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# Case Title Case Digest

General Principles / Inherent
1 CIR vs. Algue, Inc. [G.R. No. L- COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
28896. February 17, 1988] G.R. No. L-28896 | February 17, 1988 | CRUZ, J.:

The Philippine Sugar Estate Development Company had earlier appointed Algue Inc., as its agent, authorizing it to sell its land, factories and oil
manufacturing process. As such, the corporation worked for the formation of the Vegetable Oil Investment Corporation, until they were able to
purchase the PSEDC properties. For this sale, Algue Inc., received as agent a commission of P126, 000.00, and it was from this commission that the
P75, 000.00 promotional fees were paid to Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez.

Commissioner of Internal Revenue contends that the claimed deduction is not allowed because it was not an ordinary reasonable or necessary
business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue Inc., it held that the said amount had been legitimately paid
by the private respondent for actual services rendered. The payment was in the form of promotional fees.

Whether or not the Collector of Internal Revenue correctly disallowed the P75, 000.00 deduction claimed by private respondent Algue Inc., as
legitimate business expenses in its income tax returns.

No. The amount was earned through the joint efforts of the persons among whom it was distributed.

The amount of the promotional fees was not excessive. There was a reasonable proportion, considering that it was the payees who did practically
everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. This finding of
the respondent court is in accord with Section 30 of the Tax Code and Revenue Regulations No. 2, Section 70 (1),

The 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.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate
and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able
to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably
and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For
all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not
been observed.

We find that the claimed deduction by the private respondent was permitted under the Internal Revenue Code and should therefore not have been
disallowed by the petitioner.


# Case Title Case Digest

2 PAL vs. EDU [G.R. No. L- PHILIPPINE AIRLINES, INC., plaintiff-appellant, vs. ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
41383. August 15, 1988] CARBONELL, in his capacity as National Treasurer, defendants-appellants.
G.R. No. L- 41383 | August 15, 1988 | GUTIERREZ, JR., J.:

The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a legislative franchise, Act No. 42739. Under its
franchise, PAL is exempt from the payment of taxes.

Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate) issued a regulation pursuant to Section 8, Republic Act
4136, otherwise known as the Land and Transportation and Traffic Code, requiring all tax exempt entities, among them PAL to pay motor vehicle
registration fees.

Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts imposed under Republic Act 4136 were paid. PAL
thus paid, under protest, registration fees of its motor vehicles. After paying under protest, PAL demanded refunds invoking the ruling in Calalang v.
Lorenzo, where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative

Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus Lines, Inc., to the effect that motor vehicle
registration fees are regulatory exceptional. and not revenue measures and, therefore, do not come within the exemption granted to PAL under its

Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo Carbonell. The trial court dismissed PAL's complaint. PAL appealed to the
Court of Appeals which in turn certified the case to the Supreme Court.

Whether or not motor vehicle registration fees are considered as taxes.

Yes. 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.
Such is the case of motor vehicle registration fees. The motor vehicle registration fees are actually taxes intended for additional revenues of the
government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for rigidly purposes in the exercise of the State's
police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which
modem life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues.
Without changing the earlier deputy. of
registration payments as "fees," their nature has become that of "taxes."

In view of the foregoing, 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.

3 Esso Standard Eastern Inc. vs. ESSO STANDARD EASTERN, INC., (formerly, Standard-Vacuum Oil Company), petitioner, vs. THE COMMISSIONER OF INTERNAL
CIR [G R. No. -19508-09. July REVENUE, respondent.
7, 1989] G.R. Nos. L-28508-9 | July 7, 1989 | CRUZ, J.,

In CTA Case No. 1251, petitioner 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 respondent Commissioner of Internal
Revenue 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. The CIR later granted a tax credit of P221,033.00 only, disallowing the claimed deduction
for the margin fees paid.

In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the year 1960, in the amount of P367,994.00, plus 18% interest thereon
of P66,238.92 for a total of P434,232.92. The deficiency arose from the disallowance of the margin fees of Pl,226,647.72 paid by ESSO to the Central
Bank on its profit remittances to its New York head office.

ESSO settled this deficiency assessment by applying the tax credit of P221,033.00 representing its overpayment on its income tax for 1959 and
paying under protest the additional amount of P213,201.92. Thereafter, it claimed the refund of P39,787.94 as overpayment on the interest on its
deficiency income tax. The CIR denied the claims of ESSO for refund of the overpayment of its 1959 and 1960 income taxes, holding that the margin
fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses. ESSO appealed to the CTA which also
denied petitioner’s claim for refund.

1) Whether or not the margin fees are taxes
2) Whether or not the margin fees are necessary and ordinary business expenses deductible from its gross income

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. We conclude then that the margin fee was imposed by the State in the exercise of its police power and not the power of

2) NO. Based on the statutory test of deductibility, it is axiomatic that to be deductible as a business expense, three conditions are imposed, namely:
(1) the expense must be ordinary and necessary, (2) it must be paid or incurred within the taxable year, and (3) it must be paid or incurred in carrying
on a trade or business. In addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or records the
deductions claimed under the law, otherwise, the same will be disallowed. The mere allegation of the taxpayer that an item of expense is ordinary and
necessary does not justify its deduction.

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. The term
'ordinary' does not require that the payments be habitual or normal in the sense that the same taxpayer will have to make them often; the payment
may be unique or nonrecurring to the particular taxpayer affected.


# Case Title Case Digest

10448 August 30, 1957] OF THE CITY OF MANILA and ARSENIO H. LACSON, as Mayor of the City of Manila, respondents-appellees.
G.R. No. L-10448 | 30 August 1957 | MONTEMAYOR, J.,

The Physical Therapy Organization , an association of registered massagists and licensed operators of massage clinics in the City of Manila and other
parts of the country, filed an action in the Court of First Instance (CFI) of Manila for declaratory judgment regarding the validity of Municipal Ordinance
3659, promulgated by the Municipal Board and approved by the City Mayor (Enacted 27 August 1954, and approved and effective 7 September

To stop the City from enforcing said ordinance, the Organization secured an injunction upon filing of a bond in the sum of P1,000.00. A hearing was
held, but the parties without introducing any evidence submitted the case for decision on the pleadings, although they submitted written memoranda.

Thereafter, the trial court dismissed the petition and later dissolved the writ of injunction previously issued. The Organization appealed said order of
dismissal directly to the Supreme Court.

Whether the license fees imposed by the Ordinance against massage clinic operators is unreasonable.

No. The purpose of the Ordinance is not to regulate the practice of massage, much less to restrict the practice of licensed and qualified massagists of
therapeutic massage in the Philippines. The end sought to be attained in the Ordinance is to prevent the commission of immorality and the practice of
prostitution in an establishment masquerading as a massage clinic where the operators thereof offer to massage or manipulate superficial parts of the
bodies of customers for hygienic and aesthetic purposes.

