Part I - General Principles of Taxation (Case Digest)

CIR vs.
ALGUE
Doctrine of Symbiotic Relationship
G.R. No. Ponente Date
G.R. No. L-28896 CRUZ, J. February 17, 1988
Petitioners Respondents
COMMISSIONER OF INTERNAL REVENUE ALGUE, INC. and THE COURT OF TAX
(CIR) APPEALS (CTA)
DOCTRINE:
Every person who is able to must contribute his share in the running of the government. The
government, for its part, is expected 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.
I. Facts:
➢ On Januarty 14, 1965, Algue Inc., a domestic corporation engaged in engineering,
construction and other allied activities, received a letter from the CIR assessing it
with delinquency income taxes amounting to P83,183.85 for years 1958 and 1959.
➢ On January 18, 1965, Algue filed a letter of protest or request for reconsideration which
was stamp-received on the same day in the office of the CIR.
➢ On March 12, 1965, a warrant of distraint and levy was presented to Algue, through its
counsel Atty. Alberto Guevarra, Jr., who refused to receive it on the ground of pending
protest. Atty. Guevarra later produced his file copy and gave a photostat to BIR agent
Ramon Reyes, who deferred service of the warrant.
➢ On April 7, 1965, Atty Gueverra was finally informed that the BIR was not taking any action
on the protest and it was only then that he accepted the warrant of distraint and levy.
➢ Algue, then, sought to claim a P75,000 deduction, but was denied by the CIR
contending that the claimed deduction was properly disallowed because it was not an
ordinary, reasonable or business expense.
➢ On April 23, 1965, Algue filed a petition for review of the decision of the CIR with the
CTA which ruled in its favor and allowed the said deduction, it held that the amount
of P75,000 had been legitimately paid by the Algue for actual services rendered. The
payment was in the form of promotional fees. These were collected by the payees for their
work in the creation of the Vegetable Oil Investment Corporation of the Philippines
(VOICP) and its subsequent purchase of the properties of the Philippine Sugar Estate
Development Company. (PSEDC)
II. Issues:
Whether or not the CIR correctly disallowed the P75,000.00 deduction claimed by Algue as
legitimate business expenses in its income tax returns. (NO)
III. Ratio/Legal Basis:

The Supreme Court upheld the ruling of the CTA and allowed the P75,000.00 deductions claimed
by Algue. The claimed deduction by Algue is in accord with the following provision of the Tax
Code. (see notes)
In addition, it has been established that the PSEDC 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., and other individuals worked for the formation of the VOICP, 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 P125,000.00, and it was from this commission that the P75,000.00
promotional fees were paid to the aforenamed individuals.
Further, Algue, Inc has proved that the payment of the fees was necessary and reasonable
in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.
In conclusion, it is said that taxes are what we pay for civilized 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. The government for its part, is expected 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 taxation and should dispel
the erroneous notion that it is an arbitrary method of exaction by those in the seat of power
IV. Dispositive Portion:

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs
V. Notes:
➢ Provision of the Tax Code:
"SEC. 30. Deductions from gross income. — In computing net income there shall be
allowed as deductions —
a.) Expenses:
(1) In general. — All the ordinary and necessary expenses paid or incurred during
the taxable year in carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal services actually
rendered; x x x" and
And Revenue Regulations No. 2, Section 70 (1), reading as follows:
"SEC. 70. Compensation for personal services. — Among the ordinary and
necessary expenses paid or incurred in carrying on any trade or business may be
included a reasonable allowance for salaries or other compensation for personal
services actually rendered.”
➢ Procedural Issue: Whether or not the appeal of Algue, Inc from the decision of the CIR
Revenue was made on time and in accordance with law. (Yes)
Appeal from a decision of the CIR with the Court of Tax Appeals is 30 days from
receipt thereof.—The above chronology shows that the petition was filed
seasonably. According to Rep. Act No. 1125, the appeal may be made within
thirty days after receipt of the decision or ruling challenged.
As the Court of Tax Appeals correctly noted, the protest filed by Algue was not
pro forma and was based on strong legal considerations. It thus had the effect of
suspending on January 18, 1965, when it was filed, the reglementary period
which started on the date the assessment was received, viz., January 14,
1965. The period started running again only on April 7, 1965, when Algue was
definitely informed of the implied rejection of the said protest and the warrant was
finally served on it. Hence, when the appeal was filed on April 23, 1965, only
20 days of the reglementary period had been consumed.
➢ Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as
any arbitrariness will negate the very reason for government itself. It is therefore necessary
to reconcile the apparently conflicting interests of the authorities and the taxpayers so that
the real purpose of taxation, which is the promotion of the common good, may be
achieved.
BPI Family Savings Bank v. CA
Doctrine of Unjust Enrichment as Applied to Government
L-122480 PANGANIBAN, J. April 12, 2000
BPI-FAMILY SAVINGS BANK, Inc. COURT OF APPEALS, COURT OF TAX APPEALS
and the COMMISSIONER OF INTERNAL REVENUE
DOCTRINE: “If the State expects its taxpayers to observe fairness and honesty in paying their
taxes, so must it apply the same standard against itself in refunding excess payments. When it
is undisputed that a taxpayer is entitled to a refund the State should not invoke technicalities to
keep money not belonging to it. No one, not even the State, should enrich oneself at the expense
of another.”
I. Facts of the case
• This case involves a claim for tax refund in the amount of P112,491.00 representing BPI
Family Savings Bank (BPI)’s tax withheld for the year 1989. As appearing in its 1989
Income Tax Return (ITR), BPI has a total of P297,492 refundable taxes inclusive of the
P112,491.00 being claimed as tax refund in the present case.
• BPI declared in its 1989 ITR that it would apply the excess withholding tax as a tax credit
for the year 1990.
• Subsequently, however, BPI claimed for a tax refund with the Commission of Internal
Revenue since in the year 1990 it suffered losses, thus, could not have applied said
amount as tax credit.
• Without waiting for respondent CIR’s action in its claim for refund, BPI filed a petition for
review with the Court of Tax Appeals (CTA), seeking the refund of the amount of
P112,491.00
• CTA dismissed the petition on the ground that BPI failed to present as evidence its 1990
annual income tax return to prove that it had not yet credited the amount of P297,422,
inclusive of P112,491 which is the subject of the present controversy to its 1990 tax
liability.
• BPI filed a motion for reconsideration in the respondent court, however, Court of Appeals
affirmed the CTA. Hence, this Petition.
II. Issue/s
Whether or not BPI Family Savings Bank is entitled to a tax refund of P112,491.00
representing excess creditable withholding tax paid for the taxable year 1989.
III. Ratio/Legal Basis
Yes. BPI is entitled to refund. It is indubitable that petitioner had excess withholding taxes
for the year 1989 and was thus entitled to a refund amounting to P112,491.00. Under the
1986 Tax Code, corporation entitled to a refund may opt either (1) to obtain such refund
or (2) to credit said amount for the succeeding taxable year.
The undisputed fact is that BPI suffered a net loss in 1990; accordingly, it incurred no tax
liability to which the tax credit could be applied. Consequently, there is no reason for the
BIR and this Court to withhold the tax refund which rightfully belongs to BPI.
Substantial justice, equity and fair play are on the side of BPI. Technicalities and
legalisms, however exalted, should not be misused by the government to keep
money not belonging to it and thereby enrich itself at the expense of its law-abiding
citizens. If the State expects its taxpayers to observe fairness and honesty in paying
their taxes, so must it apply the same standard against itself in refunding excess payments
of such taxes. Indeed, the State must lead by its own example of honor, dignity and
uprightness.
IV. Disposition
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision and
Resolution of the Court of Appeals REVERSED and SET ASIDE. The Commissioner of
Internal Revenue is ordered to refund to BPI the amount of P112,491 as excess creditable
taxes paid in 1989. No costs.
V. Notes
Section 69. Final Adjustment Return. — Every corporation liable to tax under Section 24
shall file a final adjustment return covering the total taxable income for the preceding
calendar or fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total due on the entire taxable net income of that year the
corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess estimated quarterly income
taxes paid, the refundable amount shown on its final adjustment return may be credited
against the estimated quarterly income tax liabilities for the taxable quarters of the
succeeding taxable year.
Lutz v Araneta
Purpose of Taxation, Promotion of General Welfare
G.R. No. L-7859 REYES, J.B L., J December 22, 1955
WALTER LUTZ, Judicial Administrator of the JUDGE ANTONIO ARANETA, Collector of
Intestate Estate of the deceased Antonio Internal Revenue
Jayme Ledesma
DOCTRINE:
The State has the power to levy taxes in aid and support of protection and promotion of matters
of public concern.
I. Facts:
The Sugar Adjustment Act was enacted due to the threat to the sugar industry brought by the
imposition of export taxes upon sugar as provided in the Tydings-Mcduffie Law. The Sugar
Adjustment Act levies on owners or persons in control of lands devoted to the cultivation of
sugarcane. Lutz, the judicial administrator of the estate of Ledesma, at the time seeks to recover
from the Collector of Internal Revenue the estate taxes paid as he alleged that such tax is
unconstitutional and void, being levied for the aid and support of the sugar industry exclusively. It
is his opinion that it is not of public purpose for which a tax may be constitutionally levied. The
action was initially dismissed by the Court of First Instance and his appeal elevated the same to
the Supreme Court.
II. Issue/s:
Whether or not the estate taxes collected from the estate of Ledesma is not of public purpose.
(NO)
The estate taxes collected from the estate of Ledesma, pursuant to the Sugar Adjustment Act, is
of public purpose. The tax is levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry. The law was passed for the
protection and promotion of the sugar industry, and such is a matter of public concern. The act is
primarily an exercise of the police power. General welfare demanded that the sugar industry
should be stabilized. The Legislature is clothed with authority to determine within reasonable
bounds what is necessary for the protection of the industry. It cannot be said that the devotion of
tax money to experimental stations to seek increased efficiency in sugar production and the
improvement of living and working conditions in sugar mills are not a matter of public concern,
even if the funds collected are channeled directly to private persons.
The decision appealed from is affirmed, with costs against appellant.
V. Notes:
The state has the power to select the subject of taxation. The law was passed for the benefit of
sugar producers and it is only rational that the tax be obtained from those who are to be benefited
from the expenditure of the funds derived from it. 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.
Osmeña v. Orbos
Promotion of General Welfare
99886 NARVASA, J. 17 February 1998
JOHN H. OSMEÑA OSCAR ORBOS, in his capacity as Executive Secretary; JESUS
ESTANISLAO, in his capacity as Secretary of Finance; WENCESLAO
DELA PAZ, in his capacity as Head of the Office of Energy Affairs; REX
V. TANTIONGCO, and the ENERGY REGULATORY BOARD
DOCTRINE: “All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special fund was
created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general
funds of the Government.” – Article VI of the 1987 Constitution, Sec. 29(3)
• October 10, 1984 – Pres. Ferdinand Marcos issued P.D. 1956 creating a Special
Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF).
• The OPSF was designated to reimburse oil companies for cost increases in crude oil
and imported petroleum products resulting from exchange rate adjustments and from
increases in the world market prices of crude oil.
• Subsequently, the OPSF was reclassified into a “trust liability account”, in virtue of
the E.O. 1024. The same Executive Order also authorized the investment of the fund in
government securities, with the earning from such placements accruing to the fund.
• February 27, 1987 – Pres. Cory Aquino, amended P.D. 1956 and promulgated E.O. No.
137, expanding the grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices of
petroleum products, the amount of the underrecovery being left for determination
by the Ministry of Finance.
• Osmeña avers that the creation of the trust fund violates Article VI, Sec. 29(3) of
the Constitution and he argues that:
1) the monies collected pursuant to P.D. 1956, as amended, must be treated as a

“SPECIAL FUND”, not as a ‘trust account’ or a ‘trust fund,’ and that “if a special
tax is collected for a specific purpose, the revenue generated therefrom shall ‘be
treated as a special fund’ to be used only for the purpose indicated, and not
channeled to another government objective;
2) since “a ‘special fund’ consists of monies collected through the taxing power of a
State, such amounts belong to the State, although the use thereof is limited to
the special purpose/objective for which it was created.”
• Osmeña does not suggest that a “trust account” is illegal, however, he maintains that the
monies collected, which form part of the OPSF, should be maintained in a special
account of the general fund as provided in the Constitution, and because they are,
supposedly, taxes levied for a special purpose. He assumes that the Fund is formed from
a tax undoubtedly because a portion thereof is taken from collections of ad valorem taxes1
and the increases thereon.
II. Issue/s
Whether or not the creation of the trust fund violates Article VI, Sec. 29 (3) of the
Constitution. NO.
• The OPSF is a “Trust Account” which was established “for the purpose of minimizing the
frequent price changes brought about by exchange rate adjustment and/or changes in
world market prices of crude oil and imported petroleum products.”
1
ad valorem taxes – refers to the excise tax which is based on selling price or other specified value of the goods/articles.
excise tax – a tax on the production, sale or consumption of a commodity in a country.
• The OPSF was established precisely to protect local consumers from the adverse
consequences that such frequent oil price adjustments may have upon the
economy.
• The stabilization, and subsidy of domestic prices of petroleum products and fuel oil —
clearly critical in importance considering, among other things, the continuing high level of
dependence of the country on imported crude oil — are appropriately regarded as public
purposes.
• OPSF is levied with a regulatory purpose, which, in this case, is to provide a means for
the stabilization of the oil industry.
• Hence, it seems clear that while the funds collected may be referred to as taxes, they are
exacted in the exercise of the police power of the State. Moreover, that the OPSF is a
special fund is plain from the special treatment given it by E.O. 137. It is segregated from
the general fund; and while it is placed in what the law refers to as a “trust liability
account,” the fund nonetheless remains subject to the scrutiny and review of the
COA. The Court is satisfied that these measures comply with the constitutional
description of a “special fund.”
• It seems obvious that what the law intended was to permit the additional imposts for as
long as there exists a need to protect the general public and the petroleum industry from
the adverse consequences of pump rate fluctuations.
IV. Disposition
WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the
reimbursement of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other
respects.
V. Notes
Under P.D. No. 1956, as amended by Executive Order No. 137 dated 27 February 1987, this Trust
Account (OPSF) may be funded from any of the following sources:
a) Any increase in the tax collection from ad valorem tax or customs duty imposed on
petroleum products subject to tax under this Decree arising from exchange rate
adjustment, as may be determined by the Minister of Finance in consultation with the
Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax exemptions of
government corporations, as may be determined by the Minister of Finance in
consultation with the Board of Energy:
c) Any additional amount to be imposed on petroleum products to augment the

resources of the Fund through an appropriate Order that may be issued by the Board
of Energy requiring payment of persons or companies engaged in the business of
importing, manufacturing and/or marketing petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs paid by oil
companies in the importation of crude oil and petroleum products is less than the peso
costs computed using the reference foreign exchange rate as fixed by the Board of
Energy.
1
05 ABAKADA Guro v. Ermita

Fiscal Adequacy/Uniformity
168056 Austria-Martinez, J. 01 September 2005
ABAKADA Guro Partylist Officers Samson S. Executive Secretary Eduardo Ermita, Secretary
Alcantara and Vincent S. Albano of Finance Cesar V. Purisima, and CIR
Guillermo Parayno, Jr.
DOCTRINE/S: Fiscal adequacy denotes that the sources of revenues must be adequate to meet
government expenditures.
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation. [Art. VI, Sec. 28(1) of the 1987 Constitution]
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall
be taxed at the same rate. Different articles may be taxed at different amounts provided that the
rate is uniform on the same class everywhere with all people at all times.
● This case is a consolidation of 5 petitions assailing the constitutionality of RA 9337

amending certain provisions of the National Internal Revenue Code.
● ABAKADA Guro Partylist et.al. question the validity of said law, specifically Section 4
imposing a 10% VAT on sale of goods and properties, Section 5 imposing a 10% VAT
importation of goods, and Section 6 imposing a 10% VAT on sale of services and use or
lease of properties. Said sections contain a common proviso authorizing the President,
upon recommendation of the Secretary of Finance, to raise the VAT rate to 12% after
any of the following conditions have been satisfied: (i) VAT collection as a percentage of
Gross Domestic Product of the previous year exceeds 2 ⅘%; or (ii) National government
deficit as a percentage of GDP of the previous year exceeds 1½%.
● Pimentel et.al. contend that the increase in the VAT rate, which was allegedly an
incentive to the President to raise the VAT collection to at least 2⅘ of the GDP of the
previous year, should be based on fiscal adequacy.
● Association of Pilipinas Shell Dealers, Inc. et.al., assail Sections 8 and 12 of RA 9337
as having violated the equal protection clause1, as the limitation on the creditable input
tax if: (1) the entity has a high ratio of input tax2; or (2) invests in capital equipment; or
(3) has several transactions with the government, is not based on real and substantial
differences to meet a valid classification. They also assailed the authorization given to
any government agency to deduct a 5% final withholding tax3 on gross payments of
goods and services.
● Ermita et.al. manifest that RA 9337 is the answer to the government’s fiscal reform,
especially in the value-added system of taxation. To do this, government expenditures
must be strictly monitored and controlled and revenues must be significantly increased.
II. Issue/s
W/N the increase in VAT rate to 12%, the 70% limitation on creditable input tax, the 60- month
amortization on the purchase or importation of capital goods exceeding P1,000,000.00, and
the 5% final withholding tax are unconstitutional. NO
1 No person or class of persons shall be deprived of the same protection of laws which is enjoyed by other
persons or other classes in the same place and in similar circumstances.
2 Input tax is the value-added tax due from or paid by a VAT-registered person on the importation of goods
or local purchase of goods and services, including lease or use of property, in the course of trade or
business, from a VAT-registered person, and Output Tax is the value-added tax due on the sale or lease
of taxable goods or properties or services by any person registered or required to register under the law.
3 The amount of income tax withheld by the withholding agent is constituted as full and final payment of the
income tax due from the payee on the said income. The liability for payment of the tax rests primarily on
the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of
underwithholding, the deficiency tax shall be collected from the payor/withholding agent.
2
FISCAL ADEQUACY
As to the increase in VAT rate to 12%
● The Court held that RA 9337 does not provide for a return to the 10% rate nor does it
empower the President to revert if, after the rate is increased to 12%, the VAT collection
goes below the 2⅘% of the GDP of the previous year or that the national government
deficit as a percentage of GDP of the previous year does not exceed 1½%. The incentive
to the President to increase the VAT collection does not render it unconstitutional
so long as there is a public purpose, which is to raise revenue to attain fiscal
adequacy.
● Ermita et.al. explained the reasoning behind the two conditions:
VAT/GDP Ratio > 2.8%: If VAT/GDP is less than 2.8%, it means that the
government has no capability of implementing the VAT therefore, there is no value to
increase it to 12% because such action will be ineffectual.
National Government Deficit/GDP > 1.5%: The condition set for increasing VAT
when deficit/GDP is 1.5% or less means the fiscal condition of the government has
reached a relatively sound position or is towards the direction of a balanced budget
position. Therefore, there is no need to increase the VAT rate. However, if the ratio is more
than 1.5%, there is a need to increase the VAT rate.
As to the 70% limitation on creditable input tax
● The Court ruled that the right to credit input tax as against the output tax is clearly a
privilege created by law that can be removed or limited. In this case, the value-added taxes
that a person/taxpayer paid and passed on to him by a seller can only be credited up to
70% of the value-added taxes that are due to him on a taxable transaction. What only
needs to be done is for the person/taxpayer to apply or credit these input taxes, as
evidenced by receipts, against his output taxes.
As to the 60-month amortization on the purchase or importation of capital goods exceeding

₱1,000,000.00
● The Court explained that the input tax on goods purchased or imported in a calendar
month for use in trade or business for which deduction for depreciation is allowed under
the NIRC, shall be spread evenly over the month of acquisition and the 59 succeeding
months if the aggregate acquisition cost for such goods, excluding the VAT component
thereof, exceeds ₱1,000,000.00: Provided, however, that if the estimated useful life of the
capital good is less than 5 years, as used for depreciation purposes, then the input VAT
shall be spread over such shorter period.
FISCAL UNIFORMITY
As to the 5% final withholding tax by government agencies:
● The Court sustained that a uniform rate of 5% is applied. Sec. 12 provides a more
simplified VAT withholding system and the government in this case is constituted as a
withholding agent.
● The Court observes, however, that the law used the word “final” which means full in tax
usage, as opposed to creditable. This means that taxable transactions with the
government are subject to a 5% rate, which constitutes as full payment of the tax payable
on the transaction. The use of the word final and the deletion of the word creditable exhibits
Congress’s intention to treat transactions with the government differently. Since it has
not been shown that the class subject to the 5% final withholding tax has been
3
unreasonably narrowed, there is no reason to invalidate the provision. The

Association of Pilipinas Shell Dealers, Inc. et.al., as petroleum dealers, are not the
only ones subjected to the 5% final withholding tax. It applies to all those who deal
with the government.
Summary: The Court held in this case that the increase in VAT collection to 12%, should any of
the two conditions be met, does not render it unconstitutional so long as there is a public purpose,
which is to raise revenue to attain fiscal adequacy. The Court also emphasized that the tax law is
uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services. Sections
4, 5, and 6 provide for a rate of 10% (or 12%) on sale of goods and properties, importation of
goods, and sale of services and use or lease of properties. These sections also provide for a 0%
rate on certain sales and transactions.
Neither does RA 9337 make any distinction as to the type of industry that will bear the 70%
limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital
goods or the 5% final withholding tax by the government. It must be stressed that the rule on
uniform taxation does not deprive Congress of the power to classify subjects of taxation,
and only demands uniformity within the particular class.
IV. Disposition
WHEREFORE, R.A. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056,
168207, 168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of

R.A. 9337, the TRO issued by the Court on July 1, 2005 is LIFTED upon finality of herein decision.
Reyes vs. Almanzor
Equitability and Progressability
L-49839-46 PARAS, J. 17 February 1998
JOSE B.L. REYES PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in
& EDMUNDO their capacities as appointed and Acting Members of the CENTRAL
REYES BOARD OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS,
ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities
as appointed and Acting Members of the BOARD OF ASSESSMENT
APPEALS of Manila; and NICOLAS CATIIL in his capacity as City
Assessor of Manila, respondents.
DOCTRINE: Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation
must not only be uniform, but must also be equitable and progressive. Taxation is said to be equitable
when its burden falls on those better able to pay. Taxation is progressive when its rate goes up
depending on the resources of the person affected
 J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Manila,
which are leased & entirely occupied by tenants, as dwelling sites who paid monthly rentals
not exceeding Php 300 on July 1971.
 On July 14, 1971, RA No. 6359 was enacted, it prohibited a year from its effectivity, an increase
in monthly rentals of dwelling units/of lands on which another's dwelling is located, where such
rentals do not exceed P300.00 a month but allowing an increase in rent by not more than 10%
thereafter.
 The Act also suspended paragraph (1) of Article 1673 (ejectment of lessees) of the Civil Code
for two years from its effectivity. On October 12, 1972, PD No. 20 amended R.A. No. 6359,
the latter effectively suspended the operation of Art. 1673 of the NCC indefinitely. Thus the
Reyeses, were precluded from raising the rentals and from ejecting the tenants.
 In 1973, the City Assessor of Manila re-classified and reassessed the value of the subject
properties based on the schedule of market values duly reviewed by the Finance Secretary.
The revision, entailed an increase in the corresponding tax rates prompting the petitioners to
file a Memorandum of Disagreement with the Board of Tax Assessment Appeals.
 They averred that the reassessments made were "excessive, unwarranted, inequitable,
confiscatory and unconstitutional" considering that the taxes imposed upon them greatly
exceeded the annual income derived from their properties. They argued that the income
approach should have been used in determining the land values instead of the comparable
sales approach which the City Assessor used.
 The Board of Tax Assessment Appeals, however, considered the assessments valid. Thus the
Reyeses appealed to the Central Board of Assessment Appeals. Who upheld the decision of
the former with modification. The Reyeses filed a Motion for Reconsideration, but it was
denied, hence the present recourse to the Court.
II. Issue/s
Whether or not the values assigned to their properties of the petitioners as revised and
increased are arbitrarily excessive, unwarranted, inequitable, confiscatory and
unconstitutional?
● YES, the values assigned to their properties of the petitioners as revised and increased are
arbitrarily excessive, unwarranted, inequitable, confiscatory and unconstitutional.
● Taxing power is the authority to make a reasonable and natural classification for purposes of
taxation but the government's act must not be prompted by a spirit of hostility, or at the very
least discrimination that finds no support in reason. 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
● UAnder the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation
purposes is that the property must be "appraised at its current and fair market value."
● Petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No.
6359 and P.D. 20) under the principle of social justice should not now be penalized by the
same government by the imposition of excessive taxes petitioners can ill afford and eventually
result in the forfeiture of their properties.
IV. Disposition
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of
public respondents are REVERSED and SET ASIDE; and (e) the respondent Board of
Assessment Appeals of Manila and the City Assessor of Manila are ordered to make a
new assessment by the income approach method to guarantee a fairer and more realistic
basis of computation
V. Notes
 Collection of taxes should be made in accordance with law as any arbitrariness will
negate the very reason for government itself.—Verily, taxes are the lifeblood of the
government and so should be collected without unnecessary hindrance. However,
such collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and the taxpayers so that the
real purpose of taxations, which is the promotion of the common good, may be
achieved (Commissioner of Internal Revenue v. Algue, Inc., et al., 158 SCRA 9
[1988]). Consequently, it stands to reason that petitioners who are burdened by
the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20)
under the principle of social justice should not now be penalized by the same
government by the imposition of excessive taxes petitioners can ill afford and
eventually result in the forfeiture of their properties
 The power to tax is the strongest of all the powers of the government.—The
power to tax “is an attribute of sovereignty”. In fact, it is the strongest of all the
powers of government. But for all its plenitude, the power to tax is not unconfined
as there are restrictions. Adversely effecting as it does property rights, both the
due process and equal protection clauses of the Constitution may properly be
invoked to invalidate in appropriate cases a revenue measure. If it were otherwise,
there would be truth to the 1903 dictum of Chief Justice Marshall that “the power
to tax involves the power to destroy.” The web or unreality spun from Marshall’s
famous dictum was brushed away by one stroke of Mr. Justice Holmes’ pen, thus:
“The power to tax is not the power to destroy while this Court sits.” “So it is in the
Philippines.” (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v.
Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
PAL v. Sec. of Finance
Equitability and Progressivity
G.R. No. 115852 MENDOZA, J. 25 August 1994
PHILIPPINE AIRLINES, INC. THE SECRETARY OF FINANCE, and
COMMISSIONER OF INTERNAL REVENUE
DOCTRINE:
1. The Contract Clause has never been thought as a limitation on the exercise of the
State's power of taxation save only where a tax exemption has been granted for a
valid consideration.
2. Regressivity is not a negative standard for courts to enforce. What Congress is required
by the Constitution to do is to "evolve a progressive system of taxation." This is a
directive to Congress, just like the directive to it to give priority to the enactment of laws
for the enhancement of human dignity and the reduction of social, economic and political
inequalities (Art. XIII, Sec. 1), or for the promotion of the right to "quality education" (Art.
XIV, Sec. 1). These provisions are put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights.
a. The legislature is not required to adhere to a policy of "all or none" in choosing
the subject of taxation.
• The value-added tax (VAT) is levied on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of services. It is equivalent to 10% of the
gross selling price or gross value in money of goods or properties sold, bartered or
exchanged or of the gross receipts from the sale or exchange of services. Republic Act
No. 7716 or the Expanded Value-Added Tax Law seeks to widen the tax base of the
existing VAT system and enhance its administration by amending the National Internal
Revenue Code (NIRC).
• These are various suits for certiorari and prohibition, challenging the constitutionality of
Republic Act No. 7716 on various grounds.
1. The effect of the amendment in Sec. 103 of the NIRC is to remove the exemption granted
to PAL, as far as the VAT is concerned.
a. PAL further contended that amendment of petitioner's franchise may only be
made by special law, in view of Sec. 24 of P.D. No. 1590 which provides:
This franchise, as amended, or any section or provision hereof may only
be modified, amended, or repealed expressly by a special law or decree
that shall specifically modify, amend, or repeal this franchise or any
section or provision thereof.
This provision is evidently intended to prevent the amendment of the franchise
by mere implication resulting from the enactment of a later inconsistent statute,
in consideration of the fact that a franchise is a contract which can be altered
only by consent of the parties.
2. The broad argument against the VAT is that it is regressive and that it violates the
requirement that "The rule of taxation shall be uniform and equitable [and] Congress
shall evolve a progressive system of taxation. [Art. VI, Sec. 28 (1) of the Constitution]
a. Petitioners in G.R. No. 115781 (Kilosbayan, Inc., et. al. vs. The Executive
Secretary, The Secretary of Finance, The Commissioner of Internal Revenue and
The Commissioner of Customs) contend that as a result of the uniform 10% VAT,
the tax on consumption goods of those who are in the higher-income bracket,
which before were taxed at a rate higher than 10%, has been reduced, while
basic commodities, which before were taxed at rates ranging from 3% to 5%, are
now taxed at a higher rate.
b. The Sec. of Finance claimed that in fact it distributes the tax burden to as many
goods and services as possible particularly to those which are within the reach
of higher-income groups, even as the law exempts basic goods and services. It
is thus equitable. The goods and properties subject to the VAT are those used or
consumed by higher-income groups.
II. Issue/s
Digest Maker: Leah Faith U. Toledo

1. Whether or not R.A. No. 7716 can amend PAL’s franchise (P.D. No. 1590)
2. Whether or not R.A. No. 7716 violates Art. VI, Sec. 28 (1) of the Constitution
1. YES. It is enough to say that the parties to a contract cannot, through the exercise of
prophetic discernment, fetter the exercise of the taxing power of the State. For not only
are existing laws read into contracts in order to fix obligations as between parties, but the
reservation of essential attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts against impairment
presupposes the maintenance of a government which retains adequate authority to secure
the peace and good order of society.
a. Republic Act No. 7716 expressly amends PAL's franchise (P.D. No. 1590) by
specifically excepting from the grant of exemptions from the VAT PAL's exemption
under P.D. No. 1590. This is within the power of Congress to do under Art. XII,
Sec. 11 of the Constitution, which provides that the grant of a franchise for the
operation of a public utility is subject to amendment, alteration or repeal by
Congress when the common good so requires.
2. NO. Lacking empirical data on which to base any conclusion regarding these arguments,
any discussion whether the VAT is regressive in the sense that it will hit the "poor" and
middle-income group in society harder than it will the "rich," is largely an academic
exercise.
a. As Republic Act No. 7716 merely expands the base of the VAT system and its
coverage as provided in the original VAT Law, further debate on the desirability
and wisdom of the law should have shifted to Congress.
b. The Cooperative Union of the Philippines (CUP)'s contention that Congress'
withdrawal of exemption of producers cooperatives, marketing cooperatives, and
service cooperatives, while maintaining that granted to electric cooperatives, not
only goes against the constitutional policy to promote cooperatives as instruments
of social justice (Art. XII, Sec. 15) but also denies such cooperatives the equal
protection of the law is actually a policy argument. The legislature is not required
to adhere to a policy of "all or none" in choosing the subject of taxation.
IV. Disposition
That, in view of the absence of a factual foundation of record, claims that the law is
regressive, oppressive and confiscatory and that it violates vested rights protected under the
Contract Clause are prematurely raised and do not justify the grant of prospective relief by writ of
prohibition.
WHEREFORE, the petitions in these cases are DISMISSED.
V. Notes
• Among the provisions of the NIRC amended is § 103, which originally read:
Sec. 103. Exempt transactions. — The following shall be exempt from the value-added
tax:
....
(q) Transactions which are exempt under special laws or international agreements to
which the Philippines is a signatory. Among the transactions exempted from the VAT
were those of PAL because it was exempted under its franchise (P.D. No. 1590) from
the payment of all "other taxes . . . now or in the near future," in consideration of the
payment by it either of the corporate income tax or a franchise tax of 2%.
As a result of its amendment by Republic Act No. 7716, § 103 of the NIRC now provides:
Sec. 103. Exempt transactions. — The following shall be exempt from the value-added
tax:
....
(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .

TOLENTINO vs. SECRETARY OF FINANCE & CIR
Regressivity
G.R. No. 115455 MENDOZA, J. August 25, 1994; and
October 30, 1995 (motion
seeking reconsideration)
ARTURO M. TOLENTINO THE SECRETARY OF FINANCE AND THE
COMMISSIONER OF INTERNAL REVENUE
(CIR)
DOCTRINE:
“Regressivity is not a negative standard for courts to enforce since what Congress is
required by the Constitution to do is to “evolve a progressive system of taxation.”— This
is a directive to Congress, just like the directive to it to give priority to the enactment of laws for
the enhancement of human dignity and the reduction of social, economic and political inequalities
(Art. XIII, Section 1), or for the promotion of the right to “quality education” (Art. XIV, Section 1).
These provisions are put in the Constitution as moral incentives to legislation, not as judicially
enforceable rights.
I. Facts:
➢ The value-added tax (VAT) is levied on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of services. It is equivalent to 10% of the
gross selling price or gross value in money of goods or properties sold, bartered or
exchanged or of the gross receipts from the sale or exchange of services.
➢ Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and
enhance its administration by amending the National Internal Revenue Code.
➢ Various suits were filed (NOTE: this case is a consolidation of various petitions)
for certiorari and prohibition, challenging the constitutionality of Republic Act No. 7716 on
various grounds, one of which is its alleged violation of Article VI, Section 28(1) of the
1987 Constitution which states that “The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of taxation.”
Some of the petitioners’ arguments regarding regressivity: (Note: This case is a

consolidation of various petitions)
➢ Petitioners (too many to mention) in G.R. No. 115781 quote from a paper, entitled "VAT
Policy Issues: Structure, Regressivity, Inflation and Exports" by Alan A. Tait of the
International Monetary Fund, that:
o "VAT payment by low-income households will be a higher proportion of their
incomes (and expenditures) than payments by higher-income households. That is,
the VAT will be regressive." Petitioners contend that as a result of the uniform
10% VAT, the tax on consumption goods of those who are in the higher-income
bracket, which before were taxed at a rate higher than 10%, has been reduced,
while basic commodities, which before were taxed at rates ranging from 3% to 5%,
are now taxed at a higher rate.
➢ In G.R. No. 115873, Cooperative Union of the Philippines (CUP) claims that:
o the VAT is regressive in the sense that it will hit the “poor” and middle-income
group in society harder than it will the “rich”.
➢ The Chamber of Real Estate and Builders Association (CREBA) claims that the VAT is
regressive. A similar claim is made by the Cooperative Union of the Philippines, Inc.
(CUP), while Juan T. David argues that
o the law contravenes the mandate of Congress to provide for a progressive system
of taxation because the law imposes a flat rate of 10% and thus places the tax
burden on all taxpayers without regard to their ability to pay.
Respondents’ arguments:
➢ The opposite claim is pressed by respondents (too many to mention) that in fact it
distributes the tax burden to as many goods and services as possible particularly
to those which are within the reach of higher-income groups, even as the law
exempts basic goods and services. It is thus equitable.
o The goods and properties subject to the VAT are those used or consumed by
higher-income groups. These include real properties held primarily for sale to
customers or held for lease in the ordinary course of business, the right or privilege
to use industrial, commercial or scientific equipment, hotels, restaurants and
similar places, tourist buses, and the like.
o On the other hand, small business establishments, with annual gross sales of less
than P500,000, are exempted. This, according to respondents, removes from the
coverage of the law some 30,000 business establishments.
II. Issues:
Whether or not R.A. No 7716 violates Article VI, Section 28(1) of the 1987 Constitution. Otherwise
stated, does the Constitution prohibit regressive taxes. (NO.)

