Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-7859 December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme
Ledesma, plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.

Ernesto J. Gonzaga for appellant.

Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres
and Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes
imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.

Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the
threat to our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-
McDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore,
the national policy was expressed "to obtain a readjustment of the benefits derived from the sugar
industry by the component elements thereof" and "to stabilize the sugar industry so as to prepare it for
the eventuality of the loss of its preferential position in the United States market and the imposition of
the export taxes."

In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of
sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or
persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise —

a tax equivalent to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed value of such land.

According to section 6 of the law —

SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out
only for any or all of the following purposes or to attain any or all of the following objectives, as
may be provided by law.

First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the
preferntial position of the Philippine sugar in the United States market, and ultimately to insure
its continued existence notwithstanding the loss of that market and the consequent necessity of
meeting competition in the free markets of the world;

Second, to readjust the benefits derived from the sugar industry by all of the component
elements thereof — the mill, the landowner, the planter of the sugar cane, and the laborers in
the factory and in the field — so that all might continue profitably to engage therein;lawphi1.net

Third, to limit the production of sugar to areas more economically suited to the production
thereof; and

Fourth, to afford labor employed in the industry a living wage and to improve their living and
working conditions: Provided, That the President of the Philippines may, until the adjourment of
the next regular session of the National Assembly, make the necessary disbursements from the
fund herein created (1) for the establishment and operation of sugar experiment station or
 stations and the undertaking of researchers (a) to increase the recoveries of the centrifugal
sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate
higher yielding varieties of sugar cane more adaptable to different district conditions in the
Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying quality of
denatured alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the
other by-products of the industry, (f) to determine what crop or crops are suitable for rotation
and for the utilization of excess cane lands, and (g) on other problems the solution of which
would help rehabilitate and stabilize the industry, and (2) for the improvement of living and
working conditions in sugar mills and sugar plantations, authorizing him to organize the
necessary agency or agencies to take charge of the expenditure and allocation of said funds to
carry out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement
from the fund herein created of the necessary amount or amounts needed for salaries, wages,
travelling expenses, equipment, and other sundry expenses of said agency or agencies.

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the
estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that
such tax is unconstitutional and void, being levied for the aid and support of the sugar industry
exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally
levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the case
directly to this Court (Judiciary Act, section 17).

The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth
Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6
(heretofore quoted in full), will show that the tax is levied with a regulatory purpose, to provide means for
the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily
an exercise of the police power.

This Court can take judicial notice of the fact that sugar production is one of the great industries of our
nation, sugar occupying a leading position among its export products; that it gives employment to
thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the
important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a
regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore
redounds greatly to the general welfare. Hence it was competent for the legislature to find that the
general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its
police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted
among its components to enable it to resist the added strain of the increase in taxes that it had to
sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311,
128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).

As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida —

The protection of a large industry constituting one of the great sources of the state's wealth and
therefore directly or indirectly affecting the welfare of so great a portion of the population of the
State is affected to such an extent by public interests as to be within the police power of the
sovereign. (128 Sp. 857).

Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of
public concern, it follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must be
allowed fully play, subject only to the test of reasonableness; and it is not contended that the means
provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why
the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made
the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L.
Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed.
579).

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax
that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequalities
which result from a singling out of one particular class for taxation, or exemption infringe no
constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245,
citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that
very enterprise that is being protected. It may be that other industries are also in need of similar
protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none."
As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law
presumably hits the evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied;" and that "the legislative authority, exerted within its
proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel
Corp. 301 U. S. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax
money to experimental stations to seek increase of efficiency in sugar production, utilization of by-
products and solution of allied problems, as well as to the improvements of living and working conditions
in sugar mills or plantations, without any part of such money being channeled directly to private
persons, constitutes expenditure of tax money for private purposes, (compare Everson vs. Board of
Education, 91 L. Ed. 472, 168 ALR 1392, 1400).

The decision appealed from is affirmed, with costs against appellant. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21183 September 27, 1968

VICTORIAS MILLING CO., INC., plaintiff-appellant,

vs.
THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL, defendant-appellant.

Hilado & Hilado for plaintiff-appellant.

The Provincial Fiscal of Negros Occidental for defendant-appellant.

SANCHEZ, J.:

This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of
Victorias, Negros Occidental.

The disputed ordinance was approved by the municipal Council of Victorias on September 22, 1956 by
way of an amendment to two municipal ordinances separately imposing license taxes on operators of
sugar centrals 1 and sugar refineries. 2 The changes were: with respect to sugar centrals, by increasing
the rates of license taxes; and as to sugar refineries, by increasing the rates of license taxes as well as
the range of graduated schedule of annual output capacity.

Ordinance No. 1 3 is labeled "An Ordinance Amending Ordinance No. 25, Series of 1953 and Ordinance
No. 18, Series of 1947 on Sugar Central by Increasing the Rates on Sugar Refinery Mill by Increasing the
Range of Graduated Schedule on Capacity Annual Output Respectively". It was, as the ordinance itself
states, enacted pursuant to the taxing power conferred by Commonwealth Act 472. By Section 1 of the
Ordinance: "Any person, corporation or other forms of companies, operating sugar central or engage[d]
in the manufacture of centrifugal sugar shall be required to pay the following annual municipal license tax,
payable quarterly, to wit: . . ." Section 1 referred to prescribes a wide range of schedule. It starts with a
sugar central with mill having an annual output capacity of not less than 50,000 piculs of centrifugal sugar,
in which case an annual municipal license tax of P1,000.00 is provided. Depending upon the annual
output capacity the schedule of taxes continues with P2,000.00 progressively upward in twelve other
grades until an output capacity of 1,500,001 piculs or more shall have been reached. For this, the annual
tax is P40,000.00. The tax on sugar refineries is likewise calibrated with similar rates. It also starts with
P1,000.00 for a refinery with mill having an annual output capacity of not less than 25,000 bags of 100
lbs. of refined sugar. Then, it continues with the second bracket of from 25,001 bags to 75,000 bags of
100 lbs. Here, the municipal license tax is P1,500.00. Then follow the other rates in the graduated scale
with the ceiling placed at a capacity of 1,750,001 bags or more. The annual municipal license tax for the
last mentioned output capacity is P40,000.00.

Of importance are the provisions of Section 1(m) relating to sugar centrals and Section 2(m) covering
sugar refineries with specific reference to the maximum annual license tax, viz:

Section No. 1 — Any person, corporation or other forms of Companies, operating Sugar Central
or engage[d] in the manufacture of centrifugal sugar shall be required to pay the following
annual municipal license tax, payable quarterly, to wit:

xxx xxx xxx

(m) Sugar Central with mill having a capacity of producing an annual output of from 1,500,001
piculs or more shall be required to pay an annual municipal license tax of — P40,000.00.

Section No. 2 — Any person, corporation or other forms of Companies shall be required to pay
an annual municipal license tax for the operation of Sugar Refinery Mill at the following rates:

xxx xxx xxx

 (m) Sugar Refinery with mill having a capacity of producing an annual output of from 1,750,001
bags of 100 lbs. or more shall be required to pay an annual municipal license tax of —
P40,000.00.

For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar refinery
located in the Municipality of Victorias comes within these items in the schedule.

Plaintiff filed suit below 4 to ask for judgment declaring Ordinance No. 1, series of 1956, null and void;
ordering the refund of all license taxes paid and to be paid under protest; directing the officials of
Victorias and the Province of Negros Occidental to observe, during the pendency of the action, the
provisions of section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and
Municipalities, 1954 edition, 5 regarding the treatment of license taxes paid under protest by virtue of a
disputed ordinance; and other reliefs. 6

The reasons put forth by plaintiff are that: (a) the ordinance exceeds the amounts fixed in Provincial
Circular 12-A issued by the Finance Department on February 27, 1940; (b) it is discriminatory since it
singles out plaintiff which is the only operator of a sugar central and a sugar refinery within the
jurisdiction of defendant municipality; (c) it constitutes double taxation; and (d) the national government
has preempted the field of taxation with respect to sugar centrals or refineries.

Upon the complaint as supplemented and amended, and the answer thereto, and following hearing on
the merits, the trial court rendered its judgment. After declaring that "[t]here is no doubt that" the
ordinance in question refers to license taxes or fees," and that "[i]t is settled that a license tax should be
limited to the cost of licensing, regulating and surveillance," 7 the trial court ruled that said license taxes
in dispute are unreasonable, 8 and held that: "If the defendant has the power to tax the plaintiff for
purposes of revenue, it may do so by proper municipal legislation, but not in the guise of a license
tax." 9 The court added: "The Court is not, however, prepared to order the refund of all the license taxes
paid by the plaintiff under protest and amounting, up to the second quarter of 1960, to P280,000.00,
considering that the plaintiff appears to have agreed to the payment of the license taxes at the rates
fixed prior to Ordinance No. 1, series of 1956; that the defendant had evidently not complied with the
provisions of Section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and
Municipalities, 1954 Edition, as the plaintiff herein seeks an order enjoining the defendant and its
appropriate officials to carry out said provisions; that the financial position of the defendant would surely
be disrupted if ordered to refund, while the plaintiff may perhaps easily forego or forget what it had
already parted with". 10 It disposes of the suit in the following manner:

WHEREFORE, judgment is rendered (a) declaring that Ordinance No. 1, series of 1956, of the
municipality of Victorias, Negros Occidental, is invalid; (b) ordering all officials of the defendant
to observe the provisions of Section 357 of the Revised Manual of Instructions to Treasurers of
Provinces, Cities and Municipalities, 1954 Edition, with particular reference to any license taxes
paid by the plaintiff under said Ordinance No. 1, series of 1956, after notice of this decision; and
(c) ordering the defendant to refund to the plaintiff any and all such license taxes paid under
protest after notice of this decision. 11

Both plaintiff and defendant appealed direct to this Court. Plaintiff questions that portion of the decision
denying the refund of the license taxes paid under protest in the amount of P280,000 covering the
period from the first quarter of 1957 to the second quarter of 1960; and balked at the court's order
limiting refund to "any and all such license taxes paid under protest after notice of this decision."
Defendant, upon the other hand, challenges the correctness of the court's decision invalidating
Ordinance No. 1, series of 1956.

The questions raised in the appeals will be discussed in their proper sequence.

1. We first grapple with the threshold question: Was Ordinance No. 1, series of 1956, passed by
defendant's municipal council as a regulatory enactment or as a revenue measure?

The trial court says, and plaintiff seconds, that the amounts set forth in the ordinance in question did
exceed the cost of licensing, regulating and surveillance, and that defendant cannot impose a tax — for
revenue — in the guise of a police or a regulatory measure. Our finding, however, is the other way. 1awphîl.nèt

The ordinance itself recites that its source of taxing power emanates from Commonwealth Act 472,
Section 1 of which reads:

Section 1. A municipal council or municipal district council shall have authority to impose
municipal license taxes upon persons engaged in any occupation or business, or exercising
 privileges in the municipality or municipal district, by requiring them to secure licenses at rates
fixed by the municipal council, or municipal district council, and to collect fees and charges for
services rendered by the municipality or municipal district and shall otherwise have power to
levy for public local purposes, and for school purposes, including teachers' salaries, just and
uniform taxes other than percentage taxes and taxes on specified articles.

Under the statute just quoted and pertinent jurisprudence, a municipality is authorized to impose three
kinds of licenses: (1) license for regulation of useful occupations or enterprises; (2) license for restriction
or regulation of non-useful occupations or enterprises; and (3) license for revenue. 12 The first two easily
fall within the broad police power granted under the general welfare clause. 13 The third class, however,
is for revenue purposes. It is not a license fee, properly speaking, and yet it is generally so termed.
It rests on the taxing power. That taxing power must be expressly conferred by statute upon the
municipality. 14 It is so granted under Commonwealth Act 472.

