Taxation Law - Case Digest (Part 1)

Case TAXATION LAW Digests
San Beda College of Law
2005 CENTRALIZED BAR OPERATIONS
SUMMARY OF DOCTRINES
GENERAL PRINCIPLES
Tax Exemption of Charitable Institutions To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties. As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution. Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. The words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitutions and the law. [LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY AND CONSTANTINO P. ROSAS. G.R. No. 144104. June 29, 2004.] Tax Exemption; Trust Funds The Gratuity Plan will lose its tax-exempt status if the retirement benefits are released prior to the retirement of the employees. The trust funds of employees other than those of private employers are qualified for certain tax exemptions pursuant to Section 60(B), formerly Section 53(b), of the National Internal Revenue Code. [DEVELOPMENT BANK OF THE PHILIPPINES vs. COMMISSION ON AUDIT. G.R. No. 144516. February 11, 2004.] Income Tax; Final Withholding Tax; Gross Receipts Tax; Double Taxation Although the 20% FWT on respondent Bank's interest income was not actually received by respondent because it was remitted directly to the government, the fact that the amount redounded to the bank's benefit makes it part of the taxable gross receipts in computing the 5% GRT. The 5% GRT (Sec. 119 of the Tax Code) is included under "Title V. Other Percentage Taxes" and is not subject to withholding. The 20% FWT, on the other hand, falls under Section 24(e)(1) of "Title II. Tax on Income." In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed; the payor, a separate entity, acts as no more than an agent of the government for the collection of the tax in order to ensure its payment. Obviously, this amount that is used to settle the tax liability is deemed sourced from the proceeds constitutive of the tax base. These proceeds are either actual or constructive. There is no double taxation because the taxes are imposed on two different subject matters. The subject matter of the FWT is the passive income generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege of engaging in the business of banking. A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather than a property tax. [CIR vs. SOLIDBANK CORP. G.R. No. 148191. November 25, 2003.]
TAXATION LAW COMMITTEE AND DIGEST POOL

CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles), Casiano Ilagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real Property Taxation) Christian Cabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes) DIGEST POOL: Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca, Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, Eliseo Pitargue, Froshell Saure, Charrisimae Ventura

Case T AXATION LAW Digests
Tax Exemption of Special Economic Zones It is the legislature, unless limited by a provision of the state constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes. The claimed statutory exemption of the John Hay SEZ from taxation should be manifest and unmistakable from the language of the law on which it is based; it must be expressly granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot be implied as it must be categorically and unmistakably expressed. [JOHN HAY PEOPLES ALTERNATIVE COALITION vs. VICTOR LIM. G.R. No. 119775. October 24, 2003.] Percentage tax on pawnshops; Validity of Revenue Memorandum Orders and Circulars While it is true that pawnshops are engaged in the business of lending money, they are not considered "lending investors" for the purpose of imposing the 5% percentage taxes because: 1) pawnshops and lending investors were subjected to different tax treatments; 2) Congress never intended pawnshops to be treated in the same way as lending investors; 3) Section 116 of the NIRC of 1977, as amended by E.O. No. 273, subjects to percentage tax dealers in securities and lending investors only. When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance, for it gives no real consequence more than what the law itself has already prescribed. When, on the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. [CIR vs. MICHEAL J. LHUILLIER PAWNSHOP, INC. G.R. No. 150947. July 15, 2003.] Carrying forward of excess or overpaid income tax The carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only. Section 69 of the old NIRC provides that in case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year. [AB LEASING AND FINANCE CORPORATION vs. CIR. G.R. No. 138342. July 8, 2003.]
TAX ENFORCEMENT AND ADMINISTRATION

Tax Assessments Unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. To impose the real property tax on the subsequent owner that was neither the owner nor the beneficial user of the property during the designated periods would not only be contrary to law but also unjust. If the taxpayer is not satisfied with the action of the local assessor in the assessment of his property, he has the right, under Section 30 of P.D. No. 464, to appeal to the Local Board of Assessment Appeals by filing a verified petition within sixty (60) days from service of said notice of assessment. If the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due becomes absolute upon the expiration of such period, with respect to the taxpayer's property. A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties.
SUBJECT CHAIRPERSONS
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VCSecretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)
Section 64 of the RPTC, prohibits courts from declaring any tax invalid by reason of irregularities or informalities in the proceedings of the officers charged with the assessment or collection of taxes except upon the condition that the taxpayer pays the just amount of the tax, as determined by the court in the pending proceeding. [MERALCO vs. NELIA A. BARLIS. G.R. No. 114231. June 29, 2004.] Tax Assessment; Proper Service The legal obligation on the executor, administrator or any of the legal heirs, to inform respondent CIR of the decedents death under Section 104 of the 1977 NIRC pertains only to all cases of transfer subject to tax or where the gross value of the estate exceeds P3,000. It has absolutely no applicability to a case for deficiency of income tax. When an estate is under administration, notice must be sent to the administrator of the estate, since it is the said administrator, as representative of the estate, who has the legal obligation to pay and discharge all debts of the estate and to perform all orders of the court. [ESTATE OF THE LATE JULIANA DIEZ vs. CIR. G.R. No. 155541. January 27,2004.] Tax Assessment; Proper Service Where the notice of assessment is sent to the companys old business address, despite the fact that the new address has been communicated to the BIR, there is then no valid assessment by the BIR Since there was a failure to effect a timely valid assessment, the period for filing a criminal case for PAC's tax liabilities had prescribed by the time Commissioner instituted the criminal cases against PACs former officers. [CIR vs. BPI, as LIQUIDATOR OF PARAMOUNT ACCEPTANCE CORPORATION. G.R. No. 135446. September 23, 2003.] Revenue Regulations; Nature; Application Administrative issuances may be distinguished according to their nature and substance: legislative and interpretative. A legislative rule is in the matter of subordinate legislation, designed to implement a primary legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law, which the administrative agency is in charge of enforcing. The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication. Tax refunds are in the nature of tax exemptions. As such, these are regarded as in derogation of sovereign authority and are to be strictly construed against the person or entity claiming the exemption. [BPI LEASING CORP. vs. COURT OF APPEALS. G.R. No. 127624. November 18, 2003.]
LOCAL TAXATION
Local Taxation; Validity of a Municipal Ordinance By express language of Sections 153 and 155 of RA No. 7160, local government units, through their Sanggunian, may prescribe the terms and conditions for the imposition of toll fees or charges for the use of any public road, pier or wharf funded and constructed by them. A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid. However, Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of fees as well as all other taxes or charges in any form whatsoever on goods or merchandise. [PALMA DEVELOPMENT CORPORATION vs. MUNICIPALITY OF MALANGAS. G.R. No. 152492. October 16, 2003.]


Local Taxation; Powers of City Assessors The determination made by the respondent City Assessor with regard to the taxability of the subject real properties squarely falls within its power to assess properties for taxation purposes subject to appeal before the Local Board of Assessment Appeals. The authority to receive evidence, as basis for classification of properties for taxation, is legally vested on the respondent City Assessor whose action is appealable to the Local Board of Assessment Appeals and the Central Board of Assessment Appeals, if necessary. [SYSTEMS PLUS COMPUTER COLLEGE OF CALOOCAN CITY vs. LOCAL GOVERNMENT OF CALOOCAN CITY. G.R. No. 146382. August 7, 2003.]
REAL PROPERTY TAXATION

Tax Exemption; Real Property Tax and Business Tax The exemption of public property from taxation does not extend to improvements made thereon by homesteaders or occupants at their own expense. The warehouse in the instant case is thus, taxable; it being a mere improvement built on an alleged property of public dominion. Any income or profit generated by an entity, even of a corporation organized without any intention of realizing profit in the conduct of its activities, is subject to tax. What matters is the established fact that it leased out its building to ten private entities from which it regularly earned substantial income. Thus, in the absence of any proof of exemption therefrom, petitioner is liable for the assessed business taxes. [PHILIPPINE PORTS AUTHORITY vs. CITY OF ILOILO. G.R. No. 109791. July 14, 2003.]
TARIFF AND CUSTOMS CODE

Jurisdiction of the Collector of Customs & Commissioner of Customs There is no question that Regional Trial Courts are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these proceedings. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The Regional Trial Courts are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus. [R.V. MARZAN FREIGHT, INC. vs. COURT OF APPEALS & SHIELAS MANUFACTURING INC. G.R. No. 128064. March 4, 2004.]
CASE DIGEST
GENERAL PRINCIPLES
Tax Exemption of Charitable Institutions LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY and CONSTANTINO P. ROSAS [G.R. No. 144104. June 29, 2004.] CALLEJO, SR., J: FACTS: The petitioner Lung Center of the Philippines is a non-stock and non-profit entity by virtue of Presidential Decree No. 1823. It is the registered owner of a parcel of land with a hospital in the middle, located at Quezon City. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics. A big portion of the land is being leased for commercial purposes to a private enterprise. The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both paying and non-paying. It also receives annual subsidies from the government. On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes. The petitioner filed a Claim for Exemption from real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The petitioner's request was denied, and a petition was, thereafter, filed before the Local Board of Assessment Appeals of Quezon City (QC-LBAA). The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. The QC-LBAA dismissed the petition and held the petitioner liable for real property taxes. The Central Board of Assessment Appeals of Quezon City and the Court of Appeals (CBAA) affirmed QC-LBAAs decision. ISSUES: 1. Whether petitioner is a charitable institution within the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No. 7160. 2. Whether the real properties of the petitioner are exempt from real property taxes. HELD: 1. YES. To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties. Charity may be applied to almost anything that tend to promote the well-doing and wellbeing of social man. It embraces the improvement and promotion of the happiness of man. The word "charitable" is not restricted to relief of the poor or sick. The test of a charity and a charitable organization are in law the same. The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage. Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which was organized for the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in the Philippines. The medical services of the petitioner

are to be rendered to the public in general in any and all walks of life including those who are poor and the needy without discrimination. As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution. The fundamental ground upon which all exemptions in favor of charitable institutions are based is the benefit conferred upon the public by them, and a consequent relief, to some extent, of the burden upon the state to care for and advance the interests of its citizens. 2. NO. Even though the petitioner is a charitable institution, those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. The tax exemption under Section 28(3), Article VI of the 1987 Philippine Constitution covers property taxes only. What is exempted is not the institution itself; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes. Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. The words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitution and the law. What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.
INCOME TAXATION
Tax-Exemption; Trust Funds DEVELOPMENT BANK OF THE PHILIPPINES vs. COMMISSION ON AUDIT [G.R. No. 144516. February 11, 2004] CARPIO, J: FACTS: On February 20, 1980, the Development Bank of the Philippines (DBP) Board of Governors adopted Resolution No. 794 creating the DBP Gratuity Plan and authorizing the setting up of a retirement fund to cover the benefits due to DBP retiring officials and employees under Commonwealth Act No. 186, as amended. In 1983, the Bank established a Special Loan Program availed thru the facilities of the DBP Provident Fund and funded by placements from the Gratuity Plan Fund. Under the Special Loan Program, a prospective retiree is allowed the option to utilize in the form of a loan a portion of his outstanding equity in the gratuity fund and to invest it in a profitable investment or undertaking. The earnings of the investment shall then be applied to pay for the interest due on the gratuity loan which was initially set at 9% per annum subject to the minimum investment rate resulting from the updated actuarial study. The excess or balance of the interest earnings shall then be distributed to the investor-members. Pursuant to the investment scheme, DBP-TSD paid to the investor-members a total of P11,626,414.25 representing the net earnings of the investments for the years 1991 and 1992. The
SUBJECT CHAIRPERSONS 2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND
payments were disallowed by the Auditor under Audit Observation Memorandum No. 93-2 dated March 1, 1993, on the ground that the distribution of income of the Gratuity Plan Fund (GPF) to future retirees of DBP is irregular and constituted the use of public funds for private purposes which is specifically proscribed under Section 4 of P.D. 1445. The Auditor reasoned that the Fund is still owned by the Bank, the Board of Trustees is a mere administrator of the Fund in the same way that the Trust Services Department where the fund was invested was a mere investor and neither can the employees, who have still an inchoate interest in the Fund be considered as rightful owner of the Fund. ISSUE: Whether or not the distribution of income of the Gratuity Plan Fund (GPF) to future retirees of DBP make it lose its tax-exempt status HELD: YES. The Gratuity Plan will lose its tax-exempt status if the retirement benefits are released prior to the retirement of the employees. The trust funds of employees other than those of private employers are qualified for certain tax exemptions pursuant to Section 60(B), formerly Section 53(b), of the National Internal Revenue Code. The Gratuity Plan provides that the gratuity benefits of a qualified DBP employee shall be released only upon retirement under the Plan. If the earnings and principal of the Fund are distributed to DBP employees prior to their retirement, the Gratuity Plan will no longer qualify for exemption under Section 60(B). To recall, DBP Resolution No. 794 creating the Gratuity Plan expressly provides that since the gratuity plan will be tax qualified under the National Internal Revenue Code xxx, the Banks periodic contributions thereto shall be deductible for tax purposes and the earnings therefrom tax free. If DBP insists that its employees may receive the P11,626,414.25 dividends, the necessary consequence will be the non-qualification of the Gratuity Plan as a tax-exempt plan.
Final Withholding Tax; Gross Receipts Tax; Double Taxation COMMISSIONER OF INTERNAL REVENUE vs. SOLIDBANK CORP. [G.R. No. 148191. November 25, 2003.] PANGANIBAN, J: FACTS: For the calendar year 1995, respondent filed its Quarterly Percentage Tax Returns reflecting gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total amount of P1,474,691,693.44 with corresponding gross receipts tax payments in the sum of P73,734,584.60. Respondent alleges that the total gross receipts in the amount of P1,474,691,693.44 included the sum of P350,807,875.15 representing gross receipts from passive income which was already subjected to 20% final withholding tax. The Court of Tax Appeals rendered a decision in CTA Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue , wherein it was held that the 20% final withholding tax on a bank's interest income should not form part of its taxable gross receipts for purposes of computing the gross receipts tax. On the strength of the aforementioned decision, respondent filed with the Bureau of Internal Revenue [BIR] a letter-request for the refund or issuance of a tax credit certificate in the aggregate amount of P3,508,078.75, representing, allegedly overpaid gross receipts tax for the year 1995. Respondent on the same day filed a petition for review with the CTA in order to toll the running of the two-year prescriptive period to judicially claim for the refund of any overpaid internal revenue tax, pursuant to Section 230 [now 229] of the Tax Code. After trial on the merits, the CTA rendered its decision ordering petitioner to refund in favor of respondent the reduced amount of P1,555,749.65 as overpaid gross receipts tax for the year 1995. ISSUES: 1. Does the 20% final withholding tax on a bank's interest income form part of the taxable gross receipts in computing the 5% gross receipts tax? 2. Is there double taxation?

HELD: 1. YES. Although, the 20% FWT on respondent's interest income was not actually received by respondent because it was remitted directly to the government, the fact that the amount redounded to the bank's benefit makes it part of the taxable gross receipts in computing the 5% GRT. The 5% GRT (Sec. 119 of the Tax Code) is included under "Title V. Other Percentage Taxes" and is not subject to withholding. The banks and non-bank financial intermediaries liable therefor shall, under Section 125(a)(1), file quarterly returns on the amount of gross receipts and pay the taxes due thereon within twenty (20) days after the end of each taxable quarter. The 20% FWT, on the other hand, falls under Section 24(e)(1) of "Title II. Tax on Income." It is a tax on passive income, deducted and withheld at source by the payor-corporation and/or person as withholding agent pursuant to Section 50, and paid in the same manner and subject to the same conditions as provided for in Section 51. Two types of taxes are involved in the present controversy: (1) the GRT, which is a percentage tax; and (2) the FWT, which is an income tax. As a bank, petitioner is covered by both taxes. A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. It is not subject to withholding. An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable year. It is subject to withholding. In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed; the payor, a separate entity, acts as no more than an agent of the government for the collection of the tax in order to ensure its payment. Obviously, this amount that is used to settle the tax liability is deemed sourced from the proceeds constitutive of the tax base. These proceeds are either actual or constructive. In our withholding tax system, possession is acquired by the payor as the withholding agent of the government, because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt. There being constructive receipt of such income part of which is withheld RR 17-84 applies, and that income is included as part of the tax base upon which the GRT is imposed. 2. There is NO double taxation. Double taxation means taxing the same property twice when it should be taxed only once; that is, ". . . taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same kind or character. First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the passive income generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege of engaging in the business of banking. A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather than a property tax. It is not an income tax, unlike the FWT. Second, although both taxes are national in scope because they are imposed by the same taxing authority the national government under the Tax Code and operate within the same Philippine jurisdiction for the same purpose of raising revenues, the taxing periods they affect are different. The FWT is deducted and withheld as soon as the income is earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned. Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding, while the GRT is a percentage tax not subject to withholding. Tax Exemption of Special Economic Zones JOHN HAY PEOPLES ALTERNATIVE COALITION vs. VICTOR LIM [G.R. No. 119775. October 24, 2003.] CARPIO MORALES, J:
FACTS: Assailed in this case is Proclamation No. 420 issued by then Pres. Ramos in pursuance to Republic Act No. 7227 which seeks to convert military bases such as Subic, Clark & Camp John Hay into other productive uses. R.A. No. 7227 created the Subic Special Economic [and Free Port] Zone (Subic SEZ) which under Sec. 12 thereof, granted the Subic SEZ incentives ranging from tax and duty-free importations, exemption of businesses therein from local and national taxes, to other hallmarks of a liberalized financial and business climate. R.A. No. 7227 expressly gave authority to the President to create through executive proclamation, subject to the concurrence of the local government units directly affected, other Special Economic Zones (SEZ) including Camp John Hay. Subsequently, the Sanggunian of Bagiuo passed Resolution No. 255, seeking and supporting, subject to its concurrence, the issuance by then President Ramos of a presidential proclamation declaring an area of 288.1 hectares of the camp as a SEZ in accordance with the provisions of R.A. No. 7227. Then President Ramos issued Proclamation No. 420, which established a SEZ on a portion of Camp John Hay providing for, among others, the same incentives granted to Subic. Petitioners challenged the constitutionality and validity of Presidential Proclamation 420 in so far as it grants tax exemptions. They contend that nowhere in RA 7227 can it be found an express provision granting such tax exemption to Camp John Hay as a SEZ. ISSUE: Whether Proclamation No. 420 is constitutional by providing for national and local tax exemption within and granting other economic incentives to the John Hay Special Economic Zone. HELD: NO. Proclamation No. 420 is unconstitutional. Nowhere in R.A. No. 7227 is there a grant of tax exemption to SEZs yet to be established in base areas, unlike the grant under Section 12 thereof of tax exemption and investment incentives to the therein established Subic SEZ. The grant of tax exemption to the John Hay SEZ thus contravenes Article VI, Section 28(4) of the Constitution, which provides that "No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of Congress. It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ that was granted by Congress with tax exemption, investment incentives and the like. There is no express extension of the aforesaid benefits to other SEZs still to be created at the time via presidential proclamation. More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless limited by a provision of the state constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes. The claimed statutory exemption of the John Hay SEZ from taxation should be manifest and unmistakable from the language of the law on which it is based; it must be expressly granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot be implied as it must be categorically and unmistakably expressed. If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and incentives given to the Subic SEZ, it would have so expressly provided in the R.A. No. 7227. Percentage tax on pawnshops; Validity of Revenue Memorandum Orders and Circulars COMMISSIONER OF INTERNAL REVENUE vs. MICHEL J. LHUILLIER PAWNSHOP, INC. [G.R. No. 150947. July 15, 2003.] DAVIDE, JR., C.J: FACTS: On 11 March 1991, CIR Jose U. Ong issued Revenue Memorandum Order (RMO) No. 15-91 imposing a 5% lending investor's tax on pawnshops because the principal activity of pawnshops is lending money at interest and incidentally accepting a "pawn" of personal property delivered by the pawner to the pawnee as security for the loan. This RMO was clarified by Revenue Memorandum Circular (RMC) No. 43-91 on 27 May 1991, providing for a uniform cut-off date, that is January 1, 1991 and also subjecting pawnshops to documentary stamp taxes.
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Pursuant to these issuances, the BIR issued an assessment notice against Lhuillier demanding payment of deficiency percentage tax for 1994 inclusive of interest and surcharges. Lhuillier filed an administrative protest with the Office of the Revenue Regional Director contending that (1) neither the Tax Code nor the VAT Law expressly imposes 5% percentage tax on the gross income of pawnshops; (2) pawnshops are different from lending investors; (3) RMO No. 1591 impliedly amends the Tax Code and is therefore taxation by implication, which is proscribed by law; and (5) RMO No. 15-91 is a "class legislation" because it singles out pawnshops among other lending and financial operations.
ISSUES:
1. Are pawnshops included in the term lending investors for the purpose of imposing the 5% percentage tax under then Section 116 of the National Internal Revenue Code (NIRC) of 1977, as amended by Executive Order No. 273? 2. Are RMO No. 15-91 and RMC No. 43-91 valid?
HELD: 1. NO. Pawnshops are not subject to the 5% lending investors tax. Under Section 157(u) of the NIRC of 1986, as amended, the term lending investor includes "all persons who make a practice of lending money for themselves or others at interest." A pawnshop, on the other hand, is defined under Section 3 of P.D. No. 114 as "a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage." While it is true that pawnshops are engaged in the business of lending money, they are not considered "lending investors" for the purpose of imposing the 5% percentage taxes for the following reasons: First. Under Section 192, paragraph 3, sub-paragraphs (dd) and (ff), of the NIRC of 1977, prior to its amendment by E.O. No. 273, as well as Section 161, paragraph 2, sub-paragraphs (dd) and (ff), of the NIRC of 1986, pawnshops and lending investors were subjected to different tax treatments Second. Congress never intended pawnshops to be treated in the same way as lending investors. We note that the definition of lending investors found in Section 157 (u) of the NIRC of 1986 is not found in the NIRC of 1977, as amended by E.O. No. 273, where Section 116 invoked by the CIR is found. Third. Section 116 of the NIRC of 1977, as amended by E.O. No. 273, subjects to percentage tax dealers in securities and lending investors only. There is no mention of pawnshops. Under the maxim expressio unius est exclusio alterius , the mention of one thing implies the exclusion of another thing not mentioned. Fourth. The BIR had ruled several times prior to the issuance of RMO No. 15-91 and RMC 4391 that pawnshops were not subject to the 5% percentage tax imposed by Section 116 of the NIRC of 1977, as amended by E.O. No. 273. 2. NO. RMO No. 15-91 and RMC No. 43-91 are invalid. Since Section 116 of the NIRC of 1977, which breathed life on the questioned administrative issuances, had already been repealed, RMO 15-91 and RMC 43-91, which depended upon it, are deemed automatically repealed. Hence, even granting that pawnshops are included within the term lending investors, the assessment from 27 May 1994 onward would have no leg to stand on. Adding to the invalidity of the RMC No. 43-91 and RMO No. 15-91 is the absence of publication. While the rule-making authority of the CIR is not doubted, like any other government agency, the CIR may not disregard legal requirements or applicable principles in the exercise of quasi-legislative powers. A legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the administrative agency is in charge of enforcing. When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance, for it gives no real consequence more than what the law itself has already prescribed. When, on the other hand, the administrative rule goes beyond merely
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providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. Without these disputed CIR issuances, pawnshops would not be liable to pay the 5% percentage tax, considering that they were not specifically included in Section 116 of the NIRC of 1977, as amended. In so doing, the CIR did not simply interpret the law. The due observance of the requirements of notice, hearing, and publication should not have been ignored.
Carrying forward of excess or overpaid income tax AB LEASING AND FINANCE CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE [G.R. No. 138342. July 8, 2003] CARPIO-MORALES, J: FACTS: For taxable year 1993, petitioner AB Leasing and Finance Corporation had a net income of P1,775,832.00 for which it was liable to pay income tax in the amount of P621,541.00. It appeared, however, that for the year 1993, petitioner had made payments in the total amount of P1,594,756.00 inclusive of unused prior year's tax credits. Petitioner thus opted to apply its excess payment of P973,215.00 (P1,594,756.00 less P621,541.00) as tax credits for the following year, 1994. In the third quarter of taxable year 1994, petitioner had a net income of P3,624,280.89 for which it paid income tax in the amount of P295,283.32. At the end of 1994, however, petitioner incurred a net loss of P3,450,916.00 to thereby exempt it from payment of income tax for taxable year 1994. It was thus unable to apply the P973,215.00 tax credits incurred in 1993. Petitioner thereupon indicated in its amended annual income tax return for calendar year ending December 31, 1994 that it made excess tax payments totaling P1,268,498.00 (P973,215.00 in 1993 plus P295,283.32 in 1994). On April 12, 1996, petitioner filed with respondent, Commissioner of Internal Revenue, a letter-claim for refund of overpaid income taxes for taxable year 1993 in the amount of P973,215.00. As respondent had not acted on the claim, petitioner filed on April 15, 1996 a petition for review with the CTA, docketed as C.T.A. Case No. 5372, praying for the refund of the overpaid income taxes remitted in 1993, offering as part of its evidence its income tax returns for 1993 and 1994. On April 15, 1997, petitioner filed another case with the CTA, docketed as C.T.A. Case No. 5513, seeking a refund of overpaid income taxes for taxable year 1994. In said case, it offered as part of its evidence its income tax returns for 1994, 1995, and 1996. By Decision of July 2, 1997, the CTA dismissed C.T.A. Case No. 5372 for insufficiency of evidence, drawing petitioner to file a motion for new trial and reconsideration which was denied by the CTA. ISSUE: Is the carrying forward of any excess or overpaid income tax for a given taxable year limited to the succeeding taxable year only? HELD: YES, the carrying forward of any excess or overpaid income tax for a given taxable year then is limited to the succeeding taxable year only . Section 69 of the old NIRC provides that in case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year. Since the case at bar involves a claim for refund of overpaid taxes for 1993, petitioner could only have applied the 1993 excess tax credits to its 1994 income tax liabilities. To further carry-over to 1995 the 1993 excess tax credits is violative of above-quoted Section 69 of the old NIRC. That petitioner had signified its intention to apply the entire amount of P1,268,498 representing excess tax payments of P973,215.00 for 1993 and P295,283.00 for 1994 to the year 1995 is immaterial. Only the amount of P295,283.00 representing the 1994 income tax overpayments may only be applied to the succeeding taxable year, 1995.
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But even assuming that there was a need for petitioner to present in evidence the 1995 income tax return or the breakdown of its excess taxes paid for the taxable year ending 1994, the CTA could have taken judicial notice of the records of C.T.A. Case No. 5513, petitioner's claim for refund of P295,283.00 overpaid income taxes for taxable year 1994, which was already pending before it.
TAX ENFORCEMENT AND ADMINISTRATION