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall "evolve a progressive system of
taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are
to be preferred and as much as possible, indirect taxes should be minimized.” The mandate of
Congress is not to prescribe but to evolve a progressive tax system. This is a mere directive upon
Congress, not a justiciable right or a legally enforceable one. We cannot avoid regressive taxes
but only minimize them.
The law minimizes the regressive effects of this imposition by providing for zero rating of certain
transactions while granting exemptions to other transactions. The transactions which are subject
to VAT are those which involve goods and services which are used or availed of mainly by higher
income groups.

WHEREFORE, the petitions in these cases are DISMISSED. (August 25, 1994 case)
WHEREFORE, the motions for reconsideration are denied with finality and the temporary
restraining order previously issued is hereby lifted. (October 30, 1995 case)
V. Notes:
As to graduation:
1. Progressive – A tax rate which increases as the tax base or bracket increases. (e.g. income
tax, estate tax and donor’s tax)
2. Regressive – The tax rate decreases as the tax base or bracket increases.
3. Proportionate – A tax of a fixed percentage of amounts of the base (value of the property, or
amount of gross receipts etc.). (e.g. VAT and other percentage taxes)
CIR v. Cebu Portland Cement
Lifeblood Theory
L-29059 CRUZ, J. December 15, 1987
COMMISSIONER OF INTERNAL CEBU PORTLAND CEMENT COMPANY and COURT
REVENUE OF TAX APPEALS
DOCTRINE:
§ Taxes are what we pay for a civilized society. If the payment of taxes could be postponed
by simply questioning their validity, the State would be paralyzed.
§ Injunction generally does not lie against the collection of taxes.
Facts of the case
• By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified
on appeal by the Supreme Court on February 27, 1965, the Commissioner of Internal
Revenue was ordered to refund to the Cebu Portland Cement Company the amount
of P359,408.98, representing overpayments of ad valorem taxes on cement produced
and sold by it after October 1957.
• On March 28, 1968, following denial of motions for reconsideration filed by both the CIR
and Cebu Portland, the latter moved for a writ of execution to enforce the said judgment.
• The motion was opposed by CIR on the ground that the Cebu Portland had an outstanding
sales tax liability to which the judgment debt had already been credited. In fact, it
was stressed, there was still a balance owing on the sales taxes in the amount of
P4,789,279.85 plus 28% surcharge.
• On April 22, 1968, the Court of Tax Appeals granted the motion, holding that the alleged
sales tax liability of the Cebu Portland was still being questioned and therefore could not
be set-off against the refund.
• In his petition to review the said resolution, the CIR claims that the refund should
be charged against the deficiency of the Cebu Portland on the sales of cement under
Sec. 186 of the Tax Code, which is a manufactured and not a mineral product and
therefore not exempt from sales tax.
• CIR also denies that the sale tax assessments have already prescribed because the
prescriptive period should be counted from the filing of the sales tax returns, which had
not yet been done by the private respondent.
I. Issue/s
Whether or not the claims for refund could be set-off against the deficiency sales tax
of Cebu Portland.
II. Ratio/Legal Basis
YES. It has been ruled that even if a tax being collected by the CIR is being contested
by the tax payer, the same can be enforced by the set-off or by applying it against the
refundable tax that may be due the tax payer. Of course, it is assumed here that both the
collection and the right to the refund of taxes has not yet prescribed and that the refund claim
has already been approved. The set-off is justified because taxes must be collected
inasmuch as they are the lifeblood of the government and that it is a settled principle
that the government is not duty bound to resolve a pending tax protest before it can
collect the unpaid tax liability. The argument that the assessment cannot as yet be
enforced because it is still being contested loses sight of the urgency of the need to
collect taxes as "the lifeblood of the government”. If the payment of taxes could be postponed
by simply questioning their validity, the machinery of the state would grind to a halt and all
government functions would be paralyzed.
The Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. No court shall have
authority to grant an injunction to restrain the collection of any national internal revenue
tax, fee or charge imposed by this Code.
It goes without saying that this injunction is available not only when the assessment
is already being questioned in a court of justice but more so if, as in the instant case, the
challenge to the assessment is still-and only-on the administrative level. There is all the more
reason to apply the rule here because it appears that even after crediting of the refund against
the tax deficiency, a balance of more than P4 million is still due from the Cebu Portland.
III. Disposition
WHEREFORE, the petition is GRANTED. The resolution dated April 22, 1968, in CTA Case
No. 786 is SET ASIDE, without any pronouncement as to costs.
IV. Notes
No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal
Revenue or the Collector of Customs shall suspend the payment, levy, distraint and/or sale
of any property of the taxpayer for the satisfaction of his tax liability as provided by existing
law: Provided, however, That when in the opinion of the Court the collection by the Bureau of
Internal Revenue or the Commissioner of Customs may jeopardize the interest of the
Government and/or the taxpayer the Court at any stage of the proceeding may suspend the
said collection and require the taxpayer either to deposit the amount claimed or to file a surety
bond for not more than double the amount with the Court.
Bull v US
Theory and Basis of Taxation, Lifeblood Theory
295 U.S. 247 JUSTICE ROBERTS April 29, 1935
BULL, Executor of Archibald H Bull UNITED STATES
DOCTRINE:
Taxes are the lifeblood of government, and their prompt and certain availability an imperious
need.
I. Facts:
Archibald H. Bull died. He had been a member of a partnership engaged in the business of ship-
brokers. The partners had agreed that in the event a partner died, the survivors should continue
the business for one year subsequent to his death or the estate of the deceased partner shall
have the option of withdrawing his interest from the firm. The estate's representative did not
exercise the option to withdraw. When filing an estate tax return, the executor included the
decedents of Bull, interest in the partnership at a value which represented the decedent's share
of the earnings accrued to the date of death. Bull filed an income tax return for the estate of
Archibald, which did not include the amount of $200,117.09 as income from the partnership from
Archibald’s death. The estate employed the cash receipts and disbursement method of
accounting. The Commissioner of Tax determined that said amount should have been included
and notified Bull of the deficiency in income tax. Bull filed a suit alleging that if the $200,117.99
was a taxable income, the United States should have credited against the income tax and
attributed the same to estate tax since the amount is property of Archibald, the deceased.
II. Issue:
Whether or not the profits accruing to the estate for the period from the decedent's death is subject
to estate tax. (NO)
No, the amount received from the partnership as profits earned after Bull's death was income
earned by the executor. The partnership agreement is that the deceased partner's estate shall
leave his interest in the business and the surviving partners. It results that the surviving partners
are taxable upon firm profits and the estate is not. The portion of the profits paid his estate was
therefore income and not corpus; and this is so whether we consider the executor a member of
the old firm for the remainder of the year, or hold that the estate became a partner in a new
association formed upon the decedent's demise.
IV. Notes:
The power of taxation is essential because the government can neither exist nor endure without
taxation. Taxes are the lifeblood of the government and their prompt and certain availability is an
imperious need. The sovereign must therefore resort to drastic means of collection. The
assessment is given the force of a judgment, and if the amount assessed is not paid when due,
administrative officials may seize the debtor's property to satisfy the debt. (There was no issue
relating to the lifeblood doctrine. It was only mentioned in the case)
CIR v. Juliane Baier-Nickel
Jurisdiction over subject and objects
153793 YNARES-SANTIAGO, J. 29 August 2006
COMMISSIONER OF INTERNAL JULIANE BAIER-NICKEL, as represented by Marina Q.
REVENUE Guzman (Attorney-in-fact)
DOCTRINE: The important factor which determines the source of income of personal services is
not the residence of the payor, or the place where the contract for service is entered into, or the
place of payment, but the place where the services were actually rendered.
The source of an income is the property, activity or service that produced the income. For the
source of income to be considered as coming from the Philippines, it is sufficient that the income
is derived from activity within the Philippines.
I. Facts of the case:

• Juliane Baier-Nickel, a non-resident German citizen, is the President of JUBANITEX, Inc.,
a domestic corporation engaged in “manufacturing, marketing on wholesale only, buying
or otherwise acquiring, holding, importing and exporting, selling and disposing
embroidered textile products.”
• Through JUBANITEX’s General Manager, Marina Q. Guzman, the corporation appointed
and engaged the services of Juliane as commission agent. It was agreed that Juliane will
receive 10% sales commission on all sales actually concluded and collected through her
efforts.
• 1995: Juliane received the amount of P1,707,772.64, representing her sales commission
income from which JUBANITEX withheld the corresponding 10% withholding tax
amounting to P170,777.26, and remitted the same to the BIR.
• April 14, 1998: Juliane filed a claim to refund the amount of P170,777.26 alleged to
have been mistakenly withheld and remitted by JUBANITEX to the BIR. She contended
that her sales commission income is not taxable in the Philippines because the
same was a compensation for her services rendered in Germany and therefore
considered as income from sources outside the Philippines.
• Juliane filed a petition for review before the CTA for alleged BIR’s inaction on her claim
for refund.
• June 28, 2000: CTA denied her claim. It held that commissions received by respondent
were actually her remuneration in the performance of her duties as President of
JUBANITEX and not as a mere sales agent thereof. The income derived by respondent is
therefore an income taxable in the Philippines because JUBANITEX is a domestic
corporation.
• CA reversed the CTA decision which grants the Juliane’s tax refund. It held that Juliane
received the commissions as sales agent of JUBANITEX and not as President thereof.
And since the “source” of income means the activity or service that produce the income,
the sales commission received by Juliane is not taxable in the Philippines because it arose
from the marketing activities performed by respondent in Germany.
• CIR filed an MR, but was denied. Hence, this petition.

• CIR’s contention:
- The income earned by respondent is taxable in the Philippines because the source
thereof is JUBANITEX, a domestic corporation located in the City of Makati. It thus
implied that source of income means the physical source where the income came
from. It further argued that since respondent is the President of JUBANITEX, any
remuneration she received from said corporation should be construed as payment of
her overall managerial services to the company and should not be interpreted as a
compensation for a distinct and separate service as a sales commission agent.
• Juliane claims that the income she received was payment for her marketing services. She
contended that income of nonresident aliens like her is subject to tax only if the source of the
income is within the Philippines. Source, according to Juliane is the situs1 of the activity which
produced the income. And since the source of her income were her marketing activities in
1
The situs of taxation has been defined as the place where an authority has the right to impose and collect taxes.
Germany, the income she derived from said activities is not subject to Philippine income
taxation.
II. Issue
Whether or not Juliane’s sales commission income is taxable in the Philippines. YES
• Juliane’s income is subject to tax, hence, she cannot claim a refund.

• Pursuant to Sec. 25 of NIRC, non-resident aliens, whether or not engaged in trade or
business, are subject to Philippine income taxation on their income received from all
sources within the Philippines. Thus, the keyword in determining the taxability of non-
resident aliens is the income’s “source.”
• In determining the meaning of “source”, the Court resorted to origin of Act 2833 (the first
Philippine income tax law), and the US Revenue Law of 1916, as amended in 1917.
• US SC has said that income may be derived from three possible sources only: (1) capital
and/or (2) labor; and/or (3) the sale of capital assets. If the income is from labor, the place
where the labor is done should be decisive; if it is done in this country, the income should
be from “sources within the United States.” If the income is from capital, the place where
the capital is employed should be decisive; if it is employed in this country, the income
should be from “sources within the United States.” If the income is from the sale of capital
assets, the place where the sale is made should be likewise decisive. “Source” is not a
place; it is an activity or property. As such, it has a situs or location, and if that situs or
location is within the United States the resulting income is taxable to nonresident aliens
and foreign corporations.
• The important factor therefore which determines the source of income of personal
services is not the residence of the payor, or the place where the contract for
service is entered into, or the place of payment, but the place where the services
were actually rendered.
• The source of an income is the property, activity or service that produced the
income. For the source of income to be considered as coming from the Philippines,
it is sufficient that the income is derived from activity within the Philippines.
• The settled rule is that tax refunds are in the nature of tax exemptions and are to be
construed strictissimi juris2 against the taxpayer. To those therefore, who claim a refund
rest the burden of proving that the transaction subjected to tax is actually exempt from
taxation.
• Juliane failed to produce substantial evidence to prove that she performed the income
producing service in Germany, which would have entitled her to a tax exemption for
income from sources outside the Philippines. Hence, the claim for tax refund should be
denied.
IV. Disposition
WHEREFORE, the petition is GRANTED and the January 18, 2002 Decision and May 8,
2002 Resolution of the Court of Appeals in CA-G.R. SP No. 59794, are REVERSED and SET
ASIDE. The June 28, 2000 Decision of the Court of Tax Appeals in C.T.A. Case No. 5633, which
denied respondent’s claim for refund of income tax paid for the year 1995 is REINSTATED.
2
The most strict right or law. In general, when a person receives an advantage, as the grant of a license, he is bound to conform
strictly to the exercise of the rights given him by it, and in case of a dispute, it will be strictly construed.
IV. Notes (OPTIONAL)
Pertinent portion of the National Internal Revenue Code (NIRC), states:
SEC. 25. Tax on Nonresident Alien Individual. –
(A) Nonresident Alien Engaged in Trade or Business Within the Philippines. –
(1) In General. – A nonresident alien individual engaged in trade or business in the

Philippines shall be subject to an income tax in the same manner as an individual citizen
and a resident alien individual, on taxable income received from all sources within the
Philippines. A nonresident alien individual who shall come to the Philippines and stay therein for
an aggregate period of more than one hundred eighty (180) days during any calendar year shall
be deemed a ‘nonresident alien doing business in the Philippines,’ Section 22(G) of this Code
notwithstanding.
xxxx
(B) Nonresident Alien Individual Not Engaged in Trade or Business Within the Philippines. – There
shall be levied, collected and paid for each taxable year upon the entire income received from all
sources within the Philippines by every nonresident alien individual not engaged in trade or
business within the Philippines x x x a tax equal to twenty-five percent (25%) of such income. x x
x
• The first Philippine income tax law enacted by the Philippine Legislature was Act No. 2833,
which took effect on January 1, 1920. Under Section 1 thereof, nonresident aliens are likewise
subject to tax on income “from all sources within the Philippine Islands,” thus –
SECTION 1. (a) There shall be levied, assessed, collected, and paid annually upon the
entire net income received in the preceding calendar year from all sources by every
individual, a citizen or resident of the Philippine Islands, a tax of two per centum upon such
income; and a like tax shall be levied, assessed, collected, and paid annually upon the
entire net income received in the preceding calendar year from all sources within the
Philippine Islands by every individual, a nonresident alien, including interest on bonds,
notes, or other interest-bearing obligations of residents, corporate or otherwise.
CIR v. The Court of Appeals and Ateneo De Manila
University
Construction and Interpretation of tax laws, rules, and

regulation
115349 Panganiban, J. 18 April 1997
COMMISSIONER OF INTERNAL REVENUE The Court of Appeals, The Court of Tax
Appeals and Ateneo De Manila University
DOCTRINE: Taxation; Tax Imposition; as a rule, a statute will not be construed as

imposing a tax unless it does so clearly, expressly, and unambiguously.
● Ateneo De Manila University is a non-stock, non-profit educational institution with

auxiliary units and branches all over the Philippines.
● One such Auxiliary unit is the Institute of Philippine Culture, which has no legal
personality separate and distinct from that of Ateneo De Manila.
● The Institute of Philippine Culture is a Philippine Unit engaged in social science studies
of Philippine society and culture.
● Occasionally, it accepts sponsorships for its research activities from international
organizations, private foundations, and government agencies.
● On July 8, 1983, respondent received from petitioner Commissioner of Internal Revenue
a demand letter dated June 3, 1983, assessing the sum of P174,043.97 for alleged
deficiency contractor's tax, and an assessment dated June 27, 1983 in the sum of
P1,141,837 for alleged deficiency income tax, both for the fiscal year ended March 31,
1978.
● Denying said tax liabilities, Ateneo De Manila sent to the Commissioner of Internal
Revenue a letter-protest and subsequently filed with the latter a memorandum contesting
the validity of the assessments.
● The Commisioner of Internal Revenue rendered a letter-decision canceling the
assessment for deficiency income tax but modifying the assessment for deficiency
contractor's tax by increasing the amount due
● Unsatisfied, Ateneo requested for a reconsideration or reinvestigation of the modified
assessment. At the same time, it filed a petition for review of the said letter-decision of
the CIR. Court of Tax Appeals and Court of Appeals favored Ateneo.
II. Issue/s
Whether Ateneo De Manila University is subject to contactor’s tax
● No. Petitioner Commissioner of Internal Revenue erred in applying the principles of tax
exemption without first applying the well-settled doctrine of strict interpretation in the
imposition of taxes.
● The Commissioner should have determined first if private respondent was covered by
Section 205, applying the rule of strict interpretation of laws imposing taxes and other
burdens on the populace, before asking Ateneo to prove its exemption therefrom.
● The Court takes this occasion to reiterate the hornbook doctrine in the interpretation of tax
laws that "(a) statute will not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously . . . (A) tax cannot be imposed without clear and express
words for that purpose. Accordingly, the general rule of requiring adherence to the letter
in construing statutes applies with peculiar strictness to tax laws and the provisions of a
taxing act are not to be extended by implication."
Digest Maker: Lemuel Victor P. Bagay

● Parenthetically, in answering the question of who is subject to tax statutes, it is basic that
"in case of doubt, such statutes are to be construed most strongly against the government
and in favor of the subjects or citizens because burdens are not to be imposed nor
presumed to be imposed beyond what statutes expressly and clearly import."
● To fall under its coverage, Section 205 of the National Internal Revenue Code requires
that the independent contractor be engaged in the business of selling its services. Hence,
to impose the three percent contractor's tax on Ateneo's Institute of Philippine Culture, it
should be sufficiently proven that the private respondent is indeed selling its services for
a fee in pursuit of an independent business. And it is only after private respondent has
been found clearly to be subject to the provisions of Sec. 205 that the question of
exemption therefrom would arise.
● After reviewing the records of this case, we find no evidence that Ateneo's Institute of
Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a
business apart from and independently of the academic purposes of the university.
IV. Disposition
WHEREFORE, premises considered, the petition is DENIED and the assailed
Decision of the Court of Appeals is hereby AFFIRMED in full.
V. Notes (OPTIONAL)

Luzon Stevedoring vs CTA
Tax Exemption
L-30232 Paras, J. July 29, 1988
Luzon Stevedoring Corporation COURT OF TAX APPEALS and CIR
DOCTRINE:
Power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed

and any reduction or dimunition thereof with respect to its mode or its rate, must be strictly
construed, and the same must be coached in clear and unmistakable terms in order that it may
be applied.
Facts of the case
 Luzon Stevedoring Corporation imported various engine parts and other equipment for
which it paid for the repair and maintenance of its tugboats.
 Unable to secure tax refund from the CIR it filed a petition for Review with the Court of
Tax Appeals which the court denied for lack of sufficient legal justification.
 Primary contention of the petition upon the court is that tugboats are embraced and
included in the term cargo vessel under the tax exemption provisions of Section 190 of
the Revenue Code. He argues that in legal contemplation, the tugboat and a barge loaded
with cargoes with the former towing the latter for loading and unloading of a vessel in part,
constitute a single vessel. Accordingly, it concludes that the engines, spare parts and
equipment imported by it and used in the repair and maintenance of its tugboats are
exempt from compensating tax.
 CIR argued that "tugboats" are not "Cargo vessel" because they are neither designed nor
used for carrying and/or transporting persons or goods by themselves but are mainly
employed for towing and pulling purposes. As such, it cannot be claimed that the tugboats
in question are used in carrying and transporting passengers or cargoes as a common
carrier by water, either coastwise or oceangoing and, therefore, not within the purview of
Section 190 of the Tax Code.
I. Issue/s
Whether or not petitioners “tugboats” can be interpreted to be included in the term "cargo
vessels" for purposes of the tax exemption
II. Ratio/Legal Basis
No. In order that the importations in question may be declared exempt from the compensating
tax, it is indispensable that the requirements of the amendatory law be complied with, namely:
(1) the engines and spare parts must be used by the importer himself as a passenger and/or
cargo, vessel; and (2) the said passenger and/or cargo vessel must be used in coastwise or
oceangoing navigation. The petitioner's tugboats clearly do not fall under the categories of
passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that
where a provision of law speaks categorically, the need for interpretation is obviated, no
plausible pretense being entertained to justify non-compliance. All that has to be done is to
apply it in every case that falls within its terms
III. Disposition
The instant petition is DISMISSED and the decision of the Court of Tax Appeals is
AFFIRMED.
CIR vs. JOHN GOTAMCO & SONS
Tax Exemptions
G.R. No. L-31092 YAP, J. February 27, 1987
COMMISSIONER OF INTERNAL REVENUE JOHN GOTAMCO & SONS, INC. and THE
(CIR) COURT OF TAX APPEALS
DOCTRINE: In context, direct taxes are those that are demanded from the very person who, it is
intended or desired, should pay them; while indirect taxes are those that are demanded in the first
instance from one person in the expectation and intention that he can shift the burden to someone
else.
I. Facts:
➢ WHO decided to construct a building to house its own offices, as well as the other United
Nations offices stationed in Manila. It entered into a further agreement with the PH
Government on November 26, 1957. This Host Agreement contained the following
provision (Article III, paragraph 2):
The Organization may import into the country materials and fixtures required for the construction
free from all duties and taxes and agrees not to utilize any portion of the international reserves of
the Government.
➢ This Agreement granted the Organization exemption from all direct and indirect taxes
➢ In inviting bids for the construction of the building, WHO informed the bidders that the
building to be constructed belonged to an international organization with diplomatic status
and thus exempt from the payment of all fees, licenses, and taxes, and that therefore their
bids “must take this into account and should not include items for such taxes, licenses and
other payments to Government agencies.” The construction contract was awarded to
respondent John Gotamco & Sons, Inc. on February 10, 1958.
➢ On June 3, 1958, the Commissioner of Internal Revenue stated that “as the 3%
contractor’s tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily
due from the contractor, the same is not covered by the Host Agreement.”
➢ On January 2, 1960, the WHO issued a certification that the bid of Gotamco should be
exempted from any taxes in connection with the construction of the WHO office building
because taxes or fees in connection with the construction of the building is an indirect tax
to WHO.
➢ On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to
Gotamco demanding payment of P 16,970.40, representing the 3% contractor’s tax plus
surcharges on the gross receipts it received from the WHO in the construction of the
latter’s building. The CIR’s position is that the contractor’s tax “is in the nature of an excise
tax which is a charge imposed upon the performance of an act, the enjoyment of a privilege
or the engaging in an occupation. . . It is a tax due primarily and directly on the contractor,
not on the owner of the building. Since this tax has no bearing upon the WHO, it cannot
be deemed an indirect taxation upon it.”
➢ Respondent Gotamco appealed the Commissioner’s decision to the Court of Tax Appeals,
which after trial rendered a decision, in favor of Gotamco and reversed the
Commissioner’s decision.
II. Issues:
1. Whether the 3% contractor’s tax assessed on Gotamco is an “indirect tax”.
2. Whether respondent John Gotamco & Sons, Inc. should pay the 3% contractor’s tax under
Section 191 of the National Internal Revenue Code on the gross receipts it realized from the
construction of the World Health Organization office building in Manila.

1. Yes, it is an indirect tax. The Court agrees with the Court of Tax Appeals in rejecting this
contention of the CIR. The contractor's tax is of course payable by the contractor but in the last
analysis it is the owner of the building that shoulders the burden of the tax because the same is
shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax.
And it is an indirect tax on the WHO because, although it is payable by the petitioner, the latter
can shift its burden on the WHO. In the last analysis it is the WHO that will pay the tax indirectly
through the contractor and it certainly cannot be said that 'this tax has no bearing upon the World
Health Organization.
2. The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates
taxes which, although not imposed upon or paid by the Organization directly, form part of the price
paid or to be paid by it. This is made clear in Sec. 12 of the Host Agreement. Although referring
only to purchases made by the WHO, elucidates the clear intention of the Agreement to exempt
the WHO from "indirect" taxation.

Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the
appealed decision is hereby affirmed.
V. Notes:
➢ Host Agreement
Section 11 of that Agreement provides, inter alia, that "the Organization, its assets, income and
other properties shall be: (a) exempt from all direct and indirect taxes. It is understood, however,
that the Organization will not claim exemption from taxes which are, in fact, no more than charges
for public utility services
Section 12 of the Host Agreement provides:

While the Organization will not, as a general rule, in the case of minor purchases, claim exemption
from excise duties, and from taxes on the sale of movable and immovable property which form
part of the price to be paid, nevertheless, when the Organization is making important purchases
for official use of property on which such duties and taxes have been charged or are chargeable
the Government of the Republic of the Philippines shall make appropriate administrative
arrangements for the remission or return of the amount of duty or tax.
CIR vs Benguet Corporation
Interpretation of Rules, and Regulations

134587 & 134588 Tinga, J. 8 July 2005
COMMISSIONER OF INTERNAL REVENUE BENGUET CORPORATION
DOCTRINE:
The rulings, circular, rules and regulations promulgated by the Commissioner of Internal
Revenue would have no retroactive application if to so apply them would be prejudicial to the
taxpayers.
Quick Facts:
Benguet sold gold to the central bank relying on (BIR) VAT Ruling which declared that the sale of
gold to Central Bank was considered as export sale subject to VAT at zero-rate. It then filed
applications for tax refunds/credits corresponding to input VAT it paid, but these applications were
either unacted upon or expressly disallowed by CIR. In addition, CIR issued a deficiency
assessment when, after applying Benguet’s creditable input VAT costs against the retroactive
10% VAT levy, there resulted in a balance of output VAT payable.
Benguet Corporation is a domestic corporation engaged in the exploration, development and

operation of mineral resources, and the sale or marketing thereof to various entities. It is a value
added tax (VAT) registered enterprise.
The transactions in question occurred during the period between 1988 and 1991. Under Sec.
99 of NIRC as amended by E.O. 273 s. 1987 then in effect, any person who, in the course of
trade or business, sells, barters or exchanges goods, renders services, or engages in similar
transactions and any person who imports goods is liable for output VAT at rates of either 10%
or 0% (zero-rated) depending on the classification of the transaction under Sec. 100 of the NIRC.
In January of 1988, Benguet applied for and was granted by the BIR a zero-rated status on its
sale of gold to Central Bank. On 28 August 1988, (BIR) VAT Ruling No. 3788-88 was issued
which declared that the sale of gold to Central Bank is considered as export sale subject to zero-
rate pursuant to Section 100 of the Tax Code, as amended by EO 273.
Relying on its zero-rated status and the above issuances, respondent sold gold to the Central
Bank during the period of 1 August 1989 to 31 July 1991 and entered into transactions that
resulted in input VAT incurred in relation to the subject sales of gold. It then filed applications
for tax refunds/credits corresponding to input VAT for the amounts of P46,177,861.12,
P19,218,738.44, and P84,909,247.96.
Benguet’s applications were either unacted upon or expressly disallowed by CIR. In addition,
CIR issued a deficiency assessment when, after applying Benguet’s creditable input VAT costs
against the retroactive 10% VAT levy, there resulted in a balance of output VAT payable.
The express disallowance of Benguet’s application for refunds/credits and the issuance of
deficiency assessments against it were based on BIR VAT Ruling No. 008-92 dated 23 January
1992 that was issued subsequent to the consummation of the subject sales of gold to the Central
Bank which provides that sales of gold to the Central Bank shall not be considered as export
sales and thus, shall be subject to 10% VAT. In addition, BIR VAT Ruling No. 008-92 withdrew,
modified, and superseded all inconsistent BIR issuances.
Both CIR and Benguet agree that the retroactive application of VAT Ruling No. 008-92 is valid
only if it would not be prejudicial to the Benguet pursuant Sec. 246 of the NIRC.
CIR’s Contention: Benguet would not be prejudiced by a retroactive application. Benguet has
several available options to recoup whatever liabilities Benguet may have incurred, i.e.,
Benguet’s input VAT may still be used (1) to offset its output VAT on the sales of gold to the
Central Bank or on its output VAT on other sales subject to 10% VAT, and (2) as deductions on
its income tax under Sec. 29 of the Tax Code.
Benguet Corporation’s Contention: Retroactive application of BIR VAT Ruling No. 008-92
would violate Sec. 246 of the NIRC, which mandates the nonretroactivity of rulings or circulars
issued by CIR that would operate to prejudice the taxpayer. On CIR’s 1st suggested
recoupment, Benguet counters that its other sales subject to 10% VAT are so minimal that it is
of little value. On CIR’s 2nd suggested recoupment, even assuming that the right to recover
respondent’s excess payment of income tax has not yet prescribed, this relief would only
address respondent’s overpayment of income tax but not the other rest of the tax deficiency.
Benguet points out that after having been imposed with 10% VAT without the opportunity to
pass on the same to the Central Bank, it was issued a deficiency tax assessment because its
input VAT tax credits were not enough to offset the retroactive 10% output VAT.
CA: Agreed with Benguet and ordered the CIR to award tax credits to Benguet in the amount
corresponding to the input value added taxes that the latter had incurred in relation to its sale of
gold to the Central Bank. It held that Benguet suffered financial damage equivalent to the sum
of the disapproved claims. It stated that had Benguet known that such sales were subject to
10% VAT, which rate was not the prevailing rate at the time of the transactions, Benguet would
have passed on the cost of the input taxes to the Central Bank. It also ruled that the remedies
which the CTA supposed would eliminate any resultant prejudice to Benguet were not sufficient
palliatives as the monetary values provided in the supposed remedies do not approximate the
monetary values of the tax credits that respondent lost after the implementation of the VAT ruling
in question. It cited Manila Mining Corporation v. CIR.
II. Issue/s
WON the new BIR ruling which changed the VAT categorization of respondent’s transactions
with the Central Bank from zero-rated to 10% can be applied retroactively to Benguet’s sale of
gold to the Central Bank. (NO)
The rulings, circular, rules and regulations promulgated by the Commissioner of Internal
Revenue would have no retroactive application if to so apply them would be prejudicial
to the taxpayers.
At the time when the subject transactions were consummated, the prevailing BIR regulations
relied upon by respondent ordained that gold sales to the Central Bank were zero-rated. The BIR
interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which prescribed
that gold sold to the Central Bank shall be considered export and therefore shall be subject to the
export and premium duties. In coming out with this interpretation, the BIR also considered Sec.
169 of Central Bank Circular No. 960 which states that all sales of gold to the Central Bank are
considered constructive exports.
Benguet Corp should not be faulted for relying on the BIR’s interpretation of the said laws
and regulations. While it is true, as petitioner alleges, that government is not estopped
from collecting taxes which remain unpaid on account of the errors or mistakes of its
agents and/or officials and there could be no vested right arising from an erroneous
interpretation of law, these principles must give way to exceptions based on and in keeping
with the interest of justice and fair play, as has been done in the instant matter. For, it is
primordial that every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good faith.
The adverse effect is that Benguet Corp became the unexpected and unwilling debtor to the BIR
of the amount equivalent to the total VAT cost of its product, a liability it previously could have
recovered from the BIR in a zero-rated scenario or at least passed on to the Central Bank had it
known it would have been taxed at a 10% rate. Thus, it is clear that Benguet suffered economic
prejudice when its consummated sales of gold to the Central Bank were taken out of the zero-
rated category.
The change in the VAT rating of Benguet’s transactions with the Central Bank resulted in the twin
loss of its exemption from payment of output VAT and its opportunity to recover input VAT, and
at the same time subjected it to the 10% VAT sans the option to pass on this cost to the Central
Bank, with the total prejudice in money terms being equivalent to the 10% VAT levied on its sales
of gold to the Central Bank.
Assuming that the right to recover Benguet’s excess payment of income tax has not yet
prescribed, this relief would only address Benguet’s overpayment of income tax but not the other
burdens discussed above. Verily, this remedy is not a feasible option for Benguet because the
very reason why it was issued a deficiency tax assessment is that its input VAT was not enough
to offset its retroactive output VAT. Indeed, the burden of having to go through an unnecessary
and cumbersome refund process is prejudice enough.
IV. Disposition
WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Appeals is
AFFIRMED. No pronouncement as to costs.
V. Notes
Sec. 246. Non-retroactivity of rulings.- Any revocation, modification or reversal of any of the rules
and regulations promulgated in accordance with the preceding Section or any of the rulings or
circulars promulgated by the Commissioner shall not be given retroactive application if the
revocation, modification or reversal will be prejudicial to the taxpayers except in the following
cases: (a) where the taxpayer deliberately misstates or omits material facts from his return on any
document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently
gathered by the Bureau of Internal Revenue are materially different from the facts on which the
ruling is based; or (c) where the taxpayer acted in bad faith. (Emphasis supplied)
CIR vs. Burmeister & Wain Scandinavian
Prospectivity of Tax Laws
153205 CARPIO, J. January 22, 2007
Commissioner of Internal Burmeister and Wain Scandinavian Contractor Mindanao,
Revenue INC.
Doctrine:
Revocation cannot be given retroactive effect since it will prejudice respondent. Changing
respondent’s status will deprive respondent of a refund of a substantial amount representing
excess output tax. Section 246 of the Tax Code provides that any revocation of a ruling by the
Commissioner of Internal Revenue shall not be given retroactive application if the revocation will
prejudice the taxpayer.
Facts:
A foreign consortium composed of Burmeister and Wain Scandinavian Contractor (represented
by respondent Burmeister and Wain Philippines), Mitsui Engineering and Shipbuilding, Ltd., and
Mitsui and Co., Ltd. entered into a contract with the National Power Corporation (NAPOCOR) for
the operation and maintenance of NAPOCOR’s two power barges.
NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark,
Yen, and Peso). On the other hand, the Consortium pays Burmeister in foreign currency inwardly
remitted to the Philippines through the banking system.
In order to ascertain the tax implications of the transactions, Burmeister sought a ruling from the
BIR which responded that if Burmeister chooses to register as a VAT person and the
consideration for its services is paid for in acceptable foreign currency shall be subject to VAT at
zero-rate. Burmeister chose to register as VAT taxpayer.
Burmeister availed of the Voluntary Assessment Program (VAP) of the BIR and allegedly
misinterpreted Revenue Regulations No. 5-96 dated February 20, 1996 to be applicable to its
case. Respondent subjected its sale of services to the Consortium to 10% VAT representing April
to December 1996 sales since said Revenue Regulations No. 5-961 became effective only on
1
SECTIONS 4.102-2(b)(2) and 4.103-1(B)(c) of Revenue Regulations No. 7-95 are hereby
amended to read as follows:
Section 4.102-2(b)(2) – "Services other than processing, manufacturing or repacking for other
persons doing business outside the Philippines for goods which are subsequently exported, as
well as services by a resident to a non-resident foreign client such as project studies,
information services, engineering and architectural designs and other similar services, the
consideration for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP."
April 1996. On the other hand, representing January to March 1996 sales was subjected to zero
rate.
Thereafter, Burmeister filed a claim for the issuance of a tax credit certificate believing that it
erroneously paid the output VAT for 1996 due to its avail of the VAP. Burmeister filed a petition
for review with the CTA which ordered the petitioner to issue a tax credit certificate in favor of
the respondent. CIR filed a petition for review with the Court of Appeals, which dismissed the
petition for lack of merit and affirmed the CTA decision. Hence, this petition
Issue:
Whether Burmeister is entitled to the refund of P6,994,659.67 as erroneously paid output VAT for
the year 1996.
Ruling:
No. The Court declares that the denial of the instant petition is not on the ground that respondent’s
services are subject to 0% VAT. Rather, it is based on the non-retroactivity of the prejudicial
revocation of BIR Ruling No. 023-95 and VAT Ruling No. 003-99, which held that respondent’s
services are subject to 0% VAT and which respondent invoked in applying for refund of the output
VAT.
Petitioner’s filing of his Answer before the CTA challenging respondent’s claim for refund
effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However,
such revocation cannot be given retroactive effect since it will prejudice respondent. Changing
respondent’s status will deprive respondent of a refund of a substantial amount representing
excess output tax. Section 246 of the Tax Code provides that any revocation of a ruling by the
Commissioner of Internal Revenue shall not be given retroactive application if the revocation will
prejudice the taxpayer. Further, there is no showing of the existence of any of the exceptions
enumerated in Section 246 of the Tax Code for the retroactive application of such revocation
HYDRO RESOURCES vs. COURT OF TAX APPEALS
Prospectivity
G.R. No. 80276 PARAS, J. December 21, 1990
HYDRO RESOURCES CONTRACTORS THE COURT OF TAX APPEALS (CTA) and
CORPORATION THE HON. DEPUTY MINISTER OF FINANCE,
ALFREDO PIO DE RODA.
DOCTRINE:
It is a cardinal rule that laws shall have no retroactive effect, unless the contrary is provided. (Art.
4, Civil Code)
I. Facts:
➢ In 1978, Hydro Resources Contractors Corporation (HYDRO) entered into an agreement
with the National Irrigation Authority (NIA), a government owned and controlled
corporation for the construction of Magat River Multipurpose Project in Isabella.
➢ Under the aforesaid contract:
o HYDRO was allowed to procure new construction equipment, spare parts and tools
from abroad.
o NIA undertakes payment of all the import duties and taxes incident to the
importations deductible from the proceeds of the contract price.
o HYDRO shall repay NIA in full the value of the construction equipment out of the
same proceeds before eventual transfer or taking ownership of subject
construction equipment upon termination of the contract.
➢ NIA reneged and failed in the compliance of its tax obligations. Meanwhile, HYDRO had
fully repaid the value of the construction equipment.
➢ On December 6, 1982 and March 24, 1983, NIA executed deeds of sale covering the
same and transferring the ownership thereof in favor HYDRO.
➢ Upon the transfer of the ownership of the said equipment HYDRO was assessed by the
Bureau of Customs the corresponding customs duty and compensating tax totaling
P2,303,378.63. This amount was paid by HYDRO to the Bureau of Customs.
➢ In addition, HYDRO was assessed additional 3% ad valorem duty in the amount of
P281,591.00 prescribed in Executive Order 860 (took effect on December 21, 1982).
HYDRO also paid this amount but this time under protest.
➢ The Collector of Customs acted in favor of Hydro’s protest and ordered the refund of the
3% ad valorem duty which was affirmed by the Acting Commissioner of Customs but was
later reversed by the Deputy Minister of Finance which was later affirmed by the CTA.
II. Issues:
Whether or not the Deputy Minister of Finance and CTA were correct in giving retroactive
application to Executive Order No. 860. (NO.)