The permit fee is made payable not by the masseur or massagist, but by the operator of a massage clinic who may not be a massagist himself.
Compared to permit fees required in other operations, P100.00 may appear to be too large and rather unreasonable, but much discretion is given to
municipal corporations in determining the amount of said fee without considering it as a tax for revenue purposes. There is a marked distinction
between license fees imposed upon useful and beneficial occupations which the sovereign wishes to regulate but not restrict, and those which are
inimical and dangerous to public health, morals or safety. In the latter case the fee may be very large without necessarily being a tax.

Evidently, the Manila Municipal Board considered the practice of hygienic and aesthetic massage not as a useful and beneficial occupation which will
promote and is conducive to public morals, and consequently, imposed the said permit fee for its regulation.

[G.R. No.1-17725. February G.R. No. L-17725 | February 28, 1962
28, 1962]
From 1947 to 1956, respondent company Mambulao paid to petitioner RP reforestation charges, pursuant to Section 1 of RA No. 115, which provides
for payment of an amount in addition to regular forest charges under the National Internal Revenue Code for each timber removed or cut out from any
public forest for commercial purposes, the amount of which to be used for reforestation. Owing forest charges to the RP from the period of 1952 until
1953 and with the contention that RP has not made use of those restoration charges collected from it for reforesting the denuded area of the land
covered by its license, Mambulao wrote the Director of Forestry in 1957, requesting that its account with the bureau be credited with all the
reforestation charges imposed by it from 1947 to 1956. Said director answered, quoting the opinion of Secretary of Justice, to the effect that it had no
discretion to extend the time for paying reforestation charges, and also explained why not all denuded areas are being reforested. When the case was
brought to the trial court, the latter favored the RP, ordering Mambulao to pay its charges with interest. Hence, Mambulao interposed this appeal.

Can the principle of compensation under the New Civil Code be applied in this case, such that the amount paid by Mambulao as reforestation charges
from 1947 to 1956 be set off or applied to the payment of the amount as forest charges from 1952 to 1953 due and owing from the latter to the RP?

No. The weight of authority is to the effect that internal revenue taxes, such as the forest charges in question, cannot be the subject of set-off or
compensation. The reason 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).

Furthermore, note that there is nothing in Section 1 of RA No. 115 that 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.

Petition is dismissed. The trial court’s decision is affirmed


# Case Title Case Digest

No. L-67649. June 28, 1988] G.R. No. L-67649 | June 28, 1988

Petitioner Francia was the registered owner of house and lot in Pasay. A portion said property was, however, expropriated by the Republic of the
Philippines (RP). Since Francia was unable to pay his real estate taxes from 1963 to 1977, said property was sold at a public auction by the City
Treasurer of Pasay by virtue of Real Property Tax Code to satisfy said tax delinquency. Private respondent Fernandez was the highest bidder for the
property. Later, Francia received
a notice of hearing concerning a land registration case filed by Fernandez, seeking cancellation of Francia’s title to said property, and the issuance on
his name of a new title. This prompted Francia to file a complaint to annul the auction sale in court. The trial court, however, dismissed the complaint.
Respondent IAC affirmed the trial court’s decision on appeal.

Hence, Francia filed this petition for review, contending that IAC made an error of judgment in not holding his obligation to pay for his supposed tax
delinquency was set-off by the amount which the RP is indebted to the former from the expropriation proceedings.

Can tax obligations be set-off by operation of law?

No. Jurisprudence has been consistent in ruling that there can be no off-setting 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. This rule was reiterated in the case of Corders v. Gonda
(18 SCRA 331) where it was stated that internal revenue taxes cannot be the subject of compensation for the reason that government and taxpayer
are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a ”claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.”

In view of the foregoing, Francia’s claim of set-off is clearly without legal basis.

There are other factors that compelled the court to rule against Francia: The tax was due to the city government while the expropriation was effected
by the national government. Moreover, the amount that the RP was indebted to Francia for the expropriated portion of the latter’s property was already
paid, which was in fact deposited with the Philippine National Bank long before the sale at public auction of the remaining property. Notice of the
deposit was received by Francia, and he admitted in his testimony that he knew about the amount deposited with the bank but he did not withdraw it. It
would have been an easy matter to withdraw from the deposit so that he could pay the tax obligation thus aborting the sale at public auction.

IAC’s decision is affirmed. Petition is dismissed.

7 Melecio R. Domingo vs. Hon. MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner, vs. HON. LORENZO C. GARLITOS, in his capacity as Judge of the
Lorenzo C. Garlitos [G.R. No. Court of First Instance of Leyte, and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price,
L-18994. June 29, 1963] respondents.
G.R. No. L-18994 | June 29, 1963

By virtue of RA No. 2700, a contract between Respondent Simeona and Director Zoilo Castrillo, and a note from Carlos Garcia, Castrillo was directed
to pay Simeona an amount to the Leyte Cadastral Survey, Inc, which was represented by Simeona as administratrix. Later, in the case Melecio
Domingo v. Hon. Judge 5. Moscoso, the Supreme Court declared as final and executory the order issued by the CPI of Leyte for the payment by the
subject estate of the estate and inheritance taxes, charges, and penalties in special proceedings entitled “In the matter of the Intestate Estate of the
Late Walter Scott Price.” To execute said claims, the fiscal presented a petition to said court for the execution ofjudgment. This was, however, denied
by respondent judge, holding that the execution is not justifiable as the Government is indebted to the estate under administration, and ordered that
the payment of inheritance taxes be deducted from the amount due and payable to the administratrix. Hence, petitioner filed this petition for certiorari
and mandamus against respondent judge, seeking to annul that latter’s said orders and for the latter to execute the judgment in favor of the
Government against the subject estate for internal revenue taxes.

In view of foregoing facts, was there a valid compensation in this case between the estate and the Government?

Yes. Compensation takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount.

In this case, the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and the
amount was already appropriated for the purpose by a corresponding law, which was RA No. 2700. Under the above circumstances, both the claim of
the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as
fully liquidated. Hence, compensation takes place, and there is no longer a right to execute the judgment for taxes against the subject estate.

Furthermore, the ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for
the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. The legal basis for
such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the
estate are under the jurisdiction of the court and such jurisdiction continues until said properties have been distributed among the heirs entitled
thereto. During the pendency of the proceedings all the estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the
court judgment, to seize the properties but to ask the court for an order to require the administrator to pay the amount due from the estate and
required to be paid.

Petition is dismissed. The proper remedy of petitioner is appeal.


# Case Title Case Digest

CIR [G.R. No. 117359. July 23, G.R. No. 117359 | July 23, 1998
From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies, refined and manufactured mineral oils as well as motor and
diesel fuels. Said oil companies paid the specific taxes imposed on the sale of said products. Being included in the purchase price of the oil products,
the specific taxes paid by the oil companies were eventually passed on to the petitioner in this case. Petitioner filed before Respondent CIR a claim for
refund in the amount of P120,825.11, representing 25% of the specific taxes actually paid on the above-mentioned fuels and oils that were used by
petitioner in its operations as forest concessionaire. On January 20, 1983, petitioner filed at the CTA a petition for review. The CTA rendered its
decision finding petitioner entitled to a partial refund of specific taxes in the reduced amount of P2,923.15. In regard to the other purchases, the CTA
granted the claim, but it computed the refund based on rates deemed paid under RA 1435, and not on the higher rates actually paid by petitioner
under the NIRC. Insisting that the basis for computing the refund should be the increased rates prescribed by Sections 153 and 156of the NIRC,
petitioner elevated the matter to the Court of Appeals. The Court of Appeals affirmed the CTA Decision. Hence, this petition for review.

