tax rev cases

7/28/2019 Tax Rev Cases

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NATIONAL POWER CORPORATION vs. CITY

OF CABANATUAN

GR. No. 149110, April 9, 2003

Facts:

NAPOCOR, the petitioner, is a government-owed and controlled corporation created under

Commonwealth Act 120. It is tasked to

undertake the development of hydroelectric

generations of power and the production of

electricity from nuclear, geothermal, and other

sources, as well as, the transmission of electric

power on a nationwide basis.

For many years now, NAPOCOR sells electric

power to the resident Cabanatuan City, posting a

gross income of P107,814,187.96 in 1992.

Pursuant to Sec. 37 of Ordinance No. 165-92, the

respondent Cabanatuan City assessed the

petitioner a franchise tax amounting to

P808,606.41, representing 75% of 1% of

the formers gross receipts for the

preceding year.

Petitioner, whose capital stock was subscribed

and wholly paid by the Philippine Government,

refused to pay the tax assessment. It argued that

the respondent has no authority to impose tax

on government entities. Petitioner also contend

that as a non-profit organization, it is exempted

from the payment of all forms of taxes, charges,duties or fees in accordance with Sec. 13 of RA

6395, as amended.

The respondent filed a collection suit in the RTC

of Cabanatuan City, demanding that petitioner

pay the assessed tax, plus surcharge equivalent

to 25% of the amount of tax and 2% monthly

interest. Respondent alleged that petitioners

exemption from local taxes has been repealed by

Sec. 193 of RA 7160 (Local Government Code).

The trial court issued an order dismissing the

case. On appeal, the Court of Appeals reversed

the decision of the RTC and ordered thepetitioner to pay the city government the tax

assessment.

Issues:

(1) Is the NAPOCOR excluded from the coverage

of the franchise tax simply because its stocks are

wholly owned by the National Government and

its charter characterized is as a non-profit

organization?

(2) Is the NAPOCORs exemption from all forms

of taxes repealed by the provisions of the Local

Government Code (LGC)?

Held:

(1) NO. To stress, a franchise tax is

imposed based not on the ownership but

on the exercise by the corporation of a

privilege to do business. The taxable entity is

the corporation which exercises the franchise,

and not the individual stockholders. By virtue of

its charter, petitioner was created as a separate

and distinct entity from the National

Government. It can sue and be sued under its

own name, and can exercise all the powers of a

corporation under the Corporation Code.

To be sure, the ownership by the National

Government of its entire capital stock does not

necessarily imply that petitioner is not engaged

in business.

(2) YES. One of the most significant

provisions of the LGC is the removal of

the blanket exclusion of instrumentalities

and agencies of the National Government

from the coverage of local taxation.

Although as a general rule, LGUs cannot impose

taxes, fees, or charges of any kind on the

National Government, its agencies and

instrumentalities, this rule now admits an

exception, i.e. when specific provisions of the

LGC authorize the LGUs to impose taxes, fees, or

charges on the aforementioned entities. The

legislative purpose to withdraw tax privileges

enjoyed under existing laws or charter is clearly

manifested by the language used on Sec. 137

and 193 categorically withdrawing such

exemption subject only to the exceptionsenumerated. Since it would be tedious and

impractical to attempt to enumerate all the

existing statutes providing for special tax

exemptions or privileges, the LGC provided for

an express, albeit general, withdrawal of such

exemptions or privileges. No more unequivocal

language could have been used.


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Commissioner vs. AlgueGRL-28890, 17 February 1988

First Division, Cruz (J); 4 concur

DOCTRINE : 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 toactivate 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.

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 and 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.

PHIL. GUARANTY CO., INC. v. CIR

GR No. L-22074, April 30, 1965

13 SCRA 775

FACTS:

The petitioner Philippine Guaranty Co., Inc., a

domestic insurance company, entered into

reinsurance contracts with foreign insurance

companies not doing business in the country,

thereby ceding to foreign reinsurers a portion of the

premiums on insurance it has originally underwrittenin the Philippines. The premiums paid by such

companies were excluded by the petitioner from its

gross income when it file its income tax returns for

1953 and 1954. Furthermore, it did not withhold or

pay tax on them. Consequently, the CIR assessed

against the petitioner withholding taxes on the ceded

reinsurance premiums to which the latter protested

the assessment on the ground that the premiums

are not subject to tax for the premiums did not

constitute income from sources within the Philippines

because the foreign reinsurers did not engage in

business in the Philippines, and CIR's previous

rulings did not require insurance companies to

withhold income tax due from foreign companies.

ISSUE:

Are insurance companies not required to withhold

tax on reinsurance premiums ceded to foreign

insurance companies, which deprives the

government from collecting the tax due from them?


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HELD:

No. 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, publicimprovement 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.

The petitioner's defense of reliance of good faith on

rulings of the CIR requiring no withholding of tax due

on reinsurance premiums may free the taxpayer

from the payment of surcharges or penalties

imposed for failure to pay the corresponding

withholding tax, but it certainly would not exculpate

it from liability to pay such withholding tax. The

Government is not estopped from collecting taxes by

the mistakes or errors of its agents.

Diaz and Timbol vs. CIR

Facts:

Petitioners Diaz and Timbol filed a petition for

declaratory relief assailing the validity of the

imposition of VAT by BIR on the collections of the

tollway operators. They claim that VAT would result

in increased toll fees. That the Congress in enacting

the Tax Code, did intend to not include toll fees

within the meaning of sale of services that are

subject to VAT; that toll fee is a users tax, not a

sale of services; that to impose VAT on toll fees

would amount to a tax on public service. The OSG,

on the other hand, stated that the Tax Code imposes

VAT on all kinds of services of franchise grantees,

including tollway operations, except where the law

provides otherwise.

ISSUE:

ARE TOLLWAY OPERATORS COVERED BY VAT?

Ruling:

YES, BECAUSE THEY RENDER SERVICES FOR AFEE.