The Court of Tax Appeals erred in applying a retroactive effect for the Executive Order therefore
HYDRO should not have been subject to the additional 3% ad valorem tax. Article 4 of the Civil
Code provides that laws shall have no retroactive effect, unless the contrary is provided. Here,
except for a statement providing for its immediate execution, Executive Order No. 860 does not
provide for its retroactivity. In addition, the subsequent executions of the Deeds of Sale of the
equipment in question on December 6, 1982 and March 24, 1983 are not relevant and material
in the consideration of the application of Executive Order No. 860 because said Deeds of Sale
were mere formalities in the implementation of the contract executed on August 1978, which
should be reckoned and construed as the actual date of sale.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the petition is GRANTED; the assailed
Decisions of respondents Court of Tax Appeals and Deputy Minister of Finance are SET ASIDE
and another one rendered ordering the refund of the amount of P281,591.00 representing 3%
additional ad valorem duty to petitioner Hydro Resources Contractors Corporation in the form of
tax credit.
V. Notes:
Related provisions under the Civil Code:
Art. 1458. By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay thereafter
a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
ART. 1187. The effects of a conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation.
Doctrine of another case/s:

As a general rule: Tax laws must only be imposed prospectively.
Exception: If the law expressly provides for retroactive application. Retroactive
application of revenue laws may be allowed if it will not amount to denial of
due process. There is a violation of due process when the tax law imposes
harsh and oppressive tax (CIR v. Acosta, G.R. No. 154068 August 3,
2007).
CIR v. Ayala Securities Corp.
Imprescriptibility of Taxes
L-29485 TEEHANKEE, J. November 21, 1980
COMMISSIONER OF INTERNAL AYALA SECURITIES CORPORATION and THE
REVENUE HONORABLE COURT OF TAX APPEALS
DOCTRINE:
Before the Court is petitioner Commissioner of Internal Revenue's motion for reconsideration
of the Court's decision of April 8, 1976 wherein the Court affirmed in toto the appealed
decision of respondent Court of Tax Appeals. This Court's decision under reconsideration
held that the assessment made on February 21, 1961 by CIR against respondent
corporation AYALA (and received by the latter on March 22, 1961) in the sum of
P758,687.04 on its surplus of P2,758,442.37 for its fiscal year ending September 30, 1955
fell under the five-year prescriptive period provided in Section 331 of the National Internal
Revenue Code and that the assessment had, therefore, been made after the expiration of
the said five-year prescriptive period and was of no binding force and effect.
• Ayala Securities Corp filed its ITR with the CIR for the fiscal year which ended on Sept
30, 1955. Attached to its ITR was the audited financial statements showing a surplus of
P2M+. Income tax due on the return was duly paid within the period prescribed by law.
• CIR then advised Ayala for the assessment of P758k unpaid tax on its accumulated
surplus.
• Ayala protested at assessment and sought reconsideration given that the accumulation
was 1) for a bona fide business purpose and not to avoid imposition of tax, and 2)
assessment was issued beyond 5 years.
• On 8 April 1976, the Supreme Court affirmed the decision of the Court of Tax Appeals and
ruled that the assessment fell under the 5-year prescriptive period provided in section 331
of the National Internal Revenue Code (NIRC) and that the assessment had, therefore,
been made after the expiration of the said 5-year prescriptive period and was of no binding
force and effect.
• The Commissioner moved for reconsideration.
II. Issue/s
Whether or not the assessment was done beyond the prescriptive period
NO. In this case, Section 331 limiting the right to assess internal revenue taxes within five
years from the date the return was filed or was due does not apply. Neither does Section
332 apply.
CIR cites the Court of Tax Appeals' ruling in the earlier case of United Equipment & Supply
Company vs. Commissioner of Internal Revenue. In said case, the tax court squarely ruled
that the provisions of sections 331 and 332 of the National Internal Revenue Code for
prescriptive periods of five (5) and ten (10) years after the filing of the return do not apply
to the tax on the taxpayer's unreasonably accumulated surplus under section 25 of the
Tax Code since no return is required to be filed by law or by regulation on such unduly
accumulated surplus on earnings.
“It is well settled limitations upon the right of the government to assess and collect taxes
will not be presumed in the absence of clear legislation to the contrary. The existence of
a time limit beyond which the government may recover unpaid taxes is purely dependent
upon some express statutory provision. It follows that in the absence of express statutory
provision, the right of the government to assess unpaid taxes is imprescriptible. Since
there is no express statutory provision limiting the right of the Commissioner of Internal
Revenue to assess the tax on unreasonable accumulation of surplus provided in Section
25 of the Revenue Code said tax may be assessed at any time.”
The Court, therefore, reconsiders its ruling in its decision' under reconsideration that the
right to assess and collect the assessment in question had prescribed after five years, and
instead rules that there is no such time limit on the right of the Commissioner of Internal
Revenue to assess the 25% tax on unreasonably accumulated surplus provided in section
25 of the Tax Code, since there is no express statutory provision limiting such right or
providing for its prescription.
CIR commissioner's plausible alternative contention is that even if the 25% surtax were to
be deemed subject to prescription, computed from the filing of the income tax return in
1955, the intent to evade payment of the surtax is an inherent quality of the violation and
the return filed must necessarily partake of a false and or fraudulent character which would
make applicable the 10-year prescriptive period provided in section 332(a) of the Tax
Code and since the assessment was made in 1961 (the sixth year), the assessment was
clearly within the 10-year prescriptive period. The Court sees no necessity, however, for
ruling on this point in view of its adherence to the ruling in the earlier case of United
Equipment & Supply Co., supra , holding that the 25% surtax is not subject to any statutory
prescriptive period.
IV. Disposition
ACCORDINGLY, the Court's decision of April 8, 1976, is set aside and in lieu thereof,
judgment is hereby rendered ordering respondent corporation to pay the assessment in
the sum of P758,687.04 as 25% surtax on its unreasonably accumulated surplus, plus the
5% surcharge and 1% monthly interest thereon, pursuant to section 51 (e) of the National
Internal Revenue Code, as amended by R. A. 2343. With Costs.
V. Notes
SEC. 25. Additional tax on corporations improperly accumulating profits or surplus. —
xxx xxx xxx
(b) Prima facie evidence — The fact that any corporation is a mere holding company shall
be prima facie evidence of a purpose to avoid the tax upon its shareholders or members.
Similar presumption will be in the case of an investment company where at any time during
the taxable year more than fifty per centum in value of its outstanding stock is owned,
directly or indirectly, by one person.
(c) Evidence determinative of a purpose — 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 tax upon its shareholders or members
unless the corporation, by clear preponderance of evidence, shall prove the contrary.
PEPSI COLA V TANAUAN
Double Taxation
L-31156 MARTIN J. February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE MUNICIPALITY OF
PHILIPPINES, INC. TANAUAN
DOCTRINE:
There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating
authority specifies the limitations and enumerates the taxes over which local taxation may
not be exercised. x x x Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction against double
taxation found in the Constitution of the United States and some states of the Union. Double
taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the
same governmental entity or by the same jurisdiction for the same purpose, but not in a case
where one tax is imposed by the State and the other by the city of municipality
Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint with preliminary
injunction before the Court of First Instance of Leyte for that court to declare Section 2 of
Republic Act No. 2264, 1 otherwise known as the Local Autonomy Act, unconstitutional as an
undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series
of 1962, of the Municipality of Tanauan, Leyte, null and void. Municipal Ordinance No. 23, of
Tanauan, Leyte, which was approved on September 25, 1962, levies and collects “from soft
drinks producers and manufacturers a tax of one-sixteenth (1/16) of a centavo for every bottle
of soft drink corked. Municipal Ordinance No. 27, which was approved on October 28, 1962,
levies and collects “on soft drinks produced or manufactured within the territorial jurisdiction
of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.)
of volume capacity.” Pepsi submits that Ordinance Nos. 23 and 27 constitute double taxation,
because these two ordinances cover the same subject matter and impose practically the same
tax rate. Court of First Instance of Leyte rendered judgment “dismissing the complaint and
upholding the constitutionality of [Section 2, Republic Act No. 2264]; declaring Ordinances
Nos. 23 and 27 valid. CA affirmed the decision.
II. Issue/s
Whether or not the taxing of RA 2264 and the Ordinances constitute double taxation. (No)
There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating
authority specifies the limitations and enumerates the taxes over which local taxation may
not be exercised. The reason is that the State has exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law,
since We have not adopted as part thereof the injunction against double taxation found in
the Constitution of the United States and some states of the Union. Double taxation becomes
obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental
entity or by the same jurisdiction for the same purpose, but not in a case where one tax is
imposed by the State and the other by the city or municipality. Here, RA 2264 is a tax of the
state, while Ordinance 27 is a municipal ordinance.
IV. Disposition
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known
as the Local Autonomy Act, as amended, is hereby upheld.
CIR v. SC Johnson & Son
Double Taxation
127105 GONZAGA-REYES, J. 25 June 1999
COMMISSIONER OF INTERNAL S.C. JOHNSON AND SON, INC., and Court of
REVENUE Appeals
DOCTRINE:
Double taxation usually takes place when a person is resident of a contracting state
and derives income from, or owns capital in, the other contracting state and both states
impose tax on that income or capital.
The ultimate reason for avoiding double taxation is to encourage foreign investors to invest
in the Philippines - a crucial economic goal for developing countries. The goal of double
taxation conventions would be thwarted if such treaties did not provide for effective
measures to minimize, if not completely eliminate, the tax burden laid upon the income or
capital of the investor.
• SC Johnson and Son is a domestic corporation organized and operating under the
Philippine Laws, entered into a licensed agreement with the SC Johnson and Son, USA,
a non-resident foreign corporation based in the USA pursuant to which the SC Johnson &
Son (respondent) was granted the right to use the trademark, patents and technology
owned by the latter (USA) including the right to manufacture, package and distribute the
products covered by the Agreement and secure assistance in management, marketing
and production from SC Johnson and Son USA.
• For the use of trademark or technology, SC Johnson & Son (respondent) was obliged to
pay SC Johnson and Son, USA royalties based on a percentage of net sales and
subjected the same to 25% withholding tax on royalty payments which SC Johnson & Son
(respondent) paid for the period covering July 1992 to May 1993 in the total amount of
P1,603,443.00.
• October 29, 1993: SC Johnson & Son filed with the International Tax Affairs Division
(ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing
that, the antecedent facts attending their case fall squarely within the same circumstances
under which said MacGeorge and Gillette rulings were issued. Since the agreement was
approved by the Technology Transfer Board, the preferential tax rate of 10% should apply
to them. So, royalties paid by them to SC Johnson and Son, USA is only subject to
10% withholding tax. The Commissioner did not act on said claim for refund.
• (Private respondent) SC Johnson & Son, Inc. then filed a petition for review before the
CTA, to claim a refund of the overpaid withholding tax on royalty payments from July 1992
to May 1993.
• May 7, 1996: CTA rendered its decision in favor of SC Johnson and ordered the CIR
to issue a tax credit certificate in the amount of P163,266.00 representing overpaid
withholding tax on royalty payments beginning July 1992 to May 1993.
• The CIR thus filed a petition for review with the CA which rendered the decision subject
of this appeal on November 7, 1996, finding no merit in the petition and affirming in toto
the CTA ruling.
• Main point of contention in this appeal is the interpretation of Article 13 (2) (b) (iii) of the
RP-US Tax Treaty regarding the rate of tax to be imposed by the Philippines upon royalties
received by a nonresident foreign corporation.
- Respondent S. C. Johnson and Son, Inc. claims that it is entitled to the concessional
tax rate of 10 percent on royalties based on Article 12 (2) (b) of the RP-Germany Tax
Treaty. For as long as the transfer of technology, under Philippine law, is subject to
approval, the limitation of the tax rate mentioned under b) shall, in the case of royalties
arising in the Republic of the Philippines, only apply if the contract giving rise to such
royalties has been approved by the Philippine competent authorities. Unlike the RP-US
Tax Treaty, the RP-Germany Tax Treaty allows a tax credit of 20% of the gross amount
of such royalties against German income and corporation tax for the taxes payable in the
Philippines on such royalties where the tax rate is reduced to 10 or 15% under such treaty.
- According to CIR, the taxes upon royalties under the RP-US Tax Treaty are not paid
under circumstances similar to those in the RP-West Germany Tax Treaty since
there is no provision for a 20% matching credit in the former convention and SC Johnson
& Son cannot invoke the concessional tax rate on the strength of the most favored nation
clause in the RP-US Tax Treaty. Therefore, the “most favored nation” clause in the RP-
West Germany Tax Treaty cannot be availed of in interpreting the provisions of the RP-
US Tax Treaty’s.
II. Issue/s
Whether or not respondent SC Johnson & Son is entitled to the concessional tax rate of 10%
on royalties based on Art. 12(2)(b) of the RP-Germany Tax Treaty. (NO)
• In negotiating tax treaties, the underlying rationale for reducing the tax rate is that the
Philippines will give up a part of the tax in the expectation that the tax given up for this
particular investment is not taxed by the other country. Thus, the CIR correctly opined
that the phrase “royalties paid under similar circumstances” in the most favored
nation clause of the US-RP Tax Treaty necessarily contemplated “circumstances
that are tax-related”.
• In the case at bar, the state of source is the Philippines because the royalties are paid
for the right to use property or rights, i.e. trademarks, patents and technology, located
within the Philippines. The United States is the state of residence since the taxpayer,
S. C. Johnson and Son, U. S. A., is based there. Under the RP-US Tax Treaty, the state
of residence and the state of source are both permitted to tax the royalties, with a
restraint on the tax that may be collected by the state of source. Furthermore, the
method employed to give relief from double taxation is the allowance of a tax credit
to citizens or residents of the United States (in an appropriate amount based upon
the taxes paid or accrued to the Philippines) against the United States tax, but such
amount shall not exceed the limitations provided by United States law for the
taxable year. Under Article 13 thereof, the Philippines may impose one of three rates –
25% of the gross amount of the royalties; 15% when the royalties are paid by a corporation
registered with the Philippine Board of Investments and engaged in preferred areas of
activities; or the lowest rate of Philippine tax that may be imposed on royalties of the same
kind paid under similar circumstances to a resident of a third state.
• Given the purpose underlying tax treaties and the rationale for the most favored nation
clause, the concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty
should apply only if the taxes imposed upon royalties in the RP US Tax Treaty and in the
RP-Germany Tax Treaty are paid under similar circumstances. This would mean that
SC Johnson & Son (private respondent) must prove that the RP-US Tax Treaty
grants similar tax reliefs to residents of the United States in respect of the taxes
imposable upon royalties earned from sources within the Philippines as those
allowed to their German counterparts under the RP Germany Tax Treaty.
• The reason for construing the phrase “paid under similar circumstances” as used in Article
13 (2) (b) (iii) of the RP-US Tax Treaty as referring to taxes is anchored upon a logical
reading of the text in the light of the fundamental purpose of such treaty which is to grant
an incentive to the foreign investor by lowering the tax and at the same time
crediting against the domestic tax abroad a figure higher than what was collected
in the Philippines.
• The ultimate reason for avoiding double taxation is to encourage foreign investors to
invest in the Philippines - a crucial economic goal for developing countries. The goal of
double taxation conventions would be thwarted if such treaties did not provide for effective
measures to minimize, if not completely eliminate, the tax burden laid upon the income or
capital of the investor.
• Both Article 13 of the RP-US Tax Treaty and Article 12 (2) (b) of the RP-West Germany
Tax Treaty, above-quoted, speaks of tax on royalties for the use of trademark, patent, and
technology. The entitlement of the 10% rate by U.S. firms despite the absence of a
matching credit (20% for royalties) would derogate from the design behind the most
grant equality of international treatment since the tax burden laid upon the income
of the investor is not the same in the two countries. The similarity in the circumstances
of payment of taxes is a condition for the enjoyment of most favored nation treatment
precisely to underscore the need for equality of treatment.
• SC accordingly agree with CIR that since the RP-US Tax Treaty does not give a
matching tax credit of 20 percent for the taxes paid to the Philippines on royalties as
allowed under the RP-West Germany Tax Treaty, SC Johnson & Son cannot be
deemed entitled to the 10% rate granted under the latter treaty for the reason that
there is no payment of taxes on royalties under similar circumstances. It bears stress
that tax refunds are in the nature of tax exemptions. SC Johnson & Son is claiming for a
refund of the alleged overpayment of tax on royalties; however, there is nothing on record
to support a claim that the tax on royalties under the RP-US Tax Treaty is paid under
similar circumstances as the tax on royalties under the RP-West Germany Tax
Treaty.(strictissimi juris: the burden of proof is upon him who claims the exemption in his
favor and he must be able to justify his claim by the clearest grant of organic or statute
law.)
IV. Disposition
WHEREFORE, for all the foregoing, the instant petition is GRANTED. The decision dated
May 7, 1996 of the Court of Tax Appeals and the decision dated November 7, 1996 of the
Court of Appeals are hereby SET ASIDE.
V. Notes
• The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on
tax crediting. Article 24 of the RP-Germany Tax Treaty, supra, expressly allows crediting
against German income and corporation tax of 20% of the gross amount of royalties paid
under the law of the Philippines.
• On the other hand, Article 23 of the RP-US Tax Treaty, which is the counterpart provision
with respect to relief for double taxation, does not provide for similar crediting of 20% of
the gross amount of royalties paid.
• The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines
has entered into for the avoidance of double taxation. The purpose of these international
agreements is to reconcile the national fiscal legislations of the contracting parties in order
to help the taxpayer avoid simultaneous taxation in two different jurisdictions. More
precisely, the tax conventions are drafted with a view towards the elimination of
international juridical double taxation, which is defined as the imposition of
comparable taxes in two or more states on the same taxpayer in respect of the same
subject matter and for identical periods. The apparent rationale for doing away with
double taxation is of encourage the free flow of goods and services and the movement of
capital, technology and persons between countries, conditions deemed vital in creating
robust and dynamic economies. Foreign investments will only thrive in a fairly predictable
and reasonable international investment climate and the protection against double
taxation is crucial in creating such a climate.
• Double taxation usually takes place when a person is resident of a contracting state
and derives income from, or owns capital in, the other contracting state and both
states impose tax on that income or capital. In order to eliminate double taxation, a tax
treaty resorts to several methods.
1) First, it sets out the respective rights to tax of the state of source or situs and of the state
of residence with regard to certain classes of income or capital. In some cases, an
exclusive right to tax is conferred on one of the contracting states; however, for other items
of income or capital, both states are given the right to tax, although the amount of tax that
may be imposed by the state of source is limited.
2) The second method for the elimination of double taxation applies whenever the state of
source is given a full or limited right to tax together with the state of residence. In this case,
the treaties make it incumbent upon the state of residence to allow relief in order to avoid
double taxation.
- There are two methods of relief - the exemption method and the credit method.
o In the exemption method, the income or capital which is taxable in the state of
source or situs is exempted in the state of residence, although in some instances
it may be taken into account in determining the rate of tax applicable to the
taxpayer's remaining income or capital.
o On the other hand, in the credit method, although the income or capital which is
taxed in the state of source is still taxable in the state of residence, the tax paid in
the former is credited against the tax levied in the latter.
o The basic difference between the two methods is that in the exemption method,
the focus is on the income or capital itself, whereas the credit method focuses
upon the tax.
• The purpose of a most favored nation clause is to grant to the contracting party treatment
not less favorable than that which has been or may be granted to the "most favored"
among other countries. The most favored nation clause is intended to establish the
principle of equality of international treatment by providing that the citizens or subjects of
the contracting nations may enjoy the privileges accorded by either party to those of the
most favored nation. The essence of the principle is to allow the taxpayer in one state
to avail of more liberal provisions granted in another tax treaty to which the country
of residence of such taxpayer is also a party provided that the subject matter of
taxation, in this case royalty income, is the same as that in the tax treaty under
which the taxpayer is liable.
1
21 Deutsche Bank v. CIR

Double Taxation
188550 Sereno, CJ. 19 August 2013
DEUTSCHE BANK AG MANILA BRANCH CIR
DOCTRINE/S: In CIR v. S.C. Johnson and Son, Inc., it clarifies that "tax conventions are
drafted with a view towards the elimination of international juridical double taxation, which
is defined as the imposition of comparable taxes in two or more states on the same
taxpayer in respect of the same subject matter and for identical periods.”
● Deutsche Bank (DB) withheld and remitted to the CIR, in accordance with the NIRC,
PHP67,688,553.51, which represented the 15% branch profit remittance tax (BPRT) on
its regular banking unit (RBU) net income remitted to DB Germany for 2002 and prior
taxable years.
● However, DB believes that it made an overpayment of the BPRT thus, it filed with the
BIR Large Taxpayers Assessment and Investigation Division an administrative claim for
refund or issuance of its tax credit certificate for PHP22,562,851.17. DB also requested
from the International Tax Affairs Division (ITAD) a confirmation of its entitlement to the
preferential tax rate of 10% under the RP-Germany Tax Treaty.
● Alleging the inaction of the BIR on its administrative claim, DB filed a Petition for
Review before the CTA.
● CTA Second Division: It found that for the year 2003, DB remitted to DB-Germany
EURO 5,174,847.38 (or PHP 330,175,961.88 at the exchange rate of PHP 63.804:1
EURO), which is net of the 15% BPRT. However, the claim of DB for a refund was
denied on the ground that the application for a tax treaty relief was not filed with ITAD
prior to the payment by DB of its BPRT and actual remittance of its branch profits to
DB-Germany, or prior to its availment of the preferential rate of 10% under the
RP-Germany Tax Treaty.
● CTA En Banc: Affirmed the CTA Second Division’s Decision. The court likewise ruled
that the 15-day rule for tax treaty relief application under RMO No. 1-2000 cannot be
relaxed.
II. Issue/s
W/N the failure to strictly comply with RMO No. 1-2000 will deprive persons or corporations
of the benefit of a tax treaty. NO
● The Court explained that under Section 28(A)(5) of the NIRC, any profit remitted to its
head office shall be subject to a 15% tax based on the total profits applied for remittance
without any deduction of the tax component. However, DB invokes the RP-Germany Tax
Treaty, which provides that where a resident of Germany has a branch in the Philippines,
this branch may be subjected to the branch profits remittance tax withheld at source in
accordance with Philippine law but shall not exceed 10% of the gross amount of the
profits remitted by that branch to the head office.
● On the other hand, the BIR issued RMO No. 1-2000, which requires that any availment
of the tax treaty relief must be preceded by an application with ITAD at least 15 days
before the transaction.
Tax Treaty vs. RMO No. 1-2000
● The Court held that tax treaties are entered into "to reconcile the national fiscal
legislations of the contracting parties and help the taxpayer avoid simultaneous taxations
2
in two different jurisdictions."

● In CIR v. S.C. Johnson and Son, Inc., it clarifies that "tax conventions are drafted with a
view towards the elimination of international juridical double taxation, which is
defined as the imposition of comparable taxes in two or more states on the same
taxpayer in respect of the same subject matter and for identical periods.”
● The Court further ruled that there is nothing in RMO No. 1-2000 which would deprive
entitlement to a tax treaty relief for failure to comply with the 15-day period and that the
CTA’s outright denial is not in harmony with the objectives of the contracting state to
ensure that the benefits granted under tax treaties are enjoyed by duly entitled persons
or corporations. At most, the application for a tax treaty relief from the BIR should merely
operate to confirm the entitlement of the taxpayer to the relief.
Prior Application vs. Claim for Refund
● The Court stressed that DB should not be faulted for not complying with RMO No.
1-2000 prior to the transaction. It could not have applied for a tax treaty relief 15 days
prior to the payment of BPRT because it erroneously paid the BPRT not on the basis of
the preferential tax rate under the Treaty, but on the regular rate prescribed by the NIRC.
Therefore, the fact that DB invoked the RP-Germany Tax Treaty when it requested for a
confirmation from the ITAD before filing an administrative claim for a refund should be
regarded as substantial compliance with RMO No. 1-2000.
DB is entitled to a refund
● In summary, the PHP 67,688,553.51 paid by DB represented the 15% BPRT on its RBU
net income, due for remittance to DB Germany amounting to PHP451,257,023.29 for
2002 and prior taxable years. Hence, there is no reason to deprive DB of the benefit of a
preferential tax rate of 10% BPRT in accordance with the treaty.
● DB is liable to pay only PHP45,125,702.34 on its RBU net income amounting to PHP
451,257,023.29 for 2002 and prior taxable years, applying the 10% BPRT. Thus, it is
proper to grant DB a refund of the difference between PHP 67,688,553.51 (15% BPRT)
and PHP45,125,702.34 (10% BPRT) or PHP 22,562,851.17.
IV. Disposition
WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, the

CTA En Banc Decision dated 29 May 2009 and Resolution dated 1 July 2009 are REVERSED
and SET ASIDE. A new one is hereby entered ordering the CIR to refund or issue a tax credit
certificate in favor of DB-AG Manila the amount of PHP 22,562,851.17, Philippine currency,
representing the erroneously paid BPRT for 2002 and prior taxable years.
Carlos Superdrug vs DSWD
Modes of Eliminating Double Taxation
166494 AZCUNA, J. June 29, 2007
CARLOS DEPARTMENT OF SOCIAL WELFARE and DEVELOPMENT (DSWD),
SUPERDRUG DEPARTMENT OF HEALTH (DOH), DEPARTMENT OF FINANCE (DOF),
CORP. et. al. DEPARTMENT OF JUSTICE (DOJ), and DEPARTMENT OF INTERIOR
and LOCAL GOVERNMENT (DILG)
DOCTRINE: Expanded Senior Citizens Act of 2003 (R.A. No. 9257); Taxation; Being a tax
deduction, the discount given by drugstores in favor of senior citizens does not reduce taxes owed
on a peso for peso basis but merely offers a fractional reduction in taxes owed.—Based on the afore-
stated DOF Opinion, the tax deduction scheme does not fully reimburse petitioners for the discount
privilege accorded to senior citizens. This is because the discount is treated as a deduction, a tax-
deductible expense that is subtracted from the gross income and results in a lower taxable income.
Stated otherwise, it is an amount that is allowed by law to reduce the income prior to the application
of the tax rate to compute the amount of tax which is due. Being a tax deduction, the discount does
not reduce taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes
owed. Theoretically, the treatment of the discount as a deduction reduces the net income of the
private establishments concerned. The discounts given would have entered the coffers and formed
part of the gross sales of the private establishments, were it not for R.A. No. 9257. Carlos Superdrug
Corp. vs. Department of Social Welfare and Development (DSWD), 526 SCRA 130, G.R. No. 166494
June 29, 2007
 President Gloria Macapagal-Arroyo signed into law RA No. 9257 on February 26,
2004. Said law amended RA 7432, and the former became effective on March 21,
2004. SEC. 4 (a) of the said act states that senior citizens shall be entitled to certain
discounts in certain establishments.
 The DSWD then approved and adopted the Implementing Rules and Regulations of
R.A. No. 9257 on May 28, 2004.
 Such establishments are then entitled to certain tax incentives. Under the old Senior
Citizens Act, Tax Credit was used while in the Expanded Act, it is Tax Deduction.
 On October 1, 2004, the DOH issued Administrative Order (A.O.) No. 171 or
the Policies and Guidelines to Implement the Relevant Provisions of Republic Act
9257, otherwise known as the "Expanded Senior Citizens Act of 2003", providing the
grant of twenty percent (20%) discount in the purchase of unbranded generic
medicines from all establishments dispensing medicines for the exclusive use of the
senior citizens.
 The DOH on November 12, 2004 issued Administrative Order No 177 amending A.O.
No. 171. Under A.O. No. 177, the 20% discount shall not be limited to the purchase of
unbranded generic medicines only, but shall extend to both prescription and non-
prescription medicines whether branded or generic. Thus, it stated that "[t]he grant of
twenty percent (20%) discount shall be provided in the purchase of medicines from all
establishments dispensing medicines for the exclusive use of the senior citizens."
II. Issue/s
Whether or not the tax deduction scheme as a reimbursement mechanism is valid?
● YES, the tax deduction scheme as a reimbursement mechanism is valid.

● It is incorrect for petitioners to insist that the grant of the senior citizen discount is unduly
oppressive to their business, because petitioners have not taken time to calculate correctly
and come up with a financial report, so that they have not been able to show properly whether
or not the tax deduction scheme really works greatly to their disadvantage
● The law is a legitimate exercise of police power which, similar to the power of eminent domain,
has general welfare for its object. Police power is not capable of an exact definition, but has
been purposely veiled in general terms to underscore its comprehensiveness to meet all
exigencies and provide enough room for an efficient and flexible response to conditions and
circumstances, thus assuring the greatest benefits. \ Accordingly, it has been described as "the
most essential, insistent and the least limitable of powers, extending as it does to all the great
public needs." It is "[t]he power vested in the legislature by the constitution to make, ordain,
and establish all manner of wholesome and reasonable laws, statutes, and ordinances, either
with penalties or without, not repugnant to the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of the subjects of the same."24
IV. Disposition
WHEREFORE, the petition is DISMISSED for lack of merit.
V. Notes
 tax credit is a peso-for-peso deduction from a taxpayer’s tax liability due to the government
of the amount of discounts such establishment has granted to a senior citizen. The
establishment recovers the full amount of discount given to a senior citizen and hence, the
government shoulders 100% of the discounts granted.
 The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive
pricing component of the business. While the Constitution protects property rights, petitioners
must accept the realities of business and the State, in the exercise of police power, can
intervene in the operations of a business which may result in an impairment of property rights
in the process.
 the success of the senior citizens program rests largely on the support imparted by petitioners
and the other private establishments concerned. This being the case, the means employed in
invoking the active participation of the private sector, in order to achieve the purpose or
objective of the law, is reasonably and directly related. Without sufficient proof that Section
4(a) of R.A. No. 9257 is arbitrary, and that the continued implementation of the same would
be unconscionably detrimental to petitioners, the Court will refrain from quashing a legislative
act
CIR v. Rufino
Tax evasion
L-33665-68 CRUZ, J. 27 February 27 1987
COMMISSIONER OF INTERNAL REVENUE VICENTE A. RUFINO and REMEDIOS S.
RUFINO, ERNESTO D. RUFINO and ELVIRA
B. RUFINO, RAFAEL R. RUFINO and JULIETA
A. RUFINO, MANUEL S. GALVEZ and ESTER
R. GALVEZ, and COURT OF TAX APPEALS
DOCTRINE:
• The basic consideration, of course, is the purpose of the merger, as this would
determine whether the exchange of properties involved therein shall be subject or not to
the capital gains tax. The criterion laid down by the law is that the merger "must be
undertaken for a bona fide business purpose and not solely for the purpose of
escaping the burden of taxation."
• Private respondents Mr. & Mrs. Vicente A. Rufino, Mr. & Mrs. Rafael R. Rufino, Mr. &
Mrs. Ernesto D. Rufino, and Mr. & Mrs. Manuel S. Galvez were the majority stockholders
of the defunct Eastern Theatrical Co., Inc. (Old Corporation). They are also the majority
and controlling stockholders of another corporation, the Eastern Theatrical Co Inc. (New
Corporation).
• To provide for the continuation of its business, particularly the Lyric and Capitol Theaters,
after the end of its corporate life, the stockholders of the Old Corporation passed a
resolution authorizing the Old Corporation to merge with the New Corporation by
transferring its business, assets, goodwill, and liabilities to the New Corporation. In
exchange, the New Corporation would issue and distribute to the shareholders of the
Old Corporation one share for each share held by them in the said Corporation.
• It was expressly declared that the merger of the Old Corporation with the New
Corporation was necessary to continue the exhibition of moving pictures at the Lyric and
Capitol Theaters even after the expiration of the corporate existence of the former, in
view of its pending booking contracts, not to mention its collective bargaining
agreements with its employees.
• The Bureau of Internal Revenue (BIR) declared that the merger of the aforesaid
corporations was not undertaken for a bona fide business purpose but merely to avoid
liability for the capital gains tax on the exchange of the old for the new shares of stock.
Accordingly, he imposed the deficiency assessments against the private respondents.
• The private respondents' request for reconsideration having been denied, they elevated
the matter to the Court of Tax Appeals, which reversed decision.
II. Issue/s
Whether the merger was undertaken to avoid liability for the capital gains tax
• NO. Contrary to the claim of the petitioner, there was a valid merger although the actual
transfer of the properties subject of the Deed of Assignment was not made on the date
of the merger. In the nature of things, this was not possible.
• It is clear, in fact, that the purpose of the merger was to continue the business of the
Old Corporation, whose corporate life was about to expire, through the New
Corporation to which all the assets and obligations of the former had been transferred.
What argues strongly, indeed, for the New Corporation is that it was not dissolved after
the merger agreement in 1959. On the contrary, it continued to operate the places of
amusement originally owned by the Old Corporation and transferred to the New
Corporation, particularly the Capitol and Lyric Theaters, in accordance with the Deed
of Assignment. The New Corporation, in fact, continues to do so today after taking over
the business of the Old Corporation twenty-seven years ago.