To be recalled at this point is that Ordinance No. 1, series of 1956, is but an amendment of Ordinance
No. 18, series of 1947, in reference to refineries, and Ordinance No. 25, series of 1953, covering sugar
centrals. Ordinance No. 18 imposes "municipal taxes on persons, firms or
corporations operating refinery mills in this municipality." 15 Ordinance No. 25 speaks of municipal taxes
"relative to the output of the sugar centrals." 16

What are these taxes for? Resolution No. 60 of the municipal council of Victorias, 17 adopted also on
September 22, 1956 in conjunction with Ordinance No. 1, series of 1956, furnishes a ready answer. It
reads in part:

WHEREAS, the Municipal Treasurer informed the Municipal Council of the revenue of the
Municipality and the heavy obligations which confront it because of the implementation of
Minimum Wage Law on the salaries and wages it pays to its municipal employees and laborers
thus greatly draining the Municipal Treasury;

WHEREAS, this local administration is committed to the plan of ameliorating the deplorable
situation existing in the barrios, sitios and rural areas by giving them essential and necessary
facilities calculated to improve conditions thereat thru improvements of roads and feeder roads;

WHEREAS, one of the causes of the municipality's financial difficulty is low rates of municipal
taxes imposed by some of the ordinances enacted by the local legislative body;

WHEREAS, [in] . . . the ordinances known as Ordinance No. 25, Series of 1953, dealing on
the operation of Sugar Central, and Ordinance No. 18, Series of 1947, which exclusively deals
with the operation of Sugar Refinery Mill, the rates so given are rates suggested and determined
by the Provincial Circular No. 12-A, dated February 27, 1940 issued by the Department of
Finance as regards to Sugar Centrals;

WHEREAS, the Municipal Council has come to the conclusion that the rates provided for in
such ordinances are no longer adequate if made in keeping with the present high cost of living;

WHEREAS, the Municipal Council has also taken cognizance of the fact that the price of sugar
per picul today is more than twice its pre-war average price; . . . . 18

Given the purposes just mentioned, we find no warrant in logic to give our assent to the view that the
ordinance in question is solely for regulatory purpose. Plain is the meaning conveyed. The ordinance is
for raising money. To say otherwise is to misread the purpose of the ordinance. 1aw phîl.nèt

We should not hang so heavy a meaning on the use of the term "municipal license tax". This does not
necessarily connote the idea that the tax is imposed — as the lower court would want it — to mean a
revenue measure in the guise of a license tax. For really, this runs counter to the declared purpose to
make money.

Besides, the term "license tax" has not acquired a fixed meaning. It is often "used indiscriminately to
designate impositions exacted for the exercise of various privileges." 19 It does not refer solely to a
license for regulation. In many instances, it refers to "revenue-raising exactions on privileges or
activities." 20 On the other hand, license fees are commonly called taxes. But, legally speaking, the latter
are "for the purpose of raising revenues," in contrast to the former which are imposed "in the exercise of
police power for purposes of regulation." 21
We accordingly say that the designation given by the municipal authorities does not decide whether the
imposition is properly a license tax or a license fee. The determining factors are the purpose and effect
of the imposition as may be apparent from the provisions of the ordinance. 22 Thus, "[w]hen no police
inspection, supervision, or regulation is provided, nor any standard set for the applicant 23 to establish, or
that he agrees to attain or maintain, but any and all persons engaged in the business designated,
without qualification or hindrance, may come, and a license on payment of the stipulated sum will issue,
to do business, subject to no prescribed rule of conduct and under no guardian eye, but according to the
unrestrained judgment or fancy of the applicant and licensee, the presumption is strong that the power
of taxation, and not the police power, is being exercised." 24

Precisely because of these considerations the present imposition must be treated as a levy for revenue
purposes. A quick glance at the big amount of maximum annual tax set forth in the ordinance,
P40,000.00 for sugar centrals, and P40,000.00 for sugar refineries, will readily convince one that the tax
is really a revenue tax. And then, we read in the ordinance nothing which would as much as indicate
that the tax imposed is merely for police inspection, supervision or regulation.

Our view that the tax imposed by the ordinance is for revenue purposes finds support in judicial
pronouncements which have gained foothold in this jurisdiction. In Standard Vacuum vs. Antigua, 25 this
Court had occasion to pass upon a similar ordinance. In categorical terms, we there stated: "We are
satisfied that the graduated license tax imposed by the ordinance in question is an occupation tax,
imposed not under the police or regulatory power of the municipality but by virtue of its taxing power for
purposes of revenue, and is in accordance with the last part of Section 1 of Commonwealth Act No.
472. It is, therefore, valid." 26

The present case is not to be analogized with Panaligan vs. City of Tacloban cited in the decision
below. 27 For there, the inspection fee sought to be collected — upon every head of specified animals to
be transported out of the City of Tacloban (P2.00 per hog, P10.00 per cow and 20.00 per carabao) —
was in reality an export tax specifically withheld from municipal taxing power under Section 2287 of the
Revised Administrative Code.

So also do we say that the cases of Pacific Commercial Co. vs. Romualdez, 28 Lacson vs. City of
Bacolod, 29 and Santos vs. Municipal Government of Caloocan, 30 used by plaintiff as references, are
entirely inopposite. In Pacific Commercial, the tax involved — on frozen meat — was nullified because
tax measures on cold stores were not then within the legislative grant to the City of Manila. In Lacson,
the City of Bacolod taxed every admission ticket sold in the moviehouses. And justification for this
imposition was moored to the general welfare clause of the city charter. This Court held the
ordinance ultra vires for the reason that the authority to tax cannot be derived from the general welfare
clause. In Santos, the taxes in controversy were internal organs fees, meat inspection fees and corral
fees, separate from the slaughter or slaughterhouse fees. In annulling the taxes there questioned, this
Court declared: "[W]hen the Council ordained the payment of internal organs fees, meat inspection fees
and corral fees, aside from the slaughter or slaughterhouse fees, it overstepped the limits of its statutory
grant [Sec. 1, C.A. 655]. Only one fee was allowed by that law to be charged and that was slaughter or
slaughterhouse fees."

In the cases cited then, the tax ordinances did not find plain and clear statutory prop. Such infirmity is
not present here.

We, accordingly, rule that Ordinance No. 1, series of 1956, of the Municipality of Victorias, was
promulgated not in the exercise of the municipality's regulatory power but as a revenue measure — a
tax on occupation or business. The authority to impose such tax is backed by the express grant of
power in Section 1 of Commonwealth Act 472.

2. Not that the disputed ordinance lacks the imprimatur of the Secretary of Finance required in
paragraph 2, Section 4, of Commonwealth Act 472. This legal provision necessitates such approval
"[w]henever the rate of fixed municipal license taxes on businesses not excepted in this Act or otherwise
covered by the preceding paragraph and subject to the fixed annual tax imposed in section one hundred
eighty-two of the National Internal Revenue Law, is in excess of fifty pesos per annum; . . . ."

The ordinance here challenged was recommended by the Provincial Board of Negros Occidental in its
resolution (No. 1864) of October 26, 1956. 31 And, the Undersecretary of Finance in his letter to the
municipal council of Victorias on December 18, 1956 approved said ordinance. But considering that it is
amendatory in nature, that approval was coupled with the mandate that the ordinance "should take
effect at the beginning of the ensuing calendar year [1957] pursuant to Section 2309 of the Revised
Administrative Code." 32
3. Plaintiff argues that the municipality is bereft of authority to enact the ordinance in question because
the national government "had preempted it from entering the field of taxation of sugar centrals and
sugar refineries." 33 Plaintiff seeks refuge in Section 189 of the National Internal Revenue Code which
subjects proprietors or operators of sugar centrals or sugar refineries to percentage tax.

The implausibility of this position is at once apparent. We are not dealing here with percentage tax.
Rather, we are concerned with a tax specifically for operators of sugar centrals and sugar refineries.
The rates imposed are based on the maximum annual output capacity. Which is not a percentage.
Because it is not a share. Nor is it a tax based on the amount of the proceeds realized out of the sale of
sugar, centrifugal or refined. 34

What can be said at most is that the national government has preempted the field of percentage
taxation. Section 1 of Commonwealth Act 472, while granting municipalities power to levy taxes,
expressly removes from them the power to exact "percentage taxes".

It is correct to say that preemption in the matter of taxation simply refers to an instance where the
national government elects to tax a particular area, impliedly withholding from the local government the
delegated power to tax the same field. This doctrine primarily rests upon the intention of
Congress. 35 Conversely, should Congress allow municipal corporations to cover fields of taxation it
already occupies, then the doctrine of preemption will not apply.

In the case at bar, Section 4(1) of Commonwealth Act 472 clearly and specifically allows municipal
councils to tax persons engaged in "the same businesses or occupation" on which "fixed internal
revenue privilege taxes" are "regularly imposed by the National Government." With certain exceptions
specified in Section 3 of the same statute. Our case does not fall within the exceptions. It would
therefore be futile to argue that Congress exclusively reserved to the national government the right to
impose the disputed taxes.

We rule that there is no preemption.

4. Petitioner advances the theory that the ordinance is excessive.

An ordinance carries with it the presumption of validity. The question of reasonableness though is open
to judicial inquiry. Much should be left thus to the discretion of municipal authorities. Courts will go slow
in writing off an ordinance as unreasonable unless the amount is so excessive as to be prohibitive,
arbitrary, unreasonable, oppressive, or confiscatory. 36 A rule which has gained acceptance is that
factors relevant to such an inquiry are the municipal conditions as a whole and the nature of the
business made subject to imposition. 37

Plaintiff has however not sufficiently proven that, taking these factors together, the license taxes are
unreasonable. The presumption of validity subsists. For, plaintiff has limited itself to insisting that the
amounts levied exceed the cost of regulation and that the municipality has adequate funds for the
alleged purposes as evidenced by the municipality's cash surplus for the fiscal year ending 1956.

The cost of regulation cannot be taken as a gauge, if the municipality really intended to enact a revenue
ordinance. For, "if the charge exceeds the expense of issuance of a license and costs of regulation, it is
a tax." 38 And if it is, and it is validly imposed, as in this case, "the rule that license fees for regulation
must bear a reasonable relation to the expense of the regulation has no application." 39

And then, a cash surplus alone cannot stop a municipality from enacting a revenue ordinance
increasing license taxes in anticipation of municipal needs. Discretion to determine the amount of
revenue required for the needs of the municipality is lodged with the municipal authorities. Again,
judicial intervention steps in only when there is a flagrant, oppressive and excessive abuse of power by
said municipal authorities. 40

Not that defendant municipality was without reason. On February 27, 1940, the Secretary of Finance,
later President, Manuel A. Roxas, issued Provincial Circular 12-A. In that circular, the then Finance
Secretary stated that his "Department has reached the conclusion that a tax on the basis of one centavo
for every picul of annual output capacity of sugar centrals ... would be just and reasonable." At that time,
the price of sugar was around P6.00 per picul. Sixteen years later — 1956 — when Ordinance No. 1
was approved, the market quotation for export sugar ranged from P12.00 to P15.00 per picul. 41 And yet,
since then the rate per output capacity of a sugar central in Ordinance No. 1 was merely from one
centavo to two centavos. There is a statement in the municipality's brief 42 that thereafter the price of
sugar had never gone below P16.00 per picul; instead it had gone up.
The reasonableness of the ordinance may not be disputed. It is not confiscatory.

There was misapprehension in the decision below in its statement that the increase of rates for
refineries was 2,000%. We should not overlook the fact that the original maximum rate covering
refineries in Ordinance No. 18, series of 1947, was P2,000.00; but that was only for a refinery with an
output capacity of 90,000 or more sacks. Under Section 2(c) of Ordinance No. 1, series of 1956, where
the refineries have an output capacity of from 75,001 bags to 100,000 bags, the tax remains at
P2,000.00. From here on, the ordinance provides for ten more scales for the graduation of the tax
depending upon the output capacity (P3,000.00, P4,000.00, P5,000.00, P10,000.00, P15,000.00,
P20,000.00, P25,000.00, P30,000.00, P35,000.00 and P40,000.00). But it is only where a refinery has
an output capacity of 1,750,001 or more bags that the present ordinance imposes a tax of P40,000.00.
The happenstance that plaintiff's refinery is in the last bracket calling upon it to pay P40,000.00 per
annum does not make the ordinance in question unreasonable.

Neither may we tag the ordinance with excessiveness if we consider the capital invested by plaintiff in
both its sugar central and sugar refinery and its annual income from both. Plaintiff's capital investment in
the sugar central and sugar refinery is more or less P26,000,000.00. 43 And here are its annual net
income: for the year 1956 — P3,852,910; for the year 1957 — P3,854,520; for the year 1958 —
P7,230,493; for the year 1959 — P5,951,187; and for the year 1960 — P7,809,250. 44 If these figures
mean anything at all, they show that the ordinance in question is neither confiscatory nor unjust and
unreasonable.