THEY ARE JUST LIKE LESSORS, WAREHOUSE

OPERATORS , AND OTHER GROUPS

EXPRESSLYMENTIONED IN THE LAW.

Issue:

Now, do tollway operators render services for a fee?

Presidential Decree (P.D.) 1112 or the Toll Operation

Decree establishes the legal basis for the servicesthat tollway operators render. Essentially, tollway

operators construct, maintain, and operate

expressways, also called tollways, at the operators

expense. Tollways serve as alternatives to regular

public highways that meander through populated

areas and branch out to local roads. Traffic in the

regular public highways is for this reason slow-

moving. In consideration for constructing tollways at

their expense, the operators are allowed to collect

government-approved fees from motorists using the

tollways until such operators could fully recover their

expenses and earn reasonable returns from their

investments. When a tollway operator takes a toll fee

from a motorist, the fee is in effect for the latters

use of the tollway facilities over which the operator

enjoys private proprietary rights[8][12] that its

contract and the law recognize. In this sense, the

tollway operator is no different from the following

service providers under Section108 who allow others

to use their properties or facilities for a fee:1.

Lessors of property, whether personal or real;2.

Warehousing service operators;3. Lessors or

distributors of cinematographic films;4. Proprietors,

operators or keepers of hotels, motels,resthouses,

pension houses, inns, resorts;5. Lending investors

(for use of money);6. Transportation contractors on

their transport of goods or cargoes, includingpersons who transport goods or cargoes for hire and

other domestic common carriers by land relative to

their transport of goods or cargoes; and7. Common

carriers by air and sea relative to their transport of

passengers, goods or cargoes from one place in the

Philippines to another place in the Philippines. It

does not help petitioners cause that Section 108

subjects to VAT all kinds of services rendered for a

fee regardless of whether or not the performance

thereof calls for the exercise or use of the physical or

mental faculties. This means that services to be

subject to VAT need not fall under the traditional

concept of services, the personal or professional

kinds that require the use of human knowledge andskills. XXXXXXXXXXXXXXXXX

ISSUE:

GOVERNMENT ARGUES THAT TOLL OPERATORSARE

FRANCHISEES AND THEREFORE

EXPRESSLYCOVERED BY VAT LAW. PETITIONERS


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ARGUE THATTHEY ARE NOT FRANCHISEES BECAUSE

THEY DO NOTHAVE LEGISLATIVE FRANCHISE. WHAT

IS CORRECT? Toll operators are francishees because

franchise cover sgovernment grants of a special right

to do an act or series of acts of public concern. The

construction, operation, and maintenance of toll

facilities on public improvements are activities of

public consequence that necessarily require a special

grant of authority from the state. Also, the VAT law

does not define franchisees as only those who have

legislative franchise. And not only do tollway

operators come under the broadterm all kinds of

services, they also come under the specific class

described in Section 108 as all other franchise

grantees who are subject to VAT, except those

under Section 119 of thisCode.

Tollway operators are franchise grantees and they do

not belong to exceptions (the low-income radio

and/or television broadcasting companies with gross

annual incomes of less than P10 million and gas and

water utilities) that Section119[9][13] spares from

the payment of VAT. The wordfranchise broadly

covers government grants of a special right to do an

act or series of acts of public concern. Petitioners,

of course contend that tollway operators

cannot be considered franchise grantees

under Section 108 since they do not hold

legislative franchises. But nothing in Section

108indicates that the franchise grantees it

speaks of are those who hold legislative

franchises. Petitioners give no reason, and the

Court cannot surmise any, for making a

distinction between franchises granted by

Congress and franchises granted by some othergovernment agency. The latter, properly

constituted, may grant franchises. Indeed, franchises

conferred or granted by local authorities, as agents

of the state, constitute as much a legislative

franchise as though the grant had been made by

Congress itself. The term franchise has been

broadly construed as referring, not only to

authorizations that Congress directly issues in the

form of a special law, but also to those granted by

administrative agencies to which the power to grant

franchises has been delegated by Congress.

Tollway operators are, owing to the nature and

object of their business, franchise grantees. Theconstruction, operation, andmaintenance of toll

facilities on public improvements areactivities of

public consequence that necessarily require a

specialgrant of authority from the state. Indeed,

Congress grantedspecial franchise for the operation

of tollways to the Philippine National Construction

Company, the former tollwayconcessionaire for the

North and South Luzon Expressways.Apart from

Congress, tollway franchises may also be granted

bythe TRB, pursuant to the exercise of its delegated

powers under P.D. 1112.[13][17] The franchise in

this case is evidenced by aToll Operation

Certificate.[14][18]XXXXXXXXXXXXXXXXXX

ISSUE:

PETITIONERS CONTEND THAT TOLL FEES AREOF

PUBLIC NATURE AND THEREFORE NOT SALE OF

SERVICES. IS THEIR CONTENTION CORRECT? No.

The law in the same manner includes electric

utilities, telephone, telegraph, and broadcasting

companies in its list of vat-covered businesses. Their

services are also of public nature. Petitioners

contend that the public nature of the services

rendered by tollway operators excludes such services

from the term sale of services under Section 108 of

the Code. But, again, nothing in Section 108

supports this contention. The reverse is true. In

specifically including by way of example

electric utilities, telephone, telegraph, and

broadcasting companies in its list of VAT-

covered businesses, Section 108 opens other

companies rendering public service for a fee to

the imposition of VAT.Businesses of a public

nature such as public utilities and thecollection

of tolls or charges for its use or service is a

franchise.XXXXXXXXXXXXXXXXX

ISSUE:

PETITIONERS ARGUE THAT THE STATEMENTSMADE

BY SOME LAWMAKERS DURING THE

THEDELIBERATIONS ON THE VAT LAW SHOW

INTENT TO EXEMPT TOLLWAY OPERATORS.