IV. Disposition
Our ruling then is that the merger in question involved a pooling of resources aimed at the
continuation and expansion of business and so came under the letter and intendment of the
National Internal Revenue Code, as amended by the abovecited law, exempting from the capital
gains tax exchanges of property effected under lawful corporate combinations.
WHEREFORE, the decision of the Court of Tax Appeals is AFFIRMED in full, without any
pronouncement as to costs.
V. Notes
• It has been suggested that one certain indication of a scheme to evade the capital gains
tax is the subsequent dissolution of the new corporation after the transfer to it of the
properties of the old corporation and the liquidation of the former soon thereafter. This
highly suspect development is likely to be a mere subterfuge aimed at circumventing
the requirements of Section 35 of the Tax Code while seeming to be a valid corporate
combination.
• Sec. 35 (c) (5) (b) of the Tax Code: The term "merger" or "consolidation," when used in
this section, shall be understood to mean: (1) The ordinary merger or consolidation, or
(2) the acquisition by one corporation of all or substantially all the properties of another
corporation solely for stock; Provided, That for a transaction to be regarded as a merger
or consolidation within the purview of this section, it must be undertaken for a bona fide
business purpose and not solely for the purpose of escaping the burden of taxation;
Provided further, That in determining whether a bona fide business purpose exists, each
and every step of the transaction shall be considered and the whole transaction or series
of transactions shall be treated as a single unit
• A corporate merger where the new corporation continued to operate the business of the
old corporation is not subject to capital gains tax. The merger, however, must be
undertaken for a bona fide business purpose and not solely for the purpose of escaping
the burden of taxation. (CIR v. Rufino, G.R. No. L-33665, February 27, 1987, where the
merger was done to extend the life of the corporation, this was legitimate) – Ingles, 2021

CIR v. The Estate of Benigno P. Toda
Tax Evasion
147188 DAVIDE, JR., C.J. 14 September 2004
COMMISSIONER OF INTERNAL REVENUE THE ESTATE OF BENIGNO P. TODA, JR
represented by Special Co-Administrators
Lorna Kapunan and Mario Luza Bautista
DOCTRINE: Tax evasion connotes the integration of three factors: (1) the end to be achieved,
i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment
of tax when it is shown that a tax is due; (2) an accompanying state of mind which is
described as being "evil," in "bad faith," "willful," or "deliberate and not accidental"; and (3) a
course of action or failure of action which is unlawful.
● Cibeles Insurance Corporation authorized Benigno P. Toda, Jr., president and owner of
99.991% of its issued and capital stock, to sell the Cibeles Building and the two parcels
of land on which the building stands for an amount of not less than 90 Million.
● Toda purportedly sold the property for ₱100 million to Rafael A. Altonaga, who, in turn,
sold the same property on the same day to Royal Match Inc. (RMI) for ₱200 million.
● For the sale of the Property to RMI, Altonaga paid capital gains in the amount of 10
Million.
● CIC filed its corporate annual income tax return for the year 1989, declaring its gain from
the sale of real property. On July 1990, Toda sold his entire shares of stocks in CIC to Le
Hun T. Choa. Three and a half years later, Toda died.
● On March 1994, the Bureau of Internal Revenue (BIR) sent an assessment notice and
demand letter to the CIC for deficiency income tax for the year 1989. The new CIC asked
for a reconsideration, asserting that the assessment should be directed against the old
CIC, and not against the new CIC, which is owned by an entirely different set of
stockholders.
● The estate of Benigno Toda Jr received a Notice of Assessment from the Commissioner
of Internal revenue for Deficiency income tax for the year 1989. The estate filed a protest.
Later, the Commissioner dismissed the protest, stating that a fraudulent scheme was
deliberately perpetuated by the CIC wholly owned and controlled by Toda. On appeal, the
CTA ruled in favor of the Estate, it held that the Commissioner failed to prove that CIC
committed fraud.
II. Issue/s
Whether the tax planning scheme adopted by a corporation constitutes tax evasion that
would justify an assessment of deficiency income tax.
● Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the
payment of less than that known by the taxpayer to be legally due, or the non-payment of
tax when it is shown that a tax is due; (2) an accompanying state of mind which is
described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and
(3) a course of action or failure of action which is unlawful.
● All these factors are present in the instant case.
● It is significant to note that as early as 4 May 1989, prior to the purported sale of the
Cibeles property by CIC to Altonaga on 30 August 1989, CIC received ₱40 million from
RMI,25 and not from Altonaga. That ₱40 million was debited by RMI and reflected in its
trial balance26 as "other inv. – Cibeles Bldg." Also, as of 31 July 1989, another ₱40 million
was debited and reflected in RMI’s trial balance as "other inv. – Cibeles Bldg." This would

show that the real buyer of the properties was RMI, and not the intermediary Altonaga.
● Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely petitioner
[sic] cannot be faulted for wanting to reduce the tax from 35% to 5%
● The scheme resorted to by CIC in making it appear that there were two sales of the subject
properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be
considered a legitimate tax planning. Such scheme is tainted with fraud.
● Fraud in its general sense, "is deemed to comprise anything calculated to deceive,
including all acts, omissions, and concealment involving a breach of legal or equitable
duty, trust or confidence justly reposed, resulting in the damage to another, or by which
an undue and unconscionable advantage is taken of another.”
● Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of
tax to be paid especially that the transfer from him to RMI would then subject the income
to only 5% individual capital gains tax, and not the 35% corporate income tax. Altonaga’s
sole purpose of acquiring and transferring title of the subject properties on the same day
was to create a tax shelter. Altonaga never controlled the property and did not enjoy the
normal benefits and burdens of ownership. The sale to him was merely a tax ploy, a sham,
and without business purpose and economic substance. Doubtless, the execution of the
two sales was calculated to mislead the BIR with the end in view of reducing the
consequent income tax liability.
IV. Disposition
WHEREFORE, in view of all the foregoing, the petition is hereby GRANTED. The
decision of the Court of Appeals of 31 January 2001 in CA-G.R. SP No. 57799
is REVERSED and SET ASIDE, and another one is hereby rendered ordering respondent
Estate of Benigno P. Toda Jr. to pay ₱79,099,999.22 as deficiency income tax of Cibeles
Insurance Corporation for the year 1989, plus legal interest from 1 May 1994 until the
amount is fully paid.
V. Notes (OPTIONAL)

PROVINCE OF MISAMIS ORIENTAL vs. CAGAYAN
ELECTRIC
Revocation of Tax Exemption
G.R. No. 45355 GRIÑO-AQUINO, J. January 12, 1990
THE PROVINCE OF MISAMIS ORIENTAL, CAGAYAN ELECTRIC POWER AND LIGHT
represented by its PROVINCIAL TREASURER. COMPANY, INC (CEPALCO).
DOCTRINE:
The rule is that a special and local statute applicable to a particular case is not repealed by
a later statute which is general in its terms, provisions and application even if the terms of
the general act are broad enough to include the cases in the special law unless there is manifest
intent to repeal or alter the special law.
I. Facts:
➢ In 1961, CEPALCO was granted a franchise under RA No. 3247 to install, operate and
maintain an electric light, heat and power system in the Cagayan de Oro and its suburbs.
➢ In 1963, the said franchise was amended by RA No. 3570 which added Tagoloan and
Opol to CEPALCO’s sphere of operation.
➢ In 1969, the franchise was further amended by RA No. 6020, which extended its field of
operation to the municipalities of Villa-nueva and Jasaan.
➢ RA Nos. 3247, 3570, and 6020 uniformly provide that:
o the grantee (CEPALCO) shall pay a franchise tax equal to 3% of the gross
earnings for electric current sold. Provided, that the said franchise tax of 3% of
the gross earnings shall be in lieu of all taxes and assessments of whatever
authority upon privileges, earnings, income, franchise and poles, wires,
transformers, and insulators of the grantee from which taxes and assessments the
grantee is hereby exempted. (See note for full provision, Section 3.)
➢ In 1973, PD No. 231 or the Local Tax Code was promulgated, which provides that
o “Any provision of special laws to the contrary notwithstanding, the province

may impose a tax on businesses enjoying franchise, based on the gross
receipts realized within its territorial jurisdiction, at the rate of not exceeding one-
half of one per cent of the gross annual receipts for the preceding calendar year
xxx ” (See note for full provision, Section 9.)
➢ Pursuant to PD No. 231, the Province of Misamis Oriental enacted Provincial Revenue
Ordinance No. 10, whose Section 12 provides:
“Sec. 12. Franchise Tax. - There shall be levied, collected and paid on
businesses enjoying franchise tax of one-half of one per cent of their gross
annual receipts for the preceding calendar year realized within the territorial
jurisdiction of the province of Misamis Oriental.”
➢ The Provincial Treasurer of Misamis Oriental demanded payment of the provincial

franchise tax from CEPALCO.
➢ CEPALCO refused to pay alleging that it is exempt from all taxes except the franchise tax
required under RA No. 6020.
➢ Nevertheless, in 1974, CEPALCO paid under protest P4,276.28 in view of the opinion
rendered by the Provincial Fiscal and appealed the fiscal’s ruling to the Secretary of
Justice who reversed it and ruled in favor of CEPALCO.
➢ In 1976, the Secretary of Finance issued Local Tax Regulation No. 3-75 adopting entirely
the opinion of Secretary of Justice.
➢ The Province filed in CFI of Misamis Oriental a complaint arguing that RA No. 6020 has
already been amended by PD No. 231, therefore, CEPALCO should now be held liable
for the provincial franchise tax under PD No. 231.
➢ The complaint was dismissed and the Court ordered the Province to return to CEPALCO
P4,276.28 it paid under protest. Hence, this petition.
II. Issues:
Whether or not CEPALCO’s tax exemption under RA No. 6020 has already been revoked by the
enactment of PD No. 231. (NO.)

There is no provision in PD No. 231 which expressly or impliedly amended or repealed Section 3
of R.A. No. 6020. The rule is that a special and local statute applicable to a particular case
is not repealed by a later statute which is general in its terms, provisions and application
even if the terms of the general act are broad enough to include the cases in the special
law unless there is manifest intent to repeal or alter the special law. Here, RA Nos. 3247,
3570 and 6020 are special laws applicable only to CEPALCO, while P.D. No. 231 is a general tax
law. The presumption is that the special statutes are exceptions to the general law (P.D.
No. 231) because they pertain to a special charter granted to meet a particular set of conditions
and circumstances. The franchise of CEPALCO expressly exempts it from payment of “all taxes
of whatever authority” except the three per centum (3%) tax on its gross earnings. Hence,
CEPALCO’s tax exemption under RA No. 6020 was not revoked or repealed by PD No. 231.

WHEREFORE, the petition for review is denied, and the decision of the Court of First Instance
is hereby affirmed in toto. No costs. SO ORDERED.V. Notes:
Section 3, of RA No. 6020

“Sec. 3. In consideration of the franchise and rights hereby granted, the grantee shall pay a
franchise tax equal to three per centum of the gross earnings for electric current sold under this
franchise, of which two per centum goes into the National Treasury and one per centum goes into
the treasury of the Municipalities of Tagoloan, Opol, Villanueva and Jasaan and Cagayan de Oro
City, as the case may be: Provided, That the said franchise tax of three per centum of the gross
earnings shall be in lieu of all taxes and assessments of whatever authority upon privileges,
earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee from
which taxes and assessments the grantee is hereby expressly exempted. (Italics supplied.)
Section 9 of PD No. 231
“Sec. 9. Franchise Tax.—Any provision of special laws to the contrary notwithstanding, the
province may impose a tax on businesses enjoying franchise, based on the gross receipts
realized within its territorial jurisdiction, at the rate of not exceeding onehalf of one per cent of the
gross annual receipts for the preceding calendar year.
In the case of newly started business, the rate shall not exceed three thousand pesos per
year. Sixty per cent of the proceeds of the tax shall accrue to the general fund of the province and
forty per cent to the general fund of the municipalities serviced by the business on the basis of
the gross annual receipts derived therefrom by the franchise holder. In the case of a newly started
business, forty per cent of the proceeds of the tax shall be divided equally among the
municipalities serviced by the business.” (Italics supplied.)
Exemption as an inducement:
This Court pointed out that such exemption is part of the inducement for the acceptance
of the franchise and the rendition of public service by the grantee. As a charter is in the nature of
a private contract, the imposition of another franchise tax on the corporation by the local authority
would constitute an impairment of the contract between the government and the corporation
CIR v. DLSU
Revocation of Tax Exemption
196596 BRION, J. November 09, 2016
COMMISSIONER OF INTERNAL REVENUE DE LA SALLE UNIVERSITY, INC.
DOCTRINE: The tax exemption granted by the Constitution to non-stock, non-profit

educational institutions is conditioned only on the actual, direct and exclusive use of their assets,
revenues and income for educational purposes; The tax-exemption constitutionally-granted to
non-stock, non-profit educational institutions, is not subject to limitations imposed by law.
In 2004, the Bureau of Internal Revenue (BIR) issued to DLSU Letter of Authority (LOA)
No. 2794 authorizing its revenue officers to examine the latter's books of accounts and
other accounting records for all internal revenue taxes for the period Fiscal Year Ending
2003 and Unverified Prior Years.
BIR through a Formal Letter of Demand assessed DLSU the following deficiency taxes:
(1) income tax on rental earnings from restaurants/canteens and bookstores operating
within the campus; (2) VAT business income; and (3) documentary stamp tax (DST) on
loans and lease contracts. The BIR demanded the payment of P17,303,001.12, inclusive
of surcharge, interest and penalty for taxable years 2001, 2002 and 2003.
DLSU protested the assessment. The Commissioner failed to act on the protest; thus,
DLSU filed on August 3, 2005 a petition for review with the CTA Division.
DLSU, a non-stock, non-profit educational institutions, principally anchored its petition

on Article XIV, Section 4 (3) of the Constitution, which reads:
(3) All revenues and assets of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes shall be exempt from
taxes and duties. Xxx
In 2010, the CTA Division partially granted DLSU's petition for review. The DST
assessment on the loan transactions of DLSU in the amount of P11,681,774.00 is hereby
CANCELLED. However, DLSU is ordered to pay the deficiency income tax, VAT and DST
on its lease contracts, plus 25% surcharge for the fiscal years 2001, 2002 and 2003 in the
total amount of P18,421,363.53.
Both the Commissioner and DLSU moved for the reconsideration. The CTA Division
denied the Commissioner's motion for reconsideration while it held in abeyance the
resolution on DLSU's motion for reconsideration.
The Commissioner appealed to the CTA En Banc arguing that DLSU's use of its revenues
and assets for non-educational or commercial purposes removed these items from the
exemption coverage under the Constitution.
DLSU formally offered to the CTA Division supplemental pieces of documentary evidence
to prove that its rental income was used actually, directly and exclusively for educational
purposes.
The CTA Division, in view of the supplemental evidence submitted, reduced the amount
of DLSU's tax deficiencies.
The CTA En Banc dismissed the Commissioner's petition for review and sustained
the findings of the CTA Division. The CTA En Banc was satisfied with DLSU's
supporting evidence confirming that part of its rental income had indeed been used to pay
the loan it obtained to build the university's Physical Education – Sports Complex.
The CTA En Banc partially granted DLSU's petition for review and further reduced
its tax liabilities to P2,554,825.47 inclusive of surcharge.
CIR ARGUMENTS:
DLSU's rental income is taxable regardless of how such income is derived, used or
disposed of. DLSU's operations of canteens and bookstores within its campus even
though exclusively serving the university community do not negate income tax liability.
The Commissioner contends that Article XIV , Section 4 (3) of the Constitution must be
harmonized with Section 30 (H) of the Tax Code, which states among others, that the
income of whatever kind and character of [a non-stock and non-profit educational
institution] from any of [its] properties, real or personal, or from any of [its] activities
conducted for profit regardless of the disposition made of such income, shall be subject to
tax imposed by this Code.
The Commissioner posits that a tax-exempt organization like DLSU is exempt only from
property tax but not from income tax on the rentals earned from property. Thus, DLSU's
income from the leases of its real properties is not exempt from taxation even if the income
would be used for educational purposes.
DLSU ARGUMENTS:
DLSU stresses that Article XIV, Section 4 (3) of the Constitution is clear that all revenues
and assets of non-stock, non-profit educational institutions used actually, directly and
exclusively for educational purposes are exempt from taxes and duties.
On this point, DLSU explains that: (1) the tax exemption of non-stock, non-profit
educational institutions is novel to the 1987 Constitution and that Section 30 (H) of the
1997 Tax Code cannot amend the 1987 Constitution; (2) Section 30 of the 1997 Tax Code
is almost an exact replica of Section 26 of the 1977 Tax Code — with the addition of non-
stock, non-profit educational institutions to the list of tax-exempt entities; and (3) that the
1977 Tax Code was promulgated when the 1973 Constitution was still in place.
DLSU thus invokes the doctrine of constitutional supremacy, which renders any
subsequent law that is contrary to the Constitution void and without any force and effect.
Section 30 (H) of the 1997 Tax Code insofar as it subjects to tax the income of whatever
kind and character of a non-stock and non-profit educational institution from any of its
properties, real or personal, or from any of its activities conducted for profit regardless of
the disposition made of such income, should be declared without force and effect in view
of the constitutionally granted tax exemption on "all revenues and assets of non-stock,
non-profit educational institutions used actually, directly, and exclusively for educational
purposes."
DLSU further submits that it complies with the requirements enunciated in the YMCA case,
that for an exemption to be granted under Article XIV , Section 4 (3) of the Constitution,
the taxpayer must prove that: (1) it falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be exempted from taxation is used
actually, directly and exclusively for educational purposes.
II. Issue/s
Whether or not it is required that the revenues and income of a non-stock, non-profit
educational institution must have also been sourced from educational activities or activities
related to the purposes of an educational institution for it to be tax-exempt. (NO)
No, it is not required that the revenues and income of a non-stock, non-profit educational
institution must have also been sourced from educational activities or activities related to
the purposes of an educational institution for it to be tax-exempt.
Before fully discussing the merits of the case, the Court observes that:
1. The constitutional provision refers to two kinds of educational institutions: (1)

non-stock, non-profit educational institutions and (2) proprietary educational
institutions.
2. DLSU falls under the first category. Even the Commissioner admits the status
of DLSU as a nonstock, non-profit educational institution.
3. While DLSU's claim for tax exemption arises from and is based on the
Constitution, the Constitution, in the same provision, also imposes certain
conditions to avail of the exemption.
4. There is a marked distinction between the treatment of non-stock, non-profit
educational institutions and proprietary educational institutions. The tax exemption
granted to non-stock, non-profit educational institutions is conditioned only on the
actual, direct and exclusive use of their revenues and assets for educational
purposes. While tax exemptions may also be granted to proprietary educational
institutions, these exemptions may be subject to limitations imposed by Congress.
The Commissioner opposes DLSU's claim for tax exemption on the basis of Section 30
(H) of the Tax Code. The relevant text reads: The following organizations shall not be
taxed under this Title [Tax Income] in respect to income received by them as such:
(H) A non-stock and non-profit educational institution xxx xxx xxx
Notwithstanding the provisions in the preceding paragraphs, the income of
whatever kind and character of the foregoing 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 tax imposed
under this Code.
The Commissioner posits that the 1997 Tax Code qualified the tax exemption granted to
non-stock, nonprofit educational institutions such that the revenues and income they
derived from their assets, or from any of their activities conducted for profit, are taxable
even if these revenues and income are used for educational purposes.
The Court adopts YMCA as precedent and holds that:

1. The last paragraph of Section 30 of the Tax Code is without force and effect with
respect to nonstock, non-profit educational institutions, provided, that the non-
stock, non-profit educational institutions prove that its assets and revenues are
used actually, directly and exclusively for educational purposes.
2. The tax-exemption constitutionally-granted to non-stock, non-profit educational

institutions, is not subject to limitations imposed by law.
The tax exemption granted by the Constitution to non-stock, non-profit educational

institutions is conditioned only on the actual, direct and exclusive use of their
assets, revenues and income for educational purposes.
A plain reading of the Constitution would show that Article XIV, Section 4 (3) does not
require that the revenues and income must have also been sourced from
educational activities or activities related to the purposes of an educational
institution. The phrase all revenues is unqualified by any reference to the source of
revenues. Thus, so long as the revenues and income are used actually, directly and
exclusively for educational purposes, then said revenues and income shall be exempt
from taxes and duties.
The Court finds it helpful to discuss the taxation of revenues versus the taxation of
assets.
REVENUES consist of the amounts earned by a person or entity from the conduct of
business operations. It may refer to the sale of goods, rendition of services, or the return
of an investment. Revenue is a component of the tax base in income tax, VAT, and local
business tax (LBT).
ASSETS, on the other hand, are the tangible and intangible properties owned by a person
or entity. It may refer to real estate, cash deposit in a bank, investment in the stocks of a
corporation, inventory of goods, or any property from which the person or entity may derive
income or use to generate the same. In Philippine taxation, the fair market value of real
property is a component of the tax base in real property tax. Also, the landed cost of
imported goods is a component of the tax base in VAT on importation 88 88 and tariff
duties.
Thus, when a non-stock, non-profit educational institution proves that it uses its
revenues actually, directly, and exclusively for educational purposes, it shall be
exempted from income tax, VAT, and LBT. On the other hand, when it also shows
that it uses its assets in the form of real property for educational purposes, it shall
be exempted from RPT.
IV. Disposition
WHEREFORE, premises considered, we DENY the petition of the Commissioner of

Internal Revenue in G.R. No. 196596 and AFFIRM the December 10, 2010 decision and
March 29, 2011 resolution of the Court of Tax Appeals En Banc in CTA En Banc Case
No. 622, except for the total amount of deficiency tax liabilities of De La Salle University,
Inc., which had been reduced.
We also DENY both the petition of De La Salle University, Inc. in G.R. No. 198841 and
the petition of the Commissioner of Internal Revenue in G.R. No. 198941 and thus
AFFIRM the June 8, 2011 decision and October 4, 2011 resolution of the Court of Tax
Appeals En Banc in CTA En Banc Case No. 671, with the MODIFICATION that the base
for the deficiency income tax and VAT for taxable year 2003 is P343,576.70.
SO ORDERED.
Francia v IAC
Compensation and Set-off
L-67649 GUTTIEREZ, J. 28 June 1988
ENGRACIO, FRANCIA IAC and HO FERNANDEZ
DOCTRINE: Government and taxpayer ‘are not mutually creditors and debtors of each other’
under Article 1278 of the Civil Code and a “claim for taxes is not such a debt, demand, contract
or judgment as is allowed to be set-off.”
● Engracio Francia is the registered owner of a residential lot and a two-story house built
in Pasay City, Metro Manila.
● On October 15, 1977, a 125 square meter portion of Francia’s property was expropriated
by the Republic of the Philippines for the sum of P4,116.00.
● Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on
December 5, 1977, his property was sold at public auction to satisfy a tax delinquency
of P2,400.00.
● Francia received a notice of hearing filed by Ho Fernandez, seeking the cancellation of

the land’s certificate of title and the issuance in his name of a new certificate of title.
● Upon verification, Francia discovered that a Final Bill of Sale had been issued in favor
of Ho Fernandez.
● Francia filed a complaint to annul the auction sale. Francia contends that his tax
delinquency of P2,400.00 has been extinguished by legal compensation. He claims that
the government owed him P4,116.00 when a portion of his land was expropriated on
October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of
October 15, 1977.
● RTC and CA ruled that Francia should pay for his tax obligations, and the Register of
Deeds to issue a new certificate of title. Francia appealed, hence, the petition.
II. Issue/s
Whether or not Francia’s tax obligation can be set-off by the indebtedness of the government
to him. (NO)
● This principal contention of the petitioner has no merit.
● There can be no off-setting of taxes against the claims that the taxpayer may have against
the government. A person cannot refuse to pay a tax on the ground that the government
owes him an amount equal to or greater than the tax being collected. 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.
● Neither are they a proper subject of recoupment since they do not arise out of the contract
or transaction sued on. The general rule based on grounds of public policy is well-settled
that no set-off admissible against demands for taxes levied for general or local
governmental purposes.
● The reason on which the general rule is based, is that taxes are not in the nature of
Digest Maker: Araceli Marie M. De Guzman

contracts between the party and party but grow out of 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. Government and taxpayer ‘are not mutually creditors and
debtors of each other’ under Article 1278 of the Civil Code and a “claim for taxes is not
such a debt, demand, contract or judgment as is allowed to be set-off.”
IV. Disposition
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED.

The decision of the respondent court is affirmed.
V. Notes (OPTIONAL)

Caltex Phils. vs. COA
92585 DAVIDE, JR., J. 8 May 1992
CALTEX PHILIPPINES, THE HONORABLE COMMISSION ON AUDIT, HONORABLE
INC. COMMISSIONER BARTOLOME C. FERNANDEZ and
HONORABLE COMMISSIONER ALBERTO P. CRUZ
DOCTRINE:
It is settled that 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.
• SUMMARY OF PETITION: Caltex Philippines, Inc. questions the authority of the

Commission on Audit (COA) in disallowing Caltex’s claims for reimbursement from
the Oil Price Stabilization Fund (OPSF) and seeks for the reversal of said COA’s
decision denying its claims for recovery of financing charges from the Fund and
reimbursement of underrecovery arising from sales to the National Power Corporation,
Atlas Consolidated Mining and Development Corporation (ATLAS) and Marcopper Mining
Corporation (MAR-COPPER), preventing it from exercising the right to offset its
remittances against its reimbursement vis-a-vis the OPSF and disallowing its
claims which are still pending resolution before the Office of Energy Affairs (OEA)
and the Department of Finance (DOF).
• The Oil Price Stabilization Fund (OPSF) was created under Section 8, P.D. 1956, as
amended by Executive Order 137 for the purpose of minimizing frequent price changes
brought about by exchange rate adjustments. It will be used to reimburse the oil
companies for cost increases in crude oil and imported petroleum products resulting from
exchange rate adjustment and/or increase in world market prices of crude oil.
• February 2, 1989: the COA sent a letter to (Petitioner) Caltex Philippines, Inc. (CPI),
directing the latter to remit to the OPSF its collection, excluding that unremitted for
the years 1986 and 1988, of the additional tax on petroleum products authorized under
the aforesaid Section 8 of P.D. No. 1956 which, as of 31 December 1987, amounted to
P335,037,649.00 and informing it that, pending such remittance, all of its claims for
reimbursement from the OPSF shall be held in abeyance.
• March 9, 1989: the COA sent another letter to Caltex informing it that partial verification
with the OEA showed that the grand total of its unremitted collections of the above tax is
P1,287,668,820.00 directing it to remit the same, with interest and surcharges thereon,
within sixty (60) days from receipt of the letter; advising it that the COA will hold in
abeyance the audit of all its claims for reimbursement from the OPSF; and directing
it to desist from further offsetting the taxes collected against outstanding claims in
1989 and subsequent periods.
• May 3, 1989 (CPI’s letter): Caltex requested the COA for an early release of its
reimbursement certificates from the OPSF covering claims with the Office of Energy
Affairs since June 1987 up to March 1989, invoking in support thereof COA Circular
No. 89-299 on the lifting of pre-audit of government transactions of national
government agencies and government-owned or controlled corporations.
• May 8, 1989 (Answer): the COA denied Caltex’s request for the early release of the
reimbursement certificates from the OPSF and repeated its earlier directive to Caltex to
forward payment of the latter's unremitted collections to the OPSF to facilitate COA’s audit
action on the reimbursement claims.
• May 31, 1989 (Reply): Caltex submitted to the COA a proposal for the payment of the
collections and the recovery of claims, since the outright payment of the sum of P1.287
billion to the OEA as a prerequisite for the processing of said claims against the OPSF will
cause a very serious impairment of its cash position.
• June 7, 1989: COA accepted the proposal but prohibiting Caltex from further
offsetting remittances and reimbursements for the current and ensuing years.
• Caltex’s main contentions: Denial of claim for reimbursement would be inequitable.
Caltex contends that it should be allowed to offset its claims from the OPSF against
its contributions to the fund as this has been allowed in the past, particularly in the
years 1987 and 1988. Further, Caltex cites, as bases for offsetting, the provisions of the
New Civil Code on compensation and Section 21, Book V, Title I-B of the Revised
Administrative Code which provides for “Retention of Money for Satisfaction of
Indebtedness to Government.” Caltex also mentions communications from the Board
of Energy and the Department of Finance that supposedly authorize compensation.
Caltex also cites R.A. No. 6952 creating the Petroleum Price Standby Fund to
support the OPSF.
• COA’s main contentions: 1) P.D. No. 1956 and E.O. No. 137 do not allow
reimbursement of financing charges from the OPSF; 2) In allowing reimbursement of
financing charges from OPSF, Circular No. 1-87 of the Department of Finance violates
P.D. No. 1956 and E.O. No. 137; 3) Department of Finance rules and regulations
implementing P.D. No. 1956 do not likewise allow reimbursement of financing
charges.
- COA, citing Francia vs. IAC and Fernandez, contend that there can be no offsetting of
taxes against the claims that a taxpayer may have against the government, as taxes
do not arise from contracts or depend upon the will of the taxpayer, but are imposed
by law.
- COA also allege that Caltex’s reliance on Section 21, Book V, Title I-B of the Revised
Administrative Code, is misplaced because “while this provision empowers the COA to
withhold payment of a government indebtedness to a person who is also indebted to the
government and apply the government indebtedness to the satisfaction of the obligation
of the person to the government, like authority or right to make compensation is not given
to the private person.”
- Reason (CIR v. Algue): money due the government, either in the form of taxes or other
dues, is its lifeblood and should be collected without hindrance. Thus, instead of giving
Caltex’ a reason for compensation or set-off, the Revised Administrative Code
makes it the COA’s duty to collect Caltex’s indebtedness to the OPSF.
II. Issue/s
Whether or not the amounts due from Caltex Philippines Inc. (Petitioner) to the OPSF may be
offset against Caltex’s outstanding claims from said funds. (NO)
• It is settled that 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.
• Technically, in respect to the taxes for the OPSF, the oil companies merely act as agents
for the Government in the latter's collection since the taxes are, in reality, passed unto the
end-users –– the consuming public. In that capacity, Caltex (petitioner), as one of such
companies, has the primary obligation to account for and remit the taxes collected to the
administrator of the OPSF.
• Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims against their
OPSF contributions. Instead, it prohibits the government from paying any amount from the
Petroleum Price Standby Fund to oil companies which have outstanding obligations with
the government, without said obligation being offset first subject to the rules on
compensation in the Civil Code.
IV. Disposition
WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the

challenged decision of the Commission on Audit, except that portion thereof disallowing
petitioner’s (Caltex) claim for reimbursement of underrecovery arising from sales to the
National Power Corporation, which is hereby allowed.
V. Notes
• The Court finds no merit in Caltex’s contention that the OPSF contributions are not for a
public purpose because they go to a special fund of the government. Taxation is no longer
envisioned as a measure merely to raise revenue to support the existence of the
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.
• There can be no doubt that the oil industry is greatly imbued with public interest as it vitally
affects the general welfare. Any unregulated increase in oil prices could hurt the lives of a
majority of the people and cause economic crisis of untold proportions. It would have a
chain reaction in terms of, among others, demands for wage increases and upward
spiraling of the cost of basic commodities. The stabilization then of oil prices is of prime
concern which the state, via its police power, may properly address.
• P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF
is taxation.
Claims arising from sales to the National Power Corporation, the Court ruled in favor of
Caltex. COA admit in their Comment that underrecovery arising from sales to NPC are
reimbursable because NPC was granted full exemption from the payment of taxes; to
prove this, COA trace the laws providing for such exemption. The last law cited is the
Fiscal Incentives Regulatory Board's Resolution No. 17-87 of 24 June 1987 which
provides, in part, “that the tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic purchases of petroleum and
petroleum products . . . are restored effective March 10, 1987.” In a Memorandum issued
on 5 October 1987 by the Office of the President, NPC’s tax exemption was confirmed
and approved.
- Furthermore, as pointed out by COA, the intention to exempt sales of petroleum products
to the NPC is evident in the recently passed Republic Act No. 6952 establishing the
Petroleum Price Standby Fund to support the OPSF.
- Hence, Caltex can recover its claim arising from sales of petroleum products to the
National Power Corporation.
Caltex’s claim for reimbursement on sales to ATLAS and MARCOPPER, Caltex relies on
LOI 1416 which ordered the suspension of payments of all taxes, duties, fees and other
charges, whether direct or indirect, due and payable by the copper mining companies in
distress to the national government.
- COA allege that while LOI 1416 suspends the payment of taxes by distressed mining
companies, it does not accord petitioner the same privilege with respect to its obligation
to pay OPSF dues.
- The Court concur with the disquisition of the COA; LOI 1416 was never published in
the Official Gazette as required by Art. 2, NCC (citing Tañada vs. Tuvera); LOI 1416 has,
therefore, no binding force or effect as it was never published in the Official Gazette
after its issuance or at any time after the decision in the abovementioned cases.
- Furthermore, even granting arguendo that LOI 1416 has force and effect, Caltex’s claim
must still fail. Tax exemptions as a general rule are construed strictly against the grantee
and liberally in favor of the taxing authority. The burden of proof rests upon the party
claiming exemption to prove that it is in fact covered by the exemption so claimed. The
party claiming exemption must therefore be expressly mentioned in the exempting law or
at least be within its purview by clear legislative intent.
- In the case at bar, Caltex failed to prove that it is entitled, as a consequence of its
sales to ATLAS and MARCOPPER, to claim reimbursement from the OPSF under
LOI 1416. Though LOI 1416 may suspend the payment of taxes by copper mining
companies, it does not give Caltex the same privilege with respect to the payment
of OPSF dues.
COA’s disallowance of the amount of P130,420,235.00, Caltex maintains that the

Department of Finance has still to issue a final and definitive ruling thereon; accordingly,
it was premature for COA to disallow it. By doing so, the latter acted beyond its jurisdiction.
COA, on the other hand, contend that said amount was already disallowed by the OEA for
failure to substantiate it. In fact, when OEA submitted the claims of Caltex for pre-audit,
the abovementioned amount was already excluded.
- Caltex failed to prove or substantiate its contention that the amount of P130,420,235.00
is still pending before the OEA and the DOF.
- The Court finds no reason to doubt the submission of respondents that said amount has
already been passed upon by the OEA. Hence, the ruling of respondent COA
disapproving said claim must be upheld.
1
29 Philex Mining v. CIR