Whether or not petitioner is entitled to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured mineral

At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5 of RA 1435, which was enacted to provide means for
increasing the Highway Special Fund. A tax cannot be imposed unless it is supported by the clear and express language of a statute; on the other
hand, once the tax is unquestionably imposed, “[a] claim of exemption from tax payments must be clearly shown and based on language in the law
too plain to be mistaken.” Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, it must be construed
strictissimi juris against the grantee. Hence, petitioner’s claim of refund on the basis of the specific taxes it actually paid must expressly be granted in
a statute stated in a language too clear to be mistaken.
COA [G.R. No. 92585. May 8, G.R. No. 92585 | May 08, 1992
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 1986
and 188 of the additional tax on petroleum products authorized under Section 8 of PD 1956; and that pending such remittance, all its claims for
reimbursement from the OPSF shall be held in abeyance. Caltex requested COA, notwithstanding an early release of its reimbursement certificates
from the OPSF, which COA denied. On 31 May 1989, Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved
the proposal but prohibited Caltex from further offseting remittances and reimbursements for the current and ensuing years. Caltex moved
for reconsideration.

Whether or not the amounts due from Caltex to the OPSF may be offsetted against Caltex’ outstanding claims from said funds.

The court 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 tax payer
may not offset taxes due from the claims that he may have against the government. Taxes cannot be thes ubject 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.

Thus, the amounts due to OPSF by petitioner Caltex cannot be offsetted against the latter’s outstanding claims from OPSF.
Men's Christian Associations of GR No. 124043 | October 14, 1998
the Phils., Inc. [G.R. No.
124043. October 14, 1998] FACTS
Private respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public,
especially the young people, pursuant to its religious, educational and charitable objectives.

YMCA earned income from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and from parking fees
collected from non-members. Petitioner issued an assessment to private respondent for deficiency taxes. Private respondent formally protested the
assessment. In reply, the CIR denied the claims of YMCA.

Whether or not the income derived from rentals of real property owned by YMCA subject to income tax.

Yes. Income of whatever kind and character of non-stock non-profit organizations from any of their properties, real or personal, or from any of their
activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under the NIRC.

Rental income derives by a tax-exempt organization from the lease of its properties, real or personal, is not exempt from income taxation, even if such
income is exclusively used for the accomplishment of its objectives.

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

Private respondent also invokes Article XIV, Section 4, par. 3 of the Character, claiming that the YMCA "is a non-stock, non-profit educational
institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties
and income." We reiterate that private respondent is exempt from the payment of property tax, but not income tax on the rentals from its property. The
bare allegation alone that it is a nonstock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax.


# Case Title Case Digest

11 Pascual vs. Secretary of Public PASCUAL VS. THE SECRETARY OF PUBLIC WORKS
Works [G.R. No. L-10405. G.R. No. L-10405 | December 29, 1960
December 29, 1960]
In 1954, Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works", appropriated P85,000.00 "for the construction, reconstruction,
repair, extension and improvement" of Pasig feeder road terminals. Such project would traverse the Antonio Subdivision, owned by private respondent
Zulueta, who was then a Senator. Petitioner Pascual
assails the constitutionality of R.A. 920, on the ground that the appropriation of P85,000.00 therein made by Congress would greatly enhance or
increase the property of Zulueta. And that the Congress was made to believe that the projected feeder roads in question were "public roads and not
private streets of a private subdivision". Respondents moved to dismiss the petition on the ground that Petitioner had no locus standi nor did the
petition state a cause of action.

Trial court dismissed the petition; ruling that since the donation made by Respondent Zulueta to the Government was subject to a condition, i.e. that
the Government of the Republic of the Philippines will use the parcels of land hereby donated for street purposes only and for no other purposes
whatsoever…” which is onerous, the donation in question is a contract; therefore, since petitioner herein, because his "interest are not directly
affected" thereby has no locus standi; and that, accordingly, the appropriation in question "should be upheld" and the case dismissed.

Whether or not appropriation made by the Congress is valid

NO. In accordance with the rule that the taxing power must be exercised for public purposes only, money raised by taxation can be expended only for
public purposes and not for the advantage of private individuals.

Generally, under the express or implied provisions of the constitution, public funds may be used only for public purpose. The right of the legislature to
appropriate funds is correlative with its right to tax, and, under constitutional provisions against taxation except for public purposes and prohibiting the
collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than for a public

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest, as
opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public.

Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said
appropriation sought a private purpose, and hence, was null and void. The donation to the Government, over five (5) months after the approval and
effectivity of said Act, made, according to the petition, for the purpose of giving a "semblance of legality", or legalizing, the appropriation in question,
did not cure its aforementioned basic defect. Consequently, a judicial nullification of said donation need not precede the declaration of
unconstitutionality of said appropriation.


# Case Title Case Digest

Airport Authority vs. Marcos [G. G.R. No. 120082 | September 11, 1996
R. No. 120082. September 11.
1996] FACTS
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to "principally undertake the
economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug
Airport in Cebu City, . . . and such other Airports as may
be established in the Province of Cebu . .. . (Sec. 3, RA 6958). Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its Charter. On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office
of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner. Petitioner objected to
such demand for payment as baseless and unjustified, claiming in its favor the aforecitedSection 14 of RA 6958 which exempt it from payment of
realty taxes. It was also asserted that it is an instrumentality of the government performing governmental functions, citing section 133 of the Local
Government Code of 1991 which puts limitations on the taxing powers of local government units. Respondent City refused to cancel and set aside
petitioner's realty tax account, insisting that the MCIAA is a government controlled corporation whose tax exemption privilege has been withdrawn by
virtue of Sections 193and 234 of the Local Governmental Code that took effect on January 1, 1992.

Whether the City of Cebu has the power to impose taxes on the petitioner?

Yes. Petition is denied. As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature
no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are
to pay it. So potent indeed is the power that it was once opined that "the power to tax involves the power to destroy." Verily, taxation is a destructive
power which interferes with the personal and property for the support of the government. Accordingly, tax statutes must be construed strictly against
the government and liberally in favor of the taxpayer. A claim of exemption from tax payment must be clearly shown and based on language in the law
too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception. However, if the grantee of the exemption is a
political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce
the amount of money that has to be handled by the government in the course of its operations.

There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National
Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the
exception, the exemption may thus be withdrawn at the pleasure of the
taxing authority. The only exception to this rule is where the exemption was granted to private parties based on material consideration of a mutual
nature, which then becomes contractual and is thus covered by the non-impairment clause of the Constitution.

