Case Name

CIR
vs
Algue, Inc
And
CTA

PHILIPPINE
AIRLINES, INC

vs

ROMEO F. EDU, in

Facts
The Philippine Sugar Estate Development
Company had earlier appointed Algue as
its agent, authorizing it to sell its land,
factories and oil manufacturing process.
Pursuant to such authority, Alberto
Guevara, Jr., Eduardo Guevara, Isabel
Guevara, Edith, O'Farell, and Pablo
Sanchez, worked for the formation of the
Vegetable Oil Investment Corporation,
inducing other persons to invest in it.
Ultimately, after its incorporation largely
through the promotion of the said persons,
this new corporation purchased the PSEDC
properties.
For this sale, Algue received as agent a
commission of P126, 000.00, and it was
from this commission that the P75, 000.00
promotional fees were paid to the
aforenamed individuals.
The CIR contends that the claimed
deduction of P75, 000.00 was properly
disallowed because it was not an ordinary
reasonable
or
necessary
business
expense.
The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held
that
the
said
amount
had
been
legitimately
paid
by
the
private
respondent for actual services rendered.
The payment was in the form of
promotional fees.
The Philippine Airlines (PAL) is a
corporation
engaged
in
the
air
transportation business under a legislative
franchise, Act No. 42739. Under its
franchise, PAL is exempt from the payment
of taxes.
Sometime in 1971, however, Land
Transportation Commissioner Romeo F.

Issue

Held
No. The Supreme Court agrees with the
respondent court that the amount of the
promotional fees was not excessive. The
amount of P75,000.00 was 60% of the
total commission. This was a reasonable
proportion, considering that it was the
payees who did practically everything,
from the formation of the Vegetable Oil
Investment Corporation to the actual
purchase by it of the Sugar Estate
properties.

W/N the
Collector
of
Internal Revenue correctly
disallowed the P75,000.00
deduction
claimed
by
Algue
as
legitimate
business expenses in its
income tax returns

Taxes are the lifeblood of the

government
It is said that taxes are what we pay for
civilization society. Without taxes, the
government would be paralyzed for lack of
the motive power to activate and operate
it.
Hence,
despite
the
natural
reluctance to surrender part of one's
hard earned income to the taxing
authorities, every person who is able to
must contribute his share in the
running of the government.
On the other hand, such collection
should be made in accordance with
law, as any arbitrariness will negate
the very reason for government itself.

Whether registration fees

as to motor vehicles are
taxes to which Philippine
Airlines is exempt.

Yes.
TAX vs LICENSE AND REGULATORY FEE
SC ruled that motor vehicles registration
fees are TAXES. Fees may be regarded as
taxes even though they also serve as
instruments of regulation because taxation
may be made as an implementation of the
States police power. But if the purpose is

his capacity as
Land
Transportation
Commissioner, and
UBALDO
CARBONELL, in his
capacity as
National Treasurer

Elevate (Elevate) issued a regulation

pursuant to Section 8, Republic Act 4136,
otherwise known as the Land and
Transportation and Traffic Code, requiring
all tax exempt entities, among them PAL to
pay motor vehicle registration fees.
Despite
PAL's
protestations,
Elevate
refused to register PAL's motor vehicles
unless the amounts imposed were paid.
PAL thus paid, under protest, registration
fees of its motor vehicles.
PAL sent a demand letter to LTC
Commissioner Romeo Edu for the refund of
the amounts paid.
Edu denied the request. Hence, PAL filed a
complaint.

ESSO deducted from its gross income for

1959, as part of its ordinary and necessary
business expenses, the amount it had
spent for drilling and exploration of its
petroleum concessions. The Commissioner
disallowed the claim on the ground that
the expenses should be capitalized and
might be written off as a loss only when a
dry hole should result. Hence, ESSO filed
an amended return where it asked for the
refund of P323, 270 by reason of its
abandonment, as dry holes, of several of
its oil wells. It also claimed as ordinary and
necessary expenses in the same return
amount representing margin fees it had
paid to the Central Bank on its profit

primarily REVENUE, or if revenue is at

least, one of the real and substantial
purposes, then the exaction is properly
called a TAX.
It is the object of the charge, and not
the name, that determines whether a
charge is a tax or a fee.
The intent of the law is mainly to raise
funds
for
the
construction
and
maintenance of highways roads and
bridges.
As the fees are collected not for
regulatory purposes as an incident to
the enforcement of regulations governing
the operation of motor vehicles on public
highways, but to provide revenue with
which the Government is to construct
and maintain public highways for
everyones use, they are veritable
taxes, not merely fees. PAL is, thus,
exempt from paying such fees, except for
the period where its tax exception in the
franchise was repealed.
Whether or not the margin
fees are taxes.