Tax Assessments MANILA ELECTRIC COMPANY vs. NELIA A. BARLIS [G.R. No. 114231. June 29, 2004.] CALLEJO, SR., J: FACTS: From 1968 to 1972, petitioner MERALCO , erected four (4) power generating plants in Sucat, Muntinlupa. To equip the power plants, various machineries and equipment were purchased both locally and abroad. When the Real Property Tax Code took effect on June 1, 1974, MERALCO filed its tax declarations covering the Sucat power plants, including the buildings thereon as well as the machineries and equipment. From 1975 to 1978, MERALCO paid the real property taxes on the said properties on the basis of their assessed value as stated in its tax declarations. On December 29, 1978, MERALCO sold all the power-generating plants including the landsite to the National Power Corporation (NAPOCOR). In 1985, the Municipal Assessor of Muntinlupa discovered that MERALCO, for the years 19761978, misdeclared and/or failed to declare for taxation purposes a number of real properties consisting of several equipment and machineries found in the said power plants. A review of the Deed of Sale which MERALCO executed in favor of NAPOCOR allegedly shows that the true value of the machineries and equipment was misdeclared/undeclared. Thereafter, the Municipal Treasurer of Muntinlupa issued three notices to MERALCO, requesting it to pay the full amount of the claimed deficiency with a warning that its properties could be sold at public auction unless the tax due was paid. Still, MERALCO did not pay, nor take steps to question the tax assessed. Accordingly, the Municipal Treasurer issued, on October 4, 1990, Warrants of Garnishment ordering the attachment of MERALCO's bank deposits with its depository banks to the extent of its unpaid real property taxes. On October 10, 1990, MERALCO filed before the RTC of Makati a Petition for Prohibition with Prayer for Writ of Preliminary Mandatory Injunction and/or Temporary Restraining Order (TRO) praying, among others, that a TRO be issued to enjoin the Municipal Treasurer of Muntinlupa from enforcing the warrants of garnishment. The petitioner averred that real estate tax is a tax on real property; as such, any tax delinquency on property should follow the present owner, in this case, the NAPOCOR. The Municipal Treasurer filed a Motion to Dismiss on the following grounds: (a) lack of jurisdiction, since under Sec. 64 of the Real Property Tax Code, courts are prohibited from entertaining any suit assailing the validity of a tax assessed thereunder until the taxpayer shall have paid, under protest, the tax assessed against him; and (b) lack of cause of action, by reason of MERALCO's failure to question the notice of assessment issued to it by the Municipality of Muntinlupa before the Local Board of Assessment Appeals. In its June 17, 1991 Order, the trial court denied the said motion, ratiocinating that since MERALCO was not the present owner or possessor of the properties in question, it was not the "taxpayer" contemplated under Section 64 of the Tax Code.
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On a Petition for Certiorari filed before the Supreme Court, later endorsed to the Court of Appeals, the Municipal Treasurer of Muntinlupa assailed the June 17, 1991 Order of the RTC alleging that MERALCO was the taxpayer liable for the tax due and the penalties thereon; that despite receipt by it of the 1985 notice of assessment from the Municipal Assessor, it failed to appeal therefrom and, as such, the assessment had become final and enforceable; and, that MERALCO was proscribed from filing its petition assailing the assessment. The Court of Appeals granted the petition and declared the assailed June 17, 1991 order void and without life in law, having been issued without jurisdiction. The Supreme Court resolves to grant this Motion for Reconsideration since its decisions on this case on February 1, 2002 and May 18, 2001 are inconsistent with each other. ISSUES: 1. Whether or not the petitioner was the taxpayer for the purpose of an assessment under the Real Property Tax Code from whom collection can be made 2. Whether or not the RTC did commit any grave abuse of discretion when it denied the respondent's motion to dismiss on the claim that for the petitioner's failure to appeal from the 1986 notice of assessment of the Municipal Assessor, the assessment had become final and enforceable under Section 64 of P.D. No. 464 . 3. Whether or not the letters sent to the petitioner by the respondent municipal treasurer can be considered as notices of assessment. 4. Whether or not the courts are prohibited from entertaining any suit assailing the validity of a tax assessed under the Real Property Tax Code until the taxpayer shall have paid, under protest. HELD: 1. YES, MERALCO is the taxpayer for purposes of assessment and collection. The fact that NAPOCOR is the present owner of the Sucat power plant machineries and equipment does not constitute a legal barrier to the collection of delinquent taxes from the previous owner, MERALCO, who has defaulted in its payment. In Testate Estate of Concordia T. Lim vs. City of Manila , the Court held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. To impose the real property tax on the subsequent owner that was neither the owner nor the beneficial user of the property during the designated periods would not only be contrary to law but also unjust. 2. NO. The RTC did not commit any grave abuse of discretion when it denied the respondent's motion to dismiss on the claim that for the petitioner's failure to appeal from the 1986 notice of assessment of the Municipal Assessor, the assessment had become final and enforceable under Section 64 of P.D. No. 464. Section 22 of P.D. No. 464 states that, upon discovery of real property, the provincial, city or municipal assessor shall make an appraisal and assessment of such real property in accordance with Section 5 of the law, irrespective of any previous assessment or taxpayer's valuation thereon. An assessment fixes and determines the tax liability of a taxpayer. It is a notice to the effect that the amount therein stated is due as tax and a demand for payment thereof. The assessor is mandated under Section 27 of the law to give written notice within thirty days of such assessment, to the person in whose name the property is declared. For purposes of giving effect to such assessment, it is deemed made when the notice is released, mailed or sent to the taxpayer. As soon as the notice is duly served, an obligation arises on the part of the taxpayer to pay the amount assessed and demanded. If the taxpayer is not satisfied with the action of the local assessor in the assessment of his property, he has the right, under Section 30 of P.D. No. 464, to appeal to the Local Board of Assessment Appeals by filing a verified petition within sixty (60) days from service of said notice of assessment. If the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due becomes absolute upon the expiration of such period, with respect to the taxpayer's property.
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Conformably to Section 57 of P.D. No. 464, it is the local treasurer who is tasked with collecting taxes due from the taxpayer. The duty of the local treasurer to collect the taxes commences from the time the taxpayer fails or refuses to pay the taxes due, following the latter's failure to question the assessment in the Local Board of Assessment Appeals and/or to the Central Board of Assessment Appeals. This, in turn, renders the assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from disputing the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits. The records, however, are bereft of any evidence showing actual receipt by petitioner of the real property tax declaration sent by the Municipal Assessor. 3. NO. The letters cannot qualify as notices of tax assessment. A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties. The notices do not contain the essential information that a notice of assessment must specify, namely, the value of a specific property or proportion thereof which is being taxed, nor does it state the discovery, listing, classification and appraisal of the property subject to taxation. In fact, the tenor of the notices bespeaks an intention to collect unpaid taxes, thus the reminder to the taxpayer that the failure to pay the taxes shall authorize the government to auction off the properties subject to taxes. The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made, the notices may be disregarded is an indication that it is in fact a notice of collection. Indeed, respondent did not issue any notice of assessment because statutorily, he is not the proper officer obliged to do so. Under Chapter VIII, Sections 90 and 90-A of the Real Property Tax Code, the functions related to the appraisal and assessment for tax purposes of real properties situated within a municipality pertains to the Municipal Deputy Assessor and for the municipalities within Metropolitan Manila, the same is lodged, pursuant to P.D. No. 921, on the Municipal Assessor. 4. YES. The trial court is without authority to address the alleged irregularity in the issuance of the notices of assessment without prior tax payment, under protest, by petitioner. Section 64 of the RPTC, prohibits courts from declaring any tax invalid by reason of irregularities or informalities in the proceedings of the officers charged with the assessment or collection of taxes except upon the condition that the taxpayer pays the just amount of the tax, as determined by the court in the pending proceeding. As petitioner failed to make a protest payment of the tax assessed, any argument regarding the procedure observed in the preparation of the notice of assessment and collection is futile as the trial court in such a scenario cannot assume jurisdiction over the matter. Tax Assessment; Proper Service ESTATE OF THE LATE JULIANA DIEZ vs. COMMISSIONER OF INTERNAL REVENUE [G.R. No. 155541. January 27, 2004] YNARES-SANTIAGO, J: FACTS: During the lifetime of the decedent, Juliana vda. De Gabriel, her business affairs where managed by the Philippine Trust Companies (Philtrust). The decedent died on April 3, 1979. Two days after her death, Philtrust filed her income tax return for 1978 without indicating that the decedent died. Philtrust also filed a petition for appointment as a special administrator with the RTC, but the court appointed one of the heirs. On November 18, 1982, BIR sent by registered mail a demand letter and assessment notice addressed to the decedent c/o Philippine Trust Companies, Sta. Cruz Manila, which was the address stated in her 1978 income tax return. Philtrust made no response. On June 18, 1984, respondent issued warrants of distraint and levy to enforce collection of the decedents deficiency income tax liability, which were served upon her heir, Francisco Gabriel.
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On November 22, 1984, respondent filed a Motion for Allowance of Claim and for an Order of Payment of Taxes with the court a quo. A letter of protest was filed with the Litigation Division of the BIR, which was not acted upon because the assessment notice had allegedly become final, executory and incontestable. The trial court issued an order denying respondent claim against the estate after finding that there was no notice of its tax assessment on the proper party. The Appellate Court reversed the decision claiming that Philtrust in filing the decedents 1978 income tax return had constituted itself as the administrator of the estate of the deceased at least in so far as the said return is concerned. ISSUES: 1. Whether or not there was a proper service of deficiency tax assessment through Philtrust 2. Whether or not the assessment became final and executory and incontestable. HELD: 1. NO. There was no proper service. The relationship between the decedent and Philtrust was one of agency, which is a personal relationship between agent and principal. Under the Civil Code, death of the agent or principal automatically terminates the agency. Since the relationship between Philtrust and the decedent was automatically severed at the moment of the Taxpayers death, none of Philtrusts acts or omissions could bind the estate of the Taxpayer. Service on Philtrust of the demand letter and Assessment Notice was improperly done. There was absolutely no legal obligation on the part of Philtrust to either 1) respond to the demand letter and assessment notice; 2) inform respondent of the decedents death; or 3) inform the petitioner that it had received said demand letter and assessment notice. The legal obligation on Philtrust to inform respondent of the decedents death under Section 104 of the 1977 NIRC pertains only to all cases of transfer subject to tax or where the gross value of the estate exceeds P3,000. It has absolutely no applicability to a case for deficiency of income tax, such as the case at bar. When an estate is under administration, notice must be sent to the administrator of the estate, since it is the said administrator, as representative of the estate, who has the legal obligation to pay and discharge all debts of the estate and to perform all orders of the court. 2. NO. Since there was never any valid notice of this assessment, it could not have become final, executory and incontestable, and, for failure to make the assessment within the five-year period provided in Section 318 of the National Internal Revenue Code of 1977, respondents claim against the petitioner Estate is barred. Tax Assessment; Proper Service COMMISSIONER OF INTERNAL REVENUE vs. BANK OF THE PHILIPPINE ISLANDS, as liquidator of PARAMOUNT ACCEPTANCE CORPORATION [G.R. No. 135446. September 23, 2003.] CORONA, J: FACTS: Respondent Bank of the Philippine Islands (BPI) is the liquidator of Paramount Acceptance Corporation (PAC), a financing corporation which was dissolved on July 17, 1989. After the dissolution of the PAC, respondent BPI learned that petitioner CIR filed certain criminal cases against Horacio V. Poblador and Ramon A. Albert, former president and treasurer of PAC, respectively, for willful failure to pay the corporation's final deficiency tax assessments for the years 1981 and 1982. Respondent informed petitioner that it was willing to compromise and pay the deficiency tax. At the same time, respondent asked for the withdrawal of the criminal cases against Poblador and Albert. The parties agreed to settle. Respondent paid to the petitioner a total amount of P119,815.13.
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However, in spite of the payment, petitioner continued to prosecute the criminal cases against Poblador and Albert: Criminal Cases Nos. 91-5800, 91-5801 and 91-5802, involving the 1981 assessments, before the Regional Trial Court of Makati, Branch 150; and, Criminal Case No. 91-4007 involving the 1982 percentage tax deficiency, pending in the Regional Trial Court of Makati, Branch 143. Respondent, in a letter to petitioner, pointed out that the assessments were not sent to the proper address and asked for the refund of the P119,815.13 it paid under the compromise agreement since the criminal cases against Poblador and Albert were not dropped as agreed upon. ISSUE: Is PAC liable to pay the tax assessments? HELD: NO. PAC is not liable. The RTC of Makati City, Branch 143, rendered a decision in Criminal Case No. 91-4007 acquitting Poblador and Albert of willful failure to pay the corporate percentage tax deficiency for 1982. Furthermore, a copy of the said decision was served on petitioner by registered mail, prior to the submission of its memorandum in this case. In its decision in Criminal Case No. 91-4007, the trial court ruled that the prosecution failed to establish that PAC was in fact liable for deficiency taxes prior to its liquidation. Assuming arguendo that there was a deficiency tax for which PAC was liable, petitioners failed to make a valid assessment on it since the notice of assessment was sent to the PAC's old (and therefore improper) office address. PAC already indicated its new address in its 1986 tax return filed with the BIR's Makati office. This notwithstanding, petitioner CIR sent the notice of assessment to PAC's old business address instead of its new address, which was also BPI's (PAC's liquidator) office address. Since there was a failure to effect a timely valid assessment, the period for filing a criminal case for PAC's tax liabilities had prescribed by the time petitioner instituted the criminal cases against PACs former officers.
Revenue Regulations; Nature; Application BPI LEASING CORP. vs. COURT OF APPEALS [G.R. No. 127624. November 18, 2003.] AZCUNA, J: FACTS: BLC is a corporation engaged in the business of leasing properties. For the calendar year 1986, BLC paid the Commissioner of Internal Revenue (CIR) a total of P1,139,041.49 representing 4% "contractor's percentage tax" then imposed by Section 205 of the National Internal Revenue Code (NIRC). On November 10, 1986, the CIR issued Revenue Regulation 19-86. Section 6.2 thereof provided that finance and leasing companies registered under Republic Act 5980 shall be subject to gross receipt tax of 5%-3%-1% on actual income earned. This means that companies registered under Republic Act 5980, such as BLC, are not liable for "contractor's percentage tax" under Section 205 but are, instead, subject to "gross receipts tax" under Section 260 (now Section 122) of the NIRC. Since BLC had earlier paid the aforementioned "contractor's percentage tax," it re-computed its tax liabilities under the "gross receipts tax" and arrived at the amount of P361,924.44. On April 11, 1988, BLC filed a claim for a refund with the CIR for the amount of P777,117.05, representing the difference between the P1,139,041.49 it had paid as "contractor's percentage tax" and P361,924.44 it should have paid for "gross receipts tax." Petitioner filed a petition for review with the CTA which dismissed the petition and denied BLC's claim of refund. The CTA held that Revenue Regulation 19-86, as amended, may only be applied prospectively such that it only covers all leases written on or after January 1, 1987, as stated under Section 7 of said revenue regulation. The CTA ruled that, since BLC's rental income was all received prior to 1986, it follows that this was derived from lease transactions prior to January 1, 1987, and hence, not covered by the revenue regulation. ISSUE: 1. Whether RR19-86, as amended, is legislative or interpretative in nature.
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2. Whether RR19-86, as amended, is prospective or retroactive in application. HELD: 1. RR19-86 is legislative in nature. Administrative issuances may be distinguished according to their nature and substance: legislative and interpretative. A legislative rule is in the matter of subordinate legislation, designed to implement a primary legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the administrative agency is in charge of enforcing. Section 1 of Revenue Regulation 19-86 plainly states that it was promulgated pursuant to Section 277 of the NIRC. Section 277 (now Section 244) is an express grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC. In Paper Industries Corporation of the Philippines v. Court of Appeals, the Court recognized that the application of Section 277 calls for none other than the exercise of quasi-legislative or rule-making authority. Verily, it cannot be disputed that Revenue Regulation 19-86 was issued pursuant to the rule-making power of the Secretary of Finance, thus making it legislative, and not interpretative as alleged by BLC. 2. RR 19-86 is prospective in application. The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication. In the present case, there is no indication that the revenue regulation may operate retroactively. Furthermore, there is an express provision stating that it "shall take effect on January 1, 1987," and that it "shall be applicable to all leases written on or after the said date." Being clear on its prospective application, it must be given its literal meaning and applied without further interpretation. Thus, BLC is not in a position to invoke the provisions of Revenue Regulation 19-86 for lease rentals it received prior to January 1, 1987. It is also apt to add that tax refunds are in the nature of tax exemptions. As such, these are regarded as in derogation of sovereign authority and are to be strictly construed against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption and he must be able to justify his claim by the clearest grant under Constitutional or statutory law, and he cannot be permitted to rely upon vague implications.
LOCAL TAXATION
Local Taxation; Validity of a Municipal Ordinance PALMA DEVELOPMENT CORPORATION vs. MUNICIPALITY OF MALANGAS [G.R. No. 152492. October 16, 2003.] PANGANIBAN, J: FACTS: Petitioner Palma Development Corporation is engaged in milling and selling rice and corn to wholesalers in Zamboanga City. It uses the municipal port of Malangas, Zamboanga del Sur as transshipment point for its goods. Municipal Revenue Code No. 09, Series of 1993, was passed and approved on August 4, 1994. Section 5G.01 of the ordinance reads:
Section 5G.01. Imposition of fees. There shall be collected service fee for its use of the municipal road[s] or streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality and for police surveillance on all goods and all equipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this municipality
The service fees imposed by Section 5G.01 of the ordinance was paid by petitioner under protest. It contended that under Republic Act No. 7160, otherwise known as the Local Government Code of 1991, municipal governments did not have the authority to tax goods and vehicles that passed through their jurisdictions. The trial court declared the entire Municipal Revenue Code No. 09 as ultra vires and, hence, null and void. The CA held that local government units already had revenue-raising powers as provided for under Sections 153 and 155 of RA No. 7160. It ruled as well that within the purview
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of these provisions and therefore valid is Section 5G.01, which provides for a "service fee for the use of the municipal road or streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality" and "for police surveillance on all goods and all equipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this municipality." ISSUE: Is Section 5G.01 of Municipal Revenue Code No. 09 valid? HELD: NO. The imposition of a service fee for police surveillance on all goods harbored or sheltered in the premises of the municipal port of Malangas under Sec. 5G.01 of the Malangas Municipal Revenue Code No. 09, series of 1993, is NULL AND VOID for being violative of Republic Act No. 7160. By express language of Sections 153 and 155 of RA No. 7160, local government units, through their Sanggunian, may prescribe the terms and conditions for the imposition of toll fees or charges for the use of any public road, pier or wharf funded and constructed by them. A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid. However, Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of fees as well as all other taxes or charges in any form whatsoever on goods or merchandise. It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods, because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e). Under Section 131(y) of RA No. 7160, wharfage is defined as "a fee assessed against the cargo of a vessel engaged in foreign or domestic trade based on quantity, weight, or measure received and/or discharged by vessel." It is apparent that a wharfage does not lose its basic character by being labeled as a service fee "for police surveillance on all goods."
Local Taxation; Powers of City Assessors SYSTEMS PLUS COMPUTER COLLEGE OF CALOOCAN CITY vs. LOCAL GOVERNMENT OF CALOOCAN CITY [G.R. No. 146382. August 7, 2003.] CORONA, J: FACTS: Petitioner Systems Plus Computer College is a non-stock and non-profit educational institution. As such, it enjoys property tax exemption from the local government on its buildings but not on the parcels of land which petitioner is renting for P5,000 monthly from its sister companies, Consolidated Assembly and Pair Management (CAPM). Sometime, petitioner requested respondent to extend tax exemption to the parcels of land claiming that the same were being used actually, directly and exclusively for educational purposes. Respondent city government, denied the request on the ground that the subject parcels of land were owned by CAPM which derived income therefrom in the form of rentals and other local taxes assumed by the petitioner. Hence, from the land owners' standpoint, the same were not actually, directly and exclusively used for educational purposes. Subsequently, petitioner and the CAPM entered into separate agreements which in effect novated their existing contracts of lease and converted them to donations of the beneficial use thereof. Because of this, petitioner sought a reconsideration of respondent's earlier denial of the application for tax exemption. Respondent city government again denied the application for tax exemption, reasoning out that: a) said agreement was made in order to evade payment of Real Property Taxes; b) the grant of exemption from taxation rests upon the theory that an exemption will benefit the body of people, and not upon any idea of lessening the burden of individual or corporate owners; c) while the beneficial use of the properties being sought to be exempt from Real Property Taxes were donated to SYSTEMS PLUS COMPUTER COLLEGE, there is no showing that the same are "actually, directly and exclusively" used either for religious, charitable, or educational purposes. Twice debunked, petitioner filed a petition for mandamus with the respondent Regional Trial Court of Caloocan City, Branch 121, which, however, dismissed it for being premature.
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ISSUE: Does the determination made by respondent City Assessor fall within its power to assess properties? HELD: YES. Under Section 226 of RA 7160, the remedy of appeal to the Local Board of Assessment Appeals is available from an adverse ruling or action of the provincial, city or municipal assessor in the assessment of property. Under Section 199(f), Title II, Book II, of the Local Government Code of 1991, "assessment" is defined as the act or process of determining the value of a property, or proportion thereof subject to tax, including the discovery, listing, classification and appraisal of properties. Viewed from this broader perspective, the determination made by the respondent City Assessor with regard to the taxability of the subject real properties squarely falls within its power to assess properties for taxation purposes subject to appeal before the Local Board of Assessment Appeals. It must be stressed that the authority to receive evidence, as basis for classification of properties for taxation, is legally vested on the respondent City Assessor whose action is appealable to the Local Board of Assessment Appeals and the Central Board of Assessment Appeals, if necessary.

