1)
Compromise for non-filing of withholding 100.00
G.R. No. L-22074 April 30, 1965
THE PHILIPPINE GUARANTY CO., INC.,​ petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS,​ respondents.
Josue H. Gustilo and Ramirez and Ortigas for petitioner.
Office of the Solicitor General and Attorney V.G. Saldajena for respondents.
BENGZON, J.P., ​J.:
The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts, on
various dates, with foreign insurance companies not doing business in the Philippines namely: Imperio
Compañia de Seguros, La Union y El Fenix Español, Overseas Assurance Corp., Ltd., Socieded Anonima
de Reaseguros Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union Assurance Society Ltd., Swiss
Reinsurance Company and Tariff Reinsurance Limited. Philippine Guaranty Co., Inc., thereby agreed to
cede to the foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the
Philippines, in consideration for the assumption by the latter of liability on an equivalent portion of the risks
insured. Said reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the
foreign reinsurers outside the Philippines, except the contract with Swiss Reinsurance Company, which was
signed by both parties in Switzerland.
The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that of
Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc. was required to
keep a register in Manila where the risks ceded to the foreign reinsurers where entered, and entry therein
was binding upon the reinsurers. A proportionate amount of taxes on insurance premiums not recovered
from the original assured were to be paid for by the foreign reinsurers. The foreign reinsurers further agreed,
in consideration for managing or administering their affairs in the Philippines, to compensate the Philippine
Guaranty Co., Inc., in an amount equal to 5% of the reinsurance premiums. Conflicts and/or differences
between the parties under the reinsurance contracts were to be arbitrated in Manila. Philippine Guaranty
Co., Inc. and Swiss Reinsurance Company stipulated that their contract shall be construed by the laws of the
Philippines.
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign reinsurers
the following premiums:
1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71
1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85
Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it file its income
tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, per letter
dated April 13, 1959, the Commissioner of Internal Revenue assessed against Philippine Guaranty Co., Inc.
withholding tax on the ceded reinsurance premiums, thus:
1953
Gross premium per investigation . . . . . . . . . . P768,580.00
Withholding tax due thereon at 24% . . . . . . . . P184,459.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL AMOUNT DUE & COLLECTIBLE . . . .
P230,673.00
==========
1954
Gross premium per investigation . . . . . . . . . . P780.880.68
Withholding tax due thereon at 24% . . . . . . . . P184,411.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . P184,411.00
Compromise for non-filing of withholding 100.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL AMOUNT DUE & COLLECTIBLE . . . .
P234,364.00
==========
Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums ceded to
foreign reinsurers not doing business in the Philippines are not subject to withholding tax. Its protest was
denied and it appealed to the Court of Tax Appeals.
On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion:
IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Guaranty Co., Inc. is hereby
ordered to pay to the Commissioner of Internal Revenue the respective sums of P202,192.00 and
P173,153.00 or the total sum of P375,345.00 as withholding income taxes for the years 1953 and 1954, plus
the statutory delinquency penalties thereon. With costs against petitioner.
Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of Internal
Revenue's assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to the
foreign reinsurers.
Petitioner maintain that the reinsurance premiums in question did not constitute income from sources within
the Philippines because the foreign reinsurers did not engage in business in the Philippines, nor did they
have office here.
The reinsurance contracts, however, show that the transactions or activities that constituted the undertaking
to reinsure Philippine Guaranty Co., Inc. against loses arising from the original insurances in the Philippines
were performed in the Philippines. The liability of the foreign reinsurers commenced simultaneously with the
liability of Philippine Guaranty Co., Inc. under the original insurances. Philippine Guaranty Co., Inc. kept in
Manila a register of the risks ceded to the foreign reinsurers. Entries made in such register bound the foreign
resinsurers, localizing in the Philippines the actual cession of the risks and premiums and assumption of the
reinsurance undertaking by the foreign reinsurers. Taxes on premiums imposed by Section 259 of the Tax
Code for the privilege of doing insurance business in the Philippines were payable by the foreign reinsurers
when the same were not recoverable from the original assured. The foreign reinsurers paid Philippine
Guaranty Co., Inc. an amount equivalent to 5% of the ceded premiums, in consideration for administration
and management by the latter of the affairs of the former in the Philippines in regard to their reinsurance
activities here. Disputes and differences between the parties were subject to arbitration in the City of Manila.
All the reinsurance contracts, except that with Swiss Reinsurance Company, were signed by Philippine
Guaranty Co., Inc. in the Philippines and later signed by the foreign reinsurers abroad. Although the contract
between Philippine Guaranty Co., Inc. and Swiss Reinsurance Company was signed by both parties in
Switzerland, the same specifically provided that its provision shall be construed according to the laws of the
Philippines, thereby manifesting a clear intention of the parties to subject themselves to Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the
Philippines. The word "sources" has been interpreted as the activity, property or service giving rise to the
income. 1 The reinsurance premiums were income created from the undertaking of the foreign reinsurance
companies to reinsure Philippine Guaranty Co., Inc., against liability for loss under original insurances. Such
undertaking, as explained above, took place in the Philippines. These insurance premiums, therefore, came
from sources within the Philippines and, hence, are subject to corporate income tax.
The foreign insurers' place of ​business ​should not be confused with their place of activity. ​Business ​should
not be continuity and progression of transactions 2 while activity may consist of only a single transaction. An
activity may occur outside the place of business. Section 24 of the Tax Code does not require a foreign
corporation to engage in business in the Philippines in subjecting its income to tax. It suffices that the activity
creating the income is performed or done in the Philippines. What is controlling, therefore, is not the place of
business ​but the place of ​activity ​that created an income.
Petitioner further contends that the reinsurance premiums are not income from sources within the Philippines
because they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is not an all-inclusive
enumeration, for it merely directs that the kinds of income mentioned therein should be treated as income
from sources within the Philippines but it does not require that other kinds of income should not be
considered likewise.1äwphï1.ñët
The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary
burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities
and protection which a government is supposed to provide. Considering that the reinsurance premiums in
question were afforded protection by the government and the recipient foreign reinsurers exercised rights
and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden
of maintaining the state.
Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of Internal
Revenue requiring no withholding of the tax due on the reinsurance premiums in question relieved it of the
duty to pay the corresponding withholding tax thereon. This defense of petitioner may free if from the
payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it
certainly would not exculpate if from liability to pay such withholding tax The Government is not estopped
from collecting taxes by the mistakes or errors of its agents.​3
In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not doing
business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax Code, suffice it
to state that this question has already been answered in the affirmative in ​Alexander Howden & Co., Ltd. vs.
Collector of Internal Revenue​, L-19393, April 14, 1965.
Finally, petitioner contends that the withholding tax should be computed from the amount actually remitted to
the foreign reinsurers instead of from the total amount ceded. And since it did not remit any amount to its
foreign insurers in 1953 and 1954, no withholding tax was due.
The pertinent section of the Tax Code States:
Sec. 54. ​Payment of corporation income tax at source​. — In the case of foreign corporations subject to
taxation under this Title not engaged in trade or business within the Philippines and not having any office or
place of business therein, there shall be deducted and withheld at the source in the same manner and upon
the same items as is provided in Section fifty-three a tax equal to twenty-four per centum ​thereof, and such
tax shall be returned and paid in the same manner and subject to the same conditions as provided in that
section.
The applicable portion of Section 53 provides:
(b) ​Nonresident aliens​. — All persons, corporations and general copartnerships (compañias ​colectivas​), in
what ever capacity acting, including lessees or mortgagors of real or personal property, trustees acting in
any trust capacity, executors, administrators, receivers, conservators, fiduciaries, employers, and all officers
and employees of the Government of the Philippines having the control, receipt, custody, disposal, or
payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensation, remunerations,
emoluments, or other fixed or determinable annual or periodical gains, profits, and income of any
nonresident alien individual, not engaged in trade or business within the Philippines and not having any
office or place of business therein, shall (except in the case provided for in subsection [a] of this section)
deduct and withhold from such annual or periodical gains, profits, and income a tax equal to twelve per
centum ​thereof: ​Provided ​That no deductions or withholding shall be required in the case of dividends paid
by a foreign corporation unless (1) such corporation is engaged in trade or business within the Philippines or
has an office or place of business therein, and (2) more than eighty-five ​per centum ​of the gross income of
such corporation for the three-year period ending with the close of its taxable year preceding the declaration
of such dividends (or for such part of such period as the corporation has been in existence)was derived from
sources within the Philippines as determined under the provisions of section thirty-seven: ​Provided​, ​further​,
That the Collector of Internal Revenue may authorize such tax to be deducted and withheld from the interest
upon any securities the owners of which are not known to the withholding agent.
