admu taxation cases

8/22/2019 ADMU Taxation Cases

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Republic of the PhilippinesSUPREME 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 Onthe other hand, such collection should be made in accordance with law as any arbitrariness will negatethe very reason for government itself. It is therefore necessary to reconcile the apparently conflictinginterests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotionof the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed theP75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its incometax returns. The corollary issue is whether or not the appeal of the private respondent from the decision ofthe 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 inengineering, construction and other allied activities, received a letter from the petitioner assessing it in thetotal 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 waspresented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused toreceive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case provedfruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, whodeferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR wasnot taking any action on the protest and it was only then that he accepted the warrant of distraint and levyearlier sought to be served. 5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of thedecision 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, theappeal may be made within thirty days after receipt of the decision or ruling challenged. 7 It is true that asa rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless arequest 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 thisaccepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice ofassessment, it filed its letter of protest. This was apparently not taken into account before the warrant ofdistraint and levy was issued; indeed, such protest could not be located in the office of the petitioner. Itwas only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the taxauthorities. During the intervening period, the warrant was premature and could therefore not be served.


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As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro formaand 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 respondentwas 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 beenconsumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it wasnot an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen itdifferently. Agreeing with Algue, it held that the said amount had been legitimately paid by the privaterespondent for actual services rendered. The payment was in the form of promotional fees. These werecollected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of thePhilippines and its subsequent purchase of the properties of the Philippine Sugar Estate DevelopmentCompany.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be

personal holding company income12

but later conformed to the decision of the respondent court rejectingthis assertion. 13 In fact, as the said court found, the amount was earned through the joint efforts of thepersons among whom it was distributed It has been established that the Philippine Sugar EstateDevelopment Company had earlier appointed Algue as its agent, authorizing it to sell its land, factoriesand oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, IsabelGuevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil InvestmentCorporation, inducing other persons to invest in it. 14 Ultimately, after its incorporation largely through thepromotion 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 theP75,000.00 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 taxreturns 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 thesame family in control of Algue. It is argued that no indication was made as to how such payments weremade, 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 animaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President, AlbertoGuevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lumpsum but periodically and in different amounts as each payee's need arose. 19 It should be rememberedthat this was a family corporation where strict business procedures were not applied and immediateissuance 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 ofP75,000.00. 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 totalcommission paid by the Philippine Sugar Estate Development Co. to the private respondent wasP125,000.00. 21 After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit fromthe transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonableproportion, considering that it was the payees who did practically everything, from the formation of the


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Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. Thisfinding 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 allowedas deductions

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during thetaxable year in carrying on any trade or business, including a reasonable allowance forsalaries 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 necessaryexpenses paid or incurred in carrying on any trade or business may be included areasonable allowance for salaries or other compensation for personal services actuallyrendered. The test of deductibility in the case of compensation payments is whether theyare reasonable and are, in fact, payments purely for service. This test and deductibility inthe 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 statedand illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price ofservices, is not deductible. (a) An ostensible salary paid by a corporation may be adistribution of a dividend on stock. This is likely to occur in the case of a corporationhaving few stockholders, Practically all of whom draw salaries. If in such a case thesalaries are in excess of those ordinarily paid for similar services, and the excessivepayment correspond or bear a close relationship to the stockholdings of the officers ofemployees, it would seem likely that the salaries are not paid wholly for servicesrendered, 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 werethey its controlling stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity ofthe claimed deduction. In the present case, however, we find that the onus has been dischargedsatisfactorily. The private respondent has proved that the payment of the fees was necessary andreasonable in the light of the efforts exerted by the payees in inducing investors and prominentbusinessmen to venture in an experimental enterprise and involve themselves in a new businessrequiring 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 tosurrender part of one's hard earned income to the taxing authorities, every person who is able to mustcontribute his share in the running of the government. The government for its part, is expected to respondin the form of tangible and intangible benefits intended to improve the lives of the people and enhancetheir moral and material values. This symbiotic relationship is the rationale of taxation and should dispelthe 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 alldemocratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If itis not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the


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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 withthe respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deductionby 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.

Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

Footnotes

1 Rollo, pp. 28-29.

2 Ibid., pp. 29; 42.

3 Id., p. 29.

4 Respondent's Brief, p. 11.

5 Id., p. 29.

6 Id,

7 Sec. 11.

8 Phil. Planters Investment Co. Inc. v. Comm. of Internal Revenue, CTA Case No. 1266,Nov. 11, 1962; Rollo, p. 30.

9 Vicente Hilado v. Comm. of Internal Revenue, CTA Case No. 1266, Oct. 22,1962;Rollo, p. 30.

10 Ibid.

11 Penned by Associate Judge Estanislao R. Alvarez, concurred by Presiding JudgeRamon M. Umali and Associate Judge Ramon L. Avancea.

12 Rollo, p. 33.

13 Ibid., pp. 7-8; Petition, pp. 2-3. 11 Id., p. 37.

15 Id.

16 Id.


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17 Id.

18 Id.

19 Respondents Brief, pp. 25-32.

20 Ibid., pp. 30-32.

21 Rollo, p. 37.

22 Now Sec. 30, (a)(1)-(A.), National Internal Revenue Code.

23 Respondent's Brief, p. 35.


Manila

THIRD DIVISION

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

ENGRACIO FRANCIA, petitioner,vs.INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.:

The petitioner invokes legal and equitable grounds to reverse the questioned decision of the IntermediateAppellate Court, to set aside the auction sale of his property which took place on December 5, 1977, andto allow him to recover a 203 square meter lot which was, sold at public auction to Ho Fernandez andordered titled in the latter's name.

The antecedent facts are as follows:

Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated atBarrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328square meters, is described and covered by Transfer Certificate of Title No. 4739 (37795) of the Registryof Deeds of Pasay City.

On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republicof the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessedvalue of the aforesaid portion.

Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977,his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 ofPresidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency ofP2,400.00. Ho Fernandez was the highest bidder for the property.


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Francia was not present during the auction sale since he was in Iligan City at that time helping his uncleship bananas.