Tax Exemption; Real Property Tax and Business Tax PHILIPPINE PORTS AUTHORITY vs. CITY OF ILOILO [G.R. No. 109791. July 14, 2003.] AZCUNA, J: FACTS: The City of Iloilo filed an action for the recovery of sum of money against the Phil. Ports Authority (PPA), a government corporation. Respondent seeks to collect real property taxes on its warehouse as well as business taxes computed from the last quarter of 1984 up to 4 th quarter of 1988. PPA is engaged in the business of arrastre and stevedoring services and the leasing of real estate. Petitioner claimed that being a government owned corporation engaged in performing governmental functions, it is exempted from paying taxes under its charter, the Real Property Tax Code and E.O. No. 93. The court a quo rendered its decision holding petitioner liable for real property taxes and for business taxes with respect to petitioner's lease of real property. It, however, held that respondent may not collect business taxes on petitioner's arrastre and stevedoring services, as these form part of petitioner's governmental functions. ISSUE: Is the Philippine Ports Authority exempt from the payment of real property tax and business tax? HELD: NO. Petitioner is liable for both taxes. "Ports constructed by the State" are properties of the public dominion, as Article 420 of the Civil Code enumerates these as properties "intended for public use." The warehouse in the case at bar may not be held as part of the port, considering its separable nature as an improvement upon the port, and the fact that it is not open for use by everyone and freely accessible to the public. In the same way that we ruled in one case that the exemption of public property from taxation does not extend to improvements made thereon by homesteaders or occupants at their own expense, we likewise uphold the taxability of the warehouse in the instant case, it being a mere improvement built on an alleged property of public dominion, assuming petitioner's port to be so. Moreover, petitioner may not invoke the definition of "port" in its charter to expand the meaning of "ports constructed by the State" in the Civil Code to include improvements built thereon. Originally, petitioner was exempt from real property taxes on the basis of Sec. 40 of the Real Property Tax Code. Petitioner's charter, P.D. 857, further specifically exempted it from real
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property taxes. On June 11, 1984, however, P.D. 1931 effectively withdrew all tax exemption privileges granted to government-owned or controlled corporations as stated in Section 1 thereof. Under the same law, the exemption can be restored in special cases through an application for restoration with the Secretary of Finance, which, notably, petitioner did not avail. Subsequently, Executive Order (E.O.) No. 93 was enacted on December 17, 1986 restoring tax exemptions provided under certain laws, one of which is the Real Property Tax Code. Hence, petitioner is liable for real property taxes on its warehouse, computed from the last quarter of 1984 up to December 1986. As admitted by petitioner, it leases out its premises to private persons for "convenience" and not necessarily as part of its governmental function of administering port operations. Any income or profit generated by an entity, even of a corporation organized without any intention of realizing profit in the conduct of its activities, is subject to tax. What matters is the established fact that it leased out its building to ten private entities from which it regularly earned substantial income. Thus, in the absence of any proof of exemption therefrom, petitioner is liable for the assessed business taxes.

Jurisdiction of the Collector of Customs & Commissioner of Customs R.V. MARZAN FREIGHT, INC. vs COURT OF APPEALS & SHIELAS MANUFACTURING INC. [G.R. No. 128064. March 4, 2004] CALLEJO, SR., J: FACTS: RV Marzan Freight Inc., was the owner and operator of a customs-bonded warehouse while Shielas Manufacturing, Inc., was engaged in the garment business. On April 12, 1989, the raw materials consigned to the private respondent arrived in the Philippines. The Bureau of Customs treated the raw materials as subject to ordinary import taxes and were not immediately released to the private respondent. Moreover, the consignee failed to file the requisite import entry and failed to claim the cargo. The District Collector of Customs initiated an abandonment proceedings over the cargo of the private respondent and issued a notice to the consignee of various overstaying cargo, including that of the private respondent, giving them fifteen (15) days from notice thereof to file entry of the cargoes without prejudice to the right of the consignees to redeem articles pursuant to Section 1801 of the Tariff and Customs Code within the prescribed period therein; otherwise, the cargoes would be deemed abandoned and sold at public auction. The declaration of abandonment in the aforestated proceedings became final and executory. After more than two years from the arrival of the cargo in the Philippines, the private respondent filed a complaint for damages before the RTC against the petitioner. The trial court held petitioner solely liable for the loss. The appellate court affirmed the lower courts decision. ISSUE: Whether or not the RTC is vested with jurisdiction to review and nullify a declaration made by the District Collector of Customs that the shipment was abandoned cargo and, thus, ipso facto belonged to the government. HELD: NO. The trial court has no jurisdiction. The declaration by the District Collector of Customs is found by the Court to be ineffective. Under the law, notice of the proceedings of abandonment was not given to the consignee or the plaintiff herein or his agent. The consignee in this case being known, should have been notified of the abandonment of his property and that he should have been given a chance at a public hearing to present evidence and to be heard with respect to the cargo subject of abandonment. This is part of due process.
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Evidently, the resolution of the foregoing issues is within the exclusive competence of the District Collector of Customs, the Commissioner of Customs and within the appellate jurisdiction of the Court of Tax Appeals. In Jao v. Court of Appeals, we held that the RTC is devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs, and to enjoin or otherwise interfere with the said proceedings even if the seizure was illegal. Such act does not deprive the Bureau of Customs of jurisdiction thereon. Thus, we held: There is no question that Regional Trial Courts are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these proceedings. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The Regional Trial Courts are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus.
SUMMARY OF DOCTRINES OF LEADING CASES

FUNDAMENTALS IN TAXATION
BASIC CONSIDERATIONS
Taxation is a high prerogative of sovereignty the relinquishment of which is never presumed, and any reduction or diminution thereof with respect to its mode or rate must be strictly construed and the same must be couched in clear terms. The general rule is that any claim for exemption from tax statutes should be construed strictly against the taxpayer. [Luzon Stevedoring Corp. vs. Court of Tax Appeals. GR No. L30232. July 29, 1988] Taxation is a "symbiotic" relationship whereby in exchange for the protection that the citizens get from the Government, taxes are paid. Without taxes, the government would be paralyzed for lack of 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 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. [CIR vs. Algue. GR No. L28896. February 17, 1988]
PURPOSE AND OBJECTIVES OF TAXATION

While the funds collected under the OPSF may be referred to as taxes, they are exacted in the exercise of the police power of the State. From such fund, amounts are drawn to reimburse oil companies when appropriate situations arise for increases in, as well as under-recovery of, the cost of crude oil importation. [Osmea vs. Orbos. GR No. 99886. March 31, 1993] Taxation may be used as an implement of the police power in order to promote the general welfare of the people. Thus the Sugar Adjustment Act, which imposed a tax on milled sugar, is valid since the purpose of the law was to strengthen an industry that is so undeniably vital to the economy - the sugar industry. [Lutz vs. Araneta. GR No. L7859. December 22, 1955]
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POWER OF JUDICIAL REVIEW

Courts cannot inquire into the wisdom of a taxing act. [CIR vs. Lingayen Gulf Electric Power Co. GR No. L23771. August 4, 1968]
TAXATION DISTINGUISHED FROM OTHER IMPOSITIONS

Penalty If a withholding agent like NDC fails to withhold the requisite withholding tax on the income received from Philippine sources by a Japanese non-resident foreign corporation, such withholding agent (NDC) is liable to pay the tax that it did not withhold as "penalty" for its failure to withhold the tax of the foreign corporation. [National Development Co. vs. CIR. GR No. L 53961. June 30, 1987] License Fees To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the cost of direct regulation but also its incidental consequences as well. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. [Progressive Development Co. vs Quezon City. GR No. 36081. April 24, 1989] If the purpose is primarily revenue or if revenue is at least one of the real and substantial purposes, then the exaction is a tax. Hence, motor vehicle registration fees are taxes because the legislative intent is mainly to raise funds for the construction and maintenance of highways and, to a much lesser degree, to pay for the expenses of the Land transportation Office, a regulatory agency of the Government. [Philippine Airlines Inc. vs. Edu. GR No. L41383, August 15, 1988] 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 employees 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. [Villegas vs. Hiu Chiong Tsai Pao Ho. GR No. L-29646. November 10, 1978] Judging from the amount of the fees fixed in the ordinances in question, the so-called fees were in reality taxes for city revenue. The fees cannot possibly be considered as mere expense incurred for, or the cost of the inspection of each animal and the issuance of the corresponding permit. There would be no doubt that the fees collected would amount to a sizable sum and augment greatly the revenues of the municipal corporation. [Saldana vs. City of Iloilo GR No. L 10470. June 26, 1958] Incidentally, exemption from tax does not include building permit fee and special assessments as these are not taxes but regulatory fees in the case of the license fee, and levy on account of benefits to land for the special assessments. [Apostolic Prefect of the Mountain Province vs. City Treasurer of Baguio. GR No. 47252. April 18, 1941] The amount of exaction or charge, if it is to be a license fee, must only be of a sufficient amount to include expenses of (1) issuing the license; and (2) cost of necessary inspection or police surveillance. [Cuunjieng vs. Patstone. GR No. 16254. February 21, 1922] Debts; Set-off or Compensation
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A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the Government or that the collection of the tax is contingent on the result of the lawsuit it filed against the Government. [Philex Mining Corp. vs CIR. GR No. 125704. August 28, 1998] Once a taxpayer opts for either a refund or the automatic tax credit scheme and signified his option in accordance with the regulation, this does not ipso facto confer on him the right to avail of the same immediately. Prior approval by the Commissioner of Internal Revenue of the tax credit under Section 86 would appear to be more reasonable interpretation to be given to said section. An opportunity must be given the internal revenue branch of the government to investigate and confirm the veracity of the claims of the taxpayer. Insofar as the option of tax credit is concerned, this right should not be construed as an absolute right which is available to the taxpayer at his sole option. Automatic credit is not available, but this does not mean that the petitioner cannot get a refund or credit of the excess quarterly payment. [San Carlos Milling Co., Inc. vs. CIR. GR No. 103379. November 23, 1993] A corporation's outstanding claims for reimbursement against the Oil Price Stabilization Fund (OPSF) cannot be offset against its contributions to said fund. PD 1956, as amended, explicitly provides that the source of the OPSF is taxation. A taxpayer may not offset taxes due from claims that he may have against the Government. Taxes and debts cannot be the subject of compensation because the Government and the taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not a debt, demand, contract or judgment as is allowable to be set off. [Caltex Phils. vs. Commission on Audit. GR No. 92585. May 8, 1992] No compensation is legally authorized where it appears that the parties involved are not creditors and debtors of each other (Art. 1279, Civil Code). In the case at bar, what was sought to be set off against the taxpayer's real estate tax liability to the City of Pasay was the amount of money that the taxpayer was supposed to receive as payment for his property that was expropriated by the National Government. Taxes are not subject to compensation. [Francia vs. Intermediate Appellate Court. GR No. L67649. June 28, 1988] In this case, what appeared to be a due and demandable debt of the Government to the estate of the late Walter Scott Price, as payment for the latter's services, was allowed as a set-off against the transfer taxes due from the decedent's estate. The Court opined, citing Arts. 1279 and 1290 of the Civil Code, that when two obligations are both due and demandable and all the requisites for a valid compensation are present, compensation of the two obligations takes effect by operation of law. [Domingo vs. Carlitos. GR No. L18994. June 29, 1963] Both a license fee and tax may be imposed on the same business or occupation for selling the same article and this is not in violation of the rules against double taxation. [Compania vs. General de Tobacos de Filipinas. GR No. L16619. June 29, 1963]
CLASSIFICATION OF TAXES : (INDIRECT TAXES)

Where the exemption from indirect tax is given to the contractee, but the evident intention is to exempt the contractor so that such contractor may no longer shift or pass on any tax to the contractee, the contractor may claim tax exemption on the transaction. [CIR vs. John Gotamco and Sons Inc. GR No. L31092. February 27, 1987] Where the transaction in itself is tax-exempt and the buyer pays the tax as part of the purchase price, it is the seller's obligation, in case he has obtained a refund of the disputed tax, to hold such refunded tax in trust for the buyer. [CIR vs. American Rubber Co. GR No. L19801-03. November 29, 1966] The sales tax that is passed on to the purchaser as part of the purchase price of the commodity is a tax on the seller, and not the buyer. Hence, if the buyer happens to be tax-exempt,
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the seller is nonetheless liable for the payment of the tax as the same is a tax not on the buyer himself but is actually a tax on the seller. When the consumer or end-user of a manufactured product is tax-exempt, such exemption covers only those taxes for which such consumer or end-user is directly liable. Indirect taxes are not included. Hence, the manufacturer cannot claim exemption from the payment of sales tax; neither can the consumer or buyer of the product demand the refund of the tax that the manufacturer might have passed on to them. [Philippine Acetylene Co., Inc. vs. CIR. GR No. L 19707. August 17, 1967]
TAXPAYERS SUIT
A duly elected Senator of the Philippines and a taxpayer thereof has the legal capacity to file an action for certiorari, prohibition and mandamus to question the legality of a claimed refund of indirect taxes like the tax on oil products, since the refund itself, if found to be without legal basis, constitutes an illegal expenditure of public funds. [Maceda vs. Macaraig. GR No. 88291. June 8, 1993] The right of a taxpayer to file an action questioning the validity or constitutionality of a statute or law has been recognized, on the theory that the expenditure of public funds by an officer of the Government for the purpose of administering or implementing an unconstitutional or invalid law, constitutes a misapplication of such funds. The present case, however, is not an action to question the constitutionality or validity or a statute or law. It is an action to annul and set aside the "Agreement to Arbitrate". Hence, petitioners have no legal standing to file the petition. [Gascon vs. Arroyo. GR No. 78389. October 16, 1989]
LIMITATIONS ON THE TAXING POWER

INHERENT LIMITATIONS
Public Purpose Generally, under the express and implied provisions of the constitution, public funds may be used only for a public purpose. The right of the legislature to appropriate public funds is correlative with its right to tax, and, under constitutional provisions against taxation except for public purposes and prohibiting the collection of 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. [Pascual vs. Sec. of Public Works. GR No. L10405. December 29, 1960] The promotion of general welfare is the State's paramount concern. Thus, a law imposing a tax on sugar produced by sugar centrals for the purpose of using the proceeds thereof in the rehabilitation and upliftment of the sugar industry is a tax levied for a public purpose. [Lutz vs. Araneta. GR No. L7859. December 22, 1955] In the imposition of taxes, public purpose is presumed. Hence, where an ordinance did not specifically state the purpose for which the tax was to be used, it is presumed that said tax is created for a public purpose. [Mendoza Santos and Co. vs. Municipality of Meycauayan. GR No. L6069. April 30, 1954] Non-delegability of the Taxing Power The power granted to Congress under this constitutional provision to authorize the President to fix within specified limits and subjects to such limitations and restrictions as it may impose, and subject to such limitations and restrictions as it may impose, tariff rates even for revenue purposes only. Customs duties which are assessed at the prescribed tariff rates are very much like taxes which are frequently imposed both for revenue-raising and for regulatory purposes. [Garcia vs. Executive Secretary. GR No. 101273. July 3, 1992]
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The power of taxation may be delegated to local governments in respect of matters of local concern. By necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local government agencies the power to tax. In delegating the authority, the State is not limited to the exact measure of that which is exercised by itself. When it is said that the taxing power may be delegated to municipalities and the like, it is meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax for more general purposes. [Pepsi-Cola Bottling Co. of the Phils., Inc. vs. Municipality of Tanauan, Leyte. GR No. L-31156. February 27, 1976] Territoriality or Situs of Taxation For income tax purposes, British Overseas Airways Corp., whose airplanes do not carry passengers to and from the Philippines as it has no landing rights, is taxable on the income realized from the sales of its tickets in the Philippines through sales office. At the same time, the airline would not be subject to any business tax inasmuch as the absence of any landing rights would mean that it is not engaged in the exercise of any privilege which could be subject to the business or privilege tax. (See also Commissioner vs. Air India. GR No. 72443. January 29, 1985) [CIR vs. British Overseas Airways Corp. GR No. 65773-74, April 30, 1987] Where the tax that is being imposed is a tax upon the performance of an act, enjoyment of a privilege, or engaging in an occupation, or what is sometimes known as an excise or privilege, the situs of taxation is the place in which the act is performed or where the occupation is engaged in. So, in case of sales tax imposed by a city government, the place where the sale is perfected and consummated determines the situs of taxation. [Allied Thread Co., Inc. vs. City of Manila. GR No. L40296. November 21, 1984] The city can tax the sale of matches where shipments or deliveries are made directly to customer outside the city provided the sales are booked and paid for in the city to a carrier for shipment to the buyer. Generally, delivery to the carrier is delivery to the buyer. [Philippine Match Co., Ltd. vs. City of Cebu. GR No. L30745. January 18, 1978] In case of additional sales tax on the sale of fuels and oils, said tax may not be applied to deliveries outside the municipality since the consummation of the sale is determined by the delivery of the things which are the subject matter of the contract. The situs of the sale for tax purposes is not the place where the contract of sale is perfected but the place of its consummation. [The Shell Co. of the Philippines, Ltd. vs. Municipality of Sipocot. GR No. L 12680. March 20, 1959] The shares of stock left behind by a non-resident alien decedent in an anonymous partnership in the Philippines are subject to Philippine inheritance tax notwithstanding the mobilia rule. The mobilia rule should yield to reason. The shares of stock are also taxable in the situs of their actual location, i.e., the Philippines. [Wells Fargo Bank & Union Trust Co. vs. Collector of Internal Revenue. GR No. 46720. June 28, 1940] In case of fire insurance covering property situated in the Philippines, even though the insurance contract was executed outside the Philippines, said premiums are taxable against the insurer in the Philippines because the Philippine Government must get something in return for the protection it gives to the insured property in the Philippines, and by reason of such protection, the insurer is benefited thereby. [Manila Electric Co. vs. Yatco. GR No. 45697. November 1, 1939] Exemption of the Government from Taxes

