1.

CIR v Algue

Facts: Private respondent corporation Algue Inc. filed its income tax returns for 1958 and
1959showing deductions, for promotional fees paid, from their gross income, thus lowering their
taxable income. The BIR assessed Algue based on such deductions contending that the claimed
deduction is disallowed because it was not an ordinary, reasonable and necessary expense.

Issue: Should an uncommon business expense be disallowed as a proper deduction in

computation of income taxes, corollary to the doctrine that taxes are the lifeblood of the
government?

Held: No. Private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.

It is well-settled that taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance On the other hand, such collection should be made in accordance with
law as any arbitrariness will negate the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so
that the real purpose of taxation, which is the promotion of the common good, may be achieved.

2. Mactan Cebu v Marcos

Facts: Petitioner was created by virtue of RA 6958. Section 1 thereof states that the authority
shall be exempt from realty taxes imposed by the National Government or any of its political
subdivisions, agencies and instrumentalities. However, the Treasurer of Cebu City demanded
payment for realty taxes from petitioner. Petitioner filed a declaratory relief before the Regional
Trial Court. The trial court dismissed the petitioner ruling that the Local Government Code
withdrew the tax exemption granted to Government owned and controlled corporation.

Issue: Whether the city of Cebu has the power to impose taxes on petitioner

Ruling: Yes. Taxation is the rule and exemption is the exception, the exemption may thus be
withdrawn at the pleasure of the taxing authority. As to tax exemptions or incentives granted to or
presently enjoyed by natural or juridical persons, including government- owned and controlled
corporations, section 193 of the LGC prescribes the general rule, viz, they are withdrawn upon
the effectivity of the LGC, except those granted to local water districts, cooperatives, duly
registered under RA 6938, non stock and nonprofit hospitals and educational institutions and
unless otherwise provided in the LGC.

3. PPI v Fertiphil

Facts: Petitioner PPI and private respondent Fertiphil are both engaged in the importation and
distribution of fertilizers, pesticides and agricultural chemicals. President Marcos issued LOI 1465
which provides: The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer
pricing formula a capital contribution component of not less than P10 per bag. This capital
contribution shall be collected until adequate capital is raised to make PPI viable. Such capital
contribution shall be applied by FPA to all domestic sales of fertilizers in the Philippines. Fertiphil
paid P10 for every bag of fertilizer it sold in the domestic market to the Fertilizer and Pesticide
Authority (FPA). FPA then remitted the amount collected to the Far East Bank and Trust
Company, the depositary bank of PPI.
 After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the
return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI No.
1465, but PPI refused to accede to the demand.

Held: The P10 levy is unconstitutional because it was not for a public purpose. The levy was
imposed to give undue benefit to PPI.
An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a
public purpose. They cannot be used for purely private purposes or for the exclusive benefit of
private persons. The reason for this is simple. The power to tax exists for the general welfare;
hence, implicit in its power is the limitation that it should be used only for a public purpose.

The levy was used to pay the corporate debts of PPI.

4. Maceda v Macaraig

5. Petron v Pililla

6. Pepsi v Mun. of Tanauan

7. FELS Energy v Province of Batangas

Facts: NPC entered into a lease contract with Polar over power barges with the agreement that
NPC shall be responsible for real estate taxes. Polar assigned its rights to FELS. August 1995,
FELS received an assessment of real property taxes on the barges. FELS referred the matter to
NPC reminding it of its obligation under the agreement to pay the real estate taxes.
August 1995, FELS received an assessment of real property taxes on the barges. FELS referred
the matter to NPC reminding it of its obligation under the agreement to pay the real estate taxes.

Held: Power barges are real property subject to tax pursuant to Art. 415 (9) of the Civil Code:
"[d]ocks and structures which, though floating, are intended by their nature and object to remain
at a fixed place on a river, lake, or coast" are considered immovable property
FELS is the owner of taxable properties. The exeption granted by Sec. 234 (c) of RA 7160 to
GOCCs engaged in the supply, generation, and transmission of electric power does not extend to
FELS. The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall
be responsible for the payment of all real estate taxes and assessments, does not justify the
exemption. The covenant is between FELS and NPC and does not bind a third person not privy
thereto, in this case, the Province of Batangas.
Taxation is the rule and exemption is the exception.55 The law does not look with favor on tax
exemptions and the entity that would seek to be thus privileged must justify it by words too plain
to be mistaken and too categorical to be misinterpreted.