5. Upon the averment that in the Municipality of Victorias plaintiff is the only operator of a sugar central
and sugar refinery, plaintiff now presses its argument that Ordinance No. 1, series of 1956, is
discriminatory. The ordinance does not single out Victorias as the only object of the ordinance. Said
ordinance is made to apply to any sugar central or sugar refinery which may happen to operate in the
municipality. So it is, that the fact that plaintiff is actually the sole operator of a sugar central and a sugar
refinery does not make the ordinance discriminatory. Argument along the same lines was rejected
in Shell Co. of P.I., Ltd. vs. Vaño, 45 this Court holding that the circumstance "that there is no other
person in the locality who exercises" the occupation designated as installation manager "does not make
the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm
who exercises such calling or occupation." And in Ormoc Sugar Company, Inc. vs. Municipal Board of
Ormoc City, 46 declaratory relief was sought to test the validity of a municipal ordinance which provides a
city tax of twenty centavos per picul of centrifugal sugar and one per centum on the gross sale of its
derivatives and by-products "produced by the Ormoc Sugar Company, Incorporated, or by any other
sugar mill in Ormoc City." Mr. Justice Enrique Fernando, delivering the opinion of this Court, declared
that the ordinance did not suffer "from a constitutional or statutory infirmity." And yet, in Ormoc, it is to
be observed that Section 1 of the ordinance spelled out Ormoc Sugar Company, Incorporated
specifically by name. Not even the name of plaintiff herein was ever mentioned in the ordinance now
disputed.

No discrimination exists.

6. As infirm is plaintiff's stand that its business is not confined to the Municipality of Victorias. It suffices
that plantiff engages in a business or occupation subject to an exaction by the municipality — within the
territorial boundaries of that municipality. Plaintiff's sugar central and sugar refinery are located within
the Municipality of Victorias. In this central and refinery, plaintiff manufactures centrifugal sugar and
refined sugar, respectively.

But plaintiff insists that plaintiff's sugar milling and refining operations are not wholly performed within
the territorial limits of Victorias. According to plaintiff, transportation of canes from plantation to the mill
site, operation and maintenance of telephone system, inspection of crop progress and other related
activities, are conducted not only in defendant's municipality but also in the municipalities of Cadiz,
Manapla, Sagay and Saravia as well. 47 We fail to see the relevance of these facts. Because, if we follow
plaintiff's ratiocination, neither Victorias nor any of the municipalities just adverted to would be able to
impose the tax. One thing certain, of course, is that the tax is imposed upon the business of operating a
sugar central and a sugar refinery. And the situs of that business is precisely the Municipality of
Victorias.

7. Plaintiff finally impleads double taxation. Its reason is that in computing the amount of taxes to be
paid by the sugar refinery the cost of the raw sugar coming from the sugar central is not deducted; ergo,
plaintiff is taxed twice on the raw sugar.

Double taxation has been otherwise described as "direct duplicate taxation." 48 For double taxation to
exist, "the same property must be taxed twice, when it should be taxed but once." 49 Double taxation has
also been "defined as taxing the same person twice by the same jurisdiction for the same thing." 50 As
stated in Manila Motor Company, Inc. vs. Ciudad de Manila, 51 there is double taxation "cuando la misma
propiedad se sujeta a dos impuestos por la misma entidad o Gobierno, para el mismo fin y durante el
mismo periodo de tiempo."

With the foregoing precepts in mind, we find no difficulty in saying that plaintiff's argument on double
taxation does not inspire assent. First. The two taxes cover two different objects. Section 1 of the
ordinance taxes a person operating sugar centrals or engaged in the manufacture of centrifugal
sugar. While under Section 2, those taxed are the operators of sugar refinery mills. One occupation
or business is different from the other. Second. The disputed taxes are imposed on occupation or
business. Both taxes are not on sugar. The amount thereof depends on the annual
output capacity of the mills concerned, regardless of the actual sugar milled. Plaintiff's
argument perhaps could make out a point if the object of taxation here were the sugar it
produces, not the business of producing it.

There is no double taxation.

For the reasons given —

The judgment under review is hereby reversed; and

Judgment is hereby rendered: (a) declaring valid and subsisting Ordinance No. 1, series of 1956, of the
Municipality of Victorias, Province of Negros Occidental; and (b) dismissing plaintiff's complaint as
supplemented and amended. Costs against plaintiff. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,

vs.
CITY OF ILOILO, defendants-appellants.

Pelaez, Jalandoni and Jamir for plaintiff-appellees.

Assistant City Fiscal Vicente P. Gengos for defendant-appellant.

CASTRO, J.:

Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring
illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On
Persons Engaged In The Business Of Operating Tenement Houses," and ordering the City to refund to
the plaintiffs-appellees the sums of collected from them under the said ordinance.

On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax
fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or
wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per
apartment; (3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per
apartment. The validity and constitutionality of this ordinance were challenged by the spouses Eusebio
Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments.
This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23,
1959, declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement
houses is one among those clearly and expressly granted to the City of Iloilo by its Charter."

On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of
Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power
to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance
11, series of 1960, hereunder quoted in full:

AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE

BUSINESS OF OPERATING TENEMENT HOUSES

Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic
Act No. 2264, otherwise known as the Autonomy Law of Local Government, that:

Section 1. — A municipal license tax is hereby imposed on tenement houses in accordance with
the schedule of payment herein provided.

Section 2. — Tenement house as contemplated in this ordinance shall mean any building or
dwelling for renting space divided into separate apartments or accessorias.

Section 3. — The municipal license tax provided in Section 1 hereof shall be as follows:

I. Tenement houses:

(a) Apartment house made of strong materials P20.00 per door p.a.

(b) Apartment house made of mixed materials P10.00 per door p.a.

II Rooming house of strong materials P10.00 per door p.a.

Rooming house of mixed materials P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or dedicated to

business in the following streets: J.M. Basa, Iznart, Aldeguer,
Guanco and Ledesma from Plazoleto Gay to Valeria. St. P30.00 per door p.a.
 IV. Tenement house partly or wholly engaged in or dedicated to
business in any other street P12.00 per door p.a.

V. Tenement houses at the streets surrounding the super market

as soon as said place is declared commercial P24.00 per door p.a.

Section 4. — All ordinances or parts thereof inconsistent herewith are hereby amended.

Section 5. — Any person found violating this ordinance shall be punished with a fine note
exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6) months
or both at the discretion of the Court.

Section 6 — This ordinance shall take effect upon approval.

ENACTED, January 15, 1960.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement
houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S.
Villanueva are owners of ten apartments. Each of the appellees' apartments has a door leading to a
street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as a store, while
the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns, likewise,
apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon City, which cities,
according to him, do not impose tenement or apartment taxes.

By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and
Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio
Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of
P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property.

On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended
complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance
11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City
of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for
depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered
to refund the amounts collected from them under the said ordinance.

On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds
that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the same is
"oppressive and unreasonable," for the reason that it penalizes owners of tenement houses who fail to
pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates the rule of
uniformity of taxation.

The issues posed in this appeal are:

1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double
taxation?

2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?

3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal
clause?

4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?

1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:

SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities
and municipal districts shall have authority to impose municipal license taxes or fees upon
persons engaged in any occupation or business, or exercising privileges in chartered cities,
municipalities or municipal districts by requiring them to secure licences at rates fixed by the
municipal board or city council of the city, the municipal council of the municipality, or the
municipal district council of the municipal district; to collect fees and charges for services
rendered by the city, municipality or municipal district; to regulate and impose reasonable fees
for services rendered in connection with any business, profession or occupation being
 conducted within the city, municipality or municipal district and otherwise to levy for public
purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and municipal
districts shall, in no case, impose any percentage tax on sales or other taxes in any form based
thereon nor impose taxes on articles subject to specific tax, except gasoline, under the
provisions of the National Internal Revenue Code; Provided, however, That no city, municipality
or municipal district may levy or impose any of the following:

(a) Residence tax;

(b) Documentary stamp tax;

(c) Taxes on the business of persons engaged in the printing and publication of any newspaper,
magazine, review or bulletin appearing at regular intervals and having fixed prices for for
subscription and sale, and which is not published primarily for the purpose of publishing
advertisements;

(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric
light, heat and power;

(e) Taxes on forest products and forest concessions;

(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;

(g) Taxes on income of any kind whatsoever;

(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof;

(i) Customs duties registration, wharfage dues on wharves owned by the national government,
tonnage, and all other kinds of customs fees, charges and duties;

(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and

(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign
insurance companies.

A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance
shall provide otherwise: Provided, however, That the Secretary of Finance shall have authority
to suspend the effectivity of any ordinance within one hundred and twenty days after its
passage, if, in his opinion, the tax or fee therein levied or imposed is unjust, excessive,
oppressive, or confiscatory, and when the said Secretary exercises this authority the effectivity
of such ordinance shall be suspended.

In such event, the municipal board or city council in the case of cities and the municipal council
or municipal district council in the case of municipalities or municipal districts may appeal the
decision of the Secretary of Finance to the court during the pendency of which case the tax
levied shall be considered as paid under protest.

It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments
broad taxing authority which extends to almost "everything, excepting those which are mentioned
therein," provided that the tax so levied is "for public purposes, just and uniform," and does not
transgress any constitutional provision or is not repugnant to a controlling statute.2 Thus, when a tax,
levied under the authority of a city or municipal ordinance, is not within the exceptions and limitations
aforementioned, the same comes within the ambit of the general rule, pursuant to the rules of expressio
unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti.

Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in
section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature of
the tax. The appellees strongly maintain that it is a "property tax" or "real estate tax,"3 and not a "tax
on persons engaged in any occupation or business or exercising privileges," or a license tax, or a
privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license
tax on persons engaged in the business of operating tenement houses," while section 1 thereof states
that a "municipal license tax is hereby imposed on tenement houses." It is the phraseology of section 1
on which the appellees base their contention that the tax involved is a real estate tax which, according
to them, makes the ordinance ultra vires as it imposes a levy "in excess of the one per centum real
estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158."5.

It is our view, contrary to the appellees' contention, that the tax in question is not a real estate
tax. Obviously, the appellees confuse the tax with the real estate tax within the meaning of the
Assessment Law,6 which, although not applicable to the City of Iloilo, has counterpart provisions in the
Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or other
improvements thereon, not specially exempted,8 and is payable regardless of whether the property is
used or not, although the value may vary in accordance with such factor.9 The tax is usually single or
indivisible, although the land and building or improvements erected thereon are assessed separately,
except when the land and building or improvements belong to separate owners.10 It is a fixed
proportion11 of the assessed value of the property taxed, and requires, therefore, the intervention of
assessors.12 It is collected or payable at appointed times,13 and it constitutes a superior lien on and is
enforceable against the property14 subject to such taxation, and not by imprisonment of the owner.

The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax
on the land on which the tenement houses are erected, although both land and tenement houses may
belong to the same owner. The tax is not a fixed proportion of the assessed value of the tenement
houses, and does not require the intervention of assessors or appraisers. It is not payable at a
designated time or date, and is not enforceable against the tenement houses either by sale or distraint.
Clearly, therefore, the tax in question is not a real estate tax.

"The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court
looks less to its words and more to the context, subject-matter, consequence and effect. Accordingly,
what is within the spirit is within the ordinance although it is not within the letter thereof, while that which
is in the letter, although not within the spirit, is not within the ordinance."15 It is within neither the letter
nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise the subject-
matter would have been not merely tenement houses. On the contrary, it is plain from the context of the
ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a
form of business or calling. The ordinance, in both its title and body, particularly sections 1 and 3
thereof, designates the tax imposed as a "municipal license tax" which, by itself, means an
"imposition or exaction on the right to use or dispose of property, to pursue a business, occupation, or
calling, or to exercise a privilege."16.