The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by local government units of their power to tax, the
scope thereof or its limitations, and the exemption from taxation. Section 234 of LGC provides for the exemptions from payment of real property taxes
and withdraws previous exemptions therefrom granted to natural and juridical persons, including government-owned and controlled corporations,
except as provided therein. Since the last paragraph of Section 234 unequivocally withdrew, upon the affectivity of the LGC, exemptions from real
property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section,
and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of
its charter, R.A. No. 6958, has been withdrawn.

Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the foregoing disquisitions, it had already
become even if it be conceded to be an "agency" or"instrumentality" of the Government, a taxable person for such purpose in view of the withdrawal in
the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner.

Constitutional Limitations
13 Bagatsing vs. Ramirez (G.R. FACTS:
No. L-41631. December 17, In 1974, the Municipal Board of Manila enacted Ordinance 7522, regulating the operation of public markets and prescribing fees for the rentals of
1976] stalls and providing penalties for violation thereof. The Federation of Manila Market Vendors Inc. assailed the validity of the ordinance, alleging among
others the noncompliance to the publication requirement under the Revised Charter of the City of Manila. CFI-Manila declared the ordinance void.
Thus, the present petition.

(1) What law should govern the publication of a tax ordinance, the Revised City Charter, which requires publication of the
ordinance before its enactment and after its approval, or the Local Tax Code, which only demands publication after
(2) Is the ordinance valid?
(1) The Local Tax Code prevails. There is no question that the Revised Charter of the City of Manila is a special act since it relates only to the City of
Manila whereas the Local Tax Code is a general law because it applies universally to all local governments. The fact that one is special and the other
general creates a presumption that the special is to be considered as remaining an exception of the general, one as a general law of the land, the
other as the law of a particular case. However, the rule readily yields to a situation where the special statute refers to a subject in general, which the
general statute treats in particular. The Revised Charter of the City prescribes a rule for the publication of “ordinance” in general, while the Local Tax
Code establishes a rule for the publication of “ordinance levying or imposing taxes fees or other charges” in particular.

(2) The ordinance is valid.


# Case Title Case Digest

Executive Secretary [G.R. No. G.R. No. 168056, September 1, 2005
168056. September 1, 2005]
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005. They question the
constitutionality of Sections 4,5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC. Section 4 imposes a 10%
VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services
and use or lease of properties. These questioned provisions contain a uniform proviso authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the following conditions have been satisfied, to wit:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds oneand one-half percent (1 ½%).

1. WON the grant of stand-by authority to the President to increase the VAT rate is an abdication by Congress of its exclusive power to tax because
such delegation is not within the purview of Section 28 (2), Article VI of the Constitution
2. Whether or not there is a violation of the due process and equal protection under ArticleIII Sec. 1 of the Constitution.
3. WON the questioned provisions violate Article VI, Section 28(1) of the Constitution whichstates in part that “The Congress shall evolve a
progressive system of taxation.”

1. No. There is no undue delegation of legislative power to tax. The legislature may delegate to executive officers or bodies the power to determine
certain facts or conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to depend, but the legislature
must prescribe sufficient standards, policies or limitations on their authority. While the power to tax cannot be delegated to executive agencies, details
as to the enforcement and administration of an exercise of such power may be left to them, including the power to determine the existence of facts on
which its operation depends.
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006,
contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the control
of the executive.
2. The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to
the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment,valuation and collection,
the State’s power is entitled to presumption of validity. As a rule,the judiciary will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.
3. Progressive taxation is built on the principle of the taxpayer’s ability to pay. Taxation is progressive when its rate goes up depending on the
resources of the person affected. The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. Theprinciple of progressive
taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is
the same regardless of income.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall
"evolve a progressive system of taxation." The Court stated in the Tolentino case, that the constitutional provision has beeninterpreted to mean simply
that ‘direct taxes are . . . to be preferred [and] as much aspossible, indirect taxes should be minimized.’
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes
according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating
of certain transactions, while granting exemptions to othertransactions.
15 Eastern Thetrical vs. Alfonso FACTS:
[G.R. No. L-1104. May 31, Petitioners, corporations engaged in the motion picture business, impugns the validity of Ordinance No. 2958 (“An
1949] Ordinance Imposing a Fee on the Price of Every Admission Ticket Sold by Cinematographs, Theaters, Vaudeville Companies,
Theatrical Shows and Boxing Exhibition and Providing for Other Purposes”) enacted by the Municipal Board of the City of
Manila. The complaint assailed the validity of the said ordinance on the ground that the Municipal Board of Manila exceeded
and over-stepped the power granted it the Charter of the City of Manila, among others. Defendants allege as affirmative
defenses that the ordinance was passed by the Municipal Board of Manila by virtue of its express legislative power to tax fix
the license fee and regulate the business of theaters, cinematographs and further to fix the location of and to tax, fix the
license fee for and regulate the business of theatrical performances public exhibition circus and other performances and
places of amusement. They also allege that since May 1, 1946, when the ordinance in question took effect plaintiffs have
been charging the theater-going public increased prices for admission to the cinematographs owned and operated to the
graduated tax imposed by said ordinance and as a result while refusing to pay said tax but at the same time collecting an
amount equal to said tax plaintiffs have taken undue advantage of said ordinance to realized more profits. The CFI of
Manila upheld the validity of the ordinance, thus the plaintiffs instituted an appeal.

Whether or not the Municipal Board of the City of Manila had the power to enact Ordinance No. 2958 under section
2444 (m) of the Revised administrative Code.

Yes, the Municipal Board has the power to enact the Ordinance. Appellants contend that the lower court erred in
holding that under section 2444 (m) of the Revised administrative Code the Municipal Board of the City of Manila had the
power to enact Ordinance No. 2958. The assumption of the plaintiff that the power granted to the City of Manila by section
2444(m) of the Revised Administrative Code is limited only to the authority to impose a tax on business, with exclusion of
the power to impose a tax amusement is based on an arbitrary labeling of the kind of tax authorized by said section
The tax therein authorized cannot be defined as tax on business and cannot be restricted within a smaller scope than what
is authorized by the words used, to the extent of excluding what plaintiffs describe as tax on amusement. The very fact that
section 2444 (m) of the Revised Administrative Code includes theaters, cinematographs, public billiard tables, public pool
tables, bowling alleys, dance halls, public dancing halls, cabarets, circuses and other similar places, race tracks, horse races,
theatrical performances, public exhibition, circus and other performances and places of amusements, will show conclusively
that the power to tax amusement is expressly included within the power granted by section 2444(m) of the Revised
Administrative Code.


