tax digests batch 1

LAW ON TAXATION: Batch 1 (case 1-66)

LAW ON TAXATION 1 [ATTY. VOLTAIRE SALUD] || Batch 4, Block 4 (2015) 1

CASE 1: GUEVARA, Carlo MACTAN CEBU INTERNATIONAL AIRPORT V MARCOS DOCTRINE: The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it. Taxation is the rule, exemption therefrom is the exception. FACTS: Mactan Cebu International Airport Authority (MCIAA) was created by virtue of RA 6958, mandated to "principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City and such other Airports as may be established in the Province of Cebu. MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Sec. 14 of its Charter. Mr. Eustaquio B. Cesa, OIC of the Office of the Treasurer of Cebu, demanded payment for realty taxes on several parcels of land belonging to MCIAA in the total amount of P2,229,078.79. MCIAA objected to the demand and asserted that it is an instrumentality of the government performing governmental functions even citing Sec. 133 of the LGC. Cebu City refused to cancel and set aside MCIAA's realty tax account, insisting that it is a government-owned corporation whose tax exemption privilege has been withdrawn under Sec. 193 and 234 of the LGC. As the City of Cebu was about to issue a warrant of levy against the properties of MCIAA, the latter was compelled to pay its tax account "under protest" and thereafter filed a Petition for Declaratory Relief with the RTC. It contended that the taxing powers of local government units do not extend to

the levy of taxes or fees of any kind on an instrumentality of the national government. Petitioner insisted that while it is indeed a a government-owned corporation, it nonetheless stands on the same footing as an agency or instrumentality of the national government by the very nature of its powers and functions. Respondent City, however, asserted that MACIAA is not an instrumentality of the government but merely a government-owned corporation performing proprietary functions As such, all exemptions previously granted to it were deemed withdrawn by operation of law. RTC dismissed the petition ruling that the tax exemption provided for in RA 6958 creating petitioner had been expressly repealed by the provisions of RA 7160 (New Local Government Code). MR was denied. Hence, petitioner filed a petition for review under Rule 45 of the ROC on a pure question of law. Petitioner claims the exemption provided under Sec. 14 of RA 6958 was not repealed because being an instrumentality of the National Government, Sec. 133 of the LGC prohibits local government units from imposing taxes, fees, or charges of any kind on it. Respondent City of Cebu points out that the petitioner is a government-owned corporation, and Section 234 thereof does not distinguish between government-owned corporation or government-owned or controlled corporations performing governmental and purely proprietary functions. ISSUE: WON the Respondent LGU (City of Cebu) has the power to levy real property tax from the petitioner MCIAA. RULING: YES. As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it.

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The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution. There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-impairment clause of the Constitution. Section 234 of LGC provides for the exemptions from payment of real property taxes and withdraws previous exemptions therefrom granted to natural and juridical persons, including government owned and controlled corporations, except as provided therein. These exemptions are based on the ownership, character, and use of the property. As a general rule, as laid down in Sec. 133 the taxing powers of LGUs cannot extend to the levy of "taxes, fees, and charges of any kind of the National Government, its agencies and instrumentalties, and local government units"; however, pursuant to Section 232, provinces, cities, municipalities in the Metropolitan Manila Area may impose the real property tax except on "real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial used thereof has been granted, for consideration or otherwise, to a taxable person", as provided in item (a) of the first paragraph of Section 234 As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including GOCCs, Sec. 193 of the LGC prescribes the general rule that they are withdrawn upon the

effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234, which enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the exemption in so far as the real property taxes are concerned by limiting the retention only to those enumerated there-in; all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as the real property is owned by the Republic of the Philippines, or any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to taxable person for consideration or otherwise.

The last paragraph of Sec. 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax granted it in Sec. 14 of its charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions provided in Sec. 234, but not under Sec. 133, as it now asserts, since, as shown above, the said section is qualified by Section 232 and 234. In short, the petitioner can no longer invoke the general rule in Section 133.

DISPOSITIVE: Respondent WON. Petition is DENIED.



CASE 2: PANTORGO COMMISSIONER OF INTERNAL REVENUE V. AZUCENA REYES DOCTRINE: Taxpayers shall be informed in writing of the law and the facts on which assessment is made, otherwise, the assessment shall be void. Although taxes are the lifeblood of the government, their assessment and collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. FACTS: 1. July 8, 1993- Maria Tancinco (decedent) died, leaving a 1, 292 sq. m. residential lot and an old house located at Dasma Village, Makati City. 2. Feb. 17, 1997- Certain Raymond Abad (from Revenue District Office) conducted an investigation on the decedents estate. 3. Feb 12, 1998- BIR issued a preliminary assessment notice against the estate in the amount of P14, 580, 618.67. Then on May 1998, the heirs received a final estate tax assessment notice and a demand letter for the amount of P14, 912, 205.47, inclusive of surcharge and interest which was dated April 22, 1998. 4. Nov. 1998- CIR issued a preliminary collection letter followed by a Final Notice Before Seizure then in 1999, Warrant of Distraint was served upon the estate followed by Notices of Levy on Real Property and Tax Lien against the estate. 5. Azucena Reyes (one of the heirs) protested the notice of levy. However, other heirs proposed a compromise settlement of P1M. So then Reyes proposed to pay 50% on the basic tax due, citing the heirs inability to pay tax assessment. However, CIR rejected the offer and demanded payment of P18,034,382.13. 6. Reyes again proposed to pay 100% basic tax due. However, as the estate failed to pay its tax liability within 2000 deadline, BIR notified Reyes that the property would be sold at public auction.

7. Reyes filed a protest with the BIR assailing the scheduled auction sale. She offered to file estate tax return and pay the correct amount of tax without interest. 8. Without acting on Reyes protest, CIR proceed with the auction sale. 9. Reyes filed a Petition for Review with Court of Tax Appeals (CTA). CTA ordered CIR to refrain from auction sale proceeding. 10. During the pendency of the Petition for Review with CTA, BIR issued Revenue regulation offering certain taxpayers with delinquent accounts and disputed assessments and opportunity to compromise tax liability. 11. Reyes filed Motion for Postponement before CTA citing her pending application for compromise with the BIR. Motion was granted. 12. CIR averred that an application for compromise of a tax liability requires the evaluation and approval of either National Evaluation Board (NEB) or Regional Evaluation Board (REB). 13. CTA= ordered Reyes to pay deficiency estate tax (P19M). CTA stated that at the time the assessment notice and demand letter were issued, the heirs knew very well the law and the facts on which the same were based. 14. CA= in favor of Reyes Hence, this petition. ISSUE: WON CIRs assessment against the estate is valid. RULING: NO. Assessment is not valid. Reyes has not been informed of the basis of the estate tax liability. The Court cannot approve an assessment based on estimates that appear to be arbitrary. Although taxes are the life-blood of the government, their assessment and collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. 1. Sec. 228 (2) Tax Code is clear and mandatory which provides that The taxpayers shall be informed in writing of the law and the

