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[G.R. No. 117359. July 23, 1998]

APPEALS, respondents.

TOPIC: Exemption from Taxation: Rationale/grounds for tax exemption

Davao Gulf Lumber Corporation, a licensed forest concessionaire possessing
a Timber License Agreement granted by the Ministry of Natural Resources
(Now DENR), purchased from various oil companies refined and
manufactured oils as well as motor and diesel fuels for its exploitation and
operation. The oil companies paid the specific taxes imposed under Secs. 153
and 156 of the NIRC, on the sale of said products. The specific taxes paid by
the oil companies were eventually passed on to the user, Davao Gulf, who
in turn filed before the Commissioner of Internal Revenue (CIR) a Claim for
Refund for P120, 825 representing 25% of the specific taxes actually paid
based on Insular Lumber Co. v. CTA and Sec. 5 of RA 1435 and complied
with its procedure. Davao Gulf then filed a petition for review before the
CTA which found it entitled to a partial refund of specific taxes the latter
had paid in the reduced amount of P2,923.15. Insisting that the basis for
computing the refund should be the increased rates prescribed by Secs. 153
and 156 of the NIRC, petitioner elevated the matter to the CA. CA affirmed
the decision of the CTA. Hence, this petition.

Whether Davao Gulf is entitled to the tax refund under the increased rates
prescribed by Secs. 153 and 156 of the NIRC.

No. Although Davao Gulf is entitled to claim the refund under Sec. 5 of RA
1435, it should be granted the refund based on the rates specified by Sections
1 and 2 of R.A. No. 1435 and not on the increased rates under Sections 153
and 156 of the NIRC.
Because taxes are the lifeblood of the nation, statutes that allow exemptions
are construed strictly against the grantee and liberally in favor of the
government. Otherwise stated, any exemption from the payment of a tax
must be clearly stated in the language of the law; it cannot be merely implied
The 1977 NIRC, PD 1672 and EO 672 amended the first two provisions of
RA 1435, renumbering them and prescribing higher rates. A tax cannot be
imposed unless it is supported by the clear and express language of a
statute on the other hand, once the tax is unquestionably imposed, a claim
of exemption from tax payments must be clearly shown and based on
language in the law too plain to be mistaken. Since the partial refund
authorized under Section 5, RA 1435, is in the nature of a tax exemption, it
must be construed strictissimi juris against the grantee. Hence, Davao Gulfs
claim of refund on the basis of the specific taxes it actually paid must
expressly be granted in a statute stated in a language too clear to be
A careful scrutiny of RA 1435 and the subsequent pertinent statutes
showed no expression of a legislative will authorizing a refund based on the
higher rates claimed by Davao Gulf. The mere fact that the privilege of
refund was included in Section 5, and not in Section 1, is insufficient to
support its claim. When the law itself does not explicitly provide that a
refund under RA 1435 may be based on higher rates which were nonexistent
at the time of its enactment, this Court cannot presume otherwise. A
legislative lacuna cannot be filled by judicial fiat.

G.R. No. 115455 August 25, 1994
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
INTERNAL REVENUE, respondents.

TOPIC: Exemption from Taxation: Nature of tax exemption

The value-added tax (VAT) is levied on the sale, barter or exchange of goods
and properties as well as on the sale or exchange of services. It is equivalent
to 10% of the gross selling price or gross value in money of goods or
properties sold, bartered or exchanged or of the gross receipts from the sale
or exchange of services. Republic Act No. 7716 seeks to widen the tax base
of the existing VAT system and enhance its administration by amending the
National Internal Revenue Code.

The Cooperative Union of the Philippines (CUP) argues that the legislation
was to adopt a definite policy of granting tax exemption to cooperatives that
the present Constitution embodies provisions on cooperatives. To subject
cooperatives to the VAT would therefore be to infringe a constitutional
policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated
exempting cooperatives from the payment of income taxes and sales taxes
but in 1984, because of the crisis which menaced the national economy, this
exemption was withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008
again granted cooperatives exemption from income and sales taxes until
December 31, 1991, but, in the same year, E.O. No. 93 revoked the exemption;
and that finally in 1987 the framers of the Constitution "repudiated the
previous actions of the government adverse to the interests of the
cooperatives, that is, the repeated revocation of the tax exemption to
cooperatives and instead upheld the policy of strengthening the
cooperatives by way of the grant of tax exemptions.

Whether subjecting cooperatives to the VAT is unconstitutional.

No, subjecting cooperatives to the VAT is not unconstitutional.

In the first place, it is not true that P.D. No. 1955 singled out cooperatives by
withdrawing their exemption from income and sales taxes under P.D. No.
175, 5. What P.D. No. 1955, 1 did was to withdraw the exemptions and
preferential treatments theretofore granted to private business enterprises in
general, in view of the economic crisis which then beset the nation. The
withdrawal of tax incentives applied to all, including government and private
entities. In the second place, the Constitution does not really require that
cooperatives be granted tax exemptions in order to promote their growth
and viability. Hence, there is no basis for petitioner's assertion that the
government's policy toward cooperatives had been one of vacillation, as far
as the grant of tax privileges was concerned, and that it was to put an end to
this indecision that the constitutional provisions cited were adopted.
Perhaps as a matter of policy cooperatives should be granted tax
exemptions, but that is left to the discretion of Congress. If Congress does
not grant exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.

Indeed, CUP's theory amounts to saying that under the Constitution cooperatives
are exempt from taxation. Such theory is contrary to the Constitution under
which only the following are exempt from taxation: charitable institutions,
churches and parsonages, by reason of Art. VI, 28 (3), and non-stock, non-
profit educational institutions by reason of Art. XIV, 4 (3).

[G.R. No. 143867. August 22, 2001]
INC., petitioner, vs. CITY OF DAVAO and ADELAIDA B.
BARCELONA, in her capacity as the City Treasurer of
Davao, respondents.

TOPIC: Exemption from Taxation: Nature of tax exemption

PLDT paid a franchise tax equal to three percent (3%) of its gross receipts.
The franchise tax was paid in lieu of all taxes on this franchise or earnings
thereof pursuant to RA 7082. The exemption from all taxes on this
franchise or earnings thereof was subsequently withdrawn by RA 7160
(LGC), which at the same time gave local government units the power to tax
businesses enjoying a franchise on the basis of income received or earned by
them within their territorial jurisdiction. The LGC took effect on January 1,
The City of Davao enacted Ordinance No. 519, Series of 1992, which in
pertinent part provides: Notwithstanding any exemption granted by law or
other special laws, there is hereby imposed a tax on businesses enjoying a
franchise, a rate of seventy-five percent (75%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the income
receipts realized within the territorial jurisdiction of Davao City.
Subsequently, Congress granted in favor of Globe Mackay Cable and Radio
Corporation (Globe) and Smart Information Technologies, Inc. (Smart)
franchises which contained in leiu of all taxes provisos.
In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the
Philippines, Sec. 23 of which provides that any advantage, favor, privilege,
exemption, or immunity granted under existing franchises, or may hereafter
be granted, shall ipso facto become part of previously granted
telecommunications franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises. The law took effect on
March 16, 1995.
In January 1999, when PLDT applied for a mayors permit to operate its
Davao Metro exchange, it was required to pay the local franchise tax which
then had amounted to P3,681,985.72. PLDT challenged the power of the city
government to collect the local franchise tax and demanded a refund of what
had been paid as a local franchise tax for the year 1997 and for the first to the
third quarters of 1998.