# Case Title Case Digest

16 British American Tobacco. vs. British American Tobacco vs. Camacho (2008)
Camacho [G.R. Nc. 163583. G.R. No. 163583 | August 20, 2008 | YNARES-SANTIAGO, J.
August 20, 2008 and April 15,
2009] FACTS
June 2001, petitioner British American Tobacco introduced and sold Lucky Strike, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes w/ SRP P 9.90/pack -
Initial assessed excise tax: P 8.96/pack (Sec. 145 [c])

February 17, 2003: RR 9-2003: Periodic review every 2 years or earlier of the current net retail price of new brands and variants thereof for the purpose of the
establishing and updating their tax classification

March 11, 2003: RMO 6-2003: Guidelines and procedures in establishing current net retail prices of new brands of cigarettes and alcohol products

August 8, 2003: RR 22-2003: Implement the revised tax classification of certain new brands introduced in the market after January 1, 1997 based on the survey of their
current net retail prices. This increased the excise tax to P13.44 since the average net retail price is above P 10/pack. This cause petitioner to file before the RTC of
Makati a petition for injunction with prayer for issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction sought to enjoin the implementation of
Sec. 145 of the NIRC, RR No. 1-97, 9-2003, 22-2003 and 6-2003 on the ground that they discriminate against new brands of cigarettes in violation of the equal
protection and uniformity provisions of the Constitution

RTC: Dismissed

While petitioner's appeal was pending, RA 9334 amending Sec. 145 of the 1997 NIRC among other took effect on January 1, 2005 which in effect increased petitioners
excise tax to P25/pack
Petitioner filed a Motion to Admit attached supplement and a supplement to the petition for review assailing the constitutionality of RA 9334 and praying a downward
classification of Lucky Strike products at the bracket taxable at P 8.96/pack since existing brands are still taxed based on their price as of October 1996 eventhough
they are equal or higher than petitioner's product price.

Philip Morris Philippines Manufacturing Incorporated, Fortune Tobacco Corp., Mighty Corp. and JT International Intervened.

Fortune Tobacco claimed that the CTA should have the exclusive appellate jurisdiction over the decision of the BIR in tax disputes

(1) W/N the RTC rather than the CTA has jurisdiction.
(2) W/N RA 9334 of the classification freeze provision is unconstitutional for violating the equal protection and uniformity provisions of the Constitution
(3) W/N RR Nos. 1-97, 9-2003, 22-2003 and RA 8243 even prior to its amendment by RA 9334 can authorize the BIR to conduct resurvey and reclassification.

(1) Yes. The jurisdiction of the CTA id defined in RA 1125 which confers on the CTA jurisdiction to resolve tax disputes in general. BUT does NOT include cases
where the constitutionality of a law or rule is challenged which is a judicial power belonging to regular courts.

(2) No. In Sison Jr. v. Ancheta, the court held that "xxx 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. If the law be looked upon in
tems of burden on charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the
rest. xxx" Thus, classification if rational in character is allowable. In Lutz v. Araneta: "it is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional
limitation" SC previously held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate.
The taxing power has the authority to make reasonable and natural classifications for purposes of taxation"

Under the the rational basis test, a legislative classification, to survive an equal protection challenge, must be shown to rationally further a legitimate state interest. The
classifications must be reasonable and rest upon some ground of difference having a fair and substantial relation to the object of the legislation

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.

Moreover, petitioner failed to clearly demonstrate the exact extent of such impact as the price is not the only factor that affects competition.

(3) NO. Unless expressly granted to the BIR, the power to reclassify cigarette brands remains a prerogative of the legislature which cannot be usurped by the former.
These are however modified by RA 9334.

British American Tobacco. vs. Camacho (2009)

A levy of tax is not unconstitutional because it is not intrinsically equal and uniform in its operation.The uniformity rule does not prohibit classification for purposes of

British American Tobacco filed a Motion for Reconsideration for the Court’s decision in 2008

Petitioner interposes that the assailed provisions: (1) violate the equal protection and uniformity of taxation clauses of the Constitution, (2) contravene Section 19,[1]
Article XII of the Constitution on unfair competition, and (3) infringe the constitutional provisions on regressive and inequitable taxation.

Petitioner further argues that assuming the assailed provisions are constitutional, it is entitled to a downward reclassification of Lucky Strike from the premium-priced to
the high-priced tax bracket.

Lucky Strike reiterates in its MR that the classification freeze provision violates the equal protection and uniformity of taxation clauses because older brands are taxed
based on their 1996 net retail prices while new brands are taxed based on their present-day net retail prices.

Petition is denied

Without merit and a rehash of petitioner’s previous arguments before this Court

The rational basis test was properly applied to gauge the constitutionality of the assailed law in the face of an equal protection challenge 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.

The classification freeze provision was inserted in the law for reasons of practicality and expediency.
since a new brand was not yet in existence at the time of the passage of RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a new brand.
The current net retail price, similar to what was used to classify the brands under Annex “D” as of October 1, 1996, was thus the logical and practical choice

The classification freeze provision was in the main the result of Congress’s earnest efforts to improve the efficiency and effectivity of the tax administration over sin
products while trying to balance the same with other State interests.


# Case Title Case Digest

Double Taxation and Tax
17 Executive Secretary vs. FACTS: This instant consolidated petitions seek to annul the decisions of the Regional Trial Court which declared Article 2, Section 3.1 of Executive
Southwing Heavy Industries Order 156 unconstitutional. Said EO 156 prohibits the importation of used vehicles in the country inclusive of the Subic Bay Freeport Zone.
[G.R. No. 164171, February
20, 2006] On December 12, 2002, President Gloria Macapagal Arroyo issued Executive Order 156 entitled "Providing for a comprehensive industrial policy and
directions for the motor vehicle development program and its implementing guidelines." The said provision prohibits the importation of all types of used
motor vehicles in the country including the Subic Bay Freeport, or the Freeport Zone, subject to a few exceptions.

Consequently, three separate actions for declaratory relief were filed by Southwing Heavy Industries Inc, Subic Integrated Macro Ventures Corp, and
Motor Vehicle Importers Association of Subic Bay Freeport Inc. praying that judgment be rendered declaring Article 2, Section3.1 of the EO 156
unconstitutional and illegal.

The RTC rendered a summary judgment declaring that Article 2, Section 3.1 of EO 156 constitutes an unlawful usurpation of legislative power vested
by the Constitution with Congress and that the proviso is contrary to the mandate of Republic Act 7227(RA 7227) or the Bases Conversion and
Development Act of 1992 which allows the free flow of goods and capital within the Freeport.

The petitioner appealed in the CA but was denied on the ground of lack of any statutory basis for the President to issue the same. It held that the
prohibition on the importation of use motor vehicles is an exercise of police power vested on the legislature and absent any enabling law, the exercise
thereof by the President through an executive issuance is void.

Whether or not the Private Respondents have the legal standing in questionaing the said law?
Whether or not Article2, Section 3.1 of EO 156 is a valid exercise of the President’s quasi-legislative power.

YES. Petitioners argue that respondents will not be affected by the importation ban considering that their certificate of registration and tax exemption
do not authorize them to engage in the importation and/or trading of used cars.

The established rule that the constitutionality of a law or administrative issuance can be challenged by one who will sustain a direct injury as a result of
its enforcementhas been satisfied in the instant case. The broad subject of the prohibited importation is “all types of used motor
vehicles.” Respondents would definitely suffer a direct injury from the implementation of EO 156 because their certificate of registration and tax
exemption authorize them to trade and/or import new and used motor vehicles and spare parts, except “used cars.” Other types of motor vehicles
imported and/or traded by respondents and not falling within the category of used cars would thus be subjected to the ban to the prejudice of their
business. Undoubtedly, respondents have the legal standing to assail the validity of EO 156.