125704 Romero, J. 28 August 1998
PHILEX MINING CORPORATION CIR, CA, and CTA
DOCTRINE/S: Taxes cannot be subject to compensation because the government and the
taxpayer are not creditors and debtors of each other. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity.
● Sometime in August 1992, BIR sent a letter to Philex asking it to settle its tax liabilities
for the 2nd, 3rd, and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992
totaling Php123,821.982.52.
● Philex protested the demand for payment of the tax liabilities stating that it has pending
claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the
amount of Php119,977,037.02 plus interest therefore, these claims for tax credit/refund
should be applied against the tax liabilities.
● BIR found no merit in Philex's position. Since the pending claims have not yet been
determined with certainty, no legal compensation can take place. Hence, the BIR again
demanded that Philex settle the amount plus interest within 30 days.
● CTA: In the course of the proceedings, BIR issued a Tax Credit Certificate in the
amount of Php13,144,313.88 which, applied to the total tax liabilities of Philex, lowered
its tax obligation to P110,677,688.52. Despite the reduction, the CTA still ordered
Philex to pay the remaining balance of P110,677,688.52 plus interest. Moreover, the
CTA ruled that "taxes cannot be subject to set-off on compensation since claim for
taxes is not a debt or contract."
● CA: affirmed CTA’s observation.
● However, a few days after the denial of its MR, Philex was able to obtain its VAT input
credit/refund for the taxable year 1989 to 1992 and 1994. Philex now contends that the
same should off-set its excise tax liabilities since both had already become "due and
demandable, as well as fully liquidated" hence, legal compensation can take place.
II. Issue/s
W/N legal compensation can properly take place between the VAT input credit/refund and the
excise tax liabilities of Philex. NO
● The Court held that it has already made the pronouncement that taxes cannot be
subject to compensation because the government and the taxpayer are not
creditors and debtors of each other. Debts are due to the Government in its corporate
capacity, while taxes are due to the Government in its sovereign capacity.
● The Court explained that if any taxpayer can defer the payment of taxes by raising
the defense that it still has a pending claim for refund or credit, this would
adversely affect the government revenue system. A taxpayer cannot refuse to pay
his taxes when they fall due simply because he has a claim against the government or
that the collection of the tax is contingent on the result of the lawsuit it filed against the
latter.
● The fact that Philex has pending claims for VAT input claim/refund with the government
is immaterial for the imposition of charges and penalties prescribed under Sections 248
and 249 of the Tax Code of 1977. The payment of surcharge is mandatory and the BIR
is not vested with any authority to waive the collection thereof.
IV. Disposition
Daile Fernandez
2
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The
assailed decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.
V. Notes
● Philex asserts that BIR violated Sec. 106 (e) of the NIRC of 1977, which requires the
refund of input taxes within 60 days, when it took five years for BIR to grant its tax claim
for VAT input credit/refund.
● In this case, the Court agreed with the contention of Philex that the VAT input taxes were
paid between 1989 to 1991 but the refund of these erroneously paid taxes was only
granted in 1996. Had the BIR been more diligent and judicious with their duty, it could
have granted the refund earlier.
Daile Fernandez
CIR vs. Esso Standard
Compensation and Set-Off
L-28502-03 J. ANDRES NARVASA APRIL 18, 1989
COMMISSIONER ESSO STANDARD EASTERN INC. and the COURT OF TAX APPEALS
OF INTERNAL
REVENUE
DOCTRINE: Expanded Senior Citizens Act of 2003 (R.A. No. 9257); Taxation; Being a tax
deduction, the discount given by drugstores in favor of senior citizens does not reduce taxes owed
on a peso for peso basis but merely offers a fractional reduction in taxes owed.—Based on the afore-
stated DOF Opinion, the tax deduction scheme does not fully reimburse petitioners for the discount
privilege accorded to senior citizens. This is because the discount is treated as a deduction, a tax-
deductible expense that is subtracted from the gross income and results in a lower taxable income.
Stated otherwise, it is an amount that is allowed by law to reduce the income prior to the application
of the tax rate to compute the amount of tax which is due. Being a tax deduction, the discount does
not reduce taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes
owed. Theoretically, the treatment of the discount as a deduction reduces the net income of the
private establishments concerned. The discounts given would have entered the coffers and formed
part of the gross sales of the private establishments, were it not for R.A. No. 9257. Carlos Superdrug
Corp. vs. Department of Social Welfare and Development (DSWD), 526 SCRA 130, G.R. No. 166494
June 29, 2007
 ESSO overpaid its 1959 income tax by P221,033.00. It was accordingly granted a tax credit in
this amount by the Comissioner on August 5,1964.
 ESSOs income tax payment for 1960 was found to be short by P367,994.00.
 Thus on July 10, 1964, the Commissioner wrote to ESSO demanding payment of the
deficiency tax, together with interest thereon for the period from April 18,1961 to April 18,1964.
 On August 10, 1964, ESSO paid under protest the amount alleged to be due, including the
interest as reckoned by the Commissioner. It protested the computation of interest, contending
it was more than that properly due.
 It claimed that it should not have been required to pay interest on the total amount of the
deficiency tax, P367,994.00, but only on the amount of P146,961.00—representing the
difference between said deficiency, P367,994.00, and ESSOs earlier overpayment of
P221,033.00 (for which it had been granted a tax credit). ESSO thus asked for a refund.
 The Internal Revenue Commissioner denied the claim for refund. ESSO appealed to the Court
of Tax Appeals.
 The Commissioner argued the tax credit of P221,033.00 was approved only on year 1964, it
could not be availed of in reduction of ESSOs earlier tax deficiency for the year 1960; as of
that year, 1960, there was as yet no tax credit to speak of, which would reduce the deficiency
tax liability for 1960. In support of his position, the Commissioner invokes the provisions of
Section 51 of the Tax Code.
II. Issue/s
Whether or not the interest on delinquency should be applied on the full tax deficiency of
P367,994.00 despite the existence of overpayment in the amount of P221,033.00?
● NO, the interest on delinquency should NOT be applied on the full tax deficiency of
P367,994.00 despite the existence of overpayment in the amount of P221,033.00
● Court of Tax Appeals has stressed, as early as July 15, 1960, the Government already had in
its hands the sum of P221,033.00 representing excess payment. Having been paid and
received by mistake, as petitioner Commissioner subsequently acknowledged, that sum
unquestionably belonged to ESSO, and the Government had the obligation to return it to ESSO
That acknowledgment of the erroneous payment came some four (4) years afterwards in
nowise negates or detracts from its actuality.
● The obligation to return money mistakenly paid arises from the moment that payment is made,
and not from the time that the payee admits the obligation to reimburse. The obligation of the
payee to reimburse an amount paid to him results from the mistake, not from the payee's
confession of the mistake or recognition of the obligation to reimburse.
● In other words, since the amount of P221,033.00 belonging to ESSO was already in the hands
of the Government as of July, 1960, although the latter had no right whatever to the amount
and indeed was bound to return it to ESSO, it was neither legally nor logically possible for
ESSO thereafter to be considered a debtor of the Government in that amount of P221,033.00;
and whatever other obligation ESSO might subsequently incur in favor of the Government
would have to be reduced by that sum, in respect of which no interest could be charged.
IV. Disposition
WHEREFORE, the petition for review is DENIED, and the Decision of the Court of Tax
Appeals dated October 28, 1967 subject of the petition is AFFIRMED, without
pronouncement as to costs.
V. Notes
UST vs CIR
Doctrine of Equitable Recoupment
L‐11274 MONTEMAYOR, J. 28 November 1958
UST Collector of Internal Revenue

DOCTRINE:
The doctrine of equitable recoupment means that when a refund of a tax illegally or
erroneously collected or overpaid by a taxpayer is barred by the statute of limitations and a
tax is being presently assessed against said taxpayer, SAID PRESENT TAX MAY BE RECOUPED
OR SET‐OFF AGAINST THE TAX, the refund of which has been barred. The same thing would
have been true where the Government has failed to collect a tax within the period of limitation
and said collection is already barred, and the taxpayer has to its credit a tax illegally or
erroneously collected or overpaid, whose refund is not yet barred, the Government need not
make refund of all the tax illegally or erroneously collected, BUT IT MAY SET OFF AGAINST
ITTHE TAX WHOSE COLLECTION IS BARRED BY THE STATURE OF LIMITATIONS.


UST paid on its gross receipts derived from its printing and binding jobs for the public and the
different departments of the University, the aggregate amount of Php13,590.03, representing
the 2% tax on its gross receipts during the period in question.
The institution requested in writing from the respondent the refund of the sum of Php 8,293.31
because: 1). the amount paid by the other departments to the UST Press was for the purposes of
accounting only and does not legally constitute gross receipts subject to the percentage tax; 2).
the printing and binding of the annuals fall under the exception provided for in Section 191 in
relation to Section 183(a) of the Tax Code.

The Collector of Internal Revenue denied the claim for refund of UST and that the amount worth
Php 2,452.04, representing deficiency percentage tax and surcharge on the undeclared receipts
derived from the printing and binding of the subject annuals, is assessed and demanded from
UST.
On the other hand, the Court of Tax Appeals modified the decision of the CIR. The former
recognized the deficiency tax assessment but the deemed the amount as paid by way of
recoupment.

II. Issue/s

1. W/N THE CTA ERRED IN APPLYING THE DOCTRINE OF EQUITABLE RECOUPMENT IN THE
CASE?


YES. The Supreme Court held that the doctrine of equitable recoupment is not applicable in our
jurisdiction.

Because of statute of limitation, the tax collecting agency of the Government, and the taxpayer
would be alert and be constrained in making assessment and collection, and in demanding on
time the refund of taxes which were illegally or erroneously collected.

The tax collector would be tempted to delay and neglect the collection of taxes within the period
set by the law making it confident that it could still recover the tax it failed to collect by having it
set off or recouped from any tax which it may have illegally collected from the same taxpayer.
Digest Maker: Rarama, Ramon Jireh B.

This can cause a collector, to play safe and have a fund available for said set‐off and recoupment
of a tax which he had failed and neglected to collect, and may be tempted to make illegal
assessments and collections. As an effect, the taxpayer would be helpless because however
illegal and unauthorized the assessment may be, the Collector can always enforce the same by
levy and distrain, and the only remedy of the taxpayer would be to file a formal demand for
refund, followed by a court suit to enforce the demand. As regards the taxpayer, he may also be
tempted to delay and neglect the filing of the corresponding suit for refund of a tax illegally or
erroneously collected, trusting that he can always recover or be credited with the same or part
thereof by refusing to pay a valid tax assessed against him and compelling the Government to
set‐off the same against a tax payment he could no longer recover.
IV. Disposition
Decision modified. No costs.
Digest Maker: Rarama, Ramon Jireh B.

PEOPLE v. CASTANEDA
Tax Amnesty v. Tax Exemptions
G.R. No. L-46881 FELICIANO, J. September 15, 1988
PEOPLE OF THE PHILIPPINES HON. MARIANO CASTAÑEDA JR., Judge of
the Court of First Instance of Pampanga,
Branch III, VICENTE LEE TENG, PRISCILLA
CASTILLO VDA. DE CURA and FRANCISCO
VALENCIA
DOCTRINE: A tax amnesty, much like to a tax exemption, is never favored nor presumed in law
and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed
strictly against the taxpayer and liberally in favor of the taxing authority.
I. Facts:
➢ Sometime in 1971, 2 informants submitted sworn information under Republic Act No. 2338
("An Act to Provide for Reward to Informers of Violations of the Internal Revenue and
Customs Laws" to the BIR concerning alleged violations of provisions of the Internal
Revenue Code committed by the Lee Teng et. al (private respondents).
➢ Following an investigation and examination by the BIR, the State Prosecutor filed with the
CFI of Pampanga several informations against Lee Teng et. al. They were charged with
various violations of the NIRC including possession of counterfeit internal revenue labels,
possession of liquors and spirits whose specific taxes have not been paid, and finally,
manufacture of alcoholic products without paying the privilege tax therefor.
➢ After arraignment, accused Valencia filed a Motion to Quash upon the grounds that the
informations had been filed without conducting the necessary preliminary investigation
and that he was entitled to the benefits of the tax amnesty provided by P.D. No. 370.
➢ The State Prosecutor opposed saying that the lack of a preliminary investigation is not a
ground for quashal. He further argued that the accused Valencia was not entitled to avail
himself of the benefits of P.D. No. 370 since his tax cases were the subject of valid
information submitted under R.A. No. 2338 as of 31 December 1973
➢ The trial court judge granted the Motion to Quash. Reconsideration by the People was
denied. The co-accused also filed Motions to Quash on the theory that the dismissal of
the action as to Valencia inured to their benefit. Such motions were also granted by the
respondent judge
➢ Petitioner now filed a petition for certiorari and mandamus seeking the annulment of the
order granting quashal
II. Issues:
1. Whether private respondents are entitled to the benefits of the tax amnesty? NO.
2. Is the State estopped from questioning his entitlement to the benefits of the tax amnesty,
considering that agents of the BIR had already accepted his application for tax amnesty and his
payment of the required fifteen percent (15%) special tax? NO.

1. NO
The scope of application of the tax amnesty declared by P.D. No. 370 is marked out in the
following broad terms:
1. A tax amnesty is hereby granted to any person, natural or juridical, who for any reason whatsoever failed
to avail of Presidential Decree No. 23 and Presidential Decree No. 157; or, in so availing of the said
Presidential Decrees failed to include all that were required to be declared therein if he now voluntarily
discloses under this decree all his previously untaxed income and/or wealth such as earnings, receipts,
gifts, bequests or any other acquisitions from any source whatsoever which are or were previously taxable
under the National Internal Revenue Code, realized here or abroad by condoning all internal revenue taxes
including the increments or penalties on account of non-payment as well as all civil, criminal or
administrative liabilities, under the National Internal Revenue Code, the Revised Penal Code, the Anti-Graft
and Corrupt Practices Act, the Revised Administrative Code, the Civil Service Laws and Regulations, laws
and regulations on Immigration and Deportation, or any other applicable law or proclamation, as it is hereby
condoned, provided a tax of fifteen (15%) per centum on such previously untaxed income and/or wealth is
imposed subject to the following conditions:
a. Such previously untaxed income and/or wealth must have been earned or realized prior to 1973, except
the following:
xxx
e. Tax cases which are the subject of a valid information under Republic Act No. 2338 as
of December 31, 1973; and
xxx
➢ Entitlement to benefits of P.D. No. 370 would have the effect of condoning or extinguishing
the liabilities consequent upon possession of false and counterfeit internal revenue labels;
the manufacture of alcoholic products subject to specific tax without having paid the
annual privilege tax therefor, and the possession, custody and control of locally
manufactured articles subject to specific tax on which the taxes had not been paid in
accordance with law.
➢ To be entitled to the extinction of liability provided by P.D. No. 370, the claimant must have
voluntarily disclosed his previously untaxed income or wealth and paid the required fifteen
percent (15%) tax on such previously untaxed income or wealth imposed by P.D. No.370.
➢ In the instant case, the violations of the National Internal Revenue Code with which the
respondent accused were charged, had already been discovered by the BIR when P.D.
No. 370 took effect on 9 January 1974, by reason of the sworn information or affidavit-
complaints filed by informers with the BIR under Republic Act No. 2338 prior to 31
December 1973.
➢ In this case, not one but two (2) "informations' or affidavit-complaints concerning private
respondents' operations said to be in violation of certain provisions of the National Internal
Revenue Code, had been filed with the BIR as of 31 December 1973 and those two (2)
affidavit-complaints had matured into two (2) criminal informations in court against the
respondent accused, by 31 December 1973. The six (6) informations docketed as Criminal
Cases Nos. 538-543, while filed in court only on 14 March 1974, had been based upon
the sworn information previously submitted as of 31 December 1973 to the BIR.
➢ It follows that, even assuming respondent accused Francisco Valencia was otherwise
entitled to the benefits of P.D. No. 370, none of the informations filed against him could
have been condoned under the express provisions of the tax amnesty statute.
2. No. At the time he paid the special fifteen percent (15%) tax under P.D. No. 370, accused
Francisco Valencia had in fact already been subjected by the BIR to extensive investigation such
that the criminal charges against him could not be condoned under the provisions of the amnesty
statute.
➢ Further, acceptance by the BIR agents of accused Valencia's application for tax amnesty
and payment of the fifteen percent (15%) special tax was no more than a ministerial duty
on the part of such agents.
➢ In any case, even assuming, though only arguendo, that the BIR had so ruled, there is the
long familiar rule that "erroneous application and enforcement of the law by public officers
do not block, subsequent correct application of the statute and that the government is
never estopped by mistake or error on the part of its agent." which finds application in the
case at bar.
➢ Still further, a tax amnesty, much like to a tax exemption, is never favored nor presumed
in law and if granted by statute, the terms of the amnesty like that of a tax exemption must
be construed strictly against the taxpayer and liberally in favor of the taxing authority.
Valencia's payment of the special fifteen percent (15%) tax must be regarded as legally
ineffective.
WHEREFORE, the Orders of respondent Judge dated 15 July 1974, 18 November 1974, 31
March 1976 and 17 February 1977 are hereby SET ASIDE. Respondent Judge no longer being
with the Judiciary, the branch of the Regional Trial Court of Pampanga seized of Criminal Cases
Nos. 439 and 440, and 538-543 inclusive, against the surviving respondent accused, 13 is hereby
ORDERED to proceed with the trial of these criminal cases. Costs against private respondents.
Florer v. Sheridan, 137 Ind. 28 (1894)
Interpretation of Rules, and Regulations

16371 Dailey, J. 13 Feb. 1894
Florer, Treasurer, et. al Sheridan, Administratrix
DOCTRINE:
Deductions and exemptions are two separate and distinct things, having no connection. A
deduction is the taking of the subtrahend from the minuend. It is a subtraction.
Exemption is an immunity or privilege — it is freedom from a charge of burden to which

others are subject.
Summary:
The appellee (Sheridan, Administratrix), as plaintiff in the court below, brought her action against
the appellants and Melville W. Miller and George P. Haywood to prevent the collection of certain
taxes by appellant, Florer, treasurer of Tippecanoe county.
The original complaint was lost and another substituted; a demurrer was filed to the substituted
complaint, by each defendant, for want of sufficient facts to constitute a cause of action, which
was sustained as to defendants, Miller and Haywood, and plaintiff refusing to amend the
complaint, judgment was rendered in their favor;
The demurrers of appellants, Florer and Barnes, were overruled, to which ruling they excepted,
and, declining to answer further, the court rendered judgment for the plaintiff on the demurrers of
Florer and Barnes to the complaint, perpetually enjoining the collection of the whole, or any part
of said taxes, and ordering the assessment mentioned in the complaint stricken from the tax
duplicate. The defendants, Florer and Barnes, prayed an appeal.
The errors complained of arise upon the ruling of the court on the separate demurrers of each
defendant.
The assignment of errors contains two specifications:
First. The court erred in overruling the separate demurrer of Thomas A. Florer, treasurer of
Tippecanoe county, Indiana, to the substituted complaint.
Second. The court erred in overruling the separate demurrer of Thomas J. Barnes, auditor of
Tippecanoe county, Indiana, to the substituted complaint.
A complaint was filed by the Administratrix of Sheridan’s estate and alleges that, on the 8th day
of February, 1890, Melville W. Miller and George P. Haywood, filed in the office of said Barnes,
auditor of Tippecanoe county, Indiana, a paper giving to said auditor the information that
Alexander L. Sheridan, then deceased, was, during the years 1884 to 1889, inclusive, a citizen
of the city of La Fayette and Tippecanoe county, and was the owner of certain property, subject
to taxation, for said years, which had not been listed for taxation and by reason of which the
property had been omitted, and no taxes paid thereon.
Auditor Barnes, acting upon such information, gave notice to the appellee (Administratrix), who
was, at the time of filing the information, the administratrix of decedent’s estate, that he intended
to place said property on the tax duplicate, and required her to appear on the 22d day of March,
1890, and show cause, if she could, why such assessment should not be made.
Pursuant to said notice appellee called upon said auditor at his office and informed him that
decedent, in his lifetime, had no money loaned, but that for and during the years mentioned he
did own $8,800 of credits, but that the same had not been listed by the decedent, for taxation,
because, during said time, ‘he was in debt to others in excess of the credits owned by him.
Auditor Barnes refused to investigate further as to the truth of the statements made by said
administratrix, but, being advised as to the law by Miller and Haywood, claimed that as the
credits and debts were not placed on the schedule, at the time of the assessment of the
decedent, the deduction could not then be made and the property should be placed on the tax
duplicate and taxed as other property, and he thereupon assessed said credits and placed the
amounts and value on the tax duplicates; that afterwards, said duplicates being in the hands of
said Florer as treasurer of said county, he was about to proceed to the collection of said taxes
out of the property of the decedent.
The appellee (Sheridan, Administratrix), as plaintiff in the court below, brought her action against
the appellants and Melville W. Miller and George P. Haywood to prevent the collection of certain
taxes by appellant, Florer, treasurer of Tippecanoe county.
The complaint further avers that said decedent was the owner of certain real estate, in said county,
and inasmuch as said taxes had been wrongfully assessed and placed on said tax duplicate, they
were an apparent lien on said land and a claim against said estate, and asks that they be stricken
from said duplicate. There is also an allegation of a want of description of the omitted property.
The original complaint was lost and another substituted; a demurrer was filed to the substituted
complaint, by each defendant, for want of sufficient facts to constitute a cause of action, which
was sustained as to defendants, Miller and Haywood, and plaintiff refusing to amend the
complaint, judgment was rendered in their favor;
The demurrers of appellants, Florer and Barnes, were overruled, to which ruling they excepted,
and, declining to answer further, the court rendered judgment for the plaintiff on the demurrers of
Florer and Barnes to the complaint, perpetually enjoining the collection of the whole, or any part
of said taxes, and ordering the assessment mentioned in the complaint stricken from the tax
duplicate. The defendants, Florer and Barnes, prayed an appeal.
II. Issue/s
Whether or not the court erred in overruling the demurrer of the defendants, Florer and Barnes,
to the complaint.
No. The Court did not err in overruling the demurrers of the defendants.
From the facts averred in the complaint, it is evident that whatever appellee might have done by
way of making statements before the auditor, when she appeared before him, in response to
notice to show cause, etc., or in whatever form she might have presented her claim for deductions,
it would, in any event, have been unavailing, although she was notified to appear for that purpose,
because it is alleged that he (Barnes) refused to allow deductions.
The complaint shows that Miller and Haywood gave information to the auditor in a paper partly
written and partly printed, .that the decedent, in his lifetime, had omitted to list “moneys loaned”
and “credits,” for the time stated, but described no item of omitted property otherwise than as
moneys loaned or credits, and that upon this information being filed, the auditor issued a notice
to the appellee, in which no property was described as omitted from taxation, except the amounts
of “moneys loaned” and “credits” were given, but to whom the moneys had been loaned, or what
the credits were, is not stated in the notice or elsewhere.
It has been decided by this court, in Florer, Treas., v. Sherwood, Admr., 128 Ind. 495, that this
description is not sufficient, and we still adhere to that opinion. The court said: “But money loaned,
and credits due, may or may not be of their face value, depending on many contingencies, and to
justify an assessment by the auditor upon property of that character he must know of specific
loans and of specific credits which have been omitted, and upon which valuation may be placed.’
’
Especially is this principle found to be correct when we remember that ''all taxation, in this State,
is upon values, and none upon amounts.
In Woll, Treas., v. Thomas, Admr., 1 Ind. App. 232, the court said: “Our conclusion is that the
auditor had no right, under the law in force at that time (from 1883 to 1888), to assess any property
as omitted, except distinct, definite and recognizable articles which had not been listed and
properly appraised * * by the assessor.”
We think the constitution requires that property, wealth, substantial values shall be taxed, but not
imaginary values. As against an insolvent maker, the true value in money of the credit can only
be taxed and so it is where a man has both credits and debts, if there is no balance there is no
sum of money due, however large the items of account upon each side may be. The items of
credit upon the one side are of no value, as far as they are balanced by the debts upon the other
side. If the balance is in favor of one creditor this is the exact sum of money due him as against
all others, and it is the true value of his credits.
Deductions and exemptions are two separate and distinct things, having no connection.
A deduction is the taking of the subtrahend from the minuend. It is a subtraction. Exemption is an
immunity or privilege — it is freedom from a charge of burden to which others are subject.
IV. Disposition
We think the court did not err in overruling the demurrers of the defendants, Florer and Barnes,
to the complaint.
The judgment of the court below is affirmed.
V. Notes
The act of March 9, 1889, supra, amending section 6416, R. S. of 1881, reads: “Whenever any
county auditor shall discover or receive credible information, or if he shall have reason to believe,
that any real or personal property has, from any cause, been omitted in whole or in part in the
assessment of any year or number of years from the assessment-book or from the tax duplicate,
he shall proceed to correct the tax duplicate and add such property thereto, with the proper
valuation, and charge such property and the owner thereof with the proper amount of taxes
thereon, to enable him to do which he is invested with all the powers of assessors under this
act. But before making such correction or addition, if the person claiming to own such property,
or occupying it, or in possession thereof, reside in the county and be not present, he shall give
such person notice in writing of his intention to add such property to the tax duplicate, describing
it in general terms, and requiring such person to appear before him, at his office, at a specified
time within ten days after giving such notice, to show cause, if any, why such property should not
be added to the tax duplicate; and if the party so notified do not appear, or if he appear, and fail
to show any good and sufficient cause why such assessment should not be made, the same shall
be made,” etc.
There is no doubt that, under the provisions of this section the appellee had a right to show cause,
if any existed, why such credit should not be annexed to the tax duplicate to increase the liability
of the estate, unless -the clause in section 6332, R. S. of 1881, is unconstitutional, which stipulates
that: -“In making up the amount of credits which any person is required to list, for himself or for
any other person, company, or corporation, he shall be entitled to deduct from the gross amount
of credits the amount of all bona fide debts owing by such person, company, or corporation, to
any other person, company, or corporation, for a consideration received.”
In City of Indianapolis v. Vajen, 111 Ind. 240, 243, this court said: “There is no controversy but
that, under the ruling in Wasson v. First Nat’l Bank, etc., 107 Ind. 206, the plaintiff was entitled to
deduct his bona fide indebtedness from the value of his bank stock, if proper steps to that end
had been taken before the payment of the tax.”
CIR vs. Mitsubishi Metal Corp
International Comity
G.R. Nos. Ponente Date
54908 & 80041 REGALADO, J. January 22, 1990
Commissioner of Internal Mitsubishi Metal Corporation & Atlas Consolidated Mining and
Revenue Development Corporation
Facts:
On April 17, 1970, Atlas Consolidated Mining and Development Corporation (Atlas) entered into
a Loan and Sales Contract with Mitsubishi Metal Corporation (Mitsubishi) for the purposes of the
project expansion of the productive capacity of Atlas’s mines in Toledo, Cebu. Under said
contract, Mitsubishi agreed to extend a loan to Atlas 'in the amount of $20,000,000.00, United
States currency, for the installation of a new concentrator for copper production. Atlas, in turn
undertook to sell to Mitsubishi all the copper concentrates produced from said machine for a
period of fifteen (15) years.
Thereafter, Mitsubishi applied for a loan with Export-Import Bank of Japan (Eximbank) for the
purpose of its obligation under the said contract. The ¥4,320,000,000.00 loan was approved and
at the same time a loan of ¥2,880,000,000.00 from a consortium of Japanese banks. The total
loan from both transactions is equivalent to $20,000,000.00. BIR records show that the approval
of the loan was subject to the condition that Mitsubishi would extend the amount to Atlas.
Pursuant to the contract, interest payment was made by Atlas totaling to P13, 143, 966.79 for the
years 1974 and 1975. The corresponding 15% tax thereon in the amount of P1,971,595.01 was
withheld pursuant to Section 24 (b) (1) and Section 53 (b) (2) of the National Internal Revenue
Code, as amended by Presidential Decree No. 131, and duly remitted to the Government.
In March 1976, Mitsubishi and Atlas filed a claim for tax credit requesting that P1,971,595.01 be
applied against their existing and future tax liabilities. They grounded their claim that
Mitsubishi was a mere agent of EximBank, which is a financing institution owned,
controlled and financed by the Japanese Government. Such governmental status of
EximBank is their basis for claim of exemption from paying the tax on the interest payment
of the loan. Since, according to them, the loan was financed by EximBank. This is pursuant
to the provision of the National Internal Revenue Code relied upon is Section 29 (b) (7) (A) 1
1
which excludes from gross income:
(A) Income received from their investments in the Philippines in loans, stocks, bonds or
other domestic securities, or from interest on their deposits in banks in the Philippines by
(1) foreign governments, (2) financing institutions owned, controlled, or enjoying
refinancing from them, and (3) international or regional financing institutions established
by governments.
The Appellate Division of the BIR ruled in favor of Mitsubishi. While this case is pending, the
corresponding 15% tax on the amount of P439,167.95 on the P2,927,789.06 interest payments
for the years 1977 and 1978 was withheld and remitted to the Government. Atlas again filed a
claim for tax credit with the petitioner, repeating the same basis for exemption. The Appellate
division of the BIR, again, ruled in their favor.
Issue:
Whether or not the interest income from the loans extended to Atlas by Mitsubishi is exempted
from gross income taxation.
Ruling:
No. The loan and sales contract between Mitsubishi and Atlas does not contain any direct or
inferential reference to Eximbank whatsoever. The agreement is strictly between Mitsubishi as
creditor in the contract of loan and Atlas as the seller of the copper concentrates. From the
categorical language used in the document, one prestation was in consideration of the other.
The specific terms and the reciprocal nature of their obligations make it implausible, if not
vacuous to give credit to the cavalier assertion that Mitsubishi was a mere agent in said
transaction.
Surely, Eximbank had nothing to do with the sale of the copper concentrates since all that
Mitsubishi stated in its loan application with the former was that the amount being procured
would be used as a loan to and in consideration for importing copper concentrates from
Atlas. Such an innocuous statement of purpose could not have been intended for, nor could it
legally constitute, a contract of agency
To repeat, the contract between Eximbank and Mitsubishi is entirely different. It is
complete in itself, does not appear to be suppletory or collateral to another contract and
is, therefore, not to be distorted by other considerations aliunde.
Respondents postulate that Mitsubishi had to be a conduit because Eximbank's charter
prevents it from making loans except to Japanese individuals and corporations. We are
not impressed. Not only is there a failure to establish such submission by adequate
evidence but it posits the unfair and unexplained imputation that, for reasons subject
only of surmise, said financing institution would deliberately circumvent its own charter
to accommodate an alien borrower through a manipulated subterfuge, but with it as a
principal and the real obligee.
It is too settled a rule in this jurisdiction, as to dispense with the need for citations, that laws
granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in
favor of the taxing power. Taxation is the rule and exemption is the exception. The private
respondents are not even among the entities which, under Section 29 (b) (7) (A) of the tax
code, are entitled to exemption and which should indispensably be the party in interest
in this case.
Definitely, the taxability of a party cannot be blandly glossed over on the basis of a supposed
"broad, pragmatic analysis" alone without substantial supportive evidence, lest governmental
operations suffer due to diminution of much needed funds. Nor can we close this discussion
without taking cognizance of petitioner's warning, of pervasive relevance at this time, that while
international comity is invoked in this case on the nebulous representation that the funds
involved in the loans are those of a foreign government, scrupulous care must be taken to avoid
opening the floodgates to the violation of our tax laws. Otherwise, the mere expedient of having
a Philippine corporation enter into a contract for loans or other domestic securities with private
foreign entities, which in turn will negotiate independently with their governments, could be
availed of to take advantage of the tax exemption law under discussion.
Board of Assessment of Appeals of Laguna v. CTA
Exemption of Government Entities,
Agencies and Instrumentalities
L-18125 CONCEPCION, J. 31 May 1963
BOARD OF ASSESSMENT APPEALS, COURT OF TAX APPEALS and THE
PROVINCE OF LAGUNA NATIONAL WATERWORKS AND
SEWERAGE AUTHORITY (NAWASA)
DOCTRINE:
• Taxes are financial burdens imposed for the purpose of raising revenues with which to
defray the cost of the operation of the Government, and a tax on property of the
Government, whether national or local, would merely have the effect of taking
money from one pocket to put it in another pocket. Hence, it would not serve, in
the final analysis, the main purpose of taxation.
• National Waterworks and Sewerage Authority (NAWASA) is a public corporation created

by virtue of Republic Act No. 1383, and that it is owned by the Government of the
Philippines as well as all property comprising waterworks and sewerage systems placed
under it.
• NAWASA took over all the property of the former Metropolitan Water District and all the
existing local government-owned waterworks and sewerage systems all over the
Philippines, including the Cabuyao-Sta. Rosa-Biñan Waterworks System owned by the
Province of Laguna.
• NAWASA has no capital stock divided into shares of stocks, no stockholders, and is not
authorized by its Charter to distribute dividends; and, on the other hand, whatever
surplus funds it has realized, may and will after meeting its yearly obligations, have been,
are and may be, used for the construction, expansion and improvement of its waterworks
and sewer services.
• At the time that the Cabuyao-Sta. Rosa-Biñan Waterworks System was taken over by
NAWASA in 1956, the former was self-supporting and revenue-producing, but that all its
surplus income is not declared as profits as this surplus are or may be invested for the
expansion thereof.
• In the year 1956, the Provincial Assessor of Laguna assessed, for purposes of real
estate taxes, the property comprising the Cabuyao-Sta. Rosa-Biñan Waterworks
System. NAWASA protested, claiming that the property is exempted from the payment
of real estate taxes in view of the nature and kind of said property and functions and
activities of NAWASA, as provided in Republic Act No. 1383.
• NAWASA’s protest was overruled on appeal before the Board of Assessment Appeals
(BOA). The Court of Tax Appeals (CTA) reversed the decision of the Board of
Assessment Appeals. Petitioner Board of Assessment Appeals filed the instant petition
contending that the properties in question are subject to real estate tax because:
(1) Although said properties belong to the Republic of the Philippines, the same
holds it, not in its governmental, political or sovereign capacity, but in a private,
proprietary or patrimonial character, which, allegedly, is not covered by the
exemption contained in Section 3(a) of Commonwealth Act No. 470; and
(2) This exemption, even if applicable to patrimonial property, must yield to the
provisions of Section 1 of Republic Act No. 104, under which all corporations,
agencies or instrumentalities owned or controlled by the Government are subject
to taxation.
II. Issue/s
Whether the subject property used by NAWASA is subject to real estate tax (NO)
• It is conceded, in the stipulation of facts, that the property involved in this case "is
owned by the Government of the Philippines". Hence, it belongs to the Republic of the

Philippines and falls squarely within the letter of Section 3(a) of Commonwealth Act No.
470.
• In the case of the City of Cebu vs. NAWASA, we ruled that the assets of the water
system of the City of Cebu are patrimonial property of said city, which held it in a
proprietary character, not in its governmental capacity. We did not declare, however,
in the Cebu case that said assets were subject to taxation. In that case we merely
reiterated the doctrine, laid down in the case of City of Baguio vs. NAWASA, that
municipal corporations hold in their proprietary character, the assets of their
respective waterworks, which, accordingly, cannot be taken or appropriated by the
National Government and placed under the NAWASA without payment of just
compensation. Neither the Cebu case nor that of Baguio sustains the theory that said
assets are taxable.
• In exempting from taxation "property owned by the Republic of the Philippines, any
province, city, municipality or municipal district . . .," said Section 3(a) of Republic Act
No. 470 makes no distinction between property held in a sovereign, governmental or
political capacity and those possessed in a private, proprietary or patrimonial character.
And where the law does not distinguish neither may we, unless there are facts and
circumstances clearly showing that the lawmaker intended the contrary, but no such
facts and circumstances have been brought to our attention.
• Indeed, the noun "property" and the verb "owned" used in said section 3(a) strongly
suggest that the object of exemption is considered more from the view point of
dominion, than from that of domain. Moreover, taxes are financial burdens imposed for
the purpose of raising revenues with which to defray the cost of the operation of the
Government, and a tax on property of the Government, whether national or local, would
merely have the effect of taking money from one pocket to put it in another pocket.
Hence, it would not serve, in the final analysis, the main purpose of taxation. What is
more, it would tend to defeat it, on account of the paper work, time and consequently,
expenses it would entail.
• Section 1 of Republic Act No. 104 is inapplicable to the case at bar for it refers only to
duties, taxes, fees and other charges upon "transaction, business, industry, sale or
income" and does not include taxes on property like real estate tax.
IV. Disposition
WHEREFORE, the decision appealed from is hereby affirmed, without special

pronouncement as to costs. It is so ordered.
V. Notes
• Sections 2 and 3(a) of Commonwealth Act No. 470 provide:

SEC. 2. Incidence of real property tax. — Except in chartered cities, there
shall be levied, assessed, and collected, an annual ad valorem tax on real
property, including land, buildings, machinery, and other improvements not
hereinafter specifically exempted.
SEC. 3. Property exempt from tax. — The exemptions shall be as
follows:
(a) Property owned by . . . the Republic of the Philippines, any province, city,
municipality or municipal district. . . .
• Section 1 of the Republic Act No. 101, upon which petitioner relies, reads:
“All corporations, agencies, or instrumentalities owned or controlled by
the government shall pay such duties, taxes, fees and other charges upon their
transaction, business, industries, sale, or income as are imposed by law upon
individuals, associations or corporations engaged in any taxable business,
industry, or activity except on goods or commodities imported or purchased and
sold or distributed for relief purposes as may be determined by the President of
the Philippines.”