Whether by virtue of RA 7925, Sec. 23, PLDT is again entitled to the
exemption from payment of the local franchise tax in view of the grant of tax
exemption to Globe and Smart.

Petitioner contends that because their existing franchises contain in lieu of
all taxes clauses, the same grant of tax exemption must be deemed to have
become ipso facto part of its previously granted telecommunications
franchise. But the rule is that tax exemptions should be granted only by a
clear and unequivocal provision of law expressed in a language too plain
to be mistaken and assuming for the nonce that the charters of Globe and
of Smart grant tax exemptions, then this runabout way of granting tax
exemption to PLDT is not a direct, clear and unequivocal way of
communicating the legislative intent.
Nor does the term exemption in Sec. 23 of RA 7925 mean tax exemption.
The term refers to exemption from regulations and requirements imposed
by the National Telecommunications Commission (NTC). For instance, RA
7925, Sec. 17 provides: The Commission shall exempt any specific
telecommunications service from its rate or tariff regulations if the service
has sufficient competition to ensure fair and reasonable rates of tariffs.
Another exemption granted by the law in line with its policy of deregulation
is the exemption from the requirement of securing permits from the NTC
every time a telecommunications company imports equipment.
Tax exemptions should be granted only by clear and unequivocal provision
of law on the basis of language too plain to be mistaken.

G.R. No. L-19707 August 17, 1967
APPEALS, respondents.

TOPIC: Exemption from Taxation: Nature of tax exemption

Philippine Acetylene Co., Inc. (PACI), engaged in the manufacture and sale
of oxygen and acetylene gases, made various sales of its products to the
National Power Corporation, an agency of the Philippine Government, and
to the Voice of America an agency of the United States Government. The
sales to the NPC amounted to P145,866.70, while those to the VOA
amounted to P1,683, on account of which the respondent Commission of
Internal Revenue assessed against, and demanded from, the petitioner the
payment of P12,910.60 as deficiency sales tax and surcharges, pursuant to
Sections 183 and 186 of the National Internal Revenue Code. The company
denied liability for the payment of the tax on the ground that both the
Napocor and the VOA are exempt from taxation. It asked for a
reconsideration of the assessment and, failing to secure one, appealed to the
Court of Tax Appeals. The CTA ruled that the tax on the sale of articles or
goods in section 186 of the Code is a tax on the manufacturer and not on the
buyer with the result that the Philippine Acetylene Company, the
manufacturer or producer of oxygen and acetylene gases sold to the
Napocor, cannot claim exemption from the payment of sales tax simply
because its buyer, Napocor, is exempt from the payment of all taxes. With
respect to the sales made to the VOA, the court held that goods purchased
by the American Government or its agencies from manufacturers or
producers are exempt from the payment of the sales tax under the agreement
between the Government of the Philippines and that of the United States,
provided the purchases are supported by certificates of exemption, and since
purchases amounting to only P558, out of a total of P1,683, were not covered
by certificates of exemption, only the sales in the sum of P558 were subject
to the payment of tax. Accordingly, the assessment was revised and the
companys liability was reduced from P12,910.60, as assessed by the
Commission, to P12,812.16. Hence, this appeal.

Whether PACI is exempt from paying tax on sales it madeto NPC and VOA
because both are exempt from taxation.

No, PACI is not exempt.

The tax imposed by section 186 of the National Internal Revenue Code is a
tax on the manufacturer or producer and not a tax on the purchaser except
probably in a very remote and inconsequential sense. Accordingly its levy
on the sales made to tax-exempt entities like the NPC is permissible. The
sales to the VOA are subject to the payment of percentage taxes under
section 186 of the Code. Only sales made "for exclusive use in the
construction, maintenance ,operation or defense of the bases," in a word,
only sales to the quartermaster, are exempt under article V from taxation.
Sales of goods to any other party even if it be an agency of the United States,
such as the VOA, or even to the quartermaster but for a different purpose,
are not free from the payment of the tax.

It may indeed be that the economic burden of the tax finally falls on the
purchaser; when it does the tax becomes a part of the price which the
purchaser must pay. It does not matter that an additional amount is billed
as tax to the purchaser. The method of listing the price and the tax separately
and defining taxable gross receipts as the amount received less the amount
of the tax added, merely avoids payment by the seller of a tax on the amount
of the tax. The effect is still the same, namely, that the purchaser does not
pay the tax. He pays or may pay the seller more for the goods because of the
seller's obligation, but that is all and the amount added because of the tax is
paid to get the goods and for nothing else. (Philippine Acetylene Co.
vs.Blaquera, GR L-13728, 1962). But the tax burden may not even be shifted
to the purchaser at all. A decision to absorb the burden of the tax is largely a
matter of economics. Then it can no longer be contended that a sales tax is a
tax on the purchaser.

[ GR NO. 166651, Dec 09, 2005 ]

TOPIC: Exemption from Taxation: Nature of tax exemption

President Corazon C. Aquino issued Proclamation No. 853 which excluded
certain portions of the land embraced in the Mt. Apo National Park and
declared the same as geothermal reservation under the administration of the
PNOC, now referred to as the MAGRA. Thereafter, PNOC-EDC built a 104-
megawatt power plant within the MAGRA which produces electricity
through turbines using steam extracted from the MAGRA as fuel.
Subsequently, the City Treasurer of Kidapawan, Cotabato notified PNOC-
EDC of its tax delinquency after which, he issued a warrant of levy on the
701-hectare MAGRA for failure to pay real property taxes, covering the tax
period from 1993-2002. He sent a notice of sale of delinquent real property
to PNOC-EDC declaring that delinquent real property will be sold through
public auction.
PNOC-EDC claimed that it was exempt from real property tax under Section
234, paragraph (a) of the Local Government Code which reads:
SECTION 234. Exemptions from Real Property Tax. " The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;"
The trial court found that PNOC-EDC is not exempt from paying the real
property taxes and that the MAGRA is part of the Mt. Apo National Park
which has not been re-classified as alienable agricultural land. Thus, it could
not be sold at public auction. However, the trial court ordered that the
improvements on the subject land, not being in the nature of public
dominion, may be validly levied and sold at public auction to satisfy the
payment of realty tax delinquencies.

Whether PNOC liable to pay real property taxes.


