Case Digests

TAXATION I - CASE DIGESTS First Semester, SY 2011-2012
Case Digests in Taxation La

Submitted By: Antonio, Evangeline B. Caoayan, Billy Bryan Dumaguing, Karina Mara Esguerra, Manilyn Vinluan, Veronica
_Saint Louis University School of Law_
Topic: Power to destroy vis--vis Power to Build SISON vs. ANCHETA G. . No. !-"#$%& 'uly (") &#*$ +ACTS: The challenged posed is a suit for declaratory relief or prohibition on the validity of Section 1 of Batas PambansaBlg. 135. The assailed provision further amends Sec. 21 of the N !" of 1#$$% &hich provides for the rate ta' on residents or citi(ens on )a* ta'able compensation income% )b* ta'able net income% )c* royalties% pri(es% and other &innings% )d* interests from ban+ deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements% )e* dividends and share from individual partner in the net profits of ta'able partnership% )f* ad,usted gross income. Sison% as ta'payer% alleged that its provision )Section 1* unduly discriminated against him by the imposition of higher rates upon his income as a professional% that it amounts to class legislation% and that it transgresses against the e-ual protection and due process clauses of the "onstitution as &ell as the rule re-uiring uniformity in ta'ation. ISS,E: .hether BP 135 violates the due process and e-ual protection clauses% and the rule on uniformity in ta'ation/ ,!ING: There is a need for proof of such persuasive character as &ould lead to a conclusion that there &as a violation of the due process and e-ual protection clauses. 0bsent such sho&ing% the presumption of validity must prevail. 1-uality and uniformity in ta'ation means that all ta'able articles or +inds of property of the same class shall be ta'ed at the same rate. The ta'ing po&er has the authority to ma+e reasonable and natural classifications for purposes of ta'ation. .here the differentiation conforms to the practical dictates of ,ustice and e-uity% similar to the standards of e-ual protection% it is not discriminatory &ithin the meaning of the clause and is therefore uniform. Ta'payers may be classified into different categories% such as recipients of compensation income as against professionals. !ecipients of compensation income are not entitled to ma+e deductions for income ta' purposes as there is no practically no overhead e'pense% &hile professionals and businessmen have no uniform costs or e'penses necessary to produce their income. There is ample ,ustification to adopt the gross system of income ta'ation to compensation income% &hile continuing the system of net income ta'ation as regards professional and business income.
Topic: Power to destroy vis--vis Power to Build
PHI!IPPINE HEA!TH CA E P O-I.E S -S. CI G. . NO. &/0%%1 SEPTE2BE &*) (11# +ACTS: Philippine 2ealth "are Providers% nc. is a domestic corporation &hose primary purpose is 34t5o establish% maintain% conduct and operate a prepaid group practice health care delivery system or a health maintenance organi(ation to ta+e care of the sic+ and disabled persons enrolled in the health care plan and to provide for the administrative% legal% and financial responsibilities of the organi(ation.3 ndividuals enrolled in its health care programs pay an annual membership fee and are entitled to various preventive% diagnostic and curative medical services provided by its duly licensed physicians% specialists and other professional technical staff participating in the group practice health delivery system at a hospital or clinic o&ned% operated or accredited by it. 6anuary 2$% 27778 "ommissioner of nternal !evenue )" !* sent petitioner a formal demand letter and the corresponding assessment notices demanding the payment of deficiency ta'es% including surcharges and interest% for the ta'able years 1##9 and 1##$ in the total amount of P22:%$72%9:1.1;. ISS,E8 1. .<N the Philippine 2ealth "are Providers% nc )2=>* &as engaged in the business of insurance during the pertinent ta'able years HE!.8 N> Section 2 )2* of P?27 1:97 )other&ise +no&n as the nsurance "ode* enumerates &hat constitutes 3doing an insurance business3 or 3transacting an insurance business83 a* ma+ing or proposing to ma+e% as insurer% any insurance contract@ b* ma+ing or proposing to ma+e% as surety% any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety@ c* doing any +ind of business% including a reinsurance business% specifically recogni(ed as constituting the doing of an insurance business &ithin the meaning of this "ode@ d* doing or proposing to do any business in substance e-uivalent to any of the foregoing in a manner designed to evade the provisions of this "ode. No profit is derived from the ma+ing of insurance contracts% agreements or transactions or that no separate or direct consideration is received therefore% shall not be deemed conclusive to sho& that the ma+ing thereof does not constitute the doing or transacting of an insurance business
Topic: I3port45ce o6 T474tio5 8 t9e !i6e:lood .octri5e CO22ISSIONE vs. A!G,E G. . 5o. !-(**#1 +e:ru4ry &0) &#** +ACTS: The Philippine Sugar 1state ?evelopment "ompany )PS1?"* appointed 0lgue nc. as its agent% authori(ing it to sell its land% factories% and oil manufacturing process. The Aegetable >il nvestment "orporation )A> "P* purchased PS1?" properties. Bor the sale% 0lgue received a commission of P125%777 and it &as from this commission that it paid Cuevara% et. al. organi(ers of the A> "P% P$5%777 in promotional fees. n 1#95% 0lgue received an assessment from the "ommissioner of nternal !evenue in the _Saint Louis University School of Law_
amount of P;3%1;3.;5 as delin-uency income ta' for years 1#5;amd 1#5#. 0lgue filed a protest or re-uest for reconsideration &hich &as not acted upon by the Bureau of nternal !evenue)B !*. The counsel for 0lgue had to accept the &arrant of distrait and levy. 0lgue% ho&ever% filed a petition for revie& &ith the "ourt of Ta' 0ppeals. ISS,E: .hether the assessment &as reasonable/ ,!ING: Ta'es are the lifeblood of the government and so should be collected &ithout unnecessary hindrance. 1very person &ho is able to pay must contribute his share in the running of the government. The Covernment% for his part% is e'pected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of ta'ation and should dispel the erroneous notion that is an arbitrary method of e'action by those in the seat of po&er. Ta' collection% ho&ever% should be made in accordance &ith la& as any arbitrariness &ill negate the very reason for government itself. Bor all the a&esome po&er of the ta' collector% he may still be stopped in his trac+s if the ta'payer can demonstrate that the la& has not been observed. 2erein% the claimed deduction )pursuant to Section 37 4a5 415 of the Ta' "ode and Section $7 415 of !evenue !egulation 28 as to compensation for personal services* had been legitimately by 0lgue nc. t has further proven that the payment of fees &as reasonable and necessary in light of the efforts e'erted by the payees in inducing investors )in A> "P* to involve themselves in an e'perimental enterprise or a business re-uiring millions of pesos. The assessment &as not reasonable.
Topic: I3port45ce o6 T474tio5 8 t9e !i6e:lood .octri5e NAPOCO vs. CIT; O+ CABANAT,AN G. . No. &$#&&1) April #) (11% +4cts: NP"% a C>""% created under "0 127 as amended% selling electric po&er% &as assessed by the "ity of "abanatuan for franchise ta' pursuant to sec. 3$ of >rdinance No. 195D#2. NP" refused to pay the ta' assessment on the grounds that the "ity of "abanatuan has no authority to impose ta' on government entities and also that it is e'empted as a nonDprofitorgani(ation. Bor its part% the "ity government alleged that NP"Es e'emption from local ta'es has been repealed by sec. 1#3 of !0 $197.
Issue: .hether NP" is liable to pay an annual franchise ta' to the "ity government Held: >ne of the most significant provisions of the FC" is the removal of the blan+et e'clusion of instrumentalities and agencies of the national government from the coverage of local ta'ation. 0lthough as a general rule% FCGs cannot impose ta'es% fees or charges of any +ind on the National Covernment% its agencies and instrumentalities% this rule no& admits an e'ception% i.e.% &hen specific provisions of the FC" authori(e the FCGs to impose ta'es% fees or charges on the aforementioned entities. 0s commonly used% a franchise ta' is 3a ta' on the privilege of transacting business in the state and e'ercising corporate franchises granted by the state.3 t is not levied on the corporation simply for e'isting as a corporation% upon its property or its income% but on its e'ercise of the rights or privileges granted to it by the government. 2ence% a corporation need not pay franchise ta' from the time it ceased to do business and e'ercise its franchise. t is &ithin this conte't that the phrase 3ta' on businesses en,oying a franchise3 in section 13$ of the FC" should be interpreted and understood. Aerily% to determine &hether the petitioner is covered by the franchise ta' in -uestion% the follo&ing re-uisites should concur8 )1* that petitioner has a 3franchise3 in the sense of a secondary or special franchise@ and )2* that it is e'ercising its rights or privileges under this franchise &ithin the territory of the respondent city government. NP" fulfills both re-uisites. To stress% a franchise ta' is imposed based not on the o&nership but on the e'ercise by the corporation of a privilege to do business. The ta'able entity is the corporation &hich e'ercises the franchise% and not the individual stoc+holders. By virtue of its charter% petitioner &as created as a separate and distinct entity from the NationalCovernment. t can sue and be sued under its o&n name% and can e'ercise all the po&ers of a corporation under the "orporation "ode. .e also do not find merit in the petitionerHs contention that its ta' e'emptions under its charter subsist despite the passage of the FC". 0s a rule% ta' e'emptions are construed strongly against the claimant. 1'emptions must be sho&n to e'ist clearly and categorically% and supported by clear legal provisions. n the case at bar% the petitionerHs sole refuge is section 13 of !ep. 0ct No. 93#5 e'empting from% among others% 3all income ta'es% franchise ta'es and realty ta'es to be paid to the National Covernment% its provinces% cities% municipalities and other government agencies and instrumentalities.3 t is &orth mentioning that section 1#2 of the FC" empo&ers the FCGs% through ordinances duly approved% to grant ta' e'emptions% initiatives or reliefs.$$ But in enacting section 3$ of >rdinance No. 195D#2 &hich imposes an annual franchise ta' _Saint Louis University School of Law_
3not&ithstanding any e'emption granted by la& or other special la&%3 the respondent city governmentclearly did not intend to e'empt the petitioner from the coverage thereof. ?oubtless% the po&er to ta' is the most effective instrument to raise needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general &elfare and the enhancement of peace% progress% and prosperity of the people. 0s this "ourt observed in the =actan case% 3theoriginal reasons for the &ithdra&al of ta' e'emption privileges granted to governmentDo&ned or controlled corporations and all other units of government &ere that such privilege resulted in serious ta' base erosion and distortions in the ta' treatment of similarly situated enterprises.3 .ith the added burden of devolution% it is even more imperative forgovernment entities to share in the re-uirements of development% fiscal or other&ise% by paying ta'es or other charges due from them.
Topic: O:<ectives o6 T474tio5:
e=ul4tio5
PHI!IPPINE AI !INES vs. E., G. . No. !- $&%*% Au=ust &") &#** +ACTS: P0F is a corporation organi(ed and e'isting under the la&s of the Philippines and engaged in the air transportation business under a legislative franchise% 0ct No. :2$3#% as amended by !epublic 0ct Nos. 25* and 29#.1 Gnder its franchise% P0F is e'empt from the payment of ta'es. >n the strength of an opinion of the Secretary of 6ustice )>p. No. 37$% series of 1#59* P0F has ) since 1#59% not been paying motor vehicle registration fees. Sometime in 1#$1% ho&ever% appellee "ommissioner !omeo B. 1levate issued a regulation re-uiring all ta' e'empt entities% among them P0F to pay motor vehicle registration fees. ?espite P0FHs protestations% the appellee refused to register the appellantHs motor vehicles unless the amounts imposed under !epublic 0ct :139 &ere paid. The appellant thus paid% under protest% the amount of P1#% 52#.$5 as registration fees of its motor vehicles. P0F demanding a refund of the amounts paid% invo+ing the ruling in "alalang v. Foren(o )#$ Phil. 212 41#515* &here it &as held that motor vehicle registration fees are _Saint Louis University School of Law_
in reality ta'es from the payment of &hich P0F is e'empt by virtue of its legislative franchise. 0ppellee 1du denied the re-uest for refund basing his action on the decision in !epublic v. Philippine !abbit Bus Fines% nc.% )32 S"!0 211% =arch 37% 1#$7* to the effect that motor vehicle registration fees are regulatory e'ceptional and not revenue measures and% therefore% do not come &ithin the e'emption granted to P0F under its franchise. 2ence% P0F filed the complaint against Fand Transportation "ommission after paying under protest. ISS,E: .hether or not motor vehicle registration is considered ta'/ ,!ING: Ies% motor vehicle registration fees are no& considered revenue or ta' measures. This case reversed the doctrine in the Philippine !abbit Bus Fines to the effect that registration fees are regulatory e'actions and not revenues. !evised =otor Aehicle Fa& itself no& regards those fees as ta'es% for it provides that 3no other ta'es or fees than those prescribed in this 0ct shall be imposed%3 thus implying that the charges therein imposedJthough called feesJare of the category of ta'es. The provision is contained in section $7% of subsection )b*% of the la&% as amended by section 1$ of !epublic 0ct 5;$% &hich reads8 Sec. $7)b* No other ta'es or fees than those prescribed in this 0ct shall be imposed for the registration or operation or on the o&nership of any motor vehicle% or for the e'ercise of the profession of chauffeur% by any municipal corporation% the provisions of any city charter to the contrary not&ithstanding8 Provided% ho&ever% That any provincial board% city or municipal council or board% or other competent authority may e'act and collect such reasonable and e-uitable toll fees for the use of such bridges and ferries% &ithin their respective ,urisdiction% as may be authori(ed and approved by the Secretary of Public .or+s and "ommunications% and also for the use of such public roads% as may be authori(ed by the President of the Philippines upon the recommendation of the Secretary of Public .or+s and "ommunications% but in none of these cases% shall any toll fee.3 be charged or collected until and unless the approved schedule of tolls shall have been posted levied% in a conspicuous place at such toll station. Bees may be properly regarded as ta'es even though they also serve as an instrument of regulation. t is possible for an e'action to be both ta' and regulation. Ficense fees are charges loo+ed to as a source of revenue as &ell as a means of regulation )Son(in+y v. G.S.% 377 G.S. 579* This is true% for e'ample% of automobile license fees. n such case% the fees may properly be regarded as ta'es even though they also serve as an instrument of regulation. f the purpose is primarily revenue% or if revenue is at least one of the real and substantial purposes% then the e'action is properly called a ta'. )1#55 ""2 Bed. ta' "ourse% Par. 3171% citing "ooley on Ta'ation )2nd 1d.* 5#2% 5#3@ "alalang v. Foren(o. #$ Phil. 213D21:* Fut( v. 0raneta #; Phil. 1#;.* These e'actions are sometimes called regulatory ta'es. )See Secs. :$71% :$11% :$:1% :;71% :;11% :;51% and :;;1% G.S. nternal !evenue "ode of 1#5:% &hich classify ta'es on tobacco and alcohol as regulatory ta'es.* )Gmali% !evie&er in Ta'ation% 1#;7% pp. 12D 13% citing "ooley on Ta'ation% 2nd 1dition% 5#1D5#3*.
ndeed% ta'ation may be made the implement of the stateHs police po&er. f the purpose is primarily revenue% or if revenue is% at least% one of the real and substantial purposes% then the e'action is properly called a ta' )Gmali% d.* Such is the case of motor vehicle registration fees. The conclusions become inescapable in vie& of Section $7)b* of !ep. 0ct 5;$ -uoted in the "alalang case. The same provision appears as Section 5#1D5#3* in the Fand Transportation code. t is patent there from that the legislators had in mind a regulatory ta' as the la& refers to the imposition on the registration% operation or o&nership of a motor vehicle as a 3ta' or fee.3 Though no&here in !ep. 0ct :139 does the la& specifically state that the imposition is a ta'% Section 5#1D5#3* spea+s of 3ta'es.3 or fees ... for the registration or operation or on the o&nership of any motor vehicle% or for the e'ercise of the profession of chauffeur ...3 ma+ing the intent to impose a ta' more apparent. Thus% even !ep. 0ct 5::; cited by the respondents% spea+ of an 3additional3 ta'%3 &here the la& could have referred to an original ta' and not one in addition to the ta' already imposed on the registration% operation% or o&nership of a motor vehicle under !ep. 0ct :13;3. Simply put% if the e'action under !ep. 0ct :139 &ere merely a regulatory fee% the imposition in !ep. 0ct 5::; need not be an 3additional3 ta'. !ep. 0ct :139 also spea+s of other 3fees%3 such as the special permit fees for certain types of motor vehicles )Sec. 17* and additional fees for change of registration )Sec. 11*. These are not to be understood as ta'es because such fees are very minimal to be revenueDraising. Thus% they are not mentioned by Sec. 5#1D5#3 of the "ode as ta'es li+e the motor vehicle registration fee and chaufferEsH license fee. Such fees are to go into the e'penditures of the Fand Transportation "ommission. t is -uite apparent that vehicle registration fees &ere originally simple e'ceptional intended only for rigidly purposes in the e'ercise of the StateHs police po&ers. >ver the years% ho&ever% as vehicular traffic e'ploded in number and motor vehicles became absolute necessities &ithout &hich modem life as &e +no& it &ould stand still% "ongress found the registration of vehicles a very convenient &ay of raising much needed revenues. 0 registration payment as Kfees%L their nature has become that of 3ta'es.3 n pursuant to the Fand Transportation and Traffic "ode% ta'es can be intended for additional revenues of government even if one fifth or less of the amount collected is set aside for the operating e'penses of the agency administering the program.
TAXATION I - CASE DIGESTS 10 First Semester, SY 2011-2012
Topic: O:<ectives o6 T474tio5:
e=ul4tio5
TIO vs. -I.EOG A2 EG,!ATO ; BOA . &"& S (1* +ACTS: Petitioner% on his o&n behalf and purportedly on behalf of other videogram operators adversely affected% assailed the constitutionality of Presidential ?ecree No. 1#;$ entitled K0n 0ct "reating the Aideogram !egulatory BoardL &ith broad po&ers to regulate and supervise the videogram industry. Petitioner -uestioned the constitutionality of the decree on the grounds that8 )a* Section 17 thereof% &hich imposes a ta' of 37M on the gross receipts payable to the local government is a rider and the same is not germane to the sub,ect matter thereof@ )b* the ta' imposed is harsh% confiscatory% oppressive and<or in unla&ful restraint to trade in violation of the due process clause of the "onstitution@ )c* there is undue delegation of po&er. ISS,E: .hether or not the assailed ?ecree is unconstitutional/
,!ING: The po&er to impose ta'es is one so unlimited in force and so searching in e'tent% that the courts scarcely venture to declare that it is sub,ect to any restrictions &hatever% e'cept such as rest in the discretion of the authority &hich e'ercises it. n imposing a ta'% the legislature acts upon its constituents. This is% in general% a sufficient security against erroneous and oppressive ta'ation. >n the other hand% the levy of the 37M ta' is for public purpose. t &as imposed primarily to ans&er the need for regulating the video industry% particularly because of the rampant film piracy% the flagrant violation of intellectual property rights% and the _Saint Louis University School of Law_
proliferation of pornographic video tapes and &hile it &as also an ob,ective of the ?ecree to protect the movie industry% the ta' remains a valid imposition. The public purpose of a ta' may legally e'ist even if the motive &hich impelled the legislature to impose the ta' &as to favor one industry over the other. t is inherent in the po&er to ta' that a state be free to select the sub,ects of ta'ation% and it has been repeatedly held that ine-uities &hich result from a singling out of one particular class for ta'ation or e'emption infringe no constitutional limitation. Ta'ation has been made the implement of the stateEs police po&er. .ith regard to the issue that the ?ecree contains an undue delegation of legislative po&er% there is really no delegation of the po&er to legislate but merely a conferment functions of authority or discretion as to its e'ecution% enforcement% and implementation. t is important to note that only congressional po&er or competence% not the &isdom of the action ta+en% maybe the basis for declaring a statute invalid. The principle of separation of po&ers has in the main &isely allocated the respective authority to each department and confined its ,urisdiction to such a sphere. The attac+ on the validity of the challenged provision li+e&ise insofar as there may be ob,ections% even if valid and cogent on its &isdom cannot be sustained.
Topic: Co5cept o6 Allow4:le .eductio5s: .eductio5 vs. T47 Credit CO22ISSIONE O+ INTE NA! E-EN,E vs. CENT A! !,>ON . ,G CO PO ATION G. . No. &"#/$0 April &") (11" +ACTS: !espondent is a domestic corporation primarily engaged in retailing of medicines and other pharmaceutical products. !espondent granted t&enty )27M* percent sales discount to -ualified senior citi(ens on their purchases of medicines pursuant to !epublic 0ct No. $:32 and its mplementing !ules and !egulations. Bor the said period% the amount allegedly representing the 27M sales discount granted by respondent to -ualified senior citi(ens totaled P#7:%$9#.77. >n 0pril 15% 1##$% respondent filed its 0nnual ncome Ta' !eturn for ta'able year 1##9 declaring therein that it incurred net losses from its operations. >n 6anuary 19% 1##;% respondent filed &ith petitioner a claim for ta' refund<credit in the amount of P#7:%$9#.77 allegedly arising from the 27M sales discount granted by respondent to -ualified senior citi(ens in compliance &ith !.0. $:32. Gnable to obtain affirmative response from petitioner% respondent elevated its claim to the "ourt of Ta' 0ppeals. The "T0% in its assailed resolution% ordered herein petitioner to issue a Ta' "redit "ertificate in favor of respondent. >n appeal% the "0 affirmed in toto the !esolution of the "ourt of Ta' 0ppeals. ISS,E: .hether respondent% despite incurring a net loss% may still claim the 27 percent sales discount as a ta' credit/ ,!ING: Such credit can be claimed% even though an establishment operates at a loss. Since a ta' credit is used to reduce directly the ta' that is due% there ought to be a ta' liability before the ta' credit can be applied. .ithout that liability% any ta' credit application &ill be useless. There &ill be no reason for deducting the latter &hen there is% to begin &ith% no e'isting obligation to the government. 2o&ever% as &ill be presented shortly% the e'istence of a ta' credit or its grant by la& is not the same as the
availment or use of such credit. .hile the grant is mandatory% the availment or use is not. f a net loss is reported by% and no other ta'es are currently due from% a business establishment% there &ill obviously be no ta' liability against &hich any ta' credit can be applied. Bor the establishment to choose the immediate availment of a ta' credit &ill be premature and impracticable. Nevertheless% the irrefutable fact remains that% under !0 $:32% "ongress has granted &ithout conditions a ta' credit benefit to all covered establishments. 0lthough this ta' credit benefit is available% it need not be used by losing ventures% since there is no ta' liability that calls for its application. Neither can it be reduced to nil by the -uic+ yet callo& stro+e of an administrative pen% simply because no reduction of ta'es can instantly be effected. By its nature% the ta' credit may still be deducted from a future% not a present% ta' liability% &ithout &hich it does not have any use. n the meantime% it need not move. But it breathes.
Topic: I59ere5t !i3it4tio5s: Pu:lic Purpose PASC,A! vs. SEC ETA ; O+ P,B!IC ?O @S &&1 SC A %%& +ACTS: Petitioner .enceslaoPascual% as Provincial Covernor of !i(al% instituted this action for declaratory relief% &ith in,unction% upon the ground that !epublic 0ct No. #27% entitled 30n 0ct 0ppropriating Bunds for Public .or+s3% approved on 6une 27% 1#53% contained% in section 1D" )a* thereof% an item ):34h5* of P;5%777.77 3for the construction% reconstruction% repair% e'tension and improvement3 of Pasig feeder road terminals. The time of the passage and approval of said 0ct% the aforementioned feeder roads &ere 3nothing but pro,ected and planned subdivision roads% not yet constructed% . . . &ithin the 0ntonio Subdivision . . . situated at . . . Pasig% !i(al3% &hich pro,ected feeder roads 3do not connect any government property or any important premises to the main high&ay3@ that the aforementioned 0ntonio Subdivision )as &ell as the lands on &hich said feeder roads &ere to be construed* &ere private properties of respondent 6ose ". Nulueta% &ho% at the time of the passage and approval of said 0ct% &as a member of the Senate of the Philippines. !espondent Nulueta% addressed a letter to the =unicipal "ouncil of Pasig% !i(al% offering to donate said pro,ected feeder roads to the municipality of Pasig% !i(al@ the offer &as accepted by the council% sub,ect to the condition 3that the donor &ould submit a plan of the said roads and agree to change the names of t&o of them3@ that no deed of donation in favor of the municipality of Pasig &as% ho&ever% e'ecuted. ISS,E: .hether or not the contested item of !epublic 0ct No. #27 be declared null and void. .hether or not the alleged deed of donation of the feeder roads in -uestion be 3declared unconstitutional and% therefor% illegal/ ,!ING: t is a general rule that the legislature is &ithout po&er to appropriate public revenue for anything but a public purpose. t is the essential character of the direct ob,ect of the e'penditure &hich must determine its validity as ,ustifying a ta'% and not the magnitude of the interest to be affected nor the degree to &hich the general advantage of the community% and thus the public &elfare% may be ultimately benefited by their promotion. ncidental to the public or to the state% &hich results from the promotion of private interest and the prosperity of private enterprises or business% does not ,ustify their aid by the use public money. _Saint Louis University School of Law_
The rule is set forth in "orpus 6urisSecundum in the follo&ing language8 n accordance &ith the rule that the ta'ing po&er must be e'ercised for public purposes only% discussed supra sec. 1:% money raised by ta'ation can be e'pended only for public purposes and not for the advantage of private individuals. Cenerally% under the e'press or implied provisions of the constitution% public funds may be used only for public purpose. The right of the legislature to appropriate funds is correlative &ith its right to ta'% and% under constitutional provisions against ta'ation e'cept for public purposes and prohibiting the collection of a ta' for one purpose and the devotion thereof to another purpose% no appropriation of state funds can be made for other than for a public purpose. The test of the constitutionality of a statute re-uiring the use of public funds is &hether the statute is designed to promote the public interest% as opposed to the furtherance of the advantage of individuals% although each advantage to individuals might incidentally serve the public. The validity of a statute depends upon the po&ers of "ongress at the time of its passage or approval% not upon events occurring% or acts performed% subse-uently thereto% unless the latter consists of an amendment of the organic la&% removing% &ith retrospective operation% the constitutional limitation infringed by said statute. !eferring to the P;5%777.77 appropriation for the pro,ected feeder roads in -uestion% the legality thereof depended upon &hether said roads &ere public or private property &hen the bill% &hich% latter on% became !epublic 0ct #27% &as passed by "ongress% or% &hen said bill &as approved by the President and the disbursement of said sum became effective% or on 6une 27% 1#53 )see section 13 of said 0ct*. nasmuch as the land on &hich the pro,ected feeder roads &ere to be constructed belonged then to respondent Nulueta% the result is that said appropriation sought a private purpose% and hence% &as null and void. The donation to the Covernment% over five )5* months after the approval and effectivity of said 0ct% made% according to the petition% for the purpose of giving a 3semblance of legality3% or legali(ing% the appropriation in -uestion% did not cure its aforementioned basic defect. "onse-uently% a ,udicial nullification of said donation need not precede the declaration of unconstitutionality of said appropriation. 0gain% 0rticle 1:21 of our "ivil "ode% li+e many other statutory enactments% is sub,ect to e'ceptions. Bor instance% the creditors of a party to an illegal contract may% under the conditions set forth in 0rticle 11$$ of said "ode% e'ercise the rights and actions of the latter% e'cept only those &hich are inherent in his person% including therefore% his right to the annulment of said contract% even though such creditors are not affected by the same% e'cept indirectly% in the manner indicated in said legal provision. 0gain% it is &ellDstated that the validity of a statute may be contested only by one &ho &ill sustain a direct in,ury in conse-uence of its enforcement. Iet% there are many decisions nullifying% at the instance of ta'payers% la&s providing for the disbursement of public funds% upon the theory that 3the e'penditure of public funds by an officer of the State for the purpose of administering an unconstitutional act constitutes a misapplication of such funds%3 &hich may be en,oined at the re-uest of a ta'payer.0lthough there are some decisions to the contrary% the prevailing vie& in the Gnited States is stated in the 0merican 6urisprudence as follo&s8 n the determination of the degree of interest essential to give the re-uisite standing to attac+ the constitutionality of a statute% the general rule is that not only persons individually affected% but also ta'payers% have sufficient interest in preventing _Saint Louis University School of Law_
the illegal e'penditure of moneys raised by ta'ation and may therefore -uestion the constitutionality of statutes re-uiring e'penditure of public moneys. 2ence% it is our considered opinion that the circumstances surrounding this case sufficiently ,ustify petitioners action in contesting the appropriation and donation in -uestion@ that this action should not have been dismissed by the lo&er court@ and that the &rit of preliminary in,unction should have been maintained.
Topic: I59ere5t !i3it4tio5: Pu:lic Purpose !,T> vs. A ANETA _Saint Louis University School of Law_
G. . No. !-0*"#
.ece3:er (() &#""
+ACTS: Promulgated in 1#:7% the la& in -uestion opens )section 1* &ith a declaration of emergency% due to the threat to our industry by the imminent imposition of e'port ta'es upon sugar as provided in the TydingsD=c?uffie 0ct% and the 3eventual loss of its preferential position in the Gnited States mar+et3@ &herefore% the national policy &as e'pressed 3to obtain a read,ustment of the benefits derived from the sugar industry by the component elements thereof3 and 3to stabili(e the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the Gnited States mar+et and the imposition of the e'port ta'es.3 n section 2% "ommon&ealth 0ct 59$ provides for an increase of the e'isting ta' on the manufacture of sugar% on a graduated basis% on each picul of sugar manufactures@ &hile section 3 levies on o&ners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration% on lease or other&ise. Plaintiff% .alter Fut(% in his capacity as 6udicial 0dministrator of the ntestate 1state of 0ntonio 6ayme Fedesma% see+s to recover from the "ollector of nternal !evenue the sum of P1:%999.:7 paid by the estate as ta'es% under section 3 of the 0ct% for the crop years 1#:;D1#:# and 1#:#D1#57@ alleging that such ta' is unconstitutional and void% being levied for the aid and support of the sugar industry e'clusively% &hich in plaintiffHs opinion is not a public purpose for &hich a ta' may be constitutionally levied. The action having been dismissed by the "ourt of Birst nstance% the plaintiffs appealed the case directly to this "ourt ISS,E: .hether or not ta'es imposed by "ommon&ealth 0ct No. 59$% other&ise +no&n as the Sugar 0d,ustment 0ct is legal/ ,!ING: 0s the protection and promotion of the sugar industry is a matter of public concern the Fegislature may determine &ithin reasonable bounds &hat is necessary for its protection and e'pedient for its promotion. 2ere% the legislative must be allo&ed full play% sub,ect only to the test of reasonableness@ and it is not contended that the means provided in section 9 of "ommon&ealth 0ct No. 59$ bear no relation to the ob,ective pursued or are oppressive in character. f ob,ective and methods are ali+e constitutionally valid% no reason is seen &hy the state may not levy ta'es to raise funds for their prosecution and attainment. Ta'ation may be made the implement of the stateHs police po&er. t is inherent in the po&er to ta' that a state be free to select the sub,ects of ta'ation% and it has been repeatedly held that 3ine-ualities &hich result from a singling out of one particular class for ta'ation or e'emption infringe no constitutional limitation
Topic: I59ere5t !i3it4tio5s: Pu:lic Purpose GO2E> vs. PA!O2A G. . No. !-(%/$" Octo:er (#) &#/* +ACTS: >n September l5% 1#93 the petitioner Ben,amin P. Come( mailed a letter at the post office in San Bernando% Pampanga. Because this letter% addressed to a certain 0gustin 0-uino of 171: ?agohoy Street% Singalong% =anila did not bear the special antiD TB stamp re-uired by the statute% it &as returned to the petitioner.
n vie& of this development% the petitioner brought suit for declaratory relief in the "ourt of Birst nstance of Pampanga% to test the constitutionality of the statute% as &ell as the implementing administrative orders issued% contending that it violates the e-ual protection clause of the "onstitution as &ell as the rule of uniformity and e-uality of ta'ation. The lo&er court declared the statute and the orders unconstitutional. This appeal puts in issue the constitutionality of !epublic 0ct 1935%as amended by !epublic 0ct 2931%2 &hich provides as follo&s8 To help raise funds for the Philippine Tuberculosis Society% the ?irector of Posts shall order for the period from 0ugust nineteen to September thirty every year the printing and issue of semiDpostal stamps of different denominations &ith face value sho&ing the regular postage charge plus the additional amount of five centavos for the said purpose% and during the said period% no mail matter shall be accepted in the mails unless it bears such semiDpostal stamps8 Provided% That no such additional charge of five centavos shall be imposed on ne&spapers. The additional proceeds reali(ed from the sale of the semiDpostal stamps shall constitute a special fund and be deposited &ith the National Treasury to be e'pended by the Philippine Tuberculosis Society in carrying out its noble &or+ to prevent and eradicate tuberculosis. The respondent Postmaster Ceneral% in implementation of the la&% thereafter issued four ):* administrative orders numbered 3 )6une 27% 1#5;*% $ )0ugust #% 1#5;*% # )0ugust 2;% 1#5;*% and 17 )6uly 15% 1#97*. 0ll these administrative orders &ere issued &ith the approval of the respondent Secretary of Public .or+s and "ommunications. ISS,E: .hether or not !0 1935 as amended by !0 2931 and the four 0dministrative orders violates the e-ual protection clause of the "onstitution as &ell as the rule of uniformity and e-uality of ta'ation/ ,!ING: t is settled that the legislature has the inherent po&er to select the sub,ects of ta'ation and to grant e'emptions. This po&er has aptly been described as 3of &ide range and fle'ibility. ndeed% it is said that in the field of ta'ation% more than in other areas% the legislature possesses the greatest freedom in classification. The reason for this is that traditionally% classification has been a device for fitting ta' programs to local needs and usages in order to achieve an e-uitable distribution of the ta' burden. The classification is based on considerations of administrative convenience. Bor it is no& a settled principle of la& that consideration of practical administrative convenience and cost in the administration of ta' la&s afford ade-uate ground for imposing a ta' on a &ell recogni(ed and defined class. n the case of the antiDTB stamps% undoubtedly% the single most important and influential consideration that led the legislature to select mail users as sub,ects of the ta' is the relative ease and convenience of collecting the ta' through the post offices. The small amount of five centavos does not ,ustify the great e'pense and inconvenience of collecting through the regular means of collection. >n the other hand% by placing the duty of collection on postal authorities the ta' &as made almost selfDenforcing% &ith as little cost and as little inconvenience as possible.
The eradication of a dreaded disease is a public purpose% but if by public purpose the petitioner means benefit to a ta'payer as a return for &hat he pays% then it is sufficient ans&er to say that the only benefit to &hich the ta'payer is constitutionally entitled is that derived from his en,oyment of the privileges of living in an organi(ed society% established and safeguarded by the devotion of ta'es to public purposes. 0ny other vie& &ould preclude the levying of ta'es e'cept as they are used to compensate for the burden on those &ho pay them and &ould involve the abandonment of the most fundamental principle of government J that it e'ists primarily to provide for the common good. Nor is the rule of uniformity and e-uality of ta'ation infringed by the imposition of a flat rate rather than a graduated ta'. 0 ta' need not be measured by the &eight of the mail or the e'tent of the service rendered. .e have said that considerations of administrative convenience and cost afford an ade-uate ground for classification. The same considerations may induce the legislature to impose a flat ta' &hich in effect is a charge for the transaction% operating e-ually on all persons &ithin the class regardless of the amount involved.
Topic: I59ere5t !i3it4tio5s: I59ere5tly !e=isl4tive PEPSI-CO!A vs. 2,NICIPA!IT; O+ TANA,AN G. No. !-%&&"/ +e:ru4ry (0) &#0/ +ACTS: PepsiD"ola Bottling "ompany of the Philippines% nc.% commenced a complaint for the court to declare Section 2 of !epublic 0ct No. 229: other&ise +no&n as the Focal 0utonomy 0ct% unconstitutional as an undue delegation of ta'ing authority as &ell as to declare >rdinances Nos. 23 and 2$% series of 1#92% of the municipality of Tanauan% Feyte% null and void. The parties entered into a Stipulation of Bacts% the material portions of &hich state that% first% both >rdinances Nos. 23 and 2$ embrace or cover the same sub,ect matter and the production ta' rates imposed therein are practically the same% and second% that the acting =unicipal Treasurer of Tanauan% Feyte% as per his letter addressed to the =anager of the PepsiD"ola Bottling Plant in said municipality% sought to enforce _Saint Louis University School of Law_
compliance by the latter of the provisions of said >rdinance No. 2$% series of 1#92. =unicipal >rdinance No. 23% of Tanauan% Feyte% levies and collects 3from soft drin+s producers and manufacturers a tai of oneDsi'teenth )1<19* of a centavo for every bottle of soft drin+ cor+ed.3 Bor the purpose of computing the ta'es due% the person% firm% company or corporation producing soft drin+s shall submit to the =unicipal Treasurer a monthly report% of the total number of bottles produced and cor+ed during the month. The ta' imposed in both >rdinances Nos. 23 and 2$ is denominated as 3municipal production ta'.H ISS,E: .hether or not the =unicipal >rdinances are valid/ ,!ING: The plenary nature of the ta'ing po&er thus delegated% contrary to plaintiffD appellantHs pretense% &ould not suffice to invalidate the said la& as confiscatory and oppressive. n delegating the authority% the State is not limited to the e'act measure of that &hich is e'ercised by itself. .hen it is said that the ta'ing po&er may be delegated to municipalities and the li+e% it is meant that there may be delegated such measure of po&er to impose and collect ta'es as the legislature may deem e'pedient. Thus% municipalities may be permitted to ta' sub,ects &hich for reasons of public policy the State has not deemed &ise to ta' for more general purposes. ?ue process is usually violated &here the ta' imposed is for a private as distinguished from a public purpose@ a ta' is imposed on property outside the State% i.e.% e'traterritorial ta'ation@ and arbitrary or oppressive methods are used in assessing and collecting ta'es. But% a ta' does not violate the due process clause% as applied to a particular ta'payer% although the purpose of the ta' &ill result in an in,ury rather than a benefit to such ta'payer. ?ue process does not re-uire that the property sub,ect to the ta' or the amount of ta' to be raised should be determined by ,udicial in-uiry% and a notice and hearing as to the amount of the ta' and the manner in &hich it shall be apportioned are generally not necessary to due process of la&.