On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entryof New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) andthe issuance in his name of a new certificate of title. Upon verification through his lawyer, Francia

discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer onDecember 11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCTNo. 4739 (37795) by the Register of Deeds.

On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complainton January 24, 1980.

On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing theamended complaint and ordering:

(a) The Register of Deeds of Pasay City to issue a new TransferCertificate of Title in favor of the defendant Ho Fernandez over the parcelof land including the improvements thereon, subject to whateverencumbrances appearing at the back of TCT No. 4739 (37795) andordering the same TCT No. 4739 (37795) cancelled.

(b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 asattorney's fees. (p. 30, Record on Appeal)

The Intermediate Appellate Court affirmed the decision of the lower court in toto.

Hence, this petition for review.

Francia prefaced his arguments with the following assignments of grave errors of law:

I

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW INNOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAXDELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT ISINDEBTED TO THE FORMER.

II

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERRORIN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT ANAUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY ANALLEGED TAX DELINQUENCY OF P2,400.00.

III

RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERRORAND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BYRESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'SCONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE


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PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10,17, 20-21, Rollo)

We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that hisproperty was sold at public auction without notice to him and that the price paid for the property wasshockingly inadequate, amounting to fraud and deprivation without due process of law.

A careful review of the case, however, discloses that Mr. Francia brought the problems raised in hispetition upon himself. While we commiserate with him at the loss of his property, the law and the factsmilitate against the grant of his petition. We are constrained to dismiss it.

Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. Heclaims that the government owed him P4,116.00 when a portion of his land was expropriated on October15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15, 1977.

There is no legal basis for the contention. By legal compensation, obligations of persons, who in their ownright are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). Thecircumstances of the case do not satisfy the requirements provided by Article 1279, to wit:

(1) that each one of the obligors be bound principally and that he be at the same time aprincipal creditor of the other;

xxx xxx xxx

(3) that the two debts be due.

xxx xxx xxx

This principal contention of the petitioner has no merit. We have consistently ruled that there can be nooff-setting of taxes against the claims that the taxpayer may have against the government. A personcannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater

than the tax being collected. The collection of a tax cannot await the results of a lawsuit against thegovernment.

In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal RevenueTaxes can not be the subject of set-off or compensation. We stated that:

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to beset-off under the statutes of set-off, which are construed uniformly, in the light of publicpolicy, to exclude the remedy in an action or any indebtedness of the state or municipalityto one who is liable to the state or municipality for taxes. Neither are they a propersubject of recoupment since they do not arise out of the contract or transaction suedon. ... (80 C.J.S., 7374). "The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local

governmental purposes. The reason on which the general rule is based, is that taxes arenot in the nature of contracts between the party and party but grow out of duty to, and arethe positive acts of the government to the making and enforcing of which, the personalconsent of individual taxpayers is not required. ..."

We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he hasa claim against the governmental body not included in the tax levy.


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This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internalrevenue taxes can not be the subject of compensation: Reason: government and taxpayer are notmutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes isnot such a debt, demand, contract or judgment as is allowed to be set-off."

There are other factors which compel us to rule against the petitioner. The tax was due to the city

government while the expropriation was effected by the national government. Moreover, the amount ofP4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited withthe Philippine National Bank long before the sale at public auction of his remaining property. Notice of thedeposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioneradmitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did notwithdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he couldpay the tax obligation thus aborting the sale at public auction.

Petitioner had one year within which to redeem his property although, as well be shown later, he claimedthat he pocketed the notice of the auction sale without reading it.

Petitioner contends that "the auction sale in question was made without complying with the mandatoryprovisions of the statute governing tax sale. No evidence, oral or otherwise, was presented that the

procedure outlined by law on sales of property for tax delinquency was followed. ... Since defendant HoFernandez has the affirmative of this issue, the burden of proof therefore rests upon him to show thatplaintiff was duly and properly notified ... .(Petition for Review, Rollo p. 18; emphasis supplied)

We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burdenof proof to show that there was compliance with all the prescribed requisites for a tax sale.

The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:

xxx xxx xxx

... [D]ue process of law to be followed in tax proceedings must be established by proofand the general rule is that the purchaser of a tax title is bound to take upon himself theburden of showing the regularity of all proceedings leading up to the sale. (emphasissupplied)

There is no presumption of the regularity of any administrative action which results in depriving a taxpayerof his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government,19 Phil. 261). This is actually an exception to the rule that administrative proceedings are presumed to beregular.

But even if the burden of proof lies with the purchaser to show that all legal prerequisites have beencomplied with, the petitioner can not, however, deny that he did receive the notice for the auction sale.The records sustain the lower court's finding that:

[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properlynotified of the auction sale. Surprisingly, however, he admitted in his testimony that hereceived the letter dated November 21, 1977 (Exhibit "I") as shown by his signature(Exhibit "I-A") thereof. He claimed further that he was not present on December 5, 1977the date of the auction sale because he went to Iligan City. As long as there wassubstantial compliance with the requirements of the notice, the validity of the auction salecan not be assailed ... .

We quote the following testimony of the petitioner on cross-examination, to wit:


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Q. My question to you is this letter marked as Exhibit I for Ho Fernandeznotified you that the property in question shall be sold at public auction tothe highest bidder on December 5, 1977 pursuant to Sec. 74 of PD 464.Will you tell the Court whether you received the original of this letter?

A. I just signed it because I was not able to read the same. It was just

sent by mail carrier.

Q. So you admit that you received the original of Exhibit I and you signedupon receipt thereof but you did not read the contents of it?

A. Yes, sir, as I was in a hurry.

Q. After you received that original where did you place it?

A. I placed it in the usual place where I place my mails.

Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignoredsuch notice. By his very own admission that he received the notice, his now coming to court assailing thevalidity of the auction sale loses its force.

Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy ofprice is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation FinanceCorporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordonv. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not material whenthe law gives the owner the right to redeem as when a sale is made at public auction, upon the theory thatthe lesser the price, the easier it is for the owner to effect redemption." In Velasquez v. Coronel (5 SCRA985), this Court held:

... [R]espondent treasurer now claims that the prices for which the lands were sold areunconscionable considering the wide divergence between their assessed values and the

amounts for which they had been actually sold. However, while in ordinary sales forreasons of equity a transaction may be invalidated on the ground of inadequacy of price,or when such inadequacy shocks one's conscience as to justify the courts to interfere,such does not follow when the law gives to the owner the right to redeem, as when a saleis made at public auction, upon the theory that the lesser the price the easier it is for theowner to effect the redemption. And so it was aptly said: "When there is the right toredeem, inadequacy of price should not be material, because the judgment debtor mayreacquire the property or also sell his right to redeem and thus recover the loss he claimsto have suffered by reason of the price obtained at the auction sale."

The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188Wash. 162, 61 P. 2d, 1290):

If mere inadequacy of price is held to be a valid objection to a sale for taxes, thecollection of taxes in this manner would be greatly embarrassed, if not renderedaltogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is statedas follows: "where land is sold for taxes, the inadequacy of the price given is not a validobjection to the sale." This rule arises from necessity, for, if a fair price for the land wereessential to the sale, it would be useless to offer the property. Indeed, it is notorious thatthe prices habitually paid by purchasers at tax sales are grossly out of proportion to thevalue of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369).


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In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555):

Like most cases of this character there is here a certain element of hardship from whichwe would be glad to relieve, but do so would unsettle long-established rules and lead touncertainty and difficulty in the collection of taxes which are the life blood of the state. Weare convinced that the present rules are just, and that they bring hardship only to those

who have invited it by their own neglect.

We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value.Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the expropriationof adjoining areas, real estate values have gone up in the area. However, the price quoted by thepetitioner for a 203 square meter lot appears quite exaggerated. At any rate, the foregoing reasons whichanswer the petitioner's claims lead us to deny the petition.

And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strongconsiderations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963up to the date of the auction sale. He claims to have pocketed the notice of sale without reading it which,if true, is still an act of inexplicable negligence. He did not withdraw from the expropriation paymentdeposited with the Philippine National Bank an amount sufficient to pay for the back taxes. The petitioner

did not pay attention to another notice sent by the City Treasurer on November 3, 1978, during the periodof redemption, regarding his tax delinquency. There is furthermore no showing of bad faith or collusion inthe purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke equity in hisattempt to regain the property by belatedly asking for the annulment of the sale.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision ofthe respondent court is affirmed.

SO ORDERED.

Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.


Manila

EN BANC

G.R. No. L-18994 June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,vs.HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price,respondents.

Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.Benedicto and Martinez for respondents.

LABRADOR, J.:

This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte,Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an order in this


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Court directing the respondent court below to execute the judgment in favor of the Government againstthe estate of Walter Scott Price for internal revenue taxes.

It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30,1960, this Court declared as final and executory the order for the payment by the estate of the estate andinheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First Instance

of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late WalterScott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June21, 1961, to the court below for the execution of the judgment. The petition was, however, denied by thecourt which held that the execution is not justifiable as the Government is indebted to the estate underadministration in the amount of P262,200. The orders of the court below dated August 20, 1960 andSeptember 28, 1960, respectively, are as follows:

Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix ofthe estate of her late husband Walter Scott Price and Director Zoilo Castrillo of the Bureau ofLands dated September 19, 1956 and acknowledged before Notary Public Salvador V. Esguerra,legal adviser in Malacaang to Executive Secretary De Leon dated December 14, 1956, the noteof His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2, 1958, directing thelatter to pay to Mrs. Price the sum ofP368,140.00, and an extract of page 765 of Republic Act No.

2700 appropriating the sum of P262.200.00 for the payment to the Leyte Cadastral Survey, Inc.,represented by the administratrix Simeona K. Price, as directed in the above note of thePresident. Considering these facts, the Court orders that the payment of inheritance taxes in thesum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5,1960 in accordance with the order of the Supreme Court promulgated July 30, 1960 in G.R. No.L-14674, be deducted from the amount of P262,200.00 due and payable to the AdministratrixSimeona K. Price, in this estate, the balance to be paid by the Government to her without furtherdelay. (Order of August 20, 1960)

The Court has nothing further to add to its order dated August 20, 1960 and it orders that thepayment of the claim of the Collector of Internal Revenue be deferred until the Government shallhave paid its accounts to the administratrix herein amounting to P262,200.00. It may not be amissto repeat that it is only fair for the Government, as a debtor, to its accounts to its citizens-creditors

before it can insist in the prompt payment of the latter's account to it, specially taking intoconsideration that the amount due to the Government draws interests while the credit due to thepresent state does not accrue any interest. (Order of September 28, 1960)

The petition to set aside the above orders of the court below and for the execution of the claim of theGovernment against the estate must be denied for lack of merit. The ordinary procedure by which to settleclaims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimantto present a claim before the probate court so that said court may order the administrator to pay theamount thereof. To such effect is the decision of this Court in Aldamiz vs. Judge of the Court of FirstInstance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:

. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the paymentof debts and expenses of administration. The proper procedure is for the court to order the sale of

personal estate or the sale or mortgage of real property of the deceased and all debts orexpenses of administrator and with the written notice to all the heirs legatees and deviseesresiding in the Philippines, according to Rule 89, section 3, and Rule 90, section 2. And whensale or mortgage of real estate is to be made, the regulations contained in Rule 90, section 7,should be complied with.1wph1.t

Execution may issue only where the devisees, legatees or heirs have entered into possession oftheir respective portions in the estate prior to settlement and payment of the debts and expensesof administration and it is later ascertained that there are such debts and expenses to be paid, inwhich case "the court having jurisdiction of the estate may, by order for that purpose, after


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hearing, settle the amount of their several liabilities, and order how much and in what mannereach person shall contribute, and may issue execution if circumstances require" (Rule 89, section6; see also Rule 74, Section 4; Emphasis supplied.) And this is not the instant case.

The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle theestate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court

and such jurisdiction continues until said properties have been distributed among the heirs entitledthereto. During the pendency of the proceedings all the estate is in custodia legis and the properprocedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask thecourt for an order to require the administrator to pay the amount due from the estate and required to bepaid.

Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdictionof the estate had found that the claim of the estate against the Government has been recognized and anamount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No.2700). Under the above circumstances, both the claim of the Government for inheritance taxes and theclaim of the intestate for services rendered have already become overdue and demandable is well as fullyliquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions ofArticles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takeseffect by operation of law, and extinguished both debts to the concurrent amount, eventhough thecreditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against theestate of the deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is notthe proper remedy for the petitioner. Appeal is the remedy.

The petition is, therefore, dismissed, without costs.

Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.Bengzon, C.J., took no part.


Manila

EN BANC

G.R. Nos. L-49839-46 April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

vs.PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their capacities as appointed andActing Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS,ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed and Acting Members ofthe BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL in his capacity as CityAssessor of Manila, respondents.

Barcelona, Perlas, Joven & Academia Law Offices for petitioners.


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PARAS, J.:p

This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board ofAssessment Appeals 1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board

of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29, 1976decision of the Board of Tax Assessment Appeals 2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E,"Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. CityAssessor of Manila" upholding the classification and assessments made by the City Assessor of Manila.

The facts of the case are as follows:

Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondoand Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling sites bytenants. Said tenants were paying monthly rentals not exceeding three hundred pesos (P300.00) in July,1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359 prohibiting for one yearfrom its effectivity, an increase in monthly rentals of dwelling units or of lands on which another's dwellingis located, where such rentals do not exceed three hundred pesos (P300.00) a month but allowing an

increase in rent by not more than 10% thereafter. The said Act also suspended paragraph (1) of Article1673 of the Civil Code for two years from its effectivity thereby disallowing the ejectment of lessees uponthe expiration of the usual legal period of lease. On October 12, 1972, Presidential Decree No. 20amended R.A. No. 6359 by making absolute the prohibition to increase monthly rentals below P300.00and by indefinitely suspending the aforementioned provision of the Civil Code, excepting leases with adefinite period. Consequently, the Reyeses, petitioners herein, were precluded from raising the rentalsand from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessedthe value of the subject properties based on the schedule of market values duly reviewed by theSecretary of Finance. The revision, as expected, entailed an increase in the corresponding tax ratesprompting petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals.They averred that the reassessments made were "excessive, unwarranted, inequitable, confiscatory andunconstitutional" considering that the taxes imposed upon them greatly exceeded the annual incomederived from their properties. They argued that the income approach should have been used in

determining the land values instead of the comparable sales approach which the City Assessor adopted(Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the assessments valid,holding thus:

WHEREFORE, and considering that the appellants have failed to submit concreteevidence which could overcome the presumptive regularity of the classification andassessments appear to be in accordance with the base schedule of market values and ofthe base schedule of building unit values, as approved by the Secretary of Finance, thecases should be, as they are hereby, upheld.

SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).

The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among others, the

summary of the yearly rentals to show the income derived from the properties. Respondent CityAssessor, on the other hand, submitted three (3) deeds of sale showing the different market values of thereal property situated in the same vicinity where the subject properties of petitioners are located. To betterappreciate the locational and physical features of the land, the Board of Hearing Commissionersconducted an ocular inspection with the presence of two representatives of the City Assessor prior to thehealing of the case. Neither the owners nor their authorized representatives were present during the saidocular inspection despite proper notices served them. It was found that certain parcels of land were belowstreet level and were affected by the tides (Rollo, pp. 24-25).


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On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive portionof which reads:

WHEREFORE, the appealed decision insofar as the valuation and assessment of the lotscovered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824is affirmed.

For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-266, the appealed Decision is modified by allowing a 20% reduction in their respectivemarket values and applying therein the assessment level of 30% to arrive at thecorresponding assessed value.

SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)

Petitioner's subsequent motion for reconsideration was denied, hence, this petition.

The Reyeses assigned the following error:

THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALESAPPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'PROPERTIES.

The petition is impressed with merit.

The crux of the controversy is in the method used in tax assessment of the properties in question.Petitioners maintain that the "Income Approach" method would have been more realistic for indisregarding the effect of the restrictions imposed by P.D. 20 on the market value of the propertiesaffected, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased newassessed values at levels so high and successive that the resulting annual real estate taxes wouldadmittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under P.D.20. Hence, petitioners protested against the levels of the values assigned to their properties as revised

and increased on the ground that they were arbitrarily excessive, unwarranted, inequitable, confiscatoryand unconstitutional (Rollo, p. 10-A).

On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that theincome approach is used in determining land values in some vicinities, it maintains that when income isaffected by some sort of price control, the same is rejected in the consideration and study of land valuesas in the case of properties affected by the Rent Control Law for they do not project the true market valuein the open market (Rollo, p. 21). Thus, respondents opted instead for the "Comparable Sales Approach"on the ground that the value estimate of the properties predicated upon prices paid in actual, markettransactions would be a uniform and a more credible standards to use especially in case of massappraisal of properties (Ibid.). Otherwise stated, public respondents would have this Court completelyignore the effects of the restrictions of P.D. No. 20 on the market value of properties within its coverage.In any event, it is unquestionable that both the "Comparable Sales Approach" and the "Income Approach"

are generally acceptable methods of appraisal for taxation purposes (The Law on Transfer and BusinessTaxation by Hector S. De Leon, 1988 Edition). However, it is conceded that the propriety of one asagainst the other would of course depend on several factors. Hence, as early as 1923 in the case of Army& Navy Club, Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that theassessors, in finding the value of the property, have to consider all the circumstances and elements ofvalue and must exercise a prudent discretion in reaching conclusions.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only beuniform, but must also be equitable and progressive.


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Uniformity has been defined as that principle by which all taxable articles or kinds of property of the sameclass shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).

Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of taxationrequired in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221, Second Edition).Thus, the need to examine closely and determine the specific mandate of the Constitution.

Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressivewhen its rate goes up depending on the resources of the person affected (Ibid.).