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facts on which the assessment is made: otherwise, the assessment shall be void. 2. Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon the former provisions (Sec. 229) prior to the amendment by RA 8424 (Tax Reform Act of 1997). 3. RA 8424 had already been amended the provisions of Sec. 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing the taxpayer of not only the law but also of the facts otherwise, the assessment would be invalid. 4. During the dates Feb 1998 (preliminary assessment notice was issued) and April 1998 (final estate tax assessment notice and demand letter was issued), RA 8424 was already in effect. Thus, the notice required under the old law was no longer sufficient under the new law. 5. CIR violated the cardinal rule in administrative law that the taxpayer be accorded due process. No valid notice was sent. To proceed with tax collection without first establishing a valid assessment is violative of the principle of admin investigation: taxpayers should be able to present their case and adduce supporting evidence. 6. Failure to comply with Sec. 228 does not only render the assessment void, but also finds no validation in any provision of Tax Code. DISPOSITIVE: Petition denied. CASE 3: KADJIM COMMISSIONER VS. ALGUE

FACTS: The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc. as its agent, authorizing it to sell its land, factories, and oil manufacturing process. The Vegetable Oil

Investment Corporation (VOICP) purchased PSEDC properties. For the sale, Algue received a commission of P125,000 and it was from this commission that it paid Guevara, et. al. organizers of the VOICP, P75,000 in promotional fees. In 1965, Algue received an assessment from the Commissioner of Internal Revenue in the amount of P83,183.85 as delinquency income tax for years 1958 amd 1959. Algue filed a protest or request for reconsideration which was not acted upon by the Bureau of Internal Revenue (BIR). The counsel for Algue had to accept the warrant of distrant and levy. Algue, however, filed a petition for review with the Coourt of Tax Appeals.

ISSUE: Whether the assessment was reasonable.

HELD: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Every person who is able to pay must contribute his share in the running of the government. The Government, for his 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 is an arbitrary method of exaction by those in the seat of power. Tax collection, however, should be made in accordance with law as any arbitrariness will negate the very reason for government itself. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate that the law has not been observed. Herein, the claimed deduction (pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation 2: as to compensation for personal services) had been legitimately by Algue Inc. It has further proven that the payment of fees was reasonable and necessary in light of the efforts exerted by the



payees in inducing investors (in VOICP) to involve themselves in an experimental enterprise or a business requiring millions of pesos. The assessment was not reasonable.

CASE 4: FILIO EMILIO Y. HILADO V. THE COLLECTOR OF INTERNAL REVENUE FACTS: Hilado filed his income tax return wherein he claimed the amount of P12,387.65 as a deductible item from his gross income pursuant to the Collector of Internal Revenues General Circular No. V-123, issued pursuant to certain rules laid down by the Secretary of Finance. Subsequently, the new Secretary of Finance, through the CIR, issued General Circular No. V-139 that revoked General Circular No. V-123. The new laid down the rule states that losses of property which occurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible for income tax purposes in the year of actual destruction of said property. As a consequence, the P12,387.65 was disallowed as a deduction from petitioners gross income for 1951 and the CIR demanded from him the payment of P3,546 as deficiency income tax for the year. The petitioner contented that he must be exempted of P3,546 as deficiency income tax for the year ISSUE:

1. Whether or not the internal revenue laws ceases during a conquest and colonization?

2. Whether or not the Secretary of Finance has an authority to revoke General Circular No. V-123 of his predecessor?

3. Whether or not the retroactive application of General Circular No. V-123 revoking General Circular No. V-139 impaired the vested rights of the taxpayer?

4. Whether or not the taxpayer is exempted from paying the P3,546 deficiency income tax?

HELD: 1. No, the internal revenue laws does not cease during a

conquest and colonization. 2. Yes, the Secretary of Finance has the authority to revoke

General Circular No. V-123 of his predecessor. 3. No, the retroactive application of General Circular No. V-

123 revoking General Circular No. V-139 does not impair the vested rights of the taxpayer.

4. No, the taxpayer is exempted from paying the P3,546 deficiency income tax.

RATIO: 1. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. Law once established continues until changed by some competent legislative power. It is not changed merely by change of sovereignty. Conquest or colonization is impotent to bring law to an end; inspite of change of constitution, the law continues unchanged until the new sovereign by legislative act creates a change. 2. The Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office because the construction of a statute by those administering it is not binding on their successors if

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thereafter the latter become satisfied that a different construction should be given. 3. Under Art. 2254 of the Civil Code,

No vested/acquired right can arise from acts/omissions which are against the law or which infringe upon the rights of others. General Circular No. V-123, having been issued on a wrong construction by the law, cannot give rise to a vested right that can be invoked by a taxpayer. A vested right cannot spring from a wrong interpretation. An administrative officer cannot change a law enacted by Congress. Once a regulation which merely interprets a statute is determined erroneous, it becomes a nullity. The Collector of Internal Revenues erroneous construction of the law does not preclude or stop the Government from collecting a tax legally due. 4. In the circumstance, the said amount would at most be a proper deduction from his 1950 gross income. Furthermore, the said amount cannot be considered as a business asset which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right, but it is dependent merely upon the generosity and magnanimity of the U. S. government. As the end of 1945, there was absolutely no law under which Petitioner could claim compensation for the destruction of his properties during the battle for the liberation of the Philippines. Under the Philippine Rehabilitation Act of 1946, the payments of claims by the War Damage Commission merely depended upon its discretion to be exercised in the manner it may see fit, but the non-payment of which cannot give rise to any enforceable right.

CASE 5: AGUILAR SISON v ANCHETA CASE 6: SEMILLA

CIR v. PINEDA DOCTRINE: The BIR should be given, in instances like the case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain availability is an imperious need. In this case the suit seeks to achieve only one objective: payment of the tax. The adjustment of the respective shares due to the heirs from the inheritance, as lessened by the tax, is left to await the suit for contribution by the heir from whom the Government recovered said tax. FACTS: 1. Atanasio Pineda died, survived by his wife, Felicisima Bagtas,

and 15 children, the eldest is Atty. Manuel B. Pineda. Estate proceedings were had in Court, so that the estate was divided among and awarded to the heirs. And the proceedings terminated on June 8, 1948. Manuel B. Pineda's share amounted to about P2,500.00.

2. After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed.

3. The representative of the Collector of Internal Revenue filed said returns for the estate on the basis of information and data obtained from the aforesaid estate proceedings and issued an assessment. Atty. Pineda appealed to the CTA and argued that he is liable "only that proportionate part or portion pertaining to him as one of the heirs."



4. CTA: rendered judgment reversing the decision of the Commissioner on the ground that his right to assess and collect the tax has prescribed.

5. Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the assessment for income tax for the year 1947 but held that the right to assess and collect the taxes for 1945 and 1946 has not prescribed.

6. Remanded the case to the Tax Court for further appropriate proceedings. CTA: rendered judgment holding Manuel B. Pineda liable for the payment corresponding to his share.

7. Commissioner of Internal Revenue appealed to the SC and proposed that Atty. Pineda be liable for the payment of all the taxes found by the Tax Court to be due from the estate.

ISSUE: WON the BIR can collect the full amount of estate taxes from an heir's inheritance? RULING: YES. The Government can require Atty. Pineda to pay the full amount of the taxes assessed. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is liable. By virtue of such lien, the Government has the right to subject the property in Pineda's possession to satisfy the income tax assessment. After such payment, Pineda will have a right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate. All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received; and second, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due. This second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary

discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain availability is an imperious need. Section 315 of the Tax Code: If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance company liable to pay the income tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippines from the time when the assessment was made by the Commissioner of Internal Revenue until paid with interest, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer: . . .

CASE 7: CADA THE PHILIPPINE GUARANTY CO v. THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS DOCTRINE: The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state.

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FACTS: The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts, on various dates, with foreign insurance companies not doing business in the Philippines. Philippine Guaranty Co., Inc., thereby agreed to cede to the foreign reinsurers a portion of the premiums on insurance in consideration for the assumption by the latter of liability on an equivalent portion of the risks insured. A proportionate amount of taxes on insurance premiums not recovered from the original assured were to be paid for by the foreign reinsurers. The foreign reinsurers further agreed, in consideration for managing or administering their affairs in the Philippines, to compensate the Philippine Guaranty Co., Inc., in an amount equal to 5% of the reinsurance premiums. Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are not subject to withholding tax. Its protest was denied and brought to the Court of Tax Appeals. The Court of Tax Appeals rendered judgment ordering Philippine Guaranty Co., Inc. to pay to the Commissioner of Internal Revenue the respective sums of P202,192.00 and P173,153.00 or the total sum of P375,345.00 as withholding income taxes for the years 1953 and 1954, plus the statutory delinquency penalties thereon. ISSUE: WON the reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax Code HELD: YES. The reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax Code. Sec. 54 (Tax Code). Payment of corporation income tax at source. In the case of foreign corporations subject to taxation under this Title not engaged in trade or business within the Philippines and

not having any office or place of business therein, there shall be deducted and withheld at the source in the same manner and upon the same items as is provided in Section fifty-three a tax equal to twenty-four per centum thereof, and such tax shall be returned and paid in the same manner and subject to the same conditions as provided in that section. The applicable portion of Section 53 provides: (b) Nonresident aliens. All persons, corporations and general copartnerships (compaias colectivas), in what ever capacity acting, including lessees or mortgagors of real or personal property, trustees acting in any trust capacity, executors, administrators, receivers, conservators, fiduciaries, employers, and all officers and employees of the Government of the Philippines having the control, receipt, custody, disposal, or payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensation, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income of any nonresident alien individual, not engaged in trade or business within the Philippines and not having any office or place of business therein, shall (except in the case provided for in subsection [a] of this section) deduct and withhold from such annual or periodical gains, profits, and income a tax equal to twelve per centum thereof: Provided That no deductions or withholding shall be required in the case of dividends paid by a foreign corporation unless (1) such corporation is engaged in trade or business within the Philippines or has an office or place of business therein, and (2) more than eighty-five per centum of the gross income of such corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence)was derived from sources within the Philippines as determined under the provisions of section thirty-seven: Provided, further, That the Collector of Internal Revenue may authorize such tax to be deducted and withheld from the interest



upon any securities the owners of which are not known to the withholding agent. DISPOSITIVE: CIR won. The above-quoted provisions allow no deduction from the income therein enumerated in determining the amount to be withheld. According, in computing the withholding tax due on the reinsurance premium in question, no deduction shall be recognized. JUDGMENT APPEALED FROM IS HEREBY AFFIRMED. CASE 8: PASCUAL COLLECTOR OF INTERNAL REVENUE VS. YUSECO DOCTRINE: Taxes being the chief source of revenue for the Government to keep it running must be paid immediately and without delay. FACTS: 1. Yuseco did not file income tax returns for the calendar years

1945 and 1946. 2. Upon coming to the knowledge of the same, the Collector of

Internal Revenue made income tax returns for Yuseco. 3. The Collector (hehe) assessed the same and demanded from

Yuseco the sums representing alleged income taxes and surcharges for the mentioned years.

4. Yuseco wrote the petitioner inquiring how the amounts were arrived at. The latter furnished him with the information sought, at the same time demanding the payment of the same.

5. Yuseco persistently asked for a reinvestigation, which was likewise denied by the petitioner, repeatedly demanding for the payment of the sums due.

6. 3 years later, the petitioner Collector issued a warrant of distraint and levy upon Yusecos properties. It was not executed. Yuseco sought the withdrawal of the warrant.

7. The petitioner again demanded for payment of the sums due plus penalties incident to the delinquency. Thereafter, no further action was taken to collect.

8. 2 years from the last issuance, the petitioner issued another warrant of distraint and levy on Yusecos properties, this time for the collection of income tax due for 1946.

9. With the distraint sill in force, Yuseco filed a petition for prohibition with the Court of Tax Appeals which granted his petition, enjoining the Collector of Internal Revenue from any further proceeding to effect by summary methods the collection of the alleged income taxes assessed against him.

ISSUE: WON it was proper for the Court of Tax Appeals to grant the petition to enjoin, the same being an independent special civil action, the petitioner from collecting income taxes due. RULING: NO. The jurisdiction of the CTA is limited to appeals from decisions or rulings of the Collector of Internal Revenue, Commissioner of Customs and Provincial or City Boards of Assessment Appeals in the proper cases. Discussion relevant to topic: Taxes being the chief source of revenue for the Government to keep it running must be paid immediately and without delay. A taxpayer who feels aggrieved by the decision or ruling handed down by a revenue officer and appeals from his decision or ruling to the Court of Tax Appeals must pay the tax assessed, except that, if in the opinion of the Court the collection would jeopardize the interest of the Government and/or the taxpayer, it could suspend the collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount of the tax assessed. LAW: No appeal taken to the [CTA] shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law;

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Provided, however, That when in the opinion of the Court the collection by the Bureau of Internal Revenue or the Commissioner of Customs may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. (Sec. 11, Republic No. 1125) DIPOSITIVE: Judgment under review is annulled and set aside. CASE 9: AGBISIT ROXAS V. CTA DOCTRINE: The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the hen that lays the golden egg. FACTS: Antonio, Eduardo, and Jose Roxas (petitioners) formed a partnership called Roxas y Compania to manage the properties they inherited from their grandparents, which included a 19,000 hectare agricultural land located in Nasugbu, Batangas. The tenants who have been tilling the said agricultural land expressed their desire to purchase parcels of land which they actually occupy. The Government, in consonance with the constitutional mandate to acquire big landed estates and apportion them among landless tenants-farmers, persuaded the Roxas brothers to sell the same. The Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual occupants. However, the Government did not have funds to cover the purchase price, and so a special arrangement was made wherein an amount of P1,500,000 was advanced to Roxas as a loan by the Rehabilitation Finance Corporation. Under the arrangement,

Roxas y Compania allowed the farmers to buy the lands for the same price but by instalment, and contracted to pay its loan from the proceeds of the yearly amortizations paid by the farmers. Roxas y Compania derived net gains from said instalment payments, 50% of which was reported for income tax. However, the CIR demanded from Roxas, the payment of deficiency income taxes resulting from the sale of the farmlands and considered the partnership as engaged in the business of real estate, hence, 100% of the profits derived therefrom was taxed. The brothers protested the assessment but the same was denied. On appeal the CTA sustained the assessment. ISSUE: Whether or not Roxas is liable for the payment of deficiency income for the sale of the farmlands? RULING: NO. Roxas y Compania cannot be considered a real estate dealer for the sale in question, although the farmers paid Roxas, on instalment basis, for the parcels of land. It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless. It was the bounden duty of the Government to pay the agreed compensation after it had persuaded Roxas to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. However, the Government could not comply with its duty for lack of funds. Obligingly. Roxas shouldered the Governments burden, went out of its way and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government done it itself. It does not conform with our sense of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call.



DISPOSITIVE: Roxas won. The amount of deficiency income tax they had to pay was reduced. CASE 10: GUEVARA, ARJUNA TAADA V ANGARA DOCTRINE: By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty. In some treaties, the Philippines has effectively agreed to limit the exercise of its sovereign powers of taxation, eminent domain and police power for the reciprocal commitment of the other contracting states in granting the same privilege and immunities to the Philippines, its officials and citizens. FACTS: This is a petition seeking to nullify the Philippine ratification of the World Trade Organization (WTO) Agreement. Petitioners question the concurrence of herein respondents acting in their capacities as Senators via signing the said agreement. The WTO opens access to foreign markets, especially its major trading partners, through the reduction of tariffs on its exports, particularly agricultural and industrial products. Thus, provides new opportunities for the service sector cost and uncertainty associated with exporting and more investment in the country. These are the predicted benefits as reflected in the agreement and as viewed by the signatory Senators, a free market espoused by WTO. Petitioners on the other hand viewed the WTO agreement as one that limits, restricts and impair Philippine economic sovereignty and legislative power. That the Filipino First policy of the Constitution was taken for granted as it gives foreign trading intervention. ISSUE: WON the provisions of the WTO Agreement and its annexes limit, restrict, or impair the exercise of legislative power by Congress.

RULING: NO. The Supreme Court ruled that while sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is however subject to restrictions and limitations voluntarily agreed to by the Philippines, expressly or impliedly, as a member of the family of nations. Unquestionably, the Constitution did not envision a hermit-type isolation of the country from the rest of the world. In its Declaration of Principles and State Policies, the Constitution adopts the generally accepted principles of international law as part of the law of the land, and adheres to the policy of peace, equality, justice, freedom, cooperation and amity, with all nations. By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty. By their voluntary act, nations may surrender some aspects of their state power in exchange for greater benefits granted by or derived from a convention or pact. A portion of sovereignty may be waived without violating the Constitution, based on the rationale that the Philippines adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of x x x cooperation and amity with all nations. CASE 11: REYES LTO v CITY OF BUTUAN

FACTS: Relying on the Constitution and Section 129 and Section 133of the Local Government code, the Sangguniang Panglungsod of Butuan Passed an Ordinance, which the ordinance provided for, among other things, the payment of franchise fees for the grant of the franchise of tricycles-for-hire, fees for the registration of the vehicle, and fees for the issuance of a permit for the driving thereof.

LTO explains that one of the functions of the national government that, indeed, has been transferred to local government units is the franchising authority over tricycles-for-hire of the Land

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Transportation Franchising and Regulatory Board ("LTFRB") but not, it asseverates, the authority of LTO to register all motor vehicles and to issue to qualified persons of licenses to drive such vehicles

The RTC ruled in favor of city of Butuan and issuing a permanent writ of injunction prohibiting LTO from registering tricycles and issuing licenses to tricycle drivers, the CA sustained the RTC

ISSUE: WON there is a difference between the inherent powers of the government

HELD: YES. The reliance made by respondents on the broad taxing power of local government units, specifically under Section 133 of the Local Government Code, is tangential. Police power and taxation, along with eminent domain, are inherent powers of sovereignty which the State might share with local government units by delegation given under a constitutional or a statutory fiat. All these inherent powers are for a public purpose and legislative in nature but the similarities just about end there. The basic aim of police power is public good and welfare.

Taxation, in its case, focuses on the power of government to raise revenue in order to support its existence and carry out its legitimate objectives. Although correlative to each other in many respects, the grant of one does not necessarily carry with it the grant of the other. The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their respective concepts, character, scopes and limitations.

To construe the tax provisions of Section 133(1) indistinctively would result in the repeal to that extent of LTO's regulatory power which evidently has not been intended. If it were otherwise, the

law could have just said so in Section 447 and 458 of Book III of the Local Government Code in the same manner that the specific devolution of LTFRB's power on franchising of tricycles has been provided. Repeal by implication is not favored.

The power over tricycles granted under Section 458(a)(3)(VI) of the Local Government Code to LGUs is the power to regulate their operation and to grant franchises for the operation thereof. The exclusionary clause contained in the tax provisions of Section 133(1) of the Local Government Code must not be held to have had the effect of withdrawing the express power of LTO to cause the registration of all motor vehicles and the issuance of licenses for the driving thereof. These functions of the LTO are essentially regulatory in nature, exercised pursuant to the police power of the State, whose basic objectives are to achieve road safety by insuring the road worthiness of these motor vehicles and the competence of drivers prescribed by R. A. 4136. Not insignificant is the rule that a statute must not be construed in isolation but must be taken in harmony with the extant body of laws

CASE 12: DACARA PHIL. MATCH CO. V. CEBU DOCTRINE: The taxing power of cities, municipalities and municipal districts may be used (1) "upon any person engaged in any occupation or business, or exercising any privilege" therein; (2) for services rendered by those political subdivisions or rendered in connection with any business, profession or occupation being conducted therein, and (3) to levy, for public purposes, just and uniform taxes, licenses or fees. FACTS: Ordinance No. 279 of Cebu provides that "an ordinance imposing a quarterly tax on gross sales or receipts of merchants,



dealers, importers and manufacturers of any commodity doing business" in Cebu City. It imposes a sales tax of one percent (1%) on the gross sales, receipts or value of commodities sold, bartered, exchanged or manufactured in the city in excess of P2,000 a quarter. Section 9 of the ordinance provides that, for purposes of the tax, "all deliveries of goods or commodities stored in the City of Cebu, or if not stored are sold" in that city, "shall be considered as sales" in the city and shall be taxable. Thus, it would seem that under the tax ordinance sales of matches consummated outside of the city are taxable as long as the matches sold are taken from the company's stock stored in Cebu City.

The Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in the manufacture of matches, questioned the legality of the tax collected by the City of Cebu on sales of matches stored by the company in Cebu City but delivered to customers outside the city.

The company in its letter to the city treasurer sought the refund of the sales tax paid for out-of-town deliveries of matches. However, the city treasurer denied the request. His stand is that under section 9 of the ordinance all out-of-town deliveries of latches stored in the city are subject to the sales tax imposed by the ordinance. The company filed a complaint for the refund of P12,844.61 as excess sales tax paid, and that the city treasurer be ordered to pay damages. TC: Sustained the tax on the sales of matches booked and paid for in Cebu City although the matches were shipped directly to customers outside of the city. The lower court held that the said

sales were consummated in Cebu City because delivery to the carrier in the city is deemed to be a delivery to the customers outside of the city. Trial court also ordered the defendants to refund to the plaintiff the sum of P8,923.55 as taxes paid out the said out-of-town deliveries with legal rate of interest from the respective dates of payment. ISSUE: WON the City of Cebu can tax sales of matches which were perfected and paid for in Cebu City but the matches were delivered to customers outside of the City. RULING: YES. The city can validly tax the sales of matches to customers outside of the city as long as the orders were booked and paid for in the company's branch office in the city. Those matches can be regarded as sold in the city, as contemplated in the ordinance, because the matches were delivered to the carrier in Cebu City. Generally, delivery to the carrier is delivery to the buyer. The taxing power validly delegated to cities and municipalities is defined in the Local Autonomy Act, Republic Act No. 2264, which took effect on June 19, 1959 and which provides: SEC. 2. Taxation. 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 licenses 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

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conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees. Further, the taxing power of cities, municipalities and municipal districts may be used (1) "upon any person engaged in any occupation or business, or exercising any privilege" therein; (2) for services rendered by those political subdivisions or rendered in connection with any business, profession or occupation being conducted therein, and (3) to levy, for public purposes, just and uniform taxes, licenses or fees. The sales in the instant case were in the city and the matches sold were stored in the city. The fact that the matches were delivered to customers, whose places of business were outside of the city, would not place those sales beyond the city's taxing power. Those sales formed part of the merchandising business being assigned on by the company in the city. In essence, they are the same as sales of matches fully consummated in the city. DISPOSITIVE: Trial Court affirmed. CASE 13: CARILLO MATALIN COCONUT V. MUNICIPAL COUNCIL OF MALABANG, LANAO DOCTRINE: Tax imposed and collected must at all times be for public purpose, just and uniform. It must not be excessive or confiscatory. Otherwise, it would be unconstitutional. FACTS: Municipal Council of Malabang, Lanao del Sur, invoking the authority of Section 2 the Local Autonomy Act, enacted Municipal Ordinance No. 45-46, entitled "AN ORDINANCE IMPOSING A POLICE INSPECTION FEE OF P.30 PER SACK OF CASSAVA STARCH PRODUCED AND SHIPPED OUT OF

THE MUNICIPALITY OF MALABANG AND IMPOSING PENALTIES FOR VIOLATIONS THEREOF." The ordinance made it unlawful for any person, company or group of persons "to ship out of the Municipality of Malabang, cassava starch or flour without paying to the Municipal Treasurer or his authorized representatives the corresponding fee fixed by (the) ordinance." It imposed a "police inspection fee" of P.30 per sack of cassava starch or flour, which shall be paid by the shipper before the same is transported or shipped outside the municipality. Any person or company or group of individuals violating the ordinance "is liable to a fine of not less than P100.00, but not more than P1,000.00, and to pay Pl.00 for every sack of flour being illegally shipped outside the municipality, or to suffer imprisonment of 20 days, or both, in the discretion of the court. This ordinance is now being questioned as unconstitutional. ISSUE: WON the Municipal Ordinance is unconstitutional. HELD: YES. The amount collected under the ordinance in question partakes of the nature of a tax, although denominated as "police inspection fee" since its undeniable purpose is to raise revenue. However, we cannot agree with the trial court's finding that the tax imposed by the ordinance is a percentage tax on sales which is beyond the scope of the municipality's authority to levy under Section 2 of the Local Autonomy Act. Under the said provision, municipalities and municipal districts are prohibited from imposing" any percentage tax on sales or other taxes in any form based thereon. " The tax imposed under the ordinance in question is not a percentage tax on sales or any other form of tax based on sales. It is a fixed tax of P.30 per bag of cassava starch or flour "shipped out" of the municipality. It is not based on sales. However, the tax imposed under the ordinance can be stricken down on another ground. According to Section 2 of the abovementioned Act, the tax levied must be "for public purposes, just and uniform". As correctly held by the trial court, the so-called "police inspection fee" levied by the ordinance is "unjust and



unreasonable." Said the court a quo: ...The Court finally finds the inspection fee of P0.30 per bag, imposed by the ordinance in question to be excessive and confiscatory. It has been shown by the petitioner, Matalin Coconut Company, Inc., that it is merely realizing a marginal average profit of P0.40, per bag, of cassava flour starch shipped out from the Municipality of Malabang because the average production is P15.60 per bag, including transportation costs, while the prevailing market price is P16.00 per bag. The further imposition, therefore, of the tax of P0.30 per bag, by the ordinance in question would force the petitioner to close or stop its cassava flour starch milling business considering that it is maintaining a big labor force in its operation, including a force of security guards to guard its properties. The ordinance, therefore, has an adverse effect on the economic growth of the Municipality of Malabang, in particular, and of the nation, in general, and is contrary to the economic policy of the government. DISPOSITIVE: Matalin Coconut won. CASE 14: MARASIGAN LUTZ V. ARANETA DOCTRINE: Taxation may be made the implement of the State's police power. FACTS: 1. The present case initiated in the CFI questioning the legality of

the imposition of taxes pursuant to C.A. No. 567 or the Sugar Adjustment Act. Said law was enacted "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" thru the Tydings-McDuffy Act.

2. In section 2 of Commonwealth Act 567, it provides for an increase of the existing tax on the manufacture of sugar, on a graduated basis, on each picul of sugar manufactured. On the other hand, section 3 thereof 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 another tax based on the rental and 12% of the assessed value of the land. Finally, Sec. 6 thereof provides for the objectives to which the collected tax would be applied (decrease in production cost, improvement of living conditions in sugar mills, establishment of sugar stations etc.).

3. Walter Lutz (plaintiff) in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the CIR the sum of P14,666.40 paid by the estate as taxes, for the crop years 1948-1949 and 1949-1950. He alleged 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 constitutionally levied. As the action was dismissed by the CFI, the plaintiffs appealed the case directly to the SC.

4. The basic defect of the plaintiffs position is his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power.

ISSUE: WON the tax provided for in Commonwealth Act No. 567 is a pure exercise of the power of taxation? RULING: NO. An analysis of the aforementioned act shows that the tax was levied with a regulatory purpose, which is to provide means for the rehabilitation and stabilization of the threatened sugar industry. It is primarily an exercise of the police power. The sugar industry is one of the primary sources of the states wealth as it generates foreign exchange, provides employment and currency stability. Its protection, promotion and advancement is therefore imperative. There is no question that the protection and

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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 promotion. In the case at bar, the legislative discretion must be allowed fully play, subject only to the test of reasonableness. The means provided in section 6 of the law is not questioned whether or not they 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 as a means to implement the state's police power. It is also 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." CASE 15: MOLON NATIONAL TELECOMMUNICATIONS COMMISSION, vs. HONORABLE COURT OF APPEALS and PHILIPPINE LONG DISTANCE TELEPHONE COMPANY DOCTRINE: It bears stressing that it is not the NTC that imposed such a fee. It is the legislature itself. Since Congress has the power to exercise the State inherent powers of Police Power, Eminent Domain and Taxation, the distinction between police power and the power to tax, which could be significant if the exercising authority were mere political subdivisions (since delegation by it to such political subdivisions of one power does not necessarily include the other), would not be of any moment when, as in the case under consideration, Congress itself exercises the power. All that is to be done would be to apply and enforce the law when sufficiently definitive and not constitutional infirm.

FACTS: At bar is a Petition for Review on Certiorari seeking to modify NTC Decision and tResolution of the Court of Appeals.

1988, the National Telecommunications Commission (NTC) served on the Philippine Long Distance Telephone Company (PLDT) assessment notices and demands for payment. In its two letter-protests dated February 23, 1988 and July 14, 1988, and position papers dated November 8, 1990 and March 12, 1991, respectively, the PLDT challenged the aforesaid assessments, theorizing: (a) The assessments were being made to raise revenues and not as mere reimbursements for actual regulatory expenses in violation of the doctrine in PLDT vs. PSC, 66 SCRA 341 [1975]; (b) The assessment under Section 40 (e) should only have been on the basis of the par values of private respondents outstanding capital stock; (c) Petitioner has no authority to compel private respondents payment of the assessed fees under Section 40 (f) for the increase of its authorized capital stock since petitioner did not render any supervisory or regulatory activity and incurred no expenses in relation thereto. On September 29, 1993, the NTC rendered a Decision denying the protest of PLDT and disposing thus: FOR ALL THE FOREGOING, finding PLDTs protest to be without merit, the Commission has no alternative but to uphold the law and DENIES the protest of PLDT. On October 22, 1993, PLDT interposed a Motion for Reconsideration which was denied by NTC in an Order issued on May 3, 1994.



Court of appeals- Modified decision of NTC The Commission is ordered to recompute its assessments and demands for payment from petitioner PLDT. On November 20, 1996, NTC moved for partial reconsideration of the above mentioned Decision, with respect to the basis of the assessment under Section 40(e), i.e., par value of the subscribed capital stock. CA denied Petitioners motion for reconsideration, hence this petition. ISSUE: WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPUTATION OF SUPERVISION AND REGULATION FEES UNDER SECTION 40 (F) OF THE PUBLIC SERVICE ACT SHOULD BE BASED ON THE PAR VALUE OF THE SUBSCRIBED CAPITAL STOCK. HELD: YES. simply put, the submission of NTC is that the fee under Section 40 (e) should be based on the market value of PLDTs outstanding capital stock inclusive of stock dividends and premium, and not on the par value of PLDTs capital stock excluding stock dividends and premium, as contended by PLDT. Clear is the ruling of this Court in the case of Philippine Long Distance Telephone Company vs. Public Service Commission, 66 SCRA 341, that the basis for computation of the fee to be charged by NTC on PLDT, is the capital stock subscribed or paid and not, alternatively, the property and equipment. The law in point is clear and categorical. There is no room for construction. It simply calls for application. To repeat, the fee in question is based on the capital stock subscribed or paid, nothing less nothing more.

It bears stressing that it is not the NTC that imposed such a fee. It is the legislature itself. Since Congress has the power to exercise the State inherent powers of Police Power, Eminent Domain and Taxation, the distinction between police power and the power to tax, which could be significant if the exercising authority were mere political subdivisions (since delegation by it to such political subdivisions of one power does not necessarily include the other), would not be of any moment when, as in the case under consideration, Congress itself exercises the power. All that is to be done would be to apply and enforce the law when sufficiently definitive and not constitutional infirm. The term capital and other terms used to describe the capital structure of a corporation are of universal acceptance, and their usages have long been established in jurisprudence. Briefly, capital refers to the value of the property or assets of a corporation. The capital subscribed is the total amount of the capital that persons (subscribers or shareholders) have agreed to take and pay for, which need not necessarily be, and can be more than, the par value of the shares. In fine, it is the amount that the corporation receives, inclusive of the premiums if any, in consideration of the original issuance of the shares. In the case of stock dividends, it is the amount that the corporation transfers from its surplus profit account to its capital account. It is the same amount that can loosely be termed as the trust fund of the corporation. The Trust Fund doctrine considers this subscribed capital as a trust fund for the payment of the debts of the corporation, to which the creditors may look for satisfaction. Until the liquidation of the corporation, no part of the subscribed capital may be returned or released to the stockholder (except in the redemption of

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redeemable shares) without violating this principle. Thus, dividends must never impair the subscribed capital; subscription commitments cannot be condoned or remitted; nor can the corporation buy its own shares using the subscribed capital as the consideration therefor. Dispositive portion: RTC and CA decision set aside and NTC to compute based on capital stock subscribed or paid and strictly in accordance with the foregoing disquisition and conclusion. CASE 16: VILLANUEVA MANILA MEMORIAL PARK, INC. VS SECRETARY OF THE DEPARTMENT OF SOCIAL WELFARE DOCTRINE: Tax measures are but "enforced contributions exacted on pain of penal sanctions" and "clearly imposed for a public purpose. In conclusion, we maintain that the correct rule in determining whether the subject regulatory measure has amounted to a "taking" under the power of eminent domain is the one laid down in Alalayan v. National Power Corporation and followed in Carlos Superdurg Corporation consistent with long standing principles in police power and eminent domain analysis. Thus, the deprivation or reduction of profits or income. Gross sales must be clearly shown to be unreasonable, oppressive or confiscatory. Under the specific circumstances of this case, such determination can only be made upon the presentation of competent proof which petitioners failed to do. A law, which has been in operation for many years and promotes the welfare of a group accorded special concern by the Constitution, cannot and should not be summarily invalidated on a mere allegation that it reduces the profits or income/gross sales of business establishments.

FACTS: Petitioners Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc., domestic corporations engaged in the business of providing funeral and burial services filed against public respondents Secretaries of the Department of Social Welfare and Development (DSWD) and the Department of Finance (DOF). On April 23, 1992, RA 7432 was passed into law, granting senior citizens certain privileges. The law pertaining to the case is presented below:

SECTION 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the following:

a) the grant of twenty percent (20%) discount from all establishments relative to utilization of transportation services, hotels and similar lodging establishment[s], restaurants and recreation centers and purchase of medicine anywhere in the country: Provided, That private establishments may claim the cost as tax credit;

b) a minimum of twenty percent (20%) discount on admission fees charged by theaters, cinema houses and concert halls, circuses, carnivals and other similar places of culture, leisure, and amusement;

c) exemption from the payment of individual income taxes: Provided, That their annual taxable income does not exceed the property level as determined by the National Economic and Development Authority (NEDA) for that year;

d) exemption from training fees for socioeconomic programs undertaken by the OSCA as part of its work;

e) free medical and dental services in government establishment[s] anywhere in the country, subject to guidelines to be issued by the Department of Health, the Government Service Insurance System and the Social Security System;



f) to the extent practicable and feasible, the continuance of the same benefits and privileges given by the Government Service Insurance System (GSIS), Social Security System (SSS) and PAG-IBIG, as the case may be, as are enjoyed by those in actual service.

On August 23, 1993, Revenue Regulations (RR) No. 02-94 was issued to implement RA 7432. Sections 2(i) and 4 of RR No. 02-94 provide:

Sec. 2. DEFINITIONS. For purposes of these regulations: i. Tax Credit refers to the amount representing the 20% discount granted to a qualified senior citizen by all establishments relative to their utilization of transportation services, hotels and similar lodging establishments, restaurants, drugstores, recreation centers, theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure and amusement, which discount shall be deducted by the said establishments from their gross income for income tax purposes and from their gross sales for value-added tax or other percentage tax purposes. x x x x Sec. 4. RECORDING/BOOKKEEPING REQUIREMENTS FOR PRIVATE ESTABLISHMENTS. Private establishments, i.e., transport services, hotels and similar lodging establishments, restaurants, recreation centers, drugstores, theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture[,] leisure and amusement, giving 20% discounts to qualified senior citizens are required to keep separate and accurate record[s] of sales made to senior citizens, which shall include the name, identification number, gross sales/receipts, discounts, dates of transactions and invoice number for every transaction. The amount of 20% discount shall be deducted from the gross income for income tax purposes and from gross sales of the business enterprise concerned for purposes of the VAT and other percentage taxes.

In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,5 the Court declared Sections 2(i) and 4 of RR No. 02-94 as erroneous because these contravene RA 7432,6 thus:

RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts they grant. In turn, the Implementing Rules and Regulations, issued pursuant thereto, provide the procedures for its availment. To deny such credit, despite the plain mandate of the law and the regulations carrying out that mandate, is indefensible. First, the definition given by petitioner is erroneous. It refers to tax credit as the amount representing the 20 percent discount that "shall be deducted by the said establishments from their gross income for income tax purposes and from their gross sales for value-added tax or other percentage tax purposes." In ordinary business language, the tax credit represents the amount of such discount. However, the manner by which the discount shall be credited against taxes has not been clarified by the revenue regulations. By ordinary acceptation, a discount is an "abatement or reduction made from the gross amount or value of anything." To be more precise, it is in business parlance "a deduction or lowering of an amount of money;" or "a reduction from the full amount or value of something, especially a price." In business there are many kinds of discount, the most common of which is that affecting the income statement or financial report upon which the income tax is based.

x x x x

Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount deductible from gross income for income tax purposes, or from gross sales for VAT or other percentage tax purposes. In effect, the tax credit benefit under RA 7432 is related to a sales discount. This contrived definition is improper, considering that the latter has to be deducted from gross sales in order to compute the gross income in the income statement and cannot be deducted again, even for purposes of

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computing the income tax. When the law says that the cost of the discount may be claimed as a tax credit, it means that the amount when claimed shall be treated as a reduction from any tax liability, plain and simple. The option to avail of the tax credit benefit depends upon the existence of a tax liability, but to limit the benefit to a sales discount which is not even identical to the discount privilege that is granted by law does not define it at all and serves no useful purpose. The definition must, therefore, be stricken down.

ISSUE: WON of Section 4 of Republic Act (RA) No. 7432,as amended by RA 9257, and the implementing rules and regulations issued by the DSWD and DOF insofar as these allow business establishments to claim the 20% discount given to senior citizens as a tax deduction is constitutional. RULING: YES. The 20% senior citizen discount has not been shown to be unreasonable, oppressive or confiscatory. On its face, we find that there are at least two conceivable bases to sustain the subject regulations validity absent clear and convincing proof that it is unreasonable, oppressive or confiscatory. Congress may have legitimately concluded that business establishments have the capacity to absorb a decrease in profits or income/gross sales due to the 20% discount without substantially affecting the reasonable rate of return on their investments considering (1) not all customers of a business establishment are senior citizens and (2) the level of its profit margins on goods and services offered to the general public. Concurrently, Congress may have, likewise, legitimately concluded that the establishments, which will be required to extend the 20% discount, have the capacity to revise their pricing strategy so that whatever reduction in profits or income/gross sales that they may sustain because of sales to senior citizens, can be recouped through higher mark-ups or from other products not subject of discounts. As a result, the discounts resulting from sales to senior citizens will not be confiscatory or unduly oppressive.

In turn, this affects the amount of profits or income/gross sales that a private establishment can derive from senior citizens. In other words, the subject regulation affects the pricing, and, hence, the profitability of a private establishment. However, it does not purport to appropriate or burden specific properties, used in the operation or conduct of the business of private establishments, for the use or benefit of the public, or senior citizens for that matter, but merely regulates the pricing of goods and services relative to, and the amount of profits or income/gross sales that such private establishments may derive from, senior citizens. The subject regulation may be said to be similar to, but with substantial distinctions from, price control or rate of return on investment control laws which are traditionally regarded as police power measures. These laws generally regulate public utilities or industries/enterprises imbued with public interest in order to protect consumers from exorbitant or unreasonable pricing as well as temper corporate greed by controlling the rate of return on investment of these corporations considering that they have a monopoly over the goods or services that they provide to the general public. The subject regulation differs therefrom in that (1) the discount does not prevent the establishments from adjusting the level of prices of their goods and services, and (2) the discount does not apply to all customers of a given establishment but only to the class of senior citizens. Nonetheless, to the degree material to the resolution of this case, the 20% discount may be properly viewed as belonging to the category of price regulatory measures which affect the profitability of establishments subjected thereto. On its face, therefore, the subject regulation is a police power measure. DISPOSITIVE: The Supreme Court dismissed the case and ruled in favour of the respondents. WHEREFORE, the Petition is hereby DISMISSED for lack of merit. The law is constitutional.



CASE 17: CACHAPERO CIR vs ALGUE and the CTA DOCTRINES: 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.

Symbiotic Relationship as the Rationale of Taxation: 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.

It is a requirement in all democratic regimes that TAXATION be exercised reasonably and in accordance with the prescribed procedure.

Parties: Petitioner - Commissioner on Internal Revenue Private Respondent Algue, Inc., a domestic corporation engaged in engineering, construction and other allied activities FACTS:Private respondent 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. On January 18, 1965, Algue filed a letter of protest or request

for reconsideration. 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. A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave to the BIR agent, who deferred service of the warrant of distraint.

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.

Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the CIR with the Court of Tax Appeals.

Procedural Issue: WON the appeal of the private respondent from the decision of the CIR was made on time and in accordance with law. HELD (Procedural Issue): YES. The above chronology shows that the petition was filed seasonably. According to RA 1125, the appeal may be made within 30 days after receipt of the decision or ruling challenged. It is true that as a rule the warrant of distraint and levy is "proof of

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the finality of the assessment" and renders hopeless a request for reconsideration," being "tantamount to an outright denial thereof and makes the said request deemed rejected." But there is a special circumstance in the case at bar that prevents application of this accepted doctrine. The proven fact is that 4 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 CTA correctly noted," 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. Substantive Issue

The petitioner CIR contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense.

CTA agreed with Algue and 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 but later conformed to the decision of the respondent court rejecting this assertion. 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. Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties. 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. 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. The CTA also found, after examining the evidence, that no distribution of dividends was involved. 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. 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. Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the close relationship among the persons in the family corporation. ISSUE: WON the CIR correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. HELD: NO. 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. 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 Sec 30 of the Tax Code and Revenue Regulations No. 2, Section 70 (1). 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.

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. Symbiotic Relationship as the Rationale of Taxation 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

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court in accordance with RA 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. CASE 18: CANALITA PHILIPPINE AIRLINES, INC. vs. ROMEO EDU AND UBALDO CARBONELL DOCTRINE: If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax FACTS: 1. The Philippine Airlines (PAL) is a domestic corporation and

engaged in the business of air transportation under a legislative franchise, Act. No.4271, as amended by RA Nos. 2360 and 2667. Under its franchise, PAL is exempt from the payment of taxes.According to an Opinion by the Secretary of Justice PAL has, since 1956, not been paying motor vehicle registration fees.

2. 1971- Appellee Land Transportation Commissioner Romeo Edu, issued a regulation requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees. Despite PALs protestations, Commissioner Edu refused to register appellants motor vehicles unless the amounts imposed were paid. PAL thus paid under protest.

3. After paying , PAL wrote a letter to Commissioner Edu asking for a refund of the amounts it paid , invoking the ruling in Calalang v. Lorenzo where it was held that motor vehuicle registration fees are in reality taxes from the payment of which PAL is exmpt by virtue of its legislative franchise.

4. Appelle Edu denied the request for refund, alleging the decision in Republic v. Philippine Rabbit Bus Lines, Inc. which states that motor vehicles registration fee is a regulatory exactions and not revenue measures and thus do not come within the exemption granted to PAL under its franchise.

5. PAL filed a complaint against Commissioner Edu and National Treasurer Ubaldo Carbonell before the CFI of Rizal.

6. TRIAL COURT: Dismissed PALs complaint, guided by the ruling in Republic v. Philippine Rabbit Bus Lines, Inc. which considered registration fees as regulatory fees imposed as an incident of police power, and not taxes. From this judgemnet, PAL appealed to the Court of Appeals which certified the case to the Supreme Court.

ISSUE: WON Motor Vehicle Registration Fees are considered taxes? RULING: YES. Motor Vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law. Today, the matter is governed by the Land Transportation Code. Section 73 of C.A.123 (which amended Sec.73 of Act 3992 and remained unrevised by RA Nos. 587 and 1603) states: Section 73. Disposal of moneys collected.Twenty per centum of the money collected under the provisions of this Act shall accrue to the road and bridge funds of the different provinces and chartered cities in proportion to the centum shall during the next previous year 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 provincial roads and bridges as well as the streets and bridges in the chartered cities to be alloted by the Secretary of Public Works and Communications for projects recommended by the Director 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 this Act shall be deposited in a special trust account in the National Treasury to constitute the Highway Special Fund, which shall be apportioned and expended in accordance with the provisions of the" Philippine Highway Act of 1935. "Provided, however, That the amount necessary to maintain and equip the Land Transportation Commission but not to exceed twenty 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 that the legislative intent in the abovementioned provisions, requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for operating expenses of the administering agency. The lower court was wrong in interpreting the case of Philippine Rabbit Bus. It presumed that the use of the term fees in the law is to be distinguished from other taxes. Fees may be properly regarded as taxes although they also serve as an instrument of regulation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle registration fees. It is clear that 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 the Land Transportation Code does the law 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 of chauffeur ..." making the intent to impose a tax more apparent. Even Rep. Act 5448 cited by the respondents, speak of an "additional" tax," where the aw could h

tax digests batch 1

Documents

national government

governmentowned corporation

cebu city

province of cebu

respondent city of cebu

treasurer of cebu

new local government

tax exemption privilege