CASE NOTES FACTS
1 CIR vs Benigno difference between tax CIC authorized Benigno P. Toda, Jr., President and owner
Toda avoidance (legal) vs tax of 99% of its issued and outstanding capital stock, to sell
evasion (crime) the disputed the building and lot on which it stands for an
amount of not less than P90 million. Afterwards, Toda
purportedly sold the property for P100 million to Rafael A.
Altonaga, who, in turn, sold the same property on the same
day to Royal Match Inc. (RMI) for P200 million. For the
sale of the property to RMI, Altonaga paid capital gains tax
in the amount of P10 million.
Later, CIC filed its corporate annual income tax return,
declaring, among other things, its gain from the sale of real
property. Then, Toda sold his entire shares of stocks in CIC
to Le Hun T. Choa for P12.5 million, as evidenced.
Afterwards, the Bureau of Internal Revenue (BIR) sent an
assessment notice[ and demand letter to the CIC for
deficiency income tax.
Afterwards, the Estate of Benigno P. Toda, Jr., represented
by special co-administrators Lorna Kapunan and Mario
Luza Bautista, received a Notice of Assessment from the
Commissioner of Internal Revenue for deficiency income
tax.
ISSUE/HELD
Whether or not this is a case of tax avoidance or tax evasion.
Tax evasion.
Tax planning is by definition to reduce, if not eliminate
altogether, a tax. Surely petitioner cannot be faulted for
wanting to reduce the tax from 35% to 5%. However, the
scheme resorted to by CIC in making it appear that there
were two sales of the subject properties, i.e., from CIC to
Altonaga, and then from Altonaga to RMI cannot be
considered a legitimate tax planning. Such scheme is
tainted with fraud.
It is significant to note that prior to the purported sale of
the disputed property by CIC to Altonaga, CIC received P40
million from RMI, and not from Altonaga. Also, another
P40 million was debited later. This would show that the
real buyer of the properties was RMI, and not the
intermediary Altonaga. Altonaga was merely a close
business associate and one of the many trusted corporate
executives of Toda.
It’s obvious that the objective of the sale to Altonaga was
to reduce the amount of tax to be paid especially that the
transfer from him to RMI would then subject the income to
only 5% individual capital gains tax, and not the 35%
corporate income tax. Altonaga’s sole purpose of acquiring
and transferring title of the subject properties on the same
day was to create a tax shelter. Altonaga never controlled
the property and did not enjoy the normal benefits and
burdens of ownership. The sale to him was merely a tax
ploy, a sham, and without business purpose and economic
substance. Doubtless, the execution of the two sales was
calculated to mislead the BIR with the end in view of
reducing the consequent income tax liability.
In a nutshell, the intermediary transaction, i.e., the sale of
Altonaga, which was prompted more on the mitigation of
tax liabilities than for legitimate business purposes
constitutes one of tax evasion.
To allow a taxpayer to deny tax liability on the ground that
the sale was made through another and distinct entity

2 Ungab vs Cusi BIR Examiner Ben Garcia examined the income tax returns
filed by the herein petitioner, Quirico P. Ungab. In the
course of his examination, he discovered that the
petitioner failed to report his income derived from sales of
banana saplings. As a result, the BIR District Revenue
Officer at Davao City sent a "Notice of Taxpayer" to the
petitioner informing him that there is due from him
(petitioner) the amount representing income, business tax
and forest charges and inviting petitioner to an informal
conference where the petitioner, duly assisted by counsel,
may present his objections to the findings of the BIR
Examiner.
Upon receipt of the notice, the petitioner wrote the BIR
District Revenue Officer protesting the assessment and
that his income, as reported in his income tax returns for
the said year, was accurately stated. BIR Examiner Ben
Garcia, however, was fully convinced that the petitioner
had filed a fraudulent income tax return so that he
submitted a "Fraud Referral Report," to the Bureau of
Internal Revenue.
Thereafter, State Prosecutor Jesus Acebes conducted a
preliminary investigation of the case, and finding probable
cause, filed six (6) informations against the petitioner with
the Court of First Instance of Davao City concerning
violations of the Tax Code.
when it is proved that the latter was merely a conduit is to
sanction a circumvention of our tax laws. Hence, the sale to
Altonaga should be disregarded for income tax purposes.
The two sale transactions should be treated as a single
direct sale by CIC to RMI.
Whether or not that the filing of the informations was
precipitate and premature since the Commissioner of
Internal Revenue has not yet resolved his protests against
the assessment
An assessment isn’t necessary before a criminal action can
proceed.
The contention is without merit. What is involved here is
not the collection of taxes where the assessment of the
Commissioner of Internal Revenue may be reviewed by
the Court of Tax Appeals, but a criminal prosecution for
violations of the National Internal Revenue Code which is
within the cognizance of courts of first instance. While
there can be no civil action to enforce collection before the
assessment procedures provided in the Code have been
followed, there is no requirement for the precise
computation and assessment of the tax before there can be
a criminal prosecution under the Code.
The contention is made, and is here rejected, that an
assessment of the deficiency tax due is necessary before
the taxpayer can be prosecuted criminally for the charges
preferred. The crime is complete when the violator has, as
in this case, knowingly and willfully filed fraudulent
returns with intent to evade and defeat a part or all of the
tax.
An assessment of a deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and
evade the income tax. A crime is complete when the
violator has KNOWINGLY and willfully FILED a
fraudulent return WITH INTENT to evade and defeat
the tax. The perpetration of the crime is grounded
upon knowledge on the part of the taxpayer that he
has made an inaccurate return, and the government's
failure to discover the error and promptly to assess
has no connections with the commission of the crime.