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What is decisive is that the properties possessed by SSS, albeit devoted to private or proprietary, are in fact owned by the government of the Philippines. As such they are exempt from realty taxes. It is axiomatic that when public property is involved, exemption is the rule and taxation, the exception. [Social Security system vs. City of Bacolod.GR No. L35726. July 21, 1982] Notwithstanding the immunity of the Government from taxes, the principle is also well recognized that the Government may tax itself. There is no constitutional limitation on the power of the Congress to tax the Armed Forces of the Philippines if it wishes to do so. [Bisaya Land Transportation vs. Collector of Internal Revenue. GR Nos. L12100 & L11812. May 29, 1959]
CONSTITUTIONAL LIMITATIONS
Due Process Clause Judicial intervention is unnecessary in the absence of a factual setting or an actual controversy which is engendered by the issuance of an assessment against a taxpayer. There is, however, no justification for passing upon the claims that the law EVAT (R.A. 7716) denies petitioner's right to due process. Indeed, the absence of threat of immediate harm makes the need for judicial intervention less evident and underscores the essential nature of petitioner's attack on the law on the ground of denial of due process as a mere academic discussion of the merits of the law. For the fact is that there have been no notices of assessments issued to petitioners and no determinations at the administrative levels of their claims so as to illuminate the actual operation of the law and enable us to reach sound judgment regarding so fundamental questions as those raised in these suits. [Tolentino vs. Secretary of Finance. GR No. 115455. August 25, 1994] Due process is not violated if a governmental body like the Fiscal Incentive Review Board (FIRB), which was tasked with the duty of recommending the restoration of tax exemptions previously abolished under presidential decrees, is headed by the Minister of Finance, who at the same time is the very same person who approves or disapproves the FIRB's recommendation provided no two opposing or conflicting interests are involved, like the case of the restored tax exemption of a particular taxpayer where it appears that there is no interest that is existing which is in conflict with the interests of such taxpayer. [Maceda vs. Macaraig. GR No. 88291. May 31, 1991] When tax turns out to be of a confiscatory nature, such an imposition could very well be considered as being violative of the due process principle. Due process clause in the Constitution may be invoked where a tax statute is so arbitrary that it finds no support in the Constitution. The taxing power has the authority to make reasonable and natural classification for purposes of taxation but the Government's act must not be prompted by a spirit of hostility or, at the very least, discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in privileges conferred and the liabilities imposed. [Reyes vs. Almanzor. GR Nos. 49839-46. April 26, 1991] Due process was not violated when the VAT law (E.O. 273) was promulgated because there was no grave abuse of discretion incident to its promulgation. Petitioners failed to show that E.O 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by passion or personal hostility since it appears that a comprehensive study of the VAT was made before E.O. 273 was issued. [Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan. GR No. 81311. June 30, 1988] The Modified Schedular Income Tax whereby individual income was classified into three different classes under different tax rates is not a denial of due process because there is no proof of arbitrariness in the imposition of tax rates. [Sison, Jr. vs. Ancheta. GR No. 59431. July 25, 1984]
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Due process was not observed when the trial court, an action for declaratory relief, declared that certain property owned by the Roman Catholic Church in Bangued, Abra was taxexempt under the 1973 Constitution, it appearing that no court hearing was conducted thereon. [Province of Abra vs. Hernando. GR No. L49336. August 31, 1981] There is a denial of due process on account of the passage of an ordinance in the City of Manila which imposes a permit fee of P50.00 on aliens as a condition to employment or engaging in any business or occupation, where it appears that under said ordinance, the City Mayor of Manila could withhold or refuse issuance of such permit at will. Aliens, once admitted in the Philippines, cannot be deprived of life without due process of law and this guarantee includes the means of livelihood. [Villegas vs. Hiu Chiong Tsai Pao Ho. GR No. L-29646. November 10, 1978] Equal Protection Clause
A law (R.A. 3843) which imposes a preferential franchise tax rate of 2% on a particular franchise grantee while other franchise grantees are subject to 5% is not violative of the equal protection or equality of taxation rule in the Constitution. The legislature has the inherent power not only to select the subjects of taxation but also to grant tax exemptions. [CIR vs. Lingayen Gulf. GR No. L23771. August 4, 1988] The VAT law does not discriminate unduly against customs brokers who are subject to said tax. The exclusion of said brokers from the exemption granted to professionals under Sec. 103 (r) of the Tax Code is justified by the fact that customs brokers differ from tax-exempt professionals considering that the activities of customs brokers partake of the nature of a business rather than a profession. [Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan. GR No. 81311. June 30, 1988] The schedular income tax which imposes graduated rates from 0% to 35% without deductions on compensation of individuals, and a rate scheme of from 5% to 60% on business and other income with deductions does not violate rule on equal protection clause since there is no infirmity if classifications are made to rest on substantial distinctions. [Sison, Jr. vs. Ancheta. GR No. 59431. July 25, 1984] Where it appears that Sec. 109 of the Tax Code (before its implied repeal) which required skimmed milk manufacturers to place a warning sign on their products stating that skimmed milk is "not suitable for feeding infants less than one year" is enforced only against manufacturers of evaporated filled milk and not against makers of condensed skimmed milk like SIMILAC, SMA or BREMIL, such action is discriminatory and is a denial of equal protection of the law. [Vera vs. Cuevas. GR No. L33693-94. May 31, 1979] Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial differences having a reasonable relation to the subject of the particular delegation. The amount of P50.00 collected from every employed alien, whether he is casual or permanent, part time or full time or whether he is lowly employee or a highly paid executive, is unreasonable because it fails to consider valid substantial differences in situation among individual aliens. [Villegas vs. Hiu Chiong Tsai Pao Ho. GR No. L-29646. November 10, 1978] The fact that the taxpayer is the only sugar central or refiner in the municipality where the tax ordinance is enacted does not make said ordinance discriminatory. The reason for this is that since other refineries to be established in the future would also be taxable, no singling out of the taxpayer to its disadvantage has ever taken place. [Victorias Milling vs. Municipality of Victorias. GR No. L21183. September 27, 1968] A tax ordinance levied on centrifugal sugar milled by Ormoc Sugar Co., mentioning only this company by name is discriminatory. The ordinance does not satisfy the requisites of reasonable
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classification. Although Ormoc Sugar was the only sugar central existing at that time, the ordinance is defective because even if similar company is later set up, it cannot be subject to the tax since the ordinance specifically points to Ormoc as the one to be taxed. [Ormoc Sugar Co. Inc. vs. Treasurer of Ormoc. GR No. L23794. February 17, 1968] Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination within a class in that while professionals with offices in manila have to pay the tax, outsiders who have no offices in the city but practice their profession therein are not subject to the tax. Plaintiffs make a distinction that is not found in the ordinance. The ordinance imposes the tax upon every person exercising or pursuing in the City of Manila naturally any one of the occupations named, but does not say that such person must have his office in manila. What constitutes exercise or pursuit of a profession in the city is a matter of judicial determination. [Punsalan vs. Municipal Board of the City of Manila. GR No. L4817. May 26, 1954] A tax on "installation manager" is not discriminatory just because at the time said tax was imposed, there was no other person in the locality who exercised such occupation. The tax is and will be applicable to any person or firm who exercises such calling or occupation designated as installation manager. [Shell Co. of the Philippines vs. Vano. GR No. L6093. February 24, 1954] A local ordinance which levies an ad valorem tax on motor vehicles registered in Manila without also taxing those which are registered outside the city but which enter the city and use its streets occasionally violates the rule on the equality of taxation . [Association of Customs Brokers vs. Municipality Board. GR No. L4376. May 22, 1953] The remission or condonation of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. Each set of taxes is a class by itself and the law would be open to attack as a class legislation only if all taxpayers belonging to one class were not treated alike. [Juan Luna Subdivision, Inc. vs. Sarmiento. GR No. L3538. May 28, 1952] Non-infringement of Religious Freedom The application of a license tax to religious groups, such as the Jehovahs Witnesses, in connection with the latters sale of religious books and pamphlets, is unconstitutional. According to the Court: As the US Supreme Court put it, it is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax on him for delivering a sermon. [Philippine Airlines, Inc. vs. Secretary of Finance. GR No.115852. Oct.30, 1995] A municipal license tax on the sale of bibles and religious articles by a non-stock, non-profit missionary organization at a little profit constitutes a curtailment of religious freedom and worship which is guaranteed by the Constitution. [American Bible Society vs. City of Manila. GR No. L 9637. April 30, 1957] Non-impairment of Contracts The constitutional prohibition of the impairment of the obligation of contracts does not prohibit every change in existing laws. To fall within the prohibition, the change must not only impair the obligation of the existing contract, but the impairment must be substantial. Moreover, to constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties. [Philippine Rural Electric Cooperatives Assoc. Inc. vs. Secretary of DILG. GR No. 143076. June 10, 2003] Non-impairment may not be invoked in the case of a public utility franchise grantee. This is so because under Sec. 8, Art. XIV of the 1935 Constitution and Sec. 5, Art. XIV of the 1973 Constitution (now, Sec. 11, Art. XII, 1987 Constitution), the legislature can impair a grantee's franchise since a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires. [Cagayan Electric Power and Light Co. vs. CIR. GR No. 60216. September 25, 1985]
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Where a mining concession was granted under a Royal Decree and where it appears that under said decree no other taxes except those mentioned therein shall be imposed on mining and metallurgical industries, the levy of a tax on said mining claim plus an ad valorem tax on mineral output under a subsequent law (Act 1189) constitute an impairment of contract because a mining concession is a contract. [Casanovas vs. Hord. GR No. L3473. March 22, 1907] Uniformity, Equitability and Progressivity of Taxation Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated are to be treated alike both in privileges and liabilities. [Tan vs. Del Rosario. GR No.109289. October 3, 1994] Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressive when its rate goes up depending on the resources of the person affected. The Income Approach should have been used instead of the Comparable Sales Approach as the basis in fixing the assessed value of the properties. By no stretch of the imagination can the market value of the properties covered by PD No. 20 be equated with the market value of properties not so covered. The former has naturally a much lesser market value because of the rental restrictions. [Reyes vs. Almanzor. GR Nos. 49839-46. April 26, 1991] The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxes are not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished. [Villanueva vs. City of Iloilo. GR No. L26521. December 28, 1968] Uniformity in taxation means that all taxable articles or kinds of property of the same classes shall be taxed at the same rate. A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. [Churchill vs. Concepcion. GR No. 11572. September 22, 1916] Tax Exemption of Properties Actually, Directly and Exclusively Used for Religious, Charitable and Educational Purposes The test of exemption from taxation is the use of the property for the purposes mentioned in the Constitution. For purposes of tax exemption, "use" overrides "ownership" such that if property, although actually owned by a religious, charitable or educational institution, is actually used for non-exempt purpose, the exemption from tax of said property vanishes. For tax exemption purposes, the term exclusively used is not limited to total or absolute use for religious, charitable or educational purposes. If the property is incidentally used for the aforementioned purposes, it is clear from decided cases that tax exemptions may still subsist. Where the main building of an educational institution is used both as classrooms for its high school and college students as well as residence of the School Director and his family, the tax exempt character of such property remains despite the fact that it is used as such, as the same may be justified as being only incidental or complementary to its main or primary purpose of providing education to its students. [Abra Valley College Inc. vs. Aquino. GR No. L39086. June 15, 1988] The present Constitution 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 differently. The change should not be ignored. It must duly taken into consideration. Reliance on past decisions would have sufficed were the words actually as well as directly not added. There must be proof therefore of the actual and direct use of the lands, buildings and improvements for religious or charitable purposes to be exempt from taxation. [Province of Abra vs. Hernando. GR No. L49336. August 31, 1981]
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The constitutional provision, Sec. 28(3), Art. VI, 1935 Constitution, which grants tax exemption applies only to property or realty taxes assessed on such properties used directly, actually and exclusively for religious, charitable and educational purposes. It does not apply to donor's and donee's gift on the cash donation for the church building. [Lladoc vs. Commissioner of Internal. GR No. L19201. June 16, 1965] Exclusive use for educational purposes includes, as in the case of a hospital, a school for training nurses, home and housing facilities for interns, resident doctors, superintendents and other members of the hospital staff, recreational facilities, etc. The admission of pay patients does not detract from the charitable character of the hospital if all the funds are devoted exclusively to the maintenance of the charitable institution as a public charity. The fact that the hospital which is a charitable institution admits pay patients does not bar it from claiming that it is devoted exclusively to benevolent purposes if it appears that the income derived from pay patients is devoted to the improvement of the charity wards which represents almost two-thirds of the total bed capacity aside from "out charity" patients who come only for consultation. (See also Commissioner vs. Bishop of the Missionary District. GR No. L19445. August 31, 1965) [Herrera vs. Quezon City Board of Assessment Appeals. GR No. L15720. September 30, 1961] Tax Exemption of Revenues and Assets, Including Grants, Endowments, Donations or Contributions to Educational Institutions A reading of the last paragraph of Sec. 30 ineludibly shows that the income from any property exempt organizations as well as that arising from any activity it conducts for profit, is taxable. The phrase any of their activities conducted for profit does not qualify the word properties. This makes income from the property of the organization taxable, regardless of how that income is used whether for profit or for lofty non-profit purposes. The exemption from payment of income tax under Sec.4(3), Art. XIV of the Constitution may be granted to an educational institution provided that it proves with substantial evidence that (1) it falls under the classification as a non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly and exclusively for educational purposes. It is settled that the term educational institution, when used in laws granting tax exemptions, refers to a school, seminary, college or educational establishment. YMCA does not fall under such term. [CIR vs. Court of Appeals. GR No. 124043. Oct. 14, 1998]
DOUBLE TAXATION, TAX EXEMPTION, ESCAPE FROM TAXATION

DOUBLE TAXATION
The purpose of these international agreements is to reconcile the national fiscal legislation of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different jurisdictions. The tax conventions are drafted with the view towards the elimination of international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the taxpayer in respect of the same subject matter and for identical periods. The apparent rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital, technology and persons between countries. In negotiating tax treaties, the rationale for reducing the tax rate is that the Philippines will give up part of the tax in the expectation that, the tax given up for this particular investment is not taxed by the other country. [CIR vs. SC Johnson and Son, Inc. GR No. 127105. June 25, 1999] The pool of machinery insurers was held to be a taxable entity distinct from the individual corporate entities of the ceding companies. The tax on its income is different from the tax on the dividends received by said companies, and clearly no double taxation is involved. [Afisco Insurance Corp. vs. Court of Appeals. GR No. 112675. January 25, 1999]
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For double taxation to exist, the same property must be taxed twice, when it should be taxed but once. Double taxation has also been defined as taxing the same person twice by the same jurisdiction for the same thing. Surely, a tax on plaintiff's products is different from a tax on the privilege of storing copra in a bodega situated within the territorial boundary of defendant municipality. [Procter & Gamble Corp. vs. Municipality of Jagna. GR No. L-24265. December 28, 1979] Double taxation is not prohibited by the Constitution and there is double taxation when the same person is taxed by the same jurisdiction for the same purpose. This is not the case in the case at bar for the ordinance in question imposes a tax on the sale or disposal of every bottle or container of liquor or intoxicating beverages, and, as such, is a typical tax or revenue measure, whereas the fee it pays annually is for a "second-class wholesale liquor license," which is a license to engage in the business of wholesale liquor in Cebu City, and, accordingly, constitutes a regulatory measure, in the exercise of the police power. [San Miguel Brewery, Inc. vs. City of Cebu. GR No. L-20312. February 26, 1972] A city ordinance imposing a tax on the sale of lumber cannot be declared null and void on the ground that the ordinance in question imposes in effect double taxation because the business of lumber yard is already regulated under the Charter and the sale of lumber is a mere incident of the business of lumber yard. Suffice it to say that regulation and taxation are two different things; the first being an exercise of police power, whereas the latter is not, apart from the fact that double taxation is not prohibited in the Philippines. [Serafica vs. Treasurer of Ormoc City. GR No. L-24813. April 28, 1969] Double taxation has been otherwise described as "direct duplicate taxation". For double taxation to exist, "the same property must be taxed twice, when it should be taxed but once". It has also been "defined as taxing the same person twice by the same jurisdiction for the same thing". With the foregoing precepts in mind, there is no double taxation in the case at bar. First, the two taxes cover two different objects. Section 1 of the ordinance taxes a person operating sugar centrals or engaged in the manufacture of centrifugal sugar. While under Section 2, those taxed are the operators of sugar refinery mills. One occupation or business is different from the other. Second, the disputed taxes are imposed on occupation or business. Both taxes are not on sugar. The amount thereof depends on the annual output capacity of the mills concerned, regardless of the actual sugar milled. The petitioners argument perhaps could make out a point if the object of taxation here were the sugar it produces not the business of producing it. [Victorias Milling Co. vs. Municipality of Victorias. GR No. L-21183. September 27, 1968] Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity. In the present case, although the taxpayer would have to pay two taxes on the same income but the Philippine government only receives the proceeds of one tax, there is no obnoxious double taxation. [CIR vs. V.E. Lednicky. GR No. L-18169. July 31, 1964]
TAX EXEMPTIONS
The NPC is not excluded from the coverage of the franchise tax notwithstanding that its tax are wholly owned by the national government and its charter characterize it non-profit organization. To stress, a franchise tax is imposed based not on ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation, not the individual stockholders. By virtue of its charter NPC was created as a separate and distinct entity from the national government thus the ownership by the national government of its entire capital stock does not necessarily imply that NPC is not engaged in business. [National Power Corporation vs. City of Cabanatuan. GR No. 149110. April 9, 2003] Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders without having to go
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through the tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be immune from suit on its delinquencies, the taxpayer must have voluntarily disclosed his previously untaxed income and must have paid the corresponding tax on such previously untaxed income. A tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority. [Baas vs. Court of Appeals. GR No. 102967. February 10, 2000] The National Power Corporation (NPC), a government controlled corporation, could justifiably claim for the refund of the tax on pertroleum products that it had purchased from several oil companies, where it appears that under a number of tax exemption laws and presidential decrees enacted for said entity, its exemption from the payment of said taxes was clearly shown. It should be noted in this connection that this rule on strict interpretation also does not apply in case of exemptions granted in favor of a government political subdivision or instrumentality like public corporations. [Maceda vs. Macaraig. GR No. 88291. June 8, 1993] The salaries of the Chief Justice and Associate Justices of the Supreme Court as well as those judges of inferior courts are taxable. The clear intent of the Constitutional Commission was to delete the proposed express grant of exemption from payment of income tax to members of the judiciary, so as to give substance to equality among the three branches of Government. In the course of the deliberations in the Constitutional Commission, it was expressly made clear that the salaries of the members of the judiciary would be subject to general income tax applied to all taxpayers. [Nitafan vs. CIR. GR No. L-78780. July 23, 1987] The Congress could impair petitioners legislative franchise by making it liable for income tax which heretofore it was exempted by virtue of the exemption provided for in Section 3 of its franchise. The Constitution provides that a franchise is subject to amendment, alteration, or repeal by the Congress. [Cagayan Electric Co. vs. Commissioner. GR No. L601026. September 25, 1985] Under Section 29 of the Charter of the City of Bacolod, the properties in question, which are concededly owned by the government, are exempt from realty taxes. It bears emphasis that the said section does not contain any qualification whatsoever in providing for the exemption from real estate taxes of "lands and buildings owned by the Commonwealth or Republic of the Philippines." Hence, when the legislature exempted lands and buildings owned by the government from payment of said taxes, what it intended was a broad and comprehensive application of such mandate, regardless of whether such property is devoted to governmental or proprietary purpose. Furthermore, PD No. 24, which amended the Social Security Act of 1954, has already removed all doubts as to the exemption of the SSS from taxation. [Social Security System vs. City of Bacolod. GR No. L-35726. July 21, 1982] Tax exemptions are strictly construed against the taxpayer, they being highly disfavored. He who claims an exemption must be able to point to some positive provision of law creating the right; it cannot be allowed to exist upon a mere vague implication or inference. One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. The right of taxation will not be held to have been surrendered unless the intention to surrender is manifested by words too plain to be mistaken. [Manila Electric Company vs. Vera. GR No. L-29987. October 22, 1975] If two meanings of a stipulation are admissible, that which is least to the advantage of the party for whose benefit the stipulation was inserted in the treaty should be preferred. Thus, an ambiguity in the tax exemption provision in the Military Bases Agreement cannot be interpreted in favor of the American Government or the party claiming under it, like a taxpayer. It is well-settled that the exception contained in tax statutes must be strictly construed against the one claiming exemption and that he who would seek to be thus privileged must justify it by words too plain to be
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mistaken and too categorical to be misinterpreted. [CIR vs. P.J. Kiener Company, Ltd. GR No. L24754. July 18, 1975] In the case of two electric power plants, which are operating in the same locality, it cannot be presumed that the exemption of one should also be enjoyed by the other. The legal principle on the matter is firmly established and well-observed: for exemption to be recognized, the grant must be clear and expressed, it cannot be made to rest on vague implications. [Davao Light & Power Co. vs. Commissioner of Customs. GR No. L-28739. March 29, 1972] The exemption from income tax on Base-connected income of non-resident American Base personnel under the U.S. Bases Treaty does not extend to the income realized from the sale by an American civilian Base employee of his car inside the Base to another American national. (See also CIR vs. Robertson. GR Nos. L-70116-19. August 12, 1986.) [Reagan vs. CIR. GR No. L-26379. December 27, 1969] Exemption from taxation is not favored and is never presumed; in fact, if it is granted, the grant must be strictly construed against the taxpayer. Affirmatively put, the law requires courts to frown on alleged exemptions from taxation, hence, an exempting provision in a legislative enactment should be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Taxation is the rule and tax exemption is the exception. (See also Lealda Electric Co., Inc. vs. CIR. GR No. L-16428. April 30, 1963; Wonder Mechanical Engineering Corp. vs. CTA. GR Nos. L-22805 & L-27858. June 30, 1975; and CIR vs. Mitsubishi Metal Corp.. GR No. 54908. January 22, 1990.) [Rodriguez, Inc. vs. Collector of Internal Revenue. GR No. L-23041. 31 July 1969] The condonation of a tax liability is equivalent and is in the nature of a tax exemption. Being so, it should be sustained only when expressed in explicit terms, and it cannot be extended beyond the plain meaning of those terms. [Surigao Consolidated Mining Co., Inc. vs. Collector. GR No. L-14878. December 26, 1963] The exemption clause provided for in Section 3 of RA No. 79 merely intends to exempt the racing club in whose premises or tracks the races are held by the Philippine Charity Sweepstakes Office from the payment of required municipal or national taxes in connection with said races. It cannot refer to any income tax that may be imposed on the rentals that may be paid for the use of those tracks and other paraphernalia. That is an income that the racing club has to account for income tax purposes. It is an income that, strictly speaking, did not come from the horse races held by said club but it came to it as rentals paid for the use of its property. The tax paid for such income cannot therefore be considered as one connected with those races within the purview of the exemption clause. [Manila Jockey Club, Inc. vs. Collector of Internal Revenue. GR No. L8755. March 23, 1956]
TAX AVOIDANCE; TAX EVASION; TAX FRAUD

