Panay Electric Co. v.

Collector of Internal Revenue, L-10574, May 28, 1958

Montemayor

Under Section 309 of the Tax Code, the Collector of Internal Revenue is
authorized to credit or refund taxes erroneously or illegally received, for a
period of two years from the date of the claim for refund. In the case at bar, the
Collector not only offered to credit but took steps to credit petitioner with
overpayment for a period of two years from the date of the claim for refund. In
so doing, he waived the prescriptive period of two years from the date of the
actual filing of the suit.

FACTS:

Petitioner is a grantee of a legislative franchise under Act No. 2983, as amended by

Act No. 3665, to install, operate, and maintain an electric light, heat and power
system in certain municipalities of Iloilo, for a period of fifty years.
Under the franchise, it was required to pay a franchise tax equal to 1 1/2 per cent of its
gross earnings during the first twenty years, and 2 per cent during the remaining thirty
years.

Upon the promulgation of Republic Act No. 39, amending Section 259 of the
National Internal Revenue Code, respondent Collector of Internal Revenue required
petitioner to pay a franchise tax of 5 per cent instead of 2 per cent of its gross
earnings. In view the of demand, petitioner paid the franchise tax of 5 per cent,

However, the Supreme Court promulgated, its decision in the case of Philippine
Railway v. Collector of Internal Revenue (91 Phil., 35), wherein it was held that the
rate of tax provided in Section 259 is not applicable to holders of franchises which
fix a specific rate of franchise tax.
On the basis of this decision, petitioner demanded the refund of excess franchise
taxes from January 19, 1947 to January 18, 1952, in the amount of P135,872.67.

Respondent contended that refund may be effected ONLY of the overpayment made
two years prior to said demand, that is to say, from April 16, 1950, two years prior to
April 16, 1952

Petitioner filed the corresponding complaint against respondent in the Court of First
Instance of Iloilo for the refund of the whole amount of P135,872.67.
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Petitioner in its appeal, reiterates its contention before the Court of Tax Appeals that
the Franchise tax stipulated and payable under its franchise is not an internal revenue
tax and, therefore, Section 306 of the Tax Code, providing for refund of overpayment
for a period of only two years, is not applicable to it.

Issue:
 Whether or not the tax payable by plaintiff under its franchise is an internal revenue
tax, therefore Section 306 of the Tax Code, providing for refund of overpayment for a
period of only two years, is not applicable to it;

Ruling:
The franchise taxes under which plaintiff operates, is a national internal revenue tax,
and the provisions of law governing refunds of national internal revenue taxes are
applicable to refunds of the franchise tax here in question."cralaw virtua1aw library

Yes, Sec 306 of the tax Code applies.

A claim for refund not followed by a judicial action avails the claimant nothing.
Besides, the refund of any tax already paid or illegally collected is limited to a period
of two years, counted from the date of the suit in court, not from the date of the
claim for refund. The claim for refund is only a preliminary step to court action.

Under a strict interpretation and application of law, petitioner is entitled to a refund of

this overpayment or illegal collection for a period of only two years prior to the date
of the suit or proceedings which amounts to P50,516.95 as found and adjudged by the
Court of Tax Appeals.

Legally speaking, the decision of the Tax Court is therefore correct, being in
accordance with law.

However, under Section 309 of the Tax Code, the Collector of Internal Revenue is
authorized to credit or refund taxes erroneously or illegally received, for a period of
two years from the date of the claim for refund. In other words, the Collector had
authority to refund or credit this overpayment of P64,607.07. In the case at bar, the
Collector not only offered to credit but took steps to credit petitioner with
overpayment for a period of two years from the date of the claim for refund. In so
doing, he waived the prescriptive period of two years from the date of the actual filing
of the suit.

There is evidence to the effect that if petitioner did not file its suit for refund earlier, it
was because of an agreement with an agent of the Collector that they should await the
result of the case of Philippine Railway v. Collector of Internal Revenue, then
pending in this Court in order that the parties may act correctly.

Hence, on moral and equitable grounds, the court believed that the petitioner is
entitled to the refund of P64,607.07, and not 50,516.95, basing on the two year
period, beginning from the day the claim for refund was made on April 18, 1952.

