# 24

Sison v Ancheta, supra

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: No, there was no violation of due process and equal protection clause.

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 differentiation 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 necessary 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.

# 25

CIR vs CA et al
G.R. No. 119761. August 29, 1996

Facts: Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture

of different brands of cigarettes. The Philippine Patent Office issued to the corporation
separate certificates of trademark registration over "Champion," "Hope," and "More"
cigarettes. The initial position of the Commission was to classify 'Champion,' 'Hope,' and
'More' as foreign brands since they were listed in the World Tobacco Directory as
belonging to foreign companies. However, Fortune Tobacco changed the names of 'Hope'
to Hope Luxury' and 'More' to 'Premium More, thereby removing the said brands from the
foreign brand category.
 A bill, which later became Republic Act No. 7654, was enacted and signed into
law. The new law became effective and amended Section 142(c)(1) of the National
Internal Revenue Code (NIRC), but before its affectivity, the BIR issued Revenue
Memorandum Circular No. 37-93 (RMC 37-93) reclassifying cigarettes subject to excise
tax and considering the aforesaid brands of cigarettes, viz: 'HOPE,' 'MORE' and
'CHAMPION' as locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.
Issue: Whether or not the issuance of RMC 37-93 violates the due process clause?
Held: Yes.
RMC 37-93 has fallen short of a valid and effective administrative issuance.

In order that there shall be a just enforcement of rules and regulations, in conformity
with the basic element of due process, the following procedures are hereby prescribed
for the drafting, issuance and implementation of the said Revenue Tax Issuances: (1) This
Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum
Orders; and (c) Revenue Memorandum Circulars and Revenue Memorandum Orders
bearing on internal revenue tax rules and regulations. (2). except when the law otherwise
expressly provides, the aforesaid internal revenue tax issuances shall not begin to be
operative until after due notice thereof may be fairly presumed.

Due notice of the said issuances may be fairly presumed only after the following
procedures have been taken.
#26
CIR vs M.J. Lhuillier Pawnshop, Inc.
GR No. 150947, July 15, 2003
Facts:
CIR Jose U. Ong issued Revenue Memorandum Order (RMO) No. 15-91 imposing
a 5% lending investors tax on pawnshops, which was clarified by Revenue Memorandum
Circular (RMC) No. 43-91. The Bureau of Internal Revenue (BIR) issued an Assessment
Notice against Lhuillier demanding payment of deficiency percentage tax in the sum
of P3, 360,335.11 inclusive of interest and surcharges.
As a result, Lhuillier filed an administrative protest with the Office of the Revenue
Regional Director contending that neither the Tax Code nor the VAT Law expressly
imposes 5% percentage tax on the gross income of pawnshops; that pawnshops are
different from lending investors, which are subject to the 5% percentage tax under the
specific provision of the Tax Code; that RMO No. 15-91 is not implementing any provision
of the Internal Revenue laws but is a new and additional tax measure on pawnshops,
which only Congress could enact, and that it impliedly amends the Tax Code, and that it
is a class legislation as it singles out pawnshops. BIR issued Warrant of Distraint and/or
Levy against Lhuilliers property for the enforcement and payment of the assessed
percentage tax.
 When Lhuiller's protest was not acted upon, they elevated it to the CIR which was
also not acted upon. Lhuiller filed a Notice and Memo on Appeal with the CTA. CTA held
that RMOs were void and that the Assessment Notice should be cancelled. The CIR filed
a motion for review with the CA which only affirmed the CTA's decision hence the instant
petition.

ISSUE: Whether pawnshops are included in the term lending investors for the purpose
of imposing the 5% percentage tax under the NIRC.
RULING: No.
The court held that even though the Revenue Memorandum Orders were issued in
accordance with the power of the CIR, they cannot issue administrative rulings or circulars
not consistent with the law sought to be applied. It should remain consistent with the law
they intend to carry out. Only Congress can repeal or amend the law.
In the NIRC, the term lending investor includes all persons who make a practice of lending
money for themselves or others at interest. A pawnshop, on the other hand, is defined
under Section 3 of P.D. No. 114 as a person or entity engaged in the business of lending
money on personal property delivered as security for loans.
While it is true that pawnshops are engaged in the business of lending money, they are
not considered lending investors for the purpose of imposing the 5% percentage taxes
citing the following reasons: (1)Pawnshops and lending investors were subjected to
different tax treatments as per the NIRC; (2) Congress never intended pawnshops to be
treated in the same way as lending investors; (3)Section 116 of the NIRC of 1977, as
amended by E.O. No. 273, subjects to percentage tax dealers in securities and lending
investors only. There is no mention of pawnshops; and (4)The BIR had ruled several
times prior to the issuance of the RMOs that pawnshops were not subject to the 5%
percentage tax imposed by Section 116 of the NIRC of 1977. As Section 116 of the NIRC
of 1977 was practically lifted from Section 175 of the NIRC of 1986, and there being no
change in the law, the interpretation thereof should not have been altered.
In view thereof, RMO No. 15-91 and RMC No. 43-91 are declared null and void.
Consequently, Lhuillier is not liable to pay the 5% lending investors tax. Wherefore, the
petition is dismissed for lack of merit.