CAN THESTATEMENTS OF THESE LAWMAKERS

BECONSIDERED BINDING ON THE INTERPRETATION

OFVAT COVERAGE?

No. Statements made by individual members of

congress in the consideration of a bill do not

necessarily reflect the sense of that body and are,

consequently, not controlling in the interpretation of

law. The congressional will is ultimately determined

by the language of the law that the lawmakers voted

on. XXXXXXXXXXXXXXXX

ISSUE:

IS TOLL FEE A USERS TAX AND SO VAT ONTOLL FEE

WOULD BE TAX ON TAX? No. Toll fee is not a tax.

It is not collected by bir or by the govt. It does

not go to government coffers. It is not collected

for a public purpose.

ISSUE:


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BUT IN THE CASE OF MIAA VS. CA FEES PAIDTO

AIRPORTS WERE CONSIDERED TAX. DOES THE

CASEOF MIAA APPLY? No. The subject of the maiaa

case is terminal fee which goes tothe government.

Also the issue in the miaa case is whether

paranaque city can sell at auction property of the

national government. The discussion on the terminal

fee is just to emphasize the fact that the local

government cannot tax the national government.

Two. Petitioners argue that a toll fee is a users tax

and to impose VAT on toll fees is tantamount to

taxing a tax. Actually, petitioners base this argument

on the following discussion in Manila International

Airport Authority (MIAA) v.Court of Appeals: No one

can dispute that properties of public dominion

mentioned in Article 420 of the Civil Code, like

roads, canals, rivers, torrents, ports and bridges

constructed by the State, are owned by the State.

The term ports includes seaports and airports. The

MIAA Airport Lands and Buildings constitute a port

constructed by the State. Under Article 420 of theCivil Code, the MIAA Airport Lands and Buildings are

properties of public dominion and thus owned by the

State or the Republic of the Philippines.x x x The

operation by the government of a tollway does not

change the character of the road as one for public

use. Someone must pay for the maintenance of the

road, either the public indirectly through the taxes

they pay the government, or only those among the

public who actually use the road through the tollfees

they pay upon using the road. The tollway system is

even a more efficient and equitable manner of taxing

the public for the maintenance of public roads. The

charging of fees to the public does not determine the

character of the property whether it is for publicdominion or not. Article 420 of the Civil Code defines

property of public dominion as one intended for

public use. Even if the government collects toll fees,

the road is still intended for public use if anyone

can use the road under the same terms and

conditions as the rest of the public. The charging of

fees, the limitation on the kind of vehicles that can

use the road, the speed restrictions and other

conditions for the use of the road do not affect the

public character of the road. The terminal fees MIAA

charges to passengers, as well as the landing fees

MIAA charges to airlines, constitute the bulk of the

income that maintains the operations of MIAA. The

collection of such fees does not change the character

of MIAA as an airport for public use. Such fees are

often termed users tax. This means taxing those

among the public who actually use a public facility

instead of taxing all the public including those who

never use the particular public facility. A users tax is

more equitable a principle of taxation mandated in

the 1987 Constitution. Petitioners assume that what

the Court said above, equating terminal fees to a

users tax must also pertain to tollway fees. But

the main issue in the MIAA case was whether or not

Paraaque City could sell airport lands and buildings

under MIAA administration at public auction to

satisfy unpaid real estate taxes. Since local

governments have no power to tax the national

government, the Court held that the City could not

proceed with the auction sale. MIAA forms part of

the national government although not integrated in

the department framework. Thus, its airport lands

and buildings are properties of public dominion

beyond the commerce of man under Article420(1)

[21][25] of the Civil Code and could not be sold at

public auction. As can be seen, the discussion in the

MIAA case on toll roads and toll fees was made, not

to establish a rule that tollway fees are users tax,

but to make the point that airport lands and

buildings are properties of public dominion and that

the collection of terminal fees for their use does not

make them private properties. Tollway fees are

not taxes. Indeed, they are not assessed andcollected by the BIR and do not go to the

general coffers of the government. It would of

course be another matter if Congress enacts a

law imposing a users tax, collectible from

motorists, for the construction and

maintenance of certain roadways. The tax in

such a case goes directly to the government for the

replenishment of resources it spends for the

roadways. This is not the case here. What the

government seeks to tax here are fees collected

from tollways that are constructed, maintained, and

operated by private tollway operators at their own

expense under the build, operate, and transfer

scheme that the government has adopted forexpressways. Except for a fraction given to the

government, the toll fees essentially end up as

earnings of the tollway operators. In sum, fees paid

by the public to tollway operators for use of the

tollways, are not taxes in any sense. A tax is

imposed under the taxing power of the government

principally for the purpose of raising revenues to

fund public expenditures. Toll fees, on the other

hand, are collected by private tollway operators as

reimbursement for the costs and expenses incurred

in the construction, maintenance and operation of

the tollways, as well as to assure them a reasonable

margin of income. Although tollfees are charged for

the use of public facilities, therefore, they are not

government exactions that can be properly treated

as a tax. Taxes may be imposed only by the

government under its sovereign authority, toll fees

may be demanded by either the government or

private individuals or entities, as an attribute of

ownership. Parenthetically, VAT on tollway

operations cannot be deemed a tax on tax due to the

nature of VAT as an indirect tax. In indirect taxation,


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a distinction is made between the liability for the tax

and burden of the tax. The seller who is liable for the

VAT may shift or pass on the amount of VAT it paid

on goods, properties or services to the buyer. In

such a case, what is transferred is not the sellers

liability but merely the burden of the VAT.

Thus, the seller remains directly and legallyliable for payment of the VAT, but the buyer

bears its burden since the amount of VAT paid

by the former is added to the selling price.