No. A tax is levied to provide revenue for

government
operations,
while
the
proceeds of the margin fee are applied to
strengthen our country's international
reserves. The margin fee was imposed by
the State in the exercise of its police power
and not the power of taxation.

remittances to its New York Office.

The CIR then granted a tax credit of P221,
033.00 only, disallowing the claimed
deduction for the margin fees paid on the
ground that the margin fees paid to the
Central Bank could not be considered
taxes or allowed as deductible business
expenses.

IN THE MATTER OF
A PETITION FOR
DECLARATORY
JUDGMENT
REGARDING THE
VALIDITY OF
MUNICIPAL
ORDINANCE NO.
3659 OF THE CLTY
OF MANILA.
PHYSICAL THERAPY
ORGANIZATION OF
THE PHILIPPINES,
INC
vs.
THE MUNICIPAL
BOARD OF THE
CITY OF MANILA
and Mayor
ARSENIO H.
LACSON,

Esso appealed to the CTA for the refund of

the margin fees it had earlier paid
contending that the margin fees were
deductible from gross income either as a
tax or as an ordinary and necessary
business expense. However, Essos appeal
was denied.
Physical Therapy Org. is an association of
registered
massagists
and
licensed
operators of massage clinics in the City of
Manila and other parts of the country.
They filed an action in the Court of First
Instance of Manila questioning the validity
of the Municipal Ordinance No. 3659 which
regulates the operation of massage clinics
in the City of Manila and providing
penalties for its violations.
They also protested that the license fee of
P100 is unreasonable. The trial court
dismissed their petition. Hence, they
appealed to the Supreme Court. On its
appeal, the petitioner contends that the
City of Manila is without authority to
regulate the operation of massagists and
the operation of massage clinics within its
jurisdiction.

Whether the license fees

imposed by the Ordinance
against
massage
clinic
operators is unreasonable.

No. It is not unreasonable. (Its reasonable)

No. The purpose of the Ordinance is not to
regulate the practice of massage, much
less to restrict the practice of licensed and
qualified
massagists
of
therapeutic
massage in the Philippines. The end
sought to be attained in the Ordinance is
to prevent the commission of immorality
and the practice of prostitution in an
establishment
masquerading
as
a
massage clinic where the operators
thereof offer to massage or manipulate
superficial parts of the bodies of customers
for hygienic and aesthetic purposes. The
permit fee is made payable not by the
masseur or massagist, but by the operator
of a massage clinic who may not be a
massagist himself.
Compared to permit fees required in other
operations, P100.00 may appear to be too
large and rather unreasonable, but much
discretion
is
given
to
municipal
corporations in determining the amount of

Republic
vs.
Mambulao Lumber

Francia
vs
IAC

Mambulao Lumber Company paid the

Government a total of P9,127.50 as
reforestation charges.
Having found liable for an aggregate
amount of P4,802.37 for forest charges, it
contended that since the Republic
(Government) has not made use of the
reforestation charges for reforesting the
denuded area of the land covered by the
companys license, the Republic should
refund said amount or, if it cannot be
refunded, at least the company should be
compensated with what it owed the
Republic for reforestation charges.

Engracio Francia was the registered owner

of a house and lot located in Pasay City. A
portion of such property was expropriated
by the Republic of the Philippines in 1977.
It appeared that Francia did not pay his

Whether taxes may

subject
of
set-off
compensation.

be
or

Whether the expropriation

payment may compensate
for the real estate taxes
due.

said fee without considering it as a tax for

revenue purposes. There is a marked
distinction between license fees imposed
upon useful and beneficial occupations
which the sovereign wishes to regulate but
not restrict, and those which are inimical
and dangerous to public health, morals or
safety. In the latter case the fee may be
very large without necessarily being a tax.
Evidently, the Manila Municipal Board
considered the practice of hygienic and
aesthetic massage not as a useful and
beneficial occupation which will promote
and is conducive to public morals, and
consequently, imposed the said permit fee
for its regulation.
Internal revenue taxes, such as forest
charges, cannot be the subject of set-off or
compensation. A claim for taxes is not
such a debt, demand, contract or
judgment as is allowed to be set-off under
the statutes of setoff, which are construed
uniformly, in the light of public policy, to
exclude the remedy in an action or any
indebtedness of the State or municipality
to one who is liable to the State or
municipality for taxes. Neither are they
subject of recoupment since they do not
arise out of the contract or transaction
sued on.
Taxes are not in the nature of contracts
between the parties but grow out of a duty
to, and are the positive acts of the
government, to the making and enforcing
of which, the personal consent of
individual taxpayers is not required.
There can be no off-setting of taxes
against the claims that the taxpayer may
have against the government. A person
canot refuse to pay a tax on the ground
that the government owes him an amount