8. Petron v Tiangco

Facts: Petron maintains a depot or bulk plant at the Navotas Fishport Complex in Navotas.
Through that depot, it has engaged in the selling of diesel fuels to vessels used in commercial
fishing in and around Manila Bay.[1] Petron received a letter from the office of Navotas Mayor,
respondent Toby Tiangco, wherein the corporation was assessed taxes relative to the figures
covering sale of diesel declared by your Navotas Terminal from 1997 to 2001.

Issue: Whether or not a local government unit is empowered under the Local Government Code
(the LGC) to impose business taxes on persons or entities engaged in the sale of petroleum
products.

Held: Section 133(h) of the LGC reads as follows:

 Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and Barangays shall not extend to the levy of the following:

(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as
amended, and taxes, fees or charges on petroleum products;

Section 133(h) provides two kinds of taxes which cannot be imposed by local government units:
excise taxes on articles enumerated under the NIRC, as amended; and taxes, fees or charges on
petroleum products. There is no doubt that among the excise taxes on articles enumerated under
the NIRC are those levied on petroleum products, per Section 148 of the NIRC.

With regard to the first prohibition, it only pertains to tax on the specific article and not on the
performance, carrying on or the exercise of activity. In other words, it does not pertain to business
taxes on petroleum. However, the second prohibition, covers the entirety of petroleum product. It
clearly provides that the prohibition is not only with respect to a specific article (petroleum) but
extends to all taxes, fees and charges. In other words, it extends to business taxes.

9. City Govt of Quezon v Bayantel

Facts: Respondent Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder

under Republic Act (R.A.) No. 3259 (1961) to establish and operate radio stations for domestic
telecommunications, radiophone, broadcasting and telecasting. Section 14 (a) of R.A. No. 3259
states: “The grantee shall be liable to pay the same taxes on its real estate, buildings and
personal property, exclusive of the franchise, xxx”. In 1992, R.A. No. 7160, otherwise known as the
“Local Government Code of 1991” (LGC) took effect. Section 232 of the Code grants local
government units within the Metro Manila Area the power to levy tax on real properties. Barely few
months after the LGC took effect, Congress enacted R.A. No. 7633, amending Bayantel’s original
franchise. The Section 11 of the amendatory contained the following tax provision: “The grantee,
its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and
personal property, exclusive of this franchise, xxx“. In 1993, the government of Quezon City
enacted an ordinance otherwise known as the Quezon City Revenue Code withdrawing tax
exemption privileges.

Issue: Whether or not Bayantel’s real properties in Quezon City are exempt from real property taxes
under its franchise.

Held: YES. A clash between the inherent taxing power of the legislature, which necessarily includes
the power to exempt, and the local government’s delegated power to tax under the aegis of the
1987 Constitution must be ruled in favor of the former. The grant of taxing powers to LGUs
under the Constitution and the LGC does not affect the power of Congress to grant exemptions to
certain persons, pursuant to a declared national policy. The legal effect of the constitutional grant
to local governments simply means that in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal corporations.

The legislative intent expressed in the phrase “exclusive of this franchise” cannot be construed
other than distinguishing between two (2) sets of properties, be they real or personal, owned by the
franchisee, namely, (a) those actually, directly and exclusively used in its radio or
telecommunications business, and (b) those properties which are not so used. It is worthy to note
that the properties subject of the present controversy are only those which are admittedly falling
under the first category.

Since R. A. No. 7633 was enacted subsequent to the LGC, perfectly aware that the LGC has
already withdrawn Bayantel’s former exemption from realty taxes, the Congress using, Section 11
thereof with exactly the same defining phrase “exclusive of this franchise” is the basis for Bayantel’s
 exemption from realty taxes prior to the LGC. In plain language, the Court views this subsequent
piece of legislation as an express and real intention on the part of Congress to once again remove
from the LGC’s delegated taxing power, all of the franchisee’s (Bayantel’s) properties that are
actually, directly and exclusively used in the pursuit of its franchise.