"The character of a tax is not to be fixed by any isolated words that may beemployed in the
statute creating it, but such words must be taken in the connection in which they are used and
the true character is to be deduced from the nature and essence of the subject."17 The subject-
matter of the ordinance is tenement houses whose nature and essence are expressly set forth
in section 2 which defines a tenement house as "any building or dwelling for renting
space divided into separate apartments or accessorias." The Supreme Court, in City of Iloilo vs.
Remedios Sian Villanueva, et al., L-12695, March 23, 1959, adopted the definition of a
tenement house18 as "any house or building, or portion thereof, which is rented, leased, or hired
out to be occupied, or is occupied, as the home or residence of three families or more living
independently of each other and doing their cooking in the premises or by more than two
families upon any floor, so living and cooking, but having a common right in the halls, stairways,
yards, water-closets, or privies, or some of them." Tenement houses, being necessarily offered
for rent or lease by their very nature and essence, therefore constitute a distinct form of
business or calling, similar to the hotel or motel business, or the operation of lodging houses or
boarding houses. This is precisely one of the reasons why this Court, in the said case of City of
Iloilo vs. Remedios Sian Villanueva, et al., supra, declared Ordinance 86 ultra vires, because,
although the municipal board of Iloilo City is empowered, under sec. 21, par. j of its Charter, "to
tax, fix the license fee for, and regulate hotels, restaurants, refreshment parlors, cafes, lodging
houses, boarding houses, livery garages, public warehouses, pawnshops, theaters,
cinematographs," tenement houses, which constitute a different business enterprise,19 are not
mentioned in the aforestated section of the City Charter of Iloilo. Thus, in the aforesaid case,
this Court explicitly said:.

"And it not appearing that the power to tax owners of tenement houses is one among those
clearly and expressly granted to the City of Iloilo by its Charter, the exercise of such power
cannot be assumed and hence the ordinance in question is ultra vires insofar as it taxes a
tenement house such as those belonging to defendants." .

The lower court has interchangeably denominated the tax in question as a tenement tax or an
apartment tax. Called by either name, it is not among the exceptions listed in section 2 of the Local
Autonomy Act. On the other hand, the imposition by the ordinance of a license tax on persons engaged
in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act
which provides that chartered cities have the authority to impose municipal license taxes or fees upon
persons engaged in any occupation or business, or exercising privileges within their respective
territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." .

2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that,"
because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of
the National Internal Revenue Code, besides the tenement tax under the said ordinance." Obviously,
what the trial court refers to as "income taxes" are the fixed taxes on business and occupation provided
for in section 182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged in
"leasing or renting property, whether on their account as principals or as owners of rental property or
properties," are considered "real estate dealers" and are taxed according to the amount of their annual
income.20.

While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the
National Internal Revenue Code as real estate dealers, and still taxable under the ordinance in
question, the argument against double taxation may not be invoked. The same tax may be
imposed by the national government as well as by the local government. There is nothing
inherently obnoxious in the exaction of license fees or taxes with respect to the same
occupation, calling or activity by both the State and a political subdivision thereof.21.

The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate
taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-
settled rule that a license tax may be levied upon a business or occupation although the land or property
used in connection therewith is subject to property tax. The State may collect an ad valorem tax on
property used in a calling, and at the same time impose a license tax on that calling, the imposition of
the latter kind of tax being in no sense a double tax.22.

"In order to constitute double taxation in the objectionable or prohibited sense the same property
must be taxed twice when it should be taxed but once; both taxes must be imposed on the
same property or subject-matter, for the same purpose, by the same State, Government,
or taxing authority, within the same jurisdiction or taxing district, during the same taxing
period, and they must be the same kind or character of tax."23 It has been shown that a real
estate tax and the tenement tax imposed by the ordinance, although imposed by the sametaxing
authority, are not of the same kind or character.

At all events, there is no constitutional prohibition against double taxation in the Philippines.24 It
is something not favored, but is permissible, provided some other constitutional requirement is
not thereby violated, such as the requirement that taxes must be uniform."25.

3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only
oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both,
if the owner or owners of the tenement buildings divided into apartments do not pay the tenement or
apartment tax fixed in said ordinance," but also unconstitutional as it subjects the owners of tenement
houses to criminal prosecution for non-payment of an obligation which is purely sum of money." The
lower court apparently had in mind, when it made the above ruling, the provision of the Constitution that
"no person shall be imprisoned for a debt or non-payment of a poll tax."26 It is elementary, however, that
"a tax is not a debt in the sense of an obligation incurred by contract, express or implied, and therefore
is not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment
for debt, and a statute or ordinance which punishes the non-payment thereof by fine or
imprisonment is not, in conflict with that prohibition."27 Nor is the tax in question a poll tax, for the
latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class, resident within a
specified territory, without regard to their property or the occupations in which they may be
engaged.28 Therefore, the tax in question is not oppressive in the manner the lower court puts it. On the
other hand, the charter of Iloilo City29 empowers its municipal board to "fix penalties for violations of
ordinances, which shall not exceed a fine of two hundred pesos or six months' imprisonment, or both
such fine and imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this
Court overruled the pronouncement of the lower court declaring illegal and void an ordinance imposing
an occupation tax on persons exercising various professions in the City of Manilabecause it imposed a
penalty of fine and imprisonment for its violation.30.

4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.

"... because while the owners of the other buildings only pay real estate tax and income taxes
the ordinance imposes aside from these two taxes an apartment or tenement tax. It should be
 noted that in the assessment of real estate tax all parts of the building or buildings are included
so that the corresponding real estate tax could be properly imposed. If aside from the real estate
tax the owner or owners of the tenement buildings should pay apartment taxes as required in
the ordinance then it will violate the rule of uniformity of taxation.".

Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity"
and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out to pay taxes on
their tenement houses, while citizens of other cities, where their councils do not enact a similar tax
ordinance, are permitted to escape such imposition." .

It is our view that both assertions are undeserving of extended attention. This Court has already ruled
that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are
uniform and equal when imposed upon all property of the same class or character within the
taxing authority."31 The fact, therefore, that the owners of other classes of buildings in the City of Iloilo
do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and
equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that
tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the
same purpose should be imposed in different territorial subdivisions at the same time.32 So long as the
burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly
classified or situated, equality and uniformity of taxation is accomplished.33 The plaintiffs-appellees, as
owners of tenement houses in the City of Iloilo, have not shown that the tax burden is not equally or
uniformly distributed among them, to overthrow the presumption that tax statutes are intended to
operate uniformly and equally.34.

5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a
mere reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L-
12695, supra, as ultra vires, the decision in that case should be accorded the effect of res judicata in the
present case or should constitute estoppel by judgment. To dispose of this contention, it suffices to say
that there is no identity of subject-matter in that case andthis case because the subject-matter in L-
12695 was an ordinance which dealt not only with tenement houses but also warehouses, and the said
ordinance was enacted pursuant to the provisions of the City charter, while the ordinance in the case at
bar was enacted pursuant to the provisions of the Local Autonomy Act. There is likewise no identity of
cause of action in the two cases because the main issue in L-12695 was whether the City of Iloilo had
the power under its charter to impose the tax levied by Ordinance 11, series of 1960, under the Local
Autonomy Act which took effect on June 19, 1959, and therefore was not available for consideration in
the decision in L-12695 which was promulgated on March 23, 1959. Moreover, under the provisions of
section 2 of the Local Autonomy Act, local governments may now tax any taxable subject-matter or
object not included in the enumeration of matters removed from the taxing power of local
governments.Prior to the enactment of the Local Autonomy Act the taxes that could be legally levied by
local governments were only those specifically authorized by law, and their power to tax was construed
in strictissimi juris. 35.

ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the
complaint is hereby dismissed. No pronouncement as to costs..
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-4817 May 26, 1954

SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,

vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.

Calanog and Alafriz for plaintiffs-appellants.

City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants-appellants.

REYES, J.:

This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical practitioner,
a public accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf and in behalf of
other professionals practising in the City of Manila who may desire to join it." Object of the suit is the
annulment of Ordinance No. 3398 of the City of Manila together with the provision of the Manila charter
authorizing it and the refund of taxes collected under the ordinance but paid under protest.

The ordinance in question, which was approved by 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.

To begin with defendants' appeal, we find that the lower court was in error in saying that the imposition
of the penalty provided for in the ordinance was without the authority of law. The last paragraph (kk) of
the very section that authorizes the enactment of this tax ordinance (section 18 of the Manila Charter) in
express terms also empowers the Municipal Board "to fix penalties for the violation of ordinances which
shall not exceed to(sic) two hundred pesos fine or six months" imprisonment, or both such fine and
imprisonment, for a single offense." Hence, the pronouncement below that the ordinance in question is
illegal and void because it imposes a penalty not authorized by law is clearly without basis.

As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double taxation.

In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the
professions to which they respectively belong have been singled out for the imposition of this municipal
occupation tax; and in any event, 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. (Cooley on Taxation, Vol. 4, 4th ed., pp. 3393-3395.) Plaintiffs' complaint
is that while the law has authorized the City of Manila to impose the said tax, it has withheld that
authority from other chartered cities, not to mention municipalities. We do not think it is for the courts to
judge what particular cities or municipalities should be empowered to impose occupation taxes in
addition to those imposed by the National Government. That matter is peculiarly within the domain of
the political departments and the courts would do well not to encroach upon it. Moreover, as the seat of
the National Government and with a population and volume of trade many times that of any other
Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the practice of the
professions, so that it is but fair that the professionals in Manila be made to pay a higher occupation tax
than their brethren in the provinces.

Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination
within a class in that while professionals with offices in Manila have to pay the tax, outsiders who have
no offices in the city but practice their profession therein are not subject to the tax. Plaintiffs make a
distinction that is not found in the ordinance. The ordinance imposes the tax upon every person
"exercising" or "pursuing" — in the City of Manila naturally — any one of the occupations named, but
does not say that such person must have his office in Manila. What constitutes exercise or pursuit of a
profession in the city is a matter of judicial determination. The argument against double taxation may
not be invoked where one tax is imposed by the state and the other is imposed by the city (1
Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing inherently
obnoxious in the requirement that license fees or taxes be exacted with respect to the same
occupation, calling or activity by both the state and the political subdivisions thereof. (51 Am.
Jur., 341.)

In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance No.
3398 of the City of Manila illegal and void and affirmed in so far as it holds the validity of the
provision of the Manila charter authorizing it. With costs against plaintiffs-appellants.

Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

Separate Opinions

PARAS, C.J., dissenting:

I am constrained to dissent from the decision of the majority upon the ground that the Municipal Board
of Manila cannot outlaw what Congress of the Philippines has already authorized. The plaintiffs-
appellants — two lawyers, a physician, an accountant, a dentist and a pharmacist — had already paid
the occupation tax under section 201 of the National Internal Revenue Code and are thereby duly
licensed to practice their respective professions throughout the Philippines; and yet they had been
required to pay another occupation tax under Ordinance No. 3398 for practising in the City of Manila.
This is a glaring example of contradiction — the license granted by the National Government is in effect
withdrawn by the City in case of non-payment of the tax under the ordinance. I fit be argued that the
national occupation tax is collected to allow the professional residing in Manila to pursue his calling in
other places in the Philippines, it should then be exacted only from professionals practising
simultaneously in and outside of Manila. At any rate, we are confronted with the following situation:
Whereas the professionals elsewhere pay only one occupation tax, in the City of Manila they have to
pay two, although all are on equal footing insofar as opportunities for earning money out of their pursuits
are concerned. The statement that practice in Manila is more lucrative than in the provinces, may be
true perhaps with reference only to a limited few, but certainly not to the general mass of practitioners in
any field. Again, provincial residents who have occasional or isolated practice in Manila may have to
pay the city tax. This obvious discrimination or lack of uniformity cannot be brushed aside or justified by
any trite pronouncement that double taxation is legitimate or that legislation may validly affect certain
classes.

My position is that a professional who has paid the occupation tax under the National Internal Revenue
Code should be allowed to practice in Manila even without paying the similar tax imposed by Ordinance
No. 3398. The City cannot give what said professional already has. I would not say that this Ordinance,
enacted by the Municipal Board pursuant to paragraph 1 of section 18 of the Revised Charter of Manila,
as amended by Republic Act No. 409, empowering the Board to impose a municipal occupation tax not
to exceed P50 per annum, is invalid; but that only one tax, either under the Internal Revenue Code or
under Ordinance No. 3398, should be imposed upon a practitioner in Manila.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 99886 March 31, 1993

JOHN H. OSMEÑA, petitioner,

vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity as
Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of Energy
Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.

Nachura & Sarmiento for petitioner.

The Solicitor General for public respondents.

NARVASA, C.J.:

The petitioner seeks the corrective,1 prohibitive and coercive remedies provided by Rule 65 of the Rules
of Court,2 upon the following posited grounds, viz.:3

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now, the
Office of Energy Affairs), created pursuant to § 8, paragraph 1, of P.D. No. 1956, as amended, "said
creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution;4

2) the unconstitutionality of § 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order No.
137, for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board;"5

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund,6 because it contravenes § 8, paragraph 2 (2) of
P. D. 1956, as amended; and

4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of the
pump prices and petroleum products to the levels prevailing prior to the said Order.

