Sison vs Ancheta (1984)
merit.
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer,
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 equal protection and due
process clauses of the Constitution as well as the rule
requiring uniformity in taxation.
Issue: Whether BP 135 violates the due process and equal
protection clauses, and the rule on uniformity in taxation.
Held: There is a need for proof of such persuasive character
as would lead to a conclusion that there was a violation of the
due process and equal protection clauses. Absent such
showing, the presumption of validity must prevail. Equality
and uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the same
rate. The taxing power has the authority to make reasonable
and natural classifications for purposes of taxation. Where
the differentitation conforms to the practical dictates of
justice and equity, similar to the standards of equal
protection, it is not discriminatory within the meaning of the
clause and is therefore uniform. Taxpayers may be classified
into different categories, such as recipients of compensation
income as against professionals. Recipients of compensation
income are not entitled to make deductions for income tax
purposes as there is no practically no overhead expense,
while professionals and businessmen have no uniform costs
or expenses necessaryh to produce their income. There is
ample justification to adopt the gross system of income
taxation to compensation income, while continuing the
system of net income taxation as regards professional and
business income.
Sison v Ancheta G.R. No. L-59431. July 25, 1984.
C. J. Fernando
Declaratory Relief
Facts:
Petitioners challenged the constitutionality of Section 1 of
Batas Pambansa Blg. 135. It amended
Section 21 of the National Internal Revenue Code of 1977,
which provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, (c)
royalties, prizes, and other winnings, (d) interest from bank
deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, (e)
dividends and share of individual partner in the net profits of
taxable partnership, (f) adjusted gross income.
Petitioner as taxpayer alleged that "he would be unduly
discriminated against by the imposition of higher rates of tax
upon his income arising from the exercise of his profession
vis-a-vis those which are imposed upon fixed income or
salaried individual taxpayers." He characterizes the above
section as arbitrary amounting to class legislation, oppressive
and capricious in character.
For petitioner, therefore, there is a transgression of both the
equal protection and due process clauses of the Constitution
as well as of the rule requiring uniformity in taxation.
The OSG prayed for dismissal of the petition due to lack of
Issue: Whether the imposition of a higher tax rate on taxable
net income derived from business or profession than on
compensation is constitutionally infirm.
(WON there is a transgression of both the equal protection
and due process clauses of the Constitution as well as of the
rule requiring uniformity in taxation)
Held: No. Petition dismissed
Ratio:
The need for more revenues is rationalized by the
government's role to fill the gap not done by public enterprise
in order to meet the needs of the times. It is better equipped
to administer for the public welfare.
The power to tax, an inherent prerogative, has to be availed
of to assure the performance of vital state functions. It is the
source of the bulk of public funds.
The power to tax is an attribute of sovereignty and the
strongest power of the government. There are restrictions,
however, diversely affecting as it does property rights, both
the due process and equal protection clauses may properly be
invoked, as petitioner does, to invalidate in appropriate cases
a revenue measure. If it were otherwise, taxation would be a
destructive power.
The petitioner failed to prove that the statute ran counter to
the Constitution. He used arbitrariness as basis without a
factual foundation. This is merely to adhere to the
authoritative doctrine that where the due process and equal
protection clauses are invoked, considering that they are not
fixed rules but rather broad standards, there is a need for
proof of such persuasive character as would lead to such a
conclusion.
It is undoubted that the due process clause may be invoked
where a taxing statute is so arbitrary that it finds no support
in the Constitution. An obvious example is where it can be
shown to amount to the confiscation of property. That would
be a clear abuse of power.
It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public
purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds.
For equal protection, the applicable standard to determine
whether this was denied in the exercise of police power or
eminent domain was the presence of the purpose of hostility
or unreasonable discrimination.
It suffices then that the laws operate equally and uniformly
on all persons under similar circumstances or that all persons
must be treated in the same manner, the conditions not being
different, both in the privileges conferred and the liabilities
imposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and
security shall be given to every person under circumstances,
which if not identical are analogous. If law be looks upon in
terms of burden or charges, those that fall within a class
should be treated in the same fashion, whatever restrictions
cast on some in the group equally binding on the rest.
The equal protection clause is, of course, inspired by the
noble concept of approximating the ideal of the laws's
benefits being available to all and the affairs of men being
governed by that serene and impartial uniformity, which is of
the very essence of the idea of law.
The equality at which the 'equal protection' clause aims is not
a disembodied equality. The Fourteenth Amendment enjoins
'the equal protection of the laws,' and laws are not abstract
propositions. They do not relate to abstract units A, B and C,
but are expressions of policy arising out of specific
difficulties, addressed to the attainment of specific ends by
the use of specific remedies. The Constitution does not
require things which are different in fact or opinion to be
treated in law as though they were the same.
Lutz v Araneta- it is inherent in the power to tax that a state
be free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a singling
out of one particular class for taxation, or exemption infringe
no constitutional limitation.
Petitioner- kindred concept of uniformity- Court- Philippine
Trust Company- The rule of uniformity does not call for
perfect uniformity or perfect equality, because this is hardly
attainable
Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed
at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation
There is quite a similarity then to the standard of equal
protection for all that is required is that the tax "applies
equally to all persons, firms and corporations placed in
similar situation"
There was a difference between a tax rate and a tax base.
There is no legal objection to a broader tax base or taxable
income by eliminating all deductible items and at the same
time reducing the applicable tax rate.
The discernible basis of classification is the susceptibility of
the income to the application of generalized rules removing
all deductible items for all taxpayers within the class and
fixing a set of reduced tax rates to be applied to all of them.
As there is practically no overhead expense, these taxpayers
are not entitled to make deductions for income tax purposes
because they are in the same situation more or less.
Taxpayers who are recipients of compensation income are set
apart as a class.
On the other hand, in the case of professionals in the practice
of their calling and businessmen, there is no uniformity in the
costs or expenses necessary to produce their income. It
would not be just then to disregard the disparities by giving
all of them zero deduction and indiscriminately impose on all
alike the same tax rates on the basis of gross income.
There was a lack of a factual foundation, the forcer of
doctrines on due process and equal protection, and he
reasonableness of the distinction between compensation and
taxable net income of professionals and businessmen not
being a dubious classification.
Pascual and Dragon v. CIR, G.R. No. 78133, October 18,
1988
[GANCAYCO, J.]
FACTS:
Petitioners bought two (2) parcels of land and a year after,
they bought another three (3) parcels of land. Petitioners
subsequently sold the said lots in 1968 and 1970, and
realized net profits. The corresponding capital gains taxes
were paid by petitioners in 1973 and 1974 by availing of the
tax amnesties granted in the said years. However, the Acting
BIR Commissioner assessed and required Petitioners to pay a
total amount of P107,101.70 as alleged deficiency corporate
income taxes for the years 1968 and 1970. Petitioners
protested the said assessment asserting that they had availed
of tax amnesties way back in 1974. In a reply, respondent
Commissioner informed petitioners that in the years 1968
and 1970, petitioners as co-owners in the real estate
transactions formed an unregistered partnership or joint
venture taxable as a corporation under Section 20(b) and its
income was subject to the taxes prescribed under Section 24,
both of the National Internal Revenue Code that the
unregistered partnership was subject to corporate income tax
as distinguished from profits derived from the partnership by
them which is subject to individual income tax; and that the
availment of tax amnesty under P.D. No. 23, as amended, by
petitioners relieved petitioners of their individual income tax
liabilities but did not relieve them from the tax liability of the
unregistered partnership. Hence, the petitioners were
required to pay the deficiency income tax assessed.
ISSUE:
Whether the Petitioners should be treated as an unregistered
partnership or a co-ownership for the purposes of income tax.
RULING:
The Petitioners are simply under the regime of co-ownership
and not under unregistered partnership.
By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits
among themselves (Art. 1767, Civil Code of the Philippines).
In the present case, there is no evidence that petitioners
entered into an agreement to contribute money, property or
industry to a common fund, and that they intended to divide
the profits among themselves. The sharing of returns does not
in itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the
property. There must be a clear intent to form a partnership,
the existence of a juridical personality different from the
individual partners, and the freedom of each party to transfer
or assign the whole property. Hence, there is no adequate
basis to support the proposition that they thereby formed an
unregistered partnership. The two isolated transactions
whereby they purchased properties and sold the same a few
years thereafter did not thereby make them partners. They
shared in the gross profits as co- owners and paid their
capital gains taxes on their net profits and availed of the tax
amnesty thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership which
is thereby liable for corporate income tax, as the respondent
commissioner proposes.
Manuel Pascual and Renato Dragon petitioners vs. CIR and
CTA
Facts:
Petitioners Pascual and Dragon bought two (2) parcels of
land on June 22, 1965 and another three (3) parcels of land
on May 28, 1966. They sold the first two parcels in 1968 and
the three parcels in 1970. They paid the corresponding capital
gains taxes in 1973 and 1974 by availing of the tax amnesties
granted in the said years. However, in 1979, they were
assessed and required to pay deficiency corporate income
taxes for the years 1968 and 1970.
The respondent Commissioner informed petitioners that in
1968 and 1970, petitioners as co-owners in real estate
transactions formed an unregistered partnership or joint
venture taxable as a corporation under Sec. 20(b) and its
income was subject to the taxes prescribed under Sec. 24,
both of the NIRC.
Issue:
WON the co-ownership between the petitioners constitutes
an unregistered partnership/joint venture which is taxable as
a corporation.
Held: The co-ownership between the petitioners does not
constitute an unregistered partnership. The petitioners shall
be relieved of the corporate tax liability.
There is no evidence that petitioners entered into an
agreement to contribute money, property or industry to a
common fund, and that they intended to divide the profits
among themselves. Respondent commissioner and/or his
representatives just assumed these conditions to be present
on the basis of the fact that petitioners purchased certain
parcels of land and became co-owners thereof.
The purchase of the lands and the subsequent sale thereof
were isolated transactions. In this case, the character of
habituality peculiar to business transactions for the purpose
of gain was not present.
In Evangelista vs CIR, the court stated that there are two
essential elements of a partnership: (a) an agreement to
contribute money, property or industry to a common fund;
and (b) intent to divide the profits among the contracting
parties. In the said case, there was a series of transactions
where petitioners purchased 24 lots which demonstrate the
character of habituality peculiar to business transactions.
The court also held that that the sharing of returns does not in
itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the
property. There must be a clear intent to form a partnership,
the existence of a juridical personality different from the
individual partners, and the freedom of each party to transfer
or assign the whole property.
In the present case, there is no adequate basis to support the
proposition that the petitioners formed an unregistered
partnership on the basis of their co-ownership. The two
isolated transactions did not make them partners. They
shared in the gross profits as co-owners and paid their capital
gains taxes on their net profits and availed of tax amnesty.
Under these circumstances, they cannot be considered to
have formed an unregistered partnership.
Tan v Del Rosario
Facts:
1. Two consolidated cases assail the validity of RA 7496 or
the Simplified Net Income Taxation Scheme ("SNIT"), which
amended certain provisions of the NIRC, as well as the Rules
and Regulations promulgated by public respondents pursuant
to said law.
2. Petitioners posit that RA 7496 is unconstitutional as it
allegedly violates the following provisions of the
Constitution:
-Article VI, Section 26(1) — Every bill passed by the
Congress shall embrace only one subject which shall be
expressed in the title thereof.
- Article VI, Section 28(1) — The rule of taxation shall be
uniform and equitable. The Congress shall evolve a
progressive system of taxation.
- Article III, Section 1 — No person shall be deprived of . . .
property without due process of law, nor shall any person be
denied the equal protection of the laws.
3. Petitioners contended that public respondents exceeded
their rule-making authority in applying SNIT to general
professional partnerships. Petitioner contends that the title of
HB 34314, progenitor of RA 7496, is deficient for being