3 Caltex vs COA This is a petition questioning the authority of the
Commission on Audit (COA) in disallowing petitioner's
claims for reimbursement from the Oil Price Stabilization
Fund (OPSF) and seeking the reversal of said
Commission's decision denying its claims for recovery of
financing charges from the Fund and reimbursement of
underrecovery arising from sales to the National Power
Corporation, Atlas Consolidated Mining and Development
Corporation (ATLAS) and Marcopper Mining Corporation
(MAR-COPPER), preventing it from exercising the right to
offset its remittances against its reimbursement vis-a-vis
the OPSF and disallowing its claims which are still pending
resolution before the Office of Energy Affairs (OEA) and
the Department of Finance (DOF).
Besides, it has been ruled that a petition for
reconsideration of an assessment may affect the
suspension of the prescriptive period for the collection of
taxes, but not the prescriptive period of a criminal action
for violation of law. Obviously, the protest of the petitioner
against the assessment of the District Revenue Officer
cannot stop his prosecution for violation of the National
Internal Revenue Code. Accordingly, the respondent Judge
did not abuse his discretion in denying the motion to
quash filed by the petitioner.
Whether or not the amounts due to the OPSF from petitioner
can be offset against petitioner's outstanding claims from
said fund.
Can’t offset.
We find no merit in petitioner's contention that the OPSF
contributions are not for a public purpose because they go
to a special fund of the government. Taxation is no longer
envisioned as a measure merely to raise revenue to
support the existence of the government; taxes may be
levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry
that is affected with public interest as to be within the
police power of the state.
Any unregulated increase in oil prices could hurt the lives
of a majority of the people and cause economic crisis of
untold proportions. It would have a chain reaction in
terms of, among others, demands for wage increases and
upward spiraling of the cost of basic commodities. The
stabilization then of oil prices is of prime concern that the
state, via its police power, may properly address. Also the
law explicitly provides that the source of OPSF is taxation.
It is settled that a taxpayer may not offset taxes due from
the claims that he may have against the government. Taxes
cannot be the 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.

4 Meralco vs Prov. of On various dates, certain municipalities of the Province of
Laguna Laguna issued resolutions through their respective
municipal councils granting franchise in favor of petitioner
Manila Electric Company (“MERALCO”) for the supply of
electric light, heat and power within their concerned
areas. Later, MERALCO was likewise granted a franchise
by the National Electrification Administration to operate
an electric light and power service in the Municipality of
Calamba, Laguna.
Later, pursuant to the Local Government Code, respondent
passed an ordinance imposing a franchise tax on
businesses within its jurisdiction. Meralco paid the tax but
under protest.
In respect to the taxes for the OPSF, the oil companies
merely act as agents for the Government in the latter's
collection since the taxes are, in reality, passed unto the
end-users –– the consuming public. In that capacity, the
petitioner, as one of such companies, has the primary
obligation to account for and remit the taxes collected to
the administrator of the OPSF. This duty stems from the
fiduciary relationship between the two; petitioner
certainly cannot be considered merely as a debtor. In
respect, therefore, to its collection for the OPSF vis-a-vis its
claims for reimbursement, no compensation is likewise
legally feasible. Firstly, the Government and the petitioner
cannot be said to be mutually debtors and creditors of
each other. Secondly, there is no proof that petitioner's
claim is already due and liquidated.
The law does not authorize oil companies to offset their
claims against their OPSF contributions. Instead, it
prohibits the government from paying any amount from
the Petroleum Price Standby Fund to oil companies that
have outstanding obligations with the government,
without said obligation being offset first subject to the
rules on compensation in the Civil Code.
Whether or not the local franchise tax violates the non-
impairment clause.
Doesn’t violate.
While the Court has frequently referred to tax exemptions
contained in special franchises as being in the nature of
contracts and a part of the inducement for carrying on the
franchise, these exemptions, nevertheless, are far from
being strictly contractual in nature. Contractual tax
exemptions, in the real sense of the term and where the
non-impairment clause of the Constitution can rightly be
invoked, are those agreed to by the taxing authority in
contracts, such as those contained in government bonds or
debentures, lawfully entered into by them under enabling
laws in which the government, acting in its private
capacity, sheds its cloak of authority and waives its
governmental immunity. Truly, tax exemptions of this kind
may not be revoked without impairing the obligations of
contracts.