10. Phils Guaranty v CIR

Facts: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into
reinsurance contracts with foreign insurance companies not doing business in the country, thereby
ceding to foreign reinsurers a portion of the premiums on insurance it has originally underwritten in
the Philippines. The premiums paid by such companies were excluded by the petitioner from its
gross income when it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold
or pay tax on them. Consequently, the CIR assessed against
the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested
the assessment on the ground that the premiums are not subject to tax for the premiums did not
constitute income from sources within the Philippines because the foreign reinsurers did not
engage in business in the Philippines, and CIR's previous rulings did not require insurance
companies to withhold income tax due from foreign companies.

Issue: Are insurance companies not required to withhold tax on reinsurance premiums ceded to
foreign insurance companies, which deprives the government from collecting the tax due from
them?

Held: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It
is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an
army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to
serve, public improvement designed for the enjoyment of the citizenry and those which come within
the State's territory, and facilities and protection which a government is supposed to provide.
Considering that the reinsurance premiums in question were afforded protection by the government
and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such
reinsurance premiums and reinsurers should share the burden of maintaining the state.

The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding of
tax due on reinsurance premiums may free the taxpayer from the payment of surcharges or
penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not
exculpate it from liability to pay such withholding tax. The Government is not estopped from
collecting taxes by the mistakes or errors of its agents.

11. Lorenzo v Posadas

Facts: Lorenzo, in his capacity as trustee of the estate of Thomas Hanley, brought an action
against the Collector of Internal Revenue Posadas for the refund of P2,052.74 inheritance taxes.
The properties under the will were to pass to Matthew Hanley after 10 years.

ISSUES:
1. When does the inheritance tax accrue and when must it be satisfied?
2. Should the inheritance tax be computed on the basis of the value at the time of the testator's
death or on its value ten years later?
3. In determining the net value of the estate subject to tax, is it proper to deduct the compensation
due to trustees?
4. What law governs the case?
5. Has there been delinquency in the payment of the inheritance tax?

Held:
1. Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of that date. But
 it must be paid before the delivery of the properties in question to PJM Moore as trustee on
March 10, 1924.
2. It should be computed at the time of the decedent's death, regardless of any subsequent
contingency value of any increase or decrease and notwithstanding the postponement of the
actual possession or enjoyment of the estate by the beneficiary and the tax measured by the
value of the property transmitted at that time regardless of its appreciation or depreciation.
3. No. The compensation of a trustee, earned not in the administration of the estate, but in the
management thereof for the benefit of the legatees or devises, does not come properly within the
class or reason for exempting administration expenses.
4. Act 3031 and not Act 3606 applies. Even if Act 3606 is more favorable to the taxpayer, revenue
laws, generally, which impose taxes collected by means ordinarily resorted to for the collection of
taxes are not classes as penal laws.
5. Yes. That taxes must be collected promptly is a policy deeply entrenched in our tax system.
Thus, no court is allowed to grant injunction to restrain the collection of any internal revenue tax.
The mere fact that the estate of the deceased was placed in trust did not remove it from the
operation of our inheritance tax laws or exempt it from the payment of the inheritance tax.

12. PAL v Edu

Facts: The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from
the payment of taxes. PAL has, since 1956, not been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation
requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.

Held: It appears clear from the above provisions that the legislative intent and purpose behind the
law requiring owners of vehicles to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a much lesser degree, pay for the operating
expenses of the administering agency.

If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle
registration fees.
We rule that motor vehicle registration fees as at present exacted pursuant to the Land
Transportation and Traffic Code are actually taxes intended for additional revenues of
government even if one fifth or less of the amount collected is set aside for the operating
expenses of the agency administering the program.

13. Lutz v Araneta

Facts: Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of
Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of
P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949
and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which in plaintiff’s opinion is not a public purpose for
which a tax may be constitutionally levied.

Held: The tax is levied with a regulatory purpose, i.e. to provide means for the rehabilitation and
stabilization of the threatened sugar industry. The act is primarily an exercise of police power and
is not a pure exercise of taxing power.
As sugar production is one of the great industries of the Philippines and its promotion, protection
and advancement redounds greatly to the general welfare, the legislature found that the general
welfare demanded that the industry should be stabilized, and provided that the distribution of
benefits had to sustain.
 Further, it cannot be said that the devotion of tax money to experimental stations to seek increase
of efficiency in sugar production, utilization of by-products, etc., as well as to the improvement of
living and working conditions in sugar mills and plantations without any part of such money being
channeled directly to private persons, constitute expenditure of tax money for private purposes.
Hence, the tax is valid.