As a matter of fact, this was the final decision of the Board of Tax Appeals, ordering
the Collector to refund the amount of P64,607.07.

Hence the Court modified the decision of the Tax Court so as to increase the amount
of the refund from P50,516.95 to P64,607.07 for the reasons above-stated, and
considering as we said, the peculiar circumstances involved in the case, we would be
tempering the rigors of the law with fairness and equity.
GR No. L-18330. July 31, 1963.
JOSE DE BORJA, petitioner-appellee, 
vs.
VlCENTE G. GELLA, ET AL., respondents-appellants.

The right to use the backpay certificate in settlement of taxes is given only to the
applicant and not to any holder of any negotiable certificate to whom the law
only gives the right to have it discounted by a Filipino citizen or corporation
under certain limitations.

Facts: 
Jose de Borja has been delinquent in the payment of his real estate taxes since 1958
for properties located in the City of Manila and Pasay City and has offered to pay
them with two negotiable certificates of indebtedness in the amounts of P793.40 and
P717.69.The said negotiable certificates were from Rafael Vizcaya and Pablo Batario
Luna were the applicants for backpay rights covered by the instrument. Borja ,was,
however, a mere assignee of the aforesaid negotiable certificates.

But the offer to pay the real estate tax through the instrument in question were
rejected by the City Treasurers of both Manila and Pasay.

Borja was prompted to bring the question before the Treasurer of the Philippines.

The Treasurer of the Philippines opined that the negotiable certificates cannot be
accepted as payment of real estate taxes inasmuch as the law provides for their
acceptance from their backpay holder only or the original applicant himself, but not
his assignee.

Borja filed an action., against the treasurers of both the City of Manila and Pasay City,
and the Treasurer of the Philippines, to impel them to execute an act which the law
allegedly requires them to perform which is to accept the above-mentioned
certificates of indebtedness considering that they were already due and redeemable so
as not to deprive him illegally of his privilege to pay his obligation to the government
thru such means.

Issue: 
Whether or not Borja may apply to the payment of his real estate taxes the certificates
of indebtedness he holds; while, respondents have the correlative legal duty to accept
the certificates in payment of the taxes

Ruling: 
No. The appellants are not duty bound bound to accept the negotiable certificates of
indebtedness held by appellee in payment of his real estate taxes for the simple reason
that they were not obligations subsisting at the time of the approval of Republic Act
No. 304 which took effect on June 18, 1948. 

The law is explicit that in order that a certificate may be used in payment of an
obligation the same must be subsisting at the time of its approval even if we hold that
a tax partakes of this character, neither can it be contended that appellee can compel
the government to accept the alleged certificates of indebtedness in payment of his
real estate taxes under Section 2 of RA 304, also for the reason that in order that such
payment may be allowed the tax must be owed by the applicant himself. This is the
correct implication that may be drawn from the use by the law of the words "his
taxes".

Hence, the right to use the backpay certificate in settlement of taxes is given only to
the applicant and not to any holder of any negotiable certificate to whom the law only
gives the right to have it discounted by a Filipino citizen or corporation under certain
limitations.

Here appellee is not himself the applicant of the certificate. in question. He is merely
an assignee thereof, Or a subsequent holder whose right is at most to have it
discounted upon maturity—or to negotiate it in the meantime. A fortiori, it may be
included that, not having the right to use said certificates to pay his taxes, appellee
cannot compel appellants to accept them as he requests in the present petition for
mandamus.

G.R. No. L-3491 June 24, 1983

CITY GOVERNMENT OF QUEZON CITY and CITY COUNCIL OF
QUEZON CITY, petitioners,
vs.
HON. JUDGE VICENTE G. ERICTA as Judge of the Court of First Instance of
Rizal, Quezon City, Branch XVIII; HIMLAYANG PILIPINO,
INC., respondents.

The power to regulate does not include the power to prohibit or confiscate. The
ordinance in question not only confiscates but also prohibits the operation of a
memorial park cemetery.

Facts:

Section 9 of Ordinance No. 6118, S-64 provides that at least 6% of the total area of
the memorial park cemetery shall be set aside for the charity burial of deceased
persons who are paupers and have been residents of Quezon City for at least 5 years
prior to their death. As such, the Quezon City engineer required the respondent,
Himlayang Pilipino Inc, to stop any further selling and/or transaction of memorial
park lots in Quezon City where the owners thereof have failed to donate the required
6% space intended for paupers burial.
The then Court of First Instance and its judge, Hon. Ericta, declared Section 9 of
Ordinance No. 6118, S-64 null and void.
Petitioners argued that the taking of the respondent’s property is a valid and
reasonable exercise of police power and that the land is taken for a public use as it is
intended for the burial ground of paupers. They further argued that the Quezon City
Council is authorized under its charter, in the exercise of local police power, ” to
make such further ordinances and resolutions not repugnant to law as may be
necessary to carry into effect and discharge the powers and duties conferred by this
Act and such as it shall deem necessary and proper to provide for the health and
safety, promote the prosperity, improve the morals, peace, good order, comfort and
convenience of the city and the inhabitants thereof, and for the protection of property
therein.”
On the otherhand, respondent Himlayang Pilipino, Inc. contended that the taking or
confiscation of property was obvious because the questioned ordinance permanently
restricts the use of the property such that it cannot be used for any reasonable purpose
and deprives the owner of all beneficial use of his property.
Issue:
Whether or not the Section 9 of the ordinance in question a valid exercise of the
police power?

Held:

No. The Sec. 9 of the ordinance is not a valid exercise of the police power.
An examination of the Charter of Quezon City (Rep. Act No. 537), does not reveal
any provision that would justify the ordinance in question except the provision
granting police power to the City. Section 9 cannot be justified under the power
granted to Quezon City to tax, fix the license fee, and regulate such other business,
trades, and occupation as may be established or practised in the City. The power to
regulate does not include the power to prohibit or confiscate. The ordinance in
question not only confiscates but also prohibits the operation of a memorial park
cemetery.
Police power is defined by Freund as ‘the power of promoting the public welfare by
restraining and regulating the use of liberty and property’. It is usually exerted in
order to merely regulate the use and enjoyment of property of the owner. If he is
deprived of his property outright, it is not taken for public use but rather to destroy in
order to promote the general welfare. In police power, the owner does not recover
from the government for injury sustained in consequence thereof.
It seems to the court that Section 9 of Ordinance No. 6118, Series of 1964 of Quezon
City is not a mere police regulation but an outright confiscation. It deprives a person
of his private property without due process of law, nay, even without compensation.

In the case at hand, there is no reasonable relation between the setting aside of at least
six (6) percent of the total area of an private cemeteries for charity burial grounds of
deceased paupers and the promotion of health, morals, good order, safety, or the
general welfare of the people. The ordinance is actually a taking without
compensation of a certain area from a private cemetery to benefit paupers who are
charges of the municipal corporation. Instead of building or maintaining a public
cemetery for this purpose, the city passes the burden to private cemeteries.

Land Transportation Office vs City of Butuan

GR No. 131512 January 20, 2000, VITUG
LGUs indubitably have the power to regulate the operation of tricycles-for-hire
and to grant franchises for the operation thereof, and not to issue registration.

Facts: 
Respondent city of Butuan asserts that one of the salient provisions introduced by the
local government code is in the area of local taxation which allows LGUs to collect
registration fees or charges along with, its view, the corresponding issuance of all
kinds of licenses or permits for the driving of tricycles.
Relying on the provisions of the local government code, the sangguniang panlungsod
of Butuan, on August 16, 1992 passed SP Ordinance no. 916-42 entitled “An
Ordinance Regulating The Operation Of Tricycles-For-Hire, Providing Mechanism
For The Issuance of Franchise, Registration and Permit and Imposing Penalties For
Violations Thereof and for Other Purposes.”

The ordinance provided for among other things, the payment of franchise fees for the
grant of the franchise of tricyles-for-hire, fees for the registration of the vehicle, and
fees for the issuance of a permit for the driving thereof.

Petitioner LTO explains that one of the functions of the national government that has
been transferred to local government units is the franchising authority over tricycles-
for-hire of the land transportation franchising and regulatory board but not, it
asseverates, the authority of LTO to register all motor vehicles and to issue qualified
persons of licenses to drive such vehicles.

Issue: 
Whether or not respondent city of Butuan may issue license and permit and collect
fees for the operation of tricycle.

Ruling:
    No, based on the-"Guidelines to Implement the Devolution of LTFRBs Franchising
Authority over Tricycles-For-Hire to Local Government units pursuant to the Local
Government Code "the newly delegated powers to LGU's pertain to the franchising
and regulatory powers exercised by the LTFRB and not to the functions of the LTO
relative to the registration of motor vehicles and issuance of licenses for the driving
thereof. Corollarily, the exercised of a police power must be through a valid
delegation. In this case the police power of registering tricycles was not delegated to
the LGU’s, but remained in the LTO.

    Clearly unaffected by the Local Government Code are the powers of LTO under
R.A. No.4136 requiring the registration of all kinds of motor vehicles "used or
operated on or upon any public highway" in the country.

 Police power and taxation, along with eminent domain, are inherent powers of
sovereignty which the State might share with local government units by delegation
given under a constitutional or a statutory fiat. All these inherent powers are for a
public purpose and legislative in nature but the similarities just about end there.

The basic aim of police power is public good and welfare. Taxation, in its case,
focuses on the power of government to raise revenue in order to support its existence
and carry out its legitimate objectives. Although correlative to each other in many
respects, the grant of one does not necessarily carry with it the grant of the other. The
two powers are, by tradition and jurisprudence, separate and distinct powers, varying
in their respective concepts, character, scopes and limitations

REPUBLIC OF THE PHILIPPINES, Petitioner, -versus- MAMBULAO

LUMBER COMPANY, ET AL., Respondents. G.R. No. L-17725, EN BANC,
February 28, 1962, BARRERA, J.

A claim for taxes is not such a debt, demand, contract or judgment as is allowed
to be set-off under the statutes of set-off which are construed uniformly.

Facts:
From 1947 to 1956, respondent company Mambulao paid to petitioner RP
reforestation charges, pursuant to Section1 of RA No. 115, which provides for
payment of an amount in addition to regular forest charges under the National Internal
Revenue Code for each timber removed or cut out from any public forest for
commercial purposes, the amount of which to be used for reforestation. Owing forest
charges to the RP from the period of 1952 until 1953 and with the contention that
RP has not made use of those restoration charges collected from it for reforesting the
denuded area of the land covered by its license, Mambulao wrote the Director of
Forestry in 1957, requesting that its account with the bureau be credited with all
the reforestation charges imposed by it from 1947 to 1956. Said director answered,
quoting the opinion of Secretary of Justice, to the effect that it had no discretion to
extend the time for paying reforestation charges, and also explained why
not all denuded areas are being reforested. When the case was brought to the trial
court, the latter favored the RP, ordering Mambulao to pay its charges with interest.
Hence, Mambulao interposed this appeal.

It is appellant's contention that said sum of P9,127.50, not having been used in the
reforestation of the area covered by its license, the same is refundable to it or may be
applied in compensation of said sum of P4,802.37 due from it as forest charges.

Issue:
Whether the reforestation charges may be set off or applied to the payment of forest
charges owed to the government

Ruling:
Mambulao and the Republic are not mutually creditors and debtors of each other. The
amount paid by Mambulao are in the coffers of the government as taxes collected, and
the latter does not owe anything to it. Consequently, the law on compensation is
inapplicable. It must be noted that under the New Civil Code, compensation takes
place when two persons in their own right are creditors and debtors of each other. A
claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off under the statutes of set-off 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
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. If the taxpayer can properly
refuse to pay his tax when called upon by the Collector because he has a claim against
a governmental body which is not included in the tax levy, it is plain that some
legitimate and necessary expenditure must be curtailed. If the taxpayer's claim is
disputed, the collection of the tax must await and abide the result of a lawsuit. The
financial affairs of the government, meanwhile, will be thrown into great confusion.