The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by law. It must amount to intentional wrongdoing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent. Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most, create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion. [CIR vs. Javier. GR No. 78953. July 31, 1991] A tax return which does not correctly reflect income may only be false but not necessarily fraudulent where it appears that the return was not prepared by the taxpayer himself but by his accountant and that after the original deficiency tax assessment was made, the same was subsequently reduced by the BIR by a substantial amount. Hence, the 50% surcharge for fraud may
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be dispensed with but the tax may still be assessed within the prescriptive period of ten years from discover thereof. [Aznar vs. CTA. GR No. L-20569. August 23, 1974] Tax avoidance is not forbidden in our jurisdiction. An attempt to minimize one's tax does not necessarily constitute fraud. It is a settled principle that a taxpayer may diminish his liability by any means which the law permits. The intention to minimize taxes must be proved to exist by clear and convincing evidence amounting to more than mere preponderance and cannot be justified by mere speculation. This is because fraud is never lightly presumed. (See also CIR vs. Court of Appeals. GR No. 117982. February 6, 1997) [Heng Tong Textiles Co., Inc. vs. CIR. GR No. L19737. August 26, 1968] To subject a taxpayer to the payment of 50% surcharge as provided for in Sec. 72 of the Old Tax Code, the State must show either that there was a willful neglect to file a return or that a case of false or fraudulent return willfully made exists. So, where a man honestly believes that the method employed by him in computing his tax liability is correct, he does not incur any fraud and the penalty under Section 72 does not apply. [CIR vs. Visayan Electric Company. GR No. L22611. May 27, 1968] Fraud is a question of fact which must be alleged and proved. It is a serious charge and, to be sustained it must be supported by clear and convincing proof. In the instant case, the filing by the taxpayer of a false return was neither alleged in the complaint nor proved in court. Hence, the lower court correctly resolve the issue of prescription without touching upon fraudulence of the return. [Republic vs. Ker & Company, Ltd. GR No. L-21609. September 29, 1966] Where it appears that the taxpayer, although on accrual basis, had willfully under declared its 1951 income by treating copra outturn as stock still outstanding at the end of 1951, when in fact such copra had already been shipped to a foreign buyer and the taxpayer had already received part of the sales proceeds, fraud is said to be present. Furthermore, such fraud is aggravated if the taxpayer included such copra outturn in its beginning inventory for 1952 thus eventually deducting its value as cost of goods sold for 1952 and diminishing its net income for that year. [Republic vs. Lim Tian Teng Sons &Co., Inc. GR No. L-21731. March 31, 1966] The Government claimed that there were seven lots deliberately omitted from the tax returns filed by the representative of the heirs, thereby evincing an intention to evade the payment of the correct amount of tax to the government. It appears however, that three of the seven lots alleged to have been excluded were actually included in the return; that one lot was not included because it belonged to one of the heirs; and that the three remaining lots were already declared in the return submitted by the husband as part of the conjugal property for purposes of income tax. The omission, therefore, was not deliberate and did not amount to fraud indicative of an intention to evade payment of the proper tax due the government. [Republic vs. Heirs of Jalandoni. GR No. L-18384. September 20, 1965] Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. The failure of the appellant to declare for taxation purposes his true and actual income derived from his furniture business for two consecutive years is an indication of his fraudulent intent to cheat the Government of its taxes. [Republic vs. Gonzales. GR No. L-17962. April 30, 1965] The acts of the petitioner in declaring as incomes in his income tax returns for three years amounts representing only small fractions of his actual incomes, justify the finding of the lower court that there has been fraud subject to be penalized by law. Where the petitioner has been guilty of fraud, the period within which he may be subject to liability begins from the moment the fraud is discovered and not when the income tax return was filed. [Avelino vs. Collector of Internal Revenue. GR No. L-17715. July 31, 1963]
TAX LAWS AND REGULATIONS

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NATURE OF TAX LAWS

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 payments were affected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. [Hilado vs. Collector of Internal Revenue. GR No. L-9408. October 31, 1956] The prohibition against ex post facto laws applies only to criminal or penal matters, and not to laws which concern civil matters or proceedings generally, or which affect or regulate civil or private rights. Hence, tax laws not being penal in character, the rule against passage of ex post facto laws cannot be invoked. [Republic vs. Vda. De Fernandez. GR No. L-9141. September 25, 1956] It is well settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent. Of course, a tax statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has been "one of the incidents of social life." But legislative intent that a tax statute should operate retroactively should be perfectly clear. Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary. Thus, Article 22 of the Revised Penal Code is not applicable to the case of bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect. [Lorenzo vs. Posadas, Jr. GR No. 43082. June 18, 1937]
INTERPRETATION OF TAX LAWS

As a matter of practice and principle, the Supreme Court will not set aside the conclusion reached by the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise in the subject, unless there has been an abused and improvident exercise of authority on its part. [CIR vs. CTA. GR No. 104151. March 10, 1995] It is a general rule in the interpretation of statutes levying taxes or duties, that in case of doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or citizens, because burdens are not to be imposed, nor presumed to be imposed beyond what statutes expressly and clearly import. [CIR vs. Firemans Fund Insurance Co. GR No. L30644. March 9, 1987] Although, tax burdens are not presumed, it is important to consider, however, that tax laws are not promulgated in order to encourage tax evasion or tax avoidance. [CIR vs. Phoenix Assurance Co., Ltd. GR No. L-19727. May 20, 1965] It is a well-established rule that a statute will not be construed as imposing a tax unless it does so clearly, expressly and unambiguously. A tax cannot be imposed without clear and express words for that purpose. Accordingly, the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication. [Marinduque Iron Mines vs. Municipality of Hinabangan. GR No. L-18924. June 30, 1964] In every case of doubt, tax statutes are construed most strongly against the Government and in favor of the citizens, because burdens are not to be imposed beyond what the statutes expressly and clearly import. [Collector of Internal Revenue vs. La Tondea. GR No. L-10431. July 31, 1962]
PUBLICATION REQUIREMENT
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Executive and administrative orders and proclamations shall be published in the Official Gazette, except such as have no general applicability. CMO No. 20-87 requiring collectors of customs to comply strictly with Section 12 of the Plan, is an issuance which is addressed only to particular persons or a class of persons (the customs collectors). It need not be published, on the assumption that it has been circularized to all concerned. [Yaokasin vs. Commissioner of Customs. GR No. 84111. December 22, 1989] The following require publication as a condition for their effectivity: statutes, including those of local application and private laws, presidential decrees and executive orders promulgated by the President in the exercise of legislative powers, and administrative rules and regulations if their purpose is to enforce or implement existing law pursuant to a valid delegation. However, interpretative regulations and those merely internal in nature, that is, regulating only the personnel of the administrative agency and not the public, need not be published. Neither is publication required of the so-called letters of instructions issued by administrative superiors concerning the rules or guidelines to be followed by their subordinates in the performance of their duties. [Taada vs. Tuvera. GR No. 63915. December 29,1986] When an administrative agency renders an opinion by means of a circular or memorandum it merely interprets a pre-existing law and no publication is required for its validity. [Romualdez vs. Arca. GR No. L-25924. April 18, 1969]
TAX LAWS AS SPECIAL LAWS

There is no question that the Revised Charter of the City of Manila is a special act since it relates only to the said City, whereas the Local Tax Code is a general law because it applies universally to all local governments. The fact that one is special and the other general creates a presumption that the special is to be considered as remaining an exception of the general. However, the rule readily yields to a situation where the special statute refers to a subject in general, which the general statute treats in particular. That is exactly the circumstance obtaining in the case at bar. Section 17 of the Revised City Charter speaks of "ordinance" in general, irrespective of the nature and scope thereof, whereas, Section 43 of the Local Tax Code relates to "ordinances levying or imposing taxes, fees or other charges" in particular. Therefore, in regard to ordinances in general, the Revised City Charter is doubtless dominant, but that dominant force loses its continuity when it approaches the realm of "ordinances levying or imposing taxes, fees or other charges" in particular. There, the Local Tax Code controls. [Bagatsing vs. Ramirez. GR No. L-41631. December 17, 1976] Since an action to recover an erroneously refunded tax is in effect an assessment of such tax, and considering that a special law like the Tax Code prevails over the Civil Code, a general law, then it is the three-year period under the Tax Code that should apply. [Guagua Electric Light Co., Inc. vs. Collector of Internal Revenue. GR No. L-23611. April 24, 1967] The extra-judicial demands made, if any, did not serve to suspend or toll the period of prescription, the provisions of the Civil Code notwithstanding. It should be noted, in this connection, that the Internal Revenue Code, being a special law, prevails over a general law. [Republic vs. Gancayco. GR No. L-18307. June 30, 1964]
TAX REGULATIONS
A Revenue Memorandum Circular issued by the Commissioner of Internal Revenue changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments creates a clear inconsistency with the provision of Section 230 of the 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress. Revenue memorandum circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the CIR. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to greater respect by the courts. Nevertheless, such interpretation
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is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement. [Philippine Bank of Communications vs. CIR. GR No. 112024. January 28, 1999] Without RMC 37-93, the enactment of RA 7654 would have had no new tax rate consequence on private respondents products. Evidently, in order to place Hope Luxury, Premium More and Champion cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the disputed RMC 37-93 had to be issued. In so doing, the BIR not simply interpreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, hearing and publication should not have then ignored. [CIR vs. Court of Appeals. GR No. 119761. Aug. 29, 1961]
NON-RETROACTIVITY OF RULINGS
Rulings, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. Bad faith, as an exception to the rule of non-retroactivity under Section 246 of the Tax Code, imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It partakes of the nature of fraud; a breach of a known duty through some motive of interest or ill will. The failure of a taxpayer to consult the Bureau of Internal Revenue before using a computation mandated by a BIR Ruling which was clear and categorical, thus leaving no room for interpretation, does not imply bad faith on the part of the former. While the government is not estopped from collecting taxes legally due because of mistakes or errors of its agents, this admits of exceptions in the interest of justice and fair play as where injustice will result to the taxpayer. [CIR vs. Court of Appeals and Alhambra Industries. GR No. 117982. February 6, 1997] To make the respondent Corporation liable for specific tax after it had made the importation, would surely prejudice petitioner as it would be subject to a tax liability of which the BIR has not made it fully aware. As a result, the ruling of May 8, 1978 and February 15, 1980 having been issued long after the importation of June 21 and August 17, 1977 cannot be applied with legal effect in this case because to do so will violate the prohibition against retroactive application of the rulings of executive bodies. [CIR vs. Mega General Merchandising Co. GR No. 69136. September 30, 1988] The Memorandum Circular cannot be given retroactive effect in the light of Section 327 of the NIRC on the non-retroactivity of ruling. Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the following cases: (a) where the taxpayer deliberately mistakes or omits material facts from his return or in any document required of him by the BIR; (b) where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith." [CIR vs. Burroughs Limited. GR No. L-66653. June 19, 1986] The Tax Code is explicit in saying that rulings or circulars promulgated by the CIR have no retroactive effect where the same is prejudicial to the taxpayer. The circular was issued only in 1971 or three years after 1968. Petitioner was no longer in a position to withhold taxes from the foreign film distributors because it had already remitted said withheld taxes and has no more control over them when the new circular was issued. [ABS-CBN Broadcasting Corp. vs. CTA. GR No. L-52306. October 12, 1981] Like other statutes, tax laws operate prospectively, whether they enact, amend or repeal, unless, the purpose of the legislature to give retrospective effect is expressly declared or may
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clearly be implied from the language used. [Cebu Portland Cement Co. vs. Collector. GR No. L20563. October 29, 1968]
INCOME TAXATION
INCOME VS. CAPITAL
Income may be defined as an amount of money coming to a person or corporation within a specified time, whether as payment for services, interest or profit from investment. Unless otherwise specified, it means cash or its equivalent. Income can also be thought of as a flow of the fruits of ones labor. [Conwi vs. Court of Tax Appeals. GR No. 48532. August 21, 1992] Income as contrasted with capital or property is to be the test. The essential difference between capital and income is that capital is a fund; income is a flow. Capital is wealth, while income is the service of wealth. Income means profits or gains. [Madrigal vs. Rafferty. GR No. 12287. August 7, 1918]
GROSS RECEIPTS
Gross receipts subject to tax do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayers benefit; and it is not necessary that there must be a law or regulation which would exempt such monies or receipts within the meaning of gross receipts under the Tax Code. Parenthetically, the room charges entrusted by the foreign travel agencies to the private respondent do not form part of its gross receipts within the definition of the Tax Code. [CIR vs. Tours Specialists, Inc. GR No. 66416. March 21, 1990]
PARTNERSHIP VS. CO-OWNERSHIP

The Pool Agreement entered into by the ceding companies to handle the insurance businesses indicates the formation of a partnership under Section 24 of the NIRC. (1) The pool has a common fund, consisting of money and other valuables that are deposited in the name and credit of the pool. (2) The pool functions through an executive board, which resembles the board of directors of a corporation, composed of one representative for each of the ceding companies. (3) True, the pool itself is not a reinsurer and does not issue any insurance policy; however, its work is indispensable, beneficial and economically useful to the business of the ceding companies because without it they would not received their premiums. Profit motive or business is, therefore, the primordial reason for the pools formation. [Afisco Insurance Corp. vs. Court of Appeals. GR No. 112675. January 25, 1999] The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as coowners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstance, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax. (See also Evangelista vs. Collector. GR No. 9996. October 15, 1957) [Pascual vs. CIR. GR No. L-78133. October 18, 1988] The original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later. [Obillos vs. CIR. GR No. L-68118. October 29, 1985] For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with the intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly
39
executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. [Oa vs. CIR. GR No. L-19342. May 25, 1972] Plaintiffs organized a partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they did in fact. Having organized and constituted a partnership of a civil nature, the said entity is one bound to pay the income tax. It should not be prorated among them and paid individually. [Gatchalian vs. Collector of Internal Revenue. GR No. 45425. April 29, 1939]
DEALINGS WITH NON-RESIDENT FOREIGN CORPORATIONS

Royalties paid under similar circumstances in the most favored nation clause of the US-RP Tax Treaty necessarily contemplated circumstances that are tax related. This would mean that it must be proven that the RP-US Tax Treaty grants similar tax relief to residents of the US in respect of the taxes imposable upon royalties earned from sources within the Philippines as those allowed to their German counterparts under the RP-Germany Tax Treaty. [CIR vs. S.C. Johnson and Son, Inc. GR No. 127105. June 25, 1999] The requirement of similar circumstances is in relation to the payment of royalty, not payment of the tax. Thus, for instance, the royalty in question paid to a US resident by a non-BOI registered enterprise or engaged in a non-preferred pioneer activity is not paid under similar circumstances as a royalty paid to an Australian resident by a Philippine company that is BOI registered and engaged in a preferred pioneer activity. [CIR vs. Philippine Tire & Rubber Corp. CA-GR SP No. 42300. April 11, 1997] The alleged overpaid taxes were incurred for the remittance of dividend income to the head office in Japan which is a separate and distinct income taxpayer from the branch in the Philippines. There can be other logical conclusion considering the undisputed fact that the investment was made for purposes peculiarly germane to the conduct of the corporate affairs of Marubeni, Japan, but certainly not of the branch in the Philippines . [Marubeni Corp. vs. CIR. GR No. 76573. September 14, 1989]
TAX SPARING RULE UNDER SECTION 28(B)(5)(B), NIRC

The fact that Switzerland did not impose any tax or the dividends received by Glaro from the Philippines should be considered as a full satisfaction of the given condition. For to deny the private respondent the privilege to withhold only 15% tax provided for under Presidential Decree No. 369, amending Section 24(b)(1) of the Tax Code, would run counter to the very spirit and intent of said law and definitely will adversely affect foreign corporations interest here and discourage them from investing capital in our country. [CIR vs. Wander Philippines. GR No. L-68375. April 15, 1998] Section 24(b)(1), NIRC, does not in fact require that the deemed paid tax credit shall have actually been granted before the applicable dividend tax rate goes down from 35% to 15%. It merely requires that the USA shall allow a credit against the tax due from P&G-USA for taxes deemed to have been paid in the Philippines. There is neither statutory provision nor revenue regulation issued by the Secretary of Finance requiring the actual grant of the deemed paid tax credit by the US Internal Revenue Service to P&G-USA before the preferential 15% dividend rate becomes applicable. [CIR vs. Procter & Gamble Phil. Manufacturing Corp. GR No. 66838. December 2, 1991]
IMPROPERLY ACCUMULATED EARNINGS TAX (SECTION 29, NIRC)

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In order to determine whether profits are accumulated for the reasonable needs of the business to avoid the surtax upon shareholders, it must be shown that the controlling intention of the taxpayer is manifested at the time of accumulation, not intentions declared subsequently, which are mere afterthoughts. Furthermore, the accumulated profits must be used within a reasonable time after the close of the taxable year. [Cyanamid Philippines, Inc. vs. Court of Appeals. GR No. 108067. January 20, 2000] Antonio Tuason, Inc. was a mere holding or investment company because it did not involve itself in the development of subdivisions but merely subdivided its own lots and sold them for bigger profits. Furthermore, 99.99% of the outstanding stock is owned by Tuason himself. Thus, when the corporation accumulated surplus from its earnings, the purpose was to avoid the imposition of the progressive income tax on its shareholders. The touchstone liability is the purpose behind the accumulation of the income and not the consequences of the accumulation. [CIR vs. Tuason, Inc. GR No. 85749, May 15, 1989] To determine the reasonable needs of the business in order to justify an accumulation of earnings, the Immediacy Test was invented. It construed the words reasonable needs of the business to mean the immediate needs of the business, and it was generally held that if the corporation did not prove an immediate need for the accumulation the earnings and profits, the accumulation was not for the reasonable needs of the business, and the penalty tax would apply. To determine if profits are reasonably accumulated for business needs, the controlling intention is that manifested at the time of accumulation and not subsequently declared intentions. [Manila Wine Merchants, Inc. vs. CIR. GR No. L- 26145. February 20, 1984]
TAX EXEMPT CORPORATIONS UNDER SECTION 30, NIRC

Exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 (now Section 30) of the NIRC which mandated that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. The last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real property. The term educational institution or institution of learning has acquired a well-known technical meaning, of which the members of the Constitutional Commission, are deemed cognizant. Under the Education Act of 1982, such term refers to schools. The school system is synonymous with formal education, which refers to the hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to higher levels. The Court has examined the Amended Articles if Incorporation and By-Laws of the YMCA, but found nothing in them that even hints that it is a school or an educational institution. Thus, not falling under the exemption for non-profit, non-stock educational institution. [CIR vs. Court of Appeals and Young Mens Association of the Philippines. GR No. 124043. October 14, 1998]
EXCLUSIONS FROM GROSS INCOME

It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those earnings would result in a diminution of accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. This would run afoul of the very intendment of the law. [CIR vs. Court of Appeals, GCL Retirement Plan. GR No. 95022. March 23, 1992] Terminal leave pay received by a government official or employee is not subject to withholding income tax. As held in Borromeo vs. Civil Service Commission , the rationale behind the employees entitlement to an exemption from withholding income tax on his terminal leave pay is that commutation of leave credits is applied by an officer or employee who retires, resigns or is separated from the service through no fault of his own. [CIR vs. Court of Appeals and Castaeda. GR No. 96016. October 17, 1991]
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A donation made by a corporation to the heirs of a deceased officer out of gratitude for his past services is subject to the donees gift tax. A donation made out of gratitude from past services is not subject to deduction for the value of said services which do not constitute a recoverable debt. [Pirovano vs. CIR. GR No. L19865. July 31, 1965] The proceeds of insurance taken by a corporation on the life of an important official to indemnify it against loss in case of his death, are not taxable as income but was in the nature of an indemnity for the loss which it actually suffered because of the death of its manager. [El Oriente, Fabrica de Tabacos, Inc. vs. Posadas, GR No. 34774. September 21, 1931]
DEDUCTIONS FROM GROSS INCOME