14. Caltex v COA

Facts: In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price
Stabilization Fund (OPSF), excluding that unremitted for the years 1986 and 1988, of the
additional tax on petroleum products authorized under the PD 1956. Pending such remittance, all
of its claims for reimbursement from the OPSF shall be held in abeyance. The grant total of its
unremitted collections of the above tax is P1,287,668,820.
Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved
the proposal but prohibited Caltex from further offsetting remittances and reimbursements for the
current and ensuing years. Caltex moved for reconsideration but was denied. Hence, the present
petition.

Issue: Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex’s
outstanding claims from said funds.

Held: No. Taxation is no longer envisioned as a measure merely to raise revenue to support the
existence of government. Taxes may be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with public interest as to
be within the police power of the State.
PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A
taxpayer may not offset taxes due from the claims he may have against the government. Taxes
cannot be subject of compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
Hence, COA decision is affirmed except that Caltex’s claim for reimbursement of underrecovery
arising from sales to the National Power Corporation is allowed.

15. Osmena v Orbos

16. Gerochi v DOE

17. Southern Cross Cement v Cement Manufacturers Assn of the Phil

18. CIR v Central Luzon Drug Corp

Facts: Respondent is a domestic corporation engaged in the retailing of medicines and other
pharmaceutical products. In 1996 it operated six (6) drugstores under the business name and
style “Mercury Drug.” From January to December 1996 respondent granted 20% sales discount
to qualified senior citizens on their purchases of medicines pursuant to RA 7432. For said period
respondent granted a total of ₱ 904,769.
On April 15, 1997, respondent filed its annual ITR for taxable year 1996 declaring therein net
losses. On Jan. 16, 1998 respondent filed with petitioner a claim for tax refund/credit of ₱
904,769.00 allegedly arising from the 20% sales discount. Unable to obtain affirmative response
from petitioner, respondent elevated its claim to the CTA via Petition for Review. CTA dismissed
the same but on MR, CTA reversed its earlier ruling and ordered petitioner to issue a Tax Credit
Certificate in favor of respondent citing CA GR SP No. 60057 (May 31, 2001, Central Luzon Drug
Corp. vs. CIR) citing that Sec. 229 of RA 7432 deals exclusively with illegally collected or
erroneously paid taxes but that there are other situations which may warrant a tax credit/refund.
CA affirmed CTA decision reasoning that RA 7432 required neither a tax liability nor a payment of
 taxes by private establishments prior to the availment of a tax credit. Moreover, such credit is not
tantamount to an unintended benefit from the law, but rather a just compensation for the taking of
private property for public use.

Issue: W/N respondent, despite incurring a net loss, may still claim the 20% sales discount as a
tax credit.

Ruling: Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining
a 20% discount on their purchase of medicine from any private establishment in the country. The
latter may then claim the cost of the discount as a tax credit. Such credit can be claimed even if
the establishment operates at a loss. A tax credit generally refers to an amount that is
“subtracted directly from one’s total tax liability.” It is an “allowance against the tax itself” or “a
deduction from what is owed” by a taxpayer to the government. A tax credit should be understood
in relation to other tax concepts. One of these is tax deduction –which is subtraction “from income
for tax purposes,” or an amount that is “allowed by law to reduce income prior to the application of
the tax rate to compute the amount of tax wh ich is due.” In other words, whereas a tax credit
reduces the tax due, tax deduction reduces the income subject to tax in order to arrive at the
taxable income.
Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax liability
before the tax credit can be applied. Without that liability, any tax credit application will be
useless.

19. Chavez v Ongpin

Facts: Section 21 of Presidential Decree 464 provides that every 5 years starting calendar year
1978, there shall be a provincial or city general revision of real property assessments. The
general revision was completed in 1984.
On November 25, 1986, President Corazon Aquino issued EO 73 stating that beginning January
1, 1987, the 1984 assessments shall be the basis of real property taxes. Francisco Chavez, a
taxpayer and landowner, questioned the constitutionality of EO 73. He alleges that it will bring
unreasonable increase in real property taxes.

Issue: Is EO 73 constitutional?

Held: Yes. Without EO 73, the basis for collection of real property taxes will still be the 1978
revision of property values. Certainly, to continue collecting real property taxes based on
valuations arrived at several years ago, in disregard of the increases in the value of real
properties that have occurred since then is not in consonance with a sound tax system.
Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources
of revenue must be adequate to meet government expenditures and their variations.