Domingo
vs
Garlitos

DAVAO GULF
LUMBER CORP
vs
CIR

real estate taxes from 1963 to 1977. Thus,

his property was sold in a public auction by
the City Treasurer of Pasay City.

equal to or greater than the tax being

collected. The collection of a tax annot
await the results of a lawsuit agianst the
government.
Internal
revenue
taxes
cannot be the subject of compensation.
The Government and the taxpayer are not
mutually creditors and debtors of each
other under Article 1278 of the Civil Code
and a claim of taxes is not such a debt,
demand, contract or judgment as is
allowed to be set-off.

In Domingo vs. Moscoso (106 PHIL 1138),

the Supreme Court declared as final and
executory the order of the Court of First
Instance of Leyte for the payment of
estate and inheritance taxes, charges and
penalties amounting to P40,058.55 by the
Estate of the late Walter Scott Price. The
petition for execution filed by the fiscal,
however, was denied by the lower court.
The Court held that the execution is
unjustified as the Government itself is
indebted to the Estate for 262,200; and
ordered the amount of inheritance taxes
be deducted from the Governments
indebtedness to the Estate.

The court having jurisdiction of the Estate

had found that the claim of the Estate
against the Government has been
recognized and an amount of P262,200
has already been appropriated by a
corresponding law (RA 2700). Under the
circumstances, both the claim of the
Government for inheritance taxes and the
claim of the intestate for services
rendered have already become overdue
and demandable as well as fully liquidated.
Compensation, therefore, takes place by
operation of law, in accordance with Article
1279 and 1290 of the Civil Code, and both
debts are extinguished to the concurrent
amount.
No. According to an eminent authority on
taxation, "there is no tax exemption solely
on the ground of equity." Thus, the tax
refund should be based on the taxes
deemed paid. Because taxes are the
lifeblood of the nation, statutes that allow
exemptions are construed strictly against
the grantee and liberally in favor of the
government.
Otherwise
stated,
any
exemption from the payment of a tax must
be clearly stated in the language of the
law; it cannot be merely implied therefrom.

Republic Act No. 1435 entitles miners and

forest concessioners to the refund of 25%
of the specific taxes paid by the oil
companies, which were eventually passed
on to the user--the petitioner in this case-in the purchase price of the oil products.
Petitioner
filed
before
respondent
Commissioner of Internal Revenue (CIR) a
claim
for
refund
in
the
amount
representing 25% of the specific taxes
actually paid on the above-mentioned
fuels and oils that were used by petitioner
in its operations. However petitioner

Whether a tax and a debt

may be compensated.

Should the petitioner be

entitled under Republic Act
No. 1435 to the refund of
25% of the amount of
specific taxes it actually
paid on various refined and
manufactured mineral oils
and other oil products, and
not on the taxes deemed
paid and passed on to
them, as end-users, by the
oil companies?

Caltex
Philippines
vs
Commission on
Audit

CIR
vs
CA and
YMCA

asserts that equity and justice demands

that the refund should be based on the
increased rates of specific taxes which it
actually paid, as prescribed in Sections
153 and 156 of the NIRC. Public
respondent, on the other hand, contends
that it should be based on specific taxes
deemed paid under Sections 1 and 2 of RA
1435.
In 1989, COA sent a letter to Caltex,
directing it to remit its collection to the Oil
Price Stabilization Fund (OPSF), excluding
that unremitted for 1986 and 188 of the
additional tax on petroleum products
authorized under Section 8 of PD 1956;
and that pending such remittance, all its
claims for reimbursement from the OPSF
shall be held in abeyance. Caltex
requested COA, notwithstanding an early
release of its reimbursement certificates
from the OPSF, which COA denied. On 31
May 1989, Caltex submitted a proposal to
COA for the payment and the recovery of
claims. COA approved the proposal but
prohibited Caltex from further offseting
remittances and reimbursements for the
current and ensuing years. Caltex moved
for reconsideration.
Private Respondent YMCA is a non-stock,
non-profit institution, which conducts
various programs and activities that are
beneficial to the public, especially the
young people, pursuant to its religious,
educational and charitable objectives.
YMCA earned income from leasing out a
portion of its premises to small shop
owners, like restaurants and canteen
operators, and from parking fees collected
from non-members. Petitioner issued an
assessment to private respondent for
deficiency taxes.

Whether the amounts due

from Caltex to the OPSF
may be off-setted against
Caltex outstanding claims
from said funds.