Advertising expense, to be deductible from gross income, should not only be necessary but also ordinary. To be considered ordinary two conditions must be met namely: a) the reasonableness of the amount incurred and b) the amount must not be a capital outlay to create goodwill for the product and/or the business. Although the subject expense for the advertisement of a single product is necessary it cannot be considered as an ordinary expense because said expense is inordinately large. Furthermore, the protection of brand franchise is analogous to the maintenance of goodwill or title to ones property. This is a capital expenditure. [CIR vs. General Foods Phils., Inc. G.R. No. 143672. April 24, 2003] Income tax should not be included in the computation of operating expenses of a public utility. Income tax should be borne by the taxpayer alone as they are payments made in exchange for benefits received by the taxpayer from the State. No benefit is derived by the customers of a public utility from such taxes paid by the entity. The principle behind the inclusion of operating expenses in the determination of a just and reasonable rate is to allow the public utility to recoup the reasonable amount of expenses it has incurred in connection with the services it provides. It does not give the public utility the license to indiscriminately charge any and all types of expenses incurred without regard to the nature thereof, i.e., whether or not the expense is attributable to the production of services by the public utility. [Republic vs. Manila Electric Company. G.R. No. 141369 & 141314. Nov. 15, 2002] An equity investment is a capital, not ordinary, asset of the investor, the sale or exchange of which results in either a capital gain or a capital loss. The loss sustained by the holder of the securities, which are capital assets, is to be treated as a capital loss as if incurred from a sale or exchange transaction. When securities become worthless there is strictly no sale or exchange transaction, but the law deems the loss anyway to be a loss from the sale or exchange of capital assets. [China Banking Corporation vs. Court of Appeals. July 19, 2000] Interests and dividends received by the petitioner were merely incidental income to petitioners activity, which is the operation of its hospital and nursing schools, hence, the conclusion is inevitable that petitioners activities never went beyond that of a passive investor, which under existing jurisprudence do not come within the purview of carrying on any trade or business. As the principle of allocating expenses is grounded on the premise that the taxable income was derived from carrying on a trade or business, as distinguished from mere receipt of interests and dividends from ones investments, the Court of Tax Appeals correctly ruled that said income should not share in the allocation of administrative expense. [Hospital de San Juan de Dios, Inc. vs. CIR. GR No. 31305. May 10, 1990] Margin fees are not expenses in connection with the business of the petitioners. Since the margin fees were incurred for the remittance of funds to petitioners Head Office in New York, which is a separate and distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the
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development of petitioners business in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the Philippines exclusively. [Esso Standard Eastern, Inc. vs. CIR. GR Nos. 28508-9. July 7, 1989] There is absolutely no evidence of any service actually rendered by petitioners (officers) services which could be the basis of a grant to them of a bonus out of the profit derived from the sale. This being so, the payment of a bonus to them (officers) out of the gain realized from the sale cannot be considered as a selling expense; nor can it be deemed reasonable and necessary so as to make it deductible for tax purposes. [Aguinaldo Industries Corp. vs. CIR. GR No. L29790. February 25, 1982] To be deductible as a business expense, three conditions are imposed, namely: (1) the expense must be ordinary and necessary, (2) it must be paid or incurred within the taxable year, and (3) it must be paid or incurred in carrying in a trade or business. In addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or records the deductions claimed under the law, otherwise, the same will be disallowed. Ordinarily, an expense will be considered "necessary" where the expenditure is appropriate and helpful in the development of the taxpayer's business. It is "ordinary" when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. The term "ordinary" does not require that the payments be habitual or normal in the sense that the same taxpayer will have to make them often; the payment may be unique or nonrecurring to the particular taxpayer affected. That the expense in question was incurred to create a favorable image of the corporation in order to gain or maintain the publics and stockholders patronage, does not make it deductible as business expense. [Atlas Consolidated Mining & Development Corp. vs. CIR. GR No. L26911. January 21, 1981] The conditions precedent to the deduction of bonuses to employees are: (1) the payment of the bonuses is in fact compensation; (2) it must be for personal services actually rendered; (3) the bonuses, when added to the salaries, are reasonable when measured by the amount and quality of the services performed with relation to the business of the particular taxpayer. There is no fixed test for determining the reasonableness of a given bonus as compensation. This depends upon many factors, one of them being the amount and quality of the services performed with relation to the business. [C. M. Hoskins & Co., Inc. vs. CIR. GR No. L24059. November 28, 1969] Contributions to a government entity are deductible when used exclusively for public purpose. Contribution to the chapel at a private university ground owned by an educational institution that gives dividends to its stockholders is not deductible from the gross income of the taxpayer for the reason that the net income of said university inures to the benefit of the stockholders. [Roxas vs. Court of Tax Appeals. GR No. L25043. April 26, 1968] The income tax law does not authorize the depreciation of an asset beyond its acquisition cost. Hence, a deduction over an above cost cannot be claimed and allowed. The reason is that deductions from gross income are privileges, not matters of right. Moreover, the recovery, free of income tax, of an amount more than the invested capital in an asset will transgress the underlying purpose of a depreciation allowance. Recover in due time through depreciation of investment made is the philosophy behind depreciation allowance; the idea of profit on the investment made has never been the underlying reason for the allowance of a deduction for depreciation. [Basilan Estates, Inc. vs. CIR. GR No. L22492. September 5, 1967]
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Although taxes already due have not, strictly speaking, the same concept as debts, they are, however obligations that may be considered as such. In Commissioner vs. Prieto, it was held that while the distinction between taxes and debts was recognized in this jurisdiction, the variance in their legal conception does not extend to the interests paid on them. Thus, it follows that the interest paid on the estate and inheritance tax is deductible from gross income. [CIR vs. Palanca. GR No. L16626. October 29, 1966] The exigencies of the husband-taxpayers high executive position, not to mention social standing, demanded and compelled them to live in a more spacious and pretentious quarters like the ones they occupied. That is why his employer-corporation had to grant him allowances for rental and utilities in addition to his annual basic salary to take care of those extra expenses for rental and utilities in excess of their personal needs. Hence, the fact that the taxpayers had to live or did not have to live in the apartments chosen by the husbandtaxpayers employer-corporation is of no moment, for no part of the allowances in question redounded to their personal benefit or was retained by them. [Collector of Internal Revenue vs. Henderson. GR No. L12954. February 28, 1961]
SITUS OF INCOME TAX UNDER SECTION 42, NIRC

The absence of flight operations to and from the Philippines is not determinative of the source of income or the situs of income taxation. The test of taxability is the source; and the source of an income is that activity which produced the income. Income from the sale of tickets was derived from the Philippines. The word source conveys one essential idea that of origin, and the origin of the income herein is the Philippines. [CIR vs. British Overseas Airways Corp. GR No. L-65773-74. April 30, 1987]
DIVIDENDS
As a qualified by the phrase such time and in such manner, the exception was not intended to characterize as taxable dividend every distribution of earnings arising from a redemption of stock dividends. So that, whether the amount distributed in the redemption should be treated as the equivalent of a taxable dividend is a question of fact, which is determinable on the basis of the particular facts of the transaction in question. The test for taxability therefore, as would make the redemption essentially equivalent to the distribution of a taxable dividend, is whether the redemption resulted into a flow of wealth. If no flow of wealth is realized from the redemption, there may not be a dividend equivalence treatment. Before realization, stock dividends are nothing but a representation of an interest in the corporate properties. As capital, it is not yet subject to income tax. [CIR vs. Court of Appeals, A. Soriano Corp. GR No. 108576. January 20, 1999] Where corporate earnings are used to purchase outstanding stock treated as treasury stock as a technical, but prohibited device, to avoid income taxation, distribution of said corporate earnings in the form of stock dividends will subject stockholders receiving them to income tax. [CIR vs. Manning. GR No. L28398. August 6, 1975] Under Section 16 of our Corporation Law, no corporation may make or declare any dividend except from the surplus profits arising from its business. Any dividend, therefore, whether cash or stock, represents surplus profits. Article 471 of the Civil Code provides that the usufructuary shall be entitled to receive all the natural, industrial and civil fruits of the property in usufruct. The stock in dividend in question in this case is a civil fruit of the original investment. [Bachrach vs. Seifert and Elianoff. GR No. L2659. October 12, 1950]

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ESTATE TAX AND DONORS TAX

Attorney's fees in order to be deductible from the gross estate must be essential to the collection of assets, payment of debts or the distribution of the property to the persons entitled to it. The services for which the fees are charged must relate to the proper settlement of the estate. In this case, the guardianship proceeding was necessary for the distribution of the property of the late Pedro Pajonar to his rightful heirs. [CIR vs. Court of Appeals. GR No. 123206. March 22, 2000] The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement courts approval of the states claim for estate taxes, before the same can be enforced and collected. [Marcos II vs. Court of Appeals. GR No. 120880. June 5, 1997] The statute of non-claims, Section 5, Rule 86 of the Rules of Court, does not bar claims of the government for unpaid taxes, still within the period of limitation prescribed in the NIRC. A perusal thereof shows that it makes no mention of claims for monetary obligations of the decedent created by law, such as taxes, which is entirely of different character from the claims enumerated therein. Expression unius est exclusion alterius, the mention of one thing implies the exclusion of another thing not mentioned. Furthermore, under the Tax Code, the payment of income tax shall be a lien in favor of the Government from the time of the assessment until paid. By virtue of such lien, the property of the estate already in the hands of an heir or transferee may be subject to the payment of the tax due the estate. A fortiori, before the inheritance has passed to the heirs, the unpaid taxes due the decedent may be collected, even without its having been presented under Section 2 of Rule 86 of the Rules of Court. Until the property of the estate of the decedent has vested in the heirs, the decedent, represented by his estate, continues as if he were still alive, subject to the payment of such taxes as would be collectible from the estate even after his death. [Vera vs. Fernandez. GR No. L31364. March 30, 1979] An heir is liable for the assessment as an heir and as a holder-transferee of property belonging to the estate/taxpayer. As an heir, he is individually answerable for the part of the tax proportionate to the share he received from the inheritance. His liability, however, cannot exceed the amount of his share. As a holder of the property belonging to the estate, he is liable for the tax up to the amount of property in his possession. The reason is that the Government has a lien on such property. But after payment of such amount, he will have a right to contribution from his coheirs. The Government has two ways of collecting taxes due from the estate. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. Another remedy, pursuant to the lien created by Section 315 (now Section 219) of the Tax Code upon all property and rights to property belonging to the taxpayer for unpaid income tax, 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 the estate. [CIR vs. Pineda. GR No. L22734. September 15, 1967] An estate or inheritance tax, whether assessed before or after the death of the deceased, can be collected from the heirs even after the distribution of the properties of the decedent. [Palanca vs. CIR. GR No. 16661. January 31, 1962] A donation made by a corporation to the heirs of a deceased officer out of gratitude for his past services is subject to the donees gift tax. Past services, rendered without relying on a coetaneous promise, express or implied, that such services would be paid for in the future, do not constitute cause or consideration that would make a conveyance of property anything else but a gift or donation. [Pirovano vs. CIR. 14 SCRA 832. December 29, 1954]
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TAX ADMINISTRATION AND ENFORCEMENT

As the complaint was signed by the BIRs Chief of Legal Division for Region 4 and verified by the Regional Director, there was compliance with the law. Furthermore, the exemptions provided by Section 7 of RA 8424 do not relate to the CIRs power to approve the filing of tax cases. [Republic vs. Hizon. GR No. 130430. December 13, 1999] Rulings, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. Bad faith, as an exception to the rule of non-retroactivity under Section 246 of the Tax Code, imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It partakes of the nature of fraud; a breach of a known duty through some motive of interest or ill will. The failure of a taxpayer to consult the Bureau of Internal Revenue before using a computation mandated by a BIR Ruling which was clear and categorical, thus leaving no room for interpretation, does not imply bad faith on the part of the former. While the government is not estopped from collecting taxes legally due because of mistakes or errors of its agents, this admits of exceptions in the interest of justice and fair play as where injustice will result to the taxpayer. [CIR vs. Court of Appeals and Alhambra Industries. GR No. 117982. February 6, 1997] It is axiomatic that the Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the Government's financial position, especially in the case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy. [Commisioner of Internal Revenue vs. Court of Appeals. GR No. 106611. July 21, 1994] The factual findings of the Court of Tax Appeals are binding upon the Supreme Court and can only be disturbed on appeal if not supported by substantial evidence. The rule on the best evidence obtainable applies when a tax report required by law for the purpose of assessment is not available or when the tax report is incomplete or fraudulent. Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments. [Sy Po vs. Court of Tax Appeals. GR No. L81446. August 18, 1988] An assessment fixes and determines the liability of a taxpayer. As soon as it is served, an obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded. Hence, assessment should not be based on mere presumptions no matter how reasonable or logical said presumptions may be. The assessment must be based on actual facts. The presumption of correctness of assessment being a mere presumption cannot be made to rest on another presumption. [CIR vs. Island Garment Manufacturing Corp. GR No. L-46644. September 11, 1987] Assessment is discretionary on the part of the Commissioner. Mandamus will not lie to compel him to assess a tax after investigation he finds no ground to assess. Besides, mandamus to compel the commissioner to assess will result in judicial encroachment on executive functions. [MERALCO Securities vs. Savellano. GR No. L36181. October 23, 1982]

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The requisite prior approval of the Commissioner of Internal Revenue of a civil action for the recovery of taxes is not a jurisdictional requirement. It relates to capacity to sue or it affects the cause of action only. [Arches vs. Bellosillo. GR No. L23534. May 16, 1967] The Commissioner of Internal Revenue cannot delegate the power to make final assessments. Thus, despite the Commissioners order granting the Regional Directors authority to close tax cases, the latter may not do so. It is the Commissioner alone who is entrusted by law to make assessments final assessments. [City Lumber vs. Domingo. GR No. L18611. January 30, 1964] Section 306 (now Section 229, NIRC) of the Tax Code which provides that a taxpayer must first file a claim for refund for tax credit with the Collector of Internal Revenue before maintaining a suit or proceeding in any court for the recovery of any Internal Revenue Tax alleged to have been erroneously or illegally assessed or collected is mandatory and a condition precedent to the prosecution of a suit for the recovery of said taxes, noncompliance with which bars the action and subjects the claim to dismissal for lack of cause of action. [Republic vs. Limaco. GR No. L13081. August 31, 1962] The rule is that an action for the recovery of the taxes assessed and collected, the taxpayer has the burden of proving that the assessment is illegal. All presumptions are in favor of the correctness of tax assessments. The good faith of the tax assessors and the validity of the actions are presumed. It is a logical outgrowth of the presumption in favor of the validity of the assessments, when such assessments are assailed, the burden of proof is upon the complaining party. It is incumbent upon him clearly to show that the assessments are erroneous. [Interprovincial Autobus Co. vs. Collector. GR No. L6741. January 31, 1956]
TAX REMEDIES UNDER THE NIRC

REMEDIES OF THE GOVERNMENT
An assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specified period. It is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. An assessment is not necessary before a criminal charge can be filed. Section 222 of the NIRC specifically states that in cases where a false or fraudulent return with intent to evade tax is submitted or in cases of failure to file a return, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. A criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code. [CIR vs. Pascor Realty and Development Corp. GR No. 128315. June 29, 1999] It is worthwhile to note that much in the same way that tax remedies exist to enhance the Governments tax collection efforts, they, too, come in as safeguards against arbitrary action. While taxes are the lifeblood of the government and should be collected without unnecessary hindrance, such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason for the Government itself. [Marcos II vs. Court of Appeals. GR No. 120880. June 5, 1997] Before the tax liabilities of Fortune are first finally determined, it cannot be correctly asserted that private respondents have willfully attempted to evade or defeat the taxes sought to be collected form Fortune. In plain words, before one is prosecuted for willful attempt to evade or defeat any tax under Sections 253 and 255 of the Tax Code, the fact that a tax is due must first be proved.
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Distinguishing this case from Ungab vs. Cusi, the Court held that for criminal prosecution to proceed before assessment, there must be a prima facie showing of a willful attempt to evade taxes. There was a willful attempt to evade tax in Ungab because of the taxpayers failure to declare in his income tax return his income derived from banana saplings. Fortunes situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution. [CIR vs. Court of Appeals. GR No. 119322. June 4, 1996] The claim of the government predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable Article 110 of the Labor Code which gives workers first preference as regards the wages due them for services rendered, does not purport to create a lien in favor of the workers or employees for unpaid wages upon all of the properties or upon any particular property owned by their employer. Furthermore, said provision applies only in case of bankruptcy or judicial liquidation of the employer. [CIR vs. NLRC. GR No. 74965. November 9, 1994] An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the governments failure to discover the error and promptly to assess has no connections with the commission of the crime. [Ungab vs. Cusi, Jr. GR Nos. L41919-24. May 30, 1980] If the Government did not raise the defense of prescription in its original answer but pleaded the same in its answer to the amended petition for review, the Government has not waived the defense of prescription. The latter superseded the answers filed before it so that any defense or defenses raised in its latest answer would be considered as though contained in its original answer. For the rule is that an amended complaint and the answer thereto, when filed, take the place of the originals. The latter are then regarded as abandoned and cease to perform any further functions as pleadings. [Cebu Portland Cement Co. vs. Collector of Internal Revenue. GR No. L20563. October 29, 1968]
PRESCRIPTIVE PERIODS
Section 229 (now Section 228) of the Tax Code mandates that a request for reinvestigation must be made within 30 days from the taxpayers receipt of the tax deficiency assessment, otherwise the assessment becomes final and unappealable and, therefore, demandable. A request for reconsideration does not suspend the running of the prescriptive period of three (now five) years for collection by distraint or levy provided under Section 223 (c) [now Section 222 (c)] of the same Code. It has been held in previous cases that the timely service of a warrant of distraint or levy suspends the running of the period to collect the tax deficiency in the sense that the disposition of the attached properties might well take time to accomplish, extending even after the lapse of the statutory period for collection. It should be noted, however, that in those cases, the BIR did not file any collection case but merely relied on the summary remedy of distraint and levy to collect the tax deficiency. [Republic vs. Hizon. GR No. 130430. December 13, 1999] For the purpose of safeguarding our taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly be construed. [CIR vs. B.F. Goodrich Phils. GR No. 104171. February 24, 1999]
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The five-year prescriptive period for violations of any provisions of the Tax Code provided for under Section 354 (now Section 281) thereof should be reckoned from the date the final notice and demand was served on the taxpayer. It is only from the service of the final notice and demand for payment of the deficiency taxes that the cause of action on the part of the BIR accrued. This is because prior to the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. Furthermore, under Section 354, there must be a judicial proceeding for the investigation and punishment of the tax offense before the five-year limiting period begins to run. As section 354 stands in the statute book (and to this day it has remained unchanged) it would indeed seem that the tax cases are practically imprescriptible for as long as the period from the discovery and institution of judicial proceedings for its investigation and punishment, up to the filing of the information in court does not exceed five (5) years. [Lim, Sr. vs. Court of Appeals. GR Nos. 48134-37. October 18, 1990] While it is correct that a mailed letter (of assessment) is deemed received by the addressee (taxpayer) in the ordinary course of mail pursuant to the Rules of Court, this is merely a disputable presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee, Under Section 7 of R.A. No. 1125, the assessment is appealable to the Court of Tax Appeals within 30 days from the receipt of the letter of assessment. The taxpayers failure to appeal in due time makes the assessment final, executory and demandable. Thus, the taxpayer is barred from disputing the correctness of the assessment or from invoking any defense that would reopen the question of its liability of the merits. [Republic vs. Court of Appeals. GR No. L38540. April 30, 1987] Fraud is a question of fact and the circumstances constituting fraud must be alleged and proved in the lower court. The finding of the trial court as to its existence and non-existence is final and cannot be reviewed unless clearly shown to be erroneous. Fraud is never lightly to be presumed because it is a serious charge. [CIR vs. Ayala Securities Corp. GR No. L29485. March 31, 1976] The proper and reasonable interpretation of Section 332(a) [now Section 222 (a)] of the NIRC should be that in the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the (1) falsity, (2) fraud or (3) omission. The view that the law should mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return, is strengthened immeasurably by the last portion of the provision, which segregates the situations into three different classes, namely falsity, fraud and omission. That there is a difference between false return and fraudulent return cannot be denied. While the first merely implies deviation from the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade the taxes due. [Aznar vs. Court of Appeals. GR No. L20569. August 23, 1974] A judicial action for the collection of tax is begun by the filing of a complaint with the proper court of first instance, or where the assessment is appealed to the Court of Tax Appeals, by filing an answer to the taxpayers petition for review wherein payment of the tax is prayed for. This is but logical for where the taxpayer avails of the right to appeal the tax assessment to the CTA, the said court is vested with the authority to pronounce judgment as to the taxpayers liability to the exclusion of any other court. [Fernandez Hermanos, Inc. vs. CIR. GR No. L21551. September 30, 1969] An assessment is deemed made when the notice is released, mailed or sent by the Collector of Internal Revenue to the taxpayer and it is not required that the notice be received by the
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taxpayer within the prescriptive period therefor. [Basilan Estates, Inc. vs. CIR. GR No. L22492. September 5, 1967] Under the Penal Code, the civil liability is incurred by reason of the offenders criminal act. The criminal liability gives birth to the civil obligation such that, generally, if one is not criminally liable under the Penal Code, he cannot become civilly liable thereunder. The situation under the income tax law is opposite. Civil liability to pay taxes arises from fact, for instance, that one has engaged himself in business, and not because of any criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. Since the taxpayers civil liability is not included in the criminal action, his acquittal in the criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes. His legal duty to pay taxes cannot be affected by his attempt to evade payment. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from a crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged. [Republic vs. Patanao. GR No. L22356. July 21, 1967] In case of an amendment of the return, the prescriptive period for the assessment of internal revenue taxes shall commence from the filing of the original return, if the original return was a complete return from which the Commissioner of Internal Revenue may intelligently compute and determine the tax liability of the taxpayer. But if the amended return is substantially different from the original return, the period of prescription of the right to issue the same should be counted from the filing of the amended return. Otherwise, taxpayers will be able to evade the payment of taxes by simply reporting in their original return heavy losses and amending the same beyond the prescriptive period when the Commissioner has lost his authority to assess the proper tax thereunder. The object of the Tax Code is to impose taxes for the needs of the Government, not to enhance tax avoidance to its prejudice. [CIR vs. Phoenix Assurance Co., Ltd. GR No. L19727. May 20, 1965] When there is fraudulent filing of tax returns, the ten-year prescriptive period applies in lieu of the three-year period prescriptive limit. The prescriptive period in this instance is counted from the filing of the fraudulent return. [Avelino vs. Collector of Internal Revenue. GR No. L17715. July 31, 1963] The taxpayer cannot invoke prescription against collection of the tax due from him under the provisions of Section 331 (now Section 222) of the Tax Code if, more than five years from the date of assessment, the Collector of Internal Revenue filed an action against him upon a bond executed and filed by him to guarantee payment in six monthly equal installments of his tax liability under the NIRC provided that such action was commenced within the prescriptive period of ten years from the execution of such bond. To sustain the taxpayers defense of prescription would in effect nullify their undertaking in the bond which was executed and filed by them to lighten their tax obligations or burden by being allowed to pay six equal installments. The bond cannot be nullified for alleged lack of approval by the Collector since the act of the Collector in receiving and keeping the bond, deferring the collection of the tax, and suing on the bond upon the failure of the taxpayer to pay the tax, the payment of which is guaranteed by the bond, meant or amounted to approval thereof. [Republic vs. Araneta. GR No. L14142. May 30, 1961] It is to the interest of the taxpayer to file said return if he wishes to avail himself of the benefits of the three-year prescriptive period. If this notwithstanding, he does not file a return at all, then an assessment may be made at any time within the ten year prescriptive period. [Bisaya Land Transportation Co., Inc. vs. Collector. GR Nos. L12100 & L11812. May 29, 1959]
REMEDIES OF THE TAXPAYER

