestation with Motion to Dismiss,[5] respondent justified his
refusal to approve the bail bond. His reason for his refusal was that, in
notarizing the bail bond document, complainant grossly violated Section 10
of Rule 114 of the 1985 Rules on Criminal Procedure. In so doing, he
arrogated unto himself the power and authority pertaining to a judge.
Respondent reiterated his previous Manifestation, dated July 12 2000,
praying for the dismissal of the case on the ground that the parties had
mutually and amicably settled the case. He submitted, as proof of the
settlement, the Joint Motion to Dismiss signed by both parties.
The Court Administrator's Recommendation
After a perusal of the records of the case, Deputy Court Administrator Jose
P. Perez, in his Report dated September 25, 2001, explained that the refusal
of respondent judge to approve the bail bond posted by the accused showed
the latter's ignorance of the rules of procedure. Thus, the former submitted
the following recommendations:
"1. Respondent's Motion to Dismiss be DENIED for lack of merit; and
"2. Respondent Judge Celso A. Arcueno be found guilty of gross ignorance
of the law and be ordered to pay a FINE of Ten Thousand Pesos
(P10,000.00) with a STERN WARNING that a repetition of the same or
[a] similar act shall be dealt with more severely."[6]
This Court's Ruling
We agree with the OCA's findings and recommendation, but with some
modifications as to the penalty.
Administrative Liability
Complainant asserts that respondent judge is guilty of gross ignorance of
the law for refusing to approve the bail bond of the accused in violation of
Section 17 of Rule 114 of the Rules of Court. Complainant also claims that
this lapse unduly deprived the accused of the constitutional right to bail.[7]
On the other hand, in his Comment[8] dated June 1, 1999, respondent
explains that he refused to approve the bail bond, because he had lost
jurisdiction over the case after forwarding for review the records thereof to
the Office of the Assistant Provincial Prosecutor. He asserts that "once
jurisdiction is lost, no further action can be entertained in connection
therewith."[9] He adds that the tax declaration for the property put up as a
bond was not attached to the bail bond form to show proof of the
bondsman's ownership or title.[10]
However, in his Manifestation with Motion to Dismiss,[11] dated October 30,
2000, respondent judge proffered a different justification for his refusal to
approve the bail bond. He theorized that complainant, as counsel for the
accused Benito Bucado in Criminal Case No. 4877-PVC and as notary
public, had grossly and seriously violated Section 10 of Rule 114 of the 1985
Rules on Criminal procedure, as amended. Complainant supposedly
violated this provision by arrogating unto himself the power and authority
that pertained to a judge.
We are not persuaded. As correctly pointed out by the OCA, the argument
of respondent judge in his Manifestation with Motion to Dismiss is clearly
an afterthought; and, hence, deserves no credence.
To be able to render substantial justice and maintain public confidence in
the legal system, judges should be embodiments of competence, integrity
and independence.[12] Hence, they are expected to exhibit more than just a
cursory acquaintance with statutes and procedural rules and to apply them
properly in all good faith.[13] They are likewise expected to demonstrate
mastery of the principles of law, keep abreast of prevailing
jurisprudence,[14] and discharge their duties in accordance therewith.[15]
Further, judges should administer their office with due regard to the
integrity of the system of law itself, remembering that they are not
depositories of arbitrary power, but are judges under the sanction of
law.[16] It must be emphasized that this Court has formulated and
promulgated rules of procedure to ensure the speedy and efficient
administration of justice. Wanton failure to abide by these rules
undermines the wisdom behind them and diminishes respect for the rule of
law.[17]
Before we can decide whether respondent judge erred in refusing to grant
bail, we deem it necessary to determine first whether he had jurisdiction to
grant it under the circumstances of this case.[18] Bail is defined as the
"security given for the release of a person in custody of the law."[19] Section
17, paragraph (c) of Rule 114 of the Revised rules of Court, provides:
"SEC. 17. Bail, where filed. (c) Any person in custody who is not yet charged
in court may apply for bail with any court in the province, city or
municipality where he is held."