Whether
the
income
derived from rentals of real
property owned by YMCA
established as a welfare,
educational and charitable
non-profit
corporation
subject to income
tax under the NIRC and the
Constitution.

Taxation is no longer envisioned as a

measure merely to raise revenue to
support the existence of government;
taxes may be levied with a regulatory
purpose to provide means for the
rehabilitation and stabilization of a
threatened industry which is affected with
public interest as to be within the police
power of the state. PD 1956, as amended
by EO 137, explicitly provides that the
source of OPSF is taxation. A taxpayer may
not offset taxes due from the claims that
he may have against the government.
Taxes
cannot
be
the
subject
of
compensation because the government
and taxpayer are not mutually creditors
and debtors of each other and a claim for
taxes is not such a debt, demand, contract
or judgment as is allowed to be set-off.
Yes. The exemption claimed by the YMCA
is expressly disallowed by the very
wording of the last paragraph of then Sec.
27 of the NIRC.
Income of whatever kind and character of
non-stock non-profit organizations 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, shall be subject to the tax
imposed under the NIRC.
Rental income derived by a tax-exempt
organization from the lease of its

Pascual
vs.
Secretary of Public
Works and
Communications

Mactan Cebu
(MCIAA)
vs.
Marcos

YMCA opposed arguing that its rental

income is not subject to tax, mainly
because of the provisions of Section 27 of
NIRC which provides that civic league or
organizations not organized for profit but
operate exclusively for promotion of social
welfare and those organized exclusively for
pleasure, recreation and other nonprofitble businesses shall not be taxed.
RA 920 (Act appropriating funds for public
works) was enacted in 1953 containing an
item (Section 1 c[a]) for the construction,
reconstruction, repair, extension and
improvement
of
Pasig
feeder
road
terminals (the projected and planned
subdivision roads, which were not yet
constructed, within Antonio Subdivision
owned by Senator Jose C. Zulueta).
Zulueta donated said parcels of land to
the Government 5 months after the
enactment of RA 920, on the condition that
if the Government violates such condition
the lands would revert to Zulueta. The
provincial governor of Rizal, Wenceslao
Pascual, questioned the validity of the
donation and the Constitutionality of the
item in RA 920, it being not for a public
purpose.

Mactan
Cebu
International
Airport
Authority
(MCIAA)
was
created
to
principally undertake to economical,
efficient
and
effective
control,
management
and
supervision
of
the Mactan International Airport
and

properties, real or personal, is not exempt

from income taxation, even if such income
is exclusively used for the accomplishment
of its objectives.
Because taxes are the lifeblood of the
nation, the Court has always applied the
doctrine of strict in interpretation in
construing tax exemptions

Whether the item in the

appropriation is valid.

Whether or not the MCIAA

is excempted from realty
taxes?

The right of the legislature to appropriate

funds is correlative with its right to tax,
under constitutional provisions against
taxation except for public purposes and
prohibiting the collection of a tax for one
purpose and the devotion thereof to
another purpose, no appropriation of state
funds can be made for other than a public
purpose. The validity of a statute depends
upon the powers of Congress at the time
of its passage or approval, not upon
events occupying, or acts performed,
subsequently thereto, unless the latter
consist of an amendment of the organic
law,
removing,
with
retrospective
operation, the constitutional limitation
infringed by said statute. Herein, inasmuch
as the land on which the projected feeder
roads were to be constructed belonged to
Senator Zulueta at the time RA 920 was
passed by Congress, or approved by the
President, and the disbursement of said
sum became effective on 20 June 1953
pursuant to Section 13 of the Act, the
result is that the appropriating sough a
private purpose and hence, null and void.
No. With the repealing clause of RA 7160
the tax exemption provided. All general
and special in the charter of the MCIAA has
been expressly repeated. It state laws,
acts, City Charters, decrees, executive
orders, proclamations and administrative

such other airports as may be established

in the province of Cebu Section 14 of its
charter excempts the Authority from
payment of realty taxes but in 1994, the
City Treasurer demanded payment for
realty taxes on several parcels of land
belonging to the other. MCIAA filed a
petition in RTC contending that, by nature
of its powers and functions, it has the
same
footing
of
an
agency
or
instrumentality
of
the
national
government. The RTC dismissed the
petition based on Section 193 & 234 of the
local Government Code or R.A. 7160. Thus
this petition.

regulations, or part of parts thereof which

are inconsistent with any of the provisions
of the Code are hereby repeated or
modified accordingly. Therefore the SC
affirmed the decision and order of the RTC
and herein petitioner has to pay the
assessed realty tax of its properties
effective January 1, 1992 up to the
present.