The above-quoted provisions allow no deduction from the income therein enumerated in determining the
amount to be withheld. According, in computing the withholding tax due on the reinsurance premium in
question, no deduction shall be recognized.
WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby ordered
to pay to the Commissioner of Internal Revenue the sums of P202,192.00 and P173,153.00, or a total
amount of P375,345.00, as withholding tax for the years 1953 and 1954, respectively. If the amount of
P375,345.00 is not paid within 30 days from the date this judgement becomes final, there shall be collected a
surcharged of 5% on the amount unpaid, plus interest at the rate of 1% a month from the date of
delinquency to the date of payment, provided that the maximum amount that may be collected as interest
shall not exceed the amount corresponding to a period of three (3) years. With costs againsts petitioner.
2)
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, ​petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, ​respondents.
CRUZ, ​J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the
other hand, such collection should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common
good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income
tax returns. The corollary issue is whether or not the appeal of the private respondent from the decision of
the Collector of Internal Revenue was made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in
engineering, construction and other allied activities, received a letter from the petitioner assessing it in the
total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.​1 On January 18,
1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the
same day in the office of the petitioner. 2​ On March 12, 1965, a warrant of distraint and levy was presented to
the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the
ground of the pending protest. 3​ A search of the protest in the dockets of the case proved fruitless. Atty.
Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of
the warrant. 4​ On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on
the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be
served.​5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the
Commissioner of Internal Revenue with the Court of Tax Appeals.​6
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the
appeal may be made within thirty days after receipt of the decision or ruling challenged.​7 It is true that as a
rule the warrant of distraint and levy is "proof of the finality of the assessment" 8​ and renders hopeless a
request for reconsideration," 9​ being "tantamount to an outright denial thereof and makes the said request
deemed rejected." 10 ​ But there is a special circumstance in the case at bar that prevents application of this
accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of assessment,
it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy
was issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty.
Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the
intervening period, the warrant was premature and could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 ​ the protest filed by private respondent was not ​pro forma
and was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965,
when it was filed, the reglementary period which started on the date the assessment was received, viz.,
January 14, 1965. The period started running again only on April 7, 1965, when the private respondent was
definitely informed of the implied rejection of the said protest and the warrant was finally served on it. Hence,
when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was
not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, 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. These were
collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development
Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be
personal holding company income 12 ​ but later conformed to the decision of the respondent court rejecting
this assertion.​13 In fact, as the said court found, the amount was earned through the joint efforts of the
persons among whom it was distributed It has been established that the Philippine Sugar Estate
Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and
oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel
Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment
Corporation, inducing other persons to invest in it.​14 Ultimately, after its incorporation largely through the
promotion of the said persons, this new corporation purchased the PSEDC properties.​15 For this sale, Algue
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 the aforenamed individuals.​16
There is no dispute that the payees duly reported their respective shares of the fees in their income tax
returns and paid the corresponding taxes thereon.​17 The Court of Tax Appeals also found, after examining
the evidence, that no distribution of dividends was involved.​18
The petitioner claims that these payments are fictitious because most of the payees are members of the
same family in control of Algue. It is argued that no indication was made as to how such payments were
made, whether by check or in cash, and there is not enough substantiation of such payments. In short, the
petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary
deduction.
We find that these suspicions were adequately met by the private respondent when its President, Alberto
Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump
sum but periodically and in different amounts as each payee's need arose. 19 ​ It should be remembered that
this was a family corporation where strict business procedures were not applied and immediate issuance of
receipts was not required. Even so, at the end of the year, when the books were to be closed, each payee
made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. 20 ​
Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of
the close relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co. to the private respondent was
P125,000.00. 21​​ After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total commission. This 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 the following provision of the Tax Code:
SEC. 30. ​Deductions from gross income​.--In computing net income there shall be allowed as deductions —
(a) Expenses:
(1) In general.​ --All the ordinary and necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable allowance for salaries or other compensation for
personal services actually rendered; ... ​22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. ​Compensation for personal services​.--Among the ordinary and necessary expenses paid or
incurred in carrying on any trade or business may be included a reasonable allowance for salaries or other
compensation for personal services actually rendered. The test of deductibility in the case of compensation
payments is whether they are reasonable and are, in fact, payments purely for service. This test and
deductibility in the case of compensation payments is whether they are reasonable and are, in fact,
payments purely for service. This test and its practical application may be further stated and illustrated as
follows:
Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is
likely to occur in the case of a corporation having few stockholders, Practically all of whom draw salaries. If in
such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers of employees, it would
seem likely that the salaries are not paid wholly for services rendered, but the excessive payments are a
distribution of earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they
its controlling stockholders. ​23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the
claimed deduction. In the present case, however, we find that the onus has been discharged satisfactorily.
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. This was no
mean feat and should be, as it was, sufficiently recompensed.
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 hold that the appeal of the private respondent from the decision of the petitioner was filed on time with
the respondent court in accordance with Rep. Act No. 1125. And we also 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.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED​ in toto,​ without costs.
SO ORDERED.
3)
G.R. No. 149110 April 9, 2003
NATIONAL POWER CORPORATION, ​petitioner,
vs.
CITY OF CABANATUAN, ​respondent.
PUNO, ​J.:​
This is a petition for review​1 of the Decision​2 and the Resolution​3 of the Court of Appeals dated March 12,
2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay
franchise tax to respondent City of Cabanatuan.
Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as
amended.​4 It is tasked to undertake the "development of hydroelectric generations of power and the
production of electricity from nuclear, geothermal and other sources, as well as, the transmission of electric
power on a nationwide basis."​5 Concomitant to its mandated duty, petitioner has, among others, the power to
construct, operate and maintain power plants, auxiliary plants, power stations and substations for the
purpose of developing hydraulic power and supplying such power to the inhabitants.​6
For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross
income of P107,814,187.96 in 1992.​7 Pursuant to section 37 of Ordinance No. 165-92,​8 the respondent
assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the latter's
gross receipts for the preceding year.​9
Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government,​10 refused to
pay the tax assessment. It argued that the respondent has no authority to impose tax on government
entities. Petitioner also contended that as a non-profit organization, it is exempted from the payment of all
forms of taxes, charges, duties or fees​11​ in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:
"Sec.13. ​Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and
Other Charges by Government and Governmental Instrumentalities.- The Corporation shall be non-profit and
shall devote all its return from its capital investment, as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby
exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or
administrative proceedings in which it may be a party, restrictions and duties to the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its
provinces, cities, municipalities and other government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of
foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission, utilization, and sale of electric power."​12
The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that
petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2%
monthly interest.​13​Respondent alleged that petitioner's exemption from local taxes has been repealed by
section 193 of Rep. Act No. 7160,​14​ which reads as follows:
"Sec. 193. ​Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, 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 R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code."
On January 25, 1996, the trial court issued an Order​15 dismissing the case. It ruled that the tax exemption
privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons:
(1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act No. 7160 which is a general
law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied repeal which is not favored; and (3)
local governments have no power to tax instrumentalities of the national government. Pertinent portion of the
Order reads:
"The question of whether a particular law has been repealed or not by a subsequent law is a matter of
legislative intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions
which expressly and specifically cite(s) the particular law or laws, and portions thereof, that are intended to
be repealed. A declaration in a statute, usually in its repealing clause, that a particular and specific law,
identified by its number or title is repealed is an express repeal; all others are implied repeal. Sec. 193 of
R.A. No. 7160 is an implied repealing clause because it fails to identify the act or acts that are intended to be
repealed. It is a well-settled rule of statutory construction that repeals of statutes by implication are not
favored. The presumption is against inconsistency and repugnancy for the legislative is presumed to know
the existing laws on the subject and not to have enacted inconsistent or conflicting statutes. It is also a
well-settled rule that, generally, general law does not repeal a special law unless it clearly appears that the
legislative has intended by the latter general act to modify or repeal the earlier special law. Thus, despite the
passage of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax exemption
privileges of defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of ​Basco vs.