5 Sison vs. Ancheta BP 135 amends the National Internal Revenue Code, which
provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, and
others.
Petitioner as taxpayer alleges that by virtue thereof, "he
would be unduly discriminated against by the imposition
of higher rates of tax upon his income arising from the
exercise of his profession vis-a-vis those which are
imposed upon fixed income or salaried individual
taxpayers.
These contractual tax exemptions, however, are not to be
confused with tax exemptions granted under franchises. A
franchise partakes the nature of a grant which is beyond
the purview of the non-impairment clause of the
Constitution. Indeed, the Constitution is explicit that no
franchise for the operation of a public utility shall be
granted except under the condition that such privilege
shall be subject to amendment, alteration or repeal by
Congress as and when the common good so requires.
Whether or not the imposition of a higher tax rate on
taxable net income derived from a business or professional
than on compensation is constitutionally infirm.
Constitutional.
For all its plenitude the power to tax is not unconfined.
There are restrictions. The Constitution sets forth such
limits. Adversely affecting as it does properly rights, both
the due process and equal protection clauses may properly
be invoked.
The due process clause may be invoked where a taxing
statute is so arbitrary that it finds no support in the
Constitution. As to equal protection, it suffices then that
the laws operate equally and uniformly on all persons
under similar circumstances or that all persons must be
treated in the same manner, the conditions not being
different, both in the privileges conferred and the
liabilities imposed.
According to the Constitution: "The rule of taxation shall
be uniform and equitable." This requirement is met when
the tax "operates with the same force and effect in every
place where the subject may be found. The rule of
uniformity does not call for perfect uniformity or perfect
equality. Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall
be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications
for purposes of taxation.
Apparently, what misled petitioner is his failure to take
into consideration the distinction between a tax rate and a
tax base. There is no legal objection to a broader tax base

6 British American RA 8240, entitled "An Act Amending Sections 138, 139,
Tobacco vs. 140, and 142 of the NIRC, as Amended and For Other
Camacho Purposes," took effect on January 1, 1997. In the same
year, Congress passed RA 8424 or The Tax Reform Act of
1997, re-codifying the NIRC. Section 142 was renumbered
as Section 145 of the NIRC.
To implement RA 8240, the Bureau of Internal Revenue
(BIR) issued Revenue Regulations No. 1-97, then Revenue
Regulations No. 9-2003, then Revenue Memorandum
Order No. 6-2003, and lastly Revenue Regulations No. 22-
2003.
Thus, petitioner filed before the Regional Trial Court (RTC)
of Makati, a petition for injunction with prayer for the
issuance of a temporary restraining order (TRO) and/or
writ of preliminary injunction. Said petition sought to
enjoin the implementation of Section 145 of the NIRC,
Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and
Revenue Memorandum Order No. 6-2003 on the ground
that they discriminate against new brands of cigarettes, in
or taxable income by eliminating all deductible items and
at the same time reducing the applicable tax rate.
Taxpayers may be classified into different categories. In
the case of the gross income taxation embodied in Batas
Pambansa Blg. 135, the, discernible basis of classification
is the susceptibility of the income to the application of
generalized rules removing all deductible items for all
taxpayers within the class and fixing a set of reduced tax
rates to be applied to all of them. Taxpayers who are
recipients of compensation income are set apart as a class.
As there is practically no overhead expense, these
taxpayers aren’t entitled to make deductions for income
tax purposes because they are in the same situation more
or less. On the other hand, in the case of professionals in
the practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce
their income. It would be unjust then to disregard the
disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on
the basis of gross income. There is ample justification then
for the Batasang Pambansa to adopt the gross system of
income taxation to compensation income, while continuing
the system of net income taxation as regards professional
and business income.
Whether or not the RTC had jurisdiction.
Petitioner, therefore, properly filed the subject case before
the RTC.
Before going into the substantive issues of this case, we
must first address the matter of jurisdiction, in light of
Fortune Tobacco’s contention that petitioner should have
brought its petition before the Court of Tax Appeals rather
than the regional trial court.
The law confers on the CTA jurisdiction to resolve tax
disputes in general, this does not include cases where the
constitutionality of a law or rule is challenged. Where what
is assailed is the validity or constitutionality of a law, or a
rule or regulation issued by the administrative agency in
the performance of its quasi-legislative function, the
regular courts have jurisdiction to pass upon the same.
The determination of whether a specific rule or set of rules
issued by an administrative agency contravenes the law or

7 BAT vs Camacho equal protection; uniformity
of taxation clauses.
Four-fold test
violation of the equal protection and uniformity provisions
of the Constitution.
BAT challenges RA 8240, entitled "An Act Amending
Sections 138, 139, 140, and 142 of the NIRC, as Amended
and For Other Purposes," took effect on January 1, 1997. In
the same year, Congress passed RA 8424 or The Tax
Reform Act of 1997, re-codifying the NIRC. Section 142
was renumbered as Section 145 of the NIRC.
Paragraph (c) of Section 145 provides for four tiers of tax
rates based on the net retail price per pack of cigarettes.
To determine the applicable tax rates of existing cigarette
brands, a survey of the net retail prices per pack of
cigarettes was conducted as of October 1, 1996, the results
of which were embodied in Annex "D" of the NIRC as the
duly registered, existing or active brands of cigarettes.
As such, new brands of cigarettes shall be taxed according
to their current net retail price while existing or "old"
brands shall be taxed based on their net retail price as of
October 1, 1996.
the constitution is within the jurisdiction of the regular
courts. Indeed, the Constitution vests the power of judicial
review or the power to declare a law, treaty, international
or executive agreement, presidential decree, order,
instruction, ordinance, or regulation in the courts,
including the regional trial courts.
The petition for injunction filed by petitioner before the
RTC is a direct attack on the constitutionality of Section
145(C) of the NIRC, as amended, and the validity of its
implementing rules and regulations. In fact, the RTC
limited the resolution of the subject case to the issue of the
constitutionality of the assailed provisions. The
determination of whether the assailed law and its
implementing rules and regulations contravene the
Constitution is within the jurisdiction of regular courts.
The Constitution vests the power of judicial review or the
power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction,
ordinance, or regulation in the courts, including the
regional trial courts.
The assailed law does not violate the equal protection and
uniformity of taxation clauses.
Petitioner argues that the classification freeze provision
violates the equal protection and uniformity of taxation
clauses because Annex "D" brands are taxed based on their
1996 net retail prices while new brands are taxed based
on their present day net retail prices.
The rational basis test was properly applied to gauge the
constitutionality of the assailed law in the face of an equal
protection challenge. Under the rational basis test, it is
sufficient that the legislative classification is rationally
related to achieving some legitimate State interest.
A legislative classification that is reasonable does not
offend the constitutional guaranty of the equal protection
of the laws. The classification is considered valid and
reasonable provided that: (1) it rests on substantial
distinctions; (2) it is germane to the purpose of the law;
(3) it applies, all things being equal, to both present and
future conditions; and (4) it applies equally to all those
belonging to the same class.