Topic: I59ere5t !i3it4tio5s: Cover4=e) O:<ect) N4ture) E7te5t) Situs PEPSI-CO!A vs. CIT; O+ B,T,AN G. No. !-((*&$ Au=ust (*) &#/* +ACTS: PepsiEs &arehouse in the "ity of Butuan serves as a storage for its products the 3PepsiD"ola3 soft drin+s for sale to customers in the "ity of Butuan and all the municipalities in the Province of 0gusan. These 3PepsiD"ola "ola3 soft drin+s are bottled in "ebu "ity and shipped to the Butuan "ity &arehouse of plaintiff for distribution and sale in the "ity of Butuan and all municipalities of 0gusan. . >n 0ugust 19% 1#97% the "ity of Butuan enacted >rdinance No. 117 &hich &as subse-uently amended by >rdinance No. 122. That >rdinance No. 117 as amended% imposes a ta' on any person% association% etc.% of P7.17 per case of 2: bottles of PepsiD "ola and the plaintiff paid under protest the amount of P:%#29.93 from 0ugust 19 to ?ecember 31% 1#97 and the amount of P#%257.:7 from 6anuary 1 to 6uly 37% 1#91. The plaintiff then filed the foregoing complaint for the recovery of the total amount of P1:%1$$.73 paid under protest and those that if may later on pay until the termination of this case on the ground that >rdinance No. 117 as amended of the "ity of Butuan is illegal% that the ta' imposed is e'cessive and that it is unconstitutional. ISS,E: .hether or not >rdinance No. 122 is unconstitutional/ _Saint Louis University School of Law_
,!ING: t is true that the uniformity essential to the valid e'ercise of the po&er of ta'ation does not re-uire identity or e-uality under all circumstances% or negate the authority to classify the ob,ects of ta'ation. The classification made in the e'ercise of this authority% to be valid% must% ho&ever% be reasonable and this re-uirement is not deemed satisfied unless8 )1* it is based upon substantial distinctions &hich ma+e real differences@ )2* these are germane to the purpose of the legislation or ordinance@ )3* the classification applies% not only to present conditions% but% also% to future conditions substantially identical to those of the present@ and ):* the classification applies e-ually all those &ho belong to the same class. These conditions are not fully met by the ordinance in -uestion. ndeed% if its purpose &as merely to levy a burden upon the sale of soft drin+s or carbonated beverages% there is no reason &hy sales thereof by sealers other than agents or consignees of producers or merchants established outside the "ity of Butuan should be e'empt from the ta'.
Topic: T47 E7e3ptio5 o6 t9e Gover53e5t !IGHT AI! T ANSIT A,THO IT; vs. CENT A! BOA . O+ ASSESS2ENT G NO. &(0%&/ Octo:er &() (111
+ACTS: The F!T0 is a governmentDo&ned and controlled corporation created and organi(ed under 1'ecutive >rder No. 973% dated 6uly 12% 1#;7 primarily responsible for the construction% operation% maintenance and<or lease of light rail transit system in the Philippines% giving due regard to the reasonable re-uirements of the public transportation of the countryH. By reason of 1'ecutive >rder 973% F!T0 ac-uired real properties constructed structural improvements% such as buildings% carriage&ays% passenger terminal stations% and installed various +inds of machinery and e-uipment and facilities for the purpose of its operations@ Bor an effective maintenance% operation and management% it entered into a "ontract of =anagement &ith the =eralco Transit >rgani(ation in &hich the latter undertoo+ to manage% operate and maintain the Fight !ail Transit System o&ned by the F!T0 sub,ect to the specific stipulations contained in said agreement% including payments of a management fee and real property ta'es.That it commenced its operations in 1#;:% and that sometime that year% !espondentD0ppellee "ity 0ssessor of =anila assessed the real properties of petitioner% consisting of lands% buildings% carriage&ays and passenger terminal stations% machinery and e-uipment &hich he considered real property under the !eal Property Ta' "ode% to commence &ith the year 1#;5@That petitioner paid its real property ta'es on all its real property holdings% e'cept the carriage&ays and passenger terminal stations including the land &here it is _Saint Louis University School of Law_
constructed on the ground that the same are not real properties under the !eal Property Ta' "ode% and if the same are real property% these are for public use<purpose% therefore% e'empt from realty ta'ation% &hich claim &as denied by the !espondentD0ppellee "ity 0ssessor of =anila@ and Petitioner% aggrieved by the action of the !espondentD0ppellee "ity 0ssessor% filed an appeal &ith the Focal Board of 0ssessment 0ppeals of =anila. 0ppellee% herein% after due hearing% in its resolution dated 6une 29% 1##2% denied petitionerHs appeal% and declared that carriage&ays and passenger terminal stations are improvements% therefore% are real property under the "ode% and not e'empt from the payment of real property ta'. ISS,E: .hether or not petitioner is e'empt from payment of real property ta'es/ ,!ING: n any event% there is another legal ,ustification for upholding the assailed "0 ?ecision. Gnder the !eal Property Ta' "ode% real property 3o&ned by the !epublic of the Philippines or any of its political subdivisions and any governmentDo&ned or controlled corporation so e'empt by its charter% provided% ho&ever% that this e'emption shall not apply to real property of the abovenamed entities the beneficial use of &hich has been granted% for consideration or other&ise% to a ta'able person.3 1'ecutive >rder No. 973% the charter of petitioner% does not provide for any real estate ta' e'emption in its favor. ts e'emption is limited to direct and indirect ta'es% duties or fees in connection &ith the importation of e-uipment not locally available% as the follo&ing provision sho&s8 30!T "F1 : T0O 0N? ?GTI 1O1=PT >NS Sec. ;.1-uipment% =achineries% Spare Parts and >ther 0ccessories and =aterials. D The importation of e-uipment% machineries% spare parts% accessories and other materials% including supplies and services% used directly in the operations of the Fight !ails Transit System% not obtainable locally on favorable terms% out of any funds of the authority including% as stated in Section $ above% proceeds from foreign loans credits or indebtedness% shall li+e&ise be e'empted from all direct and indirect ta'es% customs duties% fees% imposts% tariff duties% compensating ta'es% &harfage fees and other charges and restrictions% the provisions of e'isting la&s to the contrary not&ithstanding.3 1ven granting that the national government indeed o&ns the carriage&ays and terminal stations% the e'emption &ould not apply because their beneficial use has been granted to petitioner% a ta'able entity. Ta'ation is the rule and e'emption is the e'ception. 0ny claim for ta' e'emption is strictly construed against the claimant. F!T0 has not sho&n its eligibility for e'emption@ hence% it is sub,ect to the ta'.
Topic: T47 E7e3ptio5 o6 t9e Gover53e5t 2ACTAN CEB, INTE NATIONA! AI PO T vs. 2A COS G. . No. &(11*( Septe3:er &&) &##/ +ACTS: =" 00 &as created by virtue of !epublic 0ct 9#5;. Since the time of its creation% =" 00 en,oyed the privilege of e'emption from payment of realty ta'es in accordance &ith Section 1: of its "harter. 2o&ever on 11 >ctober 1##:% the >ffice of the Treasurer of "ebu% demanded for the payment of realty ta'es on several parcels of land belonging to the petitioner. Petitioner ob,ected to such demand for payment as baseless and un,ustified. t also asserted that it is an instrumentality of the government performing a governmental functions% &hich puts limitations on the ta'ing po&ers of local government units. t nonetheless stands in the same footing as an agency or instrumentality of the national government by the very nature of its po&ers and functions. The "ity refused to cancel and set aside petitionerEs realty ta' account% insisting that the =" 00 is a government controlled corporation &hose ta' e'emption privilege has been &ithdra&n by virtue of Sections 1#3 and 23: of the Focal Covernment "ode% and not an instrumentality of the government but merely a government o&ned corporation performing proprietary functions. =" 00 paid its ta' account Kunder protestL &hen "ity is about to issue a &arrant of levy against the =" 00Es properties. >n 2# ?ecember 1##:% =" 00 filed a Petition of ?eclaratory !elief &ith the "ebu !egional Trial "ourt contending that the ta'ing po&er of local government units do not e'tend to the levy of ta'es or fees on an instrumentality of the national government. t contends that by the nature of its po&ers and functions% it has the footing of an agency or instrumentality of the national government@ &hich claim the "ity re,ects. >n 22 =arch 1##5% the trial court dismissed the petition% citing that close reading of the FC" provides the e'press cancellation and &ithdra&al of ta' e'emptions of Covernment >&ned and "ontrolled "orporations. =" 00Es motion for reconsideration having been denied by the trial court in its : =ay 1##5 order% the petitioner filed the instant petition. ISS,E: .hether the =" 00 is e'empted from realty ta'es/ _Saint Louis University School of Law_
,!ING: Ta' statutes are construed strictly against the government and liberally in favor of the ta'payer. But since ta'es are paid for civili(ed society% or are the lifeblood of the nation% the la& fro&ns against e'emptions from ta'ation and statutes granting ta' e'emptions are thus construed strictissimi,uris against the ta'payer and liberally in favor of the ta'ing authority. 0 claim of e'emption from ta' payments must be clearly sho&n and based on language in the la& too plain to be mista+en. 1lse&ise stated% ta'ation is the rule% e'emption therefrom is the e'ception. 2o&ever% if the grantee of the e'emption is a political subdivision or instrumentality% the rigid rule of construction does not apply because the practical effect of the e'emption is merely to reduce the amount of money that has to be handled by the government in the course of its operations. Burther% since ta'ation is the rule and e'emption therefrom the e'ception% the e'emption may be &ithdra&n at the pleasure of the ta'ing authority. The only e'ception to this rule is &here the e'emption &as granted to private parties based on material consideration of a mutual nature% &hich then becomes contractual and is thus covered by the nonD impairment clause of the "onstitution. =" 00 is a Kta'able personL under its "harter )!0 9#5;*% and &as only e'empted from the payment of real property ta'es. The grant of the privilege only in respect of this ta' is conclusive proof of the legislative intent to ma+e it a ta'able person sub,ect to all ta'es% e'cept real property ta'. Since !epublic 0ct $197 or the Focal Covernment "ode e'pressly provides that K0ll general and special la&s% acts% city charters% decrees% e'ecutive orders% proclamations and administrative regulations% or part of parts thereof &hich are inconsistent &ith any of the provisions of this "ode are hereby repealed or modified accordingly.L .ith that repealing clause in the FC"% the ta' e'emption provided for in !0 9#5; had been e'pressly repealed by the provisions of the FC". Therefore% =" 00 has to pay the assessed realty ta' of its properties effective after 6anuary 1% 1##2 until the present.
Topic: T47 E7e3ptio5 o6 t9e Gover53e5t 2ANI!A INTE NATIONA! AI PO T A,THO IT vs. CIT; O+ PA AAAB,E G. . No. &""/"1 'uly (1) (11/ +ACTS: Petitioner =anila nternational 0irport 0uthority operates the Ninoy 0-uino nternational 0irport "omple' in ParaPa-ue "ity under 1'ecutive >rder No. #73% issued on 21 6uly 1#;3 by then President Berdinand 1. =arcos. 0s operator of the international airport% = 00 administers the land% improvements and e-uipment &ithin the N0 0 "omple'% including the run&ays and buildings. >n 21 =arch 1##$% the >ffice of the Covernment "orporate "ounsel )>C""* issued >pinion No. 791. The >C"" opined that the Focal Covernment "ode of 1##1 &ithdre& the e'emption from real estate ta' granted to = 00 under Section 21 of the = 00 "harter. >n 1$ 6uly 2771% the "ity of ParaPa-ue% through its "ity Treasurer% issued notices of levy and &arrants of levy on the 0irport Fands and Buildings threatened to sell at public auction the 0irport Fands and Buildings should = 00 fail to pay the real estate ta' delin-uency. >n 1 >ctober 2771% = 00 filed &ith the "ourt of 0ppeals an original petition for prohibition and also points out that Section 21 of the = 00 "harter specifically e'empts = 00 from the payment of real estate ta'. = 00 insists that it is also e'empt from real estate ta' under Section 23: of the Focal Covernment "ode because the 0irport Fands and Buildings are o&ned by the !epublic. To ,ustify the e'emption% = 00 invo+es the principle that the government cannot ta' itself. = 00 points out that the reason for ta' e'emption of public property is that its ta'ation &ould not inure to any public advantage% since in such a case the ta' debtor is also the ta' creditor. ISS,E: .hether the 0irport Fands and Buildings of = 00 are e'empt from real estate ta' under e'isting la&s/ ,!ING: = 00Hs 0irport Fands and Buildings are e'empt from real estate ta' imposed by local governments. Birst% = 00 is not a governmentDo&ned or controlled corporation but an instrumentality of the National Covernment and thus e'empt from local ta'ation. Second% the real properties of = 00 are o&ned by the !epublic of the Philippines and thus e'empt from real estate ta'. _Saint Louis University School of Law_
Since = 00 is neither a stoc+ nor a nonDstoc+ corporation% = 00 does not -ualify as a governmentDo&ned or controlled corporation. = 00 is a government instrumentality vested &ith corporate po&ers to perform efficiently its governmental functions. = 00 is li+e any other government instrumentality% the only difference is that = 00 is vested &ith corporate po&ers. 0nother rule is that a ta' e'emption is strictly construed against the ta'payer claiming the e'emption. 2o&ever% &hen "ongress grants an e'emption to a national government instrumentality from local ta'ation% such e'emption is construed liberally in favor of the national government instrumentality. There is also no reason for local governments to ta' national government instrumentalities for rendering essential public services to inhabitants of local governments. The only e'ception is &hen the legislature clearly intended to ta' government instrumentalities for the delivery of essential public services for sound and compelling policy considerations. There must be e'press language in the la& empo&ering local governments to ta' national government instrumentalities. 0ny doubt &hether such po&er e'ists is resolved against local governments. The 0irport Fands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that the = 00 collects terminal fees and other charges from the public does not remove the character of the 0irport Fands and Buildings as properties for public use. The operation by the government of a toll&ay does not change the character of the road as one for public use. Someone must pay for the maintenance of the road% either the public indirectly through the ta'es they pay the government% or only those among the public &ho actually use the road through the toll fees they pay upon using the road. The toll&ay system is even a more efficient and e-uitable manner of ta'ing the public for the maintenance of public roads.
Topic: T47 E7e3ptio5 o6 t9e Gover53e5t 2IAAvs.CO, T O+ APPEA!S) CIT; O+ PA AAAB,E G. . No. &""/"1 'uly (1) (11/ +4cts: >n 1$ 6uly 2771% the "ity of ParaPa-ue% through its "ity Treasurer% issued notices of levy and &arrants of levy on the 0irport Fands and Buildings. The =ayor of the "ity of ParaPa-ue threatened to sell at public auction the 0irport Fands and Buildings should = 00 fail to pay the real estate ta' delin-uency. = 00 thus sought a clarification of >C"" >pinion No. 791. >n # 0ugust 2771% the >C"" issued >pinion No. 1:$ clarifying >C"" >pinion No. 791. The >C"" pointed out that Section 279 of the Focal Covernment "ode re-uires persons e'empt from real estate ta' to sho& proof of e'emption. = 00 also points out that Section 21 of the = 00 "harter specifically e'empts = 00 from the payment of real estate ta'. = 00 insists that it is also e'empt from real estate ta' under Section 23: of the Focal Covernment "ode because the 0irport Fands and Buildings are o&ned by the !epublic. To ,ustify the e'emption% = 00 invo+es the principle that the government cannot ta' itself. = 00 points out that the reason for ta' e'emption of public property is that its ta'ation &ould not inure to any public advantage% since in such a case the ta' debtor is also the ta' creditor. !espondents invo+e Section 1#3 of the Focal Covernment "ode% &hich e7pressly wit9drew the ta' e'emption privileges of 3=over53e5t-ow5ed 45d-co5trolled corpor4tio5s3 upon the effectivity of the Focal Covernment "ode. !espondents also argue that a basic rule of statutory construction is that the e'press mention of one person% thing% or act e'cludes all others. 0n international airport is not among the e'ceptions mentioned in Section 1#3 of the Focal Covernment "ode. Thus% respondents assert that = 00 cannot claim that the 0irport Fands and Buildings are e'empt from real estate ta'. Issue: .hether the 0irport Fands and Buildings of = 00 are e'empt from real estate ta' under e'isting la&s. f so e'empt% then the real estate ta' assessments issued by the "ity of ParaPa-ue% and all proceedings ta+en pursuant to such assessments% are void. n such event% the other issues raised in this petition become moot. uli5=: .e rule that = 00Hs 0irport Fands and Buildings are e'empt from real estate ta' imposed by local governments.
Birst% = 00 is not a governmentDo&ned or controlled corporation but an i5stru3e5t4lity of the National Covernment and thus e'empt from local ta'ation. Second% the real properties of = 00 are ow5ed :y t9e epu:lic of the Philippines and thus e'empt from real estate ta'. &. 2IAA is Not 4 Gover53e5t-Ow5ed or Co5trolled Corpor4tio5 !espondents argue that = 00% being a governmentDo&ned or controlled corporation% is not e'empt from real estate ta'. !espondents claim that the deletion of the phrase 3any governmentDo&ned or controlled so e'empt by its charter3 in Section 23:)e* of the Focal Covernment "ode &ithdre& the real estate ta' e'emption of governmentDo&ned or controlled corporations. The deleted phrase appeared in Section :7)a* of the 1#$: !eal Property Ta' "ode enumerating the entities e'empt from real estate ta'. (. Airport !45ds 45d Buildi5=s o6 2IAA 4re Ow5ed :y t9e 4. Airport !45ds 45d Buildi5=s 4re o6 Pu:lic .o3i5io5 The 0irport Fands and Buildings of = 00 are property of pu:lic do3i5io5 45d t9ere6ore ow5ed :y t9e St4te or t9e epu:lic o6 t9e P9ilippi5es . No one can dispute that properties of public dominion mentioned in 0rticle :27 of the "ivil "ode% li+e 3ro4ds) c454ls) rivers) torre5ts) ports 45d :rid=es co5structed :y t9e St4te%3 are o&ned by the State. T9e ter3 CportsC i5cludes se4ports 45d 4irports. The = 00 0irport Fands and Buildings constitute a 3 port3 constructed by the State. Gnder 0rticle :27 of the "ivil "ode% the = 00 0irport Fands and Buildings are properties of public dominion and thus o&ned by the State or the !epublic of the Philippines. Gnder 0rticle :27 of the "ivil "ode% the 0irport Fands and Buildings of = 00% being devoted to public use% are properties of public dominion and thus o&ned by the State or the !epublic of the Philippines. 0rticle :27 specifically mentions 3ports ' '' constructed by the State%3 &hich includes public airports and seaports% as properties of public dominion and o&ned by the !epublic. 0s properties of public dominion o&ned by the !epublic% there is no doubt &hatsoever that the 0irport Fands and Buildings are e'pressly e'empt from real estate ta' under Section 23:)a* of the Focal Covernment "ode. This "ourt has also repeatedly ruled that properties of public dominion are not sub,ect to e'ecution or foreclosure sale. epu:lic
Topic: Co5stitutio54l !i3it4tio5s: .ue Process Cl4use _Saint Louis University School of Law_
C EBA vs. THE SEC ETA ; O+ AG A IAN E+O 2 G. . No. &*%$1# 'u5e &*) (1&1 Bacts8 The Secretary of 0grarian !eform issued 3>mnibus !ules and Procedures Coverning "onversion of 0gricultural Fands to NonD0gricultural Gses%3 &hich consolidated all e'isting implementing guidelines related to land use conversion. The aforesaid rules embraced all private agricultural lands regardless of tenurial arrangement and commodity produced% and all untitled agricultural lands and agricultural lands reclassified by Focal Covernment Gnits )FCGs* into nonDagricultural uses after 15 6une 1#;;. Subse-uently% on 37 =arch 1###% the Secretary of 0grarian !eform issued ?0! 0> No. 71D##% entitled 3!evised !ules and !egulations on the "onversion of 0gricultural Fands to NonDagricultural Gses%3 amending and updating the previous rules on land use conversion. ts coverage includes the follo&ing agricultural lands% to &it8 )1* those to be converted to residential% commercial% industrial% institutional and other nonD agricultural purposes@ )2* those to be devoted to another type of agricultural activity such as livestoc+% poultry% and fishpond Q the effect of &hich is to e'empt the land from the "omprehensive 0grarian !eform Program )"0!P* coverage@ )3* those to be converted to nonDagricultural use other than that previously authori(ed@ and ):* those reclassified to residential% commercial% industrial% or other nonDagricultural uses on or after the effectivity of !epublic 0ct No. 995$5 on 15 6une 1#;; pursuant to Section 279 of !epublic 0ct No. $197$ and other pertinent la&s and regulations% and are to be converted to such uses. To address the unabated conversion of prime agricultural lands for real estate development% the Secretary of 0grarian !eform further issued =emorandum No. ;; on 15 0pril 277;% &hich temporarily suspended the processing and approval of all land use conversion applications. By reason thereof% petitioner claims that there is an actual slo& do&n of housing pro,ects% &hich% in turn% aggravated the housing shortage% unemployment and illegal s-uatting problems to the substantial pre,udice not only of the petitioner and its members but more so of the &hole nation. ssues8 1. .21T21! 4?0! 0> N>. 71D72% 0S 0=1N?1?5 A >F0T14S5 T21 ?G1 P!>"1SS 0N? 1RG0F P!>T1"T >N "F0GS14S5 >B T21 ">NST TGT >N. 2. .21T21! =1=>!0N?G= N>. ;; S 0 A0F ? 1O1!" S1 >B P>F "1 P>.1!.#
!uling8 _Saint Louis University School of Law_
The petition &as dismissed. The authority of the Secretary of 0grarian !eform to include 3lands not reclassified as residential% commercial% industrial or other nonD agricultural uses before 15 6une 1#;;3 in the definition of agricultural lands finds basis in ,urisprudence. n !os v. ?epartment of 0grarian !eform% 3# this "ourt has enunciated that after the passage of !epublic 0ct No. 995$% agricultural lands% though reclassified% have to go through the process of conversion% ,urisdiction over &hich is vested in the ?0!. 2o&ever% agricultural lands% &hich are already reclassified before the effectivity of !epublic 0ct No. 995$ &hich is 15 6une 1#;;% are e'empted from conversion. :7 t bears stressing that the said date of effectivity of !epublic 0ct No. 995$ served as the cutDoff period for automatic reclassifications or re(oning of agricultural lands that no longer re-uire any ?0! conversion clearance or authority. :1 t necessarily follo&s that any reclassification made thereafter can be the sub,ect of ?0!Es conversion authority. 2aving recogni(ed the ?0!Es conversion authority over lands reclassified after 15 6une 1#;;% it can no longer be argued that the Secretary of 0grarian !eform &as &rongfully given the authority and po&er to include 3lands not reclassified as residential% commercial% industrial or other nonDagricultural uses before 15 6une 1#;;3 in the definition of agricultural lands. Such inclusion does not unduly e'pand or enlarge the definition of agricultural lands@ instead% it made clear &hat are the lands that can be the sub,ect of ?0!Es conversion authority% thus% serving the very purpose of the land use conversion provisions of !epublic 0ct No. 995$. t is clear from the aforesaid distinction bet&een reclassification and conversion that agricultural lands though reclassified to residential% commercial% industrial or other nonDagricultural uses must still undergo the process of conversion before they can be used for the purpose to &hich they are intended. The petitionerEs argument that ?0! =emorandum No. ;; is unconstitutional% as it suspends the land use conversion &ithout any basis% stands on hollo& ground. t bears emphasis that said =emorandum No. ;; &as issued upon the instruction of the President in order to address the unabated conversion of prime agricultural lands for real estate development because of the &orsening rice shortage in the country at that time. Such measure &as made in order to ensure that there are enough agricultural lands in &hich rice cultivation and production may be carried into. The issuance of said =emorandum No. ;; &as made pursuant to the general &elfare of the public% thus% it cannot be argued that it &as made &ithout any basis.
Topic: Co5stitutio54l !i3it4tio5s: .ue Process Cl4use COCA-CO!A BOTT!E S PHI!IPPINES) INC. vs. CA 45d 2S. !;.IA GE ONI2O G. . No. &&1(#" Octo:er &*) &##% _Saint Louis University School of Law_
B0"TS8 Private respondent &as the proprietress of Sindergarten .onderland "anteen in ?agupan "ity. n 0ugust 1#;#% some parents of the students complained to her that the "o+e and Sprite soft drin+s sold by her contained fiberDli+e matter and other foreign substances. She brought the said bottles for e'amination to ?>2 and it &as found out that the soft drin+s Kare adulterated.L 0s a result% her per day sales of soft drin+s severely plummeted that she had to close her shop on 12 ?ecember 1#;# for losses. She demanded damages from petitioner before the !T" &hich dismissed the same on motion by petitioner based on the ground of Prescription. >n appeal% the "0 annulled the orders of the !T". SSG18 .>N the action for damages by the proprietress against the soft drin+s manufacturer should be treated as one for breach of implied &arranty under article 1591 of the "" &hich prescribes after si' months from delivery of the thing sold. !GF NC8 Petition ?enied. The S" agrees &ith the "0Es conclusion that the cause of action in the case at bar is found on -uasiDdelict under 0rticle 11:9 of the "" &hich prescribes in four years and not on breach of &arranty under article 1592 of the same code. This is supported by the allegations in the complaint &hich ma+es reference to the rec+less and negligent manufacture of 3adulterated food items intended to be sold for public consumption.3
Topic: Co5stitutio54l !i3it4tio5s: .ue Process Cl4use -I!!EGAS vs. HI, CHIONG TSAI PAO HO G. No. !-(#/$/ Nove3:er &1) &#0*
+ACTS: >n 22 Bebruary 1#9;% >rdinance 953$ &as passed by the =unicipal Board of =anila and signed by =anila =ayor 0ntonio 6. Aillegas on =arch 2$% 1#9;. >rdinance 953$% entitled K0n ordinance ma+ing it unla&ful for any person not a citi(en of the Philippines to be employed in any place of employment or to be engaged in any +ind of trade% business or occupation &ithin the "ity of =anila &ithout first securing an employment permit from the mayor of =anila@ and for other purposes.L Fa& prohibits aliens from employment and trade in the "ity of =anila &ithout the re-uisite mayorEs permit*. 1'ceptions to la& are persons employed in the diplomatic or consular missions of foreign countries% or in the technical assistance programs of both the Philippine Covernment and any foreign government% and those &or+ing in their respective households% and members of religious orders or congregations% sect or denomination% &ho are not paid monetarily or in +ind. Permit fee is P57. Penalty is imprisonment of 3 to 9 months or fine of P177D277% or both. >n : =ay 1#9;% 2iu"hiong Tsai Pao 2o% &ho &as employed in =anila% filed a petition% &ith the "B =anila )"ivil "ase $2$#$*% praying for )1* the issuance of the &rit of preliminary in,unction and restraining order to stop the implementation of the ordinance% and )2* ,udgment to declare the ordinance null and void. >n 2: =ay 1#9;% 6udge Brancisco 0rca )"B =anila% Branch * issued the &rit of preliminary in,unction and on 1$ September 1#9;% the 6udge rendered a decision declaring the ordinance null and void% and the preliminary in,unction is made permanent. =ayor Aillegas filed a petition for certiorari to revie& the decision of the "B . ISS,ES: 1. .hether or not there is a violation of due process and e-ual protection clauses/ 2. .hether or not there &as an illegal delegation of legislative po&ers/ 3. .hether or not there is a violation of the principle of Gniformity of Ta'ation/ ,!ING: 1. ?ue process and e-ual protection clauses The ordinance is arbitrary% oppressive and unreasonable% being applied only to aliens &ho are thus% deprived of their rights to life% liberty and property and therefore% violates the due process and e-ual protection clauses of the "onstitution. !e-uiring a person% before he can be employed% to get a permit from the "ity =ayor of =anila% &ho may &ithhold or refuse it at &ill is tantamount to denying him the basic right of the people in the Philippines to engage in a means of livelihood. >nce an alien is admitted by the State &ithin its territory% he cannot be deprived of life &ithout due process of la&% including the means of livelihood. The shelter of protection under the due process and e-ual protection clause is given to all persons% both aliens and citi(ens. 2. Police Po&er% illegal delegation of legislative po&ers The ordinance does not lay do&n any criterion or standard to guide the =ayor in the e'ercise of his discretion% thus conferring upon the mayor arbitrary and unrestricted po&ers. The ordinance does not provide a standard to guide or limit the mayorEs action% e'presses no purpose to be attained by re-uiring a permit% and enumerates no conditions for its grant or refusal. _Saint Louis University School of Law_
3. Gniformity of Ta'ation% discriminatory and violative The ordinanceEs purpose is clearly to raise money under the guise of regulation by e'acting P57 from aliens &ho have been cleared for employment. The amount is unreasonable and e'cessive because it fails to consider differences in situation among aliens re-uired to pay it% i.e. being casual% permanent% fullDtime% partDtime% ran+DanDfile or e'ecutive.
Topic: Co5stitutio54l !i3it4tio5s: .ue Process Cl4use CIT; O+ BAG,IO vs. .E !EON Gr. No. ($0"/ Octo:er %&) &#/* +ACTS: n this appeal% a lo&er court decision upholding the validity of an ordinance 1 of the "ity of Baguio imposing a license fee on any person% firm% entity or corporation doing business in the "ity of Baguio is assailed by defendantDappellant Bortunato de Feon. 2e &as held liable as a real estate dealer &ith a property therein &orth more than P17%777% but not in e'cess of P57%777% and therefore obligated to pay under such ordinance the P57 annual fee. That is the principal -uestion. n addition% there has been a firm and _Saint Louis University School of Law_
unyielding insistence by defendantDappellant of the lac+ of ,urisdiction of the "ity "ourt of Baguio% &here the suit originated% a complaint having been filed against him by the "ity 0ttorney of Baguio for his failure to pay the amount of P377 as license fee covering the period from the first -uarter of 1#5; to the fourth -uarter of 1#92% allegedly% in spite of repeated demands. Nor &as defendantDappellant agreeable to such a suit being instituted by the "ity Treasurer &ithout the consent of the =ayor% &hich for him &as indispensable. The lo&er court &as of a different mind. t declared the above ordinance as amended% valid and subsisting% and held defendantD appellant liable for the fees therein prescribed as a real estate dealer. 2ence% this appeal. 0ssume the validity of such ordinance% and there &ould be no -uestion about the liability of defendantDappellant for the above license fee% it being sho&n in the partial stipulation of facts% that he &as 3engaged in the rental of his property in Baguio3 deriving income therefrom during the period covered by the first -uarter of 1#5; to the fourth -uarter of 1#92. ISS,E: .hether or not the ordinance is valid/ ,!ING: The challenged ordinance cannot be considered ultra vires as there is more than ample statutory authority for the enactment thereof. Nonetheless% its validity on constitutional grounds is challenged because of the allegation that it imposed double ta'ation% &hich is repugnant to the due process clause% and that it violated the re-uirement of uniformity. .e do not vie& the matter thus. 0s to &hy double ta'ation is not violative of due process% 6ustice 2olmes made clear in this language8 3The ob,ection to the ta'ation as double may be laid do&n or one side. . . . The 1:th 0mendment 4the due process clause5 no more forbids double ta'ation than it does doubling the amount of a ta'% short of confiscation or proceedings unconstitutional on other grounds.3 .ith that decision rendered at a time &hen 0merican sovereignty in the Philippines &as recogni(ed% it possesses more than ,ust a persuasive effect. To some% it delivered the coup de grace to the bogey of double ta'ation as a constitutional bar to the e'ercise of the ta'ing po&er. t &ould seem though that in the Gnited States% as &ith us% its ghost% as noted by an eminent critic% still stal+s the ,uridical stage. n a 1#:$ decision% ho&ever% # &e -uoted &ith approval this e'cerpt from a leading 0merican decision8 17 3.here% as here% "ongress has clearly e'pressed its intention% the statute must be sustained even though double ta'ation results.3 0t any rate% it has been e'pressly affirmed by us that such an 3argument against double ta'ation may not be invo+ed &here one ta' is imposed by the state and the other is imposed by the city . . .% it being &idely recogni(ed that there is nothing inherently obno'ious in the re-uirement that license fees or ta'es be e'acted &ith respect to the same occupation% calling or activity by both the state and the political subdivisions thereof. The above &ould clearly indicate ho& lac+ing in merit is this argument based on double ta'ation. No&% as to the claim that there &as a violation of the rule of uniformity established by the "onstitution. 0ccording to the challenged ordinance% a real estate dealer &ho leases property &orth P57%777 or above must pay an annual fee of P177. f the property is &orth P17%777 but not over P57%777% then he pays P57 and P2: if the value is less _Saint Louis University School of Law_
than P17%777. >n its face% therefore% the above ordinance cannot be assailed as violative of the constitutional re-uirement of uniformity. 0 ta' is considered uniform &hen it operates &ith the same force and effect in every place &here the sub,ect may be found.3 t is thus apparent from the above that in much the same &ay that the plea of double ta'ation is unavailing% the allegation that there &as a violation of the principle of uniformity is inherently lac+ing in persuasiveness. There is no need to pass upon the other allegations to assail the validity of the above ordinance% it being maintained that the license fees therein imposed 3is e'cessive% unreasonable and oppressive3 and that there is a failure to observe the mandate of e-ual protection. 0 reading of the ordinance &ill readily disclose their inherent lac+ of plausibility.
Topic: Co5stitutio54l !i3it4tio5s: .ue Process Cl4use SISON vs. ANCHETA G. . No. !-"#$%& 'uly (") &#*$ +ACTS: The challenged posed is a suit for declaratory relief or prohibition on the validity of Section 1 of Batas PambansaBlg. 135. The assailed provision further amends Sec. 21 of the N !" of 1#$$% &hich provides for the rate ta' on residents or citi(ens on )a* ta'able compensation income% )b* ta'able net income% )c* royalties% pri(es% and other &innings% )d* interests from ban+ deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements% )e* dividends and share from individual partner in the net profits of ta'able partnership% )f* ad,usted gross income. Sison% as ta'payer% alleged that its provision )Section 1* unduly discriminated against him by the imposition of higher rates upon his income as a professional% that it amounts to class legislation% and that it transgresses against the e-ual protection and
due process clauses of the "onstitution as &ell as the rule re-uiring uniformity in ta'ation. ISS,E: .hether BP 135 violates the due process and e-ual protection clauses% and the rule on uniformity in ta'ation/ ,!ING: There is a need for proof of such persuasive character as &ould lead to a conclusion that there &as a violation of the due process and e-ual protection clauses. 0bsent such sho&ing% the presumption of validity must prevail. 1-uality and uniformity in ta'ation means that all ta'able articles or +inds of property of the same class shall be ta'ed at the same rate. The ta'ing po&er has the authority to ma+e reasonable and natural classifications for purposes of ta'ation. .here the differentiation conforms to the practical dictates of ,ustice and e-uity% similar to the standards of e-ual protection% it is not discriminatory &ithin the meaning of the clause and is therefore uniform. Ta'payers may be classified into different categories% such as recipients of compensation income as against professionals. !ecipients of compensation income are not entitled to ma+e deductions for income ta' purposes as there is no practically no overhead e'pense% &hile professionals and businessmen have no uniform costs or e'penses necessary to produce their income. There is ample ,ustification to adopt the gross system of income ta'ation to compensation income% &hile continuing the system of net income ta'ation as regards professional and business income.
Topic: Co5stitutio54l !i3it4tio5s: .ue Process Cl4use CO22ISSIONE +ACTS: 0 tas+ force &as created on 6une 1% 1##3 to investigate ta' liabilities of manufacturers engaged in ta' evasion schemes. >n 6uly 1% 1##3% the " ! issued !ev. =emo "irc. No. 3$D#3 &hich reclassified certain cigarette brands manufactured by private respondent Bortune Tobacco "orp. )Bortune* as foreign brands sub,ect to a higher ta' rate. >n 0ugust 3% 1##3% Bortune -uestioned the validity of said reclassification as being violative of the right to due process and e-ual protection of la&s. The "T0% on September ;% 1##3 resolved that said reclassification &as of doubtful legality and en,oined its enforcement. n the meantime% on 0ugust 3% 1##3% Bortune &as assessed deficiency income% ad valorem and A0T for 1##2 &ith payment due &ithin 37 days from receipt. >n September 12% 1##3% private respondent moved for reconsideration of said assessment. =ean&hile on September $% 1##3% the "ommissioner filed a complaint &ith the ?>6 against private respondent Bortune% its corporate officers and # other corporations and _Saint Louis University School of Law_ O+ INTE NA! E-EN,E vs. CA 8 +O T,NE TOBACCO CO P. G. . No. &&#%(( 'u5e $) &##/