In the case at bar, Benito Bucado was arrested in the Municipality of
Cataingan after a preliminary investigation conducted by respondent judge.
The latter therefore had the authority to grant bail and to order the release
of the accused.[20] Even if the records of the case had been transmitted for
review to the Office of the provincial Prosecutor, respondent could have
approved the bail bond posted by the accused. Such action cannot be validly
attacked on jurisdictional grounds.[21]
Considering that one of his responsibilities as a judge was to conduct
preliminary investigations, it was therefore his duty to keep abreast of the
laws, rulings and jurisprudence on this matter. Because he had apparently
lagged behind,[22] he fell short of his vow to live up to the injunction of the
code of Judicial Conduct to "maintain professional competence."[23]
When the law is so elementary, as in this case, not to be aware of it
constitutes gross ignorance thereof.[24]Indeed, everyone is presumed to
know the law.[25] Ignorance of the law, which everyone is bound to know,
excuses no one -- certainly not a judge.[26]
On July 7, 2000, a Joint Motion to Dismiss[27] was executed by complainant
and respondent. It should be remembered that a complaint for misconduct
and similar charges against a judicial or other public officer or employee
cannot just be withdrawn at any time. A simple expediency such as a
complainant's sudden claim of change of mind[28] followed by a withdrawal
of the complaint would not result in the automatic dismissal of the case.[29]
Further, the faith and confidence of the people in their government and its
agencies and instrumentalities need to be maintained. The people should
not be made to depend upon the whims and caprices of complainants who
are, in a real sense, only witnesses therein.[30] To rule otherwise would
subvert the fair and prompt administration of justice as well as undermine
the discipline of court personnel.[31]
In any case, it bears noting that the administrative liability for ignorance of
the law does not necessarily arise from the mere fact that a judge issued an
order that is adjudged to be erroneous.[32] Judges may not be held
administratively accountable for every erroneous order; it is only when they
act fraudulently or with gross ignorance that administrative sanctions are
called for.[33]
To be held liable for gross ignorance of the law, the judge must be shown to
have committed an error that was "gross or patent, deliberate or
malicious."[34] Also administratively liable therefor is a judge who -- shown
to have been motivated by bad faith, fraud, dishonesty or corruption --
ignored, contradicted or failed to apply settled law and jurisprudence.[35]
It must be pointed out that this is not the first infraction of Judge Arcueno.
Previously, in Gimeno v. Arcueno Sr.,[36] he was charged with and found
guilty of ignorance of the law when, without any hearing, he granted bail to
the accused who had been charged with a capital offense in a criminal case
for robbery with homicide.[37]Respondent was consequently fined in the
amount of P5,000 and warned that a repetition of the same or a similar act
in the future would be severely dealt with.
Indeed, it seems that respondent judge has remained undeterred in
disregarding the law which he has pledged to uphold and the Code which he
has promised to live by.[38] He appears to be unfazed by the previous
penalty and warnings he received.[39] Because this is his second infraction,
it warrants a heavier penalty.[40]
WHEREFORE, Judge Celso A. Arcueno is hereby found GUILTY of gross
ignorance of the law and is FINED in the amount of fifteen thousand pesos
(P15,000), payable within five days from notice. He is further warned that a
repetition of this or similar offenses will be dealt with even more severely.
SO ORDERED.
Puno, (Chairman), and Carpio, JJ., concur. Sandoval-Gutierrez, J., on
leave.

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209 Phil.

128 Phil. 689

Life Insurance Companies

Later, however, it filed an amended return, as follows:

TOTAL GROSS INCOME

Credit Corp. of the Phil.

I. J. Mertens, The Law of Federal Income Taxation, sec. 3.26 at 59 (3 ed.

1962 [hereinafter cited as Martens].

that added or substituted is indicated by entire words in capital letters.

reinsurance premiums," which was inserted in section 24(b)(l) by Republic

States sees. 9/2.3-2.4, at 618-620 (1963).

(1956); see also Tax Note, 43 A.B.A.J. 542 (1957),

436 Phil. 341

[ A.M. No. MTJ-00-1323, August 22, 2002 ]

JUDGE PEDRO B. CABATINGAN SR. (RET.), COMPLAINANT, VS.

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