Philippine Amusement and Gaming Corporation​, 197 SCRA 52, where it was held that:
'Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are
owned by the National Government. xxx Being an instrumentality of the government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to
control by mere local government.'
Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and its
shares of stocks owned by the National Government, is beyond the taxing power of the Local Government.
Corollary to this, it should be noted here that in the NPC Charter's declaration of Policy, Congress declared
that: 'xxx (2) the total electrification of the Philippines through the development of power from all services to
meet the needs of industrial development and dispersal and needs of rural electrification are primary
objectives of the nations which shall be pursued ​coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.' (underscoring supplied). To allow plaintiff to
subject defendant to its tax-ordinance would be to impede the avowed goal of this government
instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to that
which is provided for in its charter or other statute. Any grant of taxing power is to be construed strictly, with
doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could not
impose the subject tax on the defendant."​16
On appeal, the Court of Appeals reversed the trial court's Order​17 on the ground that section 193, in relation
to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner.​18 It ordered
the petitioner to pay the respondent city government the following: (a) the sum of P808,606.41 representing
the franchise tax due based on gross receipts for the year 1992, (b) the tax due every year thereafter based
in the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of 25% of the tax due and unpaid,
and (d) the sum of P 10,000.00 as litigation expense.​19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision. This
was denied by the appellate court, ​viz​:
"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated therein that the taxing
power of the province under Art. 137 (​sic​) of the Local Government Code refers merely to private persons or
corporations in which category it (NPC) does not belong, and that the LGC (RA 7160) which is a general law
may not impliedly repeal the NPC Charter which is a special law—finds the answer in Section 193 of the
LGC to the effect 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 xxx
are hereby withdrawn.' The repeal is direct and unequivocal, not implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED."​20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT
CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION
137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO
PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM ALL
FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE
AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE
CONSTRUED TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF
POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT
CODE."​21
It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92
and impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation to section
137 of the LGC, ​viz:​
"Sec. 137. ​Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of
one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of
the capital investment. In the succeeding calendar year, regardless of when the business started to operate,
the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as
provided herein." (​emphasis supplied)​
x x x
Sec. 151. ​Scope of Taxing Powers​.- Except as otherwise provided in this Code, the city, may levy the taxes,
fees, and charges which the province or municipality may impose: ​Provided, however,​ That the taxes, fees
and charges levied and collected by highly urbanized and independent component cities shall accrue to
them and distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city
government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing
power of the respondent city government to private entities that are engaged in trade or occupation for
profit.​22
Section 131 (m) of the LGC defines a ​"franchise" as "a right or privilege, affected with public interest which is
conferred upon ​private persons or corporations, under such terms and conditions as the government and its
political subdivisions may impose in the interest of the public welfare, security and safety." From the
phraseology of this provision, the petitioner claims that the word "private" modifies the terms "persons" and
"corporations." Hence, when the LGC uses the term "franchise," petitioner submits that it should refer
specifically to franchises granted to private natural persons and to private corporations.​23 Ergo, its charter
should not be considered a "franchise" for the purpose of imposing the franchise tax in question.
On the other hand, section 131 (d) of the LGC defines "​business​" as "trade or commercial activity regularly
engaged in as means of livelihood or with a view to profit." Petitioner claims that it is not engaged in an
activity for profit, in as much as its charter specifically provides that it is a "non-profit organization." In any
case, petitioner argues that the accumulation of profit is merely incidental to its operation; all these profits are
required by law to be channeled for expansion and improvement of its facilities and services.​24
Petitioner also alleges that it is an instrumentality of the National Government,​25 and as such, may not be
taxed by the respondent city government. It cites the doctrine in ​Basco vs. Philippine Amusement and
Gaming Corporation26​ ​ where this Court held that local governments have no power to tax instrumentalities of
the National Government, ​viz:​
"Local governments have no power to tax instrumentalities of the National Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which
places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere local government.
'The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal
government. (​MC Culloch v. Maryland​, 4 Wheat 316, 4 L Ed. 579)'
This doctrine emanates from the 'supremacy' of the National Government over local governments.
'Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part
of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that ​no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even
seriously burden it from accomplishment of them.​ ' (Antieau, ​Modern Constitutional Law​, Vol. 2, p. 140, italics
supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as ' a tool
regulation' (​U.S. v. Sanchez,​ 340 US 42).
The power to tax which was called by Justice Marshall as the 'power to destroy' (​Mc Culloch v. Maryland,​
supra)​ cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent
power to wield it."​27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of
government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its charter
cannot be amended or modified impliedly by the local government code which is a general law.
Consequently, petitioner claims that its exemption from all taxes, fees or charges under its charter subsists
despite the passage of the LGC, ​viz:​
"It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as
much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded
that the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic
rule in statutory construction that the enactment of a later legislation which is a general law cannot be
construed to have repealed a special law. Where there is a conflict between a general law and a special
statute, the special statute should prevail since it evinces the legislative intent more clearly than the general
statute."​28
Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail
over the LGC. It alleges that the power of the local government to impose franchise tax is subordinate to
petitioner's exemption from taxation; "police power being the most pervasive, the least limitable and most
demanding of all powers, including the power of taxation."​29
The petition is without merit.
Taxes are the lifeblood of the government,​30 for without taxes, the government can neither exist nor endure.
A principal attribute of sovereignty,​31 the exercise of taxing power derives its source from the very existence
of the state whose social contract with its citizens obliges it to promote public interest and common good.
The theory behind the exercise of the power to tax emanates from necessity;​32 without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being of the people.
In recent years, the increasing social challenges of the times expanded the scope of state activity, and
taxation has become a tool to realize social justice and the equitable distribution of wealth, economic
progress and the protection of local industries as well as public welfare and similar objectives.​33 Taxation
assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to
tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy
taxes, fees and other charges​34​ pursuant to Article X, section 5 of the 1987 Constitution, ​viz​:
"Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to levy
taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent
with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local
Governments."
This paradigm shift results from the realization that genuine development can be achieved only by
strengthening local autonomy and promoting decentralization of governance. For a long time, the country's
highly centralized government structure has bred a culture of dependence among local government leaders
upon the national leadership. It has also "dampened the spirit of initiative, innovation and imaginative
resilience in matters of local development on the part of local government leaders."​35 The only way to shatter
this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them
sufficient powers to generate their own sources for the purpose. To achieve this goal, section 3 of Article X of
the 1987 Constitution mandates Congress to enact a local government code that will, ​consistent with the
basic policy of local autonomy,​ set the guidelines and limitations to this grant of taxing powers, ​viz​:
"Section 3. The Congress shall enact a local government code which shall provide for a more responsive
and accountable local government structure instituted through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate among the different local government units their
powers, responsibilities, and resources, and provide for the qualifications, election, appointment and
removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the
organization and operation of the local units."
To recall, prior to the enactment of the Rep. Act No. 7160,​36 also known as the Local Government Code of
1991 (LGC), various measures have been enacted to promote local autonomy. These include the Barrio
Charter of 1959,​37 the Local Autonomy Act of 1959,​38 the Decentralization Act of 1967​39 and the Local
Government Code of 1983.​40 Despite these initiatives, however, the shackles of dependence on the national
government remained. Local government units were faced with the same problems that hamper their
capabilities to participate effectively in the national development efforts, among which are: (a) inadequate tax
base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve
development projects, (d) heavy dependence on external sources of income, and (e) limited supervisory
control over personnel of national line agencies.​41
Considered as the most revolutionary piece of legislation on local autonomy,​42 the LGC effectively deals with
the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited
by previous laws such as the imposition of taxes on forest products, forest concessionaires, mineral
products, mining operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in
accordance with their needs and capabilities. It does not prescribe graduated fixed rates but merely specifies
the minimum and maximum tax rates and leaves the determination of the actual rates to the respective
sanggunian.​ ​43
One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities
and agencies of the national government from the coverage of local taxation. Although as a general rule,
LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize the
LGUs to impose taxes, fees or charges on the aforementioned entities, ​viz​:
"Section 133. ​Common Limitations on the Taxing Powers of the Local Government Units​.- ​Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and ​barangays ​shall
not extend to the levy of the following:
x x x
(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and
local government units." (​emphasis supplied)​
In view of the afore-quoted provision of the LGC, the doctrine in ​Basco vs. Philippine Amusement and
Gaming Corporation44 ​ relied upon by the petitioner to support its claim no longer applies. To emphasize, the
Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government
units to tax instrumentalities of the National Government was in effect. However, as this Court ruled in the
case of ​Mactan Cebu International Airport Authority (MCIAA) vs. Marcos,​ ​45 nothing prevents Congress from
decreeing that even instrumentalities or agencies of the government performing governmental functions may
be subject to tax.​46 In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and
agencies of government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this Court
held that MCIAA, although an instrumentality of the national government, was subject to real property tax,
viz​:
"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid
down in section 133, the taxing power of local governments cannot extend to the levy of ​inter alia,​ 'taxes,
fees and charges of any kind on the national government, its agencies and instrumentalities, and local
government units'; however, pursuant to section 232, provinces, cities and municipalities in the Metropolitan
Manila Area may impose the real property tax except on, ​inter alia​, 'real property owned by the Republic of
the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for
consideration or otherwise, to a taxable person as provided in the item (a) of the first paragraph of section
12.'"​47
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city
government to impose on the petitioner the franchise tax in question.