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Sec. 76 of the 1997 NIRC provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or the final corporate income tax return, shall either: (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative and the choice of one precludes the other. [Philippine Bank of Communications vs. CIR. GR No. 112024. January 28, 1999] In the context of Section 230 which provides for a two year period of prescription counted from the date of payment of the tax for actions for refund of corporate income tax, the two year period should be computed from the time of actual filing of the Adjustment or Annual Income Tax Return. This is so because at that point, it can already be determined whether there has been an overpayment by the taxpayer. Moreover, under Section 49(a) of the NIRC, payment is made at the time the return is filed. [CIR vs. Court of Appeals, CTA and BPI. GR No. 117254. January 21, 1999] A withholding agent which is a wholly owned subsidiary of its foreign parent company may claim reimbursement of the alleged overpaid taxes. The fact that it became a withholding agent of the government, which was not by choice but by compulsion under the Tax Code, cannot be considered as an abdication of its responsibility to its mother company. The obligation imposed under Section 53 (b) [now Section 57 (b)] upon the withholding agent is compulsory. It is a device to insure the collection by the Philippine Government of taxes on incomes, derived from sources in the Philippines, by aliens who are outside the taxing jurisdiction of the Court. In fact, the withholding agent may be assessed for deficiency withholding tax at source, plus penalties consisting of surcharge and interest. Therefore, as the Philippine counterpart, such withholding agent is the proper party to claim for the refund or credit of overpaid withholding tax on dividends paid or remitted by its foreign parent company. [CIR vs. Wander Philippines, Inc. GR No. L68375. April 15, 1998] Prior approval by the Commissioner of Internal Revenue of the tax credit under Section 86 (now section 76) of the Tax Code would appear to be the most reasonable interpretation to be given to said section. An opportunity must be given the internal revenue branch of the government to investigate and confirm the veracity of the claims of the taxpayer. If absolute freedom is given to taxpayers to automatically credit tax payments against their tax liabilities for a succeeding taxable year, it would easily give rise to confusion and abuse, depriving the government of the authority and control over the manner by which the taxpayers credit and offset their tax liabilities, not to mention the resultant loss of revenue to the government under such a scheme. [San Carlos Milling Co., Inc. vs. CIR. GR No. 103379. November 23, 1993] Section 292 (now Section 229) provides a two-year prescriptive period to file a suit for a refund of a tax erroneously or illegally paid, counted from the time the tax was paid. But a literal application thereof in a case which involves quarterly income tax payments may lead to absurdity and inconvenience. The most reasonable and logical application of the law would be to compute such period at the time of the filing of the Final Adjustment Return or the Annual Income Tax Return, that is truly reflective of the results of the operations of a business enterprise, when it can finally be ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax. Therefore, the filing of quarterly income tax returns required in Section 85 (now Section 75) and payment of quarterly income tax should be considered mere installments of the annual tax due. These quarterly tax payments should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 (now Section 76) which provides for the filing of adjustment returns and final payment of income tax. [CIR vs. TMX Sales, Inc. GR No. 83736. January 15, 1992] There is a need to file a return first before a claim for refund can prosper inasmuch as the Commissioner of Internal Revenue by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the
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Bureau of Internal Revenue. The two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final return. [ACCRA Investments Corp. vs. Court of Appeals. GR No. 96322. December 20, 1991] The Bureau of Internal Revenue should not be allowed to defeat an otherwise valid claim for refund by raising the question of the alleged incapacity of the party claiming such refund for the first time on appeal. In the absence of explicit statutory provisions to the contrary, the Government must follow the same rules of procedure, which bind private parties. A taxpayer is defined in our NIRC as referring to any person subject to tax imposed by the Title (on tax on Income). Under Section 53 (c) (now Section 57) thereof, the withholding agent who is required to deduct and withhold any tax is made personally liable for such tax and indeed is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the provisions of the NIRC. He is directly and independently liable for the correct amount of tax that should be withheld from the dividend remittances. He is, moreover, subject to and liable for deficiency assessments, surcharges and penalties should the amount of tax withheld be finally found to be less than the amount that should have been withheld under law. A person liable for tax has been held to be a person subject to tax and properly considered a taxpayer. The terms liable for tax and subject to tax and subject to tax both connote legal obligation or duty to pay a tax. It is very difficult, indeed impossible, to consider a person who is statutorily mad liable for tax as not subject to tax. Consequently, a withholding agent is a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him. [CIR vs. Procter & Gamble Philippine Manufacturing Corp. GR No. 66838. December 2, 1991] Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayers request for reconsideration before he can go to the court for the purpose of collecting the tax assessed. On the contrary, the Tax Code withheld from all courts, except the Court of Tax Appeals under Republic Act No. 1125, the authority to restrain the collection of any national internal revenue tax, fee or charge, thereby indicating the legislative policy to allow the Collector of Internal Revenue much latitude in the speedy and prompt collection of taxes. The requirement for the Commissioner to rule on disputed assessments before bringing an action for collection is applicable only in cases where the assessment was actually disputed, adducing reasons in support thereto. If the taxpayer did not actually contest the assessments by stating the basis thereof, the Commissioner need not rule on their request. In case of a suit for the collection of internal revenue taxes where the assessment has already become final and executory, the action to collect is akin to an action to enforce the judgment. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon. [Dayrit vs. Cruz. GR No. L39910. September 26, 1988] A taxpayer, resident or non-resident, who contributes to the withholding tax system, does not really deposit an amount to the Commissioner of Internal Revenue, but in truth, to perform and extinguish his tax obligation for the year concerned. In other words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at the source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. It is from this latter date then, or when the tax liability falls due, that the two-year prescriptive period under Section 306 (now Section 229) of the Revenue Code starts to run with respect to payments effected through the withholding tax system. It is of no consequence whatever that a claim for refund or credit against the amount withheld at the source may have been presented and may have remained unresolved since the delay of the Collector in rendering decision does not extend the peremptory period fixed by the statute. [Gibbs vs. CIR. GR No. L17406. November 29, 1965] When a tax is paid in installments, the prescriptive period of two years provided in Section 306 (now Section 229) of the Tax Code should be counted from the date of the final payment. [Collector of Internal Revenue vs. Prieto. GR No. L11976. August 29, 1961]
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Prescriptive period for filing claims for refund is suspended provided two conditions are present: (1) there is a pending litigation between two parties, i.e., the Government and the taxpayer, as to the proper tax to be paid and of the proper interpretation of the taxpayers charter in relation to the disputed tax; and (2) the Commissioner in that litigated case agreed to abide by the decision of the Supreme Court as to the collection of taxes relative thereto. On moral and equitable grounds, a taxpayer is entitled to refund from the date of the claim for refund. Moreover, under section 309 of the Tax Code, the Collector is authorized to credit or refund taxes erroneously or illegally received, for a period of two years from the date of the claim for refund. If the Collector not only offered to credit but took steps to credit the taxpayer with overpayment for a period of two years from the date of the claim for refund, he has waived the prescriptive period of two years from the date of the actual filing of the suit. [Panay Elec. Co. vs. Collector of Internal Revenue. GR No. L10574. May 28, 1958] In the absence of a statutory provision clearly or expressly directing or authorizing such payment, and none has been cited by respondent, the National Government cannot be required to pay interest on tax refunds. The taxpayer need not wait for the action of the Collector of Internal Revenue on the request for refund before taking the matter to the Court of Tax Appeals. Nowhere and in no wise does the law imply that the Collector must act upon the claim or that the taxpayer shall not go to the court before he is notified of the Collectors action. Having filed his claim and the Collector having had ample time to study it, the claimant may, indeed should, within the statutory period of two years proceed with his suit without waiting for the Collectors decision. [Collector of Internal Revenue vs. Sweeney. GR No. L12178. August 21, 1959]
ADDITIONS TO THE TAX

Bad faith is not essential for the imposition of the 25% surcharge for late payment of the ad valorem taxes. This 25% surcharge prescribed in Section 245 for late payment of royalties and ad valorem tax, when contrasted with the 50% surcharge imposed where a false or fraudulent return is made, strongly suggests that bad faith is not essential for the imposition of the 25% surcharge. The law requiring the payment of the 25% surcharge in case the tax is not seasonably paid is mandatory. It provides a plan which works out automatically. The CIR is not vested with any authority to waive or dispense with the collection thereof. [CIR vs. Court of Appeals and Atlas Consolidated Mining. GR No. 104151. March 10, 1995] The willful neglect to file the required tax return or the fraudulent intent to evade the payment of taxes, considering that the same is accompanied by legal consequences, cannot be presumed. The fraud contemplated by law is actual and constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. It must amount to intentional wrongdoing with the sole object of evading the tax. [CIR vs. Japan Air Lines, Inc. GR No. 60714. October 4, 1991]
COURT OF TAX APPEALS

The Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. As a matter of principle, the Supreme Court will not set aside the conclusion reached by the CTA, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been abuse or improvident exercise of authority. [CIR vs. Court of Appeals, CTA and ADMU. GR No. 115349. April 18, 1997] The Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. Because of its recognized expertise, the findings of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on its part. The findings of fact of the CTA are
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binding on the Supreme Court, and in the absence of strong reasons for the SC to delve into facts, only questions of law are open for determination. [Philippine Refining Company vs. Court of Appeals. GR No. 118794. May 8, 1996] Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayers request for reconsideration before he can go to the court for the purpose of collecting the tax assessed. On the contrary, the Tax Code withheld from all courts, except the Court of Tax Appeals under Republic Act No. 1125, the authority to restrain the collection of any national internal revenue tax, fee or charge, thereby indicating the legislative policy to allow the Collector of Internal Revenue much latitude in the speedy and prompt collection of taxes. The requirement for the Commissioner to rule on disputed assessments before bringing an action for collection is applicable only in cases where the assessment was actually disputed, adducing reasons in support thereto. If the taxpayer did not actually contest the assessments by stating the basis thereof, the Commissioner need not rule on their request. In case of a suit for the collection of internal revenue taxes where the assessment has already become final and executory, the action to collect is akin to an action to enforce the judgment. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon. [Dayrit vs. Cruz. GR No. L39910. September 26, 1988] The filing by the Bureau of Internal Revenue of an action for the collection of deficiency taxes allegedly due from the taxpayer can be considered as the final decision or assessment of the Commissioner of Internal Revenue. The Court of First Instance can acquire jurisdiction over a claim for collection of deficiency taxes only after the assessment made by the Commissioner of Internal Revenue has become final and unappealable. If the contrary is established, the Court of Tax Appeals has exclusive jurisdiction over the case. [Yabes vs. Flojo. GR No. L46954. July 20, 1982] The language used by the Court of Tax Appeals as to the existence of fraud must be given due weight and force. The finding of facts of the CTA is entitled to the highest respect. [Raymundo vs. De Joya. GR No. L27733. December 3, 1980] Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose appeal to the Court of Tax Appeals was dismissed for being filed out of time, sues anew to recover such taxes, already paid under protest, his action is devoid of merit. For in the same way that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to test the legality of an assessment which had become conclusive and binding on the taxpayer, so is section 360 of the Tax Code not available to revive the right to contest the validity of an assessment which had become final for failure to appeal the same on time. [CIR vs. Concepcion. GR No. L23912. March 15, 1968] The thirty-day period prescribed by Section 11 of Republic Act 1125, as amended, within which a taxpayer adversely affected by a decision of the Commissioner of Internal Revenue should file his appeal with the tax court, is a jurisdictional requirement, and the failure of a taxpayer to lodge his appeal within the prescribed period bars his appeal and renders the questioned decision final and executory. (See also Sea Land Service vs. Court of Appeals. GR No. 122605. April 30, 2001) [Surigao Electric Co., Inc. vs. Court of Tax Appeals. GR No. L-25289. June 28, 1974] In defining the cases that may be reviewed by the Court of Tax Appeals, the law begins by enumerating them and then adds a general clause pertaining to other matters that may arise under the National Internal Revenue Code, the Customs Law and the Assessment Law. This shows that the other matters that may come under the general clause should be of the same nature as those that have preceded them applying the rule of construction known as ejusdem generis. Otherwise, it should be deemed foreign or extraneous and is not included. [Ollada vs. Court of Tax Appeals, et al. GR No. L8878. July 24, 1956]
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LOCAL TAXATION
One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies from the coverage of local taxation. The legislative purpose to withdraw tax privileges under existing law or charter is clearly manifested by the language used on Secs. 137 & 193. Since it would be not only 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. [National Power Corporation vs. City of Cabanatuan. G.R. No. 149110. April 9, 2003.] The fact is that after petitioner's tax exemption by R.A. No. 7082 had been withdrawn by the LGC, no amendment to re-enact its previous tax exemption has been made by Congress. Considering that the taxing power of local government units under R.A. No. 7160 is clear and is ordained by the Constitution, petitioner has the heavy burden of justifying its claim by a clear grant of exemption. The phrase in lieu of all taxes found in special franchises should give way to the peremptory language of section 193 of the LGC specifically providing for the withdrawal of such exemption privileges. Thus, the rule that a special law must prevail over the provisions of a later general law does not apply as the legislative purpose to withdraw tax privileges enjoyed under existing laws or charters is apparent from the express provisions of sections 137 and 193 of the LGC. (Reiterated in City Government of San Pablo, Laguna vs. Reyes. GR No. 127708. March 25, 1999) [Phil. Long Distance Telephone Co. vs. City of Davao. GR NO. 143867. March 25, 2003] Sec. 187 of the LGC requires that the dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal to the Secretary of Justice within 30 days from the effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for an aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60 days, a party could already proceed to seek relief in court. These three separate periods are given for compliance as a prerequisite before seeking redress in a competent court. [Jardine Davies Insurance Brokers, Inc. vs. Aliposa. GR No. 118900. February 27, 2003] While Section 13 of the Local Tax Code mentions other places of amusement, professional basketball games are definitely not within its scope. Under the principle of ejusdem generis, where general words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are to be held as applying only to persons or things of the same kind or class as those specifically mentioned. Thus in determining the meaning of the phrase other places of amusement, one must refer to the prior enumeration of theaters, cinematographs, concert halls, and circuses with artistic expression as their common characteristic. Professional basketball games do not fall under the same category as theaters, cinematographs, concert halls and circuses as the latter basically belong to artistic forms of entertainment while the former caters to sports and gaming. [Philippine Basketball Association vs. Court of Appeals. GR No. 119122. August 8, 2000] Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional; the constitutional objective obviously is to ensure that, while the local government units are being strengthened and made more autonomous, the legislature must still see to it that (a) the taxpayer will not be overburdened or saddled with multiple and unreasonable impositions; (b) each local government will have its fair share of available resources; (c) the resources of the national government will not be unduly disturbed; and (d) local taxation will be fair, uniform and just. Indicative of the legislative intent to carry out the constitutional mandate of vesting broad tax powers to local government units, the Local Government Code has effectively withdrawn, under Section 193 thereof, tax exemptions or incentives theretofore enjoyed by certain entities. (Reiterated in National Power Corporation vs. City of Cabanatuan. GR No. 149110. April 9, 2003) [Manila Electric Company vs. Province of Laguna. GR No. 131359. May 5, 1999]
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Section 534 (f), the repealing clause of the Local Government Code, provides that all general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations or parts thereof which are inconsistent with any of the provisions of the Code are hereby repealed or modified accordingly. This clause partakes of the nature of a general repealing clause. It is certainly not an express repealing clause because it fails to designate the specific act or acts identified by number or title, that are intended to be repealed. Section 193 of the Local Government Code prescribes the general rule, viz., the tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons are withdrawn upon the effectivity of the LGC except with respect to those entities expressly enumerated. [City Government of San Pablo, Laguna vs. Reyes. GR No. 127708. March 25, 1999] The definition of common carriers in the Civil Code makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipes line operators are considered common carriers. It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax. Petitioner is already paying 3% common carriers tax on its gross sales/earnings under the NIRC. To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the LGC. [First Philippine Industrial Corp vs. Court of Appeals. GR No. 125948. December 29, 1998] It is clearly apparent from Section 151 of the NIRC levies a tax on all quarry resources, regardless of origin, whether extracted from public or private land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the NIRC. The province can, however, impose a tax on stones, sand, gravel, earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code. As to stones, sand, gravel, earth and other quarry resources extracted from private land, however, it may not do so, because of the limitation provided by Section 133 of the Code in relation to Section 151 of the NIRC. A province may not invoke the Regalian doctrine to extend the coverage of its ordinance to quarry resources extracted from private lands, for taxes, being burdens, are not to be presumed beyond what the applicable statute expressly and clearly declares, tax statutes being construed strictissimi juris against the government. [Province of Bulacan vs. Court of Appeals [GR No. 126232. November 27, 1998] Where the Secretary of Justice reviews, pursuant to law, a tax measure enacted by a local government unit to determine if the officials performed their function in accordance with law, that is, with the prescribed procedure for the enactment of tax ordinances and the grant of powers under the Local Government Code, the same is an act of mere supervision, not control. [Drilon vs. Lim. GR No. 112497. August 4, 1997] The Court may refuse the preliminary injunction with or without notice to the adverse party where ground for objection is apparent from the complaint itself. Section 7 of Rule 58 of the Rules of Court merely specify the actions that the court may take on the application for the writ if there is a hearing on the merits; it does not declare that such hearing is mandatory or a prerequisite therefore. A court should issue a writ of preliminary injunction only when the petitioner assailing a statute has made out a case of unconstitutionality or invalidity strong enough to overcome, in the mind of the judge, the presumption of validity, aside from a showing of a clear legal right to the remedy sought. [Valley Trading Co. Inc vs. CFI of Isabela. GR No. 49529. March 31, 1989]

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For tax purposes, a manufacturer does not necessarily become engaged in the separate business of selling simply because it sells the products it manufactures. In certain cases, however, a manufacturer may also be considered as engaged in the separate business of selling its products. In determining whether a manufacturer is engaged in the separate business of selling, the companys marketing system must be considered. In several cases the Court had occasion to distinguish two marketing systems: Under the first system, a manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the companys warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage sites and delivery points of the products earlier sold at the main office. Under the second system, sales transactions are entered into and perfected at stores or warehouses maintained by the company. Anyone who desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers. Entities operating under the first system are NOT considered engaged in the separate business of selling or dealing in their products, independent of their manufacturing business. Entities operating under the second system are considered engaged in the separate business of selling. [Iloilo Bottlers, Inc vs. City of Iloilo. GR No. L-52019. August 19, 1988] A manufacturer with a factory in Pasig, Rizal but who employed a sales broker in Manila is subject to Manilas tax ordinance on manufacturers, as said tax is dependent on where taxable act is performed. The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the acts is performed or occupation engaged in. [Allied Thread Co. Inc. vs. City Mayor of Manila. GR No. L-40296. November 21, 1984] A CFI judge has authority to pass upon the validity of a city tax ordinance even after its validity had been contested before the Secretary of Justice and a decision rendered thereon by said official. Tersely and bluntly, petitioner would deny the jurisdiction of respondent Judge to pass upon the validity of a challenged ordinance is an appropriate action. To say the least, there is unorthodoxy in such an approach. What immediately calls the attention is its novelty. It is opposed to and is not in conformity with the accepted judicial norm that the validity of a statute, an executive order or ordinance is a matter for the judiciary to decide and that whenever in the disposition of a pending case such a question becomes unavoidable, then it is not only the power but the duty of the Court to resolve such a question. [San Miguel Corporation vs. Avelino. GR No. L-39699. March 14, 1979] 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 companys 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. A different interpretation would defeat the tax ordinance in question or encourage tax evasion through the simple expedient of arranging for the delivery of the matches at the outskirts of the city although the purchases were effected and paid for in the companys branch office in the city. [Philippine Match Co. Ltd. vs. City of Cebu. GR No. L-30745. January 18, 1978] The imposition of a tax of one centavo (P0.01) on each gallon of volume capacity on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity of the taxpayers production of soft drinks is considered solely for purposes of determining the tax rate on the products, but there is no set ratio between the volume of sales and the amount of the tax. Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits, wines, cigars and cigarettes, matches, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming
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drugs. Soft drinks is not one of those specified. [Pepsi-Cola Bottling Co. of the Phils., Inc. vs. Municipality of Tanauan, Leyte. GR No. L-31156. February 27, 1976] When we consider that the tax shall be based and computed from the cargo manifest or bill of lading showing the number of cases not sold but received by the taxpayer, the intention to limit the application of the ordinance to softdrinks and carbonated drinks brought into the City from outside thereof becomes apparent. Viewed from this angle, the tax partakes of the nature of an import duty, which is beyond the defendants authority to impose by express provision of law. [Pepsi-Cola Bottling Co of the Phils., Inc. vs. City of Butuan. GR No. L-22814. August 28, 1968]