PEOPLE v. CASTANEDA
Tax Amnesty v. Tax Exemptions
G.R. No. L-23771 SARMIENTO, J August 4, 1988
THE COMMISSIONER OF INTERNAL LINGAYEN GULF ELECTRIC POWER CO.,
REVENUE INC. and THE COURT OF TAX APPEALS
DOCTRINE: A tax is uniform when it operates with the same force and effect in every place where
the subject of it is found. Uniformity means that all property belonging to the same class shall be
taxed alike. The Legislature has the inherent power not only to select the subjects of tazation but
to grant exemptions.
I. Facts:
Lingayen Gulf Electric Power operates an electric power plant serving the municipalities
of Lingayen and Binmaley, Pangasinan, pursuant to municipal franchise granted it by the
respective municipal councils.
The franchises provided that the grantee shall pay quarterly to the provincial treasury of
Pangasinan 1% of the gross earnings obtained through the privilege for the first 20 years
(from 1946) and 2% during the remaining 15 years of the life of the franchise.
In 1955, the BIR assessed and demanded against the company deficiency franchise taxes
and surcharges from the years 1946 to 1954 applying the franchise tax rate of 5% on
gross receipts from 1948 to 1954 as prescribed in Section 259 of the NIRC instead of the
lower rates as provided in the municipal franchises.
In 1962, Commissioner demanded from the private respondent another deficiency
franchise tax and surcharges for the years 1959 to 1961 applying again the franchise rate
of 5% on gross receipts as prescribed in Section 259 of NIRC.
Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed on June
22, 1 963, granting to the private respondent a legislative franchise for the operation of
the electric light, heat, and power system in the same municipalities of Pangasinan.
Section 4 thereof provides that: the grantee shall pay into the Internal Revenue office of
each Municipality in which it is supplying electric current to the public under this franchise,
a tax equal to two per centum (2%) of the gross receipts from electric current sold or
supplied under this franchise.
Said tax shall be due and payable quarterly and shall be in lieu of any and all taxes and/or
licenses of any kind, nature or description levied, established, or collected by any authority
whatsoever, municipal, provincial or national, now or in the future, on its poles, wires,
insulator ... and on its franchise, rights, privileges, receipts, revenues and profits, from
which taxes and/or licenses, the grantee is hereby expressly exempted and effective
further upon the date the original franchise was granted, no other tax and/or licenses other
than the franchise tax of two per centum on the gross receipts as provided for in the
original franchise shall be collected, any provision of law to the contrary notwithstanding.
On September 15, 1964, the respondent court ruled that the provisions of R.A. No. 3843
should apply and accordingly dismissed the claim of the Commissioner of Internal
Revenue. The said ruling is now the subject of the petition at bar.
II. Issues:
1. Whether Section 4 of Republic Act No. 3843 is unconstitutional for being violative of the
uniformity and equality of taxation clause of the Constitution (NO)

1. NO
No. A tax is uniform when it operates with the same force and effect in every place where
the subject of it is found. Uniformity means that all property belonging to the same class
shall be taxed alike.
The Legislature has the inherent power not only to select the subjects of taxation but to
grant exemptions.
Tax exemptions have never been deemed violative of the equal protection clause.
It is true that the private respondents municipal franchises were obtained under Act No.
667 of the Philippine Commission, but these original franchises have been replaced by a
new legislative franchise, i.e. R.A. No. 3843. As correctly held by the respondent court,
the latter was granted subject to the terms and conditions established in Act No. 3636, as
amended by C.A. No. 132.
These conditions Identify the private respondent's power plant as falling within that class
of power plants created by Act No. 3636, as amended. The benefits of the tax reduction
provided by law (Act No. 3636 as amended by C.A. No. 132 and R.A. No. 3843) apply to
the respondent's power plant and others circumscribed within this class. R.A-No. 3843
merely transferred the petitioner's power plant from that class provided for in Act No. 667,
as amended, to which it belonged until the approval of R.A- No. 3843, and placed it within
the class falling under Act No. 3636, as amended. Thus, it only effected the transfer of a
taxable property from one class to another.
The Court further explained that they do not have the authority to inquire into the wisdom
of such an act. The 5% franchise tax rate provided in Section 259 of the Tax Code was
never intended to have a universal application.
The Court note that the said Section 259 of the Tax Code expressly allows the payment
of taxes at rates lower than 5% when the charter granting the franchise of a grantee, like
the one granted to the private respondent under Section 4 of R.A. No. 3843, precludes
the imposition of a higher tax. R.A. No. 3843 did not only fix and specify a franchise tax of
2% on its gross receipts, but made it "in lieu of any and all taxes, all laws to the contrary
notwithstanding," thus, leaving no room for doubt regarding the legislative intent. "Charters
or special laws granted and enacted by the Legislature are in the nature of private
contracts.
They do not constitute a part of the machinery of the general government. They are usually
adopted after careful consideration of the private rights in relation with resultant benefits
to the State ... in passing a special charter the attention of the Legislature is directed to
the facts and circumstances which the act or charter is intended to meet. The Legislature
consider and make provision for all the circumstances of a particular case." In view of the
foregoing, the court finds no reason to disturb the respondent court's ruling upholding the
constitutionality of the law in question.

WHEREFORE, the appealed decision of the respondent Court of Tax Appeals is hereby
AFFIRMED. No pronouncement as to costs. SO ORDERED.
LUNG CENTER OF THE PHILIPPINES vs. QUEZON
CITY
Prohibition against taxation of charitable entities
G.R. No. 144104 CALLEJO, SR., J. June 29, 2004
LUNG CENTER OF THE PHILIPPINES. QUEZON CITY and CONSTANTINO P.
ROSAS, in his capacity as City Assessor of
Quezon City
DOCTRINE:
To determine whether an enterprise is a charitable institution/entity or not, the elements
which should be considered include the statute creating the enterprise, its corporate purposes,
its constitution and by-laws, the methods of administration, the nature of the actual work
performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the
use and occupation of the properties.
What is meant by actual, direct and exclusive use of the property for charitable purposes is the
direct and immediate and actual application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.
I. Facts:
➢ Lung Center of the Philippines (LCP) is a non-stock and non-profit entity established on
1981 by virtue of Presidential Decree No, 1823.
➢ It is the registered owner of a parcel of land located at Quezon Avenue corner Elliptical
Road, Central District, Quezon City. Erected in the middle of the lot is a hospital known as
the Lung Center of the Philippines.
➢ A big space at the ground floors is being leased to private parties, for canteen and small
store spaces, and to medical professional practitioners who use the same as their private
clinics for their patients whom they charge for their professional services.
➢ Almost one-half of the entire area on the left side of the building along Quezon Avenue is
vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and
Elliptical Road, is being leased for commercial purposes to a private enterprise known as
the Elliptical Orchids and Garden Center.
➢ The LCP accepts paying and non-paying patients. It also renders medical services to out-
patients, both paying and non-paying. Aside from its income from paying patients, LCP
receives annual subsidies from the government.
➢ On June 7, 1993, LCP were assessed for real property taxes for both its land and
hospital building by the City Assessor of Quezon City in the amount of P4,554,860.
➢ On August 25, 1993, LCP filed a Claim for Exemption from real property taxes with
the City Assessor, predicated on its claim that it is a charitable institution.
➢ The City Assessor, the Local board of Assessment of Quezon City (QC-LBAA), the Central
Board of Assessment Appeals of Quezon City (CBAA-QC), and the Court of Appeals (CA),
all ruled that LCP was not a charitable institution and that its real properties were
not actually, directly and exclusively used for charitable purposes, hence, it was not
entitled to real property tax exemption. Hence, this petition.
➢ Lung Center of the Philippines argued that:
o That it is a chartable institution within the context of Section 28(3), Article VI of

the 1987 Constitution;
o its character as a charitable institution is not altered by the fact that it admits
paying patients and renders medical services to them, leases portions of the
land to private parties, and rents out portions of the hospital to private
medical practitioners from which it derives income to be used for operational
expenses;
o for the years 1995 to 1999, 100% of its out-patients were charity patients and of
the hospital’s 282-bed capacity, 60% thereof, or 170 beds, is allotted to charity
patients;
o the fact that it receives subsidies from the government attests to its character
as a charitable institution.
o It contends that the "exclusivity" required in the Constitution does not necessarily
mean "solely." Hence, even if a portion of its real estate is leased out to private
individuals from whom it derives income, it does not lose its character as a
charitable institution, and its exemption from the payment of real estate taxes on
its real property.
➢ City Assessor of Quezon City contended that:
o the LCP is not a charitable entity;
o the LCP’s real property tax is not exempt from the payment of real estate taxes
under P.D. No. 1823 and even under 1987 Constitution because it failed to prove
that it is a charitable institution and that the said property is actually, directly
and exclusively used for charitable purpose;
o the LCP uses the subsidies granted by the government for charity patients and
uses the rest of its income from the property for the benefit of paying
patients, among other purposes.
o the LCP failed to adduce substantial evidence that 100% of its out-patients and
170 beds in the hospital are reserved for indigent patients. The Quezon City further
assert, thus:
o the claims/allegations of the LCP do not speak well of its record of service. That
before a patient is admitted for treatment in the Center, first impression is that it is
pay-patient and required to pay a certain amount as deposit. That even if a
patient is living below the poverty line, he is charged with high hospital bills. And,
without these bills being first settled, the poor patient cannot be allowed to leave
the hospital or be discharged without first paying the hospital bills or issue a
promissory note guaranteed and indorsed by an influential agency or person
known only to the Center;
o that even the remains of deceased poor patients suffered the same fate. Moreover,
before a patient is admitted for treatment as free or charity patient, one must
undergo a series of interviews and must submit all the requirements needed
by the Center, usually accompanied by endorsement by an influential agency
or person known only to the Center. These facts were heard and admitted by
the LCP during the hearings before the Honorable QC-BAA and Honorable CBAA.
II. Issues:
1. Whether or not the Lung Center of the Philippines is a charitable institution within the
context of PD No. 1823, and the 1973 and 1987 Constitution and Section 234(b) of RA
No. 7160. (YES.)
2. Whether the real properties of the Lung Center of the Philippines are exempt from real
property taxes. (PARTLY YES – PARTLY NO)

First Issue:
The Court held that LCP is a charitable institution within the context of the 1973 and 1987
Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the enterprise, its corporate
purposes, its constitution and by-laws, the methods of administration, the nature of the actual
work performed, the character of the services rendered, the indefiniteness of the beneficiaries,
and the use and occupation of the properties.
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with
existing laws, for the benefit of an indefinite number of persons, either by bringing their minds
and hearts under the influence of education or religion, by assisting them to establish themselves
in life or otherwise lessening the burden of government. It may be applied to almost anything
that tend to promote the well-doing and well-being of social man. It embraces the
improvement and promotion of the happiness of man. The word "charitable" is not restricted to
relief of the poor or sick. The test of a charity and a charitable organization are in law the same.
The test whether an enterprise is charitable or not is whether it exists to carry out a
purpose reorganized in law as charitable or whether it is maintained for gain, profit, or
private advantage.
In addition, Under P.D. No. 1823, LCP was organized for the welfare and benefit of the
Filipino people principally to help combat the high incidence of lung and pulmonary
diseases in the Philippines.
Hence, the medical services of the LCP are to be rendered to the public in general in any
and all walks of life including those who are poor and the needy without discrimination. After all,
any person, the rich as well as the poor, may fall sick or be injured or wounded and become a
subject of charity.
As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether out-
patient, or confined in the hospital, or receives subsidies from the government, so long as the
money received is devoted or used altogether to the charitable object which it is intended
to achieve; and no money inures to the private benefit of the persons managing or
operating the institution.
Here, the LCP adduced substantial evidence that it spent its income, including the
subsidies from the government for its patients and for the operation of the hospital. It even
incurred a net loss in 1991 and 1992 from its operations.
Second Issue:
Even as we find that the LCP is a charitable institution, those portions of its real property that
are leased to private entities are not exempt from real property taxes as these are not
actually, directly and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to
an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and
based on language in the law too plain to be mistaken.
Section 2 of Presidential Decree No. 1823, relied upon by LCP, specifically provides that the LCP
shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation

organized primarily to help combat the high incidence of lung and pulmonary diseases in the
Philippines, all donations, contributions, endowments and equipment and supplies to be
imported by authorized entities or persons and by the Board of Trustees of the Lung Center of
the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from
income and gift taxes, the same further deductible in full for the purpose of determining the
maximum deductible amount under Section 30, paragraph (h), of the National Internal
Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and
fees imposed by the Government or any political subdivision or instrumentality thereof with
respect to equipment purchases made by, or for the Lung Center.2
It is clear that, the LCP does not enjoy any property tax exemption privileges for its real
properties as well as the building constructed thereon. If the intentions were otherwise, the same
should have been among the enumeration of tax-exempt privileges under Section 2.
It is a settled rule of statutory construction that the express mention of one person, thing, or
consequence implies the exclusion of all others. The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius.
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto,

mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable or educational
purposes shall be exempt from taxation.
The tax exemption under this constitutional provision covers property taxes only. As Chief
Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ". . .
what is exempted is not the institution itself . . .; those exempted from real estate taxes are
lands, buildings and improvements actually, directly and exclusively used for religious,
charitable or educational purposes.
Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No.
7160 (otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. – The following are exempted from
payment of the real property tax:
...
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,

mosques, non-profit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes.
The Court note that under the 1935 Constitution, "... all lands, buildings, and improvements used
‘exclusively’ for … charitable … purposes shall be exempt from taxation." However, under the 1973
and the present Constitutions, for "lands, buildings, and improvements" of the charitable institution
to be considered exempt, the same should not only be "exclusively" used for charitable
purposes; it is required that such property be used "actually" and "directly" for such purposes.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that:
(a) it is a charitable institution; and

(b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
"Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from
participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a
privilege exclusively." If real property is used for one or more commercial purposes, it is not
exclusively used for the exempted purposes but is subject to taxation. The words "dominant use"
or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the
Constitutions and the law. Solely is synonymous with exclusively.
What is meant by actual, direct and exclusive use of the property for charitable purposes is the
direct and immediate and actual application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.
Here, LCP failed to discharge its burden to prove that the entirety of its real property is actually, directly
and exclusively used for charitable purposes. While portions of the hospital are used for the treatment
of patients and the dispensation of medical services to them, whether paying or non-paying, other
portions thereof are being leased to private individuals for their clinics and a canteen. Further,
a portion of the land is being leased to a private individual for her business enterprise under
the business name "Elliptical Orchids and Garden Center." Indeed, the LCP’s evidence shows
that it collected ₱1,136,483.45 as rentals in 1991 and ₱1,679,999.28 for 1992 from the said
lessees.
Accordingly, we hold that the portions of the land leased to private entities as well as those
parts of the hospital leased to private individuals are not exempt from such taxes. On the other
hand, the portions of the land occupied by the hospital and portions of the hospital used for
its patients, whether paying or non-paying, are exempt from real property taxes.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent
Quezon City Assessor is hereby DIRECTED to determine, after due hearing, the precise portions
of the land and the area thereof which are leased to private persons, and to compute the real
property taxes due thereon as provided for by law.
SO ORDERED.
Kapatiran v. CIR
Due Process
L-81311 PADILLA, J. June 30, 1988
KAPATIRAN NG MGA NAGLILINGKOD SA HON. BIENVENIDO TAN, as
PAMAHALAAN NG PILIPINAS, INC., Commissioner of Internal Revenue
HERMINIGILDO C. DUMLAO, GERONIMO Q.
QUADRA, and MARIO C. VILLANUEVA
DOCTRINE:
As enshrined in the Philippine 1987 Constitution, no person shall be deprived of life, liberty or
property without due process of law. The right to due process guarantees that the State must
respect individual rights by setting limitations on laws and legal proceedings. This includes
granting all persons a right to fair trial and effective remedy.
To justify the nullification of a law there must be a clear and unequivocal breach of the
Constitution, not a doubtful and argumentative implication.
Summary of the case:
The petitioners’ assertions in this regard are not supported by facts and circumstances to
warrant their conclusions. They have failed to adequately show that the VAT is oppressive,
discriminatory or unjust. Petitioners merely rely upon newspaper articles which are actually
hearsay and have evidentiary value. To justify the nullification of a law there must be a clear
and unequivocal breach of the Constitution, not a doubtful and argumentative implication.
As the Court sees it, EO 273 satisfies all the requirements of a valid tax.
• These are four petitions consolidated because of similarity of the main issues which
seek to nullify Executive Order No. 273. [EO No. 273 was issued by the President of the
Philippines (CORY) on July 25, 1987, to take effect on January 1, 1988, and which
amended certain sections of the National Internal Revenue Code and adopted the value-
added tax (VAT)].
• These consolidated cases question the validity of the VAT (Executive Order 273)
for being unconstitutional in that its enactment is not allegedly within the powers
of the President; that the VAT is oppressive, discriminatory, regressive, and
violates the due process and equal protection clauses and other provisions of the
1987 Constitution.
• The Integrated Customs Brokers Association particularly contend that it unduly

discriminate against customs brokers (Section 103r) as the amended provision of the
Tax Code provides that “service performed in the exercise of profession or calling
(except custom brokers) subject to occupational tax under the Local Tax Code and
professional services performed by registered general professional partnerships are
exempt from VAT.
• The Solicitor General prays for the dismissal of the petitions on the ground that the
petitioners have failed to show justification for the exercise of its judicial powers, viz. (1)
the existence of an appropriate case; (2) an interest, personal and substantial, of
the party raising the constitutional questions; (3) the constitutional question
should be raised at the earliest opportunity; and (4) the question of
constitutionality is directly and necessarily involved in a justiciable controversy
and its resolution is essential to the protection of the rights of the parties.
According to the Solicitor General, only the third requisite — that the constitutional
question should be raised at the earliest opportunity — has been complied with. He also
questions the legal standing of the petitioners who, he contends, are merely asking for
an advisory opinion from the Court, there being no justiciable controversy for resolution.
II. Issue/s
(1) Whether or not Executive Order No. 273 is oppressive, discriminatory, unjust and
regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution.
(NO)
(2) Whether or not President had authority to issue EO 273. (YES)
(1) NO. Petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive,
in violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
The petitioners’ assertions in this regard are not supported by facts and circumstances to
warrant their conclusions. They have failed to adequately show that the VAT is oppressive,
discriminatory or unjust. Petitioners merely rely upon newspaper articles which are
actually hearsay and have evidentiary value. To justify the nullification of a law there
must be a clear and unequivocal breach of the Constitution, not a doubtful and
argumentative implication.
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The
court, in City of Baguio vs. De Leon, said:
... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking
for the Court, stated: "A tax is considered uniform when it operates with the same
force and effect in every place where the subject may be found."
There was no occasion in that case to consider the possible effect on such a
constitutional requirement where there is a classification. The opportunity came in
Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862). Thus: "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; . . ." About
two years later, Justice Tuason, speaking for this Court in Manila Race Horses
Trainers Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in
his opinion and continued; "Taking everything into account, the differentiation
against which the plaintiffs complain conforms to the practical dictates of justice
and equity and is not discriminatory within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided
two years later, (Uy Matias v. City of Cebu, 93 Phil. 300) is that the statute or
ordinance in question "applies equally to all persons, firms and corporations placed
in similar situation." This Court is on record as accepting the view in a leading
American case (Carmichael v. Southern Coal and Coke Co., 301 US 495) that
"inequalities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation." (Lutz v. Araneta, 98 Phil. 148, 153).
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the
public, which are not exempt, at the constant rate of 0% or 10%. The disputed sales tax
is also equitable. It is imposed only on sales of goods or services by persons engage in
business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari
sari stores are consequently exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, spared as they are from the incidence of the VAT,
are expected to be relatively lower and within the reach of the general public.
The Court likewise finds no merit in the contention of the petitioner Integrated Customs
Brokers Association of the Philippines that EO 273, more particularly the new Sec. 103 (r)
of the National Internal Revenue Code, unduly discriminates against customs brokers.
The phrase "except customs brokers" is not meant to discriminate against customs
brokers. It was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of the
Code, which makes the services of customs brokers subject to the payment of the VAT
and to distinguish customs brokers from other professionals who are subject to the
payment of an occupation tax under the Local Tax Code. With the insertion of the
clarificatory phrase "except customs brokers" in Sec. 103(r), a potential conflict between
the two sections, (Secs. 102 and 103), insofar as customs brokers are concerned, is
averted.
At any rate, the distinction of the customs brokers from the other professionals who
are subject to occupation tax under the Local Tax Code is based upon material
differences, in that the activities of customs brokers (like those of stock, real estate
and immigration brokers) partake more of a business, rather than a profession and
were thus subjected to the percentage tax under Sec. 174 of the National Internal
Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage
tax and replaced it with the VAT. If the petitioner Association did not protest the
classification of customs brokers then, the Court sees no reason why it should protest
now.
The Court takes note that EO 273 has been in effect for more than five (5) months now,
so that the fears expressed by the petitioners that the adoption of the VAT will trigger
skyrocketing of prices of basic commodities and services, as well as mass actions and
demonstrations against the VAT should by now be evident. The fact that nothing of the
sort has happened shows that the fears and apprehensions of the petitioners appear to
be more imagined than real. It would seem that the VAT is not as bad as we are made to
believe.
In any event, if petitioners seriously believe that the adoption and continued application of
the VAT are prejudicial to the general welfare or the interests of the majority of the people,
they should seek recourse and relief from the political branches of the government. The
Court, following the time-honored doctrine of separation of powers, cannot substitute its
judgment for that of the President as to the wisdom, justice and advisability of the adoption
of the VAT. The Court can only look into and determine whether or not EO 273 was
enacted and made effective as law, in the manner required by, and consistent with, the
Constitution, and to make sure that it was not issued in grave abuse of discretion
amounting to lack or excess of jurisdiction; and, in this regard, the Court finds no reason
to impede its application or continued implementation.
(2) YES. It should be recalled that under Proclamation No. 3, which decreed a Provisional
Constitution, sole legislative authority was vested upon the President. Art. II, sec. 1 of the
Provisional Constitution states:
Sec. 1. Until a legislature is elected and convened under a new Constitution, the
President shall continue to exercise legislative powers. (Art. II, sec. 1)
Sec. 6. The incumbent President shall continue to exercise legislative powers until
the first Congress is convened. (Article XVIII, sec. 6)
IV. Disposition
WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.
SO ORDERED.
Reyes v Almanzor
Due Process
49839-46 PARAS, J. 26 April 1991
JOSE B.L. REYES and EDMUNDO A. REYES PEDRO ALMANZOR, VICENTE ABAD
SANTOS, JOSE ROÑO, in their capacities as
appointed and Acting Members of the
CENTRAL BOARD OF ASSESSMENT
APPEALS; and the City Assessor of Manila.
DOCTRINE: 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
confiscation of property. That would be a clear abuse of power
• The Reyeses are owners of parcels of land situated in the City of Manila, which are leased
and entirely occupied as dwelling sites by tenants.Tenants were paying monthly rentals not
exceeding P300.00.
• The National Legislature then enacted Republic Act No. 6359 prohibiting for one year from its
effectivity, an increase in monthly rentals of dwelling units or of lands on which another’s
dwelling is located, where such rentals do not exceed P300.00 a month but allowing an
increase in rent by not more than 10% thereafter. A year after, Presidential Decree No. 20
amended R.A. No. 6359 by making absolute the prohibition to increase monthly rentals below
P300.00.
• The Reyeses, were precluded from raising the rentals and from ejecting the tenants.
• The next year, the City Assessor of Manila re-classified and reassessed the value of the
subject properties of the Reyeses based on the schedule of market values which entailed an
increase in the corresponding tax rates prompting the Reyeses to file a Memorandum of
Disagreement with the Board of Tax Assessment Appeals.
• They averred that the reassessments made were "excessive, unwarranted, inequitable,
confiscatory and unconstitutional" considering that the taxes imposed upon them greatly
exceeded the annual income derived from their properties. They maintain that the "Income
Approach" method would have been more realistic for in disregarding the effect of the
restrictions imposed by P.D. 20 on the market value of the properties affected, the Assessor
of the City of Manila unlawfully and unjustifiably set increased new assessed values at levels
so high and successive that the resulting annual real estate taxes would admittedly exceed
the sum total of the yearly rentals paid or payable by the dweller tenants.
• This was denied which prompted the petitioners to file a case to the central board of
assessment appeals. The Board of Tax Appeals decided that when income is affected by some
sort of price control, the same is rejected in the consideration and study of land values as in
the case of properties affected by the Rent Control Law for they do not project the true market
value in the open market. Thus the Comparable Sales Approach is more appropriate on the
ground that the value estimate of the properties predicated upon prices paid in actual, market
transactions would be a uniform and a more credible standards to use especially in case of
mass appraisal of properties.
II. Issue/s
Whether or not the “Comparable Sales Approach” is the appropriate method in fixing the assessed
value of the Reyeses’ properties. (NO)

● In Sison v Ancheta, 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 confiscation of property. That would be a clear abuse of power.
● The taxing power has the authority to make a reasonable and natural classification for
purposes of taxation but the government’s act must not be prompted by a spirit of hostility, or
at the very least discrimination that finds no support in reason. 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.
● By no stretch of the imagination can the market value of properties covered by P.D. No. 20 be
t
equated with the market value of properties not so covered. The former has naturally a much
lesser market value in new of the rental restrictions.
● Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the City of Manila,
namely: (1) that the sale must represent a bonafide arm’s length transaction between a willing
seller and a willing buyer and (2) the property must be comparable property. Nothing can justify
or support their view as it is of judicial notice that for properties covered by P.D. 20 especially
during the time in question, there were hardly any willing buyers.
● There were no buyers so that there can be no reasonable basis for the conclusion that these
properties were comparable with other residential properties not burdened by P.D. 20.
IV. Disposition
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
respondents are REVERSED and SET ASIDE; and (c) the respondent Board of Assessment Appeals
of Manila and the City Assessor of Manila are ordered to make a new assessment by the income
approach method to guarantee a fairer and more realistic basis of computation (Rollo, p. 71).
V. Notes (OPTIONAL)
Under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first Fundamental
Principle to guide the appraisal and assessment of real property for taxation purposes is that the
property must be "appraised at its current and fair market value." cralaw
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only
be uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of the
same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).

Tiu vs. CA
Equal Protection
127410 PANGANIBAN, J. 20 January 1999
CONRADO L. TIU, JUAN T. COURT OF APPEALS, HON. TEOFISTO T. GUINGONA JR.,
MONTELIBANO JR. and BASES CONVERSION AND DEVELOPMENT AUTHORITY,
ISAGANI M. JUNGCO SUBIC BAY METROPOLITAN AUTHORITY, BUREAU OF
INTERNAL REVENUE, CITY TREASURER OF OLONGAPO
and MUNICIPAL TREASURER OF SUBIC, ZAMBALES
DOCTRINE:
The constitutional rights to equal protection of the law is not violated by an executive order,
issued pursuant to law, granting tax and duty incentives only to the business and residents
within the “secured area” of the Subic Special Economic Zone and denying them to those
who live within the Zone but outside such “fenced-in” territory. The Constitution does not
require absolute equality among residents. It is enough that all persons under like
circumstances or conditions are given the same privileges and required to follow the same
obligations. In short, a classification based on valid and reasonable standards does not
violate the equal protection clause.
• March 13, 1992: Congress, with the approval of the President, passed into law RA 7227
entitled “An Act Accelerating the Conversion of Military Reservations Into Other Productive
Uses, Creating the Bases Conversion and Development Authority for this Purpose,
Providing Funds Therefor and for Other Purposes.” Section 12 thereof created the Subic
Special Economic Zone (SSEZ) and granted there to special privileges.
• June 10, 1993: Then Pres. Fidel V. Ramos issued Executive Order No. 97 (EO 97),
clarifying the application of the tax and duty incentives.
• June 19, 1993: The President issued Executive Order No. 97-A (EO 97-A), specifying the
area within which the tax-and-duty-free privilege was operative.
• October 26, 1994: Tiu, et. al (the petitioners) challenged before this Court the
constitutionality of EO 97-A for allegedly being violative of their right to equal protection of
the laws.
• February 1, 1995: Incidentally, Proclamation No. 532 was issued by President Ramos. It
delineated the exact metes and bounds of the Subic Special Economic and Free Port
Zone, pursuant to Section 12 of RA 7227.
• Petitioners’ contention: Citing Section 12 of RA 7227, the SSEZ encompasses (1) the
City of Olongapo, (2) the Municipality of Subic in Zambales, and (3) the area formerly
occupied by the Subic Naval Base. However, EO 97-A, according to them, narrowed down
the area within which the special privileges granted to the entire zone would apply to the
present "fenced-in former Subic Naval Base" only. It has thereby excluded the residents
of the first two components of the zone from enjoying the benefits granted by the law. It
has effectively discriminated against them without reasonable or valid standards, in
contravention of the equal protection guarantee.
• Solicitor General defense (on behalf of respondents): The validity of EO 97-A, arguing
that Section 12 of RA 7227 clearly vests in the President the authority to delineate the
metes and bounds of the SSEZ. He adds that the issuance fully complies with the
requirements of a valid classification.
• Ruling of the CA: “there is no substantial difference between the provisions of EO 97-A
and Section 12 of RA 7227. In both, the ‘Secured Area’ is precise and well-defined as ‘. .
. the lands occupied by the Subic Naval Base and its contiguous extensions as embraced,
covered and defined by the 1947 Military Bases Agreement between the Philippines and
the United States of America, as amended . . .” The CA concluded that such being the
case, Tiu, et. al (petitioners) could not claim that EO 97-A is unconstitutional, while
at the same time maintaining the validity of RA 7227.
Araceli Marie M. De Guzman

- The intention of Congress was to confine the coverage of the SSEZ to the “secured
area” and not to include the entire Olongapo City and other areas mentioned in Section
12 of the law.
- The CA further justified the limited application of the tax incentives as being within the
prerogative of the legislature, pursuant to its “avowed purpose [of serving] some public
benefit or interest.” It ruled that “EO 97-A merely implements the legislative purpose
of RA 7227.”
II. Issue/s
1. Whether or not Executive Order No. 97-A violates the equal protection clause of the
Constitution. (NO)
2. Whether or not the provisions of Executive Order No. 97-A confining the application of R.A.
7227 within the secured area and excluding the residents of the zone outside of the secured
area is discriminatory or not. (NO)
1. The Court ruled in favor the constitutionality and validity of the assailed EO. Said Order is
not violative of the equal protection clause; neither is it discriminatory. Rather, there is
real and substantive distinctions between the circumstances obtaining inside and
those outside the Subic Naval Base, thereby justifying a valid and reasonable
classification.
The fundamental right of equal protection of the laws is not absolute, but is subject to
reasonable classification. If the groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated differently from another.
The classification must also be germane to the purpose of the law and must apply
to all those belonging to the same class.
- Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to
the purpose of the law, (3) not be limited to existing conditions only, and (4) apply
equally to all members of the same class.
- In creating the SSEZ, the law declared it a policy to develop the zone into a “self-
sustaining, industrial, commercial, financial and investment center.”
2. It can easily be deduced that the real concern of RA 7227 is to convert the lands formerly
occupied by the US military bases into economic or industrial areas. In furtherance of such
objective, Congress deemed it necessary to extend economic incentives to attract
and encourage investors, both local and foreign. Among such enticements are: (1) a
separate customs territory within the zone, (2) tax-and-duty-free importation's, (3)
restructured income tax rates on business enterprises within the zone, (4) no foreign
exchange control, (5) liberalized regulations on banking and finance, and (6) the grant of
resident status to certain investors and of working visas to certain foreign executives and
workers.
- It is well-settled that the equal-protection guarantee does not require territorial

uniformity of laws. As long as there are actual and material differences between
territories, there is no violation of the constitutional clause. And of course,
anyone, including the petitioners, possessing the requisite investment capital can
always avail of the same benefits by channeling his or her resources or business
operations into the fenced-off free port zone.
- The Court believe that the classification set forth by the executive issuance does
not apply merely to existing conditions. As laid down in RA 7227, the objective
is to establish a “self-sustaining, industrial, commercial, financial and
investment center” in the area. There will, therefore, be a long-term difference
between such investment center and the areas outside it.
- Lastly, the classification applies equally to all the resident individuals and
businesses within the “secured area.” The residents, being in like circumstances
or contributing directly to the achievement of the end purpose of the law, are not
categorized further. Instead, they are all similarly treated, both in privileges granted
and in obligations required.
- The Court holds that no undue favor or privilege was extended. The classification
occasioned by EO 97-A was not unreasonable, capricious or unfounded.

IV. Disposition
WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision and
Resolution are hereby AFFIRMED.
V. Notes
• RA 7227 Sec 12 (SSEZ) special privilege:
(c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes,
local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying
taxes, three percent (3%) of the gross income earned by all businesses and enterprises within
the Subic Special Economic Zone shall be remitted to the National Government, one percent (1%)
each to the local government units affected by the declaration of the zone in proportion to their
population area, and other factors. In addition, there is hereby established a development fund of
one percent (1%) of the gross income earned by all businesses and enterprises within the Subic
Special Economic Zone to be utilized for the development of municipalities outside the City of
Olongapo and the Municipality of Subic, and other municipalities contiguous to the base areas.
In case of conflict between national and local laws with respect to tax exemption privileges in the
Subic Special Economic Zone, the same shall be resolved in favor of the latter.
• EO 97, application of the tax and duty incentives:
Sec. 1. On Import Taxes and Duties. — Tax and duty-free importations shall apply only to raw
materials, capital goods and equipment brought in by business enterprises into the SSEZ. Except
for these items, importations of other goods into the SSEZ, whether by business enterprises or
resident individuals, are subject to taxes and duties under relevant Philippine laws.
The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other parts
of the Philippine territory shall be subject to duties and taxes under relevant Philippine laws.
Sec. 2. On All Other Taxes. — In lieu of all local and national taxes (except import taxes and
duties), all business enterprises in the SSEZ shall be required to pay the tax specified in Section
12(c) of R.A. No. 7227.
EO 97-A, specifying the area within which the tax-and-duty-free privilege was operative
Sec. 1.1. The Secured Area consisting of the presently fenced-in former Subic Naval Base shall
be the only completely tax and duty-free area in the SSEFPZ [Subic Special Economic and Free
Port Zone]. Business enterprises and individuals (Filipinos and foreigners) residing within the
Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax
and duty-free. Consumption items, however, must be consumed within the Secured Area.
Removal of raw materials, capital goods, equipment and consumer items out of the Secured Area
for sale to non-SSEFPZ registered enterprises shall be subject to the usual taxes and duties,
except as may be provided herein.
• Explaining the nature of the equal protection guarantee, the Court in Ichong v.
Hernandez said:
The equal protection of the law clause is against undue favor and individual or
class privilege, as well as hostile discrimination or the oppression of inequality. It
is not intended to prohibit legislation which is limited either [by] the object to which
it is directed or by [the] territory within which it is to operate. It does not demand
absolute equality among residents; it merely requires that all persons shall be
treated alike, under like circumstances and conditions both as to privileges
conferred and liabilities enforced. The equal protection clause is not infringed by
legislation which applies only to those persons falling within a specified class, if it
applies alike to all persons within such class, and reasonable. grounds exist for
making a distinction between those who fall within such class and those who do
not.
The Court believe it was reasonable for the President to have delimited the application of
some incentives to the confines of the former Subic military base. It is this specific area
which the government intends to transform and develop from its status quo ante as an abandoned
naval facility into a self-sustaining industrial and commercial zone, particularly for big foreign and

local investors to use as operational bases for their businesses and industries. Why the seeming
bias for the big investors? Undeniably, they are the ones who can pour huge investments to spur
economic growth in the country and to generate employment opportunities for the Filipinos, the
ultimate goals of the government for such conversion. The classification is, therefore, germane to
the purposes of the law. And as the legal maxim goes, “The intent of a statute is the law.”
Certainly, there are substantial differences between the big investors who are being lured to
establish and operate their industries in the so-called “secured area” and the present business
operators outside the area. On the one hand, we are talking of billion-peso investments and
thousands of new, jobs. On the other hand, definitely none of such magnitude. In the first, the
economic impact will be national; in the second, only local. Even more important, at this time the
business activities outside the “secured area” are not likely to have any impact in achieving the
purpose of the law, which is to turn the former military base to productive use for the benefit of
the Philippine economy. There is, then, hardly any reasonable basis to extend to them the benefits
and incentives accorded in RA 7227. Additionally, as the Court of Appeals pointed out, it will be
easier to manage and monitor the activities within the “secured area,” which is already fenced off,
to prevent “fraudulent importation of merchandise” or smuggling.