merely entitled, "Simplified Net Income Taxation Scheme for
the Self-Employed and Professionals Engaged in the Practice
of their Profession" (Petition in G.R. No. 109289) when the
full text of the title actually reads,
'An Act Adopting the Simplified Net Income Taxation Scheme
For The Self-Employed and Professionals Engaged In The
Practice of Their Profession, Amending Sections 21 and 29
of the National Internal Revenue Code,' as
amended. Petitioners also contend it violated due process.
5. The Solicitor General espouses the position taken by
public respondents.
6. The Court has given due course to both petitions.
ISSUE: Whether or not the tax law is unconstitutional for
violating due process
NO. The due process clause may correctly be invoked only
when there is a clear contravention of inherent or
constitutional limitations in the exercise of the tax power. No
such transgression is so evident in herein case.
1. Uniformity of taxation, like the concept of equal
protection, merely requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in
privileges and liabilities. Uniformity does not violate
classification as long as: (1) the standards that are used
therefor are substantial and not arbitrary, (2) the
categorization is germane to achieve the legislative purpose,
(3) the law applies, all things being equal, to both present and
future conditions, and (4) the classification applies equally
well to all those belonging to the same class.
2. What is apparent from the amendatory law is the
legislative intent to increasingly shift the income tax system
towards the schedular approach in the income taxation of
individual taxpayers and to maintain, by and large, the
present global treatment on taxable corporations. The Court
does not view this classification to be arbitrary and
inappropriate.
ISSUE 2: Whether or not public respondents exceeded their
authority in promulgating the RR
No. There is no evident intention of the law, either before or
after the amendatory legislation, to place in an unequal
footing or in significant variance the income tax treatment of
professionals who practice their respective professions
individually and of those who do it through a general
professional partnership.
Tan vs. Del Rosario
237 SCRA 324
Facts: Petitioners challenge the constitutionality of RA 7496
or the simplified income taxation scheme (SNIT) under Arts
(26) and (28) and III (1). The SNIT contained changes in the
tax schedules and different treatment in the professionals
which petitioners assail as unconstitutional for being isolative
of the equal protection clause in the constitution.
The petitioner stressed that it violates the equal protection
clause as it only imposed taxes upon one who practice his
profession and not to those who are engaged to single
proprietorship.
Article III, Section 1 — No person shall be deprived of . . .
property without due process of law, nor shall any person be
denied the equal protection of the laws.
Issue:
Whether or not RA 7496 violates the aforestated provision of
the constitution
Held:
The SC ruled in the negative. The said law is not arbitrary; it
is germane to the purpose of the law and; applies to all things
of equal conditions and of same class.
It is neither violative of equal protection clause due to the
existence of substantial difference between one who practice
his profession alone and one who is engaged to
proprietorship. Further, the SC said that RA 7496 is just an
amendatory provision of the code of taxpayers where it
classifies taxpayers in to four main groups: Individuals,
Corporations, Estate under Judicial Settlement and
Irrevocable Trust. The court would have appreciated the
contention of the petitioner if RA 7496 was an independent
law. But since it is attached to a law that has already
classified taxpayers, there is no violation of equal protection
clause.

Issue: Is the contention meritorious?

Ruling: No. uniformity of taxation, like the hindered concept

of equal protection, merely require that all subjects or objects
of taxation similarly situated are to be treated alike both
privileges and liabilities. Uniformity, does not offend
classification as long as it rest on substantial distinctions, it is
germane to the purpose of the law. It is not limited to existing
only and must apply equally to all members of the same
class.

The legislative intent is to increasingly shift the income tax

system towards the scheduled approach in taxation of
individual taxpayers and maintain the present global
treatment on taxable corporations. This classification is
neither arbitrary nor inappropriate.

Tan vs. Del Rosario

237 SCRA 324

Facts: Petitioner seeks declaration of unconstitutionality of

RA7496 (also known as Simplified Net Income Taxation)
due to violation of the following constitutional provision:
Article VI, Section 26(1) — Every bill passed by the
Congress shall embrace only one subject which shall be
expressed in the title thereof.
Article VI, Section 28(1) — The rule of taxation shall be
uniform and equitable. The Congress shall evolve a
progressive system of taxation.