TAXATION

PURPOSE

Commissioner vs. Makasiar, 177 SCRA 27 (1989) G.R. No. 79307

Fact: On 7 December 1978, the then Court of First Instance of Manila issued Search and Seizure
Warrants against Howard J. Sosis,, et al.,” for violation of Republic Act No. 3720 and violation of Article
188 of the Revised Penal Code (captioned as “Substituting and altering trademarks, tradenames, or
service marks”), respectively, and ordering the seizure of Materials and Documents. On 8 December
1978, the Bureau of Customs, et al., seized and confiscated the following articles, found in the premises
of the Hercules Bottling Co., Inc. at Isla de Provisor, Paco, Manila. On 2 January 1979, the Collector of
Customs for the Port of Manila, after being informed of the seizure of the subject goods and upon
verification that the same were imported contrary to law, issued a warrant of seizure and detention,
ordered the immediate seizure and turnover of the seized items to its Auction and Cargo Disposal
Division at the Port of Manila. The private respondent objected to the continuation by the Collector of
Customs of the seizure proceedings claiming, among others, that these proceedings would hamper or
even jeopardize the preliminary investigation being conducted by the fiscal which was ignored by the
Collector of Customs. In order to stop and enjoin the Hearing Officer of the Bureau of Customs from
taking further action in the seizure, private respondent filed a petition for prohibition with preliminary
injunction and/or temporary restraining order. Respondent judge issued a temporary restraining order
on 29 September 1982. Subsequently, a writ for preliminary injunction was issued as well. Petitioner
seeks the reversal of respondent judge’s decision in regards to the excess of his jurisdiction in the
disputed Warrant of Seizure and Detention dated January 2, 1979, in Seizure of the Bureau of Customs
which the petitioner is ordered to REFRAIN and DESIST from conducting any proceedings for the seizure
and forfeiture of the articles in question until after the Respondent Court having taken cognizance and
legal custody and has rendered its final judgment in the criminal cases.

Issue: whether respondent judge may enjoin the Collector of Customs from continuing with its seizure
and forfeiture proceedings over goods seized?

Held: No, the respondent-judge has failed to adhere to the prevailing rule which denies him jurisdiction
to enjoin the Bureau of Customs from taking further action in the seizure and forfeiture proceedings
over the subject goods. The Collector of Customs sitting in seizure and forfeiture proceedings has
exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of
dutiable goods. The regional trial courts are precluded from assuming cognizance over such matters
even through petitions of certiorari, prohibition or mandamus. Even if it be assumed that a taint of
irregularity may be imputed to the exercise by the Collector of Customs of his jurisdiction to institute
seizure and forfeiture proceedings over the subject goods because he had accepted custody of the same
under conditions, it would not mean that respondent judge was correspondingly vested with the
jurisdiction to interfere with such proceedings. It bears repeating that law and settled jurisprudence
clearly deprive the regional trial courts of jurisdiction to enjoin the Collector of Customs from exercising
his exclusive authority to order seizure and forfeiture proceedings over imported goods.
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Commissioner of Internal Revenue vs Algue Inc GR No L-28896

Facts:

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

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

Issue:

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

Ruling:

No, The Supreme Court agrees with the respondent court that the amount of the promotional fees was
not excessive. The 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.

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

TAX EXEMPTIONS

Abra Valley College vs. Aquino

FACTS: Petitioner, an educational corporation and institution of higher learning duly incorporated with
the Securities and Exchange Commission in 1948, filed a complaint to annul and declare void the “Notice
of Seizure’ and the “Notice of Sale” of its lot and building located at Bangued, Abra, for non-payment of
real estate taxes and penalties amounting to P5,140.31. Said “Notice of Seizure” by respondents
Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the
said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned
decision. The trial court ruled for the government, holding that the second floor of the building is being
used by the director for residential purposes and that the ground floor used and rented by Northern
Marketing Corporation, a commercial establishment, and thus the property is not being used exclusively
for educational purposes. Instead of perfecting an appeal, petitioner availed of the instant petition for
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review on certiorari with prayer for preliminary injunction before the Supreme Court, by filing said
petition on 17 August 1974.

ISSUE: Whether or not the lot and building are used exclusively for educational purposes.

HELD: Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants
exemption from realty taxes for cemeteries, churches and parsonages or convents appurtenant thereto,
and all lands, buildings, and improvements used exclusively for religious, charitable or educational
purposes.ﾝ Reasonable emphasis has always been made that the exemption extends to facilities which
are incidental to and reasonably necessary for the accomplishment of the main purposes. The use of the
school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. In
the case at bar, the lease of the first floor of the building to the Northern Marketing Corporation cannot
by any stretch of the imagination be considered incidental to the purpose of education. The test of
exemption from taxation is the use of the property for purposes mentioned in the Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the assessed
tax be returned to the petitioner. The modification is derived from the fact that the ground floor is being
used for commercial purposes (leased) and the second floor being used as incidental to education
(residence of the director).

PROVINCE OF ABRA VS. HERNANDO

Facts: The provincial assessor made a tax assessment on the properties of the Roman Catholic Bishop of
Bangued. The bishop claims tax exemption from real estate tax, through an action for declaratory relief.
A summary judgment was made granting the exemption without hearing the side of the Province of
Abra.

Issue: Whether the properties of the Bishop of Bangued are tax-exempt.

Held: The 1935 and the 1973 Constitutions differ in language as to the exemption of religious property
from taxes as tehy should not only be “exclusively” but also “actually” and “directly” used for religious
purposes. Herein, the judge accepted at its face the allegation of the Bishop instead of demonstrating
that there is compliance with the constitutional provision that allows an exemption. There was an
allegation of lack of jurisdiction and of lack of cause of action, which should have compelled the judge to
accord a hearing to the province rather than deciding the case immediately in favor of the Bishop.
Exemption from taxation is not favored and is never presumed, so that if granted, it must be strictly
construed against the taxpayer. There must be proof of the actual and direct use of the lands, buildings,
and improvements for religious (or charitable) purposes to be exempted from taxation.

The case was remanded to the lower court for a trial on merits.
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Bishop of Nueva Segovia vs. Provincial Board

FACTS:

The Roman Catholic Apostolic Church represented by the Bishop of Nueva Segovia, possessed and
owned a parcel of land in the municipality of San Nicolas, Ilocos Norte, 4 sides of which face the public
streets. On south side is the church yard, the convent and an adjacent lot used as vegetable garden. At
the center is the rest of the yard and the church on the north is an old cemetery with two of its walls still
standing, and a portion were formally stood a tower.

As required by the Provincial Board, plaintiff paid under protest on July 3, 1925 the land tax on the lot
adjoining the convent which formerly was the cemetery. Plaintiff filed action for recovery of sum paid by
to the Provincial Board by way of land tax, alleging that the collection of tax is illegal. The Lower Court
absolved the Provincial Board and declared that the tax collected on the lot was legal. Both parties
appealed from this judgment.

ISSUE: WON Plaintiff is exempted in the payment of land tax?

HELD: YES.

The exemption from payment of land tax of a convent refers to the home of the party who resides over
the church and who has to take care of himself in order to discharge his duties. It is therefore include
not only the land actually occupied by the church, but also the adjacent ground destined for the
ordinary and incidental uses of the occupant. Except in large cities where density of the population and
the development of commerce require the use of larger tracts of land for buildings, a vegetable garden
belongs to a house and in the present case, its use is limited to the necessities of the priest, which
comes under exemption.

As regards to the lot which formerly was the cemetery, while it is no longer used as such, neither is it
used for commercial purposes and according to the evidence, is now being used as a lodging house by
the people who participate in religion festivities, which constitutes an incidental use in religious
functions, which also comes within the exemption.

The judgment appealed from is reversed in all its part and it is held that both lots are exempt from land
tax and the defendants are ordered to refund to plaintiff whatever was paid as such tax, without any
special pronouncement as to cost. So Ordered.
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Lladoc vs. CIR

Facts: Sometime in 1957, M.B. Estate Inc., of Bacolod City, donated 10,000.00 pesos in cash to Fr. Crispin
Ruiz, the parish priest of Victorias, Negros Occidental, and predecessor of Fr. Lladoc, for the construction
of a new Catholic church in the locality. The donated amount was spent for such purpose.

On March 3, 1958, the donor M.B. Estate filed the donor's gift tax return. Under date of April 29, 1960.
Commissioner of Internal Revenue issued an assessment for the donee's gift tax against the Catholic
Parish of Victorias of which petitioner was the parish priest.

Issue: Whether or not the imposition of gift tax despite the fact the Fr. Lladoc was not the Parish priest
at the time of donation, Catholic Parish priest of Victorias did not have juridical personality as the
constitutional exemption for religious purpose is valid.

Held: Yes, imposition of the gift tax was valid, under Section 22(3) Article VI of the Constitution
contemplates exemption only from payment of taxes assessed on such properties as Property taxes
contra distinguished from Excise taxes The imposition of the gift tax on the property used for religious
purpose is not a violation of the Constitution. A gift tax is not a property by way of gift inter vivos.

The head of the Diocese and not the parish priest is the real party in interest in the imposition of the
donee's tax on the property donated to the church for religious purpose.

AMERICAN BIBLE SOCIETY VS. CITY OF MANILA

Facts: Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly

registered and doing business in the Philippines through its Philippine agency established in Manila in
November, 1898. The defendant appellee is a municipal corporation with powers that are to be
exercised in conformity with the provisions of Republic Act No. 409, known as the Revised Charter of the
City of Manila.

During the course of its ministry, plaintiff sold bibles and other religious materials at a very minimal
profit.

On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff that it was conducting
the business of general merchandise since November, 1945, without providing itself with the necessary
Mayor's permit and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances
Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three days, the corresponding permit
and license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd
quarter of 1953, in the total sum of P5,821.45 (Annex A).

Plaintiff now questions the imposition of such fees.

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Issue: Whether or not the said ordinances are constitutional and valid (contention: it restrains the free
exercise and enjoyment of the religious profession and worship of appellant).

Held: Section 1, subsection (7) of Article III of the Constitution, provides that:

(7) No law shall be made respecting an establishment of religion, or prohibiting the free exercise
thereof, and the free exercise and enjoyment of religious profession and worship, without
discrimination or preference, shall forever be allowed. No religion test shall be required for the exercise
of civil or political rights. The provision aforequoted is a constitutional guaranty of the free exercise and
enjoyment of religious profession and worship, which carries with it the right to disseminate religious
information.

It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in
some instances a little bit higher than the actual cost of the same but this cannot mean that appellant
was engaged in the business or occupation of selling said "merchandise" for profit. For this reason. The
Court believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be applied
to appellant, for in doing so it would impair its free exercise and enjoyment of its religious profession
and worship as well as its rights of dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, the Court do not find that it imposes any charge upon
the enjoyment of a right granted by the Constitution, nor tax the exercise of religious practices.

It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, however
inapplicable to said business, trade or occupation of the plaintiff. As to Ordinance No. 2529 of the City of
Manila, as amended, is also not applicable, so defendant is powerless to license or tax the business of
plaintiff Society.

CIR v CA & YMCA

GR No 124043, October 14, 1998

FACTS:

In 1980, YMCA earned an income of 676,829.80 from leasing out a portion of its premises to small shop
owners, like restaurants and canteen operators and 44,259 from parking fees collected from non-
members. On July 2, 1984, the CIR issued an assessment to YMCA for deficiency taxes which included
the income from lease of YMCA’s real property. YMCA formally protested the assessment but the CIR
denied the claims of YMCA. On appeal, the CTA ruled in favor of YMCA and excluded income from lease
to small shop owners and parking fees. However, the CA reversed the CTA but affirmed the CTA upon
motion for reconsideration.

ISSUE:
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Whether the rental income of YMCA is taxable

RULING:

Yes. The exemption claimed by YMCA is expressly disallowed by the very wording of then Section 27 of
the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their
properties, real or personal, be subject to the tax imposed by the same Code. While the income received
by the organizations enumerated in Section 26 of the NIRC is, as a rule, exempted from the payment of
tax in respect to income received by them as such, the exemption does not apply to income derived
from any of their properties, real or personal or from any of their activities conducted for profit,
regardless of the disposition made of such income.

DOUBLE TAXATION

PUNZALAN VS. MUNICIPAL BOARD OF MANILA

Fact: The municipal board of the City of Manila on July 25, 1950, imposes a municipal occupation tax on
persons exercising various professions in the city and penalizes non-payment of the tax “by a fine of not
more than two hundred pesos or by imprisonment of not more than six months, or by both such fine
and imprisonment in the discretion of the court.” Among the professions taxed were those to which
plaintiffs belong. The ordinance was enacted pursuant to paragraph (1) of section 18 of the Revised
Charter of the City of Manila (as amended by Republic Act No. 409), which empowers the Municipal
Board of said city to impose a municipal occupation tax, not to exceed P50 per annum, on persons
engaged in the various professions above referred to.

Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same
under protest and then brought the present suit for the purpose already stated. The lower court upheld
the validity of the provision of law authorizing the enactment of the ordinance but declared the
ordinance itself illegal and void on the ground that the penalty there in provided for non-payment of the
tax was not legally authorized. From this decision both parties appealed to this Court, and the only
question they have presented for our determination is whether this ruling is correct or not, for though
the decision is silent on the refund of taxes paid plaintiffs make no assignment of error on this point.

Issue: whether double taxation of certain classes is authorized by law?

Held: Yes, the Legislature may, in its discretion, select what occupations shall be taxed, and in the
exercise of that discretion it may tax all, or it may select for taxation certain classes and leave the others
untaxed.
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LICENSE FEES

PHYSICAL THERAPY ORG. VS. MUNICIPAL BOARD

Facts: The petitioner-appellant, an association of registered massagists and licensed operators of

massage clinics in the City of Manila and other parts of the country, filed an action in the Court of First
Instance of Manila for declaratory judgment regarding the validity of Municipal Ordinance No. 3659,
promulgated by the Municipal Board and approved by the City Mayor. To stop the City from enforcing
said ordinance, the petitioner secured an injunction upon filing of a bond in the sum of P1,000.00. A
hearing was held, but the parties without introducing any evidence submitted the case for decision on
the pleadings, although they submitted written memoranda. Thereafter, the trial court dismissed the
petition and later dissolved the writ of injunction previously issued. The petitioner appealed said order
of dismissal directly to this Court. In support of its appeal, petitioner-appellant contends among other
things that the trial court erred in holding that the Ordinance in question has not restricted the practice
of massotherapy in massage clinics to hygienic and aesthetic massage, that the Ordinance is valid as it
does not regulate the practice of massage, that the Municipal Board of Manila has the power to enact
the Ordinance in question by virtue of Section 18, Subsection (kk), Republic Act 409, and that permit fee
of P100.00 is moderate and not unreasonable. Inasmuch as the appellant assails and discuss certain
provisions regarding the ordinance in question, and it is necessary to pass upon the same, for purposes
of ready reference, we are reproducing said ordinance in toto.

Issue: Whether the license fee of P100.00 for operator of the Ordinance is unreasonable, nay,
unconscionable.

Held: No, The amount of the fee or charge is properly considered in determining whether it is a tax or an
exercise of the police power. The amount may be so large as to itself show that the purpose was to raise
revenue and not to regulate, but in regard to this matter there is a marked distinction between license
fees imposed upon useful and beneficial occupations which the sovereign wishes to regulate but not
restrict, and those which are inimical and dangerous to public health, morals or safety. In the latter case
the fee may be very large without necessarily being a tax. (Cooley on Taxation, Vol. IV, pp. 3516-17;
underlining supplied.) Evidently, the Manila Municipal Board considered the practice of hygienic and
aesthetic massage not as a useful and beneficial occupation which will promote and is conducive to
public morals, and consequently, imposed the said permit fee for its regulation.