Police power is inherent in a government to enact laws, within constitutional limits, to promote the order, safety, health, morals, and general welfare of
society. It is lodged primarily with the legislature. By virtue of a valid delegation of legislative power, it may also be exercised by the President and
administrative boards, as well as the lawmaking bodies on all municipal levels, including the barangay. Such delegation confers upon the President
quasi-legislative power which may be defined as the authority delegated by the law-making body to the administrative body to adopt rules and
regulations intended to carry out the provisions of the law and implement legislative policy provided that it must comply with the following requisites:

(1) Its promulgation must be authorized by the legislature;

(2) It must be promulgated in accordance with the prescribed procedure;
(3) It must be within the scope of the authority given by the legislature; and
(4) It must be reasonable.

The first requisite was actually satisfied since EO 156 has both constitutional and statutory bases.

Anent the second requisite, that the order must be issued or promulgated in accordance with the prescribed procedure, the presumption is that the
said executive issuance duly complied with the procedures and limitations imposed by law since the respondents never questioned the procedure that
paved way for the issuance of EO 156 but instead, what they challenged was the absence of substantive due process in the issuance of the EO.

In the third requisite, the Court held that the importation ban runs afoul with the third requisite as administrative issuances must not be ultra vires or
beyond the limits of the authority conferred. In the instant case, the subject matter of the laws authorizing the President to regulate or forbid
importation of used motor vehicles, is the domestic industry. EO 156, however, exceeded the scope of its application by extending the prohibition on
the importation of used cars to the Freeport, which RA 7227, considers to some extent, a foreign territory. The domestic industry which the EO seeks
to protect is actually the "customs territory" which is defined under the Rules and Regulations Implementing RA 7227 which states: "the portion of the
Philippines outside the Subic Bay Freeport where the Tariff and Customs Code of the Philippines and other national tariff and customs laws are in
force and effect."

Regarding the fourth requisite, the Court finds that the issuance of EO is unreasonable. Since the nature of EO 156 is to protect the domestic industry
from the deterioration of the local motor manufacturing firms, the Court however, finds no logic in all the encompassing application of the assailed
provision to the Freeport Zone which is outside the customs territory of the Philippines. As long as the used motor vehicles do not enter the customs
territory, the injury or harm sought to be prevented or remedied will not arise.

The Court finds that Article 2, Section 3.1 of EO 156 is VOID insofar as it is made applicable within the secured fenced-in former Subic Naval Base
area but is declared VALID insofar as it applies to the customs territory or the Philippine territory outside the presently secured fenced-in former Subic
Naval Base area as stated in Section 1.1 of EO 97-A (an EO executed by Pres. Fidel V. Ramos in 1993 providing the Tax and Duty Free Privilege
within the Subic Freeport Zone). Hence, used motor vehicles that come into the Philippine territory via the secured fenced-in former Subic Naval Base
area may be stored, used or traded therein, or exported out of the Philippine territory, but they cannot be imported into the Philippine territory outside
of the secured fenced-in former Subic Naval Base area.

Petitions are PARTIALLY GRANTED provided that said provision is declared VALID insofar as it applies to the Philippine territory outside the
presently fenced-in former Subic Naval Base area and VOID with respect to its application to the secured fenced-in former Subic Naval Base area.


# Case Title Case Digest

18 John Hay People's Alternative FACTS: Herein petitioners assail the validity of Presidential Decree No. 420, Series of 1994, “CREATING AND DESIGNATING A PORTION OF THE
R.A. 7227 provides for the conversion into alternative productive uses of former military bases in the Philippines, such as Clark and Subic military
reservations and their extensions including John Hay Station (Camp John Hay). RA 7227 created BCDA to carry out the objectives of the law, and the
Subic Special Economic (and Free Port) Zone (Subic SEZ), the metes and bounds of which were to be delineated in a Presidential Proclamation.

Subic SEZ was granted by R.A. 7227 incentives ranging from tax and duty-free importations, exemption of businesses therein from local and national
taxes, to other hallmarks of a liberalized financial and business climate. R.A. No. 7227 expressly gave authority to the President to create, through
executive proclamation, subject to the concurrence of the local government units directly affected, other SEZs in areas such as Camp John Hay.

BCDA entered into a Joint Venture Agreement with private respondents Tuntex and Asiaworld for the development of Poro Poin in La Union and
Camp John Hay as premier tourist destinations and recreation centers. The Baguio City government passed several resolutions regarding the actions
taken by BCDA. Among these involve the exclusion of barangays located within the camp from BCDA’s development programs, a development
program that affords protection to the environment, family-oriented tourist destinations, priority for Baguio residents in employment opportunities, and
liability for local taxes of businesses to be established within the camp. The Sangguniang Panlungsod of Baguio finally passed a resolution supporting
P.D. 420 issued by President Ramos, declaring a portion of the camp as a SEZ.

P.D. 420 also declared among others that Camp John Hay SEZ is likewise entitled to all applicable incentives of SEZ under Section 12 of RA 7227
such as the tax exemptions aforementioned. Herein petitioners challenged among others this provision of PD 420 on tax exemption for being invalid
as it is an unconstitutional exercise by the president of a power granted only to the legislature, and that it violates the rule that taxes should be uniform
and equitable. Hence, this application to the Supreme Court for temporary restraining order and/or writ of preliminary injunction against respondents
for implementation of PD 420.

ISSUES: Whether or not PD 420 is constitutional by providing for national and local tax exemption within and granting other economic incentives to
John Hay SEZ.

RULING: NO. The Court observed that nowhere in RA 7227 is there a grant of tax exemption to SEZs yet to be established in base areas. The tax
exemption provision of Section 12 of RA 7227 only applies exclusively to Subic SEZ, as confirmed by the deliberations of the Senate during the
reading of the bill of RA 7227 with respect to investment policies that would govern Subic SEZ.

It is clear that under said Section 12, it is only the Subic SEZ which was granted by Congress with tax exemption, investment incentives and the like.
There is no express extension of the aforesaid benefits to other SEZs still to be created at the time via presidential proclamation.
While the grant of economic incentives may be essential to the creation and success of SEZs, free trade zones and the like, the grant thereof to John
Hay SEZ cannot be sustained. The incentives under
R.A. 7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the John Hay SEZ finds no support therein. Neither does the
same grant of privileges to the John Hay SEZ find support in the other laws specified under Section 3 of Proclamation No. 420.

Petitioners are correct in concluding that the grant of tax exemption to John Hay SEZ contravenes Article VI, Section 28 (4) of the Constitution which
provides that “No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of Congress.” It is the
legislature, unless limited by a provision of the state constitution, that has full power to exempt any person or corporation or class of property from
taxation, its power to exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions,
or local governments may pass ordinances on exemption only from local taxes. The challenged grant of tax exemption would circumvent the
Constitution’s imposition that a law granting any tax exemption must have the concurrence of a majority of all the members of Congress.