1
41 Ormoc Sugar Central, Inc. v. Ormoc City

Equal Protection
L-23794 Bengzon, J.P., J. February 17, 1968
ORMOC SUGAR COMPANY, INC. THE TREASURER OF ORMOC CITY, THE
MUNICIPAL BOARD OF ORMOC CITY,
HON. ESTEBAN C. CONEJOS as Mayor of
Ormoc City and ORMOC CITY
DOCTRINE/S: The equal protection clause applies only to persons or things identically
situated and does not bar a reasonable classification of the subject of legislation, and a
classification is reasonable where (1) it is based on substantial distinctions which make real
differences; (2) these are germane to the purpose of the law; (3) the classification applies not
only to present conditions but also to future conditions which are substantially identical to
those of the present; (4) the classification applies only to those who belong to the same class.
● In 1964, the Municipal Board of Ormoc City passed Ordinance No. 4, imposing "on any
and all productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in
Ormoc City a municipal tax equivalent to 1% per export sale to the US and other
foreign countries."
● Ormoc Sugar complied, under protest, for a total of ₱12,087.50. Thereafter, it filed
before the CFI, with service of a copy upon the Sol-Gen, a complaint against the City of
Ormoc as well as its Treasurer, Municipal Board and Mayor, alleging that the
Ordinance No. 4 is unconstitutional for being violative of the equal protection clause
and the rule of uniformity of taxation, aside from being an export tax forbidden under
Sec. 2287 of the Revised Administrative Code. It further alleged that the tax is neither a
production nor a license tax which Ormoc City under its charter and under the Local
Autonomy Act, is authorized to impose; and that the tax amounts to a customs duty, fee
or charge in violation of Sec. 2 of RA 2264 because the tax is on both the sale and
export of sugar.
● The Treasurer of Ormoc City et.al., contended that the tax ordinance was within Ormoc
city's power to enact under the Local Autonomy Act and that it did not violate
constitutional limitations.
● CFI: upheld the constitutionality of the ordinance and declared the taxing power of
Ormoc as a chartered city, broadened by the Local Autonomy Act to include all other
forms of taxes, licenses or fees not excluded in its charter.
II. Issue/s
● W/N the power of taxation, specifically the equal protection clause and rule of
uniformity of taxation, were infringed. YES
● The Court held that based on the requisites for a valid classification to apply, it shows
that Ordinance No. 4 does not meet them, for it taxes only centrifugal sugar
produced and exported by the Ormoc Sugar and none other. At the time of its
enactment, Ormoc Sugar was the only sugar central in the city. Still, the classification,
to be reasonable, should be in terms applicable to future conditions as well. The taxing
ordinance should not be singular and exclusive as to exclude any sugar central
that may be established thereafter, of the same class as Ormoc Sugar, for the
coverage of the tax. Even if later a similar company is set up, it cannot be subject to
the tax because the ordinance expressly points only to Ormoc Sugar.
● Ordinance No. 4, though referred to as a tax on the export of centrifugal sugar
produced at Ormoc Sugar Company, Inc. For production of sugar alone is not taxable;
the only time the tax applies is when the sugar produced is exported.
Daile Fernandez
2
Sec. 2287 of the Revised Administrative Code v. Sec. 2 of RA 2264
● Ormoc Sugar questions the authority of the Municipal Board to levy such an export tax,
in view of Sec. 2287 of the Revised Administrative Code which denies from municipal
councils the power to impose an export tax. Pertinent provision of said Code in part
states: "It shall not be in the power of the municipal council to impose a tax in any form
whatever, upon goods and merchandise carried into the municipality, or out of the
same, and any attempt to impose an import or export tax upon such goods in the guise
of an unreasonable charge for wharfage use of bridges or otherwise, shall be void."
● However, Sec. 2 of RA 2264 effective in 1959, gave chartered cities, municipalities,
and municipal districts authority to levy for public purposes just and uniform
taxes, licenses or fees. In view of the inconsistency between Sec. 2287 and Sec. 2,
the SC held that Sec. 2287 to have been repealed by Sec. 2.
● Ormoc Sugar, however, is not entitled to interest on the refund because the taxes were
not arbitrarily collected. At the time of collection, the ordinance provided a sufficient
basis to preclude arbitrariness, then presumed constitutional until declared otherwise.
IV. Disposition
WHEREFORE, the decision appealed from is hereby reversed, the challenged ordinance is
declared unconstitutional and the defendants-appellees are hereby ordered to refund the
P12,087.50 plaintiff-appellant paid under protest. No costs. So ordered.
Daile Fernandez
Victorias Milling v. Municipality of Victorias
Equal Protection
L-21183 J. SANCHEZ SEPTEMBER 27, 1968
VICTORIAS MILLING, CO., THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS
INC., OCCIDENTAL,
DOCTRINE:
ORDINANCE IN QUESTION IS NOT DISCRIMINATORY. — The ordinance in question does not

single out Victorias as the only object of the ordinance. Said ordinance is made to apply to any sugar
central or sugar refinery which may happen to operate in the municipality. So it is, that the fact that
plaintiff is actually the sole operator of a sugar refinery does not make the ordinance discriminatory.
ORDINANCE IN QUESTION DOES NOT CONSTITUTE DOUBLE TAXATION. — Plaintiff’s

argument on double taxation must not be upheld: First. The two taxes cover two different objects.
Section 1 of the ordinance taxes a person operating sugar centrals or engaged in the manufacture
of centrifugal sugar. While under Section 2, those taxed are the operators of sugar refinery mills.
One occupation or business is different from the other. Second. The disputed taxes are imposed on
occupation or business. Both taxes are not on sugar. The amount thereof depends on the annual
output capacity of the mills concerned, regardless of the actual sugar milled. Plaintiff’s argument
perhaps could make out a point if the object of taxation here were the sugar it produces, not the
business of promoting it.

 The Municipal Council of Victorias, Negros Occidental approved Ordinance No. 1,
series of 1956 on September 22, 1956.
 Said Ordinance amended two existing municipal ordinances separately imposing
license taxes on operators of sugar centrals 1 and sugar refineries. 2 The changes
were: with respect to sugar centrals, by increasing the rates of license taxes; and as
to sugar refineries, by increasing the rates of license taxes as well as the range of
graduated schedule of annual output capacity.
 Thus Victorias Milling filed before the Court of First Instance of Negros Occidental, a
suit docketed as Civil Case No. 5565 seeking to declare Ordinance No. 1, series of
1956, as null and void; other reliefs seeked were that the CFI issue an Order directing
the refund of all license taxes paid and to be paid under protest; issue an Oder
directing the officials of Victorias and the Province of Negros Occidental to observe,
during the pendency of the action, the provisions of section 357 of the Revised
Manual of Instructions to Treasurers of Provinces, Cities and Municipalities, 1954
edition, 5regarding the treatment of licenses taxes paid under protest by virtue of
disputed ordinance; and other reliefs.
 The reasons put forth by plaintiff are that: (a) the ordinance exceeds the amounts
fixed in Provincial Circular 12-A issued by the Finance Department on February 27,
1940; (b) it is discriminatory since it singles out plaintiff which is the only operator of
a sugar central and a sugar refinery within the jurisdiction of defendant municipality;
(c) it constitutes double taxation; and (d) the national government has pre-empted
the field of taxation with respect to sugar centrals or refineries.
 The CFI eventually rendered judgment in favor of the plaintiff, the dispositive portion
of the Decision is quoted below viz:
“"WHEREFORE, judgment is rendered (a) declaring that Ordinance No. 1, series of

1956, of the municipality of Victorias, Negros Occidental, is invalid; (b) ordering all
officials of the defendant to observe the provisions of Section 357 of the Revised
Manual of Instructions to Treasurers of Provinces, Cities and Municipalities, 1954
Edition; with particular reference to any license taxes paid by the plaintiff under said
Ordinance No. 1 series of 1956, after notice of this decision; and (c) ordering the
defendant to refund to the plaintiff any and all such license taxes paid under protest
after notice of this decision."
 Both plaintiff and defendant appealed direct to this Court. Plaintiff questions that
portion of the decision denying the refund of the license taxes paid under protest in
the amount of P280,000 covering the period from the first quarter of 1957 to the
second quarter of 1960; and balked at the court’s order limiting refund to "any and
all such license taxes paid under protest after notice of this decision." Defendant,
upon the other hand, challenges the correctness of the court’s decision invalidating
Ordinance No. 1, series of 1956, it contents that the said Ordinance is Valid.
II. Issue/s
Whether or not Ordinance No. 1 is Discriminatory in nature and violative of Equal Protection?
Whether or not Ordinance No. 1 constitutes as Double Taxation?
● NO, Ordinance No. 1 is NOT discriminatory in nature and NOT violative of Equal
Protection
● The ordinance does not single out Victorias as the only object of the ordinance. The said
ordinance is made to apply to any sugar central or sugar refinery which may happen to operate
in the municipality.
● The fact that plaintiff is actually the sole operator of a sugar central and a sugar refinery does
not make the ordinance discriminatory. Arguments along the same lines was rejected in Shell
Co. of P.I., Ltd. v. Vaño, where the Court holding that the circumstance "that there is no other
person in the locality who exercises "the occupation designated as installation manager "does
not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to
any person or firm who exercises such calling or occupation."
● Ordinance No. 1, series of 1956, of the Municipality of Victorias, was promulgated not in the
exercise of the municipality’s regulatory power but as a revenue measure — a tax on
occupation or business. The authority to impose such tax is backed by the express grant of
power in Section 1 of Commonwealth Act 472.
● NO, Ordinance No. 1 DOES NOT constitute as Double Taxation
● Plaintiff reasons out that in computing the amount of taxes to be paid by the sugar refinery the
cost of the raw sugar coming from the sugar central is not deducted, thus ergo, plaintiff is taxed
twice on the raw sugar
● Double taxation has been otherwise described as "direct duplicate taxation." For double
taxation to exist, "the same property must be taxed twice, when it should be taxed but once."
Double taxation has also been "defined as taxing the same person twice by the same
jurisdiction for the same thing."
● The two taxes cover two different objects. Section 1 of the ordinance taxes a person operating
sugar centrals or engaged in the manufacture of centrifugal sugar. While under Section 2,
those taxed are the operators of sugar refinery mills. One occupation or business is different
from the other. Second. The disputed taxes are imposed on occupation or business. Both
taxes are not on sugar. The amount thereof depends on the annual output capacity of the mills
concerned, regardless of the actual sugar milled. Plaintiff’s argument perhaps could make out
a point if the object of taxation here were the sugar it produces, not the business of producing
it. Contrary to the allegation of the plaintiff, respectfully there is no double taxation in the case
at bar.
IV. Disposition
FOR THE REASONS GIVEN, —

The judgment under review is hereby REVERSED; and Judgment is hereby rendered:
(a) declaring valid and subsisting Ordinance No. 1, series of 1956, of the Municipality of
Victorias, Province of Negros Occidental; and
(b) dismissing plaintiff’s complaint as supplemented and amended. Costs against plaintiff.
SO ORDERED
V. Notes
Tolentino vs The Secretary of Finance et al
Religious Freedom
115455 CRUZ, J. 30 October 1995
Arturo M Tolentino et al The Secretary of Finance et al
DOCTRINE: No law shall be made respecting an establishment of religion or prohibiting the free
exercise thereof. The free exercise and enjoyment of religious profession and worship, without
discrimination or preference, shall be forever allowed. No religious test shall be required for the
exercise of civil or political rights. [SECTION 5, ARTICLE III, 1987 CONSTITUTION]

These are motions seeking reconsideration of our decision dismissing the petitions filed in these
cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the
Expanded Value-Added Tax Law.
Philippine Press Institute contends that by removing the exemption of the press from the VAT
while maintaining those granted to others, the law discriminates against the press. CREBA
asserts that R.A. No. 7716 impairs the obligations of contracts, and violates the rule that taxes
should be uniform and equitable and that Congress shall “evolve a progressive system of
taxation”.
Additionally, Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds
derived from the sales are used to subsidize the cost of printing copies which are given free to
those who cannot afford to pay so that to tax the sales would be to increase the price, while
reducing the volume of sale.
II. Issue/s
Whether or not RA 7716 is unconstitutional. (NO)
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a
privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of
goods or properties or the sale or exchange of services and the lease of properties purely for
revenue purposes. To subject the press to its payment is not to burden the exercise of its right
any more than to make the press pay income tax or subject it to general regulation is not to
violate its freedom under the Constitution.
The resulting burden on the exercise of religious freedom is so incidental as to make it difficult
to differentiate it from any other economic imposition that might make the right to disseminate
religious doctrines costly. Otherwise, to follow the petitioner's argument, to increase the tax on
the sale of vestments would be to lay an impermissible burden on the right of the preacher to
make a sermon.
IV. Disposition
WHEREFORE, the motions for reconsideration are denied with finality and the temporary
restraining order previously issued is hereby lifted.
V. Notes (OPTIONAL)
Digest Maker: Ramon Jireh B. Rarama

A municipal license tax on the sale of bibles and religious articles by a non-stock, non-profit
missionary organization at minimal profit constitutes curtailment of religious freedom and
worship which is guaranteed by the Constitution.
Not every imposition of tax however constitutes curtailment of religious freedom. The free
exercise of religion clause does not prohibit imposing a generally applicable sales and use tax
on the sale of religious materials by a religious organization. VAT which is not a license tax but
a revenue tax is allowed.
INCOME OF RELIGIOUS ORGANIZATION:

GENERAL RULE:
EXEMPT FROM TAXATION IF:
1. Non stock corporation
2. Organizes and operated exclusively for religious, charitable, scientific, athletic or cultural and
social welfare purposes and
3. No part of the income inures to the benefit of any member organizer or any specific person
EXCEPTION:
Income of such organizations is taxable regardless of the disposition made of such income if
realized from:
a. productive use of property, real or personal;
b. profitable business pursuits.

Digest Maker: Ramon Jireh B. Rarama

Mactan Cebu International Airport v. Marcos
Non-impairment of obligations of contracts
G.R. No. 120082 DAVIDE, JR., J September 11, 1996
MACTAN CEBU INTERNATIONAL AIRPORT HON. FERDINAND J. MARCOS, in his capacity
AUTHORITY as the Presiding Judge of the Regional Trial
Court, Branch 20, Cebu City, THE CITY OF
CEBU, represented by its Mayor HON. TOMAS
R. OSMEÑA, and EUSTAQUIO B. CESA
DOCTRINE: There can be no question that under Section 14 of R.A. No. 6958 the petitioner is
exempt from the payment of realty taxes imposed by the National Government or any of its
political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and
exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the
taxing authority. The only exception to this rule is where the exemption was granted to private
parties based on material consideration of a mutual nature, which then becomes contractual and
is thus covered by the non-impairment clause of the Constitution. Since the last paragraph of
Section 234 of the LGC unequivocally withdrew, upon the effectivity of the LGC, exemptions from
payment of real property taxes granted to natural or juridical persons, including government-
owned or controlled corporations, except as provided in the said section, and Mactan Cebu
International Airport Authority is a government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its Charter, R.A 6958, has been withdrawn.
I. Facts:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic
Act No. 6958, sec. 3 mandated to "principally undertake the economical, efficient and effective
control, management and supervision of the Mactan International Airport in the Province of Cebu
and the Lahug Airport in Cebu City, . . . and such other airports as may be established in the
Province of Cebu . . .".
Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment
of realty taxes in accordance with Section 14 of its Charter, which states that the MCIAA is
exempted from realty taxes imposed by the national government.
On October 11, 1994, however, the Treasurer of the City of Cebu, demanded payment for realty
taxes on several parcels of land belonging to the petitioner. Petitioner objected to such demand
for payment as baseless and unjustified, claiming in its favor the aforecited Section 14 of RA 6958
which exempts it from payment of realty taxes.
It was also asserted that it is an instrumentality of the government performing governmental
functions, citing Section 133 of the Local Government Code of 1991 which puts limitations on the
taxing powers of local government units.
Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the
MCIAA is a government-controlled corporation whose tax exemption privilege has been
withdrawn by virtue of Sections 193 and 234 of the Local Government Code, which states that
tax exemptions or incentives granted to, or presently enjoyed by all persons whether natural or
juridical, including government-owned or controlled corporations are withdrawn upon the
effectivity of this code. As the City of Cebu was about to issue a warrant of levy against the
properties of the petitioner, the latter was compelled to pay its tax account "under protest" and
thereafter led a Petition for Declaratory Relief with the Regional trial court.
The trial court dismissed the petition because the Local Government Code expressed the
cancellation and withdrawal of the exemption previously enjoyed by GOCCs. With that repealing
clause in RA 7160, it is safe to infer and state that the tax exemption provided for in RA 6958
creating petitioner had been expressly repealed by the provisions of the New Local Government
Code of 1991. Hence, this petition.
II. Issues:
Whether or not MCIAA is exempt from realty taxation?
No. Taxation is the rule and exemption is the exception. Thus, the exemption may be withdrawn
at the pleasure of the taxing authority. The only exception to this rule is where the exemption was
granted to private parties based on material consideration of a mutual nature, which then
becomes contractual and is thus covered by the non-impairment clause of the Constitution.
The general rule as laid down in sec. 133 of the LGC is that the taxing power of LGU’s cannot
extend to the levy of inter alia “taxes, fees and charges of any kind on the National Government,
its agencies and LGU’s. However pursuant to sec. 232 of the said code provinces, municipalities
in Metro Manila may impose real property taxes except those owned by the Republic of the
Philippines. Here Section 15 of the petitioner’s Charter this section involves a “transfer” of the
“lands,” among other things, to the petitioner and not just the transfer of the beneficial use thereof,
with the ownership being retained by the Republic of the Philippines.
This “transfer” is actually an absolute conveyance of the ownership thereof because the
petitioner’s authorized capital stock consists of, inter alia, “the value of such real estate owned
and/or administered by the airports.” Hence, the petitioner is now the owner of the land in question
and the exception in Section 234(c) of the LGC is inapplicable. Since the last paragraph of Section
234 of the LGC unequivocally withdrew, upon the effectivity of the LGC, exemptions from payment
of real property taxes granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section, and Mactan Cebu International
Airport Authority is a government-owned corporation, it necessarily follows that its exemption from
such tax granted it in Section 14 of its Charter, R.A 6958, has been withdrawn.

WHEREFORE, the instant petition is DENIED. The challenged decision and order of the Regional
Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED.
Meralco v. Province of Laguna
Non-impairment of Obligations of Contracts
131359 VITUG, J. 5 May 1999
MANILA ELECTRIC PROVINCE OF LAGUNA and BENITO R. BALAZO, in his
COMPANY (MERALCO) capacity as Provincial Treasurer of Laguna,
DOCTRINE:
While tax exemptions contained in special franchises are in the nature of contracts and a
part of the inducement for carrying on the franchise, these exemptions, nevertheless are
far from being strictly contractual in nature.
Contractual tax exemptions, in the real sense of the term and where the non-impairment
clause of the Constitution can rightly be invoked, are those agreed to by the taxing
authority in contracts, such as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which the government, acting in its
private capacity, sheds its cloak of authority and waives its governmental immunity.
Truly, tax exemptions of this kind may not be revoked without impairing the obligations of
contracts. These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution.
On various dates, certain municipalities of the Province of Laguna, including, Biñan, Sta. Rosa,
San Pedro, Luisiana, Calauan and Cabuyao, by virtue of existing laws then in effect, issued
resolutions through their respective municipal councils granting franchise in favor of petitioner
Manila Electric Company ("MERALCO") for the supply of electric light, heat and power within
their concerned areas.
On 19 January 1983, MERALCO was likewise granted a franchise by the National Electrification
Administration to operate an electric light and power service in the Municipality of Calamba,
Laguna.
On 12 September 1991, Republic Act No. 7160, otherwise known as the "Local Government
Code of 1991," was enacted to take effect on 01 January 1992 enjoining local government units
to create their own sources of revenue and to levy taxes, fees and charges, subject to the
limitations expressed therein, consistent with the basic policy of local autonomy.
Pursuant to the provisions of the Code, respondent province enacted Laguna Provincial
Ordinance No. 01-92, effective 01 January 1993, providing, in part, as follows:
Sec. 2.09. Franchise Tax. — There is hereby imposed a tax on businesses enjoying a
franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual
receipts, which shall include both cash sales and sales on account realized during the
preceding calendar year within this province, including the territorial limits on any city
located in the province.
On the basis of the above ordinance, respondent Provincial Treasurer sent a demand letter to
MERALCO for the corresponding tax payment. Petitioner MERALCO paid the tax, which then
amounted to P19,520.628.42, under protest.
A formal claim for refund was thereafter sent by MERALCO to the Provincial Treasurer of
Laguna claiming that the franchise tax it had paid and continued to pay to the National
Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial
Tax Ordinance. MERALCO, contended that the imposition of a franchise tax under Section 2.09
of Laguna Provincial Ordinance No. 01-92, insofar as it concerned MERALCO, contravened the
provisions of Section 1 of P.D. 551 which read:
Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax
payable by all grantees of franchises to generate, distribute and sell electric current for
light, heat and power shall be two per cent (2%) of their gross receipts received from the
sale of electric current and from transactions incident to the generation, distribution and
sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly
authorized representative on or before the twentieth day of the month following the end
of each calendar quarter or month, as may be provided in the respective franchise or
pertinent municipal regulation and shall, any provision of the Local Tax Code or any
other law to the contrary notwithstanding, be in lieu of all taxes and assessments
of whatever nature imposed by any national or local authority on earnings,
receipts, income and privilege of generation, distribution and sale of electric
current.
On 28 August 1995, the claim for refund of MERALCO was denied.
On 14 February 1996, MERALCO filed with the RTC a complaint for refund, with a prayer for
the issuance of a writ of preliminary injunction and/or TRO, against the Respondent.
The trial court dismissed the complaint. Hence this petition.
II. Issue/s
Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance
No. 01-92, insofar as petitioner is concerned, is violative of the non-impairment clause of the
Constitution and Section 1 of Presidential Decree No. 551. (NO)
No, it is not violative of the non-impairment clause.
The local governments do not have the inherent power to tax except to the extent that such power
might be delegated to them either by the basic law or by statute. Presently, under Article X of the
1987 Constitution, a general delegation of that power has been given in favor of local government
units.
Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute,
the tax power must be deemed to exist although Congress may provide statutory limitations and
guidelines.
The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local
government units by directly granting them general and broad tax powers. Nevertheless, the
fundamental law did not intend the delegation to be absolute and unconditional; the constitutional
objective obviously is to ensure that, while the local government units are being strengthened and
made more autonomous, the legislature must still see to it that (a) the taxpayer will not be over-
burdened or saddled with multiple and unreasonable impositions; (b) each local government unit
will have its fair share of available resources; (c) the resources of the national government will not
be unduly disturbed; and (d) local taxation will be fair, uniform, and just.
The Local Government Code of 1991 has incorporated and adopted, by and large, the provisions
of the now repealed Local Tax Code. The Local Government Code explicitly authorizes provincial
governments, notwithstanding “any exemption granted by any law or other special law, . . . (to)
impose a tax on businesses enjoying a franchise.” Indicative of the legislative intent to carry out
the Constitutional mandate of vesting broad tax powers to local government units, the Local
Government Code has effectively withdrawn under Section 193 thereof, tax exemptions or
incentives theretofore enjoyed by certain entities.
The Code, in addition, contains a general repealing which all general and special laws, acts, city
charters, decrees, executive orders, proclamations and administrative regulations, or part or parts
thereof which are inconsistent with any of the provisions of this Code are hereby repealed or
modified accordingly. These policy considerations are consistent with the State policy to ensure
autonomy to local governments and the objective of the LGC that they enjoy genuine and
meaningful local autonomy to enable them to attain their fullest development as self-reliant
communities and make them effective partners in the attainment of national goals.
The power to tax is the most effective instrument to raise needed revenues to finance and support
myriad activities if local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and prosperity of the
people. It may also be relevant to recall that the original reasons for the withdrawal of tax
exemption privileges granted to government-owned and controlled corporations and all other units
of government were that such privilege resulted in serious tax base erosion and distortions in the
tax treatment of similarity situated enterprises, and there was a need for these entities to share in
the requirements of development, fiscal or otherwise, by paying the taxes and other charges due
from them.
While the Court has, not too infrequently, referred to tax exemptions contained in special
franchises as being in the nature of contracts and a part of the inducement for carrying on
the franchise, these exemptions, nevertheless, are far from being strictly contractual in
nature. Contractual tax exemptions, in the real sense of the term and where the non-
impairment clause of the Constitution can rightly be invoked, are those agreed to by the
taxing authority in contracts, such as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which the government, acting in its
private capacity, sheds its cloak of authority and waives its governmental immunity.
Truly, tax exemptions of this kind may not be revoked without impairing the obligations of
contracts. These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII,
Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973
Constitutions, is explicit that no franchise for the operation of a public utility shall be
granted except under the condition that such privilege shall be subject to amendment,
alteration or repeal by Congress as and when the common good so requires.
IV. Disposition
WHEREFORE, the instant petition is hereby DISMISSED. No costs.
SO ORDERED.
City of Ozamis vs. Lumapas
Tax Against Other Forms of Exactions
L-30727 ANTONIO, J. July 15, 1975
City of Ozamis Serapio S. Lumapas
Facts:
Respondent Serapio S. Lumapas is an operator of transportation buses for passengers and
cargoes, under the name of Romar Line. On September 15, 1964, the Municipal Board of Ozamiz
City enacted Ordinance no. 466 which imposes parking fees for every motor vehicle parked on
any portion of the existing parking space in Ozamis. The City of Ozamis began collecting the
prescribed parking fees from respondent-appellee Lumpas, who paid under protest, the parking
fees at One peso for each of his buses from October 1964 to January 1967 for a total amount of
P 1, 259.
(NOTE for recit: buses of Lumapas were parked in Zulueta Street market site waiting for
passengers going to the south)
The Court ruled that such parking fee is in the nature of toll fees for the use of public road and
made in violation of Section 59[b] of Republic Act No. 4136, there being no prior approval therefor
by the President of the Philippines upon recommendation of the Secretary of Public Works and
Communications. The ruling was based on ocular inspection that the parking area is a municipal
street although part of public market.
The City of Ozamis prayed that the decision of the lower court be reversed in view of the approval
by the President of the said Ordinance.
Issue: Whether or not the Ordinance is valid.
Ruling:
Yes. Under Sec. 15[Y] of the Ozamiz City Charter (Rep. Act No. 321), the municipal board has
the power "... to regulate the use of streets, avenues, alleys, sidewalks, wharves, piers, parks,
cemeteries and other public places; ..." The same section provides the authority "To enact all
ordinances it may deem necessary and proper for the sanitation and safety, the furtherance of
prosperity and the promotion of the morality, peace, good order, comfort, convenience, and
general welfare of the city and its inhabitants, and such others as may be necessary to carry into
effect and discharge the powers and duties conferred by this Charter ..." By this express legislative
grant of authority, police power is delegated to the municipal corporation to be exercised as a
governmental function for municipal purposes.
It is, therefore, patent that the City of Ozamiz has been clothed with full power to control
and regulate its streets for the purpose of promoting the public health, safety and welfare.
Indeed, municipal power to regulate the use of streets is a delegation of the police power
of the national government.
Section 3 of the questioned Ordinance No. 466 defines the word "'parking' to mean
the stoppage of a motor vehicle of whatever kind on any portion of the existing parking
areas for the purpose of loading and unloading passengers or cargoes."
This is clear from the Stipulation of Facts which shows that fees were not exacted for mere
passage thru the street but for stopping in the designated parking areas therein to unload
or load passengers or cargoes. It was not, therefore a toll fee for the use of public roads,
within the context of Section 59[b] of Republic Act No. 4136, which requires the
authorization of the President of the Philippines.
The ordinance in question appears to have been enacted in pursuant to the grant of power to
regulate the use of the streets.
The parking fee imposed is minimal in amount, the maximum being only P1.00 a day for
each passenger bus and P1.00 for each cargo truck, the rates being lower for smaller types
of vehicles. This indicates that its purpose is not for revenue but for regulation. Moreover,
it is undeniable that by designating a specific place wherein passenger and freight vehicles may
load and unload passengers and cargoes, benefits are accorded to the city's residents in the form
of increased safety and convenience arising from the decongestion of traffic.
Undoubtedly the city may impose a fee sufficient in amount to include the expense of issuing the
license and the cost of necessary inspection or police surveillance connected with the business
or calling licensed.
The fees charged in the case at bar are undeniably to cover the expenses for supervision,
inspection and control, to ensure the smooth flow of traffic in the environs of the public
market, and for the safety and convenience of the public.
Note:
Contention of Lumapas:
1. City of Ozamis has no power to impose parking fees on motor vehicle parked on Zulueta
Street which is a property for public use.
2. Zulueta Street is a part of public market site, its conversion into a street removes it from
its category as patrimonial property.
3. The use of the street is incidental to the free passage of motor vehicles, the prohibition to
impose taxes or fees embodied in Section. 59[b] of Republic Act No. 4136 applies to this
case;
4. that Section 2308[f] of the Revised Administrative Code providing that the “proceeds on
income from the x x x use or management of property lawfully held by the municipality”
accrue to the municipality, does not grant, either expressly or by implication, to the
municipality, the power to impose such tax, (5) that Section 15[y] of the Charter of Ozamiz
City (Republic Act No. 321) which authorizes the City, among others, “to regulate the use
of a street,” does not empower the City to impose parking fees.
Contention of Ozamis:
1. The ordinance is in nature of property rentals of parking spaces belonging to the City in
its proprietary character, as evidenced by Tax Declaration No. 51234.
2. The Municipal has the power to regulate the streets.
3. The word "toll" connotes the act of passing along the road and the collection of toll fees
may not be imposed unless approved by the President of the Philippines upon the
recommendation of the Secretary of Public Works, pursuant to Section 59[b] of Republic
Act No. 4136; whereas the word "parking" implies a stationary condition and the parking
fees provided for in Ordinance No. 466 is for the privilege of using the designated parking
area, which is owned by the City of Ozamiz, as its patrimonial property.
Procter and Gamble v. Mun. of Jagna
Tax against Other Forms of Exactions
L-24265 MELENCIO-HERRERA, J. 28 December 1979
Plaintiff-appellant Defendant-appellee
PROCTER & GAMBLE PHILIPPINE THE MUNICIPALITY OF JAGNA, PROVINCE
MANUFACTURING CORPORATION OF BOHOL
DOCTRINE:
• The storage fee imposed under the question Ordinance is actually a municipal license tax
or fee on persons, firms and corporations, like plaintiff, exercising the privilege of storing
copra in a bodega within the Municipality's territorial jurisdiction. For the term "license
tax" has not acquired a fixed meaning, it is often used indiscriminately to designate
impositions exacted for the exercise of various privileges. In many instances, it refers
to revenue-raising exactions on privileges or activities.
• Plaintiff-appellant Procter & Gamble Trading Company, Philippines is a domestic

corporation with principal offices in Manila. It is engaged in the manufacture of soap, edible
oil, margarine and other similar products, and for this purpose maintains a "bodega" in the
Municipality of Jagna where it stores copra purchased in the municipality and therefrom
ships the same for its manufacturing and other operations.
• On December 13, 1957, the Municipal Council of Jagna enacted Municipal Ordinance No.
4, Series of 1957, which imposed "storage fees on all exportable copra deposited in the
bodega within the jurisdiction of the Municipality of Jagna Bohol.
• From 1958 to 1963, plaintiff Procter & Gamble paid defendant Municipality, allegedly
under protest, storage fees in the total sum of P42,265.13. In 1964, plaintiff filed this suit
in the Court of First Instance of Manila, Branch VI, wherein it prayed that 1) Ordinance No.
4 be declared inapplicable to it, or in the alternative, that it be pronounced ultra-vires and
void for being beyond the power of the Municipality to enact; and 2) that defendant
Municipality be ordered to refund to it the amount of P42,265.13, which it had paid under
protest; and costs.
• It is plaintiff's submission that the subject Ordinance is inapplicable to it as it is not engaged
in the business or trade of storing copra for others for compensation or profit and that the
only copra it stores is for its exclusive use in connection with its business as manufacturer
of soap, edible oil, margarine and other similar products; that the levy is intended as an
"export tax" as it is collected on "exportable copra' , and, therefore, beyond the power of
the Municipality to enact; and that the fee of P0.10 for every 100 kilos of copra stored in
the bodega is excessive, unreasonable, and oppressive and is imposed more for revenue
than as a regulatory fee.
II. Issue/s
Whether the Municipality of Jagna was authorized to impose and collect the storage fee
provided for in Ordinance No. 4, Series of 1957 (YES)
• Under Section 1 of the Commonwealth Act (CA) No. 472, which was the prevailing law
when the Ordinance was enacted, a municipality is authorized to impose three kinds of
licenses: (1) a license for regulation of useful occupation or enterprises; (2) license for
restriction or regulation of non-useful occupations or enterprises; and (3) license for
revenue. It is thus unnecessary, as plaintiff would have us do, to determine whether
the subject storage fee is a tax for revenue purposes or a license fee to reimburse
defendant Municipality for service of supervision because defendant Municipality is
authorized not only to impose a license fee but also to tax for revenue purposes.
• The storage fee imposed under the question Ordinance is actually a municipal license
tax or fee on persons, firms and corporations, like plaintiff, exercising the privilege of
storing copra in a bodega within the Municipality's territorial jurisdiction. For the term
"license tax" has not acquired a fixed meaning. It is often used indiscriminately to
designate impositions exacted for the exercise of various privileges. In many instances,

it refers to revenue-raising exactions on privileges or activities.
• Not only is the imposition of the storage fee authorized by the general grant of authority
under Section 1 of CA No. 472. Neither is the storage fee in question prohibited nor
beyond the power of the municipal councils and municipal district councils to impose,
as listed in Section 3 of said CA No. 472.
• Plaintiff's further contention that the storage fee imposed by the Ordinance is actually
intended to be an export tax, which is expressly prohibited by Section 2287 of the
Revised Administrative Code, is without merit. We have held that only where there is a
clear showing that what is being taxed is an export to any foreign country would the
prohibition come into play.10 When the Ordinance itself speaks of "exportable" copra,
the meaning conveyed is not exclusively export to a foreign country but shipment out
of the municipality. The storage fee impugned is not a tax on export because it is
imposed not only upon copra to be exported but also upon copra sold and to be used
for domestic purposes if stored in any warehouse in the Municipality and the weight
thereof is 100 kilos or more.
• Plaintiff's argument that the imposition of P0.10 per 100 kilos of copra stored in a
bodega within defendant's territory is beyond the cost of regulation and surveillance is
not well taken. Municipal corporations are allowed wide discretion in determining the
rates of imposable license fees even in cases of purely police power measures. In the
absence of proof as to municipal conditions and the nature of the business being taxed
as well as other factors relevant to the issue of arbitrariness or unreasonableness of
the questioned rates, Courts will go slow in writing off an Ordinance. In the case at bar,
appellant has not sufficiently shown that the rate imposed by the questioned Ordinance
is oppressive, excessive and prohibitive.
IV. Disposition
WHEREFORE, affirming the judgment appealed, from, we sustain the validity of

Ordinance No. 4, Series of 1957, of defendant Municipality of Jagna Bohol, under the laws
then prevailing.
Costs against plaintiff-appellant.
V. Notes
• Section 1 of the Commonwealth Act No. 472

“A municipal council or municipal district council shall have the authority to impose
municipal license taxes upon persons engaged in any occupation or business, or
exercising privileges in the municipality or municipal district, by requiring them to
secure licenses at rates fixed by the municipal council, or municipal district council,
and to collect fees and charges for services rendered by the municipality or
municipal district and shall otherwise have power to levy for public local purposes,
and for school purposes, including teachers' salaries, just and uniform taxes other
than percentage taxes and taxes on specified articles.”
• Section 2287 of the Revised Administrative Code
“It shall not be in the power of the municipal council to impose a tax in any form
whatever upon goods and merchandise carried into the municipality, or out of the
same, and any attempt to impose an import or export tax upon such goods in the
guise of an unreasonable charge for wharfage use of bridges or otherwise, shall
be void.
xxx xxx xxx”
• The business of buying and selling and storing copra is property the subject of regulation
within the police power granted to municipalities under Section 2238 of the Revised
Administrative Code or the "general welfare clause." For it has been held that a
warehouse used for keeping or storing copra is an establishment likely to endanger the
public safety or likely to give rise to conflagration because the oil content of the copra
when ignited is difficult to put under control by water and the use of chemicals is necessary
to put out the fire.
• It can be said that plaintiff's payment of storage fees imposed by the Ordinance in question
does not amount to double taxation. For double taxation to exist, the same property must
be taxed twice, when it should be taxed but once. Double taxation has also been defined
as taxing the same person twice by the same jurisdiction for the same thing. Surely, a tax
on plaintiff's products is different from a tax on the privilege of storing copra in a bodega
situated within the territorial boundary of defendant municipality.