20. Tolentino v Sec of Finance

21. Borja v Gella

FACTS: Jose de Borja has been delinquent in the payment of his real estate taxes since 1958
and has offered to pay them with two negotiable certificates of indebtedness to which he is only
an assignee. These were rejected by the City treasurers of both Manila and Pasay cities on the
ground of their limited negotiability. Borja brought the question to the Treasurer of the Philippines
who opined that the negotiable certificates cannot be accepted as payment of real estate taxes
inasmuch as the law provides for their acceptance from their backpay holder only or the original
applicant himself, but not his assignee. Lower court ruled in favor of Borja.

ISSUES: 1. Whether Borja may apply to the payment of his real estate taxes the certificates of
indebtedness he holds; while, respondents have the correlative legal duty to accept the
certificates in payment of the taxes
 2. Whether compensation can take place between Borja’s real estate tax liability and the credit
represented by the certificate of indebtedness

RULING: 1. No, the respondents are not duty bound to accept the negotiable certificates of
indebtedness for the simple reason that they were not obligations subsisting at the approval of
RA 304 which took effect on June 18, 1948. Under RA 304, payment through a certificate of
indebtedness may be allowed if the tax is owed by the applicant himself. Furthermore, the right to
use the backpay certificate in settlement of taxes is given only to the applicant himself.
Futhermore, the right to use the backpay certificate in settlement of taxes is given only to the
applicant and not to any holder of any negotiable certificate to whom the law only gives the right
to have it discounted by a Filipino citizen or corporation under certain limitations. Borja is not
himself the applicant of the certificate in question, he is merely as assignee thereof.

2. No, the debtor insofar as the certificates of indebtedness are concerned is the Republic of the
Philippines, whereas the real estate taxes owed by Borja are due to the City of Manila and Pasay
City, each one of which having a distinct and separate personality from our Republic. This is
contrary to Article 1279 (1) of the Civil Code which states that “each one of the obligors be bound
principally, and that he be at the same time a principal creditor of the other”

22. Vera v Fernandez

FACTS: The motion for allowance of claim and for payment of taxes dated May 28, 1969 was
filed on June 3, 1969 for the collection of the indebtedness to the government of the late Luis D.
Tongoy for deficiency income taxes in the total sum of P3,254.80. The administrator opposed the
motion solely on the ground that the claim was barred under Section 5, Rule 86 of the Rules of
Court. Jose Fernandez dismissed the motion for allowance of claim filed by the Regional director
of the BIR, being the judge of the Court of First Instance.

ISSUE: Whether the statute of non-claims Section 5, Rule 86 of the Rule of Court bars claim of
the government for unpaid taxes, still within the period of limitation prescribed in Section 331 and
332 of the National Internal Revenue Code

RULING: No. Section 5, Rule 86 of the Rules of Curt makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different character
from the claims enumerated, such as “all claims for money against the decedent arising from
contract, express or implied, whether the same be due, or contingent, all claim for funeral
expenses and expenses for the last sickness of the decedent and judgment for money against
the decedent.” Under the familiar rule of statutory construction, the mention of one thing implies
the exclusion of another thing not mentioned.

23. Republic v Patanao

FACTS: Defendant was the holder of an ordinary timber license with concession at Esperanza,
Agusan. The defendant failed to file income tax returns for 1953 and 1954 and although he filed
income tax returns for 1951, 1952, and 1955, the same were false and fraudulent because he did
not report substantial income earned by him from his business. He was acquitted by the lower
court. But, the Deputy Commissioner of Internal Revenue contends that the assessment for the
payment of the taxes in question has become final because it was not appealed.

ISSUE: Whether the action is barred by prior judgment, defendant having been acquitted

RULING: No. Under the Penal Code the civil liability is incurred by reason of the offender’s
criminal act. The situation under the income tax law is the exact opposite. Civil liability to pay
taxes arises from the fact that one has engaged himself in business and not because of any
criminal act committed by him. The acquittal in the said criminal case cannot operate to discharge
defendant from the duty of paying the taxes which the law requires to be paid, since that duty is
 imposed by statute prior to and independently of any attempts by the taxpayer to evade
payment.