The claimed statutory exemption of the John Hay SEZ from taxation should be manifest and unmistakable from the language of the law on which it is
based; it must be expressly granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot be implied as it must be
categorically and unmistakably expressed. If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and incentives
given to the Subic SEZ, it would have so expressly provided in the R.A. No. 7227.
In view of the foregoing, the second sentence of Section 3 of PD 420 is declared NULL AND VOID and of no legal force and effect. The remaining
provisions thereof remains valid and effective.

OTHER THINGS to note in the case (baka maitanong ni sir):

1. When questions of constitutional significance are raised, the court can exercise its power of judicial review only if the following requisites are
present: (1) the existence of an actual and appropriate case; (2) a personal and substantial interest of the party raising the constitutional question; (3)
the exercise of judicial review is pleaded at the earliest opportunity; and (4) the constitutional question is the lis mota of the case. These are present
in the case, thus, SC has jurisdiction to try and decide the case, despite the fact that that RA 7227 actually gives it the jurisdiction to enjoin or restrain
implementation of projects for conversion of the base areas. Petitioners also have locus standi to institute this action as they have real interest over
the subject matter.
2. The SC can void an act or policy of the political departments of the government on either of two grounds–infringement of the Constitution or grave
abuse of discretion.
3. Where part of a statute is void as contrary to the Constitution, while another part is valid, the valid portion, if separable from the invalid, may stand
and be enforced.


# Case Title Case Digest

Pacheco vs. IAC [G.R. No. L- G.R. No. L-69259 January 26, 1988
69259. January 26, 1988]
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a
contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family
TAX3D 2014-2015
merely changed their ownership from one form to another. The ownership remained in the same hands. It is considered
as“Estate Planning” and the same is not prohibited. The legal right of a taxpayer to decrease the amount of what otherwise
could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.

Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real estate Identified as Lot.
No. 1095, Malinta Estate, in the Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila). The said coowners leased to
Construction Components International Inc. the same property and providing that during the existence or
after the term of this lease the lessor should he decide to sell the property leased shall first offer the same to the lessee and
the letter has the priority to buy under similar conditions. Construction Components International Inc. then assigned all its
rights to Hydro Pipes Philippines, Inc.
On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher
Trades Corporation whereby the former conveyed to the latter the leased property together with another parcel of land also
located in Malinta Estate, Valenzuela, Metro Manila for 2,500 shares of stock of defendant corporation with a total value of
On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease
agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance.
The CFI of Bulacan ruled in favor of Hydro Pipes Philippines, Inc. and ordered to convey the property to Hydro Pipes who
may offer to acquire the same.

Whether the deed of exchange by the Pachecos with Delpher Trades Corporation constitutes a contract of sale that violates
the right to first refusal of Hydro Pipes.

NO. The Supreme Court ruled that the "Deed of Exchange" of property between the Pachecos and Delpher Trades
Corporation cannot be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to
a third party. The Pacheco family merely changed their ownership from one form to another. The ownership remained in
the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract.
What the Pachecos did was mere “estate planning”. For the purposes of succession and to minimize the tax that may be
imposed during succession proceedings. The said properties were transferred to the Corporation, which may be in existence
for at least 50 years.
The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the
Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid
them, by means which the law permits, cannot be doubted."

Insurance [G.R. No. 119176. G.R. No. 119176 | March 19, 2002
March 19, 2002]
Private respondent Lincoln Philippine Life Insurance Co., Inc. is a domestic corporation engaged in life insurance business. In the years prior to 1984,
private respondent issued a special kind of life insurance policy known as the "Junior Estate Builder Policy," the distinguishing feature of which is a
clause providing for an automatic increase in the amount of life insurance coverage upon attainment of a certain age by the insured without the need
of issuing a new policy. The clause was to take effect in the year 1984.

Documentary stamp taxes due on the policy were paid by petitioner only on the initial sum assured.

Sec. 173 of the National Internal Revenue Code provides that for any documents, instruments, and papers, there there shall be levied, collected and
paid for the corresponding documentary stamp taxes.

Sec. 183 of the same code also imposes tax on life insurance policies.

ISSUE 1: Whether or not the automatic increase clause is distinct and separate from that of the original agreement, and thus the payment of
documentary stamp taxes should also be imposed.

RULING: No, the SC affirmed the ruling of the Court of Tax Appeals which stated that there was only one transaction involved, and that the automatic
increase clause is an integral part of the policy.

It is clear from Section 49 and 50, Title VI of the Insurance Code that any rider, clause, warranty or endorsement pasted or attached to the policy is
considered part of such policy or contract of insurance.

Although the clause was to take effect only in 1984, it was written into the policy at the time of its

The distinctive feature of the "junior estate builder policy" called the "automatic increase clause" already formed part and parcel of the insurance
contract, hence, there was no need for an execution of a separate agreement for the increase in the coverage that took effect in 1984 when the
assured reached a certain age.

ISSUE 2: How should the documentary stamp tax be computed?

RULING: Section 183 states that it is to be computed in the amount fixed in the policy. However, there was no fixed amount computed on the
additional increase based on the automatic increase clause since it is a suspensive condition. The SC ruled that Although the automatic increase in
the amount of life insurance coverage was to take effect later on, the date of its effectivity, as well as the amount of the increase, was already definite
at the time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance necessarily included the additional sum
covered by the automatic increase clause because it was already determinable at the time the transaction was entered into and formed part of the


# Case Title Case Digest

Toda [G.R. No. 147188. G.R. No. 147188 | September 14, 2004
September 14, 2004]
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its outstanding capital stock, to sell the Cibeles Building.
On 30 August 1989, 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. Three and a half years later Toda died. On 29 March 1994, the BIR sent an assessment notice and
demand letter to the CIC for deficiency income tax for the year 1989. On 27 January 1995, 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 CIR for deficiency income tax for the year 1989.
The Estate thereafter filed a letter of protest. The Commissioner dismissed the protest. On 15 February 1996, the Estate filed a petition for review with
the CTA. In its decision the CTA held that the Commissioner failed to prove that CIC committed fraud to deprive the government of the taxes due it. It
ruled that even assuming that a pre-conceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax evasion. Hence,
the CTA declared that the Estate is not liable for deficiency of income tax. The Commissioner filed a petition for review with the Court of Appeals. The
Court of Appeals affirmed the decision of the CTA. Hence, this recourse to the SC

Whether or not this is a case of tax evasion or tax avoidance

Tax evasion connotes the integration of three factors: (1) the end to be achieved,i.e., the payment of less than that known by the taxpayer to be legally
due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being “evil,” in “bad faith,”
“willfull,” or “deliberate and not accidental”; and (3) a course of action or failure of action which is unlawful. All these factors are present in the instant
case. 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. Altonaga’s sole purpose of acquiring and
transferring title of the subject properties on the same day was to create a tax shelter. 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.

Fraud in its general sense, “is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach
of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage
is taken of another.”It is 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

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.