The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers ofgovernment. But for all its plenitude the power to tax is not unconfined as there are restrictions. Adverselyeffecting as it does property rights, both the due process and equal protection clauses of the Constitutionmay properly be invoked to invalidate in appropriate cases a revenue measure. If it were otherwise, therewould be truth to the 1903 dictum of Chief Justice Marshall that "the power to tax involves the power todestroy." The web or unreality spun from Marshall's famous dictum was brushed away by one stroke ofMr. Justice Holmes pen, thus: "The power to tax is not the power to destroy while this Court sits. So it is inthe Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of InternalRevenue, 139 SCRA 439 [1985]).

In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that itfinds no support in the Constitution. An obvious example is where it can be shown to amount toconfiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra).

The taxing power has the authority to make a reasonable and natural classification for purposes oftaxation but the government's act must not be prompted by a spirit of hostility, or at the very leastdiscrimination that finds no support in reason. It suffices then that the laws operate equally and uniformlyon all persons under similar circumstances or that all persons must be treated in the same manner, theconditions not being different both in the privileges conferred and the liabilities imposed (Ibid., p. 662).

Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first FundamentalPrinciple to guide the appraisal and assessment of real property for taxation purposes is that the property

must be "appraised at its current and fair market value."

By no strength of the imagination can the market value of properties covered by P.D. No. 20 be equatedwith the market value of properties not so covered. The former has naturally a much lesser market valuein view of the rental restrictions.

Ironically, in the case at bar, not even the factors determinant of the assessed value of subject propertiesunder the "comparable sales approach" were presented by the public respondents, namely: (1) that thesale must represent a bonafide arm's length transaction between a willing seller and a willing buyer and(2) the property must be comparable property (Rollo, p. 27). Nothing can justify or support their view as itis of judicial notice that for properties covered by P.D. 20 especially during the time in question, therewere hardly any willing buyers. As a general rule, there were no takers so that there can be noreasonable basis for the conclusion that these properties were comparable with other residentialproperties not burdened by P.D. 20. Neither can the given circumstances be nonchalantly dismissed bypublic respondents as imposed under distressed conditions clearly implying that the same were merelytemporary in character. At this point in time, the falsity of such premises cannot be more convincinglydemonstrated by the fact that the law has existed for around twenty (20) years with no end to it in sight.

Verily, taxes are the lifeblood of the government and so should be collected without unnecessaryhindrance. However, such collection should be made in accordance with law as any arbitrariness willnegate the very reason for government itself It is therefore necessary to reconcile the apparentlyconflicting interests of the authorities and the taxpayers so that the real purpose of taxations, which is the


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promotion of the common good, may be achieved (Commissioner of Internal Revenue v. Algue Inc., et al.,158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are burdened by thegovernment by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of socialjustice should not now be penalized by the same government by the imposition of excessive taxespetitioners can ill afford and eventually result in the forfeiture of their properties.

By the public respondents' own computation the assessment by income approach would amount to onlyP10.00 per sq. meter at the time in question.

PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of publicrespondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment Appeals ofManila and the City Assessor of Manila are ordered to make a new assessment by the income approachmethod to guarantee a fairer and more realistic basis of computation (Rollo, p. 71).

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin,Sarmiento, Grio-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.

Footnotes

1 Penned by former Chairman and Acting Minister Pedro Almanzor and concurred in bythe then Minister of Justice Vicente Abad Santos and Minister of Local Government andCommunity Development Jose Rono.

2 Rendered by then Acting Register of Deeds of Manila Teresita H. Noblejas andconcurred in by former City Engineer of Manila Romulo M. del Rosario and OIC of theOffice of the City of Auditor Raul C. Flores.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,vs.ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO CARBONELL, inhis capacity as National Treasurer, defendants-appellants.

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?


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This question has been brought before this Court in the past. The parties are, in effect, asking for a re-examination of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a casewhere the then Court of First Instance of Rizal dismissed the portion-about complaint for refund ofregistration fees paid under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate pursuantto Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines andengaged in the air transportation business under a legislative franchise, Act No. 42739, as amended byRepublic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from the payment of taxes. Thepertinent provision of the franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the grantee shallpay to the National Government during the life of this franchise a tax of two per cent ofthe gross revenue or gross earning derived by the grantee from its operations under thisfranchise. Such tax shall be due and payable quarterly and shall be in lieu of all taxes of

any kind, nature or description, levied, established or collected by any municipal,provincial or national automobiles, Provided, that if, after the audit of the accounts of thegrantee by the Commissioner of Internal Revenue, a deficiency tax is shown to be due,the deficiency tax shall be payable within the ten days from the receipt of theassessment. The grantee shall pay the tax on its real property in conformity with existinglaw.

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since1956, not been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring alltax exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless theamounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest, the amountof P19,529.75 as registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner Edudemanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212 [1951])where it was held that motor vehicle registration fees are in reality taxes from the payment of which PALis exempt by virtue of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v. PhilippineRabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration feesare regulatory exceptional. and not revenue measures and, therefore, do not come within the exemption

granted to PAL under its franchise. Hence, PAL filed the complaint against Land TransportationCommissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with the Court of First Instance ofRizal, Branch 18 where it was docketed as Civil Case No. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity asNational Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action. Insupport of the motion to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit BusLines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees imposed asan incident of the exercise of the police power of the state. They contended that while Act 4271 exemptsPAL from the payment of any tax except two per cent on its gross revenue or earnings, it does not exempt


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the plaintiff from paying regulatory fees, such as motor vehicle registration fees. The resolution of themotion to dismiss was deferred by the Court until after trial on the merits.