24. Sunio v NLRC

25. Tan Tiong Bio v CIR

26. Republic v Mambulao

FACTS: Mambulao Lumber Company paid the Government a total of P 9,127.50 as reforestation
charges for the years 1947 to 1956. It is the company’s contention that said sum of 9,127.50, not
having been used in the reforestation of the area covered by its license, the same is refundable to
it or may be applied in compensation of P 4,802.37 due from it as forest charges.
Court of First Instance of Manila ordered the company to pay the government the sum of P
4,802.37 with 6% interest thereon from date of the filing of the complaint until fully paid, plus
costs. Thus, the present appeal.

ISSUE: Whether the set-off or compensation is proper

RULING: No. There is nothing in the law which requires that the amount collected as reforestation
charges should be used exclusively for the reforestation of the area covered by the license of a
licensee or concessionaire, and that if not so used, the same shall be refunded to him.
The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the
nature of a tax which forms part of the Forestation Fund, payable by him irrespective of whether
the area covered by his license is reforested or not.
Said fund, as the law expressly provides, shall be expended in carrying out the purposes
provided for thereunder, namely, the reforestation or afforestation, among others, of denuded
areas needing reforestation or afforestation.
The weight of authority is to the effect that internal revenue taxes, such as the forest charges in
question is not subject to set-off or compensation. Taxes are not in the nature of contracts
between the parties but grow out of a duty to, and are positive acts of the government, to the
making and enforcing of which, the personal consent of the individual taxpayers is not required.
With respect to the forest charges which the company has paid to the government, they are in the
coffers of the government as tax collected, and the government does not owe anything. It is
crystal clear that the Republic of the Philippines and the Mambulao Lumber Company are not
creditors and debtors of each other, because compensation refers to mutual debts.

27. Domingo v Garlitos

FACTS: In the 1960 case of Domingo v Moscoso, the Supreme Court declared as final and
executory the order for the payment by the estate of the late Walter Scott Price of estate and
inheritance taxes, charges and penalties, amounting to P40,058.55 issued by the Court of First
Instance – Leyte. The fiscal then presented a petition for the execution of the judgment before the
Court of First Instance – Leyte.

The petition was denied as the execution is not justifiable as the government is indebted to the
estate under administration in the amount of P 262,200. Hence, the present petition for certiorari
and mandamus.

ISSUE: Is execution proper?

RULING: No. The tax and the debt are compensated. The court having jurisdiction of the estate
had found that the claim of the estate against the government has been recognized and an
amount of P262,200 has already been appropriated by a corresponding law (RA 2700). Under the
circumstances, both the claim of the Government for the inheritance taxes and the claim of the
intestate for services rendered have already become overdue and demandable as well as fully
 liquidated.

Compensation, therefore, takes place by operation of law, in accordance with Article 1279 and
1290 of the Civil Code, and both debts are extinguished to their concurrent amounts. If the
obligation to pay taxes and the taxpayer’s claim against the government are both overdue,
demandable, as well as fully liquidated, compensation takes place by operation of law and both
obligations are extinguished to their concurrent amounts.

28. Francia v IAC

FACTS: Engracio Francia was the registered owner of a house and lot located in Pasay City. A
portion of such property was expropriated by the Republic of the Philippines in 1977. It appeared
that Francia did not pay his real estate taxes from 1963 to 1977. Thus, his property was sold in a
public auction by the City Treasurer of Pasay City. Francia filed a complaint to annual the auction
sale. The lower court dismissed the complaint and the Intermediate Appellate Court affirmed the
decision of the lower court in toto. Hence, this petition for review. Francia contends that his tax
delinquency of P 2,400 has been extinguished by legal compensation. He claims that the
government owed him P 4,116 when a portion of his land was expropriated on October 15, 1977.

ISSUE: May the expropriation payment compensate for the real estate taxes due?

RULING: No. There can be no offsetting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the government
owes him an amount equal to or greater than the tax being collected. The collection of a tax
cannot await the results of a lawsuit against the government. Internal revenue taxes cannot be
the subject of compensation. The Government and the taxpayer are not mutually creditors and
debtors of each other under Article 1278 of the Civil Code and a claim of taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off.

Moreover, the amount of P4,116 paid by the national government for the 125 square meter
portion of his lot was deposited with the Philippine National Bank long before the sale at public
auction of his remaining property. It would have been an easy matter to withdraw P 2,400 from
the deposit so that he could pay the tax obligation thus aborting the sale at public auction. Thus,
the petition for review is dismissed. The taxes assessed are the obligations of the taxpayer
arising from law, while the money judgment against the government is an obligation arising from
contract, whether express or implied.