Generally, a sale or exchange of assets will have an income tax incidence only when it is consummated. The incidence of taxation depends upon the
substance of a transaction. The tax consequences arising from gains from a sale of property are not finally to be determined solely by the means
employed to transfer legal title. Rather, the transaction must be viewed as a whole, and each step from the commencement of negotiations to the
consummation of the sale is relevant. A sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a
conduit through which to pass title. To permit the true nature of the transaction to be disguised by mere formalisms, which exist solely to alter tax
liabilities, would seriously impair the effective administration of the tax policies of Congress.

To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity 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.


# Case Title Case Digest

Communications [G.R. No. GR No. 167260 | February 27, 2009
167260. February 27, 2009]
SMART received a letter of assessment dated February 12, 2002 from petitioner requiring it to pay deficiency local franchise and business taxes, in
the amount of P764,545.29, which it incurred for the years 1997 to 2001. SMART protested the assessment, claiming exemption from payment of
local franchise and business taxes based on Section 9 of its legislative franchise under Republic Act (R.A.) No. 7294 (SMART’s franchise). Under
SMART’s franchise, it was required to pay a franchise tax equivalent to 3% of all gross receipts, which amount shall be in lieu of all taxes. SMART
contends that the “in lieu of all taxes” clause covers local franchise and business taxes. SMART similarly invoked R.A. No. 7925 or the Public
Telecommunications Policy Act (Public Telecoms Act) whose Section 23 declares that any existing privilege, incentive, advantage, or exemption
granted under existing franchises shall ipso facto become part of previously granted-telecommunications franchise. SMART contends that by virtue of
Section 23, tax exemptions granted by the legislature to other holders of telecommunications franchise may be extended to and availed of by SMART.

The petitioner posits that SMART’s claim for exemption under its franchise is not equivocal enough to prevail over the specific grant of power to local
government units to exact taxes from businesses operating within its territorial jurisdiction under Section 137 in relation to Section 151 of the LGC.
More importantly, it claimed that exemptions from taxation have already been removed by Section 193 of the LGC, which provides that tax exemptions
or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under RA No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.

Whether or not SMART is exempt from the payment of local franchise and business taxes under Section 9 of its franchise and Section 23 of the Public
Telecoms Act.

The basic principle in the construction of laws granting tax exemptions is he who claims an exemption from his share of the common burden of
taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be beyond doubt or mistake.

We have indeed ruled that by virtue of Section 193 of the LGC, all tax exemption privileges then enjoyed by all persons, save those expressly
mentioned, have been withdrawn effective January 1, 1992 – the date of effectivity of the LGC. The first clause of Section 137 of the LGC states the
same rule. However, the withdrawal of exemptions, whether under Section 193 or 137 of the LGC, pertains only to those already existing when the
LGC was enacted. The intention of the legislature was to remove all tax exemptions or incentives granted prior to the LGC. As SMART’s franchise
was made effective on March 27, 1992 – after the effectivity of the LGC – Section 193 will therefore not apply in this case.

But while Section 193 of the LGC will not affect the claimed tax exemption under SMART’s franchise, we fail to find a categorical and encompassing
grant of tax exemption to SMART covering exemption from both national and local taxes:

R.A. No 7294 does not expressly provide what kind of taxes SMART is exempted from. It is not clear whether the “in lieu of all taxes” provision in the
franchise of SMART would include exemption from local or national taxation. What is clear is that SMART shall pay franchise tax equivalent to three
percent (3%) of all gross receipts of the business transacted under its franchise. But whether the franchise tax exemption would include exemption
from exactions by both the local and the national government is not unequivocal.

The uncertainty in the “in lieu of all taxes” clause in R.A. No. 7294 on whether SMART is exempted from both local and national franchise tax must be
construed strictly against SMART which claims the exemption.

SMART’s claim for exemption from local business and franchise taxes based on Section 9 of its franchise is therefore unfounded.

Whether Section 23 of the Public Telecoms Act extends tax exemptions granted by Congress to new franchise holders to existing ones has been
answered in the negative in the case of PLDT v. City of Davao. The term “exemption” in Section 23 of the Public Telecoms Act does not mean tax
exemption; rather, it refers to exemption from certain regulatory or reporting requirements imposed by government agencies such as the National
Telecommunications Commission. The thrust of the Public Telecoms Act is to promote the gradual deregulation of entry, pricing, and operations of all
public telecommunications entities, and thus to level the playing field in the telecommunications industry. The language of Section 23 and the
proceedings of both Houses of Congress are bereft of anything that would signify the grant of tax exemptions to all telecommunications entities. Intent
to grant tax exemption cannot therefore be discerned from the law; the term “exemption” is too general to include tax exemption and runs counter to
the requirement that the grant of tax exemption should be stated in clear and unequivocal language too plain to be beyond doubt or mistake.
23 National Power Corporation vs. FACTS:
CBAA [G.R. No. 171470. First Private Power Corporation (FPPC) entered into a Build-Operate-Transfer (BOT) agreement with NAPOCOR for the construction of Bauang
January 30. 2009] Diesel Power Plant and creation of Bauang Power Plant Corporation (BPPC). The pertinent provisions of the BOT agreement, include among others:
“2.03 NAPOCORxxx shall be responsible for the payment of all real estate taxes and assessments, rates, and other charges in respect of the Site and
the buildings and improvements thereon.” The Municipal Assessor of Bauang issued a Notice of Assessment and Tax Bill to BPPC. NAPOCOR
sought tax exemption on the basis if Sec. 234(c) of R.A. No. 7160.

Under the terms of the BOT, can the GOCC be deemed the actual, direct, and exclusive user of machineries and equipment for tax exemption
purposes? If not, can it pass on its tax-exempt status to its BOT partner, a private corporation, through the BOT agreement?

NO. Neither can NAPOCOR pass its tax–exempt status to its BOT partner.

NAPOCOR’s basis for its claimed exemption – Section 234(c) of the LGC – is clear and not at all ambiguous in its terms. Exempt from real property
taxation are: (a) all machineries and equipment; (b) [that are] actually, directly, and exclusively used by; (c) [local water districts and] government-
owned or –controlled corporations engaged in the [supply and distribution of water and/or] generation and transmission of electric power.

By [BOT’s] express terms, BPPC has complete ownership – both legal and beneficial – of the project, including the machineries and equipment used,
subject only to the transfer of these properties without cost to NAPOCOR after the lapse of the period agreed upon. As agreed upon, BPPC provided
the funds for the construction of the power plant, including the machineries and equipment needed for power generation; thereafter, it actually
operated and still operates the power plant, uses its machineries and equipment, and receives payment for these activities and the electricity
generated under a defined compensation scheme. Notably, BPPC – as owner-user – is responsible for any defect in the machineries and equipment.

Consistent with the BOT concept and as implemented, BPPC – the owner-manager-operator of the project – is the actual user of its machineries and
equipment. BPPC’s ownership and use of the machineries and equipment are actual, direct, and immediate, while NAPOCOR’s is contingent and, at
this stage of the BOT Agreement, not sufficient to support its claim for tax exemption.