On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by thelater ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus Lines, Inc.,(supra)." From this judgment, PAL appealed to the Court of Appeals which certified the case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL andCommissioner Romeo F. Edu respectively, discuss the main points of contention in the case at bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by Section 8 ofthe Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks of"registration fees." The term is repeated four times in the body thereof. Equally so,mention is made of the "fee for registration." (Ibid., Subsection G) A subsection startswith a categorical statement "No fees shall be charged." (lbid., Subsection H) Theconclusion is difficult to resist therefore that the Motor Vehicle Act requires the paymentnot of a tax but of a registration fee under the police power. Hence the incipient, of the

section relied upon by defendant-appellee under the Back Pay Law, It is not held liablefor a tax but for a registration fee. It therefore cannot make use of a backpay certificate tomeet such an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should bedissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition ofadditional tax on privately-owned passenger automobiles, motorcycles and scooters wasamended by Republic Act No. 5470 which is (sic) approved on May 30, 1969.) A specialscience fund was thereby created and its title expressly sets forth that a tax on privately-owned passenger automobiles, motorcycles and scooters was imposed. The ratesthereof were provided for in its Section 3 which clearly specifies the" Philippinetax."(Cooley to be paid as distinguished from the registration fee under the Motor VehicleAct. There cannot be any clearer expression therefore of the legislative will, even on the

assumption that the earlier legislation could by subdivision the point be susceptible of theinterpretation that a tax rather than a fee was levied. What is thus most apparent is thatwhere the legislative body relies on its authority to tax it expressly so states, and where itis enacting a regulatory measure, it is equally exploded (at p. 22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand, held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of motorvehicles are in section 8 of that law called "fees". But the appellation is no impediment totheir being considered taxes if taxes they really are. For not the name but the object ofthe charge determines whether it is a tax or a fee. Geveia speaking, taxes are forrevenue, whereas fees are exceptional. for purposes of regulation and inspection and arefor that reason limited in amount to what is necessary to cover the cost of the services

rendered in that connection. Hence, a charge fixed by statute for the service to beperson,-When by an officer, where the charge has no relation to the value of the servicesperformed and where the amount collected eventually finds its way into the treasury ofthe branch of the government whose officer or officers collected the chauffeur, is not afee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)

From the data submitted in the court below, it appears that the expenditures of the MotorVehicle Office are but a small portionabout 5 per centumof the total collections frommotor vehicle registration fees. And as proof that the money collected is not intended for


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the expenditures of that office, the law itself provides that all such money shall accrue tothe funds for the construction and maintenance of public roads, streets and bridges. It isthus obvious that the fees are not collected for regulatory purposes, that is to say, as anincident to the enforcement of regulations governing the operation of motor vehicles onpublic highways, for their express object is to provide revenue with which theGovernment is to discharge one of its principal functionsthe construction andmaintenance of public highways for everybody's use. They are veritable taxes, not merelyfees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees astaxes, for it provides that "no other taxes or fees than those prescribed in this Act shall beimposed," thus implying that the charges therein imposedthough called feesare ofthe category of taxes. The provision is contained in section 70, of subsection (b), of thelaw, as amended by section 17 of Republic Act 587, which reads:

Sec. 70(b) No other taxes or fees than those prescribed in this Act shallbe imposed for the registration or operation or on the ownership of anymotor vehicle, or for the exercise of the profession of chauffeur, by anymunicipal corporation, the provisions of any city charter to the contrary

notwithstanding: Provided, however, That any provincial board, city ormunicipal council or board, or other competent authority may exact andcollect such reasonable and equitable toll fees for the use of suchbridges and ferries, within their respective jurisdiction, as may beauthorized and approved by the Secretary of Public Works andCommunications, and also for the use of such public roads, as may beauthorized by the President of the Philippines upon the recommendationof the Secretary of Public Works and Communications, but in none ofthese cases, shall any toll fee." be charged or collected until and unlessthe approved schedule of tolls shall have been posted levied, in aconspicuous place at such toll station. (at pp. 213-214)

Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law (Act

3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land TransportationCode, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Blg. 43,74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained unsegregated,by Rep. Act Nos. 587 and 1603) states:

Section 73. Disposal of moneys collected.Twenty per centum of the money collectedunder the provisions of this Act shall accrue to the road and bridge funds of the differentprovinces and chartered cities in proportion to the centum shall during the next previousyear and the remaining eighty per centum shall be deposited in the Philippine Treasury to

create a special fund for the construction and maintenance of national and provincialroads and bridges. as well as the streets and bridges in the chartered cities to be allotedby the Secretary of Public Works and Communications for projects recommended by theDirector of Public Works in the different provinces and chartered cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. CollectedMonies collected under the provisions of thisAct shall be deposited in a special trust account in the National Treasury to constitute the


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Highway Special Fund, which shall be apportioned and expended in accordance with theprovisions of the" Philippine Highway Act of 1935. "Provided, however, That the amountnecessary to maintain and equip the Land Transportation Commission but not to exceedtwenty per cent of the total collection during one year, shall be set aside for the purpose.(As amended by RA 64-67, approved August 6, 1971).

It appears clear from the above provisions that the legislative intent and purpose behind the law requiringowners of vehicles to pay for their registration is mainly to raise funds for the construction andmaintenance of highways and to a much lesser degree, pay for the operating expenses of theadministering agency. On the other hand, the Philippine Rabbit case mentions a presumption arising fromthe use of the term "fees," which appears to have been favored by the legislature to distinguish fees fromother taxes such as those mentioned in Section 13 of Rep. Act 4136 which reads:

Sec. 13. Payment of taxes upon registration.No original registration of motor vehiclessubject to payment of taxes, customs s duties or other charges shall be accepted unlessproof of payment of the taxes due thereon has been presented to the Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a motor vehicle(Sec. 59, b, Rep. Act 4136, as amended).

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation, Asstated by a former presiding judge of the Court of Tax Appeals and writer on various aspects of taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees are changes.looked to as a source of revenue as well as a means of regulation (Sonzinky v. U.S., 300U.S. 506) This is true, for example, of automobile license fees. Isabela such case, thefees may properly be regarded as taxes even though they also serve as an instrument ofregulation. If the purpose is primarily revenue, or if revenue is at least one of the real andsubstantial purposes, then the exaction is properly called a tax. (1955 CCH Fed. taxCourse, Par. 3101, citing Cooley on Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These exactions are sometimes calledregulatory taxes. (See Secs. 4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S.

Internal Revenue Code of 1954, which classify taxes on tobacco and alcohol asregulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley onTaxation, 2nd Edition, 591-593).

Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148).