29. Cuunjieng v Patstone

FACTS: Cuunjieng desired to erect a warehouse in Azcarraga street but was denied a building
permit until he shall have made provision for the construction of an arcade over the sidewalk in
front of the building and until he shall have further complied with Section 1 of Ordinance 301 of
the City of Manila, i.e. payment of 1⁄2 of the assessed value of the city land. Cuunjieng filed a
petition for a writ of mandamus to compel the city engineer to issue the permit.

ISSUE: Whether under the charter, the City of Manila may, under the guise of a license fee and
as a prerequisite for the issuance of a building permit, exact the payment of 1⁄2 of the assessed
value of the portion of the sidewalk covered by the arcade

RULING: No. The allowable amount of license fee or tax depends so much on the special
circumstance of each particular case.
Adjudications, however, appear to recognize 3 classes of licenses:

1. (1) licenses for regulation of useful occupations or enterprises;

2. (2) licenses for the regulation of non-useful occupations or enterprises;
3. (3) licenses for revenue only.
 This should be taken into consideration in determining the reasonableness of the license fee.
Herein, imposing a fee equal to 1⁄2 of the assessed value of the portion of the sidewalk covered
by the arcade, the municipal board exceeded its powers. The construction of buildings is a useful
enterprise and the amount of the license fee should therefore be limited to the cost of licensing,
regulating, and surveillance. As it does not appear such cost would materially increase through
the construction of the arcade, the excess fee is clearly imposed for the purpose of revenue.
There is nothing in the charter of the city indicating legislative intent to confer to the municipal
board to impose a license tax for revenue on the construction of buildings.
Thus, the license fee prescribed is illegal.

30. Apostolic Prefect v Treasurer of Baguio

FACTS: The Apostolic Prefect is a corporation sole, of religious character, organized under the
Philippine laws, and with residence
in Baguio. The City imposed a special assessment against properties within its territorial
jurisdiction, including those of the Apostolic Prefect, which benefits from its drainage and
sewerage system. The Apostolic Prefect contends that its properties should be free from tax.

ISSUE: Is the Apostolic Prefect exempt from paying?

RULING: No, it is liable.

In its broad meaning, tax includes both general taxes and special assessment. Yet actually, there
is a recognized distinction between them in that assessment is confined to local impositions upon
property for the payment of the cost of public improvements in its immediate vicinity and levied
with reference to special benefits to the property assessed.
A special assessment is not, strictly speaking, a tax; and neither the decree nor the Constitution
exempt the Apostolic Prefect from payment of said special assessment.

Furthermore, arguendo that exemption may encompass such assessment, the Apostolic Prefect
cannot claim exemption as it has not proven the property in question is used exclusively for
religious purposes; but that it appears that the same is being used to other non-religious
purposes.

Thus, the Apostolic Prefect is required to pay the special assessment.

31. Esso Standard v CIR

Facts: In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from its gross
income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent
for drilling and exploration of its petroleum concessions. This claim was disallowed by the
Commissioner of Internal Revenue (CIR) on the ground that the expenses should be capitalized
and might be written off as a loss only when a "dry hole" should result. Esso then filed an amended
return where it asked for the refund of P323,279.00 by reason of its abandonment as dry holes of
several of its oil wells. Also claimed as ordinary and necessary expenses in the same return was
the amount of P340,822.04, representing margin fees it had paid to the Central Bank on its profit
remittances to its New York head office.

On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the
claimed deduction for the margin fees paid on the ground that the margin fees paid to the Central
Bank could not be considered taxes or allowed as deductible business expenses.

Esso appealed to the Court of Tax Appeals (CTA) for the refund of the margin fees it had earlier
paid contending that the margin fees were deductible from gross income either as a tax or as an
ordinary and necessary business expense. However, Esso’s appeal was denied.
 Issues: (1) Whether or not the margin fees are taxes.
(2) Whether or not the margin fees are necessary and ordinary business expenses.

Held: (1) No. A tax is levied to provide revenue for government operations, while the proceeds of
the margin fee are applied to strengthen our country's international reserves. The margin fee was
imposed by the State in the exercise of its police power and not the power of taxation.

(2) No. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate
and helpful in the development of the taxpayer's business. It is 'ordinary' when it connotes a
payment which is normal in relation to the business of the taxpayer and the
surrounding circumstances. Since the margin fees in question were incurred for the remittance of
funds to Esso's Head Office in New York, which is a separate and distinct income taxpayer from
thebranch in the Philippines, for its disposal abroad, it can never be said therefore that the margin
fees were appropriate and helpful in the development of Esso's business in the Philippines
exclusively or were incurred for purposes proper to the conduct of the affairs of Esso's branch in
the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the
Philippines exclusively. If at all, the margin fees were incurred for purposes proper to the conduct
of the corporate affairs of Esso in New York, but certainly not in the Philippines.

32. Philex Mining v CIR

FACTS: BIR sent a letter to Philex asking it to settle its tax liabilities amounting to P124 million. Philex
protested the demand for payment stating that it has pending claims for VAT input credit/refund amounting
to P120 million. Therefore, these claims for tax credit/refund should be applied against the tax liabilities.
In reply the BIR found no merit in Philex’s position. On appeal, the CTA reduced the tax liability of
Philex.

ISSUES:

1. Whether legal compensation can properly take place between the VAT input credit/refund and the
excise tax liabilities of
Philex Mining Corp;
2. Whether the BIR has violated the NIRC which requires the refund of input taxes within 60 days
3. Whether the violation by BIR is sufficient to justify non-payment by Philex

RULING:

1. No, legal compensation cannot take place. The government and the taxpayer are not creditors and
debtors of each other.
2. Yes, the BIR has violated the NIRC. It took five years for the BIR to grant its claim for VAT input
credit. Obviously, had the
BIR been more diligent and judicious with their duty, it could have granted the refund
3. No, despite the lethargic manner by which the BIR handled Philex’s tax claim, it is a settled rule that in
the performance of
government function, the State is not bound by the neglect of its agents and officers. It must be stressed
that the same is not a valid reason for the non-payment of its tax liabilities.

33. Silkair v CIR

FACTS: Defendant was the holder of an ordinary timber license with concession at Esperanza,
Agusan. The defendant failed to file income tax returns for 1953 and 1954 and although he filed
income tax returns for 1951, 1952, and 1955, the same were false and fraudulent because he did
not report substantial income earned by him from his business. He was acquitted by the lower
court. But, the Deputy Commissioner of Internal Revenue contends that the assessment for the
payment of the taxes in question has become final because it was not appealed.
 ISSUE: Whether the action is barred by prior judgment, defendant having been acquitted

RULING: No. Under the Penal Code the civil liability is incurred by reason of the offender’s
criminal act. The situation under the income tax law is the exact opposite. Civil liability to pay
taxes arises from the fact that one has engaged himself in business and not because of any
criminal act committed by him. The acquittal in the said criminal case cannot operate to discharge
defendant from the duty of paying the taxes which the law requires to be paid, since that duty is
imposed by statute prior to and independently of any attempts by the taxpayer to evade
payment.

34. ABAKADA v Ermita

FACTS: RA 9337, an act amending certain sections of the National Internal Revenue Code of 1997, is
questioned by petitioners for being unconstitutional. Procedural issues raised by petitioners are the legality
of the bicameral proceedings, exclusive origination of revenue measures and the power of the Senate
concomitant thereto. Also, an issue was raised with regard to the undue delegation of legislative power to
the President to increase the rate of value-added tax to 12%.
Petitioners also argue that the increase to 12%, as well as the 70% limitation on the creditable input tax, the
60- month amortization on the purchase or importation of capital goods exceeding P1,000,000.00, and the
5% final withholding tax by government agencies, is arbitrary, oppressive, and confiscatory, and that it
violates the constitutional principle on progressive taxation, among others.

ISSUE: Whether RA 9337 is constitutional

RULING: Yes. Mounting budget deficit, revenue generation, inadequate fiscal allocation for education,
increased emoluments for health workers, and wider coverage for full value-added tax benefits ... these are
the reasons why Republic Act No. 9337 (R.A. No. 9337) was enacted. Reasons, the wisdom of which, the
Court even with its extensive constitutional power of review, cannot probe.
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid
measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on the
plight of the masses. But it does not have the panacea for the malady that the law seeks to remedy. As in
other cases, the Court cannot strike down a law as unconstitutional simply because of its yokes.