Where the real property tax being assessed and collected is for 1990, the applicable law is the Real Property Tax Code (PD 464) and not the Local Government Code of 1991 (RA 7160). Petitioner points out that the APT erred in relying on Sales Analysis or Market Data Approach to determine the floor bid price. The Sales Analysis or Market Data Approach involves a comparison of the property appraised to similar properties sold in similar markets in order to derive a market value for the property to be appraised. Petitioner submits that in the instant case, no comparison with any similar property was ever made. Instead, the comparison was made to a bid price. Moreover, in using as basis the valuation of the APT, the LBAA failed to take into account other circumstances of value such as goodwill and future business potential. We agree that Section 28 of the Real Property Tax Code provides for a formula for computing the current market value of machineries. However it must be read in consonance with Section 3(n), which defines market value. Under the latter provision, the LBAA and CBAA were not precluded from adopting various approaches to value determination including the APT floor bid price for petitioners properties. [Cagayan Robina Sugar Milling Co. vs. Court of Appeals. GR No. 122451. October 12, 2000] Though the creation of the LRTA was impelled by public service to provide mass transportation to alleviate the traffic and transportation situation in Metro Manila its operation undeniably partakes of ordinary business. Petitioner is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. Indeed, it operates much like any private corporation engaged in the mass transport industry. Given that it is engaged in a service oriented endeavor, its carriageways and terminal stations are patrimonial property subject to tax, notwithstanding its claim of being a government owned or controlled corporation. Under the Real Property Tax Code, real property is classified for assessment purposes on the basis of actual use. Unlike public roads, which are open for use by everyone, the LRT is accessible only to those who pay the required fare. Although petitioner is a public utility, it is nonetheless profit earning. [Light Rail Transit Authority vs. Central Board of Assessment Appeals. GR No. 127316. October 12, 2000] Based on the evidence presented by the parties, the steps to be followed for the mandatory conduct of General Revision of Real Property assessments, pursuant to the provisions of Section 219 of RA 7160 are as follows: 1. The preparation of Schedule of Fair Market Values 2. The enactment of Ordinances: a) levying an annual ad valorem tax on real property and an additional tax accruing to the SEF; b) fixing the assessment levels to be applied to the market values of real properties; c) providing necessary appropriation to defray expenses incident to general revision of real property assessments; and d) adopting the Schedule of Fair Market Values prepared by the assessors. Coming down to specifics, we find it desirable to lay down the procedure in computing the real property tax. With the introduction of assessment levels, tax rates could be maintained, although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax. Moreover, classes and values of real properties can be given proper consideration, like assigning lower assessment levels to residential properties and higher levels to properties used in business. The procedural steps in computing the real property tax are as follows: 1) Ascertain
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the assessment level of the property; 2) Multiply the market value by the applicable assessment level of the property; 3) Find the tax rate which corresponds to the class (use) of the property and multiply the assessed value by the applicable tax rates. [Lopez vs. City of Manila. GR No. 127139. February 19, 1999] Section 3(n) of PD 464 merely defines market value. It does not in any way direct that the market value as defined therein should be used as basis in determining the value of a property for purposes of real property taxation. On the other hand, Section 5 provides unequivocally that all real property, whether taxable or exempt, shall be appraised at the current and fair market value prevailing in the locality where the property is situated. Section 24 merely lays down the general rule that assessments under PD 464 are to be given prospective application. It cannot be construed in such a manner as to eliminate the imposition of back taxes. If Section 24, instead of Section 25, were made to apply as suggested by the petitioner, he would in effect be excused from the payment of back taxes on the undeclared excess area of his property. The Court cannot allow a taxpayer to evade his obligation to the Government by letting him pay taxes on a property based on its gross undervaluation. [Sesbreno vs. Central Board of Assessment of Appeals. GR No. 106588. March 24, 1997] Since the last paragraph of the LGC unequivocally withdrew, upon effectivity of the LGC, exemptions from payment of real property taxes granted to natural or juridical persons, including government owned or controlled corporations, except as provided in the said section, and Mactan Cebu International Airport Authority is a government-owned corporation, it necessarily follows that its exemption from such tax granted it by Section 14 of its Charter RA 6958, has been withdrawn. [Mactan Cebu International Airport Authority vs. Marcos. GR No. 120082. September 11, 1996] It is a basic rule of statutory construction that repeals by implication are not favored and this is based on the rationale that the will of the legislature cannot be overturned by the judicial function of construction and interpretation. Courts cannot take the place of Congress in repealing statutes. Their function is to try to harmonize, as much as possible, seeming conflicts in the law and resolve doubts in favor of their validity and co-existence. While RA 7160 covers almost all governmental functions delegated to local government units all over the country, PD 921 embraces only the Metropolitan Manila area and is limited to the administration of financial services therein, especially the assessment and collection of real estate (and some other local) taxes. Although, as a rule, administrative remedies must first be exhausted before resort to judicial action can prosper, there is a well-settled exception in cases where the controversy does not involve questions of fact but only of law. Thus, there was no need to file an appeal with the LBAA since the petitioners are not questioning merely the amounts of the increase of the tax but on the very validity of any increase. [Ty vs. Trampe. GR No. 117577. December 1, 1995] Tax declarations are not conclusive of the nature of the property for zoning purposes. Even if we are to examine the evidentiary value of a tax declaration under the Real Property Tax Code, a tax declaration only enables the assessor to identify the same for assessment levels. In fact, it does not bind a provincial/city assessor, for under Section 22 of the Real Estate Tax Code, appraisal and assessment are based on the actual use irrespective of any previous assessment or taxpayers valuation thereon, which is based on a taxpayers declaration. [Patalinghug vs. Court of Appeals. GR No. 104786. January 27, 1994] Section 9 of PD 921 is specific and mandatory. The undisputed fact that the City Assessor of Quezon City solely prepared the Schedule of Market Values in question, without the participation of the other City Assessors of Metropolitan Manila indicates that the said Schedule of Market Values was prepared contrary to and unauthorized under Section 9 of PD921. Laws are repealed only by subsequent ones. An executive order like EO 392 cannot repeal legislative act like PD921. A legislative Act can only be repealed by a subsequent legislative Act. [Mathay, Jr. vs. Macalincag. GR No. 97618. December 16, 1993]
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Under PD 464, notices of the sale of the public auction may be sent to the delinquent taxpayer either (i) at the address as shown in the tax rolls or property tax record cards of the municipality or city where the property is located or (ii) at his residence, if known to such treasurer or barrio captain. [Pecson vs. Court of Appeals. GR No. 105360. May 25, 1993] Under the Real Property Tax Code (PD 464, as amended), it is declared that the first Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes is that the property must be appraised at its current and fair market value. In this case, the Income Approach should be used. The properties covered by PD 20 definitely has a lower market value than those properties not covered in view of the restrictions imposed thereon. There were no willing buyers so that there can be no reasonable basis for the conclusion that these properties are comparable with other residential properties. [Reyes vs. Almanzor. GR No. 49839-46. April 26, 1991] Gasoline station equipment and machineries are permanent fixtures for purposes of realty taxation. Improvements on land are commonly taxed as realty even though for some purposes they might be considered personalty. It is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property.The said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas station, for without them the gas station would be useless, and which have been attached or affixed permanently to the gas station site or embedded therein, are taxable improvements and machinery within the meaning of the Assessment Law and the Real Property Tax Code. For real property tax purposes such personal properties may be considered as real property if they are essential and principal elements of the business being conducted in said land or building. [Caltex (Phil.) Inc. vs. Central Board of Assessment Appeals. GR No. L-50466. May 31, 1982] Meralco Securities insists that its pipeline is not subject to realty tax because it is not real property within the meaning of Article 415 NCC. This contention is not sustainable under the provision of the Assessment Law, the Real Property Tax Code and the Civil Code. Section 2 of the Assessment Law provides that the realty tax is due on real property, including land, buildings, machineries and other improvements not specifically exempted in Section 3 thereof. It is incontestable that the pipeline of Meralco Securities does not fall within any of the classes of exempt real property enumerated. Realty tax has always been imposed by the law-making body and later by the President of the Philippines in the exercise of his lawmaking powers. The realty tax is enforced throughout the Philippines and not merely in a particular municipality or city but the proceeds of the tax accrue to the province, city, municipality and barrio where the realty taxed is situated. In contrast, a local tax is imposed by municipal or city council by virtue of the Local Tax Code. [Meralco Securities Industrial Corporation vs. Central Board of Assessment Appeals. GR No. L-46245. May 31, 1982] An installment purchaser of land and building within the housing project of the GSIS is liable to pay real estate taxes from the time possession was transferred to him although pending full payment of the purchase price. The delivery of possession by the seller GSIS to the purchaser was clearly with the intention of passing to the latter the possession, use and control over said property, and all the other attributes of ownership short of the naked ownership, such that it included in said transfer the incidental obligation to pay the taxes thereon, for nothing more was left to the GSIS except its right to receive full payment of the purchase price. [City of Baguio vs. Busuego. GR No. L-29772. September 18, 1980] Movable equipments, to be immobilized in contemplation of Article 415 of the Civil Code, must be the essential and principal elements of the industry or works which are carried on in a building or on a piece of land. Thus, where the business is one of transportation, which is carried on without a repair or service shop, and its rolling equipment is repaired or serviced in a shop belonging to another, the tools and equipments in its repair shop which appear movable are merely
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incidentals and may not be considered immovables, and, hence, not subject to assessment as real estate for purposes of real estate tax. [Mindanao Bus Co. vs. City Assessor and Treasurer. GR No. L-17870. September 29, 1962]

Even if it be assumed that in the exercise of the Collector of Customs of its exclusive jurisdiction over seizure and forfeiture cases, a taint of illegality is correctly imputed, the most that can be said is that under these circumstances, grave abuse of discretion may oust it of its jurisdiction. This does not mean, however, that the trial court is vested with competence to acquire jurisdiction over these seizure and forfeiture cases. The proceedings before the Collector of Customs are not final. An appeal lies to the Commissioner of Customs and thereafter to the Court of Tax Appeals. It may even reach this Court through an appropriate petition for review. The proper ventilation of the legal issues is thus indicated. Certainly, the Regional Trial Court is not included therein. [Zuo vs. Cabredo. A.M. No. RTJ-03-1779. April 30, 2003] The use of generic term or a general description in a warrant is acceptable only when a more specific description of the things to be seized is unavailable. Where, by the nature of the goods to be seized, their description must be rather general, it is not required that a technical description be given, as this would mean that no warrant could issue. The legality of seizure can be contested only by the party whose rights have been impaired thereby, and the objection to an unlawful search and seizure cannot be availed of by third parties. [Uy vs. Bureau of Internal Revenue. GR No. 129651. October 20, 2000] The forfeiture of the subject machineries is not dependent on whether or not the importation was terminated; rather it is premised on the illegal withdrawal of goods from Customs custody. Regardless of the termination of importation, Customs authorities may validly seize goods, which for all intents and purposes, still belong to the government. This is so because forfeiture takes effect immediately upon commission of the offense. The forfeiture of the subject machineries therefore, retroacted to the date they were illegally withdrawn from Customs custody. [Carrara Marble Philippines, Inc. vs. Commissioner of Customs. GR No. 129680. September 1, 1999] As a means of settlement, redemption of forfeited property is unavailing in three instances, namely, when there is fraud, when the importation is absolutely prohibited or where the release of the property would be contrary to law. The fraud contemplated by law must be actual and not constructive it must be intentional, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some right. Misdeclarations in the manifest and ride cannot ascribe to the consignee where it was not the one that prepared them. [Transglobe International, Inc. vs. Court of Appeals. GR No. 126634. January 25, 1999] Under the Tariff and Customs Code, declarations and statements contained in the Import Entry Permit are presumed to be true and correct under the penalties of falsification and perjury. Moreover, descriptions in entries and other documents are admissions against interest and presumptively correct. [Caltex (Philippines), Inc. vs. Court of Appeals. GR No. 104781. July 10, 1998] RTCs are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these proceedings. The Collector of Customs has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The RTCs are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus. Actions of the Collector of Customs are appealable to the Commissioner of Customs, whose decision in turn is subject to the exclusive appellate jurisdiction of the CTA. [Jao vs. Court of Appeals. GR No. 104604. October 6, 1995]
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Under Section 3601 of the Tariff and Customs Code, smuggling is committed by any person who: (1) fraudulently imports or brings into the Philippines or assists in importing or bringing into the Philippines any article, contrary to law; or (2) receives, conceals, buys, sells or in any manner facilitates the transportation, concealment or sale of such article after importation, knowing the same to have been imported contrary to law. Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unload and is deemed terminated upon payment of the duties, taxes and other charges due upon the articles and the legal permit for withdrawal shall have been granted. If the articles are free of duties, taxes and other charges, importation is terminated until the articles have legally left the jurisdiction of the customs. If upon trial the defendant is found to have been in possession of smuggled articles, this shall be sufficient to authorize conviction unless the defendant explains his possession to the satisfaction of the court. [Rodriguez vs. Court of Appeals. GR No. 115218. September 18, 1995] The enforcement of the import ban under Section 36, par (1) of the Revised Forestry Code is within the exclusive realm of the Bureau of Customs, and direct recourse of petitioner to the RTC to compel the Commissioner of Customs to enforce the ban is devoid of merit. The claim of petitioner that no procedure is outlined for the enforcement of the import ban under the Tariff and Customs Code, if true, does not at all diminish the jurisdiction of the Bureau of Customs over the subject matter. The enforcement of statutory rights is not foreclosed by the absence of statutory procedure. The Commissioner has the power to promulgate all rules and regulations necessary to enforce the provisions of this (Tariff and Customs) Code subject to the approval of the Secretary of Finance. [Provident Tree Farms, Inc. vs. Batario, Jr. GR No. 92285. March 28, 1994] The penalty of forfeiture is imposed on any vessel engaged in smuggling if the conditions enumerated in section 2530 (a) are present. These conditions are: (1) the vessel is used unlawfully in the importation or exportation of articles into or from the Philippines; (2) the articles are imported or exported into or from any Philippine port or place, except a port of entry; or (3) if the vessel has a capacity of less than 30 tons and is used in the importation of articles into any Philippine port or place other than a port of the Sulu Sea, where importation in such vessel may be authorized by the Commissioner, with the approval of the department head. A vessel engaged in smuggling in a port of entry cannot be forfeited. This is the clear and plain meaning of the law. It is not within the province of the Court to inquire into the wisdom of the law, for indeed we are bound by the words of the statute. Forfeiture proceedings are proceedings in rem and are directed against the res. It is no defense that the owner of the vessel sought to be forfeited had no actual knowledge that his property was used illegally. The absence or lack of actual knowledge of such use is a defense personal to the owner himself which cannot in any way absolve the vessel from the liability of forfeiture. [Commissioner of Customs vs. Manila Star Ferry, Inc. GR Nos. 31776-78. October 21, 1993] The port of Kiwalan not being included in the list of national ports appended to Customs Memorandum Circular No. 33-73, nor in EO 72, it follows that the Court may not properly consider said port as a National Port. It is the considered opinion of the Court that under Section 2901 of the tariff and Customs Code as amended by PD 34, only vessels berthing at National Ports are liable for berthing fees. Thus, no berthing charges may be collected from vessels moored at municipal ports nor may berthing charges be imposed by municipal council. [Commissioner of Customs vs. Court of Tax Appeals and Litonjua Shipping Company. GR 48886-88. July 21, 1993] Under Section 2530 (m) subparagraph (3) and (4) of the Tariff and Customs Code, the requisites for forfeiture are: (1) the wrongful making by the owner, importer, exporter, or consignee of any declaration or affidavit, or the wrongful making or delivery by the same persons of any invoice, letter or paper all touching on the importation or exportation of merchandise; and (2) that such declaration, affidavit, invoice, letter or paper is false. The fraud contemplated by law
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must be actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some right. [Farolan, Jr. vs. Court of Tax Appeals. GR 42204. January 21, 1993] Section 28 (2) of Article VI of the Constitution provides as follows: (2) The Congress may, by law authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government. The President may increase tariff rates as authorized by law even for revenue purposes only. The levying of customs duties on imported goods may have in some measure and effect of protecting local industries where such local industries actually exist and are producing comparable goods. Simultaneously, however, the very same customs duties inevitably have the effect of producing governmental revenues. Customs duties like internal revenue taxes are rarely, if not ever, designed to achieve one policy objective only. [Garcia vs. Executive Secretary. GR No. 101273. July 3, 1992] That search and seizure must be supported by a valid warrant is not an absolute rule. There are at least three well-recognized exceptions. These are (1) a search incidental to an arrest; (2) a search of a moving vehicle; and (3) seizure of evidence in plain view. The circumstances of the case clearly show that the search in question was made as regards a moving vehicle. Therefore a valid warrant is not necessary to effect the search on appellant. The fact that there is actual conveyance of the prohibited drugs suffices to support a finding that the act of transporting was committed. It is immaterial whether or not the place of destination is reached. [People vs. Lo Ho Wing. GR No. 88017. January 21, 1991] A notice of hearing posted on the bulletin board of public respondent in a forfeiture proceeding where the owner of the alleged prohibited article is known does not constitute sufficient compliance with proper service of notice and procedural due process. Time and time again, the Court has emphasized the imperative necessity for administrative agencies, like the Bureau of Customs, to observe the elementary rules of due process. Inasmuch as it would be contrary to law, i.e. BP 73 which prohibits the importation of gasoline powered cars with engine displacement of a certain kind in order to conserve energy, to allow the petitioner to redeem the Mercedes Benz in question, there is, therefore, no alternative, as correctly claimed by public respondents, but to forfeit the same. [Paterok vs. Bureau of Customs. GR Nos. 90660-61. January 21, 1991] In fine, Central Bank Circular Nos. 265 and 534 requiring prior Central Bank authority for the taking out of the country of foreign currency should not be made to encompass foreign currency depositors whose rights are expressly defined and guaranteed in a special law, Foreign Currency Deposit Act (RA 6426, as amended). As a foreign currency depositor, therefore, petitioner cannot be adjudged to have violated the aforesaid Central Bank Circulars. It follows that neither is there room for the application of Section 2530 (f) of the Tariff and Customs Code, as amended, which provides for the forfeiture of any article and other objects, the exportation of which is effected or attempted contrary to law. [Cancio vs. Court of Tax Appeals. GR No. L-73882. October 22, 1987] It is hard to imagine that an incoming passenger who had all the intentions of declaring a large quantity of fancy jewelries and stones (3,000 pieces) would undertake the trouble of painstakingly and meticulously sewing said articles one by one beneath the lining of her bag and the corners of a blanket only to tear open the linings and detach the articles one by one for inspection. Her tenuous explanation that she did it for security reasons is too flimsy a pretense to be admitted as true. [Tan vs. Court of Appeals. GR No. L-56866. June 27, 1985]
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In our view, the complementary, if collateral use, of the Cessna plane for smuggling operation is sufficient for it to be deemed to have been used unlawfully in the importation or smuggling of blue seal cigarettes. Under Section 2530(a) of the Tariff and Customs Code, in order to warrant forfeiture, it is not necessary that the vessel or aircraft must itself carry the contraband. There is nothing in the law that so requires. [Llamado vs. Commissioner of Customs. GR No. L28809. May 16, 1983] The law is clear and mandatory. The dutiable value of an imported article subject to an ad valorem rate of duty is based on its home consumption value or price as freely offered for sale in wholesale quantities in the ordinary course of trade in the principal markets of the country from were exported on the date of exportation to the Philippines. That home consumption value or price is the value or price declared in the consular, commercial, trade or sales invoice. Where there is a reasonable doubt as to the value of the imported article, the correct dutiable value is to be ascertained from the reports of the Revenue Attach or Commercial Attach and from such other information that may be available to the Bureau of Customs. [Acting Commissioner of Customs vs. Wise and Company, Inc. GR No. 47890. October 16, 1982] The court a quo has no jurisdiction over the res subject of the warrant of seizure and detention. By express provision of law, amply supported by well-settled jurisprudence, the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings and regular courts cannot interfere with his exercise thereof or stifle or put it to naught. That in his complaint private respondent alleges ownership over several vehicles which are legally registered in his name, having paid all the taxes and corresponding licenses incident thereto, neither divests the Collector of Customs of such jurisdiction nor confers upon the said trial court regular jurisdiction over the case. Even the illegality of the warrant of seizure and detention cannot justify the trial courts interference with the Collectors jurisdiction. In the first place, there is a distinction between the existence of the Collectors power to issue it and the regularity of the proceeding taken under such power. In the second place, even if there be such an irregularity in the latter, the RTC does not have the competence to review, modify or reverse whatever conclusions may result from them. [Mison vs. Natividad. GR No. 82586. September 11, 1982] The Code authorizes persons having police authority under Section 2203 of the Tariff and Customs Code to enter, pass through or search any land, inclosure, warehouse, store or building, not being a dwelling house, and also to inspect, search and examine any vessel or aircraft and any trunk, package, box or envelope or any person on board, or stop and search and examine any vehicle, beast or person suspected of holding or conveying any dutiable or prohibited article introduced into the Philippines contrary to law, without mentioning the need of a search warrant in said cases. But in the search of a dwelling house, the Code provides that said dwelling house may be entered and searched only upon warrant issued by a judge or justice of the peace . It is our considered view, therefore, that except in the cause of the search of a dwelling house, persons exercising police authority under the customs law may effect search and seizure without a search warrant in the enforcement of customs laws. [Viduya vs. Berdiago. GR No. L-29218. October 29, 1976] Although the illegally imported subject tobacco may not be absolutely prohibited, but only qualifiedly prohibited under Section 102 (K) of the Tariff and Customs Code, for it may be imported subject to certain conditions, it is nonetheless prohibited and is a contraband, and the legal effects of the importation of qualifiedly prohibited articles are the same as those of absolutely prohibited articles. The importer of the subject tobacco, the importation of which is prohibited by law, has no right that the tobacco be released to him even if he puts up a bond to be determined by the collector. [Auyong Hian vs. Court of Tax Appeals. GR No. L-28782. September 12, 1974] The Collector of Customs may order seizure of untaxed goods without being liable for usurpation of judicial function. The Collector of Customs has the requisite authority to issue a
64

warrant of seizure and detention for an automobile whose duties and taxes have not been paid for. In exercising this authority, the collector has not committed a violation of the constitutional right against unreasonable search and seizure and he may not be prosecuted for the criminal offense of usurpation of judicial function. [Pacis vs. Pamaran. GR No. L-23996. March 15, 1974] Merchandise, when used with reference to importations or exportations, includes goods, wares, and in general anything that may be made the subject of importation or exportation. US dollars, having ceased to be legal tender in the Philippines, fall within the meaning of the term merchandise. In addition, that part of the definition of merchandise which states, in general anything that may be made the subject of importation or exportation is sufficiently clear and comprehensive to include checks and money orders. [Bastida vs. Acting Commissioner of Customs. GR No. L-24011. October 24, 1970] Importation is deemed terminated only upon the payment of the duties, taxes and other charges upon the articles, or secured to be paid, at the port of entry and the legal permit for withdrawal shall have been granted. The payment of the duties taxes, fees and other charges must be in full. Merchandise, the importation of which is effected contrary to law, is subject to forfeiture, and goods released contrary to law are subject to seizure and forfeiture. Even if the goods in question have been brought out of the customs area and that the Bureau of Customs had lost jurisdiction over the same, nevertheless, when said goods were intercepted at the Agrifina Circle by members of the Manila Police Department acting under directions and orders of their chief who had been formally deputized by the Commissioner of customs, the Bureau of customs had regained jurisdiction and custody of the goods. It is the settled rule, therefore, that the Bureau of Customs acquires exclusive jurisdiction over imported goods, for the purposes of enforcement of the customs laws, from the moment goods are actually in its possession or control even if no warrant or detention had previously been issued by the collector of Customs in connection with seizure and forfeiture proceedings. The Tariff and Customs Code does not require any search warrant issued by a competent court before police authorities can effect the seizure. But the Code requires it in case of search of a dwelling house. Therefore, except if in the case of the search of a dwelling house, persons exercising police authority under the customs laws may effect search and seizure without a search warrant in the enforcement of customs laws. [Papa vs. Mago. GR No. L-27360. February 28, 1968]

Taxation Law - Case Digest (Part 1)

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Taxation Law - Case Digest (Part 1)

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Case TAXATION LAW Digests

San Beda College of Law

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