It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a
Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF
was designed to reimburse oil companies for cost increases in crude oil and imported petroleum
products resulting from exchange rate adjustments and from increases in the world market prices of
crude oil.

Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024,7 and
ordered released from the National Treasury to the Ministry of Energy. The same Executive Order also
authorized the investment of the fund in government securities, with the earnings from such placements
accruing to the fund.

President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the
amount of the underrecovery being left for determination by the Ministry of Finance.

Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion;8 that to abate the worsening deficit, "the Energy Regulatory
Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and at
the rate of recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this
notwithstanding, the respondents — Oscar Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his
capacity as Secretary of Finance; Wenceslao de la Paz, in his capacity as Head of the Office of Energy Affairs; Chairman
Rex V. Tantiongco and the Energy Regulatory Board — "are poised to accept, process and pay claims not authorized
under P.D. 1956."9
The petition further avers that the creation of the trust fund violates §
29(3), Article VI of the Constitution, reading as follows:

(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special fund
was created has been fulfilled or abandoned, the balance, if any, shall be transferred to
the general funds of the Government.

The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be treated
as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a
specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only
for the purpose indicated, and not channeled to another government objective." 10 Petitioner further
points out that since "a 'special fund' consists of monies collected through the taxing power of a
State, such amounts belong to the State, although the use thereof is limited to the special
purpose/objective for which it was created." 11

He also contends that the "delegation of legislative authority" to the ERB violates § 28 (2). Article VI of
the Constitution, viz.:

(2) The Congress may, by law, authorize the President to fix, within specified limits, and
subject to such limitations and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts within the
framework of the national development program of the Government;

and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how to tax,
who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how much to
tax." 12

The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general fund
for the reason that the Constitution so provides, and because they are, supposedly, taxes levied for a
special purpose. He assumes that the Fund is formed from a tax undoubtedly because a portion thereof
is taken from collections of ad valorem taxes and the increases thereon.

It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power
of the State. The Solicitor General observes that the "argument rests on the assumption that the OPSF
is a form of revenue measure drawing from a special tax to be expended for a special purpose." 13 The
petitioner's perceptions are, in the Court's view, not quite correct.

To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding in Valmonte v. Energy Regulatory Board, et al. 14 —

The foregoing arguments suggest the presence of misconceptions about the nature and
functions of the OPSF. The OPSF is a "Trust Account" which was established "for the
purpose of minimizing the frequent price changes brought about by exchange rate
adjustment and/or changes in world market prices of crude oil and imported petroleum
products." 15 Under P.D. No. 1956, as amended by Executive Order No. 137 dated 27
February 1987, this Trust Account may be funded from any of the following sources:

a) Any increase in the tax collection from ad valorem tax or customs duty
imposed on petroleum products subject to tax under this Decree arising
from exchange rate adjustment, as may be determined by the Minister of
Finance in consultation with the Board of Energy;

b) Any increase in the tax collection as a result of the lifting of tax

exemptions of government corporations, as may be determined by the
Minister of Finance in consultation with the Board of Energy:

c) Any additional amount to be imposed on petroleum products to

augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons or
 companies engaged in the business of importing, manufacturing and/or
marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs paid
by oil companies in the importation of crude oil and petroleum products
is less than the peso costs computed using the reference foreign
exchange rate as fixed by the Board of Energy.

xxx xxx xxx

The fact that the world market prices of oil, measured by the spot market in Rotterdam,
vary from day to day is of judicial notice. Freight rates for hauling crude oil and
petroleum products from sources of supply to the Philippines may also vary from time to
time. The exchange rate of the peso vis-a-vis the U.S. dollar and other convertible
foreign currencies also changes from day to day. These fluctuations in world market
prices and in tanker rates and foreign exchange rates would in a completely free market
translate into corresponding adjustments in domestic prices of oil and petroleum
products with sympathetic frequency. But domestic prices which vary from day to day or
even only from week to week would result in a chaotic market with unpredictable effects
upon the country's economy in general. The OPSF was established precisely to protect
local consumers from the adverse consequences that such frequent oil price
adjustments may have upon the economy. Thus, the OPSF serves as a pocket, as it
were, into which a portion of the purchase price of oil and petroleum products paid by
consumers as well as some tax revenues are inputted and from which amounts are
drawn from time to time to reimburse oil companies, when appropriate situations arise,
for increases in, as well as underrecovery of, costs of crude importation. The OPSF is
thus a buffer mechanism through which the domestic consumer prices of oil and
petroleum products are stabilized, instead of fluctuating every so often, and oil
companies are allowed to recover those portions of their costs which they would not
otherwise recover given the level of domestic prices existing at any given time. To the
extent that some tax revenues are also put into it, the OPSF is in effect a device through
which the domestic prices of petroleum products are subsidized in part. It appears to the
Court that the establishment and maintenance of the OPSF is well within that pervasive
and non-waivable power and responsibility of the government to secure the physical and
economic survival and well-being of the community, that comprehensive sovereign
authority we designate as the police power of the State. The stabilization, and subsidy of
domestic prices of petroleum products and fuel oil — clearly critical in importance
considering, among other things, the continuing high level of dependence of the country
on imported crude oil — are appropriately regarded as public purposes.

Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is not
far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality of the
sugar stabilization fees and explained their nature and character, viz.:

The stabilization fees collected are in the nature of a tax, which is within the power of the
State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil. 148). . .
. The tax collected is not in a pure exercise of the taxing power. It is levied with a
regulatory purpose, to provide a means for the stabilization of the sugar industry. The
levy is primarily in the exercise of the police power of the State (Lutz v. Araneta, supra).

xxx xxx xxx

The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose — that of "financing the growth and development of
the sugar industry and all its components, stabilization of the domestic market including
the foreign market." The fact that the State has taken possession of moneys pursuant to
law is sufficient to constitute them state funds, even though they are held for a special
purpose (Lawrence v. American Surety Co. 263 Mich. 586, 249 ALR 535, cited in 42 Am
Jur Sec. 2, p. 718). Having been levied for a special purpose, the revenues collected are
to be treated as a special fund, to be, in the language of the statute, "administered in
trust" for the purpose intended. Once the purpose has been fulfilled or abandoned, the
balance if any, is to be transferred to the general funds of the Government. That is the
essence of the trust intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from
the 1935 Constitution, Article VI, Sec. 23(1). 17
 The character of the Stabilization Fund as a special kind of fund is emphasized by the
fact that the funds are deposited in the Philippine National Bank and not in the Philippine
Treasury, moneys from which may be paid out only in pursuance of an appropriation
made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the 1935
Constitution, Article VI, Sec. 23(1). (Emphasis supplied).

1.Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the
special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in
what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny
and review of the COA. The Court is satisfied that these measures comply with the constitutional
description of a "special fund." Indeed, the practice is not without precedent.

2. With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products provides a
sufficient standard by which the authority must be exercised. In addition to the general policy of the law
to protect the local consumer by stabilizing and subsidizing domestic pump rates, § 8(c) of P.D.
1956 18 expressly authorizes the ERB to impose additional amounts to augment the resources of the
Fund.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on
how much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that what is
involved here is the power of taxation; but as already discussed, this is not the case. What is here
involved is not so much the power of taxation as police power. Although the provision authorizing the
ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying
out the objectives of the law which are embraced by the police power of the State.

The interplay and constant fluctuation of the various factors involved in the determination of the price of
oil and petroleum products, and the frequently shifting need to either augment or exhaust the Fund, do
not conveniently permit the setting of fixed or rigid parameters in the law as proposed by the petitioner.
To do so would render the ERB unable to respond effectively so as to mitigate or avoid the undesirable
consequences of such fluidity. As such, the standard as it is expressed, suffices to guide the delegate in
the exercise of the delegated power, taking account of the circumstances under which it is to be
exercised.

For a valid delegation of power, it is essential that the law delegating the power must be (1) complete in
itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix a standard —
limits of which
are sufficiently determinate or determinable — to which the delegate must conform. 20

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there must
be a standard, which implies at the very least that the legislature itself determines
matters of principle and lays down fundamental policy. Otherwise, the charge of
complete abdication may be hard to repel. A standard thus defines legislative policy,
marks its limits, maps out its boundaries and specifies the public agency to apply it. It
indicates the circumstances under which the legislative command is to be effected. It is
the criterion by which the legislative purpose may be carried out. Thereafter, the
executive or administrative office designated may in pursuance of the above guidelines
promulgate supplemental rules and regulations. The standard may either be express or
implied. If the former, the non-delegation objection is easily met. The standard though
does not have to be spelled out specifically. It could be implied from the policy and
purpose of the act considered as a whole. 21

It would seem that from the above-quoted ruling, the petition for prohibition should fail.

The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable
standard which guides the exercise of the power granted to the ERB. By the same token, the proper
exercise of the delegated power may be tested with ease. It seems obvious that what the law intended
was to permit the additional imposts for as long as there exists a need to protect the general public and
the petroleum industry from the adverse consequences of pump rate fluctuations. "Where the standards
set up for the guidance of an administrative officer and the action taken are in fact recorded in the
orders of such officer, so that Congress, the courts and the public are assured that the orders in the
judgment of such officer conform to the legislative standard, there is no failure in the performance of the
legislative functions." 22

This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon which the delegation of power may be
justified.

In relation to the third question — respecting the illegality of the reimbursements to oil companies, paid
out of the Oil Price Stabilization Fund, because allegedly in contravention of § 8, paragraph 2 (2) of P.D.
1956, amended 23 — the Court finds for the petitioner.

The petition assails the payment of certain items or accounts in favor of the petroleum companies (i.e.,
inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.) because not
authorized by law. Petitioner contends that "these claims are not embraced in the enumeration in § 8 of
P.D. 1956 . . since none of them was incurred 'as a result of the reduction of domestic prices of
petroleum products,'" 24 and since these items are reimbursements for which the OPSF should not have
responded, the amount of the P12.877 billion deficit "should be reduced by P5,277.2 million." 25 It is
argued "that under the principle of ejusdem generis . . . the term 'other factors' (as used in § 8 of P.D.
1956) . . can only include such 'other factors' which necessarily result in the reduction of domestic prices
of petroleum products." 26

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines of
the rule of ejusdem generis would reduce (E.O. 137) to a meaningless provision."

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed upon
the application of ejusdem generis to paragraph 2 of § 8 of P.D. 1956, viz.:

The rule of ejusdem generis states that "[w]here words follow an enumeration of persons
or things, by words of a particular and specific meaning, such general words are not to
be construed in their widest extent, but are held to be as applying only to persons or
things of the same kind or class as those specifically mentioned." 28 A reading of
subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valorem taxes. Therefore,
subparagraph (iii) cannot be limited by the enumeration in these subparagraphs. What
should be considered for purposes of determining the "other factors" in subparagraph
(iii) is the first sentence of paragraph (2) of the Section which explicitly allows the cost
underrecovery only if such were incurred as a result of the reduction of domestic prices
of petroleum products.

3The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2
of § 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of domestic
prices of petroleum products. Under the same provision, however, the payment of inventory losses is
upheld as valid, being clearly a result of domestic price reduction, when oil companies incur a cost
underrecovery for yet unsold stocks of oil in inventory acquired at a higher price.

Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is equally
permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and regulations
as held in Caltex 29 and which have been pointed to by the Solicitor General. At any rate, doubts about
the propriety of such reimbursements have been dispelled by the enactment of R.A. 6952, establishing
the Petroleum Price Standby Fund, § 2 of which specifically authorizes the reimbursement of "cost
underrecovery incurred as a result of fuel oil sales to the National Power Corporation."

Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been
presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort to
defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the so-
called overpayment refunds. To be sure, the absence of any argument for or against the validity of the
refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis upon which to
nullify the same.
4Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered
moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels below
even those prayed for in the petition.

WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement of
financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 3473 March 22, 1907

J. CASANOVAS, plaintiff-appellant,
vs.
JNO. S. HORD, defendant-appellee.

F.G. Waite for appellant.

Attorney-General Araneta for appellee.

WILLARD, J.:

The plaintiff brought this action against the defendant, the Collector of Internal Revenue, to recover the
sum of P9,600, paid by him under protest as taxes on certain mining claims owned by him in the
Province of Ambos Camarines. Judgment was rendered in the court below in favor of the defendant,
and from that judgment the plaintiff appealed.

There is no dispute about the facts.

In January, 1897, the Spanish Government, in accordance with the provisions of the royal decree of the
14th of May, 1867, granted to the plaintiff certain mines in the said Province of Ambos Camarines, of
which mines the plaintiff is now the owner.

That there were valid perfected mining concessions granted prior to the 11th of April, 1899, is
conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall
within the provisions of section 134 of Act No. 1189, known as the Internal Revenue Act. That section is
as follows:

SEC. 134. On all valid perfected mining concessions granted prior to April eleventh, eighteen
hundred and ninety-nine, there shall be levied and collected on the after January first, nineteen
hundred and five, the following taxes:

2. (a) On each claim containing an area of sixty thousand square meters, an annual tax of one
hundred pesos; (b) and at the same rate proportionately on each claim containing an area in
excess of, or less than, sixty thousand square meters.

3. On the gross output of each an ad valorem tax equal to three per centum of the actual market
value of such output.

The defendant accordingly imposed upon these properties the tax mentioned in section 134, which tax,
as has before been stated, plaintiff paid under protest.

The only question in the case is whether this section 134 is void or valid.

I. It is claimed by the plaintiff that it is void because it comes within the provision of section 5 of the act
of Congress of July 1, 19021 (32 U.S. Stat. L., 691), which provides "that no law impairing the obligation
of contracts shall be enacted." The royal decree of the 14th of May, 1867, provided, among other things,
as follows:

ART. 76. On each pertenencia minera (mining claim) of the area prescribed in the first
paragraph of article 13 (sixty thousand square meters) there shall be paid annually a fixed tax of
forty escudos (about P20.00). The pertenencia referred to in the second paragraph of the same
article, though of greater area than the others (one hundred and fifty thousand square meters),
shall pay only twenty escudos (about P10.00).

ART. 78. Pertenencia of iron mines and mines of combustible minerals shall be exempt from the
annual tax for a period of thirty years from the date of publication of this decree.
 ART. 80. A further tax of three per centum on the gross earnings shall be paid without deduction
of costs of any kind whatsoever. All substances enumerated in section one shall be exempt from
said tax of three per centum for a period of thirty years.

ART. 81. No other taxes than those herein mentioned shall be imposed upon mining and
metallurgical industries.

The royal decree and regulation for its enforcement provided that the deeds granted by the Government
should be in a particular form, which form was inserted in the regulations. It must be presumed that the
deeds granted to the plaintiff were made as provided by law, and, in fact, one of such concessions was
exhibited during the argument in this court, and was found to be in exact conformity with the form
prescribed by law. The deed is as follows:

Don Camilo Garcia de Polavieja, Marquez de Polavieja, Teniente General de los Ejercitos
Nacionales, Caballero Gran Cruz de la Real y Militar Orden de San Hermenegildo, de la Real y
distinguida de Isabel la Catolica, de la del Merito Militar Roja, de la de la Corona de Italia,
Comendador de Carlos Tercero, Bennemerito de la Patria en grado eminente, condecorado con
varias cruses de distincion por meritos de guerra, Capitan General y Gobernador General de
Filipinas.

Whereas I have granted to Don Joaquin Casanovas y Llovet and to Don Martin Buck the
concession of a gold mine entitled "Nueva California Segunda" in the jurisdiction of Paracale,
Province of Ambos Camarines: Now, therefore, in the name of His Majesty the King (whom God
preserve), and pursuant to the provisions of article 37 of the royal decree of May 14, 1867,
regulating mining in these Islands, I issue, this fifth day of November, eighteen hundred and
ninety-six, this title deed to four pertenencias, comprising an area of two hundred and forty
thousand square meters, as shown in the attached sketch map drafted by the engineer Don
Enrique Abella y Casariego, and dated at Manila December sixteenth of the said year, subject to
the following general terms and conditions:

1. That the mine shall be worked in conformity with the rules in mining, the grantee and his
laborers to be governed by the police rules established by existing regulations.

2. That the grantee shall be liable for all damages to third parties that may be caused by his
operations.

3. That the grantee shall likewise indemnify his neighbors for any damage they may suffer by
reason of water accumulated on his works, if, upon being requested, he fail to drain the same
within the time indicated.

4. That he shall contribute for the drainage of the adjacent mines and for the general galleries
for drainage or haulage in proportion to the benefit he derives therefrom, whenever, by authority
of the Governor-General, such works shall be opened for a group of pertenencias or for the
entire mining locality in which the mine is situated.

5. That he shall commence work on the mine immediately upon receipt of this concession
unless prevented by force majeure.

6. That he shall keep the mine in active operation by employing at the rate of at least four
laborers for each pertenencia for at least six months of each year.

7. That he shall strengthen the walls of the mine within the time indicated whenever, by reason
of mismanagement of the work, it threatens to cave in, unless he be prevented by force
majeure.

8. That he shall not render further profitable development of the mine difficult or impossible by
avaricious operation.

9. That he shall not suspend the operation of the mine with the intention of abandoning the
same without first informing the Governor of his intention, in which case he must leave the mine
in a good state of timbering.

10. That he shall pay taxes on the mine and its output as prescribed in the royal decree.
 11. Finally, that he shall comply with all the requirements contained in the royal decree and in
the regulations for concessions of the same nature as the present.

Without special conditions.

Now, therefore, by virtue of this title deed, I grant to Don Joaquin Casanovas y Llovet and to
Don Martin Buck the ownership of the said mine for an unlimited period of time so long as they
shall comply with the foregoing terms and conditions, to the end that they may develop the
same and make free use and disposition of the output thereof, with the right to alienate the said
mine subject to the provisions of existing laws, and to enjoy all the rights and benefits conceded
to such grantees by the royal decree and by the mining regulations. And for the prompt
fulfillment and observance of the said conditions, both on the part of the said grantees and by all
authorities, courts, corporations, and private persons whom it may concern, I have ordered this
title deed to be issued — given under my hand and the proper seal and countersigned by the
undersigned Director-General of Civil Administration.

It seems very clear to us that this deed constituted a contract between the Spanish Government and the
plaintiff, the obligation of which contract was impaired by the enactment of section 134 of the Internal
Revenue Law above cited, thereby infringing the provisions above quoted from section 5 of the act of
Congress of July 1, 1902. This conclusion seems necessarily to result from the decisions of the
Supreme Court of the United States in similar cases. In the case of McGee vs. Mathis (4 Wallace, 143),
it appeared that the State of Arkansas, by an act of the legislature of 1851, provided for the sale of
certain swamp lands granted to it by the United States; for the issue of transferable scrip receivable for
any lands not already taken up at the time of selection by the holder; for contracts for the making of
levees and drains, and for the payment of contractors in scrip and otherwise. In the fourteenth section of
this act it was provided that —

To encourage by all just means the progress and completion of the reclaiming of such lands by
offering inducements to purchasers and contractors to take up said lands, all said swamp and
overflowed lands shall be exempt from taxation for the term of ten years or until they shall be
reclaimed.

In 1855 this section was repealed and provision was made by law for the taxation of swamp and
overflowed lands, sold or to be sold, precisely as other lands. McGee, before this appeal, had become
the owner by transfer from contractors of a large amount of scrip issued under the Act of 1851, and with
this scrip, after the repeal, took up and paid for many sections and parts of sections of the granted
lands. Taxes were levied by the State on the lands so taken up by McGee. The Supreme Court held
that these taxes could not be collected. The Court said at page 156:

It seems quite clear that the Act of 1851 authorizing the issue of land scrip constituted a contract
between the State and the holders of the land scrip issued under the act.

In the case of the Home of the Friendless vs. Rouse (8 Wallace, 430), it appeared that on the 3d day of
February, 1853, the legislature of Missouri passed on act to incorporate the Home of the Friendless in
the city of St. Louis. Section 1 of the act provided that —

All property of said corporation shall be exempt from taxation.

The court held that the State had no power afterwards to pass laws providing for the levying of taxes
upon this institution. The Court said among other things at page 438:

The validity of this contract is questioned at the bar on the ground that the legislature had no
authority to grant away the power of taxation. The answer to this position is, that the question is
no longer open for argument here, for it is settled by the repeated adjudications of this court,
that a State may be contract based on a consideration exempt the property of an individual or
corporation from taxation, either for a specified period or permanently. And it is equally well
settled that the exemption is presumed to be on sufficient consideration, and binds the State if
the charter containing it is accepted.

In the case of The Asylum vs. The City of New Orleans (105 U.S., 362), it appears that St. Ariva's
Asylum was incorporated by an act of the legislature of Louisiana, approved April 29, 1853. The law
incorporating it provided that it should enjoy the same exemption from taxation which was enjoyed by
the Orphan Boys' Asylum of New Orleans. The law relating to the last named institution provided (page
364):
 That, from and after the passage of this act, all the property, real and personal, belonging to the
Orphan Boys' Asylum of New Orleans be, and the same is hereby exempted from all taxation,
either by the State, parish, or city in which it is situated, any law to the contrary notwithstanding.

It was held that the State had no power by subsequent legislation to impose taxes upon the property of
this institution.

That the doctrine announced in these cases is still maintained in that court is apparent from the case of
Powers vs. The Detroit, Grand Haven and Milwaukee Railway which was decided on the 16th of April,
1906, and reported in 201 U. S., 543. Section 9 of the act of the legislature of Michigan, incorporating
the railway company, provided:

Said company shall, on or before the 1st day of July, pay to the State treasurer, an annual tax of
one per cent on the capital stock of said company, pain in, which tax shall be in lieu of all other
taxation.

The court said at page 556:

It has often been decided by this court, so often that a citation on authorities in unnecessary,
that the legislature of a State may, in the absence of special restrictions in its constitution, make
a valid contract with a corporation in respect to taxation, and that such contract can be enforced
against the State at the instance of the corporation.

The case at bar falls within the cases hereinbefore cited. It is to be distinguished from the case of the
Metropolitan Street Railway Company vs. The New York State Board of Tax Commissioners (199 U.S.,
1). In that case it was provided by various acts of the legislature, that the companies therein referred to,
should pay annually to the city of New York, a fixed amount or percentage, varying from 2 to 8 per cent
of their gross earnings additional taxes was sustained by the court. It was sustained on the ground that
the prior legislation did not expressly say that the taxes thus provided for should be in lieu of all other
taxes. The court said at page 37:

Applying these well-established rules to the several contracts, it will be perceived that there was
no express relinquishment of the right of taxation. The plaintiff in error must rely upon some
implication, and not upon any direct stipulation. In each contract there was a grant of privileges,
but the grant was specifically or privileges in respect to the construction, operation and
maintenance of the street railroad. These were all that in terms were granted. As consideration
for this grant, the grantees were to pay something, and such payment is nowhere said to be in
lieu of, or as an equivalent or substitute of taxes. All that can be extracted from the language
used, was a grant of privileges and a payment therefor. Other words must be written into the
contract before there can be found any relinquishment of the power of taxation.

But in the case at bar, there is found not only the provisions for the payment of certain taxes annually,
but there is also found the provision contained in article 81, above quoted, which expressly declares that
no other taxes shall be imposed upon these mines.

The present case is to be distinguished also from that class of cases of which Grands Lodge vs. The
City of New Orleans (166 U.S., 143) is a type, and which includes Salt Company vs. East Saginaw (13
Wall., 373) and Welch vs. Cook (97 U.S., 541). In these cases the exemption was a mere bounty and
did not form a part of any contract.

The fact that this concession was made by the Government of Spain, and not by the Government of the
United States, is not important. (Trustees of Dartmouth College vs. Woodward, 4 Wheaton, 518.)

Our conclusion is that the concessions granted by the Government of Spain to the plaintiff, constitute
contracts between the parties; that section 134 of the Internal Revenue Law impairs the obligation of
these contracts, and is therefore void as to them.

II. We think that this section is also void because in conflict with section 60 of the act of Congress of
July 1, 1902. This section is as follows:

That nothing in this Act shall be construed to effect the rights of any person, partnership, or
corporation, having a valid, perfected mining concession granted prior to April eleventh,
eighteen hundred and ninety-nine, but all such concessions shall be conducted under the
provisions of the law in force at the time they were granted, subject at all times to cancellation
 by reason of illegality in the procedure by which they were obtained, or for failure to comply with
the conditions prescribed as requisite to their retention in the laws under which they were
granted: Provided, That the owner or owners of every such concession shall cause the corners
made by its boundaries to be distinctly marked with permanent monuments within six months
after this act has been promulgated in the Philippine Islands, and that any concessions, the
boundaries of which are not so marked within this period shall be free and open to explorations
and purchase under the provisions of this act.2

This section seems to indicate that concessions, like those in question, can be canceled only by reason
of illegality in the procedure by which they were obtained, or for failure to comply with the conditions
prescribed as requisite for their retention in the laws under which they were granted. There is nothing in
the section which indicates that they can be canceled for failure to comply with the conditions prescribed
by subsequent legislation. In fact, the real intention of the act seems to be that such concession should
be subject to the former legislation and not to any subsequent legislation. There is no claim in this case
that there was any illegality in the procedure by which these concessions were obtained, nor is there
any claim that the plaintiff has not complied with the conditions prescribed in the said royal decree of
1867.

III. In view of the result at which we have arrived, it is not necessary to consider the further claim made
by the plaintiff that the taxes imposed by article 134 above quoted, are in violation of the part of section
5 of the act of July 1, 1902, which declares "that the rule of taxation in said Islands shall be uniform."

The judgment of the court below is reversed, and judgment is ordered in favor of the plaintiff and against
the defendant for P9,600, with interest thereon, at 6 per cent, from the 21st day of February, 1906, and
the costs of the Court of First Instance. No costs will be allowed to either party in this court.

After the expiration of twenty days let judgment be entered in accordance herewith and ten days
thereafter let the case be remanded to the court from whence it came for proper action. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-19201 June 16, 1965

REV. FR. CASIMIRO LLADOC, petitioner,

vs.
The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX APPEALS, respondents.

Hilado and Hilado for petitioner.

Office of the Solicitor General for respondents.

PAREDES, J.:

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr.
Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for
the construction of a new Catholic Church in the locality. The total amount was actually spent for the
purpose intended.

On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29,
1960, the respondent Commissioner of Internal Revenue issued an assessment for donee's gift tax
against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest. The tax
amounted to P1,370.00 including surcharges, interests of 1% monthly from May 15, 1958 to June 15,
1960, and the compromise for the late filing of the return.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and the
motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The
petitioner appealed to the Court of Tax Appeals on November 2, 1960. In the petition for review, the
Rev. Fr. Casimiro Lladoc claimed, among others, that at the time of the donation, he was not the parish
priest in Victorias; that there is no legal entity or juridical person known as the "Catholic Parish Priest of
Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also asserted that the
assessment of the gift tax, even against the Roman Catholic Church, would not be valid, for such would
be a clear violation of the provisions of the Constitution.

After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below:

... . Parish priests of the Roman Catholic Church under canon laws are similarly situated as its
Archbishops and Bishops with respect to the properties of the church within their parish. They
are the guardians, superintendents or administrators of these properties, with the right of
succession and may sue and be sued.

xxx xxx xxx

The petitioner impugns the, fairness of the assessment with the argument that he should not be
held liable for gift taxes on donation which he did not receive personally since he was not yet the
parish priest of Victorias in the year 1957 when said donation was given. It is intimated that if
someone has to pay at all, it should be petitioner's predecessor, the Rev. Fr. Crispin Ruiz, who
received the donation in behalf of the Catholic parish of Victorias or the Roman Catholic Church.
Following petitioner's line of thinking, we should be equally unfair to hold that the assessment
now in question should have been addressed to, and collected from, the Rev. Fr. Crispin Ruiz to
be paid from income derived from his present parish where ever it may be. It does not seem
right to indirectly burden the present parishioners of Rev. Fr. Ruiz for donee's gift tax on a
donation to which they were not benefited.

xxx xxx xxx

We saw no legal basis then as we see none now, to include within the Constitutional exemption,
taxes which partake of the nature of an excise upon the use made of the properties or upon the
exercise of the privilege of receiving the properties. (Phipps vs. Commissioner of Internal
Revenue, 91 F [2d] 627; 1938, 302 U.S. 742.)
 It is a cardinal rule in taxation that exemptions from payment thereof are highly disfavored by
law, and the party claiming exemption must justify his claim by a clear, positive, or express
grant of such privilege by law. (Collector vs. Manila Jockey Club, G.R. No. L-8755, March 23,
1956; 53 O.G. 3762.)

The phrase "exempt from taxation" as employed in Section 22(3), Article VI of the Constitution
of the Philippines, should not be interpreted to mean exemption from all kinds of taxes. Statutes
exempting charitable and religious property from taxation should be construed fairly though
strictly and in such manner as to give effect to the main intent of the lawmakers. (Roman
Catholic Church vs. Hastrings 5 Phil. 701.)

xxx xxx xxx

WHEREFORE, in view of the foregoing considerations, the decision of the respondent

Commissioner of Internal Revenue appealed from, is hereby affirmed except with regard to the
imposition of the compromise penalty in the amount of P20.00 (Collector of Internal Revenue v.
U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and the petitioner, the Rev. Fr. Casimiro Lladoc is
hereby ordered to pay to the respondent the amount of P900.00 as donee's gift tax, plus the
surcharge of five per centum (5%) as ad valorem penalty under Section 119 (c) of the Tax
Code, and one per centum (1%) monthly interest from May 15, 1958 to the date of actual
payment. The surcharge of 25% provided in Section 120 for failure to file a return may not be
imposed as the failure to file a return was not due to willful neglect.( ... ) No costs.

The above judgment is now before us on appeal, petitioner assigning two (2) errors allegedly committed
by the Tax Court, all of which converge on the singular issue of whether or not petitioner should be
liable for the assessed donee's gift tax on the P10,000.00 donated for the construction of the Victorias
Parish Church.

Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation
cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious purposes. The exemption is only from the payment of taxes
assessed on such properties enumerated, as property taxes, as contra distinguished from excise taxes.
In the present case, what the Collector assessed was a donee's gift tax; the assessment was not on the
properties themselves. It did not rest upon general ownership; it was an excise upon the use made of
the properties, upon the exercise of the privilege of receiving the properties (Phipps vs. Com. of Int.
Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting provisions of the section just
mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way
of gift inter vivos, the imposition of which on property used exclusively for religious purposes, does not
constitute an impairment of the Constitution. As well observed by the learned respondent Court, the
phrase "exempt from taxation," as employed in the Constitution (supra) should not be interpreted to
mean exemption from all kinds of taxes. And there being no clear, positive or express grant of such
privilege by law, in favor of petitioner, the exemption herein must be denied.

The next issue which readily presents itself, in view of petitioner's thesis, and Our finding that a tax
liability exists, is, who should be called upon to pay the gift tax? Petitioner postulates that he should not
be liable, because at the time of the donation he was not the priest of Victorias. We note the merit of the
above claim, and in order to put things in their proper light, this Court, in its Resolution of March 15,
1965, ordered the parties to show cause why the Head of the Diocese to which the parish of Victorias
pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it appearing that the
Head of such Diocese is the real party in interest. The Solicitor General, in representation of the
Commissioner of Internal Revenue, interposed no objection to such a substitution. Counsel for the
petitioner did not also offer objection thereto.

On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present whatever legal issues
and/or defenses he might wish to raise, to which resolution counsel for petitioner, who also appeared as
counsel for the Head of the Diocese, the Roman Catholic Bishop of Bacolod, manifested that it was
submitting itself to the jurisdiction and orders of this Court and that it was presenting, by reference, the
brief of petitioner Rev. Fr. Casimiro Lladoc as its own and for all purposes.

In view here of and considering that as heretofore stated, the assessment at bar had been properly
made and the imposition of the tax is not a violation of the constitutional provision exempting churches,
parsonages or convents, etc. (Art VI, sec. 22 [3], Constitution), the Head of the Diocese, to which the
parish Victorias Pertains, is liable for the payment thereof.
The decision appealed from should be, as it is hereby affirmed insofar as tax liability is concerned; it is
modified, in the sense that petitioner herein is not personally liable for the said gift tax, and that the
Head of the Diocese, herein substitute petitioner, should pay, as he is presently ordered to pay, the said
gift tax, without special, pronouncement as to costs.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-10448 August 30, 1957

IN THE MATTER OF A PETITION FOR DECLARATORY JUDGMENT REGARDING THE VALIDITY

OF MUNICIPAL ORDINANCE NO. 3659 OF THE CITY OF MANILA. PHYSICAL THERAPY
ORGANIZATION OF THE PHILIPPINES, INC., petitioner-appellant,
vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA and ARSENIO H. LACSON, as Mayor of the
City of Manila, respondents-appellees.

Mariano M. de Joya for appellant.

City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio Nañawa for appellees.

MONTEMAYOR, J.:

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.

ORDINANCE No. 3659

AN ORDINANCE REGULATING THE OPERATION OF MASSAGE CLINICS IN THE CITY OF

MANILA AND PROVIDING PENALTIES FOR VIOLATIONS THEREOF.

Be it ordained by the Municipal Board of the City of Manila, that:

Section 1. Definition. — For the purpose of this Ordinance the following words and phrases shall
be taken in the sense hereinbelow indicated:

(a) Massage clinic shall include any place or establishment used in the practice of hygienic and
aesthetic massage;

(b) Hygienic and aesthetic massage shall include any system of manipulation of treatment of the
superficial parts of the human body of hygienic and aesthetic purposes by rubbing, stroking,
kneading, or tapping with the hand or an instrument;

(c) Massagist shall include any person who shall have passed the required examination and
shall have been issued a massagist certificate by the Committee of Examiners of Massagist, or
by the Director of Health or his authorized representative;

(d) Attendant or helper shall include any person employed by a duly qualified massagist in any
message clinic to assist the latter in the practice of hygienic and aesthethic massage;

(e) Operator shall include the owner, manager, administrator, or any person who operates or is
responsible for the operation of a message clinic.
SEC. 2. Permit Fees. — No person shall engage in the operation of a massage clinic or in the
occupation of attendant or helper therein without first having obtained a permit therefor from the
Mayor. For every permit granted under the provisions of this Ordinance, there shall be paid to
the City Treasurer the following annual fees:

(a) Operator of a massage P100.00

(b) Attendant or helper 5.00

Said permit, which shall be renewed every year, may be revoked by the Mayor at any time for
the violation of this Ordinance.

SEC. 3. Building requirement. — (a) In each massage clinic, there shall be separate rooms for
the male and female customers. Rooms where massage operations are performed shall be
provided with sliding curtains only instead of swinging doors. The clinic shall be properly
ventilated, well lighted and maintained under sanitary conditions at all times while the
establishment is open for business and shall be provided with the necessary toilet and washing
facilities.

(b) In every clinic there shall be no private rooms or separated compartment except those
assigned for toilet, lavatories, dressing room, office or kitchen.

(c) Every massage clinic shall "provided with only one entrance and it shall have no direct or
indirect communication whatsoever with any dwelling place, house or building.

SEC. 4. Regulations for the operation of massage clinics. — (a) It shall be unlawful for any
operator massagist, attendant or helper to use, or allow the use of, a massage clinic as a place
of assignation or permit the commission therein of any incident or immoral act. Massage clinics
shall be used only for hygienic and aesthetic massage.

(b) Massage clinics shall open at eight o'clock a.m. and shall close at eleven o'clock p.m.

(c) While engaged in the actual performance of their duties, massagists, attendants and helpers
in a massage clinic shall be as properly and sufficiently clad as to avoid suspicion of intent to
commit an indecent or immoral act;

(d) Attendants or helpers may render service to any individual customer only for hygienic and
aesthetic purposes under the order, direction, supervision, control and responsibility of a
qualified massagist.

SEC. 5. Qualifications — No person who has previously been convicted by final judgment of
competent court of any violation of the provisions of paragraphs 3 and 5 of Art. 202 and Arts.
335, 336, 340 and 342 of the Revised Penal Code, or Secs. 819 of the City of Manila, or who is
suffering from any venereal or communicable disease shall engage in the occupation of
massagist, attendant or helper in any massage clinic. Applicants for Mayor's permit shall attach
to their application a police clearance and health certificate duly issued by the City Health
Officers as well as a massagist certificate duly issued by the Committee or Examiners for
Massagists or by the Director of Health or his authorized representatives, in case of massagists.

SEC. 6. Duty of operator of massage clinic. — No operator of massage clinic shall allow such
clinic to operate without a duly qualified massagist nor allow, any man or woman to act as
massagist, attendant or helper therein without the Mayor's permit provided for in the preceding
sections. He shall submit whenever required by the Mayor or his authorized representative the
persons acting as massagists, attendants or helpers in his clinic. He shall place the massage
clinic open to inspection at all times by the police, health officers, and other law enforcement
agencies of the government, shall be held liable for anything which may happen with the
premises of the massage clinic.

SEC. 7. Penalty. — Any person violating any of the provisions of this Ordinance shall upon
conviction, be punished by a fine of not less than fifty pesos nor more than two hundred pesos
or by imprisonment for not less than six days nor more than six months, or both such fine and
imprisonment, at the discretion of the court.
 SEC. 8. Repealing Clause. — All ordinances or parts of ordinances, which are inconsistent
herewith, are hereby repealed.

SEC. 9. Effectivity. — This Ordinance shall take effect upon its approval.

Enacted, August 27, 1954.

Approved, September 7, 1954.

The main contention of the appellant in its appeal and the principal ground of its petition for declaratory
judgment is that the City of Manila is without authority to regulate the operation of massagists and the
operation of massage clinics within its jurisdiction; that whereas under the Old City Charter, particularly,
Section 2444 (e) of the Revised Administrative Code, the Municipal Board was expressly granted the
power to regulate and fix the license fee for the occupation of massagists, under the New Charter of
Manila, Republic Act 409, said power has been withdrawn or omitted and that now the Director of
Health, pursuant to authority conferred by Section 938 of the Revised Administrative Code and
Executive Order No. 317, series of 1941, as amended by Executive Order No. 392, series, 1951, is the
one who exercises supervision over the practice of massage and over massage clinics in the
Philippines; that the Director of Health has issued Administrative Order No. 10, dated May 5, 1953,
prescribing "rules and regulations governing the examination for admission to the practice of massage,
and the operation of massage clinics, offices, or establishments in the Philippines", which order was
approved by the Secretary of Health and duly published in the Official Gazette; that Section 1 (a) of
Ordinance No. 3659 has restricted the practice of massage to only hygienic and aesthetic massage
prohibits or does not allow qualified massagists to practice therapeutic massage in their massage
clinics. Appellant also contends that the license fee of P100.00 for operator in Section 2 of the
Ordinance is unreasonable, nay, unconscionable.

If we can ascertain the intention of the Manila Municipal Board in promulgating the Ordinance in
question, much of the objection of appellant to its legality may be solved. It would appear to us that the
purpose of the Ordinance is not to regulate the practice of massage, much less to restrict the practice of
licensed and qualified massagists of therapeutic massage in the Philippines. The end sought to be
attained in the Ordinance is to prevent the commission of immorality and the practice of prostitution in
an establishment masquerading as a massage clinic where the operators thereof offer to massage or
manipulate superficial parts of the bodies of customers for hygienic and aesthetic purposes. This
intention can readily be understood by the building requirements in Section 3 of the Ordinance, requiring
that there be separate rooms for male and female customers; that instead of said rooms being
separated by permanent partitions and swinging doors, there should only be sliding curtains between
them; that there should be "no private rooms or separated compartments, except those assigned for
toilet, lavatories, dressing room, office or kitchen"; that every massage clinic should be provided with
only one entrance and shall have no direct or indirect communication whatsoever with any dwelling
place, house or building; and that no operator, massagists, attendant or helper will be allowed "to use or
allow the use of a massage clinic as a place of assignation or permit the commission therein of any
immoral or incident act", and in fixing the operating hours of such clinic between 8:00 a.m. and 11:00
p.m. This intention of the Ordinance was correctly ascertained by Judge Hermogenes Concepcion,
presiding in the trial court, in his order of dismissal where he said: "What the Ordinance tries to avoid is
that the massage clinic run by an operator who may not be a masseur or massagista may be used as
cover for the running or maintaining a house of prostitution."

Ordinance No. 3659, particularly, Sections 1 to 4, should be considered as limited to massage clinics
used in the practice of hygienic and aesthetic massage. We do not believe that Municipal Board of the
City of Manila and the Mayor wanted or intended to regulate the practice of massage in general or
restrict the same to hygienic and aesthetic only.

As to the authority of the City Board to enact the Ordinance in question, the City Fiscal, in
representation of the appellees, calls our attention to Section 18 of the New Charter of the City of
Manila, Act No. 409, which gives legislative powers to the Municipal Board to enact all ordinances it
may deem necessary and proper for the promotion of the morality, peace, good order, comfort,
convenience and general welfare of the City and its inhabitants. This is generally referred to as the
General Welfare Clause, a delegation in statutory form of the police power, under which municipal
corporations, are authorized to enact ordinances to provide for the health and safety, and promote the
morality, peace and general welfare of its inhabitants. We agree with the City Fiscal.

As regards the permit fee of P100.00, it will be seen that said fee is made payable not by the masseur
or massagist, but by the operator of a massage clinic who may not be a massagist himself. Compared
to permit fees required in other operations, P100.00 may appear to be too large and rather
unreasonable. However, much discretion is given to municipal corporations in determining the amount
of said fee without considering it as a tax for revenue purposes:

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.

In conclusion, we find and hold that the Ordinance in question as we interpret it and as intended by the
appellees is valid. We deem it unnecessary to discuss and pass upon the other points raised in the
appeal. The order appealed from is hereby affirmed. No costs.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-16619 June 29, 1963

COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee,

vs.
CITY OF MANILA, ET AL., defendants-appellants.

Ponce Enrile, Siguion Reyna, Montecillo and Belo for plaintiff-appellee.

City Fiscal Hermogenes Concepcion, Jr. and Assistant City Fiscal M. T. Reyes for defendants-
appellants.

DIZON, J.:

Appeal from the decision of the Court of First Instance of Manila ordering the City Treasurer of Manila to
refund the sum of P15,280.00 to Compania General de Tabacos de Filipinas.

Appellee Compania General de Tabacos de Filipinas — hereinafter referred to simply as Tabacalera —

filed this action in the Court of First Instance of Manila to recover from appellants, City of Manila and its
Treasurer, Marcelino Sarmiento — also hereinafter referred to as the City — the sum of P15,280.00
allegedly overpaid by it as taxes on its wholesale and retail sales of liquor for the period from the third
quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos. 3634, 3301, and 3816.

Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the
fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as a
wholesale and retail dealer of general merchandise, it also paid the sales taxes required by Ordinances
Nos. 3634, 3301, and 3816. 1äw phï1.ñët

In its sworn statements of wholesale, retail, and grocery sales of general merchandise from the
third quarter of 1954 to the second quarter of 1957, inclusive, Tabacalera included its liquor
sales of the same period, and it is not denied that of the taxes it paid on all its sales of general
merchandise, the sum of P15,280.00 subject to the action represents the tax corresponding to
the liquor sales aforesaid.

Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should
pay the license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes imposed by
Ordinances Nos. 3634, 3301, and 3816; and since it already paid the license fees aforesaid, the sales
taxes paid by it — amounting to the sum of P15,208.00 — under the three ordinances mentioned
heretofore is an overpayment made by mistake, and therefore refundable.

The City, on the other hand, contends that, for the permit issued to it granting proper authority to
"conduct or engage in the sale of alcoholic beverages, or liquors" Tabacalera is subject to pay
the license fees prescribed by Ordinance No. 3358, aside from the sales taxes imposed by Ordinances
Nos. 3634, 3301, and 3816; that, even assuming that Tabacalera is not subject to the payment of the
sales taxes prescribed by the said three ordinances as regards its liquor sales, it is not entitled to the
refund demanded for the following reasons:.

(a) The said amount was paid by the plaintiff voluntarily and without protest;

(b) If at all the alleged overpayment was made by mistake, such mistake was one of law and
arose from the plaintiff's neglect of duty; .

(c) The said amount had been added by the plaintiff to the selling price of the liquor sold by it
and passed to the consumers; and

(d) The said amount had been already expended by the defendant City for public improvements
and essential services of the City government, the benefits of which are enjoyed, and being
enjoyed by the plaintiff.
It is admitted that as liquor dealer, Tabacalera paid annually the wholesale and retail liquor license fees
under Ordinance No. 3358. In 1954, City Ordinance No. 3634, amending City Ordinance No. 3420, and
City Ordinance No. 3816, amending City Ordinance No. 3301 were passed. By reason thereof, the City
Treasurer issued the regulations marked Exhibit A, according to which, the term "general merchandise
as used in said ordinances, includes all articles referred to in Chapter 1, Sections 123 to 148 of the
National Internal Revenue Code. Of these, Sections 133-135 included liquor among the taxable articles.
Pursuant to said regulations, Tabacalera included its sales of liquor in its sworn quarterly declaration
submitted to the City Treasurer beginning from the third quarter of 1954 to the second quarter of 1957,
with a total value of P722,501.09 and correspondingly paid a wholesaler's tax amounting to P13,688.00
and a retailer's tax amounting to P1,520.00, or a total of P15,208.00 — the amount sought to be
recovered.

It appears that in the year 1954, the City, through its treasurer, addressed a letter to Messrs. Sycip,
Gorres, Velayo and Co., an accounting firm, expressing the view that liquor dealers paying the annual
wholesale and retail fixed tax under City Ordinance No. 3358 are not subject to the wholesale and retail
dealers' taxes prescribed by City Ordinances Nos. 3634, 3301, and 3816. Upon learning of said opinion,
appellee stopped including its sales of liquor in its quarterly sworn declarations submitted in accordance
with the aforesaid City Ordinances Nos. 3634, 3301, and 3816, and on December 3, 1957, it addressed
a letter to the City Treasurer demanding refund of the alleged overpayment. As the claim was
disallowed, the present action was instituted.

The term "tax" applies — generally speaking — to all kinds of exactions which become public funds.
The term is often loosely used to include levies for revenue as well as levies for regulatory purposes.
Thus license fees are commonly called taxes. Legally speaking, however, license fee is a legal concept
quite distinct from tax; the former is imposed in the exercise of police power for purposes of regulation,
while the latter is imposed under the taxing power for the purpose of raising revenues (MacQuillin,
Municipal Corporations, Vol. 9, 3rd Edition, p. 26).

Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in
the business of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of
Manila pursuant to its charter power to fix license fees on, and regulate, the sale of intoxicating liquors,
whether imported or locally manufactured. (Section 18 [p], Republic Act 409, as amended). The license
fees imposed by it are essentially for purposes of regulation, and are justified, considering that the sale
of intoxicating liquor is, potentially at least, harmful to public health and morals, and must be subject to
supervision or regulation by the state and by cities and municipalities authorized to act in the premises.
(MacQuillin, supra, p. 445.)

On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of
general merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of
Manila by virtue of its power to tax dealers for the sale of such merchandise. (Section 10 [o], Republic
Act No. 409, as amended.).

Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includes liquor. Aside
from this, we have held in City of Manila vs. Inter-Island Gas Service, Inc., G.R. No. L-8799, August 31,
1956, that the word "merchandise" refers to all subjects of commerce and traffic; whatever is usually
bought and sold in trade or market; goods or wares bought and sold for gain; commodities or goods to
trade; and commercial commodities in general.

That Tabacalera is being subjected to double taxation is more apparent than real. As already stated
what is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of
liquor, a calling in which — it is obvious — not anyone or anybody may freely engage, considering that
the sale of liquor indiscriminately may endanger public health and morals. On the other hand, what the
three ordinances mentioned heretofore impose is a tax for revenue purposes based on the sales made
of the same article or merchandise. It is already settled in this connection that both a license fee and a
tax may be imposed on the same business or occupation, or for selling the same article, this not being
in violation of the rule against double taxation (Bentley Gray Dry Goods Co. vs. City of Tampa, 137 Fla.
641, 188 So. 758; MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 83). This is precisely the
case with the ordinances involved in the case at bar.

Appellee's contention that the City is repudiating its previous view — expressed by its Treasurer in a
letter addressed to Messrs. Sycip, Gorres, Velayo & Co. in 1954 — that a liquor dealer who pays the
annual license fee under Ordinance No. 3358 is exempted from the wholesalers and retailers taxes
under the other three ordinances mentioned heretofore is of no consequence. The government is not
bound by the errors or mistakes committed by its officers, specially on matters of law.
Having arrived at the above conclusion, we deem it unnecessary to consider the other legal points
raised by the City.

WHEREFORE, the decision appealed from is reversed, with the result that this case should be, as it is
hereby dismissed, with costs.