In its general signification, a franchise is a privilege conferred by government authority, which does not
belong to citizens of the country generally as a matter of common right.​48 In its specific sense, a franchise
may refer to a general or primary franchise, or to a special or secondary franchise. The former relates to the
right to exist as a corporation, by virtue of duly approved articles of incorporation, or a charter pursuant to a
special law creating the corporation.​49 The right under a primary or general franchise is vested in the
individuals who compose the corporation and not in the corporation itself.​50 On the other hand, the latter
refers to the right or privileges conferred upon an existing corporation such as the right to use the streets of a
municipality to lay pipes of tracks, erect poles or string wires.​51 The rights under a secondary or special
franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power
granted to a corporation to dispose of its property, except such special or secondary franchises as are
charged with a public use.​52
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or
special franchise. This is to avoid any confusion when the word franchise is used in the context of taxation.
As commonly used, a ​franchise tax is "a tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state."​53 It is not levied on the corporation simply for existing
as a corporation, upon its property​54 or its income,​55 but on its exercise of the rights or privileges granted to it
by the government. Hence, a corporation need not pay franchise tax from the time it ceased to do business
and exercise its franchise.​56 It is within this context that the phrase "​tax on businesses enjoying a franchise​"
in section 137 of the LGC should be interpreted and understood. Verily, to determine whether the petitioner
is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a
"franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges
under this franchise within the territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395,
constitutes petitioner's primary and secondary franchises. It serves as the petitioner's charter, defining its
composition, capitalization, the appointment and the specific duties of its corporate officers, and its corporate
life span.​57 As its secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner the
following powers which are not available to ordinary corporations, ​viz:​
"x x x
(e) To conduct investigations and surveys for the development of water power in any part of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the
purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and
from persons owning or interested in waters which are or may be necessary for said purposes, upon
payment of just compensation therefor; to alter, straighten, obstruct or increase the flow of water in streams
or water channels intersecting or connecting therewith or contiguous to its works or any part thereof:
Provided, That just compensation shall be paid to any person or persons whose property is, directly or
indirectly, adversely affected or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains,
transmission lines, power stations and substations, and other works for the purpose of developing hydraulic
power from any river, creek, lake, spring and waterfall in the Philippines and supplying such power to the
inhabitants thereof; to acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines,
and/or other prime movers, generators and machinery in plants and/or auxiliary plants for the production of
electric power; to establish, develop, operate, maintain and administer power and lighting systems for the
transmission and utilization of its power generation; to sell electric power in bulk to (1) industrial enterprises,
(2) city, municipal or provincial systems and other government institutions, (3) electric cooperatives, (4)
franchise holders, and (5) real estate subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of
property incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation
was created: Provided, That in case a right of way is necessary for its transmission lines, easement of right
of way shall only be sought: Provided, however, That in case the property itself shall be acquired by
purchase, the cost thereof shall be the fair market value at the time of the taking of such property;
(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue,
highway or railway of private and public ownership, as the location of said works may require xxx;
(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law for
instituting condemnation proceedings by the national, provincial and municipal governments;
x x x
(m) To cooperate with, and to coordinate its operations with those of the National Electrification
Administration and public service entities;
(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants and/or
projects constructed or proposed to be constructed by the Corporation. Upon determination by the
Corporation of the areas required for watersheds for a specific project, the Bureau of Forestry, the
Reforestation Administration and the Bureau of Lands shall, upon written advice by the Corporation, forthwith
surrender jurisdiction to the Corporation of all areas embraced within the watersheds, subject to existing
private rights, the needs of waterworks systems, and the requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent
environmental pollution and promote the conservation, development and maximum utilization of natural
resources xxx "​58
With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity.
This monopoly was strengthened with the issuance of Pres. Decree No. 40,​59 nationalizing the electric power
industry. Although Exec. Order No. 215​60 thereafter allowed private sector participation in the generation of
electricity, the transmission of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the respondent city government's territorial
jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. From its
operations in the City of Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992.
Fulfilling both requisites, petitioner is, and ought to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its
stocks are wholly owned by the National Government, and its charter characterized it as a "non-profit"
organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a
privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the
individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from
the National Government. It can sue and be sued under its own name,​61 and can exercise all the powers of a
corporation under the Corporation Code.​62
To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply
that petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029​63 classifies
government-owned or controlled corporations (GOCCs) into those performing governmental functions and
those performing proprietary functions, ​viz:​
"A government-owned or controlled corporation is a stock or a non-stock corporation, ​whether performing
governmental or proprietary functions, which is ​directly chartered by special law or if organized under the
general corporation law is owned or controlled by the government directly, or indirectly through a parent
corporation or subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock
x x x." (​emphases supplied​)
Governmental functions are those pertaining to the administration of government, and as such, are treated
as absolute obligation on the part of the state to perform while proprietary functions are those that are
undertaken only by way of advancing the general interest of society, and are merely optional on the
government.​64 Included in the class of GOCCs performing proprietary functions are "business-like" entities
such as the National Steel Corporation (NSC), the National Development Corporation (NDC), the Social
Security System (SSS), the Government Service Insurance System (GSIS), and the National Water
Sewerage Authority (NAWASA),​65​ among others.
Petitioner was created to "undertake the development of hydroelectric generation of power and the
production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric
power on a nationwide basis."​66 Pursuant to this mandate, petitioner generates power and sells electricity in
bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are purely
private and commercial undertakings, albeit imbued with public interest. The public interest involved in its
activities, however, does not distract from the true nature of the petitioner as a commercial enterprise, in the
same league with similar public utilities like telephone and telegraph companies, railroad companies, water
supply and irrigation companies, gas, coal or light companies, power plants, ice plant among others; all of
which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the
general interest of society.​67
A closer reading of its charter reveals that even the legislature treats the character of the petitioner's
enterprise as a "business," although it limits petitioner's profits to twelve percent (12%), ​viz​:​68
"(n) When essential to the proper administration of its corporate affairs or necessary for the proper
transaction of its ​business or to carry out the purposes for which it was organized, to contract indebtedness
and issue bonds subject to approval of the President upon recommendation of the Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably necessary to carry out the ​business
and purposes for which it was organized, or which, from time to time, may be declared by the Board to be
necessary, useful, incidental or auxiliary to accomplish the said purpose xxx."(​emphases supplied​)
It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its
electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on profits.​69
The main difference is that the petitioner is mandated to devote "all its returns from its capital investment, as
well as excess revenues from its operation, for expansion"​70 while other franchise holders have the option to
distribute their profits to its stockholders by declaring dividends. We do not see why this fact can be a source
of difference in tax treatment. In both instances, the taxable entity is the corporation, which exercises the
franchise, and not the individual stockholders.
We also do not find merit in the petitioner's contention that its tax exemptions under its charter subsist
despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist
clearly and categorically, and supported by clear legal provisions.​71 In the case at bar, the petitioner's sole
refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes
and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities." However, section 193 of the LGC withdrew, subject to limited
exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. Contrary to
the contention of petitioner, section 193 of the LGC is an express, albeit general, repeal of all statutes
granting tax exemptions from local taxes.​72​ It reads:
"Sec. 193. ​Withdrawal of Tax Exemption Privileges​.- ​Unless otherwise provided in this Code, 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 R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code." (​emphases supplied​)
It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim ​expressio unius est exclusio alterius.73 ​ of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.
Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit
hospital or educational institution, petitioner clearly does not belong to the exception. It is therefore
incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption from
local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose
franchise tax "​notwithstanding any exemption granted by any law or other special law​." This particular
provision of the LGC does not admit any exception. In ​City Government of San Pablo, Laguna v. Reyes,​ 74 ​
MERALCO's exemption from the payment of franchise taxes was brought as an issue before this Court. The
same issue was involved in the subsequent case of ​Manila Electric Company v. Province of Laguna.​ 75 ​ Ruling
in favor of the local government in both instances, we ruled that the franchise tax in question is imposable
despite any exemption enjoyed by MERALCO under special laws, ​viz​:
"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their
position that MERALCO's tax exemption has been withdrawn. The explicit language of section 137 which
authorizes the province to impose franchise tax 'notwithstanding any exemption granted by any law or other
special law' is all-encompassing and clear. ​The franchise tax is imposable despite any exemption enjoyed
under special laws​.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise
provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations except (1) local water districts, (2)
cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational
institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to
the three enumerated entities. It is a basic precept of statutory construction that the express mention of one
person, thing, act, or consequence excludes all others as expressed in the familiar maxim ​expressio unius
est exclusio alterius.​ In the absence of any provision of the Code to the contrary, and we find no other
provision in point, any existing tax exemption or incentive enjoyed by MERALCO under existing law was
clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government
unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the
preceding calendar based on the incoming receipts realized within its territorial jurisdiction. The legislative
purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the
language used on (sic) Sections 137 and 193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the
existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit
general, withdrawal of such exemptions or privileges. No more unequivocal language could have been
​ (​emphases supplied​).
used."76​
It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved,
to grant tax exemptions, initiatives or reliefs.​77 But in enacting section 37 of Ordinance No. 165-92 which
imposes an annual franchise tax "notwithstanding any exemption granted by law or other special law," the
respondent city government clearly did not intend to exempt the petitioner from the coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support
myriad activities of the local government units for the delivery of basic services essential to the promotion of
the general welfare and the enhancement of peace, progress, and prosperity of the people. As this Court
observed in the ​Mactan case, "the original reasons for the withdrawal of tax exemption privileges granted to
government-owned or controlled corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises."​78
With the added burden of devolution, it is even more imperative for government entities to share in the
requirements of development, fiscal or otherwise, by paying taxes or other charges due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the Court
SO ORDERED.

4)
G.R. No. 112024 January 28, 1999
PHILIPPINE BANK OF COMMUNICATIONS, ​petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF APPEALS,
respondent.
QUISUMBING, ​J.:
This petition for review assails the Resolution 1​ of the Court of Appeals dated September 22, 1993 ​affirming
the Decision​2 and a Resolution 3​ of the Court Of Tax Appeals which denied the claims of the petitioner for tax
refund and tax credits, and ​disposing​ as follows:
IN VIEW OF ALL, THE FOREGOING, the instant petition for review, is DENIED due course. The Decision of
the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20, 1993, are hereby AFFIRMED
in toto​.
SO ORDERED.​4
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, Petitioner's claim for refund/tax credits of overpaid income tax for 1985 in the amount of
P5,299,749.95 is hereby denied for having been filed beyond the reglementary period. The 1986 claim for
refund amounting to P234,077.69 is likewise denied since petitioner has opted and in all likelihood
automatically credited the same to the succeeding year. The petition for review is dismissed for lack of merit.
SO ORDERED.​5
The facts on record show the antecedent circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized
under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported
profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax
credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85
and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the
year-ended December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus
declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees withheld and
remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax
credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees
from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a
Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was
docketed as CTA Case No. 4309 entitled: "Philippine Bank of Communications vs. Commissioner of Internal
Revenue."
The losses petitioner incurred as per the summary of petitioner's claims for refund and tax credit for 1985
and 1986, filed before the Court of Tax Appeals, are as follows:
1985 1986
——— ———
Net Income (Loss) (P25,317,288.00) (P14,129,602.00)
Tax Due NIL NIL
Quarterly tax.
Payments Made 5,016,954.00 —
Tax Withheld at Source 282,795.50 234,077.69
———————— ———————
Excess Tax Payments P5,299,749.50​*​P234,077.69
=============== =============
* CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A forty five centavo difference was
noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of
petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed
beyond the two-year reglementary period provided for by law. The petitioner's claim for refund in 1986
amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by
PBCom against its tax payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's decision but the same was
denied due course for lack of merit. 6​
Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the Court of
Appeals. However on September 22, 1993, the Court of Appeals affirmed ​in toto the CTA's resolution dated
July 20, 1993. Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom — which relied in good faith on the formal assurances of BIR in RMC No. 7-85
and did not immediately file with the CTA a petition for review asking for the refund/tax credit of its 1985-86
excess quarterly income tax payments — can be prejudiced by the subsequent BIR rejection, applied
retroactivity, of its assurances in RMC No. 7-85 that the prescriptive period for the refund/tax credit of excess
quarterly income tax payments is not two years but ten (10).​7
II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied PBCom's claim
for the refund of P234,077.69 income tax overpaid in 1986 on the mere speculation, without proof, that there
were taxes due in 1987 and that PBCom availed of tax-crediting that year.​8
Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea for tax
refund or tax credits on the ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing
the prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the
applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states that
overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and that
taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten (10)
years under Article 1144 of the Civil Code. The pertinent portions of the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX
RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT RETURN.
TO: All Internal Revenue Officers and Others Concerned.
Sec. 85 And 86 Of the National Internal Revenue Code provide:
xxx xxx xxx
The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which provide;
xxx xxx xxx
It has been observed, however, that because of the excess tax payments, corporations file claims for
recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date of
payment, in accordance with sections 292 and 295 of the National Internal Revenue Code. It is obvious that
the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or tax
credit.
It should he noted, however, that this is not a case of erroneously or illegally paid tax under the provisions of
Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for the refund of the overpaid income
tax or claim for automatic tax credit. To insure prompt action on corporate annual income tax returns
showing refundable amounts arising from overpaid quarterly income taxes, this Office has promulgated
Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in processing said
returns. Under these procedures, the returns are merely pre-audited which consist mainly of checking
mathematical accuracy of the figures of the return. After which, the refund or tax credit is granted, and, this
procedure was adopted to facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in order to
preserve the right to claim refund or tax credit the two year period. As already stated, actions hereon by the
Bureau are immediate after only a cursory pre-audit of the income tax returns. Moreover, a taxpayer may
recover from the Bureau of Internal Revenue excess income tax paid under the provisions of Section 86 of
the Tax Code within 10 years from the date of payment considering that it is an obligation created by law
(Article 1144 of the Civil Code).​9​ (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it
would result to injustice to taxpayers. Citing ​ABS CBN Broadcasting Corporation vs. Court of Tax Appeals ​10
petitioner claims that rulings or circulars promulgated by the Commissioner of Internal Revenue have no
retroactive effect if it would be prejudicial to taxpayers, In ABS-CBN case, the Court held that the
government is precluded from adopting a position inconsistent with one previously taken where injustice
would result therefrom or where there has been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this rules as
follows:
Sec. 246 ​Non-retroactivity of rulings— A ​ ny revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding section or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or
reversal will be prejudicial to the taxpayers except in the following cases:
a). where the taxpayer deliberately misstates or omits material facts from his return or in any document
required of him by the Bureau of Internal Revenue;
b). where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from
the facts on which the ruling is based;
c). where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through Solicitor General, argues that the two-year
prescriptive period for filing tax cases in court concerning income tax payments of Corporations is reckoned
from the date of filing the Final Adjusted Income Tax Return, which is generally done on April 15 following
the close of the calendar year. As precedents, respondent Commissioner cited cases which adhered to this
principle, to wit ​ACCRA Investments Corp. vs. Court of Appeals, et al., 11 ​ and ​Commissioner of Internal
Revenue ​vs.​ ​TMX Sales,​ ​Inc​., ​et al.​ . 12
​ Respondent Commissioner also states that since the Final Adjusted
Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on April 15, 1986, the
latter had only until April 15, 1988 to seek relief from the court. Further, respondent Commissioner stresses
that when the petitioner filed the case before the CTA on November 18, 1988, the same was filed beyond the
time fixed by law, and such failure is fatal to petitioner's cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary to the
petitioner's contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards
the two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for
the State to finance the needs of the citizenry and to advance the common weal. 13 ​ Due process of law under
the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is
upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of
utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and
​
interfered with as little as possible. 14
From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law
because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly
delayed or hampered by incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for
the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected,
viz​.:
Sec. 230. ​Recovery of tax erroneously or illegally collected.​ — No suit or proceeding shall be maintained in
any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any
sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit
has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not
such tax, penalty, or sum has been paid under protest or duress.
In any case, ​no such suit or proceedings shall begun after the expiration of two years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment​; ​Provided
however​, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where
on the face of the return upon which payment was made, such payment appears clearly to have been
erroneously paid. (Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal
Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year
prescriptive period provided, should be computed from the time of filing the Adjustment Return and final
payment of the tax for the year.
In ​Commissioner of Internal Revenue vs. Philippine American Life Insurance Co​., 15 ​ this Court explained the
application of Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to run only from the time that the refund is
ascertained, which can only be determined after a final adjustment return is accomplished. In the present
case, this date is April 16, 1984, and two years from this date would be April 16, 1986. . . . As we have
earlier said in the TMX Sales case, Sections 68. 16 ​ 69, 17
​ and 70 18 ​ on Quarterly Corporate Income Tax
Payment and Section 321 should be considered in conjunction with it 19 ​
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of
two years to ten years on claims of excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the
law; rather it legislated guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense
of more specific and less general interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such
​ Thus, courts will not
interpretation is not conclusive and will be ignored if judicially found to be erroneous. 20
countenance administrative issuances that override, instead of remaining consistent and in harmony with the
law they seek to apply and implement. 21 ​
In the case of ​People vs. Lim,​ 22​ it was held that rules and regulations issued by administrative officials to
implement a law cannot go beyond the terms and provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with but is
contrary to the provisions and spirit of Act. No 4003 as amended, because whereas the prohibition
prescribed in said Fisheries Act was for any single period of time not exceeding five years duration, FAO No
37-1 fixed no period, that is to say, it establishes an absolute ban for all time. This discrepancy between Act
No. 4003 and FAO No. 37-1 was probably due to an oversight on the part of Secretary of Agriculture and
Natural Resources. Of course, in case of discrepancy, the basic Act prevails, for the reason that the
regulation or rule issued to implement a law cannot go beyond​ ​the terms and provisions of the
latter. . . . In this connection, the attention of the technical men in the offices of Department Heads who draft
rules and regulation is called to the importance and necessity of closely following the terms and provisions of
the law which they intended to implement, this to avoid any possible misunderstanding or confusion as in the
present case.​23
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its
officials or agents. 24​ As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the
Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with
Sec. 230 of 1977 NIRC. for being contrary to the express provision of a statute. Hence, his interpretation
could not be given weight for to do so would, in effect, amend the statute.
It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85, is
estopped by the principle of non-retroactively of BIR rulings. Again We do not agree. The Memorandum
Circular, stating that a taxpayer may recover the excess income tax paid within 10 years from date of
payment because this is an obligation created by law, was issued by the Acting Commissioner of Internal
Revenue. On the other hand, the decision, stating that the taxpayer should still file a claim for a refund or tax
credit and corresponding petition fro review within the
two-year prescription period, and that the lengthening of the period of limitation on refund from two to ten
years would be adverse to public policy and run counter to the positive mandate of Sec. 230, NIRC, - was
the ruling and judicial interpretation of the Court of Tax Appeals. Estoppel has no application in the case at
bar because it was not the Commissioner of Internal Revenue who denied petitioner's claim of refund or tax
credit. Rather, it was the Court of Tax Appeals who denied (albeit correctly) the claim and in effect, ruled that
the RMC No. 7-85 issued by the Commissioner of Internal Revenue is an administrative interpretation which
is out of harmony with or contrary to the express provision of a statute (specifically Sec. 230, NIRC), hence,
cannot be given weight for to do so would in effect amend the statute.​25
Art. 8 of the Civil Code 26 ​ recognizes judicial decisions, applying or interpreting statutes as part of the legal
system of the country. But administrative decisions do not enjoy that level of recognition. A
memorandum-circular of a bureau head could not operate to vest a taxpayer with shield against judicial
action. For there are no vested rights to speak of respecting a wrong construction of the law by the
administrative officials and such wrong interpretation could not place the Government in estoppel to correct
or overrule the same. 27 ​ Moreover, the non-retroactivity of rulings by the Commissioner of Internal Revenue
is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and
not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court,
a claim for refund is in the nature of a claim for exemption and should be construed in ​strictissimi juris
against the taxpayer.​28
On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming CTA's
decision denying its claim for refund of P234,077.69 (tax overpaid in 1986), based on mere speculation,
without proof, that PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC 29 ​ (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly
payments over the actual income tax computed in the adjustment or final corporate income tax return, shall
either(a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax
liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the option box provided in
the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the
succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative,
and the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 — the Court of Tax Appeals, after
examining the adjusted final corporate annual income tax return for taxable year 1986, found out that
petitioner opted to apply for automatic tax credit. This was the basis used (​vis-avis the fact that the 1987
annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that
petitioner had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can no
longer ask for refund, as to [​sic​] the two remedies of refund and tax credit are alternative. 30
​
That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as
specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must respect. Moreover,
the 1987 annual corporate tax return of the petitioner was not offered as evidence to controvert said fact.
Thus, we are bound by the findings of fact by respondent courts, there being no showing of gross error or
abuse on their part to disturb our reliance thereon. 31​
WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appeals appealed from is
AFFIRMED, with COSTS against the petitioner.1âwphi1.nêt
SO ORDERED.
5)
G.R. No. 180651 July 30, 2014
NURSERY CARE CORPORATION; SHOEMART, INC.; STAR APPLIANCE CENTER, INC.; H&B, INC.;
SUPPLIES STATION, INC.; and HARDWARE WORKSHOP, INC.,​ Petitioners,
vs.
ANTHONY ACEVEDO, in his capacity as THE TREASURER OF MANILA; and THE CITY OF
MANILA,​Respondents.
DECISION
BERSAMIN, ​J.:
The issue here concerns double taxation. There is double taxation when the same taxpayer is taxed twice
when he should be taxed only once for the same purpose by the same taxing authority within the same
jurisdiction during the same taxing period, and the taxes are of the same kind or character. Double taxation
is obnoxious.
The Case
Under review are the resolution promulgated in CA-G.R. SP No. 72191 on June 18, 2007,​1 whereby the
Court of Appeals (CA) denied petitioners' appeal for lack of jurisdiction; and the resolution promulgated on
November 14, 2007,​2​ whereby the CA denied their motion for reconsideration for its lack of merit.
Antecedents
The City of Manila assessed and collected taxes from the individual petitioners pursuant to Section 15 (Tax
on Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of the Revenue Code of Manila.​3
At the same time, the City of Manila imposed additional taxes upon the petitioners pursuant to Section 21
ofthe Revenue Code of Manila,​4 as amended, as a condition for the renewal of their respective business
licenses for the year 1999. Section 21 of the Revenue Code of Manila stated:
Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes under the NIRC - On
any of the following businesses and articles of commerce subject to the excise, value-added or percentage
taxes under the National Internal Revenue Code, hereinafter referred to as NIRC, as amended, a tax of
FIFTY PERCENT (50%) OF ONE PERCENT (1%) per annum on the gross sales or receipts of the
preceding calendar year is hereby imposed:
A) On person who sells goods and services in the course of trade or businesses; x x x PROVIDED, that all
registered businesses in the City of Manila already paying the aforementioned tax shall be exempted from
payment thereof.
To comply with the City of Manila’s assessmentof taxes under Section 21, supra, the petitioners paid under
protest the following amounts corresponding to the first quarter of 1999,​5​ to wit:
(a) Nursery Care Corporation ₱595,190.25
(b) Shoemart Incorporated ₱3,283,520.14
(c) Star Appliance Center ₱236,084.03
(d) H & B, Inc. ₱1,271,118.74
(e) Supplies Station, Inc. ₱239,501.25
(f) Hardware Work Shop, Inc. ₱609,953.24
By letter dated March 1, 1999, the petitioners formally requested the Office of the City Treasurer for the tax
credit or refund of the local business taxes paid under protest.​6 However, then City Treasurer Anthony
Acevedo (Acevedo) denied the request through his letter of March 10, 1999.​7
On April 8, 1999, the petitioners, through their representative, Cecilia R. Patricio, sought the reconsideration
of the denial of their request.​8 Still, the City Treasurer did not reconsider.​9 In the meanwhile, Liberty Toledo
succeeded Acevedo as the City Treasurer of Manila.​10
On April 29, 1999, the petitioners filed their respective petitions for certiorari in the Regional Trial Court
(RTC) in Manila. The petitions, docketed as Civil Cases Nos. 99-93668 to 99-93673,​11 were initially raffled to
different branches, but were soon consolidated in Branch 34.​12 After the presiding judge of Branch 34
voluntarily inhibited himself, the consolidated cases were transferred to Branch 23,​13 but were again
re-raffled to Branch 19 upon the designation of Branch 23 as a special drugs court.​14
The parties agreed on and jointly submitted the following issues for the consideration and resolution of the
RTC, namely:
(a) Whether or not the collection of taxes under Section 21 of Ordinance No. 7794, as amended, constitutes
double taxation.
(b) Whether or not the failure of the petitioners to avail of the statutorily provided remedy for their tax protest
on the ground of unconstitutionality, illegality and oppressiveness under Section 187 of the Local
Government Code renders the present action dismissible for non-exhaustion of administrative remedy.​15
Decision of the RTC
On April 26, 2002, the RTC rendered its decision, holding thusly:
The Court perceives of no instance of the constitutionally proscribed double taxation, in the strict, narrow or
obnoxious sense, imposed upon the petitioners under Section 15 and 17, on the one hand, and under
Section 21, on the other, of the questioned Ordinance. The tax imposed under Section 15 and 17, as against
that imposed under Section 21, are levied against different tax objects or subject matter. The tax under
Section 15 is imposed upon wholesalers, distributors or dealers, while that under Section 17 is imposed
upon retailers. In short, taxes imposed under Section 15 and 17 is a tax on the business of wholesalers,
distributors, dealers and retailers. On the other hand, the tax imposed upon herein petitioners under Section
21 is not a tax against the business of the petitioners (as wholesalers, distributors, dealers or retailers)but is
rather a tax against consumers or end-users of the articles sold by petitioners. This is plain from a reading of
the modifying paragraph of Section 21 which says:
"The tax shall be payable by the person paying for the services rendered and shall be paid to the person
rendering the services who is required to collect and pay the tax within twenty (20) days after the end of each
quarter." (Underscoring supplied)
In effect, the petitioners only act as the collection or withholding agent of the City while the ones actually
paying the tax are the consumers or end-users of the articles being sold by petitioners. The taxes imposed
under Sec. 21 represent additional amounts added by the business establishment to the basic prices of its
goods and services which are paid by the end-users to the businesses. It is actually not taxes on the
business of petitioners but on the consumers. Hence, there is no double taxation in the narrow, strict or
obnoxious sense,involved in the imposition of taxes by the City of Manila under Sections 15, 17 and 21 of
the questioned Ordinance. This in effect resolves in favor of the constitutionality of the assailed sections of
Ordinance No. 7807 of the City of Manila.
Petitioners, likewise, pray the Court to direct respondents to cease and desist from implementing Section 21
of the questioned Ordinance. That the Court cannot do, without doing away with the mandatory provisions of
Section 187 of the Local Government Code which distinctly commands that an appeal questioning the
constitutionality or legality of a tax ordinance shall not have the effect of suspending the effectivity of the
ordinance and the accrual and payment of the tax, fee or charge levied therein. This is so because an
ordinance carries with it the presumption of validity.
xxx
With the foregoing findings, petitioners’ prayer for the refund of the amounts paid by them under protest
must, likewise, fail.
Wherefore, the petitions are dismissed. Without pronouncement as to costs.
SO ORDERED.​16
The petitioners appealed to the CA.​17
Ruling of the CA
On June 18, 2007, the CA denied the petitioners’ appeal, ruling as follows:
The six (6) cases were consolidated on a common question of fact and law, that is, whether the act ofthe
City Treasurer of Manila of assessing and collecting business taxes under Section 21of Ordinance 7807, on
top of other business taxes also assessed and collected under the previous sections of the same ordinance
is a violation of the provisions of Section 143 of the Local Government Code.
Clearly, the disposition of the present appeal in these consolidated cases does not necessitate the
calibration of the whole evidence as there is no question or doubt as to the truth or the falsehood of the facts
obtaining herein, as both parties agree thereon. The present case involves a question of law that would not
lend itself to an examination or evaluation by this Court of the probative value of the evidence presented.
Thus the Court is constrained to dismiss the instant petition for lack of jurisdiction under Section 2,Rule 50 of
the 1997 Rules on Civil Procedure which states:
"Sec. 2. Dismissal of improper appeal to the Court of Appeals. – An appeal under Rule 41 taken from the
Regional Trial Court to the Court of Appeals raising only questions of law shall be dismissed, issues purely of
law not being reviewable by said court. similarly, an appeal by notice of appeal instead of by petition for
review from the appellate judgment of a Regional Trial Court shall be dismissed.
An appeal erroneously taken to the Court of Appeals shall not be transferred to the appropriate court but
shall be dismissed outright.
WHEREFORE, the foregoing considered, the appeal is DISMISSED.
SO ORDERED.​18
The petitioners moved for reconsideration, but the CA denied their motion through the resolution
promulgated on November 14, 2007.​19
Issues
The petitioners now appeal, raising the following grounds, to wit:
A.
THE COURT OF APPEALS, IN DISMISSING THE APPEAL OF THE PETITIONERS AND DENYING THEIR
MOTION FOR RECONSIDERATION, ERRED IN RULING THAT THE ISSUE INVOLVED IS A PURELY
LEGAL QUESTION.
B.
THE COURT OF APPEALS ERRED IN NOT REVERSING THE DECISION OF BRANCH 19 OF THE
REGIONAL TRIAL COURT OF MANILA DATED 26 APRIL 2002 DENYING PETITIONERS’ PRAYER FOR
REFUND OF THE AMOUNTS PAID BY THEM UNDER PROTEST AND DISMISSING THE PETITION FOR
CERTIORARI FILED BY THE PETITIONERS.
C.
THE COURT OF APPEALS ERRED IN NOT RULING THAT THE ACT OF THE CITY TREASURER OF
MANILA IN IMPOSING, ASSESSING AND COLLECTING THE ADDITIONAL BUSINESS TAX UNDER
SECTION 21 OF ORDINANCE NO. 7794, AS AMENDED BY ORDINANCE NO. 7807, ALSO KNOWN AS
THE REVENUE CODE OF THE CITY OFMANILA, IS CONSTITUTIVE OF DOUBLE TAXATION AND
VIOLATIVE OF THE LOCAL GOVERNMENT CODE OF 1991.​20
The main issues for resolution are, therefore, (1) whether or not the CA properly denied due course to the
appeal for raising pure questions of law; and (2) whether or not the petitioners were entitled to the tax credit
or tax refund for the taxes paid under Section 21, supra.
Ruling
The appeal is meritorious.
1.
The CA did not err in dismissing the appeal;
but the rules should be liberally applied
for the sake of justice and equity
The Rules of Courtprovides three modes of appeal from the decisions and final orders of the RTC, namely:
(1) ordinary appeal or appeal by writ of error under Rule 41, where the decisions and final orders were
rendered in civil or criminal actions by the RTC in the exercise of original jurisdiction; (2) petition for review
under Rule 42, where the decisions and final orders were rendered by the RTC in the exercise of appellate
jurisdiction; and (3) petition for review on certiorari to the Supreme Court under Rule 45.​21 The first mode of
appeal is taken to the CA on questions of fact, or mixed questions of fact and law. The second mode of
appeal is brought to the CA on questions of fact, of law, or mixed questions of fact and law.​22 The third mode
of appeal is elevated to the Supreme Court only on questions of law.​23
The distinction between a question of law and a question of fact is well established. On the one hand, a
question of law arises when there is doubt as to what the law is on a certain state of facts; on the other, there
is a question of fact when the doubt arises as to the truth or falsity of the alleged facts.​24 According to
Leoncio v. De Vera:​25
x x x For a question to beone of law, the same must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the
law provides on the given set of circumstances. Once it is clear that the issue invites a review of the
evidence presented, the question posed is one of fact. Thus, the test of whether a question is one of law or
of fact is not the appellation given to such question by the party raising the same; rather, it is whether the
appellate court can determine the issue raised without reviewing or evaluating the evidence, in which case, it
is a question of law; otherwise it is a question of fact.​26
The nature of the issues to be raised on appeal can be gleaned from the appellant’s notice of appeal filed in
the trial court, and from the appellant’s brief submitted to the appellate court.​27 In this case, the petitioners
filed a notice of appeal in which they contended that the April 26, 2002 decision and the order of July 17,
2002 issued by the RTC denying their consolidated motion for reconsideration were contrary to the facts and
law obtaining in the consolidated cases.​28 In their consolidated memorandum filed in the CA, they essentially
assailed the RTC’s ruling that the taxes imposed on and collected from the petitioners under Section 21 of
the Revenue Code of Manila constituted double taxation in the strict, narrow or obnoxious sense.
Considered together, therefore, the notice of appeal and consolidated memorandum evidently did not raise
issues that required the reevaluation of evidence or the relevance of surrounding circumstances.
The CA rightly concluded that the petitioners thereby raised only a question of law. The dismissal of their
appeal was proper, strictly speaking, because Section 2, Rule 50 of the Rules of Court provides that an
appeal from the RTC to the CA raising only questions of law shall be dismissed;
and that an appeal erroneously taken to the CA shall be outrightly dismissed.​29
2.
Collection of taxes pursuant to Section 21 of the
Revenue Code of Manila constituted double taxation
The foregoing notwithstanding, the Court, given the circumstances obtaining herein and in light of
jurisprudence promulgated subsequent to the filing of the petition, deems it fitting and proper to adopt a
liberal approach in order to render a just and speedy disposition of the substantive issue at hand. Hence, we
resolve, bearing in mind the following pronouncement in Go v. Chaves:​30
Our rules of procedure are designed to facilitate the orderly disposition of cases and permit the prompt
disposition of unmeritorious cases which clog the court dockets and do little more than waste the courts’
time. These technical and procedural rules, however, are intended to ensure, rather than suppress,
substantial justice. A deviation from their rigid enforcement may thus be allowed, as petitioners should be
given the fullest opportunity to establish the merits of their case, rather than lose their property on mere
technicalities. We held in Ong Lim Sing, Jr. v. FEB Leasing and Finance Corporation that:
Courts have the prerogative to relax procedural rules of even the most mandatory character, mindful of the
duty to reconcile both the need to speedily put an end to litigation and the parties' right to due process.In
numerous cases, this Court has allowed liberal construction of the rules when to do so would serve the
demands of substantial justice and equity.
The petitioners point out that although Section 21 of the Revenue Code of Manila was not itself
unconstitutional or invalid, its enforcement against the petitioners constituted double taxation because the
local business taxes under Section 15 and Section 17 of the Revenue Code of Manila were already being
paid by them.​31 They contend that the proviso in Section 21 exempted all registered businesses in the City of
Manila from paying the tax imposed under Section 21;​32 and that the exemption was more in accord with
Section 143 of the Local Government Code,​33 the law that vested in the municipal and city governments the
power to impose business taxes.
The respondents counter, however, that double taxation did not occur from the imposition and collection of
the tax pursuant to Section 21 of the Revenue Code of Manila;​34 that the taxes imposed pursuant to Section
21 were in the concept of indirect taxes upon the consumers of the goods and services sold by a business
establishment;​35 and that the petitioners did not exhaust their administrative remedies by first appealing to
the Secretary of Justice to challenge the constitutionality or legality of the tax ordinance.​36
In resolving the issue of double taxation involving Section 21 of the Revenue Code of Manila, the Court is
mindful of the ruling in City of Manila v. Coca-Cola Bottlers Philippines, Inc.,​37 which has been reiterated in
Swedish Match Philippines, Inc. v. The Treasurer of the City of Manila.​38​ In the latter, the Court has held:
x x x [T]he issue of double taxation is not novel, as it has already been settled by this Court in The City of
Manila v. Coca-Cola Bottlers Philippines, Inc.,in this wise:
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their own
detriment.1âwphi1 Said exempting proviso was precisely included in said section so as to avoid double
taxation.
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 Cityof 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 tax imposed on gross sales or receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance
No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the power of
municipalities and cities to impose a local business tax, and to which any local business tax imposed by
petitioner City of Manila must conform. It is apparent from a perusal thereof that when a municipality or city
has already imposed a business tax on manufacturers, etc.of liquors, distilled spirits, wines, and any other
article of commerce, pursuant to Section 143(a) of the LGC, said municipality or city may no longer subject
the same manufacturers, etc.to a business tax under Section 143(h) of the same Code. Section 143(h) may
be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and
that are "not otherwise specified in preceding paragraphs." In the same way, businesses such as
respondent’s, already subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which is
based on Section 143(a) of the LGC], can no longer be made liable for local business tax under Section 21
of the same Tax Ordinance [which is based on Section 143(h) of the LGC].
Based on the foregoing reasons, petitioner should not have been subjected to taxes under Section 21 of the
ManilaRevenue Code for the fourth quarter of 2001, considering that it had already been paying local
business tax under Section 14 of the same ordinance.
xxxx
Accordingly, respondent’s assessment under both Sections 14 and 21 had no basis. Petitioner is indeed
liable to pay business taxes to the City of Manila; nevertheless, considering that the former has already paid
these taxes under Section 14 of the Manila Revenue Code, it is exempt from the same payments under
Section 21 of the same code. Hence, payments made under Section 21 must be refunded in favor of
petitioner.
It is undisputed that petitioner paid business taxes based on Sections 14 and 21 for the fourth quarter of
2001 in the total amount of ₱470,932.21. Therefore, it is entitled to a refund of ₱164,552.04 corresponding to
the payment under Section 21 of the Manila Revenue Code.
On the basis of the rulings in Coca-Cola Bottlers Philippines, Inc. and Swedish Match Philippines, Inc., the
Court now holds that all the elements of double taxation concurred upon the Cityof Manila’s assessment on
and collection from the petitioners of taxes for the first quarter of 1999 pursuant to Section 21 of the Revenue
Code of Manila.
Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a person who sold goods and
services in the course of trade or business based on a certain percentage of his gross sales or receipts in
the preceding calendar year, while Section 15 and Section 17 likewise imposed the tax on a person who sold
goods and services in the course of trade or business but only identified such person with particularity,
namely, the wholesaler, distributor or dealer (Section 15), and the retailer (Section 17), all the taxes – being
imposed on the privilege of doing business in the City of Manila in order to make the taxpayers contribute to
the city’s revenues – were imposed on the same subject matter and for the same purpose.
Secondly, the taxes were imposed by the same taxing authority (the City of Manila) and within the same
jurisdiction in the same taxing period (i.e., per calendar year).
Thirdly, the taxes were all in the nature of local business taxes.
We note that although Coca-Cola Bottlers Philippines, Inc. and Swedish Match Philippines, Inc. involved
Section 21 vis-à-vis Section 14 (Tax on Manufacturers, Assemblers and Other Processors)​39 of the Revenue
Code of Manila, the legal principles enunciated therein should similarly apply because Section 15 (Tax on
Wholesalers, Distributors, or Dealers)and Section 17 (Tax on Retailers) of the Revenue Code of Manila
imposed the same nature of tax as that imposed under Section 14, i.e., local business tax, albeit on a
different subject matter or group of taxpayers.
In fine, the imposition of the tax under Section 21 of the Revenue Code of Manila constituted double
taxation, and the taxes collected pursuant thereto must be refunded.
WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS ASIDE the
resolutions promulgated on June 18, 2007 and November 14, 2007 in CA-G.R. SP No. 72191; and
DIRECTS the City of Manila to refund the payments made by the petitioners of the taxes assessed and
collected for the first quarter of 1999 pursuant to Section 21 of the Revenue Code of Manila.
No pronouncement on costs of suit.
SO ORDERED.