The exemption claimed by PNOC-EDC hinges on Section 234, paragraph (a)

of the LGC. The above provision exempts from real property taxation
properties of the government, provided the beneficial use of the property
was not transferred to a taxable person. Conversely, if the beneficial use has
been transferred to a taxable entity, such as PNOC-EDC, then the real
property owned by the government, which in this case is the MAGRA, is
subject to real property tax.
PNOC-EDC exclusively conducts geothermal operations in the area for
commercial utilization. It retains a profit in the amount of 40% of the net
value of the amount realized from the sale of geothermal resources. It is even
allowed to charge its operating expenses from the gross value of the sales.
The provisions of the service contract also show that it is the PNOC-EDC
which actually utilizes the MAGRA. Actual use refers to the purpose for
which the property is principally or predominantly utilized by the person in
possession thereof. In fact, under the provisions of the service contract,
PNOC-EDC must surrender possession of 25% of the MAGRA to the
government after the 3rd year and another 25% on the 5thyear, if the contract
is extended. Thus the PNOC-EDC is the beneficial user of the MAGRA and
is liable to pay the real property tax assessments.

G.R. No. L-39086 June 15, 1988
BORGONIA, petitioner,
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN
M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE,
Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO
MILLARE, respondents.

TOPIC: Laws granting tax exemption/tax incentives: Constitution

Abra Valley College, an educational corporation and institution of higher
learning duly incorporated with the Securities and Exchange Commission in
1948, filed a complaint in the court a quo to annul and declare void the
"Notice of Seizure' and the "Notice of Sale" (issued by treasurers Aquino and
Bosque) of its lot and building located at Bangued, Abra, for non-payment
of real estate taxes and penalties amounting to P5,140.31. The trial court
ruled for the government, holding that the second floor of the building is
being used by the director for residential purposes and that the ground floor
used and rented by Northern Marketing Corporation, a commercial
establishment, and thus the property is not being used exclusively for
educational purposes and not exempted from the payment of taxes.

Abra Valley College availed of the instant petition for review on certiorari,
contending that that the primary use of the lot and building for educational
purposes, and not the incidental use thereof, determines and exemption
from property taxes under Section 22 (3), Article VI of the 1935 Constitution.
Hence, the seizure and sale of subject college lot and building, which are
contrary thereto as well as to the provision of Commonwealth Act No. 470,
otherwise known as the Assessment Law, are without legal basis and
therefore void.

Whether the college lot and building of Abra Valley College are exempt from
property taxes.

Yes, the college lot and building are partially exempt from tax.

The exemption in favor of property used exclusively for charitable or

educational purposes is 'not limited to property actually indispensable'
therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which
are incidental to and reasonably necessary for the accomplishment of said
purposes, such as in the case of hospitals, "a school for training nurses, a
nurses' home, property use to provide housing facilities for interns, resident
doctors, superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns, and residents' (84 CJS 6621),
such as "Athletic fields" including "a firm used for the inmates of the

That exemption extends to facilities which are incidental to and reasonably

necessary for the accomplishment of the main purposes. Otherwise stated,
the use of the school building or lot for commercial purposes is neither
contemplated by law, nor by jurisprudence. Thus, while the use of the
second floor of the main building in the case at bar for residential purposes
of the Director and his family, may find justification under the concept of
incidental use, which is complimentary to the main or primary purpose
educational, the lease of the first floor thereof to the Northern Marketing
Corporation cannot by any stretch of the imagination be considered
incidental to the purpose of education.

In conclusion, the school building as well as the lot where it is built, should
be taxed, not because the second floor of the same is being used by the
Director and his family for residential purposes, but because the first floor
thereof is being used for commercial purposes. However, since only a
portion is used for purposes of commerce, it is only fair that half of the
assessed tax be returned to the school involved.

G.R. No. 124043 October 14, 1998
INC., respondents.

TOPIC: Construction of Statutes granting tax exemption: General rule

Young Men's Christian Association Of The Philippines, Inc.(YMCA) is a
non-stock, non-profit institution, which conducts various programs and
activities that are beneficial to the public, especially the young people,
pursuant to its religious, educational and charitable objectives.

YMCA earned income from leasing out a portion of its premises to small
shop owners, like restaurants and canteen operators, and from parking fees
collected from non-members. The Commissioner of Internal Revenue(CIR)
issued an assessment to YMCA for deficiency taxes which formally
protested the assessment. In reply, the CIR denied the claims of YMCA.

Whether the income derived from rentals of real property owned by YMCA
is subject to income tax

Yes, the rental income of the YMCA is taxable.

Because taxes are the lifeblood of the nation, the Court has always applied
the doctrine of strict in interpretation in construing tax exemptions
(Commissioner of Internal Revenue v. Court of Appeals, 271 SCRA 605, 613, April
18, 1997). Furthermore, a claim of statutory exemption from taxation should
be manifest and unmistakable from the language of the law on which it is
based. Thus, the claimed exemption must expressly be granted in a statute
stated in a language too clear to be mistaken (Davao Gulf Lumber Corporation
v. Commissioner of Internal Revenue and Court of Appeals, G.R. No. 117359, p. 15
July 23, 1998).

In the instant case, the exemption claimed by the YMCA is expressly

disallowed by the very wording of the last paragraph of then Section 27 of
the NIRC which mandates that the income of exempt organizations (such as
the YMCA) from any of their properties, real or personal, be subject to the
tax imposed by the same Code. Because the last paragraph of said section
unequivocally subjects to tax the rent income of the YMCA from its real
property, the Court is duty-bound to abide strictly by its literal meaning and
to refrain from resorting to any convoluted attempt at construction.

Verba legis non est recedendum. The law does not make a distinction. The rental
income is taxable regardless of whence such income is derived and how it is
used or disposed of. Where the law does not distinguish, neither should we.
A reading the last paragraph of Section 27 ineludibly shows that the income
from any property of exempt organizations, as well as that arising from any
activity it conducts for profit, is taxable. The phrase "any of their activities
conducted for profit" does not qualify the word "properties." This makes
from the property of the organization taxable, regardless of how that income
is used whether for profit or for lofty non-profit purposes.

YMCA also invokes Article XIV, Section 4, par. 3 of the Constitution,

claiming that it is a non-stock, non-profit educational institution whose
revenues and assets are used actually, directly and exclusively for
educational purposes so it is exempt from taxes on its properties and
income. This is without merit since the exemption provided lies on the
payment of property tax, and not on the income tax on the rentals of its
property. The bare allegation alone that one is a non-stock, non-profit
educational institution is insufficient to justify its exemption from the
payment of income tax.

For the YMCA to be granted the exemption it claims under the above
provision, it must prove with substantial evidence that (1) it falls under the
classification non-stock, non-profit educational institution; and (2) the
income it seeks to be exempted from taxation is used actually, directly, and
exclusively for educational purposes. Not a scintilla of evidence was
submitted to prove that it met the said requisites.