8 City of Pasig vs Mid-Pasig Land Development Corporation (MPLDC)
Republic of the owned two parcels of land situated in Pasig City. The
Philippines properties are covered by TCTs under the name of
MPLDC. Portions of the properties are LEASED to different
business establishments.
In 1986, the registered owner of MPLDC, Jose Y. Campos
(Campos), voluntarily surrendered MPLDC to the Republic
of the Philippines. On 30 September 2002, the Pasig City
Assessor’s Office sent MPLDC two notices of tax
delinquency for its failure to pay REAL PROPERTY TAx on
the properties for the period 1979 to 2001 totaling
₱256,858,555.86. In a letter dated 29 October 2002,
Independent Realty Corporation (IRC) President Ernesto
R. Jalandoni (Jalandoni) and Treasurer Rosario Razon
informed the Pasig City Treasurer that the tax for the
period 1979 to 1986 had been paid, and that the
properties were exempt from tax beginning 1987.
The assailed law does not transgress the constitutional
provisions on regressive and inequitable taxation.
Even as the Republic of the Philippines is now the owner
of the properties in view of the voluntary surrender of
MPLDC by its former registered owner, Campos, to the
State, such transfer does not prevent a third party with a
better right from claiming such properties in the proper
forum. In the meantime, the Republic of the Philippines is
the presumptive owner of the properties for taxation
purposes.
Section 234(a) of Republic Act No. 7160 states that
properties owned by the Republic of the Philippines are
exempt from real property tax "except when the beneficial
use thereof has been granted, for consideration or
otherwise, to a taxable person." Thus, the portions of the
properties not leased to taxable entities are exempt from
real estate tax while the portions of the properties leased
to taxable entities are subject to real estate tax. The law
imposes the liability to pay real estate tax on the Republic
of the Philippines for the portions of the properties leased
to taxable entities. It is, of course, assumed that the
Republic of the Philippines passes on the real estate tax as
part of the rent to the lessees.
In the present case, the parcels of land are NOT properties
of public dominion because they are not "intended for
public use, such as roads, canals, rivers, torrents, ports
and bridges constructed by the State, banks, shores,
roadsteads." Neither are they "intended for some public
service or for the development of the national wealth."
MPLDC leases portions of the properties to different
business establishments. Thus, the portions of the
properties leased to taxable entities are not only subject to
real estate tax, they can also be sold at public auction to
satisfy the tax delinquency.
In sum, only those portions of the properties leased to
taxable entities are subject to real estate tax for the period
of such leases. Pasig City must, therefore, issue to
respondent new real property tax assessments covering
the portions of the properties leased to taxable entities. If
the Republic of the Philippines fails to pay the real

9 Iloilo Bottlers vs What is an excise tax? It is a The City of Iloilo enacted an ordinance on January 11,
City of Iloilo tax imposed on privilege or 1960 known as Ordinance No. 5, Series of 1960 which
license, such as the ordinance was successively amended by Ordinance No. 28,
manufacturing or selling of Series of 1960; Ordinance No. 15, Series of 1964; and
1 min digest: softdrinks in this case. Ordinance No. 45, Series of 1964; which provides as
follows:
Iloilo bottlers: we’re
not liable for taxes Section l. — Any person, firm or corporation engaged in the
because our plant is DISTRIBUTION, MANUFACTURE OR BOTTLING of coca-cola,
located outside Iloilo pepsi cola, tru-orange, seven-up and other soft drinks within the
jurisdiction of the City of Iloilo, shall pay a municipal license tax
City.
of ten (P0.10) centavos for every case of twenty-four bottles;
PROVIDED, HOWEVER, that softdrinks sold to the public at not
SC: Section 1-A says more than five (P0.05) centavos per bottle shall pay a tax of one
“SALE”, which you and one half (P0.015) (centavos) per case of twenty four bottles.
are doing under your
marketing system. Section 1-A—For purposes of this Ordinance, all deliveries
Pay up beyoyotch! and/or dispatches emanating or made at the plant and all goods
or stocks taken out of the plant for distribution, SALE or
exchange irrespective (of) where it would take place shall be
covered by the operation of this Ordinance.
Plaintiff Iloilo Bottlers is engaged in the business of
bottling softdrinks under the trade name of Pepsi Cola And
7-up and selling the same to its customers, with a bottling
plant situated at Barrio Ungca Municipality of Pavia, Iloilo,
Philippines and which is outside the jurisdiction of
defendant.
That plaintiff explained in a letter to the defendant that it
could not anymore be liable to pay the municipal license
fee because its bottling plant (was) not anymore inside the
City of Iloilo, and that moreover, since it itself (sold) its
own products to its (customers) directly, it could not be
considered as a distributor.
property tax on the portions of the properties leased to
taxable entities, then such portions may be sold at public
auction to satisfy the tax delinquency.
Whether or not Iloilo bottlers is separately engaged in the
selling of softdrinks and is therefore liable to pay taxes.
To determine whether an entity engaged in the principal
business of manufacturing, is likewise engaged in the
separate business of selling, its marketing system or sales
operations must be looked into.
In several cases the Court had occasion to distinguish two
marketing systems:
Under the first system, the manufacturer enters into sales
transactions and invoices the sales at its main office where
purchase orders are received and approved before
delivery orders are sent to the company's warehouses,
where in turn actual deliveries are made. No warehouse
sales are made; nor are separate stores maintained where
products may be sold independently from the main office.
The warehouses only serve as storage sites and delivery
points of the products earlier sold at the main office. Under
the second system, sales transactions are entered into and
perfected at stores or warehouses maintained by the
company. Any one who desires to purchase the product
may go to the store or warehouse and there purchase the
merchandise. The stores and warehouses serve as selling
centers.
Entities operating under the first system are NOT
considered engaged in the separate business of selling or
dealing in their products, independent of their
manufacturing business. Entities operating under the
second system are considered engaged in the separate
business of selling.
In the case at bar, the company distributed its softdrinks
by means of a fleet of delivery trucks which went directly
to customers in the different places in lloilo province. Sales
transactions with customers were entered into and sales
were perfected and consummated by route salesmen.
Truck sales were made independently of transactions in
the main office. The delivery trucks were not used solely

10 MIAA vs. CA GOCC = Taxable Petitioner Manila International Airport Authority (MIAA)
operates the Ninoy Aquino International Airport (NAIA)
Instrumentality = EXEMPT Complex in Parañaque City under Executive Order No. 903,
even though vested with otherwise known as the Revised Charter of the Manila
corporate powers International Airport Authority ("MIAA Charter").
Executive Order No. 903 was issued on 21 July 1983 by
Definition of government then President Ferdinand E. Marcos. Subsequently,
instrumentality. Executive Order Nos. 909 and 298 amended the MIAA
Charter.
As operator of the international airport, MIAA administers
the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land, including the runways
and buildings ("Airport Lands and Buildings") then under
the Bureau of Air Transportation. The MIAA Charter
further provides that no portion of the land transferred to
MIAA shall be disposed of through sale or any other mode
for the purpose of delivering softdrinks previously sold at
Pavia. They served as selling units. They were what were
called, until recently, "rolling stores". The delivery trucks
were therefore much the same as the stores and
warehouses under the second marketing system. Iloilo
Bottlers, Inc. thus falls under the second category above.
That is, the corporation was engaged in the separate
business of selling or distributing soft-drinks,
independently of its business of bottling them.
The tax imposed under Ordinance No. 5 is an excise tax. It
is a tax on the privilege of distributing, manufacturing or
bottling softdrinks. Being an excise tax, it can be levied by
the taxing authority only when the acts, privileges or
businesses are done or performed within the jurisdiction
of said authority [Commissioner of Internal Revenue v.
British Overseas Airways Corp. and Court of Appeals, G.R.
Nos. 65773-74, April 30, 1987, 149 SCRA 395, 410.]
Specifically, the situs of the act of distributing, bottling or
manufacturing softdrinks must be within city limits, before
an entity engaged in any of the activities may be taxed in
Iloilo City.
As stated above, sales were made by Iloilo Bottlers, Inc. in
Iloilo City. Thus, We have no option but to declare the
company liable under the tax ordinance.
This petition raises the threshold issue of whether the
Airport Lands and Buildings of MIAA are exempt from real
estate tax under existing laws.
MIAA's Airport Lands and Buildings are exempt from real
estate tax imposed by local governments.
First, MIAA is not a government-owned or controlled
corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second,
the real properties of MIAA are owned by the Republic of
the Philippines and thus exempt from real estate tax.
MIAA is a government instrumentality vested with
corporate powers to perform efficiently its governmental
functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested
with corporate powers. Section 2(10) of the Introductory
unless specifically approved by the President of the
Philippines.
On 21 March 1997, the Office of the Government Corporate
Counsel (OGCC) issued Opinion No. 061. The OGCC opined
that the Local Government Code of 1991 withdrew the
exemption from real estate tax granted to MIAA under
Section 21 of the MIAA Charter. Thus, MIAA negotiated
with respondent City of Parañaque to pay the real estate
tax imposed by the City. MIAA then paid some of the real
estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real
Estate Tax Delinquency from the City of Parañaque for the
taxable years 1992 to 2001.
Provisions of the Administrative Code defines a
government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis
supplied)
When the law vests in a government instrumentality
corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only
governmental but also corporate powers. Thus, MIAA
exercises the governmental powers of eminent
domain, police authority and the levying of fees and
charges. At the same time, MIAA exercises "all the powers
of a corporation under the Corporation Law, insofar as
these powers are not inconsistent with the provisions of
this Executive Order."
Likewise, when the law makes a government
instrumentality operationally autonomous, the
instrumentality remains part of the National Government
machinery although not integrated with the department
framework. The MIAA Charter expressly states that
transforming MIAA into a "separate and autonomous
body" will make its operation more "financially viable."
Section 133(o) recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local
governments may only exercise such power "subject to
such guidelines and limitations as the Congress may
provide."
When local governments invoke the power to tax on
national government instrumentalities, such power is

11 Swedish Match Phil (double taxation definition In 2001, Swedish Match petitioner paid business taxes in
vs City Treasurer of and test) the total amount of P470,932.21. The assessed amount
Manila was based on Sections 14 and 21 of Ordinance No. 7794,
otherwise known as the Manila Revenue Code, as amended
by Ordinance Nos. 7988 and 8011. Out of that amount,
P164,552.04 corresponded to the payment under Section
21.
Assenting that it was not liable to pay taxes under Section
21, Swedish Match wrote a letter dated 17 September
2003 to the City Treasurer claiming a refund of business
taxes the it had paid pursuant to the said provision arguing
that payment under Section 21 constituted double taxation
in view of its payment under Section 14.
In 2003 for failing to act on the refund claim, Swedish
Match filed a Petition for Refund of Taxes with the RTC of
Manila in accordance with Section 196 of the Local
Government Code of 1991. The RTC denied the Petition
stating that Sections 14 and 21 pertained to taxes of a
different nature and, thus, the elements of double taxation
were wanting in this case.
construed strictly against local governments. The rule is
that a tax is never presumed and there must be clear
language in the law imposing the tax. Any doubt whether a
person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local
governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed
against the taxpayer claiming the exemption. However,
when Congress grants an exemption to a national
government instrumentality from local taxation, such
exemption is construed liberally in favor of the national
government instrumentality.
Whether or not double taxation exists, entitling the
petitioner a refund.
Double taxation means taxing the same property twice
when it should be taxed only once; that is, "taxing the same
person twice by the same jurisdiction for the same thing."
It is obnoxious when the taxpayer is taxed twice, when it
should be but once. Otherwise described as "direct
duplicate taxation," the two taxes must be imposed on the
same subject matter, for the same purpose, by the same
taxing authority, within the same jurisdiction, during the
same taxing period; and the taxes must be of the same kind
or character.
Using the aforementioned test, the Court finds that there is
indeed double taxation if respondent is subjected to the
taxes under both Sections 14 and 21 of Tax Ordinance No.
7794, since these are being imposed:
1. on the same SUBJECT matter – the privilege of doing
business in the City of Manila;
2. for the same PURPOSE – to make persons
conducting business within the City of Manila
contribute to city revenues;
3. by the same taxing AUTHORITY – petitioner City of
Manila;
4. within the same taxing JURISDICTION – within the
territorial jurisdiction of the City of Manila;
5. for the same taxing PERIODS – per calendar year;
and
6. of the same kind or CHARACTER – a local business

12 Villanueva vs City of The municipal board of Iloilo City enacted Ordinance 11:
Iloilo
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON
PERSONS ENGAGED IN THE BUSINESS OF OPERATING
TENEMENT HOUSES
In Iloilo City, the appellees Eusebio Villanueva and
Remedios S. Villanueva are owners of five tenement
houses. By virtue of the ordinance in question, the
appellant City collected from spouses Eusebio Villanueva
and Remedios S. Villanueva, for the years 1960-1964, the
sum of P5,824.30, and from the appellees Pio Sian Melliza,
Teresita S. Topacio, and Remedios S. Villanueva, for the
years 1960-1964, the sum of P1,317.00. Eusebio
Villanueva has likewise been paying real estate taxes on
his property.
tax imposed on gross sales or receipts of the
business.
Based on the foregoing reasons, petitioner should not have
been subjected to taxes under Section 21 of the Manila
Revenue Code for the fourth quarter of 2001, considering
that it had already been paying local business tax under
Section 14 of the same ordinance.
Whether or not the is Ordinance illegal because it imposes
double taxation.
Legal.
The trial court condemned the ordinance as constituting
"not only double taxation but treble at that," because
"buildings pay real estate taxes and also income taxes as
provided for in Sec. 182 (A) (3) (s) of the National Internal
Revenue Code, besides the tenement tax under the said
ordinance."
While it is true that the plaintiffs-appellees are taxable
under the aforesaid provisions of the National Internal
Revenue Code as real estate dealers, and still taxable
under the ordinance in question, the argument against
double taxation may not be invoked. The same tax may be
imposed by the national government as well as by the local
government. There is nothing inherently obnoxious in the
exaction of license fees or taxes with respect to the same
occupation, calling or activity by both the State and a
political subdivision thereof.
The contention that the plaintiffs-appellees are doubly
taxed because they are paying the real estate taxes and the
tenement tax imposed by the ordinance in question, is also
devoid of merit. It is a well-settled rule that a license tax
may be levied upon a business or occupation although the
land or property used in connection therewith is subject to
property tax. The State may collect an ad valorem tax on
property used in a calling, and at the same time impose a
license tax on that calling, the imposition of the latter kind
of tax being in no sense a double tax.
In order to constitute double taxation in the objectionable
or prohibited sense the same property must be taxed twice

13 Meralco Securities The late Juan G. Maniago (substituted in these proceedings
Corp. vs Savellano by his wife and children) submitted to petitioner
Commissioner of Internal Revenue confidential
denunciation against the Meralco Securities Corporation
for tax evasion for having paid income tax only on 25 % of
the dividends it received from the Manila Electric Co. for
the years 1962-1966, thereby allegedly shortchanging the
government of income tax due from 75% of the said
dividends.
Petitioner Commissioner of Internal Revenue investigated
the denunciation after which he found and held that no
deficiency corporate income tax was due from the Meralco
Securities Corporation on the dividends it received from
the Manila Electric Co. The Commissioner informed
Maniago of his findings and ruling and therefore denied
Maniago's claim for informer's reward on a non-existent
deficiency.
Maniago filed a petition for mandamus to compel the
Commissioner to impose the alleged deficiency tax
assessment on the Meralco Securities Corporation and to
award to him the corresponding informer's reward.
when it should be taxed but once; both taxes must be
imposed on the same property or subject-matter, for the
same purpose, by the same State, Government, or taxing
authority, within the same jurisdiction or taxing district,
during the same taxing period, and they must be the same
kind or character of tax. It has been shown that a real
estate tax and the tenement tax imposed by the ordinance,
although imposed by the same taxing authority, are not of
the same kind or character.
At all events, there is no constitutional prohibition against
double taxation in the Philippines. It is something not
favored, but is permissible, provided some other
constitutional requirement is not thereby violated, such as
the requirement that taxes must be uniform.
Whether or not mandamus avails to compel the
Commissioner to impose the alleged deficiency tax
assessment on the Meralco Securities Corporation.
Mandamus doesn’t lie.
Since the office of the Commissioner of Internal Revenue is
charged with the administration of revenue laws, which is
the primary responsibility of the executive branch of the
government, mandamus may not lie against the
Commissioner to compel him to impose a tax assessment
not found by him to be due or proper for that would be
tantamount to a usurpation of executive functions.
Thus, the Commissioner who is specifically charged by law
with the task of enforcing and implementing the tax laws
and the collection of taxes had after a mature and
thorough study rendered his decision or ruling that no tax
is due or collectible, and his decision is sustained by the
Secretary, now Minister of Finance (whose act is that of
the President unless reprobated), such decision or ruling is
a valid exercise of discretion in the performance of official
duty and cannot be controlled much less reversed by
mandamus. A contrary view, whereby any stranger or
informer would be allowed to usurp and control the
official functions of the Commissioner of Internal Revenue
would create disorder and confusion, if not chaos and total
disruption of the operations of the government.

14 Asia Int’l Facts
Congress enacted Republic Act (R.A.) No. 7227
Auctioneers Inc. vs. creating the Subic Special Economic Zone (SSEZ) and
Parayno extending a number of economic or tax incentives therein.
Later, the CIR issued Revenue Memorandum Circular
(RMC) No. 31-2003 setting the "Uniform Guidelines on the
Taxation of Imported Motor Vehicles through the Subic
Free Port Zone and Other Freeport Zones that are Sold at
Public Auction."
Petitioners Asia International Auctioneers, Inc. (AIAI) and
Subic Bay Motors Corporation are corporations organized
under Philippine laws with principal place of business
within the SSEZ. They are engaged in the importation of
mainly secondhand or used motor vehicles and heavy
transportation or construction equipment which they sell
to the public through auction.
Petitioners filed a complaint before the RTC of Olongapo
City, praying for the nullification of RMC No. 31-2003 for
being unconstitutional and an ultra vires act.
Considering then that respondent judge may not order by
mandamus the Commissioner to issue the assessment
against Meralco Securities Corporation when no such
assessment has been found to be due, no deficiency taxes
may therefore be assessed and collected against the said
corporation. Since no taxes are to be collected, no
informer's reward is due to private respondents as the
informer's heirs. Informer's reward is contingent upon the
payment and collection of unpaid or deficiency taxes. An
informer is entitled by way of reward only to a percentage
of the taxes actually assessed and collected. Since no
assessment, much less any collection, has been made in the
instant case, respondent judge's writ for the Commissioner
to pay respondents 25% informer's reward is gross error
and without factual nor legal basis.
Whether or not the trial court has jurisdiction over the case.
Trial court has no jurisdiction.
Petitioners contend that jurisdiction over the case at bar
properly pertains to the regular courts as this is "an action
to declare as unconstitutional, void and against the
provisions of [R.A. No.] 7227" the RMCs issued by the CIR.
They explain that they "do not challenge the rate, structure
or figures of the imposed taxes, rather they challenge the
authority of the respondent Commissioner to impose and
collect the said taxes." They claim that the challenge on the
authority of the CIR to issue the RMCs does not fall within
the jurisdiction of the Court of Tax Appeals (CTA).
Petitioners’ arguments do not sway.
RMCs are considered administrative rulings which are
issued from time to time by the CIR.
In the case at bar, the assailed revenue regulations and
revenue memorandum circulars are actually rulings or
opinions of the CIR on the tax treatment of motor vehicles
sold at public auction within the SSEZ to implement
Section 12 of R.A. No. 7227 which provides that
"exportation or removal of goods from the territory of the
[SSEZ] to the other parts of the Philippine territory shall
be subject to customs duties and taxes under the Customs