Once shifted, the VAT ceases to be a tax[26]

[30] and simply becomes part of the cost that

the buyer must pay in order to purchase the

good, property or service. Consequently, VAT on

tollway operations is not really a tax on the tollway

user, but on the tollway operator. Under Section

105of the Code, [27][31] VAT is imposed on any

person who, in the course of trade or business,

sells or renders services for a fee. In other

words, the seller of services, who in this case is

the tollway operator, is the person liable for

VAT. The latter merely shifts the burden of VAT

to the tollway user as part of the toll fees. For

this reason, VAT on tollway operations cannot be a

tax on tax even if toll fees were deemed as a users

tax. VAT is assessed against the tollway operators

gross receipts and not necessarily on the toll fees.

Although the tollway operator may shift the VAT

burden to the tollway user, it will not make the latter

directlyliable for the VAT. The shifted VAT burden

simply becomes partof the toll fees that one has to

pay in order to use the tollways.[28]

[32]XXXXXXXXXXXXXXXX

ISSUE:

DOES PETITIONER TIMBOL HAVE APERSONALITY AS

PETITIONER? No. She will not be affected by the

reduction of profits. The right to recover investments

belong to the tollway investors.

VILLEGAS v. HIU CHIONG TSAI PAO HO

G.R. No. L-29646, November 10, 1978

FACTS:

On February 22, 1968, the Municipal Board of Manila

passed City Ordinance No. 6537. The said city

ordinance was also signed by then Manila Mayor

Antonio J. Villegas (Villegas).

Section 1 of the said city ordinance prohibits aliens

from being employed or to engage or participate in

any position or occupation or business enumerated

therein, whether permanent, temporary or casual,

without first securing an employment permit from

the Mayor of Manila and paying the permit fee of

P50.00 except persons employed in the diplomatic or

consular missions of foreign countries, or in the

technical assistance programs of both the Philippine

Government and any foreign government, and those

working in their respective households, and

members of religious orders or congregations, sect

or denomination, who are not paid monetarily or in

kind.

Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was

employed in Manila, filed a petition with the CFI of

Manila to declare City Ordinance No. 6537 as null

and void for being discriminatory and violative of the

rule of the uniformity in taxation.

The trial court declared City Ordinance No. 6537 null

and void. Villegas filed the present petition.

ISSUE:

Whether or not City Ordinance No. 6537 is a

tax or revenue measure.

RULING:

Yes. The contention that City Ordinance No. 6537 is

not a purely tax or revenue measure because its

principal purpose is regulatory in nature has no

merit. While it is true that the first part which

requires that the alien shall secure an employment

permit from the Mayor involves the exercise of

discretion and judgment in the processing and

approval or disapproval of applications for

employment permits and therefore is regulatory in

character the second part which requires the

payment of P50.00 as employee's fee is not

regulatory but a revenue measure. There is no logic

or justification in exacting P50.00 from aliens who

have been cleared for employment. It is obvious that

the purpose of the ordinance is to raise money under

the guise of regulation.

The ordinances purpose is clearly to raise

money under the guise of regulation by exacting P50

from aliens who have been cleared for employment.

The amount is unreasonable and excessive

because it fails to consider difference in

situation among aliens required to pay it, i.e.

being casual, permanent, part-time, rankand-

file or executive. The Ordinance was declared

invalid as it is arbitrary, oppressive and

unreasonable, being applied only to aliens who are

thus deprived of their rights to life, liberty and

property and therefore violates the due process and

equal protection clauses of the Constitution. Further,


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the ordinance does not lay down any criterion or

standard to guide the Mayor in the exercise of his

discretion, thus conferring upon the mayor arbitrary

and unrestricted powers. ]

Apostolic Prefect of Mountain Province vs. City

Treasurer of Baguio City

GR 47252, 18 April 1941

En Banc, Imperial (J): 4 concur

Facts:

The Apostolic Prefect is a corporation sole, of

religious character, organized under the Philippine

laws, and with residence in Baguio, The City imposed

a special assessment against properties within its

territorial jurisdiction, including those of the

Apostolic Prefect, which benefits from its drainage

and sewerage system.

The Apostolic Prefect contends that its properties

should be free of tax.

Issue:

Whether the Apostolic Prefect, as a religious entity,

is exempt from the payment of the special

assessment.

Held:

In its broad meaning, tax includes both general

taxes and special assessment. Yet actually, there

is a recognized distinction between them inthat assessment is confined to local impositions

upon property for the payment of the cost of

public improvements in its immediate vicinity

and levied with reference to special benefits to

the property assessed. A special assessment is

not, strictly speaking, a tax; and neither the decree

nor the Constitution exempt the Apostolic Prefect

from payment of said special assessment.

Furthermore, arguendo that exemption may

encompass such assessment, the Apostolic Prefect

cannot claim exemption as it has not proven the

property in question is used exclusively for religious

purposes; but that it appears that the same is being

used to other non-religious purposes. Thus, the

Apostolic Prefect is required to pay the special

assessment.

Republic v. Mambulao lumberGR L-17725

28 February 1962

FACTS:

Mambulao Lumber Company paid the Government a

total of P9,127.50 as reforestation charges. Having

found liable for an aggregate amount of P4,802.37

for forest charges, it contended that since the

Republic (Government) has not made use of the

reforestation charges for reforesting the denuded

area of the land covered by the companys license,

the Republic should refund said amount or, if it

cannot be refunded, at least the company should be

compensated with what it owed the Republic for

reforestation charges.

ISSUE:

Whether taxes may be subject of set-off or

compensation.

HELD:

Internal revenue taxes, such as forest charges,cannot be the subject of set-off or compensation. A

claim for taxes is not such a debt, demand, contract

or judgment as is allowed to be set-off under the

statutes of set-off, which are construed uniformly, in

the light of public policy, to exclude the remedy in an

action or any indebtedness of the State or

municipality to one who is liable to the State or

municipality for taxes. Neither are they subject of

recoupment since they do not arise out of the

contract or transaction sued on.

Taxes are not in the nature of contracts between the

parties but grow out of a duty to, and are the

positive acts of the government, to the making and

enforcing of which, the personal consent of individual

taxpayers is not required.

Domingo vs Garlitos

GR L-18993

29 June 1963

FACTS:

In Domingo vs. Moscoso (106 PHIL 1138), theSupreme Court declared as final and executory the

order of the Court of First Instance of Leyte for the

payment of estate and inheritance taxes, charges

and penalties amounting to P40,058.55 by the Estate

of the late Walter Scott Price. The petition for

execution filed by the fiscal, however, was denied by

the lower court. The Court held that the execution is

unjustified as the Government itself is indebted to

the Estate for 262,200; and ordered the amount of


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inheritance taxes be deducted from the

Governments indebtedness to the Estate.

ISSUE:

Whether a tax and a debt may be compensated.

HELD:

The court having jurisdiction of the Estate had found

that the claim of the Estate against the Government

has been recognized and an amount of P262,200 has

already been appropriated by a corresponding law

(RA 2700). Under the circumstances, both the claim

of the Government for inheritance taxes and the

claim of the intestate for services rendered have

already become overdue and demandable as well as

fully liquidated. Compensation, therefore, takes place

by operation of law, in accordance with Article 1279

and 1290 of the Civil Code, and both debts are

extinguished to the concurrent amount.

Held:

It is proper. Compensation/set-off of taxes may

happen by operation of law when both debts are due

and demandable.

1. The ordinary procedure to settle claims before an

estate is not a petition for execution, but by

presenting a claim before the probate court.a.

Aldamiz vs. Judge of CFI Mindoro- Execution may

issue only where the devisees, legatees or heirs have

entered into possession of their respective portions

in the estate prior to settlement and payment of the

debts and expenses of administration and it is later

ascertained that there are such debts and expenses

to be paid, in which case "the court having

jurisdiction of the estate may, by order for that

purpose, after hearing, settle the amount of their

several liabilities, and order how much and in what

manner each person shall contribute, and may issue

execution if circumstances require" (Rule 89, section

6; see also Rule 74, Section 4; Emphasis

supplied.)b. Legal basis is the fact that the properties

belonging to the state are under custodia legis,

which continues until said properties have been

distributed amongthe heirs.2. Court having

jurisdiction also found that the claim of the estate

has been recognized by

the govt and has already appropriated the

corresponding amount.

3.

Claim of the Govt

for inheritance taxes against the estate is due and

demandable. The claim of the estate against the

Govt is also due, demandable and is fully l iquidated.

Compensation, therefore, takes place by operation of

law, in accordance with the provisions of Articles

1279 and 1290 of the Civil Code, and both debts are

extinguished to the concurrent amount.

Pascual vs. Sec of Public works

FACTS:

On August 31, 1954, petitioner Wenceslao Pascual,

as Provincial Governor of Rizal, instituted this action

for declaratory relief, with injunction, upon the

ground that Republic Act No. 920, entitled "An Act

Appropriating Funds for Public Works", approved on

June 20, 1953, an item of P85,000.00, "for the

construction, reconstruction, repair, extension and

improvement" of "Pasig feeder road terminals"; that,at the time of the passage and approval of said Act,

the aforementioned feeder roads were "nothing but

projected and planned subdivision roads, not yet

constructed, within the Antonio Subdivision situated

at Pasig, Rizal" which projected feeder roads "do not

connect any government property or any important

premises to the main highway"; that the

aforementioned Antonio Subdivision were private

properties of respondent Jose C. Zulueta, who, at the

time of the passage and approval of said Act, was a

member of the Senate of the Philippines; that on

May 29, 1953, respondent Zulueta, addressed a

letter to the Municipal Council of Pasig, Rizal, offering

to donate said projected feeder roads to the

municipality of Pasig, Rizal; that, on June 13, 1953,

the offer was accepted by the council, subject to the

condition "that the donor would submit a plan of the

said roads and agree to change the names of two of

them"; that no deed of donation in favor of the

municipality of Pasig was, however, executed; that

on July 10, 1953, respondent Zulueta wrote another

letter to said council, calling attention to the

approval of Republic Act No. 920, and the sum of

P85,000.00 appropriated therein for the construction

of the projected feeder roads in question; that the

municipal council of Pasig endorsed said letter of

respondent Zulueta to the District Engineer of Rizal,who, up to the present "has not made any

endorsement thereon"; that inasmuch as the

projected feeder roads in question were private

property at the time of the passage and approval of

Republic Act No. 920, the appropriation of

P85,000.00 therein made, for the construction,

reconstruction, repair, extension and improvement of

said projected feeder roads, was "illegal and,

therefore, void ab initio"; that said appropriation of


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P85,000.00 was made by Congress because its

members were made to believe that the projected

feeder roads in question were "public roads and not

private streets of a private subdivision'"; that, "in

order to give a semblance of legality, when there is

absolutely none, to the aforementioned

appropriation", respondent Zulueta executed, on

December 12, 1953, while he was a member of the

Senate of the Philippines, an alleged deed of

donationcopy of which is annexed to the petition

of the four (4) parcels of land constituting said

projected feeder roads, in favor of the Government

of the Republic of the Philippines; that said alleged

deed of donation was, on the same date, accepted

by the then Executive Secretary; that being subject

to an onerous condition, said donation partook of the

nature of a contract; that, as such, said donation

violated the provision of our fundamental law

prohibiting members of Congress from being directly

or indirectly financially interested in any contract

with the Government, and, hence, isunconstitutional, as well as null and void ab initio, for

the construction of the projected feeder roads in

question with public funds would greatly enhance or

increase the value of the aforementioned subdivision

of respondent Zulueta, "aside from relieving him

from the burden of constructing his subdivision

streets or roads at his own expense"; that the

construction of said projected feeder roads was then

being undertaken by the Bureau of Public Highways;

and that, unless restrained by the court, the

respondents would continue to execute, comply with,

follow and implement the aforementioned illegal

provision of law, "to the irreparable damage,

detriment and prejudice not only to the petitionerbut to the Filipino nation."

ISSUE:

Whether or not the statute is unconstitutional and

void?

HELD:

"It is a general rule that the legislature is without

power to appropriate public revenue for anything but

a public purpose. * * * It is the essential character

of the direct object of the expenditure which must

determine its validity as justifying a tax, and not themagnitude of the interests to be affected nor the

degree to which the general advantage of the

community, and thus the public welfare, may be

ultimately benefited by their promotion. Incidental

advantage to the public or to the state, which results

from the promotion of private interests and the

prosperity of private enterprises or business, does

not justify their aid by the use of public money." (25

R.L.C. pp. 398-400; Italics supplied.)

The rule is set forth in Corpus Juris Secundum in the

following language:

"In accordance with the rule that the taxing power

must be exercised for public purposes only, money

raised by taxation can be expended only for public

purposes and not for the advantage of private

individuals."

Explaining the reason underlying said rule, Corpus

Juris Secundum states:

"Generally, under the express or implied provisions

of the constitution, public funds may be used only for

a public purpose. The right of the legislature to

appropriate funds is correlative with its right to tax,

and, under constitutional provisions against taxation

except for public purposes and prohibiting the

collection of a tax for one purpose and the devotion

thereof to another purpose, no appropriation of state

funds can be made for other than a public purpose. *

* *

"The test of the constitutionality of a statute

requiring the use of public funds is whether the

statute is designed to promote the public interests,

as opposed to the furtherance of the advantage of

individuals, although each advantage to individuals

might incidentally serve the public. * * * ." (81

C.J.S. p. 1147; italics supplied.)

The validity of a statute depends upon the powers of

Congress at the time of its passage or approval, not

upon events occurring, or acts performed,

subsequently thereto. Referring to the P85,000.00

appropriation for the projected feeder roads in

question, the legality thereof depended upon

whether said roads were public or private property

when the bill, which, later on, became Republic Act

No. 920, was passed by Congress, or, when said bill

was approved by the President and the disbursement

of said sum became effective, or on June 20, 1953.

Inasmuch as the land on which the projected feeder

roads were to be constructed belonged then to

respondent Zulueta, the result is that said

appropriation sought a private purpose, and, hence,

was null and void.4 The donation to the Government,

over five (5) months after the approval and

effectivity of said Act, made, according to thepetition, for the purpose of giving a "semblance of

legality", or legalizing, the appropriation in question,

did not cure its aforementioned basic defect.

Consequently, a judicial nullification of said donation

need not precede the declaration of

unconstitutionality of said appropriation.


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Lutz vs. Araneta

Facts: Walter Lutz, as the Judicial Administrator of

the Intestate Estate of Antonio Jayme Ledesma,

seeks to recover from J. Antonio Araneta, the

Collector of Internal Revenue, the sum of money

paid by the estate as taxes, pursuant to the Sugar

Adjustment Act. Under Section 3 of said Act, taxesare levied on the owners or persons in control of the

lands devoted to the cultivation of sugar cane.

Furthermore, Section 6 states all the collections

made under said Act shall be for aid and support of

the sugar industry exclusively. Lutz contends that

such purpose is not a matter of public concern hence

making the tax levied for that cause unconstitutional

and void. The Court of First Instance dismissed his

petition, thus this appeal before the Supreme Court.

Issue:

Whether or Not the tax levied under the Sugar

Adjustment Act ( Commonwealth Act 567) is

unconstitutional.

Held:

The tax levied under the Sugar Adjustment Act

is constitutional. The tax under said Act is levied

with a regulatory purpose, to provide means for the

rehabilitation and stabilization of the threatened

sugar industry. Since sugar production is one of the

great industries of our nation, its promotion,

protection, and advancement, therefore redounds

greatly to the general welfare. Hence, said objectives

of the Act is a public concern and is therefore

constitutional. It follows that the Legislature may

determine within reasonable bounds what is

necessary for its protection and expedient for its

promotion. If objectives and methods are alike

constitutionally valid, no reason is seen why the

state may not levy taxes to raise funds for their

prosecution and attainment. Taxation may be made

with the implement of the states police power. In

addition, it is only rational that the taxes be obtained

from those that will directly benefit from it.

Therefore, the tax levied under the Sugar

Adjustment Act is held to be constitutional.

ABAKADA Guro Party List vs.Ermita

G.R. No. 168056 September 1,2005

FACTS:

Before R.A. No. 9337 took effect, petitioners

ABAKADA GURO Party List, et al., filed a petition for

prohibition on May 27, 2005 questioning the

constitutionality of Sections 4, 5 and 6 of R.A. No.

9337, amending Sections 106, 107 and 108,

respectively, of the National Internal Revenue Code

(NIRC). Section 4 imposes a 10% VAT on sale of

goods and properties, Section 5 imposes a 10% VAT

on importation of goods, and Section 6 imposes a

10% VAT on sale of services and use or lease of

properties. These questioned provisions contain a

uniformp ro v is o authorizing the President, upon

recommendation of the Secretary of Finance, to raise

the VAT rate to 12%, effective January 1, 2006, after

specified conditions have been satisfied. Petitioners

argue that the law is unconstitutional.

ISSUES:

1. Whether or not there is a violation of Article VI,

Section 24 of the Constitution.

2. Whether or not there is undue delegation of

legislative power in violation of Article VI Sec 28(2)

of the Constitution.

3. Whether or not there is a violation of the due

process and equal protection under Article III Sec. 1

of the Constitution.

RULING:

1. Since there is no question that the revenue bill

exclusively originated in the House of

Representatives, the Senate was acting within its

constitutional power to introduce amendments to the

House bill when it included provisions in Senate Bill

No. 1950 amending corporate income taxes,

percentage, and excise and franchise taxes.

2. There is no undue delegation of legislative power

but only of the discretion as to the execution of a

law. This is constitutionally permissible. Congress

does not abdicate its functions or unduly delegate

power when it describes what job must be done, who

must do it, and what is the scope of his authority; in

our complex economy that is frequently the only way

in which the legislative process can go forward.

3. The power of the State to make reasonable and

natural classifications for the purposes of taxation

has long been established. Whether it relates to the

subject of taxation, the kind of property, the rates to

be levied, or the amounts to be raised, the methods

of assessment, valuation and collection, the States


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power is entitled to presumption of validity. As a

rule, the judiciary will not interfere with such power

absent a clear showing of unreasonableness,

discrimination, or arbitrariness.

Pepsi cola vs. City of Butuan

Facts:

Ordinance 110 was enacted by the City of Butuan

imposing a tax of P0.10 per case of 24 bottles of

softdrinks or carbonated drinks. The tax was

imposed upon dealers engeged in selling softdrinks

or carbonated drinks. When Ordinance 110, the tax

was imposed upon an agent or consignee of any

person, association, partnership, company or

corporation engaged in selling softdrinks or

carbonated drinks, with agent or consignee being

particularly defined on the inserted provision Section

3-A. In effect, merchants engaged in the sale ofsoftdrinks, etc. are not subject to the tax unless they

are agents or consignees of another dealer who must

be one engaged in business outside the City. Pepsi-

Cola Bottling Co. filed suit to recover sums paid by it

to the city pursuant to the Ordinance, which it claims

to be null and void.

Issue: Whether the Ordinance is discriminatory.

Held: The Ordinance, as amended, is discriminatory

since only sales by agents or consignees of outside

dealers would be subject to the tax. Sales by local

dealers, not acting for or on behalf of other

merchants, regardless of the volume of their sales ,

and even if the same exceeded those made by said

agents or consignees of producers or merchants

established outside the city, would be exempt from

the tax. The classification made in the exercise of the

authority to tax, to be valid must be reasonable,

which would be satisfied if the classification is based

upon substantial distinctions which makes real

differences; these are germane to the purpose of

legislation or ordinance; the classification applies

not only to present conditions but also to future

conditions substantially identical to those of the

present; and the classification applies equally to

all those who belong to the same class. Theseconditions are not fully met by the ordinance in

question.

PROVINCE OF ABRA vs. HONORABLE HAROLD M.

HERNANDO

G.R. No. L-49336. August 31, 1981.

FACTS:

The Provincial Assessor of Abra levied a tax

assessment on the properties of respondent Roman

Catholic Bishop of Bangued. An action for declaratory

relief by private respondent Roman Catholic Bishop

of Bangued desirous of being exempted from a real

estate tax followed by a summary judgment grantingsuch exemption, without even hearing the side of

petitioner.

In the rather vigorous language of the

Acting Provincial Fiscal, as counsel for petitioner,

respondent Judge "virtually ignored the pertinent

provisions of the Rules of Court; . . . wantonly

violated the rights of petitioner to due process, by

giving due course to the petition of private

respondent for declaratory relief, and thereafter

without allowing petitioner to answer and without

any hearing, adjudged the case; all in total disregard

of basic laws of procedure and basic provisions of

due process in the constitution, thereby indicating a

failure to grasp and understand the law, which goes

into the competence of the Honorable Presiding

Judge." The latter filed a petition for declaratory

relief on the ground that it is exempted from

payment of real estate taxes, its properties being

actually, directly and exclusively used for religious or

charitable purposes as sources of support for the

bishop, the parish priest and his helpers. Petitioner

filed a motion to dismiss but the same was denied.

After conducting a summary hearing, respondent

Judge granted the exemption without hearing the

side of petitioner. Hence, this present petition for

certiorari and mandamus alleging denial ofprocedural due process.

ISSUE:

Whether the present requirement of actual exclusive

and direct use of property for charitable and religious

purposes is material.

HELD:

Under Article VI, Section 22, paragraph 3 of the

1935 Constitution: "Cemeteries, churches, and

parsonages or convents appurtenant thereto, and all

lands, building, and improvements used exclusivelyfor religious, charitable, or educational purposes

shall be exempt from taxation." The present

Constitution (Article VIII, Section 17, paragraph 3)

added "charitable institutions, mosques, and non-

profit cemeteries" and required that for the

exemption of "lands, buildings, and improvements,"

they should not only be "exclusively" but also

"actually" and "directly" used for religious or

charitable purposes. The Constitution is worded


12/14

differently. The change should not be ignored. It

must be duly taken into consideration. Petitioner

Province of Abra is therefore fully justified in

invoking the protection of procedural due process. If

there is any case where proof is necessary to

demonstrate that there is compliance with the

constitutional provision that allows an exemption,

this is it. Instead, respondent Judge accepted at its

face the allegation of private respondent. All that

was alleged in the petition for declaratory relief filed

by private respondents, after mentioning certain

parcels of land owned by it, are that they are used

"actually, directly and exclusively" as sources of

support of the parish priest and his helpers and also

of private respondent Bishop. In the motion to

dismiss filed on behalf of petitioner Province of Abra,

the objection was based primarily on the lack of

jurisdiction, as the validity of a tax assessment may

be questioned before the Local Board of Assessment

Appeals and not with a court. There was also

mention of a lack of a cause of action, but onlybecause, in its view, declaratory relief is not proper,

as there had been breach or violation of the right of

government to assess and collect taxes on such

property. It clearly appears, therefore, that in failing

to accord a hearing to petitioner Province of Abra

and deciding the case immediately in favor of private

respondent, respondent Judge failed to abide by the

constitutional command of procedural due process.

Victorias Milling Co. vs. Municipality of Victorias

GR L-21183, 27 September 1968

En Banc, Sanchez (J): 9 concur

Facts:

Ordinance 1 (1956) was approved by the municipal

council of Victorias by way of an amendment to 2

municipal ordinances separately imposing license

taxes on operators of sugar centrals and sugar

refineries.

The changes were: (1) with respect to sugar

centrals, by increasing the rates of license

taxes; and (2) as to sugar refineries, by

increasing the rates of license taxes as well as

the range of graduated schedule of annualoutput capacity. Victorias Milling questioned the

validity of Ordinance 1 as it, among others, allegedly

singled out Victorias Milling Co. since it is the only

operator of a sugar central and a sugar refinery

within the jurisdiction of the municipality.

Issue:

Whether Ordinance 1 is discriminatory.

Held:

The ordinance does not single out Victorias as

the only object of the ordinance but is made to

apply to any sugar central or sugar refinery

which may happen to operate in the

municipality.

The fact that Victorias Milling is actually the sole

operator of a sugar central and a sugar refinery does

not make the ordinance discriminatory. The

ordinance is unlike that in Ormoc Sugar Company vs.

Municipal Board of Ormoc City, which specifically

spelled out Ormoc Sugar as the subject of the

taxation, the name of the company herein was never

mentioned in the ordinance.

Shell Co. vs. Vano

GR L-6093, 24 February 1954

En Banc, Padilla (J): 10 concur

Facts:

The municipal council of Cordova, Cebu adopted

Ordinance 10 (1946) imposing an annual tax of P150

on occupation or the exercise of the privilege of

installation manager; Ordinance 9 (1947) imposing

an annual tax of P40 for local deposits in drums of

combustible and inflammable materials and an

annual tax of P200 for tin can factories; and

Ordinance 11 (1948) imposing an annual tax of P150

on tin can factories having a maximum annual

output capacity of 30,000 tin cans. Shell Co., a

foreign corporation, filed suit for the refund of the

taxes paid by it, on the ground that the ordinances

imposing such taxes are ultra vires.

Issue:

Whether Ordinance 10 is discriminatory and hostile

because there is no other person in the locality who

exercise such designation or occupation.

Held:

The fact that there is no other person in the locality

who exercises such a designation or calling does

not make the ordinance discriminatory and hostile,inasmuch as it is and will be applicable to any person

or firm who exercises such calling or occupation

named or designated as installation manager.

Ormoc Sugar vs. Treasurer of Ormoc City GR L-

23794, 17 February 1968 En Banc, Bangzon JP (J): 9

concur


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Facts:

In 1964, the Municipal Board of Ormoc City passed

Ordinance 4, imposing on any and all productions of

centrifuga sugar milled at the Ormoc Sugar Co. Inc.

in Ormoc City a municpal tax equivalent to 1% per

export sale to the United States and other foreign

countries. The company paid the said tax underprotest. It subsequently filed a case seeking to

invalidate the ordinance for being unconstitutional.

Issue:

Whether the ordinance violates the equal protection

clause.

Held:

The Ordinance taxes only centrifugal sugar produced

and exported by the Ormoc Sugar Co. Inc. and none

other. At the time of the taxing ordinances enacted,

the company was the only sugar central in OrmocCity. The classification, to be reasonable, should be

in terms applicable to future conditions as well. The

taxing ordinance should not be singular and

exclusive as to exclude any subsequently established

sugar central, of the same class as the present

company, from the coverage of the tax. As it is now,

even if later a similar company is set up, it cannot be

subject to the tax because the ordinance expressly

points only to the

company as the entity to be levied upon.

Abra Valley College vs. AquinoGR L-39086, 15 June

1988Second Division, Paras (J): 4 concur

Facts:

Abra Valley College rents out the ground floor of its

college building to Northern Marketing Corporation

while the second floor thereof is used by the Director

of the College for residential purposes. The municipal

and provincial treasurers served upon the College a

notice of seizure and later a notice of saledue to

the alleged failure of the College to pay real estate

taxes and penalties thereon. The school filed suit to

annul said notices, claiming that it is tax-exempt.

Issue:

Whether the College is exempt from taxes

Held:

While the Court allows a more liberal and non-

restrictive interpretation of the phrase exclusively

used for educational purposes, reasonable emphasis

has always been made that exemption extends to

facilities which are incidental to and reasonably

necessary for the accomplishment of the main

purposes. While the second floors use, as residence

of the director, is incidental to education; the lease

of the first floor cannot by

any stretch of imagination be considered incidental

to the purposes of education. The test of exemption

from taxation is the use of the property for purposes

mentioned in the Constititution.

Herrera vs. Quezon City Board of Assessment

Appeals

GR L-15270, 30 September 1961First Division,

Concepcion (J): 6 concur

Facts:

In 1952, the Director of the Bureau of Hospitals

authorized Jose V. Herrera and Ester Ochangco

Herrera to establish and operate the St. Catherines

Hospital. In 1953, the Herreras sent a letter to the

Quezon City Assessor requesting exemption from

payment of real estate tax on the hospital, stating

that the same was established for charitable and

humanitarian purposes and not for commercial gain.

The exemption was granted effective years 1953 to

1955. In 1955, however, the Assessor reclassified

the properties from exempt to taxable effective

1956, as it was ascertained that out 32 beds in the

hospital, 12 of which are for pay-patients. A school

of midwifery is also operated within the premises of

the hospital.

Issue:

Whether St. Catherines Hospital is exempt from

reallty tax.

Held:

The admission of pay-patients does not detract from

the charitable character of a hospital, if all its funds

are devoted exclusively to the maintenance of the

institution as a public charity. The exemption in favor

of property used exclusively for charitable or

educational purpose is not limited to property

actually indispensable therefore, but extends to

facilities which are incidental to and reasonably

necessary for the accomplishment of said purpose,

such as in the case of hospitals -- a school for

training nurses; a nurses home; property used to

provide housing facilities for interns, resident

doctors, superintendents and other members of the


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hospital staff; and recreational facilities for student

nurses, interns and residents. Within the purview of

the Constitution, St. Catherines Hospital is a

charitable institution exempt from taxation.

tax rev cases

Documents