G.R. No. 108524 November 10, 1994
INC., petitioner,

TOPIC: Construction of Statutes granting tax exemption: General rule

Misamis Oriental Association of Coco Traders, Inc.(MOACTI) is a domestic
corporation whose members, individually or collectively, are engaged in the
buying and selling of copra in Misamis Oriental. On June 11, 1991,
respondent Commissioner of Internal Revenue issued the circular in
question, classifying copra as an agricultural non-food product and
declaring it "exempt from VAT only if the sale is made by the primary
producer pursuant to Section 103(a) of the Tax Code. The reclassification had
the effect of denying to the MOACTI the exemption it previously enjoyed.

Hence, MOACTI seeks to nullify Revenue Memorandum Circular No. 47-

91 and enjoin the collection by respondent revenue officials of the Value
Added Tax (VAT) on the sale of copra.

Whether copra is an agricultural non-food product for purposes of VAT

Yes, copra is an agricultural non-food product, its sale in its original state is
exempt from VAT only if the sale is made by the primary producer or owner
of the land from which the same is produced.

It is a rule that tax exemptions must be strictly construed against the

taxpayer and liberally in favor of the state. The Commissioner of Internal
Revenue(CIR) is given the power under 245 of the NIRC to "make rulings
or opinions in connection with the implementation of the provisions of
internal revenue laws, including rulings on the classification of articles for sales
tax and similar purposes."Hence, his opinion is entitled to great respect, in the
absence of any showing that it is plainly wrong.

Hence, the Revenue Memorandum Circular of the CIR, reclassifying copra

to non-food product is valid.

[G.R. No. 134114. July 6, 2001]

TOPIC: Construction of Statutes granting tax exemption: General rule

Nestle Philippines, Inc. transacted sixteen separate importations of milk and
milk products from different countries between the period of July and
November 1984. It paid the corresponding customs duties and advance sales
taxes to the Collector of Customs of Manila for each transaction based on the
published Home Consumption Value (HCV) as indicated in the Bureau of
Customs Revision Orders, but it seasonably filed the corresponding protests
before the said Collector of Customs. In the said protests, petitioner claimed
for the refund of the overpaid import duties and advance sales taxes alleging
that the Collector erroneously applied higher home consumption values in
determining the dutiable value for each of these separate importations.
The Court of Tax Appeals ruled in favor of the petitioner on the matter of
the advance sales taxes. However, the Collector of Customs failed to render
a decision on the sixteen protest cases for almost six years for the alleged
overpaid customs duties. In order to prevent the claims from becoming stale
on the ground of prescription, Nestle immediately filed a petition for review
with the Court of Tax Appeals (CTA). The CTA dismissed the said petition
for want of jurisdiction. The issue was raised to the Court of Appeals by way
of petition for review, but it was also dismissed for failure to exhaust
administrative remedies. Nestle contends that since the CTA ruled in its
favor for refund of the advance sales taxes, its claims for refund of overpaid
customs duties must likewise be granted and awarded in its favor.

Whether Nestle is entitled for refund of customs duties.

No, Nestle is not entitled for refund of customs duties.

Customs duties is the name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise imported from, or
exported to, a foreign country. Any claim for refund of customs duties,
therefore, take the nature of tax exemptions that must be
construed strictissimi juris against the claimants and liberally in favor of the
taxing authority. This power of taxation being a high prerogative of
sovereignty, its relinquishment is never presumed. Any reduction or
diminution thereof with respect to its mode or its rate must be strictly
construed, and the same must be couched in clear and unmistakable terms
in order that it may be applied.

The right to claim for refund of customs duties is specifically governed by

Section 1708 of the Tariff and Customs Code. It is clear from that provision
of the Tariff and Customs Code that in all claims for refund of customs duties,
the Collector to whom such customs duties are paid and upon receipt of such
claim is mandated to verify the same by the records of his Office. If such
claim is found correct and in accordance with law, the Collector shall
certify the same to the Commissioner with his recommendation together with
all the necessary papers and documents. This is precisely one of the reasons
why the Court of Appeals upheld the dismissal of the case on the ground
that the CTAs jurisdiction under the Tariff and Customs Code is not
concurrent with that of the respondent Commissioner of Customs due to the
absence of any certification from the Collector of Customs of
Manila. Accordingly, Nestles contention that its claims for refund of alleged
overpayment of customs duties may be deemed established from the
findings of the CTA on the Advance Sales Tax is not necessarily correct in
the light of the above-cited provision of the Tariff and Customs Code.

Any outright award for the refund of allegedly overpaid customs duties in
favor of petitioner on its subject sixteen (16) importations is not favored in
this jurisdiction unless there is a direct and clear finding thereon. The fact
alone that the CTA has awarded in favor of the petitioner the refund of
overpaid Advance Sales Tax involving the same sixteen (16) importations
does not in any way excuse the petitioner from proving its claims for refund
of alleged overpayment of customs duties. We have scrutinized the decision
rendered by the CTA and found no clear indication therein that the tax court
has ruled on petitioners claims for alleged overpayment of customs duties.

G.R. No. 88291 June 8, 1993
ERNESTO M. MACEDA, petitioner,
HON. CATALINO MACARAIG, JR., in his capacity as Executive
Secretary, Office of the President, HON. VICENTE JAYME, ETC., ET
AL., respondents.

TOPIC: Construction of Statutes granting tax exemption: Exceptions

Commonwealth Act 120 created NAPOCOR as a public corporation to
undertake the development of hydraulic power and the production of power
from other sources. RA 358 granted NAPOCOR tax and duty exemption
privileges. RA 6395 revised the charter of the NAPOCOR, tasking it to carry
out the policy of the national electrification and provided in detail
NAPOCORs tax exceptions. PD 380 specified that NAPOCORs exemption
includes all taxes, etc. imposed directly or indirectly. PD 938 dated May
27, 1976 further amended the aforesaid provision by integrating the tax
exemption in general terms under one paragraph.

Whether or not NPC has ceased to enjoy indirect tax and duty exemption
with the enactment of PD 938 on May 27, 1976 which amended PD 380 issued
on January 11, 1974

No, NAPOCOR is still exempt.

It is recognized that the rule on strict interpretation does not apply in the
case of exemptions in favor of government political subdivision or
instrumentality. In the case of property owned by the state or a city or other
public corporations, the express exception should not be construed with the
same degree of strictness that applies to exemptions contrary to the policy of
the state, since as to such property exception is the rule and taxation the

NAPOCOR is a non-profit public corporation created for the general good

and welfare, and wholly owned by the government of the Republic of the
Philippines. From the very beginning of the corporations existence,
NAPOCOR enjoyed preferential tax treatment to enable the corporation to
pay the indebtedness and obligation and effective implementation of the
policy enunciated in Section 1 of RA 6395.

From the preamble of PD 938, it is evident that the provisions of PD 938 were
not intended to be interpreted liberally so as to enhance the tax exempt status

G.R. No. 88291 June 8, 1993
ERNESTO M. MACEDA, petitioner,
HON. CATALINO MACARAIG, JR., in his capacity as Executive
Secretary, Office of the President, HON. VICENTE JAYME, ETC., ET
AL., respondents.

TOPIC: Sources of Tax Laws: Tax Treaties/International Agreements

Commonwealth Act No. 120 was enacted creating the National Power
Corporation, a public corporation, mainly to develop hydraulic power from
all water sources in the Philippines. The main source of funds for the NPC
was the flotation of bonds in the capital markets, and these bonds were made
exempt from the payment of all taxes. Republic Act No. 357 was enacted
authorizing the President of the Philippines to contract on behalf of the NPC
with the International Bank for Reconstruction and Development (IBRD) for
payment of any NPC loans and such loans shall be exempt from taxes. R.A.
No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD,
the President of the Philippines was authorized to negotiate, contract and
guarantee loans with the Export-Import Bank of of Washigton, D.C., U.S.A.,
or any other international financial institution. Several NPC laws followed.
Tax exemptions were withdrawn by P.D. No. 882, P.D. 1177, and P.D. No.
1931. Then, E.O. No. 93 (S86) was issued, clarifying that all tax and duty
incentives granted to government and private entities are hereby
withdrawn, except:b) those conferred by effective internation agreement
to which the Government of the Republic of the Philippines is a signatory;
Senator Ernesto Maceda seeks to nullify certain decisions, orders, rulings,
and resolutions of respondents Executive Secretary, Secretary of Finance,
Commissioner of Internal Revenue, Commissioner of Customs and the
Fiscal Incentives Review Board FIRB for exempting the National Power
Corporation (NPC) from indirect tax and duties.

Whether NAPOCOR is tax exempt.

Yes, NAPOCOR is tax exempt.

One common theme in all these laws is that the NPC must be enable to pay
its indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total
domestic indebtedness, at any one time, and U$4 Billion in total foreign loans
at any one time. The NPC must be and has to be exempt from all forms of
taxes if this goal is to be achieved.

A chronological review of the NPC laws will show that it has been the
lawmaker's intention that the NPC was to be completely tax exempt from all
forms of taxes direct and indirect.
NPC's tax exemptions at first applied to the bonds it was authorized to float
to finance its operations upon its creation by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD for foreign
financing, any loans obtained were to be completely tax exempt.
After the NPC was authorized to borrow from other sources of funds
aside issuance of bonds it was again specifically exempted from all types
of taxes "to facilitate payment of its indebtedness." Even when the ceilings
for domestic and foreign borrowings were periodically increased, the tax
exemption privileges of the NPC were maintained.
NPC's tax exemption from real estate taxes was, however, specifically
withdrawn by Rep. Act No. 987, as above stated. The exemption was,
however, restored by R.A. No. 6395.

[G.R. No. 117982. February 6, 1997]
INC., respondents.

TOPIC: Sources of Tax Laws: Revenue Rules and

Regulations/Administrative/BIR Rulings and Opinions
Alhambra Industries, Inc., a domestic corporation engaged in the
manufacture and sale of cigar and cigarette products, received a letter
dated 26 April 1991 from the Commissioner of Internal Revenue(CIR)
assessing it deficiency Ad Valorem Tax (AVT) for the period 2 November
1990 to 22 January 1991. The deficiency resulted from two BIR Rulings: : (1)
BIR Ruling 473-88 dated 4 October 1988 which excluded the VAT from
the tax base in computing the fifteen percent (15%) excise tax due; and, (2)
BIR Ruling 017-91 dated 11 February 1991 which included back the VAT in
computing the tax base for purposes of the fifteen percent (15%) ad valorem
tax. Alhambra filed a protest which was denied by the CIR the same time
requesting payment of the revised amount of P 520,835.29 which Alhambra
paid under protest. On appeal to the Court of Tax Appeals(CTA), it ruled in
favor of Alhambra, ordering the CIR to refund to private respondent the
amount of P 520,835.29. The CTA disallowed the retroactive application of
the second BIR Ruling because Alhambra did not act in bad faith in
excluding the VAT from the tax base in computing the AVT.
Whether Alhambra's reliance on a revoked BIR ruling conferred to it a
vested right to apply the same in the computation of its ad valorem tax and
claim for tax refund; whether the new ruling should be given retroactive
effect thus, in effect revoking the tax exemption given to the Alhambra in the
first BIR ruling

Yes, in the absence of bad faith, Alhambra can claim for a tax refund.

Retroactive application of the revocation of BIR rulings, in the absence of bad

faith on the part of the taxpayer, is prohibited.

Rulings and circulars, rules and regulations promulgated by the

Commissioner of Internal Revenue would have no retroactive application if
to so apply them would be prejudicial to the taxpayers. Except in the
following cases : a) where the taxpayer deliberately misstates or omits
material facts from his return or in any document required of him by the
Bureau of Internal Revenue; b) where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different from the facts on which
the ruling is based; or c) where the taxpayer acted in bad faith.

There is no convincing evidence that Alhambras implementation of the

computation mandated by BIR Ruling 473-88 was ill-motivated or attended
with a dishonest purpose. To the contrary, as a sign of good faith, private
respondent immediately reverted to the computation mandated by BIR
Ruling 017-91 upon knowledge of its issuance on 11 February 1991.

Hence, the petition is denied and the CIR is ordered to refund Alhambra
Industries, Inc., the amount of p520,835.29

G.R. No. 109289 October 3, 1994
RUFINO R. TAN, petitioner,

G.R. No. 109446 October 3, 1994

JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners,
FINANCE and JOSE U. ONG, in his capacity as COMMISSIONER OF
INTERNAL REVENUE, respondents.

TOPIC: Sources of Tax Laws: Validity of Revenue Rules and Regulations

In G.R. No. 109446, Carag, Caballes, Jamora And Somera Law Offices, et al.
Assails the validity of Section 6, Revenue Regulations No. 2-93, promulgated
by the Secretary of Finance(SOF) pursuant to Republic Act No. 7496, also
commonly known as the Simplified Net Income Taxation Scheme ("SNIT"),
amending certain provisions of the National Internal Revenue Code. The
assailed provision included general professional partnerships(GPP) and the
partner comprising the GPP in the coverage of SNIT. They contend that the
SOF and the Commissioner of Internal Revenue(CIR) exceeded their rule-
making authority in applying SNIT to general professional partnerships.

Whether the SOF and CIR exceeded their rule-making authority in applying
SNIT to general professional partnerships.

No, the SOF and CIR exceeded their rule-making authority in applying SNIT
to general professional partnerships.

There is 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.

Partnerships are, under the NIRC, either "taxable partnerships" or "exempt

partnerships. A general professional partnership is an exempt
partnership. Here, 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. A general professional partnership, is not like an
ordinary business partnership which is treated as a corporation for income
tax purposes and so subject to the corporate income tax). 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 6 of Revenue Regulation No. 2-93 did not alter, but merely
confirmed, the above standing rule as now so modified by SNIT 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.

Hence, the petition is dismissed.

G.R. No. 108358 January 20, 1995
APPEALS, respondents.

TOPIC: Sources of Tax Laws: Validity os Revenue Rules and Regulations

The Commissioner of Internal Revenue(CIR) assessed R.O.H. Auto Products
Philippines, Inc. (RAPPI) a deficiency income and business taxes for its fiscal
years ended 30 September 1981 and 30 September 1982 in an aggregate
amount of P1,410,157.71. After the promulgation of Executive Order No. 41
(declaring a one-time tax amnesty on unpaid income taxes, later amended to
include estate and donor's taxes and taxes on business, for the taxable years
1981 to 1985), RAPPI availed itself of the amnesty and asked the CIR for the
cancellation of the deficiency tax notice. The CIR denied the request on the
ground that Revenue Memorandum Order No. 4-87, dated 09 February 1987,
implementing Executive Order No. 41, had construed the amnesty coverage
to include only assessments issued by the Bureau of Internal Revenue after
the promulgation of the executive order on 22 August 1986 and not to
assessments theretofore made. On appeal, the Court of Tax Appeals(CTA)
ruled in favor of RAPPI, affirmed by the Court of Appeals(CA).

Whether Revenue Memorandum Order no. 4-87, promulgated to implement
e.o. no. 41, is valid, thereby excepting RAPPI to avail of the tax amnesty.

No, Revenue Memorandum Order no. 4-87 is not valid.

The authority of the Minister of Finance (now the Secretary of Finance), in

conjunction with the Commissioner of Internal Revenue, to promulgate all
needful rules and regulations for the effective enforcement of internal
revenue laws cannot be controverted. Neither can it be disputed that such
rules and regulations, as well as administrative opinions and rulings,
ordinarily should deserve weight and respect by the courts. Much more
fundamental than either of the above, however, is that all such issuances
must not override, but must remain consistent and in harmony with, the law
they seek to apply and implement. Administrative rules and regulations are
intended to carry out, neither to supplant nor to modify, the law.

The plain provisions in the E.O. No. 41 granting tax amnesty for unpaid taxes
for the period January 1, 1981 to December 31, 1985 shifted the burden of
proof on the CIR to show how the issuance of an assessment before the date
of the promulgation of the executive order could have a reasonable relation
with the objective periods of the amnesty, so as to make RAPPI still
answerable for a tax liability which, through the statute, should have been
erased with the proper availment of the amnesty. The CIR failed to present
any case or law which proves that an assessment can withstand or negate
the force and effects of a tax amnesty. Neither does RAPPI fall under any of
the taxpayers who may not avail of the amnesty granted as enumerated
under Section 4 of E.O. No. 41. The added exception urged by petitioner
Commissioner based on Revenue Memorandum Order No. 4-87, further
restricting the scope of the amnesty clearly amounts to an act of
administrative legislation quite contrary to the mandate of the law which the
regulation ought to implement.

It might not be amiss to recall that the taxable periods covered by the
amnesty include the years immediately preceding the 1986 revolution
during which time there had been persistent calls, all too vivid to be easily
forgotten, for civil disobedience, most particularly in the payment of taxes,
to the martial law regime. It should be understandable then that those who
ultimately took over the reigns of government following the successful
revolution would promptly provide for abroad, and not a confined, tax

[G.R. No. 90107. August 21, 1992.]

DOMINGO A. TUZON and LOPE C. MAPAGU, Petitioners, v.

JURADO, Respondents.

TOPIC: Sources of Tax Laws: Effectivity and Validity of Tax Ordinance

The Sangguniang Bayan of Camalaniugan, Cagayan, unanimously adopted
Resolution No. 9, soliciting 1% donation, from the thresher operators who
will apply for a permit to thresh, of all the palay threshed by them to help
finance the continuation of the construction of the Sports and Nutrition
Center Building. When Saturnino Jurado, owner of a palay-threshing
business, paid his license fee, Municipal Treasurer Lope Mapagu refused to
accept payment and required him to first secure a mayors permit. However,
Mayor Domingo Tuzon refused to issue mayors permit on the ground that
Jurado failed to comply with Resolution No. 9 and sign the agreement to
donate 1% of all palay threshed by his business.

Jurado then filed a special civil action for mandamus with actual and moral
damages to compel the issuance of the mayors permit and license and a
petition to declare Resolution No. 9 illegal. The trial court upheld Resolution
No. 9. On appeal, the Court of Appeals(CA) affirmed but found Tuzon and
Mapagu to have acted maliciously and in bad faith as Resolution No. 9 is not
mandatory despite its validity.

Jurado assails Resolution No. 9 and the implementing agreement for

compelling the thresher to donate something which he does not yet own. He
also claims that the measure contravenes the limitations on the taxing
powers of local government units under Section 5, of the Local Tax Code.

Whether Resolution No. 9 is mandatory.

No, Resolution No.9 is not mandatory.

It is a valid exercise of legislative power under Article XI, Section 5 of the

1973 Constitution which provided that: "Each local government unit shall
have the power to create (sic) its own source of revenue and to levy taxes,
subject to such limitation as may be provided by law. However, it is not

While it would appear from the wording of the resolution that the municipal
government merely intends to "solicit" the 1% contribution from the
threshers, the implementing agreement seems to make the donation
obligatory and a condition precedent to the issuance of the mayors permit.
This goes against the nature of a donation, which is an act of liberality and
is never obligatory.

If, on the other hand, it is to be considered a tax ordinance, then it must be

shown in view of the challenge raised by the private respondents to have
been enacted in accordance with the requirements of the Local Tax Code.
These would include the holding of a public hearing on the measure and its
subsequent approval by the Secretary of Finance, in addition to the usual
requisites for publication of ordinances in general.

On the matter of damages, it has been held that an erroneous interpretation

of an ordinance does not constitute nor does it amount to bad faith that
would entitle an aggrieved party to an award for damages. (Philippine
Match Co. Ltd. v. City of Cebu, 81 SCRA 99).
[G.R. No. 137621. February 6, 2002]

TOPIC: Sources of Tax Laws: Effectivity and Validity of Tax Ordinance

The Sangguniang Bayan of Hagonoy, Bulacan, enacted an ordinance,
Kautusan Blg. 28, which increased the stall rentals of the market vendors in
Hagonoy. Article 3 provided that it shall take effect upon approval. The
subject ordinance was posted from November 4-25, 1996.
In the last week of November, 1997, the Hagonoy Market Vendor
Association (HMVA) members were personally given copies of the
approved Ordinance and were informed that it shall be enforced in January,
1998. On December 8, 1997, the HMVA President filed an appeal with the
Secretary of Justice assailing the constitutionality of the tax ordinance.
HMVA claimed it was unaware of the approval and effectivity of the subject
ordinance in 1996 on two (2) grounds: first, no public hearing was conducted
prior to the passage of the ordinance and, second, the approved ordinance
was not posted.

The Secretary of Justice dismissed the appeal on the ground that it was filed
out of time, i.e., beyond thirty (30) days from the effectivity of the Ordinance
on October 1, 1996, as prescribed under Section 187 of the 1991 Local
Government Code. The Court of Appeals dismissed the petition for review.

Whether Kautusan Blg. 28 is valid.

Yes, Kautusan Blg. 28 is valid.

Public hearings are conducted by legislative bodies to allow interested

parties to ventilate their views on a proposed law or ordinance. These views,
however, are not binding on the legislative body and it is not compelled by
law to adopt the same. Sanggunian members are elected by the people to
make laws that will promote the general interest of their constituents. They
are mandated to use their discretion and best judgment in serving the
people. Parties who participate in public hearings to give their opinions on
a proposed ordinance should not expect that their views would be
patronized by their lawmakers. In HMVAs two (2) communications with
the Secretary of Justice, it enumerated the various objections raised by its
members before the passage of the ordinance in several meetings called by
the Sanggunian for the purpose. These show beyond doubt that petitioner
was aware of the proposed increase and in fact participated in the public
hearings therefor.

On the issue of publication or posting, Section 188 of the Local

Government Code provides:
Section 188. Publication of Tax Ordinance and Revenue Measures. Within ten
(10) days after their approval, certified true copies of all provincial, city, and
municipal tax ordinances or revenue measures shall be published in full for
three (3) consecutive days in a newspaper of local circulation; Provided,
however, That in provinces, cities and municipalities where there are no
newspapers of local circulation, the same may be posted in at least two (2)
conspicuous and publicly accessible places.

The Ordinance was posted during the period from November 4 - 25, 1996 in
three (3) public places, viz: in front of the municipal building, at the bulletin
board of the Sta. Ana Parish Church and on the front door of the Office of
the Market Master in the public market. Posting was validly made in lieu of
publication as there was no newspaper of local circulation in the
municipality of Hagonoy.

Given the foregoing circumstances, petitioner cannot validly claim lack of

knowledge of the approved ordinance. The filing of its appeal a year after
the effectivity of the subject ordinance is fatal to its cause. Hence, the petition
is dismissed.

[G.R. No. 118900. February 27, 2003]
ERNA ALIPOSA, in her capacity as Presiding Judge of Branch 150 of the
Makati Regional Trial Court, CITY (previously Municipality) OF
MAKATI and ROLANDO M. CARLOS, in his capacity as Acting
Treasurer of Makati, respondents.

TOPIC: Sources of Tax Laws: Effectivity and Validity of Tax Ordinance

The Sangguniang Bayan of Makati enacted Municipal Ordinance No. 92-072,
otherwise known as the Makati Revenue Code, which provides, inter alia, for
the schedule of real estate, business and franchise taxes in the Municipality
of Makati at rates higher than those in the Metro Manila Revenue Code. The
ordinance was declared null and void by the DOJ after an appeal for its
nullification was filed. While the case is pending before RTC Makati, the city
continued to implement the ordinance and assessed Jardine Davies
Insurance Brokers, Inc. (JDIBI) taxes fees and charges under the ordinance,
which the latter paid. However, JDIBI wrote the municipal treasurer of
Makati to compute its business tax liabilities in accordance with the Metro
Manila Revenue Code and not under the ordinance considering that said
ordinance was already declared by the DOJ null and void and likewise asked
for tax credit. The request was denied, hence, JDIBI filed a complaint with
the RTC Makati for the declaration of the municipal ordinance as void. The
RTC dismissed the case on the ground of prescription for failure to protest
within 60 days from the notice of assessment. Hence, this petition.

JDMI avers that its action was one for a refund of its overpayments and not
one involving an assessment for deficiency taxes requiring the filing of

Whether JDIBI can still assail the validity of the ordinance.

No, JDIBIs action to assail the validity of the ordinance has already
As a general precept, a taxpayer may file a complaint assailing the validity
of the ordinance and praying for a refund of its perceived overpayments
without first filing a protest to the payment of taxes due under the ordinance.
However, the law requires that the dissatisfied taxpayer who questions the
validity or legality of a tax ordinance must file his appeal to the Secretary of
Justice, within 30 days from effectivity thereof. In case the Secretary decides
the appeal, a period also of 30 days is allowed for an aggrieved party to go
to court. But if the Secretary does not act thereon, after the lapse of 60 days,
a party could already proceed to seek relief in court. These three separate
periods are clearly given for compliance as a prerequisite before seeking
redress in a competent court. Such statutory periods are set to prevent delays
as well as enhance the orderly and speedy discharge of judicial functions.
For this reason the courts construe these provisions of statutes as mandatory.
A municipal tax ordinance empowers a local government unit to impose
taxes. The power to tax is the most effective instrument to raise needed
revenues to finance and support the myriad activities of local government
units for the delivery of basic services essential to the promotion of the
general welfare and enhancement of peace, progress, and prosperity of the
people. Consequently, any delay in implementing tax measures would be to
the detriment of the public. It is for this reason that protests over tax
ordinances are required to be done within certain time frames.

JDIBI is proscribed from filing its complaint with the RTC of Makati for the
reason that it failed to appeal to the Secretary of Justice within 30 days from
the effectivity date of the ordinance as mandated by Section 187 of the Local
Government Code.

[G.R. No. L-9408. October 31, 1956.]

TOPIC: Interpretation/Application of Tax Laws:Nature of Internal Revenue

Hilado claimed in his 1951 income tax return the deduction of the sum of
P12,837.65 as a loss consisting in a portion of his war damage claim which
had been duly approved by the Philippine War Damage Commission under
the Philippine Rehabilitation Act of 1946 but which was not paid and never
has been paid pursuant to a notice served upon him by said Commission
that said part of his claim will not be paid until the United States Congress
should make further appropriation. He claims that said amount of
P12,837.65 represents a ''business asset" within the meaning of said Act
which he is entitled to deduct as a loss in his return for 1951.

On August 30, 1952, the Secretary of Finance, through the Collector of

Internal Revenue, issued General Circular No. V-139 which not only revoked
and declared void his general Circular No. V-123 but laid down the rule that
losses of property which occurred during the period of World War II from
fires, storms, shipwreck or other casualty, or from robbery, theft, or
embezzlement are deductible in the year of actual loss or destruction of said
property. As a consequence, the amount of P12,837.65 was disallowed as a
deduction from the gross income of Hilado for 1951.

Hilado contends that during the last war and as a consequence of enemy
occupation in the Philippines "there was no taxable year" within the meaning
of our internal revenue laws because during that period they were

Whether Hilado is entitled to deduct his war damage claim from his 1951
gross income.

No, Hilado cannot deduct his war damage claim for the year 1951.

Section 30 (d) of the National Internal Revenue Code prescribes that losses
sustained are allowable as deduction only within the corresponding taxable
year. It is well known that our internal revenue laws are not political in
nature and as such were continued in force during the period of enemy
occupation and in effect were actually enforced by the occupation
government. As a matter of fact, income tax returns were filed during that
period and income tax payment were effected and considered valid and
legal. Such tax laws are deemed to be the laws of the occupied territory and
not of the occupying enemy.

"Furthermore, it is a legal maxim, that excepting that of a political nature,

'Law once established continues until changed by some competent
legislative power. It is not changed merely by change of sovereignty.' (Joseph
H. Beale, Cases on Conflict of Laws, III, Summary section 9, citing
Commonwealth vs. Chapman, 13 Met., 68.) As the same author says, in his
Treatise on the Conflict of Laws (Cambridge, 1916, section 131): 'There can
be no break or interregnun in law. From the time the law comes into
existence with the first-felt corporateness of a primitive people it must last
until the final disappearance of human society. Once created, it persists until
a change takes place, and when changed it continues in such changed
condition until the next change and so forever. Conquest or colonization is
impotent to bring law to an end; inspite of change of constitution, the law
continues unchanged until the new sovereign by legislative act creates a
change.'" (Co Kim Chan vs. Valdez Tan Keh and Dizon, 75 Phil., 113, 142-

Hence, war damage claims are still deductible for income tax purposes in
the year of actual destruction of said property.

G.R. No. L-43082 June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased,
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-

TOPIC: Interpretation/Application of Tax Laws: Construction of Tax Laws:

Rule when Legislative Intent is Clear

Pablo Lorenzo was appointed as trustee of the estate of Thomas Hanley.
During his incumbency as trustee, the Collector of Internal Revenue,
alleging that the estate left by the deceased at the time of his death consisted
of realty valued at P27,920 and personalty valued at P1,465, and allowing a
deduction of P480.81, assessed against the estate an inheritance tax in the
amount of P1,434.24 which, together with the penalties for deliquency in
payment. He paid the amounts under protest.

Whether the provisions of Act No. 3606 favorable to the tax-payer be given
retroactive effect.

No, Act No. 3606 should not be given retroactive effect.

The Collector of Internal Revenue levied and assessed the inheritance tax
due from the estate of Thomas Hanley under the provisions of section 1544
of the Revised Administrative Code, as amended by section 3 of Act No.
3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was
not the law in force when the testator died on May 27, 1922. The law at the
time was section 1544 above-mentioned, as amended by Act No. 3031, which
took effect on March 9, 1922.
It is well-settled that inheritance taxation is governed by the statute in force
at the time of the death of the decedent. The taxpayer can not foresee and
ought not to be required to guess the outcome of pending measures. Of
course, a tax statute may be made retroactive in its operation. Liability for
taxes under retroactive legislation has been "one of the incidents of social
life." But legislative intent that a tax statute should operate retroactively
should be perfectly clear. "A statute should be considered as prospective in
its operation, whether it enacts, amends, or repeals an inheritance tax, unless
the language of the statute clearly demands or expresses that it shall have a
retroactive effect, . . . ." Though the last paragraph of section 5 of Regulations
No. 65 of the Department of Finance makes section 3 of Act No. 3606,
amending section 1544 of the Revised Administrative Code, applicable to all
estates the inheritance taxes due from which have not been paid, Act No.
3606 itself contains no provisions indicating legislative intent to give it
retroactive effect. No such effect can be given the statute by this court.
G.R. No. 104037 May 29, 1992
REYNALDO V. UMALI, petitioner,
HON. JESUS P. ESTANISLAO, Secretary of Finance, and HON. JOSE U.
ONG, Commissioner of Internal Revenue, respondents.

TOPIC: Interpretation/Application of Tax Laws: Construction of Tax Laws:

Rule when Legislative Intent is Clear

Congress enacted Rep. Act 7167, entitled "AN ACT ADJUSTING THE BASIC
said act was signed and approved by the President on 19 December 1991 and
published on 14 January 1992 in "Malaya" a newspaper of general

On 26 December 1991, respondents promulgated Revenue Regulations No.

1-92 prescribing the effectivity of the regulation on compensation income
from January 1, 1992.

These are consolidated petitions for mandamus and prohibition to compel

the Secretary of Finance and Commissioner of Internal Revenue to
implement Rep. Act 7167 with respect to taxable income of individual
taxpayers earned or received on or after 1 January 1991 or as of taxable year
ending 31 December 1991.

Whether Rep. Act 7167 took effect upon its approval by the President on 19
December 1991, or on 30 January 1992, i.e., after fifteen (15) days following
its publication on 14 January 1992 in the "Malaya" a newspaper of general
circulation; whether it covers or applies to compensation income earned or
received during calendar year 1991.

Rep. Act 7167 took effect on 30 January 1992, which is after fifteen (15) days
following its publication on 14 January 1992 in the "Malaya."

In the case of Tanada vs. Tuvera (L-63915, December 29, 1986, 146 SCRA 446,
452) we construed Article 2 of the Civil Code and laid down the rule:
. . .: the) clause "unless it is otherwise provided" refers to the date of
effectivity and not to the requirement of publication itself, which cannot in
any event be omitted. This clause does not mean that the legislator may
make the law effective immediately upon approval, or on any other date
without its previous publication.
Publication is indispensable in every case, but the legislature may in its
discretion provide that the usual fifteen-day period shall be shortened or

On the matter of coverage, Rep. Act 7167 should cover or extend to

compensation income earned or received during calendar year 1991.

Rep. Act 7167 says that the increased personal exemptions that it provides
for shall be available thenceforth, that is, after Rep. Act 7167 shall have
become effective. In other words, these exemptions are available upon the
filing of personal income tax returns which is, under the National Internal
Revenue Code, done not later than the 15th day of April after the end of a
calendar year. Thus, under Rep. Act 7167, which became effective, as
aforestated, on 30 January 1992, the increased exemptions are literally
available on or before 15 April 1992 (though not before 30 January 1992). But
these increased exemptions can be available on 15 April 1992 only in respect
of compensation income earned or received during the calendar year 1991.

The personal exemptions as increased by Rep. Act 7167 cannot be regarded

as available only in respect of compensation income received during 1992, as
the implementing Revenue Regulations No. 1-92 purport to provide.
Revenue Regulations No. 1-92 would in effect postpone the availability of
the increased exemptions to 1 January-15 April 1993, and thus literally defer
the effectivity of Rep. Act 7167 to 1 January 1993. Thus, the implementing
regulations collide frontally with Section 3 of Rep. Act 7167 which states that
the statute "shall take effect upon its approval.

Hence, Sections 1, 3 and 5 of Revenue Regulations No. 1-92 which provide

that the regulations shall take effect on compensation income earned or
received from 1 January 1992 are SET ASIDE. They should take effect on
compensation income earned or received from 1 January 1991.