15 Hydro Resources vs The National Irrigation Administration agreed with
CA petitioner Hydro Resources Contractors Corporation to
construct the Magat River Multipurpose Project.
Under the contract, petitioner was allowed to procure new
construction equipment, spare parts and tools from
abroad, the payment for which was advanced by NIA
under a financing plan embodied in the contract. By the
terms of the contract, NIA undertakes payment of all the
import duties and taxes incident to the importations.
HYDRO shall repay NIA in full the value of the construction
equipment out of the same proceeds before eventual
transfer of subject construction equipment upon
termination of the contract.
NIA reneged and failed in the compliance of its tax
obligations. In the meantime, HYDRO had fully repaid the
value of the construction equipment so much so that NIA
executed deeds of sale covering the same and transferring
the ownership thereof in favor of petitioner. Upon the
transfer of the ownership of the said equipment the
Bureau of Customs assessed HYDRO the corresponding
customs duty and compensating tax.
HYDRO was assessed additional 3% ad valorem duty
prescribed in Executive Order 860. HYDRO paid this
amount but this time under protest.
and Tariff Code and other relevant tax laws of the
Philippines." They were issued pursuant to the power of
the CIR under Section 4 of the National Internal Revenue
Code.
The cases of Rodriguez vs. Blaquera and CIR vs. Leal re-
affirmed.
Whether or not Hydro should pay the 3% ad valorem tax
even if the contract was perfected before EO 860 was
promulgated.
Not pay.
Executive Order No. 860 which was the basis for the
imposition of the 3% ad valorem duty upon the said
importations, took effect on December 21, 1982. The
importations were effected in 1978 and 1979 by NIA.
The subsequent executions of the Deeds of Sale of the
equipment in question on 1982 and 1983 are not relevant
in considering the application of Executive Order No. 860
because said Deeds of Sale were mere formalities in the
implementation of Contract executed on 1978, which
should be reckoned and construed as the actual date of
sale. This must be so because the contract of purchase and
sale of the NIA-financed/owned equipment to Hydro took
place in 1978 when Contract was signed by NIA and
HYDRO wherein the contracting parties provided for their
financing, procurement, delivery, repayment, transfer of
possession and ownership.
The contract of sale of the equipment between them was
perfected in 1978. It is a perfected contract of sale subject
to a suspensive condition, the full payment by HYDRO of
the consideration for the subject of the contract is the
operative act to compel NIA to effect the transfer of
absolute ownership thereof to HYDRO.
It is a cardinal rule that laws shall have no retroactive
effect, unless the contrary is provided. Except for a
statement providing for its immediate execution,
Executive Order No. 860 does not provide for its
retroactivity. Consequently, the importations in question
which arrived in 1977 and 1978 are not subject to the 3%

16 Republic vs Note:
Mambulao Can taxes be subject to
compensation (offsetting)
under NCC Art. 1278? Yes,
but in this case they were
not mutual debtors and
creditors with each other, so
compensation as not applied
by the Supreme Court
additional ad valorem duty, the same being imposed only
on those whose letter of credit were opened after the
promulgation of Executive Order 860.
The only issue to be resolved in this appeal is whether the
sum of P9,127.50 paid by defendant-appellant company to
plaintiff-appellee as reforestation charges from 1947 to
1956 may be set off or applied to the payment of the sum
of P4,802.37 as forest charges due and owing from
appellant to appellee. It is appellant's contention that said
sum of P9,127.50, 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 said
sum of P4,802.37 due from it as forest charges.
DEVOID of merit.
And the weight of authority is to the effect that internal
revenue taxes, such as the forest charges in question, can
be the subject of set-off or compensation.
A claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off under the statutes of
set-off, which are construed uniformly, in the light of
public policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is
liable to the state or municipality for taxes. Neither are
they a proper subject of recoupment since they do not
arise out of the contract or transaction sued on. ... (80 C.J.S.
73-74. ) .
The general rule, based on grounds of public policy is well-
settled that no set-off is admissible against demands for
taxes levied for general or local governmental purposes.
The reason on which the general rule is based, is that taxes
are not in the nature of contracts between the party and
party but grow out of a duty to, and are the positive acts of
the government, to the making and enforcing of which, the
personal consent of individual taxpayers is not required. ...
If the taxpayer can properly refuse to pay his tax when
called upon by the Collector, because he has a claim
against the governmental body which is not included in
the tax levy, it is plain that some legitimate and necessary
expenditure must be curtailed. If the taxpayer's claim is
disputed, the collection of the tax must await and abide the
result of a lawsuit, and meanwhile the financial affairs of
the government will be thrown into great confusion. (47
Am. Jur. 766-767.)

Under this provision, it seems quite clear that the amount

collected as reforestation charges from a timber licenses
or concessionaire shall constitute a fund to be known as
the Reforestation Fund, and that the same shall be
expended by the Director of Forestry, with the approval of
the Secretary of Agriculture and Natural Resources for the
reforestation or afforestation, among others, of denuded
areas which, upon investigation, are found to be needing
reforestation or afforestation. Note that 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 should be refunded to him. Observe too, that the
licensee's area may or may not be reforested at all,
depending on whether the investigation thereof by the
Director of Forestry shows that said area needs
reforestation. The conclusion seems to be that the amount
paid by a licensee as reforestation charges is in the nature
of a tax which forms a part of the Reforestation 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.

Appellant maintains that the principle of a compensation

in Article 1278 of the new Civil Code2 is applicable, such
that the sum of P9,127.50 paid by it as reforestation
charges may compensate its indebtedness to appellee in
the sum of P4,802.37 as forest charges. But in the view we
take of this case, appellant and appellee are not mutually
creditors and debtors of each other. Consequently, the law
on compensation is inapplicable. On this point, the trial
court correctly observed: .

Under Article 1278, NCC, compensation should take place

when two persons in their own right are creditors and
debtors of each other. With respect to the forest charges
which the defendant Mambulao Lumber Company has paid
to the government, they are in the coffers of the
government as taxes collected, and the government does
not owe anything, 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.