If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, thenthe exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle registration fees. Theconclusions become inescapable in view of Section 70(b) of Rep. Act 587 quoted in the Calalang case.The same provision appears as Section 591-593). in the Land Transportation code. It is patent therefromthat the legislators had in mind a regulatory tax as the law refers to the imposition on the registration,operation or ownership of a motor vehicle as a "tax or fee." Though nowhere in Rep. Act 4136 does thelaw specifically state that the imposition is a tax, Section 591-593). speaks of "taxes." or fees ... for the

registration or operation or on the ownership of any motor vehicle, or for the exercise of the profession ofchauffeur ..." making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by therespondents, speak of an "additional" tax," where the law could have referred to an original tax and notone in addition to the tax already imposed on the registration, operation, or ownership of a motor vehicleunder Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, theimposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees,"such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees forchange of registration (Sec. 11). These are not to be understood as taxes because such fees are veryminimal to be revenue-raising. Thus, they are not mentioned by Sec. 591-593). of the Code as taxes like


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the motor vehicle registration fee and chauffers' license fee. Such fees are to go into the expenditures ofthe Land Transportation Commission as provided for in the last proviso of see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended only forrigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular trafficexploded in number and motor vehicles became absolute necessities without which modem life as we

know it would stand still, Congress found the registration of vehicles a very convenient way of raisingmuch needed revenues. Without changing the earlier deputy. of registration payments as "fees," theirnature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to theLand Transportation and Traffic Code are actually taxes intended for additional revenues. of governmenteven if one fifth or less of the amount collected is set aside for the operating expenses of the agencyadministering the program.

May the respondent administrative agency be required to refund the amounts stated in the complaint ofPAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to whatpayments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448 datedJune 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in legislative franchisessimilar to that invoked by PAL in this case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July 11,1985), this Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner RadioCommunications of the Philippines, Inc., was subject to both the franchise tax andincome tax. In 1964, however, petitioner's franchise was amended by Republic Act No.41-42). to the effect that its franchise tax of one and one-half percentum (1-1/2%) of allgross receipts was provided as "in lieu of any and all taxes of any kind, nature, ordescription levied, established, or collected by any authority whatsoever, municipal,provincial, or national from which taxes the grantee is hereby expressly exempted." Theissue raised to this Court now is the validity of the respondent court's decision whichruled that the exemption under Republic Act No. 41-42). was repealed by Section 24 ofRepublic Act No. 5448 dated June 27, 1968 which reads:

"(d) The provisions of existing special or general laws to the contrarynotwithstanding, all corporate taxpayers not specifically exempt underSections 24 (c) (1) of this Code shall pay the rates provided in thissection. All corporations, agencies, or instrumentalities owned orcontrolled by the government, including the Government ServiceInsurance System and the Social Security System but excludingeducational institutions, shall pay such rate of tax upon their taxable netincome as are imposed by this section upon associations or corporationsengaged in a similar business or industry. "

An examination of Section 24 of the Tax Code as amended shows clearly that the lawintended all corporate taxpayers to pay income tax as provided by the statute. There canbe no doubt as to the power of Congress to repeal the earlier exemption it granted.Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5 of theConstitution as amended in 1973 expressly provide that no franchise shall be granted to


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any individual, firm, or corporation except under the condition that it shall be subject toamendment, alteration, or repeal by the legislature when the public interest so requires.There is no question as to the public interest involved. The country needs increasedrevenues. The repealing clause is clear and unambiguous. There is a listing of entitiesentitled to tax exemption. The petitioner is not covered by the provision. Considering theforegoing, the Court Resolved to DENY the petition for lack of merit. The decision of therespondent court is affirmed.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed becausethe tax exemption in the franchise of PAL was repealed during the period. However, an amendedfranchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay to thePhilippine Government during the lifetime of this franchise whichever of subsections (a)and (b) hereunder will result in a lower taxes.)

(a) The basic corporate income tax based on the grantee's annual nettaxable income computed in accordance with the provisions of theInternal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues. derived bythe grantees from all specific. without distinction as to transport ornontransport corporations; provided that with respect to internationalairtransport service, only the gross passengers, mail, and freightrevenues. from its outgoing flights shall be subject to this law.

The tax paid by the grantee under either of the above alternatives shall be in lieu of allother taxes, duties, royalties, registration, license and other fees and charges of any kind,nature or description imposed, levied, established, assessed, or collected by anymunicipal, city, provincial, or national authority or government, agency, now or in thefuture, including but not limited to the following:

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(5) All taxes, fees and other charges on the registration, license, acquisition, and transferof airtransport equipment, motor vehicles, and all other personal or real property of thegravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law. PAL isnow exempt from the payment of any tax, fee, or other charge on the registration and licensing of motorvehicles. Such payments are already included in the basic tax or franchise tax provided in Subsections (a)and (b) of Section 13, P.D. 1590, and may no longer be exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees paid

in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is enjoinedfunctions-the collecting any tax, fee, or other charge on the registration and licensing of the petitioner'smotor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento,Cortes, Grio Aquino and Medialdea, JJ., concur.


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Manila

EN BANC

G.R. No. L-75697 June 18, 1987

VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,vs.VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITYMAYOR and CITY TREASURER OF MANILA, respondents.

Nelson Y. Ng for petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.:

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf ofother videogram operators adversely affected. It assails the constitutionality of Presidential Decree No.1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate andsupervise the videogram industry (hereinafter briefly referred to as the BOARD). The Decree waspromulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days after completion of itspublication in the Official Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned decree, PresidentialDecree No. 1994 amended the National Internal Revenue Code providing, inter alia:

SEC. 134. Video Tapes. There shall be collected on each processed video-tapecassette, ready for playback, regardless of length, an annual tax of five pesos; Provided,That locally manufactured or imported blank video tapes shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importersand Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association,hereinafter collectively referred to as the Intervenors, were permitted by the Court to intervene in thecase, over petitioner's opposition, upon the allegations that intervention was necessary for the completeprotection of their rights and that their "survival and very existence is threatened by the unregulatedproliferation of film piracy." The Intervenors were thereafter allowed to file their Comment in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:

1. WHEREAS, the proliferation and unregulated circulation of videograms including,among others, videotapes, discs, cassettes or any technical improvement or variationthereof, have greatly prejudiced the operations of moviehouses and theaters, and havecaused a sharp decline in theatrical attendance by at least forty percent (40%) and atremendous drop in the collection of sales, contractor's specific, amusement and othertaxes, thereby resulting in substantial losses estimated at P450 Million annually ingovernment revenues;


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2. WHEREAS, videogram(s) establishments collectively earn around P600 Million perannum from rentals, sales and disposition of videograms, and such earnings have notbeen subjected to tax, thereby depriving the Government of approximately P180 Million intaxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected

the viability of the movie industry, particularly the more than 1,200 movie houses andtheaters throughout the country, and occasioned industry-wide displacement andunemployment due to the shutdown of numerous moviehouses and theaters;

4. "WHEREAS, in order to ensure national economic recovery, it is imperative for theGovernment to create an environment conducive to growth and development of allbusiness industries, including the movie industry which has an accumulated investmentof about P3 Billion;

5. WHEREAS, proper taxation of the activities of videogram establishments will not onlyalleviate the dire financial condition of the movie industry upon which more than 75,000families and 500,000 workers depend for their livelihood, but also provide an additionalsource of revenue for the Government, and at the same time rationalize the heretofore

uncontrolled distribution of videograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram featuresconstitutes a clear and present danger to the moral and spiritual well-being of the youth,and impairs the mandate of the Constitution for the State to support the rearing of theyouth for civic efficiency and the development of moral character and promote theirphysical, intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial measures tocurb these blatant malpractices which have flaunted our censorship and copyright laws;

8. WHEREAS, in the face of these grave emergencies corroding the moral values of thepeople and betraying the national economic recovery program, bold emergency

measures must be adopted with dispatch; ... (Numbering of paragraphs supplied).

Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:

1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to thelocal government is a RIDER and the same is not germane to the subject matter thereof;

2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of tradein violation of the due process clause of the Constitution;

3. There is no factual nor legal basis for the exercise by the President of the vast powersconferred upon him by Amendment No. 6;

4. There is undue delegation of power and authority;

5. The Decree is an ex-post facto law; and

6. There is over regulation of the video industry as if it were a nuisance, which it is not.

We shall consider the foregoing objections in seriatim.


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1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressedin the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include thegeneral purpose which a statute seeks to achieve. It is not necessary that the title express each andevery end that the statute wishes to accomplish. The requirement is satisfied if all the parts of the statuteare related, and are germane to the subject matter expressed in the title, or as long as they are notinconsistent with or foreign to the general subject and title. 2 An act having a single general subject,indicated in the title, may contain any number of provisions, no matter how diverse they may be, so longas they are not inconsistent with or foreign to the general subject, and may be considered in furtheranceof such subject by providing for the method and means of carrying out the general object." 3 The rule alsois that the constitutional requirement as to the title of a bill should not be so narrowly construed as tocripple or impede the power of legislation. 4 It should be given practical rather than technical construction.5

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider iswithout merit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding anyprovision of law to the contrary, the province shall collect a tax of thirty percent (30%) ofthe purchase price or rental rate, as the case may be, for every sale, lease or disposition

of a videogram containing a reproduction of any motion picture or audiovisual program.Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, andthe other fifty percent (50%) shall acrrue to the municipality where the tax is collected;PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by theCity/Municipality and the Metropolitan Manila Commission.

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The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of,the general object of the DECREE, which is the regulation of the video industry through the VideogramRegulatory Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to thatgeneral subject and title. As a tool for regulation 6 it is simply one of the regulatory and controlmechanisms scattered throughout the DECREE. The express purpose of the DECREE to include taxation

of the video industry in order to regulate and rationalize the heretofore uncontrolled distribution ofvideograms is evident from Preambles 2 and 5, supra. Those preambles explain the motives of thelawmaker in presenting the measure. The title of the DECREE, which is the creation of the VideogramRegulatory Board, is comprehensive enough to include the purposes expressed in its Preamble andreasonably covers all its provisions. It is unnecessary to express all those objectives in the title or that thelatter be an index to the body of the DECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory,and in restraint of trade. However, it is beyond serious question that a tax does not cease to be validmerely because it regulates, discourages, or even definitely deters the activities taxed. 8 The power toimpose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture todeclare that it is subject to any restrictions whatever, except such as rest in the discretion of the authoritywhich exercises it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in general, a

sufficient security against erroneous and oppressive taxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by therealization that earnings of videogram establishments of around P600 million per annum have not beensubjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-usertax, imposed on retailers for every videogram they make available for public viewing. It is similar to the30% amusement tax imposed or borne by the movie industry which the theater-owners pay to thegovernment, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burdenon the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators.


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The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulatingthe video industry, particularly because of the rampant film piracy, the flagrant violation of intellectualproperty rights, and the proliferation of pornographic video tapes. And while it was also an objective of theDECREE to protect the movie industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the

legislature to impose the tax was to favor one industry over another. 11

It is inherent in the power to tax that a state be free to select the subjects of taxation, andit has been repeatedly held that "inequities which result from a singling out of oneparticular class for taxation or exemption infringe no constitutional limitation". 12 Taxationhas been made the implement of the state's police power. 13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by theformer President under Amendment No. 6 of the 1973 Constitution providing that "whenever in thejudgment of the President ... , there exists a grave emergency or a threat or imminence thereof, orwhenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to act

adequately on any matter for any reason that in his judgment requires immediate action, he may, in orderto meet the exigency, issue the necessary decrees, orders, or letters of instructions, which shall form partof the law of the land."

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clausesufficiently summarizes the justification in that grave emergencies corroding the moral values of thepeople and betraying the national economic recovery program necessitated bold emergency measures tobe adopted with dispatch. Whatever the reasons "in the judgment" of the then President, considering thatthe issue of the validity of the exercise of legislative power under the said Amendment still pendsresolution in several other cases, we reserve resolution of the question raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislativepower. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance

of other agencies and units of the government and deputize, for a fixed and limited period, the heads orpersonnel of such agenci

admu taxation cases

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