their respective corporate officers for alleged fraudulent ta' evasion for nonDpayment of the correct income% ad valorem and A0T for 1##2. The complaint &as referred to the ?>6 Tas+ Borce on revenue cases &hich found sufficient basis to further investigate the charges against Bortune. 0 subpoena &as issued on September ;% 1##3 directing private respondent to submit their counterDaffidavits. But it filed a verified motion to dismiss or alternatively% a motion to suspend but &as denied and thus treated as their counterDaffidavit. 0ll motions filed thereafter &ere denied. >n 6anuary :% 1##:% private respondents filed a petition for certiorari and prohibition &ith prayer for preliminary in,unction praying the " !Es complaint and prosecutorEs orders be dismissed<set aside or alternatively% that the preliminary investigation be suspended pending determination by " ! of BortuneEs motion for reconsideration<reinvestigation of the 0ugust 13% 1##3 assessment of ta'es due. The trial court granted the petition for a &rit of preliminary in,unction to en,oin the preliminary investigation on the complaint for ta' evasion pending before the ?>6% ruling that the ta' liability of private respondents first be settled before any complaint for fraudulent ta' evasion can be initiated. ISS,E: .hether or not the basis of private respondentEs ta' liability should first be settled before any complaint for fraudulent ta' evasion can be initiated/ ,!ING: Braud cannot be presumed. f there &as fraud on &illful attempt to evade payment of ad valorem ta'es by private respondent through the manipulation of the registered &holesale price of the cigarettes% it must have been &ith the connivance of cooperation of certain B ! officials and employees &ho supervised and monitored BortuneEs production activities to see to it that the correct ta'es &ere paid. But there is no allegation% much less evidence% of B ! personnelEs malfeasance at the very least% there is the presumption that B ! personnel performed their duties in the regular course in ensuring that the correct ta'es &ere paid by Bortune. Before the ta' liabilities of Bortune are finally determined% it cannot be correctly asserted that private respondents have &illfully attempted to evade or defeat any ta' under Secs. 25: and 259% 1##$ N !". The fact that a ta' is due must first be proved.
Topic: Co5stitutio54l !i3it4tio5s: .ue Process Cl4use CO22ISSIONE O+ INTE NA! E-EN,E vs. !H,I!!IE G. . No. &"1#$0 'uly &") (11% PA?NSHOP) INC..
+ACTS: " ! 6ose G. >ng issued !evenue =emorandum >rder No. 15D#1 imposing a 5M lending investorEs ta' on pa&nshops@ thus8 0 restudy of P.?. 4No.5 11: sho&s that the principal activity of pa&nshops is lending money at interest and incidentally accepting a 3pa&n3 of personal property delivered by the pa&ner to the pa&nee as security for the loan. "learly% this ma+es pa&nshop business a+in to lending investorEs business activity &hich is broad enough to encompass the business of lending money at interest by any person &hether natural or ,uridical. Such being the case% pa&nshops shall be sub,ect to the 5M lending investorEs ta' based on their gross income pursuant to Section 119 of the Ta' "ode% as amended. This !=> &as clarified by !evenue =emorandum "ircular No. :3D#1. Since pa&nshops are considered as lending investors% they also become sub,ect to documentary stamp ta'es prescribed in Title A of the Ta' "ode. B ! !uling No. 325D;; is hereby revo+ed. Pursuant to these issuances% the B ! issued 0ssessment Notice No. ;1DPTD13D#:D #$D#D11; against Fhuillier demanding payment of deficiency percentage ta' in the sum of P3%397%335.11 for 1##: inclusive of interest and surcharges. Fhuillier filed an administrative protest &ith the >ffice of the !evenue !egional ?irector contending that )1* neither the Ta' "ode nor the A0T Fa& e'pressly imposes 5M percentage ta' on the gross income of pa&nshops@ )2* pa&nshops are different from lending investors% &hich _Saint Louis University School of Law_
are sub,ect to the 5M percentage ta' under the specific provision of the Ta' "ode@ )3* !=> No. 15D#1 is not implementing any provision of the nternal !evenue la&s but is a ne& and additional ta' measure on pa&nshops% &hich only "ongress could enact@ ):* !=> No. 15D#1 impliedly amends the Ta' "ode and is therefore ta'ation by implication% &hich is proscribed by la&@ and )5* !=> No. 15D#1 is a 3class legislation3 because it singles out pa&nshops among other lending and financial operations. Fhuillier% on the other hand% maintains that before and after the amendment of the Ta' "ode by 1.>. No. 2$3% &hich too+ effect on 1 6anuary 1#;;% pa&nshops and lending investors &ere sub,ected to different ta' treatments. Pa&nshops &ere re-uired to pay an annual fi'ed ta' of only P1%777% &hile lending investors &ere sub,ect to a 5M percentage ta' on their gross income in addition to their fi'ed annual ta'es. 0ccordingly% during the period from 0pril 1#;2 up to ?ecember 1##7% the " ! consistently ruled that a pa&nshop is not a lending investor and should not therefore be re-uired to pay percentage ta' on its gross income. ISS,E: 0re pa&nshops considered 3lending investors3 for the purpose of the imposition of the lending investorEs ta'/ ,!ING: !=> No. 15D#1 and !=" No. :3D#1 &ere issued in accordance &ith the po&er of the " ! to ma+e rulings and opinions in connection &ith the implementation of internal revenue la&s% &hich &as besto&ed by then Section 2:5 of the N !" of 1#$$% as amended by 1.>. No. 2$3.9 Such po&er of the " ! cannot be controverted. 2o&ever% the " ! cannot% in the e'ercise of such po&er% issue administrative rulings or circulars not consistent &ith the la& sought to be applied. ndeed% administrative issuances must not override% supplant or modify the la&% but must remain consistent &ith the la& they intend to carry out. >nly "ongress can repeal or amend the la&. .hile it is true that pa&nshops are engaged in the business of lending money% they are not considered 3lending investors3 for the purpose of imposing the 5M percentage ta'es. The definition of lending investors found in Section 15$ )u* of the N !" of 1#;9 is not found in the N !" of 1#$$% as amended by 1.>. No. 2$3% &here Section 119 invo+ed by the " ! is found. 2o&ever% both the N !" of 1#;9 and the N !" of 1#$$ dealt &ith pa&nshops and lending investors differently. Aerily then% it &as the intent of "ongress to deal &ith both sub,ects differently. 2ence% &e must li+e&ise interpret the statute to conform &ith such legislative intent. Burther% if pa&nshops &ere covered &ithin the term lending investor% there &ould have been no need to introduce such amendment to include o&ners of pa&nshops. 0t any rate% such proposed amendment &as not adopted. nstead% the approved bill &hich became !.0. No. $$19repealed Section 119 of N !" of 1#$$% as amended% &hich &as the basis of !=> No. 15D#1 and !=" No. :3D#1. Since Section 119 of the N !" of 1#$$% &hich breathed life on the -uestioned administrative issuances% had already been repealed% !=> 15D#1 and !=" :3D#1% &hich depended upon it% are deemed automatically repealed. 2ence% even granting that pa&nshops are included &ithin the term lending investors% the assessment from 2$ =ay 1##: on&ard &ould have no leg to stand on. 0dding to the invalidity of the !=" No. :3D#1 and !=> No. 15D#1 is the absence of publication. .hile the ruleDma+ing authority of the " ! is not doubted% li+e _Saint Louis University School of Law_
any other government agency% the " ! may not disregard legal re-uirements or applicable principles in the e'ercise of -uasiDlegislative po&ers. 0 legislative rule is in the nature of subordinate legislation% designed to implement a primary legislation by providing the details thereof. 0n interpretative rule% on the other hand% is designed to provide guidelines to the la& &hich the administrative agency is in charge of enforcing. .hen an administrative rule is merely interpretative in nature% its applicability needs nothing further than its bare issuance% for it gives no real conse-uence more than &hat the la& itself has already prescribed. .hen% 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 la& 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 ne& issuance is given the force and effect of la&. !=> No. 15D#1 and !=" No. :3D#1 cannot be vie&ed simply as implementing rules or corrective measures revo+ing in the process the previous rulings of past "ommissioners. Specifically% they &ould have been amendatory provisions applicable to pa&nshops. .ithout these disputed " ! issuances% pa&nshops &ould not be liable to pay the 5M percentage ta'% considering that they &ere not specifically included in Section 119 of the N !" of 1#$$% as amended. n so doing% the " ! did not simply interpret the la&. The due observance of the re-uirements of notice% hearing% and publication should not have been ignored.
Topic: Co5stitutio54l !i3it4tio5s: EDu4l Protectio5 Cl4use ABA@A.A Guro P4rty !ist vs. Er3it4 G. . No. &/*1"/ Septe3:er &) (11" +ACTS: Before !.0. No. #33$ too+ effect% petitioners 0B0S0?0 CG!> Party Fist% et al.% filed a petition for prohibition on =ay 2$% 2775 -uestioning the constitutionality of Sections :% 5 and 9 of !.0. No. #33$% amending Sections 179% 17$ and 17;% respectively% of the National nternal !evenue "ode )N !"*. Section : imposes a 17M A0T on sale of goods and properties% Section 5 imposes a 17M A0T on importation of goods% and Section 9 imposes a 17M A0T on sale of services and use or lease of properties. These -uestioned provisions contain a uniform proviso authori(ing the President% upon recommendation of the Secretary of Binance% to raise the A0T rate to 12M% effective 6anuary 1% 2779% after specified conditions have been satisfied. Petitioners argue that the la& is unconstitutional. ISS,ES: 1. .hether or not there is a violation of 0rticle A % Section 2: of the "onstitution. 2. .hether or not there is undue delegation of legislative po&er in violation of 0rticle A Sec 2;)2* of the "onstitution. 3. .hether or not there is a violation of the due process and e-ual protection under 0rticle Sec. 1 of the "onstitution. HE!.: 1. Since there is no -uestion that the revenue bill e'clusively originated in the 2ouse of !epresentatives% the Senate &as acting &ithin its constitutional po&er to _Saint Louis University School of Law_
introduce amendments to the 2ouse bill &hen it included provisions in Senate Bill No. 1#57 amending corporate income ta'es% percentage% and e'cise and franchise ta'es. 2. There is no undue delegation of legislative po&er but only of the discretion as to the e'ecution of a la&. This is constitutionally permissible. "ongress does not abdicate its functions or unduly delegate po&er &hen it describes &hat ,ob must be done% &ho must do it% and &hat is the scope of his authority@ in our comple' economy that is fre-uently the only &ay in &hich the legislative process can go for&ard. 3. The po&er of the State to ma+e reasonable and natural classifications for the purposes of ta'ation has long been established. .hether it relates to the sub,ect of ta'ation% the +ind of property% the rates to be levied% or the amounts to be raised% the methods of assessment% valuation and collection% the StateEs po&er is entitled to presumption of validity. 0s a rule% the ,udiciary &ill not interfere &ith such po&er absent a clear sho&ing of unreasonableness% discrimination% or arbitrariness.
Topic: Co5stitutio54l !i3it4tio5s: EDu4l Protectio5 Cl4use ASSOCIATION O+ C,STO2S B O@E S) INC. vs. THE 2,NICIPA! BOA . #%PHI!&10 +ACTS: The disputed ordinance &as passed by the =unicipal Board of the "ity of =anila under the authority conferred by section 1; )p* of !epublic 0ct No. :7#. Said section confers upon the municipal board the po&er 3to ta' motor and other vehicles operating &ithin the "ity of =anila the provisions of any e'isting la& to the contrary not&ithstanding.3 t is contended that this po&er is broad enough to confer upon the "ity of =anila the po&er to enact an ordinance imposing a property ta' on motor vehicles operating &ithin the city limits. The 0ssociation of "ustoms Bro+ers% nc.% &hich is composed of all bro+ers and public service operators of motor vehicles in the "ity of =anila% and C. =anlapit% nc.% a member of said association% also a public service operator of truc+s in said "ity% challenge the validity of ordinance on the ground that )1* &hile it levies a soDcalled property ta' it is in reality a license ta' &hich is beyond the po&er of the =unicipal Board of the "ity of =anila@ )2* said ordinance offends against the rule of uniformity of ta'ation@ and )3* it constitutes double ta'ation. The respondents% represented by the city fiscal% contend on their part that the challenged ordinance imposes a property ta' &hich is &ithin the po&er of the "ity of =anila to impose under its !evised "harter 4Section 1; )p* of !epublic 0ct No. :7#5% and that the ta' in -uestion does not violate the rule of uniformity of ta'ation% nor does it constitute double ta'ation. ISS,E: .hether or not the ordinance violates the rule on uniformity/ ,!ING: .hile as a rule an ad valorem ta' is a property ta'% and this rule is supported by some authorities% the rule should not be ta+en in its absolute sense if the nature and purpose of the ta' as gathered from the conte't sho& that it is in effect an e'cise or a license ta'. Thus% it has been held that 3 f a ta' is in its nature an e'cise% it does not become a property ta' because it is proportioned in amount to the value of the property used in connection &ith the occupation% privilege or act &hich is ta'ed. 1very e'cise necessarily must finally fall upon and be paid by property and so may be indirectly a ta' upon property@ but if it is really imposed upon the performance of an act% en,oyment of a privilege% or the engaging in an occupation% it &ill be considered an e'cise.3 t has also been held that 3The character of a ta' as a property ta' or a license or occupation ta' must be determined by its incidents% and from the natural and legal effect of the language employed in the act or ordinance% and not by the name by &hich it is described% or by the mode adopted in fi'ing its amount. f it is clearly a property ta'% it &ill be so regarded% even though nominally and in form it is a license or occupation ta'@ and% on the other hand% if the ta' is levied upon persons on account of their business% it &ill be construed as a license or occupation ta'% even though it is graduated according to the property used in such business% or on the gross receipts of the business.3 The _Saint Louis University School of Law_
ordinance in -uestion falls under the foregoing rules. .hile it refers to property ta' and it is fi'ed ad valorem yet &e cannot re,ect the idea that it is merely levied on motor vehicles operating &ithin the "ity of =anila &ith the main purpose of raising funds to be e'pended e'clusively for the repair% maintenance and improvement of the streets and bridges in said city. This is precisely &hat the =otor AehicleFa& intends to prevent% for the reason that% under said 0ct% municipal corporations already participate in the distribution of the proceeds that are raised for the same purpose of repairing% maintaining and improving bridges and public high&ays. This prohibition is intended to prevent duplication in the imposition of fees for the same purpose. t is for this reason that &e believe that the ordinance in -uestion merely imposes a license fee although under the cloa+ of an ad valorem ta' to circumvent the prohibition above adverted to. t is also our opinion that the ordinance infringes the rule of uniformity of ta'ation ordained by our "onstitution. Note that the ordinance e'acts the ta' upon all motor vehicles operating &ithin the "ity of =anila. t does not distinguish bet&een a motor vehicle for hire and one &hich is purely for private use. Neither does it distinguish bet&een a motor vehicle registered in the "ity of =anila and one registered in another place but occasionally comes to =anila and uses its streets and public high&ays. The distinction is important if &e note that the ordinance intends to burden &ith the ta' only those registered in the "ity of =anila as may be inferred from the &ord 3operating3 used therein. The &ord 3operating3 denotes a connotation &hich is a+in to a registration% for under the =otor Aehicle Fa& no motor vehicle can be operated &ithout previous payment of the registration fees. There is no pretense that the ordinance e-ually applies to motor vehicles &ho come to =anila for a temporary stay or for short errands% and it cannot be denied that they contribute in no small degree to the deterioration of the streets and public high&ays. The fact that they are benefited by their use they should also be made to share the corresponding burden. 0nd yet such is not the case. This is an ine-uality &hich &e find in the ordinance% and &hich renders it offensive to the "onstitution.
Topic: Co5stitutio54l !i3it4tio5s: EDu4l Protectio5 Cl4use SHE!! vs. -AAO G. . No. !-/1#% +e:ru4ry ($) &#"$ +ACTS: _Saint Louis University School of Law_
The municipal council of "ordova% "ebu adopted >rdinance 17 )1#:9* imposing an annual ta' of P157 on occupation or the e'ercise of the privilege of installation manager@ >rdinance # )1#:$* imposing an annual ta' of P:7 for local deposits in drums of combustible and inflammable materials and an annual ta' of P277 for tin can factories@ and >rdinance 11 )1#:;* imposing an annual ta' of P157 on tin can factories having a ma'imum annual output capacity of 37%777 tin cans. Shell "o.% a foreign corporation% filed suit for the refund of the ta'es paid by it% on the ground that the ordinances imposing such ta'es are ultra vires. ISS,E: .hether >rdinance 17 is discriminatory and hostile because there is no other person in the locality &ho e'ercise such designation or occupation. ,!ING: N>. The mere fact that there is no other person in the locality &ho e'ercises such a KdesignationL or calling does not ma+e the ordinance discriminatory and hostile% inasmuch as it is and &ill be applicable to any person or firm &ho e'ercises such calling or occupation named or designated as Kinstallation manager.L 1ven if an installation manager is a salaried employee% still his employment is an occupation% and one occupation or line of business does not become e'empt by being conducted &ith some other occupation or business for &hich such ta'es have been paid and the occupation ta' must be paid by each individual in a calling sub,ect thereto.
Topic: Co5stitutio54l !i3it4tio5s: EDu4l Protectio5 Cl4use G. +ACTS: _Saint Louis University School of Law_ @APATI AN vs. TAN No. &1#(*# 'u5e %1) &#**
: petitions% &hich have been consolidated because of the similarity of the main issues involved therein% see+ to nullify 1'ecutive >rder No. 2$3% issued by the President of the Philippines on 25 6uly 1#;$% to ta+e effect on 1 6anuary 1#;;% and &hich amended certain sections of the National nternal !evenue "ode and adopted the valueD added ta' for being unconstitutional in that its enactment is not alledgedly &ithin the po&ers of the President@ that the A0T is oppressive% discriminatory% regressive% and violates the due process and e-ual protection clauses and other provisions of the 1#;$ "onstitution. The Solicitor Ceneral prays for the dismissal of the petitions on the ground that the petitioners have failed to sho& ,ustification for the e'ercise of its ,udicial po&ers% vi(. )1* the e'istence of an appropriate case@ )2* an interest% personal and substantial% of the party raising the constitutional -uestions@ )3* the constitutional -uestion should be raised at the earliest opportunity@ and ):* the -uestion of constitutionality is directly and necessarily involved in a ,usticiable controversy and its resolution is essential to the protection of the rights of the parties. 0ccording to the Solicitor Ceneral% only the third re-uisite J that the constitutional -uestion should be raised at the earliest opportunity J has been complied &ith. 2e also -uestions the legal standing of the petitioners &ho% he contends% are merely as+ing for an advisory opinion from the "ourt% there being no ,usticiable controversy for resolution. >b,ections to ta'payersH suit for lac+ of sufficient personality standing% or interest are% ho&ever% in the main procedural matters. "onsidering the importance to the public of the cases at bar% and in +eeping &ith the "ourtHs duty% under the 1#;$ "onstitution% to determine &hether or not the other branches of government have +ept themselves &ithin the limits of the "onstitution and the la&s and that they have not abused the discretion given to them% the "ourt has brushed aside technicalities of procedure and has ta+en cogni(ance of these petitions. ISS,E: .hether or not 1.>. 2$3 violated the e-ual protection clause/ ,!ING: The sales ta' adopted in 1> 2$3 is applied similarly on all goods and services sold to the public% &hich are not e'empt% at the constant rate of 7M or 17M. The disputed sales ta' is also e-uitable. t is imposed only on sales of goods or services by persons engage in business &ith an aggregate gross annual sales e'ceeding P277%777.77. Small corner sariDsari stores are conse-uently e'empt from its application. Fi+e&ise e'empt from the ta' are sales of farm and marine products% spared as they are from the incidence of the A0T% are e'pected to be relatively lo&er and &ithin the reach of the general public. The "ourt li+e&ise finds no merit in the contention of the petitioner ntegrated "ustoms Bro+ers 0ssociation of the Philippines that 1> 2$3% more particularly the ne& Sec. 173 )r* of the National nternal !evenue "ode% unduly discriminates against customs bro+ers. The phrase 3e'cept customs bro+ers3 is not meant to discriminate against customs bro+ers. t &as inserted in Sec. 173)r* to complement the provisions of Sec. 172 of the "ode% &hich ma+es the services of customs bro+ers sub,ect to the payment of the A0T
and to distinguish customs bro+ers from other professionals &ho are sub,ect to the payment of an occupation ta' under the Focal Ta' "ode. .ith the insertion of the clarificatory phrase 3e'cept customs bro+ers3 in Sec. 173)r*% a potential conflict bet&een the t&o sections% )Secs. 172 and 173*% insofar as customs bro+ers are concerned% is averted. 0t any rate% the distinction of the customs bro+ers from the other professionals &ho are sub,ect to occupation ta' under the Focal Ta' "ode is based upon material differences% in that the activities of customs bro+ers parta+e more of a business% rather than a profession and &ere thus sub,ected to the percentage ta' under Sec. 1$: of the National nternal !evenue "ode prior to its amendment by 1> 2$3. 1> 2$3 abolished the percentage ta' and replaced it &ith the A0T. f the petitioner 0ssociation did not protest the classification of customs bro+ers then% the "ourt sees no reason &hy it should protest no&. n any event% if petitioners seriously believe that the adoption and continued application of the A0T are pre,udicial to the general &elfare or the interests of the ma,ority of the people% they should see+ recourse and relief from the political branches of the government. The "ourt% follo&ing the timeDhonored doctrine of separation of po&ers% cannot substitute its ,udgment for that of the President as to the &isdom% ,ustice and advisability of the adoption of the A0T. The "ourt can only loo+ into and determine &hether or not 1> 2$3 &as enacted and made effective as la&% in the manner re-uired by% and consistent &ith% the "onstitution% and to ma+e sure that it &as not issued in grave abuse of discretion amounting to lac+ or e'cess of ,urisdiction@ and% in this regard% the "ourt finds no reason to impede its application or continued implementation.
Co5stitutio54l !i3it4tio5s: EDu4l Protectio5 Cl4use TAN vs. .E! OSA IO G. . No. &1#(*# Octo:er %) &##$ +ACTS: 0 special civil actions for prohibition challenge the constitutionality of !epublic 0ct No. $:#9% also commonly +no&n as the Simplified Net ncome Ta'ation Scheme )3SN T3*% amending certain provisions of the National nternal !evenue "ode and% in Petitioners claim to be ta'payers adversely affected by the continued implementation of the amendatory legislation. Petitioner intimates that !epublic 0ct No. $:#9 desecrates the constitutional re-uirement that ta'ation 3shall be uniform and e-uitable3 in that the la& &ould no& _Saint Louis University School of Law_
attempt to ta' single proprietorships and professionals differently from the manner it imposes the ta' on corporations and partnerships. ISS,E: .hether !epublic 0ct No. $:#9 is unconstitutional/ ,!ING: The due process clause may correctly be invo+ed only &hen there is a clear contravention of inherent or constitutional limitations in the e'ercise of the ta' po&er. No such transgression is so evident to us. The "ourt% first of all% should li+e to correct the apparent misconception that general professional partnerships are sub,ect to the payment of income ta' or that there is a difference in the ta' treatment bet&een individuals engaged in business or in the practice of their respective professions and partners in general professional partnerships. The fact of the matter is that a general professional partnership% unli+e an ordinary business partnership )&hich is treated as a corporation for income ta' purposes and so sub,ect to the corporate income ta'*% is not itself an income ta'payer. The income ta' is imposed not on the professional partnership% &hich is ta' e'empt% but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. Section 23 of the Ta' "ode% &hich has not been amended at all by !epublic 0ct $:#9% is e'plicit8 Sec. 23.Ta' liability of members of general professional partnerships. J )a* Persons e'ercising a common profession in general partnership shall be liable for income ta' only in their individual capacity% and the share in the net profits of the general professional partnership to &hich any ta'able partner &ould be entitled &hether distributed or other&ise% shall be returned for ta'ation and the ta' paid in accordance &ith the provisions of this Title. )b* n determining his distributive share in the net income of the partnership% each partner J )1* Shall ta+e into account separately his distributive share of the partnershipHs income% gain% loss% deduction% or credit to the e'tent provided by the pertinent provisions of this "ode% and )2* Shall be deemed to have elected the itemi(ed deductions% unless he declares his distributive share of the gross income undiminished by his share of the deductions. There is% then and no&% no distinction in income ta' liability bet&een a person &ho practices his profession alone or individually and one &ho does it through partnership )&hether registered or not* &ith others in the e'ercise of a common profession. ndeed% outside of the gross compensation income ta' and the final ta' on passive investment income% under the present income ta' system all individuals deriving income from any source &hatsoever are treated in almost invariably the same manner and under a common set of rules.
Topic: Co5stitutio54l !i3it4tio5s: EDu4l Protectio5 Cl4use TIO vs. -I.EOG A2 EG,!ATO ; BOA . &"& S (1* +ACTS: Petitioner% on his o&n behalf and purportedly on behalf of other videogram operators adversely affected% assailed the constitutionality of Presidential ?ecree No. 1#;$ entitled K0n 0ct "reating the Aideogram !egulatory BoardL &ith broad po&ers to regulate and supervise the videogram industry. Petitioner -uestioned the constitutionality of the decree on the grounds that8 )a* Section 17 thereof% &hich imposes a ta' of 37M on the gross receipts payable to the local government is a rider and the same is not germane to the sub,ect matter thereof@ )b* the ta' imposed is harsh% confiscatory% oppressive and<or in unla&ful restraint to trade in violation of the due process clause of the "onstitution@ )c* there is undue delegation of po&er. ISS,E: _Saint Louis University School of Law_
.hether ,!ING:
or
not
the
assailed
?ecree
is
unconstitutional/
The po&er to impose ta'es is one so unlimited in force and so searching in e'tent% that the courts scarcely venture to declare that it is sub,ect to any restrictions &hatever% e'cept such as rest in the discretion of the authority &hich e'ercises it. n imposing a ta'% the legislature acts upon its constituents. This is% in general% a sufficient security against erroneous and oppressive ta'ation. >n the other hand% the levy of the 37M ta' is for public purpose. t &as imposed primarily to ans&er the need for regulating the video industry% particularly because of the rampant film piracy% the flagrant violation of intellectual property rights% and the proliferation of pornographic video tapes and &hile it &as also an ob,ective of the ?ecree to protect the movie industry% the ta' remains a valid imposition. The public purpose of a ta' may legally e'ist even if the motive &hich impelled the legislature to impose the ta' &as to favor one industry over the other. t is inherent in the po&er to ta' that a state be free to select the sub,ects of ta'ation% and it has been repeatedly held that ine-uities &hich result from a singling out of one particular class for ta'ation or e'emption infringe no constitutional limitation. Ta'ation has been made the implement of the stateEs police po&er. .ith regard to the issue that the ?ecree contains an undue delegation of legislative po&er% there is really no delegation of the po&er to legislate but merely a conferment functions of authority or discretion as to its e'ecution% enforcement% and implementation. t is important to note that only congressional po&er or competence% not the &isdom of the action ta+en% maybe the basis for declaring a statute invalid. The principle of separation of po&ers has in the main &isely allocated the respective authority to each department and confined its ,urisdiction to such a sphere. The attac+ on the validity of the challenged provision li+e&ise insofar as there may be ob,ections% even if valid and cogent on its &isdom cannot be sustained.
Topic: Co5stitutio54l !i3it4tio5s: EDu4l Protectio5 Cl4use O 2OC S,GA CO2PAN; vs. T EAS, E O+ O 2OCCIT; G. . No. !-(%0#$ +e:ru4ry &0) &#/* +ACTS: >n 2# 6anuary 1#9:% the =unicipal Board of >rmoc "ity passed >rdinance :% Series of 1#9:% imposing Kon any and all productions of centrifugal sugar milled at the >rmoc Sugar "ompany% nc.% in >rmoc"ity a municipal ta' e-uivalent to one per centum )1M* per e'port sale to the Gnited States of 0merica and other foreign countries.L Payments for said ta' &ere made% under protest% by >rmoc Sugar "ompany% nc. on 27 =arch 1#9: for P$%7;$.57 and on 27 0pril 1#9: for P5%777.77% or a total of P12%7;$.57. >n 1 6une 1#9:% the company filed before the "B Feyte% &ith service of a copy upon the Solicitor Ceneral% a complaint against the "ity of >rmoc as &ell as its Treasurer% =unicipal Board and =ayor )2on. 1steban ". "one,os*% alleging that the ordinance is unconstitutional for being violative of the e-ual protection clause )Sec. 1415% 0rt. % "onstitution* and the rule of uniformity of ta'ation )Sec. 22415% 0rt.A % "onstitution*% aside from being an e'port ta' forbidden under Section 22;$ of the !evised 0dministrative "ode. t further alleged that the ta' is neither a production nor a license ta' &hich >rmoc "ity under Section 15D++ of its charter and under Section 2 of !0 229:% other&ise +no&n as the Focal 0utonomy 0ct% is authori(ed to impose@ and that the ta' amounts to a customs duty% fee or charge in violation of paragraph 1 of Section 2 of !0 229: because the ta' is on both the sale and e'port of sugar. 0fter preDtrial and submission of the case on memoranda% the "B % on 9 0ugust 1#9:% rendered a decision that upheld the constitutionality of the ordinance and declared the ta'ing po&er of _Saint Louis University School of Law_
chartered city broadened by the Focal 0utonomy 0ct to include all other forms of ta'es% licenses or fees not e'cluded in its charter. 0ppeal therefrom &as directly ta+en to the Supreme "ourt. ISS,E: .hether or not the ordinance is violative of the e-ual protection of la&s/ ,!ING: The "onstitution in the bill of rights provides8 K. . . nor shall any person be denied the e-ual protection of the la&s.L )Sec. 1415% 0rt. 111* n Bel&a v. Salas% the "ourt ruled that the e-ual protection clause applies only to persons or things identically situated and does not bar a reasonable classification of the sub,ect of legislation% and a classification is reasonable &here )1* it is based on substantial distinctions &hich ma+e real differences@ )2* these are germane to the purpose of the la&@ )3* the classification applies not only to present conditions but also to future conditions &hich are substantially identical to those of the present@ ):* the classification applies only to those &ho belong to the same class. "lassification reasonable should in terms applicable to future conditions as &ell The >rdinance ta'es only centrifugal sugar produced and e'ported by the >rmoc Sugar "ompany nc. and none other. 0t the time of the ta'ing ordinanceEs enactment% >rmoc Sugar "ompany% it is true% &as the only sugar central in the city of >rmoc. Still% the classification% to be reasonable% should be in terms applicable to future conditions as &ell. The ta'ing ordinance should not be singular and e'clusive as to e'clude any subse-uently established sugar central% of the same class as the "entral% from the coverage of the ta'. 0s it is no&% even if later a similar company is set up% it cannot be sub,ect to the ta' because the ordinance e'pressly points only to >rmoc Sugar "ompany as the entity to be levied upon. nterest on refund not due as collection &as not arbitrary@ >rdinance constitutional until declared other&ise>rmoc Sugar "ompany% ho&ever% is not entitled to interest on the refund because the ta'es &ere not arbitrarily collected )"ollector of nternal !evenue v. Binalbagan*. 0t the time of collection% the ordinance provided a sufficient basis to preclude arbitrariness% the same being then presumed constitutional until declared other&ise.
Topic: Co5stitutio54l !i3it4tio5s: EDu4l Protectio5 Cl4use PHI!IPPINE , A! E!ECT IC COOPE ATI-ES ASSOCIATION) INC.) vs. SEC ETA ; O+ .EPA T2ENT O+ INTE IO AN. !OCA! GO-E N2ENT G . No. &$%10/ 'u5e &1) (11% +ACTS: >n =ay 23% 2773% a class suit &as filed by petitioners in their o&n behalf and in behalf of other electric cooperatives organi(ed and e'isting under P? 29# &hich are members of petitioner Philippine !ural 1lectric "ooperatives 0ssociation% nc. The other petitioners% electric cooperatives of 0gusandel Norte% loilo 1% and sabela 1 are nonD stoc+% nonDprofit electric cooperatives organi(ed and e'isting under P? 29#% as amended% and registered &ith the National 1lectrification 0dministration. Gnder Sec. 3# of P? 29# electric cooperatives shall be e'empt from the payment of all National Covernment% local government% and municipal ta'es and fee% including franchise% fling recordation% license or permit fees or ta'es and any fees% charges% or costs involved in any court or administrative proceedings in &hich it may be party. Brom 1#$1to 1#$;% in order to finance the electrification pro,ects envisioned by P? 29#% as amended% the Philippine Covernment% acting through the National 1conomic council and the N10% entered into si' loan agreements &ith the government of the Gnited States of 0merica% through the Gnited States 0gency for nternational ?evelopment &ith electric cooperatives as beneficiaries. The loan agreements contain similarly &orded provisions on the ta' application of the loan and any property or commodity ac-uired through the proceeds of the loan. Petitioners allege that &ith the passage of the Focal Covernment "ode their ta' e'emptions have been validly &ithdra&n. Particularly% petitioners assail the validity of Sec. 1#3 and 23: of the said code. Sec. 1#3 provides for the &ithdra&al of ta' e'emption privileges granted to all persons% &hether natural or ,uridical% e'cept cooperatives duly registered under !0 9#3;% &hile Sec. 23: e'empts the same cooperatives from payment of real property ta'.
ISS,E: ?oes the Focal Covernment "ode violate the e-ual protection clause since the provisions unduly discriminate against petitioners &ho are duly registered cooperatives under P? 29#% as amended% and no under !0 9#3; or the "ooperatives "ode of the Philippines/
,!ING: No. The guaranty of the e-ual protection clause is not violated by a la& based on a reasonable classification. "lassification% to be reasonable must )a* rest on substantial classifications@ )b* germane to the purpose of the la&@ )c* not limited to the e'isting conditions only@ and )d* apply e-ually to all members of the same class. .e hold that there is reasonable classification under the Focal Covernment "ode to ,ustify the different ta' treatment bet&een electric cooperatives covered by P? 29# and electric cooperatives under !0 9#3;. Birst% substantial distinctions e'ist bet&een cooperatives under P? 29# and those under !0 9#3;. n the former% the government is the one that funds those soDcalled electric cooperatives% &hile in the latter% the members ma+e e-uitable contribution as source of funds. Second% the classification of ta'De'empt entities in the Focal Covernment "ode is germane to the purpose of the la&. The "onstitutional mandate that Kevery local government unit shall en,oy local autonomy%L does not mean that the e'ercise of the po&er by the local governments is beyond the regulation of "ongress. Sec. 1#3 of the FC" is indicative of the legislative intent to vet broad ta'ing po&ers upon the local government units and to limit e'emptions from local ta'ation to entities specifically provided therein. Binally% Sec. 1#3 and 23: of the FC" permit reasonable classification as these e'emptions are not limited to e'isting conditions and apply e-ually to all members of the same class. t is ingrained in ,urisprudence that the constitutional prohibition on the impairment of the obligations of contracts does not prohibit every change in e'isting la&s. To fall &ithin the prohibition% the change must not only impair the obligation of the e'isting contract% but the impairment must be substantial. =oreover% to constitute impairment% the la& must affect a change in the rights of the parties &ith reference to each other and not &ith respect to nonDparties. The -uoted provision under the loan agreement does not purport to grant any ta' e'emption in favor of any party to the contract% including the beneficiaries thereof. The provisions simply shift the ta' burden% if any% on the transactions under the loan agreements to the borro&er and<or beneficiary of the loan. Thus% the &ithdra&al by the _Saint Louis University School of Law_
Focal Covernment "ode under Sec. 1#3 and 23: of the ta' e'emptions previously en,oyed by petitioners does not impair the obligation of the borro&er% the lender or the beneficiary under the loan agreements as% in fact% no ta' e'emption is granted therein.
Topic: Co5stitutio54l !i3it4tio5s: EDu4l Protectio5 Cl4use SANTOS vs. PEOP!E P+ THE PHI!IPPINES G. . &0%&0/ Au=ust (/) (11* +ACTS: >n 1# =ay 2775% then Bureau of nternal !evenue "ommissioner Cuillermo F. Parayno% 6r. &rote to the ?epartment of 6ustice Secretary !aul =. Con(ales a letter regarding the possible filing of criminal charges against petitioner. 0llegedly petitioner% in her 0nnual ncome Ta' !eturn for ta'able year 2772 filed &ith the B !% declared an income of P;%733%332.$7 derived from her talent fees solely from 0BSD"BN. nitial documents gathered from the B ! offices and those given by petitionerHs accountant and third parties% ho&ever% confirmed that petitioner received in 2772 income in the amount of at least P1:%$#9%23:.$7% not only from 0BSD"BN% but also from other sources% such as movies and product endorsements. The estimated ta' liability arising from petitionerHs under declaration amounted to P1%$1;%#25.52% including incremental penalties@ the nonDdeclaration by petitioner of an amount e-uivalent to at least ;:.1;M of the income declared in her return &as considered a substantial under declaration of income% &hich constituted prima facie evidence of false or fraudulent return under Section 2:;)B* of the N !"% as amended. ISS,E: .hether a resolution of a "T0 division denying a motion to -uash is a proper sub,ect of an appeal to the "T0 1N B0N" under sec. 11 of !0 #2;2 amending sec 1; of !0 1125/ ,!ING: The court ruled in the negative. Section 1; of !epublic 0ct No. 1125% as amended by !epublic 0ct No. #2;2% provides@ KNo civil proceedings involving matters arising under the National nternal !evenue "ode% the Tariff and "ustoms "ode or the Focal Covernment "ode shall be maintained% e'cept as herein provided% until and unless an appeal has been previously filed &ith the "T0 and disposed of in accordance &ith the provisions of this 0ct.
0 party adversely affected by a resolution of a ?ivision of the "T0 on a motion for reconsideration or ne& trial% may file a petition for revie& &ith the "T0 en banc.L The provision spea+s of resolutions that constitutes final disposition of the case. 0s a Ceneral rule% the denial of a motion to -uash is an interlocutory order &hich is not theproper sub,ect of an appeal or a petition for certiorari. There is no dispute that a court order denying a motion to -uash is interlocutory. The denial of the motion to -uash means that the criminal information remains pending &ith the court% &hich must proceed &ith the trial to determine &hether the accused is guilty of the crime charged therein. 1-ually settled is the rule that an order denying a motion to -uash% being interlocutory is not immediately appealable% nor can it be the sub,ect of a petition for certiorari. Such order may only be revie&ed in the ordinary course of la& by an appeal from the ,udgment after trial.
Topic: +reedo3 o6
eli=io5: +ree E7ercise Cl4use
A2E ICAN BIB!E SOCIET; vs. CIT; O+ 2ANI!A G. . No. !-#/%0 April %1) &#"0 +ACTS: PlaintiffHs Philippine agency has been distributing and selling bibles and<or gospel portions thereof throughout the Philippines and translating the same into several Philippine dialects. >n =ay 2# 1#53% the acting "ity Treasurer of the "ity of =anila informed plaintiff that it &as conducting the business of general merchandise since November% 1#:5% &ithout providing itself &ith the necessary =ayorHs permit and municipal license% in violation of >rdinance No. 3777% as amended% and >rdinances Nos. 252#% 372; and 339:% and re-uired plaintiff to secure% &ithin three days% the corresponding permit and license fees% together &ith compromise covering the period from the :th -uarter of 1#:5 to the 2nd -uarter of 1#53% in the total sum of P5%;21.:5. Plaintiff protested against this re-uirement% but the "ity Treasurer demanded that plaintiff deposit and pays under protest the sum of P5% ;#1.:5% if suit &as to be ta+en in court regarding the same. To avoid the closing of its business as &ell as further fines and penalties in the premises on >ctober 2:% 1#53% plaintiff paid to the defendant under protest the said permit and license fees in the aforementioned amount% giving at the same time notice to the "ity Treasurer that suit &ould be ta+en in court to -uestion the legality of the ordinances under &hich% the said fees &ere being collected &hich &as done on the same date by filing the complaint that gave rise to this action. n its complaint plaintiff prays that ,udgment be rendered declaring the said =unicipal >rdinance No. 3777% as amended% and >rdinances Nos. 252#% 372; and 339: illegal and unconstitutional% and that the defendant be ordered to refund to the plaintiff the sum of P5% ;#1.:5 paid under protest% together &ith legal interest thereon% and the costs% plaintiff further praying for such other relief and remedy as the court may deem ,ust e-uitable. ?efendant ans&ered the complaint% maintaining in turn that said ordinances &ere enacted by the =unicipal Board of the "ity of =anila by virtue of the po&er granted to it by section 2:::% subsection )mD2* of the !evised 0dministrative "ode% superseded on 6une 1;% 1#:#% by section 1;% subsection )1* of !epublic 0ct No. :7#% +no&n as the !evised "harter of the "ity of =anila. ISS,E: .hether or not the ordinances &ere unconstitutional and provide for religious censorship and restrain the free e'ercise and en,oyment of its religious profession/ ,!ING: _Saint Louis University School of Law_
Section 1% subsection )$* of 0rticle of the "onstitution of the !epublic of the Philippines% provides that8 No la& shall be made respecting an establishment of religion% or prohibiting the free e'ercise thereof% and the free e'ercise and en,oyment of religious profession and &orship% &ithout discrimination or preference% shall forever be allo&ed. No religion test shall be re-uired for the e'ercise of civil or political rights. 0rticle % section 1% clause )$* of the "onstitution of the Philippinesafore-uoted% guarantees the freedom of religious profession and &orship. 3!eligion has been spo+en of as a profession of faith to an active po&er that binds and elevates man to its "reator3. t has reference to oneHs vie&s of his relations to 2is "reator and to the obligations they impose of reverence to 2is being and character% and obedience to 2is .ill. The constitutional guaranty of the free e'ercise and en,oyment of religious profession and &orship carries &ith it the right to disseminate religious information. 0ny restraints of such right can only be ,ustified li+e other restraints of freedom of e'pression on the grounds that there is a clear and present danger of any substantive evil &hich the State has the right to prevent3. n the case at bar the license fee herein involved is imposed upon appellant for its distribution and sale of bibles and other religious literature. t may be true that in the case at bar the price as+ed for the bibles and other religious pamphlets &as in some instances a little bit higher than the actual cost of the same but this cannot mean that appellant &as engaged in the business or occupation of selling said 3merchandise3 for profit. Bor this reason% &e believe that the provisions of "ity of =anila >rdinance No. 252#% as amended% cannot be applied to appellant% for in doing so it &ould impair its free e'ercise and en,oyment of its religious profession and &orship as &ell as its rights of dissemination of religious beliefs. .ith respect to >rdinance No. 3777% as amended% &hich re-uires the =ayorHs permit before any person can engage in any of the businesses% trades or occupations enumerated therein% &e do not find that it imposes any charge upon the en,oyment of a right granted by the "onstitution% nor ta' the e'ercise of religious practices. t seems clear% therefore% that >rdinance No. 3777)mayorEs permit* cannot be considered unconstitutional% even if applied to plaintiff Society. But as >rdinance No. 252#) license fee* of the "ity of =anila% as amended% is not applicable to plaintiffD appellant and defendantDappellee is po&erless to license or ta' the business of plaintiff Society involved herein for% as stated before% it &ould impair plaintiffHs right to the free e'ercise and en,oyment of its religious profession and &orship% as &ell as its rights of dissemination of religious beliefs% .e find that >rdinance No. 3777% as amended is also inapplicable to said business% trade or occupation of the plaintiff.
Topic: +reedo3 o6
eli=io5: +ree E7ercise Cl4use
TO!ENTINO vs. THE SEC ETA ; O+ +INANCE G. . No. &&"$"" Au=ust (") &##$ _Saint Louis University School of Law_
+ACTS: The valuedDadded ta' is levied on the sale% barter or e'change of goods and properties as &ell as on the sale or e'change of services. t is e-uivalent to 17M of the gross selling price or gross value in money of goods or properties sold% bartered or e'changed or of the gross receipts from the sale or e'change of services. !epublic 0ct No. $$19 see+s to &iden the ta' base of the e'isting A0T system and enhance its administration by amending the National nternal !evenue "ode. ISS,ES: a. .hether or not the la& violates the provision of the constitution regarding the freedom of religion and its e'ercise thereof/ b. .hether or not the la& violates the provisions of the constitution regarding the Gniformity% 1-uitability and Progressivity of Ta'ation/ ,!ING:
a. "laims of Breedom of Thought and !eligious Breedom
The case of 0merican Bible Society v. "ity of =anila is cited by both the PBS and the PP in support of their contention that the la& imposes censorship. There% this "ourt held that an ordinance of the "ity of =anila% &hich imposed a license fee on those engaged in the business of general merchandise% could not be applied to the appellantHs sale of bibles and other religious literature. This "ourt relied on =urdoc+ v. Pennsylvania in &hich it &as held that% as a license fee is fi'ed in amount and unrelated to the receipts of the ta'payer% the license fee% &hen applied to a religious sect% &as actually being imposed as a condition for the e'ercise of the sectHs right under the "onstitution. Bor that reason% it &as held% the license fee 3restrains in advance those constitutional liberties of press and religion and inevitably tends to suppress their e'ercise.3 But% in this case% the fee in although a fi'ed amount )P1%777*% is not imposed for the e'ercise of a privilege but only for the purpose of defraying part of the cost of registration. The registration re-uirement is a central feature of the A0T system. t is designed to provide a record of ta' credits because any person &ho is sub,ect to the payment of the A0T pays an input ta'% even as he collects an output ta' on sales made or services rendered. The registration fee is thus a mere administrative fee% one not imposed on the e'ercise of a privilege% much less a constitutional right. Bor the foregoing reasons% &e find the attac+ on !epublic 0ct No. $$19 on the ground that it offends the free speech% press and freedom of religion guarantees of the "onstitution to be &ithout merit. Bor the same reasons% &e find the claim of the Philippine 1ducational Publishers 0ssociation )P1P0* in C.!. No. 115#31 that the increase in the price of boo+s and other educational materials as a result of the A0T &ould violate the constitutional mandate to the government to give priority to education% science and technology )0rt. % sec. 1$* to be untenable. _Saint Louis University School of Law_
b. "laims of Progressivity% ?enial of ?ue Process% 1-ual Protection% and mpairment of "ontracts
There is basis for passing upon claims that on its face the statute violates the guarantees of freedom of speech% press and religion. The possible 3chilling effect3 &hich it may have on the essential freedom of the mind and conscience and the need to assure that the channels of communication are open and operating importunately demand the e'ercise of this "ourtHs po&er of revie&. There is% ho&ever% no ,ustification for passing upon the claims that the la& also violates the rule that ta'ation must be progressive and that it denies petitionersH right to due process and the e-ual protection of the la&s. The reason for this different treatment has been cogently stated by an eminent authority on constitutional la& thus8 3.hen freedom of the mind is imperiled by la&% it is freedom that commands a moments of respect@ &hen property is imperiled it is the la&ma+ersH ,udgment that commands respect. This dual standard may not precisely reverse the presumption of constitutionality in civil liberties cases% but obviously it does set up a hierarchy of values &ithin the due process clause.3 .hat "ongress is re-uired by the "onstitution to do is to 3evolve a progressive system of ta'ation.3 This is a directive to "ongress% ,ust li+e the directive to it to give priority to the enactment of la&s for the enhancement of human dignity and the reduction of social% economic and political ine-ualities or for the promotion of the right to 3-uality education3. These provisions are put in the "onstitution as moral incentives to legislation% not as ,udicially enforceable rights. To sum it all up% &e hold that the procedural re-uirements of the "onstitution have been complied &ith by "ongress in the enactment of the statute@ that ,udicial in-uiry &hether the formal re-uirements for the enactment of statutes D beyond those prescribed by the "onstitution D have been observed is precluded by the principle of separation of po&ers@ that the la& does not abridge freedom of speech% e'pression or the press% nor interfere &ith the free e'ercise of religion% nor deny to any of the parties the right to an education@ and that% in vie& of the absence of a factual foundation of record% claims that the la& is regressive% oppressive and confiscatory and that it violates vested rights protected under the "ontract "lause are prematurely raised and do not ,ustify the grant of prospective relief by &rit of prohibition. Topic: Co5stitutio54l !i3it4tio5s: ,5i6or3ity) EDuit4:ility) Pro=ressivity o6 T474tio5 CIT; O+ BAG,IO vs. .E !EON Gr. No. ($0"/ Octo:er %&) &#/* +ACTS: n this appeal% a lo&er court decision upholding the validity of an ordinance 1 of the "ity of Baguio imposing a license fee on any person% firm% entity or corporation doing _Saint Louis University School of Law_
business in the "ity of Baguio is assailed by defendantDappellant Bortunato de Feon. 2e &as held liable as a real estate dealer &ith a property therein &orth more than P17%777% but not in e'cess of P57%777% and therefore obligated to pay under such ordinance the P57 annual fee. That is the principal -uestion. n addition% there has been a firm and unyielding insistence by defendantDappellant of the lac+ of ,urisdiction of the "ity "ourt of Baguio% &here the suit originated% a complaint having been filed against him by the "ity 0ttorney of Baguio for his failure to pay the amount of P377 as license fee covering the period from the first -uarter of 1#5; to the fourth -uarter of 1#92% allegedly% in spite of repeated demands. Nor &as defendantDappellant agreeable to such a suit being instituted by the "ity Treasurer &ithout the consent of the =ayor% &hich for him &as indispensable. The lo&er court &as of a different mind. t declared the above ordinance as amended% valid and subsisting% and held defendantD appellant liable for the fees therein prescribed as a real estate dealer. 2ence% this appeal. 0ssume the validity of such ordinance% and there &ould be no -uestion about the liability of defendantDappellant for the above license fee% it being sho&n in the partial stipulation of facts% that he &as 3engaged in the rental of his property in Baguio3 deriving income therefrom during the period covered by the first -uarter of 1#5; to the fourth -uarter of 1#92. ISS,E: .hether or not the ordinance is valid/ ,!ING: The challenged ordinance cannot be considered ultra vires as there is more than ample statutory authority for the enactment thereof. Nonetheless% its validity on constitutional grounds is challenged because of the allegation that it imposed double ta'ation% &hich is repugnant to the due process clause% and that it violated the re-uirement of uniformity. .e do not vie& the matter thus. 0s to &hy double ta'ation is not violative of due process% 6ustice 2olmes made clear in this language8 3The ob,ection to the ta'ation as double may be laid do&n or one side. . . . The 1:th 0mendment 4the due process clause5 no more forbids double ta'ation than it does doubling the amount of a ta'% short of confiscation or proceedings unconstitutional on other grounds.3 .ith that decision rendered at a time &hen 0merican sovereignty in the Philippines &as recogni(ed% it possesses more than ,ust a persuasive effect. To some% it delivered the coup de grace to the bogey of double ta'ation as a constitutional bar to the e'ercise of the ta'ing po&er. t &ould seem though that in the Gnited States% as &ith us% its ghost% as noted by an eminent critic% still stal+s the ,uridical stage. n a 1#:$ decision% ho&ever% # &e -uoted &ith approval this e'cerpt from a leading 0merican decision8 17 3.here% as here% "ongress has clearly e'pressed its intention% the statute must be sustained even though double ta'ation results.3 0t any rate% it has been e'pressly affirmed by us that such an 3argument against double ta'ation may not be invo+ed &here one ta' is imposed by the state and the other is imposed by the city . . .% it being &idely recogni(ed that there is nothing inherently _Saint Louis University School of Law_
obno'ious in the re-uirement that license fees or ta'es be e'acted &ith respect to the same occupation% calling or activity by both the state and the political subdivisions thereof. The above &ould clearly indicate ho& lac+ing in merit is this argument based on double ta'ation. No&% as to the claim that there &as a violation of the rule of uniformity established by the "onstitution. 0ccording to the challenged ordinance% a real estate dealer &ho leases property &orth P57%777 or above must pay an annual fee of P177. f the property is &orth P17%777 but not over P57%777% then he pays P57 and P2: if the value is less than P17%777. >n its face% therefore% the above ordinance cannot be assailed as violative of the constitutional re-uirement of uniformity. 0 ta' is considered uniform &hen it operates &ith the same force and effect in every place &here the sub,ect may be found.3 t is thus apparent from the above that in much the same &ay that the plea of double ta'ation is unavailing% the allegation that there &as a violation of the principle of uniformity is inherently lac+ing in persuasiveness. There is no need to pass upon the other allegations to assail the validity of the above ordinance% it being maintained that the license fees therein imposed 3is e'cessive% unreasonable and oppressive3 and that there is a failure to observe the mandate of e-ual protection. 0 reading of the ordinance &ill readily disclose their inherent lac+ of plausibility.
TOPIC:Pro9i:itio5 4=4i5st i3p4ir3e5t o6 o:li=4tio5 o6 co5tr4cts CASSANO-A vs. HO . * PHI! &(" +ACTS: >n 6anuary 1;#$% the Spanish government granted to the Plaintiff certain mines in the Province of 0mbos% "amarines% of &hich mines the Plaintiff is no& the o&ner. The said mines &ere granted by virtue of the royal decree of the 1: th of =ay% 1#9$ &hich provided among others% that the grantee shall pay annually a fi'ed ta' of :7 escudos and a further ta' of 3M on the gross earnings. Burthermore% the decree also provided that no other ta'es than those mentioned shall be imposed upon mining and metallurgical industries.
2o&ever% the defendant "ollector of nternal !evenue% considered the -uestioned mining concessions to fall &ithin the provisions of Sec. 13: of the nternal !evenue 0ct &hich imposes on all valid perfected mining concessions granted prior to 0pril 11% 1;##% an annual ta' of P177 and an ad valorem ta' e-ual to 3M of the actual mar+et value of the gross output. The defendant accordingly imposed upon these properties the ta' mentioned and thereafter the plaintiff paid under protest. The plaintiff brought this action against the defendant to recover the sum paid under protest. 6udgment &as rendered in favor of the defendant and from that ,udgment plaintiff appealed. ISS,E: .hether or not Sec. 13: of the nternal !evenue 0ct is valid. HE!.: No. This is because it is violative of the provision of Sec. 5 of the 0ct of "ongress of 6uly 1% 1#72% &hich provides that no la& impairing the obligation of contracts shall be enacted. t seems that the ?eed covering this particular mining concessions constituted a contract bet&een the Spanish government and the Plaintiff% the obligation of &hich &as impaired by the enactment of Sec. 13: of the nternal !evenue 0ct% thereby infringing the provisions of said 0ct of "ongress. Therefore% the said provision of la& is void. Topic: No5-i3p4ir3e5t Cl4use CAGA;AN E!ECT IC PO?E 8 !IGHT CO.) INC. vs CO22ISSIONE O+ INTE NA! E-EN,E G. . No. !-/1&(/ Septe3:er (") &#*" +ACTS: The petitioner is the holder of a legislative franchise% !epublic 0ct No. 32:$% under &hich its payment of 3M ta' on its gross earnings from the sale of electric current is 3in lieu of all ta'es and assessments of &hatever authority upon privileges% earnings% income% franchise% and poles% &ires% transformers% and insulators of the grantee% from &hich ta'es and assessments the grantee is hereby e'pressly e'empted3 >n 6une 2$% 1#9;% !epublic 0ct No. 5:31 amended section 2: of the Ta' "ode by ma+ing liable for income ta' all corporate ta'payers not specifically e'empt under paragraph )c* )1* of said section and section 2$ of the Ta' "ode not&ithstanding the 3provisions of e'isting special or general la&s to the contrary3. Thus% franchise companies &ere sub,ected to income ta' in addition to franchise ta'. _Saint Louis University School of Law_
2o&ever% in petitionerHs case% its franchise &as amended by !epublic 0ct No. 9727% effective 0ugust :% 1#9#% by authori(ing the petitioner to furnish electricity to the municipalities of Aillanueva and 6asaan% =isamis >riental in addition to "agayan de >ro "ity and the municipalities of Tagoloan and >pol. The amendment reenacted the ta' e'emption in its original charter or neutrali(ed the modification made by !epublic 0ct No. 5:31 more than a year before. By reason of the amendment to section 2: of the Ta' "ode% the "ommissioner of nternal !evenue in a demand letter dated Bebruary 15% 1#$3 re-uired the petitioner to pay deficiency income ta'es for 1#9;Dto 1#$1. The petitioner contested the assessments. The "ommissioner cancelled the assessments for 1#$7 and 1#$1 but insisted on those for 1#9; and 1#9#. ISS,E: .hether or not the imposing of the franchise ta' is valid/ ,!ING: .e hold that "ongress could impair petitionerHs legislative franchise by ma+ing it liable for income ta' from &hich heretofore it &as e'empted by virtue of the e'emption provided for in section 3 of its franchise. The "onstitution provides that a franchise is sub,ect to amendment% alteration or repeal by the "ongress &hen the public interest so re-uires. Section 1 of petitionerHs franchise% !epublic 0ct No. 32:$% provides that it is sub,ect to the provisions of the "onstitution and to the terms and conditions established in 0ct No. 3939 &hose section 12 provides that the franchise is sub,ect to amendment% alteration or repeal by "ongress. !epublic 0ct No. 5:31% in amending section 2: of the Ta' "ode by sub,ecting to income ta' all corporate ta'payers not e'pressly e'empted therein and in section 2$ of the "ode% had the effect of &ithdra&ing petitionerHs e'emption from income ta'. The Ta' "ourt acted correctly in holding that the e'emption &as restored by the subse-uent enactment on 0ugust :% 1#9# of !epublic 0ct No. 9727 &hich reenacted the said ta' e'emption. 2ence% the petitioner is liable only for the income ta' for the period from 6anuary 1 to 0ugust 3% 1#9# &hen its ta' e'emption &as modified by !epublic 0ct No. 5:31. t is relevant to note that franchise companies% li+e the Philippine Fong ?istance Telephone "ompany% have been paying income ta' in addition to the franchise ta'. 2o&ever% it cannot be denied that the said 1#9# assessment appears to be highly controversial. The "ommissioner at the outset &as not certain as to petitionerHs income ta' liability. t had reason not to pay income ta' because of the ta' e'emption in its franchise.
Bor this reason% it should be liable only for ta' proper and should not be held liable for the surcharge and interest.
Topic: Co5stitutio54l !i3it4tio5s: No5-i3p4ir3e5t Cl4use 2E A!CO vsP O-INCE O+ !AG,NA G. . No. &%&%"# 24y ") &### +ACTS: >n various dates certain =unicipalities of the Province of Faguna issued resolutions granting franchise in favor of petitioner =1!0F"> for the supply of electric light heat and po&er &ithin their concerned areas. National 1lectrification 0dministration on 6anuary light and po&er service in the =unicipality of "alamba Faguna. Pursuant to the Provisions of the FC" of 1##1 the respondent province enacted KFaguna Provincial >rdinance no. 71D#2 effective 6anuary 1 1##3% proving8 Ksec. 2.7# Branchise Ta'D there is hereby imposed a ta' on businesses en,oying a franchise% at a rate of 57M of 1M of the gross annual receipts &hich shall include both cash sales and sales on account reali(ed during the preceding calendar year &ithin this province including the territorial limits on any city located in the provinceL. >n the basis of this ordinance respondent provincial Treasurer sent a demand letter to =1!0F"> for its corresponding ta' payment. Gnder protest =1!0F"> paid the ta' in the amount of 1# =illion Pesos.
0 claim for refund &as thereafter sent by =eralco to Provincial Treasurer of Faguna claiming that the franchise ta' that it has paid and continued to pay to the National Covernment pursuant to P? 551 already included franchise ta' imposed by the Provincial Ta' >rdinance. =1!0F"> contended that the imposition of a franchise ta' under Sec 2.7# of FP> 71D#2 contravened the provisions of section 1 of P? 551. ISS,E: .hether the imposition of a franchise ta' under sec 2.7# of FP> 71D#2 is violative of the nonDimpairment clause of the "onstitution and sec 1 of P? 551/ ,!ING: Gnder the no& prevailing "onstitution% &here there is neither a grant nor a prohibition by statute% the ta' po&er must be deemed to e'ist although "ongress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and selfDsufficiency of local government units by directly granting them general and broad ta' po&ers. Nevertheless% the fundamental la& did not intend the delegation to be absolute and unconditional@ the constitutional ob,ective obviously is to ensure that% &hile the local government units are being strengthened and made more autonomous%the legislature must still see to it that )a* the ta'payer &ill not be overD burdened or saddled &ith multiple and unreasonable impositions@ )b* each local government unit &ill have its fair share of available resources@ )c* the resources of the national government &ill not be unduly disturbed@ and )d* local ta'ation &ill be fair% uniform% and ,ust. .hile the "ourt has% not too infre-uently% referred to ta' e'emptions contained in special franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise% these e'emptions% nevertheless% are far from being strictly contractual in nature. "ontractual ta' e'emptions% in the real sense of the term and &here the nonDimpairment clause of the "onstitution can rightly be invo+ed% are those agreed to by the ta'ing authority in contracts% such as those contained in government bonds or debentures% la&fully entered into by them under enabling la&s in &hich the government% acting in its private capacity% sheds its cloa+ of authority and &aives its governmental immunity. Truly% ta' e'emptions of this +ind may not be revo+ed &ithout impairing the obligations of contracts. These contractual ta' e'emptions% ho&ever% are not to be confused &ith ta' e'emptions granted under franchises. 0 franchise parta+es the nature of a grant &hich is beyond the purvie& of the nonDimpairment clause of the "onstitution. ndeed% 0rticle O % Section 11% of the 1#;$ "onstitution% li+e its precursor provisions in the 1#35 and the 1#$3 "onstitutions% is e'plicit that no franchise for the operation of a public utility shall be granted e'cept under the condition that such privilege shall be sub,ect to amendment% alteration or repeal by "ongress as and &hen the common good so re-uires.
Topic: Co5stitutio54l !i3it4tio5s: No5-i3p4ir3e5t Cl4use A.IO CO22,NICATIONS O+ THE PHI!IPPINES) INC. vs. P O-INCIA! ASSESO O+ SO,TH COTABATO G. . No. &$$$*/ April &%) (11" +ACTS: n 1#5$% !epublic 0ct No. 2739 granted !"P a fiftyDyear franchise. Thereafter% the municipal treasurer of Tupi% South "otabato assessed !"P real property ta'es from 1#;1 to 1#;5. The municipal treasurer demanded that !"P pay P199%;17 as real property ta' on its radio station building in Barangay Sablon% as &ell as on its machinery shed% radio relay station to&er and its accessories% and generating sets% based on the follo&ing ta' declarations. !"P protested the assessment before the Focal Board of 0ssessment 0ppeals. !"P claimed that all its assessed properties are personal properties and thus e'empt from the real property ta'. 0ssuming that the assessed properties are real property% they are still e'empt from real property ta'es. Section 3 of Presidential ?ecree No. :9: states that to be ta'able% the machinery should be attached to the real estate and essential for manufacturing% commercial% mining% industrial% or agricultural purposes. !"P claimed that the assessed properties are not used for manufacturing% commercial% mining% industrial% or agricultural purposes. Besides% the assessed properties are attached to a building on a lot not o&ned by !"P . !"P also pointed out that its franchise e'empts !"P from Kpaying any and all ta'es of any +ind% nature or description in e'change for its payment of ta' e-ual to one and oneDhalf per cent on all gross receipts from the business conducted under its franchise.L !"P further claimed that any deviation from its franchise &ould violate the
nonDimpairment of contract clause of the "onstitution. Binally% !"P stated that the value of the properties assessed has depreciated since their ac-uisition in the 1#97s. ISS,E: .hether or not the assessment of the Provincial assessor &as violative of the nonDimpairment clause/ ,!ING: 0s found by the appellate court% !"P Es radio relay station to&er% radio station building% and machinery shed are real properties and are thus sub,ect to the real property ta'. Section 1: of !0 2739% as amended by !0 :75:% states that Kin consideration of the franchise and rights hereby granted and any provision of la& to the contrary not&ithstanding% the grantee shall pay the same ta'es as are no& or may hereafter be re-uired by la& from other individuals% copartnerships% private% public or -uasiDpublic associations% corporations or ,oint stoc+ companies% on real estate% buildings and other personal propertyL The clear language of Section 1: states that !"P shall pay the real estate ta'. The Kin lieu of all ta'esL clause in Section 1: of !0 2739% as amended by !0 :75:% cannot e'empt !"P from the real estate ta' because the same Section 1: e'pressly states that!"P Kshall pay the same ta'es ' ''onreal estate% buildings ' ''.L The Kin lieu of all ta'esL clause in the third sentence of Section 1: cannot negate the first sentence of the same Section 1:% &hich imposes the real estate ta' on !"P . The "ourt must give effect to both provisions of the same Section 1:. This means that the real estate ta' is an e'ception to the Kin lieu of all ta'esL clause. Subse-uent legislations have radically amended the Kin lieu of all ta'esL clause in franchises of public utilities. 0s !"P correctly observes% the Focal Covernment "ode of 1##1 K&ithdre& all the ta' e'emptions e'isting at the time of its passage J including that of !"P EsL &ith respect to local ta'es li+e the real property ta'. 0lso% !epublic 0ct No. $$19 abolished the franchise ta' on telecommunications companies effective 1 6anuary 1##9. To replace the franchise ta'% !0 $$19 imposed a 17 percent valueD addedDta' on telecommunications companies under Section 172 of the National nternal !evenue "ode.
Topic: Co5stitutio54l !i3it4tio5s: No5-i3p4ir3e5t Cl4use THE CIT; GO-E N2ENT O+ B,E>ON CIT;vs BA;ANTE! G. . No. &/(1&" 24rc9 /) (11/ +ACTS: Bayantel is a legislative franchise holder under !epublic 0ct No. 325#to establish and operate radio stations for domestic telecommunications% radiophone% broadcasting and telecasting. >n 6uly 27% 1##2% barely fe& months after the FC" too+ effect% "ongress enacted !ep. 0ct No. $933% amending BayantelEs original franchise. t is undisputed that &ithin the territorial boundary of Rue(on "ity% Bayantel o&ned several real properties on &hich it maintained various telecommunications facilities. n 1##3% the government of Rue(on "ity% pursuant to the ta'ing po&er vested on local government units by Section 5% 0rticle O of the 1#;$ "onstitution% infra% in relation to Section 232 of the FC"% supra% enacted "ity >rdinance No. SPD#1% SD#3% other&ise +no&n as the Rue(on "ity !evenue "ode imposing% under Section 5 thereof% a real property ta' on all real properties in Rue(on "ity% and% reiterating in its Section 9% the &ithdra&al of e'emption from real property ta' under Section 23: of the FC". "onformably &ith the "ityEs !evenue "ode% ne& ta' declarations for BayantelEs real properties in Rue(on "ity &ere issued by the "ity 0ssessor and &ere received by Bayantel on 0ugust 13% 1##;. ISS,E: .hether or not the Rue(on "ity !evenue "ode violated the nonDimpairment of contracts/ ,!ING: The po&er to ta' is primarily vested in the "ongress@ ho&ever% in our ,urisdiction% it may be e'ercised by local legislative bodies% no longer merely be virtue of a valid delegation as before% but pursuant to direct authority conferred by Section 5% 0rticle O of _Saint Louis University School of Law_
the "onstitution. Gnder the latter% the e'ercise of the po&er may be sub,ect to such guidelines and limitations as the "ongress may provide &hich% ho&ever% must be consistent &ith the basic policy of local autonomy. ndeed% the grant of ta'ing po&ers to local government units under the "onstitution and the FC" does not affect the po&er of "ongress to grant e'emptions to certain persons% pursuant to a declared national policy. The legal effect of the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal ta'ing po&ers% doubts must be resolved in favor of municipal corporations. 0s &e see it% then% the issue in this case no longer d&ells on &hether "ongress has the po&er to e'empt BayantelEs properties from realty ta'es by its enactment of !ep. 0ct No. $933 &hich amended BayantelEs original franchise. The more decisive -uestion turns on &hether "ongress actually did e'empt BayantelEs properties at all by virtue of Section 11 of !ep. 0ct No. $933. 0dmittedly% !ep. 0ct No. $933 &as enacted subse-uent to the FC". Perfectly a&are that the FC" has already &ithdra&n BayantelEs former e'emption from realty ta'es% "ongress opted to pass !ep. 0ct No. $933 using% under Section 11 thereof% e'actly the same defining phrase 3e'clusive of this franchise3 &hich &as the basis for BayantelEs e'emption from realty ta'es prior to the FC". n plain language% Section 11 of !ep. 0ct No. $933 states that 3the grantee% its successors or assigns shall be liable to pay the same ta'es on their real estate% buildings and personal property% e'clusive of this franchise% as other persons or corporations are no& or hereafter may be re-uired by la& to pay.3 The "ourt vie&s this subse-uent piece of legislation as an e'press and real intention on the part of "ongress to once again remove from the FC"Es delegated ta'ing po&er% all of the franchiseeEs )BayantelEs* properties that are actually% directly and e'clusively used in the pursuit of its franchise.
Topic: Co5stitutio54l !i3it4tio5s: T47 E7e3ptio5 o6 tr4ditio54l E7e3ptees E-. + . CASI2I O !!A.OC vs. CO22ISSIONE O+ INTE NA! G. . No. !-&#(1& 'u5e &/) &#/" +ACTS: Sometime in 1#5$% the =.B. 1state% nc.% of Bacolod"ity% donated P17%777.77 in cash to !ev. Br. "rispin !ui(% then parish priest of Aictorias% Negros >ccidental% and predecessor of herein petitioner% for the construction of a ne& "atholic "hurch in the locality. The total amount &as actually spent for the purpose intended. >n =arch 3% 1#5;% the donor =.B. 1state% nc.% filed the donorHs gift ta' return. Gnder date of 0pril 2#% 1#97% the respondent "ommissioner of nternal !evenue issued an assessment for doneeHs gift ta' against the "atholic Parish of Aictorias% Negros >ccidental% of &hich petitioner &as the priest. The ta' amounted to P1%3$7.77 including surcharges% interests of 1M monthly from =ay 15% 1#5; to 6une 15% 1#97% and the compromise for the late filing of the return. Petitioner lodged a protest to the assessment and re-uested the &ithdra&al thereof. The protest and the motion for reconsideration presented to the "ommissioner of nternal !evenue &ere denied. The petitioner appealed to the "ourt of Ta' 0ppeals on November 2% 1#97. n the petition for revie&% the !ev. Br. "asimiroFladoc claimed% among others% that at the time of the donation% he &as not the parish priest in Aictorias@ that there is no legal entity or ,uridical person +no&n as the 3"atholic Parish Priest of Aictorias%3 and% therefore% he should not be liable for the doneeHs gift ta'. t &as also asserted that the assessment of the gift ta'% even against the !oman "atholic "hurch% &ould not be valid% for such &ould be a clear violation of the provisions of the "onstitution. ISS,E: .hether or not petitioner should be liable for the assessed doneeHs gift ta' on the P17%777.77 donated for the construction of the AictoriasParish"hurch/ ,!ING: The "onstitution of the Philippines% e'empts from ta'ation cemeteries% churches and parsonages or convents% appurtenant thereto% and all lands% buildings% and improvements used e'clusively for religious purposes. The e'emption is only from the
payment of ta'es assessed on such properties enumerated% as property ta'es% as contra distinguished from e'cise ta'es. n the present case% &hat the "ollector assessed &as a doneeHs gift ta'@ the assessment &as not on the properties themselves. t did not rest upon general o&nership@ it &as an e'cise upon the use made of the properties% upon the e'ercise of the privilege of receiving the properties. 0 gift ta' is not a property ta'% but an e'cise ta' imposed on the transfer of property by &ay of gift inter vivos% the imposition of &hich on property used e'clusively for religious purposes% does not constitute an impairment of the "onstitution. 0s &ell observed by the learned respondent "ourt% the phrase 3e'empt from ta'ation%3 as employed in the "onstitution should not be interpreted to mean e'emption from all +inds of ta'es. 0nd there being no clear% positive or e'press grant of such privilege by la&% in favor of petitioner% the e'emption herein must be denied.
Topic: Co5stitutio54l !i3it4tio5s: T47 E7e3ptio5 o6 tr4ditio54l E7e3ptees A:r4 -4lley Colle=e v. ADui5o G !-%#1*/ &" 'u5e &#** +ACTS:Petitioner% an educational corporation and institution of higher learning duly incorporated &ith the Securities and 1'change "ommission in 1#:;% filed a complaint to annul and declare void the KNotice of Sei(ureE and the KNotice of SaleL of its lot and building located at Bangued% 0bra% for nonDpayment of real estate ta'es and penalties amounting to P5%1:7.31. Said KNotice of Sei(ureL by respondents =unicipal Treasurer and Provincial Treasurer% defendants belo&% &as issued for the satisfaction of the said ta'es thereon. The parties entered into a stipulation of facts adopted and embodied by the trial court in its -uestioned decision. The trial court ruled for the government% holding that the second floor of the building is being used by the director for residential purposes and that the ground floor used and rented by Northern =ar+eting "orporation% a commercial establishment% and thus the property is not being used e'clusively for educational purposes. nstead of perfecting an appeal% petitioner availed of the instant petition for revie& on certiorari &ith prayer for preliminary in,unction before the Supreme "ourt% by filing said petition on 1$ 0ugust 1#$:. ISS,E:.hether or not the lot and building are used e'clusively for educational purposes. HE!.: NO.Section 22% paragraph 3% 0rticle A % of the then 1#35 Philippine "onstitution% e'pressly grants e'emption from realty ta'es for cemeteries% churches and parsonages or convents appurtenant thereto% and all lands% buildings% and improvements used e'clusively for religious% charitable or educational purposes. !easonable emphasis has al&ays been made that the e'emption e'tends to facilities &hich are incidental to and reasonably necessary for the accomplishment of the main purposes. The use of the school building or lot for commercial purposes is neither contemplated by la&% nor by ,urisprudence. n the case at bar% the lease of the first floor of the building to the Northern =ar+eting "orporation cannot by any stretch of the imagination be considered incidental to the purpose of education. The test of e'emption from ta'ation is the use of the property for purposes mentioned in the "onstitution. The decision of the "B 0bra )Branch * is affirmed sub,ect to the modification that half of the assessed ta' be returned to the petitioner. The modification is derived from the fact that the ground floor is being used for commercial purposes )leased* and the second floor being used as incidental to education )residence of the director*. Topic: Co5stitutio54l !i3it4tio5s: T47 E7e3ptio5 o6 tr4ditio54l E7e3ptees _Saint Louis University School of Law_
Herrer4 vs. T9e BueEo5 City Bo4rd O6 Assess3e5t Appe4ls G. . No. !-&"(01 Septe3:er %1) &#/& +ACTS: Petitioners 6ose and 1ster 2errera &ere authori(ed by the ?irector of the Bureau of 2ospitals to establish and operate the St. "atherineHs 2ospital. n 1#53% the petitioners sent a letter to the Rue(on "ity 0ssessor re-uesting e'emption from payment of real estate ta' on the lot% building and other improvements comprising the hospital stating that the same &as established for charitable and humanitarian purposes and not for commercial gain &hich &as granted effective the years 1#53 to 1#55. Subse-uently% ho&ever% in a letter dated 0ugust 17% 1#55 the Rue(on "ity 0ssessor notified the petitioners that the aforesaid properties &ere reDclassified from e'empt to 3ta'able3 and thus assessed for real property ta'es effective 1#59. The petitioners appealed the assessment to the Rue(on "ity Board of 0ssessment 0ppeals% &hich% affirmed the decision of the "ity 0ssessor. 0 motion for reconsideration thereof &as denied. Brom this decision% the petitioners instituted the instant appeal. The building involved in this case is principally used as a hospital. Brom the evidence presented by petitioners% it is made to appear that there are t&o +inds of charity patients )a* those &ho come for consultation only )3outDcharity patients3*@ and )b* those &ho remain in the hospital for treatment )3lyingDinDpatients3*. Petitioners also operate &ithin the premises of the hospital the 3St. "atherineHs School of =id&ifery3 &hich &as granted government recognition by the Secretary of 1ducation. The students practice in the St. "atherineHs 2ospital% as &ell as in the St. =aryHs 2ospital% &hich is also o&ned by the petitioners. 0 separate set of accounting boo+s is maintained by the school for mid&ifery distinct from that +ept by the hospital. 2o&ever% the petitioners have refused to submit a separate statement of accounts of the school. ISS,E: .hether or not the said properties are used e'clusively for charitable or educational purposes &hich are e'empt from real property ta' HE!.: ;ES. The "ourt of Ta' 0ppeals decided the issue in the negative% upon the ground that the St. "atherineHs 2ospital has a pay &ard for ... payDpatients% &ho are charged for the use of the private rooms% operating room% laboratory room% delivery room% etc.% li+e other hospitals operated for profit and that petitioners and their family occupy a portion of the building for their residence.
t should be noted% ho&ever% that% according to the very statement of facts made in the decision appealed from% of the thirtyDt&o )32* beds in the hospital% t&enty )27* are for charityDpatients@ that the income reali(ed from payDpatients is spent for improvement of the charity &ards@ and that petitioners% ?r. 1ster >changco 2errera% as directress of said hospital% does not receive any salary% although its resident physician gets a monthly salary of P1$7.77. t is &ell settled% in this connection% that the admission of payDpatients does not detract from the charitable character of a hospital% if all its funds are devoted e'clusively to the maintenance of the institution as a public charity. n other &ords% &here rendering charity is its primary ob,ect% and the funds derived from payments made by patients able to pay are devoted to the benevolent purposes of the institution% the mere fact that a profit has been made &ill not deprive the hospital of its benevolent character. =oreover% the e'emption in favor of property used e'clusively for charitable or educational purposes is not limited to property actually indispensable therefor but e'tends to facilities &hich are incidental to and reasonably necessary for the accomplishment of said purposes% such as% in the case of hospitals% a school for training nurses% a nursesH home% property use to provide housing facilities for interns% resident doctors% superintendents% and other members of the hospital staff% and recreational facilities for student nurses% interns and residents. .ithin the purvie& of the "onstitutional e'emption from ta'ation% the St. "atherineHs 2ospital is% therefore% a charitable institution% and the fact that it admits payD patients does not bar it from claiming that it is devoted e'clusively to benevolent purposes% it being admitted that the income derived from payDpatients is devoted to the improvement of the charity &ards% &hich represent almost t&oDthirds )2<3* of the bed capacity of the hospital% aside from 3outDcharity patients3 &ho come only for consultation.
Topic: Co5stitutio54l !i3it4tio5s: T47 E7e3ptio5 o6 tr4ditio54l E7e3ptees Bis9op o6 Nuev4 Se=ovi4 vs. Provi5ci4l Bo4rd o6 Ilocos Norte G (0"**) %& .ece3:er &#(0 +ACTS:
The !oman "atholic 0postolic "hurch is the o&ner of a parcel of land in San Nicolas% locos Norte. >n the south side is a part of the "hurch yard% the convent and an ad,acent lost used for a vegetable garden in &hich there is a stable and a &ell for the use of the convent. n the center is the remainder of the churchyard and the "hurch. >n the north side is an old cemetery &ith its t&o &alls still standing% and a portion &here formerly stood a to&er. The provincial board assessed land ta' on lots comprising the north and south side% &hich the church paid under protest. The plaintiff filed this action for the recovery of the sum paid by to the defendants by &ay of land ta'% alleging that the collection of this ta' is illegal. The lo&er court absolved the defendants from the complaint in regard to the lot ad,oining convent and declared that the ta' collected on the lot% &hich formerly &as the cemetery and on the portion &here the lo&er stood% &as illegal. Both parties appealed from this ,udgment. ISS,E: ?9et9er or 5ot t9e su:<ect lots 4re e7e3pted 6ro3 t474tio5. HE!.: ;ES. The e'emption in favor of the convent in the payment of land ta' refers to the home of the priest &ho presides over the church and &ho has to ta+e care of himself in order to discharge his duties. The e'emption includes not only the land actually occupied by the "hurch but also the ad,acent ground destined to the ordinary incidental uses of man. 0 vegetable garden% thus% &hich belongs to a convent% &here its use is limited to the necessity of the priest% comes under the e'emption. Burther% land used as a lodging house by the people &ho participate in religious festivities% &hich constitutes an incidental use in religious functions% li+e&ise comes &ithin the e'emption. t cannot be ta'ed according to its former use% i.e. a cemetery. The ,udgment appealed from is reversed in all it parts and it is held that both lots are e'empt from land ta' and the defendants are ordered to refund to plaintiff &hatever &as paid as such ta'% &ithout any special pronouncement as to costs. Topic: Co5stitutio54l !i3it4tio5s: T47 E7e3ptio5 o6 tr4ditio54l E7e3ptees !,NG CENTE O+ THE PHI!IPPINES vs. B,E>ON CIT; G. . No. &$$&1$ 'u5e (#) (11$ +ACTS: The petitioner% a nonDstoc+ and nonDprofit entity is the registered o&ner of a parcel of land &here erected in the middle of the aforesaid lot is a hospital +no&n as the Fung "enter of the Philippines. 0 big space at the ground floor is being leased to private _Saint Louis University School of Law_
parties% for canteen and small store spaces% and to medical or professional practitioners &ho use the same as their private clinics for their patients &hom they charge for their professional services. 0lmost oneDhalf of the entire area on the left side of the building along Rue(on 0venue is vacant and idle% &hile a big portion on the right side% at the corner of Rue(on 0venue and 1lliptical !oad% is being leased for commercial purposes to a private enterprise +no&n as the 1lliptical >rchids and Carden "enter. >n 6une $% 1##3% both the land and the hospital building of the petitioner &ere assessed for real property ta'es in the amount of P:% 55:%;97 by the "ity 0ssessor of Rue(on "ity but the former filed a "laim for 1'emption from real property ta'es &ith the "ity 0ssessor% predicated on its claim that it is a charitable institution. ISS,E: .hether or not the petitionerEs real properties are e'empted from realty ta' e'emptions. HE!.: 1ven if the petitioner is a charitable institution% those portions of its real property that are leased to private entities are not e'empt from real property ta'es as these are not actually% directly and e'clusively used for charitable purposes. .hat is meant by actual% direct and e'clusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for &hich the charitable institution is organi(ed. 2ence% a claim for e'emption from ta' payments must be clearly sho&n and based on language in the la& too plain to be mista+en. Gnder Section 2 of Presidential ?ecree No. 1;23% the petitioner does not en,oy any property ta' e'emption privileges for its real properties as &ell as the building constructed thereon. f the intentions &ere other&ise% the same should have been among the enumeration of ta' e'empt privileges under Section 2. 0ccordingly% the portions occupied by the hospital used for its patients are e'empt from real property ta'es &hile those leased to private entities are not e'empt from such ta'es. Topic: Co5stitutio54l !i3it4tio5s: T47 E7e3ptio5 o6 No5-stocF 5o5-pro6it Educ4tio54l I5stitutio5s Co33issio5er o6 I5ter54l eve5ue v. Court o6 Appe4ls 45d ;2CA G. .No.!-&($1$% Octo:er &$) &##* +ACTS: Private !espondent I="0 is a nonDstoc+% nonDprofit institution% &hich conducts various programs and activities that are beneficial to the public% especially the young people% pursuant to its religious% educational and charitable ob,ectives. n 1#;7% private respondent earned% among others% an income of P9$9% ;2#.;7 from leasing out a portion of its premises to small shop o&ners% li+e restaurants and canteen operators% and _Saint Louis University School of Law_
P::%25#.77 from par+ing fees collected from nonDmembers. >n 6uly 2% 1#;:% the "ommissioner of nternal !evenue )" !* issued an assessment to private respondent% in the total amount of P:15%915.71 including surcharge and interest% for deficiency income ta'% deficiency e'panded &ithholding ta'es on rentals and professional fees and deficiency &ithholding ta' on &ages. Private respondent formally protested the assessment and% as a supplement to its basic protest% filed a letter dated >ctober ;% 1#;5. n reply% the " ! denied the claims of I="0. "ontesting the denial of its protest% the I="0 filed a petition for revie& at the "ourt of Ta' 0ppeals on =arch 1:% 1#;#. n due course% the "T0 issued this ruling in favor of the I="0. ISS,E: .hether or not the I="0 is e'empted from rental income derived from the lease of its properties ,!ING: NO.Petitioner argues that &hile the income received by the organi(ations enumerated in Section 2$ )no& Section 29* of the N !" is% as a rule% e'empted from the payment of ta' 3in respect to income received by them as such%3 the e'emption does not apply to income derived 3''' from any of their properties% real or personal% or from any of their activities conducted for profit% regardless of the disposition made of such income '''3. The "ourt agrees &ith the commissioner. n the instant case% the e'emption claimed by the I="0 is e'pressly disallo&ed by the very &ording of the last paragraph of then Section 2$ of the N !" &hich mandates that the income of e'empt organi(ations )such as the I="0* from any of their properties% real or personal% be sub,ect to the ta' imposed by the same "ode. Topic: Co5stitutio54l !i3it4tio5s: Ori=i5 o6 eve5ue) Appropri4tio5 45d T4rri66 Bills ABA@A.A Guro P4rty !ist vs. Er3it4 G. . No. &/*1"/ Septe3:er &) (11" +ACTS: Before !.0. No. #33$ too+ effect% petitioners 0B0S0?0 CG!> Party Fist% et al.% filed a petition for prohibition on =ay 2$% 2775 -uestioning the constitutionality of Sections :% 5 and 9 of !.0. No. #33$% amending Sections 179% 17$ and 17;% respectively% of the National nternal !evenue "ode )N !"*. Section : imposes a 17M A0T on sale of goods and properties% Section 5 imposes a 17M A0T on importation of goods% and Section 9 imposes a 17M A0T on sale of services and use or lease of properties. These -uestioned provisions contain a uniform proviso authori(ing the President% upon recommendation of the Secretary of Binance% to raise the A0T rate to
12M% effective 6anuary 1% 2779% after specified conditions have been satisfied. Petitioners argue that the la& is unconstitutional. ISS,ES: .hether or not there is a violation of 0rticle A % Section 2: of the "onstitution. .hether or not there is undue delegation of legislative po&er in violation of 0rticle A Sec 2;)2* of the "onstitution. ,!ING8 1. Since there is no -uestion that the revenue bill e'clusively originated in the 2ouse of !epresentatives% the Senate &as acting &ithin its constitutional po&er to introduce amendments to the 2ouse bill &hen it included provisions in Senate Bill No. 1#57 amending corporate income ta'es% percentage% and e'cise and franchise ta'es. 2. There is no undue delegation of legislative po&er but only of the discretion as to the e'ecution of a la&. This is constitutionally permissible. "ongress does not abdicate its functions or unduly delegate po&er &hen it describes &hat ,ob must be done% &ho must do it% and &hat is the scope of his authority@ in our comple' economy that is fre-uently the only &ay in &hich the legislative process can go for&ard. 3. The po&er of the State to ma+e reasonable and natural classifications for the purposes of ta'ation has long been established. .hether it relates to the sub,ect of ta'ation% the +ind of property% the rates to be levied% or the amounts to be raised% the methods of assessment% valuation and collection% the StateEs po&er is entitled to presumption of validity. 0s a rule% the ,udiciary &ill not interfere &ith such po&er absent a clear sho&ing of unreasonableness% discrimination% or arbitrariness.
Topic: +or3s o6 Esc4pe 6ro3 T474tio5 EP,B!IC O+ THE PHI!IPPINES vs. HEI S O+ CESA 'A!AN.ONI) ET A!. G. . No. !-&*%*$ Septe3:er (1) &#/" +ACTS: sabel Fedesma died intestate leaving real properties situated in the provinces of Negros >ccidental and !i(al and in the cities of =anila and Baguio% and personal properties consisting of shares of stoc+ in various domestic corporations. She left as heirs her husband Bernardino and three children% namely% "esar% 0ngeles and ?elfin. "esar% one of the heirs% filed an estate and inheritance ta' return and this return also sho&s that no testamentary or intestate proceedings &ere instituted. >n the basis of this return the Bureau of nternal !evenue made an assessment as estate and inheritance ta'es% respectively% stating therein that the assessment &as 3to be considered partial pending investigation of the return.3 These sums &ere paid by "esar. _Saint Louis University School of Law_
0fter a preliminary investigation &as made of the properties reported in the abovementioned return% a second assessment &as made by the Bureau of nternal !evenue as deficiency estate and inheritance ta'es% respectively% for &hich reason a demand &as made on Bernardino stating therein that the same &as still 3to be considered partial pending further investigation of the return%3 &hich amounts &ere paid by Bernardino. The third assessment &as made against the estate &herein the heirs &ere re-uired to pay the amounts of P2#%##5.37 and P:#%;:2.75 as deficiency estate and inheritance ta'es% respectively% including accrued interests% &ith the &arning that failure on their part to pay the same &ould sub,ect them to the payment of surcharge% interest% and penalty for late payment of the ta'. ISS,E: .hether or not the heirs of the deceased have committed any act indicative of an intention to evade the payment of the inheritance or estate ta'es due the government HE!.: !ecord sho&s that the three lots alleged to have been e'cluded in the return &ere already declared in the earlier return submitted by Bernardino 6alandoni as part of his property and his &ife for purposes of income ta'% there is reason to believe that their omission from the return submitted by "esar 6alandoni &as merely due to an honest mista+e or inadvertence as properly e'plained by appellants. .e can hardly dispute this conclusion as it &ould be stretching too much the imagination if &e &ould find that% because of such inadvertence% &hich appears to be inconse-uential% the heirs of the deceased deliberately omitted from the return the three lots &ith the only purpose of defrauding the government after declaring therein as asset of the estate property &orth P1%32:%555.;7. The same thing may be said &ith regard to the alleged undervaluation of certain sugar and rice lands reported by "esar 6alandoni for the same can at most be considered as the result of an honest difference of opinion and not necessarily an intention to commit fraud. Binally% S" finds it unreasonable to impute &ith regard to the appraisal made by appellants of the shares of stoc+ of the deceased simply because "esar 6alandoni placed in his return an aggregate mar+et value instead of mentioning the boo+ value declared by said corporations in the returns filed by them &ith the Bureau of nternal !evenue. The fact that the value given in the returns did not tally &ith the boo+ value appearing in the corporate boo+s is not in itself indicative of fraud especially &hen it is ta+en into consideration the circumstance that said boo+ value only became +no&n several months after the death of the deceased. =oreover% it is a +no&n fact that stoc+ securities fre-uently fluctuate in value and a mere difference of opinion in relation thereto cannot serve as proper basis for assessing an intention to defraud the government.
2aving reached the conclusion that the heirs of the deceased have not committed any act indicative of an intention to evade the payment of the inheritance or estate ta'es due the government% as evidenced by their &illingness in the past to pay all the ta'es properly assessed against them% it is evident that the instant claim of appellee has already prescribed under Section 331 of the National nternal !evenue "ode. 0nd &ith this conclusion% a discussion of the other errors assigned by appellants &ould seem to be unnecessary.
Topic: +or3s o6 Esc4pe 6ro3 T474tio5 ;,TI-O SONS HA .?A E CO2PAN; vs. CO, T O+ TAG APPEA!S G. . No. !-&%(1% '45u4ry (*) &#/& +ACTS: Petitioner &as engaged% prior to the last &orld &ar% in the importation and sale of hard&are supplies and e-uipment. 0fter the liberation% it resumed its business and bought a number of cars and truc+s from Ceneral =otors >verseas% an 0merican corporation licensed to do business in the Philippines. 0s importer% C= paid sales ta' prescribed by sections 1;:% 1;5 and 1;9 of the Ta' "ode on the basis of its selling price to Iutivo. Said ta' being collected only once on original sales% Iutivo paid no further sales ta' on its sales to the public. >n 6une 13% 1#:9% the Southern =otors% nc. )S=* &as organi(ed to engage in the business of selling cars% truc+s and spare parts. ts original authori(ed capital stoc+ &as P1%777%777 divided into 17%777 shares &ith a par value of P177 each. 0fter the incorporation of S= and until the &ithdra&al of C= from the Philippines in the middle of 1#:$% the cars and trac+s purchased by Iutivo from C= &ere sold by Iutivo to S= &hich% in turn% sold them to the public in the Aisayas and =indanao.
.hen Ceneral =otors >verseas "orporation )C=* decided to &ithdra& from the Philippines in the middle of 1#:$% the G.S. manufacturer of C= cars and truc+s appointed Iutivo as importer for the Aisayas and =indanao% and Iutivo continued its previous arrangement of selling e'clusively to Southern =otors% nc. )S=*. n the same &ay that C= used to pay sales ta'es based on its sales to Iutivo% the latter% as importer% paid sales ta' prescribed on the basis of its selling price to S=% and since such sales ta'% as already stated% is collected only once on original sales% S= paid no sales ta' on its sales to the public. The "ollector of nternal !evenue made an assessment upon Iutivo and demanded from the latter P1%;7:%$9#.;5 as deficiency sales ta' plus surcharge. The assessment &as disputed by the petitioner. ISS,ES: 1. .hether or not fraud is present. 2. .hether or not imposition of 5M fraud surcharge is correct. 3. .hether or not sales ta' already paid by Iutivo should first be deducted from the selling price of S= in computing the sales ta' due on each vehicle HE!.: &. NO. The "ourt inclined to rule that the "ourt of Ta' 0ppeals &as not ,ustified in finding that S= &as organi(ed for no other purpose than to defraud the Covernment of its la&ful revenues. n the first place% this corporation &as organi(ed in 6une% 1#:9 &hen it could not have caused Iutivo any ta' savings. The sales ta' liability of Iutivo did not arise until 6uly 1% 1#:$ &hen it became the importer and simply continued its practice of selling to S=. The decision% therefore% of the Ta' "ourt that S= &as organi(ed purposely as a ta' evasion device runs counter to the fact that there &as no ta' to evade. n the second place% S= &as organi(ed and it operated% under circumstance that belied any intention to evade sales ta'es. The transactions bet&een Iutivo and S=% ho&ever% have al&ays been in the open% embodied in private and public documents% constantly sub,ect to inspection by the ta' authorities. n the third place% sections 1;: to 1;9 of the said "ode provides that the sales ta' shall be collected 3once only on every original sale% barter% e'change . . % to be paid by the manufacturer% producer or importer.3 n this connection% it should be stated that a ta'payer has the legal right to decrease the amount of &hat other&ise &ould be his ta'es or altogether avoid them by means &hich the la& permits. 2. NO. The "ourt found merit in petitionerHs contention that the "ourt of Ta' 0ppeals erred in the imposition of the 5M fraud surcharge because no element of fraud is present. Pursuant to Section 1;3 of the National nternal !evenue "ode the 57M surcharge should be added to the deficiency sales ta' 3in case a false or fraudulent _Saint Louis University School of Law_
return is &illfully made.3 0lthough the sales made by S= are in substance by Iutivo this does not necessarily establish fraud nor the &illful filing of a false or fraudulent return. 3. NO The "ourt li+e&ise found that the Ta' "ourt erred in computing the alleged deficiency sales ta' on the selling price of S= &ithout previously deducting therefrom the sales ta' due thereon. The sales ta' provisions impose a ta' on original sales measured by 3gross selling price3 or 3gross value in money3. These terms% as interpreted by the respondent "ollector% do not include the amount of the sales ta'% if invoiced separately. This is the e'act amount &hich% according to Presiding 6udge Nable of the "ourt of Ta' 0ppeals% Iutivo &ould pay% e'clusive of the surcharges.
Topic: +or3s o6 Esc4pe 6ro3 T474tio5 CO22ISSIONE O+ INTE NA! E-EN,E vs. NO TON 45d HA CO2PAN; Au=ust %&) &#/$ ISON
.G. . No. !-&0/&* +ACTS:
Gnder date of 6uly 2$% 1#:;. Norton and 6ac+bilt entered into an agreement &hereby Norton &as made the sole and e'clusive distributor of concrete bloc+s manufactured by 6ac+bilt. Pursuant to this agreement% &henever an order for concrete bloc+s &as received by the Norton T 2arrison "o. from a customer% the order &as transmitted to 6ac+bilt &hich delivered the merchandise direct to the customer. Payment for the goods is% ho&ever% made to Norton% &hich in turn pays 6ac+bilt the amount charged the customer less a certain amount% as its compensation or profit. n the case of the sale of :27 pieces of concrete bloc+s to the 0merican Builders on 0pril 1% 1#52% the purchaser paid to Norton the sum of P1;#.77 the purchase price. >ut of this amount Norton paid 6ac+bilt P19;.77% the difference obviously being its compensation. 0s per records of 6ac+bilt% the transaction &as considered a sale to Norton. t &as under this procedure that the sale of concrete bloc+s manufactured by 6ac+bilt &as conducted until =ay 1% 1#53% &hen the agency agreement &as terminated and a management agreement bet&een the parties &as entered into. The management agreement provided
that Norton &ould sell concrete bloc+s for 6ac+bilt% for a fi'ed monthly fee of P2%777.77% &hich &as later increased to P5%777.77. The "ommissioner of nternal !evenue% after conducting an investigation% assessed the respondent Norton T 2arrison for deficiency sales ta' and surcharges in the amount of P32%992.#7% ma+ing as basis thereof the sales of Norton to the Public. n other &ords% the "ommissioner considered the sale of Norton to the public as the original saleand not the transaction from 6ac+bilt. ISS,E: .hether the basis of the computation of the deficiency sales ta' should be the sale of the bloc+s to the public and not to Norton. HE!.: f the income of Norton should be considered separate from the income of 6ac+bilt% then each &ould declare such earning separately for income ta' purposes and thus pay lesser income ta'. The combined ta'able NortonD6ac+bilt income &ould sub,ect Norton to a higher ta'. Based upon the 1#5:D1#55 income ta' return of Norton and 6ac+bilt % and assuming that both of them are operating on the same fiscal basis and their returns are accurate% &e &ould have the follo&ing result8 6ac+bilt declared a ta'able net income of P191%272.31 in &hich the income ta' due &as computed at P3$%13$.77@ &hereas Norton declared as ta'able% a net income of P127%171.5#% on &hich the income ta' due &as computed at P25%92;.77. The total of these liabilities is P57%$9:.;:. >n the other hand% if the net ta'able earnings of both corporations are combined% during the same ta'able year% the ta' due on their total &hich is P2;1%373.#7 &ould be P$7%$9:.77. So that% even on the -uestion of income ta' alone% it &ould be to the advantages of Norton that the corporations should be regarded as separate entities.
Topic: +or3s o6 Esc4pe 6ro3 T474tio5 PHI!IPPINE ACET;!ENE CO.) INC. vs. CI 45d CO, T O+ TAG APPEA!S G. . No. !-&#010Au=ust &0) &#/0 +ACTS: The petitioner is a corporation engaged in the manufacture and sale of o'ygen and acetylene gases. t made various sales of its products to the National Po&er "orporation and to the Aoice of 0merica an agency of the Gnited States Covernment. The sales to the NP" amounted to P1:5% ;99.$7% &hile those to the A>0 amounted to P1%9;3% on account of &hich the respondent "ommission of nternal !evenue assessed against% and demanded from% the petitioner the payment of P12%#17.97 as deficiency sales ta' and surcharge% pursuant to the Sec.1;9 of the National nternal !evenue "ode. The petitioner denied liability for the payment of the ta' on the ground that both the NP" and the A>0 are e'empt from ta'ation. ISS,E: .hether or not petitioner is e'empt from paying ta' on sales it made to the8 1* NP" 2* A>0 HE!.: &H NO. S" holds that the ta' imposed by section 1;9 of the National nternal !evenue "ode is a ta' on the manufacturer or producer and not a ta' on the purchaser e'cept probably in a very remote and inconse-uential sense. 0ccordingly its levy on the sales made to ta'De'empt entities li+e the NP" is permissible. _Saint Louis University School of Law_
(H NO. >nly sales made 3for e'clusive use in the construction% maintenance% operation or defense of the bases%3 in a &ord% only sales to the -uartermaster% are e'empt under 0rticle A from ta'ation. Sales of goods to any other party even if it be an agency of the Gnited States% such as the A>0% or even to the -uartermaster but for a different purpose% are not free from the payment of the ta'.
Topic: +or3s o6 Esc4pe 6ro3 T474tio5 Co33issio5er vs. A3eric45 u::er G !-&#//0) (# Nove3:er &#// +ACTS: 0merican !ubber "ompany sold its rubber products locally and as prescribed by the "ommissionerEs regulation% the company declared the same for ta' purposes in &hich the "ommissioner accordingly assessed. The company paid under protest the corresponding sales ta'es thereon% claiming e'emption under Section 1;; )b* of the Ta' "ode% and subse-uently claimed refund. .ith the "ommissioner refusing to do so% the case &as brought before the "ourt of Ta' 0ppeals% &hich upheld the "ommissionerEs stand that the company is not entitled to recover the sales ta' that had been separately billed to its customers% and paid by the latter. ISS,E: .hether the company can recover the sales ta' paid. HE!.: NO. The sales ta' is by la& imposed directly% not on the thing sold% but on the act )sale* of the manufacturer% producer% or importer% &ho is e'clusively made liable for its timely payment. .here the ta' money paid by the company came from is really no concern of the Covernment% but solely a matter bet&een the company and its customers. >nce recovered% the company must hold the refunded ta'es in trust for the individual purchasers &ho advanced payment thereof% and &hose names must appear in company records. 2erein% the company sales bet&een 2: 0ugust 1#59 )approval of !0 1912* to 22 6une 1#5$ )&hen !0 1;59 restored the e'emption of agricultural products _Saint Louis University School of Law_
K&hether in their original form or notL* &ere properly ta'ed. Such amount corresponding to the period is not recoverable.
Topic: +or3s o6 Esc4pe 6ro3 T474tio5 CO22ISSIONE O+ INTE NA! E-EN,E vs. 'OHN GOTA2CO 8 SONS) INC. 45d THE CO, T O+ TAG APPEA!S G. . No. No. !-%&1#( +e:ru4ry (0) &#*0 +ACTS: The .orld 2ealth >rgani(ation ).2> for short* is an international organi(ation &hich has a regional office in =anila. 0n agreement &as entered into bet&een the !epublic of the Philippines and the said >rgani(ation on 6uly 22% 1#51. Section 11 of that 0greement provides% inter alia% that 3the >rgani(ation% its assets% income and other properties shall be8 )a* e'empt from all direct and indirect ta'es.L The .2> decided to construct a building to house its o&n offices% as &ell as the other Gnited Nations offices stationed in =anila. 0 bidding &as held for the building construction. The .2> informed the bidders that the building to be constructed belonged to an international organi(ation e'empted from the payment of all fees% licenses% and ta'es% and that therefore their bids 3must ta+e this into account and should not include items for such ta'es% licenses and other payments to Covernment agencies.3 Thereafter% the construction contract &as a&arded to 6ohn CotamcoT Sons% nc. )Cotamco for short*. Subse-uently% the "ommissioner of nternal !evenue sent a letter of demand to Cotamco demanding payment of for the 3M contractorHs ta' plus surcharges on the gross receipts it received from the .2> in the construction of the latterHs building. .2>. The .2> issued a certification that the bid of 6ohn CotamcoTSons% should be e'empted from any ta'es in connection &ith the construction of the .orld 2ealth >rgani(ation office building because such can be considered as an indirect ta' to .2>. 2o&ever% The "ommissioner of nternal !evenue contends that the 3M contractorHs ta' is not a direct nor an indirect ta' on the .2>% but a ta' that is primarily due from the contractor% and thus not covered by the ta' e'emption agreement. ISS,E:
.hether or not the said 3M contractorEs ta' imposed upon petitioner is covered by the Kdirect and indirect ta' e'emptionL granted to .2> by the government. HE!.: ;ES. The 3M contractorEs ta' imposed upon petitioner is covered by the Kdirect and indirect ta' e'emptionL granted to .2>. 2ence% petitioner cannot be held liable for such contractorEs ta'. The Supreme "ourt e'plained that direct ta'es are those that are demanded from the very person &ho% it is intended or desired% should pay them@ &hile indirect ta'es are those that are demanded in the first instance from one person in the e'pectation and intention that he can shift the burden to someone else. .hile it is true that the contractorHs ta' is payable by the contractor% 2o&ever in the last analysis it is the o&ner of the building that shoulders the burden of the ta' because the same is shifted by the contractor to the o&ner as a matter of selfDpreservation. Thus% it is an indirect ta' against the .2> because% although it is payable by the petitioner% the latter can shift its burden on the .2>. t is the .2> that &ill pay the ta' indirectly through the contractor and it certainly cannot be said that Hthis ta' has no bearing upon the .orld 2ealth >rgani(ation. 0ccordingly% finding no reversible error committed by the respondent "ourt of Ta' 0ppeals% the Supreme "ourt affirmed the appealed decision.
Topic: +or3s o6 Esc4pe 6ro3 T474tio5 2ACE.A vs. 2ACA AIG) ' .) et 4l. G. . No. No. **(#& 24y %&) &##& 45d G. . No. No. **(#& 'u5e *) &##% +ACTS: "ommon&ealth 0ct No. 127 created the NP" as a public corporation to underta+e the development of hydraulic po&er and the production of po&er from other sources. Several la&s &ere enacted granting NP" ta' and duty e'emption privileges such as ta'es% duties% fees% imposts% charges and restrictions of the !epublic of the Philippines% its provinces% cities and municipalities 3directly or indirectly%3 on all petroleum products used by NP" in its operation. 2o&ever P.?. No. 1#31 &ithdre& all ta' e'emption privileges granted in favour of governmentDo&ned or controlled corporations including their subsidiaries but empo&ered the President and<or the then =inister of Binance% upon recommendation of the B !B to restore% partially or totally% the e'emption &ithdra&n. B ! ruled that the e'emption privilege en,oyed by NP" under said section covers only ta'es for &hich it is directly liable and not on ta'es &hich are only shifted to it. n 1#;9% B ! "ommissioner Tan% 6r. states that all deliveries of petroleum products to NP" are ta' e'empt% regardless of the period of delivery. Thereafter% the B !B issued several !esolutions in different occasions restoring the ta' and duty e'emption privileges of NP" indefinite period due to the restoration of the ta' e'emption privileges of NP"% NP" applied &ith the B ! for a 3refund of Specific Ta'es paid on petroleum products. >n 0ugust 9% 1#;$% the Secretary of 6ustice% >pinion opined that 3the po&er conferred upon Biscal ncentives !evie& Board constitute undue delegation of legislative po&er and% therefore% unconstitutional. 2o&ever% respondents Binance Secretary and the 1'ecutive Secretary declared that 3NP" under the provisions of its !evised "harter retains its e'emption from duties and ta'es imposed on the petroleum products purchased locally and used for the generation of electricity. Thereafter investigations &ere made for the refund of the ta' payments of the NP" &hich includes =illions of pesos Ta' refund. Petitioner% as member of the Philippine Senate introduced as !esolution ?irecting the Senate Blue !ibbon "ommittee% n 0id of Fegislation% to conduct a Bormal and 1'tensive n-uiry into the !eported =assive Ta' =anipulations and 1vasions by >il "ompanies% particularly "alte' )Phils.* nc.% Pilipinas Shell and Petrophil% .hich .ere =ade Possible By Their 0vailing of the NonD1'isting 1'emption of National Po&er "orporation )NP"* from ndirect Ta'es% !esulting !ecently in Their >btaining 0 Ta' !efund Totalling P1.55 Billion Brom the ?epartment of Binance.
ISS,E: .hether or not respondent NP" is legally entitled to the -uestioned ta' and duty refunds. HE!.: ;ES. n C.!. No. No. ;;2#1 the Supreme "ourt ruled in favour of e'empting NP" to the said ta'es. 0lso in C.!. No. No. ;;2#1 the Supreme "ourt ruled in favour of respondents. NP" under the provisions of its !evised "harter retains its e'emption from duties and ta'es imposed on the petroleum products purchased locally and used for the generation of electricity. Presidential ?ecree No. #3; amended the ta' e'emption of NP" by simplifying the same la& in general terms. t succinctly e'empts NP" from 3all forms of ta'es% duties% fees% imposts% as &ell as costs and service fees including filing fees% appeal bonds% supersedeas bonds% in any court or administrative proceedings.3 the NP" electric po&er rates did not carry the ta'es and duties paid on the fuel oil it used. The point is that &hile these levies &ere in fact paid to the government% no part thereof &as recovered from the sale of electricity produced. 0s a conse-uence% as of our most recent information% some P1.55 B in claims represents amounts for &hich the oil suppliers and NP" are 3outDofDpoc+et. There &ould have to be specific order to the Bureaus concerned for the resumption of the processing of these claims.
Topic: +or3s o6 Esc4pe 6ro3 T474tio5
CO22ISSIONE
O+ INTE NA!
E-EN,E vs. P!.T
G. . No. &$1(%1.ece3:er &") (11" +ACTS: PF?T is a grantee of a franchise under !epublic 0ct )!.0.* No. $7;2 to install% operate and maintain a telecommunications system throughout the Philippines.Bor e-uipment% machineries and spare parts it imported for its business on different dates from >ctober 1% 1##2 to =ay 31% 1##:% PF?T paid the B ! the amount of P19:%517%#53.77% bro+en do&n as follo&s8 )a* compensating ta' of P129%$13%73$.77@ advance sales ta' of P12%:97%21#.77 and other internal revenue ta'es of P25%33$%9#$.77. Bor similar importations made bet&een =arch 1##: to =ay 31% 1##:% PF?T paid P119%7:1%333.77 valueDadded ta' )A0T*. PF?T filed on ?ecember 2% 1##: a claimfor ta' credit<refund of the A0T% compensating ta'es% advance sales ta'es and other ta'es it had been paying Kin connection &ith its importation of various e-uipment% machineries and spare parts needed for its operationsL. .ith its claim not having been acted upon by the B !% PF?T filed &ith the "T0 a petition for revie& therein see+ing a refund of% or the issuance of a ta' credit certificate in% the amount of P2;7%552%2;9.77% representing compensating ta'es% advance sales ta'es% A0T and other internal revenue ta'es alleged to have been erroneously paid on its importations from >ctober 1##2 to =ay 1##:. The "T0 granted the PF?TEs petition. The "0 dismissed the B !Es petition% thereby effectively affirming the "T0Es ,udgment. ISS,E: .hether or not respondent is e'empt from the payment of A0T% compensating ta'es% advance sales ta'es and other B ! ta'es on its importations by virtue of the provision in its franchise that the 3M franchise ta' on its gross receipts shall be in lieu of all ta'es on its franchise or earnings thereof. HE!.: _Saint Louis University School of Law_
NO. There can be no serious argument that PF?T% visDUDvis its payment of internal revenue ta'es on its importations in -uestion% is effectively claiming e'emption from ta'es not falling under the category of direct ta'es. The claim covers A0T% advance sales ta' and compensating ta'. t bears to stress that the liability for the payment of the indirect ta'es lies only &ith the seller of the goods or services% not in the buyer thereof. Thus% one cannot invo+e oneEs e'emption privilege to avoid the passing on or the shifting of the A0T to him by the manufacturers<suppliers of the goods he purchased. 2ence% it is important to determine if the ta' e'emption granted to a ta'payer specifically includes the indirect ta' &hich is shifted to him as part of the purchase price% other&ise it is presumed that the ta' e'emption embraces only those ta'es for &hich the buyer is directly liable. 0s may be noted% the clause Kin lieu of all ta'esL in Section 12 of !0 $7;2 is immediately follo&ed by the limiting or -ualifying clause Kon this franchise or earnings thereofL% suggesting that the e'emption is limited to ta'es imposed directly on PF?T since ta'es pertaining to PF?TEs franchise or earnings are its direct liability. 0ccordingly% indirect ta'es% not being ta'es on PF?TEs franchise or earnings% are outside the purvie& of the Kin lieuL provision. 0ll told% the "ourt fails to see ho& Section 12 of !0 $7;2 operates as granting PF?T blan+et e'emption from payment of indirect ta'es% &hich% in the ultimate analysis% are not ta'es on its franchise or earnings. PF?T has not sho&n its eligibility for the desired e'emption.
Topic: +or3s o6 Esc4pe 6ro3 T474tio5 SI!@AI ISINGAPO EH PTE) !T.. vs.CO22ISSIONE O+ INTE NA! G. . No. &0%"#$ +e:ru4ry /) (11* E-EN,E
+ACTS: Petitioner% Sil+air )Singapore* Pte. Ftd. )Sil+air*% a corporation organi(ed under the la&s of Singapore &hich has a Philippine representative office% is an online international air carrier operating the SingaporeD"ebuD?avaoDSingapore% SingaporeD ?avaoD"ebuDSingapore% and SingaporeD"ebuDSingapore routes. >n ?ecember 1#% 2771% Sil+air filed &ith the Bureau of nternal !evenue )B !* a &ritten application for the refund of P:%59$%:57.$# e'cise ta'es it claimed to have paid on its purchases of ,et fuel from Petron "orporation from 6anuary to 6une 2777. 0s the B ! had not yet acted on the application as of ?ecember 29% 2771% Sil+air filed a Petition for !evie&before the "T0. By ?ecision of =ay 2$% 2775% the "T0 denied Sil+airEs petition on the ground that as the e'cise ta' &as imposed on Petron "orporation as the manufacturer of petroleum products% any claim for refund should be filed by the latter@ and &here the burden of ta' is shifted to the purchaser% the amount passed on to it is no longer a ta' but becomes an added cost of the goods purchased. ISS,E: .hether or not petitioner is the proper party to claim for refund or ta' credit HE!.: NO. The proper party to -uestion% or see+ a refund of% an indirect ta' is the statutory ta'payer% the person on &hom the ta' is imposed by la& and &ho paid the same even if he shifts the burden thereof to another. Section 137 )0* )2* of the N !" provides that 34u5nless other&ise specifically allo&ed% the return shall be filed and the e'cise ta' paid by the manufacturer or producer before removal of domestic products from place of production.3 Thus% Petron "orporation% not Sil+air% is the statutory ta'payer &hich is entitled to claim a refund based on Section 135 of the N !" of 1##$ and 0rticle :)2* of the 0ir Transport 0greement bet&een !P and Singapore. 1ven if Petron "orporation passed on to Sil+air the burden of the ta'% the additional amount billed to Sil+air for ,et fuel is not a ta' but part of the price &hich Sil+air had to pay as a purchaser. The e'emption granted under Section 135 )b* of the N !" of 1##$ and 0rticle :)2* of the 0ir Transport 0greement bet&een !P and Singapore cannot% &ithout a clear sho&ing of legislative intent% be construed as including indirect ta'es. Statutes granting ta' e'emptions must be construed in strictissimi,uris against the ta'payer and liberally in favor of the ta'ing authority% and if an e'emption is found to e'ist% it must not be enlarged by construction.
Topic: +or3s o6 Esc4pe 6ro3 T474tio5 CONTEG CO PO ATION vs. CO22ISSIONE O+ INTE NA! G. . No. &"&&%" 'uly () (11$ +ACTS8 Petitioner is a duly registered &ith the Subic Bay =etropolitan 0uthority )SB=0* as a Subic Bay Breeport 1nterprise% pursuant to the provisions of !epublic 0ct No. $22$. 0s an SB=0Dregistered firm% petitioner is e'empt from all local and national internal revenue ta'es e'cept for the preferential ta' provided for in Section 12 )c* of !ep. 0ct _Saint Louis University School of Law_ E-EN,E
No. $22$. Petitioner also registered &ith the Bureau of nternal !evenue )B !* as a nonD A0T ta'payer. Brom 6anuary 1% 1##$ to ?ecember 31% 1##;% petitioner purchased various supplies and materials necessary in the conduct of its manufacturing business. The suppliers of these goods shifted unto petitioner the 17M A0T on the purchased items% &hich led the petitioner to pay input ta'es in the amounts of P53#%:11.;; and P57:%75$.:# for 1##$ and 1##;% respectively. 0cting on the belief that it &as e'empt from all national and local ta'es% including A0T% pursuant to !ep. 0ct No. $22$% petitioner filed t&o applications for ta' refund or ta' credit of the A0T it paid% &hich &ere denied. Gnfa(ed by the denial% it filed another application for ta' refund<credit. .hen no response &as forthcoming from the B ! !egional ?irector% petitioner then elevated the matter to the "ourt of Ta' 0ppeals% &hich granted the petitioner a partial refund. The "ourt of 0ppeals reversed the decision of the "T0. ISS,E: .hether or not petitioner is entitled to a ta' credit or ta' refund of the A0T paid on its purchases of supplies and ra& materials for the years 1##$ and 1##;. HE!.: NO. .hile it is true that the petitioner should not have been liable for the A0T inadvertently passed on to it by its supplier since such is a (eroDrated sale on the part of the supplier% the petitioner is not the proper party to claim such A0T refund. Since the transaction is deemed a (eroDrated sale% petitionerEs supplier may claim an nput A0T credit &ith no corresponding >utput A0T liability. "ongruently% no >utput A0T may be passed on to the petitioner. t may not be amiss to reDemphasi(e that the petitioner is registered as a N>ND A0T ta'payer and thus% is e'empt from A0T. 0s an e'empt A0T ta'payer% it is not allo&ed any ta' credit on A0T )input ta'* previously paid. n fine% even if assuming that e'emption from the burden of A0T on petitionerEs purchases did e'ist% petitioner is still not entitled to any ta' credit or refund on the input ta' previously paid as petitioner is an e'empt A0T ta'payer. !ather% it is the petitionerEs suppliers &ho are the proper parties to claim the ta' credit and accordingly refund the petitioner of the A0T erroneously passed on to the latter.
CO22ISSIONE
O+ INTE NA! E-EN,E vs. SEAGATE TECHNO!OG; IPHI!IPPINESH G. . No. &"%*//. +e:ru4ry &&) (11"
+ACTS:
!espondent is registered &ith the Philippine 1'port None 0uthority )P1N0* and has been issued P1N0 "ertificate No. #$D7:: pursuant to Presidential ?ecree No. 99% as amended% to engage in the manufacture of recording components primarily used in computers for e'port. Such registration &as made on 9 6une 1##$. t is also a A0TD registered entity and A0T returns for the period 1 0pril 1##; to 37 6une 1### have been filed. 0n administrative claim for refund of A0T input ta'es in the amount of P2;%39#%229.3; &ith supporting documents &as filed on : >ctober 1###. No final action has been received by respondent from petitioner on its claim for A0T refund. The "ourt of Ta' 0ppeals rendered a decision granting the claim for refund. The "0 affirmed the ?ecision of the "T0 granting the claim for refund or issuance of a ta' credit certificate )T""* in favor of respondent in the reduced amount of P12%122%#22.99. This sum represented the unutili(ed but substantiated input A0T paid on capital goods purchased for the period covering 0pril 1% 1##; to 6une 37% 1###. ISS,E: .hether or not respondent is entitled to the refund or issuance of Ta' "redit "ertificate in the amount of P12%122%#22.99 representing alleged unutili(ed input A0T paid on capital goods purchased for the period 0pril 1% 1##; to 6une 37% 1###. HE!.: ;ES. No doubt% as a P1N0Dregistered enterprise &ithin a special economic (one% respondent is entitled to the fiscal incentives and benefits provided for in either P? 99 or 1> 229. t shall% moreover% en,oy all privileges% benefits% advantages or e'emptions under both !epublic 0ct Nos. )!0* $22$ and $;::. Brom the aboveDcited la&s% it is immediately clear that petitioner en,oys preferential ta' treatment. t is not sub,ect to internal revenue la&s and regulations and is even entitled to ta' credits. The A0T on capital goods is an internal revenue ta' from &hich petitioner as an entity is e'empt. 0lthough the transactions involving such ta' are not e'empt% petitioner as a A0TDregistered person% ho&ever% is entitled to their credits. To summari(e% special la&s e'pressly grant preferential ta' treatment to business establishments registered and operating &ithin an eco(one% &hich by la& is considered as a separate customs territory. 0s such% respondent is e'empt from all internal revenue ta'es% including the A0T% and regulations pertaining thereto. t has opted for the income ta' holiday regime% instead of the 5 percent preferential ta' regime. 0s a matter of la& and procedure% its registration status entitling it to such ta' holiday can no longer be -uestioned. ts sales transactions intended for e'port may not be e'empt% but li+e its purchase transactions% they are (eroDrated. No prior application for the effective (ero rating of its transactions is necessary. Being A0TDregistered and having satisfactorily complied &ith all the re-uisites for claiming a ta' refund of or credit for the
input A0T paid on capital goods purchased% respondent is entitled to such A0T refund or credit.
CO22ISSIONE O+ INTE NA!
E-EN,E vs. THE ESTATE O+ BENIGNO P. TO.A) '
G. . No. &$0&** Septe3:er &$) (11$ +ACTS: " " authori(ed Benigno P. Toda% 6r.% President and o&ner of ##.##1M of its issued and outstanding capital stoc+% to sell the "ibeles Building and the t&o parcels of land on &hich the building stands for an amount of not less than P#7 million and subse-uently sold the property for P177 million to !afael 0. 0ltonaga% &ho% in turn% sold the same property on the same day to !oyal =atch nc. )!= * for P277 million. The B ! _Saint Louis University School of Law_
sent an assessment noticeand demand letter to the " " for deficiency income ta' for the year 1#;# in the amount of P$#%7##%###.22. The ne& " " as+ed for a reconsideration% asserting that the assessment should be directed against the old " "% and not against the ne& " "% &hich is o&ned by an entirely different set of stoc+holders@ moreover% Toda had underta+en to hold the buyer of his stoc+holdings and the " " free from all ta' liabilities for the fiscal years 1#;$D1#;#. The "T0 held that the "ommissioner failed to prove that " " committed fraud to deprive the government of the ta'es due it. The "ourt of 0ppeals affirmed the decision of the "T0% reasoning that the "T0% being more advantageously situated and having the necessary e'pertise in matters of ta'ation% is 3better situated to determine the correctness% propriety% and legality of the income ta' assessments assailed by the Toda 1state.3 ISS,E: .hether or not respondent committed fraud &ith intent to evade the ta' on the sale of the properties of "ibeles nsurance "orporation. HE!.: ;ES. Ta' evasion connotes the integration of three factors8 )1* the end to be achieved% i.e.% the payment of less than that +no&n by the ta'payer to be legally due% or the nonD payment of ta' &hen it is sho&n that a ta' is due@ )2* an accompanying state of mind &hich is described as being 3evil%3 in 3bad faith%3 3&illfull%3 or 3deliberate and not accidental3@ and )3* a course of action or failure of action &hich is unla&ful.0ll these factors are present in the instant case. 2ere% it is obvious that the ob,ective of the sale to 0ltonaga &as to reduce the amount of ta' to be paid especially that the transfer from him to != &ould then sub,ect the income to only 5M individual capital gains ta'% and not the 35M corporate income ta'. 0ltonagaEs sole purpose of ac-uiring and transferring title of the sub,ect properties on the same day &as to create a ta' shelter. 0ltonaga never controlled the property and did not en,oy the normal benefits and burdens of o&nership. The sale to him &as merely a ta' ploy% a sham% and &ithout business purpose and economic substance. ?oubtless% the e'ecution of the t&o sales &as calculated to mislead the B ! &ith the end in vie& of reducing the conse-uent income ta' liability. " " is therefore liable to pay a 35M corporate ta' for its ta'able net income in 1#;#. The 5M individual capital gains ta' provided for in Section 3: )h* of the N !" of 1#;935 )no& 9M under Section 2: )?* )1* of the Ta' !eform 0ct of 1##$* is inapplicable. 2ence% the assessment for the deficiency income ta' issued by the B ! must be upheld.
Topic: +or3s o6 Esc4pe 6ro3 T474tio5 'OHN HA; vs. !I2 G. . No. &&#00". Octo:er ($) (11% +ACTS: >n =arch 13% 1##2% !epublic 0ct No. $22$% other&ise +no&n as the 3Bases "onversion and ?evelopment 0ct of 1##2%3 &as enacted &ith the declared policy of accelerating 3the sound and balanced conversion into alternative productive uses of the "lar+ and Subic military reservations and their e'tensions3 Dincluding the 6ohn 2ay Station. To this end% !.0. No. $22$ created public respondent B"?0%the Subic S1N and the Subic Bay =etropolitan 0uthority. >n 6uly 5% 1##:% then President !amos% on the re-uest of the SangguniangPanlungsod of Baguio "ity% issued Proclamation No. :27 establishing the 6ohn 2ay S1N. >n 0pril 25% 1##5% petitioners filed their Petition for prohibition% mandamus and declaratory relief assailing )1* the constitutionality of Proclamation No. :27 and )2* the legality of the =emorandum of 0greement and 6oint Aenture 0greement previously entered into bet&een public respondent B"?0 and private respondents Tunte' )B.A. .* "o.% Ftd. )TGNT1O* and 0sia&orld nternationale Croup% nc. )0S 0.>!F?*. ISS,E: _Saint Louis University School of Law_
.hether or not 6ohn 2ay Special 1conomic None en,oys e'emption for ta'es as &ell as other financial incentives granted to the Subic Special 1conomic None. HE!.: t is clear that under Section 12 of !.0. No. $22$ it is only the Subic S1N &hich &as granted by "ongress &ith ta' e'emption% investment incentives and the li+e. There is no e'press e'tension of the aforesaid benefits to other S1Ns still to be createdat the time via presidential proclamation. .hile the grant of economic incentives may be essential to the creation and success of S1Ns% free trade (ones and the li+e% the grant thereof to the 6ohn 2ay S1N cannot be sustained. The incentives under !.0. No. $22$ are e'clusiveonly to the Subic S1N% hence% the e'tension of the same to the 6ohn 2ay S1N finds no support therein. =ore importantly% the nature of most of the assailed privileges is one of ta' e'emption. t is the legislature% unless limited by a provision of the state constitution that has full po&er to e'empt any person or corporation or class of property from ta'ation% its po&er to e'empt being as broad as its po&er to ta'. The challenged grant of ta' e'emption &ould circumvent the "onstitutionEs imposition that a la& granting any ta' e'emption must have the concurrence of a ma,ority of all the members of "ongress. Topic: Ad3i5istr4tive Issu45ce :y t9e BI Co33issio5er o6 I5ter54l eve5ue vs. Courts o6 T47 Appe4l) et 4l G. . No. &&"%$# April &*) &##0 +ACTS: 0teneo de =anila is an educational institution &ith au'iliary units and branches all over the Philippines. >ne such au'iliary unit is the nstitute of Philippine "ulture ) P"*% &hich has no legal personality separate and distinct from that of private respondent. The P" is a Philippine unit engaged in social science studies of Philippine society and culture. >ccasionally% it accepts sponsorships for its research activities from international organi(ations% private foundations and government agencies. >n 6uly ;% 1#;3% private respondent received from petitioner "ommissioner of nternal !evenue a demand letter dated 6une 3% 1#;3% assessing private respondent the sum of P1$:%7:3.#$ for alleged deficiency contractorHs ta' the value of &hich &as later on% upon private respondentEs re-uest for reinvestigation% reduced to P:9%519.:1. Gnsatisfied% Private respondent filed in the "ourt of Ta' 0ppeals a petition for revie& of the said letterDdecision of the petitioner &hich rendered a decision in its favour and ordered the ta' assessment cancelled. ISS,E: .hether or not 0teneo de =anila Gniversity% through its au'iliary unit or branch J the nstitute of Philippine "ulture J is performing the &or+ of an independent contractor _Saint Louis University School of Law_
and% thus% sub,ect to the three percent contractorHs ta' levied by then Section 275 of the National nternal !evenue "ode HE!.: NO. The Supreme "ourt held that 0teneo de =anila Gniversity is not sub,ect to the contractorEs ta'. t e'plained that to fall under its coverage% Section 275 of the National nternal !evenue "ode re-uires that the independent contractor be engaged in the business of selling its services. The "ourt% ho&ever% found no evidence that 0teneoHs nstitute of Philippine "ulture ever sold its services for a fee to anyone or &as ever engaged in a business apart from and independently of the academic purposes of the university. =oreover% the "ourt of Ta' 0ppeals accurately and correctly declared that the Kfunds received by the 0teneo de =anila Gniversity are technically not a fee. They may ho&ever fall as gifts or donations &hich are ta'De'empt3 as sho&n by private respondentHs compliance &ith the re-uirement of Section 123 of the National nternal !evenue "ode providing for the e'emption of such gifts to an educational institution. Topic: Co5stitutio54l !i3it4tio5s: Ori=i5 o6 eve5ue) Appropri4tio5 45d T4rri66 Bills ABA@A.A G, O PA T; !IST vs. E 2ITA G. . No. &/*1"/) 'uly ") (11" +ACTS: =otions for !econsideration filed by petitioners% 0B0S0?0 Curo party Fist >fficer and et al.% insist that the bicameral conference committee should not even have acted on the no passDon provisions since there is no disagreement bet&een 2ouse Bill Nos. 3$75 and 3555 on the one hand% and Senate Bill No. 1#57 on the other% &ith regard to the no passDon provision for the sale of service for po&er generation because both the Senate and the 2ouse &ere in agreement that the A0T burden for the sale of such service shall not be passed on to the endDconsumer. 0s to the no passDon provision for sale of petroleum products% petitioners argue that the fact that the presence of such a no passD on provision in the 2ouse version and the absence thereof in the Senate Bill means there is no conflict because Ka 2ouse provision cannot be in conflict &ith something that does not e'ist.L 1scudero% et. al.% also contend that !epublic 0ct No. #33$ grossly violates the constitutional imperative on e'clusive origination of revenue bills under Section 2: of 0rticle A of the "onstitution &hen the Senate introduced amendments not connected &ith A0T. Petitioners 1scudero% et al.% also reiterate that !.0. No. #33$Es standD by authority to the 1'ecutive to increase the A0T rate% especially on account of the recommendatory po&er granted to the Secretary of Binance% constitutes undue delegation of legislative po&er. They submit that the recommendatory po&er given to the Secretary of Binance in regard to the occurrence of either of t&o events using the Cross ?omestic Product )C?P* as a benchmar+ necessarily and inherently re-uired e'tended analysis and evaluation% as &ell as policy ma+ing.
Petitioners also reiterate their argument that the input ta' is a property or a property right. Petitioners also contend that even if the right to credit the input A0T is merely a statutory privilege% it has already evolved into a vested right that the State cannot remove. ISS,E: .hether or not the !.0. No. #33$ or the Aat !eform 0ct is constitutional/ ,!ING: The "ourt is not persuaded. 0rticle A % Section 2: of the "onstitution provides that 0ll appropriation% revenue or tariff bills% bills authori(ing increase of the public debt% bills of local application% and private bills shall originate e'clusively in the 2ouse of !epresentatives% but the Senate may propose or concur &ith amendments. The "ourt reiterates that in ma+ing his recommendation to the President on the e'istence of either of the t&o conditions% the Secretary of Binance is not acting as the alter ego of the President or even her subordinate. 2e is acting as the agent of the legislative department% to determine and declare the event upon &hich its e'pressed &ill is to ta+e effect. The Secretary of Binance becomes the means or tool by &hich legislative policy is determined and implemented% considering that he possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them. 2is function is to gather and collate statistical data and other pertinent information and verify if any of the t&o conditions laid out by "ongress is present. n the same breath% the "ourt reiterates its finding that it is not a property or a property right% and a A0TDregistered personEs entitlement to the creditable input ta' is a mere statutory privilege. 0s the "ourt stated in its ?ecision% the right to credit the input ta' is a mere creation of la&. =ore importantly% the assailed provisions of !.0. No. #33$ already involve legislative policy and &isdom. So long as there is a public end for &hich !.0. No. #33$ &as passed% the means through &hich such end shall be accomplished is for the legislature to choose so long as it is &ithin constitutional bounds.
Topic: Sources o6 T47 !4ws: Ad3i5istr4tive Issu45ce :y t9e BI PHI!IPPINE BAN@ O+ CO22E CE vs. CO22ISSIONE O+ IINTE NA! E-EN,E G &&(1($ '45u4ry (*) &### +ACTS: Petitioner% PB ">=% a commercial ban+ing corporation filed its -uarterly income ta' returns for the first and second -uarters of 1#;5% reported profits% and paid the total income ta' of P5%719%#5:.77 by applying PB"omEs ta' credit memos for P3%:71%$71.77 and P1%915%253.77% respectively. Subse-uently% ho&ever% PB"om suffered net loss of P25%31$%22;.77% thereby sho&ing no income ta' liability in its 0nnual ncome Ta' !eturns for the yearDended ?ecember 31% 1#;5. Bor the succeeding year% ending ?ecember 31% 1#;9% the petitioner li+e&ise reported a net loss of P1:%12#%972.77% and thus declared no ta' payable for the year. 2o&ever during these t&o years% PB"om earned rental income from leased properties. The lessees &ithheld and remitted to the B ! &ithholding creditable ta'es of P2;2%$#5.57 in 1#;5 and P23:%7$$.9# in 1#;9. >n 0ugust $% 1#;$% petitioner re-uested the "ommissioner of nternal !evenue% among others% for a ta' credit of P5%719%#5:.77 representing the overpayment of ta'es in the first and second -uarters of 1#;5. Thereafter% on 6uly 25% 1#;;% petitioner filed a claim for refund of creditable ta'es &ithheld by their lessees from property rentals in 1#;5 for P2;2%$#5.57 and in 1#;9 for P23:%7$$.9#. Pending the investigation of the respondent "ommissioner of nternal !evenue% petitioner instituted a Petition for !evie& on November 1;% 1#;; before the "ourt of Ta' 0ppeals )"T0*. The petition &as doc+eted as "T0 "ase No. :37# entitled8 KPhilippine Ban+ of "ommunications vs. "ommissioner of nternal !evenue.L The "T0 decided in favor of the B ! on the ground that the Petition &as filed out of time as the same &as filed beyond the t&oDyear reglementary period. 0 motion for !econsideration &as denied and the appeal to "ourt of 0ppeals &as li+e&ise denied. Thus% this appeal to Supreme "ourt.
ISS,ES: a. .hether or not !evenue !egulations No. $D;5 &hich alters the reglementary period from t&o years to ten years is valid. b. .hether or not the petition for ta' refund had already prescribed. ,!ING: a. The "ourt held that the !evenue !egulations $D;5 altering the 2Dyear prescriptive period imposed by la& to 17Dyear prescriptive period is invalid. t ruled that administrative issuances are merely interpretations and not e'pansions of the provisions of la&% thus% in case of inconsistency% the la& prevails over them.% furthermore administrative agencies have no legislative po&er. .hen the 0cting "ommissioner of nternal !evenue issued !=" $D;5% changing the prescriptive period of t&o years to ten years on claims of e'cess -uarterly income ta' payments% such circular created a clear inconsistency &ith the provision of Sec. 237 of 1#$$ N !". n so doing% the B ! did not simply interpret the la&@ rather it legislated guidelines contrary to the statute passed by "ongress. t bears repeating that !evenue memorandumDcirculars are considered administrative rulings &hich are issued from time to time by the "ommissioner of nternal !evenue. t is &idely accepted that the interpretation placed upon a statute by the e'ecutive officers% &hose duty is to enforce it% is entitled to great respect by the courts. Nevertheless% such interpretation is not conclusive and &ill be ignored if ,udicially found to be erroneous. Thus% courts &ill not countenance administrative issuances that override% instead of remaining consistent and in harmony &ith% the la& they see+ to apply and implement. Burther% fundamental is the rule that the State cannot be put in estoppel by the mista+es or errors of its officials or agents. 0s pointed out by the respondent courts% the nullification of !=" No. $D;5 issued by the 0cting "ommissioner of nternal !evenue is an administrative interpretation &hich is not in harmony &ith Sec. 237 of 1#$$ N !"% for being contrary to the e'press provision of a statute. 2ence% his interpretation could not be given &eight for to do so &ould% in effect% amend the statute. b. .ith regard to the second issue the court ruled that by implication of the above% claim for refund had already prescribed. Since the petition had been filed beyond the prescriptive period% the same has already prescribed. The fact that the final ad,usted return sho& an e'cess ta' credit does not automatically entitle ta'payer claim for refund &ithout any e'press intent. Thus the petition &as denied.
Topic: Sources o6 T47 !4ws: T47 Tre4ties CO22ISSIONE O+ INTE NA! E-EN,E -S. P OCTE 8 GA2B!E PHI!IPPINES G !-//*%* &" April &#** +ACTS: Procter and Camble Philippines is a &holly o&ned subsidiary of Procter and Camble GS0 )P="DGS0*% a nonDresident foreign corporation in the Philippines% not engaged in trade and business therein. P="DGS0 is the sole shareholder of P=" Philippines and is entitled to receive income from P=" Philippines in the form of dividends% if not rents or royalties. Bor the ta'able years 1#$: and 1#$5% P=" Philippines filed its income ta' return and also declared dividends in favor of P="DGS0. n 1#$$% P=" Philippines% invo+ing the ta'Dsparing provision of Section 2: )b* as the &ithholding agent of the Philippine Covernment &ith respect to dividend ta'es paid by P="DGS0% filed a claim for the refund of 27 percentage point portion of the 35 percentage &hole ta' paid &ith the "ommissioner of nternal !evenue. ISS,E: .hether P=" Philippines is entitled to the 15M preferential ta' rate on dividends declared and remitted to its parent corporation/ ,!ING: The issue raised is one made for the first time before the Supreme "ourt. Gnder the same underlying principle of prior e'haustion of administrative remedies% on the ,udicial level% issues not raised in the lo&er court cannot be generally raised for the first time on appeal. Nonetheless% it is a'iomatic that the state can never be allo&ed to ,eopardi(e the governmentEs financial position. The submission of the "ommissioner that P=" Philippines is but a &ithholding agent of the government and therefore cannot claim reimbursement of alleged overpaid ta'es% is completely meritorious. The real party in interest is P="DGS0% &hich should prove that it is entitled under the GS Ta' "ode to a GS Boreign Ta' "redit e-uivalent to at least 27 percentage points spared or &aived as other&ise considered or deemed paid by the Covernment. 2erein% the claimant failed to sho& or ,ustify the ta' return of the disputed 15M as it failed to sho& the actual amount credited by the GS Covernment against the income ta' due from P="DGS0 on the dividends received from P=" Philippines@ to present the income ta' return of P="DGS0 for 1#$5 &hen the dividends &ere received@ and to submit duly authenticated document _Saint Louis University School of Law_
sho&ing that the GS government credited the 27M ta' deemed paid in the Philippines.
Topic: Sources o6 T47 !4ws: T47 Tre4ties CO22ISSIONE O+ IINTE NA! E-EN,E vs. SC 'OHNSON 8 SON INC. G. . No. &$0&** 'u5e (") &### +ACTS: !espondent is a domestic corporation organi(ed and operating under the Philippine Fa&s% entered into a licensed agreement &ith the S" 6ohnson and Son% GS0% a nonDresident foreign corporation based in the GS0 pursuant to &hich the respondent &as granted the right to use the trademar+% patents and technology o&ned by the later including the right to manufacture% pac+age and distribute the products covered by the 0greement and secure assistance in management% mar+eting and production from S" 6ohnson and Son GS0. Bor the use of trademar+ or technology% respondent &as obliged to pay S" 6ohnson and Son% GS0 royalties based on a percentage of net sales and sub,ected the same to 25M &ithholding ta' on royalty payments &hich respondent paid for the period covering 6uly 1##2 to =ay 1##3 in the total amount of P1%973%::3.77. >n >ctober 2#% 1##3% respondent filed &ith the nternational Ta' 0ffairs ?ivision ) T0?* of the B ! a claim for refund of overpaid &ithholding ta' on royalties arguing that% the antecedent facts attending respondents case fall s-uarely &ithin the same circumstances under &hich said =acCeorge and Cillette rulings &ere issued. Since the agreement &as approved by the Technology Transfer Board% the preferential ta' rate of 17M should apply to the respondent. So% royalties paid by the respondent to S" 6ohnson and Son% GS0 is only sub,ect to 17M &ithholding ta'. The "ommissioner did not act on said claim for refund. Private respondent S" 6ohnson T Son% nc. then filed a petition for revie& before the "T0% to claim a refund of the overpaid &ithholding ta' on royalty payments from 6uly 1##2 to =ay 1##3. >n =ay $% 1##9% the "T0 rendered its decision in favor of S" 6ohnson and ordered the " ! to issue a ta' credit certificate in the amount of P193%299.77 representing overpaid &ithholding ta' on royalty payments beginning 6uly 1##2 to =ay 1##3. The " ! thus filed a petition for revie& &ith the "0 &hich rendered the decision sub,ect of this appeal on November $% 1##9 finding no merit in the petition and affirming in toto the "T0 ruling. ISS,E: .hether ,!ING: _Saint Louis University School of Law_ or not ta' refunds are considered as ta' e'emptions/
t bears stress that ta' refunds are in the nature of ta' e'emptions. 0s such they are registered as in derogation of sovereign authority and to be construed strictissimi,uris against the person or entity claiming the e'emption. The burden of proof is upon him &ho claims the e'emption in his favor and he must be able to ,ustify his claim by the clearest grant of organic or statute la&. Private respondent is claiming for a refund of the alleged overpayment of ta' on royalties@ ho&ever there is nothing on record to support a claim that the ta' on royalties under the !PDGS Treaty is paid under similar circumstances as the ta' on royalties under the !PD.est Cermany Ta' Treaty.
Topic: T9e Co5cept o6 I5co3e CON?I vs. CO22ISSIONE O+ INTE NA! (&%SC A$*% E-EN,E
+ACTS: Petitioners are Bilipino citi(ens and employees of Procter and Camble Philippines &ith an office located at 0yala 0ve. =a+ati. The corporation is a subsidiary of PTC based at >hio GS0. Bor the year 1#$7 and 1#$1% petitioners &ere assigned outside the Phil &ith their compensation paid in GS dollars. .hen they filed their income ta' returns for the year 1#$7% theyEve computed the ta' by applying the dollarDtoDpeso conversion based on the floating rate provided by the B !. 2o&ever% on 1#$3% they filed an amended ta' return using the par value of the peso provided by Sec.:7 of !0 295. They claim for a refund due to overpayment. Petitioners argued that since the dollar earnings does not fall &ithin the classification of foreign e'change transaction@ there occurred no actual in&ard remittances therefore N>T included in "entral Ban+ "ircular No. 2;#. "B no. 2;# provides for specific instances &hen the par value of the peso shall not be the conversion rate. Therefore% they can base their conversion using the par value of the peso. The "ommissioner of the B ! denied the claim of petitioners stating that the basis must be the prevailing free mar+et rate of e'change and not the par value. "B No. 2;# spea+s of receipts for e'port products% receipts of sale of foreign e'change and investment but not income ta'. The "T0 also held that petitionerEs dollar earnings are receipts derived from foreign e'change transactions. ISS,ES: a. .hether or not petitionerEs dollar earnings are receipts derived from foreign e'change transactions/ b. .hether or not the proper rate of conversion is the prevailing free mar+et rate of e'change/ c. .hether or not petitioners are e'empt to pay ta' for such income since there &ere no remittance< acceptance of their salaries in G? ?ollars into the Philippines/ ,!ING: a. No. ncome may be defined as an amount of money coming to a person or corporation &ithin a specified time% &hether as payment for services% interest or profit from investment. Gnless other&ise specified% it means cash or its e-uivalent. ncome can also be though of as flo& of the fruits of oneHs labor. Petitioners are correct in claiming that their dollar earnings are not receipts derived from foreign e'change transactions. Bor a foreign e'change transaction is simply thatDforeign e'change being Kthe conversion of an amount of money of one country into an e-uivalent amount of money of another country. .hen petitioners &ere assigned to the foreign subsidiaries of PTC% they &ere earning in their assigned nationEs currency and &ere also spending in said currency. There &as no conversion from one currency to another.
b. Ies. "entral Ban+ "ircular no. 2;# does not contemplate income ta' payments. t sho&s that the sub,ect matter involved therein are e'ports products% invisibles% receipts of foreign e'change% foreign e'change payments% ne& foreign borro&ing and investmentsDnothing by &ay of income ta' .Petitioners erred in concluding that "B "irc No. 2;# does not apply to them. Therefore% the conversion should be the prevailing free mar+et rate of e'change. c. No. 1ven if there &as no remittance and acceptance of their salaries and &ages in GS ?ollars into the Philippines% they are still bound to pay the ta'. Petitioners forgot that they are citi(ens of the Philippines% and their income% &ithin or &ithout% and in this case &holly &ithout or outside the Philippines% are sub,ect to income ta'. The petitions &ere denied for lac+ of merit.
Topic: Co5cept o6 I5co3e: I5co3e vs. C4pit4l 2A. IGA! vs. A++E T; G. . No. &((*0 Au=ust 0) &#&* +ACTS: Aicente =adrigal and Susana Paterno &ere legally married prior to 6anuary 1% 1#1:. The marriage &as contracted under the provisions of la& concerning con,ugal partnerships . >n Bebruary 25% 1#15% =adrigal filed a s&orn declaration on the _Saint Louis University School of Law_
prescribed form &ith the "ollector of nternal !evenue% sho&ing% as his total net income for the year 1#1:% the sum of P2#9%372.$3. Subse-uently =adrigal submitted the claim that the said amount did not represent his income for the year 1#1:% but &as in fact the income of the con,ugal partnership e'isting bet&een himself and his &ife% and that in computing and assessing the additional income ta' provided by the 0ct of "ongress of >ctober 3% 1#13% the income declared by Aicente =adrigal should be divided into t&o e-ual parts% oneDhalf to be considered the income of =adrigal and the other half the income of Susana Paterno. 0fter payment under protest% and after the protest of =adrigal had been decided adversely by the "ollector of nternal !evenue% action &as begun by =adrigal and his &ife in the "ourt of Birst nstance of =anila against the "ollector of nternal !evenue and the ?eputy "ollector of nternal !evenue for the recovery of the sum of P3%$;9.7;% alleged to have been &rongfully and illegally assessed and collected by the defendants from the plaintiff% under the provisions of the 0ct of "ongress +no&n as the ncome Ta' Fa&. The burden of the complaint &as that if the income ta' for the year 1#1: had been correctly and la&fully computed there &ould have been due and payable by each of the plaintiffs the sum of P2%#21.7#% &hich ta+en together amounts to a total of P5%;:2.1; instead of P#%99;.21% erroneously and unla&fully collected from the plaintiff Aicente =adrigal% &ith the result that plaintiff =adrigal has paid H as income ta' for the year 1#1:% P3%$;9.7;% in e'cess of the sum la&fully due and payable. The dispute bet&een the plaintiffs and the defendants concerned the additional ta' provided for in the ncome Ta' Fa&. The trial court in an e'hausted decision found in favor of defendants% &ithout costs. ISS,E: .hether or not the additional income ta' should be divided into t&o e-ual part because of the con,ugal partnership e'isting bet&een the spouses/ ,!ING: ncome as contrasted &ith capital or property is to be the test. The essential difference bet&een capital and income is that capital is a fund@ income is a flo&. 0 fund of property e'isting at an instant of time is called capital. 0 flo& of services rendered by that capital by the payment of money from it or any other benefit rendered by a fund of capital in relation to such fund through a period of time is called income. "apital is &ealth% &hile income is the service of &ealth. The husband% as the head and legal representative of the household and general custodian of its income% should ma+e and render the return of the aggregate income of himself and &ife% and for the purpose of levying the income ta' it is assumed that he can ascertain the total amount of said income. They are ,ointly and separately liable for such return and for the payment of the ta'. The single or married status of the person claiming the specific e'emption shall be determined as of the time of claiming such e'emption if such claim be made &ithin the year for &hich return is made% other&ise the status at the close of the year.
.ith these general observations relative to the ncome Ta' Fa& in force in the Philippine slands% &e turn for a moment to consider the provisions of the "ivil "ode dealing &ith the con,ugal partnership. !ecently in t&o elaborate decisions in &hich a long line of Spanish authorities &ere cited% this court% in spea+ing of the con,ugal partnership% decided that 3prior to the li-uidation% the interest of the &ife% and in case of her death% of her heirs% is an interest inchoate% a mere e'pectancy% &hich constitutes neither a legal nor an e-uitable estate% and does not ripen into title until there appears that there are assets in the community as a result of the li-uidation and settlement. Susana Paterno% &ife of Aicente =adrigal% has an inchoate right in the property of her husband Aicente =adrigal during the life of the con,ugal partnership. She has an interest in the ultimate property rights and in the ultimate o&nership of property ac-uired as income after such income has become capital. Susana Paterno has no absolute right to oneDhalf the income of the con,ugal partnership. Not being sei(ed of a separate estate% Susana Paterno cannot ma+e a separate return in order to receive the benefit of the e'emption &hich &ould arise by reason of the additional ta'. 0s she has no estate and income% actually and legally vested in her and entirely distinct from her husbandHs property% the income cannot properly be considered the separate income of the &ife for the purposes of the additional ta'. =oreover% the ncome Ta' Fa& does not loo+ on the spouses as individual partners in an ordinary partnership. The husband and &ife are only entitled to the e'emption of P;%777% specifically granted by the la&. The higher schedules of the additional ta' directed at the incomes of the &ealthy may not be partially defeated by reliance on provisions in our "ivil "ode dealing &ith the con,ugal partnership and having no application to the ncome Ta' Fa&. The aims and purposes of the ncome Ta' Fa& must be given effect
Topic: P9ilippi5e I5co3e T47 Syste3: Sc9edul4r Syste3 vs. Glo:4l Syste3 SISON vs. ANCHETA G. . No. !-"#$%& 'uly (") &#*$ +ACTS: The challenged posed is a suit for declaratory relief or prohibition on the validity of Section 1 of Batas PambansaBlg. 135. The assailed provision further amends Sec. 21 of the N !" of 1#$$% &hich provides for the rate ta' on residents or citi(ens on )a* ta'able compensation income% )b* ta'able net income% )c* royalties% pri(es% and other &innings% )d* interests from ban+ deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements% )e* dividends and share from individual partner in the net profits of ta'able partnership% )f* ad,usted gross income. Sison% as ta'payer% alleged that its provision )Section 1* unduly discriminated against him by the imposition of higher rates upon his income as a professional% that it _Saint Louis University School of Law_
amounts to class legislation% and that it transgresses against the e-ual protection and due process clauses of the "onstitution as &ell as the rule re-uiring uniformity in ta'ation. ISS,E: .hether BP 135 violates the due process and e-ual protection clauses% and the rule on uniformity in ta'ation/ ,!ING: There is a need for proof of such persuasive character as &ould lead to a conclusion that there &as a violation of the due process and e-ual protection clauses. 0bsent such sho&ing% the presumption of validity must prevail. 1-uality and uniformity in ta'ation means that all ta'able articles or +inds of property of the same class shall be ta'ed at the same rate. The ta'ing po&er has the authority to ma+e reasonable and natural classifications for purposes of ta'ation. .here the differentiation conforms to the practical dictates of ,ustice and e-uity% similar to the standards of e-ual protection% it is not discriminatory &ithin the meaning of the clause and is therefore uniform. Ta'payers may be classified into different categories% such as recipients of compensation income as against professionals. !ecipients of compensation income are not entitled to ma+e deductions for income ta' purposes as there is no practically no overhead e'pense% &hile professionals and businessmen have no uniform costs or e'penses necessary to produce their income. There is ample ,ustification to adopt the gross system of income ta'ation to compensation income% &hile continuing the system of net income ta'ation as regards professional and business income.
Topic: Source o6 I5co3e: Services CO22ISSIONE O+ INTE NA! E-EN,E vs. 2A ,BENI CO P. G. . No. &%0%00 .ece3:er &*) (11& +ACTS: !espondent =arubeni "orporation is a foreign corporation organi(ed and e'isting under the la&s of 6apan. t is engaged in general import and e'port trading% financing and the construction business. t is duly registered to engage in such business in the Philippines and maintains a branch office in =anila. Sometime in November 1#;5% petitioner "ommissioner of nternal !evenue issued a letter of authority to e'amine the boo+s of accounts of the =anila branch office of respondent corporation for the fiscal year ending =arch 1#;5. n the course of the e'amination% petitioner found respondent to have undeclared income from t&o )2* contracts in the Philippines% both of &hich &ere completed in 1#;:. >ne of the contracts &as &ith the National ?evelopment "ompany )N?"* in connection &ith the construction _Saint Louis University School of Law_
and installation of a &harf<port comple' at the Feyte ndustrial ?evelopment 1state in the municipality of sabel% province of Feyte. The other contract &as &ith the Philippine Phosphate Bertili(er "orporation )Philphos* for the construction of an ammonia storage comple' also at the Feyte ndustrial ?evelopment 1state. >n =arch 1% 1#;9% petitionerHs revenue e'aminers recommended an assessment for deficiency income% branch profit remittance% contractorHs and commercial bro+erHs ta'es. !espondent -uestioned this assessment in a letter dated 6une 5% 1#;9. ISS,E: .hether or not the " ! need to assess and collect the ta' despite the ta' amnesty availed of by the respondent/ ,!ING: The main controversy in this case lies in the interpretation of the e'ception to the amnesty coverage of 1.>. Nos. :1 and 9:. There are three )3* types of ta'es involved herein J income ta'% branch profit remittance ta' and contractorHs ta'. These ta'es are covered by the amnesties granted by 1.>. Nos. :1 and 9:. Petitioner claims% ho&ever% that respondent is dis-ualified from availing of the said amnesties because the latter falls under the e'ception in Section : )b* of 1.>. No. :1. 0 ta' amnesty% much li+e a ta' e'emption% is never favored nor presumed in la&. f granted% the terms of the amnesty% li+e that of a ta' e'emption% must be construed strictly against the ta'payer and liberally in favor of the ta'ing authority. Bor the right of ta'ation is inherent in government. The State cannot strip itself of the most essential po&er of ta'ation by doubtful &ords. 2e &ho claims an e'emption )or an amnesty* from the common burden must ,ustify his claim by the clearest grant of organic or state la&. t cannot be allo&ed to e'ist upon a vague implication. f a doubt arises as to the intent of the legislature% that doubt must be resolved in favor of the state.
Topic: Source o6 I5co3e: I5terest I5co3e NATIONA! .E-E!OP2ENT CO2PAN; vs. CO22ISSIONE O+ INTE NA! E-EN,E G. . No. !-"%#/& 'u5e %1) &#*0 +ACTS: The National ?evelopment "ompany entered into contracts in To+yo &ith several 6apanese shipbuilding companies for the construction of t&elve oceanDgoing vessels. The purchase price &as to come from the proceeds of bonds issued by the "entral Ban+. nitial payments &ere made in cash and through irrevocable letters of credit. Bourteen promissory notes &ere signed for the balance by the N?" and% as re-uired by the shipbuilders% guaranteed by the !epublic of the Philippines. Pursuant thereto% the remaining payments and the interests thereon &ere remitted in due time by the N?" to To+yo. The vessels &ere eventually completed and delivered to the N?" in To+yo. The N?" remitted to the shipbuilders in To+yo the total amount of GSV:%799%5;7.$7 as interest on the balance of the purchase price. No ta' &as &ithheld. The "ommissioner then held the N?" liable on such ta' in the total sum of P5%115%23:.$:. Negotiations follo&ed but failed. The B ! thereupon served on the N?" a &arrant of distraint and levy to enforce collection of the claimed amount. The N?" &ent to the "ourt of Ta' 0ppeals.
The B ! &as sustained by the "T0 e'cept for a slight reduction of the ta' deficiency in the sum of P#77.77% representing the compromise penalty. ISS,E: .hether or not N?" is liable on ta'/ ,!ING: There is no basis for saying that the interest payments &ere obligations of the !epublic of the Philippines and that the promissory notes of the N?" &ere government securities e'empt from ta'ation under Section 2#)b*of the Ta' "ode. The la& invo+ed by the petitioner as authori(ing the issuance of securities is !.0. No. 1:7$% &hich in fact is silent on this matter. ".0. No. 1;2 as amended by ".0. No. 311 does carry such authori(ation but% li+e !.0. No. 1:7$% does not e'empt from ta'es the interests on such securities. t is also incorrect to suggest that the !epublic of the Philippines could not collect ta'es on the interest remitted because of the underta+ing signed by the Secretary of Binance in each of the promissory notes that8 Gpon authority of the President of the !epublic of the Philippines% the undersigned% for value received% hereby absolutely and unconditionally guarantee% on behalf of the !epublic of the Philippines% the due and punctual payment of both principal and interest of the above note. There is nothing in the above underta+ing e'empting the interests from ta'es. Petitioner has not established a clear &aiver therein of the right to ta' interests. Ta' e'emptions cannot be merely implied but must be categorically and unmista+ably e'pressed. 0ny doubt concerning this -uestion must be resolved in favor of the ta'ing po&er. No&here in the said underta+ing does the court find any inhibition against the collection of the disputed ta'es. n fact% such underta+ing &as made by the government in consonance &ith and certainly not against the follo&ing provisions of the Ta' "ode. =anifestly% the said underta+ing of the !epublic of the Philippines merely guaranteed the obligations of the N?" but &ithout diminution of its ta'ing po&er under e'isting la&s. n suggesting that the N?" is merely an administrator of the funds of the !epublic of the Philippines% the petitioner closes its eyes to the nature of this entity as a corporation. 0s such% it is governed in its proprietary activities not only by its charter but also by the "orporation "ode and other pertinent la&s. The petitioner also forgets that it is not the N?" that is being ta'ed. The ta' &as due on the interests earned by the 6apanese shipbuilders. t &as the income of these companies and not the !epublic of the Philippines that &as sub,ect to the ta' the N?" did not &ithhold. n effect% therefore% the imposition of the deficiency ta'es on the N?" is a penalty for its failure to &ithhold the same from the 6apanese shipbuilders.
Topic: T474:ility o6 Co3pe5s4tio5 I5co3e 45d t9e Applic4tio5 o6 E3ployerJs Co5ve5ie5ce ule HEN.E SON vs. CO22ISSIONE O+ INTE NA! &SC A/$# +ACTS: The spouses 0rthur 2enderson and =arie B. 2enderson filed &ith the Bureau of nternal !evenue returns of annual net income for the years 1#:; to 1#52% inclusive. n due time the ta'payers received from the Bureau of nternal !evenue assessment notices Nos. 15;:7D:;% 25:57D:#% 15255D57% 25$75D51 and 2252$D52 and paid the amounts assessed. 0fter investigation and verification% the Bureau of nternal !evenue reassessed the ta'payersH income for the years 1#:; to 1#52% and demanded payment of the deficiency ta'es. n the foregoing assessments% the Bureau of nternal !evenue considered as part of their ta'able income the ta'payerDhusbandHs allo&ances for rental% residential e'penses% subsistence% &ater% electricity and telephone@ bonus paid to him@ &ithholding ta' and entrance fee to the =ari+ina Cun and "ountry "lub paid by his employer for his account@ and travelling allo&ance of his &ife. 0fter hearing conducted by the "onference Staff of the Bureau of nternal !evenue the Staff recommended to the "ollector of nternal !evenue that the assessments made be sustained e'cept that the amount of P277 as entrance fee to the =ari+ina Cun and "ountry "lub paid for the husbandD ta'payerHs account by his employer in 1#:; should not be considered as part of the ta'payerHs ta'able income for that year. E-EN,E
The "ollector of nternal !evenue denied the ta'payerHs re-uest for reconsideration% e'cept as regards the assessment of their income ta' due for the year 1#:;% &hich &as modified and demanded payment of the deficiency ta'es of P:%3$7.2: for 1#:;% P3%992.23 for 1#:#% P3%723 for 1#57% P2%75; for 1#51 and P:%17; for 1#52% 5M surcharge and 1M monthly interest thereon from 1 =arch 1#5: to the date of payment and P;7 as administrative penalty for late payment% to the "ity Treasurer of =anila not later than 31 6uly 1#55. The "ourt rendered ,udgment holding 3that the inherent nature of petitionerHs employment as president of the 0merican nternational Gnder&riters of the Philippines% nc. does not re-uire him to occupy the apartments supplied by his employerD corporation@3 that% ho&ever% only the amount of P:%;77 annually% the ratable value to him of the -uarters furnished constitutes a part of ta'able income@ that since the ta'payers did not receive any benefit out of the P3%2:$.:7 travelling e'pense allo&ance granted in 1#52 to the &ifeDta'payers and that she merely undertoo+ the trip abroad at the behest of her husbandHs employer% the same could not be considered as income@ and that even if it &ere considered as such% still it could not be sub,ect to ta' because it &as deductible as travel e'pense@ and ordering the "ollector of nternal !evenue to refund to the ta'payers the amount of P5%17#.33 &ith interest from 2$ Bebruary 1#5:% &ithout pronouncement as to costs. ISS,E: .hether or not the ta'payers are entitled to a refund/ ,!ING: The ta'payersH claim is supported by the evidence. The total amount of P3%2:#.32 3for managerHs residential e'pense3 in 1#:; should be treated as rentals for apartments and utilities and should not form part of the ratable value sub,ect to ta'. The computation made by the ta'payers is correct. 0dding to the amount of P2#%5$3.$#% their net income per return% the amounts of P9%577% the bonus received in 1#:;% and P:%;77% the ta'able ratable value of the allo&ances% brings up their gross income to P:7%;$3.$#. ?educting therefrom the amount of P2%577 for personal e'emption% the amount of P3;%3$3.$# is the amount sub,ect to income ta'. The income ta' due on this amount is P9%#5$.1# only. ?educting the amount of income ta' due% P9%#5$.1#% from the amount already paid% P;%592.:$% the amount of P1%975.2; is the amount refundable to the ta'payers. 0dd this amount to P59#.33% P1%2#:.77% P35:.77 and P2%19:.77% refundable to the ta'payers for 1#:#% 1#57% 1#51 and 1#52% and the total is P5%#;9.91. The "ollector of nternal !evenue is ordered to refund to the ta'payers the sum of P5%#;9.91% &ithout pronouncement as to costs.
Topic: I5terest I5co3e 6ro3 B45F .eposits 45d .eposit Su:stitute CO22ISSIONE O+ INTE NA! E-EN,E vs. CO, T O+ APPEA!S G. . No. &1*"0/ '45u4ry (1) &### +ACTS: n the 1#37s% ?on 0ndres Soriano% formed the corporation 30. Soriano I "ia3% predecessor of 0NS">!% &ith a P1%777%777.77 capitali(ation divided into 17%777 common shares at a par value of P177<share. 0NS">! is &holly o&ned and controlled by the family of ?on 0ndres% &ho are all nonDresident aliens. n 1#3$% ?on 0ndres subscribed to :%#93 shares of the 5%777 shares originally issued. n 1#:5% 0NS">!Hs authori(ed capital stoc+ &as increased to P2%577%777.77 divided into 25%777 common shares &ith the same par value of the additional 15%777 shares% only 17%777 &as issued &hich &ere all subscribed by ?on 0ndres% after the other stoc+holders &aived in favor of the former their preDemptive rights to subscribe to the ne& issues. This increased his subscription to 1:%#93 common shares. 0 day after ?on 0ndres died% 0NS">! increased its capital stoc+ to P27= and in 1#99 further increased it to P37=. n the same year% stoc+ dividends &orth :9%2#7 and :9%2;$ shares &ere respectively received by the ?on 0ndres estate and ?oPa "armen from 0NS">!. 2ence% increasing their accumulated shareholdings to 13;%;9$ and 13;%;9: common shares each. ?oPa "armen re-uested a ruling from the Gnited States nternal !evenue Service% in-uiring if an e'change of common &ith preferred shares may be considered as a ta' avoidance scheme. n1#9;% 0NS">! reclassified its e'isting 377%777 common shares into 157%777 common and 157%777 preferred shares. The !S opined that the e'change is only a recapitali(ation scheme and not ta' avoidance. "onse-uently% ?oPa "armen e'changed her &hole 13;%;9: common shares for 13;%;97 of the ne&ly reclassified preferred shares. The estate of ?on 0ndres in turn% e'changed 11%1:7 of its common
shares% for the remaining 11%1:7 preferred shares% thus reducing its )the estate* common shares to 12$%$2$. n 1#$3% after e'amining 0NS">!Hs boo+s of account and records% !evenue e'aminers issued a report proposing that 0NS">! be assessed for deficiency &ithholding ta'DatDsource% pursuant to Sections 53 and 5: of the 1#3# !evenue "ode%for the year 1#9; and the second -uarter of 1#9# based on the transactions of e'change 31 and redemption of stoc+s. The Bureau of nternal !evenue )B !* made the corresponding assessments despite the claim of 0NS">! that it availed of the ta' amnesty under Presidential ?ecree )P.?.* 23 &hich &ere amended by P.?.Hs 9$ and 15$. Subse-uently% 0NS">! filed a petition for revie& &ith the "T0 assailing the ta' assessments on the redemptions and e'change of stoc+s. ISS,E: .hether 0NS">!Hs redemption of stoc+s from its stoc+holder as &ell as the e'change of common &ith preferred shares can be considered as 3essentially e-uivalent to the distribution of ta'able dividend3 ma+ing the proceeds thereof ta'able under the provisions of la&/ ,!ING: The test of ta'ability under the e'empting clause of Section ;3)b* is% &hether income &as reali(ed through the redemption of stoc+ dividends. The redemption converts into money the stoc+ dividends &hich become a reali(ed profit or gain and conse-uently% the stoc+holderHs separate property. Profits derived from the capital invested cannot escape income ta'. 0s reali(ed income% the proceeds of the redeemed stoc+ dividends can be reached by income ta'ation regardless of the e'istence of any business purpose for the redemption. 0fter considering the manner and the circumstances by &hich the issuance and redemption of stoc+ dividends &ere made% there is no other conclusion but that the proceeds thereof are essentially considered e-uivalent to a distribution of ta'able dividends. 0s 3ta'able dividend3 under Section ;3)b*% it is part of the 3entire income3 sub,ect to ta' under Section 22 in relation to Section 21 of the 1#3# "ode. =oreover% under Section 2#)a* of said "ode% dividends are included in 3gross income3. 0s income% it is sub,ect to income ta' &hich is re-uired to be &ithheld at source. The 1##$ Ta' "ode may have altered the situation but it does not change this disposition. The reclassification by 0NS">! of its shares into common and preferred resulted to no change in the proportional interest after the e'change. There &as no cash flo&. Both stoc+s had the same par value. 0 common stoc+ represents the residual o&nership interest in the corporation. t is a basic class of stoc+ ordinarily and usually issued &ithout e'traordinary rights or privileges and entitles the shareholder to a pro rata division of profits. Preferred stoc+s are those &hich entitle the shareholder to some priority on dividends and asset distribution. n this case% the e'change of shares% &ithout more% produces no reali(ed income to the subscriber. There is only a modification of the _Saint Louis University School of Law_
subscriberHs rights and privileges J &hich is not a flo& of &ealth for ta' purposes. The issue of ta'able dividend may arise only once a subscriber disposes of his entire interest and not &hen there is still maintenance of proprietary interest. Therefore% 0NS">!Hs redemption of ;2%$52.5 stoc+ dividends is herein considered as essentially e-uivalent to a distribution of ta'able dividends for &hich it is liable for the &ithholding ta'DatDsource. Topic: I5co3e 6ro3 I5st4ll3e5t Tr45s4ctio5s BANAS vs. CO, T O+ APPEA!S G. . No. &1(#/0 +e:ru4ry &1) (111 +ACTS: n the succeeding years% until 1#$#% petitioner reported a uniform income of t&o hundred thirty thousand% eight hundred seventyDseven )P237%;$$.77* pesos as gain from sale of capital asset. n his 1#;7 income ta' amnesty return% petitioner also reported the same amount of P237%;$$.77 as the reali(ed gain on disposition of capital asset for the year. >n 0pril 11% 1#$;% then !evenue ?irector =auro "alaguio authori(ed ta' e'aminers% !odolfo Tua(on and Procopio Talon to e'amine the boo+s and records of petitioner for the year 1#$9. They discovered that petitioner had no outstanding receivable from the 1#$9 land sale to 0I0F0 and concluded that the sale &as cash and the entire profit should have been ta'able in 1#$9 since the income &as &holly derived in 1#$9. Tua(on and Talon filed their audit report and declared a discrepancy of t&o million% ninetyDfive thousand% nine hundred fifteen )P2%7#5%#15.77* pesos in petitionerHs 1#$9 net income. They recommended deficiency ta' assessment for t&o million% four hundred seventyDthree thousand% si' hundred seventyDthree )P2%:$3%9$3.77* pesos. ISS,E: .hether respondent court erred in finding that petitionerHs income from the sale of land in 1#$9 should be declared as a cash transaction in his ta' return for the same year )because the buyer discounted the promissory note issued to the seller on future installment payments of the sale% on the same day of the sale*/ ,!ING: 0s a general rule% the &hole profit accruing from a sale of property is ta'able as income in the year the sale is made. But% if not all of the sale price is received during such year% and a statute provides that income shall be ta'able in the year in &hich it is
3received%3 the profit from an installment sale is to be apportioned bet&een or among the years in &hich such installments are paid and received. Sec. :3 and Sec. 1$5 says that among the entities &ho may use the aboveD mentioned installment method is a seller of real property &ho disposes his property on installment% provided that the initial payment does not e'ceed 25M of the selling price. They also state &hat may be regarded as installment payment and &hat constitutes initial payment. nitial payment means the payment received in cash or property e'cluding evidences of indebtedness due and payable in subse-uent years% li+e promissory notes or mortgages% given of the purchaser during the ta'able year of sale. nitial payment does not include amounts received by the vendor in the year of sale from the disposition to a third person of notes given by the vendee as part of the purchase price &hich are due and payable in subse-uent years. Such disposition or discounting of receivable is material only as to the computation of the initial payment. f the initial payment is &ithin 25M of total contract price% e'clusive of the proceeds of discounted notes% the sale -ualifies as an installment sale% other&ise it is a deferred sale. 0lthough the proceed of a discounted promissory note is not considered part of the initial payment% it is still ta'able income for the year it &as converted into cash. The subse-uent payments or li-uidation of certificates of indebtedness is reported using the installment method in computing the proportionate income to be returned% during the respective year it &as reali(ed. NonDdealer sales of real or personal property may be reported as income under the installment method provided that the obligation is still outstanding at the close of that year. f the seller disposes the entire installment obligation by discounting the bill or the promissory note% he necessarily must report the balance of the income from the discounting not only income from the initial installment payment. .here an installment obligation is discounted at a ban+ or finance company% a ta'able disposition results% even if the seller guarantees its payment% continues to collect on the installment obligation% or handles repossession of merchandise in case of default. This rule prevails in the Gnited States. Since our income ta' la&s are of 0merican origin% interpretations by 0merican courts an our parallel ta' la&s have persuasive effect on the interpretation of these la&s. Thus% by analogy% all the more &ould a ta'able disposition result &hen the discounting of the promissory note is done by the seller himself. "learly% the indebtedness of the buyer is discharged% &hile the seller ac-uires money for the settlement of his receivables. Fogically then% the income should be reported at the time of the actual gain. Bor income ta' purposes% income is an actual gain or an actual increase of &ealth. 0lthough the proceeds of a discounted promissory note is not considered initial payment% still it must be included as ta'able income on the year it &as converted to cash. .hen petitioner had the promissory notes covering the succeeding installment payments of the land issued by 0I0F0% discounted by 0I0F0 itself% on the same day of the sale% he lost entitlement to report the sale as a sale on installment since% a ta'able disposition resulted and petitioner &as re-uired by la& to report in his returns the income derived from the discounting. .hat petitioner did is tantamount to an attempt to circumvent the rule on payment of income ta'es gained from the sale of the land to 0I0F0 for the year 1#$9. _Saint Louis University School of Law_
Topic: Co5cept o6 Allow4:le .eductio5s: .eductio5 vs. T47 Credit BICO!AN.IA . ,G CO P. vs. CO22ISSIONE O+ INTE NA! G. . No. &$((## 'u5e (() (11/ +ACTS: Petitioner Bicolandia ?rug "orporation is a domestic corporation principally engaged in the retail of pharmaceutical products. Petitioner has a drugstore located in Naga "ity under the name and business style of 3=ercury ?rug.3 Pursuant to the provisions of !.0. No. $:32% entitled 30n 0ct to =a'imi(e the "ontribution of Senior "iti(ens to Nation Building% Crant Benefits and Special Privileges and for >ther Purposes%3 also +no&n as the 3Senior "iti(ens 0ct%3 and !evenue !egulations No. 2D#:% petitioner granted to -ualified senior citi(ens a 27M sales discount on their purchase of medicines covering the period from 6uly 1#% 1##3 to ?ecember 31% 1##:. .hen petitioner filed its corresponding corporate annual income ta' returns for ta'able years 1##3 and 1##:% it claimed as a deduction from its gross income the respective amounts of P;7%337 and P515%777 representing the 27M sales discount it granted to senior citi(ens. >n =arch 2;% 1##5% ho&ever% alleging error in the computation and claiming that the aforementioned 27M sales discount should have been treated as a ta' credit pursuant to !.0. No. $:32 instead of a deduction from gross income% petitioner filed a claim for refund or credit of overpaid income ta' for 1##3 and 1##:% amounting to P52%215 and P33:%$57% respectively. ISS,E: .hether or not the Senior "iti(ens ?iscount is deductible from Cross ncome/ ,!ING: Sec. :.Privileges for the Senior citi(ens. W The senior citi(ens shall be entitled to the follo&ing8 .. the grant of t&enty percent )27M* discount from all establishments relative to utili(ation of transportation services% hotels and similar lodging establishments% restaurants and recreation centers and purchase of medicines any&here in the country8 Provided% That private establishments may claim the cost as ta' credit. The term 3cost3 in the above provision refers to the amount of the 27M discount e'tended by a private establishment to senior citi(ens in their purchase of medicines. This amount shall be applied as a ta' credit% and may be deducted from the ta' liability _Saint Louis University School of Law_ E-EN,E
of the entity concerned. f there is no current ta' due or the establishment reports a net loss for the period% the credit may be carried over to the succeeding ta'able year. This is in line &ith the interpretation of this "ourt in "ommissioner of nternal !evenue v. "entral Fu(on ?rug "orporation &herein it affirmed that !.0. No. $:32 allo&s private establishments to claim as ta' credit the amount of discounts they grant to senior citi(ens. The "ourt notes that petitioner% &hile praying for the reinstatement of the "T0 !esolution% dated ?ecember $% 1##;% directing the issuance of ta' certificates in favor of petitioner for the respective amounts of P:5%5$:.93 and P135%#79.:; representing overpaid income ta' for 1##3 and 1##:% as+s for the refund of the same. n this regard% petitionerEs claim for refund must be denied. The la& e'pressly provides that the discount given to senior citi(ens may be claimed as a ta' credit% and not a refund. Thus% &here the &ords of a statute are clear% plain and free from ambiguity% it must be given its literal meaning and applied &ithout attempted interpretation.
Topic: Ite3iEed .eductio5s:
e4so54:le5ess Test E-EN,E v. GENE A! +OO.S INC.
CO22ISSIONE O+ INTE NA!
G. . No. &$%/0( +ACTS:
April ($) (11%
!espondent corporation% &hich is engaged in the manufacture of beverages such as KTang%L K"alumetL and KSoolD0id%L filed its income ta' return >N 6uly 1:% 1#;5 for the fiscal year ending Bebruary 2;% 1#;5. n said ta' return% respondent corporation claimed as deduction% among other business e'penses% the amount of P#%:91%2:9 for media advertising for KTang.L 2o&ever% on =ay 31% 1#;;% the "ommissioner disallo&ed 57M or P:%$37%923 of the deduction claimed by respondent corporation. "onse-uently% respondent corporation &as assessed deficiency income ta'es in the amount of P2%935% 1:1.:2. The latter filed a motion for reconsideration but the same &as denied. >n September 2#% 1#;#% respondent corporation appealed to the "ourt of Ta' 0ppeals but the appeal &as dismissed for such e'clusions from such a gargantuan e'pense for the advertisement of a singular product is unreasonable. Bor sure such e'penditure &as meant not only to generate present sales but more for future and prospective benefits. 2ence% Kabnormally large e'penditures for advertising are usually to be spread over the period of years during &hich the benefits of the e'penditures are receivedL. 0ggrieved% !espondent "orporation filed a petition for revie& at the "ourt of 0ppeals &hich rendered a decision reversing and setting aside the decision of the "ourt of Ta' 0ppeals8 ISS,E: .hether or not the sub,ect media advertising e'pense for KTangL incurred by respondent corporation &as an ordinary and necessary e'pense fully deductible under the N !"/ ,!ING: t is a governing principle in ta'ation that ta' e'emptions must be construed in strictissimi,uris against the ta'payer and liberally in favor of the ta'ing authority@ and he &ho claims an e'emption must be able to ,ustify his claim by the clearest grant of organic or statute la&. 0n e'emption from the common burden cannot be permitted to e'ist upon vague implications. ?eductions for income ta' purposes parta+e of the nature of ta' e'emptions@ hence% if ta' e'emptions are strictly construed% then deductions must also be strictly construed. Supreme "ourt held that the P#% :91%2:9 claimed as media advertising e'pense for KTangL alone &as almost oneDhalf of its total claim for Kmar+eting e'penses.L t &as almost double the amount of respondent corporationEs P:% 9:7%939 general and administrative e'penses. The "ourt of 0ppeals committed reversible error &hen it declared the sub,ect media advertising e'pense to be deductible as an ordinary and necessary e'pense on the ground that Kit has not been established that the item being claimed as deduction is _Saint Louis University School of Law_
e'cessive.L t is not incumbent upon the ta'ing authority to prove that the amount of items being claimed is unreasonable. The burden of proof to establish the validity of claimed deductions is on the ta'payer. n the present case% that burden &as not discharged satisfactorily.
Topic: Ite3iEed .eductio5s:
e4so54:le5ess Test
C.2. HOS@IN vs. CO22ISSIONE O+ INTE NA! E-EN,E G. No. !-($1"# Nove3:er (*) &#/# +ACTS: The petitioner company is engaged in the real estate business as bro+ers% managing agents and administrators. t &as founded by =r. ".=. 2os+ins &ho o&ned _Saint Louis University School of Law_
##9 shares out of its 1%777 shares. The other : shares &ere o&ned by other officers of the corporation. 0t the time that this controversy arose% 2os+in &as the President% "hairman of the Board of ?irectors% stoc+holder and &as also a salesmanDbro+er of the company &hich entitled him to salaries and bonuses including 57M of the supervision fees that &as collected by the company from its clients )amounting to Php##%#$$.#1*. The " ! disallo&ed the deduction made by the petitioner in its income ta' return of the amount representing the supervision fees. ISS,E: .hether or not the supervision fees distributed by petitioner should be considered as ta'able earnings/ ,!ING: The payment by the ta'payer to its controlling stoc+holder of 57M of its supervision fees is not deductible ordinary and necessary e'pense and should be treated as distribution of earnings and profits of the ta'payer. The amount &as inordinately large. Bonus to employees made in good faith and as additional compensation are deductible% P!>A ?1?% such payment% &hen added to the stipulated salaries% do not e'ceed a reasonable compensation for the services rendered. The conditions precedent to the deduction of bonuses are as follo&s8 )a* the payment of the bonuses is in fact compensation@ )b* it must be for personal services actually rendered@ and )c* the bonuses% &hen added to the salaries% are reasonable. 0lthough thereEs no fi'ed test in determining &hat is reasonable% some tests used are as follo&s8 0mount and -uality of the services performed@ ii. Cood faith@ iii. "haracter of the ta'payerEs business@ iv. Aolume and amount of its earnings@ v. locality% type and e'tent of the services rendered@ vi. Salary policy@ vii.Si(e of the business@ viii.1mployeeEs -ualifications and contributions to the business@ and i'.Ceneral economic condition. Bor income ta' purposes% the employer cannot legally such bonuses as deductible unless they are sho&n to be reasonable. The -uestion of allo&ing or disallo&ing as deductible e'penses the amounts paid to corporate officers by &ay of bonus is determined by the " ! e'clusively for income ta' purposes. 0lthough admittedly% it is the corporationEs discretion to fi' the amounts to be paid to its corporate officers% this right is N>T absolute. t cannot be used for the purpose of evading payment of ta'es. The corporation &as practically of a sole proprietorship of 2os+in. 2os+in had virtually absolute control of the company and as he has chosen to conduct his business as a corporation% he has also bound himself &ith the corporate norms and obligations.
2e is bound to pay income ta' imposed on corporations and may not diminish his ta' liability by &ay of corporate resolutions authori(ing payment of inordinately large commissions and fees to its controlling stoc+holder.
Topic: Ite3iEed .eductio5s: Su:st45ti4tio5
ule 45d Co945
ule E-EN,E
GANCA;CO vs. CO22ISSIONE O+ INTE NA! &SC A#*1 +ACTS:
>n =ay 17% 1#57% Cancayco filed his income ta' return for the year 1#:#. T&o days later% respondent "ollector of nternal !evenue issued the corresponding notice advising him that his income ta' liability for that year amounted P#% $#3.92% &hich he paid on =ay 15% 1#57. 0 year later% on =ay 1:% 1#51% respondent &rote the communication% notifying Cancayco% inter alia% that% upon investigation% there &as still due from him% a defficiency income ta' for the year 1#:#% the sum of P2#% 55:.75. Cancayco sought a reconsideration% &hich &as partly granted by respondent% &ho in a letter dated 0pril ;% 1#53 informed petitioner that his income ta' defficiency for 1#:# _Saint Louis University School of Law_
amounted to P19% ;97.31. Cancayco urged reconsideration but no action ta+en on this re-uest% although he had sent several communications calling respondentHs attention thereto. >n 0pril 15% 1#59% respondent issued a &arrant of distraint and levy against the properties of Cancayco for the satisfaction of his deficiency income ta' liability% and accordingly% the municipal treasurer of "atanauan% Rue(on issued on =ay 2#% 1#59% a notice of sale of said property at public auction on 6une 1#% 1#59. Gpon petition of Cancayco filed on 6une 19% 1#59% the "ourt of Ta' 0ppeal issued a resolution ordering the cancellation of the sale and directing that the same be readvertised at a future date% in accordance &ith the procedure established by the National nternal !evenue "ode. Thereafter Cancayco received from the municipal treasurer of "atanauan% Rue(on% another notice of auction sale of his properties% to ta+e place on 0ugust 2#% 1#59. >n motion of Cancayco% the "ourt of Ta' 0ppeals% by resolution dated 0ugust 2$% 1#59% 3cancelled3 the aforementioned sale and en,oined respondent and the municipal treasurer of "atanauan% Rue(on% from proceeding &ith the same. 0fter appropriate proceedings% the "ourt of Ta' 0ppeals rendered% on November 1:% 1#5$% the decision re-uiring him to pay P19%;97.31% plus surcharge and interest% by &ay of deficiency income ta' for the year 1#:#. ISS,E8 .hether or not Cancayco is entitled to a deduction from his ta'able gross income/ ,!ING: N>% deductions are e'penses and losses incurred in connection &ith the reali(ation of gross income. ?eductions are +inds of legislative grace and allo&able by reason of specific provisions and not presumed. Gnder the SGBST0NT 0T >N ?>"T! N1% all business e'pense deductions must be substantiated &ith8 a* receipts or ade-uate record@ b* amount of e'pense@ c* date -nd place of e'pense@ d* purpose of e'pense@ and e* professional or business relationship e'penses. !eferring to the item of P2$%:5#% for farming e'penses allegedly incurred by Cancayco% there &as no evidence has been presented as to the nature of the said 3farming e'penses3 other than the bare statement of petitioner that they &ere spent for the 3development and cultivation of )his* property3. No specification has been made as to the actual amount spent for purchase of tools% e-uipment or materials% or the amount spent for improvement. !espondent claims that the entire amount &as spent e'clusively for clearing and developing the farm &hich &ere necessary to place it in a productive state. t is not% therefore% an ordinary e'pense but a capital e'penditure. 0ccordingly% it is not deductible but it may be amorti(ed% in accordance &ith section $5 of !evenue !egulations No. 2% Section 31 of the !evenue "ode &hich provides that in computing net income% no deduction shall in any case be allo&ed in respect of any amount paid out _Saint Louis University School of Law_
for ne& buildings or for permanent improvements% or betterments made to increase the value of any property or estate. n representation e'pense% it must be ordinary% reasonable and necessary@ must be directly connected or related to or in furtherance of the conduct of his trade% business or e'ercise of profession@ it must not be contrary to la&% morals% public policy or public order@ it must not e'ceed the ceiling that must be prescribed by the Sec. of Binance and must be supported by official receipts and ade-uate records. CancaycoHs claim for representation e'penses aggregated P31% $53.#$% of &hich P22% ;27.52 &as allo&ed% and P;% #33.:5 disallo&ed. Such disallo&ance is ,ustified by the record% for% apart from the absence of receipts% invoices or vouchers of the e'penditures in -uestion% petitioner could not specify the items constituting the same% or &hen or on &hom or on &hat they &ere incurred. The case of "ohan v. "ommissioner% 3# B )2d* 5:7% cited by petitioner is not in point% because in that case there &as evidence on the amounts spent and the persons entertained and the necessity of entertaining them% although there &ere no receipts and vouchers of the e'penditures involved therein. Such is not the case of petitioner herein.
Topic: I5terests: I5terest o5 T47 .eli5Due5cies CO22ISSIONE O+ INTE NA! E-EN,E -S.ITOGON-S,;OC 2INES) INC G. No. !-("(## ',!; (#) &#/# +ACTS: !espondent corporation paid the mount of Php 13%155.27 as first installment on its reported income ta' liability for the fiscal year 1#5#D1#97. But it turned out that instead of deriving a net gain% it sustained a net loss during the said fiscal year. 0ccordingly% it filed an amended income ta' return and a claim for the refund of the sum of Php 13%155.27% &hich sum it subse-uently deducted from its income ta' liability for the succeeding fiscal year 1#97D1#91. 2o&ever% petitioner charged respondent an interest in the amount of Php 1%512.;3 on the ground that no deduction on such refund should be allo&ed before its approval. Such assessment representing interest &as nevertheless set aside in the decision of the "ourt of Ta' 0ppeals. ISS,E: .hether or not respondent corporation should not be absolved from liability to pay the sum of Php 1%512.;3 for delin-uency in the payment of income ta' for the fiscal year 1#97D1#91/ !GF NC8 _Saint Louis University School of Law_
The imposition of interest on the sum of Php 1%512.;3 by petitioner is not supported by la&. The National nternal !evenue "ode provides that interest upon the amount determined as a deficiency shall be assessed and shall be paid upon notice and demand from the "ommissioner of nternal !evenue at the rate therein specified. t is made clear ho&ever% in an earlier provision found in the same section that if in any preceding year% the ta'payer &as entitled to a refund of any amount due as ta'% such amount% if not yet refunded% may be deducted from the ta' to be paid. !espondent &as entitled to a refund. nstead of &aiting for the sum involved to be delivered to it% it deducted the said amount from the ta' that it had to pay. That it had a right to do according to the la&. .hat is sought to be avoided is for the ta'payer to ma+e use of funds that should have been paid to the government. 2ere% in vie& of the overpayment for the fiscal year 1#5#D1#97% the sum of Php 13%155.27 had already formed part of the public funds. t cannot be said therefore% that respondent ta'payer &as guilty of any delay enabling it to utili(e a sum of money that should have been in the government treasury.
Topic: Ordi54ry Assets vs. C4pit4l Assets CHINA BAN@ING CO PO ATION vs. CO, T O+ APPEA!S G. . No. &(""1* 'uly &#) (111 +ACTS: Sometime in 1#;7% petitioner "hina Ban+ing "orporation made a 53M e-uity investment in the Birst "B" "apital Ftd.% a 2ong+ong subsidiary engaged in financing and investment &ith 3depositDta+ing3 function. The investment amounted to P19%22$%;51.;7% consisting of 179%777 shares &ith a par Aalue of P177 per share. n the course of the regular e'amination of the financial boo+s and investment portfolios of petitioner conducted by Bang+oSentral in 1#;9% it &as sho&n that Birst "B" "apital Ftd.% has become insolvent. .ith the approval of Bang+oSentral% petitioner &roteDoff as being &orthless its investment in Birst "B" "apital Ftd.% in its 1#;$ ncome Ta' !eturn and treated it as a bad debt or as an ordinary loss deductible from its gross income. !espondent "ommissioner of internal !evenue disallo&ed the deduction and assessed petitioner for income ta' deficiency in the amount of P;%533%32;.7:% inclusive of surcharge% interest and compromise penalty. The disallo&ance of the deduction &as made on the ground that the investment should not be classified as being 3&orthless3 and that% although the 2ong+ong Ban+ing "ommissioner had revo+ed the license of Birst "B" "apital as a 3depositDtaping3 company% the latter could still e'ercise% ho&ever% its financing and investment activities. 0ssuming that the securities had indeed become &orthless% respondent "ommissioner of nternal !evenue held the vie& that they should then be classified as 3capital loss%3 and not as a bad debt e'pense there being no indebtedness to spea+ of bet&een petitioner and its subsidiary. _Saint Louis University School of Law_
Petitioner contested the ruling of respondent "ommissioner before the "T0. The ta' court sustained the "ommissioner% holding that the securities had not indeed become &orthless and ordered petitioner to pay its deficiency income ta' for 1#;$ of P;%533%32;.7: plus 27M interest per annum until fully paid. .hen the decision &as appealed to the "ourt of 0ppeals% the latter upheld the "T0. n its instant petition for revie& on certiorari% petitioner ban+ assails the "0 decision. ISS,E: .hether or not an e-uity investment is a capital asset/ ,!ING: 0n e-uity investment is a capital% not ordinary% asset of the investor the sale or e'change of &hich results in either a capital gain or a capital loss. The gain or the loss is ordinary &hen the property sold or e'changed is not a capital asset. 0 capital asset is defined negatively in Section 33)1* of the N !"@ vi(8 "apital assets. D The term Hcapital assetsH means property held by the ta'payer )&hether or not connected &ith his trade or business*% but does not include stoc+ in trade of the ta'payer or other property of a +ind &hich &ould properly be included in the inventory of the ta'payer if on hand at the close of the ta'able year% or property held by the ta'payer primarily for sale to customers in the ordinary course of his trade or business% or property used in the trade or business% of a character &hich is sub,ect to the allo&ance for depreciation provided in subsection )f* of section t&entyDnine@ or real property used in the trade or business of the ta'payer.L 0 capital gain or a capital loss normally re-uires the concurrence of t&o conditions for it to result8 )1* There is a sale or e'change@ and )2* the thing sold or e'changed is a capital asset. .hen securities become &orthless% there is strictly no sale or e'change but the la& deems the loss any&ay to be 3a loss from the sale or e'change of capital assets.L0 similar +ind of treatment is given% by the N !" on the retirement of certificates of indebtedness &ith interest coupons or in registered form% short sales and options to buy or sell property &here no sale or e'change strictly e'ists.495 n these cases% the N !" dispenses% in effect% &ith the standard re-uirement of a sale or e'change for the application of the capital gain and loss provisions of the code. "apital losses are allo&ed to be deducted only to the e'tent of capital gains% i.e.% gains derived from the sale or e'change of capital assets% and not from any other income of the ta'payer. n the case at bar% Birst "B" "apital % Ftd.% the investee corporation% is a subsidiary corporation of petitioner ban+ &hose shares in said investee corporation are not intended for purchase or sale but as an investment. Gn-uestionably then% any loss therefrom &ould be a capital loss% not an ordinary loss% to the investor. To sum things up% the e-uity investment in shares of stoc+ held by "B" of appro'imately 53M in its 2ong+ong subsidiary% the Birst "B" "apital% Ftd.% is not an indebtedness% and it is a capital% not an ordinary% asset. 0ssuming that the e-uity investment of "B" has indeed become 3&orthless%3 the loss sustained is a capital% not an ordinary% loss. The capital loss sustained by "B" can only be deducted from capital gains if any derived by it during the same ta'able year that the securities have become 3&orthless.3
Topic: I5st4ll3e5t S4les vs. .e6erred S4les BANAS vs. CO, T O+ APPEA!S G. No. &1(#/0 +e:ru4ry &1) (111 +ACTS: n the succeeding years% until 1#$#% petitioner reported a uniform income of t&o hundred thirty thousand% eight hundred seventyDseven )P237%;$$.77* pesos as gain from sale of capital asset. n his 1#;7 income ta' amnesty return% petitioner also reported the same amount of P237%;$$.77 as the reali(ed gain on disposition of capital asset for the year. >n 0pril 11% 1#$;% then !evenue ?irector =auro "alaguio authori(ed ta' e'aminers% !odolfo Tua(on and Procopio Talon to e'amine the boo+s and records of petitioner for the year 1#$9. They discovered that petitioner had no outstanding receivable from the 1#$9 land sale to 0I0F0 and concluded that the sale &as cash and the entire profit should have been ta'able in 1#$9 since the income &as &holly derived in 1#$9. Tua(on and Talon filed their audit report and declared a discrepancy of t&o million% ninetyDfive thousand% nine hundred fifteen )P2%7#5%#15.77* pesos in petitionerHs 1#$9 net income. They recommended deficiency ta' assessment for t&o million% four hundred seventyDthree thousand% si' hundred seventyDthree )P2%:$3%9$3.77* pesos. ISS,E: .hether respondent court erred in finding that petitionerHs income from the sale of land in 1#$9 should be declared as a cash transaction in his ta' return for the same year/ ,!ING: 0s a general rule% the &hole profit accruing from a sale of property is ta'able as income in the year the sale is made. But% if not all of the sale price is received during such year% and a statute provides that income shall be ta'able in the year in &hich it is
3received%3 the profit from an installment sale is to be apportioned bet&een or among the years in &hich such installments are paid and received. Sec. :3 and Sec. 1$5 says that among the entities &ho may use the aboveD mentioned installment method is a seller of real property &ho disposes his property on installment% provided that the initial payment does not e'ceed 25M of the selling price. They also state &hat may be regarded as installment payment and &hat constitutes initial payment. nitial payment means the payment received in cash or property e'cluding evidences of indebtedness due and payable in subse-uent years% li+e promissory notes or mortgages% given of the purchaser during the ta'able year of sale. nitial payment does not include amounts received by the vendor in the year of sale from the disposition to a third person of notes given by the vendee as part of the purchase price &hich are due and payable in subse-uent years. Such disposition or discounting of receivable is material only as to the computation of the initial payment. f the initial payment is &ithin 25M of total contract price% e'clusive of the proceeds of discounted notes% the sale -ualifies as an installment sale% other&ise it is a deferred sale. 0lthough the proceed of a discounted promissory note is not considered part of the initial payment% it is still ta'able income for the year it &as converted into cash. The subse-uent payments or li-uidation of certificates of indebtedness is reported using the installment method in computing the proportionate income to be returned% during the respective year it &as reali(ed. NonDdealer sales of real or personal property may be reported as income under the installment method provided that the obligation is still outstanding at the close of that year. f the seller disposes the entire installment obligation by discounting the bill or the promissory note% he necessarily must report the balance of the income from the discounting not only income from the initial installment payment. .here an installment obligation is discounted at a ban+ or finance company% a ta'able disposition results% even if the seller guarantees its payment% continues to collect on the installment obligation% or handles repossession of merchandise in case of default. This rule prevails in the Gnited States. Since our income ta' la&s are of 0merican origin% interpretations by 0merican courts an our parallel ta' la&s have persuasive effect on the interpretation of these la&s. Thus% by analogy% all the more &ould a ta'able disposition result &hen the discounting of the promissory note is done by the seller himself. "learly% the indebtedness of the buyer is discharged% &hile the seller ac-uires money for the settlement of his receivables. Fogically then% the income should be reported at the time of the actual gain. Bor income ta' purposes% income is an actual gain or an actual increase of &ealth. 0lthough the proceeds of a discounted promissory note is not considered initial payment% still it must be included as ta'able income on the year it &as converted to cash. .hen petitioner had the promissory notes covering the succeeding installment payments of the land issued by 0I0F0% discounted by 0I0F0 itself% on the same day of the sale% he lost entitlement to report the sale as a sale on installment since% a ta'able disposition resulted and petitioner &as re-uired by la& to report in his returns the income derived from the discounting. .hat petitioner did is tantamount to an attempt to circumvent the rule on payment of income ta'es gained from the sale of the land to 0I0F0 for the year 1#$9.
Topic: T9e Tests Applied to P4rt5ers9ip) Co-ow5ers9ips 45d Est4tes A+ISCO INS, ANCE CO PO ATION vs. CO, T O+ APPEA!S G. . No. &&(/0" '45u4ry (") &### +ACTS: The petitioners are :1 nonDlife insurance corporations% organi(ed and e'isting under the la&s of the Philippines. Gpon issuance by them of 1rection% =achinery Brea+do&n% Boiler 1'plosion and "ontractorsH 0ll !is+ insurance policies% the petitioners on 0ugust 1% 1#95 entered into a Ruota Share !einsurance Treaty and a Surplus !einsurance Treaty &ith the =unchener!uc+versicherungsDCesselschaft % a nonD resident foreign insurance corporation. The reinsurance treaties re-uired petitioners to form a pool. 0ccordingly% a pool composed of the petitioners &as formed on the same day. >n 0pril 1:% 1#$9% the pool of machinery insurers submitted a financial statement and filed an 3 nformation !eturn of >rgani(ation 1'empt from ncome Ta'3 for the year ending in 1#$5% on the basis of &hich it &as assessed by the "ommissioner of nternal !evenue deficiency corporate ta'es in the amount of P1%;:3%2$3.97% and &ithholding ta'es in the amount of P1%$9;%$##.3# and P;#%:3;.9; on dividends paid to =unich and to the petitioners% respectively. These assessments &ere protested by the petitioners through its auditors Sycip% Corres% Aelayo and "o. >n 6anuary 2$% 1#;9% the "ommissioner of nternal !evenue denied the protest and ordered the petitioners% assessed as 3Pool of =achinery nsurers%3 to pay deficiency income ta'% interest% and &ith holding ta'. ISS,E: .hether or not the remittances to petitioners and =GN "2!1 of their respective shares of reinsurance premiums% pertaining to their individual and separate contracts of reinsurance% &ere 3dividends3 sub,ect to ta'/ ,!ING: I1S. n the instant case% the pool is a ta'able entity distinct from the individual corporate entities of the ceding companies. The ta' on its income is obviously different from the ta' on the dividends received by the said companies. "learly% there is no double ta'ation here. The ta' e'emptions claimed by petitioners cannot be granted% since their entitlement thereto remains unproven and unsubstantiated. t is a'iomatic in the la& of ta'ation that _Saint Louis University School of Law_
ta'es are the lifeblood of the nation. 2ence% 3e'emptions therefrom are highly disfavored in la& and he &ho claims ta' e'emption must be able to ,ustify his claim or right.3 Petitioners have failed to discharge this burden of proof. The sections of the 1#$$ N !" &hich they cite are inapplicable% because these &ere not yet in effect &hen the income &as earned and &hen the sub,ect information return for the year ending 1#$5 &as filed. !eferring% to the 1#$5 version of the counterpart sections of the N !"% the "ourt still cannot ,ustify the e'emptions claimed. Section 255 provides that no ta' shall 3. . . be paid upon reinsurance by any company that has already paid the ta' . . .3 This cannot be applied to the present case because% as previously discussed% the pool is a ta'able entity distinct from the ceding companies@ therefore% the latter cannot individually claim the income ta' paid by the former as their o&n. >n the other hand% Section 2: )b* )1* pertains to ta' on foreign corporations@ hence% it cannot be claimed by the ceding companies &hich are domestic corporations. Nor can =unich% a foreign corporation% be granted e'emption based solely on this provision of the Ta' "ode% because the same subsection specifically ta'es dividends% the type of remittances for&arded to it by the pool. 0lthough not a signatory to the Pool 0greement% =unich is patently an associate of the ceding companies in the entity formed% pursuant to their reinsurance treaties &hich re-uired the creation of said pool. Gnder its pool arrangement &ith the ceding companies@ =unich shared in their income and loss. This is manifest from a reading of 0rticle 3 and 17 of the RuotaDShare !einsurance treaty and 0rticles 3 and 17 of the Surplus !einsurance Treaty. The foregoing interpretation of Section 2: )b* )1* is in line &ith the doctrine that a ta' e'emption must be construed strictissimi,uris% and the statutory e'emption claimed must be e'pressed in a language too plain to be mista+en. Binally the petitionersH claim that =unich is ta'De'empt based on the !PD .est Cerman Ta' Treaty is li+e&ise unpersuasive% because the internal revenue commissioner assessed the pool for corporate ta'es on the basis of the information return it had submitted for the year ending 1#$5% a ta'able year &hen said treaty &as not yet in effect. 5: 0lthough petitioners omitted in their pleadings the date of effectivity of the treaty% the "ourt ta+es ,udicial notice that it too+ effect only later% on ?ecember 1:% 1#;:.
Topic: T9e Tests Applied to P4rt5ers9ip) Co-ow5ers9ips 45d Est4tes E-ANGE!ISTA) vs. CO22ISSIONE O+ INTE NA! G. . No. !-###/ Octo:er &") &#"0 E-EN,E
+ACTS: Petitioners &ere engaged in realty business% renting and leasing properties they have bought. >n September 2:% 1#5: respondent "ollector of nternal !evenue demanded the payment of income ta' on corporations% real estate dealerHs fi'ed ta' and corporation residence ta' for the years 1#:5D1#:#% Said letter of demand and corresponding assessments &ere delivered to petitioners on ?ecember 3% 1#5:% &hereupon they instituted the present case in the "ourt of Ta' 0ppeals% &ith a prayer that 3the decision of the respondent contained in his letter of demand dated September 2:% 1#5:3 be reversed% and that they be absolved from the payment of the ta'es in -uestion% &ith costs against the respondent. ISS,E: .hether petitioners are sub,ect to the ta' on corporations provided for in section 2: of "ommon&ealth 0ct. No. :99% other&ise +no&n as the National nternal !evenue "ode% as &ell as to the residence ta' for corporations and the real estate dealers fi'ed ta'/ !GF NC8 0rticle 1$9$ of the "ivil "ode of the Philippines provides8 By the contract of partnership t&o or more persons bind themselves to contribute money% properly% or industry to a common fund% &ith the intention of dividing the profits among themselves. Pursuant to the article% the essential elements of a partnership are t&o% namely8 )a* an agreement to contribute money% property or industry to a common fund@ and )b* intent to divide the profits among the contracting parties. The first element is undoubtedly present in the case at bar% for% admittedly% petitioners have agreed to% and did% contribute money and property to a common fund. 2ence% the issue narro&s do&n to their intent in acting as they did. Gpon consideration of all the facts and circumstances surrounding the case% the court is fully satisfied that their purpose &as to engage in real estate transactions for monetary gain and then divide the same among themselves. 0lthough% ta+en singly% they might not suffice to establish the intent necessary to constitute a partnership% the collective effect of these circumstances is such as to leave no room for doubt on the e'istence of said intent in petitioners herein. >nly one or t&o of the aforementioned circumstances &ere present in the cases cited by petitioners herein% and% hence% those cases are not in point. Petitioners insist% ho&ever% that they are mere coDo&ners% not copartners% for% in conse-uence of the acts performed by them% a legal entity% &ith a personality independent of that of its members% did not come into e'istence% and some of the characteristics of partnerships are lac+ing in the case at bar. This pretense &as correctly re,ected by the "ourt of Ta' 0ppeals. Section 2: of said "ode e'empts from the aforementioned ta' 3duly registered general partnerships &hich constitute precisely one of the most typical forms of partnerships in _Saint Louis University School of Law_
this ,urisdiction. Fi+e&ise% as defined in section ;:)b* of said "ode% 3the term corporation includes partnerships% no matter ho& created or organi(ed.3 This -ualifying e'pression clearly indicates that a ,oint venture need not be underta+en in any of the standard forms% or in conformity &ith the usual re-uirements of the la& on partnerships% in order that one could be deemed constituted for purposes of the ta' on corporations. 0gain% pursuant to said section ;:)b*% the term 3corporation3 includes% among other% ,oint accounts% and 3associations%3 none of &hich has a legal personality of its o&n% independent of that of its members. Bor purposes of the ta' on corporations% our National nternal !evenue "ode% includes these partnerships J &ith the e'ception only of duly registered general copartnerships J &ithin the purvie& of the term 3corporation.3 t is% therefore% clear to our mind that petitioners herein constitute a partnership% insofar as said "ode is concerned and are sub,ect to the income ta' for corporations. 0s regards the residence of ta' for corporations% section 2 of "ommon&ealth 0ct No. :95 provides in part8 1ntities liable to residence ta'.D1very corporation% no matter ho& created or organi(ed% &hether domestic or resident foreign% engaged in or doing business in the Philippines shall pay an annual residence ta' of five pesos and an annual additional ta' &hich in no case% shall e'ceed one thousand pesos% in accordance &ith the follo&ing schedule8 . . . The term HcorporationH as used in this 0ct includes ,ointDstoc+ company% partnership% ,oint account%association or insurance company% no matter ho& created or organi(ed. "onsidering that the pertinent part of this provision is analogous to that of section 2: and ;: )b* of our National nternal !evenue "ode )common&ealth 0ct No. :99*% and that the latter &as approved on 6une 15% 1#3#% the day immediately after the approval of said "ommon&ealth 0ct No. :95 )6une 1:% 1#3#*% it is apparent that the terms 3corporation3 and 3partnership3 are used in both statutes &ith substantially the same meaning. "onse-uently% petitioners are sub,ect% also% to the residence ta' for corporations. Fastly% the records sho& that petitioners have habitually engaged in leasing the properties above mentioned for a period of over t&elve years% and that the yearly gross rentals of said properties from 6une 1#:5 to 1#:; ranged from P#%5## to P1$%:53. Thus% they are sub,ect to the ta' provided in section 1#3 )-* of our National nternal !evenue "ode% for 3real estate dealers%3 inasmuch as% pursuant to section 1#: )s* thereof8 H!eal estate dealerH includes any person engaged in the business of buying% selling% e'changing% leasing% or renting property or his o&n account as principal and holding himself out as a full or part time dealer in real estate or as an o&ner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year. Topic: ules 4pplic4:le to P4ssive I5co3e: T47 Sp4ri5= ule
CO22ISSIONE O+ INTE NA! E-EN,E vs. P OCTE 8 GA2B!E PHI!IPPINES G. . No. !-//*%* April &") &#** +ACTS:
Procter and Camble Philippines is a &holly o&ned subsidiary of Procter and Camble GS0 )P="DGS0*% a nonDresident foreign corporation in the Philippines% not engaged in trade and business therein. P="DGS0 is the sole shareholder of P=" Philippines and is entitled to receive income from P=" Philippines in the form of dividends% if not rents or royalties. Bor the ta'able years 1#$: and 1#$5% P=" Philippines filed its income ta' return and also declared dividends in favor of P="DGS0. n 1#$$% P=" Philippines% invo+ing the ta'Dsparing provision of Section 2: )b* as the &ithholding agent of the Philippine Covernment &ith respect to dividend ta'es paid by P="DGS0% filed a claim for the refund of 27 percentage point portion of the 35 percentage &hole ta' paid &ith the "ommissioner of nternal !evenue. ISS,E: .hether P=" Philippines is entitled to the 15M preferential ta' rate on dividends declared and remitted to its parent corporation/ ,!ING: The issue raised is one made for the first time before the Supreme "ourt. Gnder the same underlying principle of prior e'haustion of administrative remedies% on the ,udicial level% issues not raised in the lo&er court cannot be generally raised for the first time on appeal. Nonetheless% it is a'iomatic that the state can never be allo&ed to ,eopardi(e the governmentEs financial position. The submission of the "ommissioner that P=" Philippines is but a &ithholding agent of the government and therefore cannot claim reimbursement of alleged overpaid ta'es% is completely meritorious. The real party in interest is P="DGS0% &hich should prove that it is entitled under the GS Ta' "ode to a GS Boreign Ta' "redit e-uivalent to at least 27 percentage points spared or &aived as other&ise considered or deemed paid by the Covernment. 2erein% the claimant failed to sho& or ,ustify the ta' return of the disputed 15M as it failed to sho& the actual amount credited by the GS Covernment against the income ta' due from P="DGS0 on the dividends received from P=" Philippines@ to present the income ta' return of P="DGS0 for 1#$5 &hen the dividends &ere received@ and to submit duly authenticated document sho&ing that the GS government credited the 27M ta' deemed paid in the Philippines.
Topic: I3properly Accu3ul4ted E4r5i5=s T47 C;ANA2I. PHI!IPPINES) INC. vs. CO, T O+ APPEA!S G No. &1*1/0 '45u4ry (1) (111 +ACTS: Petitioner is a domestic corporation and is a &holly o&ned subsidiary of 0merican "yanamid "o. based in =aine% GS0. t is engaged in the manufacture of pharmaceutical products and chemicals% a &holesaler of imported finished goods% and an importer<indentor.
>n Bebruary $% 1#;5% the " ! sent an assessment letter to petitioner and demanded the payment of deficiency income ta' for ta'able year 1#;1. Petitioner% through its e'ternal accountant% Sycip% Corres% AelayoT "o.% claimed% among others% that the surta')25MD 3.$=* for the undue accumulation of earnings &as not proper because the said profits &ere retained to increase petitionerEs &or+ing capital and it &ould be used for reasonable business needs of the company. Petitioner contended that it availed of the ta' amnesty under 1'ecutive >rder No. :1% hence en,oyed amnesty from civil and criminal prosecution granted by the la&. " ! refused to allo& the cancellation of the assessment notices. t stated that the amnesty applies only to assessments issued after 0ugust 21% 1#;9. n the instant case% the assessment &as issued on 6anuary 37% 1#;5. Petitioner appealed to "T0. ?uring the pendency of the case% ho&ever% both parties agreed to compromise the 1#;1 deficiency income ta' assessment. Petitioner paid a reduced amount as compromise settlement. 2o&ever% the surta' on improperly accumulated profits remained unresolved. Petitioner claimed that " !Es assessment representing the 25M surta' on its accumulated earnings for the year 1#;1 had no legal basis for the follo&ing reasons8 )a* petitioner accumulated its earnings and profits for reasonable business re-uirements to meet &or+ing capital needs and retirement of indebtedness@ )b* petitioner is a &holly o&ned subsidiary of 0merican "yanamid "ompany% a corporation organi(ed under the la&s of the State of =aine% GS0% &hose shares of stoc+ are listed and traded in Ne& Ior+ Stoc+ 1'change. This being the case% no individual shareholder of petitioner could have evaded or prevented the imposition of individual income ta'es by petitionerEs accumulation of earnings and profits% instead of distribution of the same. "T0 denied the petition. "0 affirmed "T0% hence the petition. ISS,E: s the petitioner liable to the surta' on accumulated earnings/ ,!ING: Ies. Section 25 of the old National nternal !evenue "ode of 1#$$ states8 3Sec. 25. 0dditional ta' on corporation improperly accumulating profits or surplus D 3)a* mposition of ta'. DD f any corporation is formed or availed of for the purpose of preventing the imposition of the ta' upon its shareholders or members or the shareholders or members of another corporation% through the medium of permitting its gains and profits to accumulate instead of being divided or distributed% there is levied and assessed against such corporation% for each ta'able year% a ta' e-ual to t&entyDfive perDcentum of the undistributed portion of its accumulated profits or surplus &hich shall be in addition to the ta' imposed by section t&entyDfour% and shall be computed% collected and paid in the same manner and sub,ect to the same provisions of la&% including penalties% as that ta'. 3)b* Prima facie evidence. DD The fact that any corporation is mere holding company shall be prima facie evidence of a purpose to avoid the ta' upon its shareholders or members. Similar presumption &ill lie in the case of an investment company &here at any time during the ta'able year more than fifty per centum in value of its outstanding stoc+ is o&ned% directly or indirectly% by one person.
3)c* 1vidence determinative of purpose. DD The fact that the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the ta' upon its shareholders or members unless the corporation% by clear preponderance of evidence% shall prove the contrary. 3)d* 1'ception DD The provisions of this sections shall not apply to ban+s% nonD ban+ financial intermediaries% corporation organi(ed primarily% and authori(ed by the "entral Ban+ of the Philippines to hold shares of stoc+ of ban+s% insurance companies% &hether domestic or foreign. The provision discouraged ta' avoidance through corporate surplus accumulation. .hen corporations do not declare dividends% income ta'es are not paid on the undeclared dividends received by the shareholders. The ta' on improper accumulation of surplus is essentially a penalty ta' designed to compel corporations to distribute earnings so that the said earnings by shareholders could% in turn% be ta'ed. 0s of 1#;1 the &or+ing capital of "yanamid &as P25%$$9%##1.77% or more than t&ice its current liabilities. That current ratio of "yanamid% therefore% pro,ects ade-uacy in &or+ing capital. Said &or+ing capital &as e'pected to increase further &hen more funds &ere generated from the succeeding yearEs sales. 0vailable income covered e'penses or indebtedness for that year% and there appeared no reason to e'pect an impending X&or+ing capital deficitE &hich could have necessitated an increase in &or+ing capital% as rationali(ed by petitioner. n order to determine &hether profits are accumulated for the reasonable needs of the business to avoid the surta' upon shareholders% it must be sho&n that the controlling intention of the ta'payer is manifested at the time of accumulation% not intentions declared subse-uently% &hich are mere afterthoughts. Burthermore% the accumulated profits must be used &ithin a reasonable time after the close of the ta'able year. n the instant case% petitioner did not establish% by clear and convincing evidence% that such accumulation of profit &as for the immediate needs of the business. 2ence% the findings of " ! are sustained. Gnless rebutted% all presumptions generally are indulged in favor of the correctness of the " !Es assessment against the ta'payer. Topic: Speci4l Corpor4tio5s: Gross P9ilippi5e Billi5=s B ITISH O-E SEAS AI ?A;S CO P. vs. CO22ISSIONE O+ INTE NA! E-EN,E G. . Nos. !-/"00%-0$ April %1) &#*0 +ACTS: B>0" is a 177M British CovernmentDo&ned corporation organi(ed and e'isting under the la&s of the Gnited Singdom. t is engaged in the international airline business and is a memberDsignatory of the nterline 0ir Transport 0ssociation. 0s such% it operates air transportation service and sells transportation tic+ets over the routes of the other airline members. ?uring the periods covered by the disputed assessments% it is admitted that B>0" had no landing rights for traffic purposes in the Philippines% and &as not granted a "ertificate of public convenience and necessity to operate in the Philippines by the "ivil 0eronautics Board% e'cept for a nineDmonth period% partly in 1#91 and partly in 1#92% &hen it &as granted a temporary landing permit by the "0B. _Saint Louis University School of Law_
"onse-uently% it did not carry passengers and<or cargo to or from the Philippines% although during the period covered by the assessments% it maintained a general sales agent in the Philippines DDDD .arner Barnes and "ompany% Ftd.% and later Rantas 0ir&ays DDDD &hich &as responsible for selling B>0" tic+ets covering passengers and cargoes. >n $ =ay 1#9;% petitioner "ommissioner of nternal !evenue assessed B>0" the aggregate amount of P2%:#;%35;.59 for deficiency income ta'es covering the years 1#5# to 1#93. This &as protested by B>0". Subse-uent investigation resulted in the issuance of a ne& assessment% dated 19 6anuary 1#$7 for the years 1#5# to 1#9$ in the amount of P;5;%37$.$#. B>0" paid this ne& assessment under protest. B>0" filed a claim for refund of the amount of P;5;%37$.$#% &hich claim &as denied by the " ! on 19 Bebruary 1#$2. But before said denial% B>0" had already filed a petition for revie& &ith the Ta' "ourt on 2$ 6anuary 1#$2% assailing the assessment and praying for the refund of the amount paid. ISS,E: .hether the British >verseas 0ir&ays "orporation% a foreign airline company &hich does not maintain any flight operations to and from the Philippines% is liable for Philippine income ta'ation in respect of 3sales of air tic+ets3 in the Philippines through a general sales agent% relating to the carriage of passengers and cargo bet&een t&o points both outside the Philippines/ ,!ING: 0 3resident foreign corporation3 or a foreign corporation engaged in trade or business in the Philippines or having an office or place of business in the Philippines is sub,ect to Philippine income ta'ation only in respect of income derived from sources &ithin the Philippines. Section 2: )b* )2* of the National nternal !evenue "ode as amended by !epublic 0ct No. 23:3% approved 27 6une 1#5#% as it e'isted up to 3 0ugust 1#9#. "learly% &hether the foreign corporate ta'payer is doing business in the Philippines and therefore a resident foreign corporation% or not doing business in the Philippines and therefore a nonDresident foreign corporation% it is liable to income ta' only to the e'tent that it derives income from sources &ithin the Philippines. The circumstance that a foreign corporation is resident in the Philippines yields no inference that all or any part of its income is Philippine source income. Similarly% the nonDresident status of a foreign corporation does not imply that it has no Philippine source income. "onversely% the receipt of Philippine source income creates no presumption that the recipient foreign corporation is a resident of the Philippines. The critical issue% for present purposes% is therefore &hether or not B>0" is deriving income from sources &ithin the Philippines. Bor purposes of income ta'ation% it is &ell to bear in mind that the 3source of income3 relates not to the physical sourcing of a flo& of money or the physical situs of payment but rather to the 3property% activity or service &hich produced the income. ncome derived from the purchase and sale of personal property shall be treated as derived entirely from the country in &hich sold. The &ord HsoldH includes He'change.H The HcountryH in &hich HsoldH ordinarily means the place &here the property is mar+eted. This Section does not apply to income from the sale of personal property produced )in &hole or in part* by the ta'payer &ithin and sold &ithout the Philippines or _Saint Louis University School of Law_
produced )in &hole or in part* by the ta'payer &ithout and sold &ithin the Philippines. nternational carriers issuing for compensation passage documentation in the Philippines for uplifts from any point in the &orld to any other point in the &orld% are not charged any Philippine income ta' on their Philippine billings )i.e.% billings in respect of passenger or cargo originating from the Philippines*. Gnder this ne& approach% international carriers &ho service ports or points in the Philippines are treated in e'actly the same &ay as international carriers not servicing any port or point in the Philippines. Thus% the source of income rule applicable% as above discussed% to transportation or other services rendered partly &ithin and partly &ithout the Philippines% or &holly &ithout the Philippines% has been set aside. n place of Philippine income ta'ation% the Ta' "ode no& imposes this 21<2 per cent ta' computed on the basis of billings in respect of passengers and cargo originating from the Philippines regardless of &here embar+ation and debar+ation &ould be ta+ing place. This 2D1<2 per cent ta' is effectively a ta' on gross receipts or an e'cise or privilege ta' and not a ta' on income. Thereby% the Covernment has done a&ay &ith the difficulties attending the allocation of income and related e'penses% losses and deductions. Because ta'es are the very lifeblood of government% the resulting potential 3loss3 or 3gain3 in the amount of ta'es collectible by the state is sometimes% &ith varying degrees of consciousness% considered in choosing from among competing possible characteri(ations under or interpretations of ta' statutes. t is hence perhaps useful to point out that the determination of the appropriate characteri(ation here DDDD that of contracts of air carriage rather than sales of airline tic+ets DDDD entails no do&nDtheDroad loss of income ta' revenues to the Covernment. n lieu thereof% the Covernment ta+es in revenues generated by the 2D1<2 per cent ta' on the gross Philippine billings or receipts of international carriers. Topic: T47 etur5s 45d Ot9er Ad3i5istr4tive eDuire3e5ts PASEO EA!T; AN. .E-E!OP2ENT CO P. vs. CO, T O+ APPEA!S G. . No. &&#(*/ Octo:er &%) (11$
+ACTS: Paseo !ealty and ?evelopment "orporation% a domestic corporation engaged in the lease of t&o parcels of land at Paseo de !o'as in =a+ati "ity. >n 0pril 19% 1##7% petitioner filed its ncome Ta' !eturn for the calendar year 1#;# declaring a gross income of P1%;55%777.77% deductions of P1%$$5%##1.77% net income of P$#%77#.77% an income ta' due thereon in the amount of P2$%953.77% prior yearEs e'cess credit of P1:9%729.77% and creditable ta'es &ithheld in 1#;# of P5:%17:.77 or a total ta' credit of P277%137.77 and credit balance of P1$2%:$$.77. n a resolution dated >ctober 21% 1##3 !espondent "ourt reconsidered its decision of 6uly 2#% 1##3 and dismissed the petition for revie&% stating that it has Koverloo+ed the fact that the petitionerEs 1#;# "orporate ncome Ta' !eturn )1'h. K0L* indicated that the amount of P5:%17:.77 sub,ect of petitionerEs claim for refund has already been included as part and parcel of the P1$2%:$$.77 &hich the petitioner automatically applied as ta' credit for the succeeding ta'able year 1##7.L Petitioner filed a =otion for !econsideration &hich &as denied by respondent "ourt on =arch 17% 1##:.
Petitioner filed a Petition for !evie& dated 0pril 3% 1##:&ith the "ourt of 0ppeals. !esolving the t&in issues of &hether petitioner is entitled to a refund of P5:%17:.77 representing creditable ta'es &ithheld in 1#;# and &hether petitioner applied such creditable ta'es &ithheld to its 1##7 income ta' liability% the appellate court held that petitioner is not entitled to a refund because it had already elected to apply the total amount of P1$2%::$.77% &hich includes the P5:%17:.77 refund claimed% against its income ta' liability for 1##7. The appellate court elucidated on the reason for its dismissal of petitionerEs claim for refund ISS,E: .hether or not the alleged e'cess ta'es paid by a corporation during a ta'able year should be refunded or credited against its ta' liabilities for the succeeding year/ ,!ING: The petition must be denied. 0s a matter of principle% it is not advisable for this "ourt to set aside the conclusion reached by an agency such as the "T0 &hich is% by the very nature of its functions% dedicated e'clusively to the study and consideration of ta' problems and has necessarily developed an e'pertise on the sub,ect% unless there has been an abuse or improvident e'ercise of its authority. This interdiction finds particular application in this case since the "T0% after careful consideration of the merits of the "ommissioner of nternal !evenueEs motion for reconsideration% reconsidered its earlier decision &hich ordered the latter to refund the amount of P5:%17:.77 to petitioner. ts resolution cannot be successfully assailed based% as it is% on the pertinent la&s as applied to the facts. PetitionerEs 1#;# ta' return indicates an aggregate creditable ta' of P1$2%:$$.77% representing its 1#;; e'cess credit of P1:9%729.77 and 1#;# creditable ta' of P5:%17:.77 less ta' due for 1#;#% &hich it elected to apply as ta' credit for the succeeding ta'able year. 1# 0ccording to petitioner% it successively utili(ed this amount &hen it obtained refunds in "T0 "ase No. ::3# and "T0 "ase No. :52; and applied its 1##7 ta' liability% leaving a balance of P5:%17:.77% the amount sub,ect of the instant claim for refund. The confusion as to petitionerEs entitlement to a refund could altogether have been avoided had it presented its ta' return for 1##7. Such return &ould have sho&n &hether petitioner actually applied its 1#;# ta' credit of P1$2%:$$.77% &hich includes the P5:%17:.77 creditable ta'es &ithheld for 1#;# sub,ect of the instant claim for refund% against its 1##7 ta' liability as it had elected in its 1#;# return% or at least% &hether petitionerEs ta' credit of P1$2%:$$.77 &as applied to its approved refunds as it claims. 0s clearly sho&n from the aboveD-uoted provisions% in case the corporation is entitled to a refund of the e'cess estimated -uarterly income ta'es paid% the refundable amount sho&n on its final ad,ustment return may be credited against the estimated -uarterly income ta' liabilities for the ta'able -uarters of the succeeding year. The carrying for&ard of any e'cess or overpaid income ta' for a given ta'able year is limited to the succeeding ta'able year only. Ta'ation is a destructive po&er &hich interferes &ith the personal and property rights of the people and ta+es from them a portion of their property for the support of the government. 0nd since ta'es are &hat &e pay for civili(ed society% or are the lifeblood of _Saint Louis University School of Law_
the nation% the la& fro&ns against e'emptions from ta'ation and statutes granting ta' e'emptions are thus construed strictissimi,urisagainst the ta'payer and liberally in favor of the ta'ing authority. 0 claim of refund or e'emption from ta' payments must be clearly sho&n and be based on language in the la& too plain to be mista+en. 1lse&ise stated% ta'ation is the rule% e'emption therefrom is the e'ception.
Topic: T474tio5 o6 I5co3e Trusts 2IG,E! '. OSSO IO PENSION +O,N.ATION) INC vs. CA 45d CI G. . No. &/(&0" 'u5e (*) (1&1 B0"TS8 The =iguel 6. >ssorio Pension Boundation% ncorporated )petitioner or =6>PB * filed this Petition for "ertiorari1&ith Prayer for the ssuance of a Temporary !estraining >rder and<or .rit of Preliminary n,unction to reverse the "ourt of 0ppealsE )"0* ?ecision dated 37 =ay 2773 in "0DC.!. SP No. 91;2# as &ell as the !esolutiondated $ November 2773 denying the =otion for !econsideration. n the assailed decision% the "0 affirmed the "ourt of Ta' 0ppealsE )"T0* ?ecisiondated 2: >ctober 2777. The "T0 denied petitionerEs claim for refund of &ithheld creditable ta' of P3%73$%577 arising from the sale of real property of &hich petitioner claims to be a coDo&ner as trustee of the employeesE trust or retirement funds. SSG18 1. .hether petitioner or the 1mployeesE Trust Bund is estopped from claiming that the 1mployeesE Trust Bund is the beneficial o&ner of :#.5#M of the =BP lot and that A=" merely held :#.5#M of the =BP lot in trust for the 1mployeesE Trust Bund. 2. f petitioner or the 1mployeesE Trust Bund is not estopped% &hether they have sufficiently established that the 1mployeesE Trust Bund is the beneficial o&ner of :#.5#M of the =BP lot% and thus entitled to ta' e'emption for its share in the proceeds from the sale of the =BP lot. 21F?8 .e grant the petition.
The la& e'pressly allo&s a coDo&ner )first coDo&ner* of a parcel of land to register his proportionate share in the name of his coDo&ner )second coDo&ner* in &hose name the entire land is registered. The second coDo&ner serves as a legal trustee of the first coD o&ner insofar as the proportionate share of the first coDo&ner is concerned. The first coD o&ner remains the o&ner of his proportionate share and not the second coDo&ner in &hose name the entire land is registered. Thus% this case turns on &hether petitioner can sufficiently establish that petitioner% as trustee of the 1mployeesE Trust Bund% has a common agreement &ith A=" and AB" that petitioner% A=" and AB" shall ,ointly purchase the =BP lot and put the title to the =BP lot in the name of A=" for the benefit petitioner% A=" and AB". .e rule that petitioner% as trustee of the 1mployeesE Trust Bund% has more than sufficiently established that it has an agreement &ith A=" and AB" to purchase ,ointly the =BP lot and to register the =BP lot solely in the name of A=" for the benefit of petitioner% A=" and AB". ?ocuments ac+no&ledged before notaries public are public documents and public documents are admissible in evidence &ithout necessity of preliminary proof as to their authenticity and due e'ecution. They have in their favor the presumption of regularity% and to contradict the same% there must be evidence that is clear% convincing and more than merely preponderant. The B ! failed to present any clear and convincing evidence to prove that the notari(ed =emorandum of 0greement is fictitious or has no legal effect. Fi+e&ise% A="% the registered o&ner% did not repudiate petitionerEs share in the =BP lot. Burther% "ity trust% a reputable ban+ing institution% has prepared a Portfolio =i' 0nalysis for the years 1##: to 1##$ sho&ing that petitioner invested P5%57:%$:;.25 in the =BP lot. 0bsent any proof that the "ityt rust ban+ records have been tampered or falsified% and the B ! has presented none% the Portfolio =i' 0nalysis should be given probative value. The trustorDbeneficiary is not estopped from proving its o&nership over the property held in trust by the trustee &hen the purpose is not to contest the disposition or encumbrance of the property in favor of an innocent thirdDparty purchaser for value. The B !% not being a buyer or claimant to any interest in the =BP lot% has not relied on the face of the title of the =BP lot to ac-uire any interest in the lot. There is no basis for the B ! to claim that petitioner is estopped from proving that it coDo&ns% as trustee of the 1mployeesE Trust Bund% the =BP lot. 0rticle 1:52 of the "ivil The income from the trust fund investments is therefore e'empt from the payment of income ta' and conse-uently from the payment of the creditable &ithholding ta' on the sale of their real property. Since petitioner has proven that the income from the sale of the =BP lot came from an investment by the 1mployeesH Trust Bund% petitioner% as trustee of the 1mployeesE Trust Bund% is entitled to claim the ta' refund ofP3%73$%577 &hich &as erroneously paid in the sale of the =BP lot. !espondent "ommissioner of nternal !evenue is directed to refund petitioner =iguel 6. >ssorio Pension Boundation% ncorporated% as trustee of the 1mployeesE Trust Bund% the amount of P3%73$%577% representing income ta' erroneously paid.

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TAXATION I - CASE DIGESTS First Semester, SY 2011-2012

Case Digests in Taxation La

TAXATION I - CASE DIGESTS First Semester, SY 2011-2012

Topic: Power to destroy vis--vis Power to Build

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS First Semester, SY 2011-2012

Topic: O:<ectives o6 T474tio5:

TAXATION I - CASE DIGESTS First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 10 First Semester, SY 2011-2012

Topic: O:<ectives o6 T474tio5:

TAXATION I - CASE DIGESTS 11 First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 12 First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 13 First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 14 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 15 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 16 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 17 First Semester, SY 2011-2012

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_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 18 First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 19 First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 20 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 21 First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 22 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 23 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 24 First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 25 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 26 First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 27 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 28 First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 29 First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 30 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 31 First Semester, SY 2011-2012

!uling8 _Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 32 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 33 First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 34 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 35 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 36 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 37 First Semester, SY 2011-2012

_Saint Louis University School of Law_

TAXATION I - CASE DIGESTS 38 First Semester, SY 2011-2012

TAXATION I - CASE DIGESTS 39 First Semester, SY 2011-2012

_Saint Louis University School of Law_