CIR V. PRIETO
Tax against other forms of exactions
G.R. No. L-13912 GUTIERREZ DAVID, J. September 30, 1960
THE COMMISSIONER OF INTERNAL CONSUELO L. VDA. DE PRIETO
REVENUE
DOCTRINE: For interest to be allowed as deduction from gross income, it must be shown that
there be indebtedness, that there should be interest upon it, and that what is claimed as an interest
deduction should have been paid or accrued within the year.
I. Facts:
On December 4, 1945, the respondent conveyed by way of gifts to her four

children, namely, Antonio, Benito, Carmen and Mauro, all surnamed Prieto, real
property with a total assessed value of P892,497.50.
After the filing of the gift tax returns on or about February 1, 1954, the petitioner
Commissioner of Internal Revenue appraised the real property donated for gift tax
purposes at P1,231,268.00, and assessed the total sum of P117,706.50 as donor's
gift tax, interest and compromises due thereon.
Of the total sum of P117,706.50 paid by respondent on April 29, 1954, the sum of
P55,978.65 represents the total interest on account of deliquency. This sum of
P55,978.65 was claimed as deduction, among others, by respondent in her 1954
income tax return.
Petitioner, however, disallowed the claim and as a consequence of such
disallowance assessed respondent for 1954 the total sum of P21,410.38 as
deficiency income tax due on the aforesaid P55,978.65, including interest up to
March 31, 1957, surcharge and compromise for the late payment.
II. Issues:
Whether or not such interest was paid upon an indebtedness within the contemplation of section
30 (b) (1) of the Tax Code?
The term "indebtedness" as used in the Tax Code of the United States
containing similar provisions as in section 30 (b) (1) of our Tax Code, has been
defined as an unconditional and legally enforceable obligation for the payment
of money. Within the meaning of that definition a tax may be considered an
indebtedness.
It follows that the interest paid by herein respondent for the late payment of
her donor’s tax is deductible from her gross income under section 30(b) of the
Tax Code. Thus, under Section 23(b) of the Internal Revenue Code of 1939,
as amended, which contains similarly worded provisions as Section 30(b) of
our Tax Code, the uniform ruling is that interest on taxes is interest on
indebtedness and is deductible. The rule applies even though the tax is
nondeductible.
In conclusion, the Court are of opinion and so hold that although interest
payment for delinquent taxes is not deductible as tax under Section 30(c) of
the Tax Code and Section 80 of the Income Tax Regulations, the taxpayer is
not precluded thereby from claiming said interest payment as deduction under
Section 30(b) of the same Code.

In view of the foregoing, the decision sought to be reviewed is affirmed, without pronouncement
as to costs.
SILKAIR vs. COMMISSION ON INTERNAL REVENUE
As to Burden or Incidence (Direct and Indirect)
G.R. No. 184398 LEONARDO-DE CASTRO., J. February 25, 2010
SILKAIR (SINGAPORE) PTE, LTD., COMMISSIONER OF INTERNAL REVENUE
(CIR)
DOCTRINE:
Direct taxes are those that are exacted from the very person who, it is intended or desired, should
pay them; they are impositions for which a taxpayer is directly liable on the transaction or business
he is engaged in.
On the other hand, indirect taxes are those that are demanded, in the first instance, from, or are
paid by, one person in the expectation and intention that he can shift the burden to someone else.
Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls on
one person but the burden thereof can be shifted or passed on to another person, such as when
the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When
the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay
it, to the purchaser as part of the purchase price of goods sold or services rendered.
I. Facts:
➢ Silkair is a foreign corporation organized under the laws of Singapore with a Philippine
representative office in Cebu City, is an online international carrier plying the Singapore-
Cebu-Singapore and Singapore-Cebu-Davao-Singapore routes.
➢ In 2002, Silkair filed a claim with the BIR the for reimbursement of P3,983,590.49) in
excise taxes which it allegedly erroneously paid on its purchase of aviation jet fuel from
Petron Corporation from June to December 2000.
➢ Silkair based its claim on the following:
o Sec. 135(b) NIRC – which exempts from excise taxes the entities covered by tax
treaties, conventions and other international agreements, provided that the country
of said carrier or exempt entity likewise exempts from similar taxes the petroleum
products sold to Philippine carriers or entities. (see notes)
o Article 4(2) of the Air Transport Agreement between the Philippines and
Singapore – fulfills the proviso in Sec. 135. BIR took no action on the claim,
which led Silkair to file a petition for review with the CTA. This was denied; hence,
this petition.
➢ Silkair also asserts that the tax exemption, granted to it as a buyer of a certain product, is
a personal privilege which may not be claimed or availed of by the seller. Sikair submits
that since it is the entity which actually paid the excise taxes, then it should be allowed to
claim for refund or tax credit.
II. Issues:
Whether or not Silkair is the proper party to claim for the refund/tax credit of excise taxes paid on
aviation fuel. (NO.)

The Court ruled that he proper party to question, or seek a refund of, an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even
if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC provides that "[u]nless
otherwise specifically allowed, the return shall be filed and the excise tax paid by the
manufacturer or producer before removal of domestic products from place of production." Thus,
Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based
on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP
and Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed
to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.
At the risk of being repetitive, the proper party to question, or claim a refund or tax credit of an
indirect tax is the statutory taxpayer, which is Petron in this case, as it is the company on
which the tax is imposed by law and which paid the same even if the burden thereof was
shifted or passed on to another. It bears stressing that even if Petron shifted or passed on to
petitioner the burden of the tax, the additional amount which petitioner paid is not a tax but a part
of the purchase price which it had to pay to obtain the goods.

WHEREFORE, the instant petition for review is DENIED. We affirm the assailed Decision dated
May 27, 2008 and the Resolution dated September 5, 2008 of the Court of Tax Appeals En
Banc in C.T.A. E.B. No. 267. No pronouncement as to costs.
SO ORDERED.
IV. Notes:
Section 135(b) of the NIRC provides:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. –
Petroleum products sold to the following are exempt from excise tax:
xxxx
(b) Exempt entities or agencies covered by tax treaties, conventions and other international
agreements for their use or consumption: Provided, however, That the country of said foreign
international carrier or exempt entities or agencies exempts from similar taxes petroleum products
sold to Philippine carriers, entities or agencies; x x x.
Article 4(2) of the Air Transport Agreement between the Philippines and Singapore, in turn,
provides:
ART. 4. x x x.
xxxx
(2) Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken
on board aircraft in the territory of one Contracting Party by, or on behalf of, a designated airline
of the other Contracting Party and intended solely for use in the operation of the agreed services
shall, with the exception of charges corresponding to the service performed, be exempt from the
same customs duties, inspection fees and other duties or taxes imposed in the territory of the first
Contracting Party, even when these supplies are to be used on the parts of the journey performed
over the territory of the Contracting Party in which they are introduced into or taken on board. The
materials referred to above may be required to be kept under customs supervision and control.
Tan vs. Municipality of Pagbilao
As to Tax Rates (Specific Tax, Ad Valorem Tax and Mixed)
L-14264 PAREDES, J. April 30, 1963
RAYMUNDO B. TAN, JOSE ESGUERRA, THE MUNICIPALITY OF PAGBILAO,
ROMAN ABASTILLAS, ANTONIO QUEBRADO, ELIAS PORNOBI, as Municipal Mayor of
ROMAN AGNES, ELISEO AMANDY, NICOLAS Pagbilao and CEFERINO CAPARROS as
SOTOMAYOR, INESTORIO TORRENUEVA and Municipal Treasurer of Pagbilao
FELIPE TIOSAN
DOCTRINE:
Being a specific tax, the municipality has no right to impose the same, for taxation in an
attribute of sovereignty which municipal corporation do not enjoy. It shall not be in the power
of the council to impose a tax in any form whatever upon goods and merchandise carried into the
municipality or out of the same, and any attempt to impose such tax in the guise of wharfage fee
or charge is void. And being wharfage fee, it is likewise beyond the power of the municipal
council and municipal district council to impose.
Defendant municipal corporation was the owner and operator of a wharf.
The municipal council of defendant municipality enacted Ordinance No. 11, series of 1956,
imposing certain charges and/or fees on articles or merchandises landed upon, or loaded from
the said wharf and on the strip of shoreline adjacent thereto, measuring 300 meters.
Tan and the other plaintiffs, who were fishermen, merchants and proprietors of Padre Burgos,
Quezon, had to pass Pagbilao in order to bring their goods consisting of fish, charcoal, copra,
firewood and other merchandise to Lucena. The merchandise were transported in bancas or
motor boats from Padre Burgos and unloaded on the Pagbilao wharf or on the shoreline, from
where they were brought to Lucena by trucks.
Pursuant to the Ordinance, defendant municipality required plaintiffs to pay the charges and
fees, which they did under protest.
The plaintiffs allege that the Ordinance was ultra vires, in that the fees prescribed therein
partake of the nature of import or export taxes, in the guise of wharfage or rental fees.
Defendants answering the complaint, interposed the following special defenses:
1) that the fees collected at the wharf are intended for and actually being exclusively utilized
in the repair, improvement, and maintenance of the same; 2) that the municipality has made
material and additional constructions to date, and if the revenues raised from these fees are
sufficient, the wharf is intended to be lengthened along the 300 meters distance by the river;
3) the presence, day and night, of a municipal employee or of a policeman at the wharf, has
resulted in the prevailing peace, order, and security of cargoes, vessels, and of the operators
therein; 4) the municipality also maintains a 300 candle-power kerosene lantern at the wharf.
The court a quo rendered the following judgment:
xxx xxx xxx
"In the light of the foregoing, the Court is therefore of the opinion that Ordinance No. 11, Series
of 1956, of defendant Municipality of Pagbilao, Quezon, is null and void for having been
enacted without lawful authority . . . .
WHEREFORE, judgment is hereby rendered ordering defendant municipality of Pagbilao,

Quezon, to pay to plaintiff Raymundo B. Tan the amount of P774.25, with legal interest
thereon from the filing of the complaint, that is, from 4 February 1957, and dismissing
defendants' counterclaim against plaintiffs, with the parties bearing their own costs."
Hence, this petition.
II. Issues
1. Whether or not the defendant municipality can validly enact the ordinance in question and
collect the charges contained therein. (NO)
2. Whether or not plaintiff Tan is entitled to a refund of the fees paid to the defendant
municipality. (YES)
1. NO. The municipality has no power to to collect wharfage fees. Being a specific
tax, the municipality has no right to impose the same, for taxation is an attribute
of sovereignty which municipal corporation do not enjoy (Santo Lumber Co., et al
v. City of Cebu, et al., L-10196, Jan. 22,1958; 54 O.G. 5327; Saldana v. City of Iloilo,
L-10470, June 26, 1958). It shall not be in the power of the council to impose a tax in any
form whatever upon goods and merchandise carried into the municipality or out of the
same, and any attempt to impose such tax in the guise of wharfage fee or charge is
void (Sec. 2287, Rev. Adm. Code). And being wharfage fee (Phil. Sugar Central v. Coll.
of Customs, 51 Phil. 131), it is likewise beyond the power of the municipal council
and municipal district council to impose (Sec. 3, Comm. Act No. 472,supra).
Aside from being a specific tax, its nature as wharfage fee is also clear from the import of the
ordinance, specifically paragraph 1, which recites —
"PANGKAT 1. — Ang lahat ng may-ari o tagapangasiwa ng mga sasakyan sa pantalang

bayan, ay dapat magbigay-alam sa kinauukulang katiwala ng pamahalaan, upang maisaayos
ang pagdaung, pagbaba at pagsakay ng mga kargamentos at iba pa ."
The phraseology of the above paragraph points to the fact that the charges collected pursuant
thereto, correspond to the words "berthing, unloading and loading of cargoes or merchandise"
which fall under the category of wharfage fees. The change or the designation of the said
fees as "rental of municipal property" did not change their basic character as
"wharfage fees".
It should also be noted that Ordinance No. 9 was enacted by the same municipal council,
providing for "wharfage fees" for goods and merchandise only. But because the Provincial
Board ruled the to be null and void, because the prescribed fees were unreasonable
and were obviously export or import taxes in the guise of wharfage fees which are
contrary to the provisions of section 2287 of the Administrative Code, the municipal council
of Pagbilao enacted Ordinance No. 11, providing for the wharfage of boats and vessels
and of goods and merchandise; and while it fixed the fees or charges for loading and
unloading goods and merchandise, it did not state the berthing fees for boats and
vessels carrying the goods, all of which go to show that the council wanted only to
impose specific tax on the goods and merchandise, which was the same objective
it had, when the annulled Ordinance No. 9 was promulgated.
2. The question as to whether or not the charges paid should be returned, must be answered
in the affirmative. Not only were the payments made under protest, but they were also
collected under an invalid ordinance. In a number of cases, we have ruled that monies
collected under invalid acts or tax laws are refundable, even if the payments were voluntary
(East Asiatic Co. Ltd. vs. City of Davao, L- 16253, Aug. 21, 1962).
IV. Disposition
IN VIEW OF ALL THE FOREGOING, we find that the decision appealed from is in conformity
with the law and jurisprudence on the matter. The same should be, as it is hereby affirmed, in
all respects. No costs.
V. Notes
Section 3, paragraph (t), Commonwealth Act No. 472:
"SEC. 3. It shall be beyond the power of the municipal council and municipal district
council to impose the following taxes, charges and fees:
xxx xxx xxx
Customs duties, registration, wharfage, tonnage and other kinds of customs fees,
charges and duties."
Section 2287 of the Revised Administrative Code:
"SEC. 2287. Fundamental principles governing municipal taxation . — . . . It shall not be in

the power of the council to impose a tax in any form whatever upon goods and merchandise
carried into the municipality, or out of the same, and any attempt to impose an import or export
tax upon such goods in the guise of an unreasonable charge for wharfage, use of bridges or
otherwise shall be void."
Philippine Airlines v Edu
Kinds of Taxes
G.R. No. L-41383 J. GUTTIEREZ August 15,1988
PHILIPPINE AIRLINES, INC. ROMEO F. EDU, in his capacity as Land
Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National
Treasurer, defendants-appellants.
DOCTRINE:
Motor vehicle registration fees as at present exacted pursuant to the Land Transportation and
Traffic Code are actually taxes intended for additional revenue of government.
I. Facts:
• The Philippine Airlines (PAL) is a corporation engaged in the air transportation business
under a legislative franchise. Under its franchise, PAL is exempt from the payment of
taxes.
• Sometime in 1971, however, appellee Commissioner Edu, issued a regulation requiring

all tax exempt entities, among them PAL, to pay motor vehicle registration fees.
• Despite PAL’s protestations, the Commissioner Edu refused to register PAL’s motor
vehicles unless the amounts imposed were paid.
• PAL thus paid, but out of protest. PAL demanded a refund, invoking the ruling in Calalang
v Lorenzo where it was held that motor vehicle registration fees are in reality taxes, thus
PAL should be exempt by virtue of its legislative franchise.
• Commissioner Edu denied the request, basing his action from Republic v Philippine
Rabbit, to the effect that motor vehicle registration fees are regulatory exactions and not
revenue measures, and therefore do not exempt PAL under its franchise.
• This went up to the trial court which rendered a decision ruling in favor of the
Commissioner under the strength of Republic v Philippine Rabbit.
II. Issue/s:
1. Whether or not fees for motor vehicle registration are taxes. (YES)
2. May PAL be granted refund? (NO)
1. Yes, they are considered regulatory taxes. If the purpose is primarily revenue, or if revenue
is at least one of the real and substantial purposes, then the exaction is properly called a tax.
Fees may be properly regarded as taxes even though they also serve as an instrument of
regulation. They are called regulatory taxes.
The intent of the Land Transportation and Traffic Code is to require owners of vehicles to pay for
their registration, which is mainly to raise funds for the construction and maintenance of highways
and to a much lesser degree, pay for the operating expenses of the administering agency. It is
patent that the legislators had in mind a regulatory tax.
In view of the foregoing, we rule that motor vehicle registration fees as at present exacted
pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional
revenues of government even if one fifth or less of the amount collected is set aside for the
operating expenses of the agency administering the program.
2. The claim for refund is made for payments given in 1971. It is not clear from the records
as to what payments were made in succeeding years. Rep. Act No. 5431, dated June 27, 1968,
repealed all earlier tax exemptions of corporate taxpayers found in legislative franchises similar
to that invoked by PAL in this case. Any registration fees collected between June 27, 1968 and
April 9, 1979, were correctly imposed because the tax exemption in the franchise of PAL was
repealed during the period.
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration
fees paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board
(LTFRB) is enjoined from collecting any tax, fee, or other charge on the registration and licensing
of the petitioner’s motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.
SO ORDERED.
V. Notes:
Lozano vs. Energy Regulatory Board
As to Purpose (General and Special)
95119-21 SARMIENTO, J. 18 December 1990
SENATOR ERNESTO ENERGY REGULATORY BOARD (ERB), PILIPINAS SHELL
MACEDA; OLIVER O. PETROLEUM CORPORATION, CALTEX (PHIL.), INC., and
LOZANO PETRON CORPORATION
DOCTRINE:
Republic Act No. 6965 operated to lower taxes on petroleum and petroleum
products by imposing specific taxes rather than ad valorem taxes thereon; it is, not,
however, an insurance against an “oil hike”, whenever warranted, or is it a price control
mechanism on petroleum and petroleum products. The statute had possibly forestalled a
larger hike, but it operated no more.
Evidently, authorities have been unable to collect enough taxes necessary to replenish
the OPSF as provided by Presidential Decree No. 1956, and hence, there was no
available alternative but to hike existing prices.
The OPSF, as the Court held in the aforecited CACP cases, must not be understood to
be a funding designed to guarantee oil firms’ profits although as a subsidy, or a trust
account, the Court has no doubt that oil firms make money from it. As we held there,
however, the OPSF was established precisely to protect the consuming public from
the erratic movement of oil prices and to preclude oil companies from taking
advantage of fluctuations occurring every so often. As a buffer mechanism, it
stabilizes domestic prices by bringing about a uniform rate rather than leaving pricing to
the caprices of the market.
• The petitioners (Sen. Maceda & Atty. Lozano) pray for injunctive relief, to stop the Energy
Regulatory Board (ERB) from implementing its Order (dated September 21, 1990)
mandating a provisional increase in the prices of petroleum and petroleum products.
• September 10, 1990: Pilipinas Shell Petroleum Corporation, and Petron Corporation
proferred separate applications with the Board for permission to increase the wholesale
posted prices of petroleum products and meanwhile, for provisional authority to
increase temporarily such wholesale posted prices pending further proceedings.
• September 21, 1990: ERB, in a joint (on 3 applications) Order granted the provisional
relief and authorizes said applicants a weighted average provisional increase of
Php1.42 per liter in the wholesale posted prices of their various petroleum products,
refined and/or marketed by them locally.
• Sen. Maceda & Atty. Lozano (petitioners) submit that the Order had been issued with
grave abuse of discretion, tantamount to lack of jurisdiction, correctible by Certiorari.
- Sen. Maceda also submits that the same was issued without proper notice and
hearing in violation of Section 3, paragraph (e), of Executive Order No. 172; that the
Board, in decreeing an increase, had created a new source for the Oil Price
Stabilization Fund (OPSF), or otherwise that it had levied a tax, a power vested in the
legislature, and/or that it had “re-collected”, by an act of taxation, ad valorem taxes on
oil which Republic Act No. 6965 had abolished.
- Atty. Lozano, likewise argues that the Board’s Order was issued without notice and
hearing, and hence, without due process of law.
- The intervenor, the Trade Union of the Philippines and Allied Services argues on
the other hand, that the increase cannot be allowed since the respondents oil
companies had not exhausted their existing oil stock which they had bought at old
prices and that they cannot be allowed to charge new rates for stock purchased at
such lower rates.
• November 20, 1990: The Court ordered these cases consolidated.
II. Issue/s
1. Whether or not the ERB’s Order issued without proper notice and hearing. (NO)
2. Whether or not the ERB, in decreeing an increase, had created a new source for the
OPSF. (NO)

The Court finds no merit in these petitions; The Court finds no grave abuse of discretion
committed by the (respondent) ERB in issuing its questioned Order.
1. Sen. Maceda and Atty. Lozano, in questioning the lack of hearing, have overlooked the
provisions of Sec. 8 of E.O. No. 172. As the Order itself indicates, the authority for
provisional increase falls within the said provision.
There is no merit in the Senator’s contention that the “applicable” provision is Sec. 3,
paragraph (e) of the E.O. No. 172. What must be stressed is that while under Executive
Order No. 172, a hearing is indispensable, it does not preclude the Board from ordering,
ex parte, a provisional increase, as it did here, subject to its final disposition of whether or
not: (1) to make it permanent; (2) to reduce or increase it further; or (3) to deny the
application. Section 37 paragraph (e) is akin to a temporary restraining order or a writ of
preliminary attachment issued by the courts, which are given ex parte, and which are
subject to the resolution of the main case.
Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate
exclusively of the other, in that the Board may resort to one but not to both at the same
time. Section 3(e) outlines the jurisdiction of the Board and the grounds for which it may
decree a price adjustment, subject to the requirements of notice and hearing. Pending
that, however, it may order, under Section 8, an authority to increase provisionally, without
need of a hearing, subject to the final outcome of the proceeding. The Board, of course,
is not prevented from conducting a hearing on the grant of provisional authority — which
is of course, the better procedure — however, it cannot be stigmatized later if it failed to
conduct one. As we held in Citizens’ Alliance for Consumer Protection v. Energy
Regulatory Board.
2. Senator Maceda’s attack on the Order in question on premises that it constitutes an act of
taxation or that it negates the effects of Republic Act No. 6965, cannot prosper. Republic
Act No. 6965 operated to lower taxes on petroleum and petroleum products by
imposing specific taxes rather than ad valorem taxes thereon; it is, not, however, an
insurance against an “oil hike”, whenever warranted, or is it a price control mechanism on
petroleum and petroleum products. The statute had possibly forestalled a larger hike, but
it operated no more.
The Board Order authorizing the proceeds generated by the increase to be deposited to
the OPSF is not an act of taxation. It is authorized by P.D. No. 1956, as amended by E.O.
No. 137.
Evidently, authorities have been unable to collect enough taxes necessary to replenish
the OPSF as provided by Presidential Decree No. 1956, and hence, there was no
available alternative but to hike existing prices.
The OPSF, as the Court held in the aforecited CACP cases, must not be understood to
be a funding designed to guarantee oil firms’ profits although as a subsidy, or a trust
account, the Court has no doubt that oil firms make money from it. As we held there,
however, the OPSF was established precisely to protect the consuming public from
the erratic movement of oil prices and to preclude oil companies from taking
advantage of fluctuations occurring every so often. As a buffer mechanism, it
stabilizes domestic prices by bringing about a uniform rate rather than leaving pricing to
the caprices of the market.
IV. Disposition
WHEREFORE, these petition are DISMISSED.

1
53 Meralco v. CBAA
As to Scope and Authority to Impose (National and

Local)
L-46245 Aquino, J. 31 May 1982
MERALCO SECURITIES INDUSTRIAL CENTRAL BOARD OF ASSESSMENT
CORPORATION APPEALS, BOARD OF ASSESSMENT
APPEALS OF LAGUNA and PROVINCIAL
ASSESSOR OF LAGUNA
DOCTRINE/S: The realty tax is enforced throughout the Philippines and not merely in a
particular municipality or city but the proceeds of the tax accrue to the province, city,
municipality and barrio where the realty taxed is situated (Real Property Tax Code, 1974).
In contrast, a local tax is imposed by the municipal or city council by virtue of the Local Tax
Code.
● Meralco Securities installed from Batangas to Manila a pipeline system, pursuant to a

pipeline concession issued under the Petroleum Act of 1949, consisting of cylindrical
steel pipes joined together and buried not less than one meter below the surface along
the shoulder of the public highway. The portion passing through Laguna is about 30km.
● The pipes are embedded in the soil and firmly welded together so as to avoid breakage
thereto and prevent leakage of the oil. The valves are welded to the pipes so as to
make the pipeline system one single piece of property from end to end.
● In order to repair, replace, remove or transfer segments of the pipeline, the pipes have
to be cold-cut by means of a rotary hard-metal pipe-cutter after digging or excavating
them out of the ground where they are buried. In points where the pipeline traversed
rivers or creeks, the pipes were laid beneath the bed thereof. Hence, the pipes are
permanently attached to the land.
● Meralco Securities notes that segments of the pipeline can be moved from one place to
another as shown in the permit issued by the Secretary of Public Works and
Communications which permit provides that the government reserves the right to
require the removal or transfer of the pipes by and at the concessionaire's expense
should they be affected by any road repair or improvement.
● The provincial assessor of Laguna, pursuant to the Assessment Law, treated the
pipeline as real property and issued several Tax Declarations containing the assessed
values of portions of the pipeline.
● Laguna BAA: upheld the assessments.
● CBAA: pipeline is subject to realty tax.
II. Issue/s
● W/N Meralco Securities' oil pipeline is subject to realty tax. YES
● The Court held that the CBAA, in confirming the ruling of the provincial assessor and
the BAA, that Meralco Securities' pipeline is subject to realty tax, reasoned out that the
pipes are machineries and improvements, as contemplated in the Assessment Law
and the Real Property Tax Code; that they do not fall within the category of property
exempt from realty tax under said laws; that articles 415 and 416 of the Civil Code,
defining real and personal property, have no application to this case; that even under
article 415, the steel pipes can be regarded as realty because they are
constructions adhered to the soil and things attached to the land in a fixed
Daile Fernandez
2
manner and that Meralco Securities is not exempt from realty tax under the Petroleum
Law.
● Section 2 of the Assessment Law provides that the realty tax is due "on real property,
including land, buildings, machinery, and other improvements" not exempted in section
3 thereof. This provision is reproduced with some modification in the Real Property Tax
Code which provides:
SEC. 38. Incidence of Real Property Tax.— There shall be levied, assessed
and collected in all provinces, cities and municipalities an annual ad valorem
tax on real property, such as land, buildings, machinery and other
improvements affixed or attached to real property not hereinafter
specifically exempted.
● The pipeline of Meralco Securities does not fall within any of the classes of exempt real
property enumerated in section 3 of the Assessment Law and section 40 of the Real
Property Tax Code.
● A pipeline for conveying petroleum has been regarded as real property for tax
purposes. The other contention of Meralco Securities is that the Petroleum Law
exempts it from the payment of realty taxes. However, said exemption is based on the
following provision of that law which exempt Meralco Securities from local taxes and
make it liable for taxes of general application:
ART. 102. Work obligations, taxes, royalties not to be changed.— Work

obligations, special taxes and royalties which are fixed by the provisions of this
Act or by the concession for any of the kinds of concessions to which this Act
relates, are considered as inherent on such concessions after they are granted,
and shall not be increased or decreased during the life of the concession to
which they apply; nor shall any other special taxes or levies be applied to such
concessions, nor shall concessionaires under this Act be subject to any
provincial, municipal or other local taxes or levies; nor shall any sales tax be
charged on any petroleum produced from the concession or portion thereof,
manufactured by the concessionaire and used in the working of his concession.
All such concessionaires, however, shall be subject to such taxes as are of
general application in addition to taxes and other levies specifically provided in
this Act.
● Meralco Securities argues that the realty tax is a local tax or levy and not a tax of
general application. This argument is untenable because the realty tax has always
been imposed by the lawmaking body and later by the President in the exercise
of his lawmaking powers.
IV. Disposition
WHEREFORE, the questioned decision and resolution are affirmed. The petition is dismissed.
No costs.
V. Notes
● Sec. 40. Exemptions from Real Property Tax. — The exemption shall be as follows:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions and any government-owned corporation so exempt by its charter:
Provided; however, That this exemption shall not apply to real property of the above
named entities the beneficial use of which has been granted, for consideration or
otherwise, to a taxable person.
(b) Non-profit cemeteries or burial grounds.
(c) Charitable institutions, churches, personages or convents appurtenant thereto,
mosques, and all land, buildings, and improvements actually, directly and exclusively
used for religious or charitable purposes.
(d) Real property in any one city or municipality belonging to a single owner the entire
assessed valuation of which is not in excess of five hundred pesos: Provided, however,
That the property so exempt shall be assessed and records thereof kept as in other
cases.
(e) Land acquired by grant, purchase or lease from the public domain for conversion
Daile Fernandez
3
into dairy farms for a period of five years from the time of such conversion; and
machinery of a new and preferred industry as certified by the Board of Investments
used or operated for industrial, agricultural, manufacturing or mining purposes, during
the first three years of the operation of the machinery.
(f) Perennial trees and plants of economic value, except where the land upon which
they grow is planted principally to such growth.
(g) Real property exempt under other laws.
● Section 3. Property exempt from tax. — The exemptions shall be as follows:
(a) Property owned by the United States of America, the Commonwealth of the
Philippines, any province, city, municipality or municipal district.
(b) Cemeteries or burial grounds.
(c) Churches and parsonages or convents appurtenant thereto, and all lands, buildings,
and improvements used exclusively for religious, charitable, scientific, or educational
purposes.
(d) When the entire assessed valuation of real property in any one municipality or
municipal district belonging to a single owner is not in excess of one hundred pesos, or
when the assessed valuation of a house, used as residence of the owner thereof,
together with the lot on which the same is built, does not exceed three hundred pesos
and such owner has no other property, the tax thereon shall not be collected, nor shall
the tax be collected on a dwelling house built on the field, nor or an adjacent orchard, if
any, as improvement, if the assessed value of each assessed separately, is not in
excess of one hundred pesos, though in any event of the property shall be valued for
the purposes of assessment and record shall be kept thereof as in other cases.
(e) Land held by a homesteader under an application filed in accordance with law prior
to the approval by the Director of lands of the final evidence as required by law; but this
exemption does not extend to buildings and improvements thereon the title to which is
not in the Government.
(f) Machinery, which shall embrace machines, mechanical contrivances, instruments,
appliances, and apparatus attached to the real estate, used for industrial agricultural or
manufacturing purposes, during the first five years of the operation of the machinery.
(g) Fruit trees and bamboo plants, except where the land upon which they grow is
planted principally in such growth.
(h) Until December thirty-first, nineteen hundred thirty-nine, land not exceeding one
hundred hectares used for airports or landing fields open to all aircraft operations,
either free of charge or upon the payment of a nominal charge, together with such
improvements thereon as are used exclusively for aeronautical purposes, when such
airports are necessary facilities for air commerce. The airports or landing files herein
exempted from taxation shall revert to their original taxation status upon the
certification of the Secretary of Public Works and Communications that they are no
longer necessary or suitable facilities for air commerce.
The provisions hereof notwithstanding, depreciation allowance shall be made for

machinery mentioned in section 3 (f) equivalent to an amount not exceeding 10% of its
value for its year of use.
Daile Fernandez

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CIR vs.

III. Ratio/Legal Basis:

IV. Dispositive Portion:

I. Facts of the case

III. Ratio/Legal Basis

(a) Pay the excess tax still due; or

I. Facts of the case

1) the monies collected pursuant to P.D. 1956, as amended, must be treated as a

III. Ratio/Legal Basis

c) Any additional amount to be imposed on petroleum products to augment the

05 ABAKADA Guro v. Ermita

I. Facts of the case

● This case is a consolidation of 5 petitions assailing the constitutionality of RA 9337

III. Ratio/Legal Basis

As to the increase in VAT rate to 12%

As to the 70% limitation on creditable input tax

As to the 60-month amortization on the purchase or importation of capital goods exceeding

As to the 5% final withholding tax by government agencies:

unreasonably narrowed, there is no reason to invalidate the provision. The

There being no constitutional impediment to the full enforcement and implementation of

I. Facts of the case

III. Ratio/Legal Basis

I. Facts of the case

Digest Maker: Leah Faith U. Toledo

III. Ratio/Legal Basis

Digest Maker: Leah Faith U. Toledo

Some of the petitioners’ arguments regarding regressivity: (Note: This case is a

III. Ratio/Legal Basis:

IV. Dispositive Portion:

§ Injunction generally does not lie against the collection of taxes.

Facts of the case

II. Ratio/Legal Basis

The Tax Code provides:

I. Facts of the case:

• CIR filed an MR, but was denied. Hence, this petition.

III. Ratio/Legal Basis

• Juliane’s income is subject to tax, hence, she cannot claim a refund.

Pertinent portion of the National Internal Revenue Code (NIRC), states:

SEC. 25. Tax on Nonresident Alien Individual. –

(A) Nonresident Alien Engaged in Trade or Business Within the Philippines. –

(1) In General. – A nonresident alien individual engaged in trade or business in the

Construction and Interpretation of tax laws, rules, and

DOCTRINE: Taxation; Tax Imposition; as a rule, a statute will not be construed as

I. Facts of the case

● Ateneo De Manila University is a non-stock, non-profit educational institution with

Whether Ateneo De Manila University is subject to contactor’s tax

III. Ratio/Legal Basis

Digest Maker: Lemuel Victor P. Bagay

Digest Maker: Lemuel Victor P. Bagay

Power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed

Facts of the case

II. Ratio/Legal Basis

III. Ratio/Legal Basis:

IV. Dispositive Portion:

Section 12 of the Host Agreement provides:

Interpretation of Rules, and Regulations

I. Facts of the case

Benguet Corporation is a domestic corporation engaged in the exploration, development and

III. Ratio/Legal Basis